UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended September 30, 2014

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

For the transition period from                      to                     .

Commission File Number 0-22759

BANK OF THE OZARKS, INC.

(Exact name of registrant as specified in its charter)

ARKANSAS	71-0556208
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)

17901 CHENAL PARKWAY, LITTLE ROCK, ARKANSAS	72223
(Address of principal executive offices)	(Zip Code)

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

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company in Rule 12b-2 of the Exchange Act.

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

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

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

Class	Outstanding at September 30, 2014
Common Stock, $0.01 par value per share	79,704,950

BANK OF THE OZARKS, INC.

FORM 10-Q

September  30, 2014

INDEX

PART I.	Financial Information
Item 1.	Financial Statements
	Consolidated Balance Sheets as of September 30, 2014 and 2013 and December 31, 2013	1
	Consolidated Statements of Income for the Three Months Ended September 30, 2014 and 2013 and the Nine Months Ended September 30, 2014 and 2013	2
	Consolidated Statements of Comprehensive Income for the Three Months Ended September 30, 2014 and 2013 and the Nine Months Ended September 30, 2014 and 2013	3
	Consolidated Statements of Stockholders’ Equity for the Nine Months Ended September 30, 2014 and 2013	4
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2014 and 2013	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	84
Item 4.	Controls and Procedures	85
PART II.	Other Information
Item 1.	Legal Proceedings	86
Item 1A.	Risk Factors	87
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	87
Item 3.	Defaults Upon Senior Securities	87
Item 4.	Mine Safety Disclosures	87
Item 5.	Other Information	87
Item 6.	Exhibits	87
Signature		88
Exhibit Index		89

PART I.     FINANCIAL INFORMATION

Item 1. Financial Statements

BANK OF THE OZARKS, INC.

CONSOLIDATED BALANCE SHEETS

	Unaudited
	September 30,						December 31,
	2014			2013			2013
	(Dollars in thousands, except per share amounts)
ASSETS
Cash and due from banks	$	109,877		$	123,291		$	195,094
Interest earning deposits		2,207			1,167			881
Cash and cash equivalents		112,084			124,458			195,975
Investment securities - available for sale (“AFS”)		859,876			671,393			669,384
Non-purchased loans and leases		3,639,142			2,522,589			2,632,565
Purchased loans not covered by Federal Deposit Insurance Corporation (“FDIC”) loss share agreements (“purchased non-covered loans”)		1,030,988			399,058			372,723
Loans covered by FDIC loss share agreements (“covered loans”)		248,802			409,319			351,791
Allowance for loan and lease losses		(49,606	)		(41,660	)		(42,945	)
Net loans and leases		4,869,326			3,289,306			3,314,134
FDIC loss share receivable		36,583			89,642			71,854
Premises and equipment, net		267,888			245,055			245,472
Foreclosed assets not covered by FDIC loss share agreements		14,781			11,647			11,851
Foreclosed assets covered by FDIC loss share agreements		27,882			40,452			37,960
Accrued interest receivable		20,966			15,227			14,359
Bank owned life insurance (“BOLI”)		180,667			142,311			143,473
Intangible assets, net		107,108			20,039			19,158
Other, net		83,199			61,037			67,550
Total assets	$	6,580,360		$	4,710,567		$	4,791,170
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Demand non-interest bearing	$	1,089,415		$	724,413		$	746,320
Savings and interest bearing transaction		2,787,958			1,952,617			2,073,497
Time		1,262,332			977,656			897,210
Total deposits		5,139,705			3,654,686			3,717,027
Repurchase agreements with customers		73,942			50,254			53,103
Other borrowings		352,616			280,905			280,895
Subordinated debentures		64,950			64,950			64,950
FDIC clawback payable		26,676			25,705			25,897
Accrued interest payable and other liabilities		43,452			18,251			16,768
Total liabilities		5,701,341			4,094,751			4,158,640
Commitments and contingencies
Stockholders’ equity:
Preferred stock; $0.01 par value; 1,000,000 shares authorized; no shares outstanding at September 30, 2014 and 2013 or at December 31, 2013		0			0			0
Common stock; $0.01 par value; 125,000,000 shares authorized; 79,704,950, 73,403,418 and 73,711,704 shares issued and outstanding at September 30, 2014, September 30, 2013 and December 31, 2013, respectively		797			735			737
Additional paid-in capital		317,390			139,768			143,017
Retained earnings		546,667			472,288			488,978
Accumulated other comprehensive income (loss)		10,724			(453	)		(3,672	)
Total stockholders’ equity before noncontrolling interest		875,578			612,338			629,060
Noncontrolling interest		3,441			3,478			3,470
Total stockholders’ equity		879,019			615,816			632,530
Total liabilities and stockholders’ equity	$	6,580,360		$	4,710,567		$	4,791,170

See accompanying notes to consolidated financial statements.

1

BANK OF THE OZARKS, INC.

CONSOLIDATED STATEMENTS OF INCOME

Unaudited

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
	(Dollars in thousands, except per share amounts)
Interest income:
Non-purchased loans and leases	$	43,153		$	33,183		$	113,400		$	93,782
Purchased non-covered loans		18,056			5,653			39,534			7,366
Covered loans		10,630			10,501			31,166			34,845
Investment securities:
Taxable		2,986			1,988			8,135			4,456
Tax-exempt		5,247			4,006			14,617			11,599
Deposits with banks and federal funds sold		11			11			50			21
Total interest income		80,083			55,342			206,902			152,069
Interest expense:
Deposits		2,285			1,537			5,693			4,457
Repurchase agreements with customers		15			7			40			21
Other borrowings		2,736			2,732			8,083			8,064
Subordinated debentures		426			433			1,267			1,290
Total interest expense		5,462			4,709			15,083			13,832
Net interest income		74,621			50,633			191,819			138,237
Provision for loan and lease losses		(3,687	)		(3,818	)		(10,574	)		(9,212	)
Net interest income after provision for loan and lease losses		70,934			46,815			181,245			129,025
Non-interest income:
Service charges on deposit accounts		7,356			5,817			19,601			15,613
Mortgage lending income		1,728			1,276			3,807			4,660
Trust income		1,419			1,060			4,099			2,808
BOLI income		1,390			1,179			3,799			3,365
Accretion (amortization) of FDIC loss share receivable, net of amortization of FDIC clawback payable		(562	)		1,396			(611	)		6,269
Other income from loss share and purchased non-covered loans, net		3,369			2,484			10,309			8,328
Net gains on investment securities		43			0			67			156
Gains on sales of other assets		1,688			2,501			4,111			7,586
Gain on merger and acquisition transactions		0			5,163			4,667			5,163
Other		2,817			1,226			7,147			3,498
Total non-interest income		19,248			22,102			56,996			57,446
Non-interest expense:
Salaries and employee benefits		20,876			16,456			57,396			47,445
Net occupancy and equipment		6,823			4,786			17,574			13,670
Other operating expenses		14,824			10,966			42,886			30,226
Total non-interest expense		42,523			32,208			117,856			91,341
Income before taxes		47,659			36,709			120,385			95,130
Provision for income taxes		15,579			10,224			36,559			28,255
Net income		32,080			26,485			83,826			66,875
Earnings attributable to noncontrolling interest		13			(33	)		29			(36	)
Net income available to common stockholders	$	32,093		$	26,452		$	83,855		$	66,839
Basic earnings per common share	$	0.40		$	0.36		$	1.09		$	0.94
Diluted earnings per common share	$	0.40		$	0.36		$	1.08		$	0.93
Dividends declared per common share	$	0.12		$	0.095		$	0.345		$	0.255

See accompanying notes to consolidated financial statements.

2

BANK OF THE OZARKS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Unaudited

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
	(Dollars in thousands)
Net income	$	32,080		$	26,485		$	83,826		$	66,875
Other comprehensive income (loss):
Unrealized gains and losses on investment securities AFS		1,223			732			23,754			(18,333	)
Tax effect of unrealized gains and losses on investment securities AFS		(479	)		(287	)		(9,317	)		7,191
Reclassification of gains and losses on investment securities AFS included in net income		(43	)		0			(67	)		(156	)
Tax effect of reclassification of gains and losses on investment securities AFS included in net income		17			0			26			62
Total other comprehensive income (loss)		718			445			14,396			(11,236	)
Total comprehensive income	$	32,798		$	26,930		$	98,222		$	55,639

See accompanying notes to consolidated financial statements.

3

BANK OF THE OZARKS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Unaudited

	Common Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Non-Controlling Interest			Total
	(Dollars in thousands)
Balances – January 1, 2013	$	706	$	72,690	$	423,485		$	10,783		$	3,442		$	511,106
Net income		0		0		66,875			0			0			66,875
Earnings attributable to noncontrolling interest		0		0		(36	)		0			36			0
Total other comprehensive loss		0		0		0			(11,236	)		0			(11,236	)
Common stock dividends		0		0		(18,036	)		0			0			(18,036	)
Issuance of 356,800 split-adjusted shares of common stock for exercise of stock options		4		2,613		0			0			0			2,617
Excess tax benefit on exercise and forfeiture of stock options		0		1,458		0			0			0			1,458
Issuance of 2,514,770 split-adjusted shares of common stock for acquisition of The First National Bank of Shelby, net of issuance costs of $285,000		25		59,769		0			0			0			59,794
Stock-based compensation expense		0		3,238		0			0			0			3,238
Balances – September 30, 2013, as recast	$	735	$	139,768	$	472,288		$	(453	)	$	3,478		$	615,816
Balances – January 1, 2014, as recast	$	737	$	143,017	$	488,978		$	(3,672	)	$	3,470		$	632,530
Net income		0		0		83,826			0			0			83,826
Earnings attributable to noncontrolling interest		0		0		29			0			(29	)		0
Total other comprehensive income		0		0		0			14,396			0			14,396
Common stock dividends		0		0		(26,166	)		0			0			(26,166	)
Issuance of 228,600 split-adjusted shares of common stock for exercise of stock options		2		2,065		0			0			0			2,067
Forfeiture of 1,200 split-adjusted shares of unvested common stock under restricted stock plan		0		0		0			0			0			0
Excess tax benefit on exercise and forfeiture of stock options		0		1,649		0			0			0			1,649
Stock-based compensation expense		0		4,402		0			0			0			4,402
Issuance of 5,765,846 split-adjusted shares of common stock for acquisition of Summit Bancorp, Inc., net of issuance costs of $87,000		58		166,257		0			0			0			166,315
Balances – September 30, 2014	$	797	$	317,390	$	546,667		$	10,724		$	3,441		$	879,019

See accompanying notes to consolidated financial statements

4

BANK OF THE OZARKS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited

	Nine Months Ended
	September 30,
	2014			2013
	(Dollars in thousands)
Cash flows from operating activities:
Net income	$	83,826		$	66,875
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		5,968			5,317
Amortization		3,464			1,924
Earnings attributable to noncontrolling interest		29			(36	)
Provision for loan and lease losses		10,574			9,212
Provision for losses on foreclosed assets		862			1,072
Net amortization of investment securities AFS		431			450
Net gains on investment securities AFS		(67	)		(156	)
Originations of mortgage loans held for sale		(152,767	)		(172,210	)
Proceeds from sales of mortgage loans held for sale		154,409			191,570
Accretion of covered loans		(31,166	)		(34,845	)
Accretion of purchased non-covered loans		(39,534	)		(7,366	)
(Accretion)/amortization of FDIC loss share receivable, net of amortization of FDIC clawback payable		611			(6,269	)
Gains on sales of other assets		(4,111	)		(7,586	)
Gain on merger and acquisition transactions		(4,667	)		(5,163	)
Deferred income tax benefit		(6,625	)		(2,070	)
Increase in cash surrender value of BOLI		(3,799	)		(3,365	)
Excess tax benefit on exercise and forfeiture of stock options		(1,649	)		(1,458	)
Stock-based compensation expense		4,402			3,238
Changes in assets and liabilities:
Accrued interest receivable		(1,872	)		(900	)
Other assets, net		5,496			2,473
Accrued interest payable and other liabilities		24,396			2,137
Net cash provided by operating activities		48,211			42,844
Cash flows from investing activities:
Proceeds from sales of investment securities AFS		54,957			999
Proceeds from maturities/calls/paydowns of investment securities AFS		68,349			71,860
Purchases of investment securities AFS		(46,618	)		(124,193	)
Net advances on non-purchased loans and leases		(1,017,513	)		(428,273	)
Payments received on purchased non-covered loans		253,347			37,666
Payments received on covered loans		97,915			177,094
Payments received from FDIC under loss share agreements		24,810			66,993
Other net decreases in covered assets and FDIC loss share receivable		15,267			21,634
Purchases of premises and equipment		(10,352	)		(7,815	)
Proceeds from sales of other assets		54,350			47,975
Cash received from (invested) in unconsolidated investments		1,320			(571	)
Net cash received in merger and acquisition transactions		121,918			56,786
Net cash used by investing activities		(382,250	)		(79,845	)
Cash flows from financing activities:
Net increase (decrease) in deposits		196,998			(46,987	)
Net proceeds from other borrowings		71,276			142
Net increase in repurchase agreements with customers		4,324			14,298
Proceeds from exercise of stock options		2,067			2,617
Excess tax benefit on exercise and forfeiture of stock options		1,649			1,458
Cash dividends paid on common stock		(26,166	)		(18,036	)
Net cash provided (used) by financing activities		250,148			(46,508	)
Net decrease in cash and cash equivalents		(83,891	)		(83,509	)
Cash and cash equivalents – beginning of period		195,975			207,967
Cash and cash equivalents – end of period	$	112,084		$	124,458

See accompanying notes to consolidated financial statements.

5

BANK OF THE OZARKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited

1. Organization and Principles of Consolidation

Bank of the Ozarks, Inc. (the “Company”) is a bank holding company headquartered in Little Rock, Arkansas, which operates under the rules and regulations of the Board of Governors of the Federal Reserve System. The Company owns a wholly-owned state chartered bank subsidiary – Bank of the Ozarks (the “Bank”), four 100%-owned finance subsidiary business trusts – Ozark Capital Statutory Trust II (“Ozark II”), Ozark Capital Statutory Trust III (“Ozark III”), Ozark Capital Statutory Trust IV (“Ozark IV”) and Ozark Capital Statutory Trust V (“Ozark V”) (collectively, the “Trusts”) and, indirectly through the Bank, a subsidiary engaged in the development of real estate, a subsidiary that owns private aircraft and various other entities that hold foreclosed assets or tax credits or engage in other activities. The Company and Bank are subject to the regulation of certain federal and state agencies and undergo periodic examinations by those regulatory authorities. The consolidated financial statements include the accounts of the Company, the Bank, the real estate subsidiary, the aircraft subsidiary and certain of those various other entities in accordance with accounting principles generally accepted in the United States (“GAAP”). Significant intercompany transactions and amounts have been eliminated in consolidation.

At September 30, 2014, the Company had 165 offices, including 88 in Arkansas, 28 in Georgia, 21 in Texas, 17 in North Carolina, five in Florida, three in Alabama, and one office each in South Carolina, New York and California.

2. Basis of Presentation

The accompanying consolidated financial statements have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) in Article 10 of Regulation S-X and in accordance with the instructions to Form 10-Q and GAAP for interim financial information. Certain information, accounting policies and footnote disclosures normally included in complete financial statements prepared in accordance with GAAP have been condensed or omitted in accordance with such rules and regulations. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. In the opinion of management, all adjustments considered necessary, consisting of normal recurring items, have been included for a fair presentation of the accompanying consolidated financial statements. Operating results for the nine months ended September 30, 2014 are not necessarily indicative of the results that may be expected for the full year or future periods.

On June 23, 2014, the Company completed a two-for-one 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 June 13, 2014. All share and per share information in the consolidated financial statements and the notes to the consolidated financial statements has been adjusted to give effect to this stock split.

Certain reclassifications of prior period amounts have been made to conform with the current period presentation. These reclassifications had no impact on previously reported net income. Additionally, as provided for under GAAP, management has up to 12 months following the date of a business combination transaction 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”). During the second quarter of 2014, the Company revised its initial estimates regarding the expected recovery of acquired assets with built-in losses in its July 31, 2013 acquisition of The First National Bank of Shelby (“First National Bank”). As a result, certain amounts previously reported in the Company’s financial statements have been recast.

3. Acquisitions

On July 31, 2014, the Company entered into a definitive agreement and plan of merger (the “Intervest Agreement”) with Intervest Bancshares Corporation (“Intervest”), and its wholly-owned bank subsidiary Intervest National Bank (“INB”), headquartered in New York, New York, whereby the Company will acquire all of the outstanding common stock of Intervest in a transaction valued at approximately $228.5 million. INB operates seven full service banking offices including one in New York City, five in Clearwater, Florida and one in Pasadena, Florida. At September 30, 2014, INB reported approximately $1.51 billion in total assets, approximately $1.18 billion in loans, approximately $0.31 million in investment securities and approximately $1.21 billion in deposits.

Under the terms of the Intervest Agreement, each outstanding share of common stock of Intervest will be converted into the right to receive shares of the Company’s common stock, plus cash in lieu of any fractional share, all subject to certain conditions and

6

potential adjustments. The number of Company shares to be issued will be determined based on the Company’s 10-day average closing stock price as of the fifth business day prior to the closing date, subject to a minimum price of $23.95 per share and a maximum price of $39.91 per share. Upon the closing of the transaction, Intervest will merge into the Company and INB will merge into the Bank. Completion of the transaction is subject to certain closing conditions, including receipt of customary regulatory approvals and the approval of Intervest’s stockholders.

Summit Bancorp, Inc.

On May 16, 2014, the Company completed its acquisition of Summit Bancorp, Inc. (“Summit”) and Summit Bank, its wholly-owned bank subsidiary, for an aggregate of $42.5 million in cash and 5,765,846 split-adjusted shares of its common stock. The acquisition of Summit expanded the Company’s service area in Central, South and Western Arkansas by adding 23 banking locations and one loan production office in nine Arkansas counties. During the second quarter of 2014, the Company closed one of the banking offices and the one loan production office acquired in the Summit acquisition.

7

The following table provides a summary of the assets acquired and liabilities assumed as recorded by Summit, the fair value adjustments necessary to adjust those acquired assets and assumed liabilities to estimated fair value, and the resultant fair values of those assets and liabilities as recorded by the Company. 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 assumed liabilities. The fair value adjustments and the resultant fair values shown in the following table continue to be evaluated by management and may be subject to further adjustment.

	May 16, 2014
	As Recorded by Summit			Fair Value Adjustments				As Recorded by the Company
	(Dollars in thousands)
Assets acquired:
Cash, due from banks and interest earning deposits	$	84,106		$	(304	)	a	$	83,802
Investment securities		242,149			765		b		242,914
Loans and leases		742,546			(24,718	)	c		717,828
Allowance for loan losses		(13,183	)		13,183		c		0
Premises and equipment		13,773			(1,108	)	d		12,665
Foreclosed assets		3,094			(1,088	)	e		2,006
Accrued interest receivable and other assets		11,016			1,461		f		12,477
Bank owned life insurance		33,398			0				33,398
Core deposit intangible asset		0			15,340		g		15,340
Deferred income taxes		3,878			953		h		4,831
Total assets acquired		1,120,777			4,484				1,125,261
Liabilities assumed:
Deposits		965,687			4,074		i		969,761
Repurchase agreements with customers		16,515			0				16,515
Accrued interest payable and other liabilities		2,352			1,206		j		3,558
Total liabilities assumed		984,554			5,280				989,834
Net assets acquired	$	136,223		$	(796	)			135,427
Consideration paid:
Cash									42,451
Stock									166,402
Total consideration paid									208,853
Goodwill								$	73,426

Explanation of fair value adjustments

a-	Adjustment reflects the fair value adjustment based on the Company’s evaluation of acquired interest earning deposits.
b-	Adjustment reflects the fair value adjustment based on the Company’s pricing of the acquired investment securities portfolio.
c-	Adjustment reflects the fair value adjustment based on the Company’s evaluation of the acquired loan portfolio and to eliminate the recorded allowance for loan losses.
d-	Adjustment reflects the fair value adjustment based on the Company’s evaluation of the premises and equipment acquired.
e-	Adjustment reflects the fair value adjustment based on the Company’s evaluation of the acquired foreclosed assets.
f-	Adjustment reflects the fair value adjustment based on the Company’s evaluation of accrued interest receivable and other assets.
g-	Adjustment reflects the fair value adjustment for the core deposit intangible asset recorded as a result of the acquisition.
h-	This adjustment reflects the differences in the carrying values of acquired assets and assumed liabilities for financial reporting purposes and their basis for federal income tax purposes.
i-	Adjustment reflects the fair value adjustment based on the Company’s evaluation of the acquired deposits.
j-	Adjustment reflects the amount needed to adjust other liabilities to estimated fair value and to record certain liabilities directly attributable to the acquisition of Summit.

Goodwill of $73.4 million, which is the excess of the merger consideration over the fair value of net assets acquired, was recorded in the Summit acquisition and is the result of expected operational synergies and other factors. This goodwill is not expected to be deductible for tax purposes.

The Company’s consolidated results of operations include the operating results for Summit beginning May 16, 2014 through the end of the reporting period. Summit’s operating results contributed $10.9 million of net interest income and $5.0 million of net income to the Company’s results of operations for the three months ended September 30, 2014, and contributed $16.6 million of net interest income and $7.4 million of net income to the Company’s results of operations for the nine months ended September 30, 2014.

8

The following unaudited supplemental pro forma information is presented to show the estimated results assuming Summit was acquired as of the beginning of each period presented, adjusted for estimated potential costs savings. These unaudited pro forma results are not necessarily indicative of the operating results that the Company would have achieved had it completed the acquisition as of January 1, 2013 or 2014 and should not be considered as representative of future operating results.

	Nine Months Ended September 30,
	2014		2013
	(Dollars in thousands, except per share amounts)
Net interest income – pro forma (unaudited)	$	208,758	$	171,824
Net income – pro forma (unaudited)	$	91,402	$	81,787
Diluted earnings per common share – pro forma (unaudited)	$	1.14	$	1.05

Bancshares, Inc.

On March 5, 2014, the Company completed its acquisition of Bancshares, Inc. (“Bancshares”) of Houston, Texas and OMNIBANK, N.A., its wholly-owned bank subsidiary for an aggregate of $21.5 million in cash. The acquisition of Bancshares expanded the Company’s service area in South Texas by adding three offices in Houston and one office each in Austin, Cedar Park, Lockhart, and San Antonio.

The following table provides a summary of the assets acquired and liabilities assumed as recorded by Bancshares, the fair value adjustments necessary to adjust those acquired assets and assumed liabilities to estimated fair value, and the resultant fair values of those assets and liabilities as recorded by the Company. 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 assumed liabilities. The fair value adjustments and the resultant fair values shown in the following table continue to be evaluated by management and may be subject to further adjustment.

	March 5, 2014
	As Recorded by Bancshares			Fair Value Adjustments				As Recorded by the Company
	(Dollars in thousands)
Assets acquired:
Cash and due from banks	$	102,156		$	0			$	102,156
Investment securities		1,860			(1	)	a		1,859
Loans and leases		165,939			(10,764	)	b		155,175
Allowance for loan losses		(5,280	)		5,280		b		0
Premises and equipment		6,259			1,619		c		7,878
Foreclosed assets		7,634			(2,916	)	d		4,718
Accrued interest receivable and other assets		608			(294	)	e		314
Core deposit intangible asset		0			2,648		f		2,648
Deferred income taxes		7,110			1,881		g		8,991
Total assets acquired		286,286			(2,547	)			283,739
Liabilities assumed:
Deposits		255,798			121		h		255,919
Accrued interest payable and other liabilities		1,358			295		i		1,653
Total liabilities assumed		257,156			416				257,572
Net assets acquired	$	29,130		$	(2,963	)			26,167
Total cash consideration paid									(21,500	)
Gain on acquisition								$	4,667

Explanation of fair value adjustments

a-	Adjustment reflects the fair value adjustment based on the Company’s pricing of the acquired investment securities portfolio.
b-	Adjustment reflects the fair value adjustment 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 adjustment based on the Company’s evaluation of the premises and equipment acquired.
d-	Adjustment reflects the fair value adjustment based on the Company’s evaluation of the acquired foreclosed assets.
e-	Adjustment reflects the fair value adjustment based on the Company’s evaluation of accrued interest receivable and other assets.
f-	Adjustment reflects the fair value adjustment for the core deposit intangible asset recorded as a result of the acquisition.

9

g-	This adjustment reflects the differences in the carrying values of acquired assets and assumed liabilities for financial reporting purposes and their basis for federal income tax purposes. Management has determined that acquired net operating loss carryforwards are expected to be settled in future periods where the realization of such benefits would be subject to limitations under section 382 of the Internal Revenue Code (“section 382 limitations”). Accordingly, as of the date of acquisition, the Company had established a deferred tax asset valuation allowance of approximately $0.5 million to reflect its assessment that the realization of the benefits from the settlement of these acquired net operating losses is expected to be subject to section 382 limitations. To the extent that additional information becomes available, management may be required to adjust its estimates and assumptions regarding the realization of the benefits associated with these acquired net operating losses by adjusting this deferred tax asset valuation allowance.
h-	Adjustment reflects the fair value adjustment based on the Company’s evaluation of the acquired deposits.
i-	Adjustment reflects the amount needed to adjust other liabilities to estimated fair value and to record certain liabilities directly attributable to the acquisition of Bancshares.

The Company’s consolidated results of operations include the operating results for Bancshares beginning March 6, 2014 through the end of the reporting period. For the three months ended September 30, 2014, Bancshares’ operating results contributed $2.1 million of net interest income and $1.1 million of net income to the Company’s results of operations. For the nine months ended September 30, 2014, Bancshares’ operating results contributed $5.5 million of net interest income and $7.5 million of net income, including the $4.7 million of tax-exempt bargain purchase gain, to the Company’s results of operations.

The First National Bank of Shelby

On July 31, 2013, the Company completed the First National Bank acquisition whereby First National Bank merged with and into the Company’s wholly-owned bank subsidiary for an aggregate of $8.4 million in cash and 2,514,770 split-adjusted shares of its common stock. The Company also acquired certain real property from parties related to First National Bank and on which certain First National Bank offices are located for $3.8 million in cash.

The acquisition of First National Bank expanded the Company’s service area in North Carolina by adding 14 offices in Shelby, North Carolina and the surrounding communities. On September 24, 2013 the Company closed one of the acquired offices in Shelby, North Carolina.

During the second quarter of 2014, management revised its initial estimates and assumptions regarding the expected recovery of acquired assets with built-in losses, specifically the timing of expected charge-offs of purchased non-covered loans, in the First National Bank acquisition. As a result of such revision, management concluded that the deferred tax asset valuation allowance of $4.1 million was not necessary. Because such revision occurred during the first 12 months following the date of acquisition and was not the result of changes in circumstances, management has recast the third quarter 2013 financial statements, along with all subsequent financial statements, to increase the bargain purchase gain on the First National Bank acquisition by $4.1 million to reflect this change in estimate.

10

The following table provides a summary of the assets acquired and liabilities assumed as recorded by First National Bank, the fair value adjustments necessary to adjust those acquired assets and assumed liabilities to estimated fair value, the recast adjustment described above and the resultant fair values of those assets and liabilities as recorded by the Company.

	July 31, 2013
	As Recorded by First National Bank			Fair Value Adjustments				Recast Adjustment		As Recorded by the Company
	(Dollars in thousands)
Assets acquired:
Cash and due from banks	$	69,285		$	0			$	0	$	69,285
Investment securities		149,943			(599	)	a		0		149,344
Loans and leases		432,250			(44,183	)	b		0		388,067
Allowance for loan losses		(13,931	)		13,931		b		0		0
Premises and equipment		14,318			5,064		c		0		19,382
Foreclosed assets		3,073			(915	)	d		0		2,158
Accrued interest receivable		1,234			(110	)	e		0		1,124
BOLI		14,812			0				0		14,812
Core deposit intangible asset		0			10,136		f		0		10,136
Deferred income taxes		12,179			12,325		g		4,102		28,606
Other assets		4,277			(251	)	e		0		4,026
Total assets acquired		687,440			(4,602	)			4,102		686,940
Liabilities assumed:
Deposits		595,668			4,950		h		0		600,618
Repurchase agreements with customers		6,405			0				0		6,405
Accrued interest payable and other liabilities		1,296			1,164		i		0		2,460
Total liabilities assumed		603,369			6,114				0		609,483
Net assets acquired	$	84,071		$	(10,716	)		$	4,102		77,457
Consideration paid:
Cash											(12,215	)
Common stock											(60,079	)
Total consideration paid											(72,294	)
Gain on acquisition										$	5,163

Explanation of fair value adjustments

a-	Adjustment reflects the fair value adjustment based on the Company’s pricing of the acquired investment securities portfolio.
b-	Adjustment reflects the fair value adjustment 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 adjustment based on the Company’s evaluation of the premises and equipment acquired.
d-	Adjustment reflects the fair value adjustment based on the Company’s evaluation of the acquired foreclosed assets.
e-	Adjustment reflects the fair value adjustment based on the Company’s evaluation of accrued interest receivable and other assets.
f-	Adjustment reflects the fair value adjustment for the core deposit intangible asset recorded as a result of the acquisition.
g-	This adjustment reflects the differences in the carrying values of acquired assets and assumed liabilities for financial reporting purposes and their basis for federal income tax purposes. Management initially determined that acquired net operating loss carryforwards and other acquired assets with built-in losses were expected to be settled or otherwise recovered in future periods where the realization of such benefits would be subject to section 382 limitations. Accordingly, at the date of acquisition, the Company established a deferred tax asset valuation allowance of approximately $4.1 million to reflect its initial assessment that the realization of the benefits from the settlement or recovery of certain of these acquired assets and net operating losses was expected to be subject to section 382 limitations. During the second quarter of 2014, management determined such valuation allowance was not necessary. Accordingly, the Company’s acquisition of
	First National Bank has been recast to reflect such determination.
h-	Adjustment reflects the fair value adjustment based on the Company’s evaluation of the acquired deposits.
i-	Adjustment reflects the amount needed to adjust other liabilities to estimated fair value and to record certain liabilities directly attributable to the acquisition of First National Bank.

Beginning August 1, 2013, First National Bank operations are included in the Company’s consolidated results of operations.

11

As a result of the recast adjustment described above, certain amounts previously reported in the Company’s consolidated financial statements have been recast. The following is a summary of those financial statement captions that have been impacted by this recast adjustment.

	As Previously Reported			Recast Adjustment		As Recast
	(Dollars in thousands, except per share amounts)
September 30, 2013:
Deferred income tax asset valuation allowance	$	(4,102	)	$	4,102	$	0
Total stockholders’ equity before noncontrolling interest		608,236			4,102		612,338
Gain on merger and acquisition transaction		1,061			4,102		5,163
Net income available to common stockholders		62,737			4,102		66,839
Diluted earnings per common share, split adjusted	$	0.87		$	0.06	$	0.93

4. Earnings Per Common Share (“EPS”)

Basic EPS is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding. Diluted EPS is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding after consideration of the dilutive effect, if any, of the Company’s outstanding common stock options using the treasury stock method. No options to purchase shares of the Company’s common stock for the three months and nine months ended September 30, 2014 and the three months ended September 30, 2013 were excluded from the diluted EPS calculations as all options were dilutive. For the nine months ended September 30, 2013, options to purchase 4,000 split-adjusted shares of the Company’s common stock were excluded from the diluted EPS calculations as inclusion of these options would have been anti-dilutive.

The following table presents the computation of basic and diluted EPS for the periods indicated.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2014		2013		2014		2013
	(In thousands, except per share amounts)
Numerator:
Distributed earnings allocated to common stock	$	9,560	$	6,732	$	26,166	$	18,036
Undistributed earnings allocated to common stock		22,533		19,720		57,689		48,803
Net income available to common stock	$	32,093	$	26,452	$	83,855	$	66,839
Denominator:
Denominator for basic EPS – weighted-average common shares		79,678		72,544		76,763		71,338
Effect of dilutive securities – stock options		767		752		706		650
Denominator for diluted EPS – weighted-average common shares and assumed conversions		80,445		73,296		77,469		71,988
Basic EPS	$	0.40	$	0.36	$	1.09	$	0.94
Diluted EPS	$	0.40	$	0.36	$	1.08	$	0.93

5. Investment Securities

At September 30, 2014 and 2013 and at December 31, 2013, the Company classified all of its investment securities portfolio as AFS. Accordingly, its investment securities are stated at estimated fair value in the consolidated financial statements with unrealized gains and losses, net of related income tax, reported as a separate component of stockholders’ equity and included in accumulated other comprehensive income (loss).

12

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

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(Dollars in thousands)
September 30, 2014:
Obligations of state and political subdivisions	$	572,070	$	16,610	$	(1,101	)	$	587,579
U.S. Government agency securities		251,926		4,427		(2,291	)		254,062
Corporate obligations		655		0		0			655
Other equity securities		17,580		0		0			17,580
Total	$	842,231	$	21,037	$	(3,392	)	$	859,876
December 31, 2013:
Obligations of state and political subdivisions	$	438,390	$	6,230	$	(8,631	)	$	435,989
U.S. Government agency securities		222,510		2,352		(5,993	)		218,869
Corporate obligations		716		0		0			716
Other equity securities		13,810		0		0			13,810
Total	$	675,426	$	8,582	$	(14,624	)	$	669,384
September 30, 2013:
Obligations of state and political subdivisions	$	432,362	$	7,423	$	(8,217	)	$	431,568
U.S. Government agency securities		225,263		4,077		(4,029	)		225,311
Corporate obligations		717		0		0			717
Other equity securities		13,797		0		0			13,797
Total	$	672,139	$	11,500	$	(12,246	)	$	671,393

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

	Less than 12 Months				12 Months or More				Total
	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
	(Dollars in thousands)
September 30, 2014:
Obligations of state and political subdivisions	$	40,386	$	146	$	53,628	$	955	$	94,014	$	1,101
U.S. Government agency securities		44,958		226		57,610		2,065		102,568		2,291
Total temporarily impaired securities	$	85,344	$	372	$	111,238	$	3,020	$	196,582	$	3,392
December 31, 2013:
Obligations of states and political subdivisions	$	132,568	$	7,237	$	10,823	$	1,394	$	143,391	$	8,631
U.S. Government agency securities		127,274		5,993		0		0		127,274		5,993
Total temporarily impaired securities	$	259,842	$	13,230	$	10,823	$	1,394	$	270,665	$	14,624
September 30, 2013:
Obligations of state and political subdivisions	$	122,614	$	7,523	$	8,020	$	694	$	130,634	$	8,217
U.S. Government agency securities		60,861		4,029		0		0		60,861		4,029
Total temporarily impaired securities	$	183,475	$	11,552	$	8,020	$	694	$	191,495	$	12,246

13

In evaluating the Company’s unrealized loss positions for other-than-temporary impairment of its investment securities portfolio, management considers the credit quality of the issuer, the nature and cause of the unrealized loss, the severity and duration of the impairments and other factors. At September 30, 2014 management determined the unrealized losses were the result of fluctuations in interest rates and did not reflect deteriorations of the credit quality of the investments. Accordingly, management considers these unrealized losses to be temporary in nature. The Company does not have the intent to sell these investment securities with unrealized losses and, more likely than not, will not be required to sell these investment securities before fair value recovers to amortized cost.

The following table shows the amortized cost and estimated fair value of investment securities AFS by maturity or estimated date of repayment as of the date indicated.

	September 30, 2014
Maturity or Estimated Repayment	Amortized Cost		Estimated Fair Value
	(Dollars in thousands)
One year or less	$	37,664	$	38,291
After one year to five years		138,870		140,563
After five years to ten years		194,325		196,655
After ten years		471,372		484,367
Total	$	842,231	$	859,876

For purposes of this maturity distribution, all investment securities AFS are shown based on their contractual maturity date or estimated date of repayment, 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 securities and municipal housing authority securities backed by residential mortgages are allocated among various maturities based on an estimated repayment schedule utilizing Bloomberg median prepayment speeds or other estimates of prepayment speeds and interest rate levels at the measurement date. 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.

The following table is a summary of sales activities in the Company’s investment securities AFS for the periods indicated.

	Three Months Ended September 30,					Nine Months Ended September 30,
	2014			2013		2014			2013
	(Dollars in thousands)
Sales proceeds	$	6,563		$	0	$	54,957		$	999
Gross realized gains	$	58		$	0	$	82		$	156
Gross realized losses		(15	)		0		(15	)		0
Net gains on investment securities	$	43		$	0	$	67		$	156

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

Allowance for Loan and Lease Losses

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
	(Dollars in thousands)
Beginning balance	$	46,958		$	39,372		$	42,945		$	38,738
Non-purchased loans and leases charged off		(737	)		(754	)		(3,306	)		(3,203	)
Recoveries of non-purchased loans and leases previously charged off		185			142			1,167			925
Net non-purchased loans and leases charged off		(552	)		(612	)		(2,139	)		(2,278	)
Covered loans charged off		(205	)		(918	)		(925	)		(4,012	)
Purchased non-covered loans charged off		(282	)		0			(849	)		0
Net charge-offs – total loans and leases		(1,039	)		(1,530	)		(3,913	)		(6,290	)
Provision for loan and lease losses:
Non-purchased loans and leases		3,200			2,900			8,800			5,200
Covered loans		205			918			925			4,012
Purchased non-covered loans		282			0			849			0
Total provision		3,687			3,818			10,574			9,212
Ending balance	$	49,606		$	41,660		$	49,606		$	41,660

14

At September 30, 2014 and 2013, the Company identified covered loans 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 $0.2 million for such loans during the third quarter of 2014 and $0.9 million for such loans during the first nine months of 2014 compared to $0.9 million for such loans during the third quarter of 2013 and $4.0 million for such loans during the first nine months of 2013. The Company also recorded provision for loan and lease losses of $0.2 million during the third quarter of 2014 and $0.9 million during the first nine months of 2014 compared to $0.9 million for such loans during the third quarter of 2013 and $4.0 million for such loans during the first nine months of 2013 to cover such charge-offs. In addition to those net charge-offs, the Company transferred certain of these covered loans to covered foreclosed assets. As a result, the Company had $13.6 million and $52.6 million, respectively, of impaired covered loans at September 30, 2014 and 2013.

As of September 30, 2014, the Company had identified purchased non-covered loans where the expected performance had deteriorated from management’s performance expectations established in conjunction with the determination of the Day 1 Fair Values or where current information indicates it is probable that the Company will not be able to collect all amounts according to the contractual terms thereon. As a result, the Company recorded partial charge-offs totaling $0.3 million during the third quarter and $0.9 million during the first nine months of 2014 compared to none for the comparable periods in 2013. The Company also recorded provision for loan and lease losses of $0.3 million during the third quarter and $0.9 million during the first nine months of 2014 to cover such charge-offs compared to none during the third quarter and first nine months of 2013. At September 30, 2014, the Company had $1.7 million of impaired purchased non-covered loans compared to none at both September 30, 2013 and December 31, 2013.

The following table is a summary of the Company’s ALLL for the periods indicated.

	Beginning Balance		Charge-offs			Recoveries		Provision			Ending Balance
	(Dollars in thousands)
Three months ended September 30, 2014:
Real estate:
Residential 1-4 family	$	4,760	$	(115	)	$	47	$	610		$	5,302
Non-farm/non-residential		14,836		(90	)		15		3,267			18,028
Construction/land development		15,464		0			4		(950	)		14,518
Agricultural		2,908		(198	)		2		(98	)		2,614
Multifamily residential		1,772		0			0		(161	)		1,611
Commercial and industrial		2,848		(55	)		38		108			2,939
Consumer		926		(29	)		14		(89	)		822
Direct financing leases		2,572		(151	)		29		371			2,821
Other		872		(99	)		36		142			951
Covered loans		0		(205	)		0		205			0
Purchased non-covered loans		0		(282	)		0		282			0
Total	$	46,958	$	(1,224	)	$	185	$	3,687		$	49,606
Nine months ended September 30, 2014:
Real estate:
Residential 1-4 family	$	4,701	$	(456	)	$	118	$	939		$	5,302
Non-farm/non-residential		13,633		(1,344	)		19		5,720			18,028
Construction/land development		12,306		(14	)		12		2,214			14,518
Agricultural		3,000		(213	)		13		(186	)		2,614
Multifamily residential		2,504		0			0		(893	)		1,611
Commercial and industrial		2,855		(477	)		801		(240	)		2,939
Consumer		917		(126	)		50		(19	)		822
Direct financing leases		2,266		(418	)		43		930			2,821
Other		763		(258	)		111		335			951
Covered loans		0		(925	)		0		925			0
Purchased non-covered loans		0		(849	)		0		849			0
Total	$	42,945	$	(5,080	)	$	1,167	$	10,574		$	49,606

15

The following table is a summary of the Company’s ALLL for the periods indicated.

	Beginning Balance		Charge-offs			Recoveries		Provision			Ending Balance
	(Dollars in thousands)
Year ended December 31, 2013:
Real estate:
Residential 1-4 family	$	4,820	$	(837	)	$	106	$	612		$	4,701
Non-farm/non-residential		10,107		(1,111	)		122		4,515			13,633
Construction/land development		12,000		(137	)		174		269			12,306
Agricultural		2,878		(261	)		14		369			3,000
Multifamily residential		2,030		(4	)		4		474			2,504
Commercial and industrial		3,655		(922	)		433		(311	)		2,855
Consumer		1,015		(214	)		104		12			917
Direct financing leases		2,050		(482	)		33		665			2,266
Other		183		(359	)		144		795			763
Covered loans		0		(4,675	)		0		4,675			0
Total	$	38,738	$	(9,002	)	$	1,134	$	12,075		$	42,945
Three months ended September 30, 2013:
Real estate:
Residential 1-4 family	$	4,653	$	(111	)	$	11	$	294		$	4,847
Non-farm/non-residential		12,464		(19	)		0		304			12,749
Construction/land development		11,290		(7	)		13		1,434			12,730
Agricultural		2,595		(260	)		5		182			2,522
Multifamily residential		1,854		0			0		203			2,057
Commercial and industrial		2,929		(55	)		56		(172	)		2,758
Consumer		993		(57	)		19		(13	)		942
Direct financing leases		2,041		(152	)		9		262			2,160
Other		553		(93	)		29		406			895
Covered loans		0		(918	)		0		918			0
Total	$	39,372	$	(1,672	)	$	142	$	3,818		$	41,660
Nine months ended September 30, 2013:
Real estate:
Residential 1-4 family	$	4,820	$	(528	)	$	113	$	442		$	4,847
Non-farm/non-residential		10,107		(612	)		118		3,136			12,749
Construction/land development		12,000		(136	)		21		845			12,730
Agricultural		2,878		(260	)		9		(105	)		2,522
Multifamily residential		2,030		0			0		27			2,057
Commercial and industrial		3,655		(887	)		431		(441	)		2,758
Consumer		1,015		(176	)		90		13			942
Direct financing leases		2,050		(338	)		29		419			2,160
Other		183		(266	)		114		864			895
Covered loans		0		(4,012	)		0		4,012			0
Total	$	38,738	$	(7,215	)	$	925	$	9,212		$	41,660

16

The following table is a summary of the Company’s ALLL and recorded investment in non-purchased loans and leases, as of the dates indicated.

	Allowance for Non-Purchased Loan and Lease Losses						Non-Purchased Loans and Leases
	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)
September 30, 2014:
Real estate:
Residential 1-4 family	$	345	$	4,957	$	5,302	$	2,360	$	275,981	$	278,341
Non-farm/non-residential		24		18,004		18,028		2,300		1,370,994		1,373,294
Construction/land development		2		14,516		14,518		10,191		1,223,062		1,233,253
Agricultural		30		2,584		2,614		376		46,345		46,721
Multifamily residential		0		1,611		1,611		0		155,940		155,940
Commercial and industrial		606		2,333		2,939		578		312,714		313,292
Consumer		3		819		822		32		25,367		25,399
Direct financing leases		0		2,821		2,821		0		109,059		109,059
Other		0		951		951		8		103,835		103,843
Total	$	1,010	$	48,596	$	49,606	$	15,845	$	3,623,297	$	3,639,142
December 31, 2013:
Real estate:
Residential 1-4 family	$	438	$	4,263	$	4,701	$	4,047	$	245,509	$	249,556
Non-farm/non-residential		15		13,618		13,633		2,159		1,101,955		1,104,114
Construction/land development		2		12,304		12,306		236		722,321		722,557
Agricultural		229		2,771		3,000		883		44,313		45,196
Multifamily residential		0		2,504		2,504		0		208,337		208,337
Commercial and industrial		652		2,203		2,855		686		123,382		124,068
Consumer		3		914		917		50		26,132		26,182
Direct financing leases		0		2,266		2,266		0		86,321		86,321
Other		2		761		763		26		66,208		66,234
Total	$	1,341	$	41,604	$	42,945	$	8,087	$	2,624,478	$	2,632,565
September 30, 2013:
Real estate:
Residential 1-4 family	$	490	$	4,357	$	4,847	$	3,535	$	247,491	$	251,026
Non-farm/non-residential		6		12,743		12,749		3,572		1,032,046		1,035,618
Construction/land development		2		12,728		12,730		217		713,981		714,198
Agricultural		187		2,335		2,522		951		47,002		47,953
Multifamily residential		0		2,057		2,057		310		163,606		163,916
Commercial and industrial		613		2,145		2,758		739		121,424		122,163
Consumer		4		938		942		33		27,265		27,298
Direct financing leases		0		2,160		2,160		0		81,984		81,984
Other		1		894		895		20		78,413		78,433
Total	$	1,303	$	40,357	$	41,660	$	9,377	$	2,513,212	$	2,522,589

17

The following table is a summary of impaired non-purchased loans and leases as of and for the three months and nine months ended September 30, 2014.

	Principal Balance		Net Charge-offs to Date			Principal Balance, Net of Charge-offs		Specific ALLL		Weighted Average Carrying Value – Three Months Ended September 30, 2014		Weighted Average Carrying Value – Nine Months Ended September 30, 2014
	(Dollars in thousands)
Impaired loans and leases for which there is a related ALLL:
Real estate:
Residential 1-4 family	$	2,984	$	(1,654	)	$	1,330	$	345	$	1,452	$	1,564
Non-farm/non-residential		415		(216	)		199		24		121		87
Construction/land development		36		(22	)		14		2		16		16
Agricultural		116		(12	)		104		30		214		311
Commercial and industrial		1,314		(764	)		550		606		555		571
Consumer		101		(84	)		17		3		20		22
Other		0		(0	)		0		0		0		4
Total impaired loans and leases with a related ALLL		4,966		(2,752	)		2,214		1,010		2,378		2,575
Impaired loans and leases for which there is not a related ALLL:
Real estate:
Residential 1-4 family		1,343		(313	)		1,030		0		1,352		1,802
Non-farm/non-residential		2,826		(725	)		2,101		0		2,210		2,025
Construction/land development		10,258		(81	)		10,177		0		9,949		5,107
Agricultural		474		(202	)		272		0		397		419
Multifamily residential		133		(133	)		0		0		246		123
Commercial and industrial		187		(159	)		28		0		79		73
Consumer		20		(5	)		15		0		17		21
Other		8		(0	)		8		0		8		9
Total impaired loans and leases without a related ALLL		15,249		(1,618	)		13,631		0		14,258		9,579
Total impaired loans and leases	$	20,215	$	(4,370	)	$	15,845	$	1,010	$	16,636	$	12,154

18

The following table is a summary of impaired non-purchased loans and leases as of and for the year ended December 31, 2013.

	Principal Balance		Net Charge-offs to Date			Principal Balance, Net of Charge-offs		Specific ALLL		Weighted Average Carrying Value – Year Ended December 31, 2013
	(Dollars in thousands)
Impaired loans and leases for which there is a related ALLL:
Real estate:
Residential 1-4 family	$	3,609	$	(1,692	)	$	1,917	$	438	$	1,638
Non-farm/non-residential		121		(75	)		46		15		93
Construction/land development		38		(22	)		16		2		17
Agricultural		511		(42	)		469		229		514
Commercial and industrial		2,016		(1,405	)		611		652		578
Consumer		178		(156	)		22		3		10
Other		40		(25	)		15		2		10
Total impaired loans and leases with a related ALLL		6,513		(3,417	)		3,096		1,341		2,860
Impaired loans and leases for which there is not a related ALLL:
Real estate:
Residential 1-4 family		2,939		(808	)		2,131		0		1,541
Non-farm/non-residential		3,234		(1,120	)		2,114		0		4,344
Construction/land development		300		(81	)		219		0		303
Agricultural		426		(12	)		414		0		404
Multifamily residential		133		(133	)		0		0		124
Commercial and industrial		85		(10	)		75		0		172
Consumer		39		(12	)		27		0		24
Other		31		(20	)		11		0		9
Total impaired loans and leases without a related ALLL		7,187		(2,196	)		4,991		0		6,921
Total impaired loans and leases	$	13,700	$	(5,613	)	$	8,087	$	1,341	$	9,781

19

The following table is a summary of impaired non-purchased loans and leases as of and for the three months and nine months ended September 30, 2013.

	Principal Balance		Net Charge-offs to Date			Principal Balance, Net of Charge-offs		Specific ALLL		Weighted Average Carrying Value – Three Months Ended September 30, 2013		Weighted Average Carrying Value – Nine Months Ended September 30, 2013
	(Dollars in thousands)
Impaired loans and leases for which there is a related ALLL:
Real estate:
Residential 1-4 family	$	3,601	$	(1,662	)	$	1,939	$	490	$	1,624	$	1,569
Non-farm/non-residential		37		0			37		6		24		105
Construction/land development		129		(112	)		17		2		8		17
Agricultural		459		(42	)		417		187		421		525
Commercial and industrial		2,270		(1,713	)		557		613		558		570
Consumer		39		(13	)		26		4		13		7
Other		145		(137	)		8		1		8		9
Total impaired loans and leases with a related ALLL		6,680		(3,679	)		3,001		1,303		2,656		2,802
Impaired loans and leases for which there is not a related ALLL:
Real estate:
Residential 1-4 family		2,244		(648	)		1,596		0		1,507		1,394
Non-farm/non-residential		4,645		(1,110	)		3,535		0		6,957		4,902
Construction/land development		281		(81	)		200		0		236		324
Agricultural		801		(267	)		534		0		386		401
Multifamily residential		443		(133	)		310		0		311		155
Commercial and industrial		397		(215	)		182		0		166		196
Consumer		19		(12	)		7		0		7		23
Other		32		(20	)		12		0		8		8
Total impaired loans and leases without a related ALLL		8,862		(2,486	)		6,376		0		9,578		7,403
Total impaired loans and leases	$	15,542	$	(6,165	)	$	9,377	$	1,303	$	12,234	$	10,205

Management has determined that certain of the Company’s impaired non-purchased loans and leases do not require any specific allowance at September 30, 2014 and 2013 or at December 31, 2013 because (i) management’s analysis of such individual loans and leases resulted in no impairment or (ii) all identified impairment on such loans and leases has previously been charged off.

Interest income on impaired non-purchased loans and leases is recognized on a cash basis when and if actually collected. Total interest income recognized on impaired non-purchased loans and leases for the three months and nine months ended September 30, 2014 and 2013 and for the year ended December 31, 2013 was not material.

20

Credit Quality Indicators

Non-Purchased Loans and Leases

The following table is a summary of credit quality indicators for the Company’s non-purchased loans and leases as of the dates indicated.

	Satisfactory		Moderate		Watch		Substandard		Total
	(Dollars in thousands)
September 30, 2014:
Real estate:
Residential 1-4 family (1)	$	268,707	$	0	$	3,797	$	5,837	$	278,341
Non-farm/non-residential		1,170,334		141,395		54,078		7,487		1,373,294
Construction/land development		1,016,496		186,496		16,979		13,282		1,233,253
Agricultural		24,335		10,202		10,062		2,122		46,721
Multifamily residential		119,765		35,039		382		754		155,940
Commercial and industrial		267,178		43,286		1,347		1,481		313,292
Consumer (1)		24,879		0		263		257		25,399
Direct financing leases		108,126		829		32		72		109,059
Other (1)		99,786		3,853		180		24		103,843
Total	$	3,099,606	$	421,100	$	87,120	$	31,316	$	3,639,142
December 31, 2013:
Real estate:
Residential 1-4 family (1)	$	239,940	$	0	$	3,140	$	6,476	$	249,556
Non-farm/non-residential		916,304		128,624		52,388		6,798		1,104,114
Construction/land development		550,436		144,435		23,574		4,112		722,557
Agricultural		21,647		11,098		9,788		2,663		45,196
Multifamily residential		177,144		30,029		391		773		208,337
Commercial and industrial		87,568		33,071		1,664		1,765		124,068
Consumer (1)		25,574		0		230		378		26,182
Direct financing leases		85,363		955		0		3		86,321
Other (1)		63,799		2,237		119		79		66,234
Total	$	2,167,775	$	350,449	$	91,294	$	23,047	$	2,632,565
September 30, 2013:
Real estate:
Residential 1-4 family(1)	$	242,202	$	0	$	1,438	$	7,386	$	251,026
Non-farm/non-residential		839,345		134,754		51,589		9,930		1,035,618
Construction/land development		544,324		136,270		29,122		4,482		714,198
Agricultural		23,926		11,688		9,317		3,022		47,953
Multifamily residential		132,722		29,716		394		1,084		163,916
Commercial and industrial		91,913		26,843		1,210		2,197		122,163
Consumer(1)		26,763		0		172		363		27,298
Direct financing leases		80,967		992		0		25		81,984
Other(1)		74,221		4,005		132		75		78,433
Total	$	2,056,383	$	344,268	$	93,374	$	28,564	$	2,522,589

(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 following categories of credit quality indicators are used by the Company.

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

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

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.

21

The following table is an aging analysis of past due non-purchased loans and leases as of the dates indicated.

	30-89 Days Past Due (1)		90 Days or More (2)		Total Past Due		Current (3)		Total
	(Dollars in thousands)
September 30, 2014:
Real estate:
Residential 1-4 family	$	4,203	$	1,230	$	5,433	$	272,908	$	278,341
Non-farm/non-residential		879		1,432		2,311		1,370,983		1,373,294
Construction/land development		1,854		10,017		11,871		1,221,382		1,233,253
Agricultural		1,574		192		1,766		44,955		46,721
Multifamily residential		0		0		0		155,940		155,940
Commercial and industrial		813		28		841		312,451		313,292
Consumer		295		35		330		25,069		25,399
Direct financing leases		0		0		0		109,059		109,059
Other		12		0		12		103,831		103,843
Total	$	9,630	$	12,934	$	22,564	$	3,616,578	$	3,639,142
December 31, 2013:
Real estate:
Residential 1-4 family	$	4,228	$	2,004	$	6,232	$	243,324	$	249,556
Non-farm/non-residential		2,093		1,867		3,960		1,100,154		1,104,114
Construction/land development		235		153		388		722,169		722,557
Agricultural		517		540		1,057		44,139		45,196
Multifamily residential		773		0		773		207,564		208,337
Commercial and industrial		418		31		449		123,619		124,068
Consumer		261		78		339		25,843		26,182
Direct financing leases		0		0		0		86,321		86,321
Other		18		24		42		66,192		66,234
Total	$	8,543	$	4,697	$	13,240	$	2,619,325	$	2,632,565
September 30, 2013:
Real estate:
Residential 1-4 family	$	1,661	$	2,376	$	4,037	$	246,989	$	251,026
Non-farm/non-residential		2,321		3,312		5,633		1,029,985		1,035,618
Construction/land development		1,662		136		1,798		712,400		714,198
Agricultural		322		571		893		47,060		47,953
Multifamily residential		0		310		310		163,606		163,916
Commercial and industrial		349		131		480		121,683		122,163
Consumer		177		66		243		27,055		27,298
Direct financing leases		111		25		136		81,848		81,984
Other		17		0		17		78,416		78,433
Total	$	6,620	$	6,927	$	13,547	$	2,509,042	$	2,522,589

(1) Includes $0.9 million, $0.8 million and $0.4 million of loans and leases on nonaccrual status at September 30, 2014, December 31, 2013 and September 30, 2013, respectively.

(2) All loans and leases greater than 90 days past due were on nonaccrual status at September 30, 2014 and 2013 and December 31, 2013.

(3) Includes $3.9 million, $3.2 million and $3.1 million of loans and leases on nonaccrual status at September 30, 2014, December 31, 2013 and September 30, 2013, respectively.

22

Covered Loans

The following table is a summary of credit quality indicators for the Company’s covered loans as of the dates indicated.

	FV 1		FV 2		Total Covered Loans
	(Dollars in thousands)
September 30, 2014:
Real estate:
Residential 1-4 family	$	86,067	$	2,208	$	88,275
Non-farm/non-residential		107,046		6,587		113,633
Construction/land development		23,970		3,648		27,618
Agricultural		9,539		338		9,877
Multifamily residential		3,513		315		3,828
Commercial and industrial		4,819		535		5,354
Consumer		61		3		64
Other		153		0		153
Total	$	235,168	$	13,634	$	248,802
December 31, 2013:
Real estate:
Residential 1-4 family	$	105,218	$	5,835	$	111,053
Non-farm/non-residential		138,573		25,135		163,708
Construction/land development		33,475		14,267		47,742
Agricultural		10,807		343		11,150
Multifamily residential		8,709		457		9,166
Commercial and industrial		8,582		137		8,719
Consumer		106		5		111
Other		142		0		142
Total	$	305,612	$	46,179	$	351,791
September 30, 2013:
Real estate:
Residential 1-4 family	$	114,163	$	6,378	$	120,541
Non-farm/non-residential		171,886		25,566		197,452
Construction/land development		40,172		19,215		59,387
Agricultural		11,203		1,138		12,341
Multifamily residential		9,153		215		9,368
Commercial and industrial		9,877		57		9,934
Consumer		132		6		138
Other		158		0		158
Total	$	356,744	$	52,575	$	409,319

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 or exceeding management’s expectation established in conjunction with the determination of the Day 1 Fair Values, such loan is rated FV 1. For any loan that is exceeding management’s performance expectation established in conjunction with the determination of Day 1 Fair Values, the accretable yield on such loan is adjusted to reflect such increased performance. To the extent that a loan’s performance has deteriorated from management’s expectation established in conjunction with the determination of the Day 1 Fair Values, such loan is rated FV 2. At September 30, 2014 and 2013 and December 31, 2013, 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.

23

The following table is an aging analysis of past due covered loans as of the dates indicated.

	30-89 Days Past Due		90 Days or More		Total Past Due		Current		Total Covered Loans
	(Dollars in thousands)
September 30, 2014:
Real estate:
Residential 1-4 family	$	3,075	$	7,298	$	10,373	$	77,902	$	88,275
Non-farm/non-residential		3,481		8,112		11,593		102,040		113,633
Construction/land development		922		5,008		5,930		21,688		27,618
Agricultural		0		1,652		1,652		8,225		9,877
Multifamily residential		0		0		0		3,828		3,828
Commercial and industrial		9		603		612		4,742		5,354
Consumer		10		0		10		54		64
Other		0		0		0		153		153
Total	$	7,497	$	22,673	$	30,170	$	218,632	$	248,802
December 31, 2013:
Real estate:
Residential 1-4 family	$	5,341	$	12,409	$	17,750	$	93,303	$	111,053
Non-farm/non-residential		6,954		32,462		39,416		124,292		163,708
Construction/land development		2,173		20,914		23,087		24,655		47,742
Agricultural		237		1,328		1,565		9,585		11,150
Multifamily residential		375		3,240		3,615		5,551		9,166
Commercial and industrial		605		2,001		2,606		6,113		8,719
Consumer		10		0		10		101		111
Other		0		0		0		142		142
Total	$	15,695	$	72,354	$	88,049	$	263,742	$	351,791
September 30, 2013:
Real estate:
Residential 1-4 family	$	6,260	$	13,658	$	19,918	$	100,623	$	120,541
Non-farm/non-residential		8,557		39,841		48,398		149,054		197,452
Construction/land development		848		27,584		28,432		30,955		59,387
Agricultural		1,234		1,250		2,484		9,857		12,341
Multifamily residential		195		3,689		3,884		5,484		9,368
Commercial and industrial		27		2,961		2,988		6,946		9,934
Consumer		0		2		2		136		138
Other		0		0		0		158		158
Total	$	17,121	$	88,985	$	106,106	$	303,213	$	409,319

At September 30, 2014 and 2013 and December 31, 2013, significant portions of the Company’s covered loans were contractually past due, including many that were 90 days or more past due. However, the elevated level of delinquencies of covered loans at the dates of acquisition was considered in the Company’s performance expectations used in its determination of the Day 1 Fair Values for all covered loans. Accordingly, all covered loans continue to accrete interest income and all covered loans rated FV 1 continue to perform in accordance with or better than management’s expectations established in conjunction with the determination of the Day 1 Fair Values.

24

Purchased Non-Covered Loans

The following table is a summary of credit quality indicators for the Company’s purchased non-covered loans as of the dates indicated.

	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
	FV 33		FV 44		FV 55		FV 36		FV 77		FV 66		FV 88		Loans
	(Dollars in thousands)
September 30, 2014:
Real estate:
Residential 1-4 family	$	74,617	$	81,344	$	30,058	$	75,815	$	143	$	17,236	$	60	$	279,273
Non-farm/non-residential		200,653		194,295		32,819		3,283		505		30,742		87		462,384
Construction/land development		28,857		33,070		9,607		13,783		9		9,011		0		94,337
Agricultural		12,510		26,723		3,053		1,933		0		189		0		44,408
Multifamily residential		9,877		13,019		7,226		940		72		2,764		781		34,679
Total real estate		326,514		348,451		82,763		95,754		729		59,942		928		915,081
Commercial and industrial		23,424		27,645		7,282		13,284		0		5,066		0		76,701
Consumer		2,498		884		627		16,023		0		429		0		20,461
Other		5,105		8,369		735		3,776		0		760		0		18,745
Total	$	357,541	$	385,349	$	91,407	$	128,837	$	729	$	66,197	$	928	$	1,030,988
December 31, 2013:
Real estate:
Residential 1-4 family	$	27,111	$	32,259	$	21,035	$	35,733	$	0	$	14,947	$	0	$	131,085
Non-farm/non-residential		42,193		72,621		20,685		1,191		0		16,258		0		152,948
Construction/land development		5,930		8,106		2,137		4,553		0		4,907		0		25,633
Agricultural		1,547		6,619		823		164		0		365		0		9,518
Multifamily residential		3,531		5,565		5,268		959		0		1,887		0		17,210
Total real estate		80,312		125,170		49,948		42,600		0		38,364		0		336,394
Commercial and industrial		9,592		9,730		2,250		1,879		0		1,483		0		24,934
Consumer		1,013		141		171		4,794		0		736		0		6,855
Other		1,202		2,897		157		237		0		47		0		4,540
Total	$	92,119	$	137,938	$	52,526	$	49,510	$	0	$	40,630	$	0	$	372,723
September 30, 2013:
Real estate:
Residential 1-4 family	$	28,486	$	34,113	$	21,592	$	36,221	$	0	$	16,311	$	0	$	136,723
Non-farm/non-residential		46,201		71,637		25,591		3,509		0		16,786		0		163,724
Construction/land development		5,973		8,578		2,495		4,680		0		5,052		0		26,778
Agricultural		2,109		6,705		851		173		0		242		0		10,080
Multifamily residential		3,621		5,662		5,322		978		0		2,419		0		18,002
Total real estate		86,390		126,695		55,851		45,561		0		40,810		0		355,307
Commercial and industrial		10,684		10,793		3,150		4,004		0		1,598		0		30,229
Consumer		1,980		147		181		5,990		0		878		0		9,176
Other		1,333		2,323		163		329		0		198		0		4,346
Total	$	100,387	$	139,958	$	59,345	$	55,884	$	0	$	43,484	$	0	$	399,058

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

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.

The following grades are used for purchased non-covered loans with evidence of credit deterioration at the date of acquisition.

FV 66 – Loans in this category are performing in accordance with or exceeding management’s performance expectations established in conjunction with the determination of Day 1 Fair Values.

FV 88 – Loans in this category have deteriorated from management’s performance expectations established in conjunction with the determination of Day 1 Fair Values.

The Company had no allowance for its purchased non-covered loans at September 30, 2014 and 2013 or December 31, 2013 as (i) all such loans were performing in accordance with management’s expectations established in conjunction with the determination of the Day 1 Fair Values or (ii) all losses on purchased non-covered loans whose performance had deteriorated from management’s expectations established in conjunction with the deterioration of the Day 1 Fair Values had been charged off.

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The following table is an aging analysis of past due purchased non-covered loans as of the dates indicated.

	30-89 Days Past Due		90 Days or More		Total Past Due		Current		Total Purchased Non-Covered Loans
	(Dollars in thousands)
September 30, 2014:
Real estate:
Residential 1-4 family	$	6,026	$	6,220	$	12,246	$	267,027	$	279,273
Non-farm/non-residential		1,706		9,449		11,155		451,229		462,384
Construction/land development		855		1,476		2,331		92,006		94,337
Agriculture		211		146		357		44,051		44,408
Multifamily residential		0		1,228		1,228		33,451		34,679
Commercial and industrial		791		269		1,060		75,641		76,701
Consumer		196		159		355		20,106		20,461
Other		73		31		104		18,641		18,745
Total	$	9,858	$	18,978	$	28,836	$	1,002,152	$	1,030,988
December 31, 2013:
Real estate:
Residential 1-4 family	$	6,615	$	4,703	$	11,318	$	119,767	$	131,085
Non-farm/non-residential		4,886		5,779		10,665		142,283		152,948
Construction/land development		265		4,045		4,310		21,323		25,633
Agriculture		134		25		159		9,359		9,518
Multifamily residential		421		1,225		1,646		15,564		17,210
Commercial and industrial		614		388		1,002		23,932		24,934
Consumer		411		237		648		6,207		6,855
Other		0		33		33		4,507		4,540
Total	$	13,346	$	16,435	$	29,781	$	342,942	$	372,723
September 30, 2013:
Real estate:
Residential 1-4 family	$	4,026	$	3,647	$	7,673	$	129,050	$	136,723
Non-farm/non-residential		3,319		4,136		7,455		156,269		163,724
Construction/land development		4,601		7,367		11,968		14,810		26,778
Agriculture		0		101		101		9,979		10,080
Multifamily residential		177		1,326		1,503		16,499		18,002
Commercial and industrial		357		535		892		29,337		30,229
Consumer		310		223		533		8,643		9,176
Other		38		182		220		4,126		4,346
Total	$	12,828	$	17,517	$	30,345	$	368,713	$	399,058

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7. Income Taxes

The following table is a summary of 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 as of the dates indicated.

	September 30,					December 31,
	2014			2013		2013
	(Dollars in thousands)
Deferred tax assets:
Allowance for loan and lease losses	$	19,052		$	16,080	$	16,576
Differences in amounts reflected in financial statements and income tax basis of purchased non-covered loans		24,769			19,563		17,167
Stock-based compensation		3,811			2,724		2,400
Deferred compensation		1,962			1,792		1,775
Foreclosed assets		5,195			3,318		3,165
Investment securities AFS		0			3,116		5,056
Differences in amounts reflected in financial statements and income tax basis of assets acquired and liabilities assumed in FDIC-assisted acquisitions		8,708			607		3,424
Acquired net operating losses		13,976			7,905		7,509
Other, net		7,310			1,950		3,858
Total gross deferred tax assets		84,783			57,055		60,930
Less valuation allowance		(474	)		0		0
Net deferred tax asset		84,309			57,055		60,930
Deferred tax liabilities:
Accelerated depreciation on premises and equipment		17,933			16,952		17,459
Investment securities AFS		5,499			0		0
Acquired intangible assets		10,466			4,390		4,227
Total gross deferred tax liabilities		33,898			21,342		21,686
Net deferred tax assets (liabilities)	$	50,411		$	35,713	$	39,244

Net operating losses were acquired from the First National Bank, Bancshares and Summit transactions. The net operating losses acquired from the First National Bank transaction totaled $20.0 million, of which $12.5 million will expire in 2032 and $7.5 million will expire in 2033. The net operating losses acquired from the Bancshares transaction totaled $16.4 million, which will expire at various dates from 2030 through 2034. The net operating losses acquired from the Summit transaction totaled $6.5 million and will expire in 2019.

As a result of recording, at fair value, acquired assets and assumed liabilities pursuant to business combinations, differences in amounts reported for financial statement purposes and their related basis for federal and state income tax purposes are created. Such differences are recorded as deferred tax assets and liabilities using enacted tax rates in effect for the year or years in which the differences are expected to be recovered or settled. Business combination transactions may result in the acquisition of net operating loss carryforwards and other assets with built-in losses, the realization of which are subject to section 382 limitations. In determining the section 382 limitation associated with a business combination, management must make a number of estimates and assumptions regarding the ability to utilize acquired net operating loss carryforwards and the expected timing of future recoveries or settlements of acquired assets with built-in losses. To the extent that information available as of the date of acquisition results in a determination by management that some portion of net operating loss carryforwards cannot be utilized or assets with built-in losses are expected to be settled or recovered in future periods in which the ability to realize the benefits will be subject to section 382 limitations, a deferred tax asset valuation allowance is established for the estimated amount of the deferred tax assets subject to the section 382 limitation. To the extent that information becomes available, during the first 12 months following the consummation of a business combination transaction, that results in changes in management’s initial estimates and assumptions regarding the expected utilization of net operating loss carryforwards or the expected settlement or recovery of acquired assets with built-in losses subject to section 382 limitations, an increase or decrease of the deferred tax asset valuation allowance will be recorded as an adjustment to bargain purchase gain or goodwill. To the extent that such information becomes available 12 months or more after the consummation of a business combination transaction, or additional information becomes available during the first 12 months as a result of changes in circumstances since the date of the consummation of a business combination transaction, an increase or decrease of the deferred tax asset valuation allowance will be recorded as an adjustment to deferred income tax expense (benefit).

In connection with the acquisitions of First National Bank and Bancshares, management determined that net operating loss carryforwards and other assets with built-in losses are expected to be settled or otherwise recovered in future periods where the

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realization of such benefits would be subject to section 382 limitations. Accordingly, the Company had established a deferred tax asset valuation allowance of $4.1 million on the date of acquisition of First National Bank and $0.5 million on the date of acquisition of Bancshares, to reflect its initial assessment that the realization of the benefits from the settlement or recovery of certain of these acquired assets and net operating losses is expected to be subject to section 382 limitations.

As disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, the fair value adjustments and the resultant fair values for the First National Bank acquisition continued to be evaluated by management and could be subject to further adjustment. During the second quarter of 2014, management revised its initial estimates and assumptions regarding the expected recovery of acquired assets with built-in losses, specifically the timing of expected charge-offs of purchased non-covered loans, in the First National Bank acquisition. As a result of such revision, management concluded that the deferred tax asset valuation allowance of $4.1 million was not necessary. Because such revision occurred during the first 12 months following the date of acquisition and was not the result of changes in circumstances, management has recast the third quarter 2013 financial statements, along with all subsequent financial statements, to reflect this change in estimate.

To the extent that additional information becomes available regarding the settlement or recovery of acquired net operating loss carryforwards or assets with built-in losses acquired in each of its acquisitions, management may be required to make adjustments to its deferred tax asset valuation allowance, which adjustments could affect bargain purchase gain, goodwill or deferred income tax expense (benefit).

8. Supplemental Data for Cash Flows

The following table provides supplemental cash flow information for the periods indicated.

	Nine Months Ended
	September 30,
	2014		2013
	(Dollars in thousands)
Cash paid during the period for:
Interest	$	15,450	$	14,038
Taxes		30,834		35,515
Supplemental schedule of non-cash investing and financing activities:
Net change in unrealized gains/losses on investment securities AFS		23,687		(18,488	)
Loans and other assets transferred to foreclosed assets not covered by FDIC loss share agreements		9,112		4,497
Loans advanced for sales of foreclosed assets not covered by FDIC loss share agreements		258		2,942
Covered loans transferred to covered foreclosed assets		30,754		24,306
Unsettled AFS investment security purchases		0		730
Common stock issued in merger and acquisition transactions		166,402		60,079

9. Guarantees and Commitments

Outstanding standby letters of credit are contingent commitments issued by the Company generally to guarantee the performance of a customer in third party arrangements. The maximum amount of future payments the Company could be required to make under these guarantees at September 30, 2014 was $9.3 million. The Company holds collateral to support guarantees when deemed necessary. Collateralized commitments at September 30, 2014 totaled $9.1 million.

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At September 30, 2014 the Company had outstanding commitments to extend credit, excluding mortgage interest rate lock commitments, totaling $2.58 billion. While many of these commitments are expected to be disbursed within the next 12 months, the following table shows the contractual maturities of outstanding commitments to extend credit as of the date indicated.

Contractual Maturities at September 30, 2014
Maturity	Amount
(Dollars in thousands)
2014	$	89,808
2015		209,595
2016		492,517
2017		1,259,690
2018		485,222
Thereafter		47,613
Total	$	2,584,445