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 June 30, 2011

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

For the transition period from to .

Commission File Number 0-22759

BANK OF THE OZARKS, INC.

(Exact name of registrant as specified in its charter)


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

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

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

None

(Title of Class)

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

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

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

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 June 30, 2011
Common Stock, $0.01 par value per share		17,118,440

BANK OF THE OZARKS, INC.

FORM 10-Q

June 30, 2011

INDEX



PART I.	Financial Information

Item 1.	Financial Statements

		Consolidated Balance Sheets as of June 30, 2011 and 2010 and December 31, 2010	1

		Consolidated Statements of Income for the Three Months Ended June 30, 2011 and 2010 and the Six Months Ended June 30, 2011 and 2010	2

		Consolidated Statements of Stockholders’ Equity for the Six Months Ended June 30, 2011 and 2010	3

		Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2011 and 2010	4

		Notes to Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		26

	Selected and Supplemental Financial Data		59

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		61

Item 4.	Controls and Procedures		62

PART II.	Other Information

Item 1.	Legal Proceedings		63

Item 1A.	Risk Factors		63

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		63

Item 3.	Defaults Upon Senior Securities		63

Item 4.	Reserved		63

Item 5.	Other Information		63

Item 6.	Exhibits		63

Signature			64

Exhibit Index			65

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BANK OF THE OZARKS, INC.

CONSOLIDATED BALANCE SHEETS


	Unaudited June 30,						December 31, 2010
	2011			2010			December 31, 2010
	(Dollars in thousands, except per share amounts)
ASSETS
Cash and due from banks	$	79,712		$	59,453		$	48,024
Interest earning deposits		1,602			710			1,005

Cash and cash equivalents		81,314			60,163			49,029
Investment securities - available for sale (“AFS”)		499,244			453,463			398,698
Loans and leases, excluding covered loans		1,802,127			1,900,174			1,856,429
Allowance for loan and lease losses		(39,124	)		(40,176	)		(40,230	)

Net loans and leases		1,763,003			1,859,998			1,816,199
Covered assets:
Loans		908,698			124,546			496,090
Other real estate owned		78,047			8,541			31,145
Federal Deposit Insurance Corporation (“FDIC”) loss share receivable		351,723			44,147			154,150
Premises and equipment, net		181,010			162,992			170,497
Foreclosed and repossessed assets held for sale, net		36,348			44,680			42,216
Accrued interest receivable		13,242			15,247			13,899
Bank owned life insurance		60,914			58,618			59,771
Intangible assets, net		13,220			7,072			7,925
Other, net		40,078			38,805			33,951

Total assets	$	4,026,841		$	2,878,272		$	3,273,570

LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Demand non-interest bearing	$	418,742		$	258,927		$	298,585
Savings and interest bearing transaction		1,644,402			1,109,954			1,299,058
Time		1,107,339			789,690			943,110

Total deposits		3,170,483			2,158,571			2,540,753
Repurchase agreements with customers		39,403			51,677			43,324
Other borrowings		292,682			281,788			282,139
Subordinated debentures		64,950			64,950			64,950
Accrued interest payable and other liabilities		70,217			25,375			18,634

Total liabilities		3,637,735			2,582,361			2,949,800

Commitments and contingencies
Stockholders’ equity:
Common stock; $0.01 par value; 50,000,000 shares authorized; 17,118,440, 16,956,290, and 17,053,640 shares issued and outstanding at June 30, 2011, June 30, 2010 and December 31, 2010, respectively		171			170			170
Additional paid-in capital		48,239			43,424			45,278
Retained earnings		333,943			243,181			275,074
Accumulated other comprehensive income (loss)		3,330			5,712			(167	)

Total stockholders’ equity before noncontrolling interest		385,683			292,487			320,355
Noncontrolling interest		3,423			3,424			3,415

Total stockholders’ equity		389,106			295,911			323,770

Total liabilities and stockholders’ equity	$	4,026,841		$	2,878,272		$	3,273,570

See accompanying notes to consolidated financial statements.

BANK OF THE OZARKS, INC.

CONSOLIDATED STATEMENTS OF INCOME

Unaudited


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
	(Dollars in thousands, except per share amounts)
Interest income:
Loans and leases	$	28,046		$	29,832		$	55,922		$	59,327
Covered loans		17,607			2,584			29,030			2,739
Investment securities:
Taxable		1,057			1,416			1,484			3,065
Tax-exempt		4,139			4,739			8,432			9,650
Deposits with banks and federal funds sold		25			9			28			11

Total interest income		50,874			38,580			94,896			74,792


Interest expense:
Deposits		5,191			5,194			9,972			10,109
Repurchase agreements with customers		57			101			118			210
Other borrowings		2,718			3,124			5,389			6,698
Subordinated debentures		432			432			858			853

Total interest expense		8,398			8,851			16,337			17,870


Net interest income		42,476			29,729			78,559			56,922
Provision for loan and lease losses		(3,750	)		(3,400	)		(6,000	)		(7,600	)

Net interest income after provision for loan and lease losses		38,726			26,329			72,559			49,322


Non-interest income:
Service charges on deposit accounts		4,586			3,933			8,424			7,135
Mortgage lending income		634			815			1,315			1,343
Trust income		803			794			1,585			1,716
Bank owned life insurance income		575			534			1,143			997
Gains on investment securities		199			2,052			351			3,749
Gains (losses) on sales of other assets		705			38			1,112			(35	)
Accretion of FDIC loss share receivable, net of amortization of FDIC clawback payable		2,923			271			4,921			271
Other loss share income, net		984			0			1,955			0
Gains on FDIC-assisted acquisitions		62,756			0			65,708			10,037
Other		893			690			1,534			1,280

Total non-interest income		75,058			9,127			88,048			26,493


Non-interest expense:
Salaries and employee benefits		14,817			8,996			26,464			17,271
Net occupancy and equipment		3,775			2,416			6,881			4,837
Other operating expenses		16,608			9,698			28,047			16,473

Total non-interest expense		35,200			21,110			61,392			38,581


Income before taxes		78,584			14,346			99,215			37,234
Provision for income taxes		28,380			3,488			34,384			10,432

Net income		50,204			10,858			64,831			26,802
Net loss attributable to noncontrolling interest		13			32			16			43

Net income available to common stockholders	$	50,217		$	10,890		$	64,847		$	26,845


Basic earnings per common share	$	2.94		$	0.64		$	3.79		$	1.58


Diluted earnings per common share	$	2.91		$	0.64		$	3.77		$	1.58


Dividends declared per common share	$	0.18		$	0.15		$	0.35		$	0.29

See accompanying notes to consolidated financial statements.

BANK OF THE OZARKS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Unaudited


								Accumulated
			Additional					Other			Non-
	Common		Paid-In		Retained			Comprehensive			controlling
	Stock		Capital		Earnings			Income (Loss)			Interest			Total
	(Dollars in thousands)
Balances – January 1, 2010	$	169	$	41,584	$	221,243		$	6,032		$	3,442		$	272,470
Comprehensive income:
Net income		0		0		26,802			0			0			26,802
Net loss attributable to noncontrolling interest		0		0		43			0			(43	)		0
Other comprehensive income (loss):
Unrealized gains/losses on investment securities AFS, net of $1,264 tax effect		0		0		0			1,958			0			1,958
Reclassification of gains/losses included in net income, net of $1,471 tax effect		0		0		0			(2,278	)		0			(2,278	)

Total comprehensive income															26,482

Common stock dividends		0		0		(4,907	)		0			0			(4,907	)
Issuance of 51,750 shares of common stock for exercise of stock options		1		1,334		0			0			0			1,335
Tax benefit (expense) on exercise and forfeiture of stock options		0		69		0			0			0			69
Stock-based compensation expense		0		437		0			0			0			437
Noncontrolling interest cash contribution		0		0		0			0			25			25

Balances – June 30, 2010	$	170	$	43,424	$	243,181		$	5,712		$	3,424		$	295,911


Balances – January 1, 2011	$	170	$	45,278	$	275,074		$	(167	)	$	3,415		$	323,770
Comprehensive income:
Net income		0		0		64,831			0			0			64,831
Net loss attributable to noncontrolling interest		0		0		16			0			(16	)		0
Other comprehensive income (loss):
Unrealized gains/losses on investment securities AFS, net of $2,394 tax effect		0		0		0			3,710			0			3,710
Reclassification of gains/losses included in net income, net of $138 tax effect		0		0		0			(213	)		0			(213	)

Total comprehensive income															68,328

Common stock dividends		0		0		(5,978	)		0			0			(5,978	)
Issuance of 65,600 shares of common stock for exercise of stock options		1		2,048		0			0			0			2,049
Tax benefit (expense) on exercise and forfeiture of stock options		0		183		0			0			0			183
Stock-based compensation expense		0		730		0			0			0			730
Forfeiture of 800 shares of unvested common stock under restricted stock plan		0		0		0			0			0			0
Noncontrolling interest cash contribution		0		0		0			0			24			24

Balances – June 30, 2011	$	171	$	48,239	$	333,943		$	3,330		$	3,423		$	389,106

See accompanying notes to consolidated financial statements.

BANK OF THE OZARKS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited


	Six Months Ended
	June 30,
	2011			2010
	(Dollars in thousands)
Cash flows from operating activities:
Net income	$	64,831		$	26,802
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		2,557			2,160
Amortization		664			138
Net loss attributable to noncontrolling interest		16			43
Provision for loan and lease losses		6,000			7,600
Provision for losses on foreclosed and repossessed assets		7,442			4,392
Writedown of other assets		1,250			0
Net amortization (accretion) of investment securities AFS		125			(458	)
Net gains on investment securities AFS		(351	)		(3,749	)
Originations and purchases of mortgage loans for sale		(57,173	)		(68,522	)
Proceeds from sales of mortgage loans for sale		62,718			65,808
Net accretion of covered loans		(29,030	)		(2,739	)
Accretion of FDIC loss share receivable, net of amortization of FDIC clawback payable		(4,921	)		(271	)
(Gains) losses on dispositions of premises and equipment, foreclosed and repossessed assets and other assets		(1,112	)		35
Gains on FDIC-assisted acquisitions		(65,708	)		(10,037	)
Deferred income tax expense		28,123			4,051
Increase in cash surrender value of bank owned life insurance (“BOLI”)		(1,143	)		(997	)
Current tax benefit on exercise of stock options		(340	)		(180	)
Compensation expense under stock-based compensation plans		730			437
Changes in assets and liabilities:
Accrued interest receivable		1,177			(445	)
Other assets, net		(4,903	)		59
Accrued interest payable and other liabilities		3,513			1,774

Net cash provided by operating activities		14,465			25,901

Cash flows from investing activities:
Proceeds from sales of investment securities AFS		37,813			112,712
Proceeds from maturities/calls/paydowns of investment securities AFS		11,552			38,100
Purchases of investment securities AFS		(7,573	)		(92,031	)
Net paydowns of portfolio loans and leases		57,220			1,192
Net cash flow from covered assets		139,926			13,516
Purchases of premises and equipment		(12,923	)		(3,551	)
Proceeds from disposition of premises and equipment, foreclosed and repossessed assets and other assets		3,672			10,288
Cash paid for interest in unconsolidated investments and noncontrolling interest		(1,725	)		(4,104	)
Purchase of BOLI		0			(10,200	)
Net cash proceeds received in FDIC-assisted acquisitions		365,394			62,101

Net cash provided by investing activities		593,356			128,023

Cash flows from financing activities:
Net decrease in deposits		(485,002	)		(91,228	)
Net repayments of other borrowings		(82,276	)		(84,843	)
Net (decrease) increase in repurchase agreements with customers		(4,669	)		7,408
Proceeds from exercise of stock options		2,049			1,335
Current tax benefit on exercise of stock options		340			180
Cash dividends paid on common stock		(5,978	)		(4,907	)

Net cash used by financing activities		(575,536	)		(172,055	)


Net increase (decrease) in cash and cash equivalents		32,285			(18,131	)
Cash and cash equivalents – beginning of period		49,029			78,294

Cash and cash equivalents – end of period	$	81,314		$	60,163

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 and a subsidiary that owns and operates a private aircraft. The consolidated financial statements include the accounts of the Company, the Bank, the real estate subsidiary and the aircraft subsidiary. Significant intercompany transactions and amounts have been eliminated in consolidation.

2.	Basis of Presentation

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

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. In the opinion of management, all adjustments considered necessary, consisting of normal recurring items, have been included for a fair presentation of the accompanying consolidated financial statements. Operating results for the three and six months ended June 30, 2011 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

2011 Acquisitions

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

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

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

(The remainder of this page intentionally left blank)

A summary, at fair value, of the assets acquired and liabilities assumed in the Oglethorpe, First Choice and Park Avenue acquisitions, as of the acquisition dates, is as follows:


	Oglethorpe			First Choice			Park Avenue
	(Dollars in thousands)
Assets acquired:
Cash and cash equivalents	$	14,710		$	38,018		$	66,825
Investment Securities, AFS		—			4,568			131,790
Loans not covered by loss share agreements ⁽¹⁾		3,085			1,554			17,696
Covered assets:
Loans		80,676			149,894			262,917
Other real estate owned (“covered ORE”)		7,144			1,671			31,630
FDIC loss share receivable		52,395			59,544			113,683
Core deposit intangible		401			495			5,063
Other assets		433			70			2,977

Total assets acquired		158,844			255,814			632,581

Liabilities assumed:
Deposits		195,067			293,344			626,321
Federal Home Loan Bank of Atlanta (“FHLB – Atlanta”) advances		—			4,000			88,819
FDIC clawback payable		924			930			14,868
Other liabilities		433			578			2,088

Total liabilities assumed		196,424			298,852			732,096

Net assets acquired at fair value		(37,580	)		(43,038	)		(99,515	)
Cash received from FDIC		40,532			45,988			159,320

Pre-tax gain on FDIC-assisted acquisitions	$	2,952		$	2,950		$	59,805

(1)

Certain loans acquired by the Company, consisting primarily of consumer loans, are not covered by loss share. Accordingly, these loans are reported as non-covered loans in the Company’s consolidated financial statements. The unpaid principal balance and the fair value of these loans, at acquisition date, are as follows: Oglethorpe – unpaid principal balance of $6.5 million and fair value of $3.1 million; First Choice – unpaid principal balance of $2.0 million and fair value of $1.6 million; Park Avenue – unpaid principal balance of $25.8 million and fair value of $17.7 million.

The Company’s results of operations for the quarter and the six months ended June 30, 2011 include the operating results of the acquired assets and assumed liabilities from the dates of acquisition through June 30, 2011. Due to the significant fair value adjustments and the nature of the loss share agreements with the FDIC, the Company believes pro forma information that would include historical results of these acquisitions is not relevant. Accordingly, no pro forma financial information is included in these consolidated financial statements.

2010 Acquisitions

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

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

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

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

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


	Unity			Woodlands			Horizon			Chestatee
	(Dollars in thousands)
Assets acquired:
Cash and cash equivalents	$	45,401		$	13,447		$	11,775		$	21,964
Investment securities AFS		5,580			84,492			5,105			7,157
Loans not covered by loss share agreements⁽¹⁾		—			1,113			892			3,576
Covered assets:
Loans		134,452			186,478			93,003			116,808
Covered ORE		8,859			5,029			3,683			13,406
FDIC loss share receivable		44,147			55,866			29,089			42,072
Core deposit intangible		1,657			200			396			550
Other assets		183			1,472			1,981			1,101

Total assets acquired		240,279			348,097			145,924			206,634

Liabilities assumed:
Deposits		220,806			344,723			152,387			234,468
FHLB-Atlanta		24,078			10,142			19,251			—
FDIC clawback payable		1,566			2,941			1,461			1,091
Other liabilities		492			193			562			640

Total liabilities assumed		246,942			357,999			173,661			236,199

Net assets acquired at fair value		(6,663	)		(9,902	)		(27,737	)		(29,565	)
Cash received from FDIC		16,700			24,260			29,502			38,424

Pre-tax gains on FDIC-assisted acquisitions	$	10,037		$	14,358		$	1,765		$	8,859

(1)

Certain loans acquired by the Company, consisting primarily of consumer loans, are not covered by loss share. Accordingly, these loans are reported as non-covered loans in the Company’s consolidated financial statements. The unpaid principal balance and the fair value of these loans, at acquisition date, are as follows: Woodlands – unpaid principal balance of $1.5 million and fair value of $1.1 million; Horizon – unpaid principal balance of $1.3 million and fair value of $0.9 million; Chestatee – unpaid principal balance of $5.3 million and fair value of $3.6 million.

Purchase Accounting and Purchase Accounting Adjustments

Purchased loans acquired in a business combination, including covered loans, 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, among other things, the remaining life of the acquired loans, estimated prepayments, estimated loss ratios, estimated value of the underlying collateral, estimated holding periods, and net present value of cash flows expected to be received. 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. In determining the acquisition date fair values of purchased loans, management calculates a non-accretable difference (the credit component of the purchased loans) and an accretable difference (the yield component of the purchased loans).

The 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 is the difference between the expected cash flows and the net present value of expected cash flows. Such difference is accreted into earnings using the effective yield method over the term of the loans. In determining the net present value of expected cash flows, the Company used discount rates ranging from 6.0% to 9.5% depending on the risk characteristics of each individual loan or loan pool.

The acquisition date fair values of acquired assets and assumed liabilities for each of the Company’s FDIC-assisted transactions may be revised for up to 12 months following the date of acquisition.

Subsequent to the reporting of the assets acquired and the liabilities assumed in the Unity and Woodlands acquisitions, the Company made certain adjustments to these values. As a result of those adjustments, the Company has “recast” certain amounts previously reported in its consolidated financial statements. The following summarizes the assets acquired and liabilities assumed in the Unity and Woodlands acquisitions as originally reported and as recast.


	Unity									Woodlands
	As Originally Reported			Adjustments			As Recast			As Originally Reported			Adjustments			As Recast
	(Dollars in thousands)
Assets acquired:
Cash and cash equivalents	$	45,401		$	—		$	45,401		$	13,447		$	—		$	13,447
Investment securities AFS		5,580			—			5,580			84,492			—			84,492
Loans not covered by loss share agreements		—			—			—			1,113			—			1,113
Covered assets:
Loans		143,175			(8,723	)		134,452			187,998			(1,520	)		186,478
Covered ORE		9,414			(555	)		8,859			5,029			—			5,029
FDIC loss share receivable		35,683			8,464			44,147			54,827			1,039			55,866
Core deposit intangible		1,657			—			1,657			200			—			200
Other assets		183			—			183			1,145			327			1,472

Total assets acquired		241,093			(814	)		240,279			348,251			(154	)		348,097

Liabilities assumed:
Deposits		220,806			—			220,806			344,723			—			344,723
FHLB-Atlanta advances		24,078			—			24,078			10,142			—			10,142
FDIC clawback payable		2,265			(699	)		1,566			3,030			(89	)		2,941
Other liabilities		607			(115	)		492			258			(65	)		193

Total liabilities assumed		247,756			(814	)		246,942			358,153			(154	)		357,999

Net assets acquired at fair value	$	(6,663	)	$	—		$	(6,663	)	$	(9,902	)	$	—		$	(9,902	)

The adjustments to the acquired assets and assumed liabilities for both Unity and Woodlands affected net assets acquired and the resulting pre-tax gains on these acquisitions. However, because the net effect on net assets acquired and resulting pre-tax gains was not material, management recorded the impact of such adjustments as an increase or decrease to other non-interest income during the quarter in which the adjustments were determined. The net increase or decrease to non-interest income is included as an adjustment to “other liabilities” and/or to “other assets” in the above table.

Loss Share Agreements and Other Acquisition Matters

In conjunction with these FDIC-assisted acquisitions, the Bank entered into loss share agreements with the FDIC such that the Bank and the FDIC will share in the losses on assets covered under the loss share agreements. Pursuant to the terms of the loss share agreements for the Unity acquisition, on losses up to $65.0 million, the FDIC will reimburse the Bank for 80% of losses. On losses exceeding $65.0 million, the FDIC will reimburse the Bank for 95% of losses. Pursuant to the terms of the loss share agreements for the Woodlands acquisition, the Chestatee acquisition, the Oglethorpe acquisition and the First Choice acquisition, the FDIC will reimburse the Bank for 80% of losses. Pursuant to the terms of the loss share agreements for the Horizon acquisition, the FDIC will reimburse the Bank on single family residential loans and related foreclosed real estate for (i) 80% of losses up to $11.8 million, (ii) 30% of losses between $11.8 million and $17.9 million and (iii) 80% of losses in excess of $17.9 million. For non-single family residential loans and related foreclosed real estate, the FDIC will reimburse the Bank for (i) 80% of losses up to $32.3 million, (ii) 0% of losses between $32.3 million and $42.8 million and (iii) 80% of losses in excess of $42.8 million. Pursuant to the terms of the loss share agreements for the Park Avenue acquisition, the FDIC will reimburse the Bank for (i) 80% of losses up to $218.2 million, (ii) 0% of losses between $218.3 million and $267.5 million and (iii) 80% of losses in excess of $267.5 million.

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

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

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

4.	Earnings Per Common Share (“EPS”)

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

Basic and diluted EPS are computed as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
	(In thousands, except per share amounts)
Common shares – weighted-average (basic)		17,109		16,948		17,092		16,938
Common share equivalents – weighted-average		123		105		111		71

Common shares – diluted		17,232		17,053		17,203		17,009

Net income available to common stockholders (in thousands)	$	50,217	$	10,890	$	64,847	$	26,845
Basic EPS	$	2.94	$	0.64	$	3.79	$	1.58
Diluted EPS		2.91		0.64		3.77		1.58

5.	Investment Securities

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

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


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value ⁽¹⁾
	(Dollars in thousands)
June 30, 2011:
Obligations of state and political subdivisions	$	361,434	$	6,219	$	(2,897	)	$	364,756
U.S. Government agency residential mortgage-backed securities		109,725		2,157		—			111,882
Other equity securities		22,606		—		—			22,606

Total	$	493,765	$	8,376	$	(2,897	)	$	499,244


December 31, 2010:
Obligations of state and political subdivisions	$	378,822	$	6,431	$	(6,706	)	$	378,547
U.S. Government agency residential mortgage-backed securities		1,269		—		—			1,269
Other equity securities		18,882		—		—			18,882

Total	$	398,973	$	6,431	$	(6,706	)	$	398,698


June 30, 2010:
Obligations of state and political subdivisions	$	407,872	$	12,800	$	(3,716	)	$	416,956
U.S. Government agency residential mortgage-backed securities		20,651		315		—			20,966
Other equity securities		15,541		—		—			15,541

Total	$	444,064	$	13,115	$	(3,716	)	$	453,463

(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 June 30, 2011 and 2010 and at December 31, 2010.


	Less than 12 Months				12 Months or More				Total
	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
	(Dollars in thousands)
June 30, 2011:
Obligations of state and political subdivisions	$	40,598	$	1,023	$	28,653	$	1,874	$	69,251	$	2,897

Total temporarily impaired securities	$	40,598	$	1,023	$	28,653	$	1,874	$	69,251	$	2,897


December 31, 2010:
Obligations of states and political subdivisions	$	174,356	$	6,153	$	5,387	$	553	$	179,743	$	6,706

Total temporarily impaired securities	$	174,356	$	6,153	$	5,387	$	553	$	179,743	$	6,706


June 30, 2010:
Obligations of state and political subdivisions	$	78,875	$	3,072	$	10,234	$	644	$	89,109	$	3,716

Total temporarily impaired securities	$	78,875	$	3,072	$	10,234	$	644	$	89,109	$	3,716

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 June 30, 2011 and 2010 and December 31, 2010 management determined the unrealized losses were the result of fluctuations in interest rates and did not reflect deteriorations of the credit quality of the investments. Accordingly, management considers these unrealized losses to be temporary in nature. The Company does not have the intent to sell these investment securities with unrealized losses and, more likely than not, will not be required to sell these investment securities before fair value recovers to amortized cost.

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


	June 30, 2011				December 31, 2010
Maturity or Estimated Repayment	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
	(Dollars in thousands)
One year or less	$	2,586	$	2,592	$	4,773	$	4,808
After one year to five years		15,477		15,587		17,635		17,893
After five years to ten years		22,512		22,936		21,134		21,592
After ten years		453,190		458,129		355,431		354,405

Total	$	493,765	$	499,244	$	398,973	$	398,698

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

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


	Six Months Ended June 30,
	2011			2010
	(Dollars in thousands)
Sales proceeds	$	37,813		$	112,712


Gross realized gains	$	401		$	3,897
Gross realized losses		(50	)		(148	)

Net gains on investment securities	$	351		$	3,749

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

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


	Six Months Ended June 30,
	2011			2010
	(Dollars in thousands)
Balance – beginning of year	$	40,230		$	39,619
Loans and leases charged off		(7,286	)		(7,730	)
Recoveries of loans and leases previously charged off		180			687

Net loans and leases charged off		(7,106	)		(7,043	)
Provision charged to operating expense		6,000			7,600

Balance – end of year	$	39,124		$	40,176

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


	Real Estate
	Residential 1-4 Family			Non-farm/ Non- residential			Construction/ Land Development			Agricultural			Multi- family Residential		Commercial and Industrial			Consumer			Direct Financing Leases			Other			Unallocated		Total
	(Dollars in thousands)
Allowance for loan and lease losses:
Balance at April 1, 2011	$	2,273		$	9,295		$	9,125		$	2,653		$	1,562	$	3,793		$	1,367		$	1,409		$	183		$	7,565	$	39,225
Second quarter 2011 activity:
Charge-offs		(487	)		(658	)		(1,596	)		(522	)		—		(343	)		(126	)		(135	)		(70	)		—		(3,937	)
Recoveries		10			5			5			—			—		25			21			—			20			—		86
Provisions		453			52			1,948			38			1		170			119			264			52			653		3,750

Balance at June 30, 2011	$	2,249		$	8,694		$	9,482		$	2,169		$	1,563	$	3,645		$	1,381		$	1,538		$	185		$	8,218	$	39,124

Balance at January 1, 2011	$	2,999		$	8,313		$	10,565		$	2,569		$	1,320	$	4,142		$	2,051		$	1,726		$	201		$	6,344	$	40,230
Year-to-date 2011 activity:
Charge-offs		(712	)		(903	)		(3,318	)		(613	)		—		(1,015	)		(294	)		(226	)		(205	)		—		(7,286	)
Recoveries		14			7			10			—			—		63			39			—			47			—		180
Provisions		(52	)		1,277			2,225			213			243		455			(415	)		38			142			1,874		6,000

Balance at June 30, 2011	$	2,249		$	8,694		$	9,482		$	2,169		$	1,563	$	3,645		$	1,381		$	1,538		$	185		$	8,218	$	39,124

Ending balance:
ALLL for individually evaluated impaired loans and leases	$	26		$	—		$	25		$	—		$	—	$	823		$	38		$	—		$	3		$	—	$	915
ALLL for all other loans and leases		2,223			8,694			9,457			2,169			1,563		2,822			1,343			1,538			182			8,218		38,209

Ending balance	$	2,249		$	8,694		$	9,482		$	2,169		$	1,563	$	3,645		$	1,381		$	1,538		$	185		$	8,218	$	39,124

Loans and leases:
Ending balance:
Individually evaluated impaired loans and leases	$	1,831		$	2,997		$	5,475		$	1,638		$	—	$	1,022		$	72		$	—		$	16		$	—	$	13,051
All other loans and leases		253,422			658,066			456,723			72,050			130,377		106,602			52,088			50,071			9,677			—		1,789,076

Ending balance	$	255,253		$	661,063		$	462,198		$	73,688		$	130,377	$	107,624		$	52,160		$	50,071		$	9,693		$	—	$	1,802,127

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


	Real Estate
	Residential 1-4 Family		Non-farm/ Non- residential		Construction/ Land Development		Agricultural		Multi- family Residential		Commercial and Industrial		Consumer		Direct Financing Leases		Other		Unallocated		Total
	(Dollars in thousands)
Allowance for loan and lease losses:
Ending balance:
ALLL for individually evaluated impaired loans and leases	$	33	$	71	$	508	$	403	$	—	$	928	$	33	$	—	$	44	$	—	$	2,020
ALLL for all other loans and leases		2,966		8,242		10,057		2,166		1,320		3,214		2,018		1,726		157		6,344		38,210

Ending balance	$	2,999	$	8,313	$	10,565	$	2,569	$	1,320	$	4,142	$	2,051	$	1,726	$	201	$	6,344	$	40,230

Loans and leases:
Ending balance:
Individually evaluated impaired loans and leases	$	945	$	3,096	$	4,086	$	2,456	$	—	$	947	$	182	$	—	$	115	$	—	$	11,827
All other loans and leases		265,069		675,369		492,651		79,280		103,055		119,091		54,219		42,754		12,294		—		1,844,602

Ending balance	$	266,014	$	678,465	$	496,737	$	81,736	$	103,875	$	120,038	$	54,401	$	42,754	$	12,409	$	—	$	1,856,429

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The following table is a summary of credit quality indicators for the Company’s loans and leases, excluding loans covered by FDIC loss share agreements, as of June 30, 2011.


	Real Estate
	Residential 1-4 Family		Non-farm/ Non- residential		Construction/ Land Development		Agricultural		Multi- family Residential		Commercial and Industrial		Consumer		Direct Financing Leases		Other		Total
	(Dollars in thousands)
Satisfactory	$	—	$	495,292	$	230,199	$	51,852	$	117,439	$	71,126	$	—	$	46,915	$	6,599	$	1,019,422
Fair		—		115,072		193,724		10,357		8,448		30,412		—		2,740		2,079		362,832
Watch		—		33,096		20,702		3,508		3,699		1,573		—		—		140		62,718
Substandard		—		17,603		17,573		7,971		791		4,513		—		416		154		49,021

Total risk-rated loans and leases		—		661,063		462,198		73,688		130,377		107,624		—		50,071		8,972		1,493,993
Loans and leases not risk rated		255,253		—		—		—		—		—		52,160		—		721		308,134

Total loans and leases	$	255,253	$	661,063	$	462,198	$	73,688	$	130,377	$	107,624	$	52,160	$	50,071	$	9,693	$	1,802,127

The following table is a summary of credit quality indicators for the Company’s loans and leases, excluding loans covered by FDIC loss share agreements, as of December 31, 2010.


	Real Estate
	Residential 1-4 Family		Non-farm/ Non- residential		Construction/ Land Development		Agricultural		Multi- family Residential		Commercial and Industrial		Consumer		Direct Financing Leases		Other		Total
	(Dollars in thousands)
Satisfactory	$	—	$	504,923	$	258,933	$	58,879	$	90,700	$	79,926	$	—	$	38,666	$	9,484	$	1,041,511
Fair		—		122,883		201,038		10,489		8,579		34,274		—		3,328		1,836		382,427
Watch		—		32,476		21,135		3,609		3,699		1,659		—		676		157		63,411
Substandard		—		18,183		15,631		8,759		897		4,179		—		84		242		47,975

Total risk-rated loans and leases		—		678,465		496,737		81,736		103,875		120,038		—		42,754		11,719		1,535,324
Loans and leases not risk rated		266,014		—		—		—		—		—		54,401		—		690		321,105

Total loans and leases	$	266,014	$	678,465	$	496,737	$	81,736	$	103,875	$	120,038	$	54,401	$	42,754	$	12,409	$	1,856,429

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

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

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

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

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

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


	Principal Balance		Net Charge-offs to Date		Principal Balance, Net of Charge-offs		Specific Allowance		Average Carrying Value - Three Months Ended June 30, 2011		Average Carrying Value - Six Months Ended June 30, 2011
	(Dollars in thousands)
Real estate:
Residential 1-4 family	$	2,294	$	463	$	1,831	$	26	$	1,505	$	1,318
Non-farm/non-residential		3,852		855		2,997		—		3,157		3,137
Construction/land development		12,641		7,166		5,475		25		5,018		4,707
Agricultural		1,965		327		1,638		—		1,904		2,088
Multifamily residential		133		133		—		—		39		26
Commercial and industrial		2,294		1,272		1,022		823		965		959
Consumer		127		55		72		38		89		120
Other		39		23		16		3		17		50

Total	$	23,345	$	10,294	$	13,051	$	915	$	12,694	$	12,405

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


	Principal Balance		Net Charge-offs to Date		Principal Balance, Net of Charge-offs		Specific Allowance		Average Carrying Value
	(Dollars in thousands)
Real estate:
Residential 1-4 family	$	1,156	$	211	$	945	$	33	$	1,790
Non-farm/non-residential		4,135		1,039		3,096		71		4,788
Construction/land development		7,974		3,888		4,086		508		4,457
Agricultural		2,728		272		2,456		403		2,141
Multifamily residential		133		133		—		—		—
Commercial and industrial		2,254		1,307		947		928		1,871
Consumer		268		86		182		33		248
Other		410		295		115		44		157

Total	$	19,058	$	7,231	$	11,827	$	2,020	$	15,452

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


	30-89 Days Past Due ⁽¹⁾		90 Days or More ⁽²⁾		Total Past Due		Current ⁽³⁾		Total Loans and Leases
	(Dollars in thousands)
Real estate:
Residential 1-4 family	$	4,083	$	1,468	$	5,551	$	249,702	$	255,253
Non-farm/non-residential		4,799		803		5,602		655,461		661,063
Construction/land development		17,898		9,187		27,085		435,113		462,198
Agricultural		836		1,638		2,474		71,214		73,688
Multifamily residential		—		—		—		130,377		130,377
Commercial and industrial		1,396		380		1,776		105,848		107,624
Consumer		989		440		1,429		50,731		52,160
Direct financing leases		43		387		430		49,641		50,071
Other		71		—		71		9,622		9,693

Total	$	30,115	$	14,303	$	44,418	$	1,757,709	$	1,802,127

(1)	Includes $4.2 million of loans and leases, excluding loans covered by FDIC loss share agreements, on nonaccrual status at June 30, 2011.

(2)	All loans and leases greater than 90 days past due, excluding loans covered by FDIC loss share agreements, were on nonaccrual status at June 30, 2011.

(3)	Includes $1.1 million of loans and leases, excluding loans covered by FDIC loss share agreements, on nonaccrual status at June 30, 2011.

At June 30, 2011, the Company had two related loans totaling $3.79 million which had matured and had become 90 days past due while extension negotiations were ongoing. Subsequent to quarter end, the borrower paid all accrued interest, made a principal reduction, established a reserved for future interest and taxes, and extended the loans. Accordingly, the loans became fully current and have returned to accrual status. At June 30, 2011, these two loans accounted for 22 basis points of the Company’s 247 basis points of past due loans and leases.

The following table is an aging analysis of past due loans and leases, excluding loans covered by FDIC loss share agreements, at December 31, 2010.


	30-89 Days Past Due ⁽¹⁾		Greater than 90 Days ⁽²⁾		Total Past Due		Current ⁽³⁾		Total Loans and Leases
	(Dollars in thousands)
Real estate:
Residential 1-4 family	$	3,809	$	726	$	4,535	$	261,479	$	266,014
Non-farm/non –residential		6,261		3,337		9,598		668,867		678,465
Construction/land development		11,104		4,249		15,353		481,384		496,737
Agricultural		956		2,108		3,064		78,672		81,736
Multifamily residential		881		—		881		102,994		103,875
Commercial and industrial		1,639		881		2,520		117,518		120,038
Consumer		1,187		146		1,333		53,068		54,401
Direct financing leases		—		84		84		42,670		42,754
Other		201		—		201		12,208		12,409

Total	$	26,038	$	11,531	$	37,569	$	1,818,860	$	1,856,429

(1)	Includes $1.2 million of loans and leases, excluding loans covered by FDIC loss share agreements, on nonaccrual status at December 31, 2010.

(2)	All loans and leases greater than 90 days past due, excluding loans covered by FDIC loss share agreements, were on nonaccrual status at December 31, 2010.

(3)	Includes $1.3 million of loans and leases, excluding loans covered by FDIC loss share agreements, on nonaccrual status at December 31, 2010.

7.	Foreclosed and Repossessed Assets Held For Sale

The amount and type of foreclosed and repossessed assets held for sale, excluding assets covered by loss share agreements, are as follows:


	June 30, 2011		December 31, 2010
	(Dollars in thousands)
Real estate:
Residential 1-4 family	$	4,140	$	4,018
Non-farm/non-residential		3,610		3,866
Construction/land development		28,014		33,701
Agricultural		306		459

Total real estate		36,070		42,044
Commercial and industrial		216		87
Consumer		62		85

Total foreclosed and repossessed assets held for sale	$	36,348	$	42,216

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8.	FHLB Advances

FHLB advances, all of which are from FHLB – Dallas, with original maturities exceeding one year totaled $280.8 million at June 30, 2011. Interest rates on these advances ranged from 1.34% to 5.12% at June 30, 2011 with a weighted-average interest rate of 3.80%. At June 30, 2011 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)
2011	$	22		3.80	%
2012		33		3.40
2013		31		3.22
2014		32		3.24
2015		33		3.27
Thereafter		280,667		3.80

	$	280,818		3.80

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

9.	Subordinated Debentures

The Company had the following issues of trust preferred securities outstanding and subordinated debentures owed to the Trusts at June 30, 2011.


Description	Subordinated Debentures Owed to Trusts		Trust Preferred Securities of the Trusts		Interest Rate Spread to 90-day LIBOR			Interest Rate at June 30, 2011			Final Maturity Date
	(Dollars in thousands)
Ozark III	$	14,434	$	14,000		2.95	%		3.23	%	September 25, 2033
Ozark II		14,433		14,000		2.90			3.21		September 29, 2033
Ozark IV		15,464		15,000		2.22			2.48		September 28, 2034
Ozark V		20,619		20,000		1.60			1.85		December 15, 2036

	$	64,950	$	63,000

At June 30, 2011 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 June 30, 2011 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 30^th 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.

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10.

Supplemental Data for Cash Flows

Supplemental cash flow information is as follows:


	Six Months Ended June 30,
	2011		2010
	(Dollars in thousands)
Cash paid during the period for:
Interest	$	17,881	$	18,286
Taxes		10,999		7,382
Supplemental schedule of non-cash investing and financing activities:
Net change in unrealized gains/losses on investment securities AFS		5,753		(527	)
Unsettled AFS investment security trades:
Purchases		—		7,516
Sales/calls		—		—
Loans transferred to foreclosed and repossessed assets held for sale		5,460		7,705
Loans advanced for sales of foreclosed and repossessed assets held for sale		312		9,324

11.

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 June 30, 2011 was $8.9 million. The Company holds collateral to support guarantees when deemed necessary. Collateralized commitments at June 30, 2011 totaled $8.2 million.

At June 30, 2011 the Company had outstanding commitments to extend credit, excluding commitments to extend credit on loans covered by FDIC loss share agreements, totaling $190 million. These commitments extend over varying periods of time with the majority to be disbursed or to expire within a one-year period.

12.

Stock-Based Compensation

The Company has a nonqualified stock option plan for certain employees of the Company. This plan provides for the granting of nonqualified options to purchase shares of common stock in the Company. No option may be granted under this plan for less than the fair market value of the common stock, defined by the plan as the average of the highest reported asked price and the lowest reported bid price, on the date of the grant. The benefits or amounts that may be received by or allocated to any particular officer or employee of the Company under this plan will be determined in the sole discretion of the Company’s board of directors or its personnel and compensation committee. While the vesting period and the termination date for the employee plan options are determined when options are granted, all such employee options outstanding at June 30, 2011 were issued with a vesting date of three years after issuance and an expiration date 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. No option may be granted under this plan for less than the fair market value of the common stock, defined by the plan as the average of the highest reported asked price and the lowest reported bid price, on the date of the grant. These options are exercisable immediately and expire ten years after issuance.

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

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The following table summarizes stock option activity for both the employee and non-employee director stock option plans for the six months ended June 30, 2011.


	Options			Weighted-Average Exercise Price/Share		Weighted-Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value (in thousands)⁽¹⁾
Outstanding – January 1, 2011		526,800		$	31.05
Granted		9,900			44.66
Exercised		(65,600	)		31.24
Forfeited		(11,300	)		28.68

Outstanding – June 30, 2011		459,800		$	31.30		4.3	$	9,544


Fully vested and exercisable – June 30, 2011		223,450		$	31.80		3.2	$	4,526

Expected to vest in future periods		205,098

Fully vested and expected to vest – June 30, 2011⁽²⁾		428,548		$	31.31		4.2	$	8,894

(1)	Based on closing price of $52.06 per share on June 30, 2011.

(2)	At June 30, 2011 the Company estimates that outstanding options to purchase 31,252 shares of its common stock will not vest and will be forfeited prior to their vesting date.

Intrinsic value for stock options is defined as the amount by which the current market price of the underlying stock exceeds the exercise price. For those stock options where the exercise price exceeds the current market price of the underlying stock, the intrinsic value is zero. The total intrinsic value of options exercised during the six months ended June 30, 2011 and 2010 was $0.9 million and $0.5 million, respectively.

Options to purchase 9,900 shares and 9,000 shares of the Company’s common stock were issued during the six months ended June 30, 2011 and 2010, respectively. Stock-based compensation expense for stock options included in non-interest expense was $0.3 million and $0.2 million for the quarters ended June 30, 2011 and 2010, respectively, and $0.4 million for both six-month periods ended June 30, 2011 and 2010, respectively. Total unrecognized compensation cost related to nonvested stock-based compensation was $1.0 million at June 30, 2011 and is expected to be recognized over a weighted-average period of 2.1 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 June 30, 2011 were issued with a vesting date of three years after issuance.

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


	Six Months Ended June 30, 2011
Outstanding – January 1, 2011		53,900
Granted		—
Forfeited		(800	)
Vested		—

Outstanding – June 30, 2011		53,100

Weighted-average grant date fair value	$	33.43

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 $0.3 million for the six months ended June 30, 2011. Unrecognized compensation expense for nonvested restricted stock awards was $1.2 million at June 30, 2011 and is expected to be recognized over 2.2 years.

13.

Comprehensive Income

Total comprehensive income consists of net income, net income or loss 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 $52.8 million and $10.3 million for the three months ended June 30, 2011 and 2010, respectively, and $68.3 million and $26.5 million for the six months ended June 30, 2011 and 2010, respectively.

14.

Fair Value Measurements

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

The Company 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)
June 30, 2011:
Assets:
Investment securities AFS⁽¹⁾:
Obligations of state and political subdivisions	$	—	$	344,980	$	19,776	$	364,756
U.S. Government agency residential mortgage-backed securities		—		111,882		—		111,882

Total investment securities AFS		—		456,862		19,776		476,638
Impaired loans and leases		—		—		12,136		12,136
Covered ORE		—		—		78,047		78,047
Foreclosed and repossessed assets held for sale, net		—		—		36,348		36,348
Derivative assets – interest rate lock commitments (“IRLC”) and forward sales commitments (“FSC”)		—		—		91		91

Total assets at fair value	$	—	$	456,862	$	146,398	$	603,260

Liabilities:
Derivative liabilities – IRLC and FSC	$	—	$	—	$	91	$	91

Total liabilities at fair value	$	—	$	—	$	91	$	91

December 31, 2010:
Assets:
Investment securities AFS⁽¹⁾:
Obligations of state and political subdivisions	$	—	$	358,511	$	20,036	$	378,547
U.S. Government agency residential mortgage-backed securities		—		1,269		—		1,269

Total investment securities AFS		—		359,780		20,036		379,816
Impaired loans and leases		—		—		10,101		10,101
Covered ORE		—		—		31,145		31,145
Foreclosed and repossessed assets held for sale, net		—		—		42,216		42,216
Derivative assets – IRLC and FSC		—		—		55		55

Total assets at fair value	$	—	$	359,780	$	103,553	$	463,333

Liabilities:
Derivative liabilities – IRLC and FSC	$	—	$	—	$	55	$	55

Total liabilities at fair value	$	—	$	—	$	55	$	55

June 30, 2010:
Assets:
Investment securities AFS⁽¹⁾:
Obligations of state and political subdivisions	$	—	$	397,981	$	18,975	$	416,956
U.S. Government agency residential mortgage-backed securities		—		20,966		—		20,966

Total investment securities AFS		—		418,947		18,975		437,922
Impaired loans and leases		—		—		12,501		12,501
Covered ORE		—		—		8,541		8,541
Foreclosed and repossessed assets held for sale, net		—		—		44,680		44,680
Derivative assets – IRLC and FSC		—		—		420		420

Total assets at fair value	$	—	$	418,947	$	85,117	$	504,064

Liabilities:
Derivative liabilities – IRLC and FSC	$	—	$	—	$	420	$	420

Total liabilities at fair value	$	—	$	—	$	420	$	420

(1)	Does not include $22.6 million at June 30, 2011, $18.9 million at December 31, 2010 and $15.5 million at June 30, 2010 of FHLB – Dallas, FHLB – Atlanta 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 June 30, 2011. As a result, the Company considers these investments as Level 3 in the fair value hierarchy. Specifically, the fair values of certain obligations of state and political subdivisions consisting of certain unrated private placement bonds (the “private placement bonds”) in the amount of $19.8 million at June 30, 2011 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 June 30, 2011, the third parties pricing matrices valued the Company’s portfolio of private placement bonds at $19.9 million which exceeded the aggregate of the lower of the matrix pricing or par value of the private placement bonds by $0.1 million. Accordingly, at June 30, 2011 the Company reported the private placement bonds at the lower of the matrix pricing or par value of $19.8 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. At June 30, 2011 the Company has reduced the carrying value of its impaired loans and leases (all of which are included in nonaccrual loans and leases) by $11.2 million to the estimated fair value of $12.1 million for such loans and leases. The $11.2 million adjustment to reduce the carrying value of impaired loans and leases to estimated fair value consisted of $10.3 million of partial charge-offs and $0.9 million of specific loan and lease loss allocations.

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

Foreclosed and repossessed assets held for sale, net – Repossessed personal properties and real estate acquired through or in lieu of foreclosure are measured on a non-recurring basis and are initially recorded at the lesser of current principal investment or fair value less estimated cost to sell at the date of repossession or foreclosure. Valuations of these assets are periodically reviewed by management with the carrying value of such assets adjusted to the then estimated fair value net of estimated selling costs, if lower, until disposition. Fair values of foreclosed and repossessed assets held for sale are generally based on third party appraisals, broker price opinions or other valuations of the property, resulting in a Level 3 classification.

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.

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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, 2011	$	20,036		$	55	$	(55	)
Total realized gains (losses) included in earnings		—			36		(36	)
Total unrealized gains (losses) included in comprehensive income		(260	)		—		—
Sales		—			—		—
Transfers in and/or out of Level 3		—			—		—

Balances – June 30, 2011	$	19,776		$	91	$	(91	)


Balances – January 1, 2010	$	16,690		$	210	$	(210	)
Total realized gains (losses) included in earnings		—			210		(210	)
Total unrealized gains (losses) included in comprehensive income		252			—		—
Sales		92			—		—
Transfers in and/or out of Level 3		1,941			—		—

Balances – June 30, 2010	$	18,975		$	420	$	(420	)

15.

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 $22.6 million at June 30, 2011, $18.9 million at December 31, 2010 and $15.5 million at June 30, 2010 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 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 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 were not material at June 30, 2011 and 2010 or at December 31, 2010 and are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements.

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.


	June 30,
	2011				2010				December 31, 2010
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
	(Dollars in thousands)
Financial assets:
Cash and cash equivalents	$	81,314	$	81,314	$	60,163	$	60,163	$	49,029	$	49,029
Investment securities AFS		499,244		499,244		453,463		453,463		398,698		398,698
Loans and leases, net of ALLL		1,763,003		1,745,521		1,859,998		1,838,831		1,816,199		1,798,544
Covered loans		908,698		911,508		124,546		126,962		496,090		495,990
FDIC loss share receivable		351,723		351,261		44,147		44,056		154,150		154,422
Derivative assets – IRLC and FSC		91		91		420		420		55		55

Financial liabilities:
Demand, NOW, savings and money market deposits	$	2,063,144	$	2,063,144	$	1,368,881	$	1,368,881	$	1,597,643	$	1,597,643
Time deposits		1,107,339		1,116,216		789,690		795,445		943,110		947,447
Repurchase agreements with customers		39,403		39,403		51,677		51,677		43,324		43,324
Other borrowings		292,682		357,506		281,788		354,186		282,139		349,964
Subordinated debentures		64,950		29,515		64,950		29,826		64,950		29,377
Derivative liabilities – IRLC and FSC		91		91		420		420		55		55

16.

Recent Accounting Pronouncements

In April 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-02, “A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring.” The provisions of ASU No. 2011-02 amend and clarify GAAP related to the accounting for debt restructurings. Specifically, ASU No. 2011-02 requires that, when evaluating whether a restructuring constitutes a troubled debt restructuring, a creditor must separately conclude that both (i) the restructuring constitutes a concession and (ii) the debtor is experiencing financial difficulties. In evaluating whether a concession has been granted, a creditor must evaluate whether (i) a debtor has access to funds at a market rate for debt with similar risk characteristics as the restructured debt in order to determine if the restructuring would be considered to be at a below-market rate, indicating that the creditor has granted a concession, (ii) a temporary or permanent increase in the contractual interest rate as a result of a restructuring may be considered a concession because the new contractual interest rate on the restructured debt is still below the market interest rate for new debt with similar risk characteristics, and (iii) a restructuring that results in a delay in payment is either significant and is a concession or is insignificant and is not a concession. In evaluating whether a debtor is experiencing financial difficulties, a creditor may conclude that a debtor is experiencing financial difficulties, even though the debtor is not currently in payment default.

A creditor should evaluate whether it is probable that the debtor would be in payment default on any of its debt in the foreseeable future without a modification of the debt. The provisions of ASU No. 2011-02 are effective for the first interim or annual period beginning on or after June 15, 2011 and should be applied retroactively to modifications occurring at or after the beginning of the annual period of adoption. The Company has determined that the provisions of ASU 2011-02 will not have a material impact on the Company’s financial position, results of operations or liquidity.

In June 2011, the FASB issued ASU 2011-05, “Presentation of Comprehensive Income,” which revises the manner in which entities present comprehensive income in their financial statements. The provisions of ASU 2011-05 require reporting the components of comprehensive income in either (i) a continuous statement of comprehensive income or (ii) two separate but consecutive statements. ASU 2011-05 does not change the items that must be reported in other comprehensive income but rather removes the presentation options available under ASC 220, “Comprehensive Income,” and requires the presentation options mentioned above. The new presentation disclosures required by ASU 2011-05 are effective for interim and annual periods beginning after December 15, 2011. As this ASU amends only the presentation of comprehensive income, the adoption will have no impact on the Company’s financial position, results of operations, or liquidity.

17.

Subsequent Event

On July 19, 2011 the Company announced that its Board of Directors approved a two-for-one stock split of the Company’s common stock in the form of a 100% stock dividend, payable on or about August 16, 2011 (the “Payment Date”) to shareholders of record at the close of business on August 5, 2011. The Company’s common stock is expected to begin trading on a split-adjusted basis on or about August 17, 2011. The stock split is expected to increase the Company’s total shares of common stock outstanding on July 19, 2011 from approximately 17,128,000 shares to approximately 34,256,000 shares. All previously reported share and per share data included in filings subsequent to the Payment Date will be restated to give effect to this two-for-one stock split.

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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 $50.2 million for the second quarter of 2011, a 361% increase from $10.9 million for the second quarter of 2010. Diluted earnings per common share were $2.91 for the second quarter of 2011, a 355% increase from $0.64 for the second quarter of 2010. For the first six months of 2011, net income available to common stockholders totaled $64.8 million, a 142% increase from $26.8 million for the first six months of 2010. Diluted earnings per common share for the first six months of 2011 were $3.77, a 139% increase from $1.58 for the first six months of 2010.

The Company’s annualized return on average assets was 5.24% for the second quarter of 2011 compared to 1.48% for the second quarter of 2010. Its annualized return on average common stockholders’ equity was 55.88% for the second quarter of 2011 compared to 15.19% for the second quarter of 2010. The Company’s annualized return on average assets was 3.63% for the first six months of 2011 compared to 1.89% for the first six months of 2010. Its annualized return on average common stockholders’ equity was 38.05% for the first six months of 2011 compared to 19.31% for the first six months of 2010.

Total assets were $4.03 billion at June 30, 2011 compared to $3.27 billion at December 31, 2010. Loans and leases, excluding those covered by Federal Deposit Insurance Corporation (“FDIC”) loss share agreements, were $1.80 billion at June 30, 2011 compared to $1.86 billion at December 31, 2010. Loans covered by FDIC loss share agreements (“covered loans”) were $909 million at June 30, 2011 compared to $498 million at December 31, 2010. Deposits were $3.17 billion at June 30, 2011 compared to $2.54 billion at December 31, 2010.

Common stockholders’ equity was $386 million at June 30, 2011 compared to $320 million at December 31, 2010. Book value per common share was $22.53 at June 30, 2011 compared to $18.79 at December 31, 2010. Changes in common stockholders’ equity and book value per common share reflect earnings, dividends paid, stock option and stock grant 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, leases, covered loans and investments, and the interest expense incurred on interest bearing liabilities, such as deposits, borrowings and subordinated debentures. The Company also generates non-interest income, including service charges on deposit accounts, mortgage lending income, trust income, bank owned life insurance (“BOLI”) income, gains and losses on investment securities and from sales of other assets, gains on FDIC-assisted acquisitions, accretion of FDIC loss share receivable, net of amortization of FDIC clawback payable, and other loss share income.

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 six months ended June 30, 2011 and 2010 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 this discussion and the following tables on a fully taxable equivalent (“FTE”) basis. The adjustment to convert certain income to a FTE basis consists of dividing federal tax-exempt income by one minus the Company’s statutory federal income tax rate of 35%. The FTE adjustments to net interest income were $2.2 million and $2.6 million for the quarters ended June 30, 2011 and 2010, respectively, and $4.6 million and $5.2 million for the six months ended June 30, 2011 and 2010, 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.

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Net interest income for the second quarter of 2011 increased 38.5% to $44.7 million compared to $32.3 million for the second quarter of 2010. Net interest income for the six months ended June 30, 2011 increased 33.8% to $83.1 million compared to $62.1 million for the six months ended June 30, 2010. Net interest margin was 5.80% for the second quarter and 5.71% for the first six months of 2011 compared to 5.10% for the second quarter and 5.05% for the first six months of 2010. The growth in net interest income was a result of the improvement in net interest margin, which increased 70 basis points (“bps”) for the second quarter and 66 bps for the first six months of 2011 compared to the same periods in 2010, and growth in average earning assets which increased 21.7% for the second quarter and 18.1% for the first six months of 2011 compared to the same periods in 2010.

The Company’s improvement in net interest margin for the second quarter and first six months of 2011 compared to the same periods in 2010 resulted from a combination of factors including, among others, an increase in the volume of the Company’s covered loan portfolio, which is higher yielding than the Company’s non-covered loan and lease portfolio, and reductions in rates paid on most categories of interest bearing liabilities, partially offset by a decrease in yield on the Company’s aggregate investment securities portfolio.

Yields on earning assets increased 40 bps for the second quarter and 34 bps for the first six months of 2011 compared to the same periods in 2010. These increases were primarily the result of an increase in the yield on covered loans of 131 bps for the second quarter and 115 bps for the first six months of 2011 compared to the same periods in 2010, partially offset by decreases in yields on non-covered loans and leases of 13 bps for both the second quarter and the first six months of 2011 and in the aggregate yield on the Company’s investment securities portfolio of 52 bps for the second quarter and 28 bps for the six months of 2011 compared to the same periods in 2010.

The decline in rates on average interest bearing liabilities was primarily due to the declines in rates on interest bearing deposits, the largest component of the Company’s interest bearing liabilities. Rates on interest bearing deposits decreased 28 bps for the second quarter and 40 bps for the first six months of 2011 compared to the same periods in 2010. This decrease in the rate on interest bearing deposits was principally due to (i) growth in the volume of savings and interest bearing transaction accounts resulting in an increase in these deposits to 58% of total interest bearing deposits for both the second quarter and first six months of 2011 compared to 56% for the second quarter and 54% for the first six months of 2010 and (ii) effectively managing the repricing of both time deposits and savings and interest bearing transaction deposits which resulted in lower rates paid on deposits as they were renewed or otherwise repriced.

The Company’s other borrowing sources include (i) repurchase agreements with customers (“repos”), (ii) other borrowings comprised primarily of Federal Home Loan Bank of Dallas (“FHLB”) advances, and, to a lesser extent, Federal Reserve Bank (“FRB”) borrowings and federal funds purchased, and (iii) subordinated debentures. The rates paid on repos decreased 25 bps for the second quarter and 28 bps for the first six months of 2011 compared to the same periods in 2010 primarily as a result of the Company’s efforts to effectively manage the rates on its interest bearing liabilities, including repos. The rates paid on the Company’s other borrowings decreased 21 bps in the second quarter and 36 bps for the first six months of 2011 compared to the same periods in 2010. Other borrowings consist primarily of fixed rate, callable FHLB advances. The decrease in rates for other borrowings for the second quarter and first six months of 2011 compared to the same periods in 2010 was due primarily to the repayment of $60.0 million of fixed rate, callable FHLB advances with a weighted-average interest rate of 6.25% that were repaid on their maturity dates in May 2010. The rates paid on the Company’s subordinated debentures, which are tied to a spread over the 90-day London Interbank Offered Rate (“LIBOR”) and reset periodically, were unchanged for the second quarter and increased one bps for the first six months of 2011 compared to the same periods in 2010.

The increase in average earning assets was due primarily to increases in the Company’s average balance of covered loans from $138 million for the second quarter and $74 million for the first six months of 2010 to $802 million for the second quarter and $676 million for the first six months of 2011. The Company made seven FDIC-assisted acquisitions during 2010 and the first six months of 2011, resulting in significant increases in its covered loan portfolio during the last six quarters. These increases were partially offset by decreases in the Company’s average investment securities portfolio of $39 million for the second quarter and $82 million for the first six months of 2011 compared to the same periods in 2010, and decreases in average non-covered loans and leases of $74 million for the second quarter and $71 million for the first six months of 2011 compared to the same periods in 2010. In recent years, the Company has been a net seller of investment securities as a result of ongoing evaluations of interest rate risk and to free up capital for FDIC-assisted acquisitions. The declines in non-covered loans and leases is due primarily to paydowns and payoffs of existing loans and leases more than offsetting loan and lease originations.

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Average Consolidated Balance Sheets and Net Interest Analysis - FTE


	Three Months Ended June 30,														Six Months Ended June 30,
	2011							2010							2011							2010
	Average		Income/		Yield/			Average		Income/		Yield/			Average		Income/		Yield/			Average		Income/		Yield/
	Balance		Expense		Rate			Balance		Expense		Rate			Balance		Expense		Rate			Balance		Expense		Rate
	(Dollars in thousands)
ASSETS
Earning assets:
Interest earning deposits and federal funds sold	$	3,178	$	25		3.16	%	$	1,684	$	9		2.04	%	$	2,092	$	28		2.66	%	$	1,277	$	11		1.76	%
Investment securities:
Taxable		131,223		1,057		3.23			112,761		1,416		5.04			86,977		1,484		3.44			121,328		3,065		5.09
Tax-exempt – FTE		340,696		6,368		7.50			398,546		7,290		7.34			346,103		12,972		7.56			394,072		14,850		7.60
Loans and leases – FTE		1,814,949		28,052		6.20			1,889,303		29,835		6.33			1,821,998		55,935		6.19			1,892,802		59,330		6.32
Covered loans*		802,371		17,607		8.80			138,473		2,584		7.49			676,111		29,030		8.66			73,583		2,739		7.51

Total earning assets – FTE		3,092,417		53,109		6.89			2,540,767		41,134		6.49			2,933,281		99,449		6.84			2,483,062		79,995		6.50
Non-interest earning assets		751,287							413,301							665,309							384,808

Total assets	$	3,843,704						$	2,954,068						$	3,598,590						$	2,867,870

LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest bearing liabilities:
Deposits:
Savings and interest bearing transaction	$	1,527,094	$	2,516		0.66	%	$	1,083,444	$	2,211		0.82	%	$	1,433,168	$	4,783		0.67	%	$	1,017,155	$	4,264		0.85	%
Time deposits of $100,000 or more		524,381		1,239		0.95			484,022		1,566		1.30			502,693		2,474		0.99			497,798		3,101		1.26
Other time deposits		581,600		1,436		0.99			376,464		1,417		1.51			522,541		2,715		1.05			357,288		2,744		1.55

Total interest bearing deposits		2,633,075		5,191		0.79			1,943,930		5,194		1.07			2,458,402		9,972		0.82			1,872,241		10,109		1.09
Repurchase agreements with customers		40,213		57		0.57			49,836		101		0.82			41,396		118		0.58			49,191		210		0.86
Other borrowings		294,042		2,718		3.71			319,222		3,124		3.92			295,683		5,389		3.68			334,280		6,698		4.04
Subordinated debentures		64,950		432		2.67			64,950		432		2.67			64,950		858		2.66			64,950		853		2.65

Total interest bearing liabilities		3,032,280		8,398		1.11			2,377,938		8,851		1.49			2,860,431		16,337		1.15			2,320,662		17,870		1.55
Non-interest bearing liabilities:
Non-interest bearing deposits		396,788							267,005							355,516							250,092
Other non-interest bearing liabilities		50,749							18,087							35,525							13,297

Total liabilities		3,479,817							2,663,030							3,251,472							2,584,051
Common stockholders’ equity		360,459							287,607							343,686							280,374
Noncontrolling interest		3,428							3,431							3,432							3,445

Total liabilities and stockholders’ equity	$	3,843,704						$	2,954,068						$	3,598,590						$	2,867,870

Net interest income – FTE			$	44,711						$	32,283						$	83,112						$	62,125

Net interest margin – FTE						5.80	%						5.10	%						5.71	%						5.05	%

*	Covered loans are loans covered by FDIC loss share agreements

Non-Interest Income

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

Non-interest income for the second quarter of 2011 increased 722% to $75.1 million compared to $9.1 million for the second quarter of 2010. Non-interest income for the six months ended June 30, 2011 increased 232% to $88.0 million compared to $26.5 million for the six months ended June 30, 2010. These results include pre-tax bargain purchase gains on FDIC-assisted acquisitions of $62.8 million for the second quarter and $65.7 million for the first six months of 2011 compared to none for the second quarter and $10.0 million for the first six months of 2010.

Service charges on deposit accounts, traditionally the Company’s largest source of non-interest income, increased 16.6% to $4.6 million for the second quarter of 2011 compared to $3.9 million for the second quarter of 2010. Service charges on deposit accounts increased 18.1% to $8.4 million for the six months ended June 30, 2011 compared to $7.1 million for the same period in 2010. The increase in service charges on deposit accounts is due to a number of factors including, primarily, growth in the number of transaction accounts, increased utilization of fee-based services by customers, and the addition of deposit customers from the Company’s seven FDIC-assisted acquisitions during the last six quarters.

Mortgage lending income decreased 22.2% to $0.63 million for the second quarter of 2011 compared to $0.82 million for the second quarter of 2010. Mortgage lending income decreased 2.0% to $1.32 million for the six months ended June 30, 2011 compared to $1.34 million for the same period in 2010. The volume of originations of mortgage loans available for sale decreased 31.5% and 16.6%, respectively, for the second quarter and first six months of 2011 compared to the same periods in 2010. During the second quarter of 2011, approximately 39% of the Company’s originations of mortgage loans available for sale were related to mortgage refinancings and approximately 61% were related to new home purchases, compared to approximately 46% for refinancings and approximately 54% for new home purchases in the second quarter of 2010.

Trust income was $0.80 million in the quarter ended June 30, 2011, an increase of 1.1% from $0.79 million for the same period in 2010. Trust income was $1.59 million for the six months ended June 30, 2011, a decrease of 7.6% from $1.72 million for the same period in 2010. The decrease in trust income for the six months ended June 30, 2011 was primarily due to a decline in corporate trust income earned for services provided in connection with new municipal bond issues.

Net gains on investment securities were $0.20 million in the second quarter of 2011 compared to $2.05 million in the second quarter of 2010. For the first six months of 2011, net gains on investment securities were $0.35 million compared to $3.75 million in the first six months of 2010.

Net gains on sales of other assets were $0.71 million in the second quarter of 2011 compared to $0.04 million in the second quarter of 2010. Net gains on sales of other assets were $1.11 million in the first six months of 2011 compared to net losses of $0.04 million in the first six months of 2010.

The Company recognized $2.9 million of income from the accretion of the FDIC loss share receivable, net of amortization of the FDIC clawback payable, during the second quarter of 2011 and $4.9 million of such income during the first six months of 2011, compared to $0.3 million for both the second quarter and first six months of 2010. The FDIC loss share receivable reflects the indemnification provided by the FDIC in FDIC-assisted acquisitions, and the FDIC clawback payable represents the obligation of the Company to reimburse the FDIC should actual losses be less than certain thresholds established in each loss share agreement. The FDIC loss share receivable and the FDIC clawback payable are both carried at net present value.

Other loss share income, net, consisting primarily of income recognized on covered loan prepayments and payoffs that are not considered yield adjustments, was $1.0 million in the second quarter and $2.0 million in the first six months of 2011 compared to no such income in the second quarter and first six months of 2010.

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During the first six months of 2011, the Company made three FDIC-assisted acquisitions which resulted in bargain purchase gains totaling $65.7 million. Specifically, on January 14, 2011 the Company, through the Bank, entered into a purchase and assumption agreement with loss share agreements with the FDIC pursuant to which it acquired substantially all of the assets and assumed substantially all of the deposits and certain other liabilities of the former Oglethorpe Bank (“Oglethorpe”). This FDIC-assisted acquisition resulted in the Company recognizing a pre-tax bargain purchase gain of $3.0 million in the first quarter of 2011. On April 29, 2011 the Company, through the Bank, entered into a purchase and assumption agreement with loss share agreements with the FDIC pursuant to which it acquired substantially all of the assets and assumed substantially all of the deposits and certain other liabilities of the former First Choice Community Bank (“First Choice”). This FDIC-assisted acquisition resulted in the Company recognizing a pre-tax bargain purchase gain of $2.9 million in the second quarter of 2011. On April 29, 2011 the Company, through the Bank, entered into a purchase and assumption agreement with loss share agreements with the FDIC pursuant to which it acquired substantially all of the assets and assumed substantially all of the deposits and certain other liabilities of the former The Park Avenue Bank (“Park Avenue”). This FDIC-assisted acquisition resulted in the Company recognizing a pre-tax bargain purchase gain of $59.8 million in the second quarter of 2011.

During the first six months of 2010, the Company made one FDIC-assisted acquisition. Specifically, 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 acquisition resulted in the Company recognizing a pre-tax bargain purchase gain of $10.0 million in the first quarter of 2010.

Additionally, during 2010, the Company completed three other FDIC-assisted acquisitions. 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”). 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”). On December 17, 2010 the Company, through the Bank, entered into a purchase and assumption agreement with loss share agreements with the FDIC pursuant to which it acquired substantially all of the assets and assumed substantially all of the deposits and certain other liabilities of the former Chestatee State Bank (“Chestatee”).

The following table presents non-interest income for the three and six months ended June 30, 2011 and 2010.

Non-Interest Income


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2011		2010		2011		2010
	(Dollars in thousands)
Service charges on deposit accounts	$	4,586	$	3,933	$	8,424	$	7,135
Mortgage lending income		634		815		1,315		1,343
Trust income		803		794		1,585		1,716
BOLI income		575		534		1,143		997
Gains on investment securities		199		2,052		351		3,749
Gains (losses) on sales of other assets		705		38		1,112		(35	)
Accretion of FDIC loss share receivable, net of amortization of FDIC clawback payable		2,923		271		4,921		271
Other loss share income, net		984		—		1,955		—
Gains on FDIC-assisted acquisitions		62,756		—		65,708		10,037
Other		893		690		1,534		1,280

Total non-interest income	$	75,058	$	9,127	$	88,048	$	26,493

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Non-Interest Expense

Non-interest expense increased 66.7% to $35.2 million for the second quarter of 2011 compared to $21.1 million for the second quarter of 2010. Non-interest expense increased 59.1% to $61.4 million for the six months ended June 30, 2011 compared to $38.6 million for the same period in 2010. This increase in non-interest expense was primarily due to six factors. First, the Company incurred write downs of the carrying value of items in other real estate owned of $4.8 million for the second quarter of 2011, compared to $2.8 million for the second quarter of 2010, and $7.4 million for the first six months of 2011 compared to $4.4 million in the first six months of 2010. Second, the Company incurred acquisition and conversion costs of $2.9 million in the second quarter of 2011 compared to $0.5 million in the second quarter of 2010, and $4.3 million in the first six months of 2011 compared to $0.8 million in the first six months of 2010. Third, loan collection and repossession expense totaled $1.9 million in the second quarter and $3.3 million in the first six months of 2011 compared to $1.0 million in the second quarter and $1.8 million in the first six months of 2010. Fourth, the Company recorded a $1.25 million impairment charge related to its only equity investment in a real estate development project during the second quarter of 2011. There was no impairment charge related to this investment during 2010. Fifth, at June 30, 2011 the Company had 113 offices compared to 78 offices at June 30, 2010. Sixth, the Company had 1,104 full-time equivalent employees at June 30, 2011 compared to 764 full-time equivalent employees at June 30, 2010. The substantial increase in the number of offices and full-time equivalent employees is primarily due to the Company’s seven FDIC-assisted acquisitions during 2010 and the first six months of 2011.

The Company’s efficiency ratio (non-interest expense divided by the sum of net interest income – FTE and non-interest income) was 29.4% for the quarter ended June 30, 2011 compared to 51.0% for the quarter ended June 30, 2010. The Company’s efficiency ratio was 35.9% for the six months ended June 30, 2011 compared to 43.5% for the six months ended June 30, 2010.

The following table presents non-interest expense for the three and six months ended June 30, 2011 and 2010.

Non-Interest Expense


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2011		2010		2011		2010
	(Dollars in thousands)
Salaries and employee benefits	$	14,817	$	8,996	$	26,464	$	17,271
Net occupancy and equipment		3,775		2,416		6,881		4,837
Other operating expenses:
Postage and supplies		804		479		1,491		855
Advertising and public relations		891		697		1,500		887
Telephone and data lines		611		491		1,333		908
Professional and outside services		1,513		720		2,702		1,136
ATM expense		296		188		453		323
Software expense		535		517		1,406		965
FDIC insurance		825		885		1,455		1,698
FDIC and state assessments		138		192		255		442
Loan collection and repossession expense		1,873		972		3,326		1,845
Write down of other real estate owned		4,820		2,811		7,442		4,392
Write down of other assets		1,250		—		1,250		—
Amortization of intangibles		436		110		664		138
Other		2,616		1,636		4,770		2,884

Total non-interest expense	$	35,200	$	21,110	$	61,392	$	38,581

Income Taxes

The provision for income taxes was $28.4 million for the second quarter and $34.4 million for the first six months of 2011 compared to $3.5 million for the second quarter and $5.8 million for the first six months of 2010. The effective income tax rate was 36.1% for the second quarter and 34.7% for the first six months of 2011 compared to 24.3% for the second quarter and 28.0% for the first six months of 2010. The primary factors contributing to the increase in the effective tax rate in the second quarter and first six months of 2011 compared to the same periods in 2010 were (i) the significant increase in taxable income as a result of the gains on FDIC-assisted acquisitions and (ii) the decline, in both volume and as a percentage of total income, of income exempt from federal and/or state income taxes. The effective tax rates for the periods were also affected by various other factors including other non-taxable income and non-deductible expenses.

ANALYSIS OF FINANCIAL CONDITION

Loan and Lease Portfolio

At June 30, 2011 the Company’s loan and lease portfolio, excluding loans covered by FDIC loss share agreements, was $1.80 billion, compared to $1.86 billion at December 31, 2010 and $1.90 billion at June 30, 2010. 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 $1.58 billion at June 30, 2011, compared to $1.63 billion at December 31, 2010 and $1.66 billion at June 30, 2010. The amount and type of loans and leases outstanding, excluding loans covered by FDIC loss share agreements, at June 30, 2011 and 2010 and at December 31, 2010 and their respective percentage of the total loan and lease portfolio are reflected in the following table.

Loan and Lease Portfolio


	June 30,								December 31,
	2011				2010				2010
	(Dollars in thousands)
Real estate:
Residential 1-4 family	$	255,253	14.2	%	$	276,205	14.5	%	$	266,014	14.3	%
Non-farm/non-residential		661,063	36.7			631,622	33.2			678,465	36.5
Construction/land development		462,198	25.6			605,334	31.9			496,737	26.8
Agricultural		73,688	4.1			77,597	4.1			81,736	4.4
Multifamily residential		130,377	7.2			65,806	3.5			103,875	5.6

Total real estate		1,582,579	87.8			1,656,564	87.2			1,626,827	87.6
Commercial and industrial		107,624	6.0			129,751	6.8			120,038	6.5
Consumer		52,160	2.9			56,294	3.0			54,401	2.9
Direct financing leases		50,071	2.8			41,173	2.2			42,754	2.3
Agricultural (non-real estate)		7,536	0.4			13,930	0.7			9,962	0.6
Other		2,157	0.1			2,462	0.1			2,447	0.1

Total loans and leases	$	1,802,127	100.0	%	$	1,900,174	100.0	%	$	1,856,429	100.0	%

Included in the Company’s loan and lease portfolio are certain loans acquired in FDIC-assisted acquisitions, primarily consumer loans, that are not covered by loss share. The amount of unpaid principal balance, the valuation discount and the carrying value of these non-covered acquired loans at June 30, 2011 and 2010 and at December 31, 2010 are reflected in the following table.

Non-Covered Loans Acquired in FDIC-Assisted Acquisitions


	June 30,					December 31,
	2011			2010		2010
	(Dollars in thousands)
Unpaid principal balance	$	17,067		$	—	$	7,689
Valuation discount		(6,897	)		—		(2,373	)


Carrying value	$	10,170		$	—	$	5,316

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The amount and type of non-farm/non-residential loans, excluding loans covered by FDIC loss share agreements, at June 30, 2011 and 2010 and at December 31, 2010, and their respective percentage of the total non-farm/non-residential loan portfolio are reflected in the following table.

Non-Farm/Non-Residential Loans


	June 30,								December 31,
	2011				2010				2010
	(Dollars in thousands)
Retail, including shopping centers and strip centers	$	220,060	33.3	%	$	221,449	35.1	%	$	225,701	33.3	%
Churches and schools		54,200	8.2			57,062	9.0			56,670	8.3
Office, including medical offices		94,130	14.2			57,650	9.1			90,924	13.4
Office warehouse, warehouse and mini-storage		60,901	9.2			49,000	7.8			64,137	9.5
Gasoline stations and convenience stores		13,753	2.1			15,844	2.5			14,452	2.1
Hotels and motels		43,763	6.6			38,900	6.2			45,078	6.6
Restaurants and bars		35,631	5.4			42,185	6.7			39,069	5.8
Manufacturing and industrial facilities		9,218	1.4			33,469	5.3			10,215	1.5
Nursing homes and assisted living centers		29,261	4.4			29,667	4.7			29,711	4.4
Hospitals, surgery centers and other medical		63,105	9.6			46,877	7.4			63,157	9.3
Golf courses, entertainment and recreational facilities		12,960	2.0			13,570	2.1			13,457	2.0
Other non-farm/non residential		24,081	3.6			25,949	4.1			25,894	3.8

Total	$	661,063	100.0	%	$	631,622	100.0	%	$	678,465	100.0	%

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The amount and type of construction/land development loans, excluding loans covered by FDIC loss share agreements, at June 30, 2011 and 2010 and at December 31, 2010, and their respective percentage of the total construction/land development loan portfolio are reflected in the following table.

Construction/Land Development Loans


	June 30,								December 31,
	2011				2010				2010
	(Dollars in thousands)
Unimproved land	$	98,504	21.3	%	$	97,429	16.1	%	$	99,084	20.0	%
Land development and lots:
1-4 family residential and multifamily		154,527	33.5			184,606	30.5			168,080	33.8
Non-residential		68,988	14.9			75,169	12.4			74,745	15.1
Construction:
1-4 family residential:
Owner occupied		11,101	2.4			14,917	2.5			13,505	2.7
Non-owner occupied:
Pre-sold		3,795	0.8			4,309	0.7			4,153	0.8
Speculative		43,015	9.3			48,717	8.0			43,899	8.8
Multifamily		33,595	7.3			94,496	15.6			60,536	12.2
Industrial, commercial and other		48,673	10.5			85,691	14.2			32,735	6.6

Total	$	462,198	100.0	%	$	605,334	100.0	%	$	496,737	100.0	%

The establishment of interest reserves for construction and development loans is an established banking practice, and many of the Company’s construction and development loans provide for the use of interest reserves. When the Company underwrites construction and development loans, it considers the expected total project costs, including hard costs such as land, site work and construction costs and soft costs such as architectural and engineering fees, closing costs, leasing commissions and construction period interest. Based on the total project costs and other factors, the Company determines the required borrower cash equity contribution and the maximum amount the Company is willing to loan. In the vast majority of cases, the Company requires that all of the borrower’s cash equity contribution be contributed prior to any 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 second quarter of 2011, the Company advanced construction period interest totaling approximately $0.8 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 June 30, 2011 was approximately $393 million, of which $291 million was outstanding at June 30, 2011 and $102 million remained to be advanced. The weighted average loan to cost on such loans, assuming such loans are ultimately fully advanced, will be approximately 62%, which means that the weighted average cash equity contributed on such loans, assuming such loans are ultimately fully advanced, will be approximately 38%. 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 55%.

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The amount and type of the Company’s real estate loans, excluding loans covered by FDIC loss share agreements, at June 30, 2011 based on the metropolitan statistical area (“MSA”) and other geographic areas in which the principal collateral is located are reflected in the following table. Data for individual states and MSAs is separately presented when aggregate real estate loans, excluding loans covered by FDIC loss share agreements, in that state or MSA exceed $10.0 million.

Geographic Distribution of Real Estate Loans


	Residential 1-4 Family		Non- Farm/Non- Residential		Construction/ Land Development		Agricultural		Multifamily Residential		Total
	(Dollars in thousands)
Arkansas:
Little Rock – North Little Rock – Conway, AR MSA	$	76,243	$	189,167	$	90,494	$	6,500	$	7,913	$	370,317
Fayetteville – Springdale – Rogers, AR/MO MSA		7,074		15,091		16,961		6,083		1,022		46,231
Fort Smith, AR/OK MSA		35,444		38,934		6,594		4,505		2,412		87,889
Hot Springs, AR MSA		8,007		7,940		7,003		—		1,449		24,399
Western Arkansas ⁽¹⁾		25,733		37,826		5,655		10,190		1,526		80,930
Northern Arkansas ⁽²⁾		70,331		28,864		12,279		31,414		512		143,400
All other Arkansas ⁽³⁾		6,823		14,055		3,269		3,005		81		27,233

Total Arkansas		229,655		331,877		142,255		61,697		14,915		780,399


Texas:
Dallas – Fort Worth – Arlington, TX MSA		5,121		161,937		147,123		—		48,623		362,804
Houston – Sugar Land – Baytown, TX MSA		—		11,352		30,810		—		12,983		55,145
San Antonio, TX MSA		—		9,493		10,519		—		—		20,012
Austin – Round Rock, TX MSA		—		—		1,812		—		17,648		19,460
Texarkana, TX – Texarkana, AR MSA		10,261		9,951		4,454		260		1,136		26,062
Beaumont – Port Arthur, TX MSA		—		—		—		—		17,202		17,202
All other Texas ⁽³⁾		1,242		14,093		1,182		—		2,207		18,724

Total Texas		16,624		206,826		195,900		260		99,799		519,409


North Carolina/South Carolina:
Charlotte – Gastonia – Concord, NC/SC MSA		727		26,883		38,273		—		5,063		70,946
Wilson, NC MSA		—		16,789		—		—		—		16,789
All other North Carolina ⁽³⁾		—		12,529		27,822		—		—		40,351
All other South Carolina ⁽³⁾		5,086		5,373		5,295		—		6,478		22,232

Total North Carolina/ South Carolina		5,813		61,574		71,390		—		11,541		150,318


Oklahoma:
Tulsa, OK MSA		—		10,206		—		—		—		10,206
All other Oklahoma ⁽⁴⁾		817		2,776		2,471		—		—		6,064

Total Oklahoma		817		12,982		2,471		—		—		16,270


Truckee – Grass Valley, CA MSA		—		—		25,767		—		—		25,767
All other California⁽³⁾		—		2,542		—		—		—		2,542

Total California		—		2,542		—		—		—		28,309


Washington – Arlington – Alexandria, VA MSA		—		—		19,008		—		—		19,008
Louisiana		—		932		631		10,942		—		12,505
All other states ^{(3) (5)}		2,344		44,330		4,776		789		4,122		56,361

Total real estate loans	$	255,253	$	661,063	$	462,198	$	73,688	$	130,377	$	1,582,579

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

(2)	This geographic area includes the following counties in Northern Arkansas: Baxter, Boone, 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 the Tulsa, OK MSA, which are reported separately, and loans in Le Flore and Sequoyah counties which are included in the Fort Smith, AR/OK MSA above.

(5)	Includes all states not separately presented above.

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


Loans and Leases Attributable to Offices In	June 30,								December 31,
Loans and Leases Attributable to Offices In	2011				2010				2010
	(Dollars in thousands)
Arkansas	$	1,011,409	56.1	%	$	1,103,485	58.1	%	$	1,064,558	57.3	%
Texas		697,387	38.7			685,426	36.1			685,317	36.9
North Carolina		85,227	4.7			110,967	5.8			101,165	5.5
Georgia		6,835	0.4			296	—			3,944	0.2
Florida		785	0.1			—	—			890	0.1
Alabama		448	—			—	—			513	—
South Carolina		36	—			—	—			42	—

Total	$	1,802,127	100.0	%	$	1,900,174	100.0	%	$	1,856,429	100.0	%

The following table reflects loans and leases, excluding loans covered by FDIC loss share agreements, as of June 30, 2011 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	$	314,016		$	195,641		$	170,205		$	137,688		$	817,550
Floating rate (not at a floor or ceiling rate)		38,376			2,933			1,008			29			42,346
Floating rate (at floor rate)		941,239			—			992			—			942,231
Floating rate (at ceiling rate)		—			—			—			—			—

Total	$	1,293,631		$	198,574		$	172,205		$	137,717		$	1,802,127


Percentage of total		71.8	%		11.0	%		9.6	%		7.6	%		100.0	%
Cumulative percentage of total		71.8			82.8			92.4			100.0

Covered Assets and FDIC Clawback Payable

On March 26, 2010, the Company, through the Bank, acquired substantially all of the assets and assumed substantially all of the deposits and certain other liabilities of Unity in a FDIC-assisted acquisition. Loans comprise the majority of the assets acquired and are subject to loss share agreements with the FDIC whereby the Bank is indemnified against a portion of the losses on covered loans and covered ORE. The loans acquired from Unity, as well as the covered ORE 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 acquisition. Loans comprise the majority of the assets acquired and all but $1.1 million of acquired consumer loans are subject to loss share agreements with the FDIC whereby the Bank is indemnified against a portion of the losses on covered loans and covered ORE. The loans acquired from Woodlands that are covered by loss share agreements, as well as the covered ORE 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 acquisition. Loans comprise the majority of the assets acquired and all but $0.9 million of acquired consumer loans are subject to loss share agreements with the FDIC whereby the Bank is indemnified against a portion of the losses on covered loans and covered ORE. The loans acquired from Horizon that are covered by loss share agreements, as well as the covered ORE and the related loss share receivable from the FDIC, are presented as covered assets in the accompanying consolidated financial statements.

On December 17, 2010, the Company, through the Bank, acquired substantially all of the assets and assumed substantially all of the deposits and certain other liabilities of Chestatee in a FDIC-assisted acquisition. Loans comprise the majority of the assets acquired and all but $3.6 million of acquired consumer loans are subject to loss share agreements with the FDIC whereby the Bank is indemnified against a portion of the losses on covered loans and covered ORE. The loans acquired from Chestatee that are covered by loss share agreements, as well as the covered ORE and the related loss share receivable from the FDIC, are presented as covered assets in the accompanying consolidated financial statements.

On January 14, 2011, the Company through the Bank, acquired substantially all of the assets and assumed substantially all of the deposits and certain other liabilities of Oglethorpe in a FDIC-assisted acquisition. Loans comprise the majority of the assets acquired and all but $3.1 million of acquired consumer loans are subject to loss share agreements with the FDIC whereby the Bank is indemnified against a portion of the losses on covered loans and covered ORE. The loans acquired from Oglethorpe that are covered by loss share agreements, as well as the covered ORE and the related loss share receivable from the FDIC, are presented as covered assets in the accompanying consolidated financial statements.

On April 29, 2011 the Company, through the Bank, acquired substantially all the assets and assumed substantially all of the deposits and certain other liabilities of First Choice in a FDIC-assisted acquisition. Loans comprise the majority of the assets acquired and all but $1.6 million of acquired consumer loans are subject to loss share agreements with the FDIC whereby the Bank is indemnified against a portion of the losses on covered loans and covered ORE. The loans acquired from First Choice that are covered by FDIC loss share agreements, as well as the covered ORE and the related loss share receivable from the FDIC, are presented as covered assets in the accompanying consolidated financial statements.

On April 29, 2011 the Company, through the Bank, acquired substantially all the assets and assumed substantially all of the deposits and certain other liabilities of Park Avenue in a FDIC-assisted acquisition. Loans comprise the majority of the assets acquired and all but $17.7 million of acquired consumer loans are subject to loss share agreements with the FDIC whereby the Bank is indemnified against a portion of the losses on covered loans and covered ORE. The loans acquired from Park Avenue that are covered by FDIC loss share agreements, as well as the covered ORE and the related loss share receivable from the FDIC, are presented as covered assets in the accompanying consolidated financial statements.

In conjunction with each of these acquisitions, the Bank entered into loss share agreements with the FDIC such that the Bank and the FDIC will share in the losses on assets covered under the loss share agreements. Pursuant to the terms of the loss share agreements for the Unity acquisition, on losses up to $65 million, the FDIC will reimburse the Bank for 80% of losses. On losses exceeding $65 million, the FDIC will reimburse the Bank for 95% of losses. Pursuant to the terms of the loss share agreements for the Woodlands, Chestatee, Oglethorpe and First Choice acquisitions, the FDIC will reimburse the Bank for 80% of losses. Pursuant to the terms of the loss share agreements for the Horizon acquisition, the FDIC will reimburse the Bank on single family residential loans and related foreclosed real estate for (i) 80% of losses up to $11.8 million, (ii) 30% of losses between $11.8 million and $17.9 million and (iii) 80% of losses in excess of $17.9 million. For non-single family residential loans and related foreclosed real estate, the FDIC will reimburse the Bank for (i) 80% of losses up to $32.3 million, (ii) 0% of losses between $32.3 million and $42.8 million and (iii) 80% of losses in excess of $42.8 million. Pursuant to the terms of the loss share agreements for the Park Avenue acquisition, the FDIC will reimburse the Bank for (i) 80% of losses up to $218.2 million, (ii) 0% of losses between $218.3 million and $267.5 million and (iii) 80% of losses in excess of $267.5 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, (iii) $60 million on the Horizon assets covered under the loss share agreements, (iv) $66 million on the Chestatee assets covered under the loss share agreements, (v) $66 million on the Oglethorpe assets covered under the loss share agreements, (vi) $87 million on the First Choice assets covered under the loss share agreements and (vii) $269 million on the Park Avenue assets covered under loss share agreements, the Bank may be required to reimburse the FDIC under the clawback provisions of the loss share agreements. The covered loans and covered ORE and the related FDIC loss share receivable (collectively, the “covered assets”) and the FDIC clawback payable are reported at the net present value of expected future amounts to be paid or received.

A summary of the covered assets and the FDIC clawback payable is as follows:

Covered Assets and FDIC Clawback Payable


	June 30,				December 31,
	2011		2010		2010
	(Dollars in thousands)
Covered loans	$	908,698	$	124,546	$	496,090
Covered ORE		78,047		8,541		31,145
FDIC loss share receivable		351,723		44,147		154,150

Total covered assets	$	1,338,468	$	177,234	$	681,385


FDIC clawback payable	$	24,262	$	1,580	$	7,197

Covered Loans

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

Covered Loans


	Unity			Woodlands			Horizon			Chestatee			Oglethorpe			First Choice			Park Avenue			Total
	(Dollars in thousands)
At acquisition date:
Contractually required principal and interest	$	208,410		$	315,103		$	179,441		$	181,523		$	174,110		$	260,178		$	452,658		$	1,771,423
Nonaccretable difference		(49,650	)		(83,933	)		(52,388	)		(42,665	)		(69,453	)		(86,210	)		(126,321	)		(510,620	)

Cash flows expected to be collected		158,760			231,170			127,053			138,858			104,657			173,968			326,337			1,260,803
Accretable difference		(24,308	)		(44,692	)		(34,050	)		(22,050	)		(23,982	)		(24,074	)		(63,420	)		(236,576	)

Fair value at acquisition date	$	134,452		$	186,478		$	93,003		$	116,808		$	80,675		$	149,894		$	262,917		$	1,024,227


Carrying value at January 1, 2010	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Covered loans acquired		134,452			—			—			—			—			—			—			134,452
Accretion		2,739			—			—			—			—			—			—			2,739
Transfers to covered ORE		(641	)		—			—			—			—			—			—			(641	)
Payments received		(11,858	)		—			—			—			—			—			—			(11,858	)
Other activity, net		(146	)		—			—			—			—			—			—			(146	)

Carrying value at June 30, 2010	$	124,546		$	—		$	—		$	—		$	—		$	—		$	—		$	124,546


Carrying value at January 1, 2011	$	114,983		$	175,720		$	88,909		$	116,478		$	—		$	—		$	—		$	496,090
Covered loans acquired		—			—			—			—			80,676			149,894			262,917			493,487
Accretion		4,001			7,220			3,446			4,760			3,174			2,247			4,182			29,030
Transfers to covered ORE		(2,320	)		(6,810	)		(1,197	)		(1,874	)		(18	)		—			(329	)		(12,548	)
Payments received		(11,843	)		(21,859	)		(5,357	)		(21,777	)		(13,515	)		(8,117	)		(13,044	)		(95,512	)
Other activity, net		(388	)		(488	)		(653	)		(215	)		(49	)		(56	)		—			(1,849	)

Carrying value at June 30, 2011	$	104,433		$	153,783		$	85,148		$	97,372		$	70,268		$	143,968		$	253,726		$	908,698

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The following table presents a summary of the carrying value and type of covered loans at June 30, 2011 and 2010 and at December 31, 2010.

Covered Loans Portfolio


	June 30,				December 31,
	2011		2010		2010
	(Dollars in thousands)
Real estate:
Residential 1-4 family	$	225,425	$	36,808	$	133,233
Non-farm/non-residential		393,812		57,126		213,063
Construction/land development		190,083		13,083		109,154
Agricultural		31,232		7,700		9,697
Multifamily residential		19,521		4,519		10,769

Total real estate		860,073		119,236		475,916
Commercial and industrial		40,145		3,750		17,646
Consumer		1,516		1,560		1,301
Agricultural (non-real estate)		4,348		—		73
Other		2,616		—		1,154

Total covered loans	$	908,698	$	124,546	$	496,090

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

Accretable Difference on Covered Loans


	Unity			Woodlands			Horizon			Chestatee			Oglethorpe			First Choice			Park Avenue			Total
	(Dollars in thousands)
Accretable difference at January 1, 2010	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Accretable difference acquired		24,308			—			—			—			—			—			—			24,308
Accretion		(2,739	)		—			—			—			—			—			—			(2,739	)
Other activity, net ⁽¹⁾		—			—			—			—			—			—			—			—

Accretable difference at June 30, 2010	$	21,569		$	—		$	—		$	—		$	—		$	—		$	—		$	21,569


Accretable difference at January 1, 2011	$	15,279		$	37,182		$	30,970		$	21,711		$	—		$	—		$	—		$	105,142
Accretable difference acquired		—			—			—			—			23,982			24,074			63,420			111,476
Accretion		(4,001	)		(7,220	)		(3,446	)		(4,760	)		(3,174	)		(2,247	)		(4,182	)		(29,030	)
Other activity, net ⁽¹⁾		1,102			1,318			506			(2,195	)		(1,369	)		(575	)		(262	)		(1,475	)

Accretable difference at June 30, 2011	$	12,380		$	31,280		$	28,030		$	14,756		$	19,439		$	21,252		$	58,976		$	186,113

(1)

Other activity, net includes adjustments primarily for (i) covered loans paid off earlier than expected resulting in no further accretion, (ii) covered loans transferred to covered ORE resulting in no further accretion, and (iii) revisions of estimated cash flows as a result of renewals and/or modifications of covered loans.

Covered ORE

The covered ORE is recorded at estimated fair value on the date of acquisition. In estimating the fair value of covered ORE, management considers a number of factors including, among others, appraised value, estimated holding periods, net present value of cash flows expected to be received and estimated selling costs. Discount rates ranging from 8.0% to 9.5% were used to determine the net present value of covered ORE.

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

Covered ORE


	Unity			Woodlands			Horizon			Chestatee			Oglethorpe			First Choice			Park Avenue			Total
	(Dollars in thousands)
At acquisition date:
Balance on acquired bank’s books	$	20,258		$	12,258		$	8,391		$	31,647		$	16,554		$	2,773		$	91,442		$	183,323
Total expected losses		(9,265	)		(5,897	)		(3,678	)		(15,960	)		(7,848	)		(628	)		(49,400	)		(92,676	)
Discount for net present value of expected cash flows		(2,134	)		(1,332	)		(1,030	)		(2,281	)		(1,562	)		(474	)		(10,412	)		(19,225	)

Fair value at acquisition date	$	8,859		$	5,029		$	3,683		$	13,406		$	7,144		$	1,671		$	31,630		$	71,422


Carrying value at January 1, 2010	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Covered ORE acquired		8,859			—			—			—			—			—			—			8,859
Loans transferred to covered ORE		641			—			—			—			—			—			—			641
Sales of covered ORE		(959	)		—			—			—			—			—			—			(959	)

Carrying value at June 30, 2010	$	8,541		$	—		$	—		$	—		$	—		$	—		$	—		$	8,541


Carrying value at January 1, 2011	$	8,060		$	5,996		$	3,683		$	13,406		$	—		$	—		$	—		$	31,145
Covered ORE acquired		—			—			—			—			7,144			1,671			31,630			40,445
Loans transferred to covered ORE		2,320			6,810			1,197			1,874			18			—			329			12,548
Sales of covered ORE		(1,380	)		(1,277	)		(203	)		(2,189	)		(257	)		—			(785	)		(6,091	)

Carrying value at June 30, 2011	$	9,000		$	11,529		$	4,677		$	13,091		$	6,905		$	1,671		$	31,174		$	78,047

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The following table presents a summary of the carrying value and type of covered ORE at June 30, 2011 and 2010 and December 31, 2010.

Covered ORE Portfolio


	June 30,				December 31,
	2011		2010		2010
	(Dollars in thousands)
Real estate:
Residential 1-4 family	$	18,390	$	2,131	$	10,624
Non-farm/non-residential		16,157		641		3,755
Construction/land development		41,613		5,769		16,366
Multifamily residential		1,865		—		—

Total real estate		78,025		8,541		30,745
Commercial, industrial and consumer		22		—		400

Total covered ORE	$	78,047	$	8,541	$	31,145

FDIC Loss Share Receivable

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

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

FDIC Loss Share Receivable


	Unity			Woodlands			Horizon			Chestatee			Oglethorpe			First Choice			Park Avenue			Total
	(Dollars in thousands)

At acquisition date:
Expected principal loss on covered assets:
Covered loans	$	51,590		$	73,220		$	40,537		$	41,996		$	65,043		$	81,583		$	115,127		$	469,096
Covered ORE		9,265			5,897			3,678			15,960			7,848			628			49,400			92,676

Total expected principal losses		60,855			79,117			44,215			57,956			72,891			82,211			164,527			561,772
Estimated loss sharing percentage ⁽¹⁾		80	%		80	%		80	%		80	%		80	%		80	%		80	%		80	%

Estimated recovery from FDIC loss share agreements		48,684			63,294			35,372			46,365			58,313			65,769			131,622			449,419
Discount for net present value on FDIC loss share receivable		(4,537	)		(7,428	)		(6,283	)		(4,293	)		(5,918	)		(6,225	)		(17,939	)		(52,623	)

Net present value of FDIC loss share receivable at acquisition date	$	44,147		$	55,866		$	29,089		$	42,072		$	52,395		$	59,544		$	113,683		$	396,796


Carrying value at January 1, 2010	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
FDIC loss share receivable recorded in acquisition		44,147			—			—			—			—			—			—			44,147
Accretion income		285			—			—			—			—			—			—			285
Cash received from FDIC		(391	)		—			—			—			—			—			—			(391	)
Other activity, net		106			—			—			—			—			—			—			106

Carrying value at June 30, 2010	$	44,147		$	—		$	—		$	—		$	—		$			$	—		$	44,147


Carrying value at January 1, 2011	$	31,120		$	51,776		$	29,182		$	42,072		$	—		$	—		$	—		$	154,150
FDIC loss share receivable recorded in acquisition		—			—			—			—			52,395			59,544			113,683			225,622
Accretion income		638			1,053			646			793			994			493			641			5,258
Cash received from FDIC		(3,345	)		(11,968	)		(3,116	)		(6,515	)		(3,805	)		—			—			(28,749	)
Other activity, net		372			(1,827	)		285			(387	)		(2,000	)		(133	)		(868	)		(4,558	)

Carrying value at June 30, 2011	$	28,785		$	39,034		$	26,997		$	35,963		$	47,584		$	59,904		$	113,456		$	351,723

(1)

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

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FDIC Clawback Payable

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

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

FDIC Clawback Payable


	Unity			Woodlands			Horizon			Chestatee			Oglethorpe			First Choice			Park Avenue			Total
	(Dollars in thousands)

At acquisition date:
Estimated FDIC clawback payable	$	2,612		$	4,846		$	2,380		$	1,778		$	1,506		$	1,515		$	24,219		$	38,856
Discount for net present value on FDIC clawback payable		(1,046	)		(1,905	)		(919	)		(687	)		(582	)		(585	)		(9,351	)		(15,075	)

Net present value of FDIC clawback payable at acquisition date	$	1,566		$	2,941		$	1,461		$	1,091		$	924		$	930		$	14,868		$	23,781


Carrying value at January 1, 2010	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
FDIC clawback payable recorded in acquisition		1,566			—			—			—			—			—			—			1,566
Amortization expense		14			—			—			—			—			—			—			14
Other activity, net		—			—			—			—			—			—			—			—

Carrying value at June 30, 2010	$	1,580		$	—		$	—		$			$	—		$	—		$	—		$	1,580


Carrying value at January 1, 2011	$	1,629		$	3,004		$	1,473		$	1,091		$	—		$	—		$	—		$	7,197
FDIC clawback payable recorded in acquisition		—			—			—			—			924			930			14,868			16,722
Amortization expense		40			76			43			27			19			8			130			343
Other activity, net		—			—			—			—			—			—			—			—

Carrying value at June 30, 2011	$	1,669		$	3,080		$	1,516		$	1,118		$	943		$	938		$	14,998		$	24,262

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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 providing 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. The Company may continue to accrue interest on certain loans and leases contractually past due 90 days or more if such loans or leases are both well secured and in the process of collection. At the time a loan or lease is placed on nonaccrual status, interest previously accrued but uncollected is generally reversed and charged against interest income. Nonaccrual loans and leases are generally returned to accrual status when payments are less than 90 days past due and the Company reasonably expects to collect all payments. If a loan or lease is determined to be uncollectible, the portion of the principal determined to be uncollectible will be charged against the allowance for loan and lease losses. Income on nonaccrual loans or leases 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 June 30, 2011 and 2010 and at December 31, 2010.

Nonperforming Assets


	June 30,						December 31,
	2011			2010			2010
	(Dollars in thousands)
Nonaccrual loans and leases	$	19,599		$	16,460		$	13,944
Accruing loans and leases 90 days or more past due		—			—			—
Troubled and restructured loans and leases⁽¹⁾		—			—			—

Total nonperforming loans and leases		19,599			16,460			13,944
Foreclosed assets held for sale and repossessions⁽²⁾		36,348			44,680			42,216

Total nonperforming assets	$	55,947		$	61,140		$	56,160


Nonperforming loans and leases to total loans and leases⁽³⁾		1.09	%		0.87	%		0.75	%
Nonperforming assets to total assets⁽³⁾		1.39			2.12			1.72

(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 are 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.

At June 30, 2011, the Company had two related loans totaling $3.79 million which had matured and had become 90 days past due while extension negotiations were ongoing. Subsequent to quarter end, the borrower paid all accrued interest, made a principal reduction, established a reserve for future interest and taxes, and extended the loans. Accordingly, the loans became fully current and have returned to accrual status. At June 30, 2011, these two loans accounted for 21 basis points of the Company’s 109 basis points of nonperforming loans and leases and nine basis points of the Company’s 139 basis points of nonperforming assets.

At June 30, 2011, the Company has reduced the carrying value of its impaired loans and leases (all of which were included in nonaccrual loans and leases) by $11.2 million to the estimated fair value of $12.1 million for such loans and leases. The $11.2 million adjustment to reduce the carrying value of impaired loans and leases to estimated fair value consisted of $10.3 million of partial charge-offs and $0.9 million of specific loan and lease loss allocations.

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The following table presents information concerning the geographic location of nonperforming assets, excluding assets covered by FDIC loss share agreements, at June 30, 2011. Nonaccrual loans and leases are reported at the physical location of the principal collateral. Foreclosed real estate assets are reported at the physical location of the asset. Repossessions are reported at the physical location where the borrower resided or had its principal place of business at the time of repossession.

Geographic Distribution of Nonperforming Assets


	Nonaccrual Loans and Leases		Other Real Estate Owned and Repossessions		Total Nonperforming Assets
	(Dollars in thousands)
Arkansas	$	15,195	$	18,053	$	33,248
Texas		397		16,304		16,701
North Carolina		1,723		31		1,754
South Carolina		1,512		1,266		2,778
Georgia		445		116		561
Florida		—		—		—
Alabama		—		—		—
All other		327		578		905

Total	$	19,599	$	36,348	$	55,947

The following table is a summary of activity within foreclosed and repossessed assets held for sale, excluding assets covered by FDIC loss share agreements, for the periods indicated.

Foreclosed and Repossessed Assets Activity


	Six Months Ended June 30,
	2011			2010
	(Dollars in thousands)
Balance – January 1	$	42,216		$	61,148
Loans transferred into foreclosed and repossessed assets held for sale		5,460			7,705
Sales of foreclosed and repossessed assets		(4,001	)		(19,781	)
Write downs of foreclosed and repossessed assets held for sale		(7,442	)		(4,392	)
Foreclosed and repossessed assets acquired in acquisitions – not covered by loss share agreements		115			—

Balance – June 30	$	36,348		$	44,680

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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 six-month periods ended June 30, 2011 and 2010 and the year ended December 31, 2010.

Allowance for Loan and Lease Losses


	Six Months Ended June 30,						Year Ended December 31,
	2011			2010			2010
	(Dollars in thousands)
Balance, beginning of period	$	40,230		$	39,619		$	39,619
Loans and leases charged off:
Real estate		5,546			2,798			7,045
Commercial and industrial		1,015			3,711			6,937
Consumer		426			571			1,196
Direct financing leases		226			225			478
Agricultural (non-real estate)		73			425			1,108

Total loans and leases charged off		7,286			7,730			16,764


Recoveries of loans and leases previously charged off:
Real estate		31			346			485
Commercial and industrial		63			206			656
Consumer		84			117			212
Direct financing leases		—			18			20
Agricultural (non-real estate)		2			—			2

Total recoveries		180			687			1,375

Net loans and leases charged off		7,106			7,043			15,389
Provision charged to operating expense		6,000			7,600			16,000

Balance, end of period	$	39,124		$	40,176		$	40,230


Net charge-offs to average loans and leases outstanding during the periods indicated ⁽¹⁾		0.79	%⁽²⁾		0.75	%⁽²⁾		0.81	%
Allowance for loan and lease losses to total loans and leases ⁽¹⁾		2.17	%		2.11	%		2.17	%
Allowance for loan and lease losses to nonperforming loans and leases⁽¹⁾		200	%		244	%		288	%

(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 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. 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 $39.1 million, or 2.17% of total loans and leases (excluding loans covered by FDIC loss share agreements), at June 30, 2011 compared with $40.2 million, or 2.17% of total loans and leases (excluding loans covered by FDIC loss share agreements), at December 31, 2010 and $40.2 million, or 2.11% of total loans and leases (excluding loans covered by FDIC loss share agreements), at June 30, 2010. The Company’s allowance for loan and lease losses was equal to 200% of its total nonperforming loans and leases (excluding loans covered by FDIC loss share agreements) at June 30, 2011 compared to 288% at December 31, 2010 and 244% at June 30, 2010. 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.

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Net Charge-offs: Net charge-offs were $3.8 million for the second quarter of 2011 compared to $3.0 million for the second quarter of 2010. Net charge-offs were $7.1 million for the first six months of 2011 compared to $7.0 million for the first six months of 2010. The Company’s annualized net charge-off ratio was 0.85% for the quarter ended June 30, 2011 compared to 0.64% for the quarter ended June 30, 2010. The Company’s annualized net charge-off ratio was 0.79% for the six months ended June 30, 2011 compared to 0.75% for the six months ended June 30, 2010.

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 $3.7 million for the second quarter and $6.0 million for the first six months of 2011 compared to $3.4 million for the second quarter and $7.6 million for the first six months of 2010.

Investment Securities

At June 30, 2011 and 2010 and at December 31, 2010, the Company classified all of its investment securities portfolio as available for sale. Accordingly, its investment securities are stated at estimated fair value in the consolidated financial statements with the unrealized gains and losses, net of 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 June 30, 2011 and 2010 and at December 31, 2010. The Company’s holdings of “other equity securities” include Federal Home Loan Bank of Dallas (“FHLB – Dallas”), 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


	June 30,								December 31,
	2011				2010				2010
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in thousands)
Obligations of state and political subdivisions	$	361,434	$	364,756	$	407,872	$	416,956	$	378,822	$	378,547
U.S. Government agency residential mortgage-backed securities		109,725		111,882		20,651		20,966		1,269		1,269
Other equity securities		22,606		22,606		15,541		15,541		18,882		18,882

Total	$	493,765	$	499,244	$	444,064	$	453,463	$	398,973	$	398,698

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 $8.4 million and gross unrealized losses of $2.9 million at June 30, 2011; gross unrealized gains of $6.4 million and gross unrealized losses of $6.7 million at December 31, 2010; and gross unrealized gains of $13.1 million and gross unrealized losses of $3.7 million at June 30, 2010. Management believes that all of its unrealized losses on individual investment securities at June 30, 2011 and 2010 and at December 31, 2010, 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.

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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)
June 30, 2011:
Obligations of states and political subdivisions	$	361,434	$	5,052	$	(161	)	$	366,325
U.S. Government agency residential mortgage-backed securities		109,725		60		(3,443	)		106,342
Other equity securities		22,606		—		—			22,606

Total	$	493,765	$	5,112	$	(3,604	)	$	495,273

December 31, 2010:
Obligations of states and political subdivisions	$	378,822	$	5,307	$	(193	)	$	383,936
U.S. Government agency residential mortgage-backed securities		1,269		—		(22	)		1,247
Other equity securities		18,882		—		—			18,882

Total	$	398,973	$	5,307	$	(215	)	$	404,065

June 30, 2010:
Obligations of states and political subdivisions	$	407,872	$	5,034	$	(265	)	$	412,641
U.S. Government agency residential mortgage-backed securities		20,651		83		—			20,734
Other equity securities		15,541		—		—			15,541

Total	$	444,064	$	5,117	$	(265	)	$	448,916

During the second quarter of 2011, the Company recognized net premium amortization of $0.2 million compared to $0.1 million of net discount accretion during the second quarter of 2010. During the first six months of 2011, the Company recognized net premium amortization of $0.1 million compared to $0.5 million of net discount accretion during the first six months of 2010.

The Company had net gains of $0.2 million from the sale of $22.6 million of investment securities in the second quarter of 2011 compared with net gains of $2.1 million from the sale of $88 million of investment securities in the second quarter of 2010. The Company had net gains of $0.3 million from the sale of $35.4 million of investment securities in the first six months of 2011 compared with net gains of $3.7 million from the sale of $109 million of investment securities in the first six months of 2010. During the quarters ended June 30, 2011 and 2010, respectively, investment securities totaling $8 million and $18 million matured, were called or were paid down by the issuer. During the six months ended June 30, 2011 and 2010, respectively, investment securities totaling $12 million and $38 million matured, were called or were paid down by the issuer. The Company purchased $1 million and $21 million of investment securities during the second quarters of 2011 and 2010, respectively, and purchased $8 million and $92 million of investment securities during the first six months of 2011 and 2010, respectively. The Company also acquired $136 million of investment securities from FDIC-assisted acquisitions during the second quarter of 2011 (none in the second quarter of 2010) and acquired $136 million and $6 million of investment securities from FDIC-assisted acquisitions during the first six months of 2011 and 2010, respectively.

In recent years the Company has been a net seller of investment securities. Reductions of its investment securities portfolio have been undertaken primarily as a result of the Company’s ongoing evaluations of interest rate risk and to free up capital for FDIC-assisted acquisitions. During the second quarter of 2011, the Company’s investment securities portfolio increased as a result of the investment securities acquired in the Park Avenue and First Choice 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.

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The following table presents the types and estimated fair values of the Company’s investment securities AFS at June 30, 2011 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	$	—		$	106,766		$	23,750		$	7,228		$	135,147		$	272,891
Texas		1,327			25,595			16,621			13,866			12,185			69,594
Pennsylvania		—			—			—			—			5,856			5,856
Louisiana		—			4,036			—			—			—			4,036
South Carolina		—			—			—			—			3,344			3,344
Connecticut		—			—			2,660			—			—			2,660
Iowa		—			—			2,478			—			—			2,478
Massachusetts		—			—			—			—			1,975			1,975
Georgia		—			811			240			608			—			1,659
Alabama		—			—			—			263			—			263
U.S. Government agency residential mortgage-backed securities		111,882			—			—			—			—			111,882
Other equity securities		—			—			—			—			22,606			22,606

Total	$	113,209		$	137,208		$	45,749		$	21,965		$	181,113		$	499,244

Percentage of total		22.7	%		27.5	%		9.1	%		4.4	%		36.3	%		100.0	%
Cumulative percentage of total		22.7			50.2			59.3			63.7			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 June 30, 2011 and 2010 and at December 31, 2010 and their respective percentage of the total deposits are reflected in the following table.

Deposits


	June 30,								December 31,
	2011				2010				2010
	(Dollars in thousands)
Non-interest bearing	$	418,742	13.2	%	$	258,927	12.0	%	$	298,585	11.8	%
Interest bearing:
Transaction (NOW)		771,417	24.3			567,885	26.3			625,524	24.6
Savings and money market		872,985	27.5			542,069	25.1			673,534	26.5
Time deposits less than $100,000		605,165	19.1			364,765	16.9			459,027	18.1
Time deposits of $100,000 or more		502,174	15.9			424,925	19.7			484,083	19.0

Total deposits	$	3,170,483	100.0	%	$	2,158,571	100.0	%	$	2,540,753	100.0	%

The Company’s total deposits increased $1.01 billion to $3.17 billion at June 30, 2011 compared to $2.16 billion at June 30, 2010. Over the past year, the Company has benefited from favorable changes in its deposit mix. The Company’s non-CD deposits have grown and comprised 65.1% of total deposits at June 30, 2011, compared to 62.9% at December 31, 2010 and 63.4% at June 30, 2010. Non-CD deposits totaled $2.06 billion at June 30, 2011, compared to $1.60 billion at December 31, 2010 and $1.37 billion at June 30, 2010.

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


	June 30,								December 31,
Deposits Attributable to Offices In	2011				2010				2010
	(Dollars in thousands)
Arkansas	$	1,606,014	50.7	%	$	1,656,577	76.7	%	$	1,607,962	63.3	%
Texas		459,367	14.5			360,101	16.7			455,089	17.9
Georgia		974,247	30.7			141,893	6.6			328,037	12.9
Florida		88,524	2.8			—	—			99,842	4.0
South Carolina		14,115	0.4			—	—			17,958	0.7
North Carolina		15,575	0.5			—	—			15,816	0.6
Alabama		12,641	0.4			—	—			16,049	0.6

Total	$	3,170,483	100.0	%	$	2,158,571	100.0	%	$	2,540,753	100.0	%

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 and six months ended June 30, 2011 and 2010.

Average Balances and Rates of Other Interest Bearing Liabilities


	Three Months Ended June 30,										Six Months Ended June 30,
	2011					2010					2011					2010
	Average Balance		Average Rate Paid			Average Balance		Average Rate Paid			Average Balance		Average Rate Paid			Average Balance		Average Rate Paid
	(Dollars in thousands)
Repurchase agreements with customers	$	40,213		0.57	%	$	49,836		0.82	%	$	41,396		0.58	%	$	49,191		0.86	%
Other borrowings ⁽¹⁾		294,042		3.71			319,222		3.92			295,683		3.68			334,280		4.04
Subordinated debentures		64,950		2.67			64,950		2.67			64,950		2.66			64,950		2.65

Total other interest bearing liabilities		399,205		3.22	%	$	434,008		3.38	%	$	402,029		3.19	%	$	448,421		3.49	%

(1)	Included in other borrowings at June 30, 2011 are FHLB advances that contain quarterly call features and mature as follows: 2017, $260.0 million at 3.90% weighted-average interest rate and 2018, $20.0 million at 2.53% weighted-average interest rate.

CAPITAL RESOURCES AND LIQUIDITY

Capital Resources

Subordinated Debentures. At June 30, 2011 and 2010 and at December 31, 2010, the Company had an aggregate of $64.9 million of subordinated debentures and related trust preferred securities outstanding consisting of (i) $20.6 million of subordinated debentures and securities issued in 2006 that bear interest, adjustable quarterly, at LIBOR plus 1.60%; (ii) $15.4 million of subordinated debentures and securities issued in 2004 that bear interest, adjustable quarterly, at LIBOR plus 2.22%; and (iii) $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.

Tangible Common Stockholders’ Equity. The Company uses its tangible common stockholders’ equity ratio as the principal measure of the strength of its capital. The tangible common stockholders’ equity ratio is calculated by dividing total common stockholders’ equity less intangible assets by total assets less intangible assets. The Company’s tangible common stockholders’ equity ratio was 9.28% at June 30, 2011 compared to 9.57% at December 31, 2010 and 9.94% at June 30, 2010.

Common Stock Dividend Policy. During the quarter ended June 30, 2011, the Company paid a dividend of $0.18 per common share compared to $0.15 per common share in the quarter ended June 30, 2010. On July 1, 2011, the Company’s board of directors approved a dividend of $0.19 per common share that was paid on July 22, 2011. 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 June 30, 2011 and December 31, 2010, and are presented in the following tables.

Consolidated Capital Ratios


	June 30, 2011			December 31, 2010
	(Dollars in thousands)

Tier 1 capital:
Common stockholders’ equity	$	385,683		$	320,355
Allowed amount of trust preferred securities		63,000			63,000
Net unrealized (gains) losses on investment securities AFS		(3,330	)		167
Less goodwill and certain intangible assets		(13,220	)		(7,925	)

Total tier 1 capital		432,133			375,597

Tier 2 capital:
Qualifying allowance for loan and lease losses		30,710			29,241

Total risk-based capital	$	462,843		$	404,838


Risk-weighted assets	$	2,448,421		$	2,328,251


Adjusted quarterly average assets	$	3,830,484		$	3,160,452


Ratios at end of period:
Tier 1 leverage		11.28	%		11.88	%
Tier 1 risk-based capital		17.65			16.13
Total risk-based capital		18.90			17.39

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


	June 30, 2011			December 31, 2010
	(Dollars in thousands)
Stockholders’ equity – Tier 1	$	413,174		$	358,852
Tier 1 leverage ratio		10.82	%		11.40	%
Tier 1 risk-based capital ratio		17.00			15.49
Total risk-based capital ratio		18.25			16.75

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Liquidity

Bank Liquidity. Liquidity represents an institution’s ability to provide funds to satisfy demands from depositors, borrowers and other creditors by either converting assets into cash or accessing new or existing sources of incremental funds. Generally the Company relies on deposits, loan and lease and covered loan repayments, and repayments of its investment securities as its primary sources of funds. The principal deposit sources utilized by the Company include consumer, commercial and public funds customers in the Company’s markets. The Company has used these funds, together with 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 June 30, 2011 the Company had unused borrowing availability that was primarily comprised of the following four sources: (1) $673 million of available blanket borrowing capacity with the FHLB – Dallas, (2) $110 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) $79 million from borrowing programs of the FRB.

The Company anticipates it will continue to rely on deposits, loan and lease and covered loan 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.

Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”). On July 21, 2010, the Dodd-Frank Act was signed into law. Among other things, the Dodd-Frank Act 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 $14.5 million and $25.9 million for the six months ended June 30, 2011 and 2010, respectively. Net cash provided by operating activities is comprised primarily of net income, adjusted for certain non-cash items and for changes in operating assets and liabilities.

Investing activities provided $593.4 million in the six months ended June 30, 2011 and $128.0 million in the six months ended June 30, 2010. The Company’s primary sources and uses of cash for investing activities include net activity in its investment securities portfolio, which provided $41.8 million and $58.8 million in the six months ended June 30, 2011 and 2010, respectively, net loan and lease paydowns, which provided $57.2 million and $1.2 million in the six months ended June 30, 2011 and 2010, respectively, and purchases of premises and equipment, which used $12.9 million and $3.6 million in the six months ended June 30, 2011 and 2010, respectively. The Company received $365.4 million and $62.1 million for the six months ended June 30, 2011 and 2010, respectively, in connection with FDIC-assisted acquisitions and received net cash of $139.9 million and $13.5 million for the six months ended June 30, 2011 and 2010, respectively, from liquidation of covered assets. The Company had proceeds from dispositions of premises and equipment, foreclosed and repossessed assets and other assets of $3.7 million and $10.3 million for the six months ended June 30, 2011 and 2010, respectively.

Financing activities used $575.5 million in the six months ended June 30, 2011 and $172.1 million in the six months ended June 30, 2010. The Company’s primary financing activities include net changes in deposit accounts, which used $485.0 million and $91.2 million in the six months ended June 30, 2011 and 2010, respectively, and net repayments of other borrowings and repurchase agreements with customers, which used $86.9 million and $77.4 million in the six months ended June 30, 2011 and 2010, respectively. In addition the Company paid common stock cash dividends of $6.0 million and $4.9 million in the six months ended June 30, 2011 and 2010, respectively. Proceeds and current tax benefits from exercise of stock options provided $2.4 million and $1.5 million during the six months ended June 30, 2011 and 2010, 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 Georgia, including Cartersville (2), Rome, Adairsville and Calhoun.

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

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

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

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

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

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

The Company plans to continue evaluating and bidding on failed bank opportunities and hopes to make additional FDIC-assisted acquisitions in the coming quarters.

In addition, 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 acquisitions. In the first quarter of 2011, the Company opened de novo offices in the metro-Dallas area in Carrollton, Texas and in Plano, Texas. In the second quarter of 2011, the Company opened its tenth Texas office and eighth metro-Dallas area office in Keller, Texas.

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 six months of 2011, the Company had $12.9 million of 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 2011 are expected to be in the range of $26 million to $35 million and to include progress payments on construction projects expected to be completed in 2011 or 2012, furniture and equipment costs, premises and equipment acquired in FDIC-assisted acquisitions 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.

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 and repossessed assets held for sale and (iv) the fair value of the assets acquired and liabilities assumed pursuant to business combination transactions, including the Company’s FDIC-assisted acquisitions, 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 and repossessed 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 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 that 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 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 and repossessed 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 foreclosed and repossessed assets held for sale 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. Purchased loans acquired in a business combination, including covered loans, are recorded at estimated fair value 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, among other things, the remaining life of the acquired loans, estimated prepayments, estimated loss ratios, estimated value of the underlying collateral, estimated holding periods, and net present value of cash flows expected to be received. 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. In determining the acquisition date fair values of purchased loans, management calculates a non-accretable difference (the credit component of the purchased loans) and an accretable difference (the yield component of the purchased loans).

The accretable difference on purchased loans is the difference between the expected cash flows and the net present value of expected cash flows. Such difference is accreted into earnings using the effective yield method over the term of the loans. In determining the net present value of expected cash flows, the Company uses discount rates ranging from 6.0% to 9.5% depending on the risk characteristics of each loan or loan pool.

The estimated fair value of covered ORE and the FDIC loss share receivable 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 16 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, real estate market, competitive, employment, credit market and interest rate conditions; plans, goals, beliefs, expectations, thoughts, estimates and outlook for the future; revenue growth; net income and earnings per common share; net interest margin; net interest income; non-interest income, including service charges on deposit accounts, mortgage lending and trust income, gains (losses) on investment securities and sales of other assets; gains on FDIC-assisted acquisitions; income from accretion of the FDIC loss share receivable, net of amortization of the FDIC clawback payable; other loss share income; non-interest expense; efficiency ratio; anticipated future operating results and financial performance; asset quality, including the effects of current economic and real estate market conditions; nonperforming loans and leases; nonperforming assets; net charge-offs; net charge-off ratio; provision for loan and lease losses; past due loans and leases; litigation; interest rate sensitivity, including the effects of possible interest rate changes; future growth and expansion opportunities including plans for making additional FDIC-assisted acquisitions and plans for opening new offices or closing offices; opportunities and goals for future market share growth; expected capital expenditures; loan, lease and deposit growth; changes in covered assets; changes in the volume, yield and value of the Company’s investment securities portfolio; availability of unused borrowings and other similar forecasts and statements of expectation. Words such as “anticipate,” “believe,” “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 enter into additional FDIC-assisted acquisitions; 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; interest rate fluctuations, including changes in the yield curve between short-term and long-term interest rates; competitive factors and pricing pressures, including their effect on the Company’s net interest margin; general economic, unemployment, credit market and real estate

market conditions, including their effect on the creditworthiness of borrowers and lessees, collateral values, the value of investment securities and asset recovery values, including the value of the FDIC loss share receivable and related covered assets; 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 intended to stabilize economic conditions and credit markets, increase regulation of the financial services industry and protect homeowners or consumers; changes in U.S. government monetary and fiscal policy; possible future downgrade in U.S. Treasury securities in global markets; adoption of new accounting standards or changes in existing standards; and adverse results in future litigation as well as other factors described in this and other Company reports and statements. Should one or more of the foregoing risks materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from those described in the forward-looking statements.

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SELECTED AND SUPPLEMENTAL FINANCIAL DATA

The following tables set forth selected consolidated financial data of the Company for the three and six months ended June 30, 2011 and 2010 and supplemental quarterly financial data of the Company for each of the most recent eight quarters beginning with the third quarter of 2009 through the second quarter of 2011. These tables are qualified in their entirety by the consolidated financial statements and related notes presented elsewhere in this report.

Selected Consolidated Financial Data


	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011				2010
	(Dollars in thousands, except per share amounts)
Income statement data:
Interest income	$	50,874		$	38,580			$	94,896		$	74,792
Interest expense		8,398			8,851				16,337			17,870
Net interest income		42,476			29,729				78,559			56,922
Provision for loan and lease losses		3,750			3,400				6,000			7,600
Non-interest income		75,058			9,127				88,048			26,493
Non-interest expense		35,200			21,110				61,392			35,581
Noncontrolling interest		13			32				16			43
Net income available to common stockholders		50,217			10,890				64,847			26,845
Common share and per common share data:
Earnings – diluted	$	2.91		$	0.64			$	3.77		$	1.58
Book value		22.53			17.25				22.53			17.25
Dividends		0.18			0.15				0.35			0.29
Weighted-average diluted shares outstanding (thousands)		17,232			17,053				17,203			17,009
End of period shares outstanding (thousands)		17,118			16,956				17,118			16,956
Balance sheet data at period end:
Total assets	$	4,026,841		$	2,878,272			$	4,026,841		$	2,878,272
Total loans and leases not covered by loss share		1,802,127			1,900,174				1,802,127			1,900,174
Allowance for loan and lease losses		39,124			40,176				39,124			40,176
Loans covered by loss share		908,698			124,546				908,698			124,546
ORE covered by loss share		78,047			8,541				78,047			8,541
FDIC loss share receivable		351,723			44,147				351,723			44,147
Total investment securities		499,244			453,463				499,244			453,463
Total deposits		3,170,483			2,158,571				3,170,483			2,158,571
Repurchase agreements with customers		39,403			51,677				39,403			51,677
Other borrowings		292,682			281,788				292,682			281,788
Subordinated debentures		64,950			64,950				64,950			64,950
Total common stockholders’ equity		385,683			292,487				385,683			292,487
Loan and lease (including covered loans) to deposit ratio		85.50	%		93.93	%			85.50	%		93.93	%
Average balance sheet data:
Total average assets	$	3,843,704		$	2,954,068			$	3,598,590		$	2,867,870
Total average common stockholders’ equity		360,459			287,607				343,686			280,374
Average common equity to average assets		9.38	%		9.74	%			9.55	%		9.78	%
Performance ratios:
Return on average assets*		5.24	%		1.48	%			3.63	%		1.89	%
Return on average common stockholders’ equity*		55.88			15.19				38.05			19.31
Net interest margin – FTE*		5.80			5.10				5.71			5.05
Efficiency ratio		29.39			50.98				35.87			43.54
Common stock dividend payout ratio		6.13			23.32				9.22			18.28
Asset quality ratios:
Net charge-offs to average total loans and leases*⁽¹⁾		0.85	%		0.64	%			0.79	%		0.75	%
Nonperforming loans and leases to total loans and leases⁽¹⁾		1.09			0.87				1.09			0.87
Nonperforming assets to total assets⁽¹⁾		1.39			2.12				1.39			2.12
Allowance for loan and lease losses as a percentage of:
Total loans and leases⁽¹⁾		2.17	%		2.11	%			2.17	%		2.11	%
Nonperforming loans and leases⁽¹⁾		200	%		244	%			200	%		244	%
Capital ratios at period end:
Tier 1 leverage		11.28	%		11.63	%			11.28	%		11.63	%
Tier 1 risk-based capital		17.65			14.15				17.65			14.15
Total risk-based capital		18.90			15.40				18.90			15.40

*	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.

Supplemental Quarterly Financial Data

(Dollars in Thousands, Except Per Share Amounts)


	9/30/09			12/31/09			3/31/10			6/30/10			9/30/10			12/31/10			3/31/11			6/30/11
Earnings Summary:
Net interest income	$	29,232		$	28,495		$	27,193		$	29,729		$	32,768		$	33,945		$	36,083		$	42,476
Federal tax (FTE) adjustment		2,557			2,229			2,649			2,554			2,447			2,341			2,318			2,235

Net interest income (FTE)		31,789			30,724			29,842			32,283			35,215			36,286			38,401			44,711
Provision for loan and lease losses		(7,500	)		(5,600	)		(4,200	)		(3,400	)		(4,300	)		(4,100	)		(2,250	)		(3,750	)
Non-interest income		5,810			13,257			17,365			9,127			25,183			18,646			12,990			75,058
Non-interest expense		(15,499	)		(19,001	)		(17,471	)		(21,110	)		(23,565	)		(25,274	)		(26,192	)		(35,200	)

Pretax income (FTE)		14,600			19,380			25,536			16,900			32,533			25,558			22,949			80,819
FTE adjustment		(2,557	)		(2,229	)		(2,649	)		(2,554	)		(2,447	)		(2,341	)		(2,318	)		(2,235	)
Provision for income taxes		(2,599	)		(4,472	)		(6,944	)		(3,488	)		(9,878	)		(6,303	)		(6,004	)		(28,380	)
Noncontrolling interest		25			17			11			32			17			17			3			13
Preferred stock dividend		(1,078	)		(3,048	)		—			—			—			—			—			—

Net income available to common stockholders	$	8,391		$	9,648		$	15,954		$	10,890		$	20,225		$	16,931		$	14,630		$	50,217


Earnings per common share – diluted	$	0.50		$	0.57		$	0.94		$	0.64		$	1.19		$	0.99		$	0.85		$	2.91

Non-interest Income:
Service charges on deposit accounts	$	3,234		$	3,338		$	3,202		$	3,933		$	4,002		$	4,019		$	3,838		$	4,586
Mortgage lending income		672			682			527			815			1,024			1,495			681			634
Trust income		801			880			922			794			802			888			782			803
Bank owned life insurance income		495			1,729			464			534			580			574			568			575
Gains (losses) on investment securities		142			6,322			1,697			2,052			570			226			152			199
Gains (losses) on sales of other assets		(51	)		(142	)		(73	)		38			267			571			407			705
Accretion of FDIC loss share receivable, net of amortization of FDIC clawback payable		—			—			—			271			906			1,252			1,998			2,923
Other loss share income, net		—			—			—			—			295			304			971			984
Gains on FDIC-assisted acquisitions		—			—			10,037			—			16,122			8,859			2,952			62,756
Other		517			448			589			690			615			458			641			893

Total non-interest income	$	5,810		$	13,257		$	17,365		$	9,127		$	25,183		$	18,646		$	12,990		$	75,058


Non-interest Expense:
Salaries and employee benefits	$	7,823		$	8,131		$	8,275		$	8,996		$	10,539		$	12,351		$	11,647		$	14,817
Net occupancy expense		2,558			2,156			2,421			2,416			2,782			2,999			3,106			3,775
Other operating expenses		5,091			8,686			6,748			9,587			10,111			9,764			11,211			16,172
Amortization of intangibles		27			28			27			111			133			160			228			436

Total non-interest expense	$	15,499		$	19,001		$	17,471		$	21,110		$	23,565		$	25,274		$	26,192		$	35,200


Allowance for Loan and Lease Losses:
Balance at beginning of period	$	43,635		$	39,280		$	39,619		$	39,774		$	40,176		$	40,250		$	40,230		$	39,225
Net charge-offs		(11,855	)		(5,261	)		(4,045	)		(2,998	)		(4,226	)		(4,120	)		(3,255	)		(3,851	)
Provision for loan and lease losses		7,500			5,600			4,200			3,400			4,300			4,100			2,250			3,750

Balance at end of period	$	39,280		$	39,619		$	39,774		$	40,176		$	40,250		$	40,230		$	39,225		$	39,124


Selected Ratios:
Net interest margin - FTE*		4.80	%		4.89	%		4.99	%		5.10	%		5.31	%		5.35	%		5.61	%		5.80	%
Efficiency ratio		41.22			43.20			37.01			50.98			39.02			46.01			50.97			29.39
Net charge-offs to average loans and leases*(1)		2.38			1.08			0.86			0.64			0.88			0.87			0.72			0.85
Nonperforming loans and leases/total loans and leases(1)		1.00			1.24			1.02			0.87			0.90			0.75			0.77			1.09
Nonperforming assets/total assets(1)		2.88			3.06			2.68			2.12			1.85			1.72			1.62			1.39
Allowance for loan and lease losses to total loans and leases(1)		2.03			2.08			2.11			2.11			2.13			2.17			2.17			2.17
Loans and leases past due 30 days or more, including past due non-accrual loans and leases, to total loans and leases(1)		1.77			1.99			1.70			1.80			1.90			2.02			2.19			2.47

*	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 July 1, 2011. 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		(3.4)%
+300		(3.0)
+200		(2.3)
+100		(1.3)
-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

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

The original petition alleged that the defendants’ conduct violated the Texas Securities Act and the Texas Deceptive Trade Practices Act, and seeks compensatory damages, trebled under the Texas Deceptive Trade Practices Act, plus exemplary damages, attorneys’ fees, costs, interest, and other relief the court deems just. Since the original petition was filed, the plaintiff has (i) dropped all claims against the Company, but substituted the Bank as a defendant and (ii) dropped all claims with respect to the Texas Deceptive Trade Practices Act. No specific amount of dollar damages has been claimed. Discovery is currently ongoing with respect to this petition. The Company believes the allegations of the petition are wholly without merit and intends to vigorously defend against these claims.

The Company is party to various other legal proceedings, as both plaintiff and defendant, arising in the ordinary course of business, including legal proceedings arising from acquired operations in its FDIC-assisted transactions. While the ultimate resolution of these various other proceedings cannot be determined at this time, management of the Company believes that such other 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

There have been no material changes to the risk factors disclosed in Item 1A Risk Factors in the Company’s 2010 annual report on Form 10-K filed with the Securities and Exchange Commission on March 10, 2011.

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: August 5, 2011		/s/ Greg McKinney
		Greg McKinney
		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 January 14, 2011, among Federal Deposit Insurance Corporation, Receiver of Oglethorpe Bank, Brunswick, 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 January 20, 2011, and incorporated herein by this reference).

2(i) (a)		Purchase and Assumption Agreement, dated as of April 29, 2011, among Federal Deposit Insurance Corporation, Receiver of First Choice Community Bank, Dallas, Georgia, Federal Deposit Insurance Corporation and Bank of the Ozarks (previously filed as Exhibit 2.1(a) to the Company’s Current Report on Form 8-K, as amended, filed with the Commission on May 4, 2011, and incorporated herein by this reference).

2(i) (b)		Purchase and Assumption Agreement, dated as of April 29, 2011, among Federal Deposit Insurance Corporation, Receiver of The Park Avenue Bank, Valdosta, Georgia, Federal Deposit Insurance Corporation and Bank of the Ozarks (previously filed as Exhibit 2.1(b) to the Company’s Current Report on Form 8-K, as amended, filed with the Commission on May 4, 2011, 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).

10.1		Form of Indemnification Agreement between the Registrant and its directors and its executive officers (previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on April 21, 2011 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.

101		The following materials from Bank of the Ozarks, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Stockholders’ Equity, (iv) Consolidated Statements of Cash Flows and (v) Notes to Consolidated Financial Statements ***

*** Pursuant to Rule 406T of Regulations S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under these sections.