Exhibit 13

Financial Information

Selected Consolidated Financial Data

	Year Ended December 31,
	2012			2011			2010			2009			2008
	(Dollars in thousands, except per share amounts)
Income statement data:
Interest income	$	195,946		$	199,169		$	157,972		$	165,908		$	183,003
Interest expense		21,600			30,435			34,337			47,585			84,302
Net interest income		174,346			168,734			123,635			118,323			98,701
Provision for loan and lease losses		11,745			11,775			16,000			44,800			19,025
Non-interest income		62,860			117,083			70,322			51,051			19,349
Non-interest expense		114,462			122,531			87,419			68,632			54,398
Preferred stock dividends		—			—			—			6,276			227
Net income available to common stockholders		77,044			101,321			64,001			36,826			34,474
Common share and per common share data:(1)
Earnings - diluted	$	2.21		$	2.94		$	1.88		$	1.09		$	1.02
Book value		14.39			12.32			9.39			7.96			7.48
Dividends		0.50			0.37			0.30			0.26			0.25
Weighted-average diluted shares outstanding (thousands)		34,888			34,482			34,090			33,800			33,748
End of period shares outstanding (thousands)		35,272			34,464			34,107			33,810			33,728
Balance sheet data at period end:
Total assets	$	4,040,207		$	3,841,651		$	3,273,271		$	2,770,811		$	3,233,303
Loans and leases		2,115,834			1,880,483			1,851,113			1,904,104			2,021,199
Purchased non-covered loans		41,534			4,799			5,316			—			—
Loans covered by FDIC loss share agreements		596,239			806,922			489,468			—			—
Allowance for loan and lease losses		38,738			39,169			40,230			39,619			29,512
FDIC loss share receivable		152,198			279,045			158,137			—			—
Foreclosed assets covered by FDIC loss share agreements		52,951			72,907			31,145			—			—
Investment securities		494,266			438,910			398,698			506,678			944,783
Deposits		3,101,055			2,943,919			2,540,753			2,028,994			2,341,414
Repurchase agreements with customers		29,550			32,810			43,324			44,269			46,864
Other borrowings		280,763			301,847			282,139			342,553			424,947
Subordinated debentures		64,950			64,950			64,950			64,950			64,950
Preferred stock, net of unamortized discount		—			—			—			—			71,880
Total common stockholders’ equity		507,664			424,551			320,355			269,028			252,302
Loan and lease, including covered loans and purchased non-covered loans, to deposit ratio		88.80	%		91.45	%		92.33	%		93.84	%		86.32	%
Average balance sheet data:
Total average assets	$	3,779,831		$	3,755,291		$	2,998,850		$	3,002,121		$	3,017,707
Total average common stockholders’ equity		458,595			374,664			296,035			267,768			213,271
Average common equity to average assets		12.13	%		9.98	%		9.87	%		8.92	%		7.07	%
Performance ratios:
Return on average assets		2.04	%		2.70	%		2.13	%		1.23	%		1.14	%
Return on average common stockholders’ equity		16.80			27.04			21.62			13.75			16.16
Net interest margin - FTE		5.91			5.84			5.18			4.80			3.96
Efficiency ratio		46.58			41.56			42.86			37.84			42.32
Common stock dividend payout ratio		22.44			12.50			15.89			23.84			24.42
Asset quality ratios:
Net charge-offs to average loans and leases(2)		0.30	%		0.69	%		0.81	%		1.75	%		0.45	%
Nonperforming loans and leases to total loans and leases(3)		0.43			0.70			0.75			1.24			0.76
Nonperforming assets to total assets(3)		0.57			1.17			1.72			3.06			0.81
Allowance for loan and lease losses as a percentage of:
Total loans and leases(3)		1.83	%		2.08	%		2.17	%		2.08	%		1.46	%
Nonperforming loans and leases(3)		425	%		297	%		289	%		168	%		192	%
Capital ratios at period end:
Tier 1 leverage		14.40	%		12.06	%		11.88	%		11.39	%		11.64	%
Tier 1 risk-based capital		18.11			17.67			16.13			13.78			14.21
Total risk-based capital		19.36			18.93			17.39			15.03			15.36

(1) Adjusted to give effect to 2-for-1 stock split effective August 16, 2011.

(2) Excludes loans covered by FDIC loss share agreements and net charge-offs related to such loans.

(3) Excludes purchased non-covered loans and loans and/or foreclosed assets covered by FDIC loss share agreements, except for their inclusion in total assets.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

General

Net income available to common stockholders of Bank of the Ozarks, Inc. (the “Company”) was $77.0 million in 2012, a 24.0% decrease from $101.3 million in 2011. Net income available to common stockholders in 2010 was $64.0 million. Diluted earnings per common share were $2.21 in 2012, a 24.8% decrease from $2.94 in 2011. Diluted earnings per common share were $1.88 in 2010.

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 this management’s discussion and analysis of financial condition and results of operations has been adjusted to give effect to this stock split.

The table below shows total assets, investment securities, loans and leases, purchased loans not covered by Federal Deposit Insurance Corporation (“FDIC”) loss share agreements (“purchased non-covered loans”), loans covered by FDIC loss share agreements (“covered loans”), FDIC loss share receivable, deposits, common stockholders’ equity, net income available to common stockholders, diluted earnings per common share and book value per common share as of and for the years ended December 31, 2012, 2011 and 2010 and the percentage of change year over year.

							% Change
	December 31,						2012 from  2011			2011 from  2010
	2012		2011		2010
	(Dollars in thousands, except per share amounts)
Total assets	$	4,040,207	$	3,841,651	$	3,273,271		5.2	%		17.4	%
Investment securities		494,266		438,910		398,698		12.6			10.1
Loans and leases		2,115,834		1,880,483		1,851,113		12.5			1.6
Purchased non-covered loans		41,534		4,799		5,316		765.5			(9.7	)
Loans covered by FDIC loss share agreements		596,239		806,922		489,468		(26.1	)		64.9
FDIC loss share receivable		152,198		279,045		158,137		(45.5	)		76.5
Deposits		3,101,055		2,943,919		2,540,753		5.3			15.9
Common stockholders’ equity		507,664		424,551		320,355		19.6			32.5
Net income available to common stockholders		77,044		101,321		64,001		(24.0	)		58.3
Diluted earnings per common share		2.21		2.94		1.88		(24.8	)		56.4
Book value per common share		14.39		12.32		9.39		16.8			31.2

Two measures used to assess performance by banking institutions are return on average assets (“ROA”) and return on average common stockholders’ equity (“ROE”). ROA measures net income available to common stockholders in relation to average total assets. It is calculated by dividing annual net income available to common stockholders by average total assets and indicates a company’s ability to employ its resources profitably. For the year ended December 31, 2012, the Company’s ROA was 2.04% compared with 2.70% in 2011 and 2.13% in 2010. ROE measures net income available to common stockholders in relation to average common stockholders’ equity. It is calculated by dividing annual net income available to common stockholders by average common stockholders’ equity and indicates how effectively a company can generate net income on the capital invested by its common stockholders. For the year ended December 31, 2012, the Company’s ROE was 16.80% compared with 27.04% in 2011 and 21.62% in 2010.

Analysis of Results of Operations

The Company is a bank holding company whose primary business is commercial banking conducted through its wholly-owned state chartered bank subsidiary – Bank of the Ozarks (the “Bank”). The Company’s results of operations depend primarily on net interest income, which is the difference between the interest income from earning assets, such as loans, leases, purchased non-covered loans, covered loans and investments, and the interest expense incurred on interest bearing liabilities, such as deposits, borrowings and subordinated debentures. The Company also generates non-interest income, including service charges on deposit accounts, mortgage lending income, trust income, bank owned life insurance (“BOLI”) income, accretion of FDIC loss share receivable, net of amortization of FDIC clawback payable, other loss share income, gains and losses on investment securities and from sales of other assets, and gains on merger and acquisition transactions.

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The Company’s non-interest expense consists primarily of employee compensation and benefits, net occupancy and equipment expense and other operating expenses. The Company’s results of operations are significantly affected by its provision for loan and lease losses and its provision for income taxes. The following discussion provides a summary of the Company’s operations for the past three years and should be read in conjunction with the consolidated financial statements and related notes presented elsewhere in this report.

Net Interest Income

Net interest income and net interest margin are analyzed in this discussion on a fully taxable equivalent (“FTE”) basis. The adjustment to convert net interest income to a FTE basis consists of dividing tax-exempt income by one minus the statutory federal income tax rate of 35%. The FTE adjustments to net interest income were $8.5 million in 2012, $9.0 million in 2011 and $10.0 million in 2010. No adjustments have been made in this analysis for income exempt from state income taxes or for interest expense deductions disallowed under the provisions of the Internal Revenue Code as a result of investments in certain tax-exempt securities.

2012 compared to 2011

Net interest income for 2012 increased 2.9% to $182.9 million compared to $177.8 million for 2011. Net interest margin was 5.91% for 2012 compared to 5.84% for 2011. The increase in net interest income was a result of the improvement in net interest margin, which increased seven basis points (“bps”) for 2012 compared to 2011, and growth in average earning assets which increased 1.7% for 2012 compared to 2011.

The Company’s seven bps increase in net interest margin in 2012 compared to 2011 was primarily due to a reduction in the ratio of average interest bearing liabilities to average earning assets from 96.4% for 2011 to 89.4% for 2012 and a 26 bps decrease in rates paid on interest bearing liabilities, which were partially offset by a 23 bps decrease in yield on average earning assets.

The 23 bps decrease in yield on average earning assets for 2012 compared to 2011 was primarily due to a 32 bps decrease in yield on loans and leases and a 20 bps decrease in yield on tax-exempt investment securities, partially offset by a 16 bps increase in yield on covered loans and a 28 bps increase in yield on taxable investment securities. The decrease in yields on the Company’s loan and lease portfolio, the largest component of the Company’s average earning assets, was primarily attributable to the extremely low interest rate environment experienced in recent years resulting in new and renewed loans being priced or repriced at rates below the Company’s yield on its average loan and lease portfolio.

The decline in rates on average interest bearing liabilities was primarily due to the declines in rates on interest bearing deposits, the largest component of the Company’s interest bearing liabilities. Rates on interest bearing deposits decreased 32 bps for 2012 compared to 2011. This decrease in the rate on interest bearing liabilities was principally due to (i) a change in the mix of the Company’s interest bearing deposits due to growth in the volume of savings and interest bearing transaction accounts resulting in an increase in the average balance of these deposits to 66.5% of total average interest bearing deposits for 2012 compared to 60.2% for 2011 and (ii) effectively managing the repricing of both time deposits and savings and interest bearing transaction deposits which resulted in lower rates paid on deposits as they were renewed or otherwise repriced.

The Company’s other borrowing sources include (i) repurchase agreements with customers (“repos”), (ii) other borrowings comprised primarily of Federal Home Loan Bank of Dallas (“FHLB-Dallas”) advances, and, to a lesser extent, Federal Reserve Bank (“FRB”) borrowings and federal funds purchased, and (iii) subordinated debentures. The rates on repos decreased 31 bps for 2012 compared to 2011 primarily as a result of the Company’s efforts to effectively manage the rates on its interest bearing liabilities, including repos. The rates on the Company’s other borrowings, which consist primarily of fixed rate callable FHLB-Dallas advances, increased two bps for 2012 compared to 2011. The rates paid on the Company’s subordinated debentures, which are tied to a spread over the 90-day London Interbank Offered Rate (“LIBOR”) and reset periodically, increased 17 bps for 2012 compared to 2011 as a result of an increase in the 90-day LIBOR on the applicable reset dates during 2012.

The increase in average earning assets of $52 million, or 1.7%, for 2012 compared to 2011 was primarily due to an increase in the average balance of loans and leases of $135 million, although the year-end balance increased $235 million, or 12.5%, from $1.88 billion at December 31, 2011 to $2.12 billion at December 31, 2012. This increase in average earnings assets was partially offset by a decrease in the average balance of covered loans of $63 million for 2012 compared to 2011, although the year-end balance decreased $211

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million, or 26.1%, from $807 million at December 31, 2011 to $596 million at December 31, 2012. The Company’s average earning assets were also affected by a decline in the average balance of its investment securities portfolio which decreased $20 million for 2012 compared to 2011, although the year-end balance increased $55 million, or 12.6%, from $439 million at December 31, 2011 to $494 million at December 31, 2012.

2011 compared to 2010

Net interest income for 2011 increased 33.0% to $177.8 million compared to $133.6 million for 2010. Net interest margin was 5.84% for 2011 compared to 5.18% for 2010. The growth in net interest income was a result of the improvement in net interest margin, which increased 66 bps for 2011 compared to 2010, and growth in average earning assets which increased 18.0% for 2011 compared to 2010.

The Company’s improvement in net interest margin for 2011 compared to 2010 resulted from a combination of factors including, among others, an increase in both the volume and yield of the Company’s covered loan portfolio and reductions in rates paid on all categories of interest bearing liabilities, partially offset by decreases in yield on the Company’s loan and lease portfolio not covered by FDIC loss share agreements and the taxable portion of its investment securities portfolio. Even though the yield on the Company’s non-covered loan and lease portfolio decreased for 2011 compared to 2010, the Company’s spread between yields on such non-covered loans and leases and rates paid on deposits increased by 25 bps for 2011 compared to 2010.

Yields on earning assets increased 33 bps for 2011 compared to 2010. This increase was primarily the result of an increase in the yield on covered loans of 77 bps for 2011 compared to 2010, partially offset by a decrease in yields on non-covered loans and leases of six bps for 2011 compared to 2010 and a decrease in the yield on the Company’s taxable investment securities portfolio of 176 bps for 2011 compared to 2010.

Rates on interest bearing liabilities decreased 38 bps for 2011 compared to 2010. This decrease was primarily due to the declines in rates on interest bearing deposits, the largest component of the Company’s interest bearing liabilities, which decreased 31 bps for 2011 compared to 2010. This decrease in the rate on interest bearing deposits was principally due to (i) a change in mix of the Company’s interest bearing deposits as a result of growth in the volume of savings and interest bearing transaction accounts resulting in an increase in these deposits, which generally pay lower rates than time deposits, to 60.2% of total interest bearing deposits for 2011 compared to 56.3% for 2010 and (ii) effectively managing the repricing of both time deposits and savings and interest bearing transaction deposits which resulted in lower rates paid on deposits as they were renewed or otherwise repriced.

The Company’s other borrowing sources include (i) repos, (ii) other borrowings and (iii) subordinated debentures. The rates on repos decreased 32 bps for 2011 compared to 2010 primarily as a result of the Company’s efforts to effectively manage the rates on its interest bearing liabilities, including repos. The rates on the Company’s other borrowings, which consist primarily of fixed rate callable FHLB-Dallas advances, decreased 16 bps for 2011 compared to 2010. This decrease in rates for other borrowings was due primarily to the repayment of $60.0 million of fixed rate, callable FHLB-Dallas advances with a weighted-average interest rate of 6.25% that were repaid on their maturity dates in May 2010. The rates paid on the Company’s subordinated debentures, which are tied to a spread over the 90-day LIBOR and reset periodically, decreased four bps for 2011 compared to 2010.

The increase in average earning assets was due primarily to increases in the Company’s average balance of covered loans from $218 million for 2010 to $767 million for 2011. The Company made seven FDIC-assisted acquisitions during 2010 and 2011, resulting in significant increases in its covered loan portfolio. This increase was partially offset by a decrease in the Company’s average balance of non-covered loans and leases of $60 million for 2011 compared to 2010. This decrease was due primarily to paydowns and payoffs of existing loans and leases exceeding originations of non-covered loans and leases in the first half of 2011, although originations of non-covered loans and leases during the second half of 2011 exceeded paydowns and payoffs of existing loans and leases. As a result, the Company’s non-covered loans and leases at December 31, 2011 increased 1.6% compared to December 31, 2010. The Company’s average earning assets were also affected by changes in its average investment securities portfolio, which decreased $25 million for 2011 compared to 2010, although the Company’s aggregate investment securities portfolio increased 10.1% from December 31, 2010 to December 31, 2011. In recent years, the Company has generally been a net seller of investment securities as a result of ongoing evaluations of interest rate risk and to free up capital for FDIC-assisted acquisitions.

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The following table sets forth certain information relating to the Company’s net interest income for the years ended December 31, 2012, 2011 and 2010. The yields and rates are derived by dividing interest income or interest expense by the average balance of the related assets or liabilities, respectively, for the periods shown except where otherwise noted. Average balances are derived from daily average balances for such assets and liabilities. The average balance of loans and leases includes loans and leases on which the Company has discontinued accruing interest. The average balances of investment securities are computed based on amortized cost adjusted for unrealized gains and losses on investment securities available for sale (“AFS”) and other-than-temporary impairment writedowns. The yields on loans and leases include late fees and amortization of certain deferred fees and origination costs, which are considered adjustments to yields. The yields on investment securities include amortization of premiums and accretion of discounts. The yields on covered loans consist of accretion of the net present value of expected future cash flows using the effective yield method over the term of the loans and include late fees. Interest expense and rates on other borrowings are presented net of interest capitalized on construction projects.

Average Consolidated Balance Sheets and Net Interest Analysis

	Year Ended December 31,
	2012							2011							2010
	Average Balance		Income/ Expense		Yield/ Rate			Average Balance		Income/ Expense		Yield/ Rate			Average Balance		Income/ Expense		Yield/ Rate
	(Dollars in thousands)
ASSETS
Earning assets:
Interest earning deposits and federal funds sold	$	1,078	$	8		0.74	%	$	1,609	$	36		2.24	%	$	1,230	$	18		1.50	%
Investment securities:
Taxable		88,182		2,950		3.35			98,270		3,013		3.07			85,554		4,130		4.83
Tax-exempt - FTE		335,784		24,318		7.24			345,454		25,695		7.44			383,433		28,512		7.44
Loans and leases - FTE		1,965,612		115,386		5.87			1,830,779		113,308		6.19			1,890,357		118,162		6.25
Covered loans		704,283		61,820		8.78			767,079		66,135		8.62			218,274		17,141		7.85
Total earning assets - FTE		3,094,939		204,482		6.61			3,043,191		208,187		6.84			2,578,848		167,963		6.51
Non-interest earning assets		684,892							712,100							420,002
Total assets	$	3,779,831						$	3,755,291						$	2,998,850
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest bearing liabilities:
Deposits:
Savings and interest bearing transaction	$	1,579,909	$	4,579		0.29	%	$	1,524,082	$	8,297		0.54	%	$	1,121,528	$	8,735		0.78	%
Time deposits of $100,000 or more		351,002		1,867		0.53			438,030		4,032		0.92			476,748		5,829		1.22
Other time deposits		444,451		2,536		0.57			569,428		5,357		0.94			392,671		5,483		1.40
Total interest bearing deposits		2,375,362		8,982		0.38			2,531,540		17,686		0.70			1,990,947		20,047		1.01
Repurchase agreements with customers		34,776		47		0.13			39,638		174		0.44			49,835		380		0.76
Other borrowings		291,678		10,723		3.68	(1)		296,195		10,835		3.66	(1)		317,796		12,146		3.82	(1)
Subordinated debentures		64,950		1,848		2.85			64,950		1,740		2.68			64,950		1,764		2.72
Total interest bearing liabilities		2,766,766		21,600		0.78			2,932,323		30,435		1.04			2,423,528		34,337		1.42
Non-interest bearing liabilities:
Non-interest bearing deposits		492,299							392,780							256,910
Other non-interest bearing liabilities		58,746							52,102							18,940
Total liabilities		3,317,811							3,377,205							2,699,378
Common stockholders’ equity		458,595							374,664							296,035
Noncontrolling interest		3,425							3,422							3,437
Total liabilities and stockholders’ equity	$	3,779,831						$	3,755,291						$	2,998,850
Net interest income - FTE			$	182,882						$	177,752						$	133,626
Net interest margin - FTE						5.91	%						5.84	%						5.18	%

(1) The interest expense and rates for other borrowings were impacted by interest capitalized on construction projects in the amount of $0.1 million during each of the years of 2012, 2011 and 2010. In the absence of this capitalization, these rates would have been 3.70%, 3.68% and 3.87% for 2012, 2011 and 2010, respectively.

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The following table reflects how changes in the volume of interest earning assets and interest bearing liabilities and changes in interest rates have affected the Company’s interest income - FTE, interest expense and net interest income - FTE for the periods indicated. Information is provided in each category with respect to changes attributable to (1) changes in volume (changes in volume multiplied by prior yield/rate); (2) changes in yield/rate (changes in yield/rate multiplied by prior volume); and (3) changes in both yield/rate and volume (changes in yield/rate multiplied by changes in volume). The changes attributable to the combined impact of volume and yield/rate have all been allocated to the changes due to volume.

Analysis of Changes in Net Interest Income - FTE

	2012 over 2011									2011 over 2010
	Volume			Yield/ Rate			Net Change			Volume			Yield/ Rate			Net Change
	(Dollars in thousands)
Increase (decrease) in:
Interest income - FTE:
Interest earning deposits and federal funds sold	$	(4	)	$	(24	)	$	(28	)	$	9		$	9		$	18
Investment securities:
Taxable		(337	)		274			(63	)		390			(1,507	)		(1,117	)
Tax-exempt - FTE		(701	)		(676	)		(1,377	)		(2,825	)		8			(2,817	)
Loans and leases - FTE		7,915			(5,837	)		2,078			(3,687	)		(1,167	)		(4,854	)
Covered loans		(5,512	)		1,197			(4,315	)		47,316			1,678			48,994
Total interest income - FTE		1,361			(5,066	)		(3,705	)		41,203			(979	)		40,224
Interest expense:
Savings and interest bearing transaction		162			(3,880	)		(3,718	)		2,192			(2,630	)		(438	)
Time deposits of $100,000 or more		(463	)		(1,702	)		(2,165	)		(356	)		(1,441	)		(1,797	)
Other time deposits		(713	)		(2,108	)		(2,821	)		1,663			(1,789	)		(126	)
Repurchase agreements with customers		(7	)		(120	)		(127	)		(45	)		(161	)		(206	)
Other borrowings		(166	)		54			(112	)		(790	)		(521	)		(1,311	)
Subordinated debentures		—			108			108			—			(24	)		(24	)
Total interest expense		(1,187	)		(7,648	)		(8,835	)		2,664			(6,566	)		(3,902	)
Increase in net interest income - FTE	$	2,548		$	2,582		$	5,130		$	38,539		$	5,587		$	44,126

Non-Interest Income

The Company’s non-interest income consists primarily of service charges on deposit accounts, mortgage lending income, trust income, BOLI income, accretion of FDIC loss share receivable, net of amortization of FDIC clawback payable, other loss share income, net gains on investment securities, gains on sales of other assets and gains on merger and acquisition transactions.

2012 compared to 2011

Non-interest income for 2012 decreased 46.3% to $62.9 million compared to $117.1 million for 2011. Non-interest income for 2012 included $2.4 million of bargain purchase gain on the Company’s acquisition of Genala Banc, Inc. (“Genala”). Non-interest income for 2011 included $65.7 million of bargain purchase gains recorded on three FDIC-assisted acquisitions.

Service charges on deposit accounts increased 7.2% to $19.4 million in 2012 compared to $18.1 million in 2011. This increase was due to a number of factors including growth in the number of transaction accounts, the addition of deposit customers from the Company’s FDIC-assisted acquisitions and increased customer utilization of fee-based services. The Company’s non-CD account deposits increased from 68.8% of total deposits at December 31, 2011 to 74.8% of total deposits at December 31, 2012.

Mortgage lending income increased 70.4% to $5.6 million in 2012 compared to $3.3 million in 2011. This increase was due primarily to increased volume and was primarily attributable to historically low mortgage rates and the expansion of mortgage services into certain of the Company’s newer offices and markets. Originations of mortgage loans for sale, including both originations for home purchases and refinancings of existing mortgages, increased 64.1% to $253.0 million in 2012 compared to $154.2 million in 2011. Mortgage originations for home purchases were 37% of 2012 origination volume compared to 44% in 2011. Refinancing of existing mortgages accounted for 63% of 2012 origination volume compared to 56% in 2011.

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Trust income increased 7.8% to $3.5 million in 2012 compared to $3.2 million in 2011. This increase was primarily due to increases in employee benefit and personal trust business.

BOLI income increased 19.9% to $2.8 million in 2012 compared to $2.3 million in 2011 primarily due to $59 million of additional BOLI purchased during October and November of 2012.

Net gains on investment securities were $0.5 million in 2012, which included gains of $3.1 million from the sale of approximately $40 million of investment securities and an impairment charge of $2.6 million, compared to net gains of $0.9 million from the sale of approximately $94 million of its investment securities in 2011.

The Company owns three different maturities of bonds totaling an aggregate of $2.6 million issued by the Northwest Arkansas Regional Solid Waste Management District (“District”). The District owns and operates a landfill for the benefit of the residents of certain counties located in north Arkansas, with the landfill, the revenues therefrom and certain personal property serving as collateral under the bond indenture. On October 9, 2012, a special election was held where an additional 3/8-cent sales tax proposal to be used to support the purchase of the landfill by a third party from the District was defeated. On October 23, 2012, the management board governing the District voted to place the District into receivership, and on November 30, 2012 the landfill ceased operations. As a result, during the fourth quarter of 2012, the Company recorded a $2.6 million impairment charge to reduce the carrying value of the bonds to zero. This impairment charge is included in “Net gains on investment securities,” in the accompanying consolidated statements of income.

Gains on sales of other assets were $6.8 million in 2012 compared to $3.7 million in 2011. The gains on sales of other assets for both 2012 and 2011 were primarily due to gains on sales of foreclosed assets covered by FDIC loss share agreements, or covered foreclosed assets. Because the estimated fair value of acquired covered foreclosed assets includes a net present value component, which is not accreted into income over the expected holding period of the covered foreclosed assets, the sale of covered foreclosed assets has typically resulted in gains on such sales.

The Company recognized $7.4 million of income from the accretion of the FDIC loss share receivable, net of amortization of the FDIC clawback payable, during 2012 compared to $10.1 million during 2011. The FDIC loss share receivable reflects the indemnification provided by the FDIC in FDIC-assisted acquisitions. The FDIC clawback payable represents the obligation of the Company to reimburse the FDIC should actual losses be less than certain thresholds established in each loss share agreement. The FDIC loss share receivable and the FDIC clawback payable are both carried at net present value.

As the Company collects payments in future periods from the FDIC under the loss share agreements, the balance of the FDIC loss share receivable, absent any significant revisions of the amounts expected to be collected under the loss share agreements, will decline, resulting in a corresponding decrease in the accretion of the FDIC loss share receivable. Because any amounts due under the FDIC clawback payable are due at the conclusion of the loss share agreements, absent any significant revision of the amounts expected to be paid to the FDIC under the clawback provisions of the loss share agreements, the amortization of this liability is not expected to change significantly over the next several years.

Other loss share income, net, was $10.6 million in 2012 compared to $6.4 million in 2011. Other loss share income, net, consists primarily of income recognized on covered loan prepayments and payoffs that are not considered yield adjustments, net of any adjustment to the related FDIC loss share receivable.

On December 31, 2012, the Company completed its acquisition of Genala whereby Genala merged with and into the Company in a transaction valued at approximately $27.5 million. The Company paid $13.4 million of cash and issued 423,616 shares of its common stock valued at approximately $14.1 million in exchange for all outstanding shares of Genala common stock. Genala was the holding company for The Citizens Bank, which operated one banking office in Geneva, Alabama. This acquisition resulted in the Company recognizing a bargain purchase gain of $2.4 million during the fourth quarter of 2012.

Management has up to 12 months following the date of the acquisition to finalize the fair values of acquired assets and assumed liabilities. Once management has finalized the fair values of acquired assets and assumed liabilities within this 12-month period, management considers such values to be the day 1 fair values (“Day 1 Fair Values”). An analysis of the assets acquired and liabilities assumed and a detailed discussion of the Day 1 Fair Values adjustments, as well as the key factors and methodologies utilized to determine the estimated Day 1 Fair Values of assets acquired and liabilities assumed and the resulting bargain purchase gain for the Genala acquisition completed in 2012 and for each of the Company’s three FDIC–assisted acquisitions completed in 2011 is included in footnote 2 to the Notes to the Consolidated Financial Statements.

15

2011 compared to 2010

Non-interest income for 2011 increased 66.5% to $117.1 million compared to $70.3 million for 2010. The increase in non-interest income for 2011 compared to 2010 is due primarily to $65.7 million of bargain purchase gains recorded on three FDIC-assisted acquisitions during 2011 compared to $35.0 million of bargain purchase gains recorded on four FDIC-assisted acquisitions during 2010.

Service charges on deposit accounts increased 19.4% to $18.1 million in 2011 compared to $15.2 million in 2010. This increase was due to a number of factors including growth in the number of transaction accounts, including the addition of deposit customers from the Company’s seven FDIC-assisted acquisitions during 2011 and 2010, increased customer utilization of fee-based services and increases in certain fees. The Company’s non-CD account deposits increased from 62.9% of total deposits at December 31, 2010 to 68.8% of total deposits at December 31, 2011.

Mortgage lending income decreased 15.2% to $3.3 million in 2011 compared to $3.9 million in 2010. This decrease was due primarily to decreased volume. Originations of mortgage loans for sale, including both originations for home purchases and refinancings of existing mortgages, decreased 18.0% to $154.2 million in 2011 compared to $188.1 million in 2010. Mortgage originations for home purchases were 44% of 2011 origination volume compared to 38% in 2010. Refinancing of existing mortgages accounted for 56% of 2011 origination volume compared to 62% in 2010.

Trust income decreased 5.9% to $3.2 million in 2011 compared to $3.4 million in 2010. This decrease was primarily due to a decline in corporate trust income earned for services provided in connection with new municipal bond issues, partially offset by increases in employee benefit and personal trust business.

BOLI income increased 7.3% to $2.3 million in 2011 compared to $2.2 million in 2010 primarily due to $10.2 million of additional BOLI purchased during May 2010.

Net gains on investment securities were $0.9 million in 2011 compared to $4.5 million in 2010. The Company sold approximately $94 million of its investment securities in 2011 and approximately $251 million of its investment securities in 2010.

Net gains on sales of other assets were $3.7 million in 2011 compared to $0.8 million in 2010. The increases in net gains on sales of other assets was primarily due to net gains on sales of foreclosed assets covered by FDIC loss share agreements, or covered foreclosed assets.

The Company recognized $10.1 million of income from the accretion of the FDIC loss share receivable, net of amortization of the FDIC clawback payable, during 2011 compared to $2.4 million during 2010. The accretion of the FDIC loss share receivable, net of amortization of the FDIC clawback payable, increased in 2011 compared to 2010 primarily due to the Company having entered into seven FDIC-assisted acquisitions as of December 31, 2011 compared to four FDIC-assisted acquisitions as of December 31, 2010, resulting in the significant increase in the FDIC loss share receivable.

Other loss share income, net, was $6.4 million in 2011 compared to $0.6 million in 2010.

During 2011, the Company made three FDIC-assisted acquisitions which resulted in bargain purchase gains totaling $65.7 million. Specifically, on January 14, 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 Oglethorpe Bank (“Oglethorpe”). This FDIC-assisted acquisition resulted in the Company recognizing a pre-tax bargain purchase gain of $3.0 million in the first quarter of 2011. 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”). This FDIC-assisted acquisition resulted in the Company recognizing a pre-tax bargain purchase gain of $2.9 million in the second quarter of 2011. 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”). This FDIC-assisted acquisition resulted in the Company recognizing a pre-tax bargain purchase gain of $59.8 million in the second quarter of 2011.

16

The following table presents non-interest income for the years ended December 31, 2012, 2011 and 2010.

Non-Interest Income

	Year Ended December 31,
	2012		2011		2010
	(Dollars in thousands)
Service charges on deposit accounts	$	19,400	$	18,094	$	15,156
Mortgage lending income		5,584		3,277		3,863
Trust income		3,455		3,206		3,406
Bank owned life insurance income		2,767		2,307		2,151
Accretion of FDIC loss share receivable, net of amortization of FDIC clawback payable		7,375		10,141		2,429
Other loss share income, net		10,645		6,432		599
Net gains on investment securities		457		933		4,544
Gains on sales of other assets		6,809		3,738		802
Gains on merger and acquisition transactions		2,403		65,708		35,019
Other		3,965		3,247		2,353
Total non-interest income	$	62,860	$	117,083	$	70,322

Non-Interest Expense

Non-interest expense consists of salaries and employee benefits, net occupancy and equipment expense and other operating expenses.

2012 compared to 2011

Non-interest expense for 2012 decreased 6.6% to $114.5 million compared to $122.5 million for 2011. The Company’s efficiency ratio (non-interest expense divided by the sum of net interest income FTE and non-interest income) for 2012 was 46.6% compared to 41.6% for 2011.

Salaries and employee benefits, the Company’s largest component of non-interest expense, increased 4.9% to $59.0 million in 2012 from $56.3 million in 2011. The Company had 1,120 full-time equivalent employees at December 31, 2012, an increase of 3.3% from 1,084 full-time equivalent employees at December 31, 2011.

Net occupancy and equipment expense for 2012 increased 7.4% to $15.8 million in 2012 compared to $14.7 million in 2011. At December 31, 2012, the Company had 117 offices, including 66 in Arkansas, 28 in Georgia, 13 in Texas, four in Florida, three in Alabama, two in North Carolina, and one in South Carolina. At December 31, 2011, the Company had 111 offices, including 66 in Arkansas, 27 in Georgia, ten in Texas, four in Florida, two in North Carolina, and one each in South Carolina and Alabama.

Other operating expenses for 2012 decreased 23.1% to $39.6 million in 2012 compared to $51.6 million in 2011, primarily as a result of the items described in the following paragraph.

The decrease in non-interest expense in 2012 was primarily attributable to (i) $0.6 million of expenses related to acquisition and conversion costs incurred in 2012 for the Genala acquisition compared to $6.3 million of acquisition and conversion costs incurred in 2011 related to the Company’s FDIC-assisted acquisitions, (ii) $1.7 million of writedowns of foreclosed assets not covered by FDIC loss share agreements in 2012 compared to $9.5 million in 2011, (iii) $6.1 million of loan collection and repossession expenses in 2012 compared to $7.9 million in 2011, (iv) $2.7 million of expenses for travel and meals in 2012 compared to $3.5 million in 2011, and (v) a $1.25 million impairment charge on the Company’s only equity investment in a real estate development project during the second quarter of 2011. There was no impairment charge related to this investment in 2012.

2011 compared to 2010

Non-interest expense for 2011 increased 40.2% to $122.5 million compared to $87.4 million for 2010. The Company’s efficiency ratio for 2011 was 41.6% compared to 42.9% for 2010.

Salaries and employee benefits increased 40.1% to $56.3 million in 2011 from $40.2 million in 2010. The Company had 1,084 full-time equivalent employees at December 31, 2011, an increase of 23.0% from 881 full-time equivalent employees at December 31, 2010. This increase in full-time equivalent employees was due primarily to the Company’s three FDIC-assisted acquisitions during 2011.

17

Net occupancy and equipment expense increased 38.5% to $14.7 million in 2011 compared to $10.6 million in 2010. At December 31, 2011, the Company had 111 offices, including 66 in Arkansas, 27 in Georgia, ten in Texas, four in Florida, two in North Carolina, and one each in South Carolina and Alabama. At December 31, 2010, the Company had 90 offices, including 66 in Arkansas, ten in Georgia, seven in Texas, three in Florida, two in North Carolina, and one each in South Carolina and Alabama.

Other operating expenses for 2011 increased 40.7% to $51.6 million compared to $36.6 million in 2010, primarily as a result of the items described in the following paragraph.

The increase in non-interest expense in 2011 was primarily attributable to (i) $6.3 million of acquisition and conversion costs related to the Company’s FDIC-assisted acquisitions compared to $3.8 million of such costs in 2010, (ii) $7.9 million of loan collection and repossession expenses in 2011 compared to $4.0 million in 2010, (iii) $3.5 million of expenses for travel and meals in 2011 compared to $1.7 million in 2010, (iv) increased operating expenses associated with having more offices in 2011 compared to 2010 and (v) a $1.25 million impairment charge on the Company’s equity investment in a real estate development project during the second quarter of 2011. There was no impairment charge related to this investment in 2010.

The following table presents non-interest expense for the years ended December 31, 2012, 2011 and 2010.

Non-Interest Expense

	Year Ended December 31,
	2012		2011		2010
	(Dollars in thousands)
Salaries and employee benefits	$	59,028	$	56,262	$	40,161
Net occupancy and equipment expense		15,793		14,705		10,618
Other operating expenses:
Postage and supplies		3,195		3,091		1,981
Telephone and data lines		3,374		3,049		2,110
Advertising and public relations		4,089		3,571		2,076
Professional and outside services		4,401		4,822		3,024
Software expense		3,265		3,082		2,657
Travel and meals		2,705		3,488		1,726
FDIC and state assessments		703		719		678
FDIC insurance		1,505		2,155		3,238
ATM expense		871		1,022		881
Loan collection and repossession expense		6,135		7,873		4,001
Writedowns of foreclosed assets not covered by FDIC loss share agreements		1,713		9,525		8,960
Amortization of intangibles		2,037		1,677		431
Other		5,648		7,490		4,877
Total non-interest expense	$	114,462	$	122,531	$	87,419

Income Taxes

The Company’s provision for income taxes was $33.9 million in 2012 compared to $50.2 million in 2011 and $26.6 million in 2010. Its effective income tax rates were 30.57%, 33.14% and 29.40%, respectively, for 2012, 2011 and 2010. The decrease in the Company’s effective tax rate of 256 bps in 2012 compared to 2011 was due primarily to the decrease in taxable income, both in volume and as a percentage of total income, resulting in a higher percentage of the Company’s total income comprised of tax-exempt income. The increase in the Company’s effective tax rate of 374 bps for 2011 compared to 2010 was due primarily to the increase in taxable income and the decrease, both in volume and as a percentage of total income, of tax-exempt income. The effective tax rates for all periods were also affected by various other factors including other non-taxable income and non-deductible expenses.

18

Analysis of Financial Condition

Loan and Lease Portfolio

At December 31, 2012, the Company’s loan and lease portfolio, excluding purchased non-covered loans and covered loans, was $2.12 billion, an increase of 12.5% from $1.88 billion at December 31, 2011.

As of December 31, 2012, the Company’s loan and lease portfolio, excluding purchased non-covered loans and covered loans, consisted of 87.5% real estate loans, 7.6% commercial and industrial loans, 1.4% consumer loans, 3.2% direct financing leases and 0.3% other loans. Real estate loans, the Company’s largest category of loans, include all loans made to finance the development of real property construction projects, provided such loans are secured by real estate, and all other loans secured by real estate as evidenced by mortgages or other liens.

The amount and type of loans and leases outstanding, excluding purchased non-covered loans and covered loans, are reflected in the following table.

Loan and Lease Portfolio

	December 31,
	2012		2011		2010		2009		2008
	(Dollars in thousands)
Real estate:
Residential 1-4 family	$	272,052	$	260,402	$	266,014	$	282,733	$	275,281
Non-farm/non-residential		807,906		708,766		678,465		606,880		551,821
Construction/land development		578,776		478,106		496,737		600,342		694,527
Agricultural		50,619		71,158		81,736		86,237		84,432
Multifamily residential		141,243		142,131		103,875		55,860		61,668
Total real estate		1,850,596		1,660,563		1,626,827		1,632,052		1,667,729
Commercial and industrial		159,804		120,048		120,038		150,208		206,058
Consumer		29,781		36,161		49,085		63,561		75,015
Direct financing leases		68,022		54,745		42,754		40,353		50,250
Other		7,631		8,966		12,409		17,930		22,147
Total loans and leases	$	2,115,834	$	1,880,483	$	1,851,113	$	1,904,104	$	2,021,199

The amount and percentage of the Company’s loan and lease portfolio, excluding purchased non-covered loans and covered loans, by state of originating office are reflected in the following table.

Loan and Lease Portfolio by State of Originating Office

	December 31,
	2012					2011					2010
Loans and Leases Attributable to Offices In	Amount		%			Amount		%			Amount		%
	(Dollars in thousands)
Arkansas	$	1,048,102		49.5	%	$	1,018,885		54.2	%	$	1,065,030		57.5	%
Texas		935,593		44.2			788,570		41.9			685,317		37.0
North Carolina		87,859		4.2			65,733		3.5			100,766		5.5
Georgia		40,391		1.9			6,680		0.4			—		—
Alabama		3,337		0.2			371		—			—		—
Florida		461		—			244		—			—		—
South Carolina		91		—			—		—			—		—
Total	$	2,115,834		100.0	%	$	1,880,483		100.0	%	$	1,851,113		100.0	%

19

The amount and type of the Company’s real estate loans, excluding purchased non-covered loans and covered loans, at December 31, 2012 based on the metropolitan statistical area (“MSA”) and other geographic areas in which the principal collateral is located are reflected in the following table. Data for individual states or MSAs is separately presented when aggregate real estate loans, excluding purchased non-covered loans and covered loans, in that state or MSA exceed $10 million.

Geographic Distribution of Real Estate Loans

	Residential 1-4 Family		Non-Farm/ Non- Residential		Construction/ Land Development		Agricultural		Multifamily Residential		Total
	(Dollars in thousands)
Arkansas:
Little Rock - North Little Rock - Conway, AR MSA	$	106,037	$	206,247	$	111,739	$	9,067	$	10,058	$	443,148
Fort Smith, AR - OK MSA		29,377		37,325		5,524		3,162		3,517		78,905
Fayetteville - Springdale - Rogers, AR - MO MSA		11,654		17,675		16,421		5,144		3,096		53,990
Hot Springs, AR MSA		5,447		10,895		7,960		—		955		25,257
Western Arkansas(1)		24,315		30,703		3,532		7,425		1,292		67,267
Northern Arkansas(2)		50,628		17,800		8,480		20,920		559		98,387
All other Arkansas(3)		7,948		11,798		2,684		2,762		162		25,354
Total Arkansas		235,406		332,443		156,340		48,480		19,639		792,308
Texas:
Dallas - Fort Worth - Arlington, TX MSA		16,878		151,001		153,463		—		37,254		358,596
Houston - Sugar Land - Baytown, TX MSA		—		42,827		41,652		—		—		84,479
San Antonio - New Braunfels, TX MSA		307		3,273		17,450		—		15,657		36,687
Texarkana, TX - Texarkana, AR MSA		9,254		6,804		6,201		616		1,441		24,316
Beaumont - Port Arthur, TX MSA		146		—		—		—		16,577		16,723
College Station - Bryan, TX MSA		—		—		—		—		18,330		18,330
All other Texas(3)		1,693		18,050		34,747		—		3,770		58,260
Total Texas		28,278		221,955		253,513		616		93,029		597,391
North Carolina/South Carolina:
Charlotte - Gastonia - Concord, NC - SC MSA		1,010		38,087		14,655		484		4,856		59,092
All other North Carolina(3)		549		26,458		34,834		—		—		61,841
All other South Carolina(3)		997		10,371		5,494		—		6,180		23,042
Total North Carolina/South Carolina		2,556		74,916		54,983		484		11,036		143,975
Georgia:
Atlanta - Sandy Springs - Marietta, GA MSA		1,147		19,715		3,865		—		5,516		30,243
All other Georgia(3)		1,343		10,161		898		632		148		13,182
Total Georgia		2,490		29,876		4,763		632		5,664		43,425
Virginia:
Washington - Arlington - Alexandria, DC - VA - MD - WV MSA		—		2,268		25,419		—		—		27,687
All other Virginia(3)		57		1,915		8,639		—		—		10,611
Total Virginia		57		4,183		34,058		—		—		38,298
California		232		8,190		40,357		—		—		48,779
Mississippi		—		14,339		157		—		7,935		22,431
Boston - Cambridge - Quincy, MA - MSA		—		21,898		—		—		—		21,898
Tennessee		541		16,236		1,329		—		—		18,106
Hartford - West Hartford - East Hartford, CT MSA		—		14,693		—		—		—		14,693
Florida		432		7,490		3,448		—		—		11,370
Baltimore - Townson, MD MSA		—		9,598		1,853		—		—		11,451
Missouri		613		2,992		6,502		407		—		10,514
Oklahoma(4)		808		2,840		6,696		—		—		10,344
All other states(3)(5)		639		46,257		14,777		—		3,940		65,613
Total real estate loans	$	272,052	$	807,906	$	578,776	$	50,619	$	141,243	$	1,850,596

(1) This geographic area includes the following counties in Western Arkansas: Johnson, Logan, Pope and Yell.

(2) This geographic area includes the following counties in Northern Arkansas: Baxter, Boone, Marion, Newton, Searcy and Van Buren.

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

(4) This geographic area includes all real estate loans in Oklahoma except loans in Le Flore and Sequoyah counties which are included in the Fort Smith, AR - OK MSA above.

(5) Includes all states not separately presented above.

20

Excluding purchased non-covered loans and covered loans, the amount and type of non-farm/non-residential loans, at December 31, 2012 and 2011, and their respective percentage of the total non-farm/ non-residential loan portfolio are reflected in the following table.

Non-Farm/Non-Residential Loans

	December 31,
	2012					2011
	Amount		%			Amount		%
	(Dollars in thousands)
Retail, including shopping centers and strip centers	$	323,017		40.0	%	$	274,777		38.8	%
Churches and schools		42,270		5.2			40,929		5.8
Office, including medical offices		123,534		15.3			101,724		14.3
Office warehouse, warehouse and mini-storage		38,355		4.7			60,173		8.5
Gasoline stations and convenience stores		8,752		1.1			9,627		1.4
Hotels and motels		92,298		11.4			67,598		9.5
Restaurants and bars		33,421		4.1			33,452		4.7
Manufacturing and industrial facilities		32,950		4.1			9,362		1.3
Nursing homes and assisted living centers		29,501		3.7			28,733		4.0
Hospitals, surgery centers and other medical		49,797		6.2			48,129		6.8
Golf courses, entertainment and recreational facilities		10,022		1.2			12,542		1.8
Other non-farm/non-residential		23,989		3.0			21,720		3.1
Total	$	807,906		100.0	%	$	708,766		100.0	%

Excluding purchased non-covered loans and covered loans, the amount and type of construction/land development loans at December 31, 2012 and 2011, and their respective percentage of the total construction/land development loan portfolio are reflected in the following table.

Construction/Land Development Loans

	December 31,
	2012					2011
	Amount		%			Amount		%
	(Dollars in thousands)
Unimproved land	$	89,379		15.5	%	$	92,288		19.3	%
Land development and lots:
1-4 family residential and multifamily		175,929		30.4			144,550		30.2
Non-residential		70,861		12.2			90,797		19.0
Construction:
1-4 family residential:
Owner occupied		13,785		2.4			10,751		2.2
Non-owner occupied:
Pre-sold		6,218		1.1			3,777		0.8
Speculative		32,554		5.6			34,523		7.2
Multifamily		89,770		15.5			15,605		3.3
Industrial, commercial and other		100,280		17.3			85,815		18.0
Total	$	578,776		100.0	%	$	478,106		100.0	%

21

Many of the Company’s construction and development loans provide for the use of interest reserves. When the Company underwrites construction and development loans, it considers the expected total project costs, including hard costs such as land, site work and construction costs and soft costs such as architectural and engineering fees, closing costs, leasing commissions and construction period interest. Based on the total project costs and other factors, the Company determines the required borrower cash equity contribution and the maximum amount the Company is willing to loan. In the vast majority of cases, the Company requires that all of the borrower’s cash equity contribution be contributed prior to any significant loan advances. This ensures that the borrower’s cash equity required to complete the project will be available for such purposes. As a result of this practice, the borrower’s cash equity typically goes toward the purchase of the land and early stage hard costs and soft costs. This results in the Company funding the loan later as the project progresses, and accordingly, the Company typically funds the majority of the construction period interest through loan advances. However, when the Company initially determines the borrower’s cash equity requirement, the Company typically requires the borrower’s cash equity to cover a majority, or all, of the soft costs, including an amount equal to construction period interest, and an appropriate portion of the hard costs. During 2012, the Company advanced construction period interest totaling approximately $6.2 million on construction and development loans. While the Company advanced these sums as part of the funding process, the Company believes that the borrowers in effect had in most cases already provided for these sums as part of their initial equity contribution. Specifically, the maximum committed balance of all construction and development loans which provide for the use of interest reserves at December 31, 2012 was $825 million, of which $401 million was outstanding at December 31, 2012 and $424 million remained to be advanced. The weighted average loan to cost on such loans, assuming such loans are ultimately fully advanced, will be approximately 59%, which means that the weighted average cash equity contributed on such loans, assuming such loans are ultimately fully advanced, will be approximately 41%. The weighted average final loan to value ratio on such loans, based on the most recent appraisals and assuming such loans are ultimately fully advanced, is expected to be approximately 53%.

The following table reflects loans and leases, excluding purchased non-covered loans and covered loans, grouped by remaining maturities at December 31, 2012 by type and by fixed or floating interest rates. This table is based on actual maturities and does not reflect amortizations, projected paydowns or the earliest repricing for floating rate loans. Many loans have principal paydowns scheduled in periods prior to the period in which they mature. In addition many variable rate loans are subject to repricing in periods prior to the period in which they mature.

Loan and Lease Maturities

	1 Year or Less		Over 1 Through 5 Years		Over 5 Years		Total
	(Dollars in thousands)
Real estate	$	456,691	$	1,226,508	$	167,397	$	1,850,596
Commercial and industrial		45,936		111,962		1,906		159,804
Consumer		8,422		20,059		1,300		29,781
Direct financing leases		3,408		64,614		—		68,022
Other		3,682		3,949		—		7,631
Total	$	518,139	$	1,427,092	$	170,603	$	2,115,834
Fixed rate	$	211,673	$	539,688	$	132,250	$	883,611
Floating rate (not at a floor or ceiling rate)		2,334		67,170		4,614		74,118
Floating rate (at floor rate)		304,132		820,234		33,739		1,158,105
Floating rate (at ceiling rate)		—		—		—		—
Total	$	518,139	$	1,427,092	$	170,603	$	2,115,834

22

The following table reflects loans and leases, excluding purchased non-covered loans and covered loans, as of December 31, 2012 grouped by expected amortizations, expected paydowns or the earliest repricing opportunity for floating rate loans. This cash flow or repricing schedule approximates the Company’s ability to reprice the outstanding principal of loans and leases either by adjusting rates on existing loans and leases or reinvesting principal cash flow in new loans and leases.

Loan and Lease Cash Flows or Repricing

	1 Year or Less			Over 1 Through 2 Years			Over 2 Through 3 Years			Over 3 Through 5 Years			Over 5 Years			Total
	(Dollars in thousands)
Fixed rate	$	276,754		$	180,614		$	118,516		$	204,628		$	103,099		$	883,611
Floating rate (not at a floor or ceiling rate)		73,419			294			99			83			223			74,118
Floating rate (at floor rate)(1)		1,157,099			586			—			420			—			1,158,105
Floating rate (at ceiling rate)		—			—			—			—			—			—
Total	$	1,507,272		$	181,494		$	118,615		$	205,131		$	103,322		$	2,115,834
Percentage of total		71.2	%		8.6	%		5.6	%		9.7	%		4.9	%		100.0	%
Cumulative percentage of total		71.2			79.8			85.4			95.1			100.0

(1) The Company has included a floor rate in many of its loans and leases. As a result of such floor rates, many loans and leases will not immediately reprice in a rising rate environment if the interest rate index and margin on such loans and leases continue to result in a computed interest rate less than the applicable floor rate. The earnings simulation model results included in the interest rate risk section of this Management’s Discussion and Analysis include consideration of the impact of all interest rate floors and ceilings in loans and leases.

Purchased Non-Covered Loans

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

Purchased Non-Covered Loan Portfolio

	December 31,
	2012		2011		2010
	(Dollars in thousands)
Real estate	$	29,283	$	71	$	—
Commercial and industrial		5,333		631		—
Consumer		4,168		4,001		5,316
Other		2,750		96		—
Total	$	41,534	$	4,799	$	5,316

The amount and percentage of the Company’s purchased non-covered loans, by state of originating office, are reflected in the following table.

Purchased Non-Covered Loans by State of Originating Office

	December 31,
Purchased Non-Covered Loans Attributable to Offices In	2012					2011					2010
	Amount		%			Amount		%			Amount		%
	(Dollars in thousands)
Alabama	$	39,845		95.9	%	$	219		4.6	%	$	513		9.7	%
Georgia		1,231		3.0			3,812		79.4			3,472		65.3
Florida		226		0.5			564		11.8			890		16.7
North Carolina		200		0.5			175		3.6			399		7.5
South Carolina		32		0.1			29		0.6			42		0.8
Total	$	41,534		100.0	%	$	4,799		100.0	%	$	5,316		100.0	%

Purchased non-covered loans include a small volume of non-covered loans acquired in FDIC-assisted acquisitions and loans acquired in the Genala acquisition and are initially recorded at fair value on the date of purchase. Purchased non-covered loans that contain evidence of credit deterioration on the date of purchase are carried at the net present value of expected future proceeds. All other purchased non-covered loans are recorded at their initial fair value, adjusted for subsequent advances, pay downs, amortization or accretion of any premium or discount on purchase, charge-offs and any other adjustment to carrying value.

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At the time of acquisition of purchased non-covered loans, management individually evaluates substantially all loans acquired in the transaction. For those purchased loans without evidence of credit deterioration, management evaluates each reviewed loan using an internal grading system with a grade assigned to each loan at the date of acquisition. The grade for each purchased non-covered loan is reviewed subsequent to the date of acquisition any time a loan is renewed or extended or at any time information becomes available to the Company that provides material insight regarding the loan’s performance, the borrower or the underlying collateral. To the extent that a loan is performing in accordance with management’s initial expectations, such loan is not considered impaired and is not considered in the determination of the required allowance for loan and lease losses. To the extent that current information indicates it is possible that the Company will not be able to collect all amounts according to the contractual terms thereof, such loan is considered impaired and is considered in the determination of the required level of allowance for loan and lease losses.

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

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

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

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

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

FV 77 — Loans in this category have deteriorated since the date of purchase and are considered impaired.

In determining the Day 1 Fair Values of purchased non-covered loans without evidence of credit deterioration at the date of acquisition, management includes (i) no carry over of any previously recorded allowance for loan losses and (ii) an adjustment of the unpaid principal balance to reflect an appropriate market rate of interest, given the risk profile and grade assigned to each loan. This adjustment will be accreted into earnings as an adjustment to the yield on purchased non-covered loans, using the effective yield method, over the remaining life of each loan.

Purchased non-covered loans that contain evidence of credit deterioration on the date of purchase are accounted for in accordance with the provisions of generally accepted accounting principles (“GAAP”) applicable to loans acquired with deteriorated credit quality. At the time such purchased non-covered loans with evidence of credit deterioration are acquired, management individually evaluates each loan to determine the estimated fair value of each loan. This evaluation includes no carryover of any previously recorded allowance for loan and lease losses. In determining the estimated fair value of purchased non-covered loans with evidence of credit deterioration, management considers a number of factors including, among other things, the remaining life of the acquired loans, estimated prepayments, estimated loss ratios, estimated value of the underlying collateral, estimated holding periods, and net present value of cash flows expected to be received.

In determining the Day 1 Fair Values of purchased non-covered loans with evidence of credit deterioration, management calculates a non-accretable difference (the credit component of the purchased loans) and an accretable difference (the yield component of the purchased loans). The non-accretable difference is the difference between the contractually required payments and the cash flows expected to be collected in accordance with management’s determination of the Day 1 Fair Values. Subsequent 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.

The accretable difference on purchased non-covered loans with evidence of credit deterioration is the difference between the expected cash flows and the net present value of expected cash flows. Such difference is accreted into earnings using the effective yield method over the term of the loans. In determining the net present value of the expected cash flows, the Company used discount rates ranging from 6.0% to 9.5% per annum depending on the risk characteristics of each individual loan.

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Management separately monitors purchased non-covered loans with evidence of credit deterioration on the date of purchase and periodically reviews such loans contained within this portfolio against the factors and assumptions used in determining the Day 1 Fair Values. A loan is reviewed (i) any time it is renewed or extended, (ii) at any other time additional information becomes available to the Company that provides material additional insight regarding the loan’s performance, the status of the borrower, or the quality or value of the underlying collateral, or (iii) in conjunction with the annual review of projected cash flows of each acquired portfolio. Management separately reviews, on an annual basis, the performance of the portfolio of purchased non-covered loans with evidence of credit deterioration, 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 or exceeding management’s performance expectation established in conjunction with the determination of the Day 1 Fair Values, such loan is rated FV 66, is not included in any of the credit quality ratios, is not considered to be a nonaccrual or impaired loan, and is not considered in the determination of the required 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 is rated FV 88, is included in certain of the Company’s credit quality metrics, is generally considered an impaired loan, and is considered in the determination of the required level of allowance for loan and lease losses. Any improvement in the expected performance of such loan would result in a reversal of the provision for loan and lease losses to the extent of prior charges and then an adjustment to accretable yield, which would have a positive impact on interest income.

The amount of unpaid principal balance, the valuation discount and the carrying value of purchased non-covered loans at December 31, 2012, 2011 and 2010 are reflected in the following table.

Purchased Non-Covered Loans

	December 31,
	2012			2011			2010
	(Dollars in thousands)
Loans without evidence of credit deterioration at date of purchase:
Unpaid principal balance	$	35,800		$	—		$	—
Valuation discount		(1,021	)		—			—
Carrying value		34,779			—			—
Loans with evidence of credit deterioration at date of purchase:
Unpaid principal balance		12,171			9,515			7,689
Valuation discount		(5,416	)		(4,716	)		(2,373	)
Carrying value		6,755			4,799			5,316
Total carrying value	$	41,534		$	4,799		$	5,316

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The following table presents purchased non-covered loans grouped by remaining maturities at December 31, 2012 by type and by fixed or floating interest rates. This table is based on contractual maturities and does not reflect amortizations, projected paydowns, the earliest repricing for floating rate loans, accretion or management’s estimate of projected cash flows. Many loans have principal paydowns scheduled in periods prior to the period in which they mature, and many variable rate loans are subject to repricing in periods prior to the period in which they mature. Additionally, because income on purchased non-covered loans with evidence of credit deterioration on the date of purchase is recognized by accretion of the discount of estimated cash flows, such loans are not considered to be floating or adjustable rate loans and are reported below as fixed rate loans.

Purchased Non-Covered Loan Maturities

	1 Year or Less		Over 1 Through 5 Years		Over 5 Years		Total
	(Dollars in thousands)
Real estate	$	5,817	$	14,350	$	9,116	$	29,283
Commercial and industrial		2,186		2,489		658		5,333
Consumer		2,461		1,591		116		4,168
Other		474		2,245		31		2,750
Total	$	10,938	$	20,675	$	9,921	$	41,534
Fixed rate	$	7,026	$	13,703	$	9,591	$	30,320
Floating rate		3,912		6,972		330		11,214
Total	$	10,938	$	20,675	$	9,921	$	41,534

On December 31, 2012, the Company completed its acquisition of Genala. On the date of acquisition, Genala’s outstanding loans were categorized into loans without evidence of credit deterioration and loans with evidence of credit deterioration. The following table presents the unpaid principal balance, fair value adjustment, Day 1 Fair Value and the weighted-average fair value adjustment applied to the purchased non-covered loans without evidence of credit deterioration in the Genala transaction, by risk rating, at December 31, 2012.

Fair Value Adjustments for Purchased Non-Covered Loans

Without Evidence of Credit Deterioration in Genala Acquisition

	Unpaid Principal Balance		Fair Value Adjustment			Day 1 Fair Value		Weighted Average Fair Value Adjustment (in bps)
	(Dollars in thousands)
FV 33	$	6,783	$	(85	)	$	6,698		126
FV 44		12,583		(222	)		12,361		177
FV 55		10,650		(219	)		10,431		205
FV 36		5,784		(495	)		5,289		855
Total	$	35,800	$	(1,021	)	$	34,779		285

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

Fair Value Adjustments for Purchased Non-Covered Loans

With Evidence of Credit Deterioration in Genala Acquistion

	December 31, 2012
	(Dollars in thousands)
Contractually required principal and interest	$	8,769
Nonaccretable difference		(3,263	)
Cash flows expected to be collected		5,506
Accretable difference		(669	)
Day 1 Fair Value	$	4,837

26

Covered Assets, FDIC Loss Share Receivable and FDIC Clawback Payable

On March 26, 2010, the Company, through the Bank, acquired substantially all of the assets and assumed substantially all of the deposits and certain other liabilities of the former Unity National Bank (“Unity”) in a FDIC-assisted acquisition. Loans comprise the majority of the assets acquired and are subject to loss share agreements with the FDIC whereby the Bank is indemnified against a portion of the losses on covered loans and covered foreclosed assets.

On July 16, 2010, the Company, through the Bank, acquired substantially all of the assets and assumed substantially all of the deposits and certain other liabilities of the former Woodlands Bank (“Woodlands”) in a FDIC-assisted acquisition. Loans comprise the majority of the assets acquired and all but a small amount of consumer loans are subject to loss share agreements with the FDIC whereby the Bank is indemnified against a portion of the losses on covered loans and covered foreclosed assets.

On September 10, 2010, the Company, through the Bank, acquired substantially all of the assets and assumed substantially all of the deposits and certain other liabilities of the former Horizon Bank (“Horizon”) in a FDIC-assisted acquisition. Loans comprise the majority of the assets acquired and all but a small amount of consumer loans are subject to loss share agreements with the FDIC whereby the Bank is indemnified against a portion of the losses on covered loans and covered foreclosed assets.

On December 17, 2010, the Company, through the Bank, acquired substantially all of the assets and assumed substantially all of the deposits and certain other liabilities of the former Chestatee State Bank (“Chestatee”) in a FDIC-assisted acquisition. Loans comprise the majority of the assets acquired and all but a small amount of consumer loans are subject to loss share agreements with the FDIC whereby the Bank is indemnified against a portion of the losses on covered loans and covered foreclosed assets.

On January 14, 2011, the Company, through the Bank, acquired substantially all of the assets and assumed substantially all of the deposits and certain other liabilities of Oglethorpe in a FDIC-assisted acquisition. Loans comprise the majority of the assets acquired and all but a small amount of consumer loans are subject to loss share agreements with the FDIC whereby the Bank is indemnified against a portion of the losses on covered loans and covered foreclosed assets.

On April 29, 2011, the Company, through the Bank, acquired substantially all of the assets and assumed substantially all of the deposits and certain other liabilities of First Choice in a FDIC-assisted acquisition. Loans comprise the majority of the assets acquired and all but a small amount of consumer loans are subject to loss share agreements with the FDIC whereby the Bank is indemnified against a portion of the losses on covered loans and covered foreclosed assets.

On April 29, 2011, the Company, through the Bank, acquired substantially all of the assets and assumed substantially all of the deposits and certain other liabilities of Park Avenue in a FDIC-assisted acquisition. Loans comprise the majority of the assets acquired and all but a small amount of consumer loans are subject to loss share agreements with the FDIC whereby the Bank is indemnified against a portion of the losses on covered loans and covered foreclosed assets.

In conjunction with each of these acquisitions, the Bank entered into loss share agreements with the FDIC such that the Bank and the FDIC will share in the losses on assets covered under the loss share agreements. Pursuant to the terms of the loss share agreements for the Unity acquisition, on losses up to $65 million, the FDIC will reimburse the Bank for 80% of losses. On losses exceeding $65 million, the FDIC will reimburse the Bank for 95% of losses. Pursuant to the terms of the loss share agreements for the Woodlands, Chestatee, Oglethorpe and First Choice acquisitions, the FDIC will reimburse the Bank for 80% of losses. Pursuant to the terms of the loss share agreements for the Horizon acquisition, the FDIC will reimburse the Bank on single family residential loans and related foreclosed assets for (i) 80% of losses up to $11.8 million, (ii) 30% of losses between $11.8 million and $17.9 million and (iii) 80% of losses in excess of $17.9 million. For non-single family residential loans and related foreclosed assets, the FDIC will reimburse the Bank for (i) 80% of losses up to $32.3 million, (ii) 0% of losses between $32.3 million and $42.8 million and (iii) 80% of losses in excess of $42.8 million. Pursuant to the terms of the loss share agreements for the Park Avenue acquisition, the FDIC will reimburse the Bank for (i) 80% of losses up to $218.2 million, (ii) 0% of losses between $218.2 million and $267.5 million and (iii) 80% of losses in excess of $267.5 million.

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

27

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

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

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

A summary of the covered assets, the FDIC loss share receivable and the FDIC clawback payable is as follows:

Covered Assets, FDIC Loss Share Receivable and FDIC Clawback Payable

	December 31,
	2012		2011
	(Dollars in thousands)
Covered loans	$	596,239	$	806,922
FDIC loss share receivable		152,198		279,045
Covered foreclosed assets		52,951		72,907
Total	$	801,388	$	1,158,874
FDIC clawback payable	$	25,169	$	24,645

Covered Loans

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

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

In determining the Day 1 Fair Values of covered loans, management calculates a non-accretable difference (the credit component of the covered loans) and an accretable difference (the yield component of the covered loans). The non-accretable difference is the difference between the contractually required payments and the cash flows expected to be collected in accordance with management’s determination of the Day 1 Fair Values. Subsequent decreases to the expected cash flows will generally result in a provision for loan and lease losses. Subsequent increases in 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

28

interest income. Any such increase or decrease in expected cash flows will result in a corresponding decrease or increase, respectively, of the FDIC loss share receivable for the portion of such reduced or additional loss expected to be collected from the FDIC.

The accretable difference on covered loans is the difference between the expected cash flows and the net present value of expected cash flows. Such difference is accreted into earnings using the effective yield method over the term of the loans. In determining the net present value of the expected cash flows, the Company used discount rates ranging from 6.0% to 9.5% per annum depending on the risk characteristics of each individual loan. At December 31, 2012, 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 2.2 years.

Management separately monitors the covered loan portfolio and periodically reviews loans contained within this portfolio against the factors and assumptions used in determining the Day 1 Fair Values. A loan is typically reviewed (i) when it is modified or extended, (ii) when material information becomes available to the Company that provides additional insight regarding the loan’s performance, the status of the borrower, or the quality or value of the underlying collateral, or (iii) in conjunction with the annual review of projected cash flows which include a substantial portion of each acquired covered loan portfolio. To the extent that a loan is performing in accordance with management’s expectation established in conjunction with the determination of the Day 1 Fair Values, such loan is rated FV 1, is not included in any of the Company’s credit quality ratios, is not considered to be an impaired loan, and is not considered in the determination of the required 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 is rated FV 2, is generally included in certain of the Company’s credit quality metrics, may be considered an impaired loan, and is considered in the determination of the required level of allowance for loan and lease losses.

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

Covered Loans

																First			Park
	Unity			Woodlands			Horizon			Chestatee			Oglethorpe			Choice			Avenue			Total
	(Dollars in thousands)
Acquisition date:
Contractually required principal and interest	$	208,410		$	315,103		$	179,441		$	181,523		$	174,110		$	260,178		$	452,658		$	1,771,423
Nonaccretable difference		(52,526	)		(83,933	)		(52,388	)		(47,538	)		(67,300	)		(86,876	)		(124,899	)		(515,460	)
Cash flows expected to be collected		155,884			231,170			127,053			133,985			106,810			173,302			327,759			1,255,963
Accretable difference		(21,432	)		(44,692	)		(35,245	)		(22,604	)		(25,376	)		(24,790	)		(63,462	)		(237,601	)
Fair value at acquisition date	$	134,452		$	186,478		$	91,808		$	111,381		$	81,434		$	148,512		$	264,297		$	1,018,362
Carrying value at January 1, 2011	$	114,983		$	175,720		$	87,714		$	111,051		$	—		$	—		$	—		$	489,468
Covered loans acquired		—			—			—			—			81,434			148,512			264,297			494,243
Accretion		7,662			13,716			6,716			8,193			6,461			7,798			15,589			66,135
Transfers to covered foreclosed assets		(5,197	)		(14,938	)		(1,990	)		(2,381	)		(1,218	)		(858	)		(2,432	)		(29,014	)
Payments received		(20,296	)		(40,256	)		(11,598	)		(40,814	)		(22,061	)		(22,514	)		(48,249	)		(205,788	)
Other activity, net		(792	)		(2,467	)		(1,044	)		(1,348	)		(225	)		(1,015	)		(1,231	)		(8,122	)
Carrying value at December 31, 2011		96,360			131,775			79,798			74,701			64,391			131,923			227,974			806,922
Accretion		6,360			10,031			5,768			5,708			5,665			9,915			18,373			61,820
Transfers to covered foreclosed assets		(4,077	)		(4,543	)		(3,731	)		(3,299	)		(4,065	)		(4,742	)		(8,563	)		(33,020	)
Payments received		(21,144	)		(28,777	)		(14,888	)		(18,205	)		(15,425	)		(41,756	)		(71,592	)		(211,787	)
Charge-offs		(4,422	)		(8,332	)		(3,714	)		(2,089	)		(2,117	)		(4,008	)		(1,410	)		(26,092	)
Other activity, net		(228	)		(420	)		(40	)		(148	)		(356	)		(251	)		(161	)		(1,604	)
Carrying value at December 31, 2012	$	72,849		$	99,734		$	63,193		$	56,668		$	48,093		$	91,081		$	164,621		$	596,239

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

Covered Loan Portfolio

	December 31,
	2012		2011		2010
	(Dollars in thousands)
Real estate:
Residential 1-4 family	$	152,348	$	202,620	$	132,108
Non-farm/non-residential		288,104		369,756		214,435
Construction/land development		105,087		160,872		102,099
Agricultural		19,690		24,104		9,643
Multifamily residential		10,701		15,894		10,709
Total real estate		575,930		773,246		468,994
Commercial and industrial		18,496		29,749		17,999
Consumer		176		958		1,248
Other		1,637		2,969		1,227
Total covered loans	$	596,239	$	806,922	$	489,468

The following table presents covered loans grouped by remaining maturities and by type at December 31, 2012. This table is based on contractual maturities and does not reflect accretion of the accretable difference or management’s estimate of projected cash flows. Most covered loans have scheduled accretion and/or cash flows projected by management to occur in periods prior to maturity. In addition, because income on covered loans is recognized by accretion of the accretable difference, none of the covered loans are considered to be floating or adjustable rate loans.

Covered Loan Maturities

	1 Year or Less		Over 1 Through 5 Years		Over 5 Years		Total
			(Dollars in thousands)
Real estate:
Residential 1-4 family	$	71,101	$	43,104	$	38,143	$	152,348
Non-farm/non-residential		162,642		92,877		32,585		288,104
Construction/land development		93,488		9,881		1,718		105,087
Agricultural		14,136		4,047		1,507		19,690
Multifamily residential		5,381		3,662		1,658		10,701
Total real estate		346,748		153,571		75,611		575,930
Commercial and industrial		9,877		4,150		4,469		18,496
Consumer		89		87		—		176
Other		864		13		760		1,637
Total covered loans	$	357,578	$	157,821	$	80,840	$	596,239

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

Accretable Difference on Covered Loans

																First			Park
	Unity			Woodlands			Horizon			Chestatee			Oglethorpe			Choice			Avenue			Total
	(Dollars in thousands)
Accretable difference at January 1, 2011	$	15,279		$	37,182		$	32,165		$	22,265		$	—		$	—		$	—		$	106,891
Accretable difference acquired		—			—			—			—			25,376			24,790			63,462			113,628
Accretion		(7,662	)		(13,716	)		(6,716	)		(8,193	)		(6,461	)		(7,798	)		(15,589	)		(66,135	)
Adjustments to accretable difference related to:
Covered loans transferred to covered foreclosed assets		(384	)		(1,611	)		(191	)		(503	)		(315	)		(91	)		(327	)		(3,422	)
Covered loans paid off		(273	)		(2,146	)		(934	)		(4,564	)		(2,811	)		(1,435	)		(3,167	)		(15,330	)
Cash flow revisions as a result of renewals and/or modifications of covered loans		3,514			4,691			10			1,481			1,446			1,269			2,097			14,508
Other, net		140			155			98			177			103			165			671			1,509
Accretable difference at December 31, 2011		10,614			24,555			24,432			10,663			17,338			16,900			47,147			151,649
Accretion		(6,360	)		(10,031	)		(5,768	)		(5,708	)		(5,665	)		(9,915	)		(18,373	)		(61,820	)
Adjustments to accretable difference due to:
Covered loans transferred to covered foreclosed assets		(159	)		(364	)		(190	)		(448	)		(700	)		(455	)		(1,679	)		(3,995	)
Covered loans paid off		(719	)		(1,220	)		(1,418	)		(811	)		(1,291	)		(1,529	)		(3,507	)		(10,495	)
Cash flow revisions as a result of renewals and/or modifications of covered loans		5,196			4,396			(618	)		1,835			1,567			4,791			4,164			21,331
Other, net		2			116			86			181			123			127			190			825
Accretable difference at December 31, 2012	$	8,574		$	17,452		$	16,524		$	5,712		$	11,372		$	9,919		$	27,942		$	97,495

FDIC Loss Share Receivable

In connection with the Company’s FDIC-assisted acquisitions, the Company has recorded a FDIC loss share receivable to reflect the indemnification provided by the FDIC. Currently, the expected losses on covered assets for each of the Company’s loss share agreements would result in expected recovery of approximately 80% of incurred losses. Since the indemnified items are covered loans and covered foreclosed assets, which are 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.

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

FDIC Loss Share Receivable

																First			Park
	Unity			Woodlands			Horizon			Chestatee			Oglethorpe			Choice			Avenue			Total
	(Dollars in thousands)
At acquisition date:
Expected principal loss on covered assets:
Covered loans	$	50,354		$	73,220		$	40,537		$	46,869		$	62,890		$	82,212		$	113,872		$	469,954
Covered foreclosed assets		9,979			5,897			3,678			15,960			7,907			628			49,850			93,899
Total expected principal losses		60,333			79,117			44,215			62,829			70,797			82,840			163,722			563,853
Estimated loss sharing percentage(1)		80	%		80	%		80	%		80	%		80	%		80	%		80	%		80	%
Estimated recovery from FDIC loss share agreements		48,266			63,294			35,372			50,263			56,638			66,272			130,978			451,083
Discount for net present value on FDIC loss share receivable		(4,119	)		(7,428	)		(6,283	)		(4,204	)		(5,535	)		(6,268	)		(14,724	)		(48,561	)
Net present value of FDIC loss share receivable at acquisition date	$	44,147		$	55,866		$	29,089		$	46,059		$	51,103		$	60,004		$	116,254		$	402,522
Carrying value at January 1, 2011	$	31,120		$	51,776		$	29,182		$	46,059		$	—		$	—		$	—		$	158,137
FDIC loss share receivable recorded at acquisition		—			—			—			—			51,103			60,004			116,254			227,361
Accretion income		741			1,807			927			1,363			1,997			1,814			2,427			11,076
Cash received from FDIC		(5,069	)		(23,001	)		(9,505	)		(18,466	)		(11,942	)		(12,372	)		(28,646	)		(109,001	)
Reductions of FDIC loss share receivable for payments on covered loans in excess of Day 1 Fair Values		(875	)		(3,590	)		(948	)		(2,892	)		(4,565	)		(1,612	)		(7,204	)		(21,686	)
Expenses on covered assets reimbursable by FDIC		1,376			1,606			1,183			1,330			737			472			1,943			8,647
Other activity, net		282			579			918			1,988			390			136			218			4,511
Carrying value at December 31, 2011		27,575			29,177			21,757			29,382			37,720			48,442			84,992			279,045
Accretion income		793			1,108			680			725			1,310			1,485			2,473			8,574
Cash received from FDIC		(12,945	)		(14,433	)		(8,948	)		(22,301	)		(13,062	)		(29,870	)		(42,438	)		(143,997	)
Reductions of FDIC loss share receivable for payments on covered loans in excess of Day 1 Fair Values		(2,394	)		(3,377	)		(1,335	)		(2,122	)		(4,918	)		(6,208	)		(12,657	)		(33,011	)
Increases in FDIC loss share receivable for:
Charge-offs on covered loans		3,170			6,417			2,297			1,589			1,627			3,151			1,028			19,279
Write downs of covered foreclosed assets		1,591			1,193			450			1,858			294			278			3,181			8,845
Expenses on covered assets reimbursable by FDIC		1,537			1,726			1,360			1,276			1,318			1,097			3,064			11,378
Other activity, net		491			562			598			755			(293	)		(457	)		429			2,085
Carrying value at December 31, 2012	$	19,818		$	22,373		$	16,859		$	11,162		$	23,996		$	17,918		$	40,072		$	152,198

(1) Certain of the Company’s loss share agreements contain tranches whereby the FDIC’s loss sharing percentage is more than or less than 80%. However, management’s current expectation of most of the principal losses on covered assets under each of the loss share agreements falls in the tranches whereby the FDIC would reimburse the Company for approximately 80% of such losses.

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Foreclosed Assets Covered by FDIC Loss Share Agreements

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 selling prices, estimated selling costs, estimated holding periods and net present value of cash flows expected to be received. Discount rates ranging from 8.0% to 9.5% per annum were used to determine the net present value of covered foreclosed assets.

The following table presents a summary, by acquisition, of foreclosed assets covered by FDIC loss share agreements, or covered foreclosed assets, as of the dates of acquisition and activity within covered foreclosed assets during the periods indicated.

Foreclosed Assets Covered by FDIC Loss Share Agreements

	Unity			Woodlands			Horizon			Chestatee			Oglethorpe			First Choice			Park Avenue			Total
	(Dollars in thousands)
At acquisition date:
Balance on acquired bank’s books	$	20,304		$	12,258		$	8,391		$	31,647		$	16,554		$	2,773		$	91,442		$	183,369
Total expected losses		(9,979	)		(5,897	)		(3,678	)		(15,960	)		(7,907	)		(628	)		(49,850	)		(93,899	)
Discount for net present value of expected cash flows		(1,466	)		(1,332	)		(1,030	)		(2,281	)		(1,562	)		(474	)		(10,412	)		(18,557	)
Fair value at acquisition date	$	8,859		$	5,029		$	3,683		$	13,406		$	7,085		$	1,671		$	31,180		$	70,913
Carrying value at January 1, 2011	$	8,060		$	5,996		$	3,683		$	13,406		$	—		$	—		$	—		$	31,145
Covered foreclosed assets acquired		—			—			—			—			7,085			1,671			31,180			39,936
Transferred from covered loans		5,197			14,938			1,990			2,381			1,218			858			2,432			29,014
Sales of covered foreclosed assets		(2,985	)		(6,499	)		(1,996	)		(6,110	)		(1,171	)		(305	)		(8,122	)		(27,188	)
Carrying value at December 31, 2011		10,272			14,435			3,677			9,677			7,132			2,224			25,490			72,907
Transferred from covered loans		4,077			4,543			3,731			3,299			4,065			4,742			8,563			33,020
Sales of covered foreclosed assets		(4,467	)		(9,304	)		(4,285	)		(7,111	)		(4,063	)		(3,038	)		(11,719	)		(43,987	)
Write downs of covered foreclosed assets included in other loss share income		(1,695	)		(1,624	)		(585	)		(1,654	)		(337	)		(344	)		(2,750	)		(8,989	)
Carrying value at December 31, 2012	$	8,187		$	8,050		$	2,538		$	4,211		$	6,797		$	3,584		$	19,584		$	52,951

The following table presents a summary of the carrying value and type of foreclosed assets covered by FDIC loss share agreements, or covered foreclosed assets, at the dates indicated.

Foreclosed Assets Covered by FDIC Loss Share Agreements

	December 31,
	2012		2011
	(Dollars in thousands)
Real estate:
Residential 1-4 family	$	12,279	$	15,945
Non-farm/non-residential		9,570		11,624
Construction/land development		30,602		43,323
Agricultural		449		—
Multifamily residential		51		2,014
Total real estate		52,951		72,906
Repossessions		—		1
Total covered foreclosed assets	$	52,951	$	72,907

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FDIC Clawback Payable

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

FDIC Clawback Payable

	Unity			Woodlands			Horizon			Chestatee			Oglethorpe			First     Choice			Park     Avenue			Total
	(Dollars in thousands)
At acquisition date:
Estimated FDIC clawback payable	$	2,612		$	4,846		$	2,380		$	1,291		$	1,721		$	1,452		$	24,344		$	38,646
Discount for net present value on FDIC clawback payable		(1,046	)		(1,905	)		(919	)		(499	)		(664	)		(560	)		(9,399	)		(14,992	)
Net present value of FDIC clawback payable at acquisition date	$	1,566		$	2,941		$	1,461		$	792		$	1,057		$	892		$	14,945		$	23,654
Carrying value at January 1, 2011	$	1,629		$	3,004		$	1,479		$	792		$	—		$	—		$	—		$	6,904
FDIC clawback payable recorded at acquisition		—			—			—			—			1,057			892			14,945			16,894
Amortization expense		80			149			73			55			42			31			505			935
Changes in FDIC clawback payable related to changes in expected losses on covered assets		—			—			—			(88	)		—			—			—			(88	)
Carrying value at December 31, 2011		1,709			3,153			1,552			759			1,099			923			15,450			24,645
Amortization expense		79			138			73			35			53			45			776			1,199
Changes in FDIC clawback payable related to changes in expected losses on covered assets		(144	)		(305	)		(157	)		—			(69	)		—			—			(675	)
Carrying value at December 31, 2012	$	1,644		$	2,986		$	1,468		$	794		$	1,083		$	968		$	16,226		$	25,169

Nonperforming Assets

Nonperforming assets consist of (1) nonaccrual loans and leases, (2) accruing loans and leases 90 days or more past due, (3) certain troubled and restructured loans for which a concession has been granted by the Company to the borrower because of a deterioration in the financial position of the borrower (“TDRs”) and (4) real estate or other assets that have been acquired in partial or full satisfaction of loan or lease obligations or upon foreclosure. Purchased non-covered loans, covered loans and covered foreclosed assets are not considered to be nonperforming by the Company for purposes of calculation of the nonperforming loans and leases to total loans and leases ratio and the nonperforming assets to total assets ratio, except for

34

their inclusion in total assets. Because purchased non-covered loans, covered loans and covered foreclosed assets are not included in the calculations of the Company’s nonperforming loans and leases ratio and nonperforming assets ratio, the Company’s nonperforming loans and leases ratio and nonperforming assets ratio may not be comparable from period to period or with such ratios of other financial institutions, including institutions that have made FDIC-assisted or traditional acquisitions.

The Company generally places a loan or lease on nonaccrual status when such loan or lease is (i) deemed impaired or (ii) 90 days or more past due, or earlier when doubt exists as to the ultimate collection of payments. The Company may continue to accrue interest on certain loans or leases contractually past due 90 days or more if such loans or leases are both well secured and in the process of collection. At the time a loan or lease is placed on nonaccrual status, interest previously accrued but uncollected is generally reversed and charged against interest income. Nonaccrual loans and leases are generally returned to accrual status when payments are less than 90 days past due and the Company reasonably expects to collect all payments. If a loan or lease is determined to be uncollectible, the portion of the principal determined to be uncollectible will be charged against the allowance for loan and lease losses. Income on nonaccrual loans or leases, including impaired loans and leases but excluding certain TDRs which continue to accrue interest, is recognized on a cash basis when and if actually collected.

The following table presents information, excluding purchased non-covered loans and loans and foreclosed assets covered by FDIC loss share agreements, concerning nonperforming assets, including nonaccrual loans and leases, TDRs, and foreclosed assets as of the dates indicated.

Nonperforming Assets

	December 31,
	2012			2011			2010			2009			2008
	(Dollars in thousands)
Nonaccrual loans and leases	$	9,109		$	12,206		$	13,939		$	23,604		$	15,382
Accruing loans and leases 90 days or more past due		—			—			—			—			—
TDRs		—			1,000			—			—			—
Total nonperforming loans and leases		9,109			13,206			13,939			23,604			15,382
Foreclosed assets not covered by FDIC loss share agreements(1)		13,924			31,762			42,216			61,148			10,758
Total nonperforming assets(2)	$	23,033		$	44,968		$	56,155		$	84,752		$	26,140
Nonperforming loans and leases to total loans and leases(2)		0.43	%		0.70	%		0.75	%		1.24	%		0.76	%
Nonperforming assets to total assets(2)		0.57			1.17			1.72			3.06			0.81

(1) Repossessed personal properties and real estate acquired through or in lieu of foreclosure are initially recorded at the lesser of current principal investment or estimated market value less estimated cost to sell at the date of repossession or foreclosure. Valuations of these assets are periodically reviewed by management with the carrying value of such assets adjusted through non-interest expense to the then estimated market value net of estimated selling costs, if lower, until disposition.

(2) Excludes purchased non-covered loans and loans and/or foreclosed assets covered by FDIC loss share agreements, except for their inclusion in total assets.

As of December 31, 2012 and 2011, the Company had identified covered loans where the expected performance of such loans had deteriorated from management’s performance expectations established in conjunction with the determination of the Day 1 Fair Values. As a result the Company recorded partial charge-offs, net of adjustments to the FDIC loss share receivable and the FDIC clawback payable, totaling $6.2 million during 2012 and $0.3 million during 2011 for such loans. The Company also recorded $6.2 million during 2012 and $0.3 million during 2011 of provision for loan and lease losses to cover these charge-offs. In addition to these charge-offs, the Company transferred certain of these covered loans to covered foreclosed assets. As a result of these actions, the Company had $38.5 million of impaired covered loans at December 31, 2012 and $1.9 million of impaired covered loans at December 31, 2011.

If an adequate current determination of collateral value has not been performed, once a loan or lease is considered impaired, management seeks to establish an appropriate value for the collateral. This assessment may include (i) obtaining an updated appraisal, (ii) obtaining one or more broker price opinions or comprehensive market analyses, (iii) internal evaluations or (iv) other methods deemed appropriate considering the size and complexity of the loan and the underlying collateral. On an ongoing basis, typically

35

at least quarterly, the Company evaluates the underlying collateral on all impaired loans and leases and, if needed, due to changes in market or property conditions, the underlying collateral is reassessed and the estimated fair value is revised. The determination of collateral value includes any adjustments considered necessary related to estimated holding period and estimated selling costs.

At December 31, 2012 the Company had reduced the carrying value of its loans and leases deemed impaired (all of which were included in nonaccrual loans and leases) by $7.1 million to the estimated fair value of such loans and leases of $6.7 million. The adjustment to reduce the carrying value of impaired loans and leases to estimated fair value consisted of $5.6 million of partial charge-offs and $1.5 million of specific loan and lease loss allocations. These amounts do not include the Company’s $38.5 million of impaired covered loans at December 31, 2012.

At December 31, 2012 and 2011, the Company has no purchased non-covered loans whose performance had deteriorated subsequent to the determination of the Day 1 Fair Values resulting in such loans being deemed impaired.

The following table presents information concerning the geographic location of nonperforming assets, excluding purchased non-covered loans and loans and/or foreclosed assets covered by FDIC loss share agreements, at December 31, 2012. Nonaccrual loans and leases are reported in the physical location of the principal collateral. Foreclosed assets are reported in the physical location of the asset. Repossessions are reported at the physical location where the borrower resided or had its principal place of business at the time of repossession.

Geographic Distribution of Nonperforming Assets

	Nonperforming Loans and Leases		Foreclosed Assets		Total Nonperforming Assets
	(Dollars in thousands)
Arkansas	$	8,102	$	9,681	$	17,783
Texas		14		700		714
North Carolina		1		1,132		1,133
South Carolina		986		1,242		2,228
Georgia		6		187		193
Florida		—		35		35
Alabama		—		323		323
All other		—		624		624
Total	$	9,109	$	13,924	$	23,033

Allowance and Provision for Loan and Lease Losses

The Company’s allowance for loan and lease losses was $38.7 million at December 31, 2012, compared with $39.2 million at December 31, 2011, and $40.2 million at December 31, 2010. The Company had no allowance for covered loans or purchased non-covered loans at December 31, 2012, 2011 or 2010. The Company’s allowance for loan and lease losses as a percentage of nonperforming loans and leases, excluding covered loans and purchased non-covered loans, was 425% at December 31, 2012 compared to 297% at December 31, 2011 and 289% at December 31, 2010. While the Company believes the current allowance is appropriate, changing economic and other conditions may require future adjustments to the allowance for loan and lease losses.

The amount of provision to the allowance for loan and lease losses is based on the Company’s analysis of the adequacy of the allowance for loan and lease losses utilizing the criteria discussed below. The provision for loan and lease losses for 2012 was $11.7 million, including $5.5 million for non-covered loans and leases and $6.2 million for covered loans, compared to $11.5 million for non-covered loans and leases and $0.3 million for covered loans in 2011. The Company’s provision for loan and lease losses was $16.0 million in 2010, all of which was for non-covered loans and leases. The Company’s decrease in its provision for non-covered loan and lease losses for 2012 compared to 2011 and for 2011 compared to 2010 was primarily due to the reduction of net charge-offs in 2012 compared to 2011 and in 2011 compared to 2010 as the real estate market and unemployment levels in many of the Company’s markets have shown some improvement in the last couple of years. The Company’s increase in its provision for covered loans for 2012 compared to 2011 was due to the increase of net charge-offs of covered loans as more covered loans experienced decreases in their expected cash flows that resulted in partial charge-offs of the carrying value of such covered loans in 2012 compared to 2011.

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The following table is an analysis of the allowance for loan and lease losses for the periods indicated.

Analysis of the Allowance for Loan and Lease Losses

	Year Ended December 31,
	2012			2011			2010			2009			2008
	(Dollars in thousands)
Balance, beginning of period	$	39,169		$	40,230		$	39,619		$	29,512		$	19,557
Non-covered loans and leases charged off:
Real estate:
Residential 1-4 family		1,312			2,743			872			1,619			1,079
Non-farm/non-residential		1,226			1,033			1,702			3,182			552
Construction/land development		466			5,651			4,037			20,188			3,059
Agricultural		997			771			301			844			645
Multifamily/residential		—			—			133			4,355			250
Total real estate		4,001			10,198			7,045			30,188			5,585
Commercial and industrial		1,323			1,465			6,937			3,347			1,259
Consumer		732			825			1,196			1,303			1,783
Direct financing leases		361			413			478			648			734
Other		219			87			1,108			399			270
Total non-covered loans and leases charged off		6,636			12,988			16,764			35,885			9,631
Recoveries of non-covered loans and leases previously charged off:
Real estate:
Residential 1-4 family		107			64			99			99			55
Non-farm/non-residential		18			16			87			147			76
Construction/land development		106			30			253			82			29
Agricultural		141			—			45			—			—
Multifamily residential		—			—			1			1			—
Total real estate		372			110			485			329			160
Commercial and industrial		35			142			656			566			51
Consumer		238			166			212			183			317
Direct financing leases		2			5			20			67			21
Other		8			4			2			47			12
Total recoveries		655			427			1,375			1,192			561
Net non-covered loans and leases charged off		5,981			12,561			15,389			34,693			9,070
Covered loans charged off		6,195			275			—			—			—
Net charge-offs - total loans and leases		12,176			12,836			15,389			34,693			9,070
Provision for loan and lease losses:
Non-covered loans and leases		5,550			11,500			16,000			44,800			19,025
Covered loans		6,195			275			—			—			—
Total provision		11,745			11,775			16,000			44,800			19,025
Balance, end of period	$	38,738		$	39,169		$	40,230		$	39,619		$	29,512
Net charge-offs of non-covered loans and leases to average non-covered loans and leases(1)		0.30	%		0.69	%		0.81	%		1.75	%		0.45	%
Net charge-offs of total loans and leases, including covered loans and purchased non-covered loans, to total average loans and leases		0.46	%		0.49	%		0.73	%		1.75	%		0.45	%
Allowance for loan and lease losses to total loans and leases(2)		1.83	%		2.08	%		2.17	%		2.08	%		1.46	%
Allowance for loan and lease losses to nonperforming loans and leases(2)		425	%		297	%		289	%		168	%		192	%

(1) Excludes loans covered by FDIC loss share agreements and net charge-offs related to such loans.

(2) Excludes purchased non-covered loans and loans covered by FDIC loss share agreements.

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Provisions to and the adequacy of the allowance for loan and lease losses (“ALLL”) are based on evaluations of the loan and lease portfolio utilizing objective and subjective criteria. The objective criteria primarily include an internal grading system and specific allowances. In addition to these objective criteria, the Company subjectively assesses the adequacy of the allowance for loan and lease losses and the need for additions thereto, with consideration given to the nature and mix of the portfolio, including concentrations of credit; general economic and business conditions, including national, regional and local business and economic conditions that may affect borrowers’ or lessees’ ability to pay; expectations regarding the current business cycle; trends that could affect collateral values and other relevant factors. The Company also utilizes a peer group analysis and a historical analysis to validate the overall adequacy of its allowance for loan and lease losses. Changes in any of these criteria or the availability of new information could require adjustment of the ALLL in future periods. While a specific allowance has been calculated for impaired loans and leases and for loans and leases where the Company has otherwise determined a specific reserve is appropriate, no portion of the Company’s ALLL is restricted to any individual loan or lease or group of loans or leases, and the entire ALLL is available to absorb losses from any and all loans and leases.

The Company’s internal grading system assigns one of nine grades to all loans and leases, with each grade being assigned a specific allowance allocation percentage, except residential 1-4 family loans, consumer loans, purchased non-covered loans, and covered loans.

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

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

Allowance allocation percentages for the various risk grades and past due categories for residential 1-4 family and consumer loans are determined by management and are adjusted periodically. In determining these allowance allocation percentages, management considers, among other factors, historical loss percentages and a variety of subjective criteria in determining the allowance allocation percentages.

For covered loans, management separately monitors this portfolio and periodically reviews loans contained within this portfolio against the factors and assumptions used in determining the Day 1 Fair Values. To the extent that a loan’s performance has deteriorated from management’s expectation established in conjunction with the determination of the Day 1 Fair Values, such loan is considered in the determination of the required level of allowance for loan and lease losses. To the extent that a revised loss estimate exceeds the loss estimate established in the determination of the Day 1 Fair Values, such deterioration will result in an allowance allocation or a charge-off.

For purchased non-covered loans, management segregates this portfolio into loans that contain evidence of credit deterioration on the date of purchase and loans that do not contain evidence of credit deterioration on the date of purchase. Purchased non-covered loans with evidence of credit deterioration are regularly monitored and are periodically reviewed by management. To the extent that a loan’s performance has deteriorated from management’s expectation established in conjunction with the determination of the Day 1 Fair Values, such loan is considered in the determination of the required level of allowance for loan and lease losses. To the extent that a revised loss estimate exceeds the loss estimate established in the determination of Day 1 Fair Values, such determination will result in an allowance allocation or a charge-off.

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All other purchased non-covered loans are graded by management at the time of purchase. The grades on these purchased non-covered loans are reviewed regularly as part of the ongoing assessment of such loans. To the extent that current information indicates it is possible that the Company will not be able to collect all amounts according to the contractual terms thereof, such loan is considered in the determination of the required level of allowance for loan and lease losses and may result in an allowance allocation or a charge-off.

At December 31, 2012 and 2011, the Company had no allowance for its purchased non-covered loans and its covered loans because all losses had been charged off on such loans whose performance had deteriorated from management’s expectations established in conjunction with the determination of the Day 1 Fair Values.

All loans and leases deemed to be impaired are evaluated individually. The Company considers a loan or lease, excluding purchased non-covered loans and covered loans, to be impaired when based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms thereof. The Company considers a purchased non-covered loan with evidence of credit deterioration at the date of purchase and a covered loan to be impaired once a decrease in expected cash flows or other deterioration in the loan’s expected performance, subsequent to the determination of the Day 1 Fair Values, results in an allowance allocation, a partial or full charge-off or in a provision for loan and lease losses. Purchased non-covered loans without evidence of credit deterioration at the date of purchase are considered impaired when current information indicates it is probable that the Company will not be able to collect all amounts due according to the contractual terms thereof. Most of the Company’s nonaccrual loans and leases, excluding purchased non-covered loans and covered loans, and all TDRs are considered impaired. The majority of the Company’s impaired loans and leases are dependent upon collateral for repayment. For such loans and leases, impairment is measured by comparing collateral value, net of holding and selling costs, to the current investment in the loan or lease. For all other impaired loans and leases, the Company compares estimated discounted cash flows to the current investment in the loan or lease. To the extent that the Company’s current investment in a particular loan or lease exceeds its estimated net collateral value or its estimated discounted cash flows, the impaired amount is specifically considered in the determination of the allowance for loan and lease losses or is charged off as a reduction of the allowance for loan and lease losses.

The Company also maintains an allowance for certain loans and leases, excluding purchased non-covered loans and covered loans, not considered impaired where (i) the customer is continuing to make regular payments, although payments may be past due, (ii) there is a reasonable basis to believe the customer may continue to make regular payments, although there is also an elevated risk that the customer may default, and (iii) the collateral or other repayment sources are likely to be insufficient to recover the current investment in the loan or lease if a default occurs. The Company evaluates such loans and leases to determine if an allowance is needed for these loans and leases. For the purpose of calculating the amount of such allowance, management assumes that (i) no further regular payments occur and (ii) all sums recovered will come from liquidation of collateral and collection efforts from other payment sources. To the extent that the Company’s current investment in a particular loan or lease evaluated for the need for such an allowance exceeds its net collateral value or its estimated discounted cash flows, such excess is considered allocated allowance for purposes of the determination of the allowance for loan and lease losses.

The Company may also include further allowance allocation for risk-rated loans, including commercial real estate loans and excluding purchased non-covered loans and covered loans, that are in markets determined by management to be “stressed”. Stressed markets may include any specific geography experiencing (i) high unemployment substantially above the U.S. average, (ii) significant over-development in one or more commercial real estate categories, (iii) recent or announced loss of a major employer or significant workforce reductions, (iv) significant declines in real estate values and (v) various other factors. The additional allowance for such stressed markets compensates for the expectation that a higher risk of loss is anticipated for the “work-out” or liquidation of a real estate loan in a stressed market versus a market that is not experiencing any significant levels of stress. The required allocation percentage applicable to real estate loans in stressed markets may be applied to the total market or it may be determined at the individual loan level based on collateral value, loan-to-value ratios, strength of the borrower and/or guarantor, viability of the underlying project and other factors. The Company had no allowance allocation for loans in stressed markets at December 31, 2012 or 2011.

Prior to December 31, 2011, the Company utilized the sum of all allowance amounts derived as described above, combined with a reasonable unallocated allowance, as the primary indicator of the appropriate level of allowance for loan and lease losses. During the fourth quarter of 2011, the Company refined its allowance

39

calculation whereby it “allocated” the portion of the allowance that was previously deemed to be unallocated allowance. This refined allowance calculation includes specific allowance allocations for qualitative factors including, among other factors, (i) concentrations of credit, (ii) general economic and business conditions, (iii) trends that could effect collateral values and (iv) expectations regarding the current business cycle. The Company may also consider other qualitative factors in future periods for additional allowance allocations, including, among other factors, (1) credit quality trends (including trends in nonperforming loans and leases expected to result from existing conditions), (2) seasoning of the loan and lease portfolio, (3) specific industry conditions affecting portfolio segments, (4) the Company’s expansion into new markets and (5) the offering of new loan and lease products. Because the Company refined its allowance calculation during 2011 such that it no longer maintains unallocated allowance, the Company’s allocation of its allowance at December 31, 2012 and 2011 may not be comparable with prior periods.

In addition to the allowance for loan and lease losses methodology described above, the Company compares the allowance for loan and lease losses (as a percentage of total loans and leases, excluding purchased non-covered loans and covered loans) maintained by the Bank to the peer group average percentages as shown on the most recently available FDIC’s Uniform Bank Performance Report and FRB’s Uniform Bank Holding Company Performance Report. This comparison is used to validate the overall adequacy of the allowance for loan and lease losses.

The board of directors reviews the analysis of the adequacy of the allowance for loan and lease losses on a quarterly basis, or more frequently as needed, to determine whether the amount of provisions are adequate or whether additional provisions should be made to the allowance. While the allowance is determined by (i) management’s assessment and grading of individual loans and leases in the case of loans and leases other than residential 1-4 family loans, consumer loans, purchased non-covered loans and covered loans, (ii) the past due status of residential 1-4 family loans and consumer loans, (iii) allowances made for specific loans and leases, (iv) “stressed” market allocations, (v) allowance allocations for purchased non-covered loans and covered loans and (vi) qualitative factor allocations, the total allowance amount is available to absorb losses across the Company’s entire loan and lease portfolio.

The following table sets forth the sum of the amounts of the allowance for loan and lease losses attributable to individual loans and leases within each category, or loan and lease categories in general and, prior to December 31, 2011, the unallocated allowance. As previously discussed, the Company refined its allowance calculation during 2011 such that it no longer maintains unallocated allowance. The table also reflects the percentage of loans and leases in each category to the total portfolio of loans and leases, excluding covered loans and purchased non-covered loans, for each of the periods indicated. These allowance amounts have been computed using the Company’s internal grading system, specific impairment analyses, specific special reserve analyses, “stressed” markets allocations, if any, and qualitative factor allocations. The amounts shown are not necessarily indicative of the actual future losses that may occur within particular categories. The Company had no allocation of its allowance to covered loans or purchased non-covered loans for any of the periods presented.

Allocation of the Allowance for Loan and Lease Losses

	December 31,
	2012					2011					2010					2009					2008
	Allowance		% of Loans and Leases			Allowance		% of Loans and Leases			Allowance		% of Loans and Leases			Allowance		% of Loans and Leases			Allowance		% of Loans and Leases
	(Dollars in thousands)
Real estate:
Residential 1-4 family	$	4,820		12.9	%	$	3,848		13.8	%	$	2,999		14.3	%	$	3,600		14.9	%	$	2,170		13.6	%
Non-farm/non-residential		10,107		38.1			12,203		37.7			8,313		36.5			6,574		31.9			4,396		27.3
Construction/land development		12,000		27.4			9,478		25.4			10,565		26.8			11,585		31.5			8,560		34.4
Agricultural		2,878		2.4			3,383		3.8			2,569		4.4			750		4.5			745		4.2
Multifamily residential		2,030		6.7			2,564		7.6			1,320		5.6			710		2.9			1,658		3.0
Commercial and industrial		3,655		7.6			4,591		6.4			4,142		6.5			3,587		7.9			2,421		10.2
Consumer		1,015		1.4			1,209		1.9			2,051		2.9			2,599		3.4			1,894		3.7
Direct financing leases		2,050		3.2			1,632		2.9			1,726		2.3			1,560		2.1			808		2.5
Other		183		0.3			261		0.5			201		0.7			289		0.9			209		1.1
Unallocated allowance		—					—					6,344					8,365					6,651
Total	$	38,738				$	39,169				$	40,230				$	39,619				$	29,512

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The Company maintains an internally classified loan and lease list that, along with the list of nonaccrual loans and leases, the list of impaired loans and leases, the list of loans and leases with specific reserves, the “stressed” market allocations, if any, and the qualitative factor allocations, helps management assess the overall quality of the loan and lease portfolio and the adequacy of the allowance. Loans and leases classified as “substandard” have clear and defined weaknesses such as highly leveraged positions, unfavorable financial ratios, uncertain repayment sources or poor financial condition which may jeopardize collectability of the loan or lease. Loans and leases classified as “doubtful” have characteristics similar to substandard loans and leases, but also have an increased risk that a loss may occur or at least a portion of the loan or lease may require a charge-off if liquidated. Although loans and leases classified as substandard do not duplicate loans and leases classified as doubtful, both substandard and doubtful loans and leases may include some that are past due at least 90 days, are on nonaccrual status or have been restructured. Loans and leases classified as “loss” are charged off. At December 31, 2012 substandard loans and leases, excluding covered loans and purchased non-covered loans, not designated as impaired, nonaccrual or 90 days past due, totaled $27.5 million, compared to $28.1 million at December 31, 2011 and $35.8 million at December 31, 2010. No loans or leases were designated as doubtful or loss at December 31, 2012, 2011 or 2010.

Administration of the Bank’s lending function is the responsibility of the Chief Executive Officer, Chief Credit Officer, Chief Lending Officer and certain senior lenders. Such officers perform their lending duties subject to the oversight and policy direction of the board of directors and the loan committee. Loan or lease authority is granted to the Chief Executive Officer and certain other senior officers as determined by the board of directors. Loan or lease authorities of other lending officers are granted by the loan committee on the recommendation of appropriate senior officers.

During 2012, loans and leases and aggregate loan and lease relationships exceeding $3.0 million up to the lending limits established by the Company’s board of directors may be approved by the loan committee. At December 31, 2012 the loan committee consisted of five or more directors and four of the Bank’s senior officers. The Company’s loan committee reviews various reports of loan and lease concentrations, loan and lease originations and commitments over $100,000, internally classified and watch list loans and leases and various other loan and lease reports. At least quarterly the board of directors reviews summary reports of past due loans and leases, activity in the Company’s allowance for loan and lease losses and various other loan and lease reports.

The Company’s compliance and loan review officers are responsible for the Bank’s compliance and loan review functions. Periodic reviews are scheduled for the purpose of evaluating asset quality and effectiveness of loan and lease administration. The compliance and loan review officers prepare reports which identify deficiencies, establish recommendations for improvement and outline management’s proposed action plan for curing the identified deficiencies. These reports are provided to and reviewed by the Company’s audit committee. Additionally, the reports issued by the Company’s loan review function are provided to and reviewed by the Company’s loan committee.

41

Investment Securities

At December 31, 2012, 2011 and 2010, the Company classified all of its investment securities portfolio as available for sale. Accordingly, its investment securities are stated at estimated fair value in the consolidated financial statements with the unrealized gains and losses, net of tax, reported as a separate component of stockholders’ equity and included in other comprehensive income (loss).

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

Investment Securities

	December 31,
	2012				2011				2010
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in thousands)
Obligations of states and political subdivisions	$	345,224	$	361,517	$	359,667	$	373,047	$	378,822	$	378,547
U.S. Government agency residential mortgage-backed securities		116,835		118,284		46,068		48,035		1,269		1,269
Corporate obligations		776		776		—		—		—		—
Other equity securities		13,689		13,689		17,828		17,828		18,882		18,882
Total	$	476,524	$	494,266	$	423,563	$	438,910	$	398,973	$	398,698

The Company utilizes independent third parties as its principal sources for determining fair value of investment securities which are measured on a recurring basis. As a result, the Company receives estimates of fair values from at least two independent pricing sources for the majority of its individual securities within its investment portfolio. For investment securities traded in an active market, the fair values are obtained from independent pricing services and are 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, pricing matrices or a combination thereof. For investment securities traded in a market that is not active, fair value is determined using unobservable inputs. Additionally, the valuation of investment securities acquired in FDIC-assisted or traditional acquisitions may include certain unobservable inputs. All fair value estimates received by the Company from its investment securities are reviewed and approved on a quarterly basis by the Company’s Investment Portfolio Manager and its Chief Financial Officer.

The Company’s investment securities portfolio is reported at estimated fair value, which included gross unrealized gains of $18.1 million and gross unrealized losses of $0.3 million at December 31, 2012; gross unrealized gains of $16.3 million and gross unrealized losses of $1.0 million at December 31, 2011; and gross unrealized gains of $6.4 million and gross unrealized losses of $6.7 million at December 31, 2010. Management believes that all of its unrealized losses on individual investment securities at December 31, 2012 are the result of fluctuations in interest rates and do not reflect deterioration in the credit quality of its investments. Accordingly, management considers these unrealized losses to be temporary in nature. The Company does not have the intent to sell these investment securities and more likely than not would not be required to sell these investment securities before fair value recovers to amortized cost.

The Company owns three different maturities of bonds totaling an aggregate of $2.6 million issued by the Northwest Arkansas Regional Solid Waste Management District (“District”). The District owns and operates a landfill for the benefit of the residents of certain counties located in north Arkansas, with the landfill, the revenues therefrom and certain personal property serving as collateral under the bond indenture. On October 9, 2012, a special election was held where an additional 3/8-cent sales tax proposal to be used to support the purchase of the landfill by a third party from the District was defeated. On October 23, 2012, the management board governing the District voted to place the District into receivership, and on November 30, 2012 the landfill ceased operations. As a result, during the fourth quarter of 2012, the Company recorded a $2.6 million impairment charge to reduce the carrying value of the bonds to zero. This impairment charge is included in “Net gains on investment securities,” in the accompanying consolidated statement of income.

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The following table presents the unaccreted discount and unamortized premium of the Company’s investment securities for the dates indicated.

Unaccreted Discount and Unamortized Premium

	Amortized Cost		Unaccreted Discount		Unamortized Premium			Par Value
	(Dollars in thousands)
December 31, 2012:
Obligations of states and political subdivisions	$	345,224	$	6,324	$	(516	)	$	351,032
U.S. Government agency residential mortgage-backed securities		116,835		279		(4,935	)		112,179
Corporate obligations		776		—		(23	)		753
Other equity securities		13,689		—		—			13,689
Total	$	476,524	$	6,603	$	(5,474	)	$	477,653
December 31, 2011:
Obligations of states and political subdivisions	$	359,667	$	4,969	$	(134	)	$	364,502
U.S. Government agency residential mortgage-backed securities		46,068		—		(1,556	)		44,512
Other equity securities		17,828		—		—			17,828
Total	$	423,563	$	4,969	$	(1,690	)	$	426,842

The Company recognized premium amortization, net of discount accretion, of $0.2 million during 2012 and $0.4 million during 2011. During 2010 the Company recognized discount accretion, net of premium amortization, of $0.4 million. Any premium amortization or discount accretion is considered an adjustment to the yield of the Company’s investment securities.

The Company had net gains on investment securities of $0.5 million in 2012, which included gains of $3.1 million from the sale of $40 million of investment securities and an impairment charge of $2.6 million, as previously discussed, compared to net gains of $0.9 million from the sale of $94 million of investment securities in 2011. The Company had net gains of $4.5 million from the sale of $251 million of investment securities in 2010. During 2012, 2011 and 2010, respectively, investment securities totaling $57 million, $31 million and $60 million matured or were called by the issuer. The Company purchased $63 million, $13 million and $121 million of investment securities during 2012, 2011 and 2010, respectively.

The Company invests in securities it believes offer good relative value at the time of purchase, and it will, from time to time reposition its investment securities portfolio. In making decisions to sell or purchase securities, the Company considers credit quality, call features, maturity dates, relative yields, current market factors, interest rate risk and other relevant factors.

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The following table presents the types and estimated fair values of the Company’s investment securities at December 31, 2012 based on credit ratings by one or more nationally-recognized credit rating agencies.

Credit Ratings of Investment Securities

	AAA(1)			AA(2)			A(3)			BBB(4)			Non-Rated(5)			Total
	(Dollars in thousands)
Obligations of states and political subdivisions:
Arkansas	$	—		$	110,819		$	9,673		$	5,347		$	128,974		$	254,813
Texas		1,253			40,827			5,920			14,740			14,257			76,997
Alabama		—			842			2,988			373			3,911			8,114
Georgia		—			1,498			2,490			305			1,908			6,201
Louisiana		—			5,482			—			—			—			5,482
Connecticut		—			—			2,792			—			—			2,792
Iowa		—			—			2,643			—			—			2,643
Massachusetts		—			—			—			—			1,997			1,997
Florida		—			—			—			1,324			—			1,324
Missouri		—			—			—			—			1,154			1,154
U.S. Government agency residential mortgage-backed securities		—			118,284			—			—			—			118,284
Corporate obligations		—			—			776			—			—			776
Other equity securities		—			—			—			—			13,689			13,689
Total	$	1,253		$	277,752		$	27,282		$	22,089		$	165,890		$	494,266
Percentage of total		0.3	%		56.2	%		5.5	%		4.4	%		33.6	%		100.0	%
Cumulative percentage of total		0.3	%		56.5	%		62.0	%		66.4	%		100.0	%

(1) Includes securities rated Aaa by Moody’s, AAA by Standard & Poor’s (“S&P”) or a comparable rating by other nationally-recognized credit rating agencies.

(2) Includes securities rated Aa1 to Aa3 by Moody’s, AA+ to AA- by S&P or a comparable rating by other nationally-recognized credit rating agencies.

(3) Includes securities rated A1 to A3 by Moody’s, A+ to A- by S&P or a comparable rating by other nationally-recognized credit rating agencies.

(4) Includes securities rated Baa1 to Baa3 by Moody’s, BBB+ to BBB- by S&P or a comparable rating by other nationally-recognized credit rating agencies.

(5) Includes all securities that are not rated or securities that are not rated but that have a rated credit enhancement where the Company has ignored such credit enhancement. For these securities, the Company has performed its own evaluation of the security and/or the underlying issuer and believes that such security or its issuer would warrant a credit rating of investment grade (i.e., Baa3 or better by Moody’s or BBB- or better by S&P or a comparable rating by other nationally-recognized credit rating agencies).

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The following table reflects the expected maturity distribution of the Company’s investment securities, at fair value, at December 31, 2012 and weighted-average yields (for tax-exempt obligations on a FTE basis) of such securities. The maturity for all investment securities is shown based on each security’s contractual maturity date, except (1) equity securities with no contractual maturity date which are shown in the longest maturity category, (2) U.S. Government agency residential mortgage-backed securities are allocated among various maturities based on an estimated repayment schedule utilizing Bloomberg median prepayment speeds based on interest rate levels at December 31, 2012, and (3) callable investment securities for which the Company has received notification of call are included in the maturity category in which the call occurs or is expected to occur. Actual maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. The weighted-average yields - FTE are calculated based on the coupon rate and amortized cost for such securities and do not include any projected discount accretion or premium amortization.

Expected Maturity Distribution of Investment Securities

	1 Year or Less			Over 1 Through 5 Years			Over 5 Through 10 Years			Over 10 Years			Total
	(Dollars in thousands)
Obligations of states and political subdivisions	$	8,036		$	10,885		$	34,256		$	308,340		$	361,517
U.S. Government agencyresidential mortgage-backed securities		8,580			23,752			25,817			60,135			118,284
Corporate obligations		—			—			—			776			776
Other equity securities(1)		—			—			—			13,689			13,689
Total	$	16,616		$	34,637		$	60,073		$	382,940		$	494,266
Percentage of total		3.4	%		7.0	%		12.2	%		77.4	%		100.0	%
Cumulative percentage of total		3.4	%		10.4	%		22.6	%		100.0	%
Weighted-average yield - FTE		5.1	%		3.8	%		5.3	%		6.5	%		6.1	%

(1) Includes approximately $13.3 million of FHLB-Dallas stock which has historically paid quarterly dividends at a variable rate approximating the federal funds rate.

Deposits

The Company’s lending and investing activities are funded primarily by deposits. The amount and type of deposits outstanding at December 31, 2012, 2011 and 2010 and their respective percentage of total deposits are reflected in the following table.

Deposits

	December 31,
	2012				2011				2010
	(Dollars in thousands)
Non-interest bearing	$	578,528	18.6	%	$	447,214	15.2	%	$	298,585	11.8	%
Interest bearing:
Transaction (NOW)		806,293	26.0			738,926	25.1			625,524	24.6
Savings and money market		935,385	30.2			839,523	28.5			673,534	26.5
Time deposits less than $100,000		443,233	14.3			508,675	17.3			459,027	18.1
Time deposits of $100,000 or more		337,616	10.9			409,581	13.9			484,083	19.0
Total deposits	$	3,101,055	100.0	%	$	2,943,919	100.0	%	$	2,540,753	100.0	%

In recent years, the Company has benefited from favorable change in its deposit mix. The Company’s non-CD deposits have grown and comprised 74.8% of total deposits at December 31, 2012, compared to 68.8% at December 31, 2011 and 62.9% at December 31, 2010. Non-CD deposits totaled $2.32 billion at December 31, 2012, compared to $2.03 billion at December 31, 2011 and $1.60 billion at December 31, 2010.

At December 31, 2012, the Company had outstanding brokered deposits of $47 million compared to $41 million at December 31, 2011 and $58 million at December 31, 2010.

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The following table reflects the average balance and average rate paid for each deposit category shown for the years ended December 31, 2012, 2011 and 2010.

Average Deposit Balances and Rates

	Year Ended December 31,
	2012					2011					2010
	Average Balance		Average Rate Paid			Average Balance		Average Rate Paid			Average Balance		Average Rate Paid
	(Dollars in thousands)
Non-interest bearing accounts	$	492,299		—		$	392,780		—		$	256,910		—
Interest bearing accounts:
Transaction (NOW)		713,539		0.22	%		698,808		0.39	%		574,432		0.49	%
Savings and money market		866,370		0.35			825,274		0.67			547,096		1.09
Time deposits less than $100,000		444,451		0.57			569,428		0.94			392,671		1.40
Time deposits $100,000 or more		351,002		0.53			438,030		0.92			476,748		1.22
Total deposits	$	2,867,661		0.38		$	2,924,320		0.70		$	2,247,857		1.01

The following table sets forth, by time remaining to maturity, time deposits of $100,000 and over at December 31, 2012.

Maturity Distribution of Time Deposits of $100,000 and Over

	December 31, 2012
	(Dollars in thousands)
3 months or less	$	113,769
Over 3 to 6 months		92,192
Over 6 to 12 months		89,964
Over 12 months		41,691
Total	$	337,616

The amount and percentage of the Company’s deposits by state of originating office are reflected in the following table.

Deposits by State of Originating Office

	December 31,
Deposits Attributable to Offices In	2012					2011					2010
	Amount		%			Amount		%			Amount		%
						(Dollars in thousands)
Arkansas	$	1,714,455		55.3	%	$	1,582,294		53.6	%	$	1,752,977		69.0	%
Georgia		673,702		21.7			751,087		25.5			152,333		6.0
Texas		390,532		12.6			419,422		14.3			455,089		17.9
Alabama		152,653		4.9			11,966		0.4			17,322		0.7
Florida		135,957		4.4			157,230		5.4			110,556		4.3
North Carolina		20,057		0.7			12,952		0.5			19,615		0.8
South Carolina		13,699		0.4			8,968		0.3			32,861		1.3
Total	$	3,101,055		100.0	%	$	2,943,919		100.0	%	$	2,540,753		100.0	%

Other Interest Bearing Liabilities

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

The average balance of other interest bearing liabilities decreased from $432.6 million in 2010 to $400.8 million in 2011 and $391.4 billion in 2012. The average balance of repurchase agreements with customers decreased from $49.8 million in 2010 to $39.6 million in 2011 and $34.8 million in 2012. The average balance of other borrowings decreased from $317.8 million in 2010 to $296.2 million in 2011 and $291.7 million in 2012.

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The following table reflects the average balance and average rate paid for each category of other interest bearing liabilities for the years ended December 31, 2012, 2011 and 2010.

Average Balances and Rates of Other Interest Bearing Liabilities

	Year Ended December 31,
	2012					2011					2010
	Average Balance		Average Rate Paid			Average Balance		Average Rate Paid			Average Balance		Average Rate Paid
	(Dollars in thousands)
Repurchase agreements with customers	$	34,776		0.13	%	$	39,638		0.44	%	$	49,835		0.76	%
Other borrowings(1)		291,678		3.68			296,195		3.66			317,796		3.82
Subordinated debentures		64,950		2.85			64,950		2.68			64,950		2.72
Total other interest bearing liabilities	$	391,404		3.22	%	$	400,783		3.18	%	$	432,581		3.30	%

(1) Included in other borrowings at December 31, 2012, 2011 and 2010 are FHLB-Dallas advances that contain quarterly call features and mature as follows: 2017, $260.0 million at 3.90% weighted-average rate; and 2018, $20.0 million at 2.53% weighted-average rate.

Capital Resources and Liquidity

Capital Resources

Subordinated Debentures. At December 31, 2012, the Company had an aggregate of $64.9 million of subordinated debentures and related trust preferred securities outstanding consisting of $20.6 million of subordinated debentures and securities issued in 2006 that bear interest, adjustable quarterly, at LIBOR plus 1.60%; $15.4 million of subordinated debentures and securities issued in 2004 that bear interest, adjustable quarterly, at LIBOR plus 2.22%; and $28.9 million of subordinated debentures and securities issued in 2003 that bear interest, adjustable quarterly, at a weighted-average rate of LIBOR plus 2.925%. These subordinated debentures and securities generally mature 30 years after issuance and may be prepaid at par, subject to regulatory approval, on or after approximately five years from the date of issuance, or at an earlier date upon certain changes in tax laws, investment company laws or regulatory capital requirements. These subordinated debentures and the related trust preferred securities provide the Company additional regulatory capital to support its expected future growth and expansion.

Common Stockholders’ Equity and Tangible Common Stockholder’s Equity. The Company uses its common stockholders’ equity ratio and its tangible common stockholders’ equity ratio as the principal measures of the strength of its capital. The calculation of the Company’s common stockholders’ equity ratio and its tangible common stockholders’ equity ratio at December 31, 2012, and 2011 are presented in the following table.

Common Stockholders’ Equity and Tangible Common Stockholders’ Equity

	December 31,
	2012			2011
	(Dollars in thousands)
Total common stockholders’ equity	$	507,664		$	424,551
Less: intangible assets		(11,827	)		(12,207	)
Total tangible common stockholders’ equity	$	495,837		$	412,344
Total assets	$	4,040,207		$	3,841,651
Less: intangible assets		(11,827	)		(12,207	)
Total tangible assets	$	4,028,380		$	3,829,444
Common stockholders’ equity to total assets		12.57	%		11.05	%
Tangible common stockholders’ equity to tangible assets		12.31	%		10.77	%

Common Stock Dividend Policy. In 2012 the Company paid dividends of $0.50 per share. In 2011 and 2010 the Company paid dividends of $0.37 per share and $0.30 per share, respectively. In 2012, the per share dividend was $0.11 in the first quarter, $0.12 in the second quarter, $0.13 in the third quarter and $0.14 in the fourth quarter. In 2011, the per share dividend was $0.085 in the first quarter, $0.09 in the second quarter, $0.095 in the third quarter and $0.10 in the fourth quarter. In 2010, the per share dividend was $0.07 in the first quarter, $0.075 per quarter in the second and third quarters, and $0.08 in the fourth

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quarter. On January 2, 2013, the Company’s board of directors approved a dividend of $0.15 per common share that was paid on January 25, 2013. The determination of future dividends on the Company’s common stock will depend on conditions existing at that time.

Capital Compliance

Regulatory Capital. Bank regulatory authorities in the United States impose certain capital standards on all bank holding companies and banks. These capital standards require compliance with certain minimum “risk-based capital ratios” and a minimum “leverage ratio.” The risk-based capital ratios consist of (1) Tier 1 capital (common stockholders’ equity excluding goodwill, certain intangibles and net unrealized gains and losses on available-for-sale investment securities, but including, subject to limitations, trust preferred securities, certain types of preferred stock and other qualifying items) to risk-weighted assets and (2) total capital (Tier 1 capital plus Tier 2 capital which includes the qualifying portion of the allowance for loan and lease losses and the portion of trust preferred securities not counted as Tier 1 capital) to risk-weighted assets. The Tier 1 leverage ratio is measured as Tier 1 capital to adjusted quarterly average assets.

The Company’s consolidated risk-based capital and leverage ratios exceeded these minimum requirements at December 31, 2012 and 2011 and are presented in the following table, followed by the capital ratios of the Bank at December 31, 2012 and 2011.

Consolidated Capital Ratios

	December 31,
	2012			2011
	(Dollars in thousands)
Tier 1 capital:
Common stockholders’ equity	$	507,664		$	424,551
Allowed amount of trust preferred securities		63,000			63,000
Net unrealized losses (gains) on investment securities AFS		(10,783	)		(9,327	)
Less goodwill and certain intangible assets		(11,827	)		(12,207	)
Total Tier 1 capital		548,054			466,017
Tier 2 capital:
Qualifying allowance for loan and lease losses		37,820			33,038
Total risk-based capital	$	585,874		$	499,055
Risk-weighted assets	$	3,026,495		$	2,636,875
Adjusted quarterly average assets - fourth quarter	$	3,806,635		$	3,864,468
Ratios at end of period:
Tier 1 leverage		14.40	%		12.06	%
Tier 1 risk-based capital		18.11			17.67
Total risk-based capital		19.36			18.93
Minimum ratio guidelines:
Tier 1 leverage(1)		3.00	%		3.00	%
Tier 1 risk-based capital		4.00			4.00
Total risk-based capital		8.00			8.00
Minimum ratio guidelines to be “well capitalized”:
Tier 1 leverage		5.00	%		5.00	%
Tier 1 risk-based capital		6.00			6.00
Total risk-based capital		10.00			10.00

(1) Regulatory authorities require institutions to operate at varying levels (ranging from 100-200 bps) above a minimum Tier 1 leverage ratio of 3% depending upon capitalization classification.

Bank Capital Ratios

	December 31,
	2012			2011
	(Dollars in thousands)
Stockholders’ equity - Tier 1 capital	$	536,084		$	445,789
Tier 1 leverage ratio		14.13	%		11.58	%
Tier 1 risk-based capital ratio		17.70			16.98
Total risk-based capital ratio		18.95			18.23

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The regulatory capital ratios for the Company and the Bank at December 31, 2012 include the assets acquired, liabilities assumed, and capital issued in connection with the acquisition of Genala. However, pursuant to the instructions for bank holding company regulatory reports filed with the FRB and the instructions for bank regulatory reports filed with the FDIC, separate regulatory reports were required to be filed with the FRB for the Company (without the assets and liabilities of Genala) and for Genala at December 31, 2012. Separate regulatory reports were also required to be filed with the FDIC for the Bank (without the assets and liabilities of Genala’s wholly-owned bank subsidiary, The Citizens Bank) and for the The Citizens Bank at December 31, 2012. Beginning January 1, 2013 all regulatory reports filed by the Company and the Bank will include all assets, liabilities and activity of Genala and The Citizens Bank, with separate regulatory reports for Genala and The Citizens Bank no longer required.

Notices of Proposed Rulemaking (“NPR”). On June 7, 2012 the FRB, the Office of Comptroller of Currency and the FDIC jointly issued two NPRs for public comment. The first NPR, “Regulatory Capital Rules: Regulatory Capital, Implementation of Basel III, Minimum Regulatory Capital Ratios, Capital Adequacy, and Transition Provisions,” would revise the general risk-based capital rules to incorporate certain revisions by the Basel Committee on Banking Supervision to the Basel capital framework. The provisions of this NPR would:

• revise the definition of regulatory capital components and related calculations;

• add a new common equity tier 1 capital ratio;

• increase the minimum tier 1 risk-based capital ratio requirement from four percent to six percent;

• impose different limitations to qualifying minority interest in regulatory capital;

• incorporate revised regulatory capital requirements into the Prompt Corrective Action (“PCA”) Framework;

• implement a new capital conservation buffer that would limit payment of capital distributions and certain discretionary bonus payments to executive officers if the banking organization does not hold certain amounts of common tier 1 capital in addition to the minimum risk-based capital requirements; and

• provide for a transition period for several aspects of the proposed rule, including a phase-out period for certain non-qualifying capital instruments, the new minimum capital ratio requirements, the capital conservation buffer, and the regulatory capital adjustments and deductions.

The specific provisions of the NPR regarding capital requirements would alter the existing definition of capital by imposing, among other requirements, additional constraints on the inclusion of certain items in regulatory capital (including trust preferred securities), require that most accumulated other comprehensive income be included in regulatory capital, and establish a new common equity tier 1 capital requirement. This NPR also would establish a capital conservation buffer that, if not met, could reduce a bank’s payout amount for capital distributions and discretionary bonus payments. Additionally, this NPR proposes revisions to the PCA capital category thresholds to reflect new capital ratio requirements. The provisions of this NPR would phase in over a number of years with certain changes to the capital requirements initially proposed to begin in 2013 and phase in over three years and with the capital conservation buffer requirements beginning in 2016 and phasing in over four years.

The second NPR, “Regulatory Capital Rules: Standardized Approach for Risk-Weighted Assets: Market Discipline and Disclosure Requirements,” would revise the measurement of risk-weighted assets. The provisions of this NPR would:

• revise risk weights for exposures to foreign sovereign entities, foreign banking organizations and foreign public sector entities;

• revise risk weights for residential mortgages based on loan-to-value ratios and certain products and underwriting features;

• increase capital requirements for past-due loans, high volatility commercial real estate exposures, and certain short-term loan commitments;

• expand the recognition of collateral and guarantors in determining risk-weighted assets; and

• establish due diligence requirements for securitization exposures.

The provisions of this NPR would take effect on January 1, 2015. At the present time neither of these NPRs has been issued as a final rule or revised and re-proposed for further public comment. Management is currently evaluating these proposed rules and is continuing to monitor developments with these NPRs to determine what effect these NPRs might have on both the Bank’s and Company’s regulatory capital requirements.

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Liquidity

Bank Liquidity. Liquidity represents an institution’s ability to provide funds to satisfy demands from depositors, borrowers and other creditors by either converting assets into cash or accessing new or existing sources of incremental funds. Liquidity risk arises from the possibility the Company may be unable to satisfy current or future funding requirements and needs. The ALCO and Investments Committee (“ALCO”), which reports to the board of directors, has primary responsibility for oversight of the Company’s liquidity, funds management, asset/liability (interest rate risk) position and investment portfolio functions.

The objective of managing liquidity risk is to ensure the cash flow requirements resulting from depositor, borrower and other creditor demands are met, as well as operating cash needs of the Company, and the cost of funding such requirements and needs is reasonable. The Company maintains an interest rate risk, liquidity and funds management policy and a contingency funding plan that, among other things, include policies and procedures for managing liquidity risk. Generally the Company relies on deposits, repayments of loans, leases, covered loans and purchased non-covered loans, and repayments of its investment securities as its primary sources of funds. The principal deposit sources utilized by the Company include consumer, commercial and public funds customers in the Company’s markets. The Company has used these funds, together with wholesale deposit sources such as brokered deposits, along with FHLB-Dallas advances, federal funds purchased and other sources of short-term borrowings, to make loans and leases, acquire investment securities and other assets and to fund continuing operations.

Deposit levels may be affected by a number of factors, including rates paid by competitors, general interest rate levels, returns available to customers on alternative investments, general economic and market conditions and other factors. Loan and lease repayments are a relatively stable source of funds but are subject to the borrowers’ and lessees’ ability to repay the loans and leases, which can be adversely affected by a number of factors including changes in general economic conditions, adverse trends or events affecting business industry groups or specific businesses, declines in real estate values or markets, business closings or lay-offs, inclement weather, natural disasters and other factors. Furthermore, loans and leases generally are not readily convertible to cash. Accordingly, the Company may be required from time to time to rely on secondary sources of liquidity to meet growth in loans and leases and deposit withdrawal demands or otherwise fund operations. Such secondary sources include FHLB-Dallas advances, secured and unsecured federal funds lines of credit from correspondent banks and FRB borrowings.

At December 31, 2012 the Company had substantial unused borrowing availability. This availability was primarily comprised of the following four options: (1) $426 million of available blanket borrowing capacity with the FHLB-Dallas, (2) $175 million of investment securities available to pledge for federal funds or other borrowings, (3) $154 million of available unsecured federal funds borrowing lines and (4) up to $96 million of available borrowing capacity from borrowing programs of the FRB.

The Company anticipates it will continue to rely primarily on deposits, repayments of loans, leases, covered loans and purchased non-covered loans, and repayments of its investment securities to provide liquidity, as well as other funding sources as appropriate. Additionally, where necessary, the sources of borrowed funds described above will be used to augment the Company’s primary funding sources.

Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”). On July 21, 2010, the Dodd-Frank Act was signed into law. Among other things, the Dodd-Frank Act provided for full deposit insurance with no maximum coverage amount for non-interest bearing transaction accounts for two years beginning December 31, 2010. Additionally, the Dodd-Frank Act permanently increased the maximum deposit insurance coverage for all other deposit categories to $250,000 retroactive to January 1, 2008. On December 31, 2012 the full deposit insurance provided by the Dodd-Frank Act for non-interest bearing transaction accounts expired. As a result, these accounts are now insured up to the maximum of $250,000.

Sources and Uses of Funds. Operating activities used net cash of $15 million in 2012 and provided net cash of $21 million and $41 million in 2011 and 2010, respectively. Net cash provided by operating activities is comprised primarily of net income, adjusted for certain non-cash items and for changes in various operating assets and liabilities.

Investing activities provided $187 million in 2012, $792 million in 2011 and $492 million in 2010. The Company’s investing activities include net loan and lease fundings, which used $216 million in 2012 and $27 million in 2011 and provided $38 million in 2010. Net activity in the Company’s investment securities portfolio provided $37 million in 2012, $112 million in 2011 and $194 million in 2010. The Company received $29 million of cash, net of amounts paid, in its acquisition of Genala in 2012.

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The Company received $365 million of cash in connection with its three FDIC-assisted acquisitions in 2011 and $201 million of cash in connection with its four FDIC-assisted acquisitions in 2010. Payments received on covered loans provided $212 million in 2012, $206 million in 2011 and $46 million in 2010, and payments received from the FDIC under loss share agreements provided $144 million in 2012, $109 million in 2011 and $20 million in 2010. Other loss share activity provided $22 million in 2012 and $8 million in 2011. Purchases of premises and equipment used $46 million in 2012, $21 million in 2011, and $17 million in 2010. The Company purchased $59 million of BOLI in 2012 and $10 million of BOLI in 2010 (none in 2011). The Company invested $2 million in 2011 and $5 million in 2010 in unconsolidated investments and noncontrolling interest. Proceeds from sales of other assets provided $65 million in 2012, $42 million in 2011 and $24 million in 2010.

Financing activities used $23 million in 2012, $804 million in 2011 and $562 million in 2010. The Company’s net changes in deposit accounts provided $14 million in 2012 and used $712 million in 2011 and $441 million in 2010. The Company’s net repayments of other borrowings and repurchase agreements with customers used $24 million in 2012, $84 million in 2011 and $115 million in 2010. The Company paid common stock cash dividends of $17 million in 2012, $13 million in 2011, and $10 million in 2010. Proceeds and current tax benefits on exercise of stock options provided $6 million in 2012, $5 million in 2011 and $3 million in 2010.

Contractual Obligations. The following table presents, as of December 31, 2012, significant fixed and determinable contractual obligations to third parties by contractual date with no consideration given to earlier call or prepayment features. Other obligations consist primarily of contractual obligations for capital expenditures, software contracts and various other contractual obligations.

Contractual Obligations

	1 Year or Less		Over 1 Through 3 Years		Over 3 Through 5 Years		Over 5 Years		Total
	(Dollars in thousands)
Time deposits(1)	$	685,199	$	91,506	$	5,709	$	644	$	783,058
Deposits without a stated maturity(2)		2,320,495		—		—		—		2,320,495
Repurchase agreements with customers(1)		29,551		—		—		—		29,551
Other borrowings(1)		11,761		21,686		278,425		20,711		332,583
Subordinated debentures(1)		1,943		3,542		3,542		78,356		87,383
Lease obligations		1,147		1,538		948		1,236		4,869
Other obligations		21,567		6,089		3,300		33,017		63,973
Total contractual obligations	$	3,071,663	$	124,361	$	291,924	$	133,964	$	3,621,912

(1) Includes unpaid interest through the contractual maturity on both fixed and variable rate obligations. The interest included on variable rate obligations is based upon interest rates in effect at December 31, 2012. The contractual amounts to be paid on variable rate obligations are affected by changes in interest rates. Future changes in interest rates could materially affect the contractual amounts to be paid.

(2) Includes interest accrued and unpaid through December 31, 2012.

Off-Balance Sheet Commitments. The following table details the amounts and expected maturities of significant off-balance sheet commitments as of December 31, 2012. Commitments to extend credit do not necessarily represent future cash requirements as these commitments may expire without being drawn.

Off-Balance Sheet Commitments

	1 Year or Less		Over 1 Through 3 Years		Over 3 Through 5 Years		Over 5 Years		Total
	(Dollars in thousands)
Commitments to extend credit(1)	$	159,462	$	460,047	$	156,119	$	11,879	$	787,507
Standby letters of credit		18,201		983		56		—		19,240
Total commitments	$	177,663	$	461,030	$	156,175	$	11,879	$	806,747

(1) Includes commitments to extend credit under mortgage interest rate locks of $18.1 million that expire in one year or less.

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Interest Rate Risk

Interest rate risk results from timing differences in the repricing of assets and liabilities or from changes in relationships between interest rate indexes. The Company’s interest rate risk management is the responsibility of the ALCO.

The Company regularly reviews its exposure to changes in interest rates. Among the factors considered are changes in the mix of interest earning assets and interest bearing liabilities, interest rate spreads and repricing periods. Typically, the ALCO reviews on at least a quarterly basis the Company’s relative ratio of rate sensitive assets (“RSA”) to rate sensitive liabilities (“RSL”) and the related cumulative gap for different time periods. However, the primary tool used by the ALCO to analyze the Company’s interest rate risk and interest rate sensitivity is an earnings simulation model.

This earnings simulation modeling process projects a baseline net interest income (assuming no changes in interest rate levels) and estimates changes to that baseline net interest income resulting from changes in interest rate levels. The Company relies primarily on the results of this model in evaluating its interest rate risk. This model incorporates a number of factors including: (1) the expected exercise of call features on various assets and liabilities, (2) the expected rates at which various RSA and RSL will reprice, (3) the expected growth in various interest earning assets and interest bearing liabilities and the expected interest rates on such new assets and liabilities, (4) the expected relative movements in different interest rate indexes which are used as the basis for pricing or repricing various assets and liabilities, (5) existing and expected contractual ceiling and floor rates on various assets and liabilities, (6) expected changes in administered rates on interest bearing transaction, savings, money market and time deposit accounts and the expected impact of competition on the pricing or repricing of such accounts and (7) other relevant factors. Inclusion of these factors in the model is intended to more accurately project the Company’s expected changes in net interest income resulting from interest rate changes. The Company models its change in net interest income assuming interest rates go up 100 bps, up 200 bps, up 300 bps, up 400 bps, down 100 bps, down 200 bps, down 300 bps and down 400 bps. Based on current conditions, the Company believes that modeling its change in net interest income assuming rates go down 100 bps, down 200 bps, down 300 bps and down 400 bps is not meaningful. For purposes of this model, the Company has assumed that the change in interest rates phases in over a 12-month period. While the Company believes this model provides a reasonably accurate projection of its interest rate risk, the model includes a number of assumptions and predictions which may or may not be correct and may impact the model results. These assumptions and predictions include inputs to compute baseline net interest income, growth rates, expected changes in administered rates on interest bearing deposit accounts, competition and a variety of other factors that are difficult to accurately predict. Accordingly, there can be no assurance the earnings simulation model will accurately reflect future results.

The following table presents the earnings simulation model’s projected impact of a change in interest rates on the projected baseline net interest income for the 12-month period commencing January 1, 2013. This change in interest rates assumes parallel shifts in the yield curve and does not take into account changes in the slope of the yield curve.

Earnings Simulation Model Results

Change in Interest Rates     (in bps)	% Change in Projected Baseline Net Interest Income
+400	1.6%
+300	0.6
+200	0.2
+100	0.0
-100	Not meaningful
-200	Not meaningful
-300	Not meaningful
-400	Not meaningful

In the event of a shift in interest rates, the Company may take certain actions intended to mitigate the negative impact to net interest income or to maximize the positive impact to net interest income. These actions may include, but are not limited to, restructuring of interest earning assets and interest bearing liabilities, seeking alternative funding sources or investment opportunities and modifying the pricing or terms of loans, leases and deposits.

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Impact of Inflation and Changing Prices

The consolidated financial statements and related notes presented elsewhere in this report have been prepared in accordance GAAP. This requires the measurement of financial position and operating results in terms of historical dollars without considering the changes in the relative purchasing power of money over time due to inflation. Unlike most industrial companies, the vast majority of the assets and liabilities of the Company are monetary in nature. As a result, interest rates have a greater impact on the Company’s performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

Growth and Expansion

The Company expects to continue its growth and de novo branching strategy, although it has slowed the pace of new office openings in recent years. During 2010 and 2011, most new offices added by the Company were the result of branches acquired in FDIC-assisted acquisitions. In the first quarter of 2012, the Company opened its ninth metro-Dallas area office in The Colony, Texas and a loan production office in Austin, Texas. In July of 2012, the Company opened its tenth metro-Dallas area office in Southlake, Texas and a loan production office in Atlanta, Georgia. In August of 2012, the Company relocated from a leased facility to a bank-owned facility in Bluffton, South Carolina, and in September of 2012, the Company opened its second office in Mobile, Alabama. In October of 2012, the Company relocated from a leased facility to a bank-owned facility in Wilmington, North Carolina and in December 2012, it relocated its original Mobile, Alabama office from the current leased facility to a bank-owned facility. In the first or second quarter of 2013, the Company expects to replace its existing Charlotte, North Carolina loan production office with a full-service banking office.

On December 31, 2012, the Company completed its acquisition of Genala in a transaction valued at approximately $27.5 million. The Company paid $13.4 million of cash and issued 423,616 shares of its common stock valued at approximately $14.1 million in exchange for all outstanding shares of Genala common stock. Genala was the holding company for The Citizens Bank, which operated one banking office in Geneva, Alabama.

On January 24, 2013 the Company entered into a definitive agreement and plan of merger (“Agreement”) with The First National Bank of Shelby (“First National Bank”) in Shelby, North Carolina. According to the terms of the Agreement, the Company will acquire all of the outstanding common stock of First National Bank in a transaction valued at approximately $67.8 million, including $64.0 million of merger consideration for the outstanding common stock of the First National Bank, subject to certain adjustments, and approximately $3.8 million representing the value of real property which is being simultaneously purchased by the Company from parties related to First National Bank and on which certain First National Bank offices are located. First National Bank operates 14 North Carolina banking offices in a four county area west of Charlotte including nine offices in Cleveland County, three offices in Gaston County, and one office each in Lincoln and Rutherford Counties. The closing of the transaction with First National Bank is subject to certain conditions, including receipt of state and federal banking regulatory approvals and the approval of the shareholders of First National Bank.

Opening new offices is subject to availability of qualified personnel and suitable sites, designing, constructing, equipping and staffing such offices, obtaining regulatory and other approvals and many other conditions and contingencies that the Company cannot predict with certainty. The Company may increase or decrease its expected number of new offices as a result of a variety of factors including the Company’s financial results, changes in economic or competitive conditions, strategic opportunities or other factors.

During 2012 the Company spent $46 million on capital expenditures for premises and equipment, including premises and equipment acquired in FDIC-assisted acquisitions. The Company’s capital expenditures for 2013 are expected to be in the range of $11 million to $17 million, including progress payments on construction projects expected to be completed in 2013 and 2014, furniture and equipment costs and acquisition of sites for future development. Actual expenditures may vary significantly from those expected, depending on the number and cost of additional branch offices acquired or constructed and sites acquired for future development, progress or delays encountered on ongoing and new construction projects, delays in or inability to obtain required approvals, potential premises and equipment expenditures associated with FDIC-assisted or traditional acquisitions, if any, and other factors.

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Critical Accounting Policies

The preparation of financial statements in conformity with GAAP requires management to make estimates, assumptions and judgments that affect the amounts reported in the consolidated financial statements. The Company’s determination of (i) the provisions to and the adequacy of the allowance for loan and lease losses, (ii) the fair value of its investment securities portfolio, (iii) the fair value of foreclosed assets not covered by FDIC loss share agreements and (iv) the fair value of the assets acquired and liabilities assumed pursuant to business combination transactions all involve a higher degree of judgment and complexity than its other significant accounting policies. Accordingly, the Company considers the determination of (i) provisions to and the adequacy of the allowance for loan and lease losses, (ii) the fair value of its investment securities portfolio, (iii) the fair value of foreclosed assets not covered by FDIC loss share agreements and (iv) the fair value of the assets acquired and liabilities assumed pursuant to business combination transactions to be critical accounting policies.

Provisions to and adequacy of the allowance for loan and lease losses. The ALLL is established through a provision for such losses charged against income. All or portions of loans or leases, excluding purchased non-covered loans and covered loans, deemed to be uncollectible are charged against the ALLL when management believes that collectibility of all or some portion of outstanding principal is unlikely. Subsequent recoveries, if any, of loans or leases previously charged off are credited to the ALLL.

The ALLL is maintained at a level management believes will be adequate to absorb probable incurred losses in the loan and lease portfolio. Provisions to and the adequacy of the allowance for loan and lease losses are based on evaluations of the loan and lease portfolio utilizing objective and subjective criteria. The objective criteria primarily include an internal grading system and specific allowances. In addition to these objective criteria, the Company subjectively assesses the adequacy of the allowance for loan and lease losses and the need for additions thereto, with consideration given to the nature and mix of the portfolio, including concentrations of credit; general economic and business conditions, including national, regional and local business and economic conditions that may affect borrowers’ or lessees’ ability to pay; expectations regarding the current business cycle; trends that could affect collateral values and other relevant factors. The Company also utilizes a peer group analysis and a historical analysis to validate the overall adequacy of its allowance for loan and lease losses. Changes in any of these criteria or the availability of new information could require adjustment of the ALLL in future periods. While a specific allowance has been calculated for impaired loans and leases and for loans and leases where the Company has otherwise determined a specific reserve is appropriate, no portion of the Company’s ALLL is restricted to any individual loan or lease or group of loans or leases, and the entire ALLL is available to absorb losses from any and all loans and leases.

The Company’s internal grading system assigns one of nine grades to all loans and leases, with each grade being assigned a specific allowance allocation percentage, except residential 1-4 family loans, consumer loans, purchased non-covered loans, and covered loans.

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

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

Allowance allocation percentages for the various risk grades and past due categories for residential 1-4 family and consumer loans are determined by management and are adjusted periodically. In determining these allowance allocation percentages, management considers, among other factors, historical loss percentages and a variety of subjective criteria in determining the allowance allocation percentages.

For covered loans, management separately monitors this portfolio and periodically reviews loans contained within this portfolio against the factors and assumptions used in determining the Day 1 Fair Values. To the extent that a loan’s performance has deteriorated from management’s expectation established in conjunction with the determination of the Day 1 Fair Values, such loan is considered in the determination of the required level of allowance for loan and lease losses. To the extent that a revised loss estimate exceeds the loss estimate established in the determination of the Day 1 Fair Values, such deterioration will result in an allowance allocation or a charge-off.

For purchased non-covered loans, management segregates this portfolio into loans that contain evidence of credit deterioration on the date of purchase and loans that do not contain evidence of credit deterioration on the date of purchase. Purchased non-covered loans with evidence of credit deterioration are regularly monitored and are periodically reviewed by management. To the extent that a loan’s performance has deteriorated from management’s expectation established in conjunction with the determination of the Day 1 Fair Values, such loan is considered in the determination of the required level of allowance for loan and lease losses. To the extent that a revised loss estimate exceeds the loss estimate established in the determination of Day 1 Fair Values, such determination will result in an allowance allocation or a charge-off.

All other purchased non-covered loans are graded by management at the time of purchase. The grade on these purchased non-covered loans are reviewed regularly as part of the ongoing assessment of such loans. To the extent that current information indicates it is possible that the Company will not be able to collect all amounts according to the contractual terms thereof, such loan is considered in the determination of the required level of allowance for loan and lease losses and may result in an allowance allocation or a charge-off.

At December 31, 2012 and 2011, the Company had no allowance for its purchased non-covered loans and its covered loans because all losses had been charged off on such loans whose performance had deteriorated from management’s expectations established in conjunction with the determination of the Day 1 Fair Values.

The Company generally places a loan or lease on nonaccrual status when such loan or lease is (i) deemed impaired or (ii) 90 days or more past due, or earlier when doubt exists as to the ultimate collection of payments. The Company may continue to accrue interest on certain loans or leases contractually past due 90 days or more if such loans or leases are both well secured and in the process of collection. At the time a loan or lease is placed on nonaccrual status, interest previously accrued but uncollected is generally reversed and charged against interest income. Nonaccrual loans and leases are generally returned to accrual status when payments are less than 90 days past due and the Company reasonably expects to collect all payments. If a loan or lease is determined to be uncollectible, the portion of the principal determined to be uncollectible will be charged against the allowance for loan and lease losses. Loans for which the terms have been modified and for which (i) the borrower is experiencing financial difficulties and (ii) a concession has been granted to the borrower by the Company are considered TDRs and are included in impaired loans and leases. Income on nonaccrual loans or leases, including impaired loans and leases but excluding certain TDRs which continue to accrue interest, is recognized on a cash basis when and if actually collected.

All loans and leases deemed to be impaired are evaluated individually. The Company considers a loan or lease, excluding purchased non-covered loans and covered loans, to be impaired when based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms thereof. The Company considers a purchased non-covered loan with evidence of credit deterioration at the date of purchase and a covered loan to be impaired once a decrease in expected cash flows or other deterioration in the loan’s expected performance, subsequent to the determination of the Day 1 Fair Values, results in an allowance allocation, a partial or full charge-off or in a provision for loan and lease losses. Purchased non-covered loans without evidence of credit deterioration at the date of purchase are considered impaired when current information indicates it is probable that the Company will not be able to collect all amounts due according to the contractual terms thereof. Most of the Company’s nonaccrual loans and leases, excluding purchased non-covered loans and covered loans, and all TDRs are considered impaired. The majority of the Company’s impaired loans and leases are dependent upon collateral for repayment. For such loans and leases, impairment is measured by comparing collateral value, net of holding and selling

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costs, to the current investment in the loan or lease. For all other impaired loans and leases, the Company compares estimated discounted cash flows to the current investment in the loan or lease. To the extent that the Company’s current investment in a particular loan or lease exceeds its estimated net collateral value or its estimated discounted cash flows, the impaired amount is specifically considered in the determination of the allowance for loan and lease losses or is charged off as a reduction of the allowance for loan and lease losses.

The Company also maintains an allowance for certain loans and leases, excluding purchased non-covered loans and covered loans, not considered impaired where (i) the customer is continuing to make regular payments, although payments may be past due, (ii) there is a reasonable basis to believe the customer may continue to make regular payments, although there is also an elevated risk that the customer may default, and (iii) the collateral or other repayment sources are likely to be insufficient to recover the current investment in the loan or lease if a default occurs. The Company evaluates such loans and leases to determine if an allowance is needed for these loans and leases. For the purpose of calculating the amount of such allowance, management assumes that (i) no further regular payments occur and (ii) all sums recovered will come from liquidation of collateral and collection efforts from other payment sources. To the extent that the Company’s current investment in a particular loan or lease evaluated for the need for such an allowance exceeds its net collateral value or its estimated discounted cash flows, such excess is considered allocated allowance for purposes of the determination of the allowance for loan and lease losses.

The Company may also include further allowance allocation for risk-rated loans, including commercial real estate loans and excluding purchased non-covered loans and covered loans, that are in markets determined by management to be “stressed”. Stressed markets may include any specific geography experiencing (i) high unemployment substantially above the U.S. average, (ii) significant over-development in one or more commercial real estate categories, (iii) recent or announced loss of a major employer or significant workforce reductions, (iv) significant declines in real estate values and (v) various other factors. The additional allowance for such stressed markets compensates for the expectation that a higher risk of loss is anticipated for the “work-out” or liquidation of a real estate loan in a stressed market versus a market that is not experiencing any significant levels of stress. The required allocation percentage applicable to real estate loans in stressed markets may be applied to the total market or it may be determined at the individual loan level based on collateral value, loan-to-value ratios, strength of the borrower and/or guarantor, viability of the underlying project and other factors. The Company had no allowance allocation for loans in stressed markets at December 31, 2012 or 2011.

Prior to December 31, 2011, the Company utilized the sum of all allowance amounts derived as described above, combined with a reasonable unallocated allowance, as the primary indicator of the appropriate level of allowance for loan and lease losses. During the fourth quarter of 2011, the Company refined its allowance calculation whereby it “allocated” the portion of the allowance that was previously deemed to be unallocated allowance. This refined allowance calculation includes specific allowance allocations at December 31, 2012 and 2011 for qualitative factors including (i) concentrations of credit, (ii) general economic and business conditions, (iii) trends that could affect collateral values and (iv) expectations regarding the current business cycle. The Company may also consider other qualitative factors in future periods for additional allowance allocations, including, among other factors, (1) credit quality trends (including trends in nonperforming loans and leases expected to result from existing conditions), (2) seasoning of the loan and lease portfolio, (3) specific industry conditions affecting portfolio segments, (4) the Company’s expansion into new markets and (5) the offering of new loan and lease products.

Changes in the criteria used in this evaluation or the availability of new information could cause the allowance to be increased or decreased in future periods. In addition bank regulatory agencies, as part of their examination process, may require adjustments to the allowance for loan and lease losses based on their judgments and estimates.

Fair value of the investment securities portfolio. The Company has classified all of its investment securities as 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 taxes, reported as a separate component of stockholders’ equity and any related changes are included in accumulated other comprehensive income (loss).

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The Company utilizes independent third parties as its principal sources for determining fair value of investment securities which are measured on a recurring basis. As a result, the Company receives estimates of fair values from at least two independent pricing sources for the majority of its individual securities within its investment portfolio. For investment securities traded in an active market, the fair values are obtained from independent pricing services and are 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, pricing matrices or a combination thereof. For investment securities traded in a market that is not active, fair value is determined using unobservable inputs. Additionally, the valuation of investment securities acquired in FDIC-assisted or traditional acquisitions may include certain unobservable inputs. All fair value estimates received by the Company from its investment securities are reviewed and approved on a quarterly basis by the Company’s Investment Portfolio Manager and its Chief Financial Officer.

The fair values of the Company’s investment securities traded in both active and inactive markets can be volatile and may be influenced by a number of factors including market interest rates, prepayment speeds, discount rates, credit quality of the issuer, general market conditions including market liquidity conditions and other factors. Factors and conditions are constantly changing and fair values could be subject to material variations that may significantly impact the Company’s financial condition, results of operations and liquidity.

Fair value of foreclosed assets not covered by FDIC loss share agreements. Repossessed personal properties and real estate acquired through or in lieu of foreclosure are initially recorded at the lesser of current principal investment or fair value less estimated cost to sell at the date of repossession or foreclosure. Valuations of these assets are periodically reviewed by management with the carrying value of such assets adjusted through non-interest expense to the then estimated fair value net of estimated selling costs, if lower, until disposition. Fair values of these assets are generally based on third party appraisals, broker price opinions or other valuations of the property.

Fair value of assets acquired and liabilities assumed pursuant to business combination transactions. Assets acquired and liabilities assumed in business combinations are recorded at estimated fair value on their purchase date. As provided for under GAAP, management has up to 12 months following the date of the acquisition to finalize the fair values of acquired assets and assumed liabilities. Once management has finalized the fair values of acquired assets and assumed liabilities within this 12-month period, management considers such values to be the Day 1 Fair Values.

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

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

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In determining the Day 1 Fair Values of covered loans, management calculates a non-accretable difference (the credit component of the covered loans) and an accretable difference (the yield component of the covered loans). The non-accretable difference is the difference between the contractually required payments and the cash flows expected to be collected in accordance with management’s determination of the Day 1 Fair Values. Subsequent decreases to the expected cash flows will generally result in a provision for loan and lease losses. Subsequent increases in 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. Any such increase or decrease in expected cash flows will result in a corresponding decrease or increase, respectively, of the FDIC loss share receivable for the portion of such reduced or additional loss expected to be collected from the FDIC.

The accretable difference on covered loans is the difference between the expected cash flows and the net present value of expected cash flows. Such difference is accreted into earnings using the effective yield method over the term of the loans. In determining the net present value of the expected cash flows, the Company used discount rates ranging from 6.0% to 9.5% per annum depending on the risk characteristics of each individual loan. At December 31, 2012, 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 2.2 years.

Management separately monitors the covered loan portfolio and periodically reviews loans contained within this portfolio against the factors and assumptions used in determining the Day 1 Fair Values. A loan is typically reviewed (i) when it is modified or extended, (ii) when material information becomes available to the Company that provides additional insight regarding the loan’s performance, the status of the borrower, or the quality or value of the underlying collateral, or (iii) in conjunction with the annual review of projected cash flows which include a substantial portion of each acquired covered loan portfolio. Management separately reviews, on an annual basis, the performance of the portfolio of covered loans, 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 expectation established in conjunction with the determination of the Day 1 Fair Values, such loan is not included in any of the Company’s credit quality ratios, is not considered to be an impaired loan, and is not considered in the determination of the required 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 is generally included in certain of the Company’s credit quality metrics, may be considered an impaired loan, and is considered in the determination of the required level of allowance for loan and lease losses. Any improvement in the expected performance of a covered loan would result in a reversal of the provision for loan and lease losses to the extent of prior charges and then an adjustment to accretable yield, which would have a positive impact on interest income.

At the time of acquisition of purchased non-covered loans, management individually evaluates substantially all loans acquired in the transaction. For those purchased loans without evidence of credit deterioration, management evaluates each reviewed loan using an internal grading system with a grade assigned to each loan at the date of acquisition. The grade for each purchased non-covered loan is reviewed subsequent to the date of acquisition any time a loan is renewed or extended or at any time information becomes available to the Company that provides material insight regarding the loan’s performance, the borrower or the underlying collateral. To the extent that a loan is performing in accordance with management’s initial expectations, such loan is not considered impaired and is not considered in the determination of the required allowance for loan and lease losses. To the extent that current information indicates it is possible that the Company will not be able to collect all amounts according to the contractual terms thereof, such loan is considered impaired and is considered in the determination of the required level of allowance for loan and lease losses.

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In determining the Day 1 Fair Values of purchased non-covered loans without evidence of credit deterioration at the date of acquisition, management includes (i) no carry over of any previously recorded allowance for loan losses and (ii) an adjustment of the unpaid principal balance to reflect an appropriate market rate of interest, given the risk profile and grade assigned to each loan. This adjustment will be accreted into earnings as an adjustment to the yield on purchased non-covered loans, using the effective yield method, over the remaining life of each loan.

Purchased non-covered loans that contain evidence of credit deterioration on the date of purchase are accounted for in accordance with the provisions of GAAP applicable to loans acquired with deteriorated credit quality. At the time such purchased non-covered loans with evidence of credit deterioration are acquired, management individually evaluates each loan to determine the estimated fair value of each loan. This evaluation includes no carryover of any previously recorded allowance for loan and lease losses. In determining the estimated fair value of purchased non-covered loans with evidence of credit deterioration, management considers a number of factors including, among other things, the remaining life of the acquired loans, estimated prepayments, estimated loss ratios, estimated value of the underlying collateral, estimated holding periods, and net present value of cash flows expected to be received.

In determining the Day 1 Fair Values of purchased non-covered loans with evidence of credit deterioration, management calculates a non-accretable difference (the credit component of the purchased loans) and an accretable difference (the yield component of the purchased loans). The non-accretable difference is the difference between the contractually required payments and the cash flows expected to be collected in accordance with management’s determination of the Day 1 Fair Values. Subsequent 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.

The accretable difference on purchased non-covered loans with evidence of credit deterioration is the difference between the expected cash flows and the net present value of expected cash flows. Such difference is accreted into earnings using the effective yield method over the term of the loans. In determining the net present value of the expected cash flows, the Company used discount rates ranging from 6.0% to 9.5% per annum depending on the risk characteristics of each individual loan.

Management separately monitors purchased non-covered loans with evidence of credit deterioration on the date of purchase and periodically reviews such loans contained within this portfolio against the factors and assumptions used in determining the Day 1 Fair Values. A loan is reviewed (i) any time it is renewed or extended, (ii) at any other time additional information becomes available to the Company that provides material additional insight regarding the loan’s performance, the status of the borrower, or the quality or value of the underlying collateral, or (iii) in conjunction with the annual review of projected cash flows of each acquired portfolio. Management separately reviews, on an annual basis, the performance of the portfolio of purchased non-covered loans with evidence of credit deterioration, 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 or exceeding 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, 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 is included in certain of the Company’s credit quality metrics, is generally considered an impaired loan, and is considered in the determination of the required level of allowance for loan and lease losses. Any improvement in the expected performance of such loan would result in a reversal of the provision for loan and lease losses to the extent of prior charges and then an adjustment to accretable yield, which would have a positive impact on interest income.

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

In connection with the Company’s FDIC-assisted acquisitions, the Company has recorded an FDIC loss share receivable to reflect the indemnification provided by the FDIC. Currently, the expected losses on covered assets for each of the Company’s loss share agreements would result in expected recovery of approximately 80% of incurred losses. Since the indemnified items are covered loans and covered foreclosed assets, which are 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. Additionally, these valuations may include certain unobservable inputs. 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.

Recently Issued Accounting Standards

See note 1 to the Consolidated Financial Statements for a discussion of certain recently issued accounting pronouncements.

60

Forward-Looking Information

This Management’s Discussion and Analysis of Financial Condition and Results of Operations, other filings made by the Company with the Securities and Exchange Commission and other oral and written statements or reports by the Company and its management include certain forward-looking statements including, without limitation, statements about economic, real estate market, competitive, employment, credit market and interest rate conditions; plans, goals, beliefs, expectations, thoughts, estimates and outlook for the future; revenue growth; net income and earnings per common share; net interest margin; net interest income; non-interest income, including service charges on deposit accounts, mortgage lending and trust income, gains (losses) on investment securities and sales of other assets; gains on mergers and acquisition transactions; income from accretion of the FDIC loss share receivable, net of amortization of the FDIC clawback payable; other loss share income; non-interest expense; efficiency ratio; anticipated future operating results and financial performance; asset quality and asset quality ratios, including the effects of current economic and real estate market conditions; nonperforming loans and leases; nonperforming assets; net charge-offs; net charge-off ratio; provision and allowance for loan and lease losses; past due loans and leases; current or future litigation; interest rate sensitivity, including the effects of possible interest rate changes; future growth and expansion opportunities including plans for making additional FDIC-assisted and traditional acquisitions and plans for opening new offices and relocating or closing offices; opportunities and goals for future market share growth; expected capital expenditures; loan and lease growth; deposit growth; changes in covered assets; changes in the volume, yield and value of the Company’s investment securities portfolio; availability of unused borrowings and other similar forecasts and statements of expectation. Words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “goal,” “hope,” “intend,” “look,” “may,” “plan,” “project,” “seek,” “target,” “trend,” “will,” “would,” and similar expressions, as they relate to the Company or its management, identify forward-looking statements. Forward-looking statements made by the Company and its management are based on estimates, projections, beliefs, plans and assumptions of management at the time of such statements and are not guarantees of future performance. The Company disclaims any obligation to update or revise any forward-looking statement based on the occurrence of future events, the receipt of new information or otherwise.

Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements made by the Company and its management due to certain risks, uncertainties and assumptions. Certain factors that may affect operating results of the Company include, but are not limited to, potential delays or other problems in implementing the Company’s growth and expansion strategy including delays in identifying satisfactory sites, hiring or retaining qualified personnel, obtaining regulatory or other approvals, obtaining permits and designing, constructing and opening new offices; the ability to enter into additional FDIC-assisted or traditional acquisitions or problems with integrating or managing acquisitions; opportunities to profitably deploy capital; the ability to attract new or retain existing deposits, loans and leases; the ability to generate future revenue growth or to control future growth in non-interest expense; interest rate fluctuations, including changes in the yield curve between short-term and long-term interest rates; competitive factors and pricing pressures, including their effect on the Company’s net interest margin; general economic, unemployment, credit market and real estate market conditions, including their effect on the creditworthiness of borrowers and lessees, collateral values, the value of investment securities and asset recovery values, including the value of the FDIC loss share receivable and related assets covered by FDIC loss share agreements; changes in legal and regulatory requirements; recently enacted and potential legislation and regulatory actions, including legislation and regulatory actions intended to stabilize economic conditions and credit markets, increase regulation of the financial services industry and protect homeowners or consumers; changes in U.S. government monetary and fiscal policy; possible further downgrade of U.S. Treasury securities; adoption of new accounting standards or changes in existing standards; and adverse results in current or future litigation as well as other factors described in this and other Company reports and statements. Should one or more of the foregoing risks materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from those described in the forward-looking statements.

61

Summary of Quarterly Results of

Operations, Market Prices of Common Stock and Dividends

Unaudited

	2012 - Three Months Ended
	Mar. 31			June 30			Sept. 30			Dec. 31
	(Dollars in thousands, except per share amounts)
Interest income	$	49,943		$	47,772		$	49,456		$	48,775
Interest expense		(6,110	)		(5,474	)		(5,012	)		(5,004	)
Net interest income		43,833			42,298			44,444			43,771
Provision for loan and lease losses		(3,076	)		(3,055	)		(3,080	)		(2,533	)
Non-interest income		13,810			15,710			14,491			18,848
Non-interest expense		(28,607	)		(27,282	)		(28,682	)		(29,891	)
Income taxes		(7,950	)		(8,584	)		(7,883	)		(9,519	)
Noncontrolling interest		(1	)		5			(15	)		(9	)
Net income available to common stockholders	$	18,009		$	19,092		$	19,275		$	20,667
Per common share:
Earnings - diluted	$	0.52		$	0.55		$	0.55		$	0.59
Cash dividends		0.11			0.12			0.13			0.14
Bid price per common share:
Low	$	27.73		$	28.08		$	29.91		$	31.00
High		31.86			32.03			34.65			34.47
	2011 - Three Months Ended
	Mar. 31			June 30			Sept. 30			Dec. 31
	(Dollars in thousands, except per share amounts)
Interest income	$	44,023		$	50,874		$	51,902		$	52,370
Interest expense		(7,940	)		(8,398	)		(7,566	)		(6,531	)
Net interest income		36,083			42,476			44,336			45,839
Provision for loan and lease losses		(2,250	)		(3,750	)		(1,500	)		(4,275	)
Non-interest income		12,990			75,058			16,071			12,964
Non-interest expense		(26,192	)		(35,200	)		(31,800	)		(29,339	)
Income taxes		(6,004	)		(28,380	)		(8,220	)		(7,604	)
Noncontrolling interest		3			13			17			(15	)
Net income available to common stockholders	$	14,630		$	50,217		$	18,904		$	17,570
Per common share:
Earnings - diluted	$	0.43		$	1.46		$	0.55		$	0.51
Cash dividends		0.085			0.090			0.095			0.100
Bid price per common share:
Low	$	20.96		$	22.04		$	19.89		$	20.64
High		22.23			26.03			26.88			30.80

See Note 17 to Consolidated Financial Statements for discussion of dividend restrictions.

62

Company Performance

The graph below shows a comparison for the period commencing December 31, 2007 through December 31, 2012 of the cumulative total stockholder returns (assuming reinvestment of dividends) for the common stock of the Company, the S&P Smallcap Index and the NASDAQ Financial Index, assuming a $100 investment on December 31, 2007.

	12/31/2007		12/31/2008		12/31/2009		12/31/2010		12/31/2011		12/31/2012
OZRK (Bank of the Ozarks, Inc.)	$	100	$	115	$	116	$	174	$	240	$	275
SML (S&P Smallcap Index)	$	100	$	69	$	87	$	109	$	110	$	128
NDF (NASDAQ Financial Index)	$	100	$	71	$	73	$	84	$	75	$	88

63

Report of Management on the Company’s

Internal Control Over Financial Reporting

February 28, 2013

Management of Bank of the Ozarks, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States, and that receipts and expenditures are made only in accordance with authorizations of management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

Management of Bank of the Ozarks, Inc., including the Chief Executive Officer and the Chief Financial Officer and Chief Accounting Officer, has assessed the Company’s internal control over financial reporting as of December 31, 2012, based on criteria for effective internal control over financial reporting described in “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. As permitted by SEC guidance, management excluded from its assessment the operations of the Genala Banc, Inc. acquisition made during 2012, which is described in Note 2 to the Consolidated Financial Statements. The assets acquired in this acquisition consist primarily of cash, investment securities and loans which comprised approximately 4% of total consolidated assets at December 31, 2012. Based on this assessment, management has concluded that the Company’s internal control over financial reporting was effective as of December 31, 2012, based on the specified criteria.

The effectiveness of Bank of the Ozarks, Inc.’s internal control over financial reporting has been audited by Crowe Horwath LLP, an independent registered public accounting firm, as stated in their report which is included herein.

George Gleason	Greg McKinney
Chairman and Chief Executive Officer	Chief Financial Officer and Chief Accounting Officer

64

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Bank of the Ozarks, Inc.

We have audited Bank of the Ozarks, Inc.’s internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Bank of the Ozarks, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on the Company’s Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As permitted, the Company excluded the operations of the financial institution acquired during 2012, which is described in Note 2 of the consolidated financial statements, from the scope of management’s report on internal control over financial reporting. As such it has also been excluded from the scope of our audit of internal control over financial reporting.

In our opinion, Bank of the Ozarks, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Bank of the Ozarks, Inc. as of December 31, 2012 and 2011 and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2012, and our report dated February 28, 2013, expressed an unqualified opinion thereon.

Atlanta, Georgia

February 28, 2013

65

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Bank of the Ozarks, Inc.

We have audited the accompanying consolidated balance sheets of Bank of the Ozarks, Inc. (the “Company”) as of December 31, 2012 and 2011 and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2012. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Bank of the Ozarks, Inc. at December 31, 2012 and 2011 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2012, in conformity with accounting principles generally accepted in the United States.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Bank of the Ozarks, Inc.’s internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2013, expressed an unqualified opinion thereon.

Atlanta, Georgia

February 28, 2013

66

Bank of the Ozarks, Inc.

CONSOLIDATED BALANCE SHEETS

	December 31,
	2012			2011
	(Dollars in thousands, except per share amounts)
ASSETS
Cash and due from banks	$	206,500		$	58,247
Interest earning deposits		1,467			680
Cash and cash equivalents		207,967			58,927
Investment securities - available for sale (“AFS”)		494,266			438,910
Loans and leases		2,115,834			1,880,483
Purchased loans not covered by Federal Deposit Insurance Corporation (“FDIC”) loss share agreements (“purchased non-covered loans”)		41,534			4,799
Loans covered by FDIC loss share agreements (“covered loans”)		596,239			806,922
Allowance for loan and lease losses		(38,738	)		(39,169	)
Net loans and leases		2,714,869			2,653,035
FDIC loss share receivable		152,198			279,045
Premises and equipment, net		225,754			186,533
Foreclosed assets not covered by FDIC loss share agreements		13,924			31,762
Foreclosed assets covered by FDIC loss share agreements		52,951			72,907
Accrued interest receivable		13,201			12,868
Bank owned life insurance (“BOLI”)		123,846			62,078
Intangible assets, net		11,827			12,207
Other, net		29,404			33,379
Total assets	$	4,040,207		$	3,841,651
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Demand non-interest bearing	$	578,528		$	447,214
Savings and interest bearing transaction		1,741,678			1,578,449
Time		780,849			918,256
Total deposits		3,101,055			2,943,919
Repurchase agreements with customers		29,550			32,810
Other borrowings		280,763			301,847
Subordinated debentures		64,950			64,950
FDIC clawback payable		25,169			24,645
Accrued interest payable and other liabilities		27,614			45,507
Total liabilities		3,529,101			3,413,678
Commitments and contingencies
Stockholders’ equity:
Preferred stock; $0.01 par value; 1,000,000 shares authorized; no shares outstanding at December 31, 2012 and 2011		—			—
Common stock; $0.01 par value; 50,000,000 shares authorized; 35,271,724 and 34,463,880 shares issued and outstanding at December 31, 2012 and 2011, respectively		353			345
Additional paid-in capital		73,043			51,145
Retained earnings		423,485			363,734
Accumulated other comprehensive income (loss)		10,783			9,327
Total stockholders’ equity before noncontrolling interest		507,664			424,551
Noncontrolling interest		3,442			3,422
Total stockholders’ equity		511,106			427,973
Total liabilities and stockholders’ equity	$	4,040,207		$	3,841,651

See accompanying notes to the consolidated financial statements.

67

Bank of the Ozarks, Inc.

CONSOLIDATED STATEMENTS OF INCOME

	Year Ended December 31,
	2012			2011		2010
	(Dollars in thousands, except per share amounts)
Interest income:
Loans and leases	$	115,362		$	113,283	$	118,150
Covered loans		61,820			66,135		17,141
Investment securities:
Taxable		2,949			3,013		4,130
Tax-exempt		15,807			16,702		18,533
Deposits with banks and federal funds sold		8			36		18
Total interest income		195,946			199,169		157,972
Interest expense:
Deposits		8,982			17,686		20,047
Repurchase agreements with customers		47			174		380
Other borrowings		10,723			10,835		12,146
Subordinated debentures		1,848			1,740		1,764
Total interest expense		21,600			30,435		34,337
Net interest income		174,346			168,734		123,635
Provision for loan and lease losses		11,745			11,775		16,000
Net interest income after provision for loan and lease losses		162,601			156,959		107,635
Non-interest income:
Service charges on deposit accounts		19,400			18,094		15,156
Mortgage lending income		5,584			3,277		3,863
Trust income		3,455			3,206		3,406
Bank owned life insurance income		2,767			2,307		2,151
Accretion of FDIC loss share receivable, net of amortization of FDIC clawback payable		7,375			10,141		2,429
Other loss share income, net		10,645			6,432		599
Net gains on investment securities		457			933		4,544
Gains on sales of other assets		6,809			3,738		802
Gains on merger and acquisition transactions		2,403			65,708		35,019
Other		3,965			3,247		2,353
Total non-interest income		62,860			117,083		70,322
Non-interest expense:
Salaries and employee benefits		59,028			56,262		40,161
Net occupancy and equipment		15,793			14,705		10,618
Other operating expenses		39,641			51,564		36,640
Total non-interest expense		114,462			122,531		87,419
Income before taxes		110,999			151,511		90,538
Provision for income taxes		33,935			50,208		26,614
Net income		77,064			101,303		63,924
Net (income) loss attributable to noncontrolling interest		(20	)		18		77
Net income available to common stockholders	$	77,044		$	101,321	$	64,001
Basic earnings per common share	$	2.22		$	2.96	$	1.89
Diluted earnings per common share	$	2.21		$	2.94	$	1.88

See accompanying notes to the consolidated financial statements.

68

Bank of the Ozarks, Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Year Ended December 31,
	2012			2011			2010
	(Dollars in thousands)
Net income	$	77,064		$	101,303		$	63,924
Other comprehensive income (loss):
Unrealized gains and losses on investment securities AFS		2,852			16,555			(5,655	)
Tax effect of unrealized gains and losses on investment securities AFS		(1,118	)		(6,494	)		2,218
Reclassification of gains and losses on investment securities AFS included in net income		(457	)		(933	)		(4,544	)
Tax effect of reclassification of gains and losses on investment securities AFS included in net income		179			366			1,782
Total other comprehensive income (loss)		1,456			9,494			(6,199	)
Total comprehensive income	$	78,520		$	110,797		$	57,725

See accompanying notes to the consolidated financial statements.

69

Bank of the Ozarks, Inc.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

	Common Stock		Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Non- Controlling Interest			Total
	(Dollars in thousands, except per share amounts)
Balances - January 1, 2010	$	338	$	41,415		$	221,243		$	6,032		$	3,442		$	272,470
Net income		—		—			63,924			—			—			63,924
Net loss attributable to noncontrolling interest		—		—			77			—			(77	)		—
Unrealized gains/losses on investment securities AFS, net of $2,218 tax effect		—		—			—			(3,437	)		—			(3,437	)
Reclassification of gains/losses included in net income, net of $1,782 tax effect		—		—			—			(2,762	)		—			(2,762	)
Common stock dividends paid, $0.30 per share		—		—			(10,170	)		—			—			(10,170	)
Issuance of 227,600 shares of common stock for exercise of stock options		2		2,823			—			—			—			2,825
Tax benefit on exercise of stock options		—		37			—			—			—			37
Stock-based compensation expense		—		833			—			—			—			833
Investment in noncontrolling interest		—		—			—			—			50			50
Issuance of 74,600 shares of unvested common stock under restricted stock plan		1		(1	)		—			—			—			—
Forfeiture of 4,000 shares of unvested common stock under restricted stock plan		—		—			—			—			—			—
Balances - December 31, 2010		341		45,107			275,074			(167	)		3,415			323,770
Net income		—		—			101,303			—			—			101,303
Net loss attributable to noncontrolling interest		—		—			18			—			(18	)		—
Unrealized gains/losses on investment securities AFS, net of $6,494 tax effect		—		—			—			10,061			—			10,061
Reclassification of gains/losses included in net income, net of $366 tax effect		—		—			—			(567	)		—			(567	)
Common stock dividends paid,
$0.37 per share		—		—			(12,661	)		—			—			(12,661	)
Issuance of 262,500 shares of common stock for exercise of stock options		3		4,029			—			—			—			4,032
Tax benefit on exercise of stock options		—		482			—			—			—			482
Stock-based compensation expense		—		1,528			—			—			—			1,528
Investment in noncontrolling interest		—		—			—			—			25			25
Issuance of 95,700 shares of unvested common stock under restricted stock plan		1		(1	)		—			—			—			—
Forfeiture of 1,600 shares of unvested common stock under restricted stock plan		—		—			—			—			—			—
Balances - December 31, 2011	$	345	$	51,145		$	363,734		$	9,327		$	3,422		$	427,973

70

BANK OF THE OZARKS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)

	Common Stock		Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Non- Controlling Interest		Total
	(Dollars in thousands, except per share amounts)
Balances - December 31, 2011	$	345	$	51,145		$	363,734		$	9,327		$	—		$	3,422	$	427,973
Net income		—		—			77,064			—			—			—		77,064
Net income attributable to noncontrolling interest		—		—			(20	)		—			—			20		—
Unrealized gains/losses on investment securities AFS, net of $1,118 tax effect		—		—			—			1,734			—			—		1,734
Reclassification of gains/losses included in net income, net of $179 tax effect		—		—			—			(278	)		—			—		(278	)
Common stock dividends paid,
$0.50 per share		—		—			(17,293	)		—			—			—		(17,293	)
Issuance of 267,300 shares of common stock for exercise of stock options		3		3,976			—			—			—			—		3,979
Tax benefit on exercise and of stock options and vesting of common stock under restricted stock plan		—		1,538			—			—			—			—		1,538
Stock-based compensation expense		—		2,607			—			—			—			—		2,607
Repurchase of 10,422 shares of common stock under restricted stock plan		—		—			—			—			(341	)		—		(341	)
Issuance of 128,150 shares of unvested common stock under restricted stock plan		1		(342	)		—			—			341			—		—
Forfeiture of 800 shares of unvested common stock under restricted stock plan		—		—			—			—			—			—		—
Issuance of 423,616 shares of common stock for acquisition of Genala Banc, Inc.		4		14,119			—			—			—			—		14,123
Balances - December 31, 2012	$	353	$	73,043		$	423,485		$	10,783		$	—		$	3,442	$	511,106

See accompanying notes to the consolidated financial statements.

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Bank of the Ozarks, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended December 31,
	2012			2011			2010
	(Dollars in thousands)
Cash flows from operating activities:
Net income	$	77,064		$	101,303		$	63,924
Adjustments to reconcile net income to net cash (used) provided by operating activities:
Depreciation		6,761			5,358			4,471
Amortization		2,037			1,677			431
Net (income) loss attributable to noncontrolling interest		(20	)		18			77
Provision for loan and lease losses		11,745			11,775			16,000
Provision for losses on foreclosed assets		1,713			9,525			8,960
Write down of other assets		—			1,250			—
Net amortization (accretion) of investment securities AFS		190			426			(585	)
Net gains on investment securities AFS		(457	)		(933	)		(4,544	)
Originations and purchases of mortgage loans held for sale		(252,998	)		(154,168	)		(188,120	)
Proceeds from sales of mortgage loans held for sale		234,539			150,562			180,371
Accretion of loans covered by FDIC loss share agreements		(61,820	)		(66,135	)		(17,141	)
Accretion of FDIC loss share receivable, net of amortization of
FDIC clawback payable		(7,375	)		(10,141	)		(2,429	)
Gains on sales of other assets		(6,809	)		(3,738	)		(802	)
Gains on merger and acquisition transactions		(2,403	)		(65,708	)		(35,019	)
Deferred income tax (benefit) expense		(7,808	)		11,866			8,195
Increase in cash surrender value of BOLI		(2,767	)		(2,307	)		(2,151	)
Tax benefit on exercise of stock options and vesting of common stock under restricted stock plan		(1,538	)		(870	)		(535	)
Stock-based compensation expense		2,607			1,528			833
Changes in assets and liabilities:
Accrued interest receivable		887			1,551			1,430
Other assets, net		3,792			13,637			6,519
Accrued interest payable and other liabilities		(12,784	)		14,844			1,015
Net cash (used) provided by operating activities		(15,444	)		21,320			40,900
Cash flows from investing activities:
Proceeds from sales of investment securities AFS		43,177			94,676			255,232
Proceeds from maturities/calls/paydowns of investment securities AFS		57,342			31,052			59,887
Purchases of investment securities AFS		(63,064	)		(13,453	)		(121,086	)
Net (advances) repayments of loans and leases		(216,328	)		(27,216	)		38,195
Payments received on loans covered by FDIC loss share agreements		211,787			205,788			46,150
Payments received from FDIC under loss share agreements		143,997			109,001			20,110
Net decrease in covered assets and FDIC loss share receivable		21,915			8,122			288
Purchases of premises and equipment		(46,099	)		(21,138	)		(16,881	)
Proceeds from sales of other assets		64,750			41,847			23,507
Purchase of BOLI		(59,000	)		—			(10,200	)
Cash received from (invested in) unconsolidated investments and noncontrolling interest		323			(1,795	)		(4,575	)
Net cash proceeds received in merger and acquisition transactions		28,542			365,394			201,473
Net cash provided by investing activities		187,342			792,278			492,100
Cash flows from financing activities:
Net increase (decrease) in deposits		13,602			(711,568	)		(440,624	)
Net repayments of other borrowings		(21,083	)		(73,111	)		(113,948	)
Net decrease in repurchase agreements with customers		(3,260	)		(11,262	)		(883	)
Proceeds from exercise of stock options		3,979			4,032			2,825
Tax benefit on exercise of stock options and vesting of common stock under restricted stock plan		1,538			870			535
Repurchase of common stock under restricted stock plan		(341	)		—			—
Cash dividends paid on common stock		(17,293	)		(12,661	)		(10,170	)
Net cash used by financing activities		(22,858	)		(803,700	)		(562,265	)
Net increase (decrease) in cash and cash equivalents		149,040			9,898			(29,265	)
Cash and cash equivalents - beginning of year		58,927			49,029			78,294
Cash and cash equivalents - end of year	$	207,967		$	58,927		$	49,029

See accompanying notes to the consolidated financial statements.

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Bank of the Ozarks, Inc.

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

1. Summary of Significant Accounting Policies

Organization — 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, a subsidiary that owns private aircraft and various other entities that hold foreclosed assets or tax credits or engage in other activities. The Bank is subject to the regulation of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities. At December 31, 2012, the Company had 117 offices, including 66 in Arkansas, 28 in Georgia, 13 in Texas, four in Florida, three in Alabama, two in North Carolina and one in South Carolina.

Basis of presentation, use of estimates and principles of consolidation — The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates, assumptions and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

The consolidated financial statements include the accounts of the Company, the Bank, the real estate subsidiary and the aircraft subsidiary. In addition, subsidiaries in which the Company has majority voting interest (principally defined as owning a voting or economic interest greater than 50%) or where the Company exercises control over the operating and financial policies of the subsidiary through an operating agreement or other means are consolidated. Investments in companies in which the Company has significant influence over voting and financing decisions (principally defined as owning a voting or economic interest of 20% to 50%) and investments in limited partnerships and limited liability companies where the Company does not exercise control over the operating and financial policies are generally accounted for by the equity method of accounting. Investments in limited partnerships and limited liability companies in which the Company’s interest is so minor such that it has virtually no influence over operating and financial policies (typically less than 20%) are generally accounted for by the cost method of accounting. Significant intercompany transactions and amounts have been eliminated in consolidation.

The voting interest approach is not applicable for entities that are not controlled through voting interests or in which the equity investors do not bear the residual economic risk. In such instances, management makes a determination, based on its review of applicable GAAP, on when the assets, liabilities and activities of a variable interest entity (“VIE”) should be included in the Company’s consolidated financial statements. GAAP requires a VIE to be consolidated by a company if that company is considered the primary beneficiary of the VIE’s activities. The Company has determined that the 100%-owned finance subsidiary Trusts are VIEs, but that the Company is not the primary beneficiary of the Trusts. Accordingly, the Company does not consolidate the activities of the Trusts into its financial statements, but instead reports its ownership interests in the Trusts as other assets and reports the subordinated debentures issued to the Trusts as a liability in the consolidated balance sheets. The distributions on the subordinated debentures are reported as interest expense in the accompanying consolidated statements of income.

Stock Split — 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.

Cash and cash equivalents — For cash flow purposes, cash and cash equivalents include cash on hand, amounts due from banks and interest bearing deposits with banks.

Investment securities — Management determines the appropriate classification of investment securities at the time of purchase and reevaluates such designation as of each balance sheet date. At December 31, 2012 and 2011, the Company has classified all of its investment securities as available for sale (“AFS”).

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AFS investment securities are stated at estimated fair value, with the unrealized gains and losses determined on a specific identification basis. Such unrealized gains and losses, net of tax, are reported as a separate component of stockholders’ equity and included in other comprehensive income (loss). The Company utilizes independent third parties as its principal pricing sources for determining fair value of investment securities which are measured on a recurring basis. As a result, the Company receives estimates of fair values from at least two independent pricing sources for the majority of its individual securities within its investment portfolio. For investment securities traded in an active market, fair values are based on quoted market prices if available. If quoted market prices are not available, fair values are based on quoted market prices of comparable securities, broker quotes or comprehensive interest rate tables, pricing matrices or a combination thereof. For investment securities traded in a market that is not active, fair value is determined using unobservable inputs. Additionally, the valuation of investment securities acquired in FDIC-assisted or traditional acquisitions may include certain unobservable inputs. All fair value estimates received by the Company for its investment securities are reviewed and approved on a quarterly basis by the Company’s Investment Portfolio Manager and its Chief Financial Officer.

At December 31, 2012, the Company owned stock in the Federal Home Loan Bank of Dallas (“FHLB-Dallas”), and First National Banker’s Bankshares, Inc. (“FNBB”). At December 31, 2011, the Company owned stock in FHLB-Dallas, FNBB and Federal Home Loan Bank of Atlanta (“FHLB-Atlanta”). The FHLB-Dallas, FHLB-Atlanta and FNBB shares do not have readily determinable fair values and are carried at cost.

Declines in the fair value of investment securities below their amortized cost are reviewed at least quarterly by the Company for other-than-temporary impairment. Factors considered during such review include, among other things, the length of time and extent that fair value has been less than cost and the financial condition and near term prospects of the issuer. The Company also assesses whether it has the intent to sell the investment security or more likely than not would be required to sell the investment security before any anticipated recovery in fair value. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through the income statement. For securities that do not meet the aforementioned criteria, the amount of impairment is split into (i) other-than-temporary impairment related to credit loss, which must be recognized in the income statement, and (ii) other-than-temporary impairment related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.

Interest and dividends on investment securities, including the amortization of premiums and accretion of discounts through maturity, or in the case of mortgage-backed securities, over the estimated life of the security, are included in interest income. Realized gains or losses on the sale of investment securities are recognized on the specific identification method at the time of sale and are included in non-interest income. Purchases and sales of investment securities are recognized on a trade-date basis.

Loans and leases — Loans, excluding loans covered by Federal Deposit Insurance Corporation (“FDIC”) loss share agreements (“covered loans”) and purchased loans not covered by FDIC loss share agreements (“purchased non-covered loans”), that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding principal balance adjusted for any charge-offs and deferred fees or costs. Interest on loans is recognized on an accrual basis and is calculated using the simple interest method on daily balances of the principal amount outstanding. Loan origination fees and costs are generally deferred and recognized over the life of the loan as an adjustment to yield on the related loan.

Leases are classified as either direct financing leases or operating leases, based on the terms of the agreement. Direct financing leases are reported as the sum of (i) total future lease payments to be received, net of unearned income, and (ii) estimated residual value of the leased property. Operating leases are recorded at the cost of the leased property, net of accumulated depreciation. Income on direct financing leases is included in interest income and is recognized on a basis that achieves a constant periodic rate of return on the outstanding investment. Income on operating leases is recognized as non-interest income on a straight-line basis over the lease term.

In the ordinary course of business, the Company has entered into off-balance sheet financial instruments consisting of commitments to extend credit and letters of credit. Such financial instruments are recorded in the financial statements when they are funded. Related fees are generally recognized when collected.

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Mortgage loans held for sale are included in the Company’s loans and leases and totaled $36.4 million and $17.9 million, respectively, at December 31, 2012 and 2011. Mortgage loans held for sale are carried at the lower of cost or fair value. Gains and losses from the sales of mortgage loans are the difference between the selling price of the loan and its carrying value, net of discounts and points, and are recognized as mortgage lending income when the loan is sold to investors and servicing rights are released.

As part of its standard mortgage lending practice, the Company issues a written put option, in the form of an interest rate lock commitment (“IRLC”), such that the interest rate on the mortgage loan is established prior to funding. In addition to the IRLC, the Company enters into a forward sale commitment (“FSC”) for the sale of its mortgage loan originations to reduce its market risk on such originations in process. The IRLC on mortgage loans held for sale and the FSC have been determined to be derivatives as defined by GAAP. Accordingly, the fair values of derivative assets and liabilities for the Company’s IRLC and FSC are based primarily on the fluctuation of interest rates between the date on which the particular IRLC and FSC were entered into and year-end. At December 31, 2012 and 2011, respectively, the Company’s IRLC and FSC derivative assets and corresponding derivative liabilities were not material. The notional amounts of loan commitments under both the IRLC and FSC were $18.1 million and $13.3 million at December 31, 2012 and 2011, respectively.

Covered loans — 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 Security and Exchange Commission’s (“SEC”) 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 loans, and the uncertainty of the borrowers’ and/or guarantors’ ability or willingness to make contractually required (or any) principal and interest payments, management has determined that a significant portion of the loans acquired in FDIC-assisted acquisitions had evidence of credit deterioration since origination. Accordingly, management has elected to apply the provisions of GAAP applicable to loans acquired with deteriorated credit quality, as provided by the AICPA’s December 18, 2009 letter to all loans acquired in its FDIC-assisted acquisitions.

At the time covered loans are acquired, management individually evaluates substantially all loans acquired in the transaction. This evaluation allows management to determine the estimated fair value of the covered loans (not considering any FDIC loss sharing agreements) and includes no carryover of any previously recorded allowance for loan and lease losses. In determining the estimated fair value of covered loans, management considers a number of factors including, among other things, the remaining life of the acquired loans, estimated prepayments, estimated loss ratios, estimated value of the underlying collateral, estimated holding periods, and net present value of cash flows expected to be received. To the extent that any covered loan acquired is not specifically reviewed, management applies a loss estimate to that loan based on the average expected loss rates for the covered loans that were individually reviewed in that 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 values of acquired assets and assumed liabilities within this 12-month period, management considers such values to be the day 1 fair values (“Day 1 Fair Values”).

In determining the Day 1 Fair Values of covered loans, management calculates a non-accretable difference (the credit component of the covered loans) and an accretable difference (the yield component of the covered loans). The non-accretable difference is the difference between the contractually required payments and the cash flows expected to be collected in accordance with management’s determination of the Day 1 Fair Values. Subsequent decreases to the expected cash flows will generally result in a provision for loan and lease losses. Subsequent increases in 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. Any such increase or decrease in expected cash flows will result in a corresponding decrease or increase, respectively, of the FDIC loss share receivable for the portion of such reduced or additional loss expected to be collected from the FDIC.

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The accretable difference on covered loans is the difference between the expected cash flows and the net present value of expected cash flows. Such difference is accreted into earnings using the effective yield method over the term of the loans. In determining the net present value of the expected cash flows, the Company used discount rates ranging from 6.0% to 9.5% per annum depending on the risk characteristics of each individual loan. At December 31, 2012, 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 2.2 years.

Management separately monitors the covered loan portfolio and periodically reviews loans contained within this portfolio against the factors and assumptions used in determining the Day 1 Fair Values. A loan is typically reviewed (i) when it is modified or extended, (ii) when material information becomes available to the Company that provides additional insight regarding the loan’s performance, the status of the borrower, or the quality or value of the underlying collateral, or (iii) in conjunction with the annual review of projected cash flows which include a substantial portion of each acquired covered loan portfolio. To the extent that a loan is performing in accordance with management’s expectation established in conjunction with the determination of the Day 1 Fair Values, such loan is not included in any of the Company’s credit quality ratios, is not considered to be an impaired loan, and is not considered in the determination of the required 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 is generally included in certain of the Company’s credit quality metrics, may be considered an impaired loan, and is considered in the determination of the required level of allowance for loan and lease losses.

Purchased non-covered loans — Purchased non-covered loans include a small volume of non-covered loans acquired in FDIC-assisted acquisitions and loans acquired in the Company’s acquisition of Genala Banc, Inc. (“Genala”) and are initially recorded at fair value on the date of purchase. Purchased non-covered loans that contain evidence of credit deterioration on the date of purchase are carried at the net present value of expected future proceeds. All other purchased non-covered loans are recorded at their initial fair value, adjusted for subsequent advances, pay downs, amortization or accretion of any premium or discount on purchase, charge-offs and any other adjustment to carrying value.

At the time of acquisition of purchased non-covered loans, management individually evaluates substantially all loans acquired in the transaction. For those purchased loans without evidence of credit deterioration, management evaluates each reviewed loan using an internal grading system with a grade assigned to each loan at the date of acquisition. The grade for each purchased non-covered loan is reviewed subsequent to the date of acquisition any time a loan is renewed or extended or at any time information becomes available to the Company that provides material insight regarding the loan’s performance, the borrower or the underlying collateral. To the extent that a loan is performing in accordance with management’s initial expectations, such loan is not considered impaired and is not considered in the determination of the required allowance for loan and lease losses. To the extent that current information indicates it is probable that the Company will not be able to collect all amounts according to the contractual terms thereon, such loan is considered impaired and is considered in the determination of the required level of allowance for loan and lease losses. Any improvement in the expected performance of a covered loan would result in a reversal of the provision for loan and lease losses to the extent of prior charges and then an adjustment to accretable yield, which would have a positive impact on interest income.

In determining the Day 1 Fair Values of purchased non-covered loans without evidence of credit deterioration at the date of acquisition, management includes (i) no carry over of any previously recorded allowance for loan losses and (ii) an adjustment of the unpaid principal balance to reflect an appropriate market rate of interest, given the risk profile and grade assigned to each loan. This adjustment will be accreted into earnings as an adjustment to the yield on purchased non-covered loans, using the effective yield method, over the remaining life of each loan.

Purchased non-covered loans that contain evidence of credit deterioration on the date of purchase are accounted for in accordance with the provisions of GAAP applicable to loans acquired with deteriorated credit quality. At the time such purchased non-covered loans with evidence of credit deterioration are acquired, management individually evaluates each loan to determine the estimated fair value of each loan. This evaluation includes no carryover of any previously recorded allowance for loan and lease losses. In determining the estimated fair value of purchased non-covered loans with evidence of credit deterioration, management considers a number of factors including, among other things, the remaining life of the acquired loans, estimated prepayments, estimated loss ratios, estimated value of the underlying collateral, estimated holding periods, and net present value of cash flows expected to be received.

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In determining the Day 1 Fair Values of purchased non-covered loans with evidence of credit deterioration, management calculates a non-accretable difference (the credit component of the purchased loans) and an accretable difference (the yield component of the purchased loans). The non-accretable difference is the difference between the contractually required payments and the cash flows expected to be collected in accordance with management’s determination of the Day 1 Fair Values. Subsequent 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.

The accretable difference on purchased non-covered loans with evidence of credit deterioration is the difference between the expected cash flows and the net present value of expected cash flows. Such difference is accreted into earnings using the effective yield method over the term of the loans. In determining the net present value of the expected cash flows, the Company used discount rates ranging from 6.0% to 9.5% per annum depending on the risk characteristics of each individual loan.

Management separately monitors purchased non-covered loans with evidence of credit deterioration on the date of purchase and periodically reviews such loans contained within this portfolio against the factors and assumptions used in determining the Day 1 Fair Values. A loan is reviewed (i) any time it is renewed or extended, (ii) at any other time additional information becomes available to the Company that provides material additional insight regarding the loan’s performance, the status of the borrower, or the quality or value of the underlying collateral, or (iii) in conjunction with the annual review of projected cash flows of each acquired portfolio. Management separately reviews, on an annual basis, the performance of the portfolio of purchased non-covered loans with evidence of credit deterioration, 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 or exceeding 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 an impaired loan, 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 is included in certain of the Company’s credit quality metrics, may be considered an impaired loan, and is considered in the determination of the required level of allowance for loan and lease losses. Any improvement in the expected performance of such loan would result in a reversal of the provision for loan and lease losses to the extent of prior charges and then an adjustment to accretable yield, which would have a positive impact on interest income.

FDIC loss share receivable — In connection with the Company’s FDIC-assisted acquisitions, the Company has recorded a FDIC loss share receivable to reflect the indemnification provided by the FDIC. Currently, the expected losses on covered assets for each of the Company’s loss share agreements would result in expected recovery of approximately 80% of incurred losses. Since the indemnified items are covered loans and covered foreclosed assets, which are 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.

FDIC clawback payable — 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

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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.

Allowance for loan and lease losses (“ALLL”) — The ALLL is established through a provision for such losses charged against income. All or portions of loans or leases, excluding purchased non-covered loans and covered loans, deemed to be uncollectible are charged against the ALLL when management believes that collectibility of all or some portion of outstanding principal is unlikely. Subsequent recoveries, if any, of loans or leases previously charged off are credited to the ALLL.

The ALLL is maintained at a level management believes will be adequate to absorb probable incurred losses in the loan and lease portfolio. Provision to and the adequacy of the ALLL are based on evaluations of the loan and lease portfolio utilizing objective and subjective criteria. The objective criteria primarily include an internal grading system and specific allowances. In addition to the objective criteria, the Company subjectively assesses the adequacy of the allowance for loan and lease losses and the need for additions thereto, with consideration given to the nature and mix of the portfolio, including concentrations of credit; general economic and business conditions, including national, regional and local business and economic conditions that may affect the borrowers’ or lessees’ ability to pay; expectations regarding the current business cycle; trends that could affect collateral values and other relevant factors. The Company also utilizes a peer group analysis and a historical analysis to validate the overall adequacy of its ALLL. Changes in any of these criteria or the availability of new information could require adjustment of the ALLL in future periods. While a specific allowance has been calculated for impaired loans and leases and for loans and leases where the Company has otherwise determined a specific reserve is appropriate, no portion of the Company’s ALLL is restricted to any individual loan or lease or group of loans or leases, and the entire ALLL is available to absorb losses from any and all loans and leases.

For covered loans, management separately monitors this portfolio and periodically reviews loans contained within this portfolio against the factors and assumptions used in determining the Day 1 Fair Values. To the extent that a loan’s performance has deteriorated from management’s expectation established in conjunction with the determination of the Day 1 Fair Values, such loan is considered in the determination of the required level of allowance for loan and lease losses. To the extent that a revised loss estimate exceeds the loss estimate established in the determination of the Day 1 Fair Values, such deterioration will result in an allowance allocation or a charge-off.

For purchased non-covered loans, management segregates this portfolio into loans that contain evidence of credit deterioration on the date of purchase and loans that do not contain evidence of credit deterioration on the date of purchase. Purchased non-covered loans with evidence of credit deterioration are regularly monitored and are periodically reviewed by management. To the extent that a loan’s performance has deteriorated from management’s expectation established in conjunction with the determination of the Day 1 Fair Values, such loan is considered in the determination of the required level of allowance for loan and lease losses. To the extent that a revised loss estimate exceeds the loss estimate established in the determination of Day 1 Fair Values, such determination will result in an allowance allocation or a charge-off.

All other purchased non-covered loans are graded by management at the time of purchase. The grade on these purchased non-covered loans are reviewed regularly as part of the ongoing assessment of such loans. To the extent that current information indicates it is probable that the Company will not be able to collect all amounts according to the contractual terms thereon, such loan is considered in the determination of the required level of allowance for loan and lease losses and may result in an allowance allocation or a charge-off.

At December 31, 2012 and 2011, the Company had no allowance for its purchased non-covered loans and its covered loans because all losses had been charged off on such loans whose performance had deteriorated from management’s expectations established in conjunction with the determination of the Day 1 Fair Values.

The Company generally places a loan or lease on nonaccrual status when such loan or lease is (i) deemed impaired or (ii) 90 days or more past due, or earlier when doubt exists as to the ultimate collection of payments. The Company may continue to accrue interest on certain loans or leases contractually past due 90 days or more if such loans or leases are both well secured and in the process of collection. At the time a loan or lease is placed on nonaccrual status, interest previously accrued but uncollected is generally reversed and charged against interest income. Nonaccrual loans and leases are generally returned to accrual status when payments are less than 90 days past due and the Company reasonably expects to collect all payments. If a loan or lease is determined to be uncollectible, the portion of the principal determined to be uncollectible will be charged

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against the allowance for loan and lease losses. Loans for which the terms have been modified and for which (i) the borrower is experiencing financial difficulties and (ii) a concession has been granted to the borrower by the Company are considered troubled debt restructurings (“TDRs”) and are included in impaired loans and leases. Income on nonaccrual loans or leases, including impaired loans and leases but excluding certain TDRs which continue to accrue interest, is recognized on a cash basis when and if actually collected. For the year ended December 31, 2012, there were no defaults during the preceding 12 months on any loans that were considered TDRs.

All loans and leases deemed to be impaired are evaluated individually. The Company considers a loan or lease, excluding purchased non-covered loans and covered loans, to be impaired when based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms thereof. The Company considers a purchased non-covered loan with evidence of credit deterioration at the date of purchase and a covered loan to be impaired once a decrease in expected cash flows or other deterioration in the loan’s expected performance, subsequent to the determination of the Day 1 Fair Values, results in an allowance allocation, a partial or full charge-off or in a provision for loan and lease losses. Purchased non-covered loans without evidence of credit deterioration at the date of purchase are considered impaired when current information indicates it is probable that the Company will not be able to collect all amounts due according to the contractual terms thereof. Most of the Company’s nonaccrual loans and leases, excluding purchased non-covered loans and covered loans, and all TDRs are considered impaired. The majority of the Company’s impaired loans and leases are dependent upon collateral for repayment. For such loans and leases, impairment is measured by comparing collateral value, net of holding and selling costs, to the current investment in the loan or lease. For all other impaired loans and leases, the Company compares estimated discounted cash flows to the current investment in the loan or lease. To the extent that the Company’s current investment in a particular loan or lease exceeds its estimated net collateral value or its estimated discounted cash flows, the impaired amount is specifically considered in the determination of the allowance for loan and lease losses or is charged off as a reduction of the allowance for loan and lease losses.

The Company also maintains an allowance for certain loans and leases, excluding purchased non-covered loans and covered loans, not considered impaired where (i) the customer is continuing to make regular payments, although payments may be past due, (ii) there is a reasonable basis to believe the customer may continue to make regular payments, although there is also an elevated risk that the customer may default, and (iii) the collateral or other repayment sources are likely to be insufficient to recover the current investment in the loan or lease if a default occurs. The Company evaluates such loans and leases to determine if an allowance is needed for these loans and leases. For the purpose of calculating the amount of such allowance, management assumes that (i) no further regular payments occur and (ii) all sums recovered will come from liquidation of collateral and collection efforts from other payment sources. To the extent that the Company’s current investment in a particular loan or lease evaluated for the need for such allowance exceeds its net collateral value or its estimated discounted cash flows, such excess is considered allocated allowance for purposes of the determination of the allowance for loan and lease losses.

The Company may also include further allowance allocation for risk-rated loans, including commercial real estate loans and excluding purchased non-covered loans and covered loans, that are in markets determined by management to be “stressed”. Stressed markets may include any specific geography experiencing (i) high unemployment substantially above the U.S. average, (ii) significant over-development in one or more commercial real estate categories, (iii) recent or announced loss of a major employer or significant workforce reductions, (iv) significant declines in real estate values and (v) various other factors. The additional allowance for such stressed markets compensates for the expectation that a higher risk of loss is anticipated for the “work-out” or liquidation of a real estate loan in a stressed market versus a market that is not experiencing any significant levels of stress. The required allocation percentage applicable to real estate loans in stressed markets may be applied to the total market or it may be determined at the individual loan level based on collateral value, loan-to-value ratios, strength of the borrower and/or guarantor, viability of the underlying project and other factors. The Company had no allowance allocation for loans in stressed markets at December 31, 2012 or 2011.

Prior to December 31, 2011, the Company utilized the sum of all allowance amounts derived as described above, combined with a reasonable unallocated allowance, as the primary indicator of the appropriate level of allowance for loan and lease losses. During the fourth quarter of 2011, the Company refined its allowance calculation whereby it “allocated” the portion of the allowance that was previously deemed to be unallocated allowance. This refined allowance calculation includes specific allowance allocations for qualitative factors including (i) concentrations of credit, (ii) general economic and business conditions, (iii) trends that could

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affect collateral values and (iv) expectations regarding the current business cycle. The Company may also consider other qualitative factors in future periods for additional allowance allocations, including, among other factors, (1) credit quality trends (including trends in nonperforming loans and leases expected to result from existing conditions), (2) seasoning of the loan and lease portfolio, (3) specific industry conditions affecting portfolio segments, (4) the Company’s expansion into new markets and (5) the offering of new loan and lease products. Because the Company refined its allowance calculation during 2011 such that it no longer maintains unallocated allowance, the Company’s allocation of its allowance at December 31, 2012 and 2011 may not be comparable with prior periods.

The accrual of interest on loans and leases, excluding purchased non-covered loans and covered loans, is discontinued when, in management’s opinion, the borrower or lessee may be unable to meet payments as they become due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent interest payments are received. Interest income on purchased non-covered loans with evidence of credit deterioration and covered loans is accreted into income and is the difference between the carrying value of the loans and the net present value of expected cash flows.

Premises and equipment — Premises and equipment are reported at cost less accumulated depreciation and amortization. Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of the related assets. Depreciable lives for the major classes of assets are generally 20 to 45 years for buildings and 3 to 25 years for furniture, fixtures, equipment and certain building improvements. Leasehold improvements are amortized over the shorter of the asset’s estimated useful life or the term of the lease. Accelerated depreciation methods are used for income tax purposes. Maintenance and repair charges are expensed as incurred.

Foreclosed assets covered by FDIC loss share agreements — 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 selling prices, estimated selling costs, estimated holding periods and net present value of cash flows expected to be received. Discount rates ranging from 8.0% to 9.5% per annum were used to determine the net present value of covered foreclosed assets. Gains and losses on sale and writedowns of covered foreclosed assets are recorded in non-interest income. Expenses to maintain the properties, net of amounts reimbursable by the FDIC, are included in non-interest expense.

Foreclosed assets not covered by FDIC loss share agreements — Repossessed personal properties and real estate acquired through or in lieu of foreclosure are initially recorded at the lesser of current principal investment or fair value less estimated cost to sell at the date of repossession or foreclosure. Valuations of these assets are periodically reviewed by management with the carrying value of such assets adjusted through non-interest expense to the then estimated fair value net of estimated selling costs, if lower, until disposition. Fair values of these assets are generally based on third party appraisals, broker price opinions or other valuations of the property. Gains and losses from the sale of such repossessions and real estate acquired through or in lieu of foreclosure are recorded in non-interest income, and expenses to maintain the properties are included in non-interest expense.

Income taxes — The Company utilizes the asset and liability method in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based upon the difference between the values of the assets and liabilities as reflected in the financial statements and their related tax basis using enacted tax rates in effect for the year or years in which the differences are expected to be recovered or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

The Company recognizes a tax position as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that has a greater than 50% likelihood of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

The Company files consolidated tax returns. The Bank and the other consolidated entities provide for income taxes on a separate return basis and remit to the Company amounts determined to be currently payable. The Company recognizes interest related to income tax matters as interest income or expense, and penalties related to income tax matters are recognized as non-interest expense. The Company is no longer subject to income tax examinations by U.S. federal tax authorities for years prior to 2009.

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Bank owned life insurance (“BOLI”) — BOLI consists of life insurance purchased by the Company on (i) a qualifying group of officers with the Company designated as owner and beneficiary of the policies and (ii) one of the Company’s executive officers with the Company designated as owner and both the Company and the executive officer designated as beneficiaries of the policies. The earnings on BOLI policies are used to offset a portion of employee benefit costs. BOLI is carried at the policies’ realizable cash surrender values with changes in cash surrender values and death benefits received in excess of cash surrender values reported in non-interest income.

Intangible assets — Intangible assets consist of goodwill, bank charter costs and core deposit intangibles. Goodwill represents the excess purchase price over the fair value of net assets acquired in business acquisitions. The Company had goodwill of $5.2 million at both December 31, 2012 and 2011. The Company performed its annual impairment test of goodwill as of September 30, 2012. This test indicated no impairment of the Company’s goodwill.

Bank charter costs represent costs paid to acquire a Texas bank charter and are being amortized over 20 years. Bank charter costs totaled $239,000 at both December 31, 2012 and 2011, less accumulated amortization of $107,000 and $95,000 at December 31, 2012 and 2011, respectively.

Core deposit intangibles represent premiums paid for deposits acquired via acquisition and are being amortized over three to seven years. Core deposit intangibles totaled $10.4 million and $9.5 million at December 31, 2012 and 2011, respectively, less accumulated amortization of $3.9 million and $2.7 million at December 31, 2012 and 2011, respectively.

The aggregate amount of amortization expense for the Company’s core deposit and bank charter intangibles is expected to be $2.2 million in 2013; $1.7 million in 2014; $1.3 million in 2015, $0.6 million in 2016 and $0.2 million in 2017.

Stock-based compensation — The Company has an employee stock option plan, a non-employee director stock option plan and an employee restricted stock plan, which are described more fully in Note 14. The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. Such cost is to be recognized over the vesting period of the award. For the years ended December 31, 2012, 2011 and 2010, the Company recognized $2.6 million, $1.5 million and $0.8 million, respectively, of non-interest expense for its stock-based compensation plans.

Earnings per common share — Earnings per common share are computed using the two-class method. Basic earnings per share are computed by dividing net earnings allocated to common stockholders by the weighted-average number of common shares outstanding during the applicable period. Diluted earnings per common share are computed by dividing reported earnings allocated to common stockholders by the weighted-average number of common shares outstanding after consideration of the dilutive effect, if any, of the Company’s common stock options using the treasury stock method. The Company has determined that its outstanding non-vested stock awards granted under its restricted stock plan are participating securities.

Segment disclosures — The Company operates in only one segment – community banking. Accordingly, there is no requirement to report segment information in the Company’s consolidated financial statements. No revenues are derived from foreign countries and no single external customer comprises more than 10% of the Company’s revenues.

Recent accounting pronouncements — In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-04 “Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in US GAAP and IFRS.” ASU 2011-04 expands the disclosure requirements for fair value measurements categorized within Level 3 of the fair value hierarchy to include (1) a quantitative disclosure of the unobservable inputs and assumptions used within the measurement, (2) a description of the valuation processes in place and (3) a narrative description of the sensitivity of the fair value to changes in unobservable inputs and interrelationships between those inputs. In addition, ASU 2011-04 requires that companies disclose the level within the fair value hierarchy for items not measured at fair value in the statement of financial position but whose fair value must be disclosed. ASU 2011-04 was effective for reporting periods beginning January 1, 2012. The adoption of the provisions of ASU 2011-04 did not have a material impact on the Company’s financial position, results of operations or liquidity, but did expand its fair value disclosures.

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In June 2011, the FASB issued ASU 2011-05, “Presentation of Comprehensive Income,” which revises the manner in which entities present comprehensive income in their financial statements. The provisions of ASU 2011-05 require reporting the components of comprehensive income in either (i) a continuous statement of comprehensive income or (ii) two separate but consecutive statements. ASU 2011-05 does not change the items that must be reported in other comprehensive income but rather removes the presentation option of including other comprehensive income in the statement of stockholders’ equity. The new presentation disclosures required by ASU 2011-05 were effective for interim and annual periods beginning after January 1, 2012. As this ASU amended only the presentation of comprehensive income, the adoption did not have an impact on the Company’s financial position, results of operations or liquidity. In December 2011, the FASB deferred certain provisions of ASU 2011-05 that would have required companies to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement of income and statement of other comprehensive income. In February 2013, the FASB issued ASU 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income,” that requires disclosure, either in a single footnote or parenthetically on the face of the financial statements, of the effect of significant items reclassified from accumulated other comprehensive income to their respective line items in the statement of net income. The effective date of ASU 2013-02 is for reporting periods beginning January 1, 2013. The Company does not expect that the adoption of these provisions will have a material impact on its financial position, results of operations or liquidity.

In September 2011, the FASB issued ASU 2011-08, “Testing Goodwill for Impairment.” The provisions of ASU 2011-08 provide the option of performing a qualitative assessment before calculating the fair value of a reporting unit in step 1 of the goodwill impairment test. If based on qualitative factors, the fair value of the reporting unit is more likely than not less than the carrying amount, then the two step impairment test would be required. This ASU was effective for reporting periods beginning January 1, 2012. The Company adopted the provisions of ASU 2011-08 during 2012 which had no material impact on its financial position, results of operations or liquidity.

In July 2012, the FASB issued ASU No. 2012-02 “Intangibles – Goodwill and Other (Topic 350) –Testing Indefinite-Lived Intangible Assets for Impairment” that amends the guidance related to testing indefinite-lived intangible assets, other than goodwill, for impairment. The provisions of ASU 2012-02 allow for a qualitative assessment in testing an indefinite-lived intangible asset for impairment before calculating the fair value of the asset. If the qualitative assessment determines that it is more likely than not that the asset is impaired, then a quantitative assessment of the fair value of the asset is required; otherwise, the quantitative calculation is not necessary. The provisions of ASU 2012-02 are effective January 1, 2013; however, early adoption is permitted. The Company does not expect that the provisions of ASU 2012-02 will have a material impact on its financial position, results of operation, or liquidity.

In October 2012, the FASB issued ASU No. 2012-06 “Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution,” to address diversity in practice about how to subsequently measure an indemnification asset for a government-assisted acquisition that includes a loss-sharing agreement. Specifically, this standard update will require a reporting entity to account for a change in the subsequent measurement of the indemnification asset on the same basis as the changes in the asset subject to indemnification. As a result, for any change in expected cash flows of an indemnified asset that is immediately recognized in earnings, the associated change in the indemnification asset would also be immediately recognized in earnings. For any change in expected cash flows of an indemnified asset that is amortized or accreted into earnings over time, the associated change in the indemnification asset would also be accreted or amortized into earnings over the shorter of the contractual term of the indemnification agreement or the remaining life of the indemnified asset. The provisions of ASU 2012-06 will be applied prospectively beginning January 1, 2013. Management does not expect that the provisions of ASU 2012-06 will have a material change on the accounting for its loss share receivable from the FDIC under its current loss share agreements.

Reclassifications and recasts — Certain reclassifications of prior years’ amounts have been made to conform with the 2012 financial statements presentation. These reclassifications had no impact on prior years’ net income, as previously reported. Additionally, as discussed in Note 2, the Company has made adjustments to the acquired assets and assumed liabilities for certain of its FDIC-assisted acquisitions in the determination of Day 1 Fair Values. As a result, certain amounts previously reported in the Company’s December 31, 2011 consolidated balance sheet have been recast.

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2. Acquisitions

2012 Acquisition

On December 31, 2012, the Company completed its acquisition of Genala whereby Genala merged with and into the Company in a transaction valued at approximately $27.5 million. The Company paid $13.4 million of cash and issued 423,616 shares of its common stock valued at approximately $14.1 million for all the outstanding shares of Genala common stock. Genala was the holding company for The Citizens Bank, which operated one banking office in Geneva, Alabama. The acquisition was effective at the close of business on December 31, 2012. Accordingly, no revenue or earnings of Genala or The Citizens Bank are included in the consolidated income statement for the period ending December 31, 2012. As provided for under GAAP, management has up to 12 months following the date of acquisition to finalize the fair values of the acquired assets and liabilities.

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

	As Recorded by Genala			Fair Value Adjustments			As Recorded by the Company(1)
	(Dollars in thousands)
Assets acquired:
Cash and due from banks	$	41,938		$	—		$	41,938
Investment securities		85,291			2,344	a		87,635
Loans and leases		43,401			(3,785	) b		39,616
Allowance for loan losses		(1,247	)		1,247	b		—
Premises and equipment		426			590	c		1,016
Foreclosed assets		652			(342	) d		310
Accrued interest receivable		1,220			—			1,220
Intangible assets		—			1,656	e		1,656
Other		482			(26	) f		456
Total assets acquired		172,163			1,684			173,847
Liabilities assumed:
Deposits		142,652			882	g		143,534
Accrued interest payable and other liabilities		391			—			391
Total liabilities assumed		143,043			882			143,925
Net assets acquired	$	29,120		$	802			29,922
Consideration paid:
Cash								(13,396	)
Common stock								(14,123	)
Total consideration paid								(27,519	)
Pre-tax gain							$	2,403

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

Explanation of fair value adjustments

a-	Adjustment reflects the fair value adjustment based on the Company’s pricing of investment securities, including certain investment securities classified by Genala as held to maturity.
b-	Adjustment reflects the fair value adjustments based on the Company’s evaluation of the acquired loan portfolio and to eliminate the recorded allowance for loan losses.
c-	Adjustment reflects the fair value adjustments based on the Company’s evaluation of the premises and equipment acquired.
d-	Adjustment reflects the fair value adjustments based on the Company’s evaluation of the acquired foreclosed assets.
e-	Adjustment reflects the fair value adjustment for core deposit intangibles recorded as a result of the acquisition.
f-	Adjustment reflects the amount needed to adjust the carrying value of other assets to estimated fair value.
g-	Adjustment reflects the fair value adjustment based on the Company’s evaluation of the acquired deposits.

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The following unaudited supplemental pro-forma information is presented to show the estimated results as if Genala had been acquired as of January 1, 2012, adjusted for any potential costs savings.

Year Ended December 31, 2012
(Dollars in thousands, except per share amounts)
Net interest income (unaudited)	$	180,600
Net income (unaudited)	$	79,800
EPS - Diluted (unaudited)	$	2.26

2011 Acquisitions

On January 14, 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 Oglethorpe Bank (“Oglethorpe”) with offices in Brunswick and St. Simons Island, 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 First Choice Community Bank (“First Choice”) with offices in Dallas, Newnan (2), Senoia, Sharpsburg, Douglasville and Carrollton, Georgia. 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 offices in Valdosta (3), Bainbridge (2), Cairo, Lake Park, Stockbridge, McDonough, Oakwood and Athens, Georgia and in Ocala, Florida. On October 21, 2011, the Company closed the office in Stockbridge, Georgia.

Subsequent to the reporting of the assets acquired and the liabilities assumed in the Oglethorpe, First Choice and Park Avenue acquisitions, the Company made certain adjustments to these values in order to finalize the Day 1 Fair Values. As a result of those adjustments, the Company has “recast” the assets acquired and liabilities assumed in the Oglethorpe, First Choice and Park Avenue 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 2011 FDIC-assisted acquisitions.

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

	January 14, 2011
	As Recorded by Oglethorpe			Fair Value Adjustments			Recast Adjustments			As Recorded by  the Company(1)
	(Dollars in thousands)
Assets acquired:
Cash and cash equivalents	$	14,710		$	—		$	—		$	14,710
Purchased non-covered loans		6,532			(3,447	) b		—			3,085
Covered loans		154,018			(73,342	) b		758			81,434
FDIC loss share receivable		—			52,395	c		(1,292	)		51,103
Foreclosed assets covered by FDIC loss share agreements		16,554			(9,410	) d		(59	)		7,085
Core deposit intangible		—			401	e		—			401
Other assets		1,054			(621	) f		726			1,159
Total assets acquired		192,868			(34,024	)		133			158,977
Liabilities assumed:
Deposits		195,067			—	i		—			195,067
FDIC clawback payable		—			924	h		133			1,057
Other liabilities		333			100	f		—			433
Total liabilities assumed		195,400			1,024			133			196,557
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

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

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

	April 29, 2011
	As Recorded by First Choice			Fair Value Adjustments			Recast Adjustments			As Recorded by the Company(1)
	(Dollars in thousands)
Assets acquired:
Cash and cash equivalents	$	38,018		$	—		$	—		$	38,018
Investment securities AFS		4,588			(20	) a		—			4,568
Purchased non-covered loans		1,973			(419	) b		—			1,554
Covered loans		246,451			(96,557	) b		(1,382	)		148,512
FDIC loss share receivable		—			59,544	c		460			60,004
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		884			954
Total assets acquired		294,734			(38,920	)		(38	)		255,776
Liabilities assumed:
Deposits		293,344			—	i		—			293,344
FHLB-Atlanta advances		4,000			—	g		—			4,000
FDIC clawback payable		—			930	h		(38	)		892
Other liabilities		478			100	f		—			578
Total liabilities assumed		297,822			1,030			(38	)		298,814
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

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

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

	April 29, 2011
	As Recorded by Park Avenue			Fair Value Adjustments			Recast Adjustments			As Recorded by  the Company(1)
	(Dollars in thousands)
Assets acquired:
Cash and cash equivalents	$	66,825		$	—		$	—		$	66,825
Investment securities AFS		132,737			(947	) a		—			131,790
Purchased non-covered loans		23,664			(5,968	) b		—			17,696
Covered loans		408,069			(145,152	) b		1,380			264,297
FDIC loss share receivable		—			113,683	c		2,571			116,254
Foreclosed assets covered by FDIC loss share agreements		91,442			(59,812	) d		(450	)		31,180
Core deposit intangible		—			5,063	e		—			5,063
Other assets		5,012			(2,035	) f		(1,799	)		1,178
Total assets acquired		727,749			(95,168	)		1,702			634,283
Liabilities assumed:
Deposits		626,321			—	i		—			626,321
FHLB-Atlanta advances		84,260			4,559	g		—			88,819
FDIC clawback payable		—			14,868	h		77			14,945
Other liabilities		1,588			500	f		1,625			3,713
Total liabilities assumed		712,169			19,927			1,702			733,798
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

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

Explanation of fair value adjustments

a-	Adjustment reflects the fair value adjustment based on the Company’s 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 include 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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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 offices in Cartersville (2), Rome, Adairsville and Calhoun, Georgia.

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 offices in South Carolina (2); North Carolina (2); Georgia and Alabama (3). On October 26, 2010, the Company closed four of the Woodlands offices.

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 offices in Bradenton (2), Palmetto and Brandon, Florida. 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 offices in Dawsonville (2), Cumming and Marble Hill, Georgia.

Purchase Accounting Adjustments

The recast adjustments to the acquired assets and assumed liabilities for each of the Company’s FDIC-assisted acquisitions 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 decrease to non-interest income is included as an adjustment to “other assets” or “other liabilities” in the previous tables.

As a result of the recent adjustments, certain amounts previously reported in the Company’s December 31, 2011 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 Reported		Recast Adjustments			As Recast
	(Dollars in thousands)
December 31, 2011:
Covered loans	$	806,924	$	(2	)	$	806,922
FDIC loss share receivable		278,263		782			279,045
Other assets		32,495		884			33,379
FDIC clawback payable		24,606		39			24,645
Accrued interest payable and other liabilities		43,882		1,625			45,507

87

Loss Share Agreements and Other FDIC-Assisted 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 assets for (i) 80% of losses up to $11.8 million, (ii) 30% of losses between $11.8 million and $17.9 million and (iii) 80% of losses in excess of $17.9 million. For non-single family residential loans and related foreclosed assets, the FDIC will reimburse the Bank for (i) 80% of losses up to $32.3 million, (ii) 0% of losses between $32.3 million and $42.8 million and (iii) 80% of losses in excess of $42.8 million. Pursuant to the terms of the loss share agreements for the Park Avenue acquisition, the FDIC will reimburse the Bank for (i) 80% of losses up to $218.2 million, (ii) 0% of losses between $218.2 million and $267.5 million and (iii) 80% of losses in excess of $267.5 million.

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

To the extent that actual losses incurred by the Bank are less than (i) $65 million on the Unity assets covered under the loss share agreements, (ii) $107 million on the Woodlands assets covered under the loss share agreements, (iii) $60 million on the Horizon assets covered under the loss share agreements, (iv) $66 million on the Chestatee assets covered under the loss share agreements, (v) $66 million on the Oglethorpe assets covered under the loss share agreements, (vi) $87 million on the First Choice assets covered under the loss share agreements 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 the former directors, officers or employees of Unity, Woodland, Horizon, Chestatee, Oglethorpe, First Choice or Park Avenue.

3. Covered Assets, FDIC Loss Share Receivable and FDIC Clawback Payable

A summary of the covered assets, the FDIC loss share receivable and the FDIC clawback payable is as follows:

	December 31,
	2012		2011
	(Dollars in thousands)
Covered loans	$	596,239	$	806,922
FDIC loss share receivable		152,198		279,045
Covered foreclosed assets		52,951		72,907
Total	$	801,388	$	1,158,874
FDIC clawback payable	$	25,169	$	24,645

88

Covered Loans

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

	Unity			Woodlands			Horizon			Chestatee			Oglethorpe			First Choice			Park Avenue			Total
	(Dollars in thousands)
At acquistion date:
Contractually required principal and interest	$	208,410		$	315,103		$	179,441		$	181,523		$	174,110		$	260,178		$	452,658		$	1,771,423
Nonaccretable difference		(52,526	)		(83,933	)		(52,388	)		(47,538	)		(67,300	)		(86,876	)		(124,899	)		(515,460	)
Cash flows expected to be collected		155,884			231,170			127,053			133,985			106,810			173,302			327,759			1,255,963
Accretable difference		(21,432	)		(44,692	)		(35,245	)		(22,604	)		(25,376	)		(24,790	)		(63,462	)		(237,601	)
Fair value at acquisition date	$	134,452		$	186,478		$	91,808		$	111,381		$	81,434		$	148,512		$	264,297		$	1,018,362
Carrying value at January 1, 2011	$	114,983		$	175,720		$	87,714		$	111,051		$	—		$	—		$	—		$	489,468
Covered loans acquired		—			—			—			—			81,434			148,512			264,297			494,243
Accretion		7,662			13,716			6,716			8,193			6,461			7,798			15,589			66,135
Transfers to covered foreclosed assets		(5,197	)		(14,938	)		(1,990	)		(2,381	)		(1,218	)		(858	)		(2,432	)		(29,014	)
Payments received		(20,296	)		(40,256	)		(11,598	)		(40,814	)		(22,061	)		(22,514	)		(48,249	)		(205,788	)
Other activity, net		(792	)		(2,467	)		(1,044	)		(1,348	)		(225	)		(1,015	)		(1,231	)		(8,122	)
Carrying value at December 31, 2011		96,360			131,775			79,798			74,701			64,391			131,923			227,974			806,922
Accretion		6,360			10,031			5,768			5,708			5,665			9,915			18,373			61,820
Transfers to covered foreclosed assets		(4,077	)		(4,543	)		(3,731	)		(3,299	)		(4,065	)		(4,742	)		(8,563	)		(33,020	)
Payments received		(21,144	)		(28,777	)		(14,888	)		(18,205	)		(15,425	)		(41,756	)		(71,592	)		(211,787	)
Charge-offs		(4,422	)		(8,332	)		(3,714	)		(2,089	)		(2,117	)		(4,008	)		(1,410	)		(26,092	)
Other activity, net		(228	)		(420	)		(40	)		(148	)		(356	)		(251	)		(161	)		(1,604	)
Carrying value at December 31, 2012	$	72,849		$	99,734		$	63,193		$	56,668		$	48,093		$	91,081		$	164,621		$	596,239

89

The following table presents a summary of the carrying value and type of covered loans at December 31, 2012 and 2011.

	December 31,
	2012		2011
	(Dollars in thousands)
Real estate:
Residential 1-4 family	$	152,348	$	202,620
Non-farm/non-residential		288,104		369,756
Construction/land development		105,087		160,872
Agricultural		19,690		24,104
Multifamily residential		10,701		15,894
Total real estate		575,930		773,246
Commercial and industrial		18,496		29,749
Consumer		176		958
Other		1,637		2,969
Total covered loans	$	596,239	$	806,922

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

	Unity			Woodlands			Horizon			Chestatee			Oglethorpe			First Choice			Park Avenue			Total
	(Dollars in thousands)
Accretable difference at January 1, 2011	$	15,279		$	37,182		$	32,165		$	22,265		$	—		$	—		$	—		$	106,891
Accretable difference acquired		—			—			—			—			25,376			24,790			63,462			113,628
Accretion		(7,662	)		(13,716	)		(6,716	)		(8,193	)		(6,461	)		(7,798	)		(15,589	)		(66,135	)
Adjustments to accretable difference due to:
Covered loans transferred to covered foreclosed assets		(384	)		(1,611	)		(191	)		(503	)		(315	)		(91	)		(327	)		(3,422	)
Covered loans paid off		(273	)		(2,146	)		(934	)		(4,564	)		(2,811	)		(1,435	)		(3,167	)		(15,330	)
Cash flow revisions as a result of renewals and/or modifications of covered loans		3,514			4,691			10			1,481			1,446			1,269			2,097			14,508
Other, net		140			155			98			177			103			165			671			1,509
Accretable difference at December 31, 2011		10,614			24,555			24,432			10,663			17,338			16,900			47,147			151,649
Accretion		(6,360	)		(10,031	)		(5,768	)		(5,708	)		(5,665	)		(9,915	)		(18,373	)		(61,820	)
Adjustments to accretable difference due to:
Covered loans transferred to covered foreclosed assets		(159	)		(364	)		(190	)		(448	)		(700	)		(455	)		(1,679	)		(3,995	)
Covered loans paid off		(719	)		(1,220	)		(1,418	)		(811	)		(1,291	)		(1,529	)		(3,507	)		(10,495	)
Cash flow revisions as a result of renewals and/or modifications of covered loans		5,196			4,396			(618	)		1,835			1,567			4,791			4,164			21,331
Other, net		2			116			86			181			123			127			190			825
Accretable difference at December 31, 2012	$	8,574		$	17,452		$	16,524		$	5,712		$	11,372		$	9,919		$	27,942		$	97,495

90

FDIC Loss Share Receivable

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

	Unity			Woodlands			Horizon			Chestatee			Oglethorpe			First Choice			Park Avenue			Total
	(Dollars in thousands)
At acquisition date:
Expected principal loss on covered assets:
Covered loans	$	50,354		$	73,220		$	40,537		$	46,869		$	62,890		$	82,212		$	113,872		$	469,954
Covered foreclosed assets		9,979			5,897			3,678			15,960			7,907			628			49,850			93,899
Total expected principal losses		60,333			79,117			44,215			62,829			70,797			82,840			163,722			563,853
Estimated loss sharing percentage(1)		80	%		80	%		80	%		80	%		80	%		80	%		80	%		80	%
Estimated recovery from FDIC loss share agreements		48,266			63,294			35,372			50,263			56,638			66,272			130,978			451,083
Discount for net present value on FDIC loss share receivable		(4,119	)		(7,428	)		(6,283	)		(4,204	)		(5,535	)		(6,268	)		(14,724	)		(48,561	)
Net present value of FDIC loss share receivable at acquisition date	$	44,147		$	55,866		$	29,089		$	46,059		$	51,103		$	60,004		$	116,254		$	402,522
Carrying value at January 1, 2011	$	31,120		$	51,776		$	29,182		$	46,059		$	—		$	—		$	—		$	158,137
FDIC loss share receivable recorded at acquisition		—			—			—			—			51,103			60,004			116,254			227,361
Accretion income		741			1,807			927			1,363			1,997			1,814			2,427			11,076
Cash received from FDIC		(5,069	)		(23,001	)		(9,505	)		(18,466	)		(11,942	)		(12,372	)		(28,646	)		(109,001	)
Reductions of FDIC loss share receivable for payments on covered loans in excess of Day 1 Fair Values		(875	)		(3,590	)		(948	)		(2,892	)		(4,565	)		(1,612	)		(7,204	)		(21,686	)
Expenses on covered assets reimbursable by FDIC		1,376			1,606			1,183			1,330			737			472			1,943			8,647
Other activity, net		282			579			918			1,988			390			136			218			4,511
Carrying value at December 31, 2011		27,575			29,177			21,757			29,382			37,720			48,442			84,992			279,045
Accretion income		793			1,108			680			725			1,310			1,485			2,473			8,574
Cash received from FDIC		(12,945	)		(14,433	)		(8,948	)		(22,301	)		(13,062	)		(29,870	)		(42,438	)		(143,997	)
Reductions of FDIC loss share receivable for payments on covered loans in excess of Day 1 Fair Values		(2,394	)		(3,377	)		(1,335	)		(2,122	)		(4,918	)		(6,208	)		(12,657	)		(33,011	)
Increase in FDIC loss share receivable for:
Charge-offs on covered loans		3,170			6,417			2,297			1,589			1,627			3,151			1,028			19,279
Write downs of covered foreclosed assets		1,591			1,193			450			1,858			294			278			3,181			8,845
Expenses on covered assets reimbursable by FDIC		1,537			1,726			1,360			1,276			1,318			1,097			3,064			11,378
Other activity, net		491			562			598			755			(293	)		(457	)		429			2,085
Carrying value at December 31, 2012	$	19,818		$	22,373		$	16,859		$	11,162		$	23,996		$	17,918		$	40,072		$	152,198

(1) Certain of the Company’s loss share agreements contain tranches whereby the FDIC’s loss sharing percentage is more than or less than 80%. However, management’s current expectation of most of the principal losses on covered assets under each of the loss share agreements falls in the tranches whereby the FDIC would reimburse the Company for approximately 80% of such losses.

91

Foreclosed Assets Covered by FDIC Loss Share Agreements

The following table presents a summary, by acquisition, of foreclosed assets covered by FDIC loss share agreements, or covered foreclosed assets, as of the dates of acquisition and the activity within covered foreclosed assets during the periods indicated.

	Unity			Woodlands			Horizon			Chestatee			Oglethorpe			First Choice			Park Avenue			Total
	(Dollars in thousands)
At acquisition date:
Balance on acquired bank’s books	$	20,304		$	12,258		$	8,391		$	31,647		$	16,554		$	2,773		$	91,442		$	183,369
Total expected losses		(9,979	)		(5,897	)		(3,678	)		(15,960	)		(7,907	)		(628	)		(49,850	)		(93,899	)
Discount for net present value of expected cash flows		(1,466	)		(1,332	)		(1,030	)		(2,281	)		(1,562	)		(474	)		(10,412	)		(18,557	)
Fair value at acquisition date	$	8,859		$	5,029		$	3,683		$	13,406		$	7,085		$	1,671		$	31,180		$	70,913
Carrying value at January 1, 2011	$	8,060		$	5,996		$	3,683		$	13,406		$	—		$	—		$	—		$	31,145
Covered foreclosed assets acquired		—			—			—			—			7,085			1,671			31,180			39,936
Transfers from covered loans		5,197			14,938			1,990			2,381			1,218			858			2,432			29,014
Sales of covered foreclosed assets		(2,985	)		(6,499	)		(1,996	)		(6,110	)		(1,171	)		(305	)		(8,122	)		(27,188	)
Carrying value at December 31, 2011		10,272			14,435			3,677			9,677			7,132			2,224			25,490			72,907
Transfers from covered loans		4,077			4,543			3,731			3,299			4,065			4,742			8,563			33,020
Sales of covered foreclosed assets		(4,467	)		(9,304	)		(4,285	)		(7,111	)		(4,063	)		(3,038	)		(11,719	)		(43,987	)
Writedowns of covered foreclosed assets included in other loss share income		(1,695	)		(1,624	)		(585	)		(1,654	)		(337	)		(344	)		(2,750	)		(8,989	)
Carrying value at December 31, 2012	$	8,187		$	8,050		$	2,538		$	4,211		$	6,797		$	3,584		$	19,584		$	52,951

The following table presents a summary of the carrying value and type of covered foreclosed assets at December 31, 2012 and 2011.

	December 31,
	2012		2011
	(Dollars in thousands)
Real estate:
Residential 1-4 family	$	12,279	$	15,945
Non-farm/non-residential		9,570		11,624
Construction/land development		30,602		43,323
Agricultural		449		—
Multifamily residential		51		2,014
Total real estate		52,951		72,906
Repossessions		—		1
Total covered foreclosed assets	$	52,951	$	72,907

92

FDIC Clawback Payable

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

																First			Park
	Unity			Woodlands			Horizon			Chestatee			Oglethorpe			Choice			Avenue			Total
	(Dollars in thousands)
At acquisition date:
Estimated FDIC clawback payable	$	2,612		$	4,846		$	2,380		$	1,291		$	1,721		$	1,452		$	24,344		$	38,646
Discount for net present value on FDIC clawback payable		(1,046	)		(1,905	)		(919	)		(499	)		(664	)		(560	)		(9,399	)		(14,992	)
Net present value of FDIC clawback payable at acquisition date	$	1,566		$	2,941		$	1,461		$	792		$	1,057		$	892		$	14,945		$	23,654
Carrying value at January 1, 2011	$	1,629		$	3,004		$	1,479		$	792		$	—		$	—		$	—		$	6,904
FDIC clawback payable recorded at acquisition		—			—			—			—			1,057			892			14,945			16,894
Amortization expense		80			149			73			55			42			31			505			935
Changes in FDIC clawback payable related to changes in expected losses on covered assets		—			—			—			(88	)		—			—			—			(88	)
Carrying value at December 31, 2011		1,709			3,153			1,552			759			1,099			923			15,450			24,645
Amortization expense		79			138			73			35			53			45			776			1,199
Changes in FDIC clawback payable related to changes in expected losses on covered assets		(144	)		(305	)		(157	)		—			(69	)		—			—			(675	)
Carrying value at December 31, 2012	$	1,644		$	2,986		$	1,468		$	794		$	1,083		$	968		$	16,226		$	25,169

4. Investment Securities

The following table is a summary of the amortized cost and estimated fair values of investment securities, all of which are classified as AFS. The Company’s holdings of “other equity securities” include FHLB-Dallas, FHLB-Atlanta and FNBB shares which do not have readily available fair values and are carried at cost.

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(Dollars in thousands)
December 31, 2012:
Obligations of states and political subdivisions	$	345,224	$	16,586	$	(293	)	$	361,517
U.S. Government agency residential mortgage-backed securities		116,835		1,466		(17	)		118,284
Corporate obligations		776		—		—			776
Other equity securities		13,689		—		—			13,689
Total investment securities AFS	$	476,524	$	18,052	$	(310	)	$	494,266
December 31, 2011:
Obligations of states and political subdivisions	$	359,667	$	14,359	$	(979	)	$	373,047
U.S. Government agency residential mortgage-backed securities		46,068		1,967		—			48,035
Other equity securities		17,828		—		—			17,828
Total investment securities AFS	$	423,563	$	16,326	$	(979	)	$	438,910

93

The Company utilizes independent third parties as its principal sources for determining fair value of investment securities which are measured on a recurring basis. As a result, the Company receives estimates of fair values from at least two independent pricing sources for the majority of its individual securities within its investment portfolio. For investment securities traded in an active market, the fair values are obtained from independent pricing services and are 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, comprehensive interest rate tables, pricing matrices or a combination thereof. For investment securities traded in a market that is not active, fair value is determined using unobservable inputs. Additionally, the valuation of investment securities acquired in FDIC-assisted or traditional acquisitions may include certain unobservable inputs. All fair value estimates received by the Company from its investment securities are reviewed and approved on a quarterly basis by the Company’s Investment Portfolio Manager and its Chief Financial Officer.

The following table shows gross unrealized losses and estimated fair value of investment securities AFS, aggregated by investment category and length of time that individual investment securities have been in a continuous unrealized loss position.

	Less than 12 Months				12 Months or More				Total
	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
	(Dollars in thousands)
December 31, 2012:
Obligations of states and political subdivisions	$	14,085	$	188	$	7,324	$	105	$	21,409	$	293
U.S. Government agency residential mortgage-backed securities		14,320		17		—		—		14,320		17
Total temporarily impaired investment securities	$	28,405	$	205	$	7,324	$	105	$	35,729	$	310
December 31, 2011:
Obligations of states and political subdivisions	$	6,035	$	248	$	16,582	$	731	$	22,617	$	979
Total temporarily impaired investment securities	$	6,035	$	248	$	16,582	$	731	$	22,617	$	979

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 December 31, 2012 and 2011, 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 believes that all of its unrealized losses on investment securities are temporary in nature. The Company does not have the intent to sell these investment securities and more likely than not would not be required to sell these investment securities before fair value recovers to amortized cost.

The Company owns three different maturities of bonds totaling an aggregate of $2.6 million issued by the Northwest Arkansas Regional Solid Waste Management District (“District”). The District owns and operates a landfill for the benefit of the residents of certain counties located in north Arkansas, with the landfill, the revenues therefrom and certain personal property serving as collateral under the bond indenture. On October 9, 2012, a special election was held where an additional 3/8-cent sales tax proposal to be used to support the purchase of the landfill by a third party from the District was defeated. On October 23, 2012, the management board governing the District voted to place the District into receivership, and on November 30, 2012 the landfill ceased operations. As a result, during the fourth quarter of 2012, the Company recorded a $2.6 million impairment charge to reduce the carrying value of the bonds to zero. This impairment charge is included in “Net gains on investment securities,” on the consolidated statement of income.

94

A maturity distribution of investment securities AFS reported at amortized cost and estimated fair value as of December 31, 2012 is as follows:

	Amortized Cost		Estimated Fair Value
	(Dollars in thousands)
Due in one year or less	$	16,285	$	16,616
Due after one year to five years		33,794		34,637
Due after five years to ten years		58,613		60,073
Due after ten years		367,832		382,940
Total	$	476,524	$	494,266

For purposes of this maturity distribution, all investment securities are shown based on their contractual maturity date, except (i) FHLB-Dallas and FNBB stock with no contractual maturity date are shown in the longest maturity category and (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 December 31, 2012. 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.

Sales activities and other-than-temporary impairment charges of the Company’s investment securities AFS are summarized as follows:

	Year Ended December 31,
	2012			2011			2010
	(Dollars in thousands)
Sales proceeds	$	43,177		$	94,676		$	255,232
Gross realized gains	$	3,075		$	1,044		$	5,030
Gross realized losses		(15	)		(111	)		(486	)
Other-than-temporary impairment charges		(2,603	)		—			—
Net gains on investment securities	$	457		$	933		$	4,544

Investment securities with carrying values of $317.1 million and $316.8 million at December 31, 2012 and 2011, respectively, were pledged to secure public funds and trust deposits and for other purposes required or permitted by law.

At December 31, 2012, the Company had no holdings of investment securities of any one issuer in an amount greater than 10% of total common stockholders’ equity. At December 31, 2011, the Company’s holdings of investment securities issued by the Government National Mortgage Association, which carry the full faith and credit guaranty of the U.S. Government, totaled $45.6 million, or 10.7% of total common stockholder’s equity.

95

5. Loans and Leases

The following table is a summary of the loan and lease portfolio, excluding purchased non-covered loans and covered loans, by principal category.

	December 31,
	2012				2011
	(Dollars in thousands)
Real estate:
Residential 1-4 family	$	272,052	12.9	%	$	260,402	13.9	%
Non-farm/non-residential		807,906	38.1			708,766	37.7
Construction/land development		578,776	27.4			478,106	25.4
Agricultural		50,619	2.4			71,158	3.8
Multifamily residential		141,243	6.7			142,131	7.6
Total real estate		1,850,596	87.5			1,660,563	88.4
Commercial and industrial		159,804	7.6			120,048	6.4
Consumer		29,781	1.4			36,161	1.9
Direct financing leases		68,022	3.2			54,745	2.9
Other		7,631	0.3			8,966	0.4
Total loans and leases	$	2,115,834	100.0	%	$	1,880,483	100.0	%

The above table includes deferred costs, net of deferred fees, that totaled $1.7 million and $0.6 million at December 31, 2012 and 2011, respectively. Direct financing leases are presented net of unearned income totaling $8.4 million and $7.4 million at December 31, 2012 and 2011, respectively.

Loans and leases on which the accrual of interest has been discontinued aggregated $9.1 million and $12.5 million at December 31, 2012 and 2011, respectively. Interest income collected and recognized during 2012, 2011 and 2010 for nonaccrual loans and leases at December 31, 2012, 2011 and 2010 was $0.2 million, $0.4 million and $0.1 million, respectively. Under the original terms, these loans and leases would have reported $0.7 million, $1.2 million and $1.1 million of interest income during 2012, 2011 and 2010, respectively.

The following table is a summary of the purchased non-covered loan portfolio, by principal category.

	December 31,
	2012				2011
	(Dollars in thousands)
Real estate	$	29,283	70.5	%	$	71	1.5	%
Commercial and industrial		5,333	12.8			631	13.1
Consumer		4,168	10.0			4,001	83.4
Other		2,750	6.7			96	2.0
Total	$	41,534	100.0	%	$	4,799	100.0	%

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

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

	Year Ended December 31,
	2012			2011			2010
	(Dollars in thousands)
Balance - beginning of year	$	39,169		$	40,230		$	39,619
Non-covered loans and leases charged off		(6,636	)		(12,988	)		(16,764	)
Recoveries of non-covered loans and leases previously charged off		655			427			1,375
Net charge-offs - non-covered loans and leases		(5,981	)		(12,561	)		(15,389	)
Covered loans charged off		(6,195	)		(275	)		—
Net charge-offs - total loans and leases		(12,176	)		(12,836	)		(15,389	)
Provision for loan and lease losses:
Non-covered loans and leases		5,550			11,500			16,000
Covered loans		6,195			275			—
Total provision		11,745			11,775			16,000
Balance - end of year	$	38,738		$	39,169		$	40,230

96

As of December 31, 2012, the Company identified covered loans where the expected performance of such loans had deteriorated from management’s performance expectations established in conjunction with the determination of the Day 1 Fair Values. As a result the Company recorded partial charge-offs, net of adjustments to the FDIC loss share receivable and the FDIC clawback payable, totaling $6.2 million for such loans during 2012 and $0.3 million in 2011. The Company also recorded $6.2 million during 2012 and $0.3 million during 2011 of provision for loan and lease losses to cover such charge-offs. In addition to these net charge-offs, the Company transferred certain of these covered loans to covered foreclosed assets. As a result of these actions, the Company had $38.5 million and $1.9 million of impaired covered loans at December 31, 2012 and 2011, respectively.

The following table is a summary of the Company’s ALLL as of and for the years ended December 31, 2012 and 2011.

	Beginning Balance		Charge- offs			Recoveries		Provision			Ending Balance
	(Dollars in thousands)
December 31, 2012:
Real estate:
Residential 1-4 family	$	3,848	$	(1,312	)	$	107	$	2,177		$	4,820
Non-farm/non-residential		12,203		(1,226	)		18		(888	)		10,107
Construction/land development		9,478		(466	)		106		2,882			12,000
Agricultural		3,383		(997	)		141		351			2,878
Multifamily residential		2,564		—			—		(534	)		2,030
Commercial and industrial		4,591		(1,323	)		35		352			3,655
Consumer		1,209		(732	)		238		300			1,015
Direct financing leases		1,632		(361	)		2		777			2,050
Other		261		(219	)		8		133			183
Covered loans		—		(6,195	)		—		6,195			—
Total	$	39,169	$	(12,831	)	$	655	$	11,745		$	38,738
December 31, 2011:
Real estate:
Residential 1-4 family	$	2,999	$	(2,743	)	$	64	$	3,528		$	3,848
Non-farm/non-residential		8,313		(1,033	)		16		4,907			12,203
Construction/land development		10,565		(5,651	)		30		4,534			9,478
Agricultural		2,569		(771	)		—		1,585			3,383
Multifamily residential		1,320		—			—		1,244			2,564
Commercial and industrial		4,142		(1,465	)		142		1,772			4,591
Consumer		2,051		(825	)		166		(183	)		1,209
Direct financing leases		1,726		(413	)		5		314			1,632
Other		201		(87	)		4		143			261
Covered loans		—		(275	)		—		275			—
Unallocated		6,344		—			—		(6,344	)		—
Total	$	40,230	$	(13,263	)	$	427	$	11,775		$	39,169

97

The following table is a summary of the Company’s ALLL and recorded investment in loans and leases, excluding purchased non-covered loans and covered loans, as of December 31, 2012 and 2011.

	Allowance for Loan and Leases Losses						Loans and Leases Excluding Purchased Non-Covered Loans and Covered Loans
	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)
December 31, 2012:
Real estate:
Residential 1-4 family	$	518	$	4,302	$	4,820	$	2,906	$	269,146	$	272,052
Non-farm/non-residential		53		10,054		10,107		2,898		805,008		807,906
Construction/land development		7		11,993		12,000		542		578,234		578,776
Agricultural		254		2,624		2,878		985		49,634		50,619
Multifamily residential		—		2,030		2,030		—		141,243		141,243
Commercial and industrial		649		3,006		3,655		761		159,043		159,804
Consumer		—		1,015		1,015		33		29,748		29,781
Direct financing leases		—		2,050		2,050		—		68,022		68,022
Other		2		181		183		22		7,609		7,631
Total	$	1,483	$	37,255	$	38,738	$	8,147	$	2,107,687	$	2,115,834
December 31, 2011:
Real estate:
Residential 1-4 family(1)	$	415	$	3,433	$	3,848	$	3,239	$	257,163	$	260,402
Non-farm/non-residential		410		11,793		12,203		3,837		704,929		708,766
Construction/land development		31		9,447		9,478		3,001		475,105		478,106
Agricultural		—		3,383		3,383		737		70,421		71,158
Multifamily residential		—		2,564		2,564		—		142,131		142,131
Commercial and industrial		868		3,723		4,591		1,390		118,658		120,048
Consumer		57		1,152		1,209		87		36,074		36,161
Direct financing leases		—		1,632		1,632		—		54,745		54,745
Other		2		259		261		11		8,955		8,966
Total	$	1,783	$	37,386	$	39,169	$	12,302	$	1,868,181	$	1,880,483

(1) Includes one individually evaluated loan classified as a TDR totaling $ 1.0 million with an ALLL of $0.3 million allocated for such loan.

98

The following table is a summary of credit quality indicators for the Company’s total loans and leases, excluding purchased non-covered loans and covered loans, as of December 31, 2012 and 2011.

	Satisfactory		Moderate		Watch		Substandard		Total
	(Dollars in thousands)
December 31, 2012:
Real estate:
Residential 1-4 family(1)	$	263,737	$	—	$	3,146	$	5,169	$	272,052
Non-farm/non-residential		649,494		109,429		38,231		10,752		807,906
Construction/land development		395,821		130,057		37,069		15,829		578,776
Agricultural		25,854		12,105		9,509		3,151		50,619
Multifamily residential		112,360		24,092		4,009		782		141,243
Commercial and industrial		121,898		31,338		3,950		2,618		159,804
Consumer(1)		29,079		—		424		278		29,781
Direct financing leases		66,657		1,365		—		—		68,022
Other(1)		6,116		1,204		239		72		7,631
Total	$	1,671,016	$	309,590	$	96,577	$	38,651	$	2,115,834
December 31, 2011:
Real estate:
Residential 1-4 family(1)	$	251,799	$	—	$	1,924	$	6,679	$	260,402
Non-farm/non-residential		541,830		96,341		53,976		16,619		708,766
Construction/land development		263,149		164,500		41,741		8,716		478,106
Agricultural		45,276		11,549		7,328		7,005		71,158
Multifamily residential		94,049		43,622		3,673		787		142,131
Commercial and industrial		81,543		30,996		3,093		4,416		120,048
Consumer(1)		35,128		—		623		410		36,161
Direct financing leases		52,329		2,070		26		320		54,745
Other(1)		6,731		1,724		385		126		8,966
Total	$	1,371,834	$	350,802	$	112,769	$	45,078	$	1,880,483

(1) The Company does not risk rate its residential 1-4 family loans, its consumer loans, and certain “other” loans. However, for purposes of the above table, the Company considers such loans to be (i) satisfactory - if they are performing and less than 30 days past due, (ii) watch - if they are performing and 30 to 89 days past due or (iii) substandard - if they are nonperforming or 90 days or more past due.

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

99

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.

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 following table is a summary of credit quality indicators for the Company’s covered loans as of December 31, 2012 and 2011.

	FV 1		FV 2		Total Covered Loans
	(Dollars in thousands)
December 31, 2012:
Real estate:
Residential 1-4 family	$	146,687	$	5,661	$	152,348
Non-farm/non-residential		271,705		16,399		288,104
Construction/land development		90,321		14,766		105,087
Agricultural		18,937		753		19,690
Multifamily residential		9,871		830		10,701
Commercial and industrial		18,495		1		18,496
Consumer		123		53		176
Other		1,637		—		1,637
Total	$	557,776	$	38,463	$	596,239
December 31, 2011:
Real estate:
Residential 1-4 family	$	202,620	$	—	$	202,620
Non-farm/non-residential		368,555		1,201		369,756
Construction/land development		160,737		135		160,872
Agricultural		24,104		—		24,104
Multifamily residential		15,376		518		15,894
Commercial and industrial		29,749		—		29,749
Consumer		958		—		958
Other		2,969		—		2,969
Total	$	805,068	$	1,854	$	806,922

For covered loans, management separately monitors this portfolio and periodically reviews loans contained within this portfolio against the factors and assumptions used in determining the Day 1 Fair Values. To the extent that a loan is performing in accordance with management’s expectation established in conjunction with the determination of the Day 1 Fair Values, such loan is rated FV 1, is not included in any of the Company’s credit quality ratios, is not considered to be an impaired loan and is not considered in the determination of the required 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 is rated FV 2, is included in certain of the Company’s credit quality metrics, may be considered an impaired loan, and is considered in the determination of the required level of allowance for loan and lease losses. At December 31, 2012 and 2011, the Company had no allowance for its covered loans because all losses had been charged off on covered loans whose performance had deteriorated from management’s expectations established in conjunction with the determination of the Day 1 Fair Values.

100

The following table is a summary of credit quality indicators for the Company’s purchased non-covered loans as of December 31, 2012 and 2011.

	Purchased Non-Covered Loans Without Evidence of Credit Deterioration at Acquisition										Purchased Non- Covered Loans With Evidence of Credit Deterioration  at Acquisition				Total Purchased Non-Covered Loans
	FV 33		FV 44		FV 55		FV 36		FV 77		FV 66		FV 88
	(Dollars in thousands)
December 31, 2012:
Real Estate	$	5,042	$	10,218	$	8,705	$	1,229	$	—	$	4,089	$	—	$	29,283
Commercial and industrial		576		1,802		1,788		384		—		783		—		5,333
Consumer		857		231		79		1,341		—		1,660		—		4,168
Other		222		110		102		2,071		—		245		—		2,750
Total	$	6,697	$	12,361	$	10,674	$	5,025	$	—	$	6,777	$	—	$	41,534
December 31, 2011:
Real Estate	$	—	$	—	$	—	$	—	$	—	$	71	$	—	$	71
Commercial and industrial		—		—		—		—		—		631		—		631
Consumer		—		—		—		—		—		4,001		—		4,001
Other		—		—		—		—		—		96		—		96
Total	$	—	$	—	$	—	$	—	$	—	$	4,799	$	—	$	4,799

At the time of acquisition of purchased non-covered loans, management individually evaluates substantially all loans acquired in the transaction. For those purchased loans without evidence of credit deterioration, management evaluates each reviewed loan using an internal grading system with a grade assigned to each loan at the date of acquisition. The grade for each purchased non-covered loan is reviewed subsequent to the date of acquisition any time a loan is renewed or extended or at any time information becomes available to the Company that provides material insight regarding the loan’s performance, the borrower or the underlying collateral. To the extent that a loan is performing in accordance with management’s initial expectations, such loan is not considered impaired and is not considered in the determination of the required allowance for loan and lease losses. To the extent that current information indicates it is probable that the Company will not be able to collect all amounts according to the contractual terms thereon, such loan is considered impaired and is considered in the determination of the required level of allowance for loan and lease losses.

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

FV 33 –	Loans in this category are considered to be satisfactory with minimal credit risk and are generally considered collectible.
FV 44 –	Loans in this category are considered to be marginally satisfactory with minimal to moderate credit risk and are generally considered collectible.
FV 55 –	Loans in this category exhibit weakness and are considered to have elevated credit risk and elevated risk of repayment.
FV 36 –	Loans in this category were not individually reviewed at the date of purchase and are assumed to have characteristics similar to the characteristics of the aggregate acquired portfolio.
FV 77 –	Loans in this category have deteriorated since the date of purchase and are considered impaired.

In determining the Day 1 Fair Values of purchased non-covered loans without evidence of credit deterioration at the date of acquisition, management includes (i) no carry over of any previously recorded allowance for loan losses and (ii) an adjustment of the unpaid principal balance to reflect an appropriate market rate of interest, given the risk profile and grade assigned to each loan. This adjustment will be accreted into earnings as an adjustment to the yield on purchased non-covered loans, using the effective yield method, over the remaining life of each loan.

101

Purchased non-covered loans that contain evidence of credit deterioration on the date of purchase are accounted for in accordance with the provisions of GAAP applicable to loans acquired with deteriorated credit quality. At the time such purchased non-covered loans with evidence of credit deterioration are acquired, management individually evaluates each loan to determine the estimated fair value of each loan. This evaluation includes no carryover of any previously recorded allowance for loan and lease losses. In determining the estimated fair value of purchased non-covered loans with evidence of credit deterioration, management considers a number of factors including, among other things, the remaining life of the acquired loans, estimated prepayments, estimated loss ratios, estimated value of the underlying collateral, estimated holding periods, and net present value of cash flows expected to be received.

Management separately monitors purchased non-covered loans with evidence of credit deterioration on the date of purchase and periodically reviews such loans contained within this portfolio against the factors and assumptions used in determining the Day 1 Fair Values. A loan is reviewed (i) any time it is renewed or extended, (ii) at any other time additional information becomes available to the Company that provides material additional insight regarding the loan’s performance, the status of the borrower, or the quality or value of the underlying collateral, or (iii) in conjunction with the annual review of projected cash flows of each acquired portfolio. Management separately reviews, on an annual basis, the performance of the portfolio on purchased non-covered loans with evidence of credit deterioration, 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 or exceeding management’s performance expectation established in conjunction with the determination of the Day 1 Fair Values, such loan is rated FV 66, is not included in any of the credit quality ratios, is not considered to be a nonaccrual or impaired loan, and is not considered in the determination of the required 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 is rated FV 88, is included in certain of the Company’s credit quality metrics, is generally considered an impaired loan, and is considered in the determination of the required level of allowance for loan and lease losses. Any improvement in the expected performance of such loan would result in a reversal of the provision for loan and lease losses to the extent of prior charges and then an adjustment to accretable yield, which would have a positive impact on interest income.

The Company had no loans rated FV 88 at December 31, 2012 or 2011. Additionally, the Company had no allowance for its purchased non-covered loans at December 31, 2012 or 2011 as all such loans are performing in accordance with management’s expectations established in conjunction with the determination of the Day 1 Fair Values.

102

The following table is a summary of impaired loans and leases, excluding purchased non-covered loans and covered loans, as of and for the years ended December 31, 2012 and 2011.

	Principal Balance		Net Charge-offs to Date			Principal Balance, Net of Charge-offs		Specific Allowance		Average Carrying Value
	(Dollars in thousands)
December 31, 2012:
Impaired loans and leases for which there is a related ALLL:
Real estate:
Residential 1-4 family	$	1,887	$	(219	)	$	1,668	$	518	$	1,622
Non-farm/non-residential		204		(1	)		203		53		234
Construction/land development		711		(660	)		51		7		38
Agricultural		599		(40	)		559		254		291
Commercial and industrial		1,473		(911	)		562		649		620
Consumer		243		(240	)		3		—		8
Other		527		(517	)		10		2		24
Total impaired loans and leases with a related ALLL		5,644		(2,588	)		3,056		1,483		2,837
Impaired loans and leases for which there is not a related ALLL:
Real estate:
Residential 1-4 family		1,550		(312	)		1,238		—		1,721
Non-farm/non-residential		4,267		(1,572	)		2,695		—		2,432
Construction/land development		837		(346	)		491		—		600
Agricultural		801		(375	)		426		—		374
Commercial and industrial		443		(244	)		199		—		426
Consumer		31		(1	)		30		—		31
Other		159		(147	)		12		—		13
Total impaired loans and leases without a related ALLL		8,088		(2,997	)		5,091		—		5,597
Total impaired loans and leases	$	13,732	$	(5,585	)	$	8,147	$	1,483	$	8,434
December 31, 2011:
Impaired loans and leases for which there is a related ALLL:
Real estate:
Residential 1-4 family	$	3,200	$	(1,675	)	$	1,525	$	415	$	504
Non-farm/non-residential		2,931		(146	)		2,785		410		1,173
Construction/land development		238		(90	)		148		31		882
Agricultural		9		(9	)		—		—		575
Commercial and industrial		3,071		(1,775	)		1,296		868		844
Consumer		101		(28	)		73		57		81
Other		46		(35	)		11		2		30
Total impaired loans and leases with a related ALLL		9,596		(3,758	)		5,838		1,783		4,089
Impaired loans and leases for which there is not a related ALLL:
Real estate:
Residential 1-4 family		2,121		(407	)		1,714		—		1,239
Non-farm/non-residential		1,159		(107	)		1,052		—		1,633
Construction/land development		6,254		(3,401	)		2,853		—		5,833
Agricultural		842		(105	)		737		—		1,000
Multifamily residential		133		(133	)		—		—		15
Commercial and industrial		294		(200	)		94		—		194
Consumer		47		(33	)		14		—		15
Other		—		—			—		—		5
Total impaired loans and leases without a related ALLL		10,850		(4,386	)		6,464		—		9,934
Total impaired loans and leases	$	20,446	$	(8,144	)	$	12,302	$	1,783	$	14,023

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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 years ended December 31, 2012, 2011 and 2010 was not material.

The following table is an aging analysis of past due loans and leases, excluding purchased non-covered loans and covered loans, at December 31, 2012 and 2011.

	30-89 Days  Past Due(1)		90 Days  or More(2)		Total Past Due		Current(3)		Total
	(Dollars in thousands)
December 31, 2012:
Real estate:
Residential 1-4 family	$	3,656	$	1,160	$	4,816	$	267,236	$	272,052
Non-farm/non-residential		3,284		2,524		5,808		802,098		807,906
Construction/land development		868		329		1,197		577,579		578,776
Agricultural		952		570		1,522		49,097		50,619
Multifamily residential		312		—		312		140,931		141,243
Commercial and industrial		1,091		185		1,276		158,528		159,804
Consumer		425		57		482		29,299		29,781
Direct financing leases		—		—		—		68,022		68,022
Other		9		—		9		7,622		7,631
Total	$	10,597	$	4,825	$	15,422	$	2,100,412	$	2,115,834
December 31, 2011:
Real estate:
Residential 1-4 family	$	2,449	$	1,757	$	4,206	$	256,196	$	260,402
Non-farm/non-residential		3,448		3,448		6,896		701,870		708,766
Construction/land development		10,453		2,827		13,280		464,826		478,106
Agricultural		275		727		1,002		70,156		71,158
Multifamily residential		319		—		319		141,812		142,131
Commercial and industrial		1,477		348		1,825		118,223		120,048
Consumer		669		120		789		35,372		36,161
Direct financing leases		42		277		319		54,426		54,745
Other		79		—		79		8,887		8,966
Total	$	19,211	$	9,504	$	28,715	$	1,851,768	$	1,880,483

(1) Includes $1.0 million of loans and leases, excluding purchased non-covered loans and covered loans, on nonaccrual status at both December 31, 2012 and 2011.

(2) All loans and leases greater than 90 days past due, excluding purchased non-covered loans and covered loans, were on nonaccrual status at December 31, 2012 and 2011.

(3) Includes $3.3 million and $1.4 million of loans and leases, excluding purchased non-covered loans and covered loans, on nonaccrual status at December 31, 2012 and 2011, respectively.

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The following table is an aging analysis of past due covered loans at December 31, 2012 and 2011.

	30-89 Days Past Due		90 Days or More		Total Past Due		Current		Total Covered Loans
	(Dollars in thousands)
December 31, 2012:
Real estate:
Residential 1-4 family	$	9,539	$	20,958	$	30,497	$	121,851	$	152,348
Non-farm/non-residential		18,476		55,753		74,229		213,875		288,104
Construction/land development		6,693		42,604		49,297		55,790		105,087
Agricultural		1,063		3,338		4,401		15,289		19,690
Multifamily residential		—		3,345		3,345		7,356		10,701
Commercial and industrial		901		4,133		5,034		13,462		18,496
Consumer		29		5		34		142		176
Other		—		—		—		1,637		1,637
Total	$	36,701	$	130,136	$	166,837	$	429,402	$	596,239
December 31, 2011:
Real estate:
Residential 1-4 family	$	12,013	$	34,075	$	46,088	$	156,532	$	202,620
Non-farm/non-residential		26,023		71,898		97,921		271,835		369,756
Construction/land development		15,335		54,165		69,500		91,372		160,872
Agricultural		3,111		4,390		7,501		16,603		24,104
Multifamily residential		288		4,208		4,496		11,398		15,894
Commercial and industrial		795		4,390		5,185		24,564		29,749
Consumer		246		14		260		698		958
Other		14		133		147		2,822		2,969
Total	$	57,825	$	173,273	$	231,098	$	575,824	$	806,922

At December 31, 2012 and 2011, a significant portion of the Company’s covered loans were past due, including many that were 90 days or more past due. However, such delinquencies were included in the Company’s performance expectations in determining the Day 1 Fair Values. Accordingly, all covered loans continue to accrete interest income and all covered loans rated “FV 1” continue to perform in accordance with management’s expectations established in conjunction with the determination of the Day 1 Fair Values.

The following table is an aging analysis of past due purchased non-covered loans at December 31, 2012 and 2011.

	30-89 Days Past Due		90 Days or More		Total Past Due		Current		Total Purchased Non-Covered Loans
	(Dollars in thousands)
December 31, 2012:
Real estate	$	3,061	$	3,025	$	6,086	$	23,197	$	29,283
Commercial and industrial		855		2,589		3,444		1,889		5,333
Consumer		431		1,295		1,726		2,442		4,168
Other		434		259		693		2,057		2,750
Total	$	4,781	$	7,168	$	11,949	$	29,585	$	41,534
December 31, 2011:
Real estate	$	—	$	—	$	—	$	71	$	71
Commercial and industrial		—		121		121		510		631
Consumer		363		159		522		3,479		4,001
Other		—		—		—		96		96
Total	$	363	$	280	$	643	$	4,156	$	4,799

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7. Foreclosed Assets Not Covered by FDIC Loss Share Agreements

The following table is a summary of activity within foreclosed assets not covered by FDIC loss share agreements for the periods indicated.

	Year Ended December 31,
	2012			2011			2010
	(Dollars in thousands)
Balance - beginning of year	$	31,762		$	42,216		$	61,148
Loans transferred into foreclosed assets not covered by FDIC loss share agreements		9,047			10,676			17,095
Sales of foreclosed assets not covered by FDIC loss share agreements		(25,482	)		(11,719	)		(27,152	)
Writedowns of foreclosed assets not covered by FDIC loss share agreements		(1,713	)		(9,525	)		(8,960	)
Foreclosed assets acquired in acquisitions - not covered by FDIC loss share agreements		310			114			85
Balance - end of year	$	13,924		$	31,762		$	42,216

The amount and type of foreclosed assets not covered by FDIC loss share agreements are as follows:

	December 31,
	2012		2011
	(Dollars in thousands)
Real estate:
Residential 1-4 family	$	2,863	$	1,078
Non-farm/non-residential		2,481		2,857
Construction/land development		8,072		27,675
Agricultural		378		—
Total real estate		13,794		31,610
Commercial and industrial		102		145
Consumer		28		7
Foreclosed assets not covered by FDIC loss share agreements	$	13,924	$	31,762

8. Premises and Equipment

The following table is a summary of premises and equipment.

	December 31,
	2012			2011
	(Dollars in thousands)
Land	$	72,499		$	64,226
Construction in progress		2,498			1,849
Buildings and improvements		135,840			114,081
Leasehold improvements		5,158			5,147
Equipment		51,548			36,212
Gross premises and equipment		267,543			221,515
Accumulated depreciation		(41,789	)		(34,982	)
Premises and equipment, net	$	225,754		$	186,533

The Company capitalized $0.1 million of interest on construction projects during each of the years ended December 31, 2012, 2011 and 2010. Included in occupancy expense is rent of $1.6 million, $2.0 million and $1.1 million incurred under noncancelable operating leases in 2012, 2011 and 2010, respectively, for leases of real estate, buildings and premises. These leases contain certain renewal and purchase options according to the terms of the agreements. Future amounts due under these noncancelable leases at December 31, 2012 are as follows: $1.1 million in 2013, $0.8 million in 2014, $0.7 million in 2015, $0.5 million in 2016, $0.4 million in 2017 and $1.2 million thereafter. Rental income recognized for leases of buildings and premises under operating leases was $1.2 million for 2012, $1.1 million for 2011 and $1.1 million for 2010.

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9. Deposits

The following table is a summary of the scheduled maturities of all time deposits.

	December 31,
	2012		2011
	(Dollars in thousands)
Up to one year	$	684,118	$	820,742
Over one to two years		65,138		63,932
Over two to three years		25,425		21,933
Over three to four years		3,366		7,025
Over four to five years		2,188		4,451
Thereafter		614		173
Total time deposits	$	780,849	$	918,256

The aggregate amount of time deposits with a minimum denomination of $100,000 was $337.6 million and $409.6 million at December 31, 2012 and 2011, respectively.

10. Borrowings

Short-term borrowings with original maturities less than one year include FHLB-Dallas advances, Federal Reserve Bank (“FRB”) borrowings, treasury, tax and loan note accounts and federal funds purchased. The following table is a summary of information relating to these short-term borrowings.

	December 31,
	2012			2011
	(Dollars in thousands)
Average annual balance	$	10,900		$	14,956
December 31 balance		—			21,050
Maximum month-end balance during year		58,925			54,077
Interest rate:
Weighted-average - year		0.36	%		0.33	%
Weighted-average - December 31		—			0.35

At both December 31, 2012 and 2011, the Company had fixed rate FHLB-Dallas advances with original maturities exceeding one year of $280.8 million. These fixed rate advances bear interest at rates ranging from 1.34% to 4.54% at December 31, 2012, are collateralized by a blanket lien on a substantial portion of the Company’s real estate loans and are subject to prepayment penalties if repaid prior to maturity date. At December 31, 2012, the Bank had $426 million of unused FHLB-Dallas borrowing availability.

At December 31, 2012, aggregate annual maturities and weighted-average interest rates of FHLB-Dallas advances with an original maturity of over one year were as follows:

Maturity	Amount		Weighted-Average Interest Rate
	(Dollars in thousands)
2013	$	31		3.22	%
2014		32		3.25
2015		33		3.27
2016		21		4.54
2017		260,022		3.89
2018		20,023		2.54
Thereafter		601		4.54
Total	$	280,763		3.80

Included in the above table are $280.0 million of FHLB-Dallas advances that contain quarterly call features and are callable as follows:

	Amount		Weighted-Average Interest Rate			Maturity
	(Dollars in thousands)
Callable quarterly	$	260,000		3.90	%		2017
Callable quarterly		20,000		2.53			2018
Total	$	280,000		3.80

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11. Subordinated Debentures

At December 31, 2012 the Company had the following issues of trust preferred securities outstanding and subordinated debentures owed to the Trusts.

	Subordinated Debentures Owed to Trust		Trust Preferred Securities of the Trust		Interest Rate at December 31, 2012			Final Maturity Date
	(Dollars in thousands)
Ozark III	$	14,434	$	14,000		3.29	%		September 25, 2033
Ozark II		14,433		14,000		3.26			September 29, 2033
Ozark IV		15,464		15,000		2.53			September 28, 2034
Ozark V		20,619		20,000		1.99			December 15, 2036
Total	$	64,950	$	63,000

On September 25, 2003, Ozark III sold to investors in a private placement offering $14 million of adjustable rate trust preferred securities, and on September 29, 2003, Ozark II sold to investors in a private placement offering $14 million of adjustable rate trust preferred securities (collectively, “2003 Securities”). The 2003 Securities bear interest, adjustable quarterly, at 90-day London Interbank Offered Rate (“LIBOR”) plus 2.95% for Ozark III and 90-day LIBOR plus 2.90% for Ozark II. The aggregate proceeds of $28 million from the 2003 Securities were used to purchase an equal principal amount of adjustable rate subordinated debentures of the Company that bear interest, adjustable quarterly, at 90-day LIBOR plus 2.95% for Ozark III and 90-day LIBOR plus 2.90% for Ozark II (collectively, “2003 Debentures”).

On September 28, 2004, Ozark IV sold to investors in a private placement offering $15 million of adjustable rate trust preferred securities (“2004 Securities”). The 2004 Securities bear interest, adjustable quarterly, at 90-day LIBOR plus 2.22%. The $15 million proceeds from the 2004 Securities were used to purchase an equal principal amount of adjustable rate subordinated debentures of the Company that bear interest, adjustable quarterly, at 90-day LIBOR plus 2.22% (“2004 Debentures”).

On September 29, 2006, Ozark V sold to investors in a private placement offering $20 million of adjustable rate trust preferred securities (“2006 Securities”). The Securities bear interest, adjustable quarterly, at 90-day LIBOR plus 1.60%. The $20 million proceeds from the 2006 Securities were used to purchase an equal principal amount of adjustable rate subordinated debentures of the Company that bear interest, adjustable quarterly, at 90-day LIBOR plus 1.60% (“2006 Debentures”).

In addition to the issuance of these adjustable rate securities, Ozark II and Ozark III collectively sold $0.9 million, Ozark IV sold $0.4 million and Ozark V sold $0.6 million of trust common equity to the Company. The proceeds from the sales of the trust common equity were used, respectively, to purchase $0.9 million of 2003 Debentures, $0.4 million of 2004 Debentures and $0.6 million of 2006 Debentures issued by the Company.

At both December 31, 2012 and 2011, the Company had an aggregate of $64.9 million of subordinated debentures outstanding and had an asset of $1.9 million representing its investment in the common equity issued by the Trusts. At both December 31, 2012 and 2011, the sole assets of the Trusts are the respective adjustable rate debentures and the liabilities of the respective Trusts are the 2003 Securities, the 2004 Securities and the 2006 Securities. The Trusts had aggregate common equity of $1.9 million and did not have any restricted net assets at both December 31, 2012 and 2011. The Company has, through various contractual arrangements, fully and unconditionally guaranteed all obligations of the Trusts with respect to the 2003 Securities, the 2004 Securities and the 2006 Securities. Additionally, there are no restrictions on the ability of the Trusts to transfer funds to the Company in the form of cash dividends, loans or advances. The Company has the option to defer interest payments on the subordinated debentures from time to time for a period not to exceed five consecutive years.

These securities generally mature at or near the 30th anniversary date of each issuance. However, these securities and debentures may be prepaid at par, subject to regulatory approval, prior to maturity at any time on or after September 25 and 29, 2008 for the two issues of 2003 Securities and 2003 Debentures; on or after September 28, 2009 for the 2004 Securities and 2004 Debentures; and on or after December 15, 2011 for the 2006 Securities and 2006 Debentures, or at an earlier date upon certain changes in tax laws, investment company laws or regulatory capital requirements.

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12. Income Taxes

The following table is a summary of the components of the provision (benefit) for income taxes.

	Year Ended December 31,
	2012			2011		2010
	(Dollars in thousands)
Current:
Federal	$	37,254		$	33,360	$	15,696
State		4,489			4,982		2,723
Total current		41,743			38,342		18,419
Deferred:
Federal		(6,384	)		10,230		6,895
State		(1,424	)		1,636		1,300
Total deferred		(7,808	)		11,866		8,195
Provision for income taxes	$	33,935		$	50,208	$	26,614

The reconciliation between the statutory federal income tax rate and effective income tax rate is as follows:

	Year Ended December 31,
	2012			2011			2010
Statutory federal income tax rate		35.0	%		35.0	%		35.0	%
Increase (decrease) in taxes resulting from:
State income taxes, net of federal benefit		1.8			2.8			2.9
Effect of tax-exempt interest income		(5.0	)		(3.8	)		(7.2	)
Effect of BOLI and other tax-exempt income		(0.8	)		(0.5	)		(0.8	)
Other, net		(0.4	)		(0.4	)		(0.5	)
Effective income tax rate		30.6	%		33.1	%		29.4	%

Income tax benefits from the exercise of stock options in the amount of $1.5 million, $0.9 million and $0.5 million in 2012, 2011 and 2010, respectively, were recorded as an increase to additional paid-in capital.

At December 31, 2012 and 2011, respectively, current income taxes payable of $2.8 million and $15.4 million were included in other liabilities.

The types of temporary differences between the tax basis of assets and liabilities and their financial reporting amounts that give rise to deferred income tax assets and liabilities and their approximate tax effects are as follows:

	December 31,
	2012			2011
	(Dollars in thousands)
Deferred tax assets:
Allowance for loan and lease losses	$	14,939		$	15,148
Stock-based compensation		1,831			1,435
Deferred compensation		1,767			1,429
Foreclosed assets		3,080			5,644
Gross deferred tax assets		21,617			23,656
Deferred tax liabilities:
Accelerated depreciation on premises and equipment		13,940			9,562
Investment securities AFS		6,959			6,020
Deferred gains on FDIC-assisted acquisitions		8,810			22,991
Other, net		799			950
Gross deferred tax liabilities		30,508			39,523
Net deferred tax assets (liabilities)	$	(8,891	)	$	(15,867	)

13. Employee Benefit Plans

The Company maintains a qualified retirement plan (the “401(k) Plan”) with a salary deferral feature designed to qualify under Section 401 of the Internal Revenue Code (the “Code”). The 401(k) Plan permits employees of the Company to defer a portion of their compensation in accordance with the provisions of Section 401(k) of the Code. Matching contributions may be made in amounts and at times determined by the Company. Certain other statutory limitations with respect to the Company’s contribution under the 401(k) Plan also apply. Amounts contributed by the Company for a participant vest over six years and are held in trust until distributed pursuant to the terms of the 401(k) Plan.

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Contributions to the 401(k) Plan are invested in accordance with participant elections among certain investment options. Distributions from participant accounts are not permitted before age 65, except in the event of death, permanent disability, certain financial hardships or termination of employment. The Company made matching cash contributions to the 401(k) Plan during 2012, 2011 and 2010 of $0.9 million, $0.8 million and $0.6 million, respectively.

On August 21, 2012, the Company’s board of directors amended the 401(k) Plan to make it a Safe-Harbor Cost or Deferred Arrangement (“Safe-Harbor CODA”) effective January 1, 2013. As a result, (i) certain key employees are now eligible to make salary deferrals into the 401(k) Plan beginning January 1, 2013, (ii) the 401(k) Plan is no longer subject to any provisions of the average deferral percentage test described in Code section 401(k)(3) or the average contribution percentage test described in Code section 401(m)(2), (iii) the basic matching contribution is (a) 100% of the amount of the employee’s deferrals that do not exceed 3% of the employee’s compensation for the year plus (b) 50% of the amount of the employee’s elective deferrals that exceed 3% but do not exceed 5% of the employee’s compensation for the year, and (iv) all employer matching contributions made under the provisions of the Safe-Harbor CODA are non-forfeitable.

Beginning January 1, 2005 and continuing until the amendment of the 401(k) Plan to make it a Safe-Harbor CODA, certain key employees of the Company were excluded from further salary deferrals to the 401(k) Plan, but were eligible to make salary deferrals through participation in the Bank of the Ozarks, Inc. Deferred Compensation Plan (the “Plan”). The Plan, an unfunded deferred compensation arrangement for the group of employees designated as key employees, including certain of the Company’s executive officers, was adopted by the Company’s board of directors on December 14, 2004 and became effective January 1, 2005. Under the terms of the Plan, eligible participants may elect to defer a portion of their compensation. Such deferred compensation is distributable in lump sum or specified installments upon separation from service with the Company or upon other specified events as defined in the Plan. The Company has the ability to make a contribution to each participant’s account, limited to one half of the first 6% of compensation deferred by the participant and subject to certain other limitations. Amounts deferred under the Plan are to be invested in certain approved investments (excluding securities of the Company or its affiliates). Company contributions to the Plan in 2012, 2011 and 2010 totaled $122,000, $123,000 and $117,000, respectively. At December 31, 2012 and 2011, the Company had Plan assets, along with an equal amount of liabilities, totaling $4.2 million and $3.5 million, respectively, recorded on the accompanying consolidated balance sheet. On August 21, 2012, the Company’s board of directors, in conjunction with amending the 401(k) Plan, amended the Plan such that the Company no longer matches any participant salary deferrals made into the Plan.

Effective May 4, 2010, the Company established a Supplemental Executive Retirement Plan (“SERP”) and certain other benefit arrangements for its Chairman and Chief Executive Officer. Pursuant to the SERP, this officer is entitled to receive 180 equal monthly payments of $32,197, or $386,360 annually, commencing at the later of obtaining age 70 or separation from service. If separation from service occurs prior to age 70, such benefit will be at a reduced amount. The costs of such benefits, assuming a retirement date at age 70, will be fully accrued by the Company at such retirement date. During 2012, 2011 and 2010, respectively, the Company accrued $161,000, $148,000 and $89,000 for the future benefits payable under the SERP. The SERP is an unfunded plan and is considered a general contractual obligation of the Company.

14. Stock-Based Compensation

The Company has a nonqualified stock option plan for certain key employees and officers of the Company. This plan provides for the granting of nonqualified options to purchase shares of common stock in the Company. No option may be granted under this plan for less than the fair market value of the common stock, defined by the plan as the average of the highest reported asked price and the lowest reported bid price, on the date of the grant. The benefits or amounts that may be received by or allocated to any particular officer or employee of the Company under this plan will be determined in the sole discretion of the Company’s board of directors or its personnel and compensation committee. While the vesting period and the termination date for the employee plan options are determined when options are granted, all such employee options outstanding at December 31, 2012 were issued with a vesting period of three years and expire seven years after issuance. At December 31, 2012 there were 602,050 shares available for future grants under this plan.

The Company also has a nonqualified stock option plan for non-employee directors. This plan permits each director who is not otherwise an employee of the Company, or any subsidiary, to receive options to purchase 1,000 shares of the Company’s common stock on the day following his or her election as a director of the Company at each annual meeting of stockholders and up to 1,000 shares upon election or appointment for

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the first time as a director of the Company. No option may be granted under this plan for less than the fair market value of the common stock, defined by the plan as the average of the highest reported asked price and the lowest reported bid price, on the date of the grant. These options are exercisable immediately and expire ten years after issuance.

All shares issued in connection with options exercised under both the employee and non-employee director stock option plans are in the form of newly-issued shares.

The following table summarizes stock option activity for both the employee and non-employee director stock option plans for the year ended December 31, 2012.

	Options			Weighted-Average Exercise Price/Share		Weighted-Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding - January 1, 2012		991,100		$	17.45
Granted		268,550			31.79
Exercised		(267,300	)		14.88
Forfeited		(35,200	)		19.45
Outstanding - December 31, 2012		957,150		$	22.12		5.0	$	10,863	(1)
Fully vested and exercisable at December 31, 2012		320,300		$	15.13		3.2	$	5,875	(1)
Expected to vest in future periods		518,660
Fully vested and expected to vest at December 31, 2012(2)		838,960		$	21.55		4.9	$	9,999	(1)

(1) Based on closing price of $33.47 per share on December 31, 2012.

(2) At December 31, 2012 the Company estimates that options to purchase 118,190 shares of the Company’s common stock will not vest and will be forfeited prior to their vesting date.

Intrinsic value for stock options is defined as the amount by which the current market price of the underlying stock exceeds the exercise price. For those stock options where the exercise price exceeds the current market price of the underlying stock, the intrinsic value is zero. The total intrinsic value of options exercised during 2012, 2011 and 2010 was $4.4 million, $2.2 million and $1.4 million, respectively.

Options to purchase 268,550 shares, 235,200 shares and 221,800 shares, respectively, were granted during 2012, 2011 and 2010 with a weighted-average grant date fair value of $9.58, $7.30 and $5.69, respectively. The fair value for each option grant is estimated on the date of grant using the Black-Scholes option pricing model that uses the following assumptions. The Company uses the U.S. Treasury yield curve in effect at the time of the grant to determine the risk-free interest rate. The expected dividend yield is estimated using the current annual dividend level and recent stock price of the Company’s common stock at the date of grant. Expected stock volatility is based on historical volatilities of the Company’s common stock. The expected life of the options is calculated based on the “simplified” method as provided for under Staff Accounting Bulletin No. 110.

The weighted-average assumptions used in the Black-Scholes option pricing model for the years indicated were as follows:

	2012			2011			2010
Risk-free interest rate		0.71	%		1.15	%		1.22	%
Expected dividend yield		1.87	%		1.68	%		1.69	%
Expected stock volatility		40.6	%		40.1	%		39.0	%
Expected life (years)		5.0			5.0			5.0

The total fair value of options to purchase shares of the Company’s common stock that vested during 2012, 2011 and 2010 was $0.5 million, $0.7 million and $0.7 million, respectively. Stock-based compensation expense for stock options included in non-interest expense was $1.1 million, $0.8 million, and $0.6 million for 2012, 2011 and 2010, respectively. Total unrecognized compensation cost related to nonvested stock-based compensation was $2.9 million at December 31, 2012 and is expected to be recognized over a weighted-average period of 2.4 years.

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The Company has a restricted stock plan that permits issuance of up to 400,000 shares of restricted stock or restricted stock units. All officers and employees of the Company are eligible to receive awards under the restricted stock plan. The benefits or amounts that may be received by or allocated to any particular officer or employee of the Company under the restricted stock plan will be determined in the sole discretion of the Company’s board of directors or its personnel and compensation committee. Shares of common stock issued under the restricted stock plan may be shares of original issuance, shares held in treasury or shares that have been reacquired by the Company. At December 31, 2012 there were 70,750 shares available for future grants under this plan.

The following table summarizes non-vested restricted stock activity for the year ended December 31, 2012.

	Shares
Outstanding - January 1, 2012		201,900
Granted		128,150
Forfeited		(800	)
Earned and issued		(34,000	)
Outstanding - December 31, 2012		295,250
Weighted-average grant date fair value	$	26.05

Restricted stock awards of 128,150 shares, 95,700 shares, and 74,600 shares, respectively, were granted during 2012, 2011 and 2010 with a weighted-average grant date fair value of $31.86, $23.69 and $18.84, respectively. The fair value of the restricted stock awards is amortized to compensation expense over the vesting period (generally three years) and is based on the market price of the Company’s common stock at the date of grant multiplied by the number of shares granted that are expected to vest. Stock-based compensation expense for restricted stock included in non-interest expense was $1.6 million, $0.8 million and $0.2 million for 2012, 2011 and 2010, respectively. Unrecognized compensation expense for nonvested restricted stock awards was $5.6 million at December 31, 2012 and is expected to be recognized over a weighted-average period of 2.5 years.

15. Commitments and Contingencies

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Company has the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since these commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the counterparty. The type of collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and other real or personal property.

The Company had outstanding commitments to extend credit, excluding mortgage IRLCs, of $769 million and $313 million at December 31, 2012 and 2011, respectively. The commitments extend over varying periods of time with the majority to be disbursed or to expire within a one-year period.

Outstanding standby letters of credit are contingent commitments issued by the Company generally to guarantee the performance of a customer in third party borrowing arrangements. The terms of the letters of credit are generally for a period of one year. The maximum amount of future payments the Company could be required to make under these letters of credit at December 31, 2012 and 2011 is $19.1 million and $13.5 million, respectively. The Company holds collateral to support letters of credit when deemed necessary. The total of collateralized commitments at December 31, 2012 and 2011 was $18.9 million and $13.2 million, respectively.

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16. Related Party Transactions

The Company has had, in the ordinary course of business, lending transactions with certain of its officers, directors, director nominees and their related and affiliated parties (related parties). The following table is a summary of activity of loans to related parties for the periods indicated.

	Year Ended December 31,
	2012			2011			2010
	(Dollars in thousands)
Balance - beginning of year	$	2,150		$	3,374		$	8,174
New loans and advances		19,778			16,978			9,258
Repayments		(19,447	)		(18,202	)		(13,648	)
Change in composition of related parties		45			—			(410	)
Balance - end of year	$	2,526		$	2,150		$	3,374

The Company has outstanding commitments to extend credit to related parties totaling $10.6 million and $9.2 million at December 31, 2012 and 2011, respectively.

Wiring and cabling installation for certain of the Company’s facilities were performed by an entity whose ownership includes a member of the Company’s board of directors. Total payments to this entity were $25,000 in 2012, $40,000 in 2011 and $68,000 in 2010 for such installation contract work.

17. Regulatory Matters

The Company is subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial condition and results of operations. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classification are also subject to qualitative judgments by the regulators about component risk weightings and other factors.

Federal and state regulatory agencies generally require the Company and the Bank to maintain minimum Tier 1 and total capital to risk-weighted assets of 4.0% and 8.0%, respectively, and Tier 1 capital to average quarterly assets (Tier 1 leverage ratio) of at least 3.0%. Tier 1 capital generally consists of common equity, retained earnings, certain types of preferred stock, qualifying minority interest and trust preferred securities, subject to limitations, and excludes goodwill and various intangible assets. Total capital includes Tier 1 capital, any amounts of trust preferred securities excluded from Tier 1 capital, and the lesser of the ALLL or 1.25% of risk-weighted assets. At December 31, 2012 and 2011 the Company’s and the Bank’s Tier 1 and total capital ratios and their Tier 1 leverage ratios exceeded minimum requirements.

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The actual and required regulatory capital amounts and ratios of the Company and the Bank at December 31, 2012 and 2011 are as follows:

						Required
	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
December 31, 2012:
Total capital (to risk-weighted assets):
Company	$	585,874		19.36	%	$	242,120		8.00	%	$	302,650		10.00	%
Bank		573,926		18.95			242,263		8.00			302,829		10.00
Tier 1 capital (to risk-weighted assets):
Company		548,054		18.11			121,060		4.00			181,590		6.00
Bank		536,084		17.70			121,132		4.00			181,697		6.00
Tier 1 leverage (to average assets):
Company		548,054		14.40			114,199		3.00			190,332		5.00
Bank		536,084		14.13			113,812		3.00			189,687		5.00
December 31, 2011:
Total capital (to risk-weighted assets):
Company	$	499,055		18.93	%	$	210,950		8.00	%	$	263,688		10.00	%
Bank		478,690		18.23			210,068		8.00			262,585		10.00
Tier 1 capital (to risk-weighted assets):
Company		466,017		17.67			105,475		4.00			158,213		6.00
Bank		445,789		16.98			105,034		4.00			157,551		6.00
Tier 1 leverage (to average assets):
Company		466,017		12.06			115,934		3.00			193,223		5.00
Bank		445,789		11.58			115,508		3.00			192,514		5.00

The regulatory capital ratios in the table above for the Company and the Bank at December 31, 2012 include the assets acquired, liabilities assumed, and capital issued in connection with the acquisition of Genala. However, pursuant to the instructions for bank holding company regulatory reports filed with the FRB and the instructions for bank regulatory reports filed with the FDIC, separate regulatory reports were required to be filed with the FRB for the Company (without the assets and liabilities of Genala) and for Genala at December 31, 2012. Separate regulatory reports were also required to be filed with the FDIC for the Bank (without the assets and liabilities of Genala’s wholly-owned bank subsidiary, The Citizens Bank) and for the The Citizens Bank at December 31, 2012. Beginning January 1, 2013 all regulatory reports filed by the Company and the Bank will include all assets, liabilities and activity of Genala and The Citizens Bank, with separate regulatory reports for Genala and The Citizens Bank no longer required.

As of December 31, 2012 and 2011, the most recent notification from the regulators categorized the Company and the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Company’s or the Bank’s category.

The state bank commissioner’s approval is required before the Bank can declare and pay any dividend of 75% or more of the net profits of the Bank after all taxes for the current year plus 75% of the retained net profits for the immediately preceding year. At December 31, 2012 and 2011, respectively, $40.4 million and $68.4 million were available for payment of dividends by the Bank without the approval of regulatory authorities.

Under FRB regulation, the Bank is also limited as to the amount it may loan to its affiliates, including the Company, and such loans must be collateralized by specific types of collateral. The maximum amount available for loan from the Bank to the Company is limited to 10% of the Bank’s capital and surplus or approximately $56 million and $47 million, respectively, at December 31, 2012 and 2011.

The Bank is required by bank regulatory agencies to maintain certain minimum balances of cash or deposits primarily with the FRB. At December 31, 2012 and 2011, these required balances aggregated $10.1 million and $11.6 million, respectively.

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18. Fair Value Measurements

The Company measures certain of its assets and liabilities on a fair value basis using various valuation techniques and assumptions, depending on the nature of the asset or liability. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, fair value is used either annually or on a non-recurring basis to evaluate certain assets and liabilities for impairment or for disclosure purposes.

The Company applies the following fair value hierarchy.

Level 1 - Quoted prices for identical instruments in active markets.

Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable.

Level 3 - Instruments whose inputs are unobservable.

The following table sets forth the Company’s assets and liabilities at December 31, 2012 and 2011 that are accounted for at fair value.

	Level 1		Level 2		Level 3		Total
			(Dollars in thousands)
December 31, 2012:
Investment securities AFS(1):
Obligations of state and political subdivisons	$	—	$	257,345	$	104,172	$	361,517
U.S. Government agency residential mortgage-backed securities		—		118,284		—		118,284
Corporate bonds		—		776		—		776
Total investment securities AFS		—		376,405		104,172		480,577
Impaired non-covered loans and leases		—		—		6,664		6,664
Impaired covered loans		—		—		38,463		38,463
Foreclosed assets not covered by
FDIC loss share agreements		—		—		13,924		13,924
Foreclosed assets covered by
FDIC loss share agreements		—		—		52,951		52,951
Total assets at fair value	$	—	$	376,405	$	216,174	$	592,579
December 31, 2011:
Investment securities AFS(1):
Obligations of state and political subdivisons	$	—	$	348,855	$	24,192	$	373,047
U.S. Government agency residential mortgage-backed securities		—		48,035		—		48,035
Total investment securities AFS		—		396,890		24,192		421,082
Impaired non-covered loans and leases		—		—		10,519		10,519
Impaired covered loans		—		—		1,854		1,854
Foreclosed assets not covered by
FDIC loss share agreements		—		—		31,762		31,762
Foreclosed assets covered by
FDIC loss share agreements		—		—		72,907		72,907
Total assets at fair value	$	—	$	396,890	$	141,234	$	538,124

(1) Does not include $13.7 million at December 31, 2012 and $17.8 million at December 31, 2011 of shares of FHLB- Dallas, FHLB-Atlanta and FNBB stock that do not have readily determinable fair values and are carried at cost.

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The following table presents information related to Level 3 non-recurring fair value measurements, at December 31, 2012.

Description	Fair Values at December 31, 2012		Technique	Unobservable Inputs
			(Dollars in thousands)
Impaired non-covered loans and leases	$	6,664	Third party appraisal or discounted cash flows	1. Management discount based on underlying collateral characteristics and market conditions 2. Life of loan
Impaired covered loans	$	38,463	Third party appraisal and/or discounted cash flows	1. Life of loan
Foreclosed assets not covered by FDIC loss share agreements	$	13,924	Third party appraisals, broker price opinions and/or discounted cash flows	1. Management discount based on collateral share agreements and market conditions 2. Discount rate 3. Holding period
Foreclosed assets covered by FDIC loss share agreements	$	52,951	Third party appraisals and/or discounted cash flows	1. Discount rate 2. Holding period

The assets and liabilities acquired from Genala that are Level 3 fair value measurements consist primarily of loans and deposits. Subsequent to the Genala acquisition and to the extent that the purchased non-impaired loans do not become impaired, these loans and deposits will no longer be carried at fair value but rather, for loans, will be adjusted for any subsequent advances, pay downs, amortization or accretion of any premium or discount on purchase, charge-offs, or other adjustments to carrying value and, for deposits, will be adjusted for subsequent maturities and new account originations.

The following methods and assumptions are used to estimate the fair value of the Company’s assets and liabilities that are accounted for at fair value.

Investment securities — The Company utilizes independent third parties as its principal sources for determining fair value of investment securities which are measured on a recurring basis. As a result, the Company receives estimates of fair values from at least two independent pricing sources for the majority of its individual securities within its investment portfolio. For investment securities traded in an active market, the fair values are obtained from independent pricing services and are 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, pricing matrices or a combination thereof. For investment securities traded in a market that is not active, fair value is determined using unobservable inputs. Additionally, the valuation of investment securities acquired in FDIC-assisted or traditional acquisitions may include certain unobservable inputs. All fair value estimates received by the Company from its investment securities are reviewed and approved on a quarterly basis by the Company’s Investment Portfolio Manager and its Chief Financial Officer.

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The Company acquired approximately $87.6 million in investment securities with the Genala acquisition, which were comprised of U.S. Government agency residential mortgage-backed securities and obligations of state and political subdivisions. In determining the fair value of the acquired investment securities, the Company initially used two independent third parties as pricing sources. The Company then reviewed specific characteristics of each investment security and made additional fair value adjustments to certain securities. The additional fair value adjustments related to various discount factors applied for the impact of uncertain market conditions in liquidating the securities not typically held in the Company’s investment portfolio and for the securities with optional call dates that have elapsed or have a relatively short time until they elapse. These discount factors ranged from 50 basis points to 318 basis points. There were also certain investment securities the Company deemed as impaired. Accordingly, $81.1 million of the investment securities acquired in the Genala transaction were deemed to be Level 3 and $6.5 million were deemed to be Level 2 in the fair value hierarchy at December 31, 2012.

The Company has determined that certain of its investment securities had a limited to non-existent trading market at December 31, 2012 and 2011. As a result, the Company considers these investments as Level 3 in the fair value hierarchy. Specifically the fair values of certain obligations of state and political subdivisions consisting of certain unrated private placement bonds (the “private placement bonds”) in the amount of $23.1 million and $24.2 million at December 31, 2012 and 2011, respectively, were calculated using Level 3 hierarchy inputs and assumptions as the trading market for such securities was determined to be “not active”. This determination was based on the limited number of trades or, in certain cases, the existence of no reported trades for the private placement bonds. The private placement bonds are generally prepayable at par value at the option of the issuer. As a result, management believes the private placement bonds should be valued at the lower of (i) the matrix pricing provided by the Company’s third party pricing services for comparable unrated municipal securities or (ii) par value. At December 31, 2012 and 2011, the third party pricing matrices valued the Company’s total portfolio of private placement bonds at $23.8 million and $24.5 million, respectively, which exceeded the lower of the matrix pricing or par value of the private placement bonds by $0.7 million and $0.3 million at December 31, 2012 and 2011, respectively. Accordingly, at December 31, 2012 and 2011 the Company reported the private placement bonds at $23.1 million and $24.2 million, respectively.

Impaired non-covered loans and leases — For non-covered loans and leases that are deemed impaired, fair values are measured on a non-recurring basis and are based on the underlying collateral value of the impaired loan or lease, net of holding and selling costs, or the estimated discounted cash flows for such loan or lease. The Company has reduced the carrying value of its impaired loans and leases (all of which are included in nonaccrual loans and leases) by $7.1 million and $9.9 million, respectively, to the estimated fair value of $6.7 million and $10.5 million, respectively, for such loans and leases at December 31, 2012 and 2011. These adjustments to reduce the carrying value of impaired loans and leases to estimated fair value during 2012 and 2011 consisted of $5.6 million and $8.1 million, respectively, of partial charge-offs and $1.5 million and $1.8 million, respectively, of specific loan and lease loss allocations.

Impaired covered loans — The fair values of impaired covered loans are measured on a non-recurring basis. As of December 31, 2012 and 2011, the Company had identified purchased loans covered by FDIC loss share agreements acquired in its FDIC-assisted acquisitions where the expected performance of such loans had deteriorated from management’s performance expectations established in conjunction with the determination of the Day 1 Fair Values. As a result the Company recorded partial charge-offs, net of adjustments to the FDIC loss share receivable and the FDIC clawback payable, totaling $6.2 million for 2012 and $0.3 million for 2011 for such loans. The Company also recorded $6.2 million for 2012 and $0.3 million for 2011 of provision for loan and lease losses to cover such charge-offs. In addition to those net charge-offs, the Company also transferred certain of these covered loans to covered foreclosed assets. As a result of these actions, the Company had $38.5 million and $1.9 million of impaired covered loans at December 31, 2012 and 2011, respectively.

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Foreclosed assets not covered by FDIC loss share agreements — Repossessed personal properties and real estate acquired through or in lieu of foreclosure are measured on a non-recurring basis and are initially recorded at the lesser of current principal investment or fair value less estimated cost to sell at the date of repossession or foreclosure. Valuations of these assets are periodically reviewed by management with the carrying value of such assets adjusted to the then estimated fair value net of estimated selling costs, if lower, until disposition. Fair values of foreclosed and repossessed assets held for sale are generally based on third party appraisals, broker price opinions or other valuations of the property, resulting in a Level 3 classification.

Foreclosed assets covered by FDIC loss share agreements — Foreclosed assets covered by FDIC loss share agreements, or covered foreclosed assets, are recorded at estimated fair value on the date of acquisition. In estimating the fair value of covered foreclosed assets, management considers a number of factors including, among others, appraised value, estimated selling prices, estimated selling costs, estimating holding periods and net present value of cash flows expected to be received. A discount rate ranging from 8.0% to 9.5% per annum was used to determine the net present value of covered foreclosed assets. Valuations of these assets are measured on a non-recurring basis and are periodically reviewed by management with the carrying value of such assets adjusted to the then estimated fair value net of estimated selling costs, if lower, until disposition.

The following table presents additional information about assets measured at fair value on a recurring basis and for which the Company has utilized Level 3 inputs to determine fair value.

	Investment Securities AFS
	(Dollars in thousands)
Balances - January 1, 2011	$	20,036
Total realized gains/(losses) included in earnings		(44	)
Total unrealized gains/(losses) included in other comprehensive income		82
Purchases		4,500
Paydowns		(1,112	)
Transfers in and/or out of Level 3		730
Balances – December 31, 2011	$	24,192
Total realized gains/(losses) included in earnings		—
Total unrealized gains/(losses) included in other comprehensive income		359
Paydowns		(1,150	)
Sales		(350	)
Acquired in Genala acquisition		81,121
Transfers in and/or out of Level 3		—
Balances - December 31, 2012	$	104,172

During 2012 and 2011, there were no transfers of assets or liabilities measured at fair value between Level 1 and Level 2 fair value hierarchy.

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19. Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value of financial instruments.

Cash and due from banks — For these short-term instruments, the carrying amount is a reasonable estimate of fair value.

Investment securities — The Company utilizes independent third parties as its principal sources for determining fair value of investment securities which are measured on a recurring basis. As a result, the Company receives estimates of fair values from at least two independent pricing sources for the majority of its individual securities within its investment portfolio. For investment securities traded in an active market, the fair values are obtained from independent pricing services and are 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, comprehensive interest rate tables, pricing matrices or a combination thereof. For investment securities traded in a market that is not active, fair value is determined using unobservable inputs. Additionally, the valuation of investment securities acquired in FDIC-assisted or traditional acquisitions may include certain unobservable inputs. All fair value estimates received by the Company from its investment securities are reviewed and approved on a quarterly basis by the Company’s Investment Portfolio Manager and its Chief Financial Officer. The Company’s investments in the common stock of the FHLB-Dallas and FNBB of $13.7 million at December 31, 2012, and its investments in the common stock of the FHLB-Dallas, FHLB-Atlanta and FNBB of $17.8 million at December 31, 2011 do not have readily determinable fair values and are carried at cost.

Loans and leases — The fair value of loans and leases, including covered loans and purchased non-covered loans, is estimated by discounting the future cash flows using the current rate at which similar loans or leases would be made to borrowers or lessees with similar credit ratings and for the same remaining maturities.

FDIC loss share receivable — The fair value of the FDIC loss share receivable is based on the net present value of future cash proceeds expected to be received from the FDIC under the provisions of the loss share agreements using a discount rate that is based on current market rates.

Deposit liabilities — The fair value of demand deposits, savings accounts, money market deposits and other transaction accounts is the amount payable on demand at the reporting date. The fair value of fixed maturity time deposits is estimated using the rate currently available for deposits of similar remaining maturities.

Repurchase agreements — For these short-term instruments, the carrying amount is a reasonable estimate of fair value.

Other borrowed funds — For these short-term instruments, the carrying amount is a reasonable estimate of fair value. The fair value of long-term instruments is estimated based on the current rates available to the Company for borrowings with similar terms and remaining maturities.

Subordinated debentures — The fair values of these instruments are based primarily upon discounted cash flows using rates for securities with similar terms and remaining maturities.

Off-balance sheet instruments — The fair values of commercial loan commitments and letters of credit are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and were not material at December 31, 2012 and 2011.

The fair values of certain of these instruments were calculated by discounting expected cash flows, which contain numerous uncertainties and involve significant judgments by management. Fair value is the estimated amount at which financial assets or liabilities could be exchanged in a current transaction between willing parties other than in a forced or liquidation sale. Because no market exists for certain of these financial instruments and because management does not intend to sell these financial instruments, the Company does not know whether the fair values shown below represent values at which the respective financial instruments could be sold individually or in the aggregate.

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The following table presents the estimated fair values of the Company’s financial instruments.

		December 31,
		2012				2011
	Fair Value Hierarchy	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
	(Dollars in thousands)
Financial assets:
Cash and cash equivalents	Level 1	$	207,967	$	207,967	$	58,927	$	58,927
Investment securities AFS	Levels 2 and 3		494,266		494,266		438,910		438,910
Loans and leases, net of ALLL	Level 3		2,714,869		2,683,896		2,653,035		2,636,254
FDIC loss share receivable	Level 3		152,198		152,565		279,045		279,226
Financial liabilities:
Demand, savings and money market account deposits	Level 1	$	2,320,206	$	2,320,206	$	2,025,663	$	2,025,663
Time deposits	Level 2		780,849		781,784		918,256		925,754
Repurchase agreements with customers	Level 1		29,550		29,550		32,810		32,810
Other borrowings	Level 2		280,763		328,881		301,847		361,373
Subordinated debentures	Level 2		64,950		30,523		64,950		30,663

20. Supplemental Cash Flow Information

Supplemental cash flow information is as follows:

	Year Ended December 31,
	2012		2011		2010
	(Dollars in thousands)
Cash paid during the period for:
Interest	$	22,540	$	32,202	$	35,476
Taxes		49,888		18,448		13,879
Supplemental schedule of non-cash investing and financing activities:
Loans transferred to foreclosed assets not covered by
FDIC loss share agreements		9,047		10,676		17,095
Loans advanced for sales of foreclosed assets not covered by
FDIC loss share agreements		12,710		675		9,755
Covered loans transferred to covered foreclosed assets		33,020		29,014		5,354
Net change in unrealized gains and losses on investment securities AFS		2,395		15,622		(10,201	)
Unsettled AFS investment security purchases		2,513		—		—

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21. Other Operating Expenses

The following table is a summary of other operating expenses.

	Year Ended December 31,
	2012		2011		2010
	(Dollars in thousands)
Postage and supplies	$	3,195	$	3,091	$	1,981
Telephone and data lines		3,374		3,049		2,110
Advertising and public relations		4,089		3,571		2,076
Professional and outside services		4,401		4,822		3,024
Software expense		3,265		3,082		2,657
Travel and meals		2,705		3,488		1,726
FDIC and state assessments		703		719		678
FDIC Insurance		1,505		2,155		3,238
ATM expense		871		1,022		881
Loan collection and repossession expense		6,135		7,873		4,001
Writedowns of foreclosed assets not covered by FDIC loss share agreements		1,713		9,525		8,960
Amortization of intangible assets		2,037		1,677		431
Other		5,648		7,490		4,877
Total other operating expenses	$	39,641	$	51,564	$	36,640

22. Earnings Per Common Share (“EPS”)

The following table sets forth the computation of basic and diluted EPS.

	Year Ended December 31,
	2012		2011		2010
	(In thousands, except per share amounts)
Numerator:
Distributed earnings allocated to common stockholders	$	17,293	$	12,661	$	10,170
Undistributed earnings allocated to common stockholders		59,751		88,660		53,831
Net earnings allocated to common stockholders	$	77,044	$	101,321	$	64,001
Denominator:
Denominator for basic EPS—weighted-average common shares		34,637		34,260		33,938
Effect of dilutive securities—stock options		251		222		152
Denominator for diluted EPS—weighted-average common shares and assumed conversions		34,888		34,482		34,090
Basic EPS	$	2.22	$	2.96	$	1.89
Diluted EPS	$	2.21	$	2.94	$	1.88

Options to purchase 257,350 shares, 213,400 shares and 196,300 shares, respectively, of the Company’s common stock at a weighted-average exercise price of $31.86 per share, $23.69 per share and $18.84 per share, respectively, were outstanding during 2012, 2011 and 2010, but were not included in the computation of diluted EPS because the options’ exercise price was greater than the average market price of the common shares and inclusion would have been antidilutive.

23. Litigation Matters

On January 5, 2012, the Company and the Bank were served with a summons and complaint filed on December 19, 2011, in the Circuit Court of Lonoke County, Arkansas, Division III, styled Robert Walker, Ann B. Hines and Judith Belk vs. Bank of the Ozarks, Inc. and Bank of the Ozarks, Case No. CV-2011-777. In addition, on December 21, 2012, the Bank was served with a summons and complaint filed on December 20, 2012, in the Circuit Court of Pulaski County, Arkansas, Ninth Division, styled Audrey Muzingo v. Bank of the Ozarks, Case No. 60 CV 12-6043. The complaint in each case alleges that the Company and/or the Bank

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have harmed the plaintiffs, current or former customers of the Bank, by improper, unfair and unconscionable assessment and collection of excessive overdraft fees from the plaintiffs. According to the complaints, plaintiffs claim that the Bank employs sophisticated software to automate its overdraft system, and that this system unfairly and inequitably manipulates and alters customers’ transaction records in order to maximize overdraft penalties, particularly utilizing a practice of posting of items in “high-to-low” order, despite the actual sequence in which such items are presented for payment. Plaintiffs claim that the Bank’s deposit agreements with customers do not adequately disclose the Bank’s overdraft assessment policies and are ambiguous, deceptive, unfair and misleading. The Complaint in each case alleges that these actions and omissions constitute breach of contract, breach of the implied covenant of good faith and fair dealing, unconscionable conduct, unjust enrichment and violation of the Arkansas Deceptive Trade Practices Act. The Complaint in the Walker case also includes a count for conversion. Each of the complaints seek to have the cases certified by the court as a class action for all Bank account holders similarly situated, and seek a declaratory judgment as to the wrongful nature of the Bank’s overdraft fee policies, restitution of overdraft fees paid by the plaintiffs and the putative class (defined as all Bank customers residing in Arkansas) as a result of the actions cited in the complaints, disgorgement of profits as a result of the alleged wrongful actions and unspecified compensatory and statutory or punitive damages, together with pre-judgment interest, costs and plaintiffs’ attorneys’ fees. The Company and Bank believe the plaintiffs’ claims are unfounded and intend to defend against these claims.

On April 8, 2011, the Company was served with a petition filed on March 31, 2011, by the Seib Family, GP, LLC, a Texas limited liability company, as General Partner of Seib Family, LP in the District Court of Dallas County, Texas (“district court”), Cause Number 11-04057, against the Company and two entities which plaintiff apparently believed had some type of ownership interest in a former borrower of the Bank, alleging, among other things, that the defendants fraudulently induced the plaintiff to purchase a tract of real estate consisting of approximately 60 acres located at 318 Cadiz Street in Dallas, Texas, owned by the former borrower and financed by the Bank. The petition alleges that the defendants knew that a levee protecting the property from the Trinity River flood plain did not meet federal standards, that the defendants omitted to disclose that information to plaintiff prior to the sale of the property, and that due to the problems or potential problems with the levee, the value of the property was significantly impaired, as supported by a report by the U.S. Corps of Engineers concerning the condition of the levee, released at approximately the same time as the plaintiff purchased the property from the former borrower and affiliates with the aid and assistance of the Company. The petition alleges that the plaintiff did not become aware of the U.S. Corps of Engineers’ report until a month or two after it purchased the property.

The original petition alleged that the defendants’ conduct violated the Texas Securities Act and the Texas Deceptive Trade Practices Act, and sought compensatory damages, trebled under the Texas Deceptive Trade Practices Act, plus exemplary damages, attorneys’ fees, costs, interest, and other relief the court deems just. Since the original petition was filed, plaintiff has (i) dropped all claims against the Company, but added the Bank as a defendant in its petition and (ii) dropped all claims with respect to the Texas Deceptive Trade Practices Act. Under its amended petition, plaintiff is seeking $15,962,677 in actual damages and $31,925,354 in exemplary damages.

On June 15, 2012, the district court granted Bank’s Motion for Summary Judgment. Subsequent to the district court’s granting of Bank’s Motion for Summary Judgment, the plaintiff filed a notice of nonsuit with prejudice with respect to its claims against the other two defendants, which was granted. In response, the Bank filed a notice of nonsuit without prejudice with respect to the Bank’s claim for attorneys’ fees and costs against the plaintiff as to its claims under the Texas Deceptive Trade Practices Act, which resulted in dismissal of that claim without prejudice. On or about August 23, 2012, the plaintiff filed a Notice of Appeal with district court, which appeal of the summary judgment ruling is to the United States Court of Appeals for the Fifth Circuit (“Court of Appeals”). On or about November 28, 2012, plaintiff filed an appellant’s brief with the Court of Appeals. The Bank filed its appellee’s brief February 5, 2013. The Company believes the allegations as contained in the petition are wholly without merit, and this belief is supported by the district court’s grant of summary judgment. The Company intends to vigorously defend against the appeal of the district court’s recent ruling.

The Company is party to various other legal proceedings, as both plaintiff and defendant, arising in the ordinary course of business, including claims of lender liability, predatory lending, broken promises and other similar lending-related claims, as well as legal proceedings arising from acquired operations in its FDIC-assisted acquisitions. In addition, the Company and the Bank are parties to three legal proceedings involving third party claims alleging that the Company and the Bank, along with certain other financial institutions,

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have infringed certain “business method” patents claimed to be violated by the institutions’ use of web site authentication software and check imaging and processing software not authorized by the patent holder claimants. While the ultimate resolution of these various claims and proceedings cannot be determined at this time, management of the Company believes that such claims and proceedings, individually or in the aggregate, will not have a material adverse effect on the future results of operations, financial condition or liquidity of the Company.

24. Subsequent Event

On January 24, 2013, the Company entered into a definitive agreement and plan of merger (the “Agreement”) with The First National Bank of Shelby (“First National Bank”), in Shelby, North Carolina, whereby the Company will acquire all of the outstanding common stock of the First National Bank in a transaction valued at approximately $67.8 million, including $64.0 million of merger consideration for the outstanding common stock of the First National Bank and approximately $3.8 million representing the value of real property which is being simultaneously purchased from parties related to First National Bank and on which certain First National Bank offices are located. At December 31, 2012, total assets of First National Bank were approximately $854 million.

Under the terms of the Agreement, each outstanding share of common stock of First National Bank will be converted, at the election of each First National Bank shareholder, into the right to receive shares of the Company’s common stock, plus cash in lieu of any fractional share, or the right to receive cash, all subject to certain conditions and potential adjustments, provided that at least 51%, or approximately $32.6 million, of the merger consideration paid to First National Bank shareholders will consist of shares of the Company’s common stock. The number of Company shares to be issued will be determined based on First National Bank shareholder elections and the Company’s 10-day average closing stock price as of the fifth business day prior to the closing date, ranging between $27.00 per share and $44.20 per share. Upon the closing of the transaction, First National Bank will merge into the Bank. Completion of the transaction is subject to certain closing conditions, including customary regulatory approvals and the approval of the shareholders of First National Bank.

25. Parent Company Financial Information

The following condensed balance sheets, income statements and statements of cash flows reflect the financial position, results of operations and cash flows for the parent company.

Condensed Balance Sheets

	December 31,
	2012		2011
	(Dollars in thousands)
Assets:
Cash	$	11,230	$	11,307
Investment in consolidated bank subsidiary		557,601		466,232
Investment in unconsolidated Trusts		1,950		1,950
Loans		—		8,768
Excess cost over fair value of net assets acquired		1,092		1,092
Other, net		1,916		1,612
Total assets	$	573,789	$	490,961
Liabilities and Stockholders’ Equity:
Accounts payable	$	27	$	115
Accrued interest payable		171		297
Income taxes payable		977		1,048
Subordinated debentures		64,950		64,950
Total liabilities		66,125		66,410
Stockholders’ equity:
Common stock		353		345
Additional paid-in capital		73,043		51,145
Retained earnings		423,485		363,734
Accumulated other comprehensive income (loss)		10,783		9,327
Total stockholders’ equity		507,664		424,551
Total liabilities and stockholders’ equity	$	573,789	$	490,961

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Condensed Statements of Income

	Year Ended December 31,
	2012		2011		2010
	(Dollars in thousands)
Income:
Dividends from Bank	$	26,750	$	12,300	$	13,200
Dividends from Trusts		55		52		53
Interest		437		1,145		1,152
Other		8		—		—
Total income		27,250		13,497		14,405
Expenses:
Interest		1,848		1,740		1,764
Other operating expenses		5,016		3,447		2,853
Total expenses		6,864		5,187		4,617
Net income before income tax benefit and equity in undistributed earnings of Bank		20,386		8,310		9,788
Income tax benefit		2,818		1,792		1,527
Equity in undistributed earnings of Bank		53,840		91,219		52,686
Net income	$	77,044	$	101,321	$	64,001

Condensed Statements of Cash Flows

	Year Ended December 31,
	2012			2011			2010
	(Dollars in thousands)
Cash flows from operating activities:
Net income	$	77,044		$	101,321		$	64,001
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings of Bank		(53,840	)		(91,219	)		(52,686	)
Loss on sale of investment securities AFS		—			—			130
Deferred income tax expense (benefit)		(396	)		(177	)		169
Stock-based compensation expense		2,607			1,528			834
Tax benefits on exercise of stock options and vesting of common stock under restricted stock plan		(1,538	)		(870	)		(535	)
Changes in other assets and other liabilities		1,319			2,445			(831	)
Net cash provided by operating activities		25,196			13,028			11,082
Cash flows from investing activities:
Net paydowns (fundings) of portfolio loans		67			(532	)		531
Proceeds from sales of investment securities AFS		—			—			330
Equity contributed to Bank		—			—			(7,000	)
Cash paid in merger and acquisition transactions, net of cash required		(13,223	)		—			—
Net cash used by investing activities		(13,156	)		(532	)		(6,139	)
Cash flows from financing activities:
Proceeds from exercise of stock options		3,979			4,032			2,825
Tax benefits on exercise of stock options and vesting of common stock under restricted stock plan		1,538			870			535
Repurchase of common stock under restricted stock plan		(341	)		—			—
Cash dividends paid on common stock		(17,293	)		(12,661	)		(10,170	)
Net cash used by financing activities		(12,117	)		(7,759	)		(6,810	)
Net (decrease) increase in cash		(77	)		4,737			(1,867	)
Cash - beginning of year		11,307			6,570			8,437
Cash - end of year	$	11,230		$	11,307		$	6,570

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