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 March 31, 2015

¨ 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 April 30, 2015
Common Stock, $0.01 par value per share	86,773,975

BANK OF THE OZARKS, INC.

FORM 10-Q

March 31, 2015

INDEX

PART I.	Financial Information
Item 1.	Financial Statements
	Consolidated Balance Sheets as of March 31, 2015 and 2014 and December 31, 2014	1
	Consolidated Statements of Income for the Three Months Ended March 31, 2015 and 2014	2
	Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2015 and 2014	3
	Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2015 and 2014	4
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2015 and 2014	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	63
Item 4.	Controls and Procedures	64
PART II.	Other Information
Item 1.	Legal Proceedings	65
Item 1A.	Risk Factors	66
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	66
Item 3.	Defaults Upon Senior Securities	66
Item 4.	Mine Safety Disclosures	66
Item 5.	Other Information	66
Item 6.	Exhibits	66
Signature		67
Exhibit Index		68

PART I.    FINANCIAL INFORMATION

Item 1. Financial Statements

BANK OF THE OZARKS, INC.

CONSOLIDATED BALANCE SHEETS

	Unaudited
	March 31,						December 31,
	2015			2014			2014
	(Dollars in thousands, except per share amounts)
ASSETS
Cash and due from banks	$	425,794		$	187,101		$	147,751
Interest earning deposits		2,988			1,250			2,452
Cash and cash equivalents		428,782			188,351			150,203
Investment securities - available for sale (“AFS”)		784,275			687,661			839,321
Non-purchased loans and leases		4,311,105			2,778,503			3,979,870
Purchased loans		2,042,164			793,488			1,147,947
Total loans and leases		6,353,269			3,571,991			5,127,817
Allowance for loan and lease losses		(54,147	)		(43,861	)		(52,918	)
Net loans and leases		6,299,122			3,528,130			5,074,899
Federal Deposit Insurance Corporation (“FDIC”) loss share receivable		0			57,782			0
Premises and equipment, net		282,073			254,973			273,591
Foreclosed assets		32,094			60,869			37,775
Accrued interest receivable		25,179			15,486			20,192
Bank owned life insurance (“BOLI”)		182,649			144,601			182,052
Intangible assets, net		155,510			20,993			105,576
Other, net		113,723			74,149			82,890
Total assets	$	8,303,407		$	5,032,995		$	6,766,499
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Demand non-interest bearing	$	1,265,165		$	886,341		$	1,145,454
Savings and interest bearing transaction		3,298,807			2,199,545			2,892,989
Time		2,152,689			830,318			1,457,939
Total deposits		6,716,661			3,916,204			5,496,382
Repurchase agreements with customers		76,960			51,140			65,578
Other borrowings		161,318			280,885			190,855
Subordinated debentures		117,264			64,950			64,950
FDIC clawback payable		0			26,202			0
Accrued interest payable and other liabilities		48,472			32,842			36,892
Total liabilities		7,120,675			4,372,223			5,854,657
Commitments and contingencies
Stockholders’ equity:
Preferred stock; $0.01 par value; 1,000,000 shares authorized; no shares outstanding at March 31, 2015 and 2014 or at December 31, 2014		0			0			0
Common stock; $0.01 par value; 125,000,000 shares authorized; 86,758,375, 73,888,304 and 79,924,350 shares issued at March 31, 2015, March 31, 2014 and December 31, 2014, respectively		867			739			799
Additional paid-in capital		563,087			147,214			324,354
Retained earnings		600,935			506,146			571,454
Accumulated other comprehensive income		14,367			3,211			14,132
Treasury stock, at cost, none at March 31, 2015 or March 31, 2014, 72,268 shares at December 31, 2014		0			0			(2,349	)
Total stockholders’ equity before noncontrolling interest		1,179,256			657,310			908,390
Noncontrolling interest		3,476			3,462			3,452
Total stockholders’ equity		1,182,732			660,772			911,842
Total liabilities and stockholders’ equity	$	8,303,407		$	5,032,995		$	6,766,499

See accompanying notes to consolidated financial statements.

1

BANK OF THE OZARKS, INC.

CONSOLIDATED STATEMENTS OF INCOME

Unaudited

	Three Months Ended
	March 31,
	2015			2014
	(Dollars in thousands, except per share amounts)
Interest income:
Non-purchased loans and leases	$	50,432		$	33,412
Purchased loans		32,860			16,885
Investment securities:
Taxable		3,485			2,360
Tax-exempt		4,669			4,397
Deposits with banks and federal funds sold		9			3
Total interest income		91,455			57,057
Interest expense:
Deposits		3,537			1,581
Repurchase agreements with customers		17			12
Other borrowings		1,703			2,655
Subordinated debentures		709			413
Total interest expense		5,966			4,661
Net interest income		85,489			52,396
Provision for loan and lease losses		6,315			1,304
Net interest income after provision for loan and lease losses		79,174			51,092
Non-interest income:
Service charges on deposit accounts		6,627			5,639
Mortgage lending income		1,507			954
Trust income		1,432			1,316
BOLI income		3,623			1,130
Net accretion of FDIC loss share receivable and FDIC clawback payable		0			692
Other income from purchased loans, net		8,908			3,311
Net gains on investment securities		2,534			5
Gains on sales of other assets		2,829			974
Gain on merger and acquisition transaction		0			4,667
Other		1,607			1,672
Total non-interest income		29,067			20,360
Non-interest expense:
Salaries and employee benefits		22,597			17,689
Net occupancy and equipment		7,291			5,044
Other operating expenses		20,296			14,721
Total non-interest expense		50,184			37,454
Income before taxes		58,057			33,998
Provision for income taxes		18,139			8,730
Net income		39,918			25,268
Earnings attributable to noncontrolling interest		(24	)		8
Net income available to common stockholders	$	39,894		$	25,276
Basic earnings per common share	$	0.48		$	0.34
Diluted earnings per common share	$	0.47		$	0.34
Dividends declared per common share	$	0.13		$	0.11

See accompanying notes to consolidated financial statements.

2

BANK OF THE OZARKS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Unaudited

	Three Months Ended
	March 31,
	2015			2014
	(Dollars in thousands)
Net income	$	39,918		$	25,268
Other comprehensive income:
Unrealized gains and losses on investment securities AFS		2,914			11,330
Tax effect of unrealized gains and losses on investment securities AFS		(1,110	)		(4,444	)
Reclassification of gains and losses on investment securities AFS included in net income		(2,534	)		(5	)
Tax effect of reclassification of gains and losses on investment securities AFS included in net income		965			2
Total other comprehensive income		235			6,883
Total comprehensive income	$	40,153		$	32,151

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)			Treasury Stock			Non-Controlling Interest			Total
	(Dollars in thousands)
Balances – January 1, 2014	$	739	$	143,015		$	488,978		$	(3,672	)	$	0		$	3,470		$	632,530
Net income		0		0			25,268			0			0			0			25,268
Earnings attributable to noncontrolling interest		0		0			8			0			0			(8	)		0
Total other comprehensive income		0		0			0			6,883			0			0			6,883
Common stock dividends paid		0		0			(8,108	)		0			0			0			(8,108	)
Issuance of 176,600 shares of common stock for exercise of stock options		0		1,505			0			0			0			0			1,505
Excess tax benefit on exercise and forfeiture of stock options and vesting of restricted common stock		0		1,323			0			0			0			0			1,323
Stock-based compensation expense		0		1,371			0			0			0			0			1,371
Balances – March 31, 2014	$	739	$	147,214		$	506,146		$	3,211		$	0		$	3,462		$	660,772
Balances – January 1, 2015	$	799	$	324,354		$	571,454		$	14,132		$	(2,349	)	$	3,452		$	911,842
Net income		0		0			39,918			0			0			0			39,918
Earnings attributable to noncontrolling interest		0		0			(24	)		0			0			24			0
Total other comprehensive income		0		0			0			235			0			0			235
Common stock dividends paid		0		0			(10,413	)		0			0			0			(10,413	)
Issuance of 53,000 shares of common stock for exercise of stock options		0		547			0			0			0			0			547
Issuance of 243,300 shares of unvested restricted common stock		2		(2,351	)		0			0			2,349			0			0
Excess tax benefit on exercise and forfeiture of stock options and vesting of restricted common stock		0		330			0			0			0			0			330
Stock-based compensation expense		0		1,897			0			0			0			0			1,897
Forfeiture of 27,250 shares of unvested restricted common stock		0		0			0			0			0			0			0
Issuance of 6,637,243 shares of common stock for acquisition of Intervest Bancshares Corporation, net of issuance costs of $100,000		66		238,310			0			0			0			0			238,376
Balances – March 31, 2015	$	867	$	563,087		$	600,935		$	14,367		$	0		$	3,476		$	1,182,732

See accompanying notes to consolidated financial statements

4

BANK OF THE OZARKS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited

	Three Months Ended
	March 31,
	2015			2014
	(Dollars in thousands)
Cash flows from operating activities:
Net income	$	39,918		$	25,268
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		2,131			1,855
Amortization		1,596			813
Earnings attributable to noncontrolling interest		(24	)		8
Provision for loan and lease losses		6,315			1,304
Provision for losses on foreclosed assets		2,203			64
Net amortization of investment securities AFS		70			111
Net gains on investment securities AFS		(2,534	)		(5	)
Originations of mortgage loans held for sale		(62,508	)		(38,748	)
Proceeds from sales of mortgage loans held for sale		58,990			38,535
Accretion of purchased loans		(32,860	)		(16,885	)
Net accretion of FDIC loss share receivable and FDIC clawback payable		0			(692	)
Gains on sales of other assets		(2,829	)		(974	)
Gain on merger and acquisition transaction		0			(4,667	)
Prepayment penalty on Federal Home Loan Bank of Dallas advances		2,480			0
Deferred income tax benefit		(277	)		(242	)
Increase in cash surrender value of BOLI		(1,362	)		(1,130	)
BOLI death benefits in excess of cash surrender value		(2,259	)		0
Excess tax benefit on exercise and forfeiture of stock options and vesting of restricted stock		(330	)		(1,323	)
Stock-based compensation expense		1,897			1,371
Changes in assets and liabilities:
Accrued interest receivable		(3,253	)		(813	)
Other assets, net		30,345			(285	)
Accrued interest payable and other liabilities		8,043			14,631
Net cash provided by operating activities		45,752			18,196
Cash flows from investing activities:
Proceeds from sales of investment securities AFS		30,117			1,224
Proceeds from maturities/calls/paydowns of investment securities AFS		50,187			13,279
Purchases of investment securities AFS		0			(18,349	)
Net increase of non-purchased loans and leases		(351,740	)		(148,100	)
Payments received on purchased loans		209,651			86,689
Payments received from FDIC under loss share agreements		0			10,610
Other net decreases in assets covered by FDIC loss share agreements and FDIC loss share receivable		0			5,423
Purchases of premises and equipment		(4,003	)		(3,433	)
Proceeds from sales of other assets		19,207			11,313
Cash invested in unconsolidated investments		(286	)		(881	)
Net cash received in merger and acquisition transactions		274,235			80,656
Net cash provided by investing activities		227,368			38,431
Cash flows from financing activities:
Net increase (decrease) in deposits		35,631			(56,742	)
Net repayments of other borrowings		(32,018	)		(266	)
Net increase (decrease) in repurchase agreements with customers		11,382			(1,963	)
Proceeds from exercise of stock options		547			1,505
Excess tax benefit on exercise and forfeiture of stock options and vesting of restricted stock		330			1,323
Cash dividends paid on common stock		(10,413	)		(8,108	)
Net cash provided (used) by financing activities		5,459			(64,251	)
Net increase (decrease) in cash and cash equivalents		278,579			(7,624	)
Cash and cash equivalents – beginning of period		150,203			195,975
Cash and cash equivalents – end of period	$	428,782		$	188,351

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”), eight 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”), Ozark Capital Statutory Trust V (“Ozark V”) (collectively, the “Ozark Trusts”), Intervest Statutory Trust II (“Intervest II”), Intervest Statutory Trust III (“Intervest III”), Intervest Statutory Trust IV (“Intervest IV”) and Intervest Statutory Trust V (“Intervest V”), (collectively, the “Intervest Trusts”; and together with Ozark Trusts, 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 March 31, 2015, the Company had 165 offices, including 81 in Arkansas, 28 in Georgia, 21 in Texas, 16 in North Carolina, 11 in Florida, three in Alabama, two offices each in South Carolina and New York and one office in 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, 2014.

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 three months ended March 31, 2015 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 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, during the fourth quarter of 2014, the Bank and the Federal Deposit Insurance Corporation (“FDIC”) entered into agreements terminating the loss share agreements for all seven of the Company’s FDIC-assisted acquisitions. As a result of entering these termination agreements, the Company reclassified its loans previously reported as covered by FDIC loss share to purchased loans for all periods presented. Additionally, the Company has reclassified all interest income in loans previously reported as covered by FDIC loss share to interest income on purchased loans for all periods presented.

3. Acquisitions

Intervest Bancshares Corporation

On February 10, 2015, the Company completed its previously announced acquisition of Intervest Bancshares Corporation (“Intervest”), and its wholly-owned bank subsidiary Intervest National Bank, for an aggregate of 6,637,243 shares of its common stock (plus cash in lieu of fractional shares) in a transaction valued at approximately $238.5 million. The acquisition of Intervest provided the Company with a banking office in New York City and expanded its service area in Florida by adding five banking offices in Clearwater, Florida and one office in South Pasadena, Florida.

6

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

	February 10, 2015
	As Recorded by Intervest			Preliminary Fair Value Adjustments(1)				As Recorded by the Company(1)
	(Dollars in thousands)
Assets acquired:
Cash, due from banks and interest earning deposits	$	274,343		$	0			$	274,343
Investment securities		21,495			321		a		21,816
Loans		1,108,439			(33,868	)	b		1,074,571
Allowance for loan losses		(25,208	)		25,208		b		0
Premises and equipment		4,357			2,256		c		6,613
Foreclosed assets		2,350			(1,710	)	d		640
Accrued interest receivable and other assets		34,076			(4,091	)	e		29,985
Core deposit intangible asset		0			4,595		f		4,595
Deferred income taxes		11,758			8,082		g		19,840
Total assets acquired		1,431,610			793				1,432,403
Liabilities assumed:
Deposits		1,162,437			22,211		h		1,184,648
Subordinated debentures		56,702			(4,463	)	i		52,239
Accrued interest payable and other liabilities		3,608			358		j		3,966
Total liabilities assumed		1,222,747			18,106				1,240,853
Net assets acquired	$	208,863		$	(17,313	)			191,550
Consideration paid:
Cash in lieu of fractional shares									(7	)
Stock									(238,476	)
Total consideration paid									(238,483	)
Goodwill								$	46,933

⁽¹⁾  The acquisition of Intervest closed on February 10, 2015. Accordingly, each of the fair value adjustments shown are preliminary estimates of the purchase accounting adjustments. Management is continuing to evaluate each of these fair value adjustments and may revise one or more of such fair value adjustments in future periods based on this continuing evaluation. To the extent that any of these preliminary fair value adjustments are revised in future periods, the resultant fair values and the amount of goodwill could change.

Explanation of preliminary fair value adjustments

a-	Adjustment reflects the fair value adjustment based on the pricing of the acquired investment securities portfolio.
b-	Adjustment reflects the fair value adjustment based on the 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 evaluation of the premises and equipment acquired.
d-	Adjustment reflects the fair value adjustment based on the evaluation of the acquired foreclosed assets.
e-	Adjustment reflects the fair value adjustment based on the 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.
h-	Adjustment reflects the fair value adjustment based on the evaluation of the acquired deposits.
i-	Adjustment reflects the fair value adjustment of these assumed liabilities based on a valuation of such instruments by an independent, third party valuation firm.
j-	Adjustment reflects the amount needed to adjust other liabilities to estimated fair value and to record certain liabilities directly attributable to the Intervest acquisition.

7

Goodwill of $46.9 million, which is the excess of the merger consideration over the fair value of net assets acquired, was recorded in the Intervest acquisition and is the result of expected operational synergies, expansion of full service banking in New York City and other factors. This goodwill is not expected to be deductible for tax purposes. To the extent that management revises any of the above fair value adjustments as a result of its continuing evaluation, the amount of goodwill recorded in the Intervest acquisition could change.

The Company’s consolidated results of operations include the operating results for Intervest beginning February 11, 2015 through the end of the reporting period. Intervest contributed $8.9 million of net interest income and $4.8 million of net income during the three months ended March 31, 2015.

The following unaudited supplemental pro forma information is presented to show the estimated results assuming Intervest was acquired as of the beginning of the earliest 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, 2014 and should not be considered as representative of future operating results.

	Three Months Ended
	March 31,
	2015		2014
	(Dollars in thousands, except per share amounts)
Net interest income – pro forma (unaudited)	$	90,345	$	67,947
Net income – pro forma (unaudited)	$	43,924	$	30,504
Diluted earnings per common share – pro forma (unaudited)	$	0.50	$	0.38

Summit Bancorp, Inc.

On May 16, 2014, the Company completed the 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 shares of its common stock. The acquisition of Summit expanded its 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. During the fourth quarter of 2014, the Company closed seven additional banking offices, including five that were acquired from Summit, in markets where the Company had excess branches as a result of the Summit acquisition. 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.

Bancshares, Inc.

On March 5, 2014, the Company completed its acquisition of Bancshares, Inc. (“Bancshares”) and OMNIBANK, N.A., its wholly-owned bank subsidiary, for an aggregate of $21.5 million in cash. The Company recognized a bargain purchase gain of $4.7 million during the first quarter of 2014 as a result of the Bancshares acquisition. 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.

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 outstanding common stock options using the treasury stock method. At March 31, 2015, options to purchase 535,000 shares of the Company’s common stock at a weighted-average exercise price of $36.05 were outstanding but 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. No options to purchase shares of common stock for the three months ended March 31, 2014 were excluded from the diluted EPS calculations as all options were dilutive.

8

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

	Three Months Ended
	March 31,
	2015		2014
	(In thousands, except per share amounts)
Numerator:
Distributed earnings allocated to common stock	$	10,413	$	8,108
Undistributed earnings allocated to common stock		29,481		17,168
Net income available to common stock	$	39,894	$	25,276
Denominator:
Denominator for basic EPS – weighted-average common shares		83,699		73,802
Effect of dilutive securities – stock options		710		692
Denominator for diluted EPS – weighted-average common shares and assumed conversions		84,409		74,494
Basic EPS	$	0.48	$	0.34
Diluted EPS	$	0.47	$	0.34

5. Investment Securities

At March 31, 2015 and 2014 and at December 31, 2014, the Company classified all of its investment securities portfolio as AFS. Accordingly, investment securities are stated at estimated fair value in the consolidated financial statements with unrealized gains and losses, net of related income tax, reported as a separate component of stockholders’ equity and included in accumulated other comprehensive income (loss).

The following table presents the amortized cost and estimated fair value of investment securities AFS as of the dates indicated. The Company’s investment in the “CRA qualified investment fund” includes shares held in a mutual fund that qualifies under the Community Reinvestment Act of 1977 for community reinvestment purposes. The Company’s holdings of equity securities in Federal Home Loan Bank of Dallas (“FHLB”) and First National Banker’s Bankshares, Inc. (“FNBB”) 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)
March 31, 2015:
Obligations of state and political subdivisions	$	496,251	$	16,203	$	(247	)	$	512,207
U.S. Government agency securities		252,728		7,503		(256	)		259,975
Corporate obligations		622		0		0			622
CRA qualified investment fund		1,022		6		0			1,028
FHLB and FNBB equity securities		10,443		0		0			10,443
Total	$	761,066	$	23,712	$	(503	)	$	784,275
December 31, 2014:
Obligations of state and political subdivisions	$	555,335	$	18,267	$	(393	)	$	573,209
U.S. Government agency securities		245,854		6,144		(765	)		251,233
Corporate obligations		654		0		0			654
FHLB and FNBB equity securities		14,225		0		0			14,225
Total	$	816,068	$	24,411	$	(1,158	)	$	839,321
March 31, 2014:
Obligations of state and political subdivisions	$	447,368	$	10,010	$	(4,630	)	$	452,748
U.S. Government agency securities		219,836		3,526		(3,622	)		219,740
Corporate obligations		686		0		0			686
FHLB and FNBB equity securities		14,487		0		0			14,487
Total	$	682,377	$	13,536	$	(8,252	)	$	687,661

9

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)
March 31, 2015:
Obligations of state and political subdivisions	$	39,112	$	189	$	3,437	$	58	$	42,549	$	247
U.S. Government agency securities		23,451		171		7,241		85		30,692		256
Total temporarily impaired securities	$	62,563	$	360	$	10,678	$	143	$	73,241	$	503
December 31, 2014:
Obligations of state and political subdivisions	$	29,174	$	75	$	34,414	$	318	$	63,588	$	393
U.S. Government agency securities		9,630		25		47,626		740		57,256		765
Total temporarily impaired securities	$	38,804	$	100	$	82,040	$	1,058	$	120,844	$	1,158
March 31, 2014:
Obligations of state and political subdivisions	$	51,961	$	2,048	$	47,890	$	2,582	$	99,851	$	4,630
U.S. Government agency securities		69,783		3,582		1,038		40		70,821		3,622
Total temporarily impaired securities	$	121,744	$	5,630	$	48,928	$	2,622	$	170,672	$	8,252

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 March 31, 2015 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.

	March 31, 2015
Maturity or Estimated Repayment	Amortized Cost		Estimated Fair Value
	(Dollars in thousands)
One year or less	$	37,328	$	38,391
After one year to five years		139,542		142,725
After five years to ten years		187,370		192,169
After ten years		396,826		410,990
Total	$	761,066	$	784,275

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 and FNBB equity securities and the CRA qualified investment fund 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.

10

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

	Three Months Ended March 31,
	2015			2014
	(Dollars in thousands)
Sales proceeds	$	30,117		$	1,224
Gross realized gains	$	2,535		$	5
Gross realized losses		(1	)		0
Net gains on investment securities	$	2,534		$	5

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 March 31,
	2015			2014
	(Dollars in thousands)
Beginning balance	$	52,918		$	42,945
Non-purchased loans and leases charged off		(4,079	)		(920	)
Recoveries of non-purchased loans and leases previously charged off		308			736
Net non-purchased loans and leases charged off		(3,771	)		(184	)
Purchased loans charged off, net		(1,315	)		(204	)
Net charge-offs – total loans and leases		(5,086	)		(388	)
Provision for loan and lease losses:
Non-purchased loans and leases		5,000			1,100
Purchased loans		1,315			204
Total provision		6,315			1,304
Ending balance	$	54,147		$	43,861

As of March 31, 2015, the Company had identified purchased 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 $1.3 million during the first quarter of 2015 and $0.2 million during the first quarter of 2014. The Company also recorded provision for loan and lease losses of $1.3 million during the first quarter of 2015 and $0.2 million during the first quarter of 2014. At March 31, 2015, the Company had $14.1 million of impaired purchased loans compared to $29.3 million at March 31, 2014 and $14.0 million at December 31, 2014.

11

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 March 31, 2015:
Real estate:
Residential 1-4 family	$	5,482	$	(529	)	$	11	$	693		$	5,657
Non-farm/non-residential		17,190		(205	)		12		769			17,766
Construction/land development		15,960		(302	)		37		1,885			17,580
Agricultural		2,558		(13	)		0		(19	)		2,526
Multifamily residential		2,147		0			0		276			2,423
Commercial and industrial		4,873		(2,447	)		16		859			3,301
Consumer		818		(45	)		21		30			824
Direct financing leases		2,989		(186	)		6		449			3,258
Other		901		(352	)		205		58			812
Purchased loans		0		(1,315	)		0		1,315			0
Total	$	52,918	$	(5,394	)	$	308	$	6,315		$	54,147
Year ended December 31, 2014:
Real estate:
Residential 1-4 family	$	4,701	$	(577	)	$	135	$	1,223		$	5,482
Non-farm/non-residential		13,633		(1,357	)		33		4,881			17,190
Construction/land development		12,306		(638	)		11		4,281			15,960
Agricultural		3,000		(214	)		14		(242	)		2,558
Multifamily residential		2,504		0			0		(357	)		2,147
Commercial and industrial		2,855		(720	)		808		1,930			4,873
Consumer		917		(222	)		80		43			818
Direct financing leases		2,266		(602	)		49		1,276			2,989
Other		763		(793	)		266		665			901
Purchased loans		0		(3,215	)		0		3,215			0
Total	$	42,945	$	(8,338	)	$	1,396	$	16,915		$	52,918
Three months ended March 31, 2014:
Real estate:
Residential 1-4 family	$	4,701	$	(199	)	$	22	$	98		$	4,622
Non-farm/non-residential		13,633		(73	)		3		450			14,013
Construction/land development		12,306		0			8		514			12,828
Agricultural		3,000		(15	)		5		28			3,018
Multifamily residential		2,504		0			0		(75	)		2,429
Commercial and industrial		2,855		(374	)		628		(371	)		2,738
Consumer		917		(41	)		18		(63	)		831
Direct financing leases		2,266		(146	)		6		312			2,438
Other		763		(72	)		46		207			944
Purchased loans		0		(204	)		0		204			0
Total	$	42,945	$	(1,124	)	$	736	$	1,304		$	43,861

12

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

	ALLL						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)
March 31, 2015:
Real estate:
Residential 1-4 family	$	295	$	5,362	$	5,657	$	2,509	$	301,326	$	303,835
Non-farm/non-residential		10		17,756		17,766		538		1,574,413		1,574,951
Construction/land development		2		17,578		17,580		9,413		1,650,924		1,660,337
Agricultural		0		2,526		2,526		305		48,879		49,184
Multifamily residential		0		2,423		2,423		0		228,973		228,973
Commercial and industrial		53		3,248		3,301		131		252,947		253,078
Consumer		3		821		824		33		24,836		24,869
Direct financing leases		0		3,258		3,258		0		126,326		126,326
Other		0		812		812		9		89,543		89,552
Total	$	363	$	53,784	$	54,147	$	12,938	$	4,298,167	$	4,311,105
December 31, 2014:
Real estate:
Residential 1-4 family	$	356	$	5,126	$	5,482	$	2,734	$	280,519	$	283,253
Non-farm/non-residential		18		17,172		17,190		2,507		1,501,034		1,503,541
Construction/land development		68		15,892		15,960		14,304		1,397,534		1,411,838
Agricultural		6		2,552		2,558		365		46,870		47,235
Multifamily residential		0		2,147		2,147		0		211,156		211,156
Commercial and industrial		644		4,229		4,873		623		287,084		287,707
Consumer		3		815		818		34		25,635		25,669
Direct financing leases		0		2,989		2,989		0		115,475		115,475
Other		0		901		901		8		93,988		93,996
Total	$	1,095	$	51,823	$	52,918	$	20,575	$	3,959,295	$	3,979,870
March 31, 2014:
Real estate:
Residential 1-4 family	$	385	$	4,237	$	4,622	$	3,811	$	248,977	$	252,788
Non-farm/non-residential		29		13,984		14,013		1,627		1,142,856		1,144,483
Construction/land development		2		12,826		12,828		325		795,801		796,126
Agricultural		243		2,775		3,018		817		43,091		43,908
Multifamily residential		0		2,429		2,429		0		195,332		195,332
Commercial and industrial		624		2,114		2,738		626		137,038		137,664
Consumer		3		828		831		48		23,721		23,769
Direct financing leases		0		2,438		2,438		0		92,856		92,856
Other		0		944		944		10		91,567		91,577
Total	$	1,286	$	42,575	$	43,861	$	7,264	$	2,771,239	$	2,778,503

13

The following table is a summary of impaired non-purchased loans and leases as of and for the three months ended March 31, 2015.

	Principal Balance		Net Charge-offs to Date			Principal Balance, Net of Charge-offs		Specific ALLL		Weighted Average Carrying Value – Three Months Ended March 31, 2015
	(Dollars in thousands)
Impaired loans and leases for which there is a related ALLL:
Real estate:
Residential 1-4 family	$	3,123	$	(1,814	)	$	1,309	$	295	$	1,399
Non-farm/non-residential		184		(142	)		42		10		292
Construction/land development		38		(22	)		16		2		2,064
Agricultural		0		0			0		0		46
Commercial and industrial		632		(631	)		1		53		0
Consumer		40		(23	)		17		3		271
Other		0		0			0		0		18
Total impaired loans and leases with a related ALLL		4,017		(2,632	)		1,385		363		4,090
Impaired loans and leases for which there is not a related ALLL:
Real estate:
Residential 1-4 family		1,379		(179	)		1,200		0		1,223
Non-farm/non-residential		633		(137	)		496		0		1,231
Construction/land development		9,500		(102	)		9,398		0		9,796
Agricultural		507		(202	)		305		0		288
Multifamily residential		133		(133	)		0		0		0
Commercial and industrial		290		(159	)		131		0		106
Consumer		20		(5	)		15		0		15
Other		8		0			8		0		8
Total impaired loans and leases without a related ALLL		12,470		(917	)		11,553		0		12,667
Total impaired loans and leases	$	16,487	$	(3,549	)	$	12,938	$	363	$	16,757

14

The following table is a summary of impaired non-purchased loans and leases as of and for the year ended December 31, 2014.

	Principal Balance		Net Charge-offs to Date			Principal Balance, Net of Charge-offs		Specific ALLL		Weighted Average Carrying Value – Year Ended December 31, 2014
	(Dollars in thousands)
Impaired loans and leases for which there is a related ALLL:
Real estate:
Residential 1-4 family	$	3,163	$	(1,674	)	$	1,489	$	356	$	1,457
Non-farm/non-residential		762		(220	)		542		18		211
Construction/land development		4,656		(545	)		4,111		68		1,040
Agricultural		105		(12	)		93		6		217
Commercial and industrial		1,233		(691	)		542		644		554
Consumer		41		(23	)		18		3		20
Total impaired loans and leases with a related ALLL		9,960		(3,165	)		6,795		1,095		3,499
Impaired loans and leases for which there is not a related ALLL:
Real estate:
Residential 1-4 family		1,373		(128	)		1,245		0		1,581
Non-farm/non-residential		2,676		(711	)		1,965		0		1,988
Construction/land development		10,378		(185	)		10,193		0		7,600
Agricultural		474		(202	)		272		0		383
Multifamily residential		133		(133	)		0		0		123
Commercial and industrial		264		(183	)		81		0		75
Consumer		81		(65	)		16		0		18
Other		8		0			8		0		8
Total impaired loans and leases without a related ALLL		15,387		(1,607	)		13,780		0		11,776
Total impaired loans and leases	$	25,347	$	(4,772	)	$	20,575	$	1,095	$	15,275

15

The following table is a summary of impaired non-purchased loans and leases as of and for the three months ended March 31, 2014.

	Principal Balance		Net Charge-offs to Date			Principal Balance, Net of Charge-offs		Specific ALLL		Weighted Average Carrying Value – Three Months Ended March 31, 2014
	(Dollars in thousands)
Impaired loans and leases for which there is a related ALLL:
Real estate:
Residential 1-4 family	$	3,164	$	(1,726	)	$	1,438	$	385	$	1,677
Non-farm/non-residential		188		(127	)		61		29		53
Construction/land development		38		(22	)		16		2		16
Agricultural		360		(12	)		348		243		409
Commercial and industrial		1,368		(803	)		565		624		588
Consumer		103		(80	)		23		3		23
Other		0		0			0		0		8
Total impaired loans and leases with a related ALLL		5,221		(2,770	)		2,451		1,286		2,774
Impaired loans and leases for which there is not a related ALLL:
Real estate:
Residential 1-4 family		2,845		(472	)		2,373		0		2,252
Non-farm/non-residential		2,702		(1,136	)		1,566		0		1,840
Construction/land development		390		(81	)		309		0		264
Agricultural		513		(44	)		469		0		441
Multifamily residential		133		(133	)		0		0		0
Commercial and industrial		220		(159	)		61		0		68
Consumer		34		(9	)		25		0		26
Other		30		(20	)		10		0		10
Total impaired loans and leases without a related ALLL		6,867		(2,054	)		4,813		0		4,901
Total impaired loans and leases	$	12,088	$	(4,824	)	$	7,264	$	1,286	$	7,675

Management has determined that certain of the Company’s impaired non-purchased loans and leases do not require any specific allowance at March 31, 2015 and 2014 or at December 31, 2014 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 ended March 31, 2015 and 2014 and for the year ended December 31, 2014 was not material.

16

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)
March 31, 2015:
Real estate:
Residential 1-4 family (1)	$	293,140	$	0	$	4,456	$	6,239	$	303,835
Non-farm/non-residential		1,356,456		158,588		53,874		6,033		1,574,951
Construction/land development		1,433,497		203,405		11,049		12,386		1,660,337
Agricultural		23,663		13,974		9,293		2,254		49,184
Multifamily residential		187,966		37,686		1,663		1,658		228,973
Commercial and industrial		180,448		68,809		2,403		1,418		253,078
Consumer (1)		24,243		0		369		257		24,869
Direct financing leases		125,845		354		75		52		126,326
Other (1)		84,596		4,716		221		19		89,552
Total	$	3,709,854	$	487,532	$	83,403	$	30,316	$	4,311,105
December 31, 2014:
Real estate:
Residential 1-4 family (1)	$	271,576	$	0	$	4,082	$	7,595	$	283,253
Non-farm/non-residential		1,300,582		142,688		53,863		6,408		1,503,541
Construction/land development		1,190,005		192,046		11,135		18,652		1,411,838
Agricultural		22,446		12,375		10,226		2,188		47,235
Multifamily residential		171,806		37,886		713		751		211,156
Commercial and industrial		208,054		59,967		18,310		1,376		287,707
Consumer (1)		25,267		0		141		261		25,669
Direct financing leases		114,586		715		117		57		115,475
Other (1)		89,364		4,312		286		34		93,996
Total	$	3,393,686	$	449,989	$	98,873	$	37,322	$	3,979,870
March 31, 2014:
Real estate:
Residential 1-4 family (1)	$	244,259	$	0	$	2,449	$	6,080	$	252,788
Non-farm/non-residential		954,057		130,787		53,658		5,981		1,144,483
Construction/land development		613,474		155,254		23,254		4,144		796,126
Agricultural		21,228		9,914		9,747		3,019		43,908
Multifamily residential		164,062		29,625		389		1,256		195,332
Commercial and industrial		103,039		31,434		1,642		1,549		137,664
Consumer (1)		23,203		0		220		346		23,769
Direct financing leases		91,927		881		0		48		92,856
Other (1)		89,181		2,253		113		30		91,577
Total	$	2,304,430	$	360,148	$	91,472	$	22,453	$	2,778,503

(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.

17

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)
March 31, 2015:
Real estate:
Residential 1-4 family	$	5,161	$	1,618	$	6,779	$	297,056	$	303,835
Non-farm/non-residential		4,276		376		4,652		1,570,299		1,574,951
Construction/land development		229		9,414		9,643		1,650,694		1,660,337
Agricultural		1,685		305		1,990		47,194		49,184
Multifamily residential		0		0		0		228,973		228,973
Commercial and industrial		1,862		198		2,060		251,018		253,078
Consumer		394		27		421		24,448		24,869
Direct financing leases		41		52		93		126,233		126,326
Other		163		8		171		89,381		89,552
Total	$	13,811	$	11,998	$	25,809	$	4,285,296	$	4,311,105
December 31, 2014:
Real estate:
Residential 1-4 family	$	6,352	$	1,536	$	7,888	$	275,365	$	283,253
Non-farm/non-residential		2,708		1,445		4,153		1,499,388		1,503,541
Construction/land development		3,520		12,881		16,401		1,395,437		1,411,838
Agricultural		1,680		304		1,984		45,251		47,235
Multifamily residential		0		0		0		211,156		211,156
Commercial and industrial		586		94		680		287,027		287,707
Consumer		161		55		216		25,453		25,669
Direct financing leases		39		54		93		115,382		115,475
Other		58		12		70		93,926		93,996
Total	$	15,104	$	16,381	$	31,485	$	3,948,385	$	3,979,870
March 31, 2014:
Real estate:
Residential 1-4 family	$	3,167	$	2,108	$	5,275	$	247,513	$	252,788
Non-farm/non-residential		647		1,376		2,023		1,142,460		1,144,483
Construction/land development		7,077		3,950		11,027		785,099		796,126
Agricultural		495		582		1,077		42,831		43,908
Multifamily residential		0		0		0		195,332		195,332
Commercial and industrial		891		16		907		136,757		137,664
Consumer		240		78		318		23,451		23,769
Direct financing leases		59		0		59		92,797		92,856
Other		17		9		26		91,551		91,577
Total	$	12,593	$	8,119	$	20,712	$	2,757,791	$	2,778,503

(1) Includes $0.6 million, $0.9 million and $0.6 million at March 31, 2015, December 31, 2014 and March 31, 2014, respectively, of loans and leases on nonaccrual status.

(2) All loans and leases greater than 90 days past due were on nonaccrual status at March 31, 2015 and 2014 and December 31, 2014.

(3) Includes $1.7 million, $0.4 million and $3.0 million of loans and leases on nonaccrual status at March 31, 2015, December 31, 2014 and March 31, 2014, respectively.

18

Purchased Loans

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

	Purchased Loans Without Evidence of Credit Deterioration at Acquisition										Purchased Loans With Evidence of Credit Deterioration at Acquisition				Total Purchased Loans
	FV 33		FV 44		FV 55		FV 36		FV 77		FV 66		FV 88
	(Dollars in thousands)
March 31, 2015:
Real estate:
Residential 1-4 family	$	67,490	$	107,772	$	33,991	$	64,957	$	158	$	92,829	$	2,329	$	369,526
Non-farm/non-residential		227,184		759,926		135,766		4,353		256		151,342		7,000		1,285,827
Construction/land development		11,613		20,647		7,160		8,553		725		27,072		3,015		78,785
Agricultural		8,815		19,105		1,937		1,025		108		6,716		0		37,706
Multifamily residential		23,781		122,937		29,243		3,523		65		11,930		0		191,479
Total real estate		338,883		1,030,387		208,097		82,411		1,312		289,889		12,344		1,963,323
Commercial and industrial		15,608		20,960		4,539		7,042		23		8,059		462		56,693
Consumer		1,033		316		322		9,959		2		329		4		11,965
Other		4,623		3,689		310		763		0		798		0		10,183
Total	$	360,147	$	1,055,352	$	213,268	$	100,175	$	1,337	$	299,075	$	12,810	$	2,042,164
December 31, 2014:
Real estate:
Residential 1-4 family	$	73,196	$	81,840	$	30,180	$	71,687	$	151	$	96,752	$	1,899	$	355,705
Non-farm/non-residential		166,754		180,522		32,157		4,906		505		114,217		5,828		504,889
Construction/land development		21,803		26,858		4,312		13,708		0		28,497		4,598		99,776
Agricultural		10,444		25,187		2,409		1,525		0		8,331		92		47,988
Multifamily residential		22,731		11,646		1,971		884		67		4,823		312		42,434
Total real estate		294,928		326,053		71,029		92,710		723		252,620		12,729		1,050,792
Commercial and industrial		20,340		23,048		4,900		10,659		22		9,297		559		68,825
Consumer		1,605		272		420		12,538		3		426		4		15,268
Other		4,845		5,830		597		945		0		845		0		13,062
Total	$	321,718	$	355,203	$	76,946	$	116,852	$	748	$	263,188	$	13,292	$	1,147,947
March 31, 2014:
Real estate:
Residential 1-4 family	$	27,899	$	37,442	$	21,933	$	34,004	$	0	$	115,707	$	3,621	$	240,606
Non-farm/non-residential		59,720		102,836		32,160		2,701		0		140,933		14,534		352,884
Construction/land development		9,880		18,384		10,605		4,550		0		40,075		10,394		93,888
Agricultural		1,260		7,490		842		146		0		11,050		339		21,127
Multifamily residential		3,216		5,903		5,002		1,046		0		10,799		310		26,276
Total real estate		101,975		172,055		70,542		42,447		0		318,564		29,198		734,781
Commercial and industrial		10,766		14,526		5,138		2,648		0		12,975		130		46,183
Consumer		1,448		204		332		4,065		0		647		4		6,700
Other		1,204		2,835		529		200		0		1,056		0		5,824
Total	$	115,393	$	189,620	$	76,541	$	49,360	$	0	$	333,242	$	29,332	$	793,488

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

19

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 at March 31, 2015 and 2014 or December 31, 2014 for its (i) purchased loans without evidence of credit deterioration at the date of acquisition as management’s analysis of such individual loans resulted in no impairment or all identified impairment on such loans had been charged off, or (ii) purchased loans with evidence of credit deterioration at the date of acquisition as all such loans were performing in accordance with management’s expectations established in conjunction with the determination of the Day 1 Fair Values or all losses had been charged off on such loans whose performance had deteriorated from management’s expectations established in conjunction with the deterioration of the Day 1 Fair Values.

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

	30-89 Days Past Due		90 Days or More		Total Past Due		Current		Total Purchased Loans
	(Dollars in thousands)
March 31, 2015:
Real estate:
Residential 1-4 family	$	7,783	$	8,064	$	15,847	$	353,679	$	369,526
Non-farm/non-residential		6,919		13,138		20,057		1,265,770		1,285,827
Construction/land development		1,623		4,336		5,959		72,826		78,785
Agriculture		249		167		416		37,290		37,706
Multifamily residential		5,375		504		5,879		185,600		191,479
Commercial and industrial		1,090		627		1,717		54,976		56,693
Consumer		148		98		246		11,719		11,965
Other		101		30		131		10,052		10,183
Total	$	23,288	$	26,964	$	50,252	$	1,991,912	$	2,042,164
December 31, 2014:
Real estate:
Residential 1-4 family	$	8,088	$	9,043	$	17,131	$	338,574	$	355,705
Non-farm/non-residential		8,907		12,439		21,346		483,543		504,889
Construction/land development		1,197		5,464		6,661		93,115		99,776
Agriculture		237		875		1,112		46,876		47,988
Multifamily residential		515		67		582		41,852		42,434
Commercial and industrial		863		751		1,614		67,211		68,825
Consumer		199		103		302		14,966		15,268
Other		0		31		31		13,031		13,062
Total	$	20,006	$	28,773	$	48,779	$	1,099,168	$	1,147,947
March 31, 2014:
Real estate:
Residential 1-4 family	$	11,457	$	15,258	$	26,715	$	213,891	$	240,606
Non-farm/non-residential		9,160		29,145		38,305		314,579		352,884
Construction/land development		1,979		16,537		18,516		75,372		93,888
Agriculture		1,129		1,547		2,676		18,451		21,127
Multifamily residential		0		5,139		5,139		21,137		26,276
Commercial and industrial		1,028		1,978		3,006		43,177		46,183
Consumer		179		179		358		6,342		6,700
Other		8		19		27		5,797		5,824
Total	$	24,940	$	69,802	$	94,742	$	698,746	$	793,488

20

At March 31, 2015 and 2014 and December 31, 2014, a portion of the Company’s purchased loans with evidence of credit deterioration at the date of acquisition were past due, including many that were 90 days or more past due. Such delinquencies were included in the Company’s performance expectations in determining the Day 1 Fair Values. Additionally, in accordance with GAAP, the Company continues to accrete into earnings income on such loans.

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.

	March 31,						December 31, 2014
	2015			2014
	(Dollars in thousands)
Deferred tax assets:
Allowance for loan and lease losses	$	20,625		$	16,842		$	20,324
Differences in amounts reflected in the financial statements and income tax basis of purchased loans not previously covered by FDIC loss share agreements		32,962			18,453			20,444
Differences in amounts reflected in the financial statements and income tax basis for deposits assumed in acquisitions		8,926			1,157			1,337
Stock-based compensation		3,807			1,415			3,268
Deferred compensation		2,069			1,888			1,991
Foreclosed assets		4,471			4,831			3,503
Deferred fees and costs on loans and leases		5,244			1,604			4,785
Investment securities AFS		0			600			0
Differences in amounts reflected in the financial statements and income tax basis of assets acquired and liabilities assumed in FDIC-assisted acquisitions		8,050			5,393			8,098
Acquired net operating losses		13,569			13,180			13,332
Other, net		1,958			2,130			2,568
Total gross deferred tax assets		101,681			67,493			79,650
Less valuation allowance		(474	)		(474	)		(474	)
Net deferred tax asset		101,207			67,019			79,176
Deferred tax liabilities:
Accelerated depreciation on premises and equipment		19,114			17,954			18,653
Investment securities AFS		7,675			0			7,692
Acquired intangible assets		10,935			5,066			9,743
Total gross deferred tax liabilities		37,724			23,020			36,088
Net deferred tax assets	$	63,483		$	43,999		$	43,088

Net operating losses were acquired in the Bancshares, Summit and Intervest acquisitions and the Company’s 2013 acquisition of The First National Bank of Shelby (“FNB Shelby”). The net operating losses from the Bancshares transaction total $15.7 million at March 31, 2015 and will expire at various dates from 2030 through 2034. The net operating losses acquired from the Summit transaction were utilized during 2014. The net operating losses acquired in the Intervest transaction totaled $6.3 million at March 31, 2015 and will expire at various dates from 2030 through 2035. The net operating losses from the FNB Shelby transaction totaled $20.0 million at March 31, 2015, of which $12.5 million will expire in 2032 and $7.5 million will expire in 2033.

At March 31, 2015 and 2014 and December 31, 2014, the Company had a deferred tax valuation allowance of approximately $0.5 million to reflect its assessment that the realization of the benefits from the recovery of net operating losses are expected to be subject to Section 382 limitations.

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 any of the Company’s previous acquisitions, management may be required to make adjustments to its deferred tax asset valuation allowance, which adjustments could affect goodwill or deferred income tax expense (benefit).

21

8. Supplemental Data for Cash Flows

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

	Three Months Ended March 31,
	2015		2014
	(Dollars in thousands)
Cash paid during the period for:
Interest	$	6,773	$	4,782
Taxes		2,029		772
Supplemental schedule of non-cash investing and financing activities:
Net change in unrealized gains/losses on investment securities AFS		44		11,325
Loans and premises and equipment transferred to foreclosed assets		6,746		2,205
Unsettled AFS investment security purchases		0		2,267
Common stock issued in merger and acquisition transaction		238,476		0

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 March 31, 2015 was $13.7 million. The Company holds collateral to support guarantees when deemed necessary. Collateralized commitments at March 31, 2015 totaled $13.5 million.

At March 31, 2015, the Company had outstanding commitments to extend credit, excluding mortgage interest rate lock commitments, totaling $3.41 billion. The following table shows the contractual maturities of outstanding commitments to extend credit as of the date indicated.

Contractual Maturities at March 31, 2015
Maturity	Amount
(Dollars in thousands)
2015	$	168,610
2016		338,819
2017		1,746,740
2018		808,907
2019		92,812
Thereafter		253,563
Total	$	3,409,451

22

10. Subordinated Debentures

At March 31, 2015, the Company had the following issues of trust preferred securities and subordinated debentures owed to the Trusts.

	Subordinated Debentures Owed to Trust		Unamortized Discount at March 31, 2015			Carrying Value of Subordinated Debentures at March 31, 2015		Trust Preferred Securities of the Trusts		Contractual Interest Rate at March 31, 2015
	(Dollars in thousands)
Ozark II	$	14,434	$	0		$	14,434	$	14,000		3.18	%
Ozark III		14,433		0			14,433		14,000		3.20
Ozark IV		15,464		0			15,464		15,000		2.48
Ozark V		20,619		0			20,619		20,000		1.87
Intervest II		15,464		(701	)		14,763		15,000		3.22
Intervest III		15,464		(811	)		14,653		15,000		3.06
Intervest IV		15,464		(1,475	)		13,989		15,000		2.67
Intervest V		10,310		(1,401	)		8,909		10,000		1.92
	$	121,652	$	(4,388	)	$	117,264	$	118,000

On February 10, 2015, in conjunction with the Intervest acquisition, the Company acquired the Intervest Trusts with outstanding subordinated debentures totaling $56.7 million and related trust preferred securities totaling $55.0 million. On the date of such acquisition, the Company recorded the assumed subordinated debentures owed to the Intervest Trusts at estimated fair value of $52.2 million, based on an independent third party valuation, to reflect a current market interest rate for comparable obligations. The fair value adjustment of $4.5 million is being amortized, using a level-yield methodology over the estimated holding period of approximately eight years, as an increase in interest expense of the subordinated debentures owed to the Intervest Trusts. In addition to the subordinated debentures of the Intervest Trusts, the Company also acquired $1.7 million of trust common equity issued by the Intervest Trusts.

The trust preferred securities issued by Intervest Trust II and the related subordinated debentures bear interest, adjustable quarterly, at 90-day London Interbank Offered Rates (“LIBOR”) plus 2.95% and contain a final maturity of September 17, 2033. The trust preferred securities issued by Intervest Trust III and the related subordinated debentures bear interest, adjustable quarterly, at 90-day LIBOR plus 2.79% and contain a final maturity of March 17, 2034. The trust preferred securities issued by Intervest Trust IV and the related subordinated debentures bear interest, adjustable quarterly, at 90-day LIBOR plus 2.40% and contain a final maturity of September 20, 2034. The trust preferred securities issued by Intervest Trust V and the related subordinated debentures bear interest, adjustable quarterly, at 90-day LIBOR plus 1.65% and contain a final maturity of December 15, 2036.

At March 31, 2015, the Company had an aggregate of $121.7 million of subordinated debentures outstanding (with an aggregate carrying value of $117.3 million) and had an asset of $3.7 million representing its investment in the common equity issued by the Trusts. The sole assets of the Trusts are the adjustable rate debentures and the liabilities of the Trusts are the trust preferred securities. At March 31, 2015 and 2014, the Trusts had aggregate common equity of $3.7 million and $1.9 million, respectively, and did not have any restricted net assets. The Company has, through various contractual arrangements or by operation of law, fully and unconditionally guaranteed all obligations of the Trusts with respect to the trust preferred 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 trust preferred securities generally mature at or near the 30th anniversary date of each issuance. However, the trust preferred securities and related subordinated debentures may be prepaid at par, subject to regulatory approval.

11. Stock-Based Compensation

The Company has a nonqualified stock option plan for certain employees 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 March 31, 2015 were issued with a vesting date three years after issuance and an expiration date seven years after issuance.

23

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 2,000 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 2,000 shares upon election or appointment for 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 period indicated.

	Options			Weighted- Average Exercise Price/Share		Weighted-Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value (in thousands)
Three Months Ended March 31, 2015:
Outstanding – January 1, 2015		1,859,350		$	23.49
Granted		0			0
Exercised		(53,000	)		10.30
Forfeited		(57,900	)		26.85
Outstanding – March 31, 2015		1,748,450			23.78		5.4	$	22,990	(1)
Fully vested and exercisable – March 31, 2015		365,600			13.55		4.5	$	8,549	(1)
Expected to vest in future periods		1,246,680
Fully vested and expected to vest –     March 31, 2015 (2)		1,612,280			23.13		5.4	$	22,254	(1)

(1) Based on closing price of $36.93 per share on March 31, 2015.

(2) At March 31, 2015, the Company estimated that outstanding options to purchase 136,170 shares of its common stock would not vest and would 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 the three months ended March 31, 2015 and 2014 was $1.4 million and $3.9 million, respectively.

No options to purchase shares of the Company’s stock were issued during the three months ended March 31, 2015 or 2014. Stock-based compensation expense for stock options included in non-interest expense was $0.6 million and $0.4 million for the three months ended March 31, 2015 and 2014, respectively. Total unrecognized compensation cost related to non-vested stock option grants was $4.3 million at March 31, 2015 is expected to be recognized over a weighted-average period of 2.2 years.

The Company has a restricted stock and incentive plan whereby all officers and employees of the Company are eligible to receive awards of restricted stock or restricted stock units. 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. Shares of common stock issued under the plan may be shares of original issuance or shares held in treasury that have been reacquired by the Company. All restricted stock awards outstanding at March 31, 2015 were issued with a vesting date of three years after issuance.

The following table summarizes non-vested restricted stock activity for the period indicated.

	Three Months Ended March 31, 2015
Outstanding – January 1, 2015		444,700
Granted		243,300
Forfeited		(27,250	)
Vested		0
Outstanding – March 31, 2015		660,750
Weighted-average grant date fair value	$	25.22

24

The fair value of the restricted stock awards is amortized to compensation expense over the vesting period 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 $1.3 million and $0.9 million for the three months ended March 31, 2015 and 2014, respectively. Unrecognized compensation expense for non-vested restricted stock awards was $10.8 million at March 31, 2015 and is expected to be recognized over a weighted-average period of 2.4 years.

12. 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 had no liabilities that were accounted for at fair value at March 31, 2015 or 2014 or at December 31, 2014.

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, as of the dates indicated, that are accounted for at fair value.

	Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
March 31, 2015:
Investment securities AFS (1):
Obligations of state and political subdivisions	$	0	$	493,140	$	19,067	$	512,207
U.S. Government agency securities		0		259,975		0		259,975
Corporate obligations		0		622		0		622
CRA qualified investment fund		1,028		0		0		1,028
Total investment securities AFS		1,028		753,737		19,067		773,832
Impaired non-purchased loans and leases		0		0		12,574		12,574
Impaired purchased loans		0		0		14,147		14,147
Foreclosed assets		0		0		32,094		32,094
Total assets at fair value	$	1,028	$	753,737	$	77,882	$	832,647
December 31, 2014:
Investment securities AFS (1):
Obligations of state and political subdivisions	$	0	$	553,808	$	19,401	$	573,209
U.S. Government agency securities		0		251,233		0		251,233
Corporate obligations		0		654		0		654
Total investment securities AFS		0		805,695		19,401		825,096
Impaired non-purchased loans and leases		0		0		19,480		19,480
Impaired purchased loans		0		0		14,040		14,040
Foreclosed assets		0		0		37,775		37,775
Total assets at fair value	$	0	$	805,695	$	90,696	$	896,391
March 31, 2014:
Investment securities AFS (1):
Obligations of state and political subdivisions	$	0	$	434,201	$	18,547	$	452,748
U.S. Government agency securities		0		219,740		0		219,740
Corporate obligations		0		686		0		686
Total investment securities AFS		0		654,627		18,547		673,174
Impaired non-purchased loans and leases		0		0		5,978		5,978
Impaired purchased loans		0		0		29,332		29,332
Foreclosed assets		0		0		60,869		60,869
Total assets at fair value	$	0	$	654,627	$	114,726	$	769,353

(1) Does not include $10.4 million at March 31, 2015; $14.2 million at December 31, 2014 and $14.5 million at March 31, 2014 of FHLB and FNBB equity securities that do not have readily determinable fair values and are carried at cost.

25

The following table presents information related to Level 3 non-recurring fair value measurements as of the date indicated.

Description	Fair Value at March 31, 2015	Technique	Unobservable Inputs
(Dollars in thousands)
Impaired non-purchased loans and leases	$12,574	Third party appraisal(1) or discounted cash flows	1. Management discount based on underlying collateral characteristics and market conditions 2. Life of loan
Impaired purchased loans	$14,147	Third party appraisal(1) and/or discounted cash flows	1. Management discount based on underlying collateral characteristics and market conditions 2. Life of loan
Foreclosed assets	$32,094	Third party appraisal,(1) broker price opinions and/or discounted cash flows	1. Management discount based on asset characteristics and market conditions 2. Discount rate 3. Holding period

(1) The Company utilizes valuation techniques consistent with the market, cost, and income approaches, or a combination thereof in determining fair value.

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 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, comprehensive interest rate tables and pricing matrices or a combination thereof. For investment securities traded in a market that is not active, fair value is determined using unobservable inputs. All fair value estimates of the Company’s investment securities are reviewed and approved on a quarterly basis by its Investment Portfolio Manager and its Chief Financial Officer.

The Company has determined that certain of its investment securities had a limited to non-existent trading market at March 31, 2015. 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 primarily of certain unrated private placement bonds (the “private placement bonds”) in the amount of $19.1 million at March 31, 2015 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 individually 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 March 31, 2015, the third parties’ pricing matrices valued the Company’s portfolio of private placement bonds at $19.1 million which was equal to the aggregate par value of the private placement bonds. Accordingly, at March 31, 2015, the Company reported the private placement bonds at $19.1 million.

Impaired non-purchased loans and leases – Fair values are measured on a nonrecurring 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. At March 31, 2015 the Company had reduced the carrying value of its impaired loans and leases (all of which are included in nonaccrual loans and leases) by $3.9 million to the estimated fair value of $12.6 million. The $3.9 million adjustment to reduce the carrying value of impaired loans and leases to estimated fair value consisted of $3.5 million of partial charge-offs and $0.4 million of specific loan and lease loss allocations.

Impaired purchased loans – Impaired purchased loans are measured at fair value on a non-recurring basis. As of March 31, 2015, the Company had identified purchased 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 thereof (for purchased loans without evidence of credit deterioration at date of acquisition) or the expected performance of such loans had deteriorated from management’s performance expectations established in conjunction with the determination of the

26

Day 1 Fair Values or since management’s most recent review of such portfolio’s performance (for purchased loans with evidence of credit deterioration at date of acquisition). As a result, the Company recorded partial charge-offs totaling $1.3 million during the first quarter of 2015. The Company also recorded provision for loan and lease losses of $1.3 million during the first quarter of 2015 to cover such charge-offs. In addition to these charge-offs, the Company transferred certain of these purchased loans to foreclosed assets. As a result of these actions, at March 31, 2015, the Company had $14.1 million of impaired purchased loans.

Foreclosed assets – 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 (generally 8% to 10%) at the date of repossession or foreclosure. Purchased foreclosed assets are initially recorded at Day 1 Fair Values. In estimating such Day 1 Fair Values, management considered a number of factors including, among others, appraised value, estimated selling price, estimated holding periods and net present value (calculated using discount rates ranging from 8.0% to 9.5% per annum) of cash flows expected to be received. 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 are generally based on third party appraisals, broker price opinions or other valuations of the property.

The following table presents additional information for the periods indicated 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)
Balance – January 1, 2015	$	19,401
Total realized gains (losses) included in earnings		0
Total unrealized gains (losses) included in comprehensive income		(87	)
Paydowns and maturities		(247	)
Sales		0
Transfers in and/or out of Level 3		0
Balance – March 31, 2015	$	19,067
Balance – January 1, 2014	$	18,682
Total realized gains (losses) included in earnings		0
Total unrealized gains (losses) included in comprehensive income		248
Paydowns and maturities		(383	)
Sales		0
Transfers in and/or out of Level 3		0
Balance – March 31, 2014	$	18,547

13. 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 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, 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. All fair value estimates of the Company’s investment securities are reviewed and approved on a quarterly basis by its Investment Portfolio Manager and its Chief Financial Officer. The Company’s investments in FHLB and FNBB equity securities totaling $10.4 million at March 31, 2015, $14.2 million at December 31, 2014 and $14.5 million at March 31, 2014, do not have readily determinable fair values and are carried at cost.

Loans and leases – The fair value of loans and leases, including purchased loans, is estimated by discounting the contractual cash flows to be received in future periods 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.

27

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 March 31, 2015 and 2014 or at December 31, 2014.

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 did not know whether the fair values represent values at which the respective financial instruments could be sold individually or in the aggregate.

The following table presents the carrying amounts and estimated fair values for the dates indicated and the fair value hierarchy of the Company’s financial instruments.

		March 31,
		2015				2014				December 31, 2014
	Fair Value Hierarchy	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
		(Dollars in thousands)
Financial assets:
Cash and cash equivalents	Level 1	$	425,794	$	425,794	$	188,351	$	188,351	$	150,203	$	150,203
Investment securities AFS	Levels 1, 2 and 3		784,725		784,725		687,661		687,661		839,321		839,321
Loans and leases, net of ALLL	Level 3		6,299,122		6,230,658		3,528,130		3,496,946		5,074,899		5,042,831
FDIC loss share receivable	Level 3		0		0		57,782		57,722		0		0
Financial liabilities:
Demand, savings and interest bearing transaction deposits	Level 1	$	4,563,972	$	4,563,972	$	3,085,886	$	3,085,886	$	4,038,443	$	4,038,443
Time deposits	Level 2		2,152,689		2,158,211		830,318		830,583		1,457,939		1,463,590
Repurchase agreements with customers	Level 1		76,960		76,960		51,140		51,140		65,578		65,578
Other borrowings	Level 2		161,318		172,180		280,885		317,186		190,855		203,493
FDIC clawback payable	Level 3		0		0		26,202		26,202		0		0
Subordinated debentures	Level 2		117,264		71,442		64,950		32,767		64,950		39,103

28

14. Changes In and Reclassifications From Accumulated Other Comprehensive Income (“AOCI”)

The following table presents changes in AOCI for the periods indicated.

	Three Months Ended
	March 31,
	2015			2014
	(Dollars in thousands)
Beginning balance of AOCI – unrealized gains and losses on investment securities AFS	$	14,132		$	(3,672	)
Other comprehensive income (loss):
Unrealized gains and losses on investment securities AFS		2,914			11,330
Tax effect of unrealized gains and losses on investment securities AFS		(1,110	)		(4,444	)
Amounts reclassified from AOCI		(2,534	)		(5	)
Tax effect of amounts reclassified from AOCI		965			2
Total other comprehensive income (loss)		235			6,883
Ending balance of AOCI – unrealized gains and losses on investment securities AFS	$	14,367		$	3,211

Amounts reclassified from AOCI are included in net gains on investment securities and the tax effect of amounts reclassified from AOCI are included in provision for income tax in the consolidated statements of income. The amounts reclassified from AOCI relate entirely to unrealized gains/losses on investment securities AFS.

15. Other Operating Expenses

The following table is a summary of other operating expenses for the periods indicated.

	Three Months Ended
	March 31,
	2015		2014
	(Dollars in thousands)
Salaries and employee benefits	$	22,597	$	17,689
Net occupancy and equipment		7,291		5,044
Other operating expenses:
Postage and supplies		915		770
Advertising and public relations		583		400
Telecommunication services		1,348		1,001
Professional and outside services		4,386		2,128
Software and data processing		749		6,024
Travel and meals		796		556
FDIC insurance		750		503
FDIC and state assessments		310		260
ATM expense		708		210
Loan collection and repossession expense		1,733		460
Writedowns of foreclosed and other assets		2,192		64
Amortization of intangibles		1,596		813
FHLB prepayment penalty		2,480		0
Other		1,750		1,532
Total non-interest expense	$	50,184	$	37,454

29

16. Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers.” ASU 2014-09 provides guidance that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. ASU 2014-09 is effective for annual and interim periods beginning after December 15, 2016, although the FASB recently proposed deferring its effective date by one year. The Company is currently evaluating the impact, if any, ASU 2014-09 will have on its financial position, results of operations, and its financial statement disclosures.

In January 2015, the FASB issued ASU 2015-01, “Income Statement – Extraordinary and Unusual Items (Subtopic 225-20) – Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.” ASU 2015-01 eliminates from GAAP the concept of extraordinary items, which, among other things, required an entity to segregate extraordinary items considered to be unusual and infrequent from the results of ordinary operations and show the item separately in the income statement, net of tax, after income from continuing operations. ASU 2015-01 is effective for interim and annual periods beginning after December 15, 2015. ASU 2015-01 is not expected to have a significant impact on the Company’s financial position, results of operations and its financial statement disclosures.

In February 2015, FASB issued ASU 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis” which amends the consolidation requirements of ASU 810 by changing the consolidation analysis required under GAAP. The revised guidance amends the consolidation analysis based on certain fee arrangements or relationships to the reporting entity and, for limited partnerships, requires entities to consider the limited partner’s rights relative to the general partner. ASU 2015-02 is effective for annual and interim periods beginning after December 15, 2015. The Company is currently evaluating the impact, if any, ASU 2015-02 will have on its financial position, results of operations, and its financial statement disclosures.

In April 2015, the FASB issued ASU 2015-03, “Interest – Imputation of Interest (Subtopic 835-30) – Simplifying the Presentation of Debt Issuance Costs.” ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in ASU 2015-03. ASU 2015-03 is effective for interim and annual periods beginning after December 1, 2015. ASU 2015-03 is not expected to have a significant impact on the Company’s financial position, results of operations and its financial statement disclosures.

17. Subsequent Event

On May 6, 2015, the Company entered into a definitive agreement and plan of merger and reorganization (the “BCAR Agreement”) with Bank of the Carolinas Corporation (“BCAR”) and its wholly-owned bank subsidiary Bank of the Carolinas, headquartered in Mocksville, North Carolina, whereby the Company will acquire all of the outstanding common stock of BCAR in a transaction valued at approximately $64.7 million. Bank of the Carolinas operates eight full service banking offices in North Carolina. At March 31, 2015, BCAR reported approximately $363 million in total assets, approximately $279 million in total loans and approximately $314 million in total deposits.

Under the terms of the BCAR Agreement, each outstanding share of common stock of BCAR 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 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 second business day prior to the closing date, subject to a minimum price of $29.28 per share and a maximum price of $48.80 per share. Upon the closing of the transaction, which is expected to occur in the third quarter of 2015, BCAR will merge into the Company and Bank of the Carolinas 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 BCAR shareholders.

30

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Unless this quarterly report on Form 10-Q indicates otherwise, or the context otherwise requires, the terms “we,” “our,” “us,” and “the Company,” as used herein refer to Bank of the Ozarks, Inc. and its subsidiaries, including Bank of the Ozarks, which we sometimes refer to as “Bank of the Ozarks,” “our bank subsidiary,” or “the Bank.”

FORWARD-LOOKING INFORMATION

This quarterly report on Form 10-Q, including Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), other filings made by us with the Securities and Exchange Commission (“SEC”) and other oral and written statements or reports by us and our management include certain forward-looking statements that are intended to be covered by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on management’s expectations as well as certain assumptions and estimates made by, and information available to, management at the time. Forward-looking statements include, 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 merger and acquisition transactions; other income from purchased loans; 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 and net charge-off ratios; 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 acquisitions; problems with integrating or managing acquisitions; the effect of the announcements or completion of any pending or future mergers or acquisitions on customer relationships and operating results; plans for opening new offices or relocating or closing existing offices; opportunities and goals for future market share growth; expected capital expenditures; loan, lease and deposit growth, including growth from unfunded closed loans; changes in the volume, yield and value of our 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 us or our management, identify forward-looking statements.

Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements made by us and our management due to certain risks, uncertainties and assumptions. Certain factors that may affect our future results include, but are not limited to, potential delays or other problems in implementing our 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 and/or close additional acquisitions; problems with, or additional expenses relating to, integrating or managing acquisitions; the availability of capital; the ability to attract new or retain existing or acquired deposits; the ability to achieve growth in loans and leases, including growth from unfunded closed loans; 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 our net interest margin; general economic, unemployment, credit market and real estate market conditions, and the effect of such conditions on the creditworthiness of borrowers and lessees, collateral values, the value of investment securities and asset recovery values; 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, strengthen the capital of financial institutions, 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; the ability to keep pace with technological changes, including changes regarding cyber security; an increase in the incidence or severity of fraud, illegal payments, security breaches and other illegal acts impacting our bank subsidiary or our customers; adoption of new accounting standards or changes in existing standards; and adverse results in current or future litigation or regulatory examinations as well as other factors described in this quarterly report on Form 10-Q or as detailed from time to time in the other reports we file with the SEC, including those factors included in the disclosures under the heading “Forward-Looking Information” and “Item 1A. Risk Factors” in our most recent Annual Report on Form 10-K for the year ended December 31, 2014. 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. We disclaim any obligation to update or revise any forward-looking statement based on the occurrence of future events, the receipt of new information or otherwise.

31

SELECTED AND SUPPLEMENTAL FINANCIAL DATA

The following tables set forth selected unaudited consolidated financial data as of and for the three months ended March 31, 2015 and 2014 and supplemental unaudited quarterly financial data for each of the most recent eight quarters beginning with the second quarter of 2013 through the first quarter of 2015. These tables are qualified in their entirety by our consolidated financial statements and related notes presented elsewhere in this quarterly report on Form 10-Q.

Selected Consolidated Financial Data – Unaudited

	Three Months Ended
	March 31,
	2015			2014
	(Dollars in thousands, except per share amounts)
Income statement data:
Interest income	$	91,455		$	57,057
Interest expense		5,966			4,661
Net interest income		85,489			52,396
Provision for loan and lease losses		6,315			1,304
Non-interest income		29,067			20,360
Non-interest expense		50,184			37,454
Net income available to common stockholders		39,894			25,276
Common share and per common share data:(1)
Earnings – diluted	$	0.47		$	0.34
Book value		13.59			8.90
Tangible book value		11.80			8.61
Dividends		0.13			0.11
Weighted-average diluted shares outstanding (thousands)		84,409			74,494
End of period shares outstanding (thousands)		86,758			73,888
Balance sheet data at period end:
Total assets	$	8,303,407		$	5,028,893
Non-purchased loans and leases		4,311,105			2,778,503
Purchased loans(2)		2,042,164			488,533
Allowance for loan and lease losses		54,147			43,861
Foreclosed assets(2)		32,094			60,869
Investment securities		784,275			687,661
Deposits		6,716,661			3,916,204
Repurchase agreements with customers		76,960			51,140
Other borrowings		161,318			280,885
Subordinated debentures		117,264			64,950
Total common stockholders’ equity		1,179,256			657,310
Loan and lease (including purchased loans) to deposit ratio		94.59	%		91.21	%
Average balance sheet data:
Total average assets	$	7,602,199		$	4,824,870
Total average common stockholders’ equity		1,049,867			638,334
Average common equity to average assets		13.81	%		13.30	%
Performance ratios:
Return on average assets(3)		2.13	%		2.12	%
Return on average common stockholders’ equity(3)		15.41			16.06
Return on average tangible common stockholders’ equity(3)(4)		17.65			16.45
Net interest margin – FTE(3)		5.42			5.46
Efficiency ratio		42.85			49.82
Common stock dividend payout ratio		26.10			32.35
Asset quality ratios:
Net charge-offs to average total loans and leases(3) (5)		0.37	%		0.03	%
Nonperforming loans and leases to total loans and leases(6)		0.33			0.42
Nonperforming assets to total assets(6)		0.56			1.44
Allowance for loan and lease losses as a percentage of:
Total loans and leases(6)		1.26	%		1.58	%
Nonperforming loans and leases(6)		377	%		372	%
Capital ratios at period end:
Tier 1 leverage		15.19	%		14.41	%
Common equity tier 1		11.54			N/A
Tier 1 capital		12.88			15.20
Total capital		13.50			16.16

(1) Adjusted to give effect to 2-for-1 stock split on June 23, 2014.

(2) Prior periods have been adjusted to include loans and/or foreclosed assets previously covered by FDIC loss share.

(3) Ratios annualized based on actual days.

(4) The calculation of our return on tangible common stockholders’ equity and the reconciliation to GAAP is included elsewhere in this MD&A.

(5) Excludes purchased loans and net charge-offs related to such loans.

(6) Excludes purchased loans, except for their inclusion in total assets.

N/A – Ratio not applicable for period indicated.

32

Supplemental Quarterly Financial Data – Unaudited

(Dollars in thousands, except per share amounts)

	6/30/13			9/30/13			12/31/13			3/31/14			6/30/14			9/30/14			12/31/14			3/31/15
Earnings Summary:
Net interest income	$	43,465		$	50,633		$	55,282		$	52,396		$	64,801		$	74,621		$	78,675		$	85,489
Federal tax (FTE) adjustment		2,076			2,161			2,372			2,424			2,737			2,892			2,690			2,570
Net interest income (FTE)		45,541			52,794			57,654			54,820			67,538			77,513			81,365			88,059
Provision for loan and lease losses		(2,666	)		(3,818	)		(2,863	)		(1,304	)		(5,582	)		(3,687	)		(6,341	)		(6,315	)
Non-interest income		18,987			22,102			18,592			20,360			17,388			19,248			27,887			29,067
Non-interest expense		(29,901	)		(32,208	)		(34,728	)		(37,454	)		(37,878	)		(42,523	)		(48,158	)		(50,184	)
Pretax income (FTE)		31,961			38,870			38,655			36,422			41,466			50,551			54,753			60,627
FTE adjustment		(2,076	)		(2,161	)		(2,372	)		(2,424	)		(2,737	)		(2,892	)		(2,690	)		(2,570	)
Provision for income taxes		(9,506	)		(10,224	)		(11,893	)		(8,730	)		(12,251	)		(15,579	)		(17,300	)		(18,139	)
Noncontrolling interest		8			(33	)		8			8			8			13			(11	)		(24	)
Net income available to common stockholders	$	20,387		$	26,452		$	24,398		$	25,276		$	26,486		$	32,093		$	34,752		$	39,894
Earnings per common share – diluted(1)	$	0.29		$	0.36		$	0.33		$	0.34		$	0.34		$	0.40		$	0.43		$	0.47
Non-interest Income:
Service charges on deposit accounts	$	5,074		$	5,817		$	6,031		$	5,639		$	6,605		$	7,356		$	7,009		$	6,627
Mortgage lending income		1,643			1,276			967			954			1,126			1,728			1,379			1,507
Trust income		865			1,060			1,289			1,316			1,364			1,419			1,493			1,432
BOLI income		1,104			1,179			1,164			1,130			1,278			1,390			1,385			3,623
Net accretion (amortization) of FDIC loss share receivable and FDIC clawback payable		2,481			1,396			901			692			(741	)		(562	)		—			—
Other income from purchased loans		3,689			2,484			4,825			3,311			3,629			3,369			4,494			8,908
Gains on investment securities		—			—			4			5			18			43			78			2,534
Gains on sales of other assets		3,110			2,501			1,801			974			1,448			1,688			1,912			2,829
Gains on merger and acquisition transactions		—			5,163			—			4,667			—			—			—			—
Gain on termination of FDIC loss share agreements		—			—			—			—			—			—			7,996			—
Other		1,021			1,226			1,610			1,672			2,661			2,817			2,141			1,607
Total non-interest income	$	18,987		$	22,102		$	18,592		$	20,360		$	17,388		$	19,248		$	27,887		$	29,067
Non-interest Expense:
Salaries and employee benefits	$	15,294		$	16,456		$	17,381		$	17,689		$	18,831		$	20,876		$	19,488		$	22,597
Net occupancy expense		4,370			4,786			5,039			5,044			5,707			6,823			6,528			7,291
Other operating expenses		9,669			10,178			11,427			13,908			12,221			13,292			20,610			18,700
Amortization of intangibles		568			788			881			813			1,119			1,532			1,532			1,596
Total non-interest expense	$	29,901		$	32,208		$	34,728		$	37,454		$	37,878		$	42,523		$	48,158		$	50,184
Allowance for Loan and Lease Losses:
Balance at beginning of period	$	38,422		$	39,372		$	41,660		$	42,945		$	43,861		$	46,958		$	49,606		$	52,918
Net charge-offs		(1,716	)		(1,530	)		(1,578	)		(388	)		(2,485	)		(1,039	)		(3,029	)		(5,086	)
Provision for loan and lease losses		2,666			3,818			2,863			1,304			5,582			3,687			6,341			6,315
Balance at end of period	$	39,372		$	41,660		$	42,945		$	43,861		$	46,958		$	49,606		$	52,918		$	54,147
Selected Ratios:
Net interest margin – FTE(2)		5.56	%		5.55	%		5.63	%		5.46	%		5.62	%		5.49	%		5.53	%		5.42	%
Efficiency ratio		46.34			43.00			45.55			49.82			44.60			43.95			44.08			42.85
Net charge-offs to average loans and leases(2) (3)		0.12			0.10			0.14			0.03			0.19			0.06			0.17			0.37
Nonperforming loans and leases to total loans and leases(4)		0.66			0.41			0.33			0.42			0.58			0.49			0.53			0.33
Nonperforming assets to total assets(4)		1.80			1.33			1.22			1.44			1.19			0.92			0.87			0.56
Allowance for loan and lease losses to total loans and leases(4)		1.61			1.65			1.63			1.58			1.48			1.36			1.33			1.26
Loans and leases past due 30 days or more, including past due non-accrual loans and leases, to total loans and leases(4)		0.74			0.54			0.45			0.75			0.63			0.63			0.79			0.57

(1)    Adjusted to give effect to 2-for-1 stock split on June 23, 2014.
(2)    Ratios annualized based on actual days.
(3)    Excludes purchased loans and net charge-offs related to such loans.
(4)    Excludes purchased loans, except for their inclusion in total assets.

33

OVERVIEW

The following discussion explains our financial condition and results of operations as of and for the three months ended March 31, 2015. The purpose of this discussion is to focus on information about our financial condition and results of operations which is not otherwise apparent from the consolidated financial statements. The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes presented elsewhere in this report and our Annual Report on Form 10-K for the year ended December 31, 2014 previously filed with the SEC. Annualized results for these interim periods may not be indicative of results for the full year or future periods.

Bank of the Ozarks, Inc. is a bank holding company whose primary business is commercial banking conducted through its wholly-owned state chartered bank subsidiary – Bank of the Ozarks. Our results of operations depend primarily on net interest income, which is the difference between the interest income from earning assets, such as loans and leases and investments, and the interest expense incurred on interest bearing liabilities, such as deposits, borrowings and subordinated debentures. We also generate non-interest income, including, among others, service charges on deposit accounts, mortgage lending income, trust income, bank owned life insurance (“BOLI”) income, other income from purchased loans, gains on investment securities and from sales of other assets, and gains on merger and acquisition transactions.

Our non-interest expense consists primarily of employee compensation and benefits, net occupancy and equipment expense and other operating expenses. Our results of operations are significantly affected by our provision for loan and lease losses and our provision for income taxes.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States, or GAAP, requires management to make estimates, assumptions and judgments that affect the amounts reported in the Consolidated Financial Statements. Our determination of (i) the provisions to and the adequacy of the allowance for loan and lease losses (“ALLL”), (ii) the fair value of our investment securities portfolio, (iii) the fair value of foreclosed assets 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 our other significant accounting policies. Accordingly, we consider the determination of (i) provisions to and the adequacy of the ALLL, (ii) the fair value of our investment securities portfolio, (iii) the fair value of foreclosed assets and (iv) the fair value of the assets acquired and liabilities assumed pursuant to business combination transactions to be critical accounting policies. A detailed discussion of each of these critical accounting policies is included in our Annual Report on Form 10-K for the year ended December 31, 2014. There has been no material change in our critical accounting policies and no significant change in the application of critical accounting policies as presented in our Annual Report on Form 10-K for the year ended December 31, 2014.

ANALYSIS OF RESULTS OF OPERATIONS

General

On June 23, 2014, we completed a two-for-one stock split in the form of a stock dividend 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 this MD&A has been adjusted to give effect to this stock split.

During the fourth quarter of 2014, we entered into agreements with the FDIC terminating the loss share agreements for all seven of our FDIC-assisted acquisitions. As a result of entering these termination agreements, we reclassified loans previously reported as covered by FDIC loss share to purchased loans for all periods presented. Additionally, we reclassified all interest income on loans previously reported as covered by FDIC loss share to interest income on purchased loans for all periods presented.

Net income available to our common stockholders was $39.9 million for the first quarter of 2015, a 57.8% increase from $25.3 million for the first quarter of 2014. Diluted earnings per common share were $0.47 for the first quarter of 2015, a 38.2% increase from $0.34 for the first quarter of 2014.

Our annualized return on average assets was 2.13% for the first quarter of 2015 compared to 2.12% for the first quarter of 2014. Our annualized return on average common stockholders’ equity was 15.41% for the first quarter of 2015 compared to 15.96% for the first quarter of 2014. Our annualized return on average tangible common stockholders’ equity was 17.65% for the first quarter of 2015 compared to 16.45% for the first quarter of 2014. The calculation of our return on average tangible common stockholders’ equity and the reconciliation to GAAP is included elsewhere in this MD&A.

Total assets were $8.30 billion at March 31, 2015 compared to $6.77 billion at December 31, 2014. Non-purchased loans and leases were $4.31 billion at March 31, 2015 compared to $3.98 billion at December 31, 2014. Total loans and leases were $6.35 billion at March 31, 2015 compared to $5.13 billion at December 31, 2014. Deposits were $6.72 billion at March 31, 2015 compared to $5.50 billion at December 31, 2014.

34

Common stockholders’ equity was $1.18 billion at March 31, 2015 compared to $908 million at December 31, 2014. Tangible common stockholders’ equity was $1.02 billion at March 31, 2015 compared to $803 million at December 31, 2014. Book value per common share was $13.59 at March 31, 2015 compared to $11.37 at December 31, 2014. Tangible book value per common share was $11.80 at March 31, 2015 compared to $10.04 at December 31, 2014. The calculation of our tangible common stockholders’ equity and tangible book value per common share and the reconciliation to GAAP is included elsewhere in this MD&A.

On March 5, 2014, we completed our acquisition of Bancshares, Inc. (“Bancshares”). Our consolidated results of operations for the three months ended March 31, 2014 include the acquired operations of Bancshares beginning March 6, 2014.

On May 16, 2014, we completed our acquisition of Summit Bancorp, Inc. (“Summit”). Our consolidated results of operations include the acquired operations of Summit beginning May 17, 2014.

On February 10, 2015, we completed our acquisition of Intervest Bancshares Corporation (“Intervest”). Our consolidated results of operations include the acquired operations of Intervest beginning February 11, 2015.

A summary of the Bancshares, Summit and Intervest acquisitions is included in Note 3 to the Consolidated Financial Statements included elsewhere in this quarterly report on Form 10-Q.

Net Interest Income

Net interest income is a significant source of our earnings and represents the amount by which interest income on earning assets exceeds the interest expense paid on liabilities. The volume of interest earning assets and the related funding sources, the overall mix of these assets and liabilities, and the rates paid on each affect net interest income.

Net interest income and net interest margin are analyzed in this discussion and the following tables on a fully taxable equivalent (“FTE”) basis. The adjustment to convert certain income to a FTE basis consists of dividing federal tax-exempt income by one minus our statutory federal income tax rate of 35%. The FTE adjustments to net interest income were $2.6 million and $2.4 million for the three months ended March 31, 2015 and 2014, respectively. No adjustments have been made in this analysis for income exempt from state income taxes or for interest expense deductions disallowed under the provisions of the Internal Revenue Code (the “Code”) as a result of investment in certain tax-exempt securities.

Net interest income for the first quarter of 2015 increased 60.6% to $88.1 million compared to $54.8 million for the first quarter of 2014. This increase in net interest income was primarily due to the increase in average earning assets, which increased 62.0% to $6.59 billion for the first quarter of 2015, compared to $4.07 billion for the first quarter of 2014, partially offset by a decrease of four basis points (“bps”) in our net interest margin. The decrease in our net interest margin to 5.42% for the first quarter of 2015 compared to 5.46% for the first quarter of 2014 was primarily due to a 14 bps decrease in yields on average earning assets, partially offset by an 11 bps reduction in rates paid on interest bearing liabilities.

Yields on earning assets decreased to 5.79% for the first quarter of 2015 compared to 5.93% for the first quarter of 2014. The yield on our portfolio of non-purchased loans and leases decreased 10 bps for the first quarter of 2015 compared to the same period in 2014 and was primarily attributable to the extremely low interest rate environment experienced in recent years and increased pricing competition from many of our competitors. The yield on our aggregate investment securities portfolio decreased 18 bps for the first quarter of 2015 compared to the same period in 2014. This decrease was primarily the result of (i) a change in the composition of our investment securities portfolio to include a larger percentage of lower yielding taxable investment securities, which comprised 43.4% of total average investment securities for the first quarter of 2015 compared to 40.7% for the first quarter in 2014 and (ii) the current low interest rate environment which has resulted in many issuers of investment securities, particularly tax-exempt municipal bonds, calling higher-rate investment securities and refinancing such securities at lower interest rates. Assuming this current low interest rate environment continues, we expect additional tax-exempt investment securities to be called by their issuers and be refinanced at lower interest rates, likely resulting in continued decreases on the yield of our tax-exempt investment securities portfolio. Additionally, the yield on our purchased loan portfolio decreased 140 bps for the first quarter of 2015 compared to the first quarter of 2014. This decrease was primarily attributable to the loans acquired in the Summit and Intervest transactions, many of which did not contain evidence of credit deterioration on the date of purchase and were priced at a lower yield compared to the then existing yield on our purchased loan portfolio. This decrease in yield on purchased loans was partially offset by the increase in the yield on certain purchased loans with evidence of credit deterioration on the date of acquisition due to upward revisions of estimated cash flows as a result of recent evaluations of the expected performance of such loans.

        The overall decrease in rates on average interest bearing liabilities was primarily due to a shift in the composition of total interest bearing liabilities to include a larger percentage of lower rate interest bearing deposits, which comprised 93.3% of total average interest bearing liabilities for the first quarter of 2015 compared to 87.7% for the first quarter of 2014, partially offset by an increase in rates on interest bearing deposits. The increase in interest bearing deposits as a percentage of total interest bearing liabilities is primarily due to the deposits assumed in the Summit and Intervest transactions. The seven bps increase in rates on interest bearing deposits for the first quarter of 2015 compared to the first quarter of 2014 is primarily due to the higher cost time deposits assumed in the Intervest acquisition, resulting in an increase in the percentage of time deposits from 28.6% of total average interest bearing deposits for the first quarter of 2014 to 37.7% for the first quarter of 2015. Additionally, throughout much of 2014, we increased deposit pricing in several

35

target markets to fund growth in loans and leases. While we had no such increased deposit pricing in any of our markets at March 31, 2015, to the extent we have future growth in loans and leases, we would expect to increase deposit pricing in certain target markets to fund such growth. Any such increase in deposit pricing is expected to result in increased deposit costs in future periods.

Our other borrowing sources include (i) repurchase agreements with customers (“repos”), (ii) other borrowings comprised primarily of Federal Home Loan Bank of Dallas (“FHLB”) advances, and, to a lesser extent, Federal Reserve Bank (“FRB”) borrowings and federal funds purchased and (iii) subordinated debentures. The rates on repos increased one bps for the first quarter of 2015 compared to the same period of 2014. The rates on our other borrowing sources, which consist primarily of fixed rate callable FHLB advances, decreased 17 bps in the first quarter compared to the first quarter of 2014. This decrease in rates on other borrowings is primarily the result of our prepaying $90 million of fixed rate callable FHLB advances with a weighted average interest rate of 4.13% during the fourth quarter of 2014, and our prepaying $30 million of fixed rate callable FHLB advances with a weighted average interest rate of 4.07% during the first quarter of 2015. The weighted average interest rate on our remaining $160 million of fixed rate callable FHLB advances is approximately 3.56%. The rates paid on our subordinated debentures, which are tied to a spread over the 90-day London Interbank Offered Rate (“LIBOR”) and reset periodically, increased 50 bps in the first quarter of 2015 compared to the first quarter of 2014. This increase in rates on our subordinated debentures is primarily due to the subordinated debentures assumed in the Intervest transaction, which, net of amortization of the discount of the purchase accounting adjustments, had a weighted average interest rate of 4.18% at March 31, 2015.

The increase in average earning assets for the first quarter of 2015 compared to the same period in 2014 was due to an increase in the average balances of non-purchased loans and leases of $1.43 billion for the first quarter of 2015 compared to the first quarter in 2014. Additionally, the average balance of purchased loans increased $0.94 billion for the first quarter of 2015 compared to the first period in 2014, primarily as a result of the Summit and Intervest acquisitions. The average balances of investment securities increased $143 million for the first quarter of 2015 compared to the first quarter in 2014, primarily as a result of investment securities acquired in the Summit acquisition and, to a lesser extent, the Intervest acquisition.

The following table sets forth certain information relating to our net interest income for the periods indicated. The yields and rates are derived by dividing interest income or interest expense by the average balance of the related assets or liabilities, respectively, for the periods shown. Average balances are derived from daily average balances for such assets and liabilities. The average balances of investment securities are computed based on amortized cost adjusted for unrealized gains and losses on investment securities AFS and other-than-temporary impairment writedowns. The yields on investment securities include amortization of premiums and accretion of discounts. The average balance of non-purchased loans and leases includes non-purchased loans and leases on which we have discontinued accruing interest. The yields on non-purchased loans and leases and purchased loans without evidence of credit deterioration at date of acquisition include late fees and amortization of certain deferred fees, origination costs and, for such purchased loans, accretion or amortization of any purchase accounting yield adjustment, which are considered adjustments to yields. The yields on purchased loans with evidence of credit deterioration at date of acquisition 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. The interest expense on the subordinated debentures assumed in the Intervest transaction includes the amortization of purchase accounting adjustments, using the level yield method over the estimated holding period of eight years.

36

Average Consolidated Balance Sheets and Net Interest Analysis – FTE

	Three Months Ended March 31,
	2015							2014
	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	$	2,532	$	9		1.45	%	$	1,079	$	3		1.19	%
Investment securities:
Taxable		357,410		3,485		3.95			276,563		2,360		3.46
Tax-exempt – FTE		465,234		7,182		6.26			403,352		6,764		6.80
Non-purchased loans and leases – FTE		4,089,281		50,489		5.01			2,656,050		33,469		5.11
Purchased loans		1,675,293		32,860		7.95			731,501		16,885		9.35
Total earning assets – FTE		6,589,750		94,025		5.79			4,068,545		59,481		5.93
Non-interest earning assets		1,012,449							760,427
Total assets	$	7,602,199						$	4,828,972
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest bearing liabilities:
Deposits:
Savings and interest bearing transaction	$	3,102,875	$	1,550		0.20	%	$	2,096,018	$	1,067		0.21	%
Time deposits of $100,00 or more		1,106,623		1,298		0.48			382,852		235		0.25
Other time deposits		770,939		689		0.36			458,254		279		0.25
Total interest bearing deposits		4,980,437		3,537		0.29			2,937,124		1,581		0.22
Repurchase agreements with customers		77,575		17		0.09			65,045		12		0.08
Other borrowings		188,793		1,703		3.66			280,926		2,655