Edgar Filing: BANK OF THE OZARKS INC

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended September 30, 2010

¨	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

incorporation or organization)

(I.R.S. Employer

Identification Number)


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

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

None

(Title of Class)

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

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

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

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

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


Class		Outstanding at September 30, 2010
Common Stock, $0.01 par value per share		16,990,490

BANK OF THE OZARKS, INC.

FORM 10-Q

September 30, 2010

INDEX


PART I.	Financial Information

Item 1.	Financial Statements

	Consolidated Balance Sheets as of September 30, 2010 and 2009 and December 31, 2009	1

	Consolidated Statements of Income for the Three Months Ended September 30, 2010 and 2009 and the Nine Months Ended September 30, 2010 and 2009	2

	Consolidated Statements of Stockholders’ Equity for the Nine Months Ended September 30, 2010 and 2009	3

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010 and 2009	4

	Notes to Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18

	Selected and Supplemental Financial Data	41

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43

Item 4.	Controls and Procedures	44

PART II.	Other Information

Item 1.	Legal Proceedings	45

Item 1A.	Risk Factors	45

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46

Item 3.	Defaults Upon Senior Securities	46

Item 4.	Reserved	46

Item 5.	Other Information	46

Item 6.	Exhibits	46

Signature		47

Exhibit Index		48

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

BANK OF THE OZARKS, INC.

CONSOLIDATED BALANCE SHEETS


	Unaudited September 30,						December 31,
	2010			2009			2009
	(Dollars in thousands, except per share amounts)
ASSETS
Cash and due from banks	$	53,838		$	36,503		$	77,678
Interest earning deposits		524			524			616
Cash and cash equivalents		54,362			37,027			78,294
Investment securities—available for sale (“AFS”)		412,443			645,682			506,678
Loans and leases, excluding covered loans		1,888,936			1,931,372			1,904,104
Allowance for loan and lease losses		(40,250	)		(39,280	)		(39,619	)
Net loans and leases		1,848,686			1,892,092			1,864,485
Covered assets:
Loans		394,482			—			—
Other real estate owned		17,540			—			—
Federal Deposit Insurance Corporation (“FDIC”) loss share receivable		122,098			—			—
Premises and equipment, net		164,834			156,746			156,204
Foreclosed assets held for sale, net		41,868			63,946			61,148
Accrued interest receivable		15,055			15,500			14,760
Bank owned life insurance		59,198			47,841			47,421
Intangible assets, net		7,536			5,581			5,554
Other, net		38,050			25,271			36,267
Total assets	$	3,176,152		$	2,889,686		$	2,770,811

LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Demand non-interest bearing	$	271,407		$	209,220		$	223,741
Savings and interest bearing transaction		1,271,374			781,949			927,977
Time		872,933			1,053,987			877,276
Total deposits		2,415,714			2,045,156			2,028,994
Repurchase agreements with customers		55,750			52,270			44,269
Other borrowings		294,502			361,679			342,553
Subordinated debentures		64,950			64,950			64,950
Accrued interest payable and other liabilities		25,732			16,218			17,575
Total liabilities		2,856,648			2,540,273			2,498,341

Commitments and contingencies

Stockholders’ equity:
Preferred stock; $0.01 par value; 1,000,000 shares authorized:
Series A fixed rate cumulative perpetual; liquidation preference of $1,000 per share; 75,000 shares issued and outstanding at September 30, 2009; no shares outstanding at September 30, 2010 and December 31, 2009		—			72,296			—
Common stock; $0.01 par value; 50,000,000 shares authorized; 16,990,490, 16,885,340 and 16,904,540 shares issued and outstanding at September 30, 2010, September 30, 2009 and December 31, 2009, respectively		170			169			169
Additional paid-in capital		44,416			44,099			41,584
Retained earnings		260,862			213,793			221,243
Accumulated other comprehensive income (loss)		10,624			15,597			6,032

Total stockholders’ equity before noncontrolling interest		316,072			345,954			269,028
Noncontrolling interest		3,432			3,459			3,442

Total stockholders’ equity		319,504			349,413			272,470

Total liabilities and stockholders’ equity	$	3,176,152		$	2,889,686		$	2,770,811

See accompanying notes to consolidated financial statements.

BANK OF THE OZARKS, INC.

CONSOLIDATED STATEMENTS OF INCOME

Unaudited


	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
	(Dollars in thousands, except per share amounts)
Interest income:
Loans and leases	$	29,707		$	30,879		$	89,035		$	94,415
Covered loans		6,205			—			8,942			—
Investment securities:
Taxable		636			4,280			3,701			15,180
Tax-exempt		4,540			4,742			14,191			18,150
Deposits with banks and federal funds sold		4			3			16			8

Total interest income		41,092			39,904			115,885			127,753


Interest expense:
Deposits		5,028			6,406			15,137			25,000
Repurchase agreements with customers		92			151			302			461
Other borrowings		2,734			3,624			9,433			10,750
Subordinated debentures		470			491			1,323			1,713

Total interest expense		8,324			10,672			26,195			37,924


Net interest income		32,768			29,232			89,690			89,829
Provision for loan and lease losses		(4,300	)		(7,500	)		(11,900	)		(39,200	)

Net interest income after provision for loan and lease losses		28,468			21,732			77,790			50,629


Non-interest income:
Service charges on deposit accounts		4,002			3,234			11,137			9,084
Mortgage lending income		1,024			672			2,367			2,630
Trust income		802			801			2,518			2,198
Bank owned life insurance income		580			495			1,577			1,456
Gains on investment securities		570			142			4,318			20,660
Gains (losses) on sales of other assets		267			(51	)		232			(35	)
Gains on FDIC-assisted transactions		16,122			—			26,160			—
Other		1,816			517			3,367			1,800

Total non-interest income		25,183			5,810			51,676			37,793


Non-interest expense:
Salaries and employee benefits		10,539			7,823			27,810			23,717
Net occupancy and equipment		2,782			2,558			7,619			7,584
Other operating expenses		10,244			5,118			26,717			18,330

Total non-interest expense		23,565			15,499			62,146			49,631


Income before taxes		30,086			12,043			67,320			38,791
Provision for income taxes		9,878			2,599			20,310			8,387

Net income		20,208			9,444			47,010			30,404
Net loss attributable to noncontrolling interest		17			25			60			2
Preferred stock dividends and amortization of preferred stock discount		—			(1,078	)		—			(3,228	)

Net income available to common stockholders	$	20,225		$	8,391		$	47,070		$	27,178


Basic earnings per common share	$	1.19		$	0.50		$	2.78		$	1.61


Diluted earnings per common share	$	1.19		$	0.50		$	2.77		$	1.61


Dividends declared per common share	$	0.15		$	0.13		$	0.44		$	0.39

See accompanying notes to consolidated financial statements.

BANK OF THE OZARKS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Unaudited


	Preferred Stock - Series A		Common Stock		Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Non- controlling Interest			Total
	(Dollars in thousands)
Balances – January 1, 2009	$	71,880	$	169	$	43,314		$	193,195		$	15,624		$	3,421		$	327,603
Comprehensive income:
Net income		—		—		—			30,404			—			—			30,404
Net loss attributable to noncontrolling interest		—		—		—			2			—			(2	)		—
Other comprehensive income (loss):
Unrealized gains/losses on investment securities AFS, net of $8,086 tax effect		—		—		—			—			12,529			—			12,529
Reclassification of gains/losses included in net income, net of $8,104 tax effect		—		—		—			—			(12,556	)		—			(12,556	)

Total comprehensive income																		30,377

Common stock dividends		—		—		—			(6,580	)		—			—			(6,580	)
Preferred stock dividends		—		—		—			(2,812	)		—			—			(2,812	)
Amortization of preferred stock discount		416		—		—			(416	)		—			—			—
Issuance of 21,200 shares of common stock for exercise of stock options		—		—		245			—			—			—			245
Tax benefit (expense) on exercise and forfeiture of stock options		—		—		(10	)		—			—			—			(10	)
Stock-based compensation expense		—		—		550			—			—			—			550
Minority interest cash contribution		—		—		—			—			—			40			40

Balances – September 30, 2009	$	72,296	$	169	$	44,099		$	213,793		$	15,597		$	3,459		$	349,413

Balances – January 1, 2010	$	—	$	169	$	41,584		$	221,243		$	6,032		$	3,442		$	272,470
Comprehensive income:
Net income		—		—		—			47,010			—			—			47,010
Net loss attributable to noncontrolling interest		—		—		—			60			—			(60	)		—
Other comprehensive income (loss):
Unrealized gains/losses on investment securities AFS, net of $4,657 tax effect		—		—		—			—			7,216			—			7,216
Reclassification of gains/losses included in net income, net of $1,694 tax effect		—		—		—			—			(2,624	)		—			(2,624	)

Total comprehensive income																		51,602

Common stock dividends		—		—		—			(7,451	)		—			—			(7,451	)
Issuance of 85,950 shares of common stock for exercise of stock options		—		1		1,963			—			—			—			1,964
Tax benefit (expense) on exercise and forfeiture of stock options		—		—		271			—			—			—			271
Stock-based compensation expense		—		—		598			—			—			—			598
Noncontrolling interest cash contribution		—		—		—			—			—			50			50

Balances – September 30, 2010	$	—	$	170	$	44,416		$	260,862		$	10,624		$	3,432		$	319,504

See accompanying notes to consolidated financial statements.

BANK OF THE OZARKS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited


	Nine Months Ended September 30,
	2010			2009
	(Dollars in thousands)
Cash flows from operating activities:
Net income	$	47,010		$	30,404
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		3,290			3,107
Amortization		270			83
Net loss attributable to noncontrolling interest		60			2
Provision for loan and lease losses		11,900			39,200
Provision for losses on foreclosed assets		7,128			2,172
Net accretion of investment securities AFS		(510	)		(3,924	)
Net gains on investment securities AFS		(4,318	)		(20,660	)
Originations and purchases of mortgage loans for sale		(123,974	)		(150,205	)
Proceeds from sales of mortgage loans for sale		113,554			147,825
Net accretion of covered loans		(8,942	)		—
(Gains) losses on dispositions of premises and equipment and other assets		(232	)		35
Gains on FDIC-assisted transactions		(26,160	)		—
Increase (decrease) in deferred income taxes		10,280			(74	)
Increase in cash surrender value of bank owned life insurance (“BOLI”)		(1,577	)		(1,456	)
Current tax benefit on exercise of stock options		(639	)		(110	)
Compensation expense under stock-based compensation plans		598			550
Changes in assets and liabilities:
Accrued interest receivable		244			3,376
Other assets, net		(1,348	)		(6,301	)
Accrued interest payable and other liabilities		1,896			(3,550	)

Net cash provided by operating activities		28,530			40,474


Cash flows from investing activities:
Proceeds from sales of investment securities AFS		251,528			321,163
Proceeds from maturities/calls/paydowns of investment securities AFS		42,874			229,015
Purchases of investment securities AFS		(103,817	)		(232,051	)
Net paydowns (fundings) of portfolio loans and leases		14,773			(8,155	)
Net cash flow from covered assets		37,880			—
Purchases of premises and equipment		(9,961	)		(8,094	)
Proceeds from dispositions of premises and equipment and other assets		13,564			16,558
(Investment in) repayment of unconsolidated investments and noncontrolling interest		(4,104	)		10
Purchase of BOLI		(10,200	)		—
Net cash proceeds received in FDIC-assisted transactions		141,085			—

Net cash provided by investing activities		373,622			318,446


Cash flows from financing activities:
Net decrease in deposits		(331,196	)		(296,258	)
Net repayments of other borrowings		(101,521	)		(63,268	)
Net increase in repurchase agreements with customers		11,481			5,406
Proceeds from exercise of stock options		1,964			245
Current tax benefit on exercise of stock options		639			110
Cash dividends paid on common stock		(7,451	)		(6,580	)
Cash dividends paid on preferred stock		—			(2,530	)

Net cash used by financing activities		(426,084	)		(362,875	)


Net decrease in cash and cash equivalents		(23,932	)		(3,955	)
Cash and cash equivalents – beginning of period		78,294			40,982

Cash and cash equivalents – end of period	$	54,362		$	37,027

See accompanying notes to consolidated financial statements.

BANK OF THE OZARKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited

1. Organization and Principles of Consolidation

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

2. Basis of Presentation

The accompanying consolidated financial statements have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) in Article 10 of Regulation S-X and in accordance with the instructions to Form 10-Q and accounting principles generally accepted in the United States (“GAAP”) for interim financial information. Certain information, accounting policies and footnote disclosures normally included in complete financial statements prepared in accordance with GAAP have been condensed or omitted in accordance with such rules and regulations. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2009.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. In the opinion of management all adjustments considered necessary, consisting of normal recurring items, have been included for a fair presentation of the accompanying consolidated financial statements. Operating results for the three and nine months ended September 30, 2010 are not necessarily indicative of the results that may be expected for the full year or future periods.

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

3. Acquisitions

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

On July 16, 2010 the Company, through the Bank, entered into a purchase and assumption agreement with loss share agreements with the FDIC pursuant to which it acquired substantially all of the assets and assumed substantially all of the deposits and certain other liabilities of the former Woodlands Bank (“Woodlands”) with eight offices, including Bluffton and Beaufort, South Carolina; Wilmington and Southport, North Carolina; Savannah, Georgia and three offices in Mobile, Alabama. On October 26, 2010, the Company closed four of the Woodlands offices, including Beaufort, South Carolina; Southport, North Carolina and two of the offices in Mobile, Alabama.

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

(The remainder of this page intentionally left blank)

A summary, at fair value, of the assets acquired and liabilities assumed in the Unity, Woodlands and Horizon transactions, as of the acquisition dates, is as follows.


	Unity			Woodlands			Horizon
	(Dollars in thousands)
Assets acquired:
Cash and cash equivalents	$	45,401		$	13,447		$	11,775
Investment securities AFS		5,580			84,492			5,105
Loans not covered by loss share agreements		—			1,113			892
Covered assets:
Loans		135,205			187,998			93,003
Other real estate owned		8,859			5,029			3,683
FDIC loss share receivable		43,582			54,827			29,089
Core deposit intangible		1,657			200			396
Other assets		183			1,145			1,981

Total assets acquired		240,467			348,251			145,924

Liabilities assumed:
Deposits		220,806			344,723			152,387
Federal Home Loan Bank of Atlanta advances		24,078			10,142			19,251
Other liabilities		2,246			3,288			2,023

Total liabilities assumed		247,130			358,153			173,661

Net assets acquired at fair value		(6,663	)		(9,902	)		(27,737	)
Cash received from FDIC		16,700			24,260			29,502

Pre-tax gains on FDIC-assisted transactions	$	10,037		$	14,358		$	1,765

In conjunction with each of these acquisitions, the Bank entered into loss share agreements with the FDIC such that the Bank and the FDIC will share in the losses on assets covered under the loss share agreements. Pursuant to the terms of the loss share agreements for the Unity acquisition, on losses up to $65.0 million, the FDIC will reimburse the Bank for 80% of losses. On losses exceeding $65.0 million, the FDIC will reimburse the Bank for 95% of losses. Under the terms of the loss share agreements for the Woodlands acquisition, the FDIC will reimburse the Bank for 80% of such losses. Pursuant to the terms of the loss share agreements for the Horizon acquisition, the FDIC will reimburse the Bank on single family residential loans and related foreclosed real estate for (i) 80% of losses up to $11.8 million, (ii) 30% of losses between $11.8 million and $17.9 million and (iii) 80% of losses in excess of $17.9 million. For non-single family residential loans and related foreclosed real estate, the FDIC will reimburse the Bank for (i) 80% of losses up to $32.3 million, (ii) 0% of losses between $32.3 million and $42.8 million and (iii) 80% of losses in excess of $42.8 million. To the extent that actual losses incurred by the Bank are less than (i) $65 million on the Unity assets covered under the loss share agreements, (ii) $107 million on the Woodlands assets covered under the loss share agreements and (iii) $60 million on the Horizon assets covered under the loss share agreements, the Bank may be required to reimburse the FDIC under the clawback provisions of the loss share agreements. At September 30, 2010 the covered loans and covered other real estate owned and the related FDIC loss share receivable (collectively, the “covered assets”) and the FDIC clawback payable were reported at the net present value of expected future amounts to be paid or received.

Purchased loans acquired in a business combination, including loans purchased in the Unity, Woodlands and Horizon acquisitions, are recorded at estimated fair value on their purchase date with no carryover of the related allowance for loan and lease losses. In determining the estimated fair value of purchased loans, management considers a number of factors including the remaining life of the acquired loans, estimated prepayments, estimated loss ratios, estimated value of the underlying collateral, estimated holding periods, net present value of cash flows expected to be received, among others. Purchased loans are accounted for in accordance with guidance for certain loans or debt securities acquired in a transfer, when the loans have evidence of credit deterioration since origination and it is probable at the date of acquisition that the acquirer will not collect all contractually required principal and interest payments. The difference between contractually required payments and the cash flows expected to be collected at acquisition is referred to as the non-accretable difference. Subsequent decreases to the expected cash flows will generally result in a provision for loan and lease losses. Subsequent increases in cash flows will result in a reversal of the provision for loan and lease losses to the extent of prior charges and then an adjustment to accretable yield, which would have a positive impact on interest income.

The accretable difference on purchased loans acquired in a business combination is the difference between the expected cash flows and the net present value of expected cash flows with such difference accreted into earnings using the effective yield method over the term of the loans. The accretable difference that is expected to be accreted into future earnings of the Company totaled $88.6 million at September 30, 2010.

During the second and third quarters of 2010, the Company made adjustments to the values reported at March 31, 2010 and at June 30, 2010 for certain of the acquired assets and assumed liabilities in the Unity acquisition. These adjustments reflect new information, primarily updated appraisals and cash flow analyses, used by management to more accurately estimate cash flows expected to be collected and the associated impact on the FDIC loss share receivable and the FDIC clawback payable. The combined effect of these adjustments in the initial values assigned to the acquired assets and assumed liabilities in the Unity acquisition was $36,000 pre-tax, which the Company considers to be immaterial.

4. Earnings Per Common Share (“EPS”)

Basic EPS is computed by dividing reported earnings available to common stockholders by the weighted-average number of common shares outstanding. Diluted EPS is computed by dividing reported earnings available to common stockholders by the weighted-average number of common shares outstanding after consideration of the dilutive effect, if any, of the Company’s outstanding common stock options and common stock warrant using the treasury stock method. No options to purchase shares of the Company’s common stock were excluded from the diluted EPS calculation for the quarter and nine months ended September 30, 2010 as all options were dilutive for those periods. Options to purchase 437,150 shares of the Company’s common stock and options to purchase 455,150 shares of the Company’s common stock, respectively, were not included in the diluted EPS calculation for the quarter and nine months ended September 30, 2009 because inclusion would have been antidilutive. Additionally, a warrant for the purchase of 379,811 shares of the Company’s common stock at an exercise price of $29.62 was outstanding at September 30, 2009 (none at September 30, 2010) but was not included in the diluted EPS calculation for the quarter and nine months ended September 30, 2009 as inclusion would have been antidilutive.

Basic and diluted EPS are computed as follows.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
	(In thousands, except per share amounts)
Common shares – weighted-average (basic)		16,981		16,887		16,946		16,878
Common share equivalents – weighted-average		86		18		69		17

Common shares – diluted		17,067		16,905		17,015		16,895


Net income available to common stockholders	$	20,225	$	8,391	$	47,070	$	27,178
Basic EPS	$	1.19	$	0.50	$	2.78	$	1.61
Diluted EPS		1.19		0.50		2.77		1.61

5. Investment Securities

At September 30, 2010 and 2009 and at December 31, 2009, the Company classified all of its investment securities portfolio as available for sale (“AFS”). Accordingly, its investment securities are stated at estimated fair value in the consolidated financial statements with unrealized gains and losses, net of related income tax, reported as a separate component of stockholders’ equity and included in accumulated other comprehensive income (loss).

The following table presents the amortized cost and estimated fair value of investment securities at September 30, 2010 and 2009 and at December 31, 2009. The Company’s holdings of “other equity securities” include Federal Home Loan Bank of Dallas (“FHLB – Dallas”), Federal Home Loan Bank of Atlanta (“FHLB – Atlanta”) and First National Banker’s Bankshares, Inc. (“FNBB”) shares which do not have readily determinable fair values and are carried at cost.


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value ⁽¹⁾
	(Dollars in thousands)
September 30, 2010:
Obligations of state and political subdivisions	$	376,347	$	18,941	$	(1,460	)	$	393,828
U.S. Government agency residential mortgage-backed securities		193		—		—			193
Other equity securities		18,422		—		—			18,422

Total	$	394,962	$	18,941	$	(1,460	)	$	412,443


December 31, 2009:
Obligations of state and political subdivisions	$	385,581	$	10,517	$	(2,211	)	$	393,887
U.S. Government agency residential mortgage-backed securities		93,159		1,351		—			94,510
Corporate obligations		1,596		269		—			1,865
Collateralized debt obligation		100		—		—			100
Other equity securities		16,316		—		—			16,316

Total	$	496,752	$	12,137	$	(2,211	)	$	506,678


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value ⁽¹⁾
	(Dollars in thousands)
September 30, 2009:
Obligations of state and political subdivisions	$	360,067	$	20,219	$	(513	)	$	379,773
U.S. Government agency residential mortgage-backed securities		241,856		5,826		—			247,682
Corporate obligations		1,592		225		—			1,817
Collateralized debt obligation		100		—		—			100
Other equity securities		16,310		—		—			16,310

Total	$	619,925	$	26,270	$	(513	)	$	645,682

(1)

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

The following table shows estimated fair value of investment securities AFS having gross unrealized losses and the amount of such unrealized losses, aggregated by investment category and length of time that individual investment securities have been in a continuous unrealized loss position, at September 30, 2010 and 2009 and at December 31, 2009.


	Less than 12 Months				12 Months or More				Total
	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
	(Dollars in thousands)
September 30, 2010:
Obligations of state and political subdivisions	$	37,529	$	1,213	$	5,718	$	248	$	43,246	$	1,460

Total temporarily impaired securities	$	37,529	$	1,213	$	5,718	$	248	$	43,246	$	1,460


December 31, 2009:
Obligations of states and political subdivisions	$	90,010	$	1,453	$	32,967	$	758	$	122,977	$	2,211

Total temporarily impaired securities	$	90,010	$	1,453	$	32,967	$	758	$	122,977	$	2,211


September 30, 2009:
Obligations of state and political subdivisions	$	25,894	$	316	$	8,422	$	197	$	34,316	$	513

Total temporarily impaired securities	$	25,894	$	316	$	8,422	$	197	$	34,316	$	513

In evaluating the Company’s unrealized loss positions for other-than-temporary impairment for the investment securities portfolio, management considers the credit quality of the issuer, the nature and cause of the unrealized loss, the severity and duration of the impairments and other factors. At September 30, 2010 and 2009 and December 31, 2009 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 shows the amortized cost and estimated fair value of investment securities AFS by maturity or estimated date of repayment at September 30, 2010 and December 31, 2009.


	September 30, 2010				December 31, 2009
Maturity or Estimated Repayment Date	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
	(Dollars in thousands)
One year or less	$	2,814	$	2,903	$	42,696	$	43,312
After one year to five years		18,785		19,136		73,243		74,442
After five years to ten years		24,654		25,453		36,586		37,988
After ten years		348,709		364,951		344,227		350,936

Total	$	394,962	$	412,443	$	496,752	$	506,678

For purposes of this maturity distribution, all investment securities AFS are shown based on their contractual maturity date, except (i) FHLB – Dallas, FHLB – Atlanta and FNBB stock with no contractual maturity date are shown in the longest maturity category, (ii) U.S. Government agency residential mortgage-backed securities are allocated among various maturities based on an estimated repayment schedule utilizing Bloomberg median prepayment speeds and interest rate levels at September 30, 2010 and December 31, 2009 and (iii) mortgage-backed securities issued by housing authorities of states and political subdivisions are allocated among various maturities based on an estimated repayment schedule projected by management as of September 30, 2010 and December 31, 2009. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

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


	Nine Months Ended September 30,
	2010			2009
	(Dollars in thousands)
Sales proceeds	$	251,528		$	321,163

Gross realized gains	$	4,881		$	24,480
Gross realized losses		(402	)		(2,920	)
Other-than-temporary impairment charges		(161	)		(900	)

Net gains on investment securities	$	4,318		$	20,660

6. FHLB Advances

FHLB advances, all of which are from FHLB – Dallas, with original maturities exceeding one year totaled $280.8 million at September 30, 2010. Interest rates on these advances ranged from 2.53% to 5.12% at September 30, 2010 with a weighted-average interest rate of 3.84%. At September 30, 2010 aggregate annual maturities and weighted-average interest rates of FHLB advances with an original maturity of over one year were as follows.


Maturity	Amount		Weighted-Average Interest Rate
	(Dollars in thousands)
2010	$	9		4.81	%
2011		31		4.80
2012		21		4.64
2013		18		4.54
2014		19		4.54
Thereafter		280,687		3.84

	$	280,785		3.84

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


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

	$	280,000		3.80

7. Subordinated Debentures

The Company had the following issues of trust preferred securities outstanding and subordinated debentures owed to the Trusts at September 30, 2010.


Description	Subordinated Debentures Owed to Trusts		Trust Preferred Securities of the Trusts		Interest Rate Spread to 90-day LIBOR			Interest Rate at September 30, 2010			Final Maturity Date
	(Dollars in thousands)
Ozark III	$	14,434	$	14,000		2.95	%		3.48	%		September 25, 2033
Ozark II		14,433		14,000		2.90			3.19			September 29, 2033
Ozark IV		15,464		15,000		2.22			2.56			September 28, 2034
Ozark V		20,619		20,000		1.60			1.89			December 15, 2036

	$	64,950	$	63,000

At September 30, 2010 the Company had $64.9 million of subordinated debentures outstanding and had an asset of $1.9 million representing its investment in the common equity issued by the Trusts. The interest rates on the subordinated debentures and related trust preferred securities are based on a spread over the 90-day London Interbank Offered Rate (“LIBOR”) and reset periodically. The sole assets of the Trusts are the adjustable rate debentures and the liabilities of the Trusts are the trust preferred securities. At September 30, 2010 the Trusts did not have any restricted net assets. The Company has, through various contractual arrangements, unconditionally guaranteed payment of all obligations of the Trusts with respect to the trust preferred securities. 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 trust preferred securities and the subordinated debentures mature at or near the thirtieth anniversary date of their issuance. However, these securities and debentures may be prepaid at par, subject to regulatory approval, prior to maturity at any time on or after September 25 and 29, 2008, respectively, for the Ozark III and Ozark II securities and debentures; on or after September 28, 2009 for the Ozark IV securities and debentures; and on or after December 15, 2011 for the Ozark V securities or debentures, or at an earlier date upon certain changes in tax laws, investment company laws or regulatory capital requirements.

8. Supplemental Data for Cash Flows

Supplemental cash flow information is as follows.


	Nine Months Ended September 30,
	2010		2009
	(Dollars in thousands)
Cash paid during the period for:
Interest	$	27,113	$	39,842
Taxes		10,279		13,304
Supplemental schedule of non-cash investing and financing activities:
Net change in unrealized gains and losses on investment securities AFS		7,555		49
Unsettled AFS investment security purchases		—		3,029
Loans transferred to foreclosed assets held for sale		10,952		69,607
Loans advanced for sales of foreclosed assets		9,476		1,324

9. Guarantees and Commitments

Outstanding standby letters of credit are contingent commitments issued by the Company generally to guarantee the performance of a customer in third party arrangements. The maximum amount of future payments the Company could be required to make under these guarantees at September 30, 2010 was $7.0 million. The Company holds collateral to support guarantees when deemed necessary. Collateralized commitments at September 30, 2010 totaled $6.2 million.

At September 30, 2010 the Company had outstanding commitments to extend credit, excluding commitments to extend credit on loans covered by FDIC loss share agreements, totaling $166 million. These commitments extend over varying periods of time with the majority to be disbursed or to expire within a one-year period.

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10. Stock-Based Compensation

The Company has a nonqualified stock option plan for certain employees of the Company. This plan provides for the granting of incentive 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 September 30, 2010 were issued with a vesting date of three years after issuance and expire seven years after issuance.

The Company also has a nonqualified stock option plan for non-employee directors. This plan permits each director who is not otherwise an employee of the Company, or any subsidiary, to receive options to purchase 1,000 shares of the Company’s common stock on the day following his or her election as a director of the Company at each annual meeting of stockholders and up to 1,000 shares upon election or appointment for the first time as a director of the Company. 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 the nine months ended September 30, 2010.


	Options			Weighted- Average Exercise Price/Share		Weighted- Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value (in thousands)⁽¹⁾
Outstanding – January 1, 2010		562,750		$	28.34
Granted		10,000			37.99
Exercised		(85,950	)		22.85
Forfeited		(21,850	)		29.30

Outstanding – September 30, 2010		464,950			29.59		4.1	$	3,423

Fully vested and exercisable – September 30, 2010		231,050		$	31.45		3.3	$	1,276
Expected to vest in future periods		207,410

Fully vested and expected to vest – September 30, 2010		438,460		$	29.73		4.1	$	3,170

(1)

Based on closing price of $36.93 per share on September 30, 2010.

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 nine months ended September 30, 2010 and 2009 was $1.6 million and $0.3 million, respectively.

Options to purchase 10,000 shares and 9,000 shares, respectively, of the Company’s common stock were issued during the nine months ended September 30, 2010 and 2009. Stock-based compensation expense for stock options included in non-interest expense was $0.1 million and $0.2 million for the quarters ended September 30, 2010 and 2009, respectively, and $0.5 million and $0.7 million for the nine months ended September 30, 2010 and 2009, respectively. Total unrecognized compensation cost related to nonvested stock-based compensation was $0.5 million at September 30, 2010 and is expected to be recognized over a weighted-average period of 1.5 years.

The Company has a restricted stock plan that permits issuance of up to 200,000 shares of restricted stock or restricted stock units. All officers and employees of the Company are eligible to receive awards under the restricted stock plan. The benefits or amounts that may be received by or allocated to any particular officer or employee of the Company under the restricted stock plan will be determined in the sole discretion of the Company’s board of directors or its personnel and compensation committee. Shares of common stock issued under the restricted stock plan may be shares of original issuance, shares held in treasury or shares that have been reacquired by the Company. All restricted stock awards outstanding at September 30, 2010 were issued with a vesting date of three years after issuance.

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The following table summarizes non-vested restricted stock activity for the nine months ended September 30, 2010.


	Nine Months Ended September 30, 2010
Outstanding – January 1, 2010		18,600
Granted		—
Forfeited		—
Vested		—

Outstanding – September 30, 2010		18,600

Weighted-average grant date fair value	$	24.44

The fair value of the restricted stock awards is amortized to compensation expense over the vesting period (generally three years) and is based on the market price of the Company’s common stock at the date of grant multiplied by the number of shares granted that are expected to vest. Stock-based compensation expense for restricted stock included in non-interest expense was $0.1 million for the nine months ended September 30, 2010. Unrecognized compensation expense for nonvested restricted stock awards was $0.3 million at September 30, 2010 and is expected to be recognized over 2.1 years.

On October 19, 2010 the Company’s Personnel and Compensation Committee approved the issuance of (i) options to purchase 100,900 shares of the Company’s common stock and (ii) restricted stock awards for 37,300 shares of restricted stock. Both the option grants and restricted stock awards were issued with terms similar to the Company’s existing grants and awards. Total compensation expense for these option grants and restricted stock awards is expected to be $2.4 million and is expected to be recognized ratably over the three-year vesting period.

11. Comprehensive Income

Total comprehensive income consists of net income, net income attributable to noncontrolling interest, unrealized gains and losses on investment securities AFS, net of income taxes, and reclassification adjustments for unrealized gains and losses on investment securities AFS sold, net of income taxes. Total comprehensive income was $25.1 million and $15.8 million, respectively, for the three months ended September 30, 2010 and 2009 and $51.6 and $30.4 million, respectively, for the nine months ended September 30, 2010 and 2009.

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 by Accounting Standards Codification (“ASC”) Topic 820 “Fair Value Measurements and Disclosures,” 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.

In accordance with ASC Topic 820, the Company applied 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.

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The following table sets forth the Company’s assets and liabilities for the dates indicated that are accounted for at fair value.


	Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
September 30, 2010:
Assets:
Investment securities AFS⁽¹⁾:
Obligations of state and political subdivisions	$	—	$	373,412	$	20,416	$	393,828
U.S. Government agency residential mortgage-backed securities		—		193		—		193

Total investment securities AFS		—		373,605		20,416		394,021
Impaired loans and leases		—		—		15,977		15,977
Foreclosed assets held for sale, net		—		—		41,868		41,868
Derivative assets – interest rate lock commitments (“IRLC”) and forward sales commitments (“FSC”)		—		—		136		136

Total assets at fair value	$	—	$	373,605	$	78,397	$	452,002

Liabilities:
Derivative liabilities – IRLC and FSC		—		—		136		136

Total liabilities at fair value	$	—	$	—	$	136	$	136


December 31, 2009:
Assets:
Investment securities AFS⁽²⁾:
Obligations of state and political subdivisions	$	—	$	377,297	$	16,590	$	393,887
U.S. Government agency residential mortgage-backed securities		—		94,510		—		94,510
Corporate obligations		—		1,865		—		1,865
Collateralized debt obligation		—		—		100		100

Total investment securities AFS		—		473,672		16,690		490,362
Impaired loans and leases		—		—		19,204		19,204
Foreclosed assets held for sale, net		—		—		61,148		61,148
Derivative assets – IRLC and FSC		—		—		210		210

Total assets at fair value	$	—	$	473,672	$	97,252	$	570,924

Liabilities:
Derivative liabilities – IRLC and FSC	$	—	$	—	$	210	$	210

Total liabilities at fair value	$	—	$	—	$	210	$	210

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	Level 1		Level 2		Level 3			Total
	(Dollars in thousands)
September 30, 2009:
Assets:
Investment securities AFS⁽²⁾:
Obligations of state and political subdivisions	$	—	$	363,183	$	16,590		$	379,773
U.S. Government agency residential mortgage-backed securities		—		247,682		—			247,682
Corporate obligations		—		1,817		—			1,817
Collateralized debt obligation		—		—		100			100

Total investment securities AFS		—		612,682		16,690			629,372
Impaired loans and leases		—		—		15,918			15,918
Foreclosed assets held for sale, net		—		—		63,946			63,946
Derivative assets – IRLC and FSC		—		—		179			179

Total assets at fair value	$	—	$	612,682	$	96,733		$	709,415

Liabilities:
Derivative liabilities – IRLC and FSC	$	—	$	—	$	(179	)	$	(179	)

Total liabilities at fair value	$	—	$	—	$	(179	)	$	(179	)

(1)	Does not include $18.4 million at September 30, 2010 of FHLB – Dallas, FHLB – Atlanta and FNBB stock that do not have readily determinable fair values and are carried at cost.

(2)	Does not include $16.3 million at both December 31, 2009 and September 30, 2009 of FHLB – Dallas and FNBB stock that do not have readily determinable fair values and are carried at cost.

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

The Company has determined that certain of its investment securities had a limited to non-existent trading market at September 30, 2010. As a result, the Company considers these investments as Level 3 in the fair value hierarchy. Specifically, the fair values of certain obligations of state and political subdivisions consisting of certain unrated private placement bonds (the “private placement bonds”) in the amount of $20.4 million at September 30, 2010 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 September 30, 2010, the third parties pricing matrices valued the Company’s portfolio of private placement bonds at $23.2 million which exceeded the aggregate of the lower of the matrix pricing or par value of the private placement bonds by $2.8 million. Accordingly, at September 30, 2010 the Company reported the private placement bonds at the lower of the matrix pricing or par value of $20.4 million.

Impaired 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 selling costs, or the estimated discounted cash flows for such loan or lease. In accordance with the provisions of ASC Topic 310, “Receivables,” the Company has reduced the carrying value of its impaired loans and leases (all of which are included in nonaccrual loans and leases) by $7.2 million to the estimated fair value of $16.0 million for such loans and leases at September 30, 2010. The $7.2 million adjustment to reduce the carrying value of impaired loans and leases to estimated fair value consisted of $6.2 million of partial charge-offs, which reduced the carrying value to $17.0 million, and $1.0 million of specific loan and lease loss allocations.

Foreclosed assets held for sale, net – Fair values of repossessed personal properties and real estate acquired through or in lieu of foreclosure are measured on a nonrecurring basis and are generally based on third party appraisals less estimated cost to sell.

Derivative assets and liabilities – The fair values of IRLC and FSC derivative assets and liabilities are measured on a recurring basis and are based primarily on the fluctuation of interest rates between the date on which the IRLC and FSC were entered and the measurement date.

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


	Investment Securities AFS			Derivative Assets – IRLC and FSC			Derivative Liabilities – IRLC and FSC
	(Dollars in thousands)
Balances – January 1, 2010	$	16,590		$	210		$	(210	)
Total realized gains (losses) included in earnings		—			(74	)		74
Total unrealized gains (losses) included in comprehensive income		(472	)		—			—
Purchases, sales, issuances and settlements, net		252			—			—
Transfers in and/or out of Level 3		4,046			—			—

Balances – September 30, 2010	$	20,416		$	136		$	(136	)


Balances – January 1, 2009	$	30,020		$	477		$	(477	)
Total realized gains (losses) included in earnings		(3,753	)		(298	)		298
Purchases, sales, issuances and settlements, net		(9,577	)		—			—
Transfers in and/or out of Level 3		—			—			—

Balances – September 30, 2009	$	16,690		$	179		$	(179	)

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. For investment securities traded in an active market, fair values are based on quoted market prices if available. If quoted market prices are not available, fair values are based on quoted market prices of comparable securities, broker quotes or comprehensive interest rate tables, pricing matrices or a combination thereof. For investment securities traded in a market that is not active, fair value is determined using unobservable inputs. The Company’s investments in the common stock of the FHLB – Dallas, FHLB – Atlanta and FNBB totaling $18.4 million at September 30, 2010 and its investments in the common stock of FHLB – Dallas and FNBB totaling $16.3 million at both December 31, 2009 and September 30, 2009 do not have readily determinable fair values and are carried at cost.

Loans and leases – The fair value of loans and leases, excluding those covered by FDIC loss share agreements, net of allowance for loan and lease losses (“ALLL”) is estimated by discounting the future cash flows using the current rate at which similar loans or leases would be made to borrowers or lessees with similar credit ratings and for the same remaining maturities.

Covered loans – The fair value of covered loans is based on the net present value of future cash proceeds expected to be received using discount rates that are derived from current market rates and reflect the level of interest risk in the covered loans.

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

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

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

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

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

Derivative assets and liabilities – The fair values of IRLC and FSC derivative assets and liabilities are based primarily on the fluctuation of interest rates between the date on which the IRLC and FSC were entered and the measurement date.

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 September 30, 2010 and 2009 or at December 31, 2009.

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

The following table presents the estimated fair values, for the dates indicated, of the Company’s financial instruments.


	September 30,
	2010				2009				December 31, 2009
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
	(Dollars in thousands)
Financial assets:
Cash and cash equivalents	$	54,362	$	54,362	$	37,027	$	37,027	$	78,294	$	78,294
Investment securities AFS		412,443		412,443		645,682		645,682		506,678		506,678
Loans and leases, net of ALLL		1,848,686		1,829,348		1,892,092		1,889,857		1,864,485		1,841,953
Covered loans		394,482		396,168		—		—		—		—
FDIC loss share receivable		122,098		121,715		—		—		—		—
Derivative assets – IRLC and FSC		136		136		179		179		210		210

Financial liabilities:
Demand, NOW, savings and money market deposits	$	1,542,781	$	1,542,781	$	991,169	$	991,169	$	1,151,718	$	1,151,718
Time deposits		872,933		878,571		1,053,987		1,057,563		877,276		881,463
Repurchase agreements with customers		55,750		55,750		52,270		52,270		44,269		44,269
Other borrowings		294,502		365,374		361,679		445,183		342,553		423,404
Subordinated debentures		64,950		29,251		64,950		28,793		64,950		27,650
Derivative liabilities – IRLC and FSC		136		136		179		179		210		210

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14. Recent Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-06, “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements.” ASU 2010-06 amends Topic 820 by requiring more robust disclosures about (i) the different classes of assets and liabilities measured at fair value, (ii) the valuation techniques and inputs used, (iii) the activity in Level 3 fair value measurements, and (iv) the transfers between Levels 1, 2, and 3. Among other things, ASU 2010-06 requires separate disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements as opposed to presenting such activity on a net basis. The new disclosures required by ASU 2010-06 are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about the roll forward of activity in Level 3 fair value measurements which are effective for interim and annual periods beginning after December 15, 2010. The provisions of ASU 2010-06 did not have a material impact on the Company’s financial position, results of operations or liquidity, but will require expansion of the Company’s future disclosures about fair value measurements.

In July 2010, the FASB issued ASU 2010-20, “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” ASU 2010-20 amends Topic 310 by requiring disclosure of additional information to assist financial statement users in assessing an entity’s credit risk exposures and evaluating the adequacy of the allowance for credit losses. Specifically, ASU 2010-20 requires entities to provide disclosures on a disaggregated basis, consisting of portfolio segment and class of financing receivable. A portfolio segment is defined by ASU 2010-20 as the level at which an entity develops and documents a systematic method for determining its allowance for credit losses. Classes of financing receivables generally are a disaggregation of portfolio segments. ASU 2010-20 amends existing disclosures to require an entity to provide, on a disaggregated basis, (i) a rollforward schedule of the allowance for credit losses from the beginning to the end of the reporting period, with the ending balance further disaggregated on the basis of impairment method, (ii) the recorded investment in financing receivables for each disaggregated ending balance, (iii) the nonaccrual status of financing receivables by class, and (iv) impaired financing receivables by class. Additionally, ASU 2010-20 required additional disclosures, including (i) credit quality indictors of financing receivables by class, (ii) aging of past due financing receivables by class, (iii) nature and extent of troubled debt restructurings (“TDRs”) by class and their effect on the allowance for credit losses, (iv) nature and extend of financing receivables by class modified as TDRs within the previous 12 months that defaulted during the reporting period and their effect on the allowance, and (v) significant purchases and sales of financing receivables during the reporting period disaggregated by portfolio segment. The provisions of ASU 2010-20 are effective for interim and annual reporting periods ending on or after December 15, 2010. ASU 2010-20 is not expected to have a material impact on the Company’s financial position, results of operations or liquidity, but will require expansion of its disclosures about credit quality and the allowance for loan and lease losses.

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Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

GENERAL

Net income available to common stockholders for Bank of the Ozarks, Inc. (the “Company”) was $20.2 million for the third quarter of 2010, a 141.0% increase from $8.4 million for the comparable quarter in 2009. Diluted earnings per common share were $1.19 for the quarter ended September 30, 2010, a 138.0% increase from $0.50 for the quarter ended September 30, 2009. For the nine months ended September 30, 2010, net income available to common stockholders totaled $47.1 million, a 73.2% increase from $27.2 million for the first nine months of 2009. Diluted earnings per common share for the first nine months of 2010 were $2.77 compared to $1.61 for the comparable period in 2009, a 72.0% increase.

The Company’s annualized return on average assets was 2.60% for the third quarter of 2010 compared to 1.14% for the third quarter of 2009. Its annualized return on average common stockholders’ equity was 26.28% for the third quarter of 2010 compared to 12.46% for the third quarter of 2009. The Company’s annualized return on average assets was 2.15% for the first nine months of 2010 compared to 1.19% for the first nine months of 2009. Its annualized return on average common stockholders’ equity was 21.79% for the first nine months of 2010 compared to 13.64% for the first nine months of 2009.

Total assets were $3.18 billion at September 30, 2010 compared to $2.77 billion at December 31, 2009. Loans and leases, excluding those covered by Federal Deposit Insurance Corporation (“FDIC”) loss share agreements, were $1.89 billion at September 30, 2010 compared to $1.90 billion at December 31, 2009. Loans covered by FDIC loss share agreements were $0.39 billion at September 30, 2010 compared to none at December 31, 2009. Deposits were $2.42 billion at September 30, 2010 compared to $2.03 billion at December 31, 2009.

Common stockholders’ equity was $316 million at September 30, 2010 compared to $269 million at December 31, 2009. Book value per common share was $18.60 at September 30, 2010 compared to $15.91 at December 31, 2009. Changes in common stockholders’ equity and book value per common share reflect earnings, dividends paid, stock option and warrant transactions and changes in unrealized gains and losses on investment securities available for sale (“AFS”).

Annualized results for these interim periods may not be indicative of results for the full year or future periods.

ANALYSIS OF RESULTS OF OPERATIONS

The Company is a bank holding company whose primary business is commercial banking conducted through its wholly-owned state chartered bank subsidiary – Bank of the Ozarks (the “Bank”). The Company’s results of operations depend primarily on net interest income, which is the difference between the interest income from earning assets, such as loans, including covered loans, leases and investments, and the interest expense incurred on interest bearing liabilities, such as deposits, borrowings and subordinated debentures. The Company also generates non-interest income, including service charges on deposit accounts, mortgage lending income, trust income, bank owned life insurance (“BOLI”) income, other charges and fees, gains and losses on investment securities and from sales of other assets and, during 2010, gains on FDIC-assisted transactions.

The Company’s non-interest expense consists of employee compensation and benefits, net occupancy and equipment and other operating expenses. The Company’s results of operations are significantly impacted by its provision for loan and lease losses and its provision for income taxes. The following discussion provides a comparative summary of the Company’s operations for the three and nine months ended September 30, 2010 and 2009 and should be read in conjunction with the consolidated financial statements and related notes presented elsewhere in this report.

Net Interest Income

Net interest income is analyzed in the 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 the Company’s statutory federal income tax rate of 35%. The FTE adjustments to net interest income were $2.4 million and $2.6 million for the quarters ended September 30, 2010 and 2009, respectively, and $7.7 million and $9.8 million for the nine months ended September 30, 2010 and 2009, 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 as a result of investment in certain tax-exempt securities.

Net interest income for the third quarter of 2010 increased 10.8% to $35.2 million compared to $31.8 million for the third quarter of 2009. Net interest income decreased 2.3% to $97.3 million for the nine months ended September 30, 2010 compared to $99.6 million for the nine months ended September 30, 2009.

The increase in net interest income for the third quarter of 2010 compared to the third quarter of 2009 was primarily a result of the 51 basis points (“bps”) improvement in the Company’s net interest margin for the third quarter of 2010 compared to the same period in 2009. The decrease in net interest income for the first nine months of 2010 compared to the first nine months of 2009 was primarily a result of the 9.2% decrease in the Company’s average earning assets in the first nine months of 2010 compared to the same period in 2009, partially offset by a 37 bps improvement in the Company’s net interest margin in the first nine months of 2010 compared to the same period in 2009.

The decrease in average earning assets for the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009 was due primarily to a decrease in the Company’s average investment securities of $304 million. From September 30, 2009 to September 30, 2010, the Company was a net seller of investment securities, reducing its period-end portfolio by $233 million at September 30, 2010 compared to September 30, 2009. This reduction in the overall investment securities portfolio was primarily a result of the Company’s ongoing evaluations of interest rate risk and to free up capital for FDIC-assisted acquisitions.

Net interest margin increased 51 bps to 5.31% for the third quarter of 2010 compared to 4.80% for the third quarter of 2009. Net interest margin increased 37 bps to 5.14% for the first nine months of 2010 compared to 4.77% for the first nine months of 2009.

These increases in net interest margin are primarily attributable to a 48 bps decrease for the third quarter and a 56 bps decrease for the first nine months of 2010 in the rates on average interest bearing liabilities compared to the same periods in 2009. The decrease in the rates on average interest bearing liabilities was primarily attributable to a 48 bps decrease for the third quarter and a 64 bps decrease for the first nine months of 2010 in the average rates of interest bearing deposits, the largest component of the Company’s interest bearing liabilities, compared to the same periods in 2009. This decrease in the average rate on interest bearing deposits was principally due to (i) effectively managing the repricing of time deposits which resulted in lower rates paid on these deposits as they were renewed or repriced and (ii) a favorable shift in the mix of the Company’s deposits, resulting in the Company’s average balance of time deposits, which generally pay higher rates than other deposits, decreasing to 36.9% and 39.3% of average deposits, respectively, in the third quarter and first nine months of 2010 compared to 52.1% and 53.2%, respectively, in the third quarter and first nine months of 2009.

The Company’s other interest bearing liabilities include (i) repurchase agreements with customers (“repos”), (ii) other borrowings comprised primarily of Federal Home Loan Bank (“FHLB”) advances, and, to a lesser extent, Federal Reserve Bank (“FRB”) borrowings and federal funds purchased, and (iii) subordinated debentures. The rates paid on repos decreased 38 bps for the third quarter and 32 bps for the nine months ended September 30, 2010 compared to the same periods in 2009. The rates paid on the Company’s other borrowings decreased 13 bps for the third quarter and increased 25 bps for the nine months ended September 30, 2010 compared to the same periods in 2009. Other borrowings consist primarily of fixed rate callable FHLB advances. The decrease in rates for other borrowings for the quarter ended September 30, 2010 compared to the same period in 2009 was primarily due to the repayment of $60 million of callable FHLB advances with a weighted-average interest rate of 6.25% that were repaid on their maturity dates in May 2010. The increase in rates for other borrowings for the nine months ended September 30, 2010 compared to the first nine months of 2009 was due primarily to the decreased utilization of lower rate short-term federal funds purchased and short-term FHLB advances during the first nine months of 2010 compared to the same period in 2009, partially offset by the repayment of $60 million of FHLB advances. The rates paid on the Company’s subordinated debentures, which are tied to a spread over the 90-day London Interbank Offered Rate (“LIBOR”) and reset periodically, declined 13 bps for the third quarter and 81 bps for the nine months ended September 30, 2010 compared to the same periods of 2009 as a result of the decrease in the 90-day LIBOR.

Yields on average earning assets increased 16 bps for the third quarter but decreased 7 bps for the first nine months of 2010 compared to the same periods in 2009. This increase for the third quarter of 2010 compared to the same period in 2009 was primarily due to the shift in the composition of average earning assets resulting from a reduction in the volume of investment securities offset by the addition of covered loans. The decrease for the first nine months of 2010 compared to the same period in 2009 was due primarily to a 29 bps decline in the aggregate yield on the Company’s investment securities, partially offset by the addition of higher yielding covered loans as a component to the Company’s average earning assets for the nine months ended September 30, 2010 compared to the same period in 2009.

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Average Consolidated Balance Sheets and Net Interest Analysis - FTE


	Three Months Ended September 30,														Nine Months Ended September 30,
	2010							2009							2010							2009
	Average Balance		Income/ Expense		Yield/ Rate			Average Balance		Income/ Expense		Yield/ Rate			Average Balance		Income/ Expense		Yield/ Rate			Average Balance		Income/ Expense		Yield/ Rate
	(Dollars in thousands)
ASSETS
Earning assets:
Interest earning deposits and federal funds sold	$	1,180	$	4		1.46	%	$	517	$	3		1.95	%	$	1,298	$	16		1.64	%	$	529	$	8		2.03	%
Investment securities:
Taxable		57,056		636		4.42			296,700		4,280		5.72			99,705		3,701		4.96			353,242		15,180		5.75
Tax-exempt – FTE		378,096		6,982		7.33			353,491		7,296		8.19			388,650		21,832		7.51			438,739		27,922		8.51
Loans and leases – FTE		1,896,203		29,712		6.22			1,978,863		30,882		6.19			1,893,971		89,044		6.29			1,998,154		94,428		6.32
Covered loans*		297,941		6,205		8.26			—		—		—			149,035		8,942		8.02			—		—		—

Total earning assets – FTE		2,630,476		43,539		6.57			2,629,571		42,461		6.41			2,532,659		123,535		6.52			2,790,664		137,538		6.59
Non-interest earning assets		453,313							281,080							398,025							275,457

Total assets	$	3,083,789						$	2,910,651						$	2,930,684						$	3,066,121


LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest bearing liabilities:
Deposits:
Savings and interest bearing transaction	$	1,200,779	$	2,279		0.75	%	$	765,878	$	1,664		0.86	%	$	1,079,036	$	6,543		0.81	%	$	825,141	$	5,220		0.85	%
Time deposits of $100,000 or more		443,209		1,365		1.22			686,517		2,756		1.59			479,853		4,466		1.24			722,864		11,414		2.11
Other time deposits		417,080		1,384		1.32			375,755		1,986		2.10			376,975		4,128		1.46			433,294		8,366		2.58

Total interest bearing deposits		2,061,068		5,028		0.97			1,828,150		6,406		1.39			1,935,864		15,137		1.05			1,981,299		25,000		1.69
Repurchase agreements with customers		51,618		92		0.71			54,922		151		1.09			50,009		302		0.81			54,436		461		1.13
Other borrowings		307,264		2,734		3.53			392,705		3,624		3.66			325,175		9,433		3.88			395,626		10,750		3.63
Subordinated debentures		64,950		470		2.87			64,950		491		3.00			64,950		1,323		2.72			64,950		1,713		3.53

Total interest bearing liabilities		2,484,900		8,324		1.33			2,340,727		10,672		1.81			2,375,998		26,195		1.47			2,496,311		37,924		2.03
Non-interest bearing liabilities:
Non-interest bearing deposits		267,605							211,940							245,223							206,016
Other non-interest bearing liabilities		22,468							15,233							17,214							21,875

Total liabilities		2,774,973							2,567,900							2,638,435							2,724,202
Preferred stock		—							72,228							—							72,090
Common stockholders’ equity		305,378							267,082							288,800							266,383
Noncontrolling interest		3,438							3,441							3,449							3,446

Total liabilities and stockholders’ equity	$	3,083,789						$	2,910,651						$	2,930,684						$	3,066,121

Net interest income – FTE			$	35,215						$	31,789						$	97,340						$	99,614

Net interest margin – FTE						5.31	%						4.80	%						5.14	%						4.77	%

*	Covered loans are loans covered by FDIC loss share agreements.

Non-Interest Income

The Company’s non-interest income consists primarily of (1) service charges on deposit accounts, (2) mortgage lending income, (3) trust income, (4) BOLI income, (5) appraisal fees, credit life commissions and other credit related fees, (6) safe deposit box rental, operating lease income, brokerage fees and other miscellaneous fees, (7) gains and losses on investment securities and sales of other assets and (8) gains on the purchases of failed banks in FDIC-assisted transactions.

Non-interest income for the third quarter of 2010 increased 333.4% to $25.2 million compared to $5.8 million for the third quarter of 2009 primarily as a result of $16.1 million of pre-tax bargain purchase gains on two FDIC-assisted acquisitions. Non-interest income for the nine months ended September 30, 2010 increased 52.6% to $51.7 million compared to $37.8 million for the nine months ended September 30, 2009. The Company’s results for the first nine months of 2010 included pre-tax bargain purchase gains of $26.2 million on three FDIC-assisted acquisitions, which was partially offset by a $16.1 million reduction in net gains on investment securities and sales of other assets in the first nine months of 2010 compared to the first nine months of 2009.

Service charges on deposit accounts, traditionally the Company’s largest source of non-interest income, increased 23.7% for the third quarter of 2010 to $4.0 million compared to $3.2 million for the third quarter of 2009. Service charges on deposit accounts increased 21.5% for the nine months ended September 30, 2010 to $11.0 million compared to $9.1 million for the same period in 2009. The increase in service charges on deposit accounts is due primarily to a number of factors including (i) the organic growth in core deposit accounts, (ii) increased utilization of fee-based services by many of the Company’s customers, and (iii) the addition of core deposit customers from three FDIC-assisted acquisitions during 2010. On August 15, 2010, new regulations became effective prohibiting banks from utilizing overdraft protection programs to pay customers into overdraft for non-recurring electronic debit transactions without affirmative customer opt-in. The impact to the Company of these new regulations was minimized because the Company had a well-planned and effective opt-in program for its affected customers.

Mortgage lending income increased 52.4% for the third quarter of 2010 to $1.0 million compared to $0.7 million for the third quarter of 2009. Mortgage lending income decreased 10.0% for the nine months ended September 30, 2010 to $2.4 million compared to $2.6 million for the same period in 2009. The volume of originations of mortgage loans available for sale increased 61.0 % for the third quarter, but decreased 16.7% for the first nine months of 2010 compared to the same periods in 2009. During the third quarter of 2010, approximately 64% of the Company’s originations of mortgage loans available for sale were related to mortgage refinancings and approximately 36% were related to new home purchases, compared to approximately 46% for refinancings and approximately 54% for new home purchases in the third quarter of 2009. During the first nine months of 2010, approximately 54% of the Company’s originations of mortgage loans available for sale were related to mortgage refinancings and approximately 46% were related to new home purchases, compared to approximately 65% for refinancings and approximately 35% for new home purchases in the first nine months of 2009.

Trust income was $0.8 million for both quarters ended September 30, 2010 and 2009. Trust income increased 14.6% for the nine months ended September 30, 2010 to $2.5 million compared to $2.2 million for the same period in 2009.

Net gains on investment securities and from sales of other assets were $0.8 million for the third quarter of 2010 compared to net gains in such categories of $0.1 million for the third quarter of 2009. Net gains on investment securities and from sales of other assets were $4.6 million for the nine months ended September 30, 2010 compared to $20.6 million for the same period in 2009.

On March 26, 2010 the Company, through the Bank, entered into a purchase and assumption agreement with loss share agreements with the FDIC pursuant to which it acquired substantially all of the assets and assumed substantially all of the deposits and certain other liabilities of the former Unity National Bank (“Unity”). This FDIC-assisted transaction resulted in the Company recognizing a pre-tax bargain purchase gain of $10.0 million in the first quarter of 2010.

On July 16, 2010 the Company, through the Bank, entered into a purchase and assumption agreement with loss share agreements with the FDIC pursuant to which it acquired substantially all of the assets and assumed substantially all of the deposits and certain other liabilities of the former Woodlands Bank (“Woodlands”). This FDIC-assisted transaction resulted in the Company recognizing a pre-tax bargain purchase gain of $14.4 million in the third quarter of 2010.

On September 10, 2010 the Company, through the Bank, entered into a purchase and assumption agreement with loss share agreements with the FDIC pursuant to which it acquired substantially all of the assets and assumed substantially all of the deposits and certain other liabilities of the former Horizon Bank (“Horizon”). This FDIC-assisted transaction resulted in the Company recognizing a pre-tax bargain purchase gain of $1.8 million in the third quarter of 2010.

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Non-interest income from all other sources was $2.4 million in the third quarter of 2010 compared to $1.0 million for the third quarter of 2009, and was $5.0 million for the nine months ended September 30, 2009 compared to $3.3 million for the same period in 2009. The increase in non-interest income from other sources was due primarily to the accretion of the FDIC loss share receivable, net of the amortization of the FDIC clawback payable, of $0.9 million for the quarter and $1.2 million for the nine months ended September 30, 2010.

The following table presents non-interest income for the three and nine months ended September 30, 2010 and 2009.

Non-Interest Income


	Three Months Ended September 30,					Nine Months Ended September 30,
	2010		2009			2010		2009
	(Dollars in thousands)
Service charges on deposit accounts	$	4,002	$	3,234		$	11,137	$	9,084
Mortgage lending income		1,024		672			2,367		2,630
Trust income		802		801			2,518		2,198
BOLI income		580		495			1,577		1,456
Appraisal fees, credit life commissions and other credit related fees		42		59			193		443
Safe deposit box rental, operating lease income, brokerage fees and other miscellaneous fees		421		300			1,077		925
Gains on investment securities		570		142			4,318		20,660
Gains (losses) on sales of other assets		267		(51	)		232		(35	)
Gains on FDIC-assisted transactions		16,122		—			26,160		—
Accretion of FDIC loss share receivable, net of amortization of FDIC clawback payable		906		—			1,177		—
Other		447		158			920		432

Total non-interest income	$	25,183	$	5,810		$	51,676	$	37,793

Non-Interest Expense

Non-interest expense increased 52.0% to $23.6 million for the third quarter of 2010 compared to $15.5 million for the third quarter of 2009. Non-interest expense increased 25.2% for the nine months ended September 30, 2010 to $62.1 million compared to $49.6 million for the same period in 2009. The increase in non-interest expense for the third quarter and the nine months ended September 30, 2010 compared to the same periods in 2009 was due primarily to write downs of the carrying value of items in other real estate owned totaling $2.7 million and $7.1 million, respectively, for the third quarter and nine months ended September 30, 2010, compared to $0.2 million and $2.2 million, respectively, for the third quarter and nine months ended September 30, 2009. Additionally, during the third quarter and nine months ended September 30, 2010, the Company incurred $1.7 million and $2.5 million, respectively, of aggregate costs associated with (i) its FDIC-assisted acquisitions, (ii) the conversion of Unity’s operating systems that was completed in July 2010, and (iii) preparation for the conversion of the Woodlands and Horizon operating systems in November 2010 and January 2011, respectively.

At September 30, 2010 the Company had 90 offices, consisting of 89 full service banking offices and one loan production office, compared to 73 offices, consisting of 72 full service banking offices and one loan production office, at September 30, 2009. The Company had 838 full time equivalent employees at September 30, 2010 compared to 705 full time equivalent employees at September 30, 2009.

The Company’s efficiency ratio (non-interest expense divided by the sum of net interest income – FTE and non-interest income) was 39.0% for the quarter ended September 30, 2010 compared to 41.2% for the quarter ended September 30, 2009. The Company’s efficiency ratio was 41.7% for the nine months ended September 30, 2010 compared to 36.1% for the nine months ended September 30, 2009.

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The following table presents non-interest expense for the three and nine months ended September 30, 2010 and 2009.

Non-Interest Expense


	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
	(Dollars in thousands)
Salaries and employee benefits	$	10,539	$	7,823	$	27,810	$	23,717
Net occupancy and equipment		2,782		2,558		7,619		7,584
Other operating expenses:
Postage and supplies		555		379		1,411		1,162
Advertising and public relations		684		229		1,570		765
Telephone and data lines		405		471		1,312		1,386
Professional and outside services		1,113		432		2,250		1,389
ATM expense		280		149		604		570
Software expense		736		400		1,899		1,114
FDIC insurance		840		683		2,538		3,601
FDIC and state assessments		119		171		560		536
Loan collection and repossession expense		1,039		1,120		2,884		2,687
Write down of other real estate owned		2,736		188		7,128		2,172
Amortization of intangibles		133		27		270		83
Other		1,604		869		4,291		2,865

Total non-interest expense	$	23,565	$	15,499	$	62,146	$	49,631

Income Taxes

The provision for income taxes was $9.9 million for the third quarter of 2010 and $20.3 million for the first nine months of 2010 compared to $2.6 million for the third quarter of 2009 and $8.4 million for the first nine months of 2009. The effective income tax rate was 32.8% for the third quarter and 30.2% for the first nine months of 2010 compared to 21.6% for the third quarter and first nine months of 2009. The primary factor in the increase in the effective tax rate in the third quarter and first nine months of 2010 compared to the same periods in 2009 was the increase in taxable income as a percentage of pre-tax income as the Company’s taxable income increased and its interest income exempt from income taxes declined both in amount and as a percentage of pre-tax income.

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ANALYSIS OF FINANCIAL CONDITION

Loan and Lease Portfolio

At September 30, 2010 the Company’s loan and lease portfolio, excluding loans covered by FDIC loss share agreements, was $1.89 billion, compared to $1.90 billion at December 31, 2009 and $1.93 billion at September 30, 2009. Real estate loans, the Company’s largest category of loans, consist of all loans secured by real estate as evidenced by mortgages or other liens, including all loans made to finance the development of real property construction projects, provided such loans are secured by real estate. Total real estate loans were $1.65 billion at September 30, 2010, compared to $1.63 billion at December 31, 2009 and $1.64 billion at September 30, 2009. The amount and type of loans and leases outstanding, excluding loans covered by FDIC loss share agreements, at September 30, 2010 and 2009 and at December 31, 2009 and their respective percentage of the total loan and lease portfolio are reflected in the following table.

Loan and Lease Portfolio


	September 30,								December 31,
	2010				2009				2009
	(Dollars in thousands)
Real estate:
Residential 1-4 family	$	276,090	14.6	%	$	283,334	14.7	%	$	282,733	14.9	%
Non-farm/non-residential		686,340	36.3			635,737	32.9			606,880	31.9
Construction/land development		498,258	26.4			586,974	30.4			600,342	31.5
Agricultural		87,363	4.6			84,113	4.3			86,237	4.5
Multifamily residential		103,230	5.5			49,729	2.6			55,860	2.9

Total real estate		1,651,281	87.4			1,639,887	84.9			1,632,052	85.7
Commercial and industrial		126,678	6.7			162,004	8.4			150,208	7.9
Consumer		55,200	2.9			67,384	3.5			63,561	3.4
Direct financing leases		41,571	2.2			42,368	2.2			40,353	2.1
Agricultural (non-real estate)		11,949	0.7			17,177	0.9			15,509	0.8
Other		2,257	0.1			2,552	0.1			2,421	0.1

Total loans and leases	$	1,888,936	100.0	%	$	1,931,372	100.0	%	$	1,904,104	100.0	%

The amount and type of non-farm/non-residential loans, excluding loans covered by FDIC loss share agreements, at September 30, 2010 and 2009 and at December 31, 2009, and their respective percentage of the total non-farm/non-residential loan portfolio are reflected in the following table.

Non-Farm/Non-Residential Loans


	September 30,								December 31,
	2010				2009				2009
	(Dollars in thousands)
Retail, including shopping centers and strip centers	$	225,172	32.8	%	$	201,599	31.7	%	$	182,343	30.0	%
Churches and schools		56,243	8.2			58,625	9.2			58,601	9.6
Office, including medical offices		94,003	13.7			57,423	9.0			53,797	8.9
Office warehouse, warehouse and mini-storage		65,716	9.6			63,690	10.0			64,608	10.6
Gasoline stations and convenience stores		15,659	2.3			17,732	2.8			17,942	3.0
Hotels and motels		45,152	6.6			32,757	5.2			39,206	6.5
Restaurants and bars		39,757	5.8			45,664	7.2			45,597	7.5
Manufacturing and industrial facilities		11,424	1.6			29,947	4.7			34,859	5.7
Nursing homes and assisted living centers		29,978	4.4			30,348	4.8			30,171	5.0
Hospitals, surgery centers and other medical		62,230	9.0			56,758	8.9			38,662	6.4
Golf courses, entertainment and recreational facilities		13,516	2.0			15,296	2.4			15,162	2.5
Other non-farm/non residential		27,490	4.0			25,898	4.1			25,932	4.3

Total	$	686,340	100.0	%	$	635,737	100.0	%	$	606,880	100.0	%

The amount and type of construction/land development loans, excluding loans covered by FDIC loss share agreements, at September 30, 2010 and 2009 and at December 31, 2009, and their respective percentage of the total construction/land development loan portfolio are reflected in the following table.

Construction/Land Development Loans


	September 30,								December 31,
	2010				2009				2009
	(Dollars in thousands)
Unimproved land	$	97,306	19.5	%	$	101,849	17.4	%	$	98,386	16.4	%
Land development and lots:
1-4 family residential and multifamily		179,047	35.9			192,082	32.7			189,691	31.6
Non-residential		74,444	15.0			75,468	12.9			74,744	12.5
Construction:
1-4 family residential:
Owner occupied		14,144	2.8			15,393	2.6			12,878	2.1
Non-owner occupied:
Pre-sold		4,549	0.9			11,287	1.9			6,626	1.1
Speculative		44,817	9.0			58,554	10.0			54,719	9.1
Multifamily		58,138	11.7			61,684	10.5			78,540	13.1
Industrial, commercial and other		25,813	5.2			70,657	12.0			84,758	14.1

Total	$	498,258	100.0	%	$	586,974	100.0	%	$	600,342	100.0	%

The establishment of interest reserves for construction and development loans is an established banking practice, but the handling of such interest reserves varies widely within the industry. Many of the Company’s construction and development loans provide for the use of interest reserves, and based upon its knowledge of general industry practices, the Company believes that its practices related to such interest reserves, discussed below, are appropriate and conservative. When the Company underwrites construction and development loans, it considers the expected total project costs, including hard costs such as land, site work and construction costs and soft costs such as architectural and engineering fees, closing costs, leasing commissions and construction period interest. Based on the total project costs and other factors, the Company determines the required borrower cash equity contribution and the maximum amount the Company is willing to loan. In the vast majority of cases, the Company requires that all of the borrower’s cash equity contribution be contributed prior to any material loan advances. This ensures that the borrower’s cash equity required to complete the project will in fact be available for such purposes. As a result of this practice, the borrower’s cash equity typically goes toward the purchase of the land and early stage hard costs and soft costs. This results in the Company funding the loan later as the project progresses, and accordingly the Company typically funds the majority of the construction period interest through loan advances. However, when the Company initially determines the borrower’s cash equity requirement, the Company typically requires borrower’s cash equity in an amount to cover a majority, or all, of the soft costs, including an amount equal to construction period interest, and an appropriate portion of the hard costs. In the third quarter of 2010, the Company advanced construction period interest totaling approximately $1.1 million on construction and development loans. While the Company advanced these sums as part of the funding process, the Company believes that the borrowers in effect had in most cases already provided for these sums as part of their initial equity contribution. Specifically, the maximum committed balance of all construction and development loans which provide for the use of interest reserves at September 30, 2010 was approximately $340.6 million, of which $287.2 million was outstanding at September 30, 2010 and $53.4 million remained to be advanced. The weighted average loan to cost on such loans, assuming such loans are ultimately fully advanced, will be approximately 63%, which means that the weighted average cash equity contributed on such loans, assuming such loans are ultimately fully advanced, will be approximately 37%. The weighted average final loan to value ratio on such loans, based on the most recent appraisals and assuming such loans are ultimately fully advanced, is expected to be approximately 54%.

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The amount and type of the Company’s real estate loans, excluding loans covered by FDIC loss share agreements, at September 30, 2010 based on the metropolitan statistical area (“MSA”) and other geographic areas in which the principal collateral is located are reflected in the following table.

Geographic Distribution of Real Estate Loans


	Residential 1-4 Family		Non-Farm/Non Residential		Construction/ Land Development		Agricultural		Multifamily Residential		Total
	(Dollars in thousands)
Arkansas:
Little Rock – North Little Rock – Conway, AR MSA	$	71,467	$	185,654	$	78,774	$	15,833	$	8,061	$	359,789
Fayetteville – Springdale – Rogers, AR/MO MSA		10,120		21,323		25,178		5,948		1,039		63,608
Fort Smith, AR/OK MSA		38,612		50,673		6,965		4,710		2,529		103,489
Hot Springs, AR MSA		7,820		8,666		6,712		—		1,481		24,679
Western Arkansas ⁽¹⁾		28,170		39,160		7,745		10,580		1,552		87,207
Northern Arkansas ⁽²⁾		80,565		34,542		14,627		36,461		591		166,786
All other Arkansas ⁽³⁾		5,972		8,255		1,410		1,632		—		17,269

Total Arkansas		242,726		348,273		141,411		75,164		15,253		822,827


Texas:
Dallas – Fort Worth – Arlington, TX MSA		6,969		157,484		153,187		—		35,107		352,747
Houston – Sugar Land – Baytown, TX MSA		—		11,727		44,944		—		—		56,671
San Antonio, TX MSA		—		9,703		11,651		—		—		21,354
Austin – Round Rock, TX MSA		—		—		1,719		—		17,455		19,174
Texarkana, TX – Texarkana, AR MSA		13,363		11,234		3,831		400		1,153		29,981
All other Texas ⁽³⁾		1,037		16,019		764		—		17,362		35,182

Total Texas		21,369		206,167		216,096		400		71,077		515,109


North Carolina/South Carolina:
Charlotte – Gastonia – Concord, NC/SC MSA		1,484		29,046		37,362		—		6,114		74,006
All other North Carolina ⁽³⁾		165		28,927		45,946		—		—		75,038
All other South Carolina ⁽³⁾		5,431		7,351		5,961		—		6,618		25,361

Total North Carolina/ South Carolina		7,080		65,324		89,269		—		12,732		174,405


California		—		2,638		26,960		—		—		29,598

Virginia		—		—		18,728		—		—		18,728

Oklahoma ⁽⁴⁾		424		14,626		795		—		—		15,845

Louisiana		—		987		635		10,972		—		12,594
All other states ^{(3) (5)}		4,491		48,325		4,364		827		4,168		62,175

Total real estate loans	$	276,090	$	686,340	$	498,258	$	87,363	$	103,230	$	1,651,281

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

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

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

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

(5)	Data for individual states is separately presented when the aggregate outstanding balance of real estate loans in that state exceeds $10 million.

The amount and percentage of the Company’s loan and lease portfolio, excluding loans covered by FDIC loss share agreements, by office of origination are reflected in the following table.

Loan and Lease Portfolio by State of Originating Office


	September 30,								December 31, 2009
Loans and Leases Attributable to Offices In	2010				2009				December 31, 2009
	(Dollars in thousands)
Arkansas	$	1,101,948	58.3	%	$	1,185,242	61.4	%	$	1,148,053	60.3	%
Texas		677,470	35.8			630,246	32.6			643,575	33.8
North Carolina		106,159	5.6			115,884	6.0			112,476	5.9
Georgia		1,402	0.1			—	—			—	—
South Carolina		1,065	0.1			—	—			—	—
Florida		892	0.1			—	—			—	—

Total	$	1,888,936	100.0	%	$	1,931,372	100.0	%	$	1,904,104	100.0	%

The following table reflects loans and leases, excluding loans covered by FDIC loss share agreements, as of September 30, 2010 grouped by expected amortizations, expected paydowns or the earliest repricing opportunity for floating rate loans. This cash flow or repricing schedule approximates the Company’s ability to reprice the outstanding principal of loans and leases either by adjusting rates on existing loans and leases or reinvesting principal cash flow in new loans and leases.

Loan and Lease Cash Flows or Repricing


	1 Year or Less			Over 1 Through 2 Years			Over 2 Through 3 Years			Over 3 Years			Total
	(Dollars in thousands)
Fixed rate	$	324,825		$	229,578		$	149,815		$	160,398		$	864,616
Floating rate (not at a floor or ceiling rate)		74,141			3,319			346			825			78,631
Floating rate (at floor rate)		944,377			162			—			1,103			945,642
Floating rate (at ceiling rate)		47			—			—			—			47

Total	$	1,343,390		$	233,059		$	150,161		$	162,326		$	1,888,936


Percentage of total		71.1	%		12.3	%		8.0	%		8.6	%		100.0	%
Cumulative percentage of total		71.1			83.4			91.4			100.0

Covered Assets

On March 26, 2010, the Company, through the Bank, acquired substantially all of the assets and assumed substantially all of the deposits and certain other liabilities of Unity in a FDIC-assisted transaction that generated a pre-tax bargain purchase gain of $10.0 million. Loans comprise the majority of the assets acquired and are subject to loss share agreements with the FDIC whereby the Bank is indemnified against 80% of the first $65.0 million of losses and 95% of losses in excess of $65.0 million on the covered loss and the covered other real estate owned. The loans acquired from Unity, as well as the acquired other real estate owned and the related loss share receivable from the FDIC, are presented as covered assets in the accompanying consolidated financial statements.

On July 16, 2010, the Company, through the Bank, acquired substantially all of the assets and assumed substantially all of the deposits and certain other liabilities of Woodlands in a FDIC-assisted transaction that generated a pre-tax bargain purchase gain of $14.4 million. Loans comprise the majority of the assets acquired and all but $1.1 million of consumer loans are subject to loss share agreements with the FDIC whereby the Bank is indemnified against 80% of losses on the covered loans and the covered other real estate owned. The loans acquired from Woodlands that are covered by loss share agreements, as well as the acquired other real estate owned and the related loss share receivable from the FDIC, are presented as covered assets in the accompanying consolidated financial statements.

On September 10, 2010, the Company, through the Bank, acquired substantially all of the assets and assumed substantially all of the deposits and certain other liabilities of Horizon in a FDIC-assisted transaction that generated a pre-tax bargain purchase gain of $1.8 million. Loans comprise the majority of the assets acquired and all but $0.9 million of consumer loans are subject to loss share agreements with the FDIC whereby the Bank is indemnified against 80% of the first $11.8 million of losses on single family residential loans and related foreclosed real estate, 30% of losses between $11.8 million and $17.9 million, and 80% on losses in excess of $17.9 million. The Bank is indemnified against 80% of the first

$32.3 million of losses on non-single family residential loans and related foreclosed real estate, 0% of losses between $32.3 million and $42.8 million, and 80% of losses in excess of $42.8 million. The loans acquired from Horizon that are covered by loss share agreements, as well as the acquired other real estate owned and the related loss share receivable from the FDIC, are presented as covered assets in the accompanying consolidated financial statements.

A summary of the covered assets is as follows.

Covered Assets


	September 30, 2010
	(Dollars in thousands)
Loans	$	394,482
Other real estate owned		17,540
FDIC loss share receivable		122,098

Total covered assets	$	534,120

Nonperforming Assets

Nonperforming assets, excluding all assets covered by FDIC loss share agreements, consist of (1) nonaccrual loans and leases, (2) accruing loans and leases 90 days or more past due, (3) certain restructured loans and leases, some of which may be troubled debt restructurings, that provide for a reduction or deferral of interest or principal because of a deterioration in the financial position of the borrower or lessee and (4) real estate or other assets that have been acquired in partial or full satisfaction of loan or lease obligations or upon foreclosure.

The Company generally places a loan or lease on nonaccrual status when payments are contractually past due 90 days, or earlier when significant doubt exists as to the ultimate collection of payments. At the time a loan or lease is placed on nonaccrual status, interest previously accrued but uncollected is generally reversed and charged against interest income. Nonaccrual loans and leases are generally returned to accrual status when payments are less than 90 days past due and the Company reasonably expects to collect all payments. If a loan or lease is determined to be uncollectible, the portion of the principal determined to be uncollectible will be charged against the allowance for loan and lease losses. Income on nonaccrual loans or leases is recognized on a cash basis when and if actually collected.

The following table presents information concerning nonperforming assets, including nonaccrual and certain restructured loans and leases, foreclosed assets held for sale and repossessions, excluding assets covered by FDIC loss share agreements, at September 30, 2010 and 2009 and at December 31, 2009.

Nonperforming Assets


	September 30,						December 31, 2009
	2010			2009			December 31, 2009
	(Dollars in thousands)
Nonaccrual loans and leases	$	17,044		$	19,311		$	23,604
Accruing loans and leases 90 days or more past due		—			—			—
Troubled and restructured loans and leases⁽¹⁾		—			—			—

Total nonperforming loans and leases		17,044			19,311			23,604
Foreclosed assets held for sale and repossessions⁽²⁾		41,868			63,946			61,148

Total nonperforming assets	$	58,912		$	83,257		$	84,752

Nonperforming loans and leases to total loans and leases⁽³⁾		0.90	%		1.00	%		1.24	%
Nonperforming assets to total assets⁽³⁾		1.85			2.88			3.06

(1)	All troubled and restructured loans and leases as of the dates shown were on nonaccrual status and are included as nonaccrual loans and leases in this table.

(2)

Foreclosed assets held for sale and repossessions are generally written down to estimated market value net of estimated selling costs at the time of transfer from the loan and lease portfolio. The values of such assets is reviewed from time to time throughout the holding period with the value adjusted through non-interest expense to the then estimated market value net of estimated selling costs, if lower, until disposition.

(3)	Excludes assets covered by FDIC loss share agreements, except for their inclusion in total assets.

While many of the Company’s markets appear to have been less significantly impacted during the past three years by weaker economic conditions nationally, the Company has not been immune to the effects of the slower economic conditions and the slow down in housing activity, particularly in the Fayetteville-Springdale-Rogers, AR/MO MSA in northwest Arkansas.

In accordance with the provisions of ASC Topic 310, “Receivables,” the Company has reduced the carrying value of its impaired loans and leases (all of which were included in nonaccrual loans and leases) by $7.2 million to the estimated fair value of $16.0 million for such loans and leases at September 30, 2010. The $7.2 million adjustment to reduce the carrying value of impaired loans and leases to estimated fair value consisted of $6.2 million of partial charge-offs, which has reduced the carrying value to $17.0 million, and $1.0 million of specific loan and lease loss allocations.

The following table presents information concerning the geographic location of nonperforming assets, excluding assets covered by FDIC loss share agreements, at September 30, 2010. For the Company’s nonaccrual loans and leases, the location reported is the physical location of the principal collateral. Other real estate owned of $41.4 million is reported in the physical location of the asset. Repossessions of $0.4 million are reported at the physical location where the borrower resided or had its principal place of business at the time of repossession.

Geographic Distribution of Nonperforming Assets


	Nonaccrual Loans and Leases		Other Real Estate Owned and Repossessions		Total Nonperforming Assets
	(Dollars in thousands)
Arkansas	$	13,177	$	22,189	$	35,366
Texas		1,699		18,584		20,283
North Carolina		—		209		209
South Carolina		1,937		160		2,097
All other		231		726		957

Total	$	17,044	$	41,868	$	58,912

Allowance and Provision for Loan and Lease Losses

Allowance for Loan and Lease Losses: The following table shows an analysis of the allowance for loan and lease losses for the nine-month periods ended September 30, 2010 and 2009 and the year ended December 31, 2009.


	Nine Months Ended September 30,						Year Ended December 31, 2009
	2010			2009			Year Ended December 31, 2009
	(Dollars in thousands)
Balance, beginning of period	$	39,619		$	29,512		$	29,512
Loans and leases charged off:
Real estate		4,530			26,190			30,188
Commercial and industrial		5,550			2,139			3,347
Consumer		1,020			955			1,303
Direct financing leases		369			513			648
Agricultural (non-real estate)		744			304			399

Total loans and leases charged off		12,213			30,101			35,885


Recoveries of loans and leases previously charged off:
Real estate		414			272			329
Commercial and industrial		349			155			566
Consumer		161			139			183
Direct financing leases		20			60			67
Agricultural (non-real estate)		—			43			47

Total recoveries		944			669			1,192

Net loans and leases charged off		11,269			29,432			34,693
Provision charged to operating expense		11,900			39,200			44,800

Balance, end of period	$	40,250		$	39,280		$	39,619

Net charge-offs to average loans and leases outstanding during the periods indicated ⁽¹⁾		0.80	%⁽²⁾		1.97	%⁽²⁾		1.75	%
Allowance for loan and lease losses to total loans and leases ⁽¹⁾		2.13	%		2.03	%		2.08	%
Allowance for loan and lease losses to nonperforming loans and leases ⁽¹⁾		236	%		203	%		168	%

(1)	Excludes assets covered by FDIC loss share agreements.

(2)	Annualized.

Provisions to and the adequacy of the allowance for loan and lease losses are determined in accordance with ASC Topic 310, “Receivables” and ASC Topic 450, “Contingencies,” and are based on the Company’s judgment and evaluation of the loan and lease portfolio utilizing objective and subjective criteria. The objective criteria utilized by the Company to assess the adequacy of its allowance for loan and lease losses and required additions to such allowance consists primarily of an internal grading system and specific allowances determined in accordance with ASC Topic 310. The Company also utilizes a peer group analysis and an historical analysis in an effort to validate the overall adequacy of its allowance for loan and lease losses. In addition to these objective criteria, the Company subjectively assesses the adequacy of the allowance for loan and lease losses and the need for additions thereto, with consideration given to the nature and volume of the portfolio, overall portfolio quality, review of specific problem loans and leases, national, regional and local business and economic conditions that may affect the borrowers’ or lessees’ ability to pay, the value of collateral securing the loans and leases, and other relevant factors.

The Company’s allowance for loan and lease losses was $40.3 million, or 2.13% of total loans and leases (excluding loans covered by FDIC loss share agreements), at September 30, 2010 compared with $39.6 million, or 2.08% of total loans and leases (excluding loans covered by FDIC loss share agreements), at December 31, 2009 and $39.3 million, or 2.03% of total loans and leases (excluding loans covered by FDIC loss share agreements), at September 30, 2009. The Company’s allowance for loan and lease losses was equal to 236% of its total nonperforming loans and leases (excluding loans covered by FDIC loss share agreements), at September 30, 2010 compared to 168% at December 31, 2009 and 203% at September 30, 2009. While management believes the current allowance is appropriate, changing economic and other conditions may require future adjustments to the allowance for loan and lease losses. In addition, bank regulatory agencies, as part of their examination process, may require adjustments to the allowance for loan and lease losses based on their judgments and estimates.

Net Charge-offs: Net charge-offs were $4.2 million for the quarter ended September 30, 2010 compared to $11.9 million for the third quarter of 2009. Net charge-offs were $11.3 million for the nine months ended September 30, 2010 compared to $29.4 million for the first nine months of 2009. The Company’s annualized net charge-off ratio was 0.88% for the quarter ended September 30, 2010 compared to 2.38% for the quarter ended September 30, 2009. The Company’s annualized net charge-off ratio was 0.80% for the nine months ended September 30, 2010 compared to 1.97% for the nine months ended September 30, 2009.

Provision for Loan and Lease Losses: The loan and lease loss provision is based on management’s judgment and evaluation of the loan and lease portfolio utilizing the criteria discussed above. The provision for loan and lease losses was $4.3 million for the third quarter and $11.9 million for the nine months ended September 30, 2010 compared to $7.5 million for the third quarter and $39.2 million for the nine months ended September 30, 2009. The decline in net charge-offs for the third quarter and first nine months of 2010 compared to the same periods in 2009 largely contributed to the lower levels of provision for loan and lease losses in the third quarter and first nine months of 2010 compared to the same periods in 2009.

Investment Securities

The Company’s investment securities portfolio provides a significant source of revenue to the Company. At September 30, 2010 and 2009 and at December 31, 2009, the Company classified all of its investment securities portfolio as available for sale. Accordingly, its investment securities are stated at estimated fair value in the consolidated financial statements with the unrealized gains and losses, net of 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 at September 30, 2010 and 2009 and at December 31, 2009. The Company’s holdings of “other equity securities” include Federal Home Loan Bank of Dallas (“FHLB – Dallas”), Federal Home Loan Bank of Atlanta (“FHLB – Atlanta”) and First National Banker’s Bankshares, Inc. (“FNBB”) shares which do not have readily determinable fair values and are carried at cost.

Investment Securities


	September 30,								December 31, 2009
	2010				2009				December 31, 2009
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in thousands)
Obligations of state and political subdivisions	$	376,347	$	393,828	$	360,067	$	379,773	$	385,581	$	393,887
U.S. Government agency residential mortgage-backed securities		193		193		241,856		247,682		93,159		94,510
Corporate obligations		—		—		1,592		1,817		1,596		1,865
Collateralized debt obligation		—		—		100		100		100		100
Other equity securities		18,422		18,422		16,310		16,310		16,316		16,316

Total	$	394,962	$	412,443	$	619,925	$	645,682	$	496,752	$	506,678

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

The Company’s investment securities portfolio is reported at estimated fair value, which included gross unrealized gains of $18.9 million and gross unrealized losses of $1.5 million at September 30, 2010; gross unrealized gains of $12.1 million and gross unrealized losses of $2.2 million at December 31, 2009; and gross unrealized gains of $26.3 million and gross unrealized losses of $0.5 million at September 30, 2009. Management believes that the unrealized losses for all of its investment securities AFS that were reported net of an unrealized loss at September 30, 2010 and 2009 and at December 31, 2009, are the result of fluctuations in interest rates and do not reflect deterioration in the credit quality of its investments. Accordingly management considers these unrealized losses to be temporary in nature. The Company does not have the intent to sell these investment securities 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 presents unaccreted discounts and unamortized premiums of the Company’s investment securities for the dates indicated.

Unaccreted Discounts and Unamortized Premiums


	Amortized Cost		Unaccreted Discount		Unamortized Premium			Par Value
	(Dollars in thousands)
September 30, 2010:
Obligations of states and political subdivisions	$	376,347	$	4,338	$	(211	)	$	380,474
U.S. Government agency residential mortgage-backed securities		193				—			193
Other equity securities		18,422		—		—			18,422

Total	$	394,962	$	4,338	$	(211	)	$	399,089

December 31, 2009:
Obligations of states and political subdivisions	$	385,581	$	8,796	$	(22	)	$	394,355
U.S. Government agency residential mortgage-backed securities		93,159		445		(25	)		93,579
Corporate obligations		1,596		274		—			1,870
Collateralized debt obligation		100		900		—			1,000
Other equity securities		16,316		—		—			16,316

Total	$	496,752	$	10,415	$	(47	)	$	507,120

September 30, 2009:
Obligations of states and political subdivisions	$	360,067	$	11,292	$	(19	)	$	371,340
U.S. Government agency residential mortgage-backed securities		241,856		3,642		(37	)		245,461
Corporate obligations		1,592		277		—			1,869
Collateralized debt obligation		100		900		—			1,000
Other equity securities		16,310		—		—			16,310

Total	$	619,925	$	16,111	$	(56	)	$	635,980

During the quarter ended September 30, 2010, the Company recognized discount accretion, net of premium amortization, which is considered an adjustment to yield of its investment securities, of $0.1 million compared to $1.1 million during the third quarter of 2009. During the nine months ended September 30, 2010, the Company recognized discount accretion, net of premium amortization, of $0.5 million compared to $3.9 million during the same period in 2009.

The Company had net gains of $0.6 million from the sale of $138 million of investment securities in the third quarter of 2010 compared with net gains of $0.1 million from the sale of $22 million of investment securities in the third quarter of 2009. The Company had net gains of $4.3 million from the sale of $247 million of investment securities in the first nine months of 2010 compared with net gains of $20.7 million from the sale of $301 million of investment securities in the first nine months of 2009. During the quarters ended September 30, 2010 and 2009, respectively, investment securities totaling $5 million and $50 million matured, were called or were paid down by the issuer. During the first nine months ended September 30, 2010 and 2009, respectively, investment securities totaling $43 million and $229 million matured, were called or were

paid down by the issuer. The Company purchased $12 million and $47 million of investment securities during the third quarters of 2010 and 2009, respectively, and $104 million and $232 million of investment securities during the first nine months of 2010 and 2009, respectively. The Company acquired $95 million of investment securities in the first nine months of 2010 as a result of its three FDIC-assisted acquisitions.

Throughout 2009 and, to a lesser extent, for 2010, the Company has been a net seller of investment securities. Such reduction of its investment securities portfolio was undertaken primarily as a result of the Company’s ongoing evaluations of interest rate risk and to free up capital for FDIC-assisted acquisitions.

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

The following table presents the types and estimated fair values of the Company’s investment securities AFS at September 30, 2010 based on credit ratings by one or more nationally-recognized credit rating agencies.

Credit Ratings of Investment Securities


	AAA⁽¹⁾			AA⁽²⁾			A⁽³⁾			BBB⁽⁴⁾			Non-Rated⁽⁵⁾			Total
	(Dollars in thousands)
Obligations of states and political subdivisions:
Arkansas	$	13,027		$	103,382		$	8,350		$	10,843		$	177,517		$	313,119
Texas		27,408			2,786			13,035			3,482			5,761			52,472
Georgia		—			836			344			310			—			1,490
South Carolina		5,320			—			—			—			3,549			8,869
Other states		4,257			—			5,179			—			8,442			17,878
U.S. Government agency residential mortgage-backed securities		193			—			—			—			—			193
Other equity securities		—			—			—			—			18,422			18,422

Total	$	50,205		$	107,004		$	26,908		$	14,635		$	213,691		$	412,443

Percentage of total		12.2	%		25.9	%		6.5	%		3.6	%		51.8	%		100.0	%
Cumulative percentage of total		12.2			38.1			44.6			48.2			100.0	%

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

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

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

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

(5)

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

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Deposits

The Company’s lending and investment activities are funded primarily by deposits. The amount and type of deposits outstanding at September 30, 2010 and 2009 and at December 31, 2009 and their respective percentage of the total deposits are reflected in the following table.

Deposits


	September 30,								December 31,
	2010				2009				2009
	(Dollars in thousands)
Non-interest bearing	$	271,407	11.2	%	$	209,220	10.2	%	$	223,741	11.0	%
Interest bearing:
Transaction (NOW)		652,058	27.0			406,287	19.9			521,057	25.7
Savings and money market		619,316	25.6			375,662	18.4			406,920	20.1
Time deposits less than $100,000		427,123	17.7			346,818	16.9			337,042	16.6
Time deposits of $100,000 or more		445,810	18.5			707,169	34.6			540,234	26.6

Total deposits	$	2,415,714	100.0	%	$	2,045,156	100.0	%	$	2,028,994	100.0	%

The Company’s total deposits increased $0.39 billion to $2.42 billion at September 30, 2010 compared to $2.03 billion at December 31, 2009. Over the past year, two favorable changes have continued in the Company’s deposit mix. First, the Company’s non-CD deposits have grown and comprised 63.9% of total deposits at September 30, 2010, compared to 56.8% at December 31, 2009 and 48.5% at September 30, 2009. Non-CD deposits totaled $1.54 billion at September 30, 2010, compared to $1.15 billion at December 31, 2009 and $0.99 billion at September 30, 2009. Second, brokered deposits have been reduced, decreasing to 2.6% of total deposits at September 30, 2010, compared to 2.8% at December 31, 2009 and 3.8% at September 30, 2009. As of September 30, 2010, the Company had outstanding brokered deposits of $63 million compared to $57 million at December 31, 2009 and $77 million at September 30, 2009.

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

Deposits by State of Originating Office


	September 30,								December 31,
Deposits Attributable to Offices In	2010				2009				2009
	(Dollars in thousands)
Arkansas	$	1,681,417	69.6	%	$	1,771,287	86.6	%	$	1,734,870	85.5	%
Texas		417,684	17.3			273,869	13.4			294,124	14.5
Georgia		144,931	6.0			—	—			—	—
Florida		105,094	4.3			—	—			—	—
South Carolina		31,291	1.3			—	—			—	—
North Carolina		18,735	0.8			—	—			—	—
Alabama		16,562	0.7			—	—			—	—

Total	$	2,415,714	100.0	%	$	2,045,156	100.0	%	$	2,028,994	100.0	%

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Other Interest Bearing Liabilities

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

The following table reflects the average balance and average rate paid for each category of other interest bearing liabilities for the quarters ended September 30, 2010 and 2009 and the year ended December 31, 2009.

Average Balances and Rates of Other Interest Bearing Liabilities


	Three Months Ended September 30,										Year Ended
	2010					2009					December 31, 2009
			Average					Average					Average
	Average		Rate			Average		Rate			Average		Rate
	Balance		Paid			Balance		Paid			Balance		Paid
	(Dollars in thousands)
Repurchase agreements with customers	$	51,618		0.71	%	$	54,922		1.09	%	$	52,549		1.13	%
Other borrowings ⁽¹⁾		307,264		3.53			392,705		3.66			384,854		3.74
Subordinated debentures		64,950		2.87			64,950		3.00			64,950		3.29

Total other interest bearing liabilities	$	423,832		3.09	%	$	512,577		3.30	%	$	502,353		3.40	%

(1)	Included in other borrowings at September 30, 2010 are FHLB advances that contain quarterly call features and mature as follows: 2017, $260.0 million at 3.90% weighted-average interest rate (“WAR”) and 2018, $20.0 million at 2.53% WAR.

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CAPITAL RESOURCES AND LIQUIDITY

Capital Resources

Subordinated Debentures. At September 30, 2010 and 2009 and at December 31, 2009, the Company had an aggregate of $64.9 million of subordinated debentures and related trust preferred securities outstanding consisting of $20.6 million of subordinated debentures and securities issued in 2006 that bear interest, adjustable quarterly, at LIBOR plus 1.60%; $15.4 million of subordinated debentures and securities issued in 2004 that bear interest, adjustable quarterly, at LIBOR plus 2.22%; and $28.9 million of subordinated debentures and securities issued in 2003 that bear interest, adjustable quarterly, at a weighted-average rate of LIBOR plus 2.925%. These subordinated debentures and securities generally mature 30 years after issuance and may be prepaid at par, subject to regulatory approval, on or after approximately five years from the date of issuance, or at an earlier date upon certain changes in tax laws, investment company laws or regulatory capital requirements. These subordinated debentures and the related trust preferred securities provide the Company additional regulatory capital to support its expected future growth and expansion.

Preferred Stock and Common Stock Warrant. On December 12, 2008, as part of the United States Department of the Treasury’s (the “Treasury”) Capital Purchase Program made available to certain financial institutions in the U.S. pursuant to the Emergency Economic Stabilization Act of 2008 (“EESA”), the Company and the Treasury entered into a Letter Agreement including the Securities Purchase Agreement – Standard Terms incorporated therein pursuant to which the Company issued to the Treasury, in exchange for aggregate consideration of $75.0 million, (i) 75,000 shares of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A, par value $0.01 and liquidation preference $1,000 per share (the “Series A Preferred Stock”), and (ii) a warrant (the “Warrant”) to purchase up to 379,811 shares of the Company’s common stock, par value $0.01 per share, at an exercise price of $29.62 per share. On November 4, 2009 the Company redeemed all of the Series A Preferred Stock for $75.0 million, plus accrued and unpaid dividends, with the approval of the Company’s primary regulator in consultation with the Treasury. On November 24, 2009, the Company repurchased the Warrant from the Treasury for $2.65 million, which was charged against the Company’s additional paid-in capital.

Preferred Stock Dividend. The Series A Preferred Stock paid cumulative quarterly cash dividends at a rate of 5% per annum while it was outstanding. These cash dividends and the amortization of the discount on issuance of the Series A Preferred Stock resulted in total dividends of $1.1 million in the third quarter of 2009 and $3.2 million in the first nine months of 2009 (none during the quarter or nine months ended September 30, 2010.)

Tangible Common Equity. The Company uses its tangible common equity ratio as the principal measure of the strength of its capital. The tangible common equity ratio is calculated by dividing total common equity less intangible assets by total assets less intangible assets. The Company’s tangible common equity ratio was 9.74% at September 30, 2010 compared to 9.53% at December 31, 2009 and 9.29% at September 30, 2009.

Common Stock Dividend Policy. During the quarter ended September 30, 2010, the Company paid a dividend of $0.15 per common share compared to $0.13 per common share in the quarter ended September 30, 2009. On October 1, 2010, the Company’s board of directors approved a dividend of $0.16 per common share that was paid on October 22, 2010. The determination of future dividends on the Company’s common stock will depend on conditions existing at that time.

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Capital Compliance

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

The Company’s and the Bank’s risk-based capital and leverage ratios exceeded these minimum requirements, as well as the minimum requirements to be considered “well capitalized”, at both September 30, 2010 and December 31, 2009, and are presented in the following tables.

Consolidated Capital Ratios


	September 30, 2010			December 31, 2009
	(Dollars in thousands)
Tier 1 capital:
Common stockholders’ equity	$	316,072		$	269,028
Allowed amount of trust preferred securities		63,000			63,000
Net unrealized gains on investment securities AFS		(10,624	)		(6,032	)
Less goodwill and certain intangible assets		(7,536	)		(5,554	)

Total tier 1 capital		360,912			320,442

Tier 2 capital:
Qualifying allowance for loan and lease losses		29,337			29,207

Total risk-based capital	$	390,249		$	349,649


Risk-weighted assets	$	2,336,050		$	2,326,185


Adjusted quarterly average assets	$	3,076,253		$	2,813,053


Ratios at end of period:
Tier 1 leverage		11.73	%		11.39	%
Tier 1 risk-based capital		15.45			13.78
Total risk-based capital		16.71			15.03

Minimum ratio guidelines:
Tier 1 leverage ⁽¹⁾		3.00	%		3.00	%
Tier 1 risk-based capital		4.00			4.00
Total risk-based capital		8.00			8.00

Minimum ratio guidelines to be “well capitalized”:
Tier 1 leverage		5.00	%		5.00	%
Tier 1 risk-based capital		6.00			6.00
Total risk-based capital		10.00			10.00

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

Capital Ratios of the Bank


	September 30, 2010			December 31, 2009
	(Dollars in thousands)
Stockholders’ equity – Tier 1	$	343,367		$	299,683
Tier 1 leverage ratio		11.23	%		10.72	%
Tier 1 risk-based capital ratio		14.78			12.96
Total risk-based capital ratio		16.03			14.22

Liquidity

Bank Liquidity. Liquidity represents an institution’s ability to provide funds to satisfy demands from depositors, borrowers and other creditors by either converting assets into cash or accessing new or existing sources of incremental funds. Generally the Company relies on deposits, loan and lease repayments and repayments or sales of its investment securities as its primary sources of funds. The principal deposit sources utilized by the Company include consumer, commercial and public funds customers in the Company’s markets. The Company has used these funds, together with brokered deposits, FHLB advances, federal funds purchased and other sources of short-term borrowings, to make loans and leases, acquire investment securities and other assets and to fund continuing operations.

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

At September 30, 2010 the Company had unused borrowing availability that was primarily comprised of the following four sources: (1) $464 million of available blanket borrowing capacity with the FHLB – Dallas, (2) $23 million of investment securities available to pledge for federal funds or other borrowings, (3) $92 million of available unsecured federal funds borrowing lines and (4) $94 million from borrowing programs of the FRB.

The Company anticipates it will continue to rely on deposits, loan and lease repayments and repayments of its investment securities to provide liquidity, as well as other funding sources as appropriate. Additionally, when necessary, the sources of borrowed funds described above will be used to augment the Company’s primary funding sources.

Emergency Economic Stabilization Act of 2008 and FDIC Temporary Liquidity Guaranty Program. On October 3, 2008, Congress passed, and the President signed into law, the EESA. The EESA, among other things, included a provision for an increase in the amount of deposits insured by the FDIC from $100,000 to $250,000 through December 31, 2013.

On October 14, 2008, the FDIC announced the Temporary Liquidity Guaranty Program (“TLGP”) that, among other things, provides unlimited deposit insurance on certain transaction accounts. The unlimited deposit insurance covers funds to the extent such funds are not otherwise covered by the existing deposit insurance limit of $250,000 in (i) non-interest bearing transaction deposit accounts and (ii) certain interest bearing transaction deposit accounts where the participating institution agrees to pay interest on such deposits at a rate not to exceed 25 bps. Such covered transaction accounts were initially insured through December 31, 2009 at a fee of 10 bps per annum paid by the Company’s bank subsidiary to the FDIC on deposit amounts in excess of $250,000. In August 2009, the FDIC extended the deposit insurance through June 30, 2010 and on April 13, 2010, the FDIC extended the deposit insurance through December 31, 2010 with the possibility of an additional 12-month extension. The fee payable by the Company to the FDIC to continue to participate in this insurance program increased effective January 1, 2010 to 15 bps per annum on deposits in excess of $250,000.

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”) was signed into law. Among other things, the Dodd-Frank Act provides full deposit insurance with no maximum coverage amount for noninterest bearing transaction accounts for two years beginning December 31, 2010. Participation in this deposit insurance coverage of the Dodd-Frank Act is mandatory for all financial institutions and requires no separate fee assessment to the Bank. Additionally, the Dodd-Frank Act permanently increases the maximum deposit insurance coverage for all other deposit categories to $250,000 retroactive to January 1, 2008.

Sources and Uses of Funds. Net cash provided by operating activities totaled $28.5 million and $40.5 million for the nine months ended September 30, 2010 and 2009, respectively. Net cash provided by operating activities is comprised primarily of net income, adjusted for certain non-cash items and for changes in operating assets and liabilities.

Investing activities provided $373.6 million in the nine months ended September 30, 2010 and $318.4 million in the nine months ended September 30, 2009. The Company’s primary sources and uses of cash for investing activities include net loan and lease fundings, which provided $14.8 million and used $8.2 million in the nine months ended September 30, 2010 and 2009, respectively, purchases of premises and equipment, which used $10.0 million and $8.1 million in the nine months ended September 30, 2010 and 2009, respectively, and net activity in its investment securities portfolio, which provided $190.6 million and $318.1 million in the nine months ended September 30, 2010 and 2009, respectively.

The Company had proceeds from dispositions of premises and equipment and other assets of $13.6 million and $16.1 million for the nine months ended September 30, 2010 and 2009, respectively. The Company received $141.1 million of cash in connection with its FDIC-assisted transactions in 2010 and received net cash of $37.9 million from liquidation of covered assets in the first nine months of 2010. During the nine months ended September 30, 2010, the Company purchased $10.2 million of BOLI and invested $4.1 million in unconsolidated investments.

Financing activities used $426.1 million in the nine months ended September 30, 2010 and $362.9 million in the nine months ended September 30, 2009. The Company’s primary financing activities include net changes in deposit accounts, which used $331.2 million and $296.3 million in the nine months ended September 30, 2010 and 2009, respectively, and net proceeds from, or repayments of, other borrowings and repurchase agreements with customers, which used $90.0 million and $57.9 million in the nine months ended September 30, 2010 and 2009, respectively. In addition the Company paid common stock cash dividends of $7.5 million and $6.6 million in the nine months ended September 30, 2010 and 2009, respectively. The Company also paid cash dividends on its Series A Preferred Stock of $2.5 million during the nine months ended September 30, 2009 but none during the same period in 2010. Proceeds and current tax benefits from exercise of stock options provided $2.6 million and $0.4 million during the nine months ended September 30, 2010 and 2009, respectively.

Growth and Expansion

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

On July 16, 2010 the Company, through the Bank, entered into a purchase and assumption agreement with loss share agreements with the FDIC pursuant to which it acquired substantially all of the assets and assumed substantially all of the deposits and other liabilities of Woodlands, with offices in South Carolina (2), North Carolina (2), Georgia (1) and Alabama (3). On October 26, 2010 the Company closed four of Woodlands’ offices including one each in South Carolina and North Carolina, and two in Alabama.

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

The Company expects to continue its growth and de novo branching strategy, although it has slowed the pace of new office openings in recent years and currently has a significant focus on additional FDIC-assisted transactions. In addition to the offices added in 2010 as a result of the Company’s three FDIC-assisted acquisitions, the Company expects to open a de novo office in Benton, Arkansas in late 2010 and three metro-Dallas offices in the first half of 2011.

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

During the first nine months of 2010, the Company incurred $10.0 million on capital expenditures for premises and equipment, including premises and equipment acquired in FDIC-assisted acquisitions. The Company’s capital expenditures for the full year of 2010 are expected to be in the range of $15 million to $17 million and include progress payments on construction projects expected to be completed in 2010 or 2011, furniture and equipment costs and acquisition of sites for future development. Actual expenditures may vary significantly from those expected, depending on the number and cost of additional sites acquired for future development, progress or delays encountered on ongoing and new construction projects, delays in or inability to obtain required approvals and other factors.

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Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates, assumptions and judgments that affect the amounts reported in the consolidated financial statements. The Company’s determination of (i) the provisions to and the adequacy of the allowance for loan and lease losses, (ii) the fair value of its investment securities portfolio, (iii) the fair value of foreclosed assets held for sale and (iv) the fair value of the assets acquired and liabilities assumed pursuant to business combination transactions all involve a higher degree of judgment and complexity than its other significant accounting policies. Accordingly, the Company considers the determination of (i) the adequacy of the allowance for loan and lease losses, (ii) the fair value of its investment securities portfolio, (iii) the fair value of foreclosed assets held for sale and (iv) the fair value of the assets acquired and liabilities assumed pursuant to business combination transactions to be critical accounting policies.

Provisions to and adequacy of the allowance for loan and lease losses. Provisions to and the adequacy of the allowance for loan and lease losses are determined in accordance with ASC Topic 310 and ASC Topic 450, and are based on the Company’s evaluation of the loan and lease portfolio utilizing objective and subjective criteria as described in this report. See the “Analysis of Financial Condition” section of this Management’s Discussion and Analysis for a detailed discussion of the Company’s allowance for loan and lease losses. Changes in the criteria used in this evaluation or the availability of new information could cause the allowance to be increased or decreased in future periods. In addition bank regulatory agencies, as part of their examination process, may require adjustments to the allowance for loan and lease losses based on their judgments and estimates.

Fair value of the investment securities portfolio. The Company has classified all of its investment securities as AFS. Accordingly, its investment securities are stated at estimated fair value in the consolidated financial statements with unrealized gains and losses, net of related income taxes, reported as a separate component of stockholders’ equity and any related changes are included in accumulated other comprehensive income (loss).

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

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

Fair value of foreclosed assets held for sale. Repossessed personal properties and real estate acquired through or in lieu of foreclosure are measured on a non-recurring basis and are initially recorded at the lesser of current principal investment or fair value less estimated cost to sell at the date of repossession or foreclosure. Valuations of these assets are periodically reviewed by management with the carrying value of such assets adjusted through non-interest expense to the then estimated fair value net of estimated selling costs, if lower, until disposition. Fair values of other real estate are generally based on third party appraisals, broker price opinions or other valuations of the property.

Fair value of assets acquired and liabilities assumed pursuant to business combination transactions. Assets acquired and liabilities assumed in business combinations are recorded at estimated fair value on their purchase date with no carryover of the allowance for loan and lease losses. Purchased loans are accounted for in accordance with accounting guidance for certain loans or debt securities acquired in a transfer when the loans have evidence of credit deterioration since origination and it is probable at the date of acquisition that the acquirer will not be able to collect all contractually acquired principal and interest payments. The difference between contractually acquired payments and the cash flows expected to be collected at acquisition is referred to as the non-accretable difference. Subsequent decreases to the expected cash flows will generally result in a provision for loan and lease losses. Subsequent increases in cash flows will result in a reversal of the provision for loan and lease losses to the extent of prior charges and then as an adjustment in accretable yield, which would have a positive impact on interest income.

The estimated fair value of covered assets and the FDIC loss share receivables on their purchase date are based on the net present value of expected future cash proceeds. The discount rates used are derived from current market rates and reflect the level of inherent risk in the assets. The expected cash flows are determined based on contractual terms, expected performance, default timing assumptions, property appraisals and other factors.

The fair values of investment securities acquired in business combinations are generally based on quoted market prices, broker quotes, comprehensive interest rate tables or pricing matrices or a combination thereof. The fair value of assumed liabilities in business combinations on their date of purchase is generally the amount payable by the Company necessary to completely satisfy the assumed obligation.

Recently Issued Accounting Standards

See Note 14 to the Consolidated Financial Statements for a discussion of certain recently issued and recently adopted accounting pronouncements.

Forward-Looking Information

This Management’s Discussion and Analysis of Financial Condition and Results of Operations, other filings made by the Company with the Securities and Exchange Commission and other oral and written statements or reports by the Company and its management include certain forward-looking statements including, without limitation, statements about economic, housing market, competitive and interest rate conditions; plans, goals, beliefs, thoughts, expectations and outlook for 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 FDIC-assisted transactions; non-interest expense, including the cost of opening new offices and the cost of FDIC deposit insurance assessments; efficiency ratios; anticipated future operating results and financial performance; asset quality, including the effects of current economic and real estate market conditions; nonperforming loans and leases; nonperforming assets; net charge-offs; past due loans and leases; litigation; interest rate sensitivity, including the effects of possible interest rate changes and the potential effects on interest rates of changes in U.S. Government monetary and fiscal policy; future growth and expansion opportunities, including plans for opening new offices and making additional FDIC-assisted acquisitions; opportunities and goals for future market share growth; expected capital expenditures; loan, lease and deposit growth; changes in the volume, yield and value of the Company’s investment securities portfolio; availability of unused borrowings and other similar forecasts and statements of expectation. Words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “look,” “seek,” “may,” “will,” “could,” “trend,” “target,” “goal,” and similar expressions, as they relate to the Company or its management, identify forward-looking statements. Forward-looking statements made by the Company and its management are based on estimates, projections, beliefs, plans and assumptions of management at the time of such statements and are not guarantees of future performance. The Company disclaims any obligation to update or revise any forward-looking statement based on the occurrence of future events, the receipt of new information or otherwise.

Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements made by the Company and its management due to certain risks, uncertainties and assumptions. Certain factors that may affect operating results of the Company include, but are not limited to, potential delays or other problems in implementing the Company’s growth and expansion strategy including delays in identifying satisfactory sites, hiring qualified personnel, obtaining regulatory or other approvals, obtaining permits and designing, constructing and opening new offices; the ability to attract new deposits, loans and leases; the ability to generate future revenue growth or to control future growth in non-interest expense; the inability to successfully integrate the Unity, Woodlands and Horizon acquisitions or any other FDIC-assisted acquisitions, including the inability to achieve expected operating profits from the acquisitions; interest rate fluctuations, including continued interest rate changes and/or changes in the yield curve between short-term and long-term interest rates; competitive factors and pricing pressures, including their effect on the Company’s net interest margin; general economic, unemployment, credit market and real estate market conditions, including their effect on the creditworthiness of borrowers and lessees, collateral values and the value of investment securities; changes in legal and regulatory requirements; changes in regular or special assessments by the FDIC for deposit insurance; recently enacted and potential legislation and regulatory actions including legislation and regulatory actions intended to stabilize economic conditions and credit markets, increase regulation of the financial services industry and protect homeowners or consumers; adoption of new accounting standards or changes in existing standards; and adverse results in litigation as well as other factors described in this and other Company reports and statements. Should one or more of the foregoing risks materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from those described in the forward-looking statements.

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SELECTED AND SUPPLEMENTAL FINANCIAL DATA

The following tables set forth selected consolidated financial data of the Company for the three months and nine months ended September 30, 2010 and 2009 and supplemental quarterly financial data of the Company for each of the most recent eight quarters beginning with the fourth quarter of 2008 through the third quarter of 2010. These tables are qualified in their entirety by the consolidated financial statements and related notes presented elsewhere in this report.

Selected Consolidated Financial Data

Unaudited


	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
	(Dollars in thousands, except per share amounts)
Income statement data:
Interest income	$	41,092		$	39,904		$	115,885		$	127,753
Interest expense		8,324			10,672			26,195			37,924
Net interest income		32,768			29,232			89,690			89,829
Provision for loan and lease losses		4,300			7,500			11,900			39,200
Non-interest income		25,183			5,810			51,676			37,793
Non-interest expense		23,565			15,499			62,140			49,631
Noncontrolling interest		17			25			60			2
Preferred stock dividends		—			1,078			—			3,228
Net income available to common stockholders		20,225			8,391			47,070			27,178
Common share and per common share data:
Earnings – diluted	$	1.19		$	0.50		$	2.77		$	1.61
Book value		18.60			16.21			18.60			16.21
Dividends		0.15			0.13			0.44			0.39
Weighted-average diluted shares outstanding (thousands)		17,067			16,905			17,015			16,895
End of period shares outstanding (thousands)		16,990			16,885			16,990			16,885
Balance sheet data at period end:
Total assets	$	3,176,152		$	2,889,686		$	3,176,152		$	2,889,686
Total loans and leases not covered by loss share		1,888,936			1,931,372			1,888,936			1,931,372
Allowance for loan and lease losses		40,250			39,280			40,250			39,280
Loans covered by loss share		394,482			—			394,482			—
ORE covered by loss share		17,540			—			17,540			—
FDIC loss share receivable		122,098			—			122,098			—
Total investment securities		412,443			645,682			412,443			645,682
Total deposits		2,415,714			2,045,156			2,415,714			2,045,156
Repurchase agreements with customers		55,750			52,270			55,750			52,270
Other borrowings		294,502			361,679			294,502			361,679
Subordinated debentures		64,950			64,950			64,950			64,950
Preferred stock, net of unamortized discount		—			72,296			—			72,296
Total common stockholders’ equity		316,072			273,658			316,072			273,658
Loan and lease (including covered loans) to deposit ratio		94.52	%		94.44	%		94.52	%		94.44	%
Average balance sheet data:
Total average assets	$	3,083,789		$	2,910,651		$	2,930,684		$	3,066,121
Total average common stockholders’ equity		305,378			267,082			288,800			266,383
Average common equity to average assets		9.90	%		9.18	%		9.85	%		8.69	%
Performance ratios:
Return on average assets*		2.60	%		1.14	%		2.18	%		1.19	%
Return on average common stockholders’ equity*		26.28			12.46			21.79			13.64
Net interest margin – FTE*		5.31			4.80			5.14			4.77
Efficiency ratio		39.02			41.22			41.71			36.12
Common stock dividend payout ratio		12.58			26.15			15.83			24.21
Asset quality ratios:
Net charge-offs to average total loans and leases*⁽¹⁾		0.88	%		2.38	%		0.80	%		1.97	%
Nonperforming loans and leases to total loans and leases⁽¹⁾		0.90			1.00			0.90			1.00
Nonperforming assets to total assets⁽¹⁾		1.85			2.88			1.85			2.88
Allowance for loan and lease losses as a percentage of:
Total loans and leases⁽¹⁾		2.13	%		2.03	%		2.13	%		2.03	%
Nonperforming loans and leases⁽¹⁾		236	%		203	%		2.36	%		203	%
Capital ratios at period end:
Tier 1 leverage		11.73	%		13.35	%		11.73	%		13.35	%
Tier 1 risk-based capital		15.45			16.38			15.45			16.38
Total risk-based capital		16.71			17.63			16.71			17.63

*	Ratios annualized based on actual days.

(1)	Excludes loans and/or other real estate covered by FDIC loss share agreements, except for their inclusion in total assets.

Bank of the Ozarks, Inc.

Supplemental Quarterly Financial Data

(Dollars in Thousands, Except Per Share Amounts)

Unaudited


	12/31/08			3/31/09			6/30/09			9/30/09			12/31/09			3/31/10			6/30/10			9/30/10
Earnings Summary:
Net interest income	$	28,731		$	30,334		$	30,262		$	29,232		$	28,495		$	27,193		$	29,729		$	32,768
Federal tax (FTE) adjustment		3,950			4,169			3,060			2,557			2,229			2,649			2,554			2,447

Net interest income (FTE)		32,681			34,503			33,322			31,789			30,724			29,842			32,283			35,215
Provision for loan and lease losses		(8,300	)		(10,600	)		(21,100	)		(7,500	)		(5,600	)		(4,200	)		(3,400	)		(4,300	)
Non-interest income		3,796			9,373			22,610			5,810			13,257			17,365			9,127			25,183
Non-interest expense		(14,233	)		(16,187	)		(17,945	)		(15,499	)		(19,001	)		(17,471	)		(21,110	)		(23,565	)

Pre-tax income (FTE)		13,944			17,089			16,887			14,600			19,380			25,536			16,900			32,533
FTE adjustment		(3,950	)		(4,169	)		(3,060	)		(2,557	)		(2,229	)		(2,649	)		(2,554	)		(2,447	)
Provision for income taxes		(655	)		(2,537	)		(3,250	)		(2,599	)		(4,472	)		(6,944	)		(3,488	)		(9,878	)
Noncontrolling interest		(21	)		(23	)		—			25			17			11			32			17
Preferred stock dividend		(227	)		(1,074	)		(1,076	)		(1,078	)		(3,048	)		—			—			—

Net income available to common stockholders	$	9,091		$	9,286		$	9,501		$	8,391		$	9,648		$	15,954		$	10,890		$	20,225

Earnings per common share – diluted	$	0.54		$	0.55		$	0.56		$	0.50		$	0.57		$	0.94		$	0.64		$	1.19
Non-interest Income:
Service charges on deposit accounts	$	3,067		$	2,803		$	3,047		$	3,234		$	3,338		$	3,202		$	3,933		$	4,002
Mortgage lending income		434			861			1,096			672			682			527			815			1,024
Trust income		712			647			751			801			880			922			794			802
Bank owned life insurance income		2,630			477			484			495			1,729			464			534			580
Gains (losses) on investment securities		(3,136	)		3,999			16,519			142			6,322			1,697			2,052			570
Gains (losses) on sales of other assets		(579	)		48			(32	)		(51	)		(142	)		(73	)		38			267
Gains on FDIC-assisted transactions		—			—			—			—			—			10,037			—			16,122
Other		668			538			745			517			448			589			961			1,816

Total non-interest income	$	3,796		$	9,373		$	22,610		$	5,810		$	13,257		$	17,365		$	9,127		$	25,183
Non-interest Expense:
Salaries and employee benefits	$	7,448		$	7,916		$	7,978		$	7,823		$	8,131		$	8,275		$	8,996		$	10,539
Net occupancy expense		2,306			2,578			2,449			2,558			2,156			2,421			2,416			2,782
Other operating expenses		4,452			5,666			7,490			5,091			8,686			6,748			9,587			10,085
Amortization of intangibles		27			27			28			27			28			27			111			159

Total non-interest expense	$	14,233		$	16,187		$	17,945		$	15,499		$	19,001		$	17,471		$	21,110		$	23,565

Allowance for Loan and Lease Losses:
Balance at beginning of period	$	25,427		$	29,512		$	36,949		$	43,635		$	39,280		$	39,619		$	39,774		$	40,176
Net charge-offs		(4,215	)		(3,163	)		(14,414	)		(11,855	)		(5,261	)		(4,045	)		(2,998	)		(4,226	)
Provision for loan and lease losses		8,300			10,600			21,100			7,500			5,600			4,200			3,400			4,300

Balance at end of period	$	29,512		$	36,949		$	43,635		$	39,280		$	39,619		$	39,774		$	40,176		$	40,250
Selected Ratios:
Net interest margin - FTE*		4.52	%		4.73	%		4.80	%		4.80	%		4.89	%		4.99	%		5.10	%		5.31	%
Efficiency ratio		39.08			36.95			32.08			41.22			43.20			37.01			50.98			39.02
Net charge-offs to average loans and leases*(1)		0.83			0.64			2.89			2.38			1.08			0.86			0.64			0.88
Nonperforming loans and leases/total loans and leases(1)		0.76			1.15			0.90			1.00			1.24			1.02			0.87			0.90
Nonperforming assets/total assets(1)		0.81			1.17			1.37			2.88			3.06			2.68			2.12			1.85
Loans and leases past due 30 days or more, including past due non-accrual loans and leases, to total loans and leases(1)		2.68			2.24			2.34			1.77			1.99			1.70			1.80			1.90

*	Annualized based on actual days.

(1)	Excludes loans and/or ORE covered by FDIC loss share agreements, except for their inclusion in total assets.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Interest rate risk results from timing differences in the repricing of assets and liabilities or from changes in relationships between interest rate indexes. The Company’s interest rate risk management is the responsibility of the ALCO and Investments Committee (“ALCO”), which reports to the board of directors. The ALCO oversees the asset/liability (interest rate risk) position, liquidity and funds management and investment portfolio functions of the Company.

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

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

The following table presents the earnings simulation model’s projected impact of a change in interest rates on the projected baseline net interest income for the 12-month period commencing October 1, 2010. This change in interest rates assumes parallel shifts in the yield curve and does not take into account changes in the slope of the yield curve.


Shift in Interest Rates (in bps)		% Change in Projected Baseline Net Interest Income
+400		(1.5)%
+300		(1.8)
+200		(1.6)
+100		(0.9)
-100		Not meaningful
-200		Not meaningful

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

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Item 4.

Controls and Procedures

(a)

Evaluation of Disclosure Controls and Procedures.

An evaluation as of the end of the period covered by this quarterly report was carried out under the supervision and with the participation of the Company’s management, including the Company’s Chairman and Chief Executive Officer and the Company’s Chief Financial Officer and Chief Accounting Officer, of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures,” which are defined under SEC rules as controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within required time periods. Based upon that evaluation, the Company’s Chairman and Chief Executive Officer and its Chief Financial Officer and Chief Accounting Officer concluded that the Company’s disclosure controls and procedures were effective.

(b)

Changes in Internal Control over Financial Reporting.

The Company’s management, including the Company’s Chairman and Chief Executive Officer and the Company’s Chief Financial Officer and Chief Accounting Officer, has evaluated any changes in the Company’s internal control over financial reporting that occurred during the quarterly period covered by this report and has concluded that there was no change during the quarterly period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

The Company is party to various legal proceedings arising in the ordinary course of business. While the ultimate resolution of these various proceedings cannot be determined at this time, management of the Company believes that such proceedings, individually or in the aggregate, will not have a material adverse effect on the future results of operations, financial condition or liquidity of the Company.

Item 1A.

Risk Factors

Except as discussed in the following paragraphs, there have been no material changes to the risk factors disclosed in Item 1A. Risk Factors in the Company’s 2009 annual report on Form 10-K filed with the Securities and Exchange Commission on March 10, 2010.

The Company May Engage in FDIC-Assisted Transactions, Which Could Present Additional Risks To Its Business

In the current economic environment, the Company has been and may be presented with opportunities to acquire the assets and assume liabilities of failed banks in FDIC-assisted transactions. These acquisitions involve risks similar to acquiring existing banks even though the FDIC might provide assistance to mitigate certain risks such as sharing in exposure to loan losses and losses on other covered assets and providing indemnification against certain liabilities of the failed institution. However, because these acquisitions are for failed banks and are structured in a manner that does not allow the Company the time normally associated with preparing for and evaluating an acquisition (including preparing for integration of an acquired institution), the Company may face additional risks when it engages in FDIC-assisted transactions. The assets that the Company acquires in such a transaction are generally more troubled than in a typical acquisition. The deposits that the Company assumes are generally higher priced than in a typical acquisition and therefore subject to higher attrition. Integration may be more difficult in this type of acquisition than in a typical acquisition since key staff may have departed. Any inability to overcome these risks could have an adverse effect on the Company’s ability to achieve its business objectives and maintain its market value and profitability.

Until recently, the FDIC’s approach to loss sharing provided for indemnification by the FDIC of the acquiring institution against loss equal to 80% of losses with respect to covered assets of the acquired institution up to a stated threshold (in the Unity transaction, $65 million), and 95% of losses incurred by the acquiring institution with respect to such covered assets above the stated threshold. The FDIC modified its policy for transactions occurring after March 31, 2010 where the FDIC provides loss share assistance, and the indemnification in such transactions cover only 80% of all losses with respect to covered assets and no longer will cover 95% of such losses above a stated threshold. In August 2010, the FDIC further modified its policy for loss share assistance whereby the FDIC establishes three separate tranches for both single family residential real estate loans and non-single family residential real estate loans and provides loss share assistance at varying levels for each of the tranches. In addition, certain consumer loans are not covered by FDIC loss sharing agreements. These modifications of the indemnification protection increase the risk of loss to acquiring institutions in FDIC-assisted transactions, including the Company’s July 2010 FDIC-assisted acquisition of Woodlands and its September 2010 FDIC-assisted acquisition of Horizon, and could result in a material adverse effect on the Company’s financial condition, results of operations or liquidity. There can be no assurance that the FDIC will not alter other terms of the loss share agreements in any future transactions, which could further increase the risk to the Company of adverse impacts on its financial condition, results of operation or liquidity in the event it acquires all or substantially all of the assets, deposits and other liabilities of failed institutions in any future FDIC-assisted transactions.

Moreover, even if the Company is inclined to participate in additional FDIC-assisted transactions, the Company can only participate in the bid process if it receives approval of bank regulators. There can be no assurance that the Company will be allowed to participate in the bid process, or what the terms of any such transaction might be or whether the Company would be successful in acquiring any bank or targeted assets. The Company may be required to raise additional capital as a condition to, or as a result of, participation in certain FDIC-assisted transactions. Any such transactions and related issuances of stock may have a dilutive effect on earnings per common share and share ownership.

Furthermore, to the extent the Company is allowed to, and chooses to, participate in FDIC-assisted transactions, the Company may face competition from other financial institutions with respect to proposed FDIC-assisted transactions. To the extent that other competitors are selected to participate in FDIC-assisted transactions, the Company’s ability to make acquisitions on favorable terms may be adversely affected.

Failure to Comply with the Terms of Loss Sharing Arrangements with the FDIC May Result in Significant Losses

Any failure to comply with the terms of any loss share agreements the Bank has with the FDIC, or to properly service the loans and other real estate owned covered by any loss share agreements, may cause individual loans, large pools of loans or other covered assets to lose eligibility for reimbursement to the Bank from the FDIC. This could result in material losses that are currently not anticipated and could adversely affect the Company’s financial condition, results of operations or liquidity.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

The Company had no unregistered sales of equity securities and did not purchase any shares of its common stock during the period covered by this report.

Item 3.

Defaults Upon Senior Securities

Not Applicable.

Item 4.

Reserved

Item 5.

Other Information

Not Applicable

Item 6.

Exhibits

Reference is made to the Exhibit Index set forth immediately following the signature page of this report.

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SIGNATURE

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


				Bank of the Ozarks, Inc.

DATE: November 8, 2010				/s/ Paul Moore
				Paul Moore
				Chief Financial Officer and
				Chief Accounting Officer

Bank of the Ozarks, Inc.

Exhibit Index


Exhibit Number

2 (i)		Purchase and Assumption Agreement, dated as of March 26, 2010, among Federal Insurance Deposit Corporation, Receiver of Unity National Bank, Cartersville, Georgia, Federal Deposit Insurance Corporation and Bank of the Ozarks (previously filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K, as amended, filed with the Commission on April 1, 2010, and incorporated herein by this reference).

2(i) (a)		Purchase and Assumption Agreement, dated as of July 16, 2010, among Federal Insurance Deposit Corporation, Receiver of Woodlands Bank, Bluffton, South Carolina, Federal Deposit Insurance Corporation and Bank of the Ozarks (previously filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K, as amended, filed with the Commission on July 22, 2010, and incorporated herein by this reference).

2(i) (b)		Purchase and Assumption Agreement, dated as of September 10, 2010, among Federal Insurance Deposit Corporation, Receiver of Horizon Bank, Bradenton, Florida, Federal Deposit Insurance Corporation and Bank of the Ozarks (previously filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K, as amended, filed with the Commission on September 16, 2010, and incorporated herein by this reference).

3 (i) (a)		Amended and Restated Articles of Incorporation of the Registrant, dated May 22, 1997 (previously filed as Exhibit 3.1 to the Company’s Registration Statement on Form S-1 filed with the Commission on May 22, 1997, as amended, Commission File No. 333-27641, and incorporated herein by this reference).

3 (i) (b)		Articles of Amendment to the Amended and Restated Articles of Incorporation of the Registrant dated December 9, 2003 (previously filed as Exhibit 3.2 to the Company’s Annual Report on Form 10-K filed with the Commission on March 12, 2004 for the year ended December 31, 2003, and incorporated herein by this reference).

3 (i) (c)		Articles of Amendment to the Amended and Restated Articles of Incorporation of the Registrant dated December 10, 2008 (previously filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Commission on December 10, 2008, and incorporated herein by this reference).

3 (ii)		Amended and Restated Bylaws of the Registrant, dated December 11, 2007 (previously filed as Exhibit 3(ii) to the Company’s Current Report on Form 8-K filed with the Commission on December 11, 2007, and incorporated herein by this reference).

31.1		Certification of Chairman and Chief Executive Officer.

31.2		Certification of Chief Financial Officer and Chief Accounting Officer.

32.1		Certification of Chairman and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer and Chief Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.