2014
ANNUAL REPORT
A Strong Platform for Growth
Through a Combination of Organic Growth
and Acquisitions, We Now Have 165 Offices
in Nine States
Bank of the Ozarks’
Office Locations
Arkansas
Georgia
Texas
North Carolina
Florida
Alabama
South Carolina
New York
California
81
28
21
16
11
3
2
2
1
Total
165
California
This report contains forward-looking statements and reflects management’s current views of future economic circumstances, industry conditions,
Company performance and financial results. These forward-looking statements are subject to a number of factors and uncertainties which could
cause the Company’s actual results and experience to materially differ from anticipated results and expectations expressed in such forward-looking
statements. A description of certain factors which may affect operating results may be found in this annual report under “Part I—Forward-Looking
Information” and under “Item 1A. Risk Factors.”
All scenic photographs from Bank of the Ozarks’ trade area.
Arkansas
Alabama
Georgia
Texas
New York
North
Carolina
South
Carolina
Florida
1
4
3
2
1
0
160
120
80
40
0
8000
6000
4000
2000
0
8000
6000
4000
2000
0
A Long-Term Perspective
The outstanding results we achieved in 2014 reflect our commitment to excellence and
our focus on long-term goals. Our constant pursuit of adding new customers, building
relationships, improving performance and enhancing efficiency has produced great results.
The following graphs provide a long-term perspective.
Our Company is focused on both growth and profitability. We have achieved excellent long-term
growth in loans, leases and deposits, while our net income and diluted earnings per common
share have grown at similar rates.
Net Income
(Millions)
Earnings Per
Common Share
(Diluted)
$31.5
$31.7
$31.7
$34.5
$36.8
$0.47
$0.47
$0.47
$0.51
$0.54
$25.9
$0.39
$118.6
Over the past ten years, we have
$101.3
$91.2
$77.0
achieved compounded annual
growth rates of 16.4% in net
income and 14.6% in diluted
$1.47
$1.52
earnings per common share.
$1.26
$1.11
$64.0
$0.94
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Loans and Leases, including
Purchased Loans
(Millions)
Over the past ten years, our
$5,128
loans and leases, including
purchased loans, have grown
$3,357
at a compounded annual rate
$1,871
$2,021 $1,904
$1,677
$1,371
$1,135
$2,692
$2,754
$2,346
of 16.3%.
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Deposits
(Millions)
Over the past ten years, our
$5,496
deposits have grown at a
compounded annual rate
$3,717
of 14.8%.
$2,944
$3,101
$2,541
$2,045
$2,057
$2,341
$2,029
$1,592
$1,380
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2
400
300
200
100
0
40
30
20
10
0
8
6
4
2
0
8
6
4
2
0
Net interest income is our largest revenue component, and income from service charges, trust
and mortgage lending have traditionally been key contributors to non-interest income.
Net Interest Income
(Millions)
$168.7
$174.3
$174.3
$118.3
$123.6
$98.7
$68.6
$70.7
$77.6
$60.6
$270.5
Net interest income has grown
over the last ten years at a
$193.5
compounded annual rate
of 16.1%.
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Service Charge Income
(Millions)
$15.2
$12.2
$12.0
$12.4
$9.5
$9.9
$10.2
$21.6
$19.4
$18.1
$26.6
Income from service charges on
deposit accounts has grown at
a compounded annual rate of
10.9% over the past ten years.
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Trust Income
(Millions)
$2.6
$2.2
$1.9
$1.7
$1.5
$5.6
Over the past ten years,
trust income has grown at
$4.1
a compounded annual rate
$3.4
$3.2
$3.1
$3.5
of 14.3%.
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Mortgage Lending Income
(Millions)
Mortgage lending is a valuable
$5.6
$5.6
$5.2
service to our customers and an
$3.3
$3.0
$2.9
$2.7
$2.2
$3.9
$3.3
$3.3
important source of non-interest
income, but it is cyclical in nature
and varies with interest rate
and housing market conditions.
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
3
80
60
We have worked hard to become one of the most
46.6 %
45.3 %
45.3 %
efficient bank holding companies in the nation.
40
20
40
4.500
2013
3.375
2014
2.250
1.125
3
We consider the net charge-off ratio as the
ultimate measure of asset quality. Our net
charge-off ratio has consistently compared
2
favorably with the ratio for all FDIC insured
institutions as a group.
1
0.000
0.69 %
0.49 %
Efficiency Ratios
46.2%
46.2%
43.4 %
47.1% 46.3 %
42.3 %
42.9 %
41.6 %
37.8 %
2004
2005
2006
2007
2008
2009
2010
2011
2012
Charge-Off Ratios
FDIC Insured
Financial Institutions
2.52%
2.55 %
Bank of the Ozarks, Inc.
1.75%
1.29 %
0.45%
0.56 %
0.49 %
0.39 %
0.10%
0.11% 0.12%
0.59 %
0.24%
1.55 %
1.10 %
0.81% *
0.69% *
0.30% *
0.14% *
0.12% *
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Source: Data from the FDIC Quarterly Banking Profile for 4Q14.
* Excludes purchased loans and net charge-offs related to such loans.
0
Nonperforming
Loans & Leases/
Total Loans & Leases
1.24 %
1.24 %
Nonperforming
Assets/Total Assets††
3.06 %
3.06 %
3.07%†
2.67%†
0.76 %
0.75 %†
0.70 %†
0.57%
0.57%
0.34 %
0.35 %
0.25 %
0.53 %†
0.43 %†
0.33 %†
0.81%
0.39 %
0.39 %
0.18 %
0.24 %
0.36 %
1.88 %†
1.22%†
0.87%†
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Loans & Leases
Past Due 30 Days
or More/Total
Loans & Leases
2.68 %
2.01%†
1.99 % 2.01%†
1.53 %†
1.14 %
0.76 %
0.76 %
0.60 %
0.39 %
0.73 %†
0.79 %†
0.45 %†
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Maintaining good asset quality has been an
important factor in our historically strong growth
in net income.
† Excludes purchased loans except for their inclusion in total assets.
†† Ratios from 2010–2013 have been recalculated to include foreclosed
assets previously covered by FDIC loss share as nonperforming assets.
4
3
2
1
0
2.0
1.5
1.0
0.5
0.0
4
4
3
2
1
0
Our Senior Management Team
George Gleason Chairman of the Board and Chief Executive Officer
George Gleason has led the Company and its predecessors for 36 years. Mr. Gleason purchased Bank of Ozark,
which then had approximately $28 million in total assets, in 1979. Since then, the Company has grown roughly 242
times its 1979 size.
Dan Thomas Vice Chairman, Chief Lending Officer and President—Real Estate Specialties Group
Dan Thomas has 30 years of experience in structuring, financing and managing commercial real estate transactions.
He joined Bank of the Ozarks in 2003 and established the Real Estate Specialties Group, which handles many of
the Company’s larger and more complex real estate transactions. The Real Estate Specialties Group has offices in
Austin, Dallas and Houston, Texas; Atlanta, Georgia; New York, New York and Los Angeles, California.
Greg McKinney Chief Financial Officer and Chief Accounting Officer
Greg McKinney joined the Company in 2003 and oversees all corporate finance functions, mergers and acquisitions,
the Company’s investment portfolio, loan review functions, facilities, compliance and human resources. Mr. McKinney
has 23 years of accounting and financial reporting experience and is a Certified Public Accountant.
Tyler Vance Chief Operating Officer and Chief Banking Officer
Tyler Vance joined Bank of the Ozarks in 2006. He has 18 years of banking experience and is a Certified Public
Accountant. Mr. Vance was named Chief Banking Officer in 2011 and Chief Operating Officer in 2013. Mr. Vance
oversees a broad range of duties including retail banking, technology, deposit operations, marketing, training, public
funds deposits, deposit pricing, internal audit, funds management and treasury management.
Darrel Russell Chief Credit Officer and Chairman of the Directors’ Loan Committee
Darrel Russell has 34 years of banking experience and has been with the Company since 1983. Mr. Russell was
named Chief Credit Officer in 2011 and is responsible for the Company’s overall loan production and credit quality.
Mr. Russell also serves as Chairman of the Directors’ Loan Committee.
5
Helen W. Brown
General Counsel/Corporate Finance
Helen Brown joined the Company in 2013 and is
responsible for oversight of legal matters affecting
the Company with respect to corporate governance,
mergers and acquisitions, federal securities laws
and other regulatory matters.
John Carter
Director of Community Bank Lending and
Chairman of the Officers’ Loan Committee
John Carter joined Bank of the Ozarks in 2009
and has 13 years of banking experience. Mr.
Carter is responsible for providing strategic
leadership and direction regarding sound loan
growth initiatives throughout the Company’s
community bank footprint.
Brian Coston
President, Malvern, Arkansas Market
Brian Coston has 10 years of banking experience
and joined the Company in 2014. Mr. Coston
oversees business operations in the Company’s
two Malvern offices.
Julie Cripe
President, Southwest Texas Division
Julie Cripe has 37 years of experience in banking
and joined the Company in 2014. Mrs. Cripe
oversees banking operations in the Southwest
Texas Division, which includes offices in Houston
(3), Austin, Cedar Park, Lockhart and San Antonio.
Larry Dicks
President, Arkansas River Valley Division
Larry Dicks has 37 years of banking experience,
29 of those with Bank of the Ozarks. As President
of the Arkansas River Valley Division, Mr. Dicks
leads banking operations in the Company’s
offices in Russellville (3) and Clarksville (2).
Scott Hastings
President, Leasing Division
Scott Hastings joined the Company in 2003 to
establish a Leasing Division. Mr. Hastings has
32 years of experience in leasing.
Gene Holman
President, Mortgage Division
Gene Holman has 40 years of mortgage
banking and real estate experience. He joined
the Company in 2004 as President of the
Mortgage Division.
Dennis James
Director of Mergers and Acquisitions
Dennis James joined the Company in 2005 and
has 42 years of experience in finance and
management. Mr. James is responsible for leading
the Company’s merger and acquisition activity.
John Jenkins
President, Central Arkansas Division
John Jenkins joined Bank of the Ozarks in 2009
and has 14 years of banking experience. As
President of the Central Arkansas Division,
Mr. Jenkins oversees banking operations in the
Company’s offices in Little Rock (10), North
Little Rock (3), Harrison (2), Bellefonte, Clinton,
Jasper, Marshall, Maumelle, Sherwood and
Western Grove.
Alan Jessup
President, South Central Arkansas Division
Alan Jessup joined Bank of the Ozarks in 2008
and has 22 years of banking experience. Mr. Jessup
oversees banking operations in the Company’s
South Central Division, which includes offices in
Hot Springs (6), Benton (4), Bryant, Hot Springs
Village (2), the Little Rock Otter Creek office and
the eight offices in its South Arkansas Division.
Jennifer Junker
Managing Director, Trust and Wealth
Management Division
Jennifer Junker has 20 years of experience as a
Trust and Wealth Management professional. Ms.
Junker joined the Company in 2015 as Managing
Director of the Trust and Wealth Management
Division, which offers a wide array of asset
management and trust services for individuals,
businesses and government entities.
Don Keesee
President, Western Arkansas Division
Don Keesee has 37 years of experience in banking
and joined the Company in 2014. Mr. Keesee
oversees banking operations in the Western
Arkansas Division, which includes offices in Fort
Smith (3), Ozark (2), Van Buren (2), Alma, Altus,
Mulberry and Paris.
6
Ross Mallioux
President, Northwest Arkansas Division
Ross Mallioux joined Bank of the Ozarks in 2011
and has 30 years of banking experience. As
President of the Northwest Arkansas Division,
Mr. Mallioux oversees banking operations in the
Company’s offices in Rogers (3), Bella Vista (2),
Bentonville (2), Fayetteville (2) and Springdale.
Eddie Melton
President, Franklin County, Arkansas
Eddie Melton joined Bank of the Ozarks in 1989
and has 25 years of banking experience. Mr. Melton
oversees business operations in Franklin County,
which includes offices in Ozark (2) and Altus.
Marc McCain
President, South Arkansas Division
Marc McCain has 37 years of experience in
banking and joined the Company in 2014.
Mr. McCain oversees banking operations in the
South Arkansas Division, which includes offices
in Arkadelphia (2), Hope (2), Magnolia (2) and
Malvern (2).
Gary Miller
President, Johnson County, Arkansas
Gary Miller joined Bank of the Ozarks in 2008
and has 42 years of banking experience. Mr.
Miller oversees business operations in Johnson
County, which includes two offices in Clarksville.
Brent Morgan
President, Little Rock, Arkansas Market
Brent Morgan has 15 years of banking experience
and joined the Company in 2011. Mr. Morgan
oversees business operations in the Company’s
ten Little Rock offices.
Paul Oberkirch
President, Mobile, Alabama Area Market
Paul Oberkirch joined Bank of the Ozarks in
2012 and has 19 years of banking experience.
Mr. Oberkirch oversees business operations in
the Company’s Mobile market, which includes
two offices in Mobile.
Sean O’Connell
Chief Information Officer
Sean O’Connell joined the Company in 2013 and is
responsible for oversight of information systems,
information technology, information system security
and solutions, deposit operations, e-banking and
item processing. Mr. O’Connell has 35 years of
experience in the financial services field.
Cayla Pinner
President, Magnolia, Arkansas Market
Cayla Pinner has 34 years of banking experience
and joined the Company in 2014. Mrs. Pinner
oversees business operations in the Company’s
two Magnolia offices.
Frank Posey
President, South Georgia/East Alabama
Division
Frank Posey joined Bank of the Ozarks in
2011 and has 28 years of banking experience.
Mr. Posey oversees banking operations in the
Company’s South Georgia/East Alabama
Division, which includes offices in Valdosta (3),
Bainbridge (2), Cairo and Lake Park, Georgia;
and Geneva, Alabama.
Michael J. Ptak
General Counsel
Michael J. Ptak joined Bank of the Ozarks in 2008
and has 22 years of experience practicing law
in the areas of debtor-creditor relations, real
estate, corporate law, bankruptcy, and commercial
transactions and litigation.
Manish Raj
President, Corporate Loan Specialties
Group
Manish Raj has 7 years of experience in debt
financing for large corporate clients across the
United States. Mr. Raj joined the Company in
2014 to form the Corporate Loan Specialties
Group which focuses on complex, non-real estate
financing transactions for larger corporations.
Lori Ross
President, Arkadelphia, Arkansas Market
Lori Ross has 8 years of banking experience and
joined the Company in 2014. Mrs. Ross oversees
business operations in the Company’s two
Arkadelphia offices.
7
Chris Stringer
President, North Texas Division
Chris Stringer has 18 years of banking experience
and joined the Company in 2011. Mr. Stringer
oversees banking operations in the Company’s
North Texas Division, which includes offices in
Frisco (2), Allen, Carrollton, Keller, Lewisville,
Plano, Southlake and The Colony.
Derrek Thomason
President, Conway, Arkansas Division
Derrek Thomason has 26 years of banking
experience and joined the Company in 2014.
Mr. Thomason oversees banking operations in
the Company’s four Conway offices and its
five Arkansas River Valley offices.
Audwin Vaughn
President, North Central Arkansas Division
Audwin Vaughn joined Bank of the Ozarks in
2009 and has 28 years of banking experience.
Mr. Vaughn oversees banking operations in the
Company’s Cabot (2), Mountain Home (2),
Lonoke and Yellville offices.
Kerry J. Ward
President, West Central Florida Division
Kerry Ward has 29 years of banking experience
and joined the Company in 2012. As President
of the West Central Florida Division, Mr. Ward
oversees banking operations in the Company’s
offices in Clearwater (5), Bradenton (3), Ocala,
Palmetto and South Pasadena, Florida; and
its New York, New York retail banking office.
Greg Wayne
President, North Central Georgia Division
Greg Wayne has 30 years of banking experience
and joined the Company in 2011. As President of
the North Central Georgia Division, Mr. Wayne
oversees banking operations in the Company’s
offices in Dawsonville (2), Athens, Cumming,
Marble Hill and Oakwood, Georgia.
Randy Whitaker
President, Northwest Georgia Division
Randy Whitaker has 24 years of banking experience
and joined the Company in 2011. Mr. Whitaker
oversees banking operations in the Company’s
Northwest Georgia Division which includes
offices in Cartersville (2), Adairsville, Calhoun,
Dallas, Douglasville, McDonough, Newnan, Rome,
Senoia and Sharpsburg.
Blake Whitley
President, Hot Springs Market
Blake Whitley has 24 years of banking
experience and joined the Company in 2014.
Mr. Whitley oversees business operations
in the Company’s Hot Springs (6) and Hot
Springs Village (2) offices.
Rick Wisdom
President, Southwest and Coastal Divisions
Rick Wisdom has 33 years of banking experience
and joined the Company in 2004. Mr. Wisdom
oversees banking operations in the Company’s
offices in Texarkana, Texas (2); Texarkana,
Arkansas; Mobile, Alabama (2); Brunswick,
Savannah and St. Simons Island, Georgia.
Cindy V. Wolfe
President, Carolinas Division
Cindy Wolfe joined Bank of the Ozarks in 1998 and
has 27 years of banking experience. Mrs. Wolfe
oversees banking operations in the Company’s
offices in Shelby (5), Bessemer City, Boiling
Springs, Charlotte, Cornelius, Cramerton,
Forest City, Gastonia, Lawndale, Lincolnton,
Kings Mountain and Wilmington, North Carolina;
Bluffton, and Hilton Head, South Carolina.
Note: George Gleason, Dan Thomas, Greg McKinney, Tyler Vance, Helen Brown, Dennis
James, Sean O’Connell and Michael Ptak serve in the same officer capacity for both the
Company and its bank subsidiary. All other officers shown serve as officers only of the
bank subsidiary in the capacities indicated.
8
2014
FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
(X)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2014
( )
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____________ to ____________.
Commission File Number 0-22759
BANK OF THE OZARKS, INC.
(Exact name of registrant as specified in its charter)
ARKANSAS
(State or other jurisdiction of
incorporation or organization)
71-0556208
(I.R.S. Employer
Identification Number)
17901 CHENAL PARKWAY, LITTLE ROCK, ARKANSAS
(Address of principal executive offices)
72223
(Zip Code)
Registrant’s telephone number, including area code:
(501) 978-2265
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Each Exchange
on Which Registered
Common Stock, par value $0.01 per share
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes (X)
No ( )
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes ( )
No (X)
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ( )
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer (X)
Non-accelerated filer ( ) (Do not check if a smaller reporting company)
Accelerated filer ( )
Smaller reporting company ( )
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ( ) No (X)
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by
reference to the price at which the common equity was last sold, or the average bid and asked prices of such common equity
as of the last business day of the registrant’s most recently completed second fiscal quarter: $2,347,000,000.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest
practicable date.
Class
-------------------------------------------------
Common Stock, par value $0.01 per share
Outstanding at February 13, 2015
------------------------------------------
86,767,725
Documents incorporated by reference: Portions of the Registrant’s Proxy Statement for the 2015 Annual Meeting
of Shareholders, scheduled to be held on May 18, 2015, are incorporated by reference into Part III of this Annual Report on
Form 10-K.
BANK OF THE OZARKS, INC.
ANNUAL REPORT ON FORM 10-K
December 31, 2014
INDEX
PART I.
Forward-Looking Information
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
PART II.
Item 5.
Item 6.
Item 7.
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
PART III.
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Shareholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
PART IV.
Item 15.
Exhibits, Financial Statement Schedules
Exhibit Index
Signatures
Page
2
3
20
34
34
37
39
40
42
43
91
93
151
151
153
154
154
154
154
154
155
156
159
PART I
FORWARD-LOOKING INFORMATION
This Annual Report on Form 10-K, including Management’s Discussion and Analysis of Financial Condition and
Results of Operations, other filings we make with the Securities and Exchange Commission (“SEC” or “Commission”) and
other oral and written statements or reports made by us include certain forward-looking statements that are intended to be
covered by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on management’s
expectations as well as certain assumptions and estimates made by, and information available to, management at that time.
Those statements are subject to certain risks, uncertainties and other factors that may cause actual results to differ materially
from those projected in such forward-looking statements. Forward-looking statements include, without limitation,
statements about economic, real estate market, competitive, employment, credit market and interest rate conditions; plans,
goals, beliefs, expectations, thoughts, estimates and outlook for the future; revenue growth; net income and earnings per
common share; net interest margin; net interest income; non-interest income, including service charges on deposit accounts,
mortgage lending and trust income, gains (losses) on investment securities and sales of other assets, gains on merger and
acquisition transactions and other income from purchased loans; non-interest expense; efficiency ratio; anticipated future
operating results and financial performance; asset quality and asset quality ratios, including the effects of current economic
and real estate market conditions; nonperforming loans and leases; nonperforming assets; net charge-offs; net charge-off
ratio; provision and allowance for loan and lease losses; past due loans and leases; current or future litigation; interest rate
sensitivity, including the effects of possible interest rate changes; future growth and expansion opportunities including plans
for making additional acquisitions; plans for opening new offices or relocating or closing existing offices; opportunities and
goals for future market share growth; expected capital expenditures; loan, lease and deposit growth, including growth from
unfunded closed loans; changes in the volume, yield and value of our investment securities portfolio; availability of unused
borrowings and other similar forecasts and statements of expectation. Words such as “anticipate,” “believe,” “could,”
“estimate,” “expect,” “goal,” “hope,” “intend,” “look,” “may,” “plan,” “project,” “seek,” “target,” “trend,” “will,” “would,”
and similar expressions, as they relate to us or our management, identify forward-looking statements. We disclaim any
obligation to update or revise any forward-looking statement based on the occurrence of future events, the receipt of new
information or otherwise.
Actual future performance, outcomes and results may differ materially from those expressed in these forward-
looking statements due to certain risks, uncertainties and assumptions. Certain factors that may affect our future results
include, but are not limited to, potential delays or other problems in implementing our growth and expansion strategy
including delays in identifying satisfactory sites, hiring or retaining qualified personnel, obtaining regulatory or other
approvals, obtaining permits and designing, constructing and opening new offices; the ability to enter into and/or close
additional acquisitions; problems with, or additional expenses related to, integrating or managing acquisitions; the effect of
the announcements or completion of any pending or future mergers or acquisitions on customer relationships and operating
results; the ability to attract new or retain existing or acquired deposits, or to retain or grow loans and leases, including
growth from unfunded closed loans; the ability to generate future revenue growth or to control future growth in non-interest
expense; interest rate fluctuations, including changes in the yield curve between short-term and long-term interest rates;
competitive factors and pricing pressures, including their effect on our net interest margin; general economic,
unemployment, credit market and real estate market conditions, and the effect of any such conditions on the
creditworthiness of borrowers and lessees, collateral values, the value of investment securities and asset recovery values;
changes in legal and regulatory requirements; recently enacted and potential legislation and regulatory actions, including
legislation and regulatory actions intended to stabilize economic conditions and credit markets, strengthen the capital of
financial institutions, increase regulation of the financial services industry and protect homeowners or consumers; changes
in U.S. government monetary and fiscal policy; possible further downgrade of U.S. Treasury securities; the ability to keep
pace with technological changes, including changes regarding maintaining cyber security; an increase in the incidence or
severity of fraud, illegal payments, security breaches or other illegal acts impacting our customers; adoption of new
accounting standards or changes in existing standards; and adverse results in current or future litigation or regulatory
examinations as well as other factors described in this Annual Report on Form 10-K and our other 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. See also Item 1A. “Risk Factors” of
this Annual Report on Form 10-K.
2
Item 1. BUSINESS
Unless this Annual Report on Form 10-K indicates otherwise, or the context otherwise requires, the terms “we,”
“our,” “us,” and “the Company,” as used herein refer to Bank of the Ozarks, Inc. and its subsidiaries, including Bank of
the Ozarks, which we sometimes refer to as “Bank of the Ozarks,” “our bank subsidiary,” or “the Bank.”
The disclosures set forth in this item are qualified by Item 1A. Risk Factors, the section captioned “Forward-
Looking Information” and other cautionary statements set forth elsewhere in this Annual Report on Form 10-K.
General
Bank of the Ozarks, Inc. (the “Company”) was incorporated in June 1981 as an Arkansas corporation and is a bank
holding company registered under the Bank Holding Company Act of 1956. We own an Arkansas state chartered subsidiary
bank, Bank of the Ozarks (the “Bank”). At December 31, 2014, the Company, through the Bank, conducted operations
through 159 offices, including 81 offices in Arkansas, 28 in Georgia, 21 in Texas, 17 in North Carolina, five in Florida,
three in Alabama, two in South Carolina and one each in New York and California. As of December 31, 2014, we also own
Ozark Capital Statutory Trust II, Ozark Capital Statutory Trust III, Ozark Capital Statutory Trust IV and Ozark Capital
Statutory Trust V, all 100%-owned finance subsidiary business trusts formed in connection with the issuance of certain
subordinated debentures and related trust preferred securities, and, indirectly through the Bank, a subsidiary engaged in the
development of real estate, a subsidiary that owns private aircraft and various other entities that hold foreclosed assets or tax
credits or engage in other activities. At December 31, 2014, we had total assets of $6.77 billion, total loans and leases,
including purchased loans, of $5.13 billion, total deposits of $5.50 billion and total common stockholders’ equity of $908
million. Net interest income for 2014 was $270.5 million, net income available to common stockholders was $118.6 million
and diluted earnings per common share were $1.52.
We provide a wide range of retail and commercial banking services. Deposit services include checking, savings,
money market, time deposit and individual retirement accounts. Loan services include various types of real estate,
consumer, commercial, industrial and agricultural loans and various leasing services. We also provide mortgage lending;
treasury management services for businesses, individuals and non-profit and governmental entities including wholesale lock
box services; remote deposit capture services; trust and wealth management services for businesses, individuals and non-
profit and governmental entities including financial planning, money management, custodial services and corporate trust
services; real estate appraisals; ATMs; telephone banking; online and mobile banking services including electronic bill pay;
debit cards, gift cards and safe deposit boxes, among other products and services. Through third party providers, we offer
credit cards for consumers and businesses, processing of merchant debit and credit card transactions, and full-service
investment brokerage services. While we provide a wide variety of retail and commercial banking services, we operate in
only one segment. No revenues are derived from foreign countries and no single external customer comprises more than
10% of our revenues.
On June 23, 2014, we completed a two-for-one stock split in the form of a 100% stock dividend by issuing one
share of common stock for each share of such stock outstanding on June 13, 2014. All share and per share information in
this Annual Report on Form 10-K has been adjusted to reflect this stock split.
Growth and Expansion
De Novo Growth
With five banking offices in 1994, we commenced an expansion strategy, via de novo branching, into selected
Arkansas markets. Since embarking on this strategy, we have added one or more new banking offices each year.
In 1998 and 1999, we expanded into Arkansas’ then three largest cities, Little Rock, Fort Smith and North Little
Rock. While we opened a few additional de novo offices in smaller Arkansas communities, the majority of our Arkansas
expansion since 1998 has been in these cities, surrounding communities and in other Arkansas counties which are among the
top ten counties in Arkansas in terms of bank deposits.
In 2001, we opened a loan production office in Charlotte, North Carolina, which was subsequently converted to a
full service retail banking office in 2013. In 2003, we opened a loan production office in Dallas, Texas for our Real Estate
Specialties Group, or RESG, which was subsequently converted to a full service retail banking office in 2004. Since their
opening, our Charlotte, North Carolina office and our RESG office in Dallas, Texas have contributed significantly to our
growth.
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We have continued our growth and de novo branching strategy. In 2013, we opened a loan production office for
our RESG in New York, New York. In January 2014, we opened a loan production office for our RESG in Houston, Texas,
and in February 2014, we opened an RESG loan production office in Los Angeles, California. In March 2014, we opened a
third retail banking office in Bradenton, Florida. In May 2014, we opened a retail banking office in Cornelius, North
Carolina and in August 2014, we opened a loan production office in Asheville, North Carolina. In December 2014, we
opened a full-service banking office in Hilton Head Island, South Carolina.
We intend to continue our growth strategy in future years through the opening of additional branches and loan
production offices as our needs and resources permit. Opening new offices is subject to local banking market conditions,
availability of suitable sites, hiring qualified personnel, obtaining regulatory and other approvals and many other conditions
and contingencies that we cannot predict with certainty. We may increase or decrease our expected number of new office
openings as a result of a variety of factors including our financial results, changes in economic or competitive conditions,
strategic opportunities or other factors.
Acquisitions
The Company has achieved substantial growth through a combination of organic growth and acquisitions,
including acquisitions assisted by the Federal Deposit Insurance Corporation (“FDIC”). Since 2010, we have completed 12
acquisitions.
FDIC-Assisted Acquisitions. During 2010 and 2011, we acquired substantially all of the assets and assumed
substantially all of the deposits and certain other liabilities of the following seven failed financial institutions in FDIC-
assisted acquisitions:
(cid:120) March 2010, Unity National Bank (Cartersville, Georgia)
(cid:120)
July 2010, Woodlands Bank (Bluffton, South Carolina)
(cid:120) September 2010, Horizon Bank (Bradenton, Florida)
(cid:120) December 2010, Chestatee State Bank (Dawsonville, Georgia)
(cid:120)
January 2011, Oglethorpe Bank (Brunswick, Georgia)
(cid:120) April 2011, First Choice Community Bank (Dallas, Georgia)
(cid:120) April 2011, The Park Avenue Bank (Valdosta, Georgia)
Loans comprise the majority of the assets acquired in each of these FDIC–assisted acquisitions and, with the
exception of Unity, all but a small amount of consumer loans were subject to loss share agreements with the FDIC whereby
we were indemnified against a portion of the losses on loans and foreclosed assets covered by FDIC loss share agreements.
In the Unity acquisition, all loans, including consumer loans, were subject to loss share agreements with the FDIC.
During the fourth quarter of 2014, we entered into agreements with the FDIC terminating the loss share agreements
for all seven of the FDIC-assisted acquisitions. All rights and obligations of the parties under the FDIC loss share
agreements, including the clawback provisions, have been eliminated under these termination agreements. As a result, we
have reclassified loans previously covered by FDIC loss share to purchased loans and reclassified foreclosed assets
previously covered by FDIC loss share to foreclosed assets. In addition, we eliminated our FDIC loss share receivable and
our FDIC clawback payable.
Despite the termination of loss share with the FDIC, the terms of the purchase and assumption agreements for these
FDIC-assisted acquisitions continue to provide for the FDIC to indemnify us against certain claims, including claims with
respect to assets, liabilities or any affiliate not acquired or otherwise assumed by us and with respect to claims based on any
action by directors, officers or employees of Unity, Woodlands, Horizon, Chestatee, Oglethorpe, First Choice or Park
Avenue.
Traditional Acquisitions. In December 2012, we completed our acquisition of Genala Banc, Inc. (“Genala”)
whereby Genala merged into the Company in a transaction valued at $27.5 million. The Company paid $13.4 million of
cash and issued 847,232 shares of its common stock valued at $14.1 million in exchange for all outstanding shares of
Genala common stock. This was our first traditional acquisition since 2003. Genala was the holding company for The
Citizens Bank, which operated one banking office in Geneva, Alabama.
In July 2013, we completed our acquisition of The First National Bank of Shelby (“First National Bank”) in
Shelby, North Carolina in a transaction valued at $68.5 million. The Company paid $8.4 million of cash and issued
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2,514,770 shares of its common stock valued at $60.1 million in exchange for all outstanding shares of First National Bank
common stock. We also acquired certain real property from parties related to First National Bank and on which certain
First National Bank offices are located for $3.8 million. The First National Bank acquisition expanded our service area in
North Carolina by adding 14 offices in Shelby, North Carolina and surrounding communities. In 2013 we closed one of
the acquired offices in Shelby, North Carolina.
In March 2014, we completed our acquisition of Bancshares, Inc. (“Bancshares”) of Houston, Texas and
OMNIBANK, N.A., its wholly-owned bank subsidiary for an aggregate of $21.5 million in cash. The Bancshares
acquisition expanded our service area in South Texas by adding three offices in Houston and one office each in Austin,
Cedar Park, Lockhart and San Antonio.
In May 2014, we completed our acquisition of Summit Bancorp, Inc. (“Summit”) and Summit Bank, its wholly-
owned bank subsidiary, for an aggregate of $42.5 million in cash and 5,765,846 shares of the Company’s common stock
valued at $166.4 million. The Summit acquisition expanded our service area in central, south and western Arkansas by
adding 23 banking locations and one loan production office in nine Arkansas counties. During the second quarter of 2014,
we closed one of the banking offices and the one loan production office acquired in the Summit acquisition. During the
fourth quarter of 2014, we closed seven additional banking offices in locations where we had excess branch capacity, five of
which banking offices were acquired in the Summit acquisition.
On February 10, 2015, we completed our acquisition of Intervest Bancshares Corporation (“Intervest”), and its
wholly-owned bank subsidiary Intervest National Bank, headquartered in New York, New York, whereby we acquired all of
the outstanding common stock of Intervest for 6,637,243 million shares of our common stock (plus cash in lieu of fractional
shares) in a transaction valued at approximately $238.5 million. The Intervest acquisition added seven full service banking
offices including one in New York City, five in Clearwater, Florida and one in Pasadena, Florida.
Future Growth Strategy
We expect to continue growing through both our de novo branching strategy and traditional acquisitions. With
respect to de novo branching strategy, future de novo branches are expected to be focused primarily in states where we have
full service retail banking offices. Future RESG loan production offices are expected to be focused in Boston, Chicago,
Seattle and Washington, D.C. With respect to traditional acquisitions, we are seeking acquisitions that are either
immediately accretive to book value, tangible book value, net income and diluted earnings per share, or strategic in location,
or both.
Lending and Leasing Activities
Administration of the Company’s lending function is the responsibility of our Chief Executive Officer (“CEO”),
Chief Credit Officer (“CCO”), Chief Lending Officer (“CLO”) and certain other lenders. These officers and lenders perform
their lending duties subject to the oversight and policy direction of our board of directors and the directors’ loan committee.
Loan or lease authority is granted to our CEO, CCO and CLO by the board of directors. Other lending officers are granted
authority by the directors’ loan committee on the recommendation of appropriate senior officers. Loans and leases and
aggregate loan and lease relationships exceeding $10 million (up to the limits established by our board of directors) must be
approved by the directors’ loan committee.
Interest rates charged by the Bank vary with degree of risk, type, size, complexity, repricing frequency and other
relevant factors associated with the loan or lease. Competition from other financial services companies also impacts interest
rates charged on loans and leases.
Our designated compliance and loan review officers are primarily responsible for the Bank’s compliance and loan
review functions. Periodic reviews are performed to evaluate asset quality and the effectiveness of loan and lease
administration. The results of such evaluations are included in reports which describe any identified deficiencies,
recommendations for improvement and management’s proposed action plan for curing or addressing identified deficiencies
and recommendations. Such reports are provided to and reviewed by the audit committee. Additionally, the reports issued
by the loan review function are provided to and reviewed by the directors’ loan committee.
Our loan portfolio, including purchased loans, includes most types of real estate loans, consumer loans,
commercial and industrial loans, agricultural loans and other types of loans. While a significant portion of the properties
collateralizing our loan portfolio are located within the trade areas of our offices, we have expanded the geographic
distribution of our loan portfolio in recent years. Included in Management’s Discussion and Analysis of Financial
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Condition and Results of Operations (“MD&A”) included elsewhere in this Annual Report on Form 10-K is an analysis of
our non-purchased real estate loan portfolio based on metropolitan statistical area or other geographic areas in which the
principal collateral is located. Our lease portfolio consists primarily of small ticket direct financing commercial equipment
leases. The equipment collateral securing our lease portfolio is located throughout the United States.
Real Estate Loans. Our portfolio of real estate loans includes loans secured by residential 1-4 family, non-
farm/non-residential, agricultural, construction/land development, multifamily residential properties and other land loans.
Non-farm/non-residential loans include those secured by real estate mortgages on owner-occupied commercial buildings of
various types, leased commercial, retail and office buildings, hospitals, nursing and other medical facilities, hotels and
motels, and other business and industrial properties. Agricultural real estate loans include loans secured by farmland and
related improvements, including some loans guaranteed by the Farm Service Agency. Real estate construction/land
development loans include loans secured by vacant land, loans to finance land development or construction of industrial,
commercial, residential or farm buildings or additions or alterations to existing structures. Included in our residential 1-4
family loans are home equity lines of credit.
We offer a variety of real estate loan products that are generally amortized over five to thirty years, payable in
monthly or other periodic installments of principal and interest, and due and payable in full (unless renewed) at a balloon
maturity generally within one to seven years. Certain loans may be structured as term loans with adjustable interest rates
(adjustable daily, monthly, semi-annually, annually, or at other regular adjustment intervals usually not to exceed five
years). Many of our adjustable rate loans have established “floor” and “ceiling” interest rates.
Residential 1-4 family loans are underwritten primarily based on the borrower’s ability to repay, including prior
credit history, and the value of the collateral. Other real estate loans are underwritten based on the ability of the property, in
the case of income producing property, or the borrower’s business to generate sufficient cash flow to amortize the debt.
Secondary emphasis is placed upon collateral value, financial strength of any guarantors and other factors. Loans
collateralized by real estate have generally been originated with loan-to-appraised-value ratios of not more than 89% for
residential 1-4 family, 85% for other residential and other improved property, 80% for construction loans secured by
commercial, multifamily and other non-residential properties, 75% for land development loans and 65% for raw land loans.
We typically require mortgage title insurance in the amount of the loan and hazard insurance on improvements.
Documentation requirements vary depending on loan size, type, degree of risk, complexity and other relevant factors.
Consumer Loans. Our portfolio of consumer loans generally includes loans to individuals for household, family
and other personal expenditures. Proceeds from such loans are used to, among other things, fund the purchase of
automobiles, recreational vehicles, boats, mobile homes and for other similar purposes. These consumer loans are generally
collateralized and have terms typically ranging up to 72 months, depending upon the nature of the collateral, size of the
loan, and other relevant factors.
Consumer loans generally have higher interest rates. However, such loans pose additional risks of collectability and
loss when compared to certain other types of loans. The borrower’s ability to repay is of primary importance in the
underwriting of consumer loans.
Commercial and Industrial Loans and Leases. Our commercial and industrial loan portfolio consists of loans for
commercial, industrial and professional purposes including loans to fund working capital requirements (such as inventory,
floor plan and receivables financing), purchases of machinery and equipment and other purposes. We offer a variety of
commercial and industrial loan arrangements, including term loans, balloon loans and lines of credit with the purpose and
collateral supporting a particular loan determining its structure. These loans are offered to businesses and professionals for
short and medium terms on both a collateralized and uncollateralized basis. As a general practice, we obtain as collateral a
lien on furniture, fixtures, equipment, inventory, receivables or other assets. Our leases are primarily equipment leases for
commercial, industrial and professional purposes, have terms generally ranging up to 48 months and are collateralized by a
lien on the lessee’s interest in the leased property.
Commercial and industrial loans and leases typically are underwritten on the basis of the borrower’s or lessee’s
ability to make repayment from the cash flow of its business and generally are collateralized by business assets. As a result,
such loans and leases involve additional complexities, variables and risks and require more thorough underwriting and
servicing than other certain types of loans and leases.
Agricultural (Non-Real Estate) Loans. Our portfolio of agricultural (non-real estate) loans includes loans for
financing agricultural production, including loans to businesses or individuals engaged in the production of timber, poultry,
livestock or crops. Our agricultural (non-real estate) loans are generally secured by farm machinery, livestock, crops,
6
vehicles or other agricultural-related collateral. A portion of our portfolio of agricultural (non-real estate) loans is comprised
of loans to individuals which would normally be characterized as consumer loans but for the fact that the individual
borrowers are primarily engaged in the production of timber, poultry, livestock or crops.
Deposits
We offer an array of deposit products consisting of non-interest bearing checking accounts, interest bearing
transaction accounts, business sweep accounts, savings accounts, money market accounts, time deposits, including access to
products offered through the various CDARS® programs, and individual retirement accounts. Rates paid on such deposits
vary among the deposit categories due to different terms and conditions, individual deposit size, services rendered and rates
paid by competitors on similar deposit products. We act as depository for a number of state and local governments and
government agencies or instrumentalities. Such public funds deposits are often subject to competitive bid and in many cases
must be secured by pledging a portion of our investment securities or a letter of credit.
Our deposits come primarily from within our trade area. As of December 31, 2014 we had $210.3 million in
“brokered deposits,” defined as deposits which, to our knowledge, have been placed with us by a person who acts as a
broker in placing these deposits on behalf of others or is otherwise deemed to be “brokered” by bank regulatory authority
rules and regulations. Brokered deposits are typically from outside our primary trade area, and such deposit levels may vary
from time to time depending on competitive interest rate conditions and other factors.
Other Banking Services
Mortgage Lending. We offer a broad array of residential mortgage products including long-term fixed rate and
variable rate loans which are sold on a servicing-released basis in the secondary mortgage market. These loans are
originated primarily through our larger banking offices located in Arkansas, Texas, Georgia, North Carolina and in certain
of our acquired offices in the southeastern and eastern United States. In addition to long-term secondary market loans, we
offer a small number of fixed rate loan products which balloon periodically, typically every eight to nine years. We retain
these loans in our loan portfolio.
Trust and Wealth Management Services. We offer a broad array of trust and wealth management services from our
headquarters in Little Rock, Arkansas, with additional staff in Shelby, North Carolina, Bluffton, South Carolina and
Texarkana, Texas. These trust and wealth management services include personal trusts, custodial accounts, investment
management accounts, retirement accounts, corporate trust services including trustee, paying agent and registered transfer
agent services, and other incidental services. As of December 31, 2014, total trust assets were approximately $1.80 billion
compared to approximately $1.48 billion as of December 31, 2013 and approximately $1.21 billion as of December 31,
2012.
Treasury Management Services. We offer treasury management services which are designed to provide a high level
of specialized support to the treasury operations of business and public funds customers. Treasury management has four
basic functions: collection, disbursement, management of cash and information reporting. Our treasury management
services include automated clearing house services (e.g. direct deposit, direct payment and electronic cash concentration and
disbursement), wire transfer, zero balance accounts, current and prior day transaction reporting, wholesale lockbox services,
remote deposit capture services, automated credit line transfer, investment sweep accounts, reconciliation services, positive
pay services, and account analysis.
Online and Mobile Banking. We offer online banking services for both personal and business customers. Through
this service customers can access their account information, pay bills, send funds electronically to other individuals, transfer
funds, view images of cancelled checks, change addresses, issue stop payment requests, receive detailed statements, receive
account alerts electronically and handle other banking business electronically from a laptop, desktop, tablet or smartphone.
Businesses are offered more advanced features which allow them to handle most treasury management functions
electronically and access their account information on a more timely basis, including having the ability to download
transaction history into QuickBooks® for instant reconciliation.
7
Market Area and Competition
At December 31, 2014, we conducted banking operations through 159 offices, including 81 offices in Arkansas, 28
in Georgia, 21 in Texas, 17 in North Carolina, five in Florida, three in Alabama, two in South Carolina and one each in New
York and California. On February 10, 2015, we added six Florida offices and one New York office in connection with our
Intervest acquisition.
The banking industry in our market areas is highly competitive. In addition to competing with other commercial
and savings banks and savings and loan associations, we compete with credit unions, finance companies, leasing companies,
mortgage companies, insurance companies, brokerage and investment banking firms, asset-based non-bank lenders and
many other financial service firms. Competition is based on interest rates offered on deposit accounts, interest rates charged
on loans and leases, fees and service charges, the quality and scope of the services rendered, the convenience of banking
facilities and, in the case of loans to commercial borrowers, relative lending limits, as well as other factors.
A substantial number of the commercial banks operating in our market areas are branches or subsidiaries of much
larger organizations affiliated with statewide, regional or national banking companies and as a result may have greater
resources and lower costs of funds than the Company. Additionally, we face competition from a large number of community
banks, including de novo community banks, many of which have senior management who were previously with other local
banks or investor groups with strong local business and community ties. Despite the highly competitive environment, we
believe we will continue to be competitive because of our strong commitment to quality customer service, convenient local
branches, active community involvement and competitive products and pricing. The ability to access and use technology is
an increasingly competitive factor in the finance services industry. Technology is not only important with respect to
delivery of financial services and protection of the security of customer information but also in processing information. We
must continually make technology investments to remain competitive in the finance services industry.
Employees
At December 31, 2014, we employed 1,479 full-time equivalent employees. None of our employees were
represented by any union or similar group. We have not experienced any labor disputes or strikes arising from any
organized labor groups. We believe our employee relations are good.
Executive Officers of Registrant
The following is a list of our executive officers.
George Gleason, age 61, Chairman and Chief Executive Officer. Mr. Gleason has served the Company or the Bank
as Chairman, Chief Executive Officer and/or President since 1979. He holds a B.A. in Business and Economics from
Hendrix College and a J.D. from the University of Arkansas.
Dan Thomas, age 52, Vice Chairman of the Company, President of the Bank’s RESG and Chief Lending Officer.
Mr. Thomas has served as Vice Chairman of the Company since 2013, President of RESG since 2005 and was appointed as
the Chief Lending Officer of the Bank in 2012. Mr. Thomas joined the Company in 2003 and served as Executive Vice
President from 2003 to 2005. Prior to joining the Company, Mr. Thomas held various positions with privately-held
commercial real estate management and development firms, with an international accounting and consulting firm, and with
an international law firm, in which he focused primarily on real estate services, management, investing, and strategic
structuring. Mr. Thomas is a C.P.A. and is a licensed attorney (Arkansas and Texas). He holds a B.S.B.A. from the
University of Arkansas, an M.B.A. from the University of North Texas, a J.D. from the University of Arkansas at Little
Rock, and an LL.M. (taxation) from Southern Methodist University.
Greg McKinney, age 46, Chief Financial Officer and Chief Accounting Officer. Mr. McKinney joined the
Company in 2003 and served as Executive Vice President and Controller prior to assuming the role of Chief Financial
Officer and Chief Accounting Officer in 2010. From 2001 to 2003 Mr. McKinney served as a member of the financial
leadership team of a publicly traded software development and data management company. From 1991 to 2000 he held
various positions with a big-four public accounting firm, leaving as a senior audit manager. Mr. McKinney is a C.P.A. and
holds a B.S. in Accounting from Louisiana Tech University.
Tyler Vance, age 40, Chief Operating Officer and Chief Banking Officer. Prior to assuming the Chief Operating
Officer title in 2013, Mr. Vance served as Chief Banking Officer since 2011. Mr. Vance joined the Company in 2006 and
served as Senior Vice President from 2006 to 2009 and Executive Vice President of Retail Banking from 2009 to 2011.
8
From 2001 to 2006 Mr. Vance served as CFO of a competitor bank. From 1996 to 2000, Mr. Vance held various positions
with a big-four public accounting firm. Mr. Vance is a C.P.A. and holds a B.A. in Accounting from Ouachita Baptist
University.
Darrel Russell, age 61, Chief Credit Officer and Chairman of the Directors’ Loan Committee. Prior to assuming
his role as Chief Credit Officer and Chairman of the Directors’ Loan Committee in 2011, Mr. Russell served as President of
the Bank’s Central Division since 2001 and as Co-Chairman of the Directors’ Loan Committee since 2007. He joined the
Bank in 1983 and served as Executive Vice President of the Bank from 1997 to 2001 and Senior Vice President of the Bank
from 1992 to 1997. Prior to 1992 Mr. Russell served in various positions with the Bank. He received a B.S.B.A. in Banking
and Finance from the University of Arkansas.
Scott Hastings, age 57, President of the Bank’s Leasing Division since 2003. From 2001 to 2002 he served as
division president of the leasing division of a large diversified national financial services firm. From 1995 to 2001 he served
in several key positions including President, Chief Operating Officer and Director of a large regional bank’s leasing
subsidiary. Mr. Hastings holds a B.A. degree from the University of Arkansas at Little Rock.
Gene Holman, age 67, President of the Bank’s Mortgage Division since 2004. Prior to 2004, Mr. Holman served
as President and Chief Operating Officer of a competitor mortgage company and held various senior management positions
with that company during his 21-year tenure. Mr. Holman has 40 years of real estate and mortgage banking experience. Mr.
Holman is a C.P.A. and received a B.S.B.A. in Accounting from the University of Mississippi.
Jennifer Junker, age 44, Managing Director, Trust and Wealth Management. Ms. Junker joined the Company in
2015. Prior to joining the Company, she served as Fiduciary Director and then as Co-Leader of Trust Advisory Services
and Trust Director for a national financial services firm from 2011 through December 2014. From 2006 to 2011 she was in
private practice as an attorney concentrating in trust administration and high net worth estate planning. She also held the
position of Senior Counsel for a national financial services firm from 2000 through 2006, and as an associate attorney for
two law firms in Florida and Minnesota concentrating on legal issues involving trust and wealth management from 1995
through 2000. Ms. Junker holds a B.A. in English Literature and Communications from Wake Forest University as well as a
J.D. from the University of Florida, College of Law.
Messrs. Gleason, Thomas, McKinney and Vance serve in the same positions with both the Company and the Bank.
All other listed officers are officers of the Bank.
SUPERVISION AND REGULATION
In addition to the generally applicable state and federal laws governing businesses and employers, bank holding
companies and banks are extensively regulated under both federal and state law. With few exceptions, state and federal
banking laws have as their principal objective either the maintenance of the safety and soundness of the Deposit Insurance
Fund (“DIF”) of the FDIC or the protection of consumers or classes of consumers, rather than the specific protection of our
shareholders. Bank holding companies and banks that fail to conduct their operations in a safe and sound basis or in
compliance with applicable laws can be compelled by the regulators to change the way they do business and may be subject
to regulatory enforcement actions, including civil money penalties and restrictions imposed on their operations. To the
extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by reference
to those particular statutory and regulatory provisions. Any change in applicable laws or regulations, and in their application
by regulatory agencies, may have an adverse effect on our results of operation and financial condition.
Primary Federal Regulators
The primary federal banking regulatory authority for the Company is the Board of Governors of the Federal
Reserve System (the “FRB”), acting pursuant to its authority to regulate bank holding companies. The primary federal
regulatory authority of the Bank is the FDIC because the Bank is an insured depository institution which is not a member
bank of the FRB.
Recent Legislative and Regulatory Initiatives to Address Current Financial and Economic Conditions
Dodd-Frank Wall Street Reform and Consumer Protection Act. On July 21, 2010, the Dodd-Frank Wall Street
Reform and Consumer Protection Act (the “Dodd-Frank Act”) was signed into law. The goals of the Dodd-Frank Act
include restoring public confidence in the financial system following the recent financial and credit crises, preventing
9
another financial crisis and allowing regulators to identify failings in the system before another crisis can occur. Further, the
Dodd-Frank Act is intended to affect a fundamental restructuring of federal banking regulation by taking a systemic view of
regulation rather than focusing on prudential regulation of individual financial institutions. However, the Dodd-Frank Act
itself may be more appropriately considered as a blueprint for regulatory change, as many of the provisions in the Dodd-
Frank Act require that regulatory agencies draft implementing regulations. Implementation of the Dodd-Frank Act has had
and will continue to have a broad impact on the financial services industry by introducing significant regulatory and
compliance changes including, among other things:
(cid:120) Changing the assessment base for federal deposit insurance from the amount of insured deposits to average
consolidated total assets less average tangible equity, eliminating the ceiling and increasing the size of the floor of
the DIF, and offsetting the impact of the increase in the minimum floor on institutions with less than $10 billion in
assets.
(cid:120) Making permanent the $250,000 limit for federal deposit insurance, increasing the cash limit of Securities Investor
Protection Corporation protection to $250,000 and providing that unlimited federal deposit insurance for non-
interest bearing demand transaction accounts at all insured depository institutions would expire after December 31,
2012.
(cid:120) Eliminating the requirement that the FDIC pay dividends from the DIF when the reserve ratio is between 1.35%
and 1.5%, and continuing the FDIC’s authority to declare dividends when the reserve ratio at the end of a calendar
year is at least 1.5%. However, the FDIC is granted sole discretion in determining whether to suspend or limit the
declaration or payment of dividends.
(cid:120) Repealing the federal prohibition on payment of interest on demand deposits, thereby permitting depository
institutions to pay interest on business transaction and other accounts.
(cid:120)
Implementing certain corporate governance revisions that apply to all public companies, including regulations that
require publicly traded companies to give shareholders a non-binding vote on executive compensation, commonly
referred to as a “say-on-pay” vote and on so-called “golden parachute” payments in connection with approvals of
mergers and acquisitions; new director independence requirements and considerations to be taken into account by
compensation committees and their advisers relating to executive compensation; additional executive
compensation disclosures; and a requirement that companies adopt a policy providing for the recovery of executive
compensation in the event of a restatement of its financial statements, commonly referred to as a “clawback”
policy.
(cid:120) Centralizing responsibility for consumer financial protection by creating a new independent federal agency, the
Consumer Financial Protection Bureau (the “CFPB”), responsible for implementing federal consumer protection
laws to be applicable to all depository institutions, including the Company and the Bank, although institutions
below $10 billion in assets will continue to be examined and supervised for compliance with these laws by their
primary federal regulator.
(cid:120)
(cid:120)
Imposing new requirements for mortgage lending, including new minimum underwriting standards, limitations with
respect to prepayment penalties, prohibitions on certain yield-spread compensation to mortgage originators,
establishment of new “qualified residential mortgage” standards intended to protect consumers, prohibition and
limitation of certain mortgage terms and imposition of new mandated disclosures to mortgage borrowers.
Imposing new limits on affiliate transactions and causing derivative transactions to be subject to lending limits and
other restrictions, including adoption of the so-called “Volcker Rule” regulating transactions in derivative
securities.
(cid:120) Permitting national and state banks to establish de novo interstate branches at any location where a bank based in
another state could establish a branch, and requiring that bank holding companies and banks be well-capitalized
and well-managed in order to acquire banks located outside their home state.
(cid:120) Applying the same leverage and risk-based capital requirements to holding companies that apply to insured
depository institutions, although the Company’s existing trust preferred securities and trust preferred securities
acquired in a merger transaction (but not new issuances) may continue to be “grandfathered” under the Dodd-Frank
Act and continue to qualify as Tier 1 capital unless otherwise restricted by federal regulators.
(cid:120) Limiting debit card interchange fees that financial institutions with $10 billion or more in assets are permitted to
charge, otherwise referred to as the “Durbin Amendment.”
10
(cid:120)
Increasing the dollar threshold below which consumers are required to be provided with certain disclosures under
the Truth In Lending Act of 1968, as amended (“TILA”) and Consumer Leasing Act with respect to consumer
credit transactions and personal property leases for personal, family, or household use exceeding four months in
duration, as well as requiring such disclosures without regard for dollar limits or length of time where security
interests will be given in real estate or personal property used or expected to be used as, or in conjunction with, a
consumer’s principal residence.
(cid:120)
Implementing regulations to incentivize and protect individuals, commonly referred to as whistleblowers, to report
violations of federal securities laws.
As discussed further throughout this section, many aspects of Dodd-Frank continue to be subject to rulemaking and
will take effect over several additional years, making it difficult to anticipate the overall financial impact on us or across the
industry. The changes resulting from the Dodd-Frank Act may impact the profitability of our business activities, require
changes to certain of our business practices, impose upon us more stringent capital, liquidity and leverage requirements or
otherwise adversely affect our business. These changes may also require us to invest significant management attention and
resources to evaluate and make any changes necessary to comply with new statutory and regulatory requirements.
As we continue to grow and approach $10 billion in total assets, we will also need to comply with certain
additional requirements created by the Dodd-Frank Act that apply only to bank holding companies and banks with $10
billion or more in total assets. Failure to comply with the new requirements would negatively impact our results of
operations and financial condition and could limit our growth or expansion activities. While we cannot predict what effect
any presently contemplated or future changes in the laws or regulations or their interpretations would have on us, such
changes could be materially adverse to our investors.
Risk Committee. Publicly traded bank holding companies with $10 billion or more in total assets are required to
establish a risk committee responsible for oversight of enterprise-wide risk management practices. The committee must
include at least one risk management expert with experience in managing risk exposures of large, complex firms. We will
need to comply with this requirement if we surpass the $10 billion total asset threshold in the future.
Stress Testing. Pursuant to the Dodd-Frank Act, any banking organization, including both a bank holding company
and a depository institution, with more than $10 billion in total consolidated assets and regulated by a federal financial
regulatory agency is required to conduct annual stress tests to ensure it has sufficient capital during periods of economic
downturn. The FRB and FDIC release stress-test scenarios on November 15 of each year, and banking organizations are
required to submit the results of their tests to the appropriate regulator by March 31 of the following year. The results of
each years’ stress tests are publicly disclosed in June, following each banking organization’s submission. A banking
organization that crosses the $10 billion total consolidated assets threshold must conduct its first annual company-run stress
test in the calendar year after the year in which it crossed the applicability threshold. For example, if we pass the $10 billion
threshold in 2015, our first annual stress test would occur in the final quarter of 2016 and would be submitted to the
appropriate federal regulators by March 31, 2017. Almost all of our assets are held at the Bank. If the Company’s total
assets pass the $10 billion threshold, it is very likely that our banking subsidiary’s total assets will also pass $10 billion, and
we will be required to conduct stress tests at both the holding company and bank level.
Debit Interchange Fees. Section 1075 of the Dodd-Frank Act, often referred to as the Durbin Amendment, amends
the federal Electronic Fund Transfer Act to set standards for the pricing of interchange transaction fees on electronic debit
transactions, called “swipe fees.” Currently, we are not required to comply with the Durbin Amendment’s limitations on
swipe fees due to an exemption for debit card issuers which, together with their affiliates, parent companies, and
subsidiaries have assets of less than $10 billion. If our total consolidated assets pass the $10 billion threshold, we will have
to comply with the restrictions on swipe fees beginning on July 1 of the calendar year following the year in which we
surpass the threshold. Losing the exemption from the Durbin Amendment’s requirements is expected to negatively affect the
amount of revenue we receive from swipe fees.
Prohibition on Propriety Trading and Certain Fund Relationships. On December 10, 2013, federal financial
regulators released final rules implementing Section 619 of the Dodd-Frank Act, also known as the Volcker Rule, which
prohibits both bank holding companies and banks from engaging in proprietary trading and from acquiring or retaining an
ownership interest in, sponsoring, or having certain relationships with a hedge fund or private equity fund. Although the
Volcker Rule became effective on July 21, 2012, it provided for a two-year conformance period to allow banking entities to
wind down their prohibited trading operations and investments. The Federal Reserve has since extended the conformance
period for an additional year, until July 21, 2015. The final rules are highly complex, and many aspects of their application
remain uncertain. We do not currently anticipate that the Volcker Rule will have a material effect on our operations since we
11
do not engage in the businesses prohibited by the Volcker Rule. We may incur costs if we are required to adopt additional
policies and systems to ensure compliance with the Volcker Rule, but any such costs are not expected to be material.
Because many of the effects of the Volcker Rule may become apparent only over several years as the federal financial
regulatory agencies apply the rule in practice, the precise financial impact of the rule on us, our customers or the financial
industry more generally cannot currently be determined.
Emergency Economic Stabilization Act. The U.S. Congress, the U.S. Department of the Treasury (“Treasury”),
and federal banking regulators took broad action, beginning in the third quarter of 2008 and continuing to the present time,
to strengthen the capital and liquidity positions of financial institutions in the U.S. and to address volatility in the financial
markets and the financial services industry. On October 3, 2008, the Emergency Economic Stabilization Act of 2008
(“EESA”) became law. On February 17, 2009, the American Recovery and Reinvestment Act of 2009 (“Recovery Act”),
more commonly known as the economic stimulus or economic recovery package became law. The Recovery Act, which
amends EESA, includes a wide variety of programs intended to stimulate the economy and provide for extensive
infrastructure, energy, health, and education needs. Under the Troubled Asset Relief Program (“TARP”) authorized by
EESA, the Treasury established a capital purchase program (“CPP”) providing for the purchase of senior preferred shares of
qualifying U.S. controlled banks, savings associations and certain bank and savings and loan holding companies. Financial
institutions participating in the TARP or CPP programs were subject to numerous Recovery Act provisions relating to
executive compensation, which included restrictions on bonus and incentive compensation, severance compensation and so-
called “golden parachutes” to the institution’s executive officers, and provided for “clawbacks” or mandatory repayments of
bonuses, retention awards or incentive compensation payments to a larger group of employees if it were later determined
that such compensation payments were based on materially inaccurate financial results, as well as concerning other matters
regarding executive compensation policies and practices.
In December 2008, pursuant to the TARP program, the Treasury purchased $75 million of a newly created series
of our preferred stock along with a warrant to purchase shares of our common stock. In November 2009, we redeemed the
preferred stock from Treasury, returned to Treasury the original investment amount of $75 million, plus accrued and unpaid
dividends thereon, and repurchased the warrant from Treasury. We are no longer a participant in the CPP or TARP
programs.
Our issuance of preferred stock to Treasury made us subject to the enforcement and oversight authority of the
Office of the Special Inspector General for TARP (“Special Inspector General”). The Special Inspector General retains
authority to audit and investigate all aspects of TARP even after the capital we received under the CPP was repaid to
Treasury. Although we have not had any Special Inspector General investigations concerning compliance with TARP, we
remain subject to requests by the Special Inspector General for documentation pertaining to our compliance with TARP
requirements prior to our repayment of the capital received under the CPP.
Except for the statutory mandate regarding clawbacks for compensation paid or accrued while Treasury held the
preferred stock and any future investigations by the Special Inspector General as described above, we are no longer subject
to the executive compensation restrictions and related mandates imposed by EESA and the Recovery Act.
The Making Home Affordable Program. During March 2009, Treasury announced the “Making Home Affordable”
program (the “MHA”) intended to provide assistance to homeowners by, among other things, introducing new refinancing
and loan modification programs. The refinancing program is intended to allow homeowners who have loans either owned or
guaranteed by Freddie Mac or Fannie Mae, and who have seen the value of their homes decline, to refinance their existing
mortgages thereby providing them with lower mortgage payments. As part of the loan modification program, which is
intended to prevent residential mortgage foreclosures and resulting loss of home ownership, Treasury issued guidelines
designed to enable mortgagors and their mortgage holders to modify existing loans and reduce homeowners’ monthly
mortgage payments, thereby reducing the risk of foreclosure. Such refinancing program was initially scheduled to end on
December 31, 2013 but has been extended through December 31, 2015.
The actions described above together with additional actions announced by Treasury and other regulatory agencies,
continue to evolve. It remains unclear at this time what will be the long-term impact on the financial markets and the
financial services industry of the Dodd-Frank Act, EESA, TARP, MHA or any of the other liquidity, funding and home
ownership initiatives of Treasury and other bank regulatory agencies that have been previously announced, or any additional
programs that may be initiated in the future. However, given the sweeping nature of the Dodd-Frank Act and other federal
government initiatives, we expect that our regulatory compliance costs will continue to increase over time.
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Other Federal Legislation and Regulation
Bank Holding Company Act. We are subject to supervision by the FRB under the provisions of the Bank Holding
Company Act of 1956, as amended (the “BHCA”). The BHCA restricts the types of activities in which bank holding
companies may engage and imposes a range of supervisory requirements on their activities, including regulatory
enforcement actions for violations of laws and policies. The BHCA limits our activities and any companies controlled by
our bank holding company to the activities of banking, managing and controlling banks, furnishing or performing services
for its subsidiaries, and any other activity that the FRB determines to be incidental to or closely related to banking. These
restrictions also apply to any company in which we own 5% or more of the voting securities.
Before a bank holding company engages in any non-bank-related activity, either by acquisition or commencement
of de novo operations, it must comply with the FRB’s notification and approval procedures. In reviewing these notifications,
the FRB considers a number of factors, including the expected benefits to the public versus the risks of possible adverse
effects. In general, the potential benefits include greater convenience to the public, increased competition and gains in
efficiency, while the potential risks include undue concentration of resources, decreased or unfair competition, conflicts of
interest and unsound banking practices.
Under the BHCA, a bank holding company must obtain FRB approval before engaging in acquisitions of banks or
bank holding companies. In particular, the FRB must generally approve the following actions by a bank holding company:
(cid:120)
(cid:120)
(cid:120)
the acquisition of ownership or control of more than 5% of the voting securities of any bank or bank holding
company;
the acquisition of all or substantially all of the assets of a bank; and
the merger or consolidation with another bank holding company.
In considering any application for approval of an acquisition or merger, the FRB is required to consider various
competitive factors, the financial and managerial resources of the companies and banks concerned, the convenience and
needs of the communities to be served, the effectiveness of the applicant in combating money laundering activities, and the
applicant’s record of compliance with the Community Reinvestment Act of 1977 (the “CRA”). The CRA is more
particularly described below.
Pursuant to the Dodd-Frank Act, the FRB is now required to also consider the extent to which a proposed
acquisition, merger, or consolidation would increase the systemic risk of the banking system. The Dodd-Frank Act also
amended the BHCA to require that bank holding companies be well-capitalized and well-managed before acquiring control
of a bank in another state. FRB regulations regard a bank holding company as well-capitalized if it has a total risk-based
capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, and a leverage ratio of 5.0% or greater.
The Attorney General of the United States may, within 30 days after approval of an acquisition by the FRB, bring an action
challenging such acquisition under the federal antitrust laws, in which case the effectiveness of such approval is stayed
pending a final ruling by the courts.
Source of Strength Doctrine. The Dodd-Frank Act codifies and expands the existing FRB policy that a bank
holding company is required to serve as a source of financial and managerial strength to its subsidiary banks. Under the
Dodd-Frank Act, the term “source of financial strength” is defined to mean the “ability of a company that directly or
indirectly controls an insured depository institution to provide financial assistance to such insured depository institution in
the event of the financial distress of the insured depository institution.” It is the FRB’s existing policy that a bank holding
company should stand ready to use available resources to provide adequate capital to its subsidiary banks during periods of
financial stress or adversity and should maintain the financial flexibility and capital-raising capacity to obtain additional
resources for assisting its subsidiary banks. Consistent with this, the FRB has stated that, as a matter of prudent banking, a
bank holding company should generally not maintain a given rate of cash dividends unless its net income available to
common shareholders has been sufficient to fully fund the dividends and the prospective rate of earnings retention appears
to be consistent with the organization’s capital needs, asset quality, and overall financial condition.
Federal Insurance of Deposit Accounts. Deposits in the Bank are insured by the FDIC’s DIF, generally up to a
maximum of $250,000 per separately insured depositor, pursuant to changes made permanent by the Dodd-Frank Act. The
FDIC assesses insured depository institutions to maintain the DIF. No institution may pay a dividend if in default of its
deposit insurance assessment.
13
Under the FDIC’s risk-based assessment system, insured institutions are assigned to a risk category based on
supervisory evaluations, regulatory capital levels and other factors. An institution’s assessment rate depends upon the
category to which it is assigned and certain adjustments specified by the FDIC, with less risky institutions paying lower
assessments.
In February 2011, as required by the Dodd-Frank Act, the FDIC published a final rule to revise the deposit
insurance assessment system. The rule, which took effect April 1, 2011, changes the assessment base used for calculating
deposit insurance assessments from deposits to average consolidated total assets less average tangible equity. Since the new
base is larger than the previous base, the FDIC also lowered assessment rates so that the rule would not significantly alter
the total amount of revenue collected from the industry. The range of adjusted assessment rates is now 2.5 to 45 basis points
of the new assessment base. The rule is expected to benefit smaller financial institutions, which typically rely more on
deposits for funding, and shift more of the burden for supporting the insurance fund to larger institutions, which are thought
to have greater access to nondeposit funding. If our bank subsidiary passes the $10 billion total asset threshold, then it
would become subject to the assessment rate calculations for larger banks, which may result in higher deposit insurance
premiums.
The Dodd-Frank Act increased the minimum target DIF ratio from 1.15% of estimated insured deposits to 1.35%
of estimated insured deposits. The FDIC must seek to achieve the 1.35% ratio by September 30, 2020. In setting the
assessments necessary to achieve the 1.35% ratio, the FDIC is supposed to offset the effect of the increased ratio on insured
institutions with assets of less than $10 billion. The Dodd-Frank Act eliminated the 1.5% maximum fund ratio, instead
leaving it to the discretion of the FDIC. The FDIC has recently exercised that discretion by establishing a long range fund
target ratio of 2.0%. If our bank subsidiary passes the $10 billion total asset threshold, it will not receive the benefit of
whatever offset in assessments the FDIC determines to be appropriate.
Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or
unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law,
regulation, rule, order or condition imposed by the FDIC.
Capital Adequacy Requirements. The FRB monitors the capital adequacy of the Company, and the FDIC monitors
the capital adequacy of the Bank. The federal bank regulators use a combination of risk-based guidelines and leverage ratios
to evaluate capital adequacy.
Under the risk-based capital guidelines, bank regulators assign a risk weight to each category of assets based
generally on the perceived credit risk of the asset class. The risk weights are then multiplied by the corresponding asset
balances to determine a “risk-weighted” asset base. The minimum ratio of total risk-based capital to risk-weighted assets is
8.0%. At least half of the risk-based capital must consist of Tier 1 capital, which is comprised of common stock, additional
paid-in capital, retained earnings, certain types of preferred stock, a limited amount of trust preferred securities and
qualifying minority interests in the equity capital accounts of consolidated subsidiaries, and excludes goodwill and various
intangible assets. However, a banking organization may reduce the amount of goodwill deducted from Tier 1 capital by the
amount of any deferred tax liability associated with that goodwill. The remainder, or Tier 2 capital, may consist of amounts
of trust preferred securities and other preferred stock excluded from Tier 1 capital, certain hybrid capital instruments and
other debt securities and an allowance for loan and lease losses not to exceed 1.25% of risk-weighted assets. The sum of
Tier 1 capital and Tier 2 capital is “total risk-based capital.”
Bank holding companies and banks are also required to comply with minimum leverage ratio requirements. The
leverage ratio is a company’s Tier 1 capital divided by its adjusted average total consolidated assets. Bank holding
companies and FDIC-supervised banks, such as the Company and the Bank, respectively, are required to maintain a
minimum leverage ratio of 4.0%, unless a different minimum is specified by an appropriate regulatory authority. In
addition, for a depository institution to be considered “well capitalized” under the regulatory framework for prompt
corrective action, its leverage ratio must be at least 5.0%. See “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations—Capital Compliance” for further information on regulatory capital requirements,
capital ratios, and deferred tax asset limits as of December 31, 2014 for us and our bank subsidiary.
In January 2010, the FRB adopted a final rule to amend its general risk-based capital adequacy and advanced risk-
based capital adequacy framework and to address the accounting treatment of special purpose entities, known as “variable
interest entities” often used in securitizations. The rule requires variable interest entities to be treated as consolidated for
risk-based capital purposes. Although we do not believe we currently have any variable interest entities required to be
consolidated under GAAP, it is possible that such an entity could be used in future business operations.
14
Basel III. On July 9, 2013, the FDIC and other federal banking regulators issued a final rule that will substantially
revise the risk-based capital requirements applicable to bank holding companies and insured depository institutions,
including the Company and the Bank, to make them consistent with agreements that were reached by the Basel Committee
on Banking Supervision (“Basel III”) and certain provisions of the Dodd-Frank Act. The final rule applies to all depository
institutions, top-tier bank holding companies with total consolidated assets of $500 million or more and top-tier savings and
loan holding companies.
The rule establishes a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets),
increases the minimum Tier 1 capital to risk-based assets requirement (from 4.0% to 6.0% of risk-weighted assets) and
assigns a higher risk weight (150%) to exposures that are more than 90 days past due or are on nonaccrual status and to
certain commercial real estate facilities that finance the acquisition, development or construction of real property.
The rule also includes changes in what constitutes regulatory capital, some of which are subject to a two-year
transition period. These changes include the phasing-out of certain instruments as qualifying capital. In addition, Tier 2
capital is no longer limited to the amount of Tier 1 capital included in total capital. Mortgage servicing rights, certain
deferred tax assets and investments in unconsolidated subsidiaries over designated percentages of common stock will be
required to be deducted from capital, subject to a two-year transition period. Finally, the new rules allow for insured
depository institutions to make a one-time election not to include most elements of accumulated other comprehensive
income in regulatory capital and instead effectively use the existing treatment under the general risk-based capital rules.
Insured depository institutions must make their accumulated other comprehensive income opt-out election in the first
Consolidated Reports of Condition and Income (“Call Report”), Consolidated Financial Statements for Bank Holding
Companies (“FR Y-9C”) or Parent Company Only Financial Statements for Large Bank Holding Companies (“FR Y-9LP”)
reports that are filed for the first quarter of 2015. We expect to make this opt-out election in order to avoid significant
variations in the level of capital depending upon the impact of interest rate fluctuations on the fair value of our investment
securities portfolio.
The new capital requirements also include changes in the risk-weights of assets to better reflect credit risk and
other risk exposures. These include a 150% risk weight (up from 100%) for certain high volatility commercial real estate
acquisition, development and construction loans and the unsecured portion of non-residential mortgage loans that are 90
days past due or otherwise on nonaccrual status; a 20% (up from 0%) credit conversion factor for the unused portion of a
commitment with an original maturity of one year or less that is not unconditionally cancellable; a 250% risk weight (up
from 100%) for mortgage servicing rights and deferred tax assets that are not deducted from capital; and increased risk
weights (from 0% to up to 600%) for equity exposures.
Finally, the rule limits payment of dividends, common stock repurchases and certain discretionary bonus payments
if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1
capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements.
The final rule became effective on January 1, 2015. The capital conservation buffer requirement will be phased in
beginning January 1, 2016, at 0.625% of risk-weighted assets, increasing each year until fully implemented at 2.5% on
January 1, 2019.
While these new rules under Basel III increase the risk-based capital requirements applicable to bank holding
companies and insured depository institutions and include changes in the risk-weights of certain assets to better reflect credit
risk and other risk exposures, we expect both the Company and the Bank to be considered well-capitalized under these new
rules.
Gramm-Leach-Bliley Act. Under the Gramm-Leach-Bliley Act (the “GLBA”), a bank holding company that elects
to become a “financial holding company” will be permitted to engage in any activity that the FRB, in consultation with the
Secretary of the Treasury, determines by regulation or order is (i) financial in nature or incidental to such financial activity
or (ii) complementary to a financial activity and does not pose a substantial risk to the safety and soundness of depository
institutions or the financial system generally. In addition to traditional lending activities, the GLBA specifies the following
activities as financial in nature:
acting as principal, underwriter, agent or broker for insurance;
underwriting, dealing in or making a market in securities;
(cid:120)
(cid:120)
(cid:120) merchant banking activities; and
(cid:120)
providing financial and investment advice.
15
A bank holding company may become a financial holding company only if all depository institution subsidiaries of
the holding company are well-capitalized, well-managed and have at least a satisfactory rating under the CRA. A financial
holding company that falls out of compliance with such requirement may be required to cease engaging in certain activities.
We currently have no plans to elect to become a financial holding company. As long as we elect not to become a financial
holding company, we will remain subject to the current restrictions of the BHCA.
The GLBA provides that state banks, such as the Bank, may invest in financial subsidiaries that engage as the
principal in activities that would only be permissible for a national bank to conduct in a financial subsidiary. This authority
is generally subject to the same conditions that apply to national bank investments in financial subsidiaries.
Under the consumer privacy provisions mandated by the GLBA, when establishing a customer relationship a
financial institution must give the consumer certain privacy-related information, such as when the institution will disclose
nonpublic, personal information to unaffiliated third parties, what type of information it may share and what types of
affiliates may receive the information. The institution must also provide customers with annual privacy notices, a reasonable
means for preventing the disclosure of information to third parties, and the opportunity to opt out of many features of the
institution’s disclosure policies at any time.
Community Reinvestment Act. The CRA requires, in connection with examinations of financial institutions, that
federal banking regulators evaluate the record of each financial institution in meeting the credit needs of its local
community, including low and moderate-income neighborhoods, consistent with the safe and sound operations of the banks.
Failure to adequately meet these criteria could impose additional requirements and limitations on us. These regulations also
provide for regulatory assessment of a bank’s record in meeting the needs of its service area when considering applications
to establish branches, merger applications and applications to acquire the assets and assume the liabilities of another bank.
In the case of a bank holding company, the CRA performance record of the banks involved in the transaction are reviewed
in connection with the filing of an application to acquire ownership or control of shares or assets of a bank or to merge with
any other bank holding company. An unsatisfactory record can substantially delay or block the transaction. Additionally, a
bank must make available for public review, certain portions of its most recent CRA examination report conducted by its
federal banking regulators.
USA Patriot Act. The USA PATRIOT Act of 2001 (the “Patriot Act”) increased the obligations of financial
institutions, including banks, to identify their customers, watch for and report suspicious transactions, respond to requests
for information by federal banking regulatory authorities and law enforcement agencies, and share information with other
financial institutions. The Patriot Act also amended the BHCA and Section 18(c) of the Federal Deposit Insurance Act
(commonly referred to as the “Bank Merger Act”) to require federal banking regulatory authorities to consider the
effectiveness of a financial institution’s anti-money laundering activities when reviewing an application to expand
operations. Financial institutions, including banks, are required under final rules implementing Section 326 of the Patriot
Act to establish procedures for collecting standard information from customers opening new accounts and verifying the
identity of these new account holders within a reasonable period of time. Failure of a financial institution to maintain and
implement adequate programs to combat money laundering and terrorist financing, or to comply with all of the relevant laws
or regulations, could have serious legal and reputational consequences for the institution, including causing applicable bank
regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit
such transactions even if approval is not required.
Office of Foreign Assets Control Regulation. The United States has imposed economic sanctions that affect
transactions with designated foreign countries, nationals and others which are administered by the Treasury’s Office of
Foreign Assets Control. Failure to comply with these sanctions could have serious legal and reputational consequences,
including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory
approval is required or to prohibit such transactions even if approval is not required.
Enforcement Authority. The FRB has enforcement authority over bank holding companies and non-banking
subsidiaries to forestall activities that represent unsafe or unsound practices or constitute violations of law. It may exercise
these powers by issuing cease-and-desist orders or through other actions. The FRB may also assess civil penalties in
amounts up to $1 million for each day’s violation against companies or individuals who violate the BHCA or related
regulations. The FRB can also require a bank holding company to divest ownership or control of a non-banking subsidiary
or require such subsidiary to terminate its non-banking activities. Certain violations may also result in criminal penalties.
For purposes of enforcing the designated consumer financial protection laws, (i) the CFPB has primary enforcement
authority over banks with total assets greater than $10 billion and their affiliates, and (ii) a bank’s primary federal regulators
retain exclusive enforcement authority over banks with $10 billion or less in total assets and their affiliates. As we continue
16
to grow, our bank subsidiary may surpass this $10 billion asset threshold and be subject to examination by the CFPB with
respect to its consumer products and services.
The FDIC possesses comparable enforcement authority under the Federal Deposit Insurance Act, the Federal
Deposit Insurance Corporation Improvement Act of 1991 (the “FDICIA”) and other statutes with respect to the Bank. In
addition, the FDIC can terminate insurance of accounts, after notice and hearing, upon a finding that the insured institution
is or has engaged in any unsafe or unsound practice that has not been corrected, is in an unsafe and unsound condition, or
has violated any applicable law, regulation, rule, or order of, or condition imposed by the appropriate supervisors.
The FDICIA required federal banking agencies to broaden the scope of regulatory corrective action taken with
respect to depository institutions that do not meet minimum capital and related requirements and to take such actions
promptly in order to minimize losses to the FDIC. In connection with FDICIA, federal banking agencies established capital
measures (including both a leverage measure and a risk-based capital measure) and specified for each capital measure the
levels at which depository institutions will be considered well-capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized or critically undercapitalized. If an institution becomes classified as undercapitalized, the
appropriate federal banking agency will require the institution to submit an acceptable capital restoration plan and can
suspend or greatly limit the institution’s ability to effect numerous actions including capital distributions, acquisitions of
assets, the establishment of new branches and the entry into new lines of business. The capital restoration plan will not be
accepted by the regulators unless each company having control of the undercapitalized institution guarantees the
subsidiary’s compliance with the capital restoration plan up to a certain specified amount. Any such guarantee from a
depository institution’s holding company is entitled to a priority of payment in bankruptcy.
The aggregate liability of the holding company of an undercapitalized bank is limited to the lesser of 5% of the
institution’s assets at the time it became undercapitalized or the amount necessary to cause the institution to be “adequately
capitalized.” The bank regulators have greater power in situations where an institution becomes “significantly” or
“critically” undercapitalized or fails to submit a capital restoration plan. For example, a bank holding company controlling
such an institution can be required to obtain prior FRB approval of proposed dividends, or might be required to consent to a
consolidation or to divest the troubled institution or other affiliates.
Examination. The FRB may examine the Company and any or all of its subsidiaries. To assess compliance with the
designated consumer financial protection laws, the Dodd-Frank Act gives the CFPB the authority to include its examiners,
on a sampling basis, in examinations performed by primary federal regulators such as the FRB. The FDIC examines and
evaluates insured banks approximately every 12 months, and it may assess the institution for its costs of conducting the
examinations. The FDIC has a reciprocal agreement with the Arkansas State Bank Department whereby each will accept the
other’s examination reports in certain cases. Our bank subsidiary generally undergoes FDIC and state examinations on a
joint basis.
Reporting Obligations. As a bank holding company, we must file with the FRB an annual report and such
additional information as the FRB may require pursuant to the BHCA. Our bank subsidiary must submit to federal and state
regulators annual audit reports prepared by independent auditors. Our Annual Report on Form 10-K, which includes the
report of our independent auditors, can be used to satisfy this requirement. Our bank subsidiary must submit quarterly, to the
FDIC, a Call Report. Our bank holding company must submit quarterly, to the FRB, an FR Y-9C and an FR Y-9LP. We
also file various other required reports with federal and state regulators.
Other Consumer Laws and Regulations. Our status as a registered bank holding company under the BHCA does
not exempt us from certain federal and state laws and regulations applicable to corporations generally, including, without
limitation, certain provisions of the federal securities laws. We are subject to the jurisdiction of the SEC and of state
securities regulatory authorities for matters relating to the offer and sale of our securities.
Our loan operations are subject to certain federal laws applicable to credit transactions, including, among others:
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the TILA, which governs disclosures of credit terms and costs to consumer borrowers, gives consumers the
right to cancel certain credit transactions, and defines requirements for servicing consumer loans secured by a
dwelling;
the Home Mortgage Disclosure Act of 1975, which requires financial institutions to provide information to
enable the public and public officials to determine whether a financial institution is fulfilling its obligation to
help meet the housing needs of the communities it serves;
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the Equal Credit Opportunity Act, which prohibits discrimination on the basis of race, creed or other
prohibited factors in extending credit;
the Fair Credit Reporting Act of 1978 (the “FCRA”), which governs the use and provision of information to
credit reporting agencies;
the Fair and Accurate Credit Transactions Act of 2003, which permanently extended the national credit
reporting standards of the FCRA, and permits consumers, including our customers, to opt out of information
sharing among affiliated companies for marketing purposes and requires financial institutions, including banks,
to notify a customer if the institution provides negative information about the customer to a national credit
reporting agency or if the credit that is granted to the customer is on less favorable terms than those generally
available;
the Fair Debt Collection Practices Act, which governs the manner in which consumer debts may be collected
by collection agencies;
the Fair Housing Act, which prohibits discriminatory practices relative to real estate related transactions,
including the financing of housing and the rules and regulations of the various federal agencies charged with
the responsibility of implementing such federal laws; and
the Real Estate Settlement and Procedures Act of 1974, which affords consumers greater protection pertaining
to federally related mortgage loans by requiring, among other things, improved and streamlined good faith
estimate forms including clear summary information and improved disclosure of yield spread premiums.
Our loan operations are also subject to the many requirements governing mortgages and lending practices set forth
in the Dodd-Frank Act discussed above.
Our deposit operations are subject to several laws, including but not limited to:
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the Right to Financial Privacy Act of 1978, which imposes a duty to maintain confidentiality of consumer
financial records and prescribes procedures for complying with administrative subpoenas of financial records;
the Electronic Funds Transfer Act, which governs automatic deposits to and withdrawals from deposit
accounts and customers’ rights and liabilities arising from the use of automated teller machines and other
electronic banking services;
the Truth in Savings Act, which requires depository institutions to disclose the terms of deposit accounts to
consumers;
the Expedited Funds Availability Act, which requires financial institutions to make deposited funds available
according to specified time schedules and to disclose funds availability policies to consumers; and
the Check Clearing for the 21st Century Act (“Check 21”), which is designed to foster innovation in the
payments system and to enhance its efficiency by reducing some of the legal impediments to check truncation.
Check 21 created a new negotiable instrument called a substitute check and permits, but does not require,
banks to truncate original checks, process check information electronically, and deliver substitute checks to
banks that wish to continue receiving paper checks.
State Regulation
We are subject to examination and regulation by the Arkansas State Bank Department. Examinations of our bank
subsidiary are typically conducted annually but may be extended to 24 months if an interim examination is performed by the
FDIC. The Arkansas State Bank Department may also examine the activities of our bank holding company in conjunction
with its examination of our bank subsidiary or in conjunction with the FRB’s examination of our bank holding company.
The extent of such examination will depend upon the complexity and level of debt owed by our bank holding company, and
other various criteria as determined by the Arkansas State Bank Department. We are also required to submit certain reports
filed with the FRB to the Arkansas State Bank Department.
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Under the Arkansas Banking Code of 1997, the acquisition of more than 25% of any class of the outstanding
capital stock of any bank located in Arkansas requires approval of the Arkansas State Bank Commissioner (the “Bank
Commissioner”). Additionally, a bank holding company may not acquire any bank if after such acquisition the holding
company would control, directly or indirectly, banks having 25% of the total bank deposits (excluding deposits from other
banks and public funds) in the State of Arkansas. A bank holding company also cannot own more than one bank subsidiary
if any of its bank subsidiaries has been chartered for less than five years.
The Bank Commissioner has the authority, with the consent of the Governor of the State of Arkansas, to declare a
state of emergency and temporarily modify or suspend banking laws and regulations in communities where such a state of
emergency exists. The Bank Commissioner may also authorize a bank to close its offices and any day when such bank
offices are closed will be treated as a legal holiday, and any director, officer or employee of such bank shall not incur any
liability related to such emergency closing. To date no such state of emergency has been declared to exist by the Bank
Commissioner.
Restrictions on Bank Subsidiary
Lending Limits. The lending and investment authority of our subsidiary bank is derived from Arkansas law. The
lending power is generally subject to certain restrictions, including the amount which may be lent to a single borrower.
Under Arkansas law, the obligations of one borrower to a bank may not exceed 20% of the bank’s capital base. See also
Note 18 to our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for a discussion
of lending limits.
Reserve Requirements. Arkansas law requires state chartered banks to maintain such reserves as are required by the
applicable federal regulatory agency. Federal banking laws require all insured banks to maintain reserves against their
checking and transaction accounts (primarily checking accounts, NOW and Super NOW checking accounts). Because
reserves must generally be maintained in cash, non-interest bearing accounts or in accounts that earn only a nominal amount
of interest, the effect of the reserve requirements is to increase our cost of funds.
Payment of Dividends. Regulations of the FDIC and the Arkansas State Bank Department limit the ability of our
bank subsidiary to pay dividends to our bank holding company without the prior approval of such agencies. FDIC
regulations prevent insured state banks from paying any dividends from capital and allow the payment of dividends only
from net profits then on hand after deduction for losses and bad debts. The Arkansas State Bank Department currently limits
the amount of dividends that our bank subsidiary can pay our bank holding company to 75% of its net profits after taxes for
the current year plus 75% of its retained net profits after taxes for the immediately preceding year.
Restrictions on Transactions with Affiliates. Federal law substantially restricts transactions between financial
institutions and their affiliates, particularly their non-financial institution affiliates. As a result, our bank subsidiary is
sharply limited in making extensions of credit to our bank holding company or any non-bank subsidiary, in investing in the
stock or other securities of our bank holding company or any non-bank subsidiary, in buying the assets of, or selling assets
to, our bank holding company and/or in taking such stock or securities as collateral for loans to any borrower. Our bank
subsidiary is subject to Section 23A of the Federal Reserve Act, which places limits on the amount of loans or extensions of
credit to, or investments in, or certain other transactions with, affiliates, including our bank holding company. In addition,
limits are placed on the amount of advances to third parties collateralized by the securities or obligations of affiliates. Most
of these loans and certain other transactions must be secured in prescribed amounts. Our bank subsidiary is also subject to
Section 23B of the Federal Reserve Act, which prohibits an institution from engaging in transactions with certain affiliates
unless the transactions are on terms substantially the same, or at least as favorable to such institution or its subsidiaries, as
those prevailing at the time for comparable transactions with non-affiliated companies. Our bank subsidiary is subject to
restrictions on extensions of credit to executive officers, directors, certain principal shareholders, and their related interests.
These extensions of credit (1) must be made on substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with third parties and (2) must not involve more than the normal risk of
repayment or present other unfavorable features.
Effect of Governmental Monetary Policies
Our earnings are affected by domestic economic conditions and the monetary and fiscal policies of the U.S.
government and its agencies. The FRB’s monetary policies have had, and are likely to continue to have, an important impact
on the operating results of commercial banks through the FRB’s statutory power to implement national monetary policy in
order, among other things, to curb inflation or combat a recession. The FRB, through its monetary and fiscal policies,
affects the levels of bank loans, investments and deposits through its control over the issuance of U.S. government
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securities, its regulation of the discount rate applicable to member banks and its influence over reserve requirements to
which member banks are subject. We cannot predict the nature or impact of future changes in monetary and fiscal policies.
Future Regulation of Bank Holding Companies and Banks
Certain proposals affecting the banking industry have been discussed from time to time. Such proposals have
included, but are not limited to, the following: regulation of all insured depository institutions by a single “super” federal
regulator; limitations on the number of accounts protected by the DIF and further modification of the coverage limit on
deposits. During 2015, numerous regulatory agencies will continue to promulgate rules and regulations to implement the
Dodd-Frank Act. The ultimate impact of the Dodd-Frank Act on our business and results of operations will depend on
regulatory interpretation and rulemaking, as well as the success of any actions taken to mitigate the negative earnings impact
of certain provisions. We cannot predict whether or in what form any proposed regulation or statute will be adopted or the
extent to which its business may be affected by any new regulation or statute.
Available Information
We file periodic and current reports, proxy statements and other information with the SEC. All of our filings with
the SEC may be copied and read at the SEC’s Public Reference Room at 100 F Street NE, Washington, D.C. 20549.
Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The
SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding
issuers that file electronically with the SEC as we do. The website address of the SEC is http://www.sec.gov. In addition,
we make available, free of charge, through the Investor Relations section of our Internet website at www.bankozarks.com
our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we
electronically file such reports with or furnish them to the SEC. Also our Corporate Governance Principles, Code of Ethics,
committee charters and other corporate governance related policies are available under the Investor Relations section on our
website. References to our website do not constitute incorporation by reference of the information contained on the website
and should not be considered part of this Annual Report on Form 10-K.
Item 1A. RISK FACTORS
An investment in shares of our common stock involves certain risks. The following risks and other information in
this report or incorporated in this report by reference, including our Consolidated Financial Statements and related notes
and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” should be carefully
considered before investing in shares of our common stock. These risks may adversely affect our financial condition, results
of operations or liquidity. Many of these risks are out of our direct control, though efforts are made to manage those risks
while optimizing financial results. These risks are not the only ones we face. Additional risks and uncertainties that we are
not aware of or focused on or that we currently deem immaterial may also adversely affect our business and operation.
This Annual Report on Form 10-K is qualified in its entirety by all these risk factors.
RISKS RELATED TO OUR BUSINESS
Our profitability is dependent on our banking activities.
Because we are a bank holding company, our profitability is directly attributable to the success of our bank
subsidiary. Our banking activities compete with other banking institutions on the basis of service, convenience and price.
Due in part to both regulatory changes and consumer demands, banks have experienced increased competition from other
entities offering similar products and services. We rely on the profitability of our bank subsidiary and dividends received
from our bank subsidiary for payment of our operating expenses, satisfaction of our obligations and payment of dividends.
As is the case with other similarly situated financial institutions, our profitability will be subject to the fluctuating cost and
availability of funds, changes in the prime lending rate and other interest rates, changes in economic conditions in general
and, because of the location of our banking offices, changes in economic conditions in the Southeastern and South Central
United States in particular.
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We depend on key personnel for our success.
Our operating results and ability to adequately manage our growth and minimize loan and lease losses are highly
dependent on the services, managerial abilities and performance of our current executive officers and other key personnel.
We have an experienced management team that our board of directors believes is capable of managing and growing our
business. We do not have employment contracts with our executive officers and, except in limited cases pursuant to recent
acquisitions, key personnel. Losses of or changes in our current executive officers or other key personnel and their
responsibilities may disrupt our business and could adversely affect our financial condition, results of operations and
liquidity. Additionally, our ability to retain our current executive officers and other key personnel may be further impacted
by existing and proposed legislation and regulations regarding incentive compensation that is affecting the financial services
industry. There can be no assurance that we will be successful in retaining our current executive officers or other key
personnel, or hiring additional key personnel to assist in executing our growth strategy.
Our operations are significantly affected by interest rate levels.
Our profitability is dependent to a large extent on net interest income, which is the difference between interest
income earned on loans, leases and investment securities and interest expense paid on deposits, other borrowings and
subordinated debentures. Our business is affected by changes in general interest rate levels and changes in the differential
between short-term and long-term interest rates, both of which are beyond our control. An increase in market interest rates
on loans is generally associated with a lower volume of loan originations, which may reduce earnings. Following an increase
in the general level of interest rates, our ability to maintain a positive net interest spread is dependent on our ability to
increase our loan offering rates, replace loan maturities with new originations, minimize increases on our deposit rates, and
maintain an acceptable level and mix of funding. Although we have implemented procedures we believe will reduce the
potential effects of changes in interest rates on our results of operations, these procedures may not always be successful.
Accordingly, changes in levels of market interest rates could materially and adversely affect our net interest margin, asset
quality, loan origination volume, liquidity, and overall profitability. We cannot assure you that we can minimize our interest
rate risk.
The fiscal and monetary policies of the federal government and its agencies could have a material adverse effect on
our earnings.
The FRB regulates the supply of money and credit in the U.S. Its policies determine in large part the cost of funds
for lending and investing and the return earned on those loans and investments, both of which may affect our net interest
income and net interest margin. Changes in the supply of money and credit can also materially decrease the value of
financial assets we hold, such as debt securities. The FRB’s policies can also adversely affect borrowers, potentially
increasing the risk that they may fail to repay their loans and leases. Changes in such policies are beyond our control and
difficult to predict; consequently, the impact of these changes on our activities and results of operations is difficult to
predict.
Our business depends on the condition of the local and regional economies where we operate.
A large number of our banking offices are located in Arkansas, Texas and other southeastern states. As a result our
financial condition and results of operations may be significantly impacted by changes in the Arkansas and Texas economies
as well as the economies of other southeastern states. Slowdown in economic activity, deterioration in housing markets or
increases in unemployment and under-employment in these areas may have a significant and disproportionate impact on
consumer and business confidence and the demand for our products and services, result in an increase in non-payment of
loans and leases and a decrease in collateral value, and significantly impact our deposit funding sources. Any of these events
could have an adverse impact on our financial position, results of operations and liquidity.
Our business may suffer if there are significant declines in the value of real estate.
The market value of real estate can fluctuate significantly in a short period of time as a result of market conditions
in the geographic area in which the real estate is located. If the value of the real estate serving as collateral for our loan and
lease portfolio were to decline materially, a significant part of our loan portfolio could become under-collateralized. If the
loans that are collateralized by real estate become troubled during a time when market conditions are declining or have
declined, we may not be able to realize the value of security anticipated at the time of originating the loan, which in turn
could have an adverse effect on our provision for loan and lease losses and our financial condition, results of operations and
liquidity.
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Most of our foreclosed assets are comprised of real estate properties. We carry these properties at their estimated
fair values less estimated selling costs. While we believe the carrying values for such assets are reasonable and appropriately
reflect current market conditions, there can be no assurance that the values of such assets will not further decline prior to
sale or that the amount of proceeds realized upon disposition of foreclosed assets will approximate the carrying value of
such assets. If the proceeds from any such dispositions are less than the carrying value of foreclosed assets, we will record a
loss on the disposition of such assets, which in turn could have an adverse effect on our financial position, results of
operations and liquidity.
We are subject to environmental liability risks.
A significant portion of our loan and lease portfolio is secured by real property. In the ordinary course of business,
we may foreclose on and take title to real properties securing certain loans. In doing so, there is a risk that hazardous or
toxic substances could be found on these properties. Additionally, we have acquired a number of retail banking facilities and
other real properties as a result of acquisitions, any of which may contain hazardous or toxic substances. If hazardous or
toxic substances are found, we may be liable for remediation costs, as well as for personal injury and property damage.
Environmental laws may require us to incur substantial expenses and may materially reduce the affected property’s value or
limit our ability to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement
policies with respect to existing laws may increase our exposure to environmental liability. We have policies and procedures
that require either formal or informal evaluation of environmental risks and liabilities on real property (i) before originating
any loan or foreclosure action, except for (a) loans originated for sale in the secondary market secured by 1-4 family
residential properties and (b) certain loans where the real estate collateral is second lien collateral or (ii) prior to the
completion of any acquisition when we are acquiring retail banking facilities or any other real property. These policies,
procedures and evaluations may not be sufficient to detect all potential environmental hazards. The remediation costs and
any other financial liabilities associated with an environmental hazard could have an adverse effect on our financial
condition, results of operations and liquidity.
If we do not properly manage our credit risk, our business could be seriously harmed.
There are substantial risks inherent in making any loan or lease, including, but not limited to –
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risks resulting from changes in economic and industry conditions;
risks inherent in dealing with individual borrowers;
risks inherent from uncertainties as to the future value of collateral; and
the risk of non-payment of loans and leases.
Although we attempt to minimize our credit risk through prudent loan and lease underwriting procedures and by
monitoring concentrations of our loans and leases, there can be no assurance that these underwriting and monitoring
procedures will reduce these risks. Moreover, as we expand into new markets, credit administration and loan and lease
underwriting policies and procedures may need to be adapted to local conditions. The inability to properly manage our
credit risk or appropriately adapt our credit administration and loan and lease underwriting policies and procedures to local
market conditions or changing economic circumstances could have an adverse impact on our provision for loan and lease
losses and our financial condition, results of operations and liquidity.
We make and hold a significant number of construction/land development, non-farm/non-residential and other real
estate loans in our non-purchased loan and lease portfolio.
Our non-purchased loan and lease portfolio is comprised of a significant amount of real estate loans, including a
large number of construction/land development and non-farm/non-residential loans. Our real estate loans comprised 86.9%
of our total non-purchased loans and leases at December 31, 2014. In addition, our construction/land development and non-
farm/non-residential loans, which are a subset of our real estate loans, comprised 35.5% and 37.8%, respectively, of our
total non-purchased loan and lease portfolio at December 31, 2014. Real estate loans, including construction/land
development and non-farm/non-residential loans, pose different risks than do other types of loan and lease categories. In
particular, real estate construction, acquisition and development loans have certain risks not present in other types of loans,
including risks associated with construction cost overruns, project completion risk, general contractor credit risk and risks
associated with the ultimate sale or use of the completed construction. If a decline in economic conditions or other issues
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cause difficulties for our borrowers of these types of loans, if we fail to evaluate the credit of these loans accurately when we
underwrite them or if we do not continue to monitor adequately the performance of these loans, our lending portfolio could
experience delinquencies, defaults and credit losses that could have a material adverse effect on our business, financial
condition or results of operations. We believe we have established appropriate underwriting procedures for our real estate
loans, including construction/land development and non-farm/non-residential loans, and have established appropriate
allowances to cover the credit risk associated with such loans. However, there can be no assurance that such underwriting
procedures are, or will continue to be, appropriate or that losses on real estate loans, including construction/land
development and non-farm/non-residential loans, will not require additions to our allowance for loan and lease losses, and
could have an adverse impact on our financial position, results of operations or liquidity.
We could experience deficiencies in our allowance for loan and lease losses.
We maintain an allowance for loan and lease losses, established through a provision for loan and lease losses
charged to expense, that represents our best estimate of probable losses inherent in our existing loan and lease portfolio.
Although we believe that we maintain our allowance for loan and lease losses at a level adequate to absorb losses in our
loan and lease portfolio, estimates of loan and lease losses are subjective and their accuracy may depend on the outcome of
future events. Experience in the banking industry indicates that some portion of our loans and leases may only be partially
repaid or may never be repaid at all. Loan and lease losses occur for many reasons beyond our control. Accordingly, we
may be required to make significant and unanticipated increases in our allowance for loan and lease losses during future
periods which could materially affect our financial position, results of operations and liquidity. Additionally, bank
regulatory authorities, as an integral part of their supervisory functions, periodically review our allowance for loan and lease
losses. These regulatory authorities may require adjustments to the allowance for loan and lease losses or may require
recognition of additional loan and lease losses or charge-offs based upon their judgment. Any increase in the allowance for
loan and lease losses or charge-offs required by bank regulatory authorities could have an adverse effect on our financial
condition, results of operations and liquidity.
The performance of our investment securities portfolio is subject to fluctuation due to changes in interest rates and
market conditions, including credit deterioration of the issuers of individual securities.
Changes in interest rates can negatively affect the performance of most of our investment securities. Interest rate
volatility can reduce unrealized gains or increase unrealized losses in our portfolio. Interest rates are highly sensitive to
many factors including monetary policies, domestic and international economic and political issues, and other factors
beyond our control. Fluctuations in interest rates can materially affect both the returns on and market value of our
investment securities. Additionally, actual investment income and cash flows from investment securities that carry
prepayment risk, such as mortgage-backed securities and callable securities, may materially differ from those anticipated at
the time of investment or subsequently as a result of changes in interest rates and market conditions.
Our investment securities portfolio consists of a number of securities whose trading markets are “not active.” As a
result, we utilize alternative methodologies for pricing these securities that include various estimates and assumptions. There
can be no assurance that we can sell these investment securities at the price derived by these methodologies, or that we can
sell these investment securities at all, which could have an adverse effect on our financial position, results of operation or
liquidity.
We monitor the financial position of the various issues of investment securities in our portfolio, including each of
the state and local governments and other political subdivisions where we have exposure. To the extent we have securities in
our portfolio from issuers who have experienced a deterioration of financial condition, or who may experience future
deterioration of financial condition, the value of such securities may decline and could result in an other-than-temporary
impairment charge, which could have an adverse effect on our financial condition, results of operations and liquidity.
Our recent results may not be indicative of our future results.
We may not be able to grow our business at the same rate of growth achieved in recent years or even grow our
business at all. Additionally, in the future we may not have the benefit of several factors that have been favorable to our
business in past years, such as an interest rate environment where changes in rates occur at a relatively orderly and modest
pace, the ability to find suitable expansion opportunities, or otherwise to capitalize on opportunities presented by economic
turbulence, or other factors and conditions. Numerous factors, such as weakening or deteriorating economic conditions,
regulatory and legislative considerations, and competition may impede or restrict our ability to expand our market presence
and could adversely impact our future operating results.
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Our FDIC insurance premiums may increase.
The FDIC has increased premiums charged to all financial institutions for FDIC insurance protection during recent
years and such premiums may increase further in future years. We have historically paid at or near the lowest applicable
premium rate under the FDIC’s insurance premium rate structure due to our sound financial position. However, should bank
failures increase in the future, FDIC insurance premiums may also increase. Additionally, in the event we exceed $10 billion
in assets, the method for calculating our FDIC assessments will change, and we expect our FDIC assessments will increase
as a result. Future increases of FDIC insurance premiums or special assessments could have a material adverse effect on our
business, financial condition or results of operations.
To successfully implement our growth strategy, we must expand our operations in both new and existing markets.
We intend to continue the expansion and development of our business by pursuing our growth and de novo
branching strategy. Accordingly, our growth prospects must be considered in light of the risks, expenses and difficulties
frequently encountered by banking companies pursuing growth strategies. In order to successfully execute our growth
strategy, we must, among other things:
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identify and expand into suitable markets;
obtain regulatory and other approvals;
identify and acquire suitable sites for new banking offices;
attract and retain qualified bank management and staff;
build a substantial customer base;
expand our loan portfolio while maintaining credit quality;
attract sufficient deposits and capital to fund anticipated loan and lease growth;
(cid:120) maintain adequate common equity and regulatory capital; and
(cid:120) maintain sufficient qualified staffing and infrastructure to support growth and compliance with increasing
regulatory requirements.
In addition to the foregoing factors, there are considerable costs involved in opening banking offices, and such new
offices generally do not generate sufficient revenues to offset their costs until they have been in operation for some time.
Therefore, any new banking offices we open can be expected to negatively affect our operating results until those offices
reach a size at which they become profitable. We could also experience an increase in expenses if we encounter delays in
opening any new banking offices. Moreover, we cannot give any assurances that any new banking offices we open will be
successful, even after they have become established, or that we can hire and retain qualified bank management and staff to
achieve our growth and profitability goals. If we do not manage our growth effectively, our business, future prospects,
financial condition, results of operations and liquidity could be adversely affected.
We may not be able to meet the cash flow requirements of our depositors or the cash needs for expansion and other
corporate activities.
Liquidity represents an institution’s ability to provide funds to satisfy demands from depositors, borrowers and
other creditors by either converting assets into cash or accessing new or existing sources of incremental funds. Liquidity risk
arises from the possibility that we may be unable to satisfy current or future funding requirements and needs. Our ALCO
and Investments Committee (“ALCO”), which reports to the board of directors, has primary responsibility for oversight of
our liquidity, funds management, asset/liability (interest rate risk) position and investment portfolio functions.
The objective of managing liquidity risk is to ensure that our cash flow requirements resulting from depositor,
borrower and other creditor demands are met, as well as our operating cash needs, and that our cost of funding such
requirements and needs is reasonable. We maintain a comprehensive interest rate risk, liquidity and funds management
policy and a contingency funding plan that, among other things, include policies and procedures for managing liquidity risk.
Generally we rely on deposits, repayments of loans and leases and purchased loans, and repayments of our investment
securities as our primary sources of funds. Our principal deposit sources include consumer, commercial and public funds
customers in our markets. We have used these funds, together with wholesale deposit sources such as brokered deposits,
along with Federal Home Loan Bank of Dallas (“FHLB-Dallas”) advances, FRB borrowings, federal funds purchased and
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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.
Repayments of loans and leases and purchased loans are a relatively stable source of funds but are subject to the borrowers’
and lessees’ ability to repay such 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 and purchased loans generally are not readily convertible to cash. Accordingly, we may be
required from time to time to rely on secondary sources of liquidity to meet our loan, lease and deposit withdrawal demands
or otherwise fund operations. Such secondary sources include FHLB-Dallas advances, brokered deposits, secured and
unsecured federal funds lines of credit from correspondent banks, FRB borrowings and/or accessing the capital markets.
We anticipate we will continue to rely primarily on deposits, repayments of loans and leases, and repayments of
our investment securities to provide liquidity. Additionally, where necessary, the secondary sources of borrowed funds
described above will be used to augment our primary funding sources. If we are unable to access any of these secondary
funding sources when needed, we might be unable to meet our customers’ or creditors’ needs, which would adversely
impact our financial condition, results of operations, and liquidity.
We may need to raise additional capital in the future to continue to grow, but that capital may not be available when
needed.
Federal and state bank regulators require us, and our bank subsidiary, to maintain adequate levels of capital to
support operations. At December 31, 2014, our bank holding company and our bank subsidiary regulatory capital ratios
were at “well-capitalized” levels under regulatory guidelines. However, our business strategy calls for continued growth in
our existing banking markets (internally, through opening additional offices and by making additional acquisitions) and to
expand into new markets as appropriate opportunities arise. Growth in assets at rates in excess of the rate at which our
capital is increased through retained earnings will reduce our capital ratios unless we continue to increase capital. If our
capital ratios fell below “well-capitalized” levels, the FDIC insurance assessment rate would increase until capital is
restored and maintained at a “well-capitalized” level. Additionally, should our capital ratios fall below “well-capitalized”
levels, certain funding sources could become more costly or could cease to be available to us until such time as capital is
restored and maintained at a “well-capitalized” level. A higher assessment rate resulting in an increase in FDIC insurance
assessments, increased cost of funding or loss of funding sources could have an adverse effect on our financial condition,
results of operations and liquidity.
We may need to raise additional capital in the future to provide us with sufficient capital resources and liquidity to
meet our commitments and business needs. As a publicly traded company, a likely source of additional funds is the capital
markets, accomplished generally through the issuance of equity, both common and preferred stock, and the issuance of
subordinated debentures. Our ability to raise additional capital, if needed, will depend on, among other things, conditions in
the capital markets at that time, which are outside of our control, and our financial performance.
We cannot assure you that access to such capital and liquidity will be available to us on acceptable terms or at all.
Any occurrence that may limit our access to the capital markets, such as a decline in the confidence of debt purchasers,
depositors of our bank subsidiary or counterparties participating in the capital markets, may materially and adversely affect
our capital costs and our ability to raise capital and, in turn, our liquidity. If we cannot raise additional capital when needed,
our ability to expand through internal growth or acquisitions or to continue operations could be impaired.
We may be adversely affected by risks associated with completed and potential acquisitions.
We plan to continue to grow our business organically. However, we have pursued and expect to pursue additional
acquisition opportunities that we believe support our business strategy and may enhance our profitability. Acquisitions
involve numerous risks, including:
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incurring time and expense associated with identifying and evaluating potential acquisitions and negotiating
potential transactions, resulting in our attention being diverted from the operation of our existing business;
using inaccurate estimates and judgments to evaluate credit, operations, management and market risks with
respect to the target institution or assets;
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the risk that the acquired business will not perform to our expectations;
difficulties, inefficiencies or cost overruns in integrating and assimilating the organizational cultures,
operations, technologies, services and products of the acquired business with ours;
the risk of key vendors not fulfilling our expectations or not accurately converting data;
entering geographic and product markets in which we have limited or no direct prior experience;
the potential loss of key employees, customers and deposits of acquired banks;
the potential for liabilities and claims arising out of the acquired businesses; and
the risk of not receiving required regulatory approvals or such approvals being restrictively conditional.
Acquisitions of financial institutions also involve operational risks and uncertainties, and acquired companies may
have unknown or contingent liabilities with no corresponding accounting allowance, exposure to unexpected asset quality
problems that require writedowns or write-offs (as well as restructuring and impairment or other charges), difficulty
retaining key employees and customers and other issues that could negatively affect our business. We may not be able to
realize any projected cost savings, synergies or other benefits associated with any such acquisition we complete.
Acquisitions may involve the payment of a premium over book and market values and, therefore, some dilution of our
tangible book value and net income per common share may occur in connection with any future transaction. Failure to
successfully integrate the entities we acquire into our existing operations could increase our operating costs significantly and
have a material adverse effect on our business, financial condition and results of operations.
We must generally satisfy a number of meaningful conditions prior to completing any acquisition, including, in
certain cases, federal and state regulatory approval. Bank regulators consider a number of factors when determining whether
to approve a proposed transaction, including the effect of the transaction on financial stability and the ratings and
compliance history of all institutions involved, including the CRA, examination results and anti-money laundering and Bank
Secrecy Act compliance records of all institutions involved. The process for obtaining required regulatory approvals has
become substantially more difficult as a result of the recent financial crisis, which could affect our future business. We may
fail to pursue, evaluate or complete strategic and competitively significant business opportunities as a result of our inability,
or our perceived inability, to obtain any required regulatory approvals in a timely manner or at all.
In addition, we face significant competition from numerous other financial services institutions, many of which will
have greater financial resources than we do, when considering acquisition opportunities. Accordingly, attractive acquisition
opportunities may not be available to us. There can be no assurance that we will be successful in identifying or completing
any future acquisitions.
We may engage in additional FDIC-assisted acquisitions, which could present additional risks to our business.
During 2010 and 2011, we acquired substantially all of the assets and assumed substantially all of the deposits and
certain other liabilities of seven failed financial institutions in FDIC-assisted acquisitions. At December 31, 2014, the loss
share agreements for all seven of the FDIC-assisted acquisitions had been terminated. Although the pace of FDIC-assisted
acquisitions across the U.S. has dramatically slowed in the past several years, we may be presented with additional
opportunities to acquire the assets and assume liabilities of failed banks in FDIC-assisted acquisitions in the future. These
acquisitions involve risks similar to acquiring existing banks even though the FDIC might provide assistance to mitigate
certain risks such as sharing in loan losses and losses on other covered assets and providing indemnification against certain
liabilities of the failed institution. However, because these acquisitions are for failed banks and are structured in a manner
that does not allow the time normally associated with preparing for and evaluating an acquisition (including preparing for
integration of an acquired institution), we may face additional risks when engaging in FDIC-assisted acquisitions. The assets
we would acquire in such transactions are generally more troubled than in a typical acquisition and the deposits are
generally higher priced than in a typical acquisition and therefore are subject to higher rates of attrition. Integration of
operations also may be more difficult in an FDIC-assisted acquisition than in a typical acquisition since key staff may have
departed. Any inability to overcome these risks could have an adverse effect on our ability to achieve our business
objectives and maintain our market value and profitability.
Additionally, we can only participate in the bid process for an FDIC-assisted transaction if we receive approval
from bank regulators. There can be no assurance that we will be allowed to participate in the bid process, or what the terms
of any such transaction might be or whether we would be successful in acquiring any bank or targeted assets. We may be
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required to raise additional capital as a condition to, or as a result of, participation in certain FDIC-assisted acquisitions.
Any such transactions and related issuances of capital may have a dilutive effect on earnings per common share and share
ownership.
Furthermore, to the extent we are allowed to, and choose to participate in future FDIC-assisted acquisitions, we
may face competition from other financial institutions. To the extent that other competitors participate, our ability to make
acquisitions on favorable terms may be adversely affected. Additionally, if we acquire bank assets and operations through
future FDIC-assisted acquisitions, we could encounter difficulties in achieving profitability of those operations.
If we acquire bank assets and operations through future FDIC-assisted acquisitions and enter into loss share
agreements with respect to such transactions, any failure to comply with the terms of such loss share agreements, or to
properly service the loans and foreclosed assets covered by loss share agreements, may cause individual loans, large pools
of loans or other assets covered by loss share to lose eligibility for reimbursement from the FDIC.
Systems conversions of acquired banks may be difficult.
Subsequent to the acquisition of a financial institution, the various operating systems must be converted, in most
cases, to our operating systems. These systems conversions require personnel with unique and specialized skills and require
a significant amount of planning, coordination and effort of internal resources and third-party vendors. Our inability to hire
or retain individuals with the appropriate skills or to effectively plan, coordinate and manage these systems conversions or
any failure to effectively implement these systems conversions could have serious negative customer impact, exposing us to
reputational risk and adversely impacting our financial condition, results of operations and liquidity.
We face strong competition in our markets.
Competition in many of our banking markets is intense. We compete with other financial and bank holding
companies, state and national commercial banks, savings and loan associations, consumer finance companies, credit unions,
securities brokerages, insurance companies, mortgage banking companies, leasing companies, money market mutual funds,
asset-based non-bank lenders and other financial institutions and intermediaries, as well as non-financial institutions offering
payroll, debit card and other services. Many of these competitors have an advantage over us through substantially greater
financial resources, lending limits and larger distribution networks, and are able to offer a broader range of products and
services. Other competitors, many of which are smaller, are privately-held and thus benefit from greater flexibility in
adopting or modifying growth or operational strategies than we do. If we fail to compete effectively for deposits, loans,
leases and other banking customers in our markets, we could lose substantial market share, suffer a slower growth rate or no
growth and our financial condition, results of operations and liquidity could be adversely affected.
The soundness of other financial institutions could adversely affect us.
Our ability to engage in routine funding transactions could be adversely affected by the actions and financial
stability of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing,
counterparty or other relationships. We have exposure to various counterparties, including brokers and dealers, commercial
and correspondent banks, and others. As a result, defaults by, or rumors or questions about, one or more financial services
institutions, or the financial services industry generally, may result in market-wide liquidity problems and could lead to
losses or defaults by such other institutions. Such occurrences could expose us to credit risk in the event of default of one or
more counterparties and could have a material adverse impact on our financial position, results of operations and liquidity.
We depend on the accuracy and completeness of information about customers.
In deciding whether to extend credit or enter into certain transactions, we rely on information furnished by or on
behalf of customers, including financial statements, credit reports and other financial information. We may also rely on
representations of those customers or other third parties, such as independent auditors, as to the accuracy and completeness
of that information. Reliance on inaccurate or misleading financial statements, credit reports or other financial information
could have an adverse impact on our business, financial condition and results of operations.
Reputational risk and social factors may impact our results.
Our ability to originate and maintain accounts is highly dependent upon consumer and other external perceptions of
our business practices and/or our financial health. Adverse perceptions regarding our business practices and/or financial
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health could damage our reputation, leading to difficulties in generating and maintaining accounts as well as in financing
them. Adverse developments or other external perceptions regarding the practices of competitors, or the industry as a whole,
may also adversely impact our reputation. In addition, adverse reputational impacts on third parties with whom we have
important relationships may also adversely impact our reputation. Adverse impacts on our reputation, or the reputation of
the industry, may also result in greater regulatory and/or legislative scrutiny, which may lead to laws or regulations that may
change or constrain the manner in which we engage with our customers and the products we offer. Adverse reputational
impacts or events may also increase litigation risk. Any of these factors could have an adverse impact on our ability to
achieve our business objectives and/or results of operations.
We may be subject to claims and litigation pertaining to fiduciary responsibility.
From time to time as part of our normal course of business, customers may make claims and take legal action
against us based on actions or inactions related to the fiduciary responsibilities of our bank subsidiary’s Trust and Wealth
Management Division. If such claims and legal actions are not resolved in a manner favorable to us, they may result in
financial liability and/or adversely affect our market perception or our products and services. Any financial liability or
reputation damage could have a material adverse effect on our business, which, in turn, could have a material adverse effect
on our financial condition and results of operations.
We may be subject to claims and litigation asserting lender liability.
From time to time, and particularly during periods of economic stress, customers, including real estate developers,
may make claims or otherwise take legal action pertaining to performance of our responsibilities. These claims are often
referred to as “lender liability” claims and are sometimes brought in an effort to produce or increase leverage against us in
workout negotiations or debt collection proceedings. Lender liability claims frequently assert one or more of the following:
breach of fiduciary duties, fraud, economic duress, breach of contract, breach of the implied covenant of good faith and fair
dealing, and similar claims. Whether customer claims and legal action related to the performance of our responsibilities are
founded or unfounded, if such claims and legal actions are not resolved in a favorable manner, they may result in significant
financial liability and/or adversely affect our market perception, products and services, as well as potentially impacting
customer demand for those products and services. Any financial liability or reputation damage could have a material
adverse effect on our business, which, in turn, could have a material adverse effect on our financial condition, results of
operations and liquidity.
We need to stay current on technological changes in order to compete and meet customer demands.
The financial services industry is undergoing rapid technological changes with frequent introductions of new
technology-driven products and services. Our future success will depend, in part, upon our ability to address the needs of
our customers by using technology to provide products and services that will satisfy customer demands for convenience, as
well as to create additional operational efficiencies and greater privacy and security protection for customers and their
personal information. Many of our competitors have substantially greater resources to invest in technological improvements.
We may not be able to effectively implement new technology-driven products and services or be successful in marketing
these products and services to our customers. Failure to successfully keep pace with technological change affecting the
financial services industry could impair our ability to effectively compete to retain or acquire new business and could have
an adverse impact on our business, financial position, results of operations and liquidity.
We are subject to a variety of systems failure and cyber security risks that could adversely affect our business and
financial performance.
Our internal operations are subject to certain risks, including, but not limited to, information system failures and
errors, customer or employee fraud and catastrophic failures resulting from terrorist acts, data piracy or natural disasters.
We maintain a system of internal controls and security to mitigate the risks of many of these occurrences and maintain
insurance coverage for certain risks. However, should an event occur that is not prevented or detected by our internal
controls, and is uninsured against or in excess of applicable insurance limits, such occurrence could have an adverse impact
on our business, financial condition, results of operations and liquidity.
The computer systems and network infrastructure we use could be vulnerable to unforeseen problems. Our
operations are dependent upon the ability to protect our computer equipment against damage from fire, severe storm, power
loss, telecommunications failure or a similar catastrophic event. Any damage or failure of our computer systems or network
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infrastructure that causes an interruption in operations could have an adverse effect on our financial condition, results of
operations and liquidity.
In addition, our operations are dependent upon our ability to protect the computer systems and network
infrastructure against damage from physical break-ins, security breaches and other disruptive problems caused by Internet
users or other users. Computer break-ins and other disruptions could jeopardize the security of information stored in and
transmitted through our computer systems and network, which may result in significant liability and reputation risk to us,
and may deter potential customers. Although we, with the help of third-party service providers, intend to continue to
actively monitor and, where necessary, implement improved security technology and develop additional operational
procedures to prevent damage or unauthorized access to our computer systems and network, there can be no assurance that
these security measures or operational procedures will be successful. In addition, new developments or advances in
computer capabilities or new discoveries in the field of cryptography could enable hackers or data pirates to compromise or
breach the security measures we use to protect customer data. Any failure to maintain adequate security over our customers’
personal and transactional information could expose us to reputational risk or consumer litigation, and could have an
adverse effect on our financial condition, results of operations and liquidity.
Our risk and exposure to cyber attacks and other information security breaches remain heightened because of,
among other things, the evolving nature of these threats and the prevalence of Internet and mobile banking. As cyber threats
continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our
protective measures or to investigate and remediate any information security vulnerabilities. Disruptions or failures in the
physical infrastructure or operating systems that support our businesses and customers, or cyber attacks or security breaches
of the networks, systems or devices that customers use to access our products and services, could result in customer
attrition, regulatory fines, penalties or intervention, reputational damage, reimbursement or other compensation costs,
including litigation expense and/or additional compliance costs, any of which could materially and adversely affect our
business, results of operations or financial condition.
We rely on certain external vendors.
We are reliant upon certain external vendors to provide products and services necessary to maintain our day-to-day
operations. Accordingly, our operations are exposed to risk that these vendors will not perform in accordance with
applicable contractual arrangements or service level agreements. We maintain a system of policies and procedures designed
to monitor vendor risks including, among other things, (i) changes in the vendor’s organizational structure, (ii) changes in
the vendor’s financial condition and (iii) changes in the vendor’s support for existing products and services. While we
believe these policies and procedures help to mitigate risk, the failure of an external vendor to perform in accordance with
applicable contractual arrangements or the service level agreements could be disruptive to our operations, which could have
a material adverse impact on our business and our financial condition and results of operations.
Reductions in interchange fees would reduce our non-interest income.
An interchange fee is a fee merchants pay to the interchange network in exchange for the use of the network’s
infrastructure and payment facilitation, and which is paid to debit, credit and prepaid card issuers to compensate them for
the costs associated with card issuance and operation. In the case of credit cards, this includes the risk associated with
lending money to customers. We earn interchange fees on these card transactions, including approximately $10.5 million in
fees during 2014. Merchants, trying to decrease their operating expenses, have sought to, and have had some success at,
lowering interchange rates. In particular, the Durbin Amendment to the Dodd-Frank Act limited the amount of interchange
fees that may be charged for debit and prepaid card transactions. Several recent events and actions indicate a continuing
focus on interchange fees by both regulators and merchants. Beyond pursuing litigation, legislation and regulation,
merchants are also pursuing alternate payment platforms as a means to lower payment processing costs. To the extent
interchange fees are further reduced, our non-interest income from those fees will be reduced, which could have a material
adverse effect on our business and results of operations. In addition, the payment card industry is subject to the operating
regulations and procedures set forth by payment card networks, and our failure to comply with these operating regulations,
which may change from time to time, could subject us to various penalties or fees or the termination of our license to use the
payment card networks, all of which could have a material adverse effect on our business, financial condition or results of
operations.
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Natural disasters may adversely affect us.
Our operations and customer base are located in markets where natural disasters, including tornadoes, severe
storms, fires, floods, hurricanes and earthquakes often occur. Such natural disasters could significantly impact the local
population and economies and our business, and could pose physical risks to our properties. Although our business is
geographically dispersed primarily throughout Arkansas, Texas and the southeastern United States, a significant natural
disaster in or near one or more of our markets could have a material adverse impact on our financial condition, results of
operations or liquidity.
RISKS ASSOCIATED WITH OUR INDUSTRY
We are subject to extensive government regulation that limits or restricts our activities and could adversely impact
our operations.
We operate in a highly regulated industry and are subject to examination, supervision and comprehensive
regulation by various federal and state agencies. Compliance with these regulations is costly and restricts certain activities,
including payment of dividends, mergers and acquisitions, investments, interest rates charged for loans and leases, interest
rates paid on deposits, locations of banking offices and various other activities and aspects of our operations. We are also
subject to capital guidelines established by regulators which require maintenance of adequate capital. Many of these
regulations are intended to protect depositors, the public and the FDIC’s DIF rather than shareholders. Additionally, in
order to conduct certain activities, including acquisitions, we are required to obtain regulatory approval. There can be no
assurance that any required approvals can be obtained, or obtained without conditions or on a timeframe acceptable to us.
The Sarbanes-Oxley Act of 2002 and the related rules and regulations issued by the SEC and NASDAQ, as well as
numerous other recently enacted statutes and regulations, including the Dodd-Frank Act and regulations promulgated
thereunder, have increased the scope, complexity and cost of corporate governance and reporting and disclosure practices,
including the costs of completing our external audit and maintaining our internal controls.
Government regulation greatly affects the business and financial results of all commercial banks and bank holding
companies, and increases our costs of complying with regulatory requirements. Additionally, the failure to comply with
these various rules and regulations could subject us to monetary penalties or sanctions or otherwise expose us to
reputational risk and could adversely affect our results of operations.
Newly enacted and proposed legislation and regulations may affect our operations and growth.
To address the recent turbulence in the U.S. economy and the banking and financial markets, the U.S. government
has enacted a series of laws, regulations, guidelines and programs, many of which are discussed under the section “Item 1-
Business-Supervision and Regulation” in this Annual Report on Form 10-K. The changes resulting from the Dodd-Frank
Act may impact the profitability of our business activities, require changes to certain of our business practices, impose upon
us more stringent capital, liquidity and leverage requirements or otherwise adversely affect our business. In particular, the
potential impact of the Dodd-Frank Act on our operations and activities, both currently and prospectively, may include,
among others:
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a reduction in our ability to generate or originate revenue-producing assets as a result of compliance with
heightened capital standards;
an increased cost of operations due to greater regulatory oversight, supervision and examination of banks and
bank holding companies, and higher deposit insurance premiums;
the limitation on our ability to raise qualifying regulatory capital through the use of trust preferred securities as
these securities may no longer be included in Tier 1 capital going forward; and
the limitations on our ability to offer certain consumer products and services due to anticipated stricter
consumer protection laws and regulations.
Examples of these provisions include, but are not limited to:
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creation of the Financial Stability Oversight Council that may recommend to the FRB increasingly strict rules
for capital, leverage, liquidity, risk management and other requirements as companies grow in size and
complexity;
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application of the same leverage and risk-based capital requirements that apply to insured depository
institutions to most bank holding companies;
changes to the assessment base used by the FDIC to assess insurance premiums from insured depository
institutions and increases to the minimum reserve ratio for the DIF from 1.15% to not less than 1.35% with
provisions to require institutions with total consolidated assets of $10 billion or more to bear a greater portion
of the costs associated with increasing the DIF’s reserve ratio;
repeal of the federal prohibitions on the payment of interest on demand deposits, thereby permitting depository
institutions to pay interest on business transaction and other accounts;
establishment of the CFPB with broad authority to implement new consumer protection regulations and, for
bank holding companies with $10 billion or more in assets, to examine and enforce compliance with federal
consumer laws;
implementation of risk retention rules for loans (excluding qualified residential mortgages) that are sold by a
bank; and
amendment of the Electronic Fund Transfer Act to, among other things, give the FRB the authority to issue
rules limiting debit card interchange fees.
Further, we may be required to invest significant management attention and resources to evaluate and make any
changes necessary to comply with new statutory and regulatory requirements under the Dodd-Frank Act as we continue to
grow and approach $10 billion in total assets. The Dodd-Frank Act created a new independent CFPB within the FRB. The
CFPB is tasked with establishing and implementing rules and regulations under certain federal consumer protection laws
with respect to the conduct of providers of certain consumer financial products and services. The CFPB has rulemaking
authority over many of the statutes governing products and services offered to bank consumers. For banking organizations
with assets of $10 billion or more, the CFPB has exclusive rulemaking and examination authority, and primary enforcement
authority for most federal consumer financial laws. In addition, the Dodd-Frank Act permits states to adopt consumer
protection laws and regulations that are stricter than those regulations promulgated by the CFPB. Compliance with any such
new regulations would increase our cost of operations. Failure to comply with these new requirements, among others, may
negatively impact our results of operations and financial condition.
Additionally, in the routine course of regulatory oversight, proposals to change the laws and regulations governing
the operations and taxation of, and federal insurance premiums paid by, banks and other financial institutions and companies
that control financial institutions are frequently raised in the U.S. Congress, state legislatures and before bank regulatory
authorities. The likelihood of significant changes in laws and regulations in the future and the impact that such changes
might have on our operations are impossible to determine. Similarly, proposals to change the accounting, financial reporting
requirements applicable to banks and other depository institutions are frequently raised by the SEC, the federal banking
agencies and other authorities. Further, federal intervention in financial markets and the commensurate impact on financial
institutions may adversely affect our rights under contracts with such other institutions and the way in which we conduct
business in certain markets. The likelihood and impact of any future changes in these accounting and financial reporting
requirements and the impact these changes might have on our business and operations are also impossible to determine at
this time.
We will be subject to heightened regulatory requirements if we exceed $10 billion in assets.
Based on our historic organic growth rates, we expect that our total assets could exceed $10 billion over the next
two to three years, or sooner if we engage in any acquisitions. The Dodd-Frank Act and its implementing regulations impose
various additional requirements on bank holding companies with $10 billion or more in total assets, including compliance
with portions of the FRB’s enhanced prudential oversight requirements and annual stress testing requirements. In addition,
banks with $10 billion or more in total assets are primarily examined by the CFPB with respect to various federal consumer
financial protection laws and regulations. Currently, our bank subsidiary is subject to regulations adopted by the CFPB, but
the FDIC is primarily responsible for examining our compliance with consumer protection laws and those CFPB
regulations. As a relatively new agency with evolving regulations and practices, there is uncertainty as to how the CFPB’s
examination and regulatory authority might impact our business.
Compliance with these requirements may necessitate that we hire additional compliance or other personnel, design
and implement additional internal controls, or incur other significant expenses, any of which could have a material adverse
effect on our business, financial condition or results of operations. Compliance with the annual stress testing requirements,
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part of which must be publicly disclosed, may also be misinterpreted by the market generally or our customers and, as a
result, may adversely affect our stock price or our ability to retain our customers or effectively compete for new business
opportunities. To ensure compliance with these heightened requirements when effective, our regulators may require us to
fully comply with these requirements or take actions to prepare for compliance even before our or our bank subsidiary’s
total assets equal or exceed $10 billion. As a result, we may incur compliance-related costs before we might otherwise be
required, including if we do not continue to grow at the rate we expect or at all. Our regulators may also consider our
preparation for compliance with these regulatory requirements when examining our operations generally or considering any
request for regulatory approval we may make, even requests for approvals on unrelated matters.
Consumers may decide not to use community banks to complete their financial transactions.
Technology and other changes are allowing parties to complete, through alternative methods, financial transactions
that historically have involved community banks. For example, consumers can now maintain funds that would have
historically been held as local bank deposits in brokerage accounts, mutual funds with an Internet-only bank, or with
virtually any bank in the country through online banking. Consumers can also complete transactions such as purchasing
goods and services, paying bills and/or transferring funds directly without the assistance of banks. The process of
eliminating banks as intermediaries could result in the loss of fee income, as well as the loss of customer deposits and the
related income generated from those deposits. The loss of these revenue streams and the lower-cost deposits as a source of
funds could have an adverse effect on our financial condition, results of operations and liquidity.
RISKS ASSOCIATED WITH OUR COMMON STOCK
The price of our common stock is affected by a variety of factors, many of which are outside our control.
Stock price volatility may make it more difficult for investors to sell shares of our common stock at times and
prices they find attractive. Our common stock price can fluctuate significantly in response to a variety of factors, including,
among other things:
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actual or anticipated variations in quarterly results of operations;
recommendations or changes in recommendations by securities analysts;
operating and stock price performance of other companies that investors deem comparable to us;
news reports relating to trends, concerns and other issues in the financial services industry;
perceptions in the marketplace about us and/or our competitors;
new technology used, or services offered, by competitors;
significant acquisitions or business combinations, strategic partnerships, joint ventures, or capital
commitments by or involving us or our competitors; and
changes in governmental regulations.
General market fluctuations, industry factors and general economic and political conditions and events such as
economic slowdowns, expected or incurred interest rate changes, credit loss trends and various other factors and events
could adversely impact the price of our common stock.
We cannot guarantee that we will pay dividends to common shareholders in the future.
Our shareholders are only entitled to receive such dividends as our board of directors may declare out of funds
legally available for such payments. Although we have historically declared cash dividends on our common stock, we are
not required to do so and may reduce or eliminate our common stock dividend in the future. Our ability to pay dividends to
our shareholders is subject to the restrictions set forth in Arkansas law, by our federal regulator, and by certain covenants
contained in the indentures governing the trust preferred securities issued by us or entities we have acquired or may acquire
in the future.
Our principal business operations are conducted through our bank subsidiary. Cash available to pay dividends to
our common shareholders is derived primarily, if not entirely, from dividends paid by our bank subsidiary. The ability of
our bank subsidiary to pay dividends, as well as our ability to pay dividends to our common shareholders, will continue to
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be subject to and limited by the results of operations of our bank subsidiary and by certain legal and regulatory restrictions.
Further, any lenders making loans to us may impose financial covenants that may be more restrictive than regulatory
requirements with respect to our payment of dividends to common shareholders. Accordingly, there can be no assurance that
we will continue to pay dividends to our common shareholders in the future.
Certain state and/or federal laws may deter potential acquirors and may depress our stock price.
Certain provisions of federal and state laws may have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from attempting to acquire, control of us. Under certain federal and state laws, a
person, entity, or group must give notice to applicable regulatory authorities before acquiring a significant amount, as
defined by such laws, of the outstanding voting stock of a bank holding company, including shares of our common stock.
Regulatory authorities review the potential acquisition to determine if it will result in a change of control. The applicable
regulatory authorities will then act on the notice, taking into account the resources of the potential acquiror, the potential
antitrust effects of the proposed acquisition and numerous other factors. As a result, these statutory provisions may delay,
defer or prevent a tender offer or takeover attempt that a shareholder might consider to be in such shareholder’s best
interest, including those attempts that might result in a premium over the market price for the shares held by shareholders.
The holders of our subordinated debentures have rights that are senior to those of our common shareholders and
any future debt we may offer may adversely affect the market price of our common stock.
At December 31, 2014, we had an aggregate of $64.9 million of floating rate subordinated debentures and related
trust preferred securities outstanding. In addition, we acquired an aggregate outstanding amount of $56.7 million of
subordinated debentures and related trust preferred securities in connection with our Intervest acquisition which closed on
February 10, 2015. We guarantee payment of the principal and interest on the trust preferred securities, and the
subordinated debentures are senior to shares of our common stock. As a result, we must make payments on the subordinated
debentures (and the related trust preferred securities) before any dividends can be paid on shares of our common stock and,
in the event of our bankruptcy, dissolution or liquidation, the holders of the subordinated debentures would receive a
distribution from our available assets before any distributions can be made to the holders of common stock. We have the
right to defer distributions on our subordinated debentures and the related trust preferred securities for up to five years,
during which time no dividends may be paid to holders of our common stock.
We may from time to time issue debt securities, which would be senior to our common stock upon liquidation,
and/or preferred equity securities, which may be senior to our common stock for purposes of dividend distributions or upon
liquidation, borrow money through other means, or issue preferred stock. Our board of directors is authorized to issue one
or more classes or series of preferred stock from time to time without any action on the part of our shareholders. Our board
of directors also has the power, without shareholder approval, to set the terms of any such classes or series of preferred
stock that may be issued, including voting rights, dividend rights, and preferences over our common stock with respect to
dividends or upon our dissolution, winding-up and liquidation and other terms. If we issue preferred stock in the future that
has a preference over our common stock with respect to the payment of dividends or upon our liquidation, dissolution, or
winding up, or if we issue preferred stock with voting rights that dilute the voting power of our common stock, the rights of
holders of our common stock or the market price of our common stock could be adversely affected.
Our directors and executive officers own a significant portion of our stock.
Our directors and executive officers, as a group, beneficially owned 10.3% of our common stock as of February
13, 2015. As a result of their aggregate beneficial ownership, directors and executive officers have the ability, by voting
their shares in concert, to influence the outcome of matters submitted to our shareholders for approval, including the
election of our directors.
Our common stock trading volume may not provide adequate liquidity for investors.
Although shares of our common stock are listed on the NASDAQ Global Select Market, the average daily trading
volume in the common stock is less than that of many larger financial services companies. A public trading market having
the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of a sufficient
number of willing buyers and sellers of the common stock at any given time. This presence depends on the individual
decisions of investors and general economic and market conditions over which we have no control. Given the daily average
trading volume of our common stock, significant sales of our common stock in a brief period of time, or the expectation of
these sales, could cause a decline in the price of our common stock.
33
Future issuances of additional equity securities could result in dilution of existing stockholders’ equity ownership.
We may determine from time to time to issue additional equity securities to raise additional capital, support
growth, or, as we have in recent years, to make acquisitions. Further, we may issue stock options, grant restricted stock
awards or other stock grants to retain, compensate and/or motivate our employees and directors. These issuances of our
securities could dilute the voting and economic interests of existing shareholders.
Our common stock is not an insured deposit.
Shares of our common stock are not a bank deposit and, therefore, losses in value are not insured by the FDIC, any
other deposit insurance fund or by any other public or private entity. Investment in shares of our common stock is inherently
risky for the reasons described in this “Risk Factors” section and elsewhere in this Annual Report on Form 10-K, and is
subject to the same market forces and investment risks that affect the price of common stock in any other company,
including the possible loss of some or all principal invested.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 2. PROPERTIES
We serve our customers by offering a broad range of banking services from the following locations as of December
31, 2014.
Facility (1)
Hilton Head Island, South Carolina (Wm. Hilton Pkwy) .....
Asheville, North Carolina (Ridgefield Blvd.)(2)(3).................
Arkadelphia (Main) ..............................................................
Arkadelphia (W. Pine) .........................................................
Conway (Salem) ...................................................................
Benton (Military Road) ........................................................
Hope (Main) .........................................................................
Hope (N. Hervey) .................................................................
Hot Springs (Ouachita) .........................................................
Hot Springs (Section Line) ...................................................
Hot Springs (70W/Airport Road) .........................................
Hot Springs Village (Hwy 5) ................................................
Hot Springs Village (N. Hwy 7) ...........................................
Little Rock (North Taylor-Heights) ......................................
Little Rock (N. Rodney Parham/Market Place) ....................
Magnolia (Hollensworth) .....................................................
Magnolia (N. Jackson) .........................................................
Malvern (E. Page Avenue) ...................................................
Malvern (MLK Blvd.) ..........................................................
Cornelius, North Carolina (West Catawba) ..........................
Bradenton, Florida (Manatee Ave. West).............................
Houston, Texas (Old Spanish Trail) .....................................
Houston, Texas (Sam Houston) ............................................
Houston, Texas (Richmond) .................................................
Cedar Park, Texas (S. Lakeline Blvd.) .................................
Lockhart, Texas (W. Market) ...............................................
San Antonio, Texas (E. Sonterra Blvd.) ...............................
Austin, Texas (Spicewood Springs) .....................................
Los Angeles, California (Ave of the Stars)(2)(4).....................
Houston, Texas (Post Oak)(2)(5).............................................
Shelby, North Carolina (Main) .............................................
Shelby, North Carolina (East) ..............................................
34
Year Opened or
Acquired
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2013
2013
Square Footage
6,774
1,616
17,300
12,200
4,200
6,000
5,800
1,550
12,000
9,000
3,000
2,500
1,500
1,500
2,500
1,500
6,000
7,000
2,400
3,700
11,050
20,000
14,138
5,000
4,880
8,782
5,000
10,000
2,094
224
66,208
5,016
Facility (1)
Shelby, North Carolina (Highland) ......................................
Shelby, North Carolina (North) ............................................
Shelby, North Carolina (South) ............................................
Boiling Springs, North Carolina (N. Main) ..........................
Kings Mountain, North Carolina (W. Mountain) .................
Lawndale, North Carolina (Piedmont) .................................
Bessemer City, North Carolina (Gastonia Hwy.) .................
Belmont, North Carolina (Cramerton)..................................
Gastonia, North Carolina (S. New Hope Rd.) ......................
Lincolnton, North Carolina (E. Main) ..................................
Forest City, North Carolina (Plaza Dr.)................................
New York, New York (Park Avenue)(2)(6) ............................
Charlotte, North Carolina (Park Road) .................................
Geneva, Alabama (South Commerce St.) .............................
Mobile, Alabama (Airport Blvd) ..........................................
Atlanta, Georgia (17th Street NW)(2)(7) ..................................
Southlake, Texas (West Southlake Blvd.) ............................
The Colony, Texas (State Highway 121) .............................
Austin, Texas (Congress Avenue)(2)(8) ..................................
Ocala, Florida (SW Highway 200) .......................................
Athens, Georgia (Parkway Place) .........................................
Oakwood, Georgia (Continental Drive) ...............................
McDonough, Georgia (S. Zack Hinton Parkway) ................
Bainbridge, Georgia (S. Broad Street) .................................
Bainbridge, Georgia (E. Shotwell) .......................................
Cairo, Georgia (N. Broad Street) .........................................
Lake Park, Georgia (Lakes Boulevard) ................................
Valdosta, Georgia (Baytree Road) .......................................
Valdosta, Georgia (West Hill Avenue) ................................
Valdosta, Georgia (N. Oak Street Ext) .................................
Douglasville, Georgia (Chapel Hill Road)(9) ........................
Sharpsburg, Georgia (Highway 54) ......................................
Senoia, Georgia (Highway 16 East) .....................................
Newnan, Georgia (E. Broad Street)(10) .................................
Dallas, Georgia (First National Drive) .................................
Keller, Texas (Keller Parkway) ............................................
Carrollton, Texas (E. Hebron Parkway) ...............................
Plano, Texas (West Park Blvd.) ...........................................
St. Simons Island, Georgia (Frederica Road) .......................
Brunswick, Georgia (Cypress Mill) ......................................
Cumming, Georgia (Freedom Parkway) ...............................
Marble Hill, Georgia (Holcomb Way) .................................
Dawsonville, Georgia (500 Highway 53 East) .....................
Dawsonville, Georgia (6639 Highway 53 East) ...................
Bradenton, Florida (53rd Avenue) ........................................
Palmetto, Florida (8th Avenue)(11) ........................................
Bradenton, Florida (59th Street)(12) ......................................
Benton (Alcoa Road) ............................................................
Bluffton, South Carolina (Clark Summit Dr.) ......................
Savannah, Georgia (Abercorn) .............................................
Mobile, Alabama (N. Royal St.) ...........................................
Wilmington, North Carolina (Military Cutoff) .....................
Cartersville, Georgia (Joe Frank Harris Pkwy.) ...................
Adairsville, Georgia (Adairsville Hwy.) ..............................
Rome, Georgia (Three Rivers) .............................................
Cartersville, Georgia (Henderson) .......................................
35
Year Opened or
Acquired
2013
2013
2013
2013
2013
2013
2013
2013
2013
2013
2013
2013
2013
2012
2012
2012
2012
2012
2012
2011
2011
2011
2011
2011
2011
2011
2011
2011
2011
2011
2011
2011
2011
2011
2011
2011
2011
2011
2011
2011
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
Square Footage
2,200
800
4,210
3,355
6,000
2,530
2,907
2,907
6,336
4,616
5,904
2,367
11,050
15,400
4,650
210
9,620
3,760
928
8,720
3,716
4,467
4,543
8,635
2,782
5,220
2,928
4,917
3,030
17,273
2,388
2,016
6,841
4,000
13,106
4,012
4,494
3,760
2,463
4,005
5,000
2,400
2,400
11,200
4,084
3,731
3,812
5,400
9,500
3,216
2,740
15,280
12,362
4,007
4,180
4,180
Facility (1)
Calhoun, Georgia (Bryant Pkwy.) ........................................
Allen, Texas (Bethany & Waters) ........................................
Little Rock (Capitol Avenue) ...............................................
Little Rock (Rahling Road) ..................................................
Lewisville, Texas (Round Grove Rd.) ..................................
Rogers (New Hope Road) ....................................................
Frisco, Texas (Preston & Lebanon) ......................................
Fayetteville (Wedington Drive) ............................................
Hot Springs (Malvern Avenue) ............................................
Ozark (Porter Hillard Banking Center) ................................
Rogers (Pleasant Grove).......................................................
Frisco, Texas (Lebanon & Tollway) ....................................
Bella Vista (Sugar Creek Center) .........................................
Bella Vista (Highlands Lancashire) ......................................
Fayetteville (Crossover)(13) ...................................................
Hot Springs (Albert Pike) .....................................................
Springdale (Jones Road) ......................................................
Texarkana (Arkansas Blvd.) .................................................
Texarkana, Texas (Richmond Road) ....................................
Bentonville (Walton & Dodson) ..........................................
Hot Springs (Central) ...........................................................
Rogers (47th & Olive) ...........................................................
Texarkana, Texas (Summerhill) ...........................................
Bentonville (Highway 102) ..................................................
Russellville (W. Main) .........................................................
Benton (Highway 35) ...........................................................
Mountain Home (Hwy. 62 East)...........................................
North Little Rock (Camp Robinson Road) ...........................
Mountain Home (Hwy. 5 North) ..........................................
Sherwood (Hwy. 107)(14) .....................................................
Little Rock (Rodney Parham & West Markham)(15) ............
Dallas, Texas (Preston Sherry Plaza)(16) ...............................
North Little Rock (E. McCain) ............................................
Conway (E. Oak Street) .......................................................
Russellville (E. Parkway) ....................................................
Van Buren (Main Street) .....................................................
Cabot (S. 2nd Street) ............................................................
Conway (Harkrider) .............................................................
Benton (Military Road) ........................................................
Fort Smith (Phoenix) ...........................................................
Russellville (West Main) .....................................................
Little Rock (Taylor Loop & Cantrell) .................................
Bryant (Highway 5) .............................................................
Cabot (W. Main) .................................................................
Conway (Old Morrilton Hwy.) .............................................
Maumelle (Audubon Dr.) .....................................................
Lonoke (E. Front) .................................................................
Little Rock (Otter Creek) ....................................................
Fort Smith (Zero) ................................................................
Yellville (W. Old Main) .......................................................
Clinton (Hwy. 65 South) ......................................................
North Little Rock (North Hills)(17) .......................................
Harrison (N. Walnut) ...........................................................
Fort Smith (Rogers) ..............................................................
Little Rock (Cantrell) ...........................................................
Little Rock (Chenal/Markham)(18) ........................................
36
Year Opened or
Acquired
2010
2009
2009
2008
2008
2007
2007
2007
2007
2006
2006
2006
2006
2006
2006
2006
2006
2006
2006
2006
2006
2006
2005
2005
2005
2005
2005
2005
2005
2004
2004
2004
2004
2004
2004
2004
2004
2004
2003
2003
2003
2003
2003
2003
2002
2002
2001
2001
2001
2000
1999
1999
1999
1998
1998
1998
Square Footage
4,180
6,176
6,721
89,048
4,352
9,312
12,023
2,784
3,575
9,600
2,784
3,575
3,575
3,575
5,176
2,784
2,784
4,352
3,016
9,312
5,176
2,784
9,312
2,784
2,784
2,400
2,784
2,400
5,176
2,400
4,576
9,651
2,784
2,400
2,800
2,260
2,800
2,400
2,784
2,250
7,644
2,400
2,784
4,400
4,350
3,576
5,731
2,400
2,784
2,716
2,784
4,350
14,000
22,500
2,700
5,264
Facility (1)
Little Rock (Rodney Parham) ...............................................
Little Rock (Chester) ...........................................................
Bellefonte (Hwy. 65 South) ..................................................
Alma (Hwy. 71 North) .........................................................
Paris (E. Walnut) ..................................................................
Mulberry (Mulberry Hwy. 64 W.) ........................................
Harrison (Hwy. 62 & 65 North) ...........................................
Clarksville (Rogers) .............................................................
Van Buren (Pointer Trail) ....................................................
Marshall (Hwy. 65 North)(19) ................................................
Clarksville (W. Main) ..........................................................
Ozark (Westside) ..................................................................
Western Grove (Hwy. 123 & 65) .........................................
Altus (Franklin St.) ...............................................................
Ozark Operation Center (600 W. Commercial)(20) ...............
Jasper (E. Church St.) ...........................................................
_________________
Year Opened or
Acquired
1998
1998
1997
1997
1997
1997
1996
1995
1995
1995
1994
1993
1976
1972
1985
1967
Square Footage
2,500
1,716
1,444
4,200
3,100
1,875
3,300
3,300
2,520
4,120
2,520
2,520
2,610
1,500
44,794
4,408
(1) Unless otherwise indicated, (i) the Company owns such locations and (ii) the locations are in Arkansas.
(2) This facility is a loan production office and does not include retail banking offices.
(3) We lease this facility under a lease that expires February 29, 2016 with two renewal options of six (6) months each.
(4) We lease this facility under a lease that expires March 31, 2020.
(5) We lease this facility under a lease that expires December 31, 2015.
(6) We lease this facility under a lease that expires November 30, 2018.
(7) We lease this facility under a lease that expires March 31, 2015.
(8) We lease this facility under a lease that expires October 31, 2016.
(9) We lease this facility with an initial term of three years expiring April 30, 2014 with two renewal options of one year each.
(10) We lease this facility under a lease that expires April 30, 2016 with five renewal options of four years each.
(11) We lease this facility under a lease that expires May 18, 2015 with two renewal options of five years each.
(12) We lease this facility under a lease that expires February 9, 2016 with one renewal option of five years.
(13) We own the building and lease the land at this location. The lease term expires May 13, 2024 with six renewal options of five years each.
(14) We own the building and lease the land at this location. The lease expires January 10, 2024 with four renewal options of five years each.
(15) We own the building and lease the land at this location. The lease expires October 31, 2023 with six renewal options of five years each.
(16) We lease this facility under a lease that expires September 30, 2017.
(17) We own the building and lease the land at this location. The lease expires May 31, 2019, with four renewal options of five years each.
(18) This building, which we own and previously served as our corporate headquarters, has 40,000 square feet of which 5,264 are currently
used for retail banking operations. We lease the remaining portion of this facility to a single tenant under a lease that expires November
30, 2019 with two renewal options of five years each.
(19) We own the building and lease the land at this location. The lease expires February 28, 2024 with three renewal options of ten years each.
(20) In addition to this operations center, we own three ancillary facilities located in Ozark, Arkansas. These facilities include a 4,200
square foot storage facility which was acquired in 2005, a 5,000 square foot warehouse building which was constructed in 1992,
and a 5,625 square foot storage facility that was constructed in 2012. None of these facilities has a retail banking office.
While management believes its existing banking locations are adequate for its present operations, we expect to
continue our growth strategy through de novo branching and traditional bank acquisitions. During 2015, we expect to open
our second retail banking office in Springdale, Arkansas, our first retail banking office in Siloam Springs, Arkansas and our
third retail banking office in Fayetteville, Arkansas.
Item 3. LEGAL PROCEEDINGS
On January 5, 2012, the Company and the Bank were served with a summons and complaint filed on December 19,
2011, in the Circuit Court of Lonoke County, Arkansas, Division III, styled Robert Walker, Ann B. Hines and Judith Belk
vs. Bank of the Ozarks, Inc. and Bank of the Ozarks, Case No. CV-2011-777. In addition, on December 21, 2012, the Bank
was served with a summons and complaint filed on December 20, 2012, in the Circuit Court of Pulaski County, Arkansas,
Ninth Division, styled Audrey Muzingo v. Bank of the Ozarks, Case No. 60 CV 12-6043. The complaint in each case alleges
that the Company and/or Bank have harmed the plaintiffs, current or former customers of the Bank, by improper, unfair and
unconscionable assessment and collection of excessive overdraft fees from the plaintiffs. According to the complaints,
plaintiffs claim that the Bank employs sophisticated software to automate its overdraft system, and that this system unfairly
and inequitably manipulates and alters customers’ transaction records in order to maximize overdraft penalties, particularly
37
utilizing a practice of posting of items in “high-to-low” order, despite the actual sequence in which such items are presented
for payment. Plaintiffs claim that the Bank’s deposit agreements with customers do not adequately disclose the Bank’s
overdraft assessment policies and are ambiguous, deceptive, unfair and misleading. The complaint in each case alleges that
these actions and omissions constitute breach of contract, breach of the implied covenant of good faith and fair dealing,
unconscionable conduct, conversion, unjust enrichment and violation of the Arkansas Deceptive Trade Practices Act. The
complaint in the Walker case also includes a count for conversion. Each of the complaints seeks to have the cases certified
by the court as a class action for all Bank account holders similarly situated, and seeks a declaratory judgment as to the
wrongful nature of the Bank’s overdraft fee policies, restitution of overdraft fees paid by the plaintiffs and the putative class
(defined as all Bank customers residing in Arkansas) as a result of the actions cited in the complaints, disgorgement of
profits as a result of the alleged wrongful actions, and unspecified compensatory and statutory or punitive damages, together
with pre-judgment interest, costs and plaintiffs’ attorneys’ fees.
The Company and Bank filed a motion to dismiss and to compel arbitration in the Walker case. The trial court
denied the motion and found that the arbitration provision contained in the controlling Consumer Deposit Account
Agreement was unconscionable and thus unenforceable on the grounds that the provision was the result of unequal
bargaining power. The Company and Bank appealed the trial court’s ruling to the Arkansas Court of Appeals on an
interlocutory basis. On September 18, 2013, a three-judge panel of the Arkansas Court of Appeals reversed the trial court’s
ruling and remanded the case to the trial court for the purpose of entering an order compelling arbitration. On October 7,
2013, the plaintiffs filed petitions for reconsideration and review before the Arkansas Court of Appeals and Arkansas
Supreme Court, respectively. On October 30, 2013, the Arkansas Court of Appeals denied the plaintiffs’ petition for
reconsideration. In January 2014, the Arkansas Supreme Court granted the plaintiff’s petition for review. Oral arguments
were presented to the Arkansas Supreme Court on May 1, 2014. On May 15, 2014, the Arkansas Supreme Court vacated the
Arkansas Court of Appeals’ decision, reversing and remanding the case to the trial court to determine, in the first instance,
whether there is a valid agreement to arbitrate disputes between the named plaintiffs and the Bank.
An evidentiary hearing was conducted by the trial court on the arbitration issue on October 1, 2014, and the trial
court took the matter under advisement. On October 30, 2014, the trial court issued an order once again denying the
Company and Bank’s motion to dismiss and to compel arbitration. The trial court ruled that the Consumer Deposit Account
Agreement containing the arbitration provision was not enforceable because of a lack of mutual agreement and lack of
mutual obligation. The Company and Bank have appealed the trial court’s ruling to the Arkansas Supreme Court on an
interlocutory basis.
The Plaintiff in the Muzingo case has agreed to stay the proceedings in that case pending the outcome of the
hearing in the Walker case. The Company and the Bank believe the Plaintiffs’ claims in each of these cases are unfounded
and subject to meritorious defenses and intend to vigorously defend against these claims.
On August 7, 2014, a putative class action complaint, styled Greentech Research LLC v. Callen, et al., was filed in
the Supreme Court of the State of New York for New York County, by an entity purporting to be a stockholder of Intervest
Bancshares Corporation (“Intervest”). On August 19, 2014, a putative class action complaint, styled Sonnenberg v. Intervest
Bancshares Corp., et al., was filed in the Supreme Court of the State of New York for New York County, by an individual
purporting to be a stockholder of Intervest. Each of the complaints alleges that the directors of Intervest breached their
fiduciary duties to Intervest’s stockholders in connection with the merger of Intervest by approving a transaction pursuant to
an allegedly inadequate process that undervalues Intervest and includes preclusive deal protection provisions; and that
Intervest and the Company allegedly aided and abetted the Intervest directors in breaching their duties to Intervest’s
stockholders. The complaints seek court certification of the respective plaintiffs as class representatives and that such
proceedings may proceed as stockholder class actions, and various remedies, including enjoining the merger from being
consummated in accordance with its agreed-upon terms, rescission or an award of rescissory damages in the event that the
merger is consummated, an accounting by the defendants to the plaintiff class for all damages caused by the defendants,
recovery of plaintiffs’ costs and attorneys’ and experts’ fees relating to the lawsuit, and such further relief as the court deems
just and proper. On October 14, 2014, the plaintiff in the Greentech action filed an amended complaint alleging, among
other things, inadequacy of the disclosures contained in a preliminary version of the proxy statement/prospectus included in
the registration statement on Form S-4 filed on September 29, 2014.
Pursuant to a stipulation among the parties in both actions and an order of the court, the Sonnenberg action was
voluntarily dismissed without prejudice on November 17, 2014 and a second amended complaint in the Greentech action
was filed on November 18, 2014, including the Sonnenberg plaintiff as an additional putative class representative. After
certain preliminary discovery conducted in the Greentech action, the parties, after negotiation between their respective
counsel, reached an agreement in principle to settle all claims of the plaintiffs and the proposed class in the Greentech
38
action. The agreement in principle was memorialized in a memorandum of understanding signed by counsel for plaintiffs,
plaintiff class and all defendants on November 18, 2014, which agreement is expected to be confirmed in a Settlement
Agreement. The settlement is conditioned upon, among other things, approval of the settlement by the court and closing of
the merger after its approval by the Intervest stockholders which was obtained on January 27, 2015. While the defendants
deny the allegations in the complaint and believe them to be without merit, they have agreed to the terms of the settlement to
avoid the costs and disruptions of any further litigation and to permit timely closing of the merger.
Pursuant to the terms of the settlement: (i) Intervest and the Company, without in any way admitting liability or
conceding the allegations of the complaints, agreed to make certain changes to the disclosure in the Form S-4, as reflected in
the final proxy statement/prospectus dated December 8, 2014, and agreed to bear certain expenses in connection with notice
to the class in relation to the proposed settlement; and (ii) plaintiffs agreed to move the court for certification of the
proposed class and approval of the parties’ settlement and have agreed that, upon such approval, plaintiffs and plaintiff class
would release all defendants from all claims asserted in the Greentech action. In connection with these motions, plaintiffs’
class counsel will also petition the court to award them attorneys’ fees and expenses, which fees and expenses as ordered by
the court will be paid by the Company, as Intervest’s successor. The parties have also agreed, pending final approval of the
settlement, to stay and not pursue any further proceedings in the Greentech action, other than proceedings related to seeking
approval of the settlement. There can be no assurance that the settlement between the parties will be approved by the court.
Absent court approval of the settlement, the defendants intend to defend themselves vigorously against the plaintiffs’ claims.
The Company is party to various other legal proceedings, as both plaintiff and defendant, arising in the ordinary
course of business, including claims of lender liability, broken promises and other similar lending-related claims. While the
ultimate resolution of these various claims and proceedings cannot be determined at this time, management of the Company
believes that such claims and proceedings, individually or in the aggregate, will not have a material adverse effect on the
future results of operations, financial condition or liquidity of the Company.
Item 4. MINE SAFETY DISCLOSURES
Not Applicable.
39
PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
The Company’s common stock is listed on the NASDAQ Global Select Market under the symbol “OZRK” and as
of February 13, 2015, the Company had 703 holders of record. The following table sets forth for each quarter of 2014 and
2013, the high and low sales price of our common stock and the cash dividends declared per share.
First quarter
Second quarter
Third quarter
Fourth quarter
High(1)
$35.24
34.84
35.00
37.00
2014
Low(1)
$27.76
27.51
30.52
29.14
Year Ended December 31,
2013
High(1)
$22.36
22.85
24.47
29.04
Low(1)
$16.30
19.72
21.62
22.70
Cash
Dividend(1)
$0.110
0.115
0.120
0.125
$0.470
Cash
Dividend(1)
$0.075
0.085
0.095
0.105
$0.360
(1)Adjusted to give effect to a 2-for-1 stock split effective June 23, 2014.
Our principal business operations are conducted through our bank subsidiary. Cash available to pay dividends to
our common shareholders is derived primarily, if not entirely, from dividends paid by our bank subsidiary. The ability of
our bank subsidiary to pay dividends, as well as our ability to pay dividends to our common shareholders, will continue to
be subject to and limited by the results of operations of our bank subsidiary and by certain legal and regulatory restrictions.
Further, any lenders making loans to us may impose financial covenants that may be more restrictive than regulatory
requirements with respect to the payment of dividends to common shareholders. Accordingly, there can be no assurance that
we will continue to pay dividends to our common shareholders in the future. See Note 18 to the Consolidated Financial
Statements included elsewhere in this Annual Report on Form 10-K for a discussion of dividend restrictions.
40
The graph below shows a comparison for the period commencing December 31, 2009 through December 31, 2014
of the cumulative total stockholder returns (assuming reinvestment of dividends) for our common stock, the S&P Smallcap
Index and the NASDAQ Financial Index, assuming a $100 investment on December 31, 2009.
12/31/2009
12/31/2010
12/31/2011
12/31/2012
12/31/2013
12/31/2014
OZRK (Bank of the Ozarks, Inc.)
SML (S&P Smallcap Index)
NDF (NASDAQ Financial Index)
$100
$100
$100
$150
$126
$114
$208
$127
$102
$238
$148
$120
$408
$209
$170
$554
$221
$178
There were no sales of unregistered securities during the period covered by this report that have not been
previously disclosed in our quarterly reports on Form 10-Q or our current reports on Form 8-K.
During the fourth quarter of 2014, we repurchased shares of our common stock as indicated in the following table.
October 1, 2014 to October 31, 2014
November 1, 2014 to November 30, 2014
December 1, 2014 to December 31, 2014
Total
Total Number
of Shares
Repurchased
72,268(1)
-
-
72,268
Average
Price Per
Share
$32.50
-
-
$32.50
Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Plans or
Programs
-
-
-
-
Maximum
Number (or
Approximate
Dollar Value) of
Shares (or Units)
That May Yet Be
Purchased Under
the Plans or
Programs
-
-
-
-
(1) 166,200 shares of our common stock issued to certain of our senior officers under our Amended and Restated Restricted Stock
and Incentive Plan vested on October 20, 2014 and were no longer subject to the vesting restriction or substantial risk of
forfeiture. We withheld 72,268 of such shares to satisfy federal and state tax withholding requirements related to the vesting of
these shares.
41
Item 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data is derived from our audited financial statements as of and for the
five years ended December 31, 2014 and should be read in conjunction with Management’s Discussion and Analysis of Financial
Conditions and Results of Operations and the Consolidated Financial Statements and footnotes included elsewhere in this Annual
Report on Form 10-K.
Income statement data:
Interest income ...........................................................
Interest expense ..........................................................
Net interest income ....................................................
Provision for loan and lease losses .............................
Non-interest income ...................................................
Non-interest expense ..................................................
Net income available to common stockholders ..........
Common share and per common share data(1):
Earnings – diluted ......................................................
Book value .................................................................
Tangible book value ...................................................
Dividends ...................................................................
Weighted-average diluted shares outstanding
(thousands)..........................................................
End of period shares outstanding (thousands)............
Balance sheet data at period end:
Total assets .................................................................
Non-purchased loans and leases .................................
Purchased loans(2) ......................................................
Allowance for loan and lease losses ...........................
FDIC loss share receivable .........................................
Foreclosed assets(2) .....................................................
Investment securities ..................................................
Deposits .....................................................................
Repurchase agreements with customers .....................
Other borrowings .......................................................
Subordinated debentures ............................................
Total common stockholders’ equity ...........................
Loan and lease, including purchased loans, to
2014
$ 291,449
20,955
270,494
16,915
84,883
166,015
118,606
$ 1.52
11.37
10.04
0.47
78,060
79,924
$6,766,499
3,979,870
1,147,947
52,918
-
37,775
839,321
5,496,382
65,578
190,855
64,950
908,390
2013
Year Ended December 31,
2011
2012
(Dollars in thousands, except per share amounts)
$ 212,153
18,634
193,519
12,075
76,039
126,069
91,237
$ 1.26
8.53
8.27
0.36
72,704
73,712
$4,791,170
2,632,565
724,514
42,945
71,854
49,811
669,384
3,717,027
53,103
280,895
64,950
629,060
$ 195,946
21,600
174,346
11,745
62,860
114,462
77,044
$ 1.11
7.18
7.03
0.25
69,776
70,544
$4,040,207
2,115,834
637,773
38,738
152,198
66,875
494,266
3,101,055
29,550
280,763
64,950
507,664
$ 199,169
30,435
168,734
11,775
117,083
122,531
101,321
$ 1.47
6.16
5.98
0.19
68,964
68,928
$3,841,651
1,880,483
811,721
39,169
279,045
104,669
438,910
2,943,919
32,810
301,847
64,950
424,551
2010
$ 157,972
34,337
123,635
16,000
70,322
87,419
64,001
$ 0.94
4.70
4.58
0.15
68,180
68,214
$3,273,271
1,851,113
494,784
40,230
158,137
73,361
398,698
2,540,753
43,324
282,139
64,950
320,355
deposit ratio .........................................................
93.29%
90.32%
88.80%
91.45%
92.33%
Average balance sheet data:
Total average assets....................................................
Total average common stockholders’ equity ..............
Average common equity to average assets .................
Performance ratios:
Return on average assets ............................................
Return on average common stockholders’ equity ......
Return on average tangible common stockholders’
equity ................................................................
Net interest margin – FTE ..........................................
Efficiency ratio ..........................................................
Common stock dividend payout ratio ........................
Asset quality ratios:
Net charge-offs to average loans and leases(3) ............
Nonperforming loans and leases to total loans and
leases(4) ................................................................
Nonperforming assets to total assets(4)(5) ....................
Allowance for loan and lease losses as a
percentage of:
Total loans and leases(4) .............................................
Nonperforming loans and leases(4) .............................
Capital ratios at period end:
Tier 1 leverage ...........................................................
Tier 1 risk-based capital .............................................
Total risk-based capital ..............................................
$5,913,807
786,430
$4,270,052
560,351
$3,779,831
458,595
$3,755,291
374,664
$2,998,850
296,035
13.30%
2.01%
15.08
16.64
5.52
45.35
30.46
0.12%
0.53
0.87
1.33%
251%
12.92%
11.74
12.47
13.12%
2.14%
16.28
16.73
5.63
45.32
29.55
0.14%
0.33
1.22
1.63%
492%
14.19%
16.15
17.18
12.13%
2.04%
16.80
17.25
5.91
46.58
22.44
0.30%
0.43
1.88
1.83%
425%
14.40%
18.11
19.36
9.98%
2.70%
27.04
27.79
5.84
41.56
12.50
0.69%
0.70
3.07
2.08%
297%
12.06%
17.67
18.93
9.87%
2.13%
21.62
22.12
5.18
42.86
15.89
0.81%
0.75
2.67
2.17%
289%
11.88%
16.13
17.39
(1) Adjusted to give effect for a 2-for-1 stock split effective June 23, 2014.
(2) Prior periods have been adjusted to include loans and/or foreclosed assets previously covered by FDIC loss share.
(3) Excludes purchased loans and net charge-offs related to such loans.
(4) Excludes purchased loans, except for their inclusion in total assets.
(5) Ratios for prior years have been recalculated to include foreclosed assets previously covered by FDIC loss share as nonperforming assets.
42
The following tables are summaries of quarterly results of operations for the periods indicated and should be read
in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the
Consolidated Financial Statements and related footnotes included elsewhere in this Annual Report on Form 10-K.
2014 – Three Months Ended
Mar. 31
June 30
Sept. 30
Dec. 31
(Dollars in thousands)
Interest income ..............................................
Interest expense .............................................
Net interest income .................................
Provision for loan and lease losses ................
Non-interest income ......................................
Non-interest expense .....................................
Income taxes ..................................................
Noncontrolling interest ..................................
Net income available to common
$57,057
(4,661)
52,396
(1,304)
20,360
(37,454)
(8,730)
8
$69,760
(4,959)
64,801
(5,582)
17,388
(37,878)
(12,251)
8
$80,083
(5,462)
74,621
(3,687)
19,248
(42,523)
(15,579)
13
$84,549
(5,874)
78,675
(6,341)
27,887
(48,158)
(17,300)
(11)
stockholders ......................................
$25,276
$26,486
$32,093
$34,752
2013 – Three Months Ended
Mar. 31
June 30
Sept. 30
Dec. 31
(Dollars in thousands)
Interest income ..............................................
Interest expense .............................................
Net interest income .................................
Provision for loan and lease losses ................
Non-interest income ......................................
Non-interest expense .....................................
Income taxes ..................................................
Noncontrolling interest ..................................
Net income available to common
$48,769
(4,630)
44,139
(2,728)
16,357
(29,231)
(8,526)
(11)
$47,957
(4,492)
43,465
(2,666)
18,987
(29,901)
(9,506)
8
$55,342
(4,709)
50,633
(3,818)
22,102
(32,208)
(10,224)
(33)
$60,085
(4,803)
55,282
(2,863)
18,593
(34,729)
(11,893)
8
stockholders ......................................
$20,000
$20,387
$26,452
$24,398
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
The following is a discussion of our financial condition at December 31, 2014 and 2013 and our results of
operations for each of the years in the three-year period ended December 31, 2014. The purpose of this discussion is to
focus on information about our financial condition and results of operations which is not otherwise apparent from the
Consolidated Financial Statements. This section should be read in conjunction with the disclosure regarding “Forward-
Looking Statements” in Part I as well as the risks discussed under “Item 1A. Risk Factors,” and our Consolidated Financial
Statements and notes thereto included under “Item 8. Financial Statements and Supplementary Data.”
Bank of the Ozarks, Inc. (“Company”) is a bank holding company whose primary business is commercial banking
conducted through our wholly-owned state chartered bank subsidiary – Bank of the Ozarks (the “Bank”). Our results of
operations depend primarily on net interest income, which is the difference between the interest income from earning assets,
such as non-purchased loans and leases, purchased loans and investments, and the interest expense incurred on interest
bearing liabilities, such as deposits, borrowings and subordinated debentures. We also generate non-interest income,
including service charges on deposit accounts, mortgage lending income, trust income, bank owned life insurance (“BOLI”)
income, other income from purchased loans, gains and losses on investment securities and from sales of other assets, and
gains on merger and acquisition transactions.
43
Our non-interest expense consists primarily of employee compensation and benefits, net occupancy and equipment
expense and other operating expenses. Our results of operations are significantly affected by our provision for loan and
lease losses and our provision for income taxes.
For the full year of 2014, our net income was $118.6 million, a 30.0% increase from $91.2 million for the full year
of 2013. Diluted earnings per common share for 2014 were $1.52, a 20.6% increase from $1.26 for 2013. Our non-
purchased loans and leases were $3.98 billion at December 31, 2014, a 51.2% increase from $2.63 billion at December 31,
2013. Including purchased loans, total loans and leases were $5.13 billion at December 31, 2014, a 52.7% increase from
$3.36 billion at December 31, 2013.
During 2014 and 2013, we completed three acquisitions including our July 2013 acquisition of The First National
Bank of Shelby, our March 2014 acquisition of Bancshares, Inc. and our May 2014 acquisition of Summit Bancorp, Inc. In
addition, on February 10, 2015, we closed our acquisition of Intervest Bancshares Corporation.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United
States, or GAAP, requires management to make estimates, assumptions and judgments that affect the amounts reported in
the Consolidated Financial Statements. Our determination of (i) the provisions to and the adequacy of the allowance for loan
and lease losses (“ALLL”), (ii) the fair value of our investment securities portfolio, (iii) the fair value of foreclosed assets
and (iv) the fair value of the assets acquired and liabilities assumed pursuant to business combination transactions all
involve a higher degree of judgment and complexity than our other significant accounting policies. Accordingly, we
consider the determination of (i) provisions to and the adequacy of the ALLL, (ii) the fair value of our investment securities
portfolio, (iii) the fair value of foreclosed assets and (iv) the fair value of the assets acquired and liabilities assumed
pursuant to business combination transactions to be critical accounting policies.
Provisions to and adequacy of the ALLL. The ALLL is established through a provision for such losses charged
against income. All or portions of loans or leases deemed to be uncollectible are charged against the ALLL when
management believes that collectability of all or some portion of outstanding principal is unlikely. Subsequent recoveries, if
any, of loans or leases previously charged off are credited to the ALLL.
The ALLL is maintained at a level we believe will be adequate to absorb probable incurred losses in the loan and
lease portfolio. Provisions to and the adequacy of the ALLL are based on evaluations of the loan and lease portfolio
utilizing objective and subjective criteria. The objective criteria primarily include an internal grading system and specific
allowances. In addition to these objective criteria, we subjectively assess the adequacy of the ALLL and the need for
additions thereto, with consideration given to the nature and mix of the portfolio, including concentrations of credit; general
economic and business conditions, including national, regional and local business and economic conditions that may affect
borrowers’ or lessees’ ability to pay; expectations regarding the current business cycle; trends that could affect collateral
values and other relevant factors. We also utilize a peer group analysis and a historical analysis to validate the overall
adequacy of our ALLL. Changes in any of these criteria or the availability of new information could require adjustment of
the ALLL in future periods. While a specific allowance has been calculated for impaired loans and leases and for loans and
leases where we have otherwise determined a specific reserve is appropriate, no portion of our ALLL is restricted to any
individual loan or lease or group of loans or leases, and the entire ALLL is available to absorb losses from any and all loans
and leases.
Our internal grading system assigns grades to all non-purchased loans and leases, except residential 1-4 family
loans, consumer loans and certain other loans, with each grade being assigned an allowance allocation percentage. The
grade for each graded individual loan or lease is determined by the account officer and other approving officers at the time
the loan or lease is made and changed from time to time to reflect an ongoing assessment of loan or lease risk. Grades are
reviewed on specific loans and leases from time to time by senior management and as part of our internal loan review
process. These risk elements considered in our determination of the appropriate grade for individual loans and leases
include the following, among others: (1) for non-farm/non-residential, multifamily residential, and agricultural real estate
loans, the debt service coverage ratio (income from the property in excess of operating expenses compared to loan
repayment requirements), operating results of the owner in the case of owner-occupied properties, the loan-to-value ratio,
the age, condition, value, nature and marketability of the collateral and the specific risks and volatility of income, property
value and operating results typical of properties of that type; (2) for construction and land development loans, the perceived
feasibility of the project including the ability to sell developed lots or improvements constructed for resale or ability to lease
property constructed for lease, the quality and nature of contracts for presale or preleasing, if any, experience and ability of
44
the developer and loan-to-cost and loan-to-value ratios; (3) for commercial and industrial loans and leases, the operating
results of the commercial, industrial or professional enterprise, the borrower’s or lessee’s business, professional and
financial ability and expertise, the specific risks and volatility of income and operating results typical for businesses in the
applicable industry, the age, condition, value, nature and marketability of collateral and, for certain loans, the marketability
of such loans in any secondary market; and (4) for non-real estate agricultural loans and leases, the operating results,
experience and ability of the borrower or lessee, historical and expected market conditions and the age, condition, value,
nature and marketability of collateral. In addition, for each category we consider secondary sources of income and the
financial strength of the borrower or lessee and any guarantors.
Residential 1-4 family, consumer loans and certain other loans are assigned an allowance allocation percentage
based on past due status.
Allowance allocation percentages for the various risk grades and past due categories for residential 1-4 family,
consumer loans and certain other loans are determined by management and are adjusted periodically. In determining these
allowance allocation percentages, we consider, among other factors, historical loss percentages over various time periods
and a variety of subjective criteria.
Assets acquired and liabilities assumed in business combinations are recorded at estimated fair value on their
purchase date. As provided for under GAAP, management has up to 12 months following the date of the acquisition to
finalize the fair values of acquired assets and assumed liabilities. Once we have finalized the fair values of acquired assets
and assumed liabilities within this 12-month period, we consider such values to be the day 1 fair values (“Day 1 Fair
Values”).
For purchased loans, we segregate this portfolio into loans that contain evidence of credit deterioration on the date
of acquisition and loans that do not contain evidence of credit deterioration on the date of acquisition. Purchased loans with
evidence of credit deterioration are regularly monitored and are periodically reviewed by management. To the extent that a
loan’s performance has deteriorated from our expectations established in conjunction with the determination of the Day 1
Fair Values, such loan is considered in the determination of the required level of ALLL. To the extent that a revised loss
estimate exceeds the loss estimate established in the determination of Day 1 Fair Values, such determination will result in an
allowance allocation or a charge-off.
All other purchased loans are graded by management at the time of purchase. The grade on these purchased loans
is reviewed regularly as part of the ongoing assessment of such loans. To the extent that current information indicates it is
probable that we will not be able to collect all amounts according to the contractual terms thereof, such loan is considered in
the determination of the required level of ALLL and may result in an allowance allocation or a charge-off.
At December 31, 2014 and 2013, we had no allowance for our purchased loans because all losses had been
charged off on purchased loans where we had determined it was probable that we would be unable to collect all amounts
according to the contractual terms thereof (for purchased loans without evidence of credit deterioration at date of
acquisition) or whose performance had deteriorated from our expectations established in conjunction with the determination
of the Day 1 Fair Values (for purchased loans with evidence of credit deterioration at date of acquisition).
The accrual of interest on non-purchased loans and leases and purchased loans without evidence of credit
deterioration at the date of acquisition is discontinued when, in our opinion, the borrower or lessee may be unable to meet
payments as they become due. We generally place a loan or lease, excluding purchased loans with evidence of credit
deterioration on the date of purchase, on nonaccrual status when such loan or lease is (i) deemed impaired or (ii) 90 days or
more past due, or earlier when doubt exists as to the ultimate collection of payments. We may continue to accrue interest on
certain loans or leases contractually past due 90 days or more if such loans or leases are both well secured and in the process
of collection. At the time a loan or lease is placed on nonaccrual status, interest previously accrued but uncollected is
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 we reasonably expect 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 ALLL. Loans for
which the terms have been modified and for which (i) the borrower is experiencing financial difficulties and (ii) we have
granted a concession to the borrower are considered troubled debt restructurings (“TDRs”) and are included in impaired
loans and leases. Income on nonaccrual loans or leases, including impaired loans and leases but excluding certain TDRs
which continue to accrue interest, is recognized on a cash basis when and if actually collected. For the year ended December
31, 2014, there were no defaults during the preceding 12 months on any loans that were considered TDRs.
45
All loans and leases deemed to be impaired are evaluated individually. We consider a loan or lease, excluding
purchased loans with evidence of credit deterioration at the date of purchase, to be impaired when based on current
information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms
thereof. We consider a purchased loan with evidence of credit deterioration at the date of purchase to be impaired once a
decrease in expected cash flows or other deterioration in the loan’s expected performance, subsequent to the determination
of the Day 1 Fair Values, results in an allowance allocation, a partial or full charge-off or in a provision for loan and lease
losses. Most of our nonaccrual loans and leases, excluding purchased loans with evidence of credit deterioration at the date
of purchase, and all TDRs are considered impaired. The majority of our impaired loans and leases are dependent upon
collateral for repayment. For such loans and leases, impairment is measured by comparing collateral value, net of holding
and selling costs, to the current investment in the loan or lease. For all other impaired loans and leases, we compare
estimated discounted cash flows to the current investment in the loan or lease. To the extent that our current investment in a
particular loan or lease exceeds its estimated net collateral value or its estimated discounted cash flows, the impaired
amount is specifically considered in the determination of the ALLL or is charged off as a reduction of the ALLL. Our
practice is to charge off any estimated loss as soon as management is able to identify and reasonably quantify such potential
loss. Accordingly, only a small portion of our ALLL is needed for potential losses on nonperforming loans.
We also maintain an allowance for certain non-purchased loans and leases not considered impaired where (i) the
customer is continuing to make regular payments, although payments may be past due, (ii) there is a reasonable basis to
believe the customer may continue to make regular payments, although there is also an elevated risk that the customer may
default, and (iii) the collateral or other repayment sources are likely to be insufficient to recover the current investment in
the loan or lease if a default occurs. We evaluate such loans and leases to determine if an allowance is needed for these
loans and leases. For the purpose of calculating the amount of such allowance, we assume that (i) no further regular
payments occur and (ii) all sums recovered will come from liquidation of collateral and collection efforts from other
payment sources. To the extent that our current investment in a particular loan or lease evaluated for the need for such
allowance exceeds its net collateral value, such excess is considered allocated allowance for purposes of the determination
of the ALLL.
Additionally, we maintain specific ALLL allocations to capture the risk associated with having a loan portfolio
comprised of large individual credits. This ALLL allocation is applied to all large, non-purchased, risk-rated loans that
exceed $10 million, except such loans that have been individually evaluated for impairment, and is based on the greater of
the loan-to-value or loan-to-cost ratio for each large individual risk-rated loan.
We also include specific ALLL allocations for qualitative factors including, (i) general economic and business
conditions, (ii) trends that could affect collateral values and (iii) expectations regarding the current business cycle. We may
also consider other qualitative factors in future periods for additional ALLL allocations.
Changes in the criteria used in this evaluation or the availability of new information could cause our ALLL to be
increased or decreased in future periods. In addition, bank regulatory agencies, as part of their examination process, may
require adjustments to our ALLL based on their judgment and estimates.
Fair value of the investment securities portfolio. We determine the appropriate classification of investment
securities at the time of purchase and reevaluate such designation as of each balance sheet date. At December 31, 2014 and
2013, we classified all of our investment securities as available for sale (“AFS”).
Investment securities AFS are stated at estimated fair value, with the unrealized gains and losses determined on a
specific identification basis. Such unrealized gains and losses, net of tax, are reported as a separate component of
stockholders’ equity and included in other comprehensive income (loss). We utilize independent third parties as our
principal pricing sources for determining fair value of investment securities which are measured on a recurring basis. As a
result, we receive estimates of fair values from at least two independent pricing sources for the majority of our individual
securities within our investment portfolio. For investment securities traded in an active market, fair values are based on
quoted market prices if available. If quoted market prices are not available, fair values are based on quoted market prices of
comparable securities, broker quotes or comprehensive interest rate tables, pricing matrices or a combination thereof. For
investment securities traded in a market that is not active, fair value is determined using unobservable inputs. Additionally,
the valuation of investment securities acquired may include certain unobservable inputs. All fair value estimates received by
the Company for its investment securities are reviewed and approved on a quarterly basis by the Company’s Investment
Portfolio Manager and its Chief Financial Officer.
Declines in the fair value of investment securities below their amortized cost are reviewed at least quarterly for
other-than-temporary impairment. Factors considered during such review include, among other things, the length of time
46
and extent that fair value has been less than cost and the financial condition and near term prospects of the issuer. We also
assess whether we have the intent to sell the investment security or more likely than not would be required to sell the
investment security before any anticipated recovery in fair value. If either of the criteria regarding intent or requirement to
sell is met, the entire difference between amortized cost and fair value is recognized as impairment through the income
statement. For securities that do not meet the aforementioned criteria, the amount of impairment is split into (i) other-than-
temporary impairment related to credit loss, which must be recognized in the income statement, and (ii) other-than-
temporary impairment related to other factors, which is recognized in other comprehensive income. The credit loss is
defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.
The fair values of our 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 our financial
condition, results of operations and liquidity.
Fair value of foreclosed assets. Repossessed personal properties and real estate acquired through or in lieu of
foreclosure, excluding purchased foreclosed assets, are initially recorded at the lesser of current principal investment or fair
value less estimated cost to sell (generally 8% to 10%) at the date of repossession or foreclosure. Purchased foreclosed
assets, including foreclosed assets previously covered by Federal Deposit Insurance Corporation (“FDIC”) loss share, are
initially recorded at Day 1 Fair Values. In estimating such Day 1 Fair Values, we consider a number of factors including,
among others, appraised value, estimated selling price, estimated holding periods and net present value (calculated using
discount rates ranging from 8.0% to 9.5% per annum) of cash flows expected to be received.
Valuations of all foreclosed assets are periodically reviewed by management with the carrying value of such assets
adjusted through non-interest expense to the then estimated fair value, generally based on third party appraisals, broker price
opinions or other valuations of the property, net of estimated selling costs, if lower, until disposition.
Fair value of assets acquired and liabilities assumed pursuant to business combination transactions. Purchased
loans include loans acquired in FDIC-assisted and other acquisitions and are initially recorded at fair value on the date of
purchase. Purchased loans that contain evidence of credit deterioration on the date of purchase are carried at the net present
value of expected future proceeds. All other purchased loans are recorded at their initial fair value, adjusted for subsequent
advances, pay downs, amortization or accretion of any premium or discount on purchase, charge-offs and any other
adjustment to carrying value.
At the time of acquisition of purchased loans, we individually evaluate substantially all loans acquired in the
transaction. For those purchased loans without evidence of credit deterioration, we evaluate each reviewed loan using an
internal grading system with a grade assigned to each loan at the date of acquisition. To the extent that any purchased loan is
not specifically reviewed, such loan is assumed to have characteristics similar to the characteristics of the aggregate
acquired portfolio of purchased loans. The grade for each purchased loan without evidence of credit deterioration is
reviewed subsequent to the date of acquisition any time a loan is renewed or extended or at any time information becomes
available to us that provides material insight regarding the loan’s performance, the borrower or the underlying collateral. To
the extent that current information indicates it is probable that we will collect all amounts according to the contractual terms
thereof, such loan is not considered impaired and is not considered in the determination of the required ALLL. To the extent
that current information indicates it is probable that we will not be able to collect all amounts according to the contractual
terms thereon, such loan is considered impaired and is considered in the determination of the required level of ALLL.
In determining the Day 1 Fair Values of purchased loans without evidence of credit deterioration at the date of
acquisition, we include (i) no carryover of any previously recorded ALLL and (ii) an adjustment of the unpaid principal
balance to reflect an appropriate market rate of interest, given the risk profile and grade assigned to each loan. This
adjustment is accreted into earnings as a yield adjustment, using the effective yield method, over the remaining life of each
loan.
Purchased loans that contain evidence of credit deterioration on the date of purchase are individually evaluated to
determine the estimated fair value of each loan. This evaluation includes no carryover of any previously recorded ALLL. In
determining the estimated fair value of purchased loans with evidence of credit deterioration, we consider 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.
47
Purchased loans previously covered by FDIC loss share agreements are also accounted for pursuant to the
American Institute of Certified Public Accountants’ (“AICPA”) December 18, 2009 letter in which the AICPA summarized
the Securities and Exchange Commission’s (“SEC”) view regarding the accounting in subsequent periods for discount
accretion associated with non-credit impaired loans acquired in a business combination or asset purchase. Considering,
among other factors, the general lack of adequate underwriting, proper documentation, appropriate loan structure and
insufficient equity contributions for a large number of these purchased loans acquired in FDIC-assisted acquisitions, and the
uncertainty of the borrowers’ and/or guarantors’ ability or willingness to make contractually required (or any) principal and
interest payments, we have determined that a significant portion of the purchased loans acquired in FDIC-assisted
acquisitions had evidence of credit deterioration since origination. Accordingly, we have elected to apply the provisions of
GAAP applicable to loans acquired with deteriorated credit quality, as provided by the AICPA’s December 18, 2009 letter,
to all loans acquired in its FDIC-assisted acquisitions.
During the fourth quarter of 2014, we entered into agreements with the FDIC to terminate the loss share coverage
on all seven of our FDIC-assisted acquisitions. Accordingly, all loans previously reported as covered by FDIC loss share
agreements have been reclassified to purchased loans for all periods presented, and all interest income on loans previously
reported as covered by FDIC loss share has been reclassified to interest income on purchased loans for all periods
presented.
In determining the Day 1 Fair Values of purchased loans with evidence of credit deterioration, we calculate a non-
accretable difference (the credit component of the purchased loans) and an accretable difference (the yield component of the
purchased loans). The non-accretable difference is the difference between the contractually required payments and the cash
flows expected to be collected in accordance with our determination of the Day 1 Fair Values. Subsequent increases in
expected cash flows will result in an adjustment to accretable yield, which will have a positive impact on interest income.
Subsequent decreases in expected cash flows will generally result in a provision for loan and lease losses. Subsequent
increases in expected cash flows following any previous decrease 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.
The accretable difference on purchased loans with evidence of credit deterioration is the difference between the
expected cash flows and the net present value of expected cash flows. Such difference is accreted into earnings using the
effective yield method over the term of the loans. In determining the net present value of the expected cash flows for
purposes of establishing the Day 1 Fair Values, we used discount rates ranging from 6.0% to 9.5% per annum depending on
the risk characteristics of each individual loan.
We separately monitor purchased loans with evidence of credit deterioration on the date of purchase and
periodically review such loans contained within this portfolio against the factors and assumptions used in determining the
Day 1 Fair Values. A loan is reviewed (i) any time it is renewed or extended, (ii) at any other time additional information
becomes available to us that provides material additional insight regarding the loan’s performance, the status of the
borrower, or the quality or value of the underlying collateral, or (iii) in conjunction with the annual review of projected cash
flows of each acquired portfolio. We separately review the performance of the portfolio of purchased loans with evidence of
credit deterioration on an annual basis, or more frequently to the extent that material information becomes available
regarding the performance of an individual loan, to make determinations of the constituent loans’ performance and to
consider whether there has been any significant change in performance since our initial expectations established in
conjunction with the determination of the Day 1 Fair Values or since our most recent review of such portfolio’s
performance. To the extent that a loan is performing in accordance with or exceeding our performance expectation
established in conjunction with the determination of the Day 1 Fair Values, such loan is rated FV66, is not included in any
of the credit quality ratios, is not considered to be a nonaccrual, nonperforming or impaired loan, and is not considered in
the determination of the required ALLL. For any loan that is exceeding our performance expectation established in
conjunction with the determination of Day 1 Fair Values, the accretable yield on such loan is adjusted to reflect such
increased performance. To the extent that a loan’s performance has deteriorated from our expectation established in
conjunction with the determination of the Day 1 Fair Values, such loan is rated FV88, is included in certain of our credit
quality metrics, is considered an impaired loan, and is considered in the determination of the required level of ALLL;
however, in accordance with GAAP, we continue to accrete into earnings income on such loans. Any improvement in the
expected performance of such loan would result in a reversal of the provision for loan and lease losses to the extent of prior
charges and then an adjustment to accretable yield.
The Day 1 Fair Values of investment securities acquired in business combinations are generally based on quoted
market prices, broker quotes, comprehensive interest rate tables or pricing matrices, or a combination thereof. Additionally,
48
these valuations may include certain unobservable inputs. The Day 1 Fair Values of assumed liabilities in business
combinations are generally the amounts payable by us necessary to completely satisfy the assumed obligations.
As a result of recording, at fair value, acquired assets and assumed liabilities pursuant to business combinations,
differences in amounts reported for financial statement purposes and their related basis for federal and state income tax
purposes are created. Such differences are recorded as deferred tax assets and liabilities using enacted tax rates in effect for
the year or years in which the differences are expected to be recovered or settled. Business combination transactions may
result in the acquisition of net operating loss carryforwards and other assets with built-in losses, the realization of which are
subject to limitations pursuant to section 382 (“section 382 limitation”) of the Internal Revenue Code (“IRC”). In
determining the section 382 limitation associated with a business combination, we must make a number of estimates and
assumptions regarding the ability to utilize acquired net operating loss carryforwards and the expected timing of future
recoveries or settlements of acquired assets with built-in losses. To the extent that information available as of the date of
acquisition results in our determination that some portion of net operating loss carryforwards cannot be utilized or assets
with built-in losses are expected to be settled or recovered in future periods in which the ability to realize the benefits will
be subject to the section 382 limitation, a deferred tax asset valuation allowance is established for the estimated amount of
the deferred tax assets subject to the section 382 limitation. To the extent that information becomes available, during the
first 12 months following the consummation of a business combination transaction, that results in changes in our initial
estimates and assumptions regarding the expected utilization of net operating loss carryforwards or the expected settlement
or recovery of acquired assets with built-in losses subject to the section 382 limitation, an increase or decrease of the
deferred tax asset valuation allowance will be recorded as an adjustment to bargain purchase gain or goodwill. To the extent
that such information becomes available 12 months or more after the consummation of a business combination transaction,
or additional information becomes available during the first 12 months as a result of changes in circumstances since the date
of the consummation of a business combination transaction, an increase or decrease of the deferred tax asset valuation
allowance will be recorded as an adjustment to deferred income tax expense (benefit).
In connection with our acquisition of The First National Bank of Shelby (“First National Bank”), we initially
determined that net operating loss carryforwards and other assets with built-in losses were expected to be settled or
otherwise recovered in future periods where the realization of such benefits would be subject to the section 382 limitation.
Accordingly, as of the date of acquisition, we had established a deferred tax asset valuation allowance of approximately
$4.1 million to reflect our assessment that the realization of the benefits from the settlement or recovery of certain of these
acquired assets and net operating losses were expected to be subject to the section 382 limitation. During the second quarter
of 2014, we revised our initial estimates and assumptions regarding the expected recovery of acquired assets with built-in
losses, specifically the timing of expected charge-offs of purchased loans, in the First National Bank acquisition. As a result
of such revision, we concluded that the deferred tax asset valuation allowance of $4.1 million was not necessary. Because
such revision occurred during the first 12 months following the date of acquisition and was not the result of changes in
circumstances, we have recast the 2013 financial statements to increase the bargain purchase gain on the First National Bank
acquisition by $4.1 million to reflect this change in estimate.
49
General
Analysis of Results of Operations
The table below shows total assets, investment securities AFS, non-purchased loans and leases, purchased loans,
deposits, common stockholders’ equity, net income available to common stockholders, diluted earnings per common share,
book value per common share and tangible book value per common share as of and for the years indicated and the
percentage of change year over year.
December 31,
2013(1)
2014
(Dollars in thousands, except per share amounts)
2012
% Change
2014
from 2013
2013
from 2012
Total assets .............................................
Investment securities AFS ......................
Non-purchased loans and leases .............
Purchased loans ......................................
Deposits ..................................................
Common stockholders’ equity ................
Net income available to common
stockholders ........................................
Diluted earnings per common share(2).....
Book value per common share(2) .............
Tangible book value per common
share(2)(3) ..............................................
$6,766,499
839,321
3,979,870
1,147,947
5,496,382
908,390
118,606
1.52
11.37
10.04
$4,791,170
669,384
2,632,565
724,514
3,717,027
629,060
$4,040,207
494,266
2,115,834
637,773
3,101,055
507,664
91,237
1.26
8.53
8.27
77,044
1.11
7.18
7.03
41.2%
25.4
51.2
58.4
47.9
44.4
30.0
20.6
33.3
21.4
18.6%
35.4
24.4
13.6
19.9
23.9
18.4
13.5
18.8
17.6
(1) During the second quarter of 2014, we revised our initial estimates regarding the expected recovery of certain acquired assets with
built-in losses. As a result, we recast our 2013 financial statements to increase the bargain purchase gain on the First National Bank
acquisition and total stockholders’ equity before noncontrolling interest by $4.1 million, or approximately $0.06 of diluted earnings
per common share. Historical financial information provided herein has been adjusted to give effect to this recast.
(2) Adjusted to give effect to a 2-for-1 stock split effective June 23, 2014.
(3) The calculation of our tangible book value per common share and the reconciliation to GAAP is included elsewhere in this MD&A.
On June 23, 2014, we completed a two-for-one stock split in the form of a stock dividend by issuing one share of
common stock for each share of such stock outstanding on June 13, 2014. All share and per share information in this
MD&A has been adjusted to give effect to this stock split.
Net income available to our common stockholders was $118.6 million in 2014, a 30.0% increase from $91.2
million in 2013. Net income available to common stockholders in 2012 was $77.0 million. Diluted earnings per common
share were $1.52 in 2014, a 20.6% increase from $1.26 in 2013. Diluted earnings per common share were $1.11 in 2012.
Our return on average assets was 2.01% for 2014, compared to 2.14% for 2013 and 2.04% for 2012. Our return on
average common stockholders’ equity was 15.08% for 2014, compared to 16.28% for 2013 and 16.80% for 2012. Our
return on average tangible common stockholders’ equity was 16.64% for 2014, compared to 16.73% for 2013 and 17.25%
for 2012. The calculation of our return on average tangible common stockholders’ equity and the reconciliation to GAAP is
included elsewhere in this MD&A.
On July 31, 2013, we completed our acquisition of First National Bank. Our consolidated results of operations
include the acquired operations of First National Bank beginning August 1, 2013.
On March 5, 2014, we completed our acquisition of Bancshares, Inc. (“Bancshares”). Our consolidated results of
operations include the acquired operations of Bancshares beginning March 6, 2014.
On May 16, 2014, we completed our acquisition of Summit Bancorp, Inc. (“Summit”). Our consolidated results of
operations include the acquired operations of Summit beginning May 17, 2014.
On February 10, 2015, we completed our acquisition of Intervest Bancshares Corporation (“Intervest”). Our
consolidated results of operations will include the acquired operations of Intervest beginning February 11, 2015.
50
A summary of the assets acquired and liabilities assumed in the First National Bank, Bancshares, Summit and
Intervest acquisitions is included in Note 2 to the Consolidated Financial Statements included elsewhere in this Annual
Report on Form 10-K.
During the second quarter of 2014, we revised our initial estimates and assumptions regarding the expected
recovery of certain acquired assets with built-in losses in the First National Bank acquisition. As a result of such revision,
we concluded that the deferred tax asset valuation allowance of $4.1 million was not necessary and have recast the 2013
financial statements to increase the bargain purchase gain on the First National Bank acquisition by $4.1 million to reflect
this change in estimate.
During the fourth quarter of 2014, we entered into agreements with the FDIC terminating the loss share agreements
for all seven of our FDIC-assisted acquisitions, resulting in a gain of $8.0 million. All rights and obligations of the parties
under the FDIC loss share agreements, including the clawback provisions, have been eliminated under these termination
agreements. Accordingly, all loans previously reported as covered by FDIC loss share agreements have been reclassified to
purchased loans for all periods presented, and all interest income on loans previously reported as covered by FDIC loss
share have been reclassified to interest income on purchased loans for all periods presented. The termination of the loss
share agreements should have no impact on the yields for the loans that were previously covered under these agreements.
All future charge-offs, recoveries, gains, losses and expenses related to assets previously covered by FDIC loss share will
now be recognized entirely by us since the FDIC will no longer be sharing in such charge-offs, recoveries, gains, losses and
expenses.
During the fourth quarter of 2014, we incurred a prepayment penalty of $8.1 million resulting from prepaying $90
million of our highest cost of fixed rate callable Federal Home Loan Bank of Dallas (“FHLB-Dallas”) advances.
Net Interest Income
Net interest income and net interest margin are analyzed in this discussion on a fully taxable equivalent (“FTE”)
basis. The adjustment to convert net interest income to a FTE basis consists of dividing tax-exempt income by one minus
the statutory federal income tax rate of 35%. The FTE adjustments to net interest income were $10.7 million in 2014, $8.6
million in 2013 and $8.5 million in 2012. 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 IRC as a result of investments in
certain tax-exempt securities.
2014 compared to 2013
Net interest income for 2014 increased 39.1% to $281.2 million compared to $202.1 million for 2013. Net interest
margin decreased 11 basis points (“bps”) to 5.52% for 2014 compared to 5.63% for 2013. The increase in net interest
income was primarily the result of the growth in average earning assets, which increased 41.8% to $5.09 billion for 2014
compared to $3.59 billion for 2013. The decrease in net interest margin for 2014 compared to 2013 was primarily due to
the 21 bps decrease in yield on average earning assets, partially offset by an 11 bps decrease in rates paid on interest bearing
deposits.
Yields on average earning assets decreased to 5.94% for 2014 compared to 6.15% for 2013. The yield on our
portfolio of non-purchased loans and leases decreased 38 bps to 5.10% for 2014 compared to 5.48% for 2013. This
decrease was primarily attributable to the extremely low interest rate environment experienced in recent years and increased
pricing competition from many of our competitors. The yield on our aggregate investment securities portfolio for 2014
decreased 43 bps compared to 2013. This decrease in the yield on our aggregate investment securities portfolio was
primarily the result of (i) a change in the composition of our investment securities portfolio to include a larger percentage of
lower yielding taxable investment securities, which comprised 40.8% of the total average balance of investment securities in
2014 compared to 36.1% in 2013, and (ii) the low interest rate environment which has resulted in many issuers of
investment securities, particularly tax-exempt municipal securities, calling higher-rate investment securities and refinancing
such securities at lower interest rates. Assuming this low interest rate environment continues, we expect additional higher-
rate tax-exempt investment securities to be called by their issuers and be refinanced at lower interest rates, likely resulting in
continued decreases of the yield on our tax-exempt investment securities portfolio. The yield on our purchased loan
portfolio decreased nine bps to 8.94% for 2014 compared to 9.03% for 2013. This decrease was primarily attributable to
the loans acquired in our Summit acquisition, many of which did not contain evidence of credit deterioration on the date of
acquisition and were priced at a lower yield compared to the then existing yield on our purchased loan portfolio. This
decrease in yield on purchased loans was partially offset by the increase in yield on certain purchased loans with evidence of
51
credit deterioration on the date of acquisition due to upward revisions of estimated cash flows as a result of recent
evaluations of the expected performance of such loans.
The overall decrease in rates on average interest bearing liabilities was primarily due to a shift in the composition
of interest bearing liabilities. During 2014 the average balance of interest bearing deposits, which are generally one of our
cheapest interest bearing funding sources, increased to 89.9% of total average interest bearing liabilities compared to 87.0%
in 2013. The rate paid on our average interest bearing deposits of 23 bps for 2014 was unchanged compared to 2013.
However, such rates have increased in recent quarters, increasing from 21 bps in the second quarter to 23 bps in the third
quarter and 27 bps in the fourth quarter of 2014 as we have increased deposit pricing in several target markets to fund
growth in non-purchased loans and leases. To the extent we have future growth in non-purchased loans and leases, we may
again increase deposit pricing in certain target markets to fund such growth. Any such increase in deposit pricing is likely to
result in increased deposit costs in future periods.
Our other borrowing sources include (i) repurchase agreements with customers (“repos”), (ii) other borrowings
comprised primarily of FHLB – Dallas advances, and, to a lesser extent, Federal Reserve Bank (“FRB”) borrowings and
federal funds purchased, and (iii) subordinated debentures. The rates on repos increased one bps in 2014 compared to
2013. The rates on our other borrowing sources, which consist primarily of fixed rate callable FHLB – Dallas advances,
increased six bps for 2014 compared to 2013. During the fourth quarter of 2014, we prepaid $90 million of fixed rate
callable FHLB – Dallas advances with a weighted average interest rate of 4.13%. The weighted average interest rate on our
remaining $190 million of fixed rate callable FHLB – Dallas advances is approximately 3.64%. The rates paid on our
subordinated debentures, which are tied to a spread over the 90-day London Interbank Offered Rate (“LIBOR”) and reset
periodically, decreased four bps in 2014 compared to 2013.
The increase in average earning assets for 2014 compared to 2013 was due, in part, to an increase in the average
balance of non-purchased loans and leases of 35.0% to $3.19 billion for 2014 compared to $2.36 billion for 2013.
Additionally the average balance of purchased loans increased 65.6% to $1.10 billion for 2014 compared to $663 million
for 2013, primarily as a result of the acquisitions of Bancshares and Summit. The average balances of aggregate investment
securities increased 42.0% to $798 million for 2014 compared to $562 million for 2013, primarily as a result of the
investment securities acquired in the Summit acquisition.
2013 compared to 2012
Net interest income for 2013 increased 10.5% to $202.1 million compared to $182.9 million for 2012. Net interest
margin decreased 28 bps to 5.63% for 2013 compared to 5.91% for 2012. The increase in net interest income was primarily
a result of the growth in average earning assets, which increased 16.0% for 2013 compared to 2012. The decrease in net
interest margin was primarily due to a 46 bps decrease in yield on average earning assets, partially offset by a 16 bps
decrease in rates paid on interest bearing liabilities.
The 46 bps decrease in yield on average earning assets for 2013 compared to 2012 was primarily due to a 39 bps
decrease in yield on non-purchased loans and leases and an 85 bps decrease in yield on our aggregate investment securities
portfolio, partially offset by a 25 bps increase in yield on purchased loans. The decrease in yield on our non-purchased loan
and lease portfolio, the largest component of our average earning assets, was primarily attributable to the extremely low
interest rate environment experienced in recent years resulting in new and renewed loans being priced or repriced at rates
below the yield on our average non-purchased loan and lease portfolio.
The decrease in yield on our aggregate investment securities portfolio was primarily attributable to the shift in the
composition of such portfolio as a result of the investment securities acquired in the Genala Bancshares, Inc. (“Genala”) and
First National Bank acquisitions. During 2013, taxable investment securities comprised 36.1% and tax-exempt securities
comprised 63.9% of average investment securities. During 2012, taxable investment securities comprised 20.8% and tax-
exempt investment securities comprised 79.2% of average investment securities. The increase in yield on purchased loans
was primarily attributable to upward revisions of estimated cash flows in certain purchased loans with evidence of credit
deterioration at the date of acquisition, partially offset by the yield on our purchased loans acquired in the Genala and First
National Bank transactions, many of which did not contain evidence of credit deterioration on the date of purchase and were
priced at a lower yield compared to the yield on purchased loans acquired in our FDIC-assisted transactions.
The decrease in rates on average interest bearing liabilities was primarily due to decreases in rates on interest
bearing deposits, the largest component of our interest bearing liabilities. Rates on interest bearing deposits decreased 15
bps for 2013 compared to 2012. This decrease in the rate on interest bearing liabilities was principally due to (i) effectively
52
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 and (ii) a change in the mix of our interest bearing
deposits due to growth in the volume of savings and interest bearing transaction accounts resulting in an increase in the
average balance of these deposits to 68.3% of total average interest bearing deposits for 2013 compared to 66.5% for 2012.
Our other borrowing sources include (i) repos, (ii) other borrowings comprised primarily of FHLB – Dallas
advances, and, to a lesser extent, FRB borrowings and federal funds purchased, and (iii) subordinated debentures. The rates
on repos decreased five bps for 2013 compared to 2012 primarily as a result of our efforts to effectively manage the rates on
its interest bearing liabilities, including repos. The rates on our other borrowings, which consist primarily of fixed rate
callable FHLB – Dallas advances, increased four bps for 2013 compared to 2012. The rates paid on our subordinated
debentures, which are tied to a spread over the 90-day LIBOR and reset periodically, decreased 20 bps for 2013 compared
to 2012 as a result of a decrease in the 90-day LIBOR on the applicable reset dates during 2013.
The increase in average earning assets of $494 million, or 16.0%, for 2013 compared to 2012 was primarily due to
an increase in the average balance of non-purchased loans and leases of $400 million and an increase in the average balance
of taxable investment securities of $115 million, primarily due to the Genala and First National Bank acquisitions. This
increase in average earnings assets for 2013 compared to 2012 was partially offset by a decrease in the average balance of
purchased loans of $44 million.
The following table sets forth certain information relating to our net interest income for the years indicated. The
yields and rates are derived by dividing interest income or interest expense by the average balance of the related assets or
liabilities, respectively, for the periods shown. Average balances are derived from daily average balances for such assets and
liabilities. The average balances of investment securities are computed based on amortized cost adjusted for unrealized
gains and losses on investment securities AFS and other-than-temporary impairment writedowns. The yields on investment
securities include amortization of premiums and accretion of discounts. The average balance of non-purchased loans and
leases includes non-purchased loans and leases on which we have discontinued accruing interest. The yields on non-
purchased loans and leases and purchased loans without evidence of credit deterioration at date of acquisition include late
fees and amortization of certain deferred fees, origination costs and, for such purchased loans, accretion or amortization of
any purchase accounting yield adjustment, which are considered adjustments to yields. The yields on purchased loans with
evidence of credit deterioration at date of acquisition consist of accretion of the net present value of expected future cash
flows using the effective yield method over the term of the loans and include late fees. Interest expense and rates on other
borrowings are presented net of interest capitalized on construction projects. During the fourth quarter of 2014, we entered
into agreements with the FDIC to terminate the loss share coverage on all seven of our FDIC-assisted acquisitions.
Accordingly, all loans previously reported as covered by FDIC loss share agreements have been reclassified to purchased
loans for all periods presented, and all interest income on loans previously reported as covered by FDIC loss share has been
reclassified to interest income on purchased loans for all periods presented.
53
Average Consolidated Balance Sheets and Net Interest Analysis
Average
Balance
2014
Income/
Expense
Year Ended December 31,
2013
Yield/
Rate
Average
Balance
Income/
Expense
Yield/
Rate
Average
Balance
(Dollars in thousands)
2012
Income/
Expense
Yield/
Rate
ASSETS
Interest earning assets:
Interest earning deposits and
federal funds sold ..................
$ 4,897
$ 56
1.15%
$ 1,108
$ 33
2.96%
$ 1,078
$ 8
0.74%
Investment securities:
Taxable ...............................
Tax-exempt – FTE ..............
325,611
472,310
11,125 3.42
29,983 6.35
202,783
359,068
6,838 3.37
24,512 6.83
88,182
335,784
2,950
24,318
3.35
7.24
Non-purchased loans and
leases – FTE ..........................
Purchased loans .........................
Total earning assets – FTE
Non-interest earning assets ..........
Total assets .........................
3,189,308
1,098,851
5,090,977
822,830
$5,913,807
LIABILITIES AND
STOCKHOLDERS’ EQUITY
162,812 5.10
98,212 8.94
302,188 5.94
129,470 5.48
59,930 9.03
220,783 6.15
2,362,827
663,490
3,589,276
680,776
$4,270,052
115,132
62,074
204,482
5.87
8.78
6.61
1,962,699
707,196
3,094,939
684,892
$3,779,831
Interest bearing liabilities:
Deposits:
Savings and interest bearing
transaction ..........................
Time deposits of $100,000 or
more ...................................
Other time deposits ..................
Total interest bearing
$2,564,250
$ 5,424
0.21%
$1,798,692
$ 3,636 0.20%
$1,579,909 $ 4,579
0.29%
558,389
541,938
1,632 0.29
1,510 0.28
390,894
444,862
1,108 0.28
1,359 0.31
351,002
444,451
1,867
2,536
0.53
0.57
deposits ..........................
3,664,577
8,566 0.23
2,634,448
6,103 0.23
2,375,362
8,982
0.38
Repurchase agreements with
customers ..............................
Other borrowings .......................
Subordinated debentures ............
Total interest bearing
63,869
281,829
64,950
55 0.09
10,642 3.78
1,693 2.61
39,056
289,615
64,950
31 0.08
10,780 3.72
1,720 2.65
34,776
291,678
64,950
47
10,723
1,848
0.13
3.68
2.85
liabilities ........................
4,075,225
20,956 0.51
3,028,069
18,634 0.62
2,766,766
21,600
0.78
Non-interest bearing liabilities:
Non-interest bearing deposits ....
Other non-interest bearing
liabilities ...............................
Total liabilities ....................
Common stockholders’ equity .....
Noncontrolling interest ................
Total liabilities and
989,073
59,557
5,123,855
786,430
3,522
stockholders’ equity .......
$5,913,807
639,521
38,653
3,706,243
560,351
3,458
$4,270,052
492,299
58,746
3,317,811
458,595
3,425
$3,779,831
Net interest income – FTE ...........
Net interest margin – FTE............
$281,232
5.52%
$202,149
$182,882
5.63%
5.91%
54
The following table reflects how changes in the volume of interest earning assets and interest bearing liabilities and
changes in interest rates have affected our interest income – FTE, interest expense and net interest income – FTE for the
years indicated. Information is provided in each category with respect to changes attributable to (1) changes in volume
(changes in volume multiplied by prior yield/rate); (2) changes in yield/rate (changes in yield/rate multiplied by prior
volume); and (3) changes in both yield/rate and volume (changes in yield/rate multiplied by changes in volume). The
changes attributable to the combined impact of yield/rate and volume have all been allocated to the changes due to volume.
Analysis of Changes in Net Interest Income - FTE
Volume
Increase (decrease) in:
Interest income – FTE:
Interest earning deposits and federal funds
2014 over 2013
Yield/
Rate
Net
Change
Volume
(Dollars in thousands)
2013 over 2012
Yield/
Rate
Net
Change
sold .............................................................
$ 43
$ (20)
$ 23
$ 1
$ 24
$ 25
Investment securities:
Taxable .......................................................
Tax-exempt – FTE ......................................
Loans and leases – FTE ..................................
Purchased loans ..............................................
Total interest income – FTE ...................
4,197
7,189
42,191
38,911
92,531
90
(1,718)
(8,849)
(629)
(11,126)
Interest expense:
Savings and interest bearing transaction ........
Time deposits of $100,000 or more................
Other time deposits ........................................
Repurchase agreements with customers .........
Other borrowings ...........................................
Subordinated debentures ................................
Total interest expense .............................
1,619
490
271
21
(294)
-
2,107
169
34
(120)
3
156
(27)
215
4,287
5,471
33,342
38,282
81,405
1,788
524
151
24
(138)
(27)
2,322
3,865
1,590
21,925
(7,042)
20,339
442
113
1
3
(77)
-
482
23
(1,396)
(7,587)
4,898
(4,038)
(1,385)
(872)
(1,178)
(19)
134
(128)
(3,448)
3,888
194
14,338
(2,144)
16,301
(943)
(759)
(1,177)
(16)
57
(128)
(2,966)
Increase (decrease) in net interest income – FTE
$90,424
$(11,341)
$79,083
$19,857
$ (590)
$19,267
Non-Interest Income
Our non-interest income consists primarily of service charges on deposit accounts, mortgage lending income, trust
income, BOLI income, accretion of FDIC loss share receivable, net of amortization of FDIC clawback payable, other
income from purchased loans, net gains on investment securities, gains on sales of other assets and gains on merger and
acquisition transactions.
2014 compared to 2013
Non-interest income for 2014 increased 11.6% to $84.9 million compared to $76.1 million for 2013. Non-interest
income for 2014 included $4.7 million of tax-exempt bargain purchase gain on our Bancshares acquisition and $8.0 million
of gain on termination of our FDIC loss share agreements. Non-interest income for 2013 included $5.2 million of tax-
exempt bargain purchase gain on our First National Bank acquisition.
Service charges on deposit accounts increased 22.9% to $26.6 million in 2014 compared to $21.6 million in 2013.
This increase was primarily due to growth in the number of transaction accounts and the addition of deposit customers from
recent acquisitions.
Mortgage lending income decreased 7.8% to $5.2 million in 2014 compared to $5.6 million in 2013. Originations
of mortgage loans for sale, including both originations for home purchases and refinancings of existing mortgages,
decreased 5.6% to $203.1 million in 2014 compared to $209.3 million in 2013. Mortgage originations for home purchases
were 68% of 2014 origination volume compared to 52% in 2013. Refinancing of existing mortgages accounted for 32% of
2014 origination volume compared to 48% in 2013.
55
Trust income increased 36.5% to $5.6 million in 2014 compared to $4.1 million in 2013. This increase in trust
income was primarily due to new trust customers added as a result of our acquisitions, primarily our First National Bank
acquisition.
BOLI income increased 14.5% to $5.2 million in 2014 compared to $4.5 million in 2013 primarily due to the
BOLI acquired in the First National Bank and Summit acquisitions.
Net gains on investment securities were $0.1 million in 2014 from the sale of approximately $55.6 million of
investment securities, compared to net gains of $0.2 million in 2013 from the sale of approximately $0.8 million of
investment securities.
Gains on sales of other assets were $6.0 million in 2014 compared to $9.4 million in 2013. The gains on sales of
other assets for both 2014 and 2013 were primarily due to gains on sales of purchased foreclosed assets. Because the Day 1
Fair Values of purchased foreclosed assets include a net present value component, which is not accreted into income over
the expected holding period of such assets, the sale of purchased foreclosed assets has typically resulted in gains on such
sales.
Accretion of our FDIC loss share receivable, net of amortization of our FDIC clawback payable resulted in net
expense of $0.6 million in 2014 compared to $7.2 million of income during 2013. During the fourth quarter of 2014, we
entered into agreements with the FDIC terminating the loss share agreements for all seven of our FDIC-assisted
acquisitions, resulting in a gain of $8.0 million included in “other” non-interest income. All rights and obligations of the
parties under the FDIC loss share agreements, including the clawback provisions, have been eliminated under these
termination agreements.
Other income from purchased loans was $14.8 million in 2014 compared to $13.2 million in 2013. Other income
from purchased loans consists primarily of income recognized on purchased loan prepayments and payoffs that are not
considered yield adjustments. Because other income from purchased loans may be significantly affected by loan payments
and payoffs, this income item may vary significantly from period to period.
On March 5, 2014, we completed our Bancshares acquisition in a transaction valued at $21.5 million. This
acquisition resulted in a tax-exempt bargain purchase gain of $4.7 million in 2014.
On July 31, 2013, we completed our First National Bank acquisition in a transaction valued at $68.5 million. This
acquisition resulted in a tax-exempt bargain purchase gain of $5.2 million in 2013.
2013 compared to 2012
Non-interest income for 2013 increased 21.0% to $76.0 million compared to $62.9 million for 2012. Non-interest
income for 2013 included $5.2 million of tax-exempt bargain purchase gain on our First National Bank acquisition. Non-
interest income for 2012 included $2.4 million of tax-exempt bargain purchase gain on our Genala acquisition.
Service charges on deposit accounts increased 11.6% to $21.6 million in 2013 compared to $19.4 million in 2012.
This increase was primarily due to growth in the number of transaction accounts and the addition of deposit customers from
recent acquisitions.
Mortgage lending income increased 0.8% to $5.63 million in 2013 compared to $5.58 million in 2012.
Originations of mortgage loans for sale, including both originations for home purchases and refinancings of existing
mortgages, decreased 17.3% to $209.3 million in 2013 compared to $253.0 million in 2012. Mortgage originations for
home purchases were 52% of 2013 origination volume compared to 37% in 2012. Refinancing of existing mortgages
accounted for 48% of 2013 origination volume compared to 63% in 2012.
Trust income increased 15.7% to $4.1 million in 2013 compared to $3.5 million in 2012. This increase in trust
income was primarily due to new trust customers added as a result of the First National Bank acquisition.
BOLI income increased 63.7% to $4.5 million in 2013 compared to $2.8 million in 2012 primarily due to the $59
million of BOLI purchased during October and November of 2012, and BOLI acquired in the First National Bank
acquisition.
56
Net gains on investment securities were $0.2 million in 2013 from the sale of approximately $0.8 million of
investment securities, compared to net gains of $0.5 million in 2012, which included $3.1 million of net gains from the sale
of approximately $40 million of investment securities and an impairment charge of $2.6 million.
Gains on sales of other assets were $9.4 million in 2013 compared to $6.8 million in 2012. The gains on sales of
other assets for both 2013 and 2012 were primarily due to gains on sales of purchased foreclosed assets.
We recognized $7.2 million of income from the accretion of the FDIC loss share receivable, net of amortization of
the FDIC clawback payable, during 2013 compared to $7.4 million during 2012.
Other income from purchased loans was $13.2 million in 2013 compared to $10.6 million in 2012.
On July 31, 2013, we completed our First National Bank acquisition in a transaction valued at $68.5 million. This
acquisition resulted in a tax-exempt bargain purchase gain of $5.2 million in 2013.
On December 31, 2012, we completed our Genala acquisition in a transaction valued at $27.5 million. This
acquisition resulted in a tax-exempt bargain purchase gain of $2.4 million in 2012.
An analysis of the assets acquired and liabilities assumed in the First National Bank, Bancshares and Summit
acquisitions is included in Note 2 to the Consolidated Financial Statements included elsewhere in this Annual Report on
Form 10-K.
The following table presents non-interest income for the years indicated.
Non-Interest Income
2014
Year Ended December 31,
2013
(Dollars in thousands)
2012
Service charges on deposit accounts ......................................................
Mortgage lending income ......................................................................
Trust income ..........................................................................................
Bank owned life insurance income ........................................................
(Amortization) accretion of FDIC loss share receivable, net of FDIC
clawback payable ..............................................................................
Other income from purchased loans, net................................................
Net gains on investment securities .........................................................
Gains on sales of other assets ................................................................
Gains on merger and acquisition transactions ........................................
Other ......................................................................................................
Total non-interest income ..............................................................
$26,609
5,187
5,592
5,184
(611)
14,803
144
6,023
4,667
17,285
$84,883
$21,644
5,626
4,096
4,529
7,171
13,153
161
9,386
5,163
5,110
$76,039
$19,400
5,584
3,455
2,767
7,375
10,645
457
6,809
2,403
3,965
$62,860
Non-Interest Expense
Non-interest expense consists of salaries and employee benefits, net occupancy and equipment expense and other
operating expenses.
2014 compared to 2013
Non-interest expense for 2014 increased 31.7% to $166.0 million compared to $126.1 million for 2013. Our
efficiency ratio (non-interest expense divided by the sum of net interest income FTE and non-interest income) for 2014 was
45.35% compared to 45.32% for 2013.
Salaries and employee benefits, our largest component of non-interest expense, increased 18.6% to $76.9 million in
2014 from $64.8 million in 2013. We had 1,479 full-time equivalent employees at December 31, 2014, an increase of
20.9% from 1,223 full-time equivalent employees at December 31, 2013.
57
Net occupancy and equipment expense for 2014 increased 28.8% to $24.1 million in 2014 compared to $18.7
million in 2013. At December 31, 2014, we had 159 offices, including 81 in Arkansas, 28 in Georgia, 21 in Texas, 17 in
North Carolina, five in Florida, three in Alabama, two in South Carolina and one office each in New York and California.
At December 31, 2013, we had 131 offices, including 66 in Arkansas, 28 in Georgia, 15 in North Carolina, 13 in Texas,
four in Florida, three in Alabama, and one office each in South Carolina and New York.
Other operating expenses increased 52.9% to $65.0 million in 2014 compared to $42.5 million in 2013, primarily
as a result of (i) $8.1 million of FHLB-Dallas prepayment penalty resulting from prepaying $90 million of our highest cost
fixed rate callable FHLB-Dallas advances; (ii) $10.8 million of professional and outside services expense in 2014,
compared to $6.7 million in 2013, (iii) $5.0 million of amortization of intangibles in 2014 compared to $2.8 million in 2013
and (iv) increases in “other” expenses of $4.7 million. The increases in professional and outside services expense and
“other” expense in 2014 compared to 2013 is primarily related to our conversion of our core banking systems, including
contract termination costs of approximately $5.6 million directly attributable to these systems conversion.
2013 compared to 2012
Non-interest expense for 2013 increased 10.1% to $126.1 million compared to $114.5 million for 2012. Our
efficiency ratio for 2013 was 45.35% compared to 46.58% for 2012.
Salaries and employee benefits increased 9.8% to $64.8 million in 2013 from $59.0 million in 2012. We had 1,223
full-time equivalent employees at December 31, 2013, an increase of 9.2% from 1,120 full-time equivalent employees at
December 31, 2012.
Net occupancy and equipment expense for 2013 increased 18.5% to $18.7 million in 2013 compared to $15.8
million in 2012. At December 31, 2013, we had 131 offices, including 66 in Arkansas, 28 in Georgia, 15 in North Carolina,
13 in Texas, four in Florida, three in Alabama and one office each in South Carolina and New York. At December 31, 2012,
we had 117 offices, including 66 in Arkansas, 28 in Georgia, 13 in Texas, four in Florida, three in Alabama, two in North
Carolina, and one in South Carolina.
Other operating expenses increased 7.3% to $42.5 million in 2013 compared to $39.6 million in 2012, primarily as
a result of (i) $6.7 million of professional and outside services expense in 2013, compared to $4.4 million in 2012, (ii) $5.4
million of software expense in 2013 compared to $3.3 million in 2012, (iii) $2.8 million of amortization of intangibles in
2013 compared to $2.0 million in 2012 and (iv) increases in “other” expenses of $1.6 million. These increases were
partially offset by a decrease in advertising and public relations expense to $2.2 million in 2013 compared to $4.1 million in
2012 and a decrease in loan collection and repossession expense to $4.4 million in 2013 compared to $6.1 million in 2012.
58
The following table presents non-interest expense for the years indicated.
Non-Interest Expense
2014
Year Ended December 31,
2013
(Dollars in thousands)
$ 64,825
18,710
2012
$ 59,028
15,793
Salaries and employee benefits ............................. $ 76,884
Net occupancy and equipment expense ................
24,102
Other operating expenses:
Postage and supplies .........................................
Telephone and data lines ...................................
Advertising and public relations ........................
Professional and outside services ......................
Software expense ...............................................
Travel and meals ...............................................
FDIC and state assessments ...............................
FDIC insurance .................................................
ATM expense ....................................................
Loan collection and repossession expense ........
Writedowns of foreclosed assets not covered by
FDIC loss share agreements...........................
Amortization of intangibles ...............................
FHLB-Dallas prepayment penalty .....................
Other .................................................................
Total non-interest expense .........................
4,090
4,765
3,029
10,765
4,987
3,023
898
2,380
1,485
3,276
1,299
4,996
8,062
11,974
$166,015
3,297
3,419
2,205
6,690
5,400
2,236
695
1,875
1,036
4,381
3,195
3,374
4,089
4,401
3,265
2,705
703
1,505
871
6,135
1,203
2,805
-
7,292
$126,069
1,713
2,037
-
5,648
$114,462
Income Taxes
Our provision for income taxes was $53.9 million in 2014 compared to $40.1 million in 2013 and $33.9 million in
2012. Our effective income tax rates were 31.23%, 30.55% and 30.57%, respectively, for 2014, 2013 and 2012. The
effective tax rates for all periods were affected by various factors including amounts of non-taxable income and non-
deductible expenses. A reconciliation between the statutory federal income tax rates and our effective income tax rates for
the years ended December 31, 2014, 2013 and 2012 is included in Note 13 to the Consolidated Financial Statements
included elsewhere in this Annual Report on Form 10-K.
59
Non-Purchased Loan and Lease Portfolio
Analysis of Financial Condition
At December 31, 2014, our non-purchased loan and lease portfolio was $3.98 billion, an increase of 51.1% from
$2.63 billion at December 31, 2013.
As of December 31, 2014, our non-purchased loan and lease portfolio consisted of 86.9% real estate loans, 7.2%
commercial and industrial loans, 0.6% consumer loans, 2.9% direct financing leases and 2.4% other loans. Real estate loans,
our largest category of loans, include all loans made to finance the development of real property construction projects,
provided such loans are secured by real estate, and all other loans secured by real estate as evidenced by mortgages or other
liens.
The amount and type of non-purchased loans and leases outstanding are reflected in the following table.
Non-Purchased Loan and Lease Portfolio
2014
2013
December 31,
2012
(Dollars in thousands)
2011
2010
Real estate:
Residential 1-4 family .................... $ 283,253
1,503,541
Non-farm/non-residential ...............
1,411,838
Construction/land development ......
47,235
Agricultural ....................................
211,156
Multifamily residential ...................
3,457,023
Total real estate ........................
287,707
Commercial and industrial ....................
25,669
Consumer..............................................
115,475
Direct financing leases..........................
Other ....................................................
93,996
Total non-purchased loans and
leases ..................................
$3,979,870
$ 249,556
1,104,114
722,557
45,196
208,337
2,329,760
124,068
26,182
86,321
66,234
$ 272,052
807,906
578,776
50,619
141,243
1,850,596
159,804
29,781
68,022
7,631
$ 260,402
708,766
478,106
71,158
142,131
1,660,563
120,048
36,161
54,745
8,966
$ 266,014
678,465
496,737
81,736
103,875
1,626,827
120,038
49,085
42,754
12,409
$2,632,565
$2,115,834
$1,880,483
$1,851,113
The amount and percentage of the Company’s non-purchased loan and lease portfolio by state of originating office
are reflected in the following table. This table shows the relative productivity of our offices in each state, but does not
necessarily reflect the location of the borrower or collateral.
Non-Purchased Loan and Lease Portfolio by State of Originating Office
2014
December 31,
2013
2012
Non-purchased
Loans and Leases
Attributable to Offices In
Texas .............................
Arkansas ........................
New York ......................
North Carolina ..............
Georgia .........................
California ......................
Alabama ........................
South Carolina ..............
Florida ...........................
Total ...................
Amount
%
Amount
%
(Dollars in thousands)
Amount
%
$2,032,597
1,129,337
353,946
211,971
183,426
44,757
15,435
5,173
3,228
$3,979,870
51.1%
28.4
8.9
5.3
4.6
1.1
0.4
0.1
0.1
100.0%
$1,302,061
1,069,200
30,837
157,938
57,570
-
13,073
1,703
183
$2,632,565
49.5%
40.6
1.2
6.0
2.1
-
0.5
0.1
0.0
100.0%
$ 935,593
1,048,102
-
87,859
40,391
-
3,337
91
461
$2,115,834
44.2%
49.5
-
4.2
1.9
-
0.2
0.0
0.0
100.0%
60
The amount and type of our non-purchased real estate loans at December 31, 2014 based on the metropolitan
statistical area (“MSA”) and other geographic areas in which the principal collateral is located are reflected in the following
table. Data for individual states or MSAs is separately presented when aggregate non-purchased real estate loans in that
state or MSA exceed $10 million.
Arkansas:
Little Rock–North Little
Rock–Conway, AR MSA .
Northern Arkansas (1) ...........
Fort Smith, AR–OK MSA ....
Western Arkansas (2) ............
Fayetteville–Springdale–
Rogers, AR – MO MSA ...
Hot Springs, AR MSA ..........
All other Arkansas (3) ...........
Total Arkansas...................
Texas:
Dallas–Fort Worth–
Arlington, TX MSA .........
Houston–The Woodlands–
Baytown, TX MSA ..........
San Antonio–New Braunfels,
TX MSA ...........................
Austin–Round Rock, TX
MSA .................................
Texarkana, TX–AR MSA
College Station–Bryan, TX
MSA .................................
Beaumont–Port Arthur, TX
MSA .................................
Midland, TX MSA................
All other Texas (3) .................
Total Texas .......................
California:
Los Angeles–Long Beach–
Anaheim, CA MSA .........
Riverside–San Bernardino–
Ontario, CA MSA ...........
San Francisco–Oakland–
Fremont, CA MSA ..........
Sacramento–Roseville–
Arden–Arcade, CA
MSA ................................
San Jose–Sunnyvale–Santa
Clara, CA MSA ..............
All other California (3)..........
Total California ...............
New York–Northern New
Jersey–Long Island, NY–
NJ–PA MSA ........................
North Carolina/South Carolina:
Charlotte–Gastonia–
Concord, NC–SC MSA ...
Wilmington, NC MSA .........
Myrtle Beach–N. Myrtle
Beach–Conway, SC MSA
North Carolina Foothills (4)
Columbia, SC MSA .............
All other North Carolina (3) ..
All other South Carolina (3) ..
Total N. Carolina/S.
Carolina ..........................
Geographic Distribution of Non-Purchased Real Estate Loans
Residential
1-4 Family
Non-
Farm/Non-
Residential
Construction/
Land
Development
Agricultural
Multifamily
Residential
Total
(Dollars in thousands)
$106,675
37,954
27,442
20,932
10,089
10,625
8,142
221,859
$ 210,938
13,932
26,382
27,744
36,804
28,068
11,650
355,518
$ 100,470
5,055
6,778
6,227
17,172
11,748
2,185
149,635
$ 8,045
13,634
3,271
7,172
4,786
-
6,310
43,218
$ 16,319
1,243
11,702
1,062
1,877
2,198
1,625
36,026
$ 442,447
71,818
75,575
63,137
70,728
52,639
29,912
806,256
16,096
104,167
276,531
142
1,341
1,451
8,070
-
-
-
562
27,662
-
-
-
-
-
-
-
-
7,556
2,011
126
7,992
141
932
2,071
17,787
2,915
3,923
8,558
-
-
7,819
14,999
160,168
184,282
11,368
77,684
30,696
65,542
813
-
-
15,289
6,134
472,689
39,436
5,008
130,440
99,576
-
47,397
-
-
326,090
13,293
12,364
217,074
102,343
188,241
61,989
16,747
-
6,889
375
13,090
6,221
34,752
6,316
15,230
2,003
10,735
34,990
12,143
20,829
105,311
116,169
61
-
-
-
-
708
-
-
-
-
708
-
-
-
-
-
-
-
-
310
454
-
134
-
-
-
898
9,032
405,826
15,875
111,488
1,224
-
965
17,527
15,377
-
1,221
61,221
-
-
-
-
-
-
-
36,176
70,916
19,114
17,527
15,377
23,108
22,916
722,448
223,718
16,376
230,016
47,397
13,293
12,364
543,164
28,960
319,544
4,684
270
-
1,438
-
-
5,666
109,291
25,798
15,356
18,456
11,251
49,012
26,101
12,058
255,265
Geographic Distribution of Non-Purchased Real Estate Loans (continued)
Residential
1-4 Family
Non-
Farm/Non-
Residential
Construction/
Land
Development
Agricultural
Multifamily
Residential
Total
(Dollars in thousands)
3,724
470
3,240
7,434
-
-
1,546
1,546
-
-
-
-
182
-
182
-
-
520
520
14
596
610
-
192
1,634
1,826
-
384
401
106,561
19,081
19,895
145,537
23,574
-
52,331
75,905
84,361
18,112
-
18,112
19,495
14,230
33,725
-
-
1,078
1,078
11,394
-
11,394
21,040
10,055
949
11,004
17,315
7,919
26,721
26,454
18,421
1,693
46,568
56,769
10,406
10,818
77,993
18
38,363
3,250
41,613
-
6,550
6,550
37,481
2,523
5,726
8,249
3,420
11,997
15,417
-
79
1,295
1,374
-
7,566
25,201
537
-
896
1,433
-
-
929
929
27,277
-
209
27,486
12,914
-
-
12,914
164,553
37,972
25,933
228,458
93,257
10,406
65,624
169,287
-
-
84,379
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
49
49
-
-
-
-
-
-
7,855
1,391
9,246
-
19,308
-
19,308
-
-
-
-
293
3,644
3,937
-
-
-
56,475
3,250
59,725
27,532
22,171
49,703
37,481
21,831
7,324
29,155
14,828
12,593
27,421
21,040
10,619
7,571
18,190
17,315
15,869
52,323
$283,253
$1,503,541
$1,411,838
$47,235
$211,156
$3,457,023
Georgia:
Atlanta–Sandy Springs–
Roswell, GA MSA ..........
Savannah, GA MSA ............
All other Georgia (3) .............
Total Georgia ..................
Florida:
Miami–Fort Lauderdale–
Miami Beach, FL MSA ...
Crestview–Fort Walton
Beach–Destin, FL ...........
All other Florida (3) ...............
Total Florida ....................
Phoenix–Mesa–Glendale, AZ
MSA .....................................
Virginia/West Virginia:
Washington–Arlington–
Alexandria, DC–VA–
MD–WV MSA ................
All other West Virginia (3)
Total Virginia/West
Virginia ...........................
Tennessee:
Memphis, TN–MS–AR
MSA ...............................
Nashville–Davidson–
Murfreesboro, TN MSA
Total Tennessee ...............
Las Vegas–Paradise, NV MSA
Missouri:
St. Louis, MO MSA .............
All other Missouri (3) .............
Total Missouri ..................
Colorado:
Denver–Aurora, CO MSA
All other Colorado (3)............
Total Colorado ................
Boston–Cambridge–Quincy,
MA MSA ............................
Alabama:
Mobile, AL MSA.................
All other Alabama (3) ...........
Total Alabama .................
Baltimore–Columbia–
Townson, MD MSA ............
Oklahoma .................................
All other states (5) .....................
Total non-purchased
real estate loans ...........
(1) This geographic area includes the following counties in Northern Arkansas: Baxter, Boone, Marion, Newton, Searcy and Van Buren.
(2) This geographic area includes the following counties in Western Arkansas: Johnson, Logan, Pope and Yell.
(3) These geographic areas include all MSA and non-MSA areas that are not separately reported.
(4) This geographic area includes the following counties in the North Carolina foothills: Cleveland, Lincoln and Rutherford.
(5)
Includes all states not separately presented above.
62
The amount and type of non-purchased non-farm/non-residential loans, as of the dates indicated, and their
respective percentage of the total non-purchased non-farm/non-residential loan portfolio are reflected in the following table.
Non-Purchased Non-Farm/Non-Residential Loans
2014
Amount
December 31,
2013
%
Amount
(Dollars in thousands)
$ 245,516
53,786
527,987
16.3%
3.6
35.1
$ 290,092
44,740
263,986
Retail, including shopping centers
and strip centers ..........................
Churches and schools .......................
Office, including medical offices .....
Office warehouse, warehouse and
mini-storage ................................
120,338
Gasoline stations and convenience
stores ...........................................
Hotels and motels .............................
Restaurants and bars .........................
Manufacturing and industrial
11,134
285,164
26,728
facilities ......................................
56,175
Nursing homes and assisted living
centers .........................................
42,063
Hospitals, surgery centers and
other medical ..............................
46,448
Golf courses, entertainment and
8.0
0.7
19.0
1.8
3.7
2.8
3.1
113,317
8,150
192,527
33,178
37,288
41,317
49,112
%
26.3%
4.1
23.9
10.3
0.7
17.4
3.0
3.4
3.7
4.4
recreational facilities ...................
Other non-farm/non-residential ........
Total ........................................
6,621
81,581
$1,503,541
0.5
5.4
100.0%
5,261
25,146
$1,104,114
0.5
2.3
100.0%
The amount and type of non-purchased construction/land development loans as of the dates indicated, and their
respective percentage of the total non-purchased construction/land development loan portfolio are reflected in the following
table.
Non-Purchased Construction/Land Development Loans
December 31,
2014
Amount
Unimproved land ............................... $ 246,736
Land development and lots:
1-4 family residential and
Amount
%
(Dollars in thousands)
17.5%
$105,739
2013
%
14.6 %
multifamily .................................
Non-residential ................................
Construction:
1-4 family residential:
Owner occupied .........................
Non-owner occupied:
296,709
111,539
21.0
7.9
176,893
68,376
24.5
9.5
23,499
1.7
12,870
1.8
Pre-sold ..................................
Speculative .............................
Multifamily ......................................
Industrial, commercial and other .....
18,146
70,912
345,718
298,579
Total ..................................... $1,411,838
1.3
5.0
24.5
21.1
100.0%
8,206
50,030
187,409
113,034
$722,557
1.1
6.9
26.0
15.6
100.0%
63
Many of our construction and development loans provide for the use of interest reserves. When we
underwrite construction and development loans, we consider 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, we
determine the required borrower cash equity contribution and the maximum amount we are willing to loan. In the
vast majority of cases, we require that all of the borrower’s cash equity contribution be contributed prior to any
significant loan advances. This ensures that the borrower’s cash equity required to complete the project will be
available for such purposes. As a result of this practice, the borrower’s cash equity typically goes toward the
purchase of the land and early stage hard costs and soft costs. This results in our funding the loan later as the project
progresses, and accordingly, we typically fund the majority of the construction period interest through loan
advances. However, when we initially determine the borrower’s cash equity requirement, we typically require the
borrower’s cash equity to cover a majority, or all, of the soft costs, including an amount equal to construction period
interest, and an appropriate portion of the hard costs. During 2014, we advanced construction period interest totaling
approximately $21.5 million on construction and development loans. While we advanced these sums as part of the
funding process, we believe that the borrowers in effect had in most cases already provided for these sums as part of
their initial equity contribution. Specifically, the maximum committed balance of all construction and development
loans which provide for the use of interest reserves at December 31, 2014 was $3.4 billion, of which $1.2 billion
was outstanding at December 31, 2014 and $2.2 billion remained to be advanced. The weighted average loan-to-cost
on such loans, assuming such loans are ultimately fully advanced, will be approximately 54%, which means that the
weighted average cash equity contributed on such loans, assuming such loans are ultimately fully advanced, will be
approximately 46%. 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 46%.
The following table reflects non-purchased loans and leases grouped by remaining maturities at December
31, 2014 by type and by fixed or floating interest rates. This table is based on actual maturities and does not reflect
amortizations, projected paydowns or the earliest repricing for floating rate loans. Many loans have principal
paydowns scheduled in periods prior to the period in which they mature. In addition many variable rate loans are
subject to repricing in periods prior to the period in which they mature.
Non-Purchased Loan and Lease Maturities
1 Year
or Less
Over 1
Through
5 Years
Over
5 Years
(Dollars in thousands)
Real estate ..................................................... $771,733
93,859
Commercial and industrial ............................
6,297
Consumer ......................................................
5,582
Direct financing leases ..................................
34,176
Other .............................................................
Total....................................................... $911,647
Fixed rate ...................................................... $190,766
40,115
Floating rate (not at a floor or ceiling rate) ...
680,766
Floating rate (at floor rate) ............................
-
Floating rate (at ceiling rate) .........................
Total....................................................... $911,647
$2,415,356
118,419
17,834
109,862
38,445
$2,699,916
$ 676,426
147,878
1,875,612
-
$2,699,916
$269,934
75,429
1,538
31
21,375
$368,307
$212,188
14,571
141,548
-
$368,307
Total
$3,457,023
287,707
25,669
115,475
93,996
$3,979,870
$1,079,380
202,564
2,697,926
-
$3,979,870
64
The following table reflects non-purchased loans and leases as of December 31, 2014 grouped by expected
amortizations, expected paydowns or the earliest repricing opportunity for floating rate loans. This cash flow or repricing
schedule approximates our 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.
Non-Purchased Loan and Lease Cash Flows or Repricing
1 Year
or Less
Over 1
Through
2 Years
Over 2
Through
3 Years
Over 3
Through
5 Years
(Dollars in thousands)
Over
5 Years
Total
Fixed rate ................................... $ 517,344 $ 56,531
Floating rate (not at a floor or
$ 23,730
$308,154
$173,621
$1,079,380
ceiling rate)(1)...........................
Floating rate (at floor rate)(1) ......
Floating rate (at ceiling rate) ......
194,027
2,432,529
-
Total ..................................... $3,143,900
205
103,126
-
$159,862
8,090
133,272
-
$165,092
242
23,011
-
$331,407
-
5,988
-
$179,609
202,564
2,697,926
-
$3,979,870
Percentage of total ......................
Cumulative percentage of total ...
79.0%
79.0%
4.0%
83.0%
4.2%
87.2%
8.3%
95.5%
4.5%
100.0%
100.0%
(1) We have included a floor rate in many of our non-purchased loans and leases. As a result of such floor rates, many loans and
leases will not immediately reprice in a rising rate environment if the interest rate index and margin on such loans and leases
continue to result in a computed interest rate less than the applicable floor rate. The earnings simulation model results included
elsewhere in this Annual Report on Form 10-K includes consideration of the impact of all interest rate floors and ceilings in loans
and leases.
Purchased Loans
During the fourth quarter of 2014, we entered into agreements with the FDIC terminating the loss share agreements
for all seven of our FDIC-assisted acquisitions. As a result of entering into these termination agreements, we reclassified
our loans previously reported as covered by FDIC loss share to purchased loans for all reporting periods. Additionally, we
reclassified all interest income on loans previously reported as covered by FDIC loss share to interest income on purchased
loans for all reporting periods.
The amount and type of purchased loans outstanding, as of the dates indicated, are reflected in the following table.
Real estate:
Residential 1-4 family ........................
Non-farm/non-residential ...................
Construction/land development .........
Agricultural ........................................
Multifamily residential.......................
Total real estate .......................
Commercial and industrial ....................
Consumer ..............................................
Other .....................................................
Total purchased loans .............
Purchased loans not covered by FDIC
loss share ...........................................
Purchased loans previously reported as
covered by FDIC loss share ...............
Total purchased loans .............
Purchased Loan Portfolio
2014
2013
December 31,
2012
(Dollars in thousands)
2011
2010
$ 355,705
504,889
99,776
47,988
42,434
1,050,792
68,825
15,268
13,062
$1,147,947
$242,138
316,655
73,376
20,668
26,376
679,213
33,653
6,966
4,682
$724,514
$171,570
292,946
107,037
22,711
10,701
604,965
23,829
4,344
4,635
$637,773
$202,691
369,756
160,872
24,104
15,894
773,317
30,380
4,959
3,065
$811,721
$132,108
214,435
102,099
9,643
10,709
468,994
17,999
6,564
1,227
$494,784
$1,147,947
$372,723
$ 41,534
$ 4,799
$ 5,316
-
$1,147,947
351,791
$724,514
596,239
$637,773
806,922
$811,721
489,468
$494,784
65
The amount and percentage of our purchased loans, by state, as of the dates indicated, are reflected in the following
table. This table does not necessarily reflect the location of the borrower or collateral.
Purchased Loans by State
Purchased Loans
Attributable to Offices In
Amount
%
2014
December 31,
2013
Amount
%
(Dollars in thousands)
2012
Amount
%
Arkansas ...............................
North Carolina ......................
Georgia .................................
Texas ....................................
Florida ..................................
Alabama ................................
South Carolina ......................
Total ......................
Purchased loans not covered
by FDIC loss share ............
Purchased loans previously
reported as covered by
FDIC loss share .................
Total ......................
$ 576,319
255,437
152,385
102,128
27,929
24,993
8,756
$1,147,947
50.2%
22.3
13.3
8.8
2.4
2.2
0.8
100.0%
$ -
373,604
250,444
-
50,905
37,340
12,221
$724,514
-%
51.6
34.6
-
7.0
5.2
1.6
100.0%
$ -
43,651
430,278
-
81,963
62,786
19,095
$637,773
-%
6.8
67.5
-
12.9
9.8
3.0
100.0%
$1,147,947
100.0%
$372,723
51.4%
$ 41,534
6.5%
-
$1,147,947
-
100.0%
351,791
$724,514
48.6
100.0%
596,239
$637,773
93.5
100.0%
The amount of unpaid principal balance, the valuation discount and the carrying value of purchased loans, as of the
dates indicated, are reflected in the following table.
Purchased Loans
2014
December 31,
2013
(Dollars in thousands)
Loans without evidence of credit deterioration at date of purchase:
Unpaid principal balance ......................................................
Valuation discount ................................................................
Carrying value ................................................................
Loans with evidence of credit deterioration at date of purchase:
$ 889,218
(17,751)
871,467
Unpaid principal balance ......................................................
Valuation discount ................................................................
Carrying value ................................................................
Total carrying value ..................................................
374,001
(97,521)
276,480
$1,147,947
$344,065
(11,972)
332,093
546,234
(153,813)
392,421
$724,514
2012
$ 35,800
(1,021)
34,779
833,451
(230,457)
602,994
$637,773
66
The following table presents purchased loans grouped by remaining maturities at December 31, 2014 by type and
by fixed or floating interest rates. This table is based on contractual maturities and does not reflect amortizations, projected
paydowns, the earliest repricing for floating rate loans, accretion or our estimate of projected cash flows. Many loans have
principal paydowns scheduled in periods prior to the period in which they mature, and many variable rate loans are subject
to repricing in periods prior to the period in which they mature. Additionally, because income on purchased loans with
evidence of credit deterioration on the date of purchase is recognized by accretion of the discount of estimated cash flows,
such loans are not considered to be floating or adjustable rate loans and are reported below as fixed rate loans.
Purchased Loan Maturities
1 Year
or Less
Over 1
Through
5 Years
Over
5 Years
Total
(Dollars in thousands)
Real estate:
Residential 1-4 family ....................
Non-farm/non-residential ...............
Construction/land development......
Agricultural ....................................
Multifamily residential ...................
Total real estate .........................
Commercial and industrial .................
Consumer ...........................................
Other ..................................................
Total ...........................................
Fixed rate ...........................................
Floating rate .......................................
Total ...........................................
$ 68,024
129,491
44,454
11,268
9,004
262,241
23,695
3,429
2,803
$292,168
$200,977
91,191
$292,168
$188,576
288,828
47,529
29,517
31,767
586,217
40,894
11,378
6,779
$645,268
$ 99,105
86,570
7,793
7,203
1,663
202,334
4,236
461
3,480
$210,511
$ 355,705
504,889
99,776
47,988
42,434
1,050,792
68,825
15,268
13,062
$1,147,947
$461,767
183,501
$645,268
$122,226
88,285
$210,511
$ 784,970
362,977
$1,147,947
67
We completed our First National Bank acquisition on July 31, 2013, our Bancshares acquisition on March 5, 2014,
and our Summit acquisition on May 16, 2014. On the date of each respective acquisition, each of First National Bank’s,
Banchsares’ and Summit’s outstanding loans were categorized into loans without evidence of credit deterioration and loans
with evidence of credit deterioration. The following table presents by risk rating the unpaid principal balance, fair value
adjustment, Day 1 Fair Value and the weighted-average fair value adjustment applied to the purchased loans without
evidence of credit deterioration in the First National Bank, Bancshares and Summit acquisitions.
Fair Value Adjustments for Purchased
Loans Without Evidence of Credit Deterioration
at Date of Acquisition
First National Bank
Risk Category
Unpaid
Principal
Balance
Fair
Value
Adjustment
Day 1
Fair
Value
(Dollars in thousands)
Weighted
Average
Fair Value
Adjustment
(in bps)
FV 33 ...................
FV 44 ...................
FV 55 ...................
FV 36 ...................
Total .............
$105,702
138,011
57,719
61,297
$362,729
$ (2,935)
(2,631)
(1,577)
(7,276)
$(14,419)
$102,767
135,380
56,142
54,021
$348,310
278
191
273
1,187
398
Bancshares
Risk Category
Unpaid
Principal
Balance
Fair
Value
Adjustment
Day 1
Fair
Value
(Dollars in thousands)
Weighted
Average
Fair Value
Adjustment
(in bps)
FV 33 ...................
FV 44 ...................
FV 55 ...................
FV 36 ...................
Total .............
$ 35,541
72,376
29,210
908
$138,035
$ (375)
(852)
(584)
(222)
$(2,033)
$ 35,166
71,524
28,626
686
$136,002
106
118
200
2,445
147
Summit
Risk Category
Unpaid
Principal
Balance
Fair
Value
Adjustment
Day 1
Fair
Value
(Dollars in thousands)
Weighted
Average
Fair Value
Adjustment
(in bps)
FV 33 ...................
FV 44 ...................
FV 55 ...................
FV 36 ...................
Total .............
$304,997
269,630
40,608
97,703
$712,938
$ (7,214)
(5,116)
(1,078)
(2,564)
$(15,972)
$297,783
264,514
39,530
95,139
$696,966
237
190
265
262
224
68
The following grades are used for purchased loans without evidence of credit deterioration.
FV 33 – Loans in this category are considered to be satisfactory with minimal credit risk and are generally
considered collectible.
FV 44 – Loans in this category are considered to be marginally satisfactory with minimal to moderate credit risk
and are generally considered collectible.
FV 55 – Loans in this category exhibit weakness and are considered to have elevated credit risk and elevated risk
of repayment.
FV 36 – Loans in this category were not individually reviewed at the date of purchase and are assumed to have
characteristics similar to the characteristics of the aggregate acquired portfolio.
The following table is a summary of the loans acquired in the First National Bank, Bancshares and Summit
acquisitions with evidence of credit deterioration, as of their respective acquisition dates.
Fair Value Adjustment for Purchased Loans
With Evidence of Credit Deterioration
First
National Bank-
as of
July 31, 2013
Bancshares-
as of
March 5, 2014
(Dollars in thousands)
Summit-
as of
May 16, 2014
$77,258
(30,569)
46,689
(6,932)
$30,453
(8,054)
22,399
(3,226)
$31,525
(7,157)
24,368
(3,506)
Contractually required principal and
interest ..............................................
Non-accretable difference ....................
Cash flows expected to be collected ....
Accretable difference ...........................
Day 1 Fair Value at date of
acquisition ..............................
$39,757
$19,173
$20,862
The following table presents a summary, during the years indicated, of the activity of our purchased loans with
evidence of credit deterioration at the date of acquisition, excluding loans previously covered by FDIC loss share while such
loans were covered under loss share.
Purchased Loan Activity with
With Evidence of Credit Deterioration
2014
Year Ended December 31,
2013
(Dollars in thousands)
2012
Balance – beginning of year .........................
Accretion ......................................................
Purchased loans acquired .............................
Transfer to foreclosed assets ........................
Payments received........................................
Charge-offs ..................................................
Other activity, net .........................................
Termination of FDIC loss share(1) ................
Balance – end of year ...................................
$ 40,630
6,478
40,035
(6,461)
(18,734)
(1,822)
27
216,327
$276,480
$ 6,775
1,666
39,757
(852)
(5,571)
(1,155)
10
-
$40,630
$4,799
254
4,837
(25)
(2,895)
(225)
30
-
$6,775
(1) This amount represents the balance of the loans covered by FDIC loss share when we entered into agreements with the FDIC
to terminate loss share.
69
During 2010 and 2011, we acquired substantially all of the assets and assumed substantially all of the deposits and
certain other liabilities of seven failed financial institutions in FDIC-assisted acquisitions. A summary of each acquisition is
as follows:
FDIC-Assisted Acquisitions
Date of FDIC-
Assisted Acquisition
March 26, 2010
July 16, 2010
September 10, 2010
December 17, 2010
January 14, 2011
April 29, 2011
April 29, 2011
Failed Financial Institution
Unity National Bank (“Unity”)
Woodlands Bank (“Woodlands”)
Horizon Bank (“Horizon”)
Chestatee State Bank (“Chestatee”)
Oglethorpe Bank (“Oglethorpe”)
First Choice Community Bank (“First Choice”)
The Park Avenue Bank (“Park Avenue”)
Location
Cartersville, Georgia
Bluffton, South Carolina
Bradenton, Florida
Dawsonville, Georgia
Brunswick, Georgia
Dallas, Georgia
Valdosta, Georgia
Loans comprise the majority of the assets acquired in each of these FDIC–assisted acquisitions and, with the
exception of Unity, all but a small amount of consumer loans were subject to loss share agreements with the FDIC whereby
we were indemnified against a portion of the losses on covered loans and covered foreclosed assets. In the Unity
acquisition, all loans, including consumer loans, were subject to loss share agreement with the FDIC.
During the fourth quarter of 2014, we entered into agreements with the FDIC terminating the loss share agreements
for all seven of our FDIC-assisted acquisitions. All rights and obligations of the parties under the FDIC loss share
agreements, including the clawback provisions, have been eliminated under these termination agreements. The termination
of the loss share agreements should have no impact on the yields for the loans that were previously covered under these
agreements. All future charge-offs, recoveries, gains, losses and expenses related to covered assets will now be recognized
entirely by us since the FDIC will no longer be sharing in such charge-offs, recoveries, gains, losses and expenses. As a
result of entering into these termination agreements, we reclassified loans previously reported as covered by FDIC loss
share to purchased loans for all reporting periods. Additionally, we reclassified all interest income on loans previously
reported as covered by FDIC loss share to interest income on purchased loans for all reporting periods.
Despite the termination of the loss share with the FDIC, the terms of the purchase and assumption agreements for
these FDIC-assisted acquisitions continue to provide for the FDIC to indemnify us against certain claims, including claims
with respect to assets, liabilities or any affiliate not acquired or otherwise assumed by us and with respect to claims based on
any action by directors, officers or employees of Unity, Woodlands, Horizon, Chestatee, Oglethorpe, First Choice or Park
Avenue.
The following table presents a summary of activity within loans previously covered by FDIC loss share during the
years indicated.
Activity in Purchased Loans Previously
Covered by FDIC Loss Share
2014
Year Ended December 31,
2013
(Dollars in thousands)
2012
Balance – beginning of year .........................
Accretion ......................................................
Transfer to covered foreclosed assets ..........
Payments received........................................
Charge-offs ..................................................
Other activity, net .........................................
Termination of FDIC loss share(1) ................
Balance – end of year ...................................
$ 351,791
39,988
(35,845)
(132,825)
(6,832)
50
(216,327)
$ -
$596,239
45,122
(34,756)
(229,949)
(23,169)
(1,696)
-
$351,791
$806,922
61,820
(33,020)
(211,787)
(26,092)
(1,604)
-
$596,239
(1) This amount represents the balance of the loans covered by FDIC loss share when we entered into agreements with the FDIC
to terminate loss share.
70
The following table presents a summary of changes in the accretable difference on loans previously covered by
FDIC loss share during the years indicated.
Accretable Difference Activity on Purchased
Loans Previously Covered by FDIC Loss Share
Accretable difference at beginning of year .....
Accretion .....................................................
Adjustments to accretable difference due to:
Transfers to covered foreclosed assets ....
Covered loans paid off ............................
Cash flow revisions as a result of
renewals and/or modifications .............
Other, net .................................................
Termination of FDIC loss share(1)................
Accretable difference at end of year ...............
2014
Year Ended December 31,
2013
(Dollars in thousands)
$ 97,495
(45,122)
$ 77,472
(39,988)
2012
$151,649
(61,820)
(1,280)
(14,532)
41,494
633
(63,799)
$ -
(3,261)
(15,770)
42,895
1,235
-
$ 77,472
(3,995)
(10,495)
21,331
825
-
$ 97,495
(1) This amount represents the remaining accretable difference on loans covered by FDIC loss share when we entered into
agreements with the FDIC to terminate loss share.
FDIC Loss Share Receivable and FDIC Clawback Payable
During the fourth quarter of 2014, we entered into agreements with the FDIC to terminate the loss share coverage
on all seven of our FDIC-assisted acquisitions. As a result, we recognized approximately $8.0 million of gain on
termination of loss share during 2014.
The following table presents a summary of the calculation of the gain recognized as a result of the termination of
these loss share agreements.
Gain on Termination of FDIC Loss Share
Net cash received from the FDIC .........................
FDIC loss share receivable ...................................
FDIC clawback payable ........................................
Gain on termination of loss share included in
Year Ended
December 31, 2014
(Dollars in thousands)
$20,425
(39,105)
26,676
“other” non-interest income ..........................
$ 7,996
71
The following table presents a summary of the activity within the FDIC loss share receivable during the years
indicated.
FDIC Loss Share Receivable Activity
Balance – beginning of year ............................
Accretion income ............................................
Cash received from FDIC under loss share .....
Reduction of FDIC loss share receivable for
payments on covered loans in excess of
carrying value ............................................
Increase in FDIC loss share receivable for:
Charge-offs of covered loans .....................
Write down of covered foreclosed assets ...
Expenses on covered assets reimbursable
by FDIC .................................................
Other activity, net ............................................
Termination of FDIC loss share ......................
Balance – end of year ......................................
Year Ended December 31,
2013
(Dollars in thousands)
$152,198
8,420
(80,269)
2014
$ 71,854
168
(24,810)
$279,045
8,574
(143,997)
2012
(21,706)
(37,296)
(33,011)
5,313
5,176
5,440
(2,330)
(39,105)
$ -
17,855
4,934
19,279
8,845
9,969
(3,957)
-
$ 71,854
11,378
2,085
-
$152,198
The following table presents a summary of the activity within the FDIC clawback payable during the years
indicated.
FDIC Clawback Payable Activity
Balance – beginning of year ...................................
Amortization expense .............................................
Change in FDIC clawback payable related to
changes in expected losses on covered assets ...
Termination of FDIC loss share agreements ..........
Balance – end of year .............................................
Year Ended December 31,
2013
(Dollars in thousands)
$25,169
1,249
2012
$24,645
1,199
2014
$ 25,897
779
-
(26,676)
$ -
(521)
-
$25,897
(675)
-
$25,169
Nonperforming Assets
Nonperforming assets consist of (1) nonaccrual loans and leases, (2) accruing loans and leases 90 days or more
past due, (3) TDRs and (4) real estate or other assets that have been acquired in partial or full satisfaction of loan or lease
obligations or upon foreclosure. Purchased loans are not included in the following table as nonperforming assets, except for
their inclusion in total assets, but are analyzed and discussed separately elsewhere in this MD&A.
The accrual of interest on non-purchased loans and leases and purchased loans without evidence of credit
deterioration at the date of acquisition is discontinued when, in management’s opinion, the borrower or lessee may be
unable to meet payments as they become due. We generally place a loan or lease, excluding purchased loans with evidence
of credit deterioration on the date of purchase, on nonaccrual status when such loan or lease is (i) deemed impaired or (ii) 90
days or more past due, or earlier when doubt exists as to the ultimate collection of payments. We may continue to accrue
interest on certain loans or leases contractually past due 90 days or more if such loans or leases are both well secured and in
the process of collection. At the time a loan or lease is placed on nonaccrual status, interest previously accrued but
uncollected is 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 we reasonably expect 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 ALLL.
Loans for which the terms have been modified and for which (i) the borrower is experiencing financial difficulties and (ii)
we have granted a concession to the borrower are considered troubled debt restructurings (“TDRs”) and are included in
impaired loans and leases. Income on nonaccrual loans or leases, including impaired loans and leases but excluding certain
72
TDRs which continue to accrue interest, is recognized on a cash basis when and if actually collected. For the year ended
December 31, 2014, there were no defaults during the preceding 12 months on any loans that were considered TDRs.
The following table presents information, excluding purchased loans, concerning nonperforming assets, including
nonaccrual loans and leases, TDRs, and foreclosed assets as of the dates indicated.
Nonperforming Assets
Nonaccrual loans and leases .................................
Accruing loans and leases 90 days or more past
due .................................................................
TDRs ....................................................................
Total nonperforming loans and leases ......
Foreclosed assets(1)(2) ............................................
Total nonperforming assets (2)(3) ................
Nonperforming loans and leases to total loans
and leases (3) ..................................................
Nonperforming assets to total assets (2)(3) .............
2014
2013
December 31,
2012
(Dollars in thousands)
2011
2010
$21,085
$ 8,737
$ 9,109
$ 12,206
$13,939
-
-
21,085
37,775
$58,860
-
-
8,737
49,811
$58,548
-
-
9,109
66,875
$75,984
-
1,000
13,206
104,669
$117,875
-
-
13,939
73,361
$87,300
0.53%
0.87
0.33%
1.22
0.43%
1.88
0.70%
3.07
0.75%
2.67
(1) Repossessed personal properties and real estate acquired through or in lieu of foreclosure, excluding purchased foreclosed assets,
are initially recorded at the lesser of current principal investment or estimated market value less estimated cost to sell at the date
of repossession or foreclosure. Purchased foreclosed assets, including foreclosed assets previously covered by FDIC loss share,
are initially recorded at Day 1 Fair Values. Valuations of these assets are periodically reviewed by management with the carrying
value of such assets adjusted through non-interest expense to the then estimated market value net of estimated selling costs, if
lower, until disposition.
(2) During the fourth quarter of 2014, we entered into agreements with the FDIC terminating the loss share agreements for all seven
of our FDIC-assisted acquisitions. As a result of entering into these termination agreements, we reclassified foreclosed assets
previously reported as covered by FDIC loss share to foreclosed assets for the current and all prior periods. All prior period
ratios of nonperforming assets to total assets have been recalculated to include foreclosed assets previously covered by FDIC loss
share as nonperforming assets.
(3) Excludes purchased loans, except for their inclusion in total assets.
If an adequate current determination of collateral value has not been performed, once a loan or lease is considered
impaired, we seek to establish an appropriate value for the collateral. This assessment may include (i) obtaining an updated
appraisal, (ii) obtaining one or more broker price opinions or comprehensive market analyses, (iii) internal evaluations or
(iv) other methods deemed appropriate considering the size and complexity of the loan and the underlying collateral. On an
ongoing basis, typically at least quarterly, we evaluate the underlying collateral on all impaired loans and leases and, if
needed, due to changes in market or property conditions, the underlying collateral is reassessed and the estimated fair value
is revised. The determination of collateral value includes any adjustments considered necessary related to estimated holding
period and estimated selling costs.
At December 31, 2014, we had reduced the carrying value of our loans and leases deemed impaired (all of which
were included in nonaccrual loans and leases) by $5.9 million to the estimated fair value of such loans and leases of $19.5
million. The adjustment to reduce the carrying value of impaired loans and leases to estimated fair value consisted of $4.8
million of partial charge-offs and $1.1 million of specific loan and lease loss allocations. These amounts do not include our
$14.0 million of impaired purchased loans at December 31, 2014.
The increase in our nonaccrual loans and leases at December 31, 2014 compared to December 31, 2013 was
primarily due to two relationships totaling $14.2 million. While the loans associated with these relationships are on
nonaccrual status at December 31, 2014, we believe the loans are adequately collateralized, and we do not currently
anticipate recording any significant amounts of additional provision for loan and lease losses or otherwise incur any
significant loss on such loans.
73
The following table is a summary of activity within foreclosed assets, excluding foreclosed assets previously
covered by FDIC loss share agreements while such assets were covered by loss share, for the years indicated.
Activity Within Foreclosed Assets
Balance – beginning of year ......................................................
Loans and other assets transferred into foreclosed assets ..........
Sales of foreclosed assets ..........................................................
Writedowns of foreclosed assets ...............................................
Foreclosed assets acquired in acquisitions.................................
Termination of FDIC loss share(1) .............................................
Balance – end of year ................................................................
2014
Year Ended December 31,
2013
(Dollars in thousands)
$13,924
9,464
(12,343)
(1,352)
2,158
-
$11,851
$11,851
20,139
(22,185)
(1,299)
6,724
22,545
$37,775
2012
$31,762
9,047
(25,482)
(1,713)
310
-
$13,924
(1) This amount represents the balance of foreclosed assets covered by FDIC loss share when we entered into agreements with the
FDIC to terminate loss share.
The following table is a summary of activity within foreclosed assets previously reported as covered by FDIC loss
share agreements during the years indicated.
Activity Within Foreclosed Assets Previously
Covered by FDIC Loss Share
Balance – beginning of year ......................................................
Transfers from covered loans ....................................................
Sales of covered foreclosed assets .............................................
Writedowns of covered foreclosed assets ..................................
Termination of FDIC loss share(1) .............................................
Balance – end of year ................................................................
2014
Year Ended December 31,
2013
(Dollars in thousands)
$52,951
34,756
(45,954)
(3,793)
-
$37,960
$37,960
35,845
(46,026)
(5,234)
(22,545)
$ -
2012
$72,907
33,020
(43,987)
(8,989)
-
$52,951
(1) This amount represents the balance of foreclosed assets covered by FDIC loss share when we entered into agreements with the
FDIC to terminate loss share.
The following table is a summary of the amount and type of foreclosed assets, including assets previously reported
as covered by FDIC loss share agreements, as of the dates indicated.
Foreclosed Assets
December 31,
2014
(Dollars in thousands)
2013
Real estate:
Residential 1-4 family ........................................................................
Non-farm/non-residential....................................................................
Construction/land development ..........................................................
Agricultural.........................................................................................
Multifamily residential .......................................................................
Total real estate .............................................................................
Commercial and industrial .....................................................................
Consumer ...............................................................................................
Foreclosed assets ...........................................................................
Foreclosed assets previously reported as covered by FDIC loss share ...
Foreclosed assets not covered by FDIC loss share .................................
Total foreclosed assets ...................................................................
$ 7,909
17,305
10,998
728
772
37,712
56
7
$37,775
$ -
37,775
$37,775
$ 6,608
18,681
22,561
1,276
610
49,736
75
-
$49,811
$37,960
11,851
$49,811
74
The following table presents information concerning the geographic location of nonperforming assets, excluding
purchased loans, at December 31, 2014. Nonaccrual loans and leases are reported in the physical location of the principal
collateral. Foreclosed assets are reported in the physical location of the asset. Repossessions are reported at the physical
location where the borrower resided or had its principal place of business at the time of repossession.
Geographic Distribution of Nonperforming Assets
Nonperforming
Loans and
Leases
Foreclosed
Assets and
Repossessions
(Dollars in thousands)
Total
Nonperforming
Assets
Arkansas .................
Georgia ..................
North Carolina .......
Florida ...................
Texas .....................
South Carolina .......
Alabama ................
All other.................
Total ...............
$17,785
6
1,165
1,653
396
-
23
57
$21,085
$ 7,775
17,043
5,757
3,355
1,405
1,242
1,143
55
$37,775
$25,560
17,049
6,922
5,008
1,801
1,242
1,166
112
$58,860
The following table presents information, as of the dates indicated, concerning impaired purchased loans.
Impaired Purchased Loans
2014
2013
Year Ended December 31,
2012
(Dollars in thousands)
2011
2010
Impaired purchased loans without
evidence of credit deterioration
(rated FV 77) ..................................
Impaired purchased loans with
evidence of credit deterioration
(rated FV 88) ..................................
Total impaired purchased loans ..
Impaired purchased loans to total
$ 748
$ -
$ -
$ -
$ -
13,292
$14,040
46,179
$46,179
38,463
$38,463
1,854
$1,854
-
$ -
purchased loans ...............................
1.22%
6.37%
6.03%
0.23%
0.00%
As of December 31, 2014, 2013 and 2012, we had identified purchased loans where we had determined it was
probable that we would be unable to collect all amounts according to the contractual terms thereof (for purchased loans
without evidence of credit deterioration at date of acquisition) or the expected performance of such loans had deteriorated
from our performance expectations established in conjunction with the determination of the Day 1 Fair Values or since our
most recent review of such portfolio’s performance (for purchased loans with evidence of credit deterioration at date of
acquisition). As a result, we recorded partial charge-offs, net of adjustments to the FDIC loss share receivable and the FDIC
clawback payable for those loans previously covered by FDIC loss share agreements, totaling $3.2 million during 2014,
$4.7 million during 2013 and $6.2 million during 2012 for such loans. We also recorded $3.2 million during 2014, $4.7
million during 2013 and $6.2 million in 2012 of provision for loan and lease losses to cover these charge-offs. In addition to
these charge-offs, we transferred certain of these purchased loans to foreclosed assets. As a result of these actions, we had
$14.0 million of impaired purchased loans at December 31, 2014, $46.2 million of impaired purchased loans at December
31, 2013, and $38.5 million of impaired purchased loans at December 31, 2012.
75
Allowance and Provision for Loan and Lease Losses
Our ALLL was $52.9 million at December 31, 2014, compared to $42.9 million at December 31, 2013 and $38.7
million at December 31, 2012. We had no allowance for purchased loans at December 31, 2014, 2013 or 2012 because all
losses on such loans had been previously charged off. Our ALLL as a percentage of nonperforming loans and leases,
excluding purchased loans, was 251% at December 31, 2014, compared to 492% at December 31, 2013 and 425% at
December 31, 2012. Our practice is to charge off any estimated loss as soon as we are able to identify and reasonably
quantify such potential loss. Accordingly, only a small portion of our ALLL is needed for potential losses on
nonperforming loans. While we believe the current allowance is appropriate, changing economic and other conditions may
require future adjustments to the ALLL.
The amount of provision to the ALLL is based on our analysis of the adequacy of the ALLL utilizing the criteria
discussed in the Critical Accounting Policies caption of this MD&A. The provision for loan and lease losses for 2014 was
$16.9 million, including $13.7 million for non-purchased loans and leases and $3.2 million for purchased loans, compared
to $12.1 million in 2013, including $7.4 million for non-purchased loans and leases and $4.7 million for purchased loans,
and $11.7 million in 2012, including $5.5 million for non-purchased loans and leases and $6.2 million for purchased loans.
The increase in our provision for non-purchased loans and leases in 2014 compared to 2013 and in 2013 compared to 2012
was primarily the result of provision necessary to cover the growth in our loan and lease portfolio during 2014 and 2013,
partially offset by the improvement in the net charge-off ratio for this portfolio in 2014 compared to 2013 and 2012. Our
provision for purchased loans for 2014, 2013 and 2012 was the amount needed to provide for the net charge-offs of
purchased loans with evidence of credit deterioration since the date of acquisition whose performance had deteriorated from
our performance expectations established in conjunction with the determination of the Day 1 Fair Values or since our most
recent review of such portfolio’s performance. As we move further from the acquisition dates of our purchased loan
portfolios, particularly those acquisitions that contained significant levels of purchased loans with evidence of credit
deterioration at the date of acquisition, more purchased loans have either (i) exceeded our performance expectations
established in determining the Day 1 Fair Values, resulting in a reversal of any previous provision for such loans and then
an adjustment to accretable yield, which has a positive impact on interest income or (ii) deteriorated from our performance
expectations established in determining the Day 1 Fair Values, resulting in partial or full charge-offs of the carrying value of
such purchased loans.
76
The following table is an analysis of the ALLL for the years indicated.
Analysis of the ALLL
Balance, beginning of period ...........................
Non-purchased loans and leases charged off(1):
Real estate:
Residential 1-4 family ...........................
Non-farm/non-residential ......................
Construction/land development .............
Agricultural ...........................................
Multifamily residential ..........................
Total real estate ...................................
Commercial and industrial .......................
Consumer .................................................
Direct financing leases .............................
Other ........................................................
Total non-purchased loans and leases
charged off .....................................
Recoveries of non-purchased loans and leases
previously charged off(1):
Real estate:
Residential 1-4 family ...........................
Non-farm/non-residential ......................
Construction/land development .............
Agricultural ...........................................
Multifamily residential ..........................
Total real estate ...................................
Commercial and industrial .......................
Consumer .................................................
Direct financing leases .............................
Other ........................................................
Total recoveries ...................................
Net non-purchased loans and leases charged
off .............................................................
Purchased loans charged off, net ......................
Net charge-offs – total loans and leases ...........
Provision for loan and lease losses:
Non-purchased loans and leases ...............
Purchased loans ........................................
Total provision ....................................
Balance, end of period .....................................
Net charge-offs of non-purchased loans and
leases to average non-purchased loans and
leases (2) .....................................................
Net charge-offs of purchased loans to total
average purchased loans ............................
ALLL to total loans and leases (1) .....................
ALLL to nonperforming loans and leases (1) ....
Year Ended December 31,
2014
2013
2012
2011
2010
(Dollars in thousands)
$42,945
$38,738
$39,169
$40,230
$39,619
(577)
(1,357)
(638)
(214)
-
(2,786)
(720)
(222)
(602)
(793)
(837)
(1,111)
(137)
(261)
(4)
(2,350)
(922)
(214)
(482)
(359)
(1,312)
(1,226)
(466)
(997)
-
(4,001)
(1,323)
(732)
(361)
(219)
(2,743)
(1,033)
(5,651)
(771)
-
(10,198)
(1,465)
(825)
(413)
(87)
(872)
(1,702)
(4,037)
(301)
(133)
(7,045)
(6,937)
(1,196)
(478)
(1,108)
(5,123)
(4,327)
(6,636)
(12,988)
(16,764)
135
33
11
14
-
193
808
80
49
266
1,396
(3,727)
(3,215)
(6,942)
13,700
3,215
16,915
$52,918
106
122
174
14
4
420
433
104
33
144
1,134
107
18
106
141
-
372
35
238
2
8
655
64
16
30
-
-
110
142
166
5
4
427
(3,193)
(4,675)
(7,868)
(5,981)
(6,195)
(12,176)
(12,561)
(275)
(12,836)
7,400
4,675
12,075
$42,945
5,550
6,195
11,745
$38,738
11,500
275
11,775
$39,169
99
87
253
45
1
485
656
212
20
2
1,375
(15,389)
-
(15,389)
16,000
-
16,000
$40,230
0.12%
0.14%
0.30%
0.69%
0.81%
0.29%
1.33%
251%
0.70%
1.63%
492%
0.86%
1.83%
425%
0.04%
2.08%
297%
0.00%
2.17%
289%
(1) Excludes purchased loans.
(2) Excludes purchased loans and net charge-offs related to such loans.
77
The following table sets forth the sum of the amounts of the ALLL attributable to individual non-purchased loans
and leases within each category, or non-purchased loan and lease categories in general and, prior to December 31, 2011, the
unallocated allowance. We refined our allowance calculation during 2011 such that we no longer maintain unallocated
allowance. The table also reflects the percentage of non-purchased loans and leases in each category to the total portfolio of
non-purchased loans and leases as of the dates indicated. These allowance amounts have been computed using our internal
grading system, specific impairment analyses, specific special reserve analyses and qualitative factor allocations. The
amounts shown are not necessarily indicative of the actual future losses that may occur within particular categories. We had
no allocation of our allowance to purchased loans for any of the periods presented because all losses had been charged off
on such loans whose performance had deteriorated from our expectations established in conjunction with the deterioration
of the Day 1 Fair Values.
Allocation of the ALLL
2014
2013
% of
Loans
and
Leases(1)
% of
Loans
and
Leases(1)
Allowance
Allowance
December 31,
2012
% of
Loans
and
Leases(1)
Allowance
(Dollars in thousands)
2011
2010
% of
Loans
and
Leases(1)
% of
Loans
and
Leases(1)
Allowance
Allowance
$ 5,482
7.1%
$ 4,701
9.5%
$ 4,820
12.9%
$ 3,848
13.8%
$ 2,999
14.3%
17,190
37.8
13,633
41.9
10,107
38.1
12,203
37.7
8,313
36.5
15,960
2,558
35.5
1.2
12,306
3,000
27.4
1.8
12,000
2,878
27.4
2.4
5.3
7.2
0.6
2.9
2.4
2,147
4,873
818
2,989
901
-
$52,918
2,504
7.9
2,030
6.7
2,855
917
2,266
763
4.7
1.0
3.3
2.5
3,655
1,015
2,050
183
7.6
1.4
3.2
0.3
-
$42,945
-
$38,738
-
$39,169
9,478
3,383
2,564
4,591
1,209
1,632
261
25.4
3.8
7.6
6.4
1.9
2.9
0.5
10,565
2,569
26.8
4.4
5.6
6.5
2.9
2.3
0.7
1,320
4,142
2,051
1,726
201
6,344
$40,230
Real estate:
Residential 1-4
family ...........
Non-farm/ non-
residential ....
Construction/
land
development
Agricultural .....
Multifamily
residential ....
Commercial and
industrial ......
Consumer ..........
Direct financing
leases ...........
Other ..................
Unallocated
allowance .....
Total ........
(1) Excludes purchased loans.
We maintain an internally classified loan and lease list that, along with the list of nonaccrual loans and leases, the
list of impaired loans and leases, the list of loans and leases with specific reserves and the qualitative factor allocations,
helps us assess the overall quality of the loan and lease portfolio and the adequacy of our ALLL. Loans and leases classified
as “substandard” have clear and defined weaknesses such as highly leveraged positions, unfavorable financial ratios,
uncertain repayment sources or poor financial condition which may jeopardize collectability of the loan or lease. Loans and
leases classified as “doubtful” have characteristics similar to substandard loans and leases, but also have an increased risk
that a loss may occur or at least a portion of the loan or lease may require a charge-off if liquidated. Although loans and
leases classified as substandard do not duplicate loans and leases classified as doubtful, both substandard and doubtful loans
and leases may include some that are past due at least 90 days, are on nonaccrual status or have been restructured. Loans
and leases classified as “loss” are charged off. At December 31, 2014 substandard loans and leases, excluding purchased
loans, not designated as impaired, nonaccrual or 90 days past due, totaled $11.7 million, compared to $12.0 million at
December 31, 2013 and $27.5 million at December 31, 2012. No loans or leases were designated as doubtful or loss at
December 31, 2014, 2013 or 2012.
78
Administration of our lending function is the responsibility of the Chief Executive Officer (“CEO”), Chief Credit
Officer (“CCO”), Chief Lending Officer (“CLO”) and certain other lenders. Such officers and lenders perform their lending
duties subject to the oversight and policy direction of our board of directors and the directors’ loan committee. Loan or
lease authority is granted to the CEO, CCO and CLO by the board of directors. The loan or lease authorities of other
lending officers are granted by the directors’ loan committee on the recommendation of appropriate senior officers.
Loans and leases and aggregate loan and lease relationships exceeding $10 million up to the limits established by
our board of directors must be approved by the directors’ loan committee. The directors’ loan committee consists of five or
more directors and two of our senior officers. The directors’ loan committee reviews various reports of loan and lease
concentrations, loan and lease originations and commitments over $100,000, internally classified and watch list loans and
leases and various other loan and lease reports. At least quarterly the board of directors reviews summary reports of past due
loans and leases, activity in the Company’s ALLL and various other loan and lease reports.
Our compliance and loan review officers are responsible for our bank subsidiary’s compliance and loan review
functions. Periodic reviews are scheduled for the purpose of evaluating asset quality and effectiveness of loan and lease
administration. The compliance and loan review officers prepare reports which identify deficiencies, establish
recommendations for improvement and outline management’s proposed action plan for curing the identified deficiencies.
These reports are provided to and reviewed by our audit committee. Additionally, the reports issued by our loan review
function are provided to and reviewed by our directors’ loan committee.
Investment Securities
At December 31, 2014, 2013 and 2012, we classified all of our investment securities portfolio as available for sale.
Accordingly, our investment securities are reported at estimated fair value with the unrealized gains and losses, net of tax,
reported as a separate component of stockholders’ equity and included in other comprehensive income (loss).
The following table presents the amortized cost and the fair value of investment securities as of the dates indicated.
Our holdings of “other equity securities” include FHLB-Dallas and First National Banker’s Bankshares, Inc. (“FNBB”)
shares which do not have readily determinable fair values and are carried at cost.
Investment Securities
2014
Amortized
Cost
Fair
Value
December 31,
2013
Amortized
Fair
Value
Cost
(Dollars in thousands)
2012
Amortized
Cost
Fair
Value
Obligations of states and political
subdivisions .................................
U.S. Government agency securities ..
Corporate obligations ........................
Other equity securities .......................
Total ...........................
$555,335
245,854
654
14,225
$816,068
$573,209
251,233
654
14,225
$839,321
$438,390
222,510
716
13,810
$675,426
$435,989
218,869
716
13,810
$669,384
$345,224
116,835
776
13,689
$476,524
$361,517
118,284
776
13,689
$494,266
Our investment securities portfolio is reported at estimated fair value, which included gross unrealized gains of
$24.4 million and gross unrealized losses of $1.2 million at December 31, 2014; gross unrealized gains of $8.6 million and
gross unrealized losses of $14.6 million at December 31, 2013; and gross unrealized gains of $18.1 million and gross
unrealized losses of $0.3 million at December 31, 2012. We believe that all of the unrealized losses on individual
investment securities at December 31, 2014 are the result of fluctuations in interest rates and do not reflect deterioration in
the credit quality of our investments. Accordingly, we consider these unrealized losses to be temporary in nature. We do not
have the intent to sell these investment securities and more likely than not, would not be required to sell these investment
securities before fair value recovers to amortized cost.
79
The following table presents the unaccreted discount and unamortized premium of our investment securities as of
the dates indicated.
Unaccreted Discount and Unamortized Premium
Amortized
Cost
Unaccreted
Discount
Unamortized
Premium
(Dollars in thousands)
Par
Value
December 31, 2014:
Obligations of states and political
subdivisions ....................................
U.S. Government agency securities ....
Corporate obligations .........................
Other equity securities ........................
Total ........................................
$555,335
245,854
654
14,225
$816,068
$ 7,976
3,916
-
-
$11,892
December 31, 2013:
Obligations of states and political
subdivisions ....................................
U.S. Government agency securities ....
Corporate obligations .........................
Other equity securities ........................
Total ........................................
$438,390
222,510
716
13,810
$675,426
$ 8,298
4,694
-
-
$12,992
$ (7,662)
(3,953)
(13)
-
$(11,628)
$ (3,447)
(4,436)
(18)
-
$ (7,901)
$555,649
245,817
641
14,225
$816,332
$443,241
222,768
698
13,810
$680,517
We recognized premium amortization, net of discount accretion, of $0.6 million during 2014, $0.5 million during
2013 and $0.2 million during 2012. Any premium amortization or discount accretion is considered an adjustment to the
yield of our investment securities.
We had net gains on investment securities of $0.1 million in 2014 from the sale of approximately $55.6 million of
investment securities, compared to net gains of $0.2 million in 2013 from the sale of approximately $0.8 million of
investment securities, and net gains of $0.5 million in 2012, which included $3.1 million of net gains from the sale of
approximately $40 million of investment securities and an impairment charge of $2.6 million. Investment securities totaling
$103.1 million in 2014, $85.9 million in 2013, and $57.3 million in 2012 matured or were called by the issuer. We
purchased investment securities totaling $56.1 million in 2014, $141.5 million in 2013 and $62.1 million in 2012.
We invest in securities we believe offer good relative value at the time of purchase, and we will, from time to time
reposition our investment securities portfolio. In making decisions to sell or purchase securities, we consider credit quality,
call features, maturity dates, relative yields, current market factors, interest rate risk and other relevant factors.
The following table presents the types and estimated fair values of our investment securities at December 31, 2014
based on credit ratings by one or more nationally-recognized credit rating agencies.
Credit Ratings of Investment Securities
Obligations of states and
political subdivisions ..
U.S. Government agency
securities ......................
Corporate obligations .....
Other equity securities ....
Total ......................
Percentage of total ..........
Cumulative percentage of
total ............................
AAA(1)
AA(2)
A(3)
BBB(4)
Non-Rated(5)
Total
(Dollars in thousands)
$9,546
$175,805
$129,494
$42,133
$216,231
$573,209
-
-
-
$9,546
1.1%
1.1%
251,233
-
150
$427,188
50.9%
52.0%
-
654
-
$130,148
15.5%
-
-
-
$42,133
5.0%
-
-
14,075
$230,306
27.5%
251,233
654
14,225
$839,321
100.0%
67.5%
72.5%
100.0%
(1)
(2)
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.
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.
80
(3)
(4)
(5)
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.
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.
Includes all securities that are not rated or securities that are not rated but that have a rated credit enhancement where we have ignored such credit
enhancement. For these securities, we have performed our own evaluation of the security and/or the underlying issuer and believe that such security
or its issuer would warrant a credit rating of investment grade (i.e., Baa3 or better by Moody’s or BBB- or better by S&P or a comparable rating by
other nationally-recognized credit rating agencies).
The following table reflects the expected maturity distribution of our investment securities, at fair value, at
December 31, 2014 and weighted-average yields (for tax-exempt obligations on a FTE basis) of such securities. The
maturity for all investment securities is shown based on each security’s contractual maturity date, except (1) equity
securities with no contractual maturity date which are shown in the longest maturity category, (2) U.S. Government agency
securities collateralized by residential mortgages are allocated among various maturities based on an estimated repayment
schedule utilizing Bloomberg median prepayment speeds based on interest rate levels at December 31, 2014, and (3)
callable investment securities for which the Company has received notification of call are included in the maturity category
in which the call occurs or is expected to occur. Actual maturities will differ from contractual maturities because issuers
may have the right to call or prepay obligations with or without call or prepayment penalties. The weighted-average yields –
FTE are calculated based on the coupon rate and amortized cost for such securities and do not include any projected
discount accretion or premium amortization.
Expected Maturity Distribution of Investment Securities
1 Year
Or
Less
Over 1
Through
5 Years
Over 5
Through
10 Years
Over
10
Years
(Dollars in thousands)
Obligations of states and political
U.S. Government agency securities ...
Corporate obligations .........................
Other equity securities (1) ...................
subdivisions .................................... $26,421
24,352
-
-
Total ...................................... $50,773
$ 40,796
103,091
-
-
$143,887
$107,969
80,893
654
-
$189,516
$398,023
42,897
-
14,225
$455,145
Percentage of total .............................
Cumulative percentage of total ..........
6.0%
6.0%
17.1%
23.1%
22.6%
45.7%
54.3%
100.0%
Total
$573,209
251,233
654
14,225
$839,321
100.0%
Weighted-average yield – FTE ..........
4.89%
2.86%
4.20%
5.59%
4.77%
(1) Includes approximately $13.8 million of FHLB-Dallas stock which has historically paid quarterly dividends at a variable rate
approximating the federal funds rate.
81
Deposits
Our lending and investing activities are funded primarily by deposits. The amount and type of deposits outstanding
as of the dates indicated and their respective percentage of total deposits are reflected in the following table.
Deposits
2014
December 31,
2013
(Dollars in thousands)
2012
$1,145,454
20.8%
$ 746,320
20.0%
$ 578,528
18.6%
18.8
33.9
12.0
839,632
1,233,865
471,052
22.6
33.2
12.7
806,293
935,385
443,233
26.0
30.2
14.3
Non-interest bearing ...............
Interest bearing:
Transaction (NOW) .............
Savings and money market ..
Time deposits less than
1,031,255
1,861,734
$100,000 ........................
660,711
Time deposits of $100,000
or more ...........................
Total deposits .............
797,228
$5,496,382
14.5
100.0%
426,158
$3,717,027
11.5
100.0%
337,616
$3,101,055
10.9
100.0%
Our non-CD deposits comprised 73.5% of total deposits at December 31, 2014, compared to 75.9% of total
deposits at December 31, 2013 and 74.8% at December 31, 2012. Non-CD deposits totaled $4.04 billion at December 31,
2014, compared to $2.82 billion at December 31, 2013 and $2.32 billion at December 31, 2012. Non-interest bearing
deposits comprised 20.8% of total deposits at December 31, 2014, compared to 20.0% of total deposits at December 31,
2013 and 18.6% at December 31, 2012. At December 31, 2014, we had outstanding brokered deposits of $210 million,
compared to $49 million at December 31, 2013 and $47 million at December 31, 2012.
The following table reflects the average balance and average rate paid for each deposit category shown for the
years indicated.
Average Deposit Balances and Rates
Year Ended December 31,
2013
2014
Average
Average
Balance
Rate
Paid
Average
Balance
Average
Rate
Paid
2012
Average
Average
Balance
Rate
Paid
$ 989,073
-
$ 639,521
-
$ 492,299
-
(Dollars in thousands)
765,503
1,033,189
444,862
390,894
$3,273,969
0.13%
0.25
0.31
0.28
0.23
713,539
866,370
444,451
351,002
$2,867,661
0.22%
0.35
0.57
0.53
0.38
Non-interest bearing ...............
Interest bearing:
Transaction (NOW) ............
Savings and money market ..
Time deposits less than
979,500
1,584,750
0.13%
0.34
$100,000 ........................
541,938
Time deposits of $100,000
or more...........................
Total deposits .............
558,389
$4,653,650
0.28
0.29
0.23
82
The following table sets forth, by time remaining to maturity, time deposits of $100,000 and over as of the date
indicated.
Maturity Distribution of Time Deposits of $100,000 and Over
3 months or less ...................................
Over 3 to 6 months ..............................
Over 6 to 12 months ............................
Over 12 months....................................
Total ...............................................
December 31,
2014
(Dollars in thousands)
$190,457
150,318
309,535
146,918
$797,228
The amount and percentage of our deposits by state of originating office, as of the dates indicated, are reflected in
the following table.
Deposits by State of Originating Office
Deposits
Attributable
to Offices In
2014
Amount
%
December 31,
2013
Amount
%
(Dollars in thousands)
2012
Amount
%
Arkansas ......................
Texas ............................
Georgia ........................
North Carolina .............
Florida ..........................
Alabama .......................
South Carolina .............
Total ..................
$2,912,291
996,908
675,801
599,184
141,266
124,469
46,463
$5,496,382
53.0%
18.1
12.3
10.9
2.6
2.3
0.8
100.0%
$1,671,498
492,069
634,060
629,241
124,894
137,345
27,920
$3,717,027
45.0%
13.2
17.1
16.9
3.4
3.7
0.7
100.0%
$1,714,455
390,532
673,702
20,057
135,957
152,653
13,699
$3,101,055
55.3%
12.6
21.7
0.7
4.4
4.9
0.4
100.0%
Other Interest Bearing Liabilities
We also rely on other interest bearing liabilities to fund our lending and investing activities. Such liabilities consist
of repurchase agreements with customers, other borrowings (primarily FHLB-Dallas advances and, to a lesser extent, FRB
borrowings and federal funds purchased) and subordinated debentures.
The following table reflects the average balance and average rate paid for each category of other interest bearing
liabilities for the years indicated.
Average Balances and Rates of Other Interest Bearing Liabilities
Year Ended December 31,
2013
2014
Average
Average
Balance
Rate
Paid
Average
Balance
Average
Rate
Paid
Average
Balance
Repurchase agreements
with customers ................
Other borrowings (1) ...........
Subordinated debentures ....
Total other interest
(Dollars in thousands)
$ 63,869
281,829
64,950
0.09%
3.78
2.61
$ 39,056
289,615
64,950
0.08%
3.72
2.65
$ 34,776
291,678
64,950
2012
Average
Rate
Paid
0.13%
3.68
2.85
bearing liabilities ........
$410,648
3.02
$393,621
3.18
$391,404
3.22
(1) Included in other borrowings at December 31, 2014 are FHLB-Dallas advances that contain quarterly call features and mature as
follows: 2017, $170 million at 3.77% weighted-average rate; and 2018, $20 million at 2.53% weighted-average rate.
83
Capital Resources
Capital Resources and Liquidity
Subordinated Debentures. At December 31, 2014, we had an aggregate of $64.9 million of subordinated
debentures and related trust preferred securities outstanding consisting of $20.6 million of subordinated debentures and
securities issued in 2006 that bear interest, adjustable quarterly, at LIBOR plus 1.60%; $15.4 million of subordinated
debentures and securities issued in 2004 that bear interest, adjustable quarterly, at LIBOR plus 2.22%; and $28.9 million of
subordinated debentures and securities issued in 2003 that bear interest, adjustable quarterly, at a weighted-average rate of
LIBOR plus 2.925%. These subordinated debentures and securities generally mature 30 years after issuance and may be
prepaid at par, subject to regulatory approval, on or after approximately five years from the date of issuance, or at an earlier
date upon certain changes in tax laws, investment company laws or regulatory capital requirements. In addition, on February
10, 2015, we acquired an aggregate outstanding amount of $56.7 million of subordinated debentures and trust preferred
securities in connection with our Intervest acquisition. These subordinated debentures and the related trust preferred
securities provide us additional regulatory capital to support our expected future growth and expansion.
We may need to raise additional capital in the future to provide us with sufficient capital resources and liquidity to
meet our commitments and business needs. As a publicly traded company, a likely source of additional funds is the capital
markets, which can provide us with funds through the public issuance of equity, both common and preferred stock, and the
issuance of subordinated debentures. Our ability to raise additional capital, if needed, will depend on, among other things,
conditions in the capital markets at that time, which are outside of our control, and our financial performance.
Common Stockholders’ Equity and Non-GAAP Financial Measures. We use non-GAAP financial measures,
specifically tangible common stockholders’ equity, tangible common stockholders’ equity to total tangible assets, tangible
book value per common share and return on average tangible common stockholders’ equity as important measures of the
strength of our capital and our ability to generate earning on tangible common equity invested by our shareholders. We
believe presentation of these non-GAAP financial measures provides useful supplemental information that contributes to a
proper understanding of our financial results and capital levels. These non-GAAP disclosures should not be viewed as a
substitute for financial results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP
performance measures that may be presented by other companies. Reconciliations of these non-GAAP financial measures
to the most directly comparable GAAP financial measures are included in the following tables.
84
Tangible Common Stockholders’ Equity and the
Calculation of the Ratio of Total Tangible Common
Stockholders’ Equity to Total Tangible Assets
2014
December 31,
2013
(Dollars in thousands)
2012
Total common stockholders’ equity before noncontrolling
interest .............................................................................
$ 908,390
$ 629,060
$ 507,664
Less intangible assets:
Goodwill ..........................................................................
Core deposit and bank charter intangibles,
net of accumulated amortization ..................................
Total intangibles ......................................................
(78,669)
(5,243)
(5,243)
(26,907)
(105,576)
(13,915)
(19,158)
(6,584)
(11,827)
Total tangible common stockholders’ equity ...........
$ 802,814
$ 609,902
$ 495,837
Total assets ...........................................................................
Less intangible assets:
Goodwill ..........................................................................
Core deposit and bank charter intangibles,
net of accumulated amortization ..................................
Total intangibles ......................................................
$6,766,499
$4,791,170
$4,040,207
(78,669)
(5,243)
(5,243)
(26,907)
(105,576)
(13,915)
(19,158)
(6,584)
(11,827)
Total tangible assets .................................................
$6,660,923
$4,772,012
$4,028,380
Ratio of total common stockholders’ equity to total assets ...
Ratio of total tangible common stockholders’ equity to
total tangible assets ..........................................................
13.42%
12.05%
13.13%
12.57%
12.78%
12.31%
Calculation of the Ratio of Tangible Book
Value per Common Share
2014
December 31,
2013
(In thousands, except per share amounts)
2012
Total common stockholders’ equity before noncontrolling
interest ...............................................................................
$908,390
$629,060
$507,664
Less intangible assets:
Goodwill ...........................................................................
Core deposit and bank charter intangibles,
net of accumulated amortization ....................................
Total intangibles .........................................................
Total tangible common stockholders’ equity ...........
$802,814
(78,669)
(5,243)
(5,243)
(26,907)
(105,576)
(13,915)
(19,158)
$609,902
(6,584)
(11,827)
$495,837
Common shares outstanding ..................................................
79,924
73,712*
70,544*
Book value per common share ...............................................
Tangible book value per common share ................................
$ 11.37
$ 10.04
$ 8.53*
$ 8.27*
$ 7.18*
$ 7.03*
*Adjusted to give effect to 2-for-1 stock split on June 23, 2014.
85
Calculation of Return on Average
Tangible Common Stockholders’ Equity
2014
Year Ended
December 31,
2013
(Dollars in thousands)
2012
Net income available to common stockholders .........
Average common stockholders’ equity before
$118,606
$ 91,237
$ 77,044
noncontrolling interest ........................................
$786,430
$560,351
$458,595
Less average intangible assets:
Goodwill .............................................................
Core deposit and bank charter intangibles,
(51,793)
net of accumulated amortization .................
(21,651)
(5,243)
(9,661)
(5,243)
(6,774)
Average tangible common stockholders’ equity
before noncontrolling interest .............................
$712,986
$545,447
$446,578
Return on average common stockholders’ equity ......
Return on average tangible common stockholders’
15.08%
16.28%
16.80%
equity ..................................................................
16.64%
16.73%
17.25%
Common Stock Dividend Policy. In 2014 we paid dividends of $0.47 per common share, compared to $0.36 per
common share in 2013 and $0.25 per common share in 2012. On January 2, 2015, our board of directors approved a
dividend of $0.13 per common share that was paid on January 23, 2015 to shareholders of record on January 16, 2015. The
determination of future dividends on our common stock will depend on conditions existing at that time and approval of our
board of directors. See note 18 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form
10-K for a discussion of dividend restrictions.
Capital Compliance
Regulatory Capital. Bank regulatory authorities in the United States impose certain capital standards on all bank
holding companies and banks. These capital standards require compliance with certain minimum “risk-based capital ratios”
and a minimum “leverage ratio.” The risk-based capital ratios consist of (1) Tier 1 capital (common stockholders’ equity
excluding goodwill, certain intangibles and net unrealized gains and losses on AFS investment securities, but including,
subject to limitations, trust preferred securities, certain types of preferred stock and other qualifying items) to risk-weighted
assets and (2) total capital (Tier 1 capital plus Tier 2 capital which includes the qualifying portion of the ALLL and the
portion of trust preferred securities not counted as Tier 1 capital) to risk-weighted assets. The Tier 1 leverage ratio is
measured as Tier 1 capital to adjusted quarterly average assets.
86
Our consolidated risk-based capital and leverage ratios and our bank subsidiary’s risk-based and leverage ratios as
of the dates indicated exceeded these minimum requirements and are presented in the following table.
Capital Ratios
December 31,
2014
2013(1)
(Dollars in thousands)
Consolidated:
Tier 1 capital:
Common stockholders’ equity ................................................................
Allowed amount of trust preferred securities .........................................
Net unrealized losses (gains) on investment securities AFS ..................
Less goodwill and certain intangible assets ............................................
Total Tier 1 capital ......................................................................
$ 908,390
63,000
(14,132)
(105,576)
851,682
Tier 2 capital:
Qualifying ALLL ...................................................................................
Total risk-based capital ...............................................................
52,918
$ 904,600
Risk-weighted assets ...................................................................................
$6,766,499
Adjusted quarterly average assets – fourth quarter .....................................
$6,590,367
Ratios at end of period:
Tier 1 leverage .......................................................................................
Tier 1 risk-based capital .........................................................................
Total risk-based capital ..........................................................................
12.92%
11.74
12.47
$ 629,060
63,000
3,672
(19,158)
676,574
42,945
$ 719,519
$4,189,244
$4,767,848
14.19%
16.15
17.18
Bank:
Stockholders’ equity – Tier 1 capital ..........................................................
Tier 1 leverage ratio ....................................................................................
Tier 1 risk-based capital ratio .....................................................................
Total risk-based capital ratio ......................................................................
Regulatory Guidelines:
Minimum ratio guidelines:
Tier 1 leverage (2) ....................................................................................
Tier 1 risk-based capital .........................................................................
Total risk-based capital ..........................................................................
Minimum ratio guidelines to be “well capitalized”:
Tier 1 leverage .......................................................................................
Tier 1 risk-based capital .........................................................................
Total risk-based capital ..........................................................................
$ 824,120
$ 659,895
12.52%
11.37
12.10
3.00%
4.00
8.00
5.00%
6.00
10.00
13.85%
15.77
16.80
3.00%
4.00
8.00
5.00%
6.00
10.00
(1) During the second quarter of 2014, we revised our initial estimates and assumptions regarding the expected recovery of acquired assets with
built-in losses. As a result, we have recast the 2013 financial statements to increase the bargain purchase gain on the First National Bank
acquisition by $4.1 million to reflect this change in estimate. Our consolidated and our bank subsidiary’s risk-based capital and leverage ratio
have been recalculated to reflect this adjustment.
(2) 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.
Basel III. On July 9, 2013, the FDIC and other federal banking regulators issued a final rule that will substantially
revise the risk-based capital requirements applicable to bank holding companies and insured depository institutions,
including the Company and the Bank, to make them consistent with agreements that were reached by the Basel Committee
on Banking Supervision (“Basel III”) and certain provisions of the Dodd-Frank Wall Street Reform and Consumer
Protection Act. The final rule applies to all depository institutions, top-tier bank holding companies with total consolidated
assets of $500 million or more and top-tier savings and loan holding companies.
The rule establishes a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets),
increases the minimum Tier 1 capital to risk-based assets requirement (from 4.0% to 6.0% of risk-weighted assets) and
assigns a higher risk weight (150%) to exposures that are more than 90 days past due or are on nonaccrual status and to
certain commercial real estate facilities that finance the acquisition, development or construction of real property.
87
The rule also includes changes in what constitutes regulatory capital, some of which are subject to a two-year
transition period. These changes include the phasing-out of certain instruments as qualifying capital. In addition, Tier 2
capital is no longer limited to the amount of Tier 1 capital included in total capital. Mortgage servicing rights, certain
deferred tax assets and investments in unconsolidated subsidiaries over designated percentages of common stock will be
required to be deducted from capital, subject to a two-year transition period. Finally, the new rules allow for insured
depository institutions to make a one-time election not to include most elements of accumulated other comprehensive
income in regulatory capital and instead effectively use the existing treatment under the general risk-based capital rules.
Insured depository institutions must make their accumulated other comprehensive income opt-out election in the first
Consolidated Reports of Condition and Income, Consolidated Financial Statements for Bank Holding Companies and Parent
Company Only Financial Statements for Large Bank Holding Companies reports that are filed for the first quarter of 2015.
We expect to make this opt-out election in order to avoid significant variations in the level of capital depending upon the
impact of interest rate fluctuations on the fair value of our investment securities portfolio.
The new capital requirements also include changes in the risk-weights of assets to better reflect credit risk and
other risk exposures. These include a 150% risk weight (up from 100%) for certain high volatility commercial real estate
acquisition, development and construction loans and the unsecured portion of non-residential mortgage loans that are 90
days past due or otherwise on nonaccrual status; a 20% (up from 0%) credit conversion factor for the unused portion of a
commitment with an original maturity of one year or less that is not unconditionally cancellable; a 250% risk weight (up
from 100%) for mortgage servicing rights and deferred tax assets that are not deducted from capital; and increased risk
weights (from 0% to up to 600%) for equity exposures.
Finally, the rule limits capital distributions and certain discretionary bonus payments if the banking organization
does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets in
addition to the amount necessary to meet its minimum risk-based capital requirements.
The final rule became effective on January 1, 2015. The capital conservation buffer requirement will be phased in
beginning January 1, 2016, at 0.625% of risk-weighted assets, increasing each year until fully implemented at 2.5% on
January 1, 2019.
While these new rules under Basel III increase the risk-based capital requirements applicable to bank holding
companies and insured depository institutions and include changes in the risk-weights of certain assets to better reflect credit
risk and other risk exposures, we expect both the Company and the Bank will be considered well-capitalized under these
new rules.
Liquidity
General. Liquidity represents an institution’s ability to provide funds to satisfy demands from depositors,
borrowers and other creditors by either converting assets into cash or accessing new or existing sources of incremental
funds. Liquidity risk arises from the possibility we may be unable to satisfy current or future funding requirements and
needs. The ALCO and Investments Committee (“ALCO”), which reports to our board of directors, has primary
responsibility for oversight of our liquidity, funds management, asset/liability (interest rate risk) position and investment
portfolio functions.
The objective of managing liquidity risk is to ensure the cash flow requirements resulting from depositor, borrower
and other creditor demands are met, as well as our operating cash needs, and the cost of funding such requirements and
needs is reasonable. We maintain an interest rate risk, liquidity and funds management policy and a contingency funding
plan that, among other things, include policies and procedures for managing liquidity risk. Generally we rely on deposits,
repayments of loans and leases, and repayments of our investment securities as our primary sources of funds. Our principal
deposit sources include consumer, commercial and public funds customers in our markets. We have used these funds,
together with wholesale deposit sources such as brokered deposits, along with FHLB-Dallas advances, federal funds
purchased and other sources of short-term borrowings, to make loans and leases, acquire investment securities and other
assets and to fund continuing operations.
Deposit levels may be affected by a number of factors, including rates paid by competitors, general interest rate
levels, returns available to customers on alternative investments, general economic and market conditions and other factors.
Loan and lease repayments are a relatively stable source of funds but are subject to the borrowers’ and lessees’ ability to
repay the loans and leases, which can be adversely affected by a number of factors including changes in general economic
conditions, adverse trends or events affecting business industry groups or specific businesses, declines in real estate values
or markets, business closings or lay-offs, inclement weather, natural disasters and other factors. Furthermore, loans and
88
leases generally are not readily convertible to cash. Accordingly, we may be required from time to time to rely on secondary
sources of liquidity to meet growth in loans and leases and deposit withdrawal demands or otherwise fund operations. Such
secondary sources include wholesale deposit sources, FHLB-Dallas advances, secured and unsecured federal funds lines of
credit from correspondent banks, FRB borrowings and/or accessing the capital markets.
At December 31, 2014, we had substantial unused borrowing availability. This availability was primarily
comprised of the following four options: (1) $1.11 billion of available blanket borrowing capacity with the FHLB-Dallas,
(2) $145 million of investment securities available to pledge for federal funds or other borrowings, (3) $144 million of
available unsecured federal funds borrowing lines and (4) up to $214 million of available borrowing capacity from
borrowing programs of the FRB.
We anticipate we will continue to rely primarily on deposits, repayments of non-purchased loans and leases and
purchased loans, and repayments of our investment securities to provide liquidity, as well as other funding sources as
appropriate. Additionally, where necessary, the secondary funding sources described above will be used to augment our
primary funding sources.
Sources and Uses of Funds. Operating activities provided net cash of $61 million in 2014 and $50 million in 2013
and used net cash of $15 million in 2012. Net cash provided by operating activities is comprised primarily of net income,
adjusted for certain non-cash items and for changes in various operating assets and liabilities.
Investing activities used net cash of $529 million in 2014 and $75 million in 2013 and provided net cash of $188
million in 2012. Net purchased loans and leases used $1.37 billion in 2014, $545 million in 2013 and $219 million in 2012.
Payments received on purchased loans provided $503 million in 2014, $301 million in 2013 and $215 million in 2012. Net
activity in our investment securities portfolio provided $103 million in 2014, used $55 million in 2013 and provided $37
million in 2012. We received $122 million of cash, net of amounts paid, in our acquisitions of Bancshares and Summit in
2014. We received $57 million of cash, net of amounts paid, in our acquisition of First National Bank in 2013. We received
$29 million of cash, net of amounts paid, in our acquisition of Genala in 2012. Payments received from the FDIC under loss
share agreements, including payments received upon termination of such agreements in 2014, provided $45 million in 2014,
$80 million in 2013 and $144 million in 2012. Other loss share activity provided $14 million in 2014, $32 million in 2013
and $22 million in 2012. Purchases of premises and equipment used $18 million in 2014, $10 million in 2013 and $46
million in 2012. We purchased $59 million of BOLI in 2012 (none in 2014 or 2013). Proceeds from sales of other assets
provided $74 million in 2014, $66 million in 2013 and $65 million in 2012.
Financing activities provided net cash of $422 million in 2014 and $13 million in 2013 and used net cash of $23
million in 2012. Net changes in deposit accounts provided $554 million in 2014, $15 million in 2013 and $14 million in
2012. Net activity from our other borrowings and repurchase agreements with customers used $103 million in 2014,
provided $17 million in 2013 and used $24 million in 2012. We paid common stock cash dividends of $36 million in 2014,
$26 million in 2013 and $17 million in 2012. Proceeds and current tax benefits on exercise of stock options provided $9
million in 2014, $7 million in 2013 and $6 million in 2012.
89
Contractual Obligations. The following table presents, as of December 31, 2014, significant fixed and
determinable contractual obligations to third parties by contractual date with no consideration given to earlier call or
prepayment features. Other obligations consist primarily of contractual obligations for capital expenditures, software
contracts and various other contractual obligations.
Contractual Obligations
1 Year
or
Less
Time deposits (1) .......................................... $1,152,361
4,038,480
Deposits without a stated maturity (2) ..........
65,578
Repurchase agreements with customers (1) ...
7,680
Other borrowings (1) .....................................
1,861
Subordinated debentures (1) .........................
2,240
Lease obligations .........................................
32,730
Other obligations ........................................
Total contractual obligations .............. $5,300,930
Over 1
Through
3 Years
$275,794
-
-
182,436
3,386
3,468
12,683
$477,767
Over 3
Through
5 Years
(Dollars in thousands)
$34,139
-
-
20,239
3,386
2,380
10,786
$70,930
Over
5
Years
$ 4,268
-
-
606
73,706
4,558
12,126
$95,264
Total
$1,466,562
4,038,480
65,578
210,961
82,339
12,646
68,325
$5,944,891
(1)
(2)
Includes unpaid interest through the contractual maturity on both fixed and variable rate obligations. The interest included on
variable rate obligations is based upon interest rates in effect at December 31, 2014. The contractual amounts to be paid on
variable rate obligations are affected by changes in interest rates. Future changes in interest rates could materially affect the
contractual amounts to be paid.
Includes interest accrued and unpaid through December 31, 2014.
Off-Balance Sheet Commitments. The following table details the amounts and expected maturities of significant
off-balance sheet commitments as of December 31, 2014. Commitments to extend credit do not necessarily represent future
cash requirements as these commitments may expire without being drawn.
Off-Balance Sheet Commitments
1 Year
or
Less
Over 1
Through
3 Years
Over 3
Through
5 Years
(Dollars in thousands)
Over
5
Years
Total
Commitments to extend credit (1) ................ $231,650
4,119
Standby letters of credit ..............................
Total commitments ............................ $235,769
$2,170,562
409
$2,170,971
$555,106
-
$555,106
$23,921
-
$23,921
$2,981,239
4,528
$2,985,767
(1) Includes commitments to extend credit under mortgage interest rate locks of $17.2 million that expire in one year or less.
Growth and Expansion
De Novo Growth. In 2013, we opened a loan production office for our Real Estate Specialties Group, or RESG, in
New York, New York. In January 2014, we opened a loan production office for our RESG in Houston, Texas, and in
February 2014, we opened an RESG loan production office in Los Angeles, California. In March 2014, we opened a third
retail banking office in Bradenton, Florida. In May 2014, we opened a retail banking office in Cornelius, North Carolina
and in August 2014, we opened a loan production office in Asheville, North Carolina. In December 2014, we opened a full-
service banking office in Hilton Head Island, South Carolina.
We intend to continue our growth and de novo branching strategy in the future years through the opening of
additional branches and loan production offices as our needs and resources permit. Opening new offices is subject to local
banking market conditions, availability of suitable sites, hiring qualified personnel, obtaining regulatory and other approvals
and many other conditions and contingencies that we cannot predict with certainty. We may increase or decrease our
expected number of new office openings as a result of a variety of factors including our financial results, changes in
economic or competitive conditions, strategic opportunities or other factors.
90
During 2014 we spent $18.1 million on capital expenditures for premises and equipment. Our capital expenditures
for 2015 are expected to be in the range of $15 million to $30 million, including progress payments on construction projects
expected to be completed in 2015 and 2016, furniture and equipment costs and acquisition of sites for future development.
Actual expenditures may vary significantly from those expected, depending on the number and cost of additional branch
offices acquired or constructed and sites acquired for future development, progress or delays encountered on ongoing and
new construction projects, delays in or inability to obtain required approvals, potential premises and equipment
expenditures associated with acquisitions, if any, and other factors.
Acquisitions. We have shown substantial growth through a combination of organic growth and acquisitions.
Since 2010, we have completed 12 acquisitions, including seven FDIC-assisted transactions.
On July 31, 2013, we completed our acquisition of First National Bank in a transaction valued at $68.5 million.
We paid $8.4 million of cash and issued 2,514,770 shares of our common stock valued at $60.1 million in exchange for all
outstanding shares of First National Bank common stock. We also acquired certain real property from parties related to
First National Bank and on which certain First National Bank offices are located for $3.8 million. The acquisition of First
National Bank expanded our service area in North Carolina by adding 14 offices in Shelby, North Carolina and the
surrounding communities. In 2013 we closed one of the acquired offices in Shelby, North Carolina.
In March 2014, we completed our acquisition of Bancshares and OMNIBANK, N.A., its wholly-owned bank
subsidiary, for an aggregate of $21.5 million in cash. The acquisition of Bancshares expanded our service area in South
Texas by adding three offices in Houston and one office each in Austin, Cedar Park, Lockhart and San Antonio.
In May 2014, we completed our acquisition of Summit and Summit Bank, its wholly-owned bank subsidiary, for an
aggregate of $42.5 million in cash and 5,765,846 shares of our common stock. The acquisition of Summit expanded our
service area in central, south and western Arkansas by adding 23 banking locations and one loan production office in nine
Arkansas counties. During the second quarter of 2014, we closed one of the banking offices and the one loan production
office acquired in the Summit acquisition. During the fourth quarter of 2014, we closed seven additional banking offices,
five of which banking offices were acquired in the Summit acquisition, in locations where we had excess branch capacity as
a result of the Summit acquisition.
On February 10, 2015, we completed acquisition of Intervest and its wholly-owned bank subsidiary Intervest
National Bank, headquartered in New York, New York, whereby we acquired all of the outstanding common stock of
Intervest for 6,637,243 million shares of its common stock (plus cash in lieu of fractional shares) in a transaction valued at
approximately $238.5 million. The acquisition of Intervest added seven full service banking offices including one in New
York City, five in Clearwater, Florida and one in Pasadena, Florida.
We expect to continue growing through both our de novo branching strategy and traditional acquisitions. With
respect to our de novo branching strategy, future de novo branches are expected to be focused primarily in states where we
currently have banking offices. Future RESG loan production offices are expected to be focused in Boston, Chicago, Seattle
and Washington, D.C. With respect to traditional acquisitions, we are seeking acquisitions that are either immediately
accretive to book value, tangible book value, net income and diluted earnings per share, or strategic in location, or both.
See Note 1 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for a
discussion of certain recently issued accounting pronouncements.
Recently Issued Accounting Standards
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
Interest rate risk results from timing differences in the repricing of assets and liabilities or from changes in
relationships between interest rate indexes. Interest rate risk management is the responsibility of our ALCO.
We regularly review our 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 our relative ratio of rate sensitive assets (“RSA”) to rate sensitive liabilities (“RSL”) and
the related cumulative gap for different time periods. However, the primary tool used by the ALCO to analyze our interest
rate risk and interest rate sensitivity is an earnings simulation model.
91
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. We rely
primarily on the results of this model in evaluating our interest rate risk. This model incorporates a number of factors
including: (1) the expected exercise of call features on various assets and liabilities, (2) the expected rates at which various
RSA and RSL will reprice, (3) the expected growth in various interest earning assets and interest bearing liabilities and the
expected interest rates on such new assets and liabilities, (4) the expected relative movements in different interest rate
indexes which are used as the basis for pricing or repricing various assets and liabilities, (5) existing and expected
contractual ceiling and floor rates on various assets and liabilities, (6) expected changes in administered rates on interest
bearing transaction, savings, money market and time deposit accounts and the expected impact of competition on the pricing
or repricing of such accounts and (7) other relevant factors. Inclusion of these factors in the model is intended to more
accurately project our expected changes in net interest income resulting from interest rate changes. We model our change in
net interest income assuming interest rates go up 100 bps, up 200 bps, up 300 bps, up 400 bps, down 100 bps, down 200
bps, down 300 bps and down 400 bps. Based on current conditions, we believe that modeling a change in net interest
income assuming rates go down 100 bps, down 200 bps, down 300 bps and down 400 bps is not meaningful. For purposes
of this model, we have assumed that the change in interest rates phases in over a 12-month period. While we believe this
model provides a reasonably accurate projection of our interest rate risk, the model includes a number of assumptions and
predictions which may or may not be correct and may impact the model results. These assumptions and predictions include
inputs to compute baseline net interest income, growth rates, expected changes in administered rates on interest bearing
deposit accounts, competition and a variety of other factors that are difficult to accurately predict. Accordingly, there can be
no assurance the earnings simulation model will accurately reflect future results.
The following table presents the earnings simulation model’s projected impact of a change in interest rates on the
projected baseline net interest income for the 12-month period commencing January 1, 2015. This change in interest rates
assumes parallel shifts in the yield curve and does not take into account changes in the slope of the yield curve.
Earnings Simulation Model Results
Change in
Interest Rates
(in bps)
+400
+300
+200
+100
-100
-200
-300
-400
% Change in
Projected Baseline
Net Interest Income
9.6%
6.7
4.0
1.6
Not meaningful
Not meaningful
Not meaningful
Not meaningful
In the event of a shift in interest rates, we 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.
Impact of Inflation and Changing Prices
The Consolidated Financial Statements and related notes presented elsewhere in this report have been prepared in
accordance with GAAP. This requires the measurement of financial position and operating results in terms of historical
dollars without considering the changes in the relative purchasing power of money over time due to inflation. Unlike most
industrial companies, the vast majority of our assets and liabilities are monetary in nature. As a result, interest rates have a
greater impact on our performance than do the effects of general levels of inflation. Interest rates do not necessarily move in
the same direction or to the same extent as the prices of goods and services.
92
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Bank of the Ozarks, Inc.
We have audited the accompanying consolidated balance sheets of Bank of the Ozarks, Inc. (the “Company”) as of
December 31, 2014 and 2013 and the related consolidated statements of income, comprehensive income, stockholders’
equity, and cash flows for each of the three years in the period ended December 31, 2014. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of Bank of the Ozarks, Inc. at December 31, 2014 and 2013 and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2014, in conformity with accounting principles generally
accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), Bank of the Ozarks, Inc.’s internal control over financial reporting as of December 31, 2014, based on
criteria established in Internal Control-Integrated Framework issued in 2013 by the Committee of Sponsoring Organizations
of the Treadway Commission and our report dated February 27, 2015, expressed an unqualified opinion thereon.
Atlanta, Georgia
February 27, 2015
/s/ Crowe Horwath LLP
93
BANK OF THE OZARKS, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
2014
2013
(Dollars in thousands, except per share amounts)
ASSETS
Cash and due from banks
Interest earning deposits
Cash and cash equivalents
Investment securities – available for sale (“AFS”)
Non-purchased loans and leases
Purchased loans
Allowance for loan and lease losses
Net loans and leases
Federal Deposit Insurance Corporation (“FDIC”) loss share receivable
Premises and equipment, net
Foreclosed assets
Accrued interest receivable
Bank owned life insurance (“BOLI”)
Intangible assets, net
Other, net
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Demand non-interest bearing
Savings and interest bearing transaction
Time
Total deposits
Repurchase agreements with customers
Other borrowings
Subordinated debentures
FDIC clawback payable
Accrued interest payable and other liabilities
Total liabilities
Commitments and contingencies
Stockholders’ equity:
$ 147,751
2,452
150,203
839,321
3,979,870
1,147,947
(52,918)
5,074,899
-
273,591
37,775
20,192
182,052
105,576
82,890
$6,766,499
$1,145,454
2,892,989
1,457,939
5,496,382
65,578
190,855
64,950
-
36,892
5,854,657
$ 195,094
881
195,975
669,384
2,632,565
724,514
(42,945)
3,314,134
71,854
245,472
49,811
14,359
143,473
19,158
67,550
$4,791,170
$ 746,320
2,073,497
897,210
3,717,027
53,103
280,895
64,950
25,897
16,768
4,158,640
Preferred stock; $0.01 par value; 1,000,000 shares authorized; no shares
outstanding at December 31, 2014 and 2013
Common stock; $0.01 par value; 125,000,000 shares authorized; 79,924,350
and 73,711,704 shares issued and outstanding at December 31, 2014 and
2013, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Treasury stock, at cost, 72,268 shares at December 31, 2014; none at
December 31, 2013
Total stockholders’ equity before noncontrolling interest
Noncontrolling interest
Total stockholders’ equity
Total liabilities and stockholders’ equity
-
-
799
324,354
571,454
14,132
(2,349)
908,390
3,452
911,842
$6,766,499
737
143,017
488,978
(3,672)
-
629,060
3,470
632,530
$4,791,170
See accompanying notes to the Consolidated Financial Statements.
94
BANK OF THE OZARKS, INC.
CONSOLIDATED STATEMENTS OF INCOME
Interest income:
Non-purchased loans and leases
Purchased loans
Investment securities:
Taxable
Tax-exempt
Deposits with banks and federal funds sold
Total interest income
Interest expense:
Deposits
Repurchase agreements with customers
Other borrowings
Subordinated debentures
Total interest expense
Net interest income
Provision for loan and lease losses
Net interest income after provision for loan and lease losses
Non-interest income:
Service charges on deposit accounts
Mortgage lending income
Trust income
BOLI income
(Amortization) accretion of FDIC loss share receivable, net of FDIC
clawback payable
Other income from purchased loans, net
Net gains on investment securities
Gains on sales of other assets
Gains on merger and acquisition transactions
Other
Total non-interest income
Non-interest expense:
Salaries and employee benefits
Net occupancy and equipment
Other operating expenses
Total non-interest expense
Income before taxes
Provision for income taxes
Net income
Earnings attributable to noncontrolling interest
Net income available to common stockholders
Basic earnings per common share
Diluted earnings per common share
Year Ended December 31,
2012
2013
(Dollars in thousands, except per share amounts)
2014
$162,567
98,212
$129,419
59,930
$115,108
62,074
11,125
19,489
56
291,449
8,566
54
10,642
1,693
20,955
270,494
16,915
253,579
26,609
5,187
5,592
5,184
(611)
14,803
144
6,023
4,667
17,285
84,883
76,884
24,102
65,029
166,015
172,447
53,859
118,588
18
$118,606
$ 1.53
$ 1.52
6,838
15,933
33
212,153
6,103
31
10,780
1,720
18,634
193,519
12,075
181,444
21,644
5,626
4,096
4,529
7,171
13,153
161
9,386
5,163
5,110
76,039
2,949
15,807
8
195,946
8,982
47
10,723
1,848
21,600
174,346
11,745
162,601
19,400
5,584
3,455
2,767
7,375
10,645
457
6,809
2,403
3,965
62,860
64,825
18,710
42,534
126,069
$131,414
40,149
91,265
(28)
$ 91,237
$ 1.27
$ 1.26
59,028
15,793
39,641
114,462
110,999
33,935
77,064
(20)
$ 77,044
$ 1.11
$ 1.10
See accompanying notes to the Consolidated Financial Statements.
95
BANK OF THE OZARKS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net income
Other comprehensive income (loss):
Unrealized gains and losses on investment securities AFS
Tax effect of unrealized gains and losses on investment securities AFS
Reclassification of gains and losses on investment securities AFS
included in net income
Tax effect of reclassification of gains and losses on investment
securities AFS included in net income
Total other comprehensive income (loss)
Total comprehensive income
2014
Year Ended December 31,
2013
(Dollars in thousands)
2012
$118,588
$91,265
$77,064
29,164
(11,272)
(23,623)
9,266
2,852
(1,118)
(144)
(161)
(457)
56
17,804
$136,392
63
(14,455)
$76,810
179
1,456
$78,520
See accompanying notes to the Consolidated Financial Statements.
96
BANK OF THE OZARKS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Common
Stock
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Treasury
Stock
(Dollars in thousands, except per share amount)
Non-
controlling
Interest
Total
Balances – December
31, 2011
Net income
Earnings
attributable to
noncontrolling
interest
Total other
comprehensive
income
Common stock
dividends paid,
$0.25 per share
Issuance of 534,600
shares of
common stock for
exercise of stock
options
Excess tax benefit
on exercise and
forfeiture of stock
options and
vesting of
restricted
common stock
Stock-based
compensation
expense
Repurchase of
20,844 shares of
common stock
Issuance of 256,300
shares of
unvested
restricted
common stock
Forfeiture of 1,600
shares of
unvested
restricted
common stock
Issuance of 847,232
shares of
common stock for
acquisition of
Genala Banc, Inc.
$690
-
$50,800
-
$363,734
77,064
$ 9,327
-
$ -
-
$3,422
-
$427,973
77,064
-
-
-
-
-
-
5
3,974
-
-
-
3
-
8
1,538
2,607
-
(344)
-
14,115
(20)
-
-
1,456
(17,293)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(341)
341
-
-
20
-
-
-
-
-
-
-
-
-
-
1,456
(17,293)
3,979
1,538
2,607
(341)
-
-
14,123
Balances – December
31, 2012
$706
$72,690
$423,485
$10,783
$ -
$3,442
$511,106
See accompanying notes to the Consolidated Financial Statements.
97
BANK OF THE OZARKS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)
Common
Stock
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Treasury
Stock
Income (Loss)
(Dollars in thousands, except per share amount)
Retained
Earnings
Non-
controlling
Interest
Total
$706
-
$72,690
-
$423,485
91,265
$10,783
-
$ -
-
$3,442
-
$511,106
91,265
-
-
-
-
-
-
5
4,269
-
-
-
1
-
3,173
4,487
-
(1,371)
-
25
59,769
(28)
-
-
(14,455)
(25,744)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1,370)
1,370
-
-
28
-
-
-
-
-
-
-
-
-
(14,455)
(25,744)
4,274
3,173
4,487
(1,370)
-
-
-
59,794
Balances – December
31, 2012
Net income
Earnings
attributable to
noncontrolling
interest
Total other
comprehensive
income
Common stock
dividends paid,
$0.36 per share
Issuance of 543,000
shares of
common stock
for exercise of
stock options
Excess tax benefit
on exercise and
forfeiture of
stock options and
vesting of
restricted
common stock
Stock-based
compensation
expense
Repurchase of
55,914 shares of
common stock
Issuance of 219,600
shares of
unvested
restricted
common stock
Forfeiture of
53,200 shares of
unvested
restricted
common stock
Issuance of
2,514,770 shares
of common stock
for acquisition of
The First
National Bank of
Shelby, net of
issuance costs of
$285,000
Balances – December
31, 2013
$737
$143,017
$488,978
$(3,672)
$ -
$3,470
$632,530
See accompanying notes to the Consolidated Financial Statements.
98
BANK OF THE OZARKS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)
Accumulated
Common
Stock
Additional
Paid-In
Capital
Other
Comprehensive
Income (Loss)
Retained
Earnings
Treasury
Stock
(Dollars in thousands, except per share amount)
Non-
controlling
Interest
Total
$737
-
$143,017
-
$488,978
118,588
$ (3,672)
-
$ -
-
$3,470
-
$632,530
118,588
Balances – December
31, 2013
Net income
Earnings
attributable to
noncontrolling
interest
Total other
comprehensive
income
Common stock
dividends paid,
$0.47 per share
Issuance of
452,000 shares
of common
stock for
exercise of stock
options
Excess tax benefit
on exercise and
forfeiture of
stock options
and vesting of
restricted
common stock
Stock-based
compensation
expense
Forfeiture of 5,200
shares of
unvested
restricted
common stock
Repurchase of
72,268 shares of
common stock
Issuance of
5,765,846
shares of
common stock
for acquisition
of Summit
Bancorp, Inc.,
net of issuance
costs of $87,000
Balances – December
31, 2014
-
-
-
-
-
-
4
4,723
4,682
5,675
-
-
166,257
-
-
-
-
58
$799
18
-
-
17,804
(36,130)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(2,349)
(18)
-
-
-
-
-
-
-
-
17,804
(36,130)
4,727
4,682
5,675
-
(2,349)
-
-
166,315
$324,354
$571,454
$14,132
$(2,349)
$3,452
$911,842
See accompanying notes to the Consolidated Financial Statements.
99
BANK OF THE OZARKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided (used) by
operating activities:
Depreciation
Amortization
Earnings attributable to noncontrolling interest
Provision for loan and lease losses
Provision for losses on foreclosed assets
Writedown of other assets
Net amortization of investment securities AFS
Net gains on investment securities AFS
Originations of mortgage loans held for sale
Proceeds from sales of mortgage loans held for sale
Accretion of purchased loans
Amortization (accretion) of FDIC loss share receivable, net of
clawback payable
Gains on sales of other assets
Gains on merger and acquisition transactions
Gain on termination of FDIC loss share agreements
Prepayment penalty on Federal Home Loan Bank of Dallas advances
Deferred income tax benefit
Increase in cash surrender value of BOLI
Excess tax benefit on exercise of stock options and vesting of
restricted common stock
Stock-based compensation expense
Changes in assets and liabilities:
Accrued interest receivable
Other assets, net
Accrued interest payable and other liabilities
Net cash provided (used) by operating activities
Year Ended December 31,
2013
2012
2014
(Dollars in thousands)
$118,588
$ 91,265
$ 77,064
7,986
4,996
18
16,915
1,299
-
646
(144)
(203,088)
207,451
(98,212)
611
(6,023)
(4,667)
(7,996)
8,062
(258)
(5,184)
(4,682)
5,675
(1,098)
2,588
17,846
61,329
7,196
2,805
(28)
12,075
1,352
379
515
(161)
(209,284)
230,391
(59,930)
(7,171)
(9,386)
(5,163)
-
-
(10,148)
(4,529)
(3,173)
4,487
(34)
8,653
49
50,160
6,761
2,037
(20)
11,745
1,713
-
190
(457)
(252,998)
234,539
(62,074)
(7,375)
(6,809)
(2,403)
-
-
(7,808)
(2,767)
(1,538)
2,607
887
3,792
(12,784)
(15,698)
See accompanying notes to the Consolidated Financial Statements.
100
BANK OF THE OZARKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Year Ended December 31,
2014
2013
2012
(Dollars in thousands)
Cash flows from investing activities:
Proceeds from sales of investment securities AFS
Proceeds from maturities/calls/paydowns of investment securities AFS
Purchases of investment securities AFS
Net increase of non-purchased loans and leases
Payments received on purchased loans, including loans previously
reported as covered by FDIC loss share
Payments received from FDIC under loss share agreements
Net payment received from FDIC on termination of loss share
agreements
Other net decreases in FDIC loss share receivable and assets previously
covered by FDIC loss share
Purchases of premises and equipment
Proceeds from sales of other assets
Purchase of BOLI
Cash received from (invested in) unconsolidated investments and
noncontrolling interest
Net cash received in merger and acquisition transactions
Net cash (used) provided by investing activities
Cash flows from financing activities:
Net increase in deposits
Net (repayments of) proceeds from other borrowings
Net (decrease) increase in repurchase agreements with customers
Proceeds from exercise of stock options
Excess tax benefit on exercise of stock option and vesting of restricted
common stock
Repurchase of common stock
Cash dividends paid on common stock
Net cash provided (used) by financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents – beginning of year
Cash and cash equivalents – end of year
$ 55,724
103,123
(56,134)
(1,372,413)
503,143
24,810
20,425
13,688
(18,067)
73,559
-
1,103
121,918
(529,121)
553,675
(98,545)
(4,040)
4,727
4,682
(2,349)
(36,130)
422,020
(45,772)
195,975
$ 150,203
See accompanying notes to the Consolidated Financial Statements.
$ 999
85,959
(141,454)
(545,361)
300,874
80,269
$ 43,177
57,342
(63,064)
(219,209)
214,922
143,997
-
-
32,476
(10,106)
65,547
-
(1,108)
56,786
(75,119)
15,354
132
17,148
4,274
3,173
(1,370)
(25,744)
12,967
(11,992)
207,967
$195,975
21,915
(46,099)
64,750
(59,000)
323
28,542
187,596
13,602
(21,083)
(3,260)
3,979
1,538
(341)
(17,293)
(22,858)
149,040
58,927
$207,967
101
Bank of the Ozarks, Inc.
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
1. Summary of Significant Accounting Policies
Organization – Bank of the Ozarks, Inc. (the “Company”) is a bank holding company headquartered in Little Rock,
Arkansas, which operates under the rules and regulations of the Board of Governors of the Federal Reserve System. The
Company owns a wholly-owned state chartered bank subsidiary – Bank of the Ozarks (the “Bank”). The Company also
owns, as of December 31, 2014, four 100%-owned finance subsidiary business trusts – Ozark Capital Statutory Trust II
(“Ozark II”), Ozark Capital Statutory Trust III (“Ozark III”), Ozark Capital Statutory Trust IV (“Ozark IV”) and Ozark
Capital Statutory Trust V (“Ozark V”) (collectively, the “Trusts”) and, indirectly through the Bank, a subsidiary engaged in
the development of real estate, a subsidiary that owns private aircraft and various other entities that hold foreclosed assets or
tax credits or engage in other activities. The Bank is subject to the regulation of certain federal and state agencies and
undergoes periodic examinations by those regulatory authorities. At December 31, 2014, the Company had 159 offices,
including 81 in Arkansas, 28 in Georgia, 21 in Texas, 17 in North Carolina, five in Florida, three in Alabama, two in South
Carolina and one office each in New York and California.
Basis of presentation, use of estimates and principles of consolidation – The preparation of financial statements in
conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make
estimates, assumptions and judgments that affect the amounts reported in the Consolidated Financial Statements and
accompanying notes. Actual results could differ from those estimates.
The Consolidated Financial Statements include the accounts of the Company, the Bank, the real estate subsidiary
and the aircraft subsidiary. In addition, subsidiaries in which the Company has majority voting interest (principally defined
as owning a voting or economic interest greater than 50%) or where the Company exercises control over the operating and
financial policies of the subsidiary through an operating agreement or other means are consolidated. Investments in
companies in which the Company has significant influence over voting and financing decisions (principally defined as
owning a voting or economic interest of 20% to 50%) and investments in limited partnerships and limited liability
companies where the Company does not exercise control over the operating and financial policies are generally accounted
for by the equity method of accounting. Investments in limited partnerships and limited liability companies in which the
Company’s interest is so minor such that it has virtually no influence over operating and financial policies (typically less
than 20%) are generally accounted for by the cost method of accounting. Significant intercompany transactions and amounts
have been eliminated in consolidation.
The voting interest approach is not applicable for entities that are not controlled through voting interests or in
which the equity investors do not bear the residual economic risk. In such instances, management makes a determination,
based on its review of applicable GAAP, on when the assets, liabilities and activities of a variable interest entity (“VIE”)
should be included in the Company’s Consolidated Financial Statements. GAAP requires a VIE to be consolidated by a
company if that company is considered the primary beneficiary of the VIE’s activities. The Company has determined that
the 100%-owned finance subsidiary Trusts are VIEs, but that the Company is not the primary beneficiary of the Trusts.
Accordingly, the Company does not consolidate the activities of the Trusts into its financial statements, but instead reports
its ownership interests in the Trusts as other assets and reports the subordinated debentures issued to the Trusts as a liability
in the consolidated balance sheets. The distributions on the subordinated debentures are reported as interest expense in the
accompanying consolidated statements of income.
Stock Split – On June 23, 2014, the Company completed a two-for-one stock split in the form of a 100% stock
dividend by issuing one share of common stock for each share of common stock outstanding on June 13, 2014. All share
and per share information in the Consolidated Financial Statements and the notes thereto has been adjusted to give effect to
this stock split.
Cash and cash equivalents – For cash flow purposes, cash and cash equivalents include cash on hand, amounts due
from banks and interest earning deposits with banks.
Investment securities – Management determines the appropriate classification of investment securities at the time
of purchase and reevaluates such designation as of each balance sheet date. At December 31, 2014 and 2013, the Company
has classified all of its investment securities as available for sale (“AFS”).
102
Investment securities AFS are reported at estimated fair value, with the unrealized gains and losses determined on a
specific identification basis. Such unrealized gains and losses, net of tax, are reported as a separate component of
stockholders’ equity and included in other comprehensive income (loss). The Company utilizes independent third parties as
its principal pricing sources for determining fair value of investment securities which are measured on a recurring basis. As
a result, the Company receives estimates of fair values from at least two independent pricing sources for the majority of its
individual securities within its investment portfolio. For investment securities traded in an active market, fair values are
based on quoted market prices if available. If quoted market prices are not available, fair values are based on quoted market
prices of comparable securities, broker quotes or comprehensive interest rate tables, pricing matrices or a combination
thereof. For investment securities traded in a market that is not active, fair value is determined using unobservable inputs.
Additionally, the valuation of investment securities acquired may include certain unobservable inputs. All fair value
estimates received by the Company for its investment securities are reviewed and approved on a quarterly basis by the
Company’s Investment Portfolio Manager and its Chief Financial Officer.
At December 31, 2014 and 2013, the Company owned stock in the Federal Home Loan Bank of Dallas (“FHLB-
Dallas”) and First National Banker’s Bankshares, Inc. (“FNBB”), which do not have readily determinable fair values and
are carried at cost.
Declines in the fair value of investment securities below their amortized cost are reviewed at least quarterly by the
Company for other-than-temporary impairment. Factors considered during such review include, among other things, the
length of time and extent that fair value has been less than cost and the financial condition and near term prospects of the
issuer. The Company also assesses whether it has the intent to sell the investment security or more likely than not would be
required to sell the investment security before any anticipated recovery in fair value. If either of the criteria regarding intent
or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment
through the income statement. For securities that do not meet the aforementioned criteria, the amount of impairment is split
into (i) other-than-temporary impairment related to credit loss, which must be recognized in the income statement, and (ii)
other-than-temporary impairment related to other factors, which is recognized in other comprehensive income (loss). The
credit loss is defined as the difference between the present value of the cash flows expected to be collected and the
amortized cost basis.
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.
Interest and dividends on investment securities, including the amortization of premiums and accretion of discounts
through maturity, or in the case of mortgage-backed securities, over the estimated life of the security, are included in interest
income. Realized gains or losses on the sale of investment securities are recognized on the specific identification method at
the time of sale and are included in non-interest income. Purchases and sales of investment securities are recorded on a
trade-date basis.
Non-purchased Loans and leases – Non-purchased loans that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at their outstanding principal balance adjusted for any charge-offs
and deferred fees or costs. Interest on non-purchased loans is recognized on an accrual basis and is calculated using the
simple interest method on daily balances of the principal amount outstanding. Loan origination fees and costs are generally
deferred and recognized over the life of the loan as an adjustment to yield on the related loan.
Leases, all of which are non-purchased, are classified as either direct financing leases or operating leases, based on
the terms of the agreement. Direct financing leases are reported as the sum of (i) total future lease payments to be received,
net of unearned income, and (ii) estimated residual value of the leased property. Operating leases are recorded at the cost of
the leased property, net of accumulated depreciation. Income on direct financing leases is included in interest income and is
recognized on a basis that achieves a constant periodic rate of return on the outstanding investment. Income on operating
leases is recognized as non-interest income on a straight-line basis over the lease term.
In the ordinary course of business, the Company has entered into off-balance sheet financial instruments consisting
of commitments to extend credit and letters of credit. Such financial instruments are recorded in the financial statements
when they are funded. Related fees are generally recognized when collected.
103
Mortgage loans held for sale are included in the Company’s non-purchased loans and leases and totaled $10.9
million and $15.3 million at December 31, 2014 and 2013, respectively. Mortgage loans held for sale are carried at the
lower of cost or fair value. Gains and losses from the sales of mortgage loans are the difference between the selling price of
the loan and its carrying value, net of discounts and points, and are recognized as mortgage lending income when the loan is
sold to investors and servicing rights are released.
As part of its standard mortgage lending practice, the Company issues a written put option, in the form of an
interest rate lock commitment (“IRLC”), such that the interest rate on the mortgage loan is established prior to funding. In
addition to the IRLC, the Company enters into a forward sale commitment (“FSC”) for the sale of its mortgage loan
originations to reduce its market risk on such originations in process. The IRLC on mortgage loans held for sale and the
FSC have been determined to be derivatives as defined by GAAP. Accordingly, the fair values of derivative assets and
liabilities for the Company’s IRLC and FSC are based primarily on the fluctuation of interest rates between the date on
which the particular IRLC and FSC were entered into and year-end. At December 31, 2014 and 2013, respectively, the
Company’s IRLC and FSC derivative assets and corresponding derivative liabilities were not material. The notional
amounts of loan commitments under both the IRLC and FSC were $17.2 million and $12.8 million at December 31, 2014
and 2013, respectively.
Purchased loans – Purchased loans include loans acquired in Federal Deposit Insurance Corporation (“FDIC”)-
assisted and other acquisitions and are initially recorded at fair value on the date of purchase. Purchased loans that contain
evidence of credit deterioration on the date of purchase are carried at the net present value of expected future proceeds. All
other purchased loans are recorded at their initial fair value, adjusted for subsequent advances, pay downs, amortization or
accretion of any premium or discount on purchase, charge-offs and any other adjustment to carrying value.
As provided for under GAAP, management has up to 12 months following the date of the acquisition to finalize the
fair values of acquired assets and assumed liabilities. Once management has finalized the fair values of acquired assets and
assumed liabilities within this 12-month period, management considers such values to be the day 1 fair values (“Day 1 Fair
Values”).
At the time of acquisition of purchased loans, management individually evaluates substantially all loans acquired in
the transaction. For those purchased loans without evidence of credit deterioration, management evaluates each reviewed
loan using an internal grading system with a grade assigned to each loan at the date of acquisition. To the extent that any
purchased loan is not specifically reviewed, such loan is assumed to have characteristics similar to the characteristics of the
acquired portfolio of purchased loans. The grade for each purchased loan without evidence of credit deterioration is
reviewed subsequent to the date of acquisition any time a loan is renewed or extended or at any time information becomes
available to the Company that provides material insight regarding the loan’s performance, the borrower or the underlying
collateral. To the extent that current information indicates it is probable that the Company will collect all amounts according
to the contractual terms thereof, such loan is not considered impaired and is not considered in the determination of the
required allowance for loan and lease losses (“ALLL”). To the extent that current information indicates it is probable that
the Company will not be able to collect all amounts according to the contractual terms thereon, such loan is considered
impaired and is considered in the determination of the required level of ALLL.
In determining the Day 1 Fair Values of purchased loans without evidence of credit deterioration at the date of
acquisition, management includes (i) no carry over of any previously recorded ALLL and (ii) an adjustment of the unpaid
principal balance to reflect an appropriate market rate of interest, given the risk profile and grade assigned to each loan.
This adjustment is accreted into earnings as a yield adjustment, using the effective yield method, over the remaining life of
each loan.
Purchased loans that contain evidence of credit deterioration on the date of purchase are individually evaluated by
management to determine the estimated fair value of each loan. This evaluation includes no carryover of any previously
recorded ALLL. In determining the estimated fair value of purchased loans with evidence of credit deterioration,
management considers a number of factors including, among other things, the remaining life of the acquired loans, estimated
prepayments, estimated loss ratios, estimated value of the underlying collateral, estimated holding periods, and net present
value of cash flows expected to be received.
104
Purchased loans previously covered by FDIC loss share agreements are accounted for in accordance with the
provisions of GAAP applicable to loans acquired with deteriorated credit quality and pursuant to the American Institute of
Certified Public Accountants’ (“AICPA”) December 18, 2009 letter in which the AICPA summarized the Securities and
Exchange Commission’s (“SEC”) view regarding the accounting in subsequent periods for discount accretion associated
with non-credit impaired loans acquired in a business combination or asset purchase. Considering, among other factors, the
general lack of adequate underwriting, proper documentation, appropriate loan structure and insufficient equity
contributions for a large number of these purchased loans acquired in FDIC-assisted acquisitions, and the uncertainty of the
borrowers’ and/or guarantors’ ability or willingness to make contractually required (or any) principal and interest payments,
management has determined that a significant portion of the purchased loans acquired in FDIC-assisted acquisitions had
evidence of credit deterioration since origination. Accordingly, management has elected to apply the provisions of GAAP
applicable to loans acquired with deteriorated credit quality, as provided by the AICPA’s December 18, 2009 letter, to all
loans acquired in its FDIC-assisted acquisitions.
During the fourth quarter of 2014, the Company entered into agreements with the FDIC to terminate the loss share
coverage on all seven of its FDIC-assisted acquisitions. Accordingly, all loans previously reported as covered by FDIC loss
share agreements have been reclassified to purchased loans for all periods presented, and all interest income on loans
previously reported as covered by FDIC loss share has been reclassified to interest income on purchased loans for all
periods presented.
In determining the Day 1 Fair Values of purchased loans with evidence of credit deterioration, management
calculates a non-accretable difference (the credit component of the purchased loans) and an accretable difference (the yield
component of the purchased loans). The non-accretable difference is the difference between the contractually required
payments and the cash flows expected to be collected in accordance with management’s determination of the Day 1 Fair
Values. Subsequent increases in expected cash flows will result in an adjustment to accretable yield, which will have a
positive impact on interest income. Subsequent decreases in expected cash flows will generally result in a provision for
loan and lease losses. Subsequent increases in expected cash flows following any previous decrease 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.
The accretable difference on purchased loans with evidence of credit deterioration is the difference between the
expected cash flows and the net present value of expected cash flows. Such difference is accreted into earnings using the
effective yield method over the term of the loans. In determining the net present value of the expected cash flows for
purposes of establishing the Day 1 Fair Values, the Company used discount rates ranging from 6.0% to 9.5% per annum
depending on the risk characteristics of each individual loan.
Management separately monitors purchased loans with evidence of credit deterioration on the date of purchase and
periodically reviews such loans contained within this portfolio against the factors and assumptions used in determining the
Day 1 Fair Values. A loan is reviewed (i) any time it is renewed or extended, (ii) at any other time additional information
becomes available to the Company that provides material additional insight regarding the loan’s performance, the status of
the borrower, or the quality or value of the underlying collateral, or (iii) in conjunction with the annual review of projected
cash flows of each acquired portfolio. Management separately reviews the performance of the portfolio of purchased loans
with evidence of credit deterioration on an annual basis, or more frequently to the extent that material information becomes
available regarding the performance of an individual loan, to make determinations of the constituent loans’ performance and
to consider whether there has been any significant change in performance since management’s initial expectations
established in conjunction with the determination of the Day 1 Fair Values or since management’s most recent review of
such portfolio’s performance. To the extent that a loan is performing in accordance with or exceeding management’s
performance expectation established in conjunction with the determination of the Day 1 Fair Values, such loan is rated
FV66, is not included in any of the credit quality ratios, is not considered to be a nonaccrual, nonperforming or impaired
loan, and is not considered in the determination of the required ALLL. For any loan that is exceeding management’s
performance expectation established in conjunction with the determination of Day 1 Fair Values, the accretable yield on
such loan is adjusted to reflect such increased performance. To the extent that a loan’s performance has deteriorated from
management’s expectation established in conjunction with the determination of the Day 1 Fair Values, such loan is rated
FV88, is included in certain of the Company’s credit quality metrics, is considered an impaired loan, and is considered in
the determination of the required level of ALLL; however, in accordance with GAAP, the Company continues to accrete
into earnings income on such loans. Any improvement in the expected performance of such loan would result in a reversal
of the provision for loan and lease losses to the extent of prior charges and then an adjustment to accretable yield.
Allowance for loan and lease losses – The ALLL is established through a provision for such losses charged against
income. All or portions of loans or leases deemed to be uncollectible are charged against the ALLL when management
105
believes that collectability of all or some portion of outstanding principal is unlikely. Subsequent recoveries, if any, of loans
or leases previously charged off are credited to the ALLL.
The ALLL is maintained at a level management believes will be adequate to absorb probable incurred losses in the
loan and lease portfolio. Provision to and the adequacy of the ALLL are based on evaluations of the loan and lease portfolio
utilizing objective and subjective criteria. The objective criteria primarily include an internal grading system and specific
allowances. In addition to the objective criteria, the Company subjectively assesses the adequacy of the ALLL and the need
for additions thereto, with consideration given to the nature and mix of the portfolio, including concentrations of credit;
general economic and business conditions, including national, regional and local business and economic conditions that may
affect borrowers’ or lessees’ ability to pay; expectations regarding the current business cycle; trends that could affect
collateral values and other relevant factors. The Company also utilizes a peer group analysis and a historical analysis to
validate the overall adequacy of its ALLL. Changes in any of these criteria or the availability of new information could
require adjustment of the ALLL in future periods. While a specific allowance has been calculated for impaired loans and
leases and for loans and leases where the Company has otherwise determined a specific reserve is appropriate, no portion of
the Company’s ALLL is restricted to any individual loan or lease or group of loans or leases, and the entire ALLL is
available to absorb losses from any and all loans and leases.
The Company’s internal grading system assigns grades to all non-purchased loans and leases, except residential 1-4
family loans, consumer loans and certain other loans, with each grade being assigned an allowance allocation percentage.
The grade for each graded individual loan or lease is determined by the account officer and other approving officers at the
time the loan or lease is made and changed from time to time to reflect an ongoing assessment of loan or lease risk. Grades
are reviewed on specific loans and leases from time to time by senior management and as part of the Company’s internal
loan review process. The risk elements considered by management in its determination of the appropriate grade for
individual loans and leases include the following, among others: (1) for non-farm/non-residential, multifamily residential,
and agricultural real estate loans, the debt service coverage ratio (income from the property in excess of operating expenses
compared to loan repayment requirements), operating results of the owner in the case of owner-occupied properties, the
loan-to-value ratio, the age, condition, value, nature and marketability of the collateral and the specific risks and volatility of
income, property value and operating results typical of properties of that type; (2) for construction and land development
loans, the perceived feasibility of the project including the ability to sell developed lots or improvements constructed for
resale or ability to lease property constructed for lease, the quality and nature of contracts for presale or preleasing, if any,
experience and ability of the developer and loan-to-cost and loan-to-value ratios; (3) for commercial and industrial loans
and leases, the operating results of the commercial, industrial or professional enterprise, the borrower’s or lessee’s business,
professional and financial ability and expertise, the specific risks and volatility of income and operating results typical for
businesses in the applicable industry, the age, condition, value, nature and marketability of collateral and, for certain loans,
the marketability of such loans in any secondary market; and (4) for non-real estate agricultural loans and leases, the
operating results, experience and ability of the borrower or lessee, historical and expected market conditions and the age,
condition, value, nature and marketability of collateral. In addition, for each category the Company considers secondary
sources of income and the financial strength of the borrower or lessee and any guarantors.
Residential 1-4 family, consumer loans and certain other loans are assigned an allowance allocation percentage
based on past due status.
Allowance allocation percentages for the various risk grades and past due categories for residential 1-4 family,
consumer loans and certain other loans are determined by management and are adjusted periodically. In determining these
allowance allocation percentages, management considers, among other factors, historical loss percentages over various time
periods and a variety of subjective criteria in determining the allowance allocation percentages.
For purchased loans, management segregates this portfolio into loans that contain evidence of credit deterioration
on the date of acquisition and loans that do not contain evidence of credit deterioration on the date of acquisition. Purchased
loans with evidence of credit deterioration are regularly monitored and are periodically reviewed by management. To the
extent that a loan’s performance has deteriorated from management’s expectation established in conjunction with the
determination of the Day 1 Fair Values, such loan is considered in the determination of the required level of ALLL. To the
extent that a revised loss estimate exceeds the loss estimate established in the determination of Day 1 Fair Values, such
determination will result in an allowance allocation or a charge-off.
All other purchased loans are graded by management at the time of purchase. The grade on these purchased loans
is reviewed regularly as part of the ongoing assessment of such loans. To the extent that current information indicates it is
106
probable that the Company will not be able to collect all amounts according to the contractual terms thereof, such loan is
considered in the determination of the required level of ALLL and may result in an allowance allocation or a charge-off.
At December 31, 2014 and 2013, the Company had no allowance for its purchased loans because all losses had
been charged off on purchased loans where the Company had determined it was probable that it would be unable to collect
all amounts according to the contractual terms thereof (for purchased loans without evidence of credit deterioration at date
of acquisition) or whose performance had deteriorated from management’s expectations established in conjunction with the
determination of the Day 1 Fair Values (for purchased loans with evidence of credit deterioration at date of acquisition).
The accrual of interest on non-purchased loans and leases and purchased loans without evidence of credit
deterioration at the date of acquisition is discontinued when, in management’s opinion, the borrower or lessee may be
unable to meet payments as they become due. The Company generally places a loan or lease, excluding purchased loans
with evidence of credit deterioration on the date of purchase, on nonaccrual status when such loan or lease is (i) deemed
impaired or (ii) 90 days or more past due, or earlier when doubt exists as to the ultimate collection of payments. The
Company may continue to accrue interest on certain loans or leases contractually past due 90 days or more if such loans or
leases are both well secured and in the process of collection. At the time a loan or lease is placed on nonaccrual status,
interest previously accrued but uncollected is 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 ALLL. Loans for which the terms have been modified and for which (i) the
borrower is experiencing financial difficulties and (ii) a concession has been granted to the borrower by the Company are
considered troubled debt restructurings (“TDRs”) and are included in impaired loans and leases. Income on nonaccrual
loans or leases, including impaired loans and leases but excluding certain TDRs which continue to accrue interest, is
recognized on a cash basis when and if actually collected. For the year ended December 31, 2014, there were no defaults
during the preceding 12 months on any loans that were considered TDRs.
All loans and leases deemed to be impaired are evaluated individually. The Company considers a loan or lease,
excluding purchased loans with evidence of credit deterioration at the date of purchase, to be impaired when based on
current information and events, it is probable that the Company will be unable to collect all amounts due according to the
contractual terms thereof. The Company considers a purchased loan with evidence of credit deterioration at the date of
purchase to be impaired once a decrease in expected cash flows or other deterioration in the loan’s expected performance,
subsequent to the determination of the Day 1 Fair Values, results in an allowance allocation, a partial or full charge-off or in
a provision for loan and lease losses. Most of the Company’s nonaccrual loans and leases, excluding purchased loans with
evidence of credit deterioration at the date of purchase, and all TDRs are considered impaired. The majority of the
Company’s impaired loans and leases are dependent upon collateral for repayment. For such loans and leases, impairment is
measured by comparing collateral value, net of holding and selling costs, to the current investment in the loan or lease. For
all other impaired loans and leases, the Company compares estimated discounted cash flows to the current investment in the
loan or lease. To the extent that the Company’s current investment in a particular loan or lease exceeds its estimated net
collateral value or its estimated discounted cash flows, the impaired amount is specifically considered in the determination
of the ALLL or is charged off as a reduction of the ALLL. The Company’s practice is to charge off any estimated loss as
soon as management is able to identify and reasonably quantify such potential loss. Accordingly, only a small portion of the
Company’s ALLL is needed for potential losses on nonperforming loans.
The Company also maintains an allowance for certain non-purchased loans and leases not considered impaired
where (i) the customer is continuing to make regular payments, although payments may be past due, (ii) there is a reasonable
basis to believe the customer may continue to make regular payments, although there is also an elevated risk that the
customer may default, and (iii) the collateral or other repayment sources are likely to be insufficient to recover the current
investment in the loan or lease if a default occurs. The Company evaluates such loans and leases to determine if an
allowance is needed for these loans and leases. For the purpose of calculating the amount of such allowance, management
assumes that (i) no further regular payments occur and (ii) all sums recovered will come from liquidation of collateral and
collection efforts from other payment sources. To the extent that the Company’s current investment in a particular loan or
lease evaluated for the need for such allowance exceeds its net collateral value, such excess is considered allocated
allowance for purposes of the determination of the ALLL.
Additionally, the Company maintains specific ALLL allocations to capture the risk associated with having a loan
portfolio comprised of large individual credits. This ALLL allocation is applied to all large, non-purchased, risk-rated loans
that exceed $10 million, except such loans that have been individually evaluated for impairment, and is based on the greater
of the loan-to-value or loan-to-cost ratio for each large individual risk-rated loan.
107
The Company also includes specific ALLL allocations for qualitative factors including, (i) general economic and
business conditions, (ii) trends that could affect collateral values and (iii) expectations regarding the current business cycle.
The Company may also consider other qualitative factors in future periods for additional ALLL allocations.
Changes in the criteria used in this evaluation or the availability of new information could cause the ALLL to be
increased or decreased in future periods. In addition, bank regulatory agencies, as part of their examination process, may
require adjustments to the ALLL based on their judgment and estimates.
Premises and equipment – Premises and equipment are reported at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of the
related assets. Depreciable lives for the major classes of assets are generally 20 to 45 years for buildings and 3 to 25 years
for furniture, fixtures, equipment and certain building improvements. Leasehold improvements are amortized over the
shorter of the asset’s estimated useful life or the term of the lease. Accelerated depreciation methods are used for income tax
purposes. Maintenance and repair charges are expensed as incurred.
Foreclosed assets – Repossessed personal properties and real estate acquired through or in lieu of foreclosure,
excluding purchased foreclosed assets, are initially recorded at the lesser of current principal investment or fair value less
estimated cost to sell (generally 8% to 10%) at the date of repossession or foreclosure. Purchased foreclosed assets,
including foreclosed assets previously covered by FDIC loss share, are initially recorded at Day 1 Fair Values. In
estimating such Day 1 Fair Values, management considered a number of factors including, among others, appraised value,
estimated selling price, estimated holding periods and net present value (calculated using discount rates ranging from 8.0%
to 9.5% per annum) of cash flows expected to be received.
Valuations of all foreclosed assets are periodically reviewed by management with the carrying value of such assets
adjusted through non-interest expense to the then estimated fair value, generally based on third party appraisals, broker price
opinions or other valuations of the property, net of estimated selling costs, if lower, until disposition. Gains and losses from
the sale of such repossessions and real estate acquired through or in lieu of foreclosure are recorded in non-interest income,
and expenses to maintain the properties are included in non-interest expense.
Income taxes – The Company utilizes the asset and liability method in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based upon the difference between the values of the assets and
liabilities as reflected in the financial statements and their related tax basis using enacted tax rates in effect for the year or
years in which the differences are expected to be recovered or settled. As changes in tax laws or rates are enacted, deferred
tax assets and liabilities are adjusted through the provision for income taxes.
As a result of recording, at fair value, acquired assets and assumed liabilities pursuant to business combinations,
differences in amounts reported for financial statement purposes and their related basis for federal and state income tax
purposes are created. Such differences are recorded as deferred tax assets and liabilities using enacted tax rates in effect for
the year or years in which the differences are expected to be recovered or settled. Business combination transactions may
result in the acquisition of net operating loss carryforwards and other assets with built-in losses, the realization of which are
subject to limitations pursuant to section 382 (“section 382 limitation”) of the Internal Revenue Code (“IRC”). In
determining the section 382 limitation associated with a business combination, management must make a number of
estimates and assumptions regarding the ability to utilize acquired net operating loss carryforwards and the expected timing
of future recoveries or settlements of acquired assets with built-in losses. To the extent that information available as of the
date of acquisition results in a determination by management that some portion of net operating loss carryforwards cannot
be utilized or assets with built-in losses are expected to be settled or recovered in future periods in which the ability to
realize the benefits will be subject to section 382 limitation, a deferred tax asset valuation allowance is established for the
estimated amount of the deferred tax assets subject to the section 382 limitation. To the extent that information becomes
available, during the first 12 months following the consummation of a business combination transaction, that results in
changes in management’s initial estimates and assumptions regarding the expected utilization of net operating loss
carryforwards or the expected settlement or recovery of acquired assets with built-in losses subject to section 382 limitation,
an increase or decrease of the deferred tax asset valuation allowance will be recorded as an adjustment to bargain purchase
gain or goodwill. To the extent that such information becomes available 12 months or more after the consummation of a
business combination transaction, or additional information becomes available during the first 12 months as a result of
changes in circumstances since the date of the consummation of a business combination transaction, an increase or decrease
of the deferred tax asset valuation allowance will be recorded as an adjustment to deferred income tax expense (benefit).
108
The Company recognizes a tax position as a benefit only if it is “more likely than not” that the tax position would
be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest
amount of tax benefit that has a greater than 50% likelihood of being realized on examination. For tax positions not meeting
the “more likely than not” test, no tax benefit is recorded.
The Company files consolidated tax returns. The Bank and the other consolidated entities provide for income taxes
on a separate return basis and remit to the Company amounts determined to be currently payable. The Company recognizes
interest related to income tax matters as interest income or expense, and penalties related to income tax matters are
recognized as non-interest expense. The Company is no longer subject to income tax examinations by U.S. federal tax
authorities for years prior to 2011.
Bank owned life insurance (“BOLI”) – BOLI consists of life insurance purchased by the Company on (i) a
qualifying group of officers with the Company designated as owner and beneficiary of the policies and (ii) one of the
Company’s executive officers with the Company designated as owner and both the Company and the executive officer
designated as beneficiaries of the policies. The earnings on BOLI policies are used to offset a portion of employee benefit
costs or to offset a portion of the costs of a supplemental executive retirement plan for one of the Company’s executive
officers. BOLI is carried at the policies’ realizable cash surrender values with changes in cash surrender values and death
benefits received in excess of cash surrender values reported in non-interest income.
Intangible assets – Intangible assets consist of goodwill, bank charter costs and core deposit intangibles. Goodwill
represents the excess purchase price over the fair value of net assets acquired in business acquisitions. The Company had
goodwill of $78.7 million and $5.2 million at December 31, 2014 and 2013, respectively. The Company performed its
annual impairment test of goodwill as of September 30, 2014. This test indicated no impairment of the Company’s goodwill.
Bank charter costs represent costs paid to acquire a Texas bank charter and are being amortized over 20 years.
Bank charter costs totaled $239,000 at both December 31, 2014 and 2013, less accumulated amortization of $132,000 and
$119,000 at December 31, 2014 and 2013, respectively.
Core deposit intangibles represent premiums paid for deposits acquired via acquisition and are being amortized
over three to seven years. Core deposit intangibles totaled $36.5 million and $20.6 million at December 31, 2014 and 2013,
respectively, less accumulated amortization of $9.7 million and $6.8 million at December 31, 2014 and 2013, respectively.
The aggregate amount of amortization expense for the Company’s core deposit and bank charter intangibles is
expected to be $5.9 million in 2015, $5.1 million in 2016, $4.8 million in 2017, $4.8 million in 2018 and $4.4 million in
2019.
Stock-based compensation – The Company has an employee stock option plan, a non-employee director stock
option plan and an employee restricted stock plan, which are described more fully in Note 15. The Company measures the
cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the
award. Such cost is recognized over the vesting period of the award.
Earnings per common share – Earnings per common share are computed using the two-class method. Basic
earnings per common share are computed by dividing net earnings allocated to common stockholders by the weighted-
average number of common shares outstanding during the applicable period. Diluted earnings per common share are
computed by dividing reported earnings allocated to common stockholders by the weighted-average number of common
shares outstanding after consideration of the dilutive effect, if any, of the Company’s common stock options using the
treasury stock method. The Company has determined that its outstanding non-vested stock awards granted under its
restricted stock plan are participating securities.
Segment disclosures – The Company operates in only one segment – community banking. Accordingly, there is no
requirement to report segment information in the Company’s Consolidated Financial Statements. No revenues are derived
from foreign countries and no single external customer comprises more than 10% of the Company’s revenues.
109
Recent accounting pronouncements – In January 2014, the Financial Accounting Standards Board (“FASB”) issued
Accounting Standard Update (“ASU”) 2014-04 “Receivables – Troubled Debt Restructurings by Creditors (Sub topic 310-
04) Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans Upon Foreclosure.” The
provisions of this ASU clarify when an insubstance foreclosure occurs and require a creditor to reclassify a collateralized
consumer mortgage loan to real estate owned upon obtaining legal title to the real estate collateral, or a deed in lieu of
foreclosure, or similar legal agreement that is voluntarily provided by the borrower to satisfy the loan. The ASU was
effective for reporting periods beginning January 1, 2014. The provisions of ASU 2014-04 did not have a material impact
on the Company’s financial position, results of operations, or liquidity.
In May 2014, the FASB issued ASU 2014-09 “Revenue from Contracts with Customers.” ASU 2014-09 provides
guidance that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an
amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services.
ASU 2014-09 is effective for annual and interim periods beginning after December 15, 2016. The Company is currently
evaluating the impact, if any, ASU 2014-09 will have on its financial position, results of operations, and its financial
disclosures.
In February 2015, FASB issued ASU 2015-02 “Consolidation (Topic 810): Amendments to the Consolidation
Analysis” which amends the consolidation requirements of ASU 810 by changing the consolidation analysis required under
GAAP. The revised guidance amends the consolidation analysis based on certain fee arrangements or relationships to the
reporting entity and, for limited partnerships, requires entities to consider the limited partner’s rights relative to the general
partner. ASU 2015-02 is effective for annual and interim periods beginning after December 15, 2015. The Company is
currently evaluating the impact, if any, ASU 2015-02 will have on its financial position, results of operations, and its
financial disclosures.
Reclassifications and recasts – Certain reclassifications of prior years’ amounts have been made to conform with
the 2014 financial statements presentation. These reclassifications had no impact on prior years’ net income, as previously
reported. Additionally, during the second quarter of 2014, the Company revised its initial estimates regarding the expected
recovery of acquired assets with built-in losses in its July 31, 2013 acquisition of The First National Bank of Shelby (“First
National Bank”). As a result, certain amounts previously reported in the Company’s consolidated financial statements have
been recast.
2. Acquisitions
Non-FDIC-Assisted Acquisitions
Intervest Bancshares Corporation (subsequent event)
On February 10, 2015, the Company completed its acquisition of Intervest Bancshares Corporation (“Intervest”), and
its wholly-owned bank subsidiary Intervest National Bank, for an aggregate of 6,637,243 million shares of its common stock
(plus cash in lieu of fractional shares) in a transaction valued at approximately $238.5 million. The acquisition of Intervest
provided the Company with a banking office in New York City and expanded its service area in Florida by adding five
banking offices in Clearwater, Florida and one office in South Pasadena, Florida. At December 31, 2014, Intervest reported
approximately $1.5 billion in total assets, approximately $1.1 billion in loans and approximately $1.2 billion in deposits.
110
The following table provides a summary of the assets acquired and liabilities assumed as recorded by Intervest, the
preliminary estimates of the fair value adjustments necessary to adjust those acquired assets and assumed liabilities to
estimated fair value, and the preliminary estimates of the resultant fair values of those assets and liabilities as recorded by
the Company. As provided for under GAAP, management has up to 12 months following the date of acquisition to finalize
the fair values of the acquired assets and assumed liabilities. The preliminary fair value adjustments and the preliminary
resultant fair values shown in the following table continue to be evaluated by management and may be subject to further
adjustment.
As Recorded by
Intervest
February 10, 2015
Preliminary
Fair Value
Adjustments(1)
(Dollars in thousands)
As Recorded
by the
Company(1)
Assets acquired:
Cash, due from banks and interest earning deposits .
Investment securities ................................................
Loans and leases .......................................................
Allowance for loan losses .........................................
Premises and equipment ...........................................
Foreclosed assets ......................................................
Accrued interest receivable and other assets ............
Core deposit intangible asset ....................................
Deferred income taxes ..............................................
Total assets acquired ........................................
$ 274,343
47,222
1,108,439
(25,208)
4,357
2,350
8,349
-
11,758
1,431,610
Liabilities assumed:
Deposits ....................................................................
Subordinated debentures ...........................................
Accrued interest payable and other liabilities ...........
Total liabilities assumed ...................................
Net assets acquired .......................................................
Consideration paid:
Cash in lieu of fractional shares ................................
Stock .........................................................................
Total consideration paid ...................................
Goodwill ......................................................................
1,162,437
56,702
3,608
1,222,747
$ 208,863
$ -
321
(33,868)
25,208
2,256
(1,710)
(2,741)
4,881
7,874
2,221
22,211
(4,463)
358
18,106
$(15,885)
a
b
b
c
d
e
f
g
h
i
j
$ 274,343
47,543
1,074,571
-
6,613
640
5,608
4,881
19,632
1,433,831
1,184,648
52,239
3,966
1,240,853
192,978
(7)
(238,476)
(238,483)
$ 45,505
(1) The Company’s acquisition of Intervest closed on February 10, 2015. Accordingly, each of the fair value adjustments shown are
preliminary estimates of the purchase accounting adjustments. Management is continuing to evaluate each of these fair value
adjustments and may revise one or more of such fair value adjustments in future periods based on this continuing evaluation. To the
extent that any of these preliminary fair value adjustments are revised in future periods, the resultant fair values and the amount of
goodwill recorded by the Company will change.
Explanation of preliminary fair value adjustments
a- Adjustment reflects the fair value adjustment based on the Company’s pricing of the acquired investment securities portfolio.
b- Adjustment reflects the fair value adjustment based on the Company’s evaluation of the acquired loan portfolio and to eliminate
the recorded allowance for loan losses.
c- Adjustment reflects the fair value adjustment based on the Company’s evaluation of the premises and equipment acquired.
d- Adjustment reflects the fair value adjustment based on the Company’s evaluation of the acquired foreclosed assets.
e- Adjustment reflects the fair value adjustment based on the Company’s evaluation of accrued interest receivable and other assets.
f- Adjustment reflects the fair value adjustment for the core deposit intangible asset recorded as a result of the acquisition.
g- This adjustment reflects the differences in the carrying values of acquired assets and assumed liabilities for financial reporting
purposes and their basis for federal income tax purposes.
h- Adjustment reflects the fair value adjustment based on the Company’s evaluation of the acquired deposits.
i- Adjustment reflects the fair value adjustment of these assumed liabilities based on a valuation of such instruments by an
independent, third party valuation firm.
j- Adjustment reflects the amount needed to adjust other liabilities to estimated fair value and to record certain liabilities directly
attributable to the acquisition of Intervest.
111
Goodwill of approximately $46 million, which is the excess of the merger consideration over the fair value of net
assets acquired, is expected to be recorded in the Intervest acquisition and is the result of expected operational synergies,
expansion of full service banking in New York City and other factors. This goodwill is not expected to be deductible for tax
purposes. To the extent that management revises any of the above fair value adjustments as a result of its continuing
evaluation, the amount of goodwill recorded in the Intervest acquisition will change.
The following unaudited supplemental pro forma information is presented to show the estimated results assuming
Intervest was acquired as of the beginning of the period presented, adjusted for estimated potential costs savings. These
unaudited pro forma results are not necessarily indicative of the operating results that the Company would have achieved
had it completed the acquisition as of January 1, 2014 and should not be considered as representative of future operating
results.
Year Ended
December 31, 2014
(Dollars in thousands,
except per share amounts)
Net interest income – pro forma (unaudited) ................................
Net income – pro forma (unaudited).............................................
Diluted earnings per common share – pro forma (unaudited) ......
$323,065
$140,987
$ 1.67
Summit Bancorp, Inc.
On May 16, 2014, the Company completed its acquisition of Summit Bancorp, Inc. (“Summit”) and Summit Bank,
its wholly-owned bank subsidiary, for an aggregate of $42.5 million in cash and 5,765,846 shares of its common stock. The
acquisition of Summit expanded the Company’s service area in Central, South and Western Arkansas by adding 23 banking
locations and one loan production office in nine Arkansas counties. During the second quarter of 2014, the Company
closed one of the banking offices and the loan production office acquired in the Summit acquisition. During the fourth
quarter of 2014, the Company closed seven additional banking offices, including five that were acquired from Summit, in
markets where the Company had excess branches as a result of the Summit acquisition.
112
The following table provides a summary of the assets acquired and liabilities assumed as recorded by Summit, the
fair value adjustments necessary to adjust those acquired assets and assumed liabilities to estimated fair value, and the
resultant fair values of those assets and liabilities as recorded by the Company.
May 16, 2014
As Recorded by
Summit
Fair Value
Adjustments
(Dollars in thousands)
Assets acquired:
Cash, due from banks and interest earning deposits .
Investment securities ................................................
Loans and leases .......................................................
Allowance for loan losses .........................................
Premises and equipment ...........................................
Foreclosed assets ......................................................
Accrued interest receivable and other assets ............
Bank owned life insurance ........................................
Core deposit intangible asset ....................................
Deferred income taxes ..............................................
Total assets acquired ........................................
$ 84,106
242,149
742,546
(13,183)
13,773
3,094
11,016
33,398
-
3,878
1,120,777
Liabilities assumed:
Deposits ....................................................................
Repurchase agreements with customers ....................
Accrued interest payable and other liabilities ...........
Total liabilities assumed ...................................
Net assets acquired .......................................................
Consideration paid:
Cash ..........................................................................
Stock .........................................................................
Total consideration paid ...................................
Goodwill ......................................................................
Explanation of fair value adjustments
965,687
16,515
2,352
984,554
$ 136,223
a
b
c
C
d
e
f
g
h
i
j
$ (304)
765
(24,718)
13,183
(1,108)
(1,088)
1,461
-
15,340
953
4,484
4,074
-
1,206
5,280
$ (796)
As Recorded
by the
Company
$ 83,802
242,914
717,828
-
12,665
2,006
12,477
33,398
15,340
4,831
1,125,261
969,761
16,515
3,558
989,834
135,427
(42,451)
(166,402)
(208,853)
$ 73,426
a- Adjustment reflects the fair value adjustment based on the Company’s evaluation of acquired interest earning deposits.
b- Adjustment reflects the fair value adjustment based on the Company’s pricing of the acquired investment securities portfolio.
c- Adjustment reflects the fair value adjustment based on the Company’s evaluation of the acquired loan portfolio and to eliminate
the recorded allowance for loan losses.
d- Adjustment reflects the fair value adjustment based on the Company’s evaluation of the premises and equipment acquired.
e- Adjustment reflects the fair value adjustment based on the Company’s evaluation of the acquired foreclosed assets.
f- Adjustment reflects the fair value adjustment based on the Company’s evaluation of accrued interest receivable and other assets.
g- Adjustment reflects the fair value adjustment for the core deposit intangible asset recorded as a result of the acquisition.
h- This adjustment reflects the differences in the carrying values of acquired assets and assumed liabilities for financial reporting
purposes and their basis for federal income tax purposes.
i- Adjustment reflects the fair value adjustment based on the Company’s evaluation of the acquired deposits.
j- Adjustment reflects the amount needed to adjust other liabilities to estimated fair value and to record certain liabilities directly
attributable to the acquisition of Summit.
Goodwill of $73.4 million, which is the excess of the merger consideration over the fair value of net assets
acquired, was recorded in the Summit acquisition and is the result of expected operational synergies and other factors. This
goodwill is not expected to be deductible for tax purposes.
The Company’s consolidated results of operations include the operating results for Summit beginning May 16,
2014 through the end of the reporting period. Summit’s operating results contributed $27.6 million of net interest income
and $12.3 million of net income to the Company’s results of operations during 2014.
113
The following unaudited supplemental pro forma information is presented to show the estimated results assuming
Summit was acquired as of the beginning of each period presented, adjusted for estimated potential costs savings. These
unaudited pro forma results are not necessarily indicative of the operating results that the Company would have achieved
had it completed the acquisition as of January 1, 2013 or 2014 and should not be considered as representative of future
operating results.
Year Ended
December 31,
2014
2013
(Dollars in thousands,
except per share amounts)
Net interest income – pro forma (unaudited) ................................
Net income – pro forma (unaudited) .............................................
Diluted earnings per common share – pro forma (unaudited) .......
$287,433
$126,153
$ 1.57
$227,106
$106,185
$ 1.47
Bancshares, Inc.
On March 5, 2014, the Company completed its acquisition of Bancshares, Inc. (“Bancshares”) of Houston, Texas
and OMNIBANK, N.A., its wholly-owned bank subsidiary, for an aggregate of $21.5 million in cash. The acquisition of
Bancshares expanded the Company’s service area in South Texas by adding three offices in Houston and one office each in
Austin, Cedar Park, Lockhart, and San Antonio.
The following table provides a summary of the assets acquired and liabilities assumed as recorded by Bancshares,
the fair value adjustments necessary to adjust those acquired assets and assumed liabilities to estimated fair value, and the
resultant fair values of those assets and liabilities as recorded by the Company.
March 5, 2014
As Recorded by
Bancshares
Fair Value
Adjustments
(Dollars in thousands)
As Recorded
by the
Company
Assets acquired:
Cash and due from banks .........................................
Investment securities ................................................
Loans and leases .......................................................
Allowance for loan losses .........................................
Premises and equipment ...........................................
Foreclosed assets ......................................................
Accrued interest receivable and other assets ............
Core deposit intangible asset ....................................
Deferred income taxes ..............................................
Total assets acquired ........................................
Liabilities assumed:
Deposits ....................................................................
Accrued interest payable and other liabilities ...........
Total liabilities assumed ...................................
Net assets acquired .......................................................
Total cash consideration paid .......................................
Gain on acquisition ......................................................
Explanation of fair value adjustments
$102,156
1,860
165,939
(5,280)
6,259
7,634
608
-
7,110
286,286
255,798
1,358
257,156
$ 29,130
$ -
(1) a
(10,764) b
b
5,280
1,619
c
(2,916) d
(294) e
f
2,648
1,881
g
(2,547)
h
i
121
295
416
$ (2,963)
$102,156
1,859
155,175
-
7,878
4,718
314
2,648
8,991
283,739
255,919
1,653
257,572
26,167
(21,500)
$ 4,667
a- Adjustment reflects the fair value adjustment based on the Company’s pricing of the acquired investment securities portfolio.
b- Adjustment reflects the fair value adjustment based on the Company’s evaluation of the acquired loan portfolio and to eliminate the
recorded allowance for loan losses.
c- Adjustment reflects the fair value adjustment based on the Company’s evaluation of the premises and equipment acquired.
d- Adjustment reflects the fair value adjustment based on the Company’s evaluation of the acquired foreclosed assets.
e- Adjustment reflects the fair value adjustment based on the Company’s evaluation of accrued interest receivable and other assets.
f- Adjustment reflects the fair value adjustment for the core deposit intangible asset recorded as a result of the acquisition.
114
g- This adjustment reflects the differences in the carrying values of acquired assets and assumed liabilities for financial reporting
purposes and their basis for federal income tax purposes. Management has determined that acquired net operating loss carryforwards
are expected to be settled in future periods where the realization of such benefits would be subject to section 382 limitation.
Accordingly, the Company has established a deferred tax asset valuation allowance of approximately $0.5 million to reflect its
assessment. To the extent that additional information becomes available, management may be required to adjust this deferred tax
asset valuation allowance.
h- Adjustment reflects the fair value adjustment based on the Company’s evaluation of the acquired deposits.
i- Adjustment reflects the amount needed to adjust other liabilities to estimated fair value and to record certain liabilities directly
attributable to the acquisition of Bancshares.
The Company’s consolidated results of operations include the operating results for Bancshares beginning March 6,
2014 through the end of the reporting period. Bancshares’ operating results contributed $7.6 million of net interest income
and $7.7 million of net income, including the $4.7 million of tax-exempt bargain purchase gain, to the Company’s results of
operations during 2014.
First National Bank
On July 31, 2013, the Company completed the First National Bank acquisition whereby First National Bank
merged with and into the Company’s wholly-owned bank subsidiary in a transaction valued at $68.5 million. The Company
issued 2,514,770 shares of its common stock, plus $8.4 million in cash in exchange for all outstanding shares of First
National Bank common stock. The Company also acquired certain real property from parties related to First National Bank
and on which certain First National Bank offices are located for $3.8 million in cash.
The acquisition of First National Bank expanded the Company’s service area in North Carolina by adding 14
offices in Shelby, North Carolina and surrounding communities. During 2013 the Company closed one of the acquired
offices in Shelby, North Carolina.
During the second quarter of 2014, management revised its initial estimates and assumptions regarding the
expected recovery of acquired assets with built-in losses, specifically the timing of expected charge-offs of purchased loans,
in the First National Bank acquisition. As a result of such revision, management concluded that the deferred tax asset
valuation allowance of $4.1 million was not necessary. Because such revision occurred during the first 12 months following
the date of acquisition and was not the result of changes in circumstances, management has recast the 2013 consolidated
financial statements to increase the bargain purchase gain on the First National Bank acquisition by $4.1 million to reflect
this change in estimate.
115
The following table provides a summary of the assets acquired and liabilities assumed as recorded by First
National Bank, the fair value adjustments necessary to adjust those acquired assets and assumed liabilities to estimated fair
value, the recast adjustment described above and the resultant fair values of those assets and liabilities as recorded by the
Company.
July 31, 2013
As Recorded
by First
National Bank
$ 69,285
149,943
432,250
(13,931)
14,318
3,073
1,234
14,812
-
12,179
4,277
687,440
595,668
6,405
1,296
603,369
$ 84,071
Assets acquired:
Cash and due from banks .....................
Investment securities ............................
Loans and leases ..................................
Allowance for loan losses ....................
Premises and equipment .......................
Foreclosed assets ..................................
Accrued interest receivable ..................
BOLI ....................................................
Core deposit intangible asset ................
Deferred income taxes ..........................
Other assets ..........................................
Total assets acquired ....................
Liabilities assumed:
Deposits
Repurchase agreements with customers
Accrued interest payable and other
liabilities ..........................................
Total liabilities assumed ..............
Net assets acquired ..................................
Consideration paid:
Cash .....................................................
Common stock .....................................
Total consideration paid ..............
Gain on acquisition ..................................
Fair Value
Adjustments
Recast
Adjustment
(Dollars in thousands)
$ -
(599) a
(44,183) b
13,931 b
5,064 c
(915) d
(110) e
-
10,136 f
12,325 g
(251) e
(4,602)
4,950 h
-
1,164 I
6,114
$(10,716)
$ -
-
-
-
-
-
-
-
-
4,102
-
4,102
-
-
-
-
$4,102
As Recorded
by the
Company
$ 69,285
149,344
388,067
-
19,382
2,158
1,124
14,812
10,136
28,606
4,026
686,940
600,618
6,405
2,460
609,483
77,457
(12,215)
(60,079)
(72,294)
$ 5,163
Explanation of fair value adjustments
a- Adjustment reflects the fair value adjustment based on the Company’s pricing of the acquired investment securities portfolio.
b- Adjustment reflects the fair value adjustment based on the Company’s evaluation of the acquired loan portfolio and to eliminate the
recorded allowance for loan losses.
c- Adjustment reflects the fair value adjustment based on the Company’s evaluation of the premises and equipment acquired.
d- Adjustment reflects the fair value adjustment based on the Company’s evaluation of the acquired foreclosed assets.
e- Adjustment reflects the fair value adjustment based on the Company’s evaluation of accrued interest receivable and other assets.
f- Adjustment reflects the fair value adjustment for the core deposit intangible asset recorded as a result of the acquisition.
g- This adjustment reflects the differences in the carrying values of acquired assets and assumed liabilities for financial reporting
purposes and their basis for federal income tax purposes. Management initially determined that acquired net operating loss
carryforwards and other acquired assets with built-in losses were expected to be settled or otherwise recovered in future periods
where the realization of such benefits would be subject to section 382 limitation. Accordingly, at the date of acquisition, the
Company established a deferred tax asset valuation allowance of approximately $4.1 million to reflect this initial assessment. During
the second quarter of 2014, management determined such valuation allowance was not necessary. Accordingly, the Company’s
acquisition of First National Bank has been recast to reflect such determination.
h- Adjustment reflects the fair value adjustment based on the Company’s evaluation of the acquired deposits.
i- Adjustment reflects the amount needed to adjust other liabilities to estimated fair value and to record certain liabilities directly
attributable to the acquisition of First National Bank.
Beginning August 1, 2013, First National Bank operations are included in the Company’s consolidated results of
operations.
116
As a result of the recast adjustment described above, certain amounts previously reported in the Company’s 2013
Consolidated Financial Statements have been recast. The following is a summary of those financial statement captions that
have been impacted by this recast adjustment.
As Previously
Reported
Recast
Adjustment
(Dollars in thousands, except per share amounts)
As Recast
As of and for the year ended December 31, 2013:
Deferred income tax asset valuation allowance ............
Total stockholders’ equity before noncontrolling
interest .......................................................................
Gain on merger and acquisition transaction .................
Net income available to common stockholders ............
Diluted earnings per common share .............................
$ (4,102)
$4,102
$ -
624,958
1,061
87,163
$ 1.20
4,102
4,102
4,102
$ 0.06
629,060
5,163
91,265
$ 1.26
FDIC-Assisted Acquisitions
During 2010 and 2011, the Company, through the Bank, acquired substantially all of the assets and assumed
substantially all of the deposits and certain other liabilities of seven failed financial institutions in FDIC-assisted
acquisitions. A summary of each acquisition is as follows:
Date of FDIC-
Assisted Acquisition
March 26, 2010
July 16, 2010
September 10, 2010
December 17, 2010
January 14, 2011
April 29, 2011
April 29, 2011
Failed Financial Institution
Unity National Bank (“Unity”)
Woodlands Bank (“Woodlands”)
Horizon Bank (“Horizon”)
Chestatee State Bank (“Chestatee”)
Oglethorpe Bank (“Oglethorpe”)
First Choice Community Bank (“First Choice”)
The Park Avenue Bank (“Park Avenue”)
Location
Cartersville, Georgia
Bluffton, South Carolina
Bradenton, Florida
Dawsonville, Georgia
Brunswick, Georgia
Dallas, Georgia
Valdosta, Georgia
Loans comprise the majority of the assets acquired in each of these FDIC-assisted acquisitions and, with the
exception of Unity, all but a small amount of consumer loans were subject to loss share agreements with the FDIC whereby
the Bank was indemnified against a portion of the losses on such loans and foreclosed assets. In the Unity acquisition, all
loans, including consumer loans, were subject to loss share agreement with the FDIC.
During the fourth quarter of 2014, the Bank and the FDIC entered into agreements terminating the loss share
agreements for all seven of the FDIC-assisted acquisitions, resulting in a gain of $8.0 million. All rights and obligations of
the parties under the FDIC loss share agreements, including the clawback provisions, have been eliminated under these
termination agreements. The termination of the loss share agreements should have no impact on the yields for the loans that
were previously covered under these agreements. All future charge-offs, recoveries, gains, losses and expenses related to
covered assets will now be recognized entirely by the Bank since the FDIC will no longer be sharing in such charge-offs,
recoveries, gains, losses and expenses.
117
The following table presents a summary of the calculation of the gain recognized by the Company as a result of the
termination of these loss share agreements.
Net cash received from the FDIC on termination
of loss share agreements ..................................
FDIC loss share receivable ...................................
FDIC clawback payable ........................................
Gain on termination of loss share included in
Year Ended
December 31, 2014
(Dollars in thousands)
$20,425
(39,105)
26,676
“other” non-interest income ..........................
$ 7,996
Despite the termination of loss share with the FDIC, the terms of the purchase and assumption agreements for each
of these FDIC-assisted acquisitions continue to provide for the FDIC to indemnify the Bank against certain claims,
including claims with respect to assets, liabilities or any affiliate not acquired or otherwise assumed by the Bank and with
respect to claims based on any action by the former directors, officers or employees of Unity, Woodland, Horizon,
Chestatee, Oglethorpe, First Choice or Park Avenue.
3. Purchased Loans, Including Loans Previously Covered by FDIC Loss Share
During the fourth quarter of 2014, the Bank and the FDIC entered into agreements terminating the loss share
agreements for all seven of the Company’s FDIC-assisted acquisitions. As a result of entering these termination agreements,
the Company reclassified all loans previously reported as covered by FDIC loss share to purchased loans for all periods
presented. Additionally, the Company has reclassified all interest income in loans previously reported as covered by FDIC
loss share to interest income on purchased loans for all periods presented.
Purchased Loans
The following table is a summary of the purchased loan portfolio by principal category as of the dates indicated.
Real estate:
Residential 1-4 family ...............................
Non-farm/non-residential ..........................
Construction/land development ................
Agricultural ...............................................
Multifamily residential .............................
Total real estate ....................................
Commercial and industrial ...........................
Consumer .....................................................
Other ............................................................
Total purchased loans ..........................
Purchased loans not covered by FDIC loss
December 31,
2014
2013
2012
(Dollars in thousands)
$ 355,705
504,889
99,776
47,988
42,434
1,050,792
68,825
15,268
13,062
$1,147,947
$242,138
316,656
73,375
20,668
26,376
679,213
33,653
6,966
4,682
$724,514
$171,510
292,946
107,037
22,711
10,701
604,965
23,829
4,344
4,635
$637,773
share ........................................................
$1,147,947
$372,723
$ 41,534
Purchased loans previously reported as
covered by FDIC loss share ....................
Total purchased loans ..........................
-
$1,147,947
351,791
$724,514
596,239
$637,773
118
The following table is a summary of interest income on purchased loans during the years indicated.
2014
Year Ended December 31,
2013
(Dollars in thousands)
2012
Interest income on purchased loans not
covered by FDIC loss share ....................
$58,224
$14,808
$ 254
Interest income on purchased loans
previously reported as covered by FDIC
loss share .................................................
Total interest income on purchased
39,988
45,122
61,820
loans ..............................................
$98,212
$59,930
$62,074
The following table is a summary, as of the dates indicated, of the Company’s purchased loans without evidence of
credit deterioration at the date of acquisition and purchased loans with evidence of credit deterioration at the date of
acquisition, excluding loans previously covered by FDIC loss share while such loans were covered under FDIC loss share.
2014
As of December 31,
2013
(Dollars in thousands)
2012
Purchased loans without evidence of credit
deterioration at date of acquisition ..........
$ 871,467
$332,093
$34,779
Purchased loans with evidence of credit
deterioration at date of acquisition ..........
Total purchased loans ........................
276,480
$1,147,947
40,630
$372,723
6,755
$41,534
The following table presents a summary, during the years indicated, of the activity of the Company’s purchased
loans with evidence of credit deterioration at the date of acquisition, excluding loans previously covered by FDIC loss share
while such loans were covered under loss share.
2014
Year Ended December 31,
2013
(Dollars in thousands)
2012
Balance – beginning of year .........................
Accretion ......................................................
Purchased loans acquired .............................
Transfer to foreclosed assets ........................
Payments received........................................
Charge-offs ..................................................
Other activity, net .........................................
Termination of FDIC loss share(1) ................
Balance – end of year ...................................
$ 40,630
6,478
40,035
(6,461)
(18,734)
(1,822)
27
216,327
$276,480
$ 6,775
1,666
39,757
(852)
(5,571)
(1,155)
10
-
$40,630
$4,799
254
4,837
(25)
(2,895)
(225)
30
-
$6,775
(1) This amount represents the balance of the loans covered by FDIC loss share when the Bank and FDIC entered into
agreements to terminate loss share.
119
The following table presents a summary, during the years indicated, of changes in the accretable difference on
purchased loans with evidence of credit deterioration on the date of acquisition, excluding loans previously covered by
FDIC loss share while such loans were covered under loss share.
Year Ended December 31,
2014
2013
(Dollars in thousands)
Accretable difference at beginning of year .......
Accretion ........................................................
Accretable difference acquired .......................
Adjustments to accretable difference due to:
Transfer to foreclosed assets ....................
Purchased loans paid off ...........................
Cash flow revisions as a result of
renewals and/or modifications ..............
Other, net ........................................................
Termination of FDIC loss share(1) ...................
Accretable difference at end of year ..................
$ 5,983
(6,478)
6,732
(377)
(1,377)
5,865
20
63,799
$74,167
$ 969
(1,666)
6,932
-
-
-
(252)
-
$5,983
2012
$ 395
(254)
669
-
-
-
159
-
$ 969
(1) This amount represents the remaining accretable difference on loans covered by FDIC loss share when the Bank
and FDIC entered into agreements to terminate loss share.
The following table presents a summary of the fair value adjustments for purchased loans with evidence of credit
deterioration as of the date of purchase.
Year Ended December 31,
2013
2014
2012
(Dollars in thousands)
At acquisition date:
Contractually required principal and interest ...
Non-accretable difference ................................
Cash flows expected to be collected ................
Accretable difference .......................................
Day 1 Fair Value.........................................
$ 61,978
(15,211)
46,767
(6,732)
$ 40,035
$ 77,258
(30,569)
46,689
(6,932)
$ 39,757
$ 8,769
(3,263)
5,506
(669)
$ 4,837
Purchased Loans Previously Covered by FDIC Loss Share
The following table presents a summary, during the years indicated, of activity within loans previously covered by
FDIC loss share.
Balance – beginning of year ............................
Accretion .........................................................
Transfer to foreclosed assets covered by FDIC
loss share ....................................................
Payments received ...........................................
Charge-offs ......................................................
Other activity, net ............................................
Termination of FDIC loss share(1) ...................
Balance – end of year ......................................
Year Ended December 31,
2014
2013
2012
(Dollars in thousands)
$ 351,791
39,988
$596,239
45,122
$806,922
61,820
(35,845)
(132,825)
(6,832)
50
(216,327)
$ -
(34,756)
(229,949)
(23,169)
(1,696)
-
$351,791
(33,020)
(211,787)
(26,092)
(1,604)
-
$596,239
(1) This amount represents the balance of the loans covered by FDIC loss share when the Bank and FDIC entered into
agreements to terminate loss share.
120
The following table presents a summary, during the years indicated, of changes in the accretable difference on
loans previously covered by FDIC loss share.
Accretable difference at beginning of year ........
Accretion ........................................................
Adjustments to accretable difference due to:
Transfers to covered foreclosed assets ........
Covered loans paid off ................................
Cash flow revisions as a result of renewals
and/or modifications ................................
Other, net ....................................................
Termination of FDIC loss share(1) ...................
Accretable difference at end of year ..................
2014
Year Ended December 31,
2013
(Dollars in thousands)
$ 97,495
(45,122)
$ 77,472
(39,988)
2012
$151,649
(61,820)
(1,280)
(14,532)
41,494
633
(63,799)
$ -
(3,261)
(15,770)
42,895
1,235
-
$ 77,472
(3,995)
(10,495)
21,331
825
-
$ 97,495
(1) This amount represents the remaining accretable difference on loans covered by FDIC loss share when the Bank
and FDIC entered into agreements to terminate loss share.
4. FDIC Loss Share Receivable and FDIC Clawback Payable
During the fourth quarter of 2014, the Bank and the FDIC entered into agreements terminating the loss share
agreements for all seven of the FDIC-assisted acquisitions. All rights and obligations of the parties under the FDIC loss
share agreements, including the clawback provisions, have been eliminated under these termination agreements.
The following table presents a summary of the activity within the FDIC loss share receivable during the years
indicated.
Balance – beginning of year ............................
Accretion income ............................................
Cash received from FDIC under loss share .....
Reduction of FDIC loss share receivable for
payments on loans covered by FDIC loss
share in excess of carrying value ...............
Increase in FDIC loss share receivable for:
Charge-offs of loans covered by FDIC
Year Ended December 31,
2013
(Dollars in thousands)
$152,198
8,420
(80,269)
2014
$ 71,854
168
(24,810)
$279,045
8,574
(143,997)
2012
(21,706)
(37,296)
(33,011)
loss share ...............................................
5,313
17,855
19,279
Write down of foreclosed assets covered
by FDIC loss share ................................
5,176
4,934
8,845
Expenses on assets that are reimbursable
by FDIC .................................................
Other activity, net ............................................
Termination of FDIC loss share ......................
Balance – end of year ......................................
5,440
(2,330)
(39,105)
$ -
9,969
(3,957)
-
$ 71,854
11,378
2,085
-
$152,198
121
The following table presents a summary of the activity within the FDIC clawback payable during the years
indicated.
Balance – beginning of year ...................................
Amortization expense .............................................
Change in FDIC clawback payable related to
changes in expected losses on assets covered
by FDIC loss share ............................................
Termination of FDIC loss share .............................
Balance – end of year .............................................
5. Investment Securities
Year Ended December 31,
2013
(Dollars in thousands)
$25,169
1,249
2012
$24,645
1,199
2014
$ 25,897
779
-
(26,676)
$ -
(521)
-
$25,897
(675)
-
$25,169
The following table is a summary of the amortized cost and estimated fair values of investment securities, all of
which are classified as AFS. The Company’s holdings of “other equity securities” include FHLB-Dallas and FNBB shares
which do not have readily available fair values and are carried at cost.
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(Dollars in thousands)
Estimated
Fair
Value
December 31, 2014:
Obligations of states and political
subdivisions ........................................
U.S. Government agency securities .........
Corporate obligations ..............................
Other equity securities ............................
Total investment securities AFS ......
$555,335
245,854
654
14,225
$816,068
December 31, 2013:
Obligations of states and political
subdivisions ........................................
U.S. Government agency securities .........
Corporate obligations ..............................
Other equity securities ............................
Total investment securities AFS ......
$438,390
222,510
716
13,810
$675,426
$18,267
6,144
-
-
$24,411
$ 6,230
2,352
-
-
$ 8,582
$ (393)
(765)
-
-
$ (1,158)
$573,209
251,233
654
14,225
$839,321
$ (8,631)
(5,993)
-
-
$(14,624)
$435,989
218,869
716
13,810
$669,384
122
The following table shows gross unrealized losses and estimated fair value of investment securities AFS,
aggregated by investment category and length of time that individual investment securities have been in a continuous
unrealized loss position.
Less than 12 Months
Estimated
Fair Value
Unrealized
Losses
12 Months or More
Estimated
Fair Value
Unrealized
Losses
(Dollars in thousands)
Total
Estimated
Fair Value
Unrealized
Losses
December 31, 2014:
Obligations of states and
political subdivisions ............. $ 29,174
$ 75
$34,414
$ 318
$ 63,588
$ 393
U.S. Government agency
securities ................................
Total temporarily impaired
9,630
25
47,626
740
57,256
765
investment securities ........ $ 38,804
$ 100
$82,040
$1,058
$120,844
$ 1,158
December 31, 2013:
Obligations of states and
political subdivisions .............
$132,568
$ 7,237
$10,823
$1,394
$143,391
$ 8,631
U.S. Government agency
securities ................................
Total temporarily impaired
127,274
5,993
-
-
127,274
5,993
investment securities ........
$259,842
$13,230
$10,823
$1,394
$270,665
$14,624
In evaluating the Company’s unrealized loss positions for other-than-temporary impairment for the investment
securities portfolio, management considers the credit quality of the issuer, the nature and cause of the unrealized loss, the
severity and duration of the impairments and other factors. At December 31, 2014 and 2013, management determined the
unrealized losses were the result of fluctuations in interest rates and did not reflect deteriorations of the credit quality of the
investments. Accordingly, management believes that all of its unrealized losses on investment securities are temporary in
nature. The Company does not have the intent to sell these investment securities and more likely than not, would not be
required to sell these investment securities before fair value recovers to amortized cost.
The following table is a maturity distribution of investment securities AFS as of December 31, 2014.
Amortized
Cost
Estimated
Fair Value
(Dollars in thousands)
Due in one year or less ............................
Due after one year to five years ...............
Due after five years to ten years ..............
Due after ten years ...................................
Total ...............................................
$ 49,835
141,239
185,905
439,089
$816,068
$ 50,773
143,888
189,517
455,143
$839,321
For purposes of this maturity distribution, all investment securities are shown based on their contractual maturity
date, except (i) FHLB-Dallas and FNBB stock with no contractual maturity date are shown in the longest maturity category
and (ii) U.S. Government agency securities and municipal housing authority securities backed by residential mortgages are
allocated among various maturities based on an estimated repayment schedule utilizing Bloomberg median prepayment
speeds and interest rate levels at December 31, 2014. 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.
123
The following table is a summary of sales activities and other-than-temporary impairment charges of the
Company’s investment securities AFS.
2014
Year Ended December 31,
2013
(Dollars in thousands)
Sales proceeds.............................................................
$55,724
Gross realized gains ...................................................
Gross realized losses ..................................................
Other-than-temporary impairment charges .................
Net gains on investment securities .......................
$ 159
(15)
-
$ 144
$999
$161
-
-
$161
2012
$43,177
$ 3,075
(15)
(2,603)
$ 457
Investment securities with carrying values of $694.5 million and $510.7 million at December 31, 2014 and 2013,
respectively, were pledged to secure public funds and trust deposits and for other purposes required or permitted by law.
At December 31, 2014 and 2013, the Company had no holdings of investment securities of any one issuer, other
than U.S. Government agency residential mortgage-backed securities issued by the Federal National Mortgage Association,
in an amount greater than 10% of total common stockholders’ equity.
6. Non-Purchased Loans and Leases
The following table is a summary of the non-purchased loan and lease portfolio by principal category.
December 31,
2014
2013
(Dollars in thousands)
Real estate:
Residential 1-4 family ..........................
Non-farm/non-residential .....................
Construction/land development............
Agricultural ..........................................
Multifamily residential .........................
Total real estate ...............................
Commercial and industrial .......................
Consumer .................................................
Direct financing leases .............................
Other ........................................................
Total non-purchased loans and
$ 283,253
1,503,541
1,411,838
47,235
211,156
3,457,023
287,707
25,669
115,475
93,996
7.1%
37.8
35.5
1.2
5.3
86.9
7.2
0.6
2.9
2.4
$ 249,556
1,104,114
722,557
45,196
208,337
2,329,760
124,068
26,182
86,321
66,234
9.5%
41.9
27.4
1.8
7.9
88.5
4.7
1.0
3.3
2.5
leases ...........................................
$3,979,870
100.0%
$2,632,565
100.0%
The above table includes deferred fees, net of deferred costs, that totaled $12.9 million and $3.0 million at
December 31, 2014 and 2013, respectively. Direct financing leases are presented net of unearned income totaling $13.1
million and $10.1 million at December 31, 2014 and 2013, respectively.
Non-purchased loans and leases on which the accrual of interest has been discontinued aggregated $21.1 million
and $8.7 million at December 31, 2014 and 2013, respectively. Interest income collected and recognized during 2014, 2013
and 2012 for nonaccrual loans and leases at December 31, 2014, 2013 and 2012 was $0.6 million, $0.2 million and $0.2
million, respectively. Under the original terms, these loans and leases would have reported $1.1 million, $0.6 million and
$0.7 million of interest income during 2014, 2013 and 2012, respectively.
124
7. Allowance for Loan and Lease Losses (“ALLL”) and Credit Quality Indicators
Allowance for Loan and Lease Losses
The following table is a summary of activity within the ALLL during the years indicated.
2014
Year Ended December 31,
2013
(Dollars in thousands)
2012
Balance – beginning of year .....................................................
Non-purchased loans and leases charged off ............................
Recoveries of non-purchased loans and leases previously
charged off ...........................................................................
Net non-purchased loans and leases charged off ......................
Purchased loans charged off, net ..............................................
Net charge-offs – total loans and leases ............................
Provision for loan and lease losses:
Non-purchased loans and leases ...........................................
Purchased loans ....................................................................
Total provision .................................................................
Balance – end of year ...............................................................
$42,945
(5,123)
$38,738
(4,327)
1,396
(3,727)
(3,215)
(6,942)
13,700
3,215
16,915
$52,918
1,134
(3,193)
(4,675)
(7,868)
7,400
4,675
12,075
$42,945
$39,169
(6,636)
655
(5,981)
(6,195)
(12,176)
5,550
6,195
11,745
$38,738
As of December 31, 2014 and 2013, the Company had identified purchased loans where the company had
determined it was probable that it would be unable to collect all amounts according to the contractual terms thereof (for
purchased loans without evidence of credit deterioration at date of acquisition) or the expected performance of such loans
had deteriorated from management’s performance expectations established in conjunction with the determination of the Day
1 Fair Values or since management’s most recent review of such portfolio’s performance (for purchased loans with evidence
of credit deterioration at date of acquisition). As a result the Company recorded partial charge-offs, net of adjustments to
the FDIC loss share receivable and the FDIC clawback payable for those loans previously covered by FDIC loss share
agreements, totaling $3.2 million during 2014 and $4.7 million during 2013 for such loans. The Company also recorded
$3.2 million during 2014 and $4.7 million during 2013 of provision for loan and lease losses to cover these charge-offs. In
addition to these charge-offs, the Company transferred certain of these purchased loans to foreclosed assets. As a result of
these actions, the Company had $14.0 million of impaired purchased loans at December 31, 2014 and $46.2 million of
impaired purchased loans at December 31, 2013.
The following table is a summary of the Company’s ALLL for the year indicated.
Year ended December 31, 2014:
Real estate:
Residential 1-4 family .................
Non-farm/non-residential ............
Construction/land development ...
Agricultural .................................
Multifamily residential ................
Commercial and industrial .............
Consumer .......................................
Direct financing leases ...................
Other ..............................................
Purchased loans ..............................
Total ...............................
Beginning
Balance
$ 4,701
13,633
12,306
3,000
2,504
2,855
917
2,266
763
-
$42,945
Ending
Balance
$ 5,482
17,190
15,960
2,558
2,147
4,873
818
2,989
901
-
$52,918
Charge-offs
Recoveries
(Dollars in thousands)
Provision
$ 135
33
11
14
-
808
80
49
266
-
$1,396
$ 1,223
4,881
4,281
(242)
(357)
1,930
43
1,276
665
3,215
$16,915
$ (577)
(1,357)
(638)
(214)
-
(720)
(222)
(602)
(793)
(3,215)
$(8,338)
125
The following table is a summary of the Company’s ALLL for the year indicated.
Year ended December 31, 2013:
Real estate:
Residential 1-4 family ..................
Non-farm/non-residential .............
Construction/land development ....
Agricultural ..................................
Multifamily residential .................
Commercial and industrial ..............
Consumer ........................................
Direct financing leases ....................
Other ...............................................
Purchased loans...............................
Total ................................
Beginning
Balance
$ 4,820
10,107
12,000
2,878
2,030
3,655
1,015
2,050
183
-
$38,738
Charge-offs
Recoveries
(Dollars in thousands)
Provision
$ (837)
(1,111)
(137)
(261)
(4)
(922)
(214)
(482)
(359)
(4,675)
$(9,002)
$ 106
122
174
14
4
433
104
33
144
-
$1,134
$ 612
4,515
269
369
474
(311)
12
665
795
4,675
$12,075
Ending
Balance
$ 4,701
13,633
12,306
3,000
2,504
2,855
917
2,266
763
-
$42,945
The following table is a summary of the Company’s ALLL and recorded investment in non-purchased loans and
leases, as of the dates indicated.
Allowance for
Loan and Lease Losses
Non-Purchased Loans and Leases
ALLL for
Individually
Evaluated
Impaired
Loans and
Leases
ALLL for
All Other
Loans and
Leases
Total
ALLL
Individually
Evaluated
Impaired
Loans and
Leases
(Dollars in thousands)
December 31, 2014:
Real estate:
Residential 1-4 family .................
Non-farm/non-residential............
Construction/land development ..
Agricultural .................................
Multifamily residential ...............
Commercial and industrial ..............
Consumer ........................................
Direct financing leases ....................
Other ...............................................
Total ..............................
December 31, 2013:
Real estate:
Residential 1-4 family .................
Non-farm/non-residential............
Construction/land development ..
Agricultural .................................
Multifamily residential ...............
Commercial and industrial ..............
Consumer ........................................
Direct financing leases ....................
Other ...............................................
Total ..............................
$ 356
18
68
6
-
644
3
-
-
$1,095
$ 438
15
2
229
-
652
3
-
2
$1,341
$ 2,734
2,507
14,304
365
-
623
34
-
8
$20,575
$ 4,047
2,159
236
883
-
686
50
-
26
$ 8,087
$ 5,482
17,190
15,960
2,558
2,147
4,873
818
2,989
901
$52,918
$ 4,701
13,633
12,306
3,000
2,504
2,855
917
2,266
763
$42,945
$ 5,126
17,172
15,892
2,552
2,147
4,229
815
2,989
901
$51,823
$ 4,263
13,618
12,304
2,771
2,504
2,203
914
2,266
761
$41,604
126
All Other
Loans and
Leases
Total
Loans and
Leases
$ 280,519
1,501,034
1,397,534
46,870
211,156
287,084
25,635
115,475
93,988
$3,959,295
$ 245,509
1,101,955
722,321
44,313
208,337
123,382
26,132
86,321
66,208
$2,624,478
$ 283,253
1,503,541
1,411,838
47,235
211,156
287,707
25,669
115,475
93,996
$3,979,870
$ 249,556
1,104,114
722,557
45,196
208,337
124,068
26,182
86,321
66,234
$2,632,565
The following table is a summary of impaired loans and leases, excluding purchased loans, as of and for the years
indicated.
Principal
Balance
Net
Charge-offs
to Date
Principal
Balance,
Net of
Charge-offs
Weighted
Average
Carrying
Value
Specific
Allowance
(Dollars in thousands)
As of and year ended December 31,
2014:
Impaired loans and leases for which there
is a related ALLL:
Real estate:
Residential 1-4 family ........................
Non-farm/non-residential ...................
Construction/land development ..........
Agricultural ........................................
Commercial and industrial ....................
Consumer .............................................
Other .....................................................
Total impaired loans and leases with
a related ALLL .................................
Impaired loans and leases for which there
is not a related ALLL:
Real estate:
Residential 1-4 family ........................
Non-farm/non-residential ...................
Construction/land development ..........
Agricultural ........................................
Multifamily .........................................
Commercial and industrial ....................
Consumer ..............................................
Other .....................................................
Total impaired loans and leases
without a related ALLL ...................
Total impaired loans and leases ................
As of and year ended December 31,
2013:
Impaired loans and leases for which there
is a related ALLL:
Real estate:
Residential 1-4 family ........................
Non-farm/non-residential ...................
Construction/land development ..........
Agricultural ........................................
Commercial and industrial ...................
Consumer .............................................
Other .....................................................
Total impaired loans and leases with
a related ALLL .................................
Impaired loans and leases for which there
is not a related ALLL:
Real estate:
Residential 1-4 family ........................
Non-farm/non-residential ...................
Construction/land development ..........
Agricultural ........................................
Multifamily .........................................
Commercial and industrial ...................
Consumer ............................................
Other .....................................................
Total impaired loans and leases
without a related ALLL....................
Total impaired loans and leases ................
$ 3,163
762
4,656
105
1,233
41
-
9,960
1,373
2,676
10,378
474
133
264
81
8
15,387
$25,347
$ 3,609
121
38
511
2,016
178
40
6,513
2,939
3,234
300
426
133
85
39
31
7,187
$13,700
$(1,674)
(220)
(545)
(12)
(691)
(23)
-
(3,165)
(128)
(711)
(185)
(202)
(133)
(183)
(65)
-
(1,607)
$(4,772)
$(1,692)
(75)
(22)
(42)
(1,405)
(156)
(25)
(3,417)
(808)
(1,120)
(81)
(12)
(133)
(10)
(12)
(20)
(2,196)
$(5,613)
$ 1,489
542
4,111
93
542
18
-
6,795
1,245
1,965
10,193
272
-
81
16
8
13,780
$20,575
$ 1,917
46
16
469
611
22
15
3,096
2,131
2,114
219
414
-
75
27
11
4,991
$ 8,087
$ 356
18
68
6
644
3
-
1,095
-
-
-
-
-
-
-
-
$ 1,457
211
1,040
217
554
20
-
3,499
1,581
1,988
7,600
383
123
75
18
8
-
$1,095
11,776
$15,275
$ 438
15
2
229
652
3
2
1,341
-
-
-
-
-
-
-
-
$ 1,638
93
17
514
578
10
10
2,860
1,541
4,344
303
404
124
172
24
9
-
$1,341
6,921
$ 9,781
Management has determined that certain of the Company’s impaired loans and leases do not require any specific
allowance at December 31, 2014 and 2013 because (i) management’s analysis of such individual loans and leases resulted in
no impairment or (ii) all identified impairment on such loans and leases has previously been charged off.
127
Interest income on impaired loans and leases is recognized on a cash basis when and if actually collected. Total
interest income recognized on impaired loans and leases for the years ended December 31, 2014, 2013 and 2012 was not
material.
Credit Quality Indicators
Non-Purchased Loans and Leases
The following table is a summary of credit quality indicators for the Company’s non-purchased loans and leases as
of the dates indicated.
Satisfactory
Moderate
Watch
(Dollars in thousands)
Substandard
Total
December 31, 2014:
Real estate:
Residential 1-4 family (1) ...............
Non-farm/non-residential ..............
Construction/land development.....
Agricultural ...................................
Multifamily residential ..................
Commercial and industrial .................
Consumer (1) .......................................
Direct financing leases .......................
Other (1) ..............................................
Total ........................................
December 31, 2013:
Real estate:
Residential 1-4 family (1) ...............
Non-farm/non-residential ..............
Construction/land development.....
Agricultural ...................................
Multifamily residential ..................
Commercial and industrial .................
Consumer (1) .......................................
Direct financing leases .......................
Other (1) ..............................................
Total ........................................
$ 271,576
1,300,582
1,190,005
22,446
171,806
208,054
25,267
114,586
89,364
$3,393,686
$ -
142,688
192,046
12,375
37,886
59,967
-
715
4,312
$449,989
$ 239,940
916,304
550,436
21,647
177,144
87,568
25,574
85,363
63,799
$2,167,775
$ -
128,624
144,435
11,098
30,029
33,071
-
955
2,237
$350,449
$ 4,082
53,863
11,135
10,226
713
18,310
141
117
286
$98,873
$ 3,140
52,388
23,574
9,788
391
1,664
230
-
119
$91,294
$ 7,595
6,408
18,652
2,188
751
1,376
261
57
34
$37,322
$ 6,476
6,798
4,112
2,663
773
1,765
378
3
79
$23,047
$ 283,253
1,503,541
1,411,838
47,235
211,156
287,707
25,669
115,475
93,996
$3,979,870
$ 249,556
1,104,114
722,557
45,196
208,337
124,068
26,182
86,321
66,234
$2,632,565
(1) The Company does not risk rate its residential 1-4 family loans, its consumer loans, and certain “other” loans. However,
for purposes of the above table, the Company considers such loans to be (i) satisfactory – if they are performing and less
than 30 days past due, (ii) watch – if they are performing and 30 to 89 days past due or (iii) substandard – if they are
nonperforming or 90 days or more past due.
The following categories of credit quality indicators are used by the Company:
Satisfactory – Loans and leases in this category are considered to be a satisfactory credit risk and are generally
considered to be collectible in full.
Moderate – Loans and leases in this category are considered to be a marginally satisfactory credit risk and are
generally considered to be collectible in full.
Watch – Loans and leases in this category are presently protected from apparent loss, however weaknesses exist
which could cause future impairment of repayment of principal or interest.
Substandard – Loans and leases in this category are characterized by deterioration in quality exhibited by a number
of weaknesses requiring corrective action and posing risk of some loss.
128
The following table is an aging analysis of past due non-purchased loans and leases as of the dates indicated.
30-89 Days
Past Due (1)
90 Days
or More (2)
Total
Past Due
Current (3)
Total
(Dollars in thousands)
December 31, 2014:
Real estate:
Residential 1-4 family ....................
Non-farm/non-residential ...............
Construction/land development ......
Agricultural ....................................
Multifamily residential ...................
Commercial and industrial ...................
Consumer .............................................
Direct financing leases .........................
Other ....................................................
Total ............................................
December 31, 2013:
Real estate:
Residential 1-4 family ....................
Non-farm/non-residential ...............
Construction/land development ......
Agricultural ....................................
Multifamily residential ...................
Commercial and industrial ...................
Consumer .............................................
Direct financing leases .........................
Other ...................................................
Total ............................................
$ 6,352
2,708
3,520
1,680
-
586
161
39
58
$15,104
$ 4,228
2,093
235
517
773
418
261
-
18
$ 8,543
$ 1,536
1,445
12,881
304
-
94
55
54
12
$16,381
$ 2,004
1,867
153
540
-
31
78
-
24
$ 4,697
$ 7,888
4,153
16,401
1,984
-
680
216
93
70
$31,485
$ 6,232
3,960
388
1,057
773
449
339
-
42
$13,240
$ 275,365
1,499,388
1,395,437
45,251
211,156
287,027
25,453
115,382
93,926
$3,948,385
$ 243,324
1,100,154
722,169
44,139
207,564
123,619
25,843
86,321
66,192
$2,619,325
$ 283,253
1,503,541
1,411,838
47,235
211,156
287,707
25,669
115,475
93,996
$3,979,870
$ 249,556
1,104,114
722,557
45,196
208,337
124,068
26,182
86,321
66,234
$2,632,565
(1) Includes $0.9 million and $0.8 million of loans and leases on nonaccrual status at December 31, 2014 and 2013, respectively.
(2) All loans and leases greater than 90 days past due were on nonaccrual status at December 31, 2014 and 2013.
(3) Includes $0.4 million and $3.2 million of loans and leases on nonaccrual status at December 31, 2014 and 2013, respectively.
Purchased Loans and Leases
During the fourth quarter of 2014, the Bank and the FDIC entered into agreements terminating the loss share
agreements for all seven of the Company’s FDIC-assisted acquisitions. As a result of entering these termination agreements,
the Company reclassified its loans previously reported as covered by FDIC loss share to purchased loans for all periods
presented. Additionally, the Company has reclassified all interest income in loans previously reported as covered by FDIC
loss share to interest income on purchased loans for all periods presented.
129
The following table is a summary of credit quality indicators for the Company’s purchased loans as of the dates
indicated.
FV 33
Purchased Loans Without
Evidence of Credit Deterioration at Acquisition
FV 55
FV 44
FV 36
FV 77
(Dollars in thousands)
Purchased Loans With
Evidence of Credit
Deterioration at
Acquisition
FV 66
FV 88
Total
Purchased
Loans
December 31, 2014:
Real estate:
Residential 1-4 family
Non-farm/non-
$ 73,196
$ 81,840
$30,180
$ 71,687
$151
$ 96,752
$ 1,899
$ 355,705
residential ....................
166,754
180,522
32,157
4,906
505
114,217
5,828
504,889
Construction/land
development .................
Agricultural ......................
Multifamily residential.....
Total real estate .........
Commercial and industrial ...
Consumer ............................
Other ...................................
21,803
10,444
22,731
294,928
20,340
1,605
4,845
Total .......................... $321,718
26,858
25,187
11,646
326,053
23,048
272
5,830
$355,203
4,312
2,409
1,971
71,029
4,900
420
597
$76,946
13,708
1,525
884
92,710
10,659
12,538
945
$116,852
-
-
67
723
22
3
-
$748
28,497
8,331
4,823
252,620
9,297
426
845
$263,188
4,598
92
312
12,729
559
4
-
$13,292
99,776
47,988
42,434
1,050,792
68,825
15,268
13,062
$1,147,947
December 31, 2013:
Real estate:
Residential 1-4 family .....
Non-farm/non-
$27,111
$ 32,259
$21,035
$ 35,733
$ -
$120,165
$ 5,835
$ 242,138
residential ....................
42,193
72,621
20,685
1,191
-
154,831
25,135
316,656
Construction/land
development .................
Agricultural ......................
Multifamily residential.....
Total real estate .........
Commercial and industrial ...
Consumer ............................
Other ...................................
Total ..........................
Purchased loans not
covered by FDIC loss
share agreements ..............
Purchased loans previously
reported as covered by
FDIC loss share
agreements .......................
Total ..........................
5,930
1,547
3,531
80,312
9,592
1,013
1,202
$92,119
8,106
6,619
5,565
125,170
9,730
141
2,897
$137,938
2,137
823
5,268
49,948
2,250
171
157
$52,526
4,553
164
959
42,600
1,879
4,794
237
$ 49,510
-
-
-
-
-
-
-
$ -
38,382
11,172
10,596
335,146
10,065
842
189
$346,242
14,267
343
457
46,037
137
5
-
$46,179
73,375
20,668
26,376
679,213
33,653
6,966
4,682
$ 724,514
$92,119
$137,938
$52,526
$ 49,510
$ -
$ 40,630
$ -
$ 372,723
-
$92,119
-
$137,938
-
$52,526
-
$ 49,510
-
$ -
305,612
$346,242
46,179
$46,179
351,791
$ 724,514
The following grades are used for purchased loans without evidence of credit deterioration at the date of
acquisition.
FV 33 – Loans in this category are considered to be satisfactory with minimal credit risk and are generally
considered collectible.
FV 44 – Loans in this category are considered to be marginally satisfactory with minimal to moderate credit risk
and are generally considered collectible.
FV 55 – Loans in this category exhibit weakness and are considered to have elevated credit risk and elevated risk
of repayment.
FV 36 – Loans in this category were not individually reviewed at the date of purchase and are assumed to have
characteristics similar to the characteristics of the acquired portfolio.
FV 77 – Loans in this category have deteriorated since the date of purchase and are considered impaired.
130
The following grades are used for purchased loans with evidence of credit deterioration at the date of acquisition.
FV 66 – Loans in this category are performing in accordance with or exceeding management’s performance
expectations established in conjunction with the Day 1 Fair Values.
FV 88 – Loans in this category have deteriorated from management’s performance expectations established in
conjunction with the determination of Day 1 Fair Values.
The following table is an aging analysis of past due purchased loans as of the dates indicated.
30-89 Days
Past Due
90 Days
or More
Total
Past Due
Current
(Dollars in thousands)
December 31, 2014:
Real estate:
Residential 1-4 family .............
Non-farm/non-residential ........
Construction/land development
Agriculture ..............................
Multifamily residential ............
Commercial and industrial ............
Consumer ......................................
Other .............................................
Total
December 31, 2013:
Real estate:
Residential 1-4 family .............
Non-farm/non-residential ........
Construction/land development
Agriculture...............................
Multifamily residential .............
Commercial and industrial ............
Consumer ......................................
Other .............................................
Total .....................................
Purchased loans not covered by
$ 8,088
8,907
1,197
237
515
863
199
-
$20,006
$11,956
11,840
2,438
371
796
1,219
421
-
$29,041
$ 9,043
12,439
5,464
875
67
751
103
31
$28,773
$17,112
38,241
24,959
1,353
4,465
2,389
237
33
$88,789
$ 17,131
21,346
6,661
1,112
582
1,614
302
31
$ 48,779
$ 29,068
50,081
27,397
1,724
5,261
3,608
658
33
$117,830
$ 338,574
483,543
93,115
46,876
41,852
67,211
14,966
13,031
$1,099,168
$ 213,070
266,575
45,978
18,944
21,115
30,045
6,308
4,649
$ 606,684
Total
Purchased
Loans
$ 355,705
504,889
99,776
47,988
42,434
68,825
15,268
13,062
$1,147,947
$ 242,138
316,656
73,375
20,668
26,376
33,653
6,966
4,682
$ 724,514
FDIC loss share agreements ......
$13,346
$16,435
$ 29,781
$ 342,942
$ 372,723
Purchased loans previously
reported as covered by FDIC
loss share agreements ................
Total .....................................
15,695
$29,041
72,354
$88,789
88,049
$117,830
263,742
$ 606,684
351,791
$ 724,514
At December 31, 2014 and 2013, a significant portion of the Company’s purchased loans with evidence of credit
deterioration at the date of acquisition were past due, including many that were 90 days or more past due. Such
delinquencies were included in the Company’s performance expectations in determining the Day 1 Fair Values.
Additionally, in accordance with GAAP, the Company continues to accrete into earnings income on such loans.
8. Foreclosed Assets
During the fourth quarter of 2014, the Bank and the FDIC entered into agreements terminating the loss share
agreements for all seven of the FDIC-assisted acquisitions. As a result of entering these termination agreements, the
Company reclassified its foreclosed assets previously reported as covered by FDIC loss share to foreclosed assets for all
reporting periods.
131
The following table is a summary, during the years indicated, of activity within foreclosed assets, excluding
foreclosed assets previously covered by FDIC loss share agreements while such assets were covered by loss share.
Balance – beginning of year ......................................................
Loans and other assets transferred into foreclosed assets ..........
Sales of foreclosed assets ..........................................................
Writedowns of foreclosed assets ...............................................
Foreclosed assets acquired in acquisitions.................................
Termination of FDIC loss share(1) ............................................
Balance – end of year ................................................................
2014
Year Ended December 31,
2013
(Dollars in thousands)
$13,924
9,464
(12,343)
(1,352)
2,158
-
$11,851
$11,851
20,139
(22,185)
(1,299)
6,724
22,545
$37,775
2012
$31,762
9,047
(25,482)
(1,713)
310
-
$13,924
(1) This amount represents the balance of foreclosed assets covered by FDIC loss share when the Bank and FDIC entered into
agreements to terminate loss share.
The following table is a summary, as of the dates indicated, of the amount and type of foreclosed assets, including
assets previously reported as covered by FDIC loss share agreements.
December 31,
2014
2013
(Dollars in thousands)
Real estate:
Residential 1-4 family ..........................................................................
Non-farm/non-residential .....................................................................
Construction/land development ...........................................................
Agricultural ..........................................................................................
Multifamily residential .........................................................................
Total real estate ...............................................................................
Commercial and industrial .......................................................................
Consumer .................................................................................................
Total foreclosed assets ....................................................................
Foreclosed assets previously reported as covered by FDIC loss share ....
Foreclosed assets not covered by FDIC loss share ..................................
Total foreclosed assets ....................................................................
$ 7,909
17,305
10,998
728
772
37,712
56
7
$37,775
$ -
37,775
$37,775
$ 6,608
18,681
22,561
1,276
610
49,736
75
-
$49,811
$37,960
11,851
$49,811
The following table is a summary, during the years indicated, of activity within foreclosed assets previously
reported as covered by FDIC loss share agreements.
Balance – beginning of year ......................................................
Transfers from covered loans ....................................................
Sales of covered foreclosed assets .............................................
Writedowns of covered foreclosed assets ..................................
Termination of FDIC loss share(1) .............................................
Balance – end of year ................................................................
2012
2014
Year Ended December 31,
2013
(Dollars in thousands)
$ 52,951
34,756
(45,954)
(3,793)
-
$ 37,960
$ 37,960
35,845
(46,026)
(5,234)
(22,545)
$ -
$ 72,907
33,020
(43,987)
(8,989)
-
$ 52,951
(1) This amount represents the balance of foreclosed assets covered by FDIC loss share when the Bank and FDIC entered into
agreements to terminate loss share.
132
9. Premises and Equipment
The following table is a summary of premises and equipment as of the dates indicated.
December 31,
2014
2013
(Dollars in thousands)
Land .............................................................................
Construction in process ...............................................
Buildings and improvements .......................................
Leasehold improvements .............................................
Equipment ...................................................................
Gross premises and equipment .............................
Accumulated depreciation ...........................................
Premises and equipment, net .......................................
$ 81,431
1,849
174,669
5,765
67,392
331,106
(57,515)
$273,591
$ 75,770
2,781
154,640
5,048
56,526
294,765
(49,293)
$245,472
The Company’s interest on construction projects during each of the years ended December 31, 2014, 2013 and
2012 was not material. Included in occupancy expense is rent of $2.3 million, $1.4 million and $1.6 million incurred under
noncancelable operating leases in 2014, 2013 and 2012, respectively, for leases of real estate, buildings and premises. These
leases contain certain renewal and purchase options according to the terms of the agreements. Future amounts due under
these noncancelable leases at December 31, 2014 are as follows: $2.2 million in 2015, $1.8 million in 2016, $1.6 million in
2017, $1.3 million in 2018, $1.0 million in 2019 and $4.6 million thereafter. Rental income recognized for leases of
buildings and premises under operating leases was $1.3 million during 2014, $1.1 million during 2013 and $1.2 million
during 2012.
10. Deposits
The following table is a summary of the scheduled maturities of time deposits as of the dates indicated.
December 31,
2014
2013
(Dollars in thousands)
Up to one year ................................................................
Over one to two years .....................................................
Over two to three years ...................................................
Over three to four years ..................................................
Over four to five years ....................................................
Thereafter .......................................................................
Total time deposits ...............................................
$1,148,350
232,348
39,561
17,037
16,532
4,111
$1,457,939
$742,069
107,395
25,217
12,107
10,138
284
$897,210
The aggregate amount of time deposits with a minimum denomination of $250,000 was $294.5 million and $165.7
million at December 31, 2014 and 2013, respectively.
11. Borrowings
Short-term borrowings with original maturities less than one year include FHLB-Dallas advances, Federal Reserve
Bank (“FRB”) borrowings and federal funds purchased. The following table is a summary of information relating to these
short-term borrowings as of the dates indicated.
December 31,
2014
2013
(Dollars in thousands)
Average annual balance ...................................................
December 31 balance ......................................................
Maximum month-end balance during year ......................
Interest rate:
Weighted-average – year ..............................................
Weighted-average – December 31 ................................
$ 7,145
-
71,750
0.20%
-
$ 8,767
-
60,775
0.27%
-
133
At December 31, 2014 and 2013, the Company had fixed rate FHLB-Dallas advances with original maturities
exceeding one year of $190.9 million and $280.9 million, respectively. These fixed rate advances bear interest at rates
ranging from 0.83% to 4.54% at December 31, 2014, are collateralized by a blanket lien on a substantial portion of the
Company’s real estate loans and are subject to prepayment penalties if repaid prior to maturity date. At December 31, 2014,
the Bank had $1.1 billion of unused FHLB-Dallas borrowing availability.
The following table is a summary of aggregate annual maturities and weighted-average interest rates of FHLB-
Dallas advances with an original maturity of over one year as of December 31, 2014.
Weighted-
Average
Interest Rate
Maturity
2015
2016
2017
2018
2019
Thereafter
Total
Amount
(Dollars in thousands)
$ 41
28
170,030
20,154
24
578
$190,855
2.80%
3.53
3.77
2.53
4.54
4.54
3.64
Included in the above table are $190 million of FHLB-Dallas advances that contain quarterly call features. The
following table is a summary of the weighted-average interest rates and maturity dates of such callable advances as of
December 31, 2014.
Amount
Weighted-
Average
Interest Rate
(Dollars in thousands)
Callable quarterly .... $170,000
20,000
Callable quarterly ....
Total ................. $190,000
3.77%
2.53
3.64
Maturity
2017
2018
12. Subordinated Debentures
At December 31, 2014 the Company had the following issues of trust preferred securities outstanding and
subordinated debentures owed to the Trusts.
Subordinated
Debentures
Owed to Trust
Trust Preferred
Securities
of the Trust
(Dollars in thousands)
Interest Rate at
December 31, 2014
Final Maturity
Date
Ozark III .........
Ozark II ...........
Ozark IV .........
Ozark V...........
Total ...........
$14,434
14,433
15,464
20,619
$64,950
$14,000
14,000
15,000
20,000
$63,000
3.18%
3.16
2.45
1.84
September 25, 2033
September 29, 2033
September 28, 2034
December 15, 2036
On September 25, 2003, Ozark III sold to investors in a private placement offering $14 million of adjustable rate
trust preferred securities, and on September 29, 2003, Ozark II sold to investors in a private placement offering $14 million
of adjustable rate trust preferred securities (collectively, “2003 Securities”). The 2003 Securities bear interest, adjustable
quarterly, at 90-day London Interbank Offered Rate (“LIBOR”) plus 2.95% for Ozark III and 90-day LIBOR plus 2.90% for
Ozark II. The aggregate proceeds of $28 million from the 2003 Securities were used to purchase an equal principal amount
of adjustable rate subordinated debentures of the Company that bear interest, adjustable quarterly, at 90-day LIBOR plus
2.95% for Ozark III and 90-day LIBOR plus 2.90% for Ozark II (collectively,“2003 Debentures”).
On September 28, 2004, Ozark IV sold to investors in a private placement offering $15 million of adjustable rate
trust preferred securities (“2004 Securities”). The 2004 Securities bear interest, adjustable quarterly, at 90-day LIBOR plus
134
2.22%. The $15 million proceeds from the 2004 Securities were used to purchase an equal principal amount of adjustable
rate subordinated debentures of the Company that bear interest, adjustable quarterly, at 90-day LIBOR plus 2.22% (“2004
Debentures”).
On September 29, 2006, Ozark V sold to investors in a private placement offering $20 million of adjustable rate
trust preferred securities (“2006 Securities”). The Securities bear interest, adjustable quarterly, at 90-day LIBOR plus
1.60%. The $20 million proceeds from the 2006 Securities were used to purchase an equal principal amount of adjustable
rate subordinated debentures of the Company that bear interest, adjustable quarterly, at 90-day LIBOR plus 1.60% (“2006
Debentures”).
In addition to the issuance of these adjustable rate securities, Ozark II and Ozark III collectively sold $0.9 million,
Ozark IV sold $0.4 million and Ozark V sold $0.6 million of trust common equity to the Company. The proceeds from the
sales of the trust common equity were used, respectively, to purchase $0.9 million of 2003 Debentures, $0.4 million of 2004
Debentures and $0.6 million of 2006 Debentures issued by the Company.
At both December 31, 2014 and 2013, the Company had an aggregate of $64.9 million of subordinated debentures
outstanding and had an asset of $1.9 million representing its investment in the common equity issued by the Trusts. At both
December 31, 2014 and 2013, the sole assets of the Trusts were the respective adjustable rate debentures and the liabilities
of the respective Trusts were the 2003 Securities, the 2004 Securities and the 2006 Securities. At both December 31, 2014
and 2013, the Trusts had aggregate common equity of $1.9 million and did not have any restricted net assets. The Company
has, through various contractual arrangements, fully and unconditionally guaranteed all obligations of the Trusts with
respect to the 2003 Securities, the 2004 Securities and the 2006 Securities. Additionally, there are no restrictions on the
ability of the Trusts to transfer funds to the Company in the form of cash dividends, loans or advances. The Company has
the option to defer interest payments on the subordinated debentures from time to time for a period not to exceed five
consecutive years.
These securities generally mature at or near the 30th anniversary date of each issuance. However, these securities
and debentures may be prepaid at par, subject to regulatory approval, prior to maturity at any time on or after September 25
and 29, 2008 for the two issues of 2003 Securities and 2003 Debentures; on or after September 28, 2009 for the 2004
Securities and 2004 Debentures; and on or after December 15, 2011 for the 2006 Securities and 2006 Debentures.
13. Income Taxes
The following table is a summary of the components of the provision (benefit) for income taxes as of the dates
indicated.
2014
Year Ended December 31,
2013
(Dollars in thousands)
2012
Current:
Federal ...............................................................
State ...................................................................
Total current ...............................................................
Deferred:
Federal ...............................................................
State ...................................................................
Total deferred .............................................................
Provision for income taxes .........................................
$47,661
6,456
54,117
(598)
340
(258)
$53,859
$43,750
6,547
50,297
(8,689)
(1,459)
(10,148)
$40,149
$37,254
4,489
41,743
(6,384)
(1,424)
(7,808)
$33,935
135
The following table is a summary of the reconciliation between the statutory federal income tax rate and effective
income tax rate for the years indicated.
Year Ended December 31,
2013
2014
Statutory federal income tax rate ................................
Increase (decrease) in taxes resulting from:
State income taxes, net of federal benefit ..........
Effect of tax-exempt interest income .................
Effect of BOLI and other tax-exempt income ....
Other, net ...........................................................
Effective income tax rate ..........................
35.0%
2.6
(4.0)
(1.1)
(1.3)
31.2%
35.0%
2.6
(4.4)
(1.2)
(1.4)
30.6%
2012
35.0%
1.8
(5.0)
(0.8)
(0.4)
30.6%
Income tax benefits from the exercise of stock options and vesting of common stock under the Company’s
restricted stock and incentive plan in the amount of $4.7 million, $3.2 million and $1.5 million in 2014, 2013 and 2012,
respectively, were recorded as an increase to additional paid-in capital.
At December 31, 2014 and 2013, current income taxes receivable of $5.4 million and $3.0 million, respectively,
were included in other assets.
The following table is a summary of the types of temporary differences between the tax basis of assets and
liabilities and their financial reporting amounts that give rise to deferred income tax assets and liabilities and their
approximate tax effects.
Deferred tax assets:
Allowance for loan and lease losses ....................................
Differences in amounts reflected in financial statements
and income tax basis for purchased loans not previously
covered by FDIC loss share agreements ........................
Stock-based compensation .................................................
Deferred compensation ........................................................
Foreclosed assets .................................................................
Deferred loan fees and costs, net .........................................
Investment securities AFS ...................................................
Differences in amounts reflected in financial statements
and income tax basis of assets acquired and liabilities
assumed in FDIC-assisted acquisitions ..........................
Acquired net operating losses ..............................................
Other, net .............................................................................
Total gross deferred tax assets ......................................................
Less valuation allowance ....................................................
Net deferred tax assets ..................................................................
Deferred tax liabilities:
Accelerated depreciation on premises and equipment .........
Investment securities AFS ...................................................
Acquired intangible assets ...................................................
Total gross deferred tax liabilities ................................................
December 31,
2014
2013
(Dollars in thousands)
$20,324
$16,576
20,444
3,268
1,991
3,503
4,785
-
8,098
13,332
3,905
79,650
(474)
79,176
18,653
7,692
9,743
36,088
17,167
2,400
1,775
3,165
1,149
5,056
3,424
7,509
2,709
60,930
-
60,930
17,459
-
4,227
21,686
Net deferred tax assets ..................................................................
$43,088
$39,244
136
Net operating losses were acquired from the First National Bank, Bancshares and Summit transactions. At
December 31, 2014 the net operating losses remaining from the First National Bank transaction totaled $20.0 million, of
which $12.5 million will expire in 2032 and $7.5 million will expire in 2033. The net operating losses remaining from the
Bancshares transaction totaled $15.7 million, which will expire at various dates from 2030 through 2034. The net operating
losses acquired from the Summit transaction were utilized during 2014.
In connection with the acquisitions of First National Bank and Bancshares, management determined that net
operating loss carryforwards and other assets with built-in losses are expected to be settled or otherwise recovered in future
periods where the realization of such benefits would be subject to section 382 limitations. Accordingly, the Company had
established a deferred tax asset valuation allowance of $4.1 million on the date of acquisition of First National Bank and
$0.5 million on the date of acquisition of Bancshares, to reflect this initial assessment.
As disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, the fair value
adjustments and the resultant fair values for the First National Bank acquisition continued to be evaluated by management
and could be subject to further adjustment. During the second quarter of 2014, management revised its initial estimates and
assumptions regarding the expected recovery of acquired assets with built-in losses, specifically the timing of expected
charge-offs of purchased loans, in the First National Bank acquisition. As a result of such revision, management concluded
that the deferred tax asset valuation allowance of $4.1 million was not necessary. Because such revision occurred during the
first 12 months following the date of acquisition and was not the result of changes in circumstances, management has recast
the 2013 consolidated financial statements to reflect this change in estimate.
At December 31, 2014, the Company had a deferred tax valuation allowance of approximately $0.5 million to
reflect its assessment that the realization of the benefits from the settlement or recovery of certain acquired assets and net
operating losses are expected to be subject to section 382 limitations.
To the extent that additional information becomes available regarding the settlement or recovery of acquired net
operating loss carryforwards or assets with built-in losses acquired in each of the Company’s acquisitions, management may
be required to make additional adjustments to its deferred tax asset valuation allowance, which adjustments could affect
bargain purchase gain, goodwill or deferred income tax expense (benefit).
14. Employee Benefit Plans
The Company maintains a qualified retirement plan (the “401(k) Plan”) with a salary deferral feature designed to
qualify under Section 401 of the IRC. The 401(k) Plan permits employees of the Company to defer a portion of their
compensation in accordance with the provisions of Section 401(k) of the IRC. During 2012, the Company amended the
401(k) Plan to make it a Safe-Harbor Cost or Deferred Arrangement (“Safe-Harbor CODA”) effective January 1, 2013. As a
result, (i) certain key employees are eligible to make salary deferrals into the 401(k) Plan beginning January 1, 2013, (ii) the
401(k) Plan is no longer subject to any provisions of the average deferral percentage test described in IRC section 401(k)(3)
or the average contribution percentage test described in IRC section 401(m)(2), (iii) the basic matching contribution is (a)
100% of the amount of the employee’s deferrals that do not exceed 3% of the employee’s compensation for the year plus (b)
50% of the amount of the employee’s elective deferrals that exceed 3% but do not exceed 5% of the employee’s
compensation for the year, and (iv) all employer matching contributions made under the provisions of the Safe-Harbor
CODA are non-forfeitable. Certain other statutory limitations with respect to the Company's contribution under the 401(k)
Plan also apply. Matching contributions made by the Company prior to the 401(k) Plan becoming a Safe-Harbor CODA
vest over six years and are held in trust until distributed pursuant to the terms of the 401(k) Plan.
Contributions to the 401(k) Plan are invested in accordance with participant elections among certain investment
options. Distributions from participant accounts are not permitted before age 65, except in the event of death, permanent
disability, certain financial hardships or termination of employment. The Company made matching cash contributions to the
401(k) Plan during 2014, 2013 and 2012 of $2.3 million, $1.8 million and $0.9 million, respectively.
The Company also maintains the Bank of the Ozarks, Inc. Deferred Compensation Plan (the “Plan”), which is an
unfunded deferred compensation arrangement for the group of employees designated as key employees, including certain of
the Company’s executive officers. Under the terms of the Plan, eligible participants may elect to defer a portion of their
compensation. Such deferred compensation is distributable in lump sum or specified installments upon separation from
service with the Company or upon other specified events as defined in the Plan. Prior to 2013, the Company had the ability
to make a contribution to each participant’s account, limited to one half of the first 6% of compensation deferred by the
participant and subject to certain other limitations. Effective January 1, 2013, the Plan was amended such that the Company
137
no longer makes any contribution to the Plan for the benefit of each participant or otherwise. Amounts deferred under the
Plan are invested in certain approved investments (excluding securities of the Company or its affiliates). Company
contributions to the Plan in 2012 totaled $0.1 million (none in 2013 or 2014). At December 31, 2014 and 2013, the
Company had Plan assets, along with an equal amount of liabilities, totaling $4.2 million and $3.9 million, respectively,
recorded on the accompanying consolidated balance sheet.
Effective May 4, 2010, the Company established a Supplemental Executive Retirement Plan (“SERP”) and certain
other benefit arrangements for its Chairman and Chief Executive Officer. Pursuant to the SERP, this officer is entitled to
receive 180 equal monthly payments of $32,197, or $386,360 annually, commencing at the later of obtaining age 70 or
separation from service. If separation from service occurs prior to age 70, such benefit will be at a reduced amount. The
costs of such benefits, assuming a retirement date at age 70, will be fully accrued by the Company at such retirement date.
During 2014, 2013 and 2012, respectively, the Company accrued $200,000, $180,000 and $161,000 for the future benefits
payable under the SERP. The SERP is an unfunded plan and is considered a general contractual obligation of the Company.
15. Stock-Based Compensation
The Company has a nonqualified stock option plan for certain key employees and officers of the Company. This
plan provides for the granting of nonqualified options to purchase shares of common stock in the Company. No option may
be granted under this plan for less than the fair market value of the common stock, defined by the plan as the average of the
highest reported asked price and the lowest reported bid price, on the date of the grant. The benefits or amounts that may be
received by or allocated to any particular officer or employee of the Company under this plan will be determined in the sole
discretion of the Company’s board of directors or its personnel and compensation committee. While the vesting period and
the termination date for the employee plan options are determined when options are granted, all such employee options
outstanding at December 31, 2014 were issued with a vesting period of three years and expire seven years after issuance. At
December 31, 2014 there were 364,050 shares available for future grants under this plan.
The Company also has a nonqualified stock option plan for non-employee directors. This plan permits each
director who is not otherwise an employee of the Company, or any subsidiary, to receive options to purchase 2,000 shares of
the Company’s common stock on the day following his or her election as a director of the Company at each annual meeting
of stockholders and up to 2,000 shares upon election or appointment for the first time as a director of the Company. No
option may be granted under this plan for less than the fair market value of the common stock, defined by the plan as the
average of the highest reported asked price and the lowest reported bid price, on the date of the grant. These options are
exercisable immediately and expire ten years after issuance.
All shares issued in connection with options exercised under both the employee and non-employee director stock
option plans are in the form of newly-issued shares.
The following table summarizes stock option activity for both the employee and non-employee director stock
option plans for the year ended December 31, 2014.
Weighted-
Average
Exercise
Price/Share
Weighted-
Average
Remaining
Contractual Life
(in years)
Aggregate
Intrinsic
Value
(in thousands)
Outstanding – January 1, 2014 ........
Granted ............................................
Exercised .........................................
Forfeited ..........................................
Outstanding – December 31, 2014 ..
Options
1,766,600
616,250
(452,000)
(71,500)
1,859,350
Fully vested and exercisable at
December 31, 2014 .....................
Expected to vest in future periods ....
418,600
1,246,680
$31.67
35.46
10.46
19.77
23.49
$13.14
Fully vested and expected to vest at
December 31, 2014 (2) ...................
1,665,280
$22.72
5.6
4.6
5.5
$26,826(1)
$10,375(1)
$25,314(1)
(1) Based on closing price of $37.92 per share on December 31, 2014.
(2) At December 31, 2014 the Company estimates that options to purchase 194,070 shares of the Company’s common stock will
not vest and will be forfeited prior to their vesting date.
138
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 2014, 2013 and 2012 was
$10.0 million, $7.7 million and $4.4 million, respectively.
Options to purchase 616,250 shares, 526,000 shares and 537,100 shares, respectively, were granted during 2014,
2013 and 2012 with a weighted-average grant date fair value of $7.04, $5.61 and $4.79, respectively. The fair value for each
option grant is estimated on the date of grant using the Black-Scholes option pricing model.
The following table is a summary of the weighted-average assumptions used in the Black-Scholes option pricing
model for the years indicated.
Risk-free interest rate .....................................
Expected dividend yield .................................
Expected stock volatility ................................
Expected life (years) .......................................
Year Ended December 31,
2013
1.30%
1.85%
30.2%
5.0
2014
1.62%
1.49%
24.1%
5.0
2012
0.71%
1.87%
40.6%
5.0
The Company uses the U.S. Treasury yield curve in effect at the time of the grant to determine the risk-free interest
rate. The expected dividend yield is estimated using the current annual dividend level and recent stock price of the
Company’s common stock at the date of grant. Expected stock volatility is based on historical volatilities of the Company’s
common stock. The expected life of the options is calculated based on the “simplified” method as provided for under Staff
Accounting Bulletin No. 110.
The total fair value of options to purchase shares of the Company’s common stock that vested during 2014, 2013
and 2012 was $1.5 million, $1.2 million and $0.5 million, respectively. Stock-based compensation expense for stock options
included in non-interest expense was $2.1 million, $1.7 million and $1.1 million for 2014, 2013 and 2012, respectively.
Total unrecognized compensation cost related to non-vested stock-based compensation was $4.9 million at December 31,
2014 and is expected to be recognized over a weighted-average period of 2.4 years.
The Company has a restricted stock and incentive plan that permits issuance of up to 1,600,000 shares of restricted
stock or restricted stock units. All officers and employees of the Company are eligible to receive awards under the restricted
stock and incentive 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 and incentive 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
and incentive plan may be shares of original issuance, shares held in treasury or shares that have been reacquired by the
Company. At December 31, 2014 there were 780,300 shares available for future grants under this plan.
The following table summarizes non-vested restricted stock activity for the year ended December 31, 2014.
Outstanding – January 1, 2014 .....................
Granted .........................................................
Forfeited .......................................................
Earned and issued .........................................
Outstanding – December 31, 2014 ...............
Weighted-average grant date fair value ........
Shares
616,100
-
(5,200)
(166,200)
444,700
$20.29
Restricted stock awards of 219,600 shares and 256,300 shares were granted during 2013 and 2012 with a
weighted-average grant date fair value of $24.80 and $15.93, respectively. No restricted stock awards were granted during
2014. 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 $3.5 million, $2.8 million and $1.6 million for 2014, 2013 and 2012, respectively. Unrecognized compensation
expense for nonvested restricted stock awards was $4.3 million at December 31, 2014 and is expected to be recognized over
a weighted-average period of 1.6 years.
139
On January 13, 2015 the Company’s personnel and compensation committee approved the issuance of restricted
stock awards for 242,800 shares of restricted common stock. Total compensation expense for the restricted stock awards is
expected to be approximately $7.9 million and is expected to be recognized ratably over the three-year vesting period.
16. Commitments and Contingencies
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to
meet the financing needs of its customers. These financial instruments primarily include standby letters of credit and
commitments to extend credit.
Outstanding standby letters of credit are contingent commitments issued by the Company generally to guarantee
the performance of a customer in third party borrowing arrangements. The terms of the letters of credit are generally for a
period of one year. The maximum amount of future payments the Company could be required to make under these letters of
credit at December 31, 2014 and 2013 is $4.5 million and $4.6 million, respectively. The Company holds collateral to
support letters of credit when deemed necessary. The total of collateralized commitments at December 31, 2014 and 2013
was $4.3 million and $4.4 million, respectively.
The Company's exposure to credit loss in the event of nonperformance by the other party to the financial
instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Company
has the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require
payment of a fee. Since these commitments may expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Company evaluates each customer's creditworthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on
management’s credit evaluation of the counterparty. The type of collateral held varies but may include accounts receivable,
inventory, property, plant and equipment, and other real or personal property.
At December 31, 2014, the Company had outstanding commitments to extend credit, excluding mortgage interest
rate lock commitments, totaling $2.96 billion. While many of these commitments are expected to be disbursed within the
next 12 months, the following table shows the contractual maturities of outstanding commitments to extend credit at
December 31, 2014.
Contractual Maturities at
December 31, 2014
Maturity
Amount
(Dollars in thousands)
2015
2016
2017
2018
2019
Thereafter
Total
$ 214,453
359,083
1,811,479
530,327
24,779
23,921
$2,964,042
140
17. Related Party Transactions
The Company has, in the ordinary course of business, lending transactions with certain of its officers, directors,
director nominees and their related and affiliated parties (“related parties”). The following table is a summary of activity of
loans to related parties for the periods indicated.
Balance – beginning of year ................................
New loans and advances ......................................
Repayments ..........................................................
Change in composition of related parties .............
Balance – end of year ..........................................
2014
$7,001
7,974
(7,055)
-
$7,920
Year Ended December 31,
2013
(Dollars in thousands)
$ 2,526
15,680
(12,273)
1,068
$ 7,001
2012
$ 2,150
19,778
(19,447)
45
$ 2,526
The Company had outstanding commitments to extend credit to related parties totaling $5.3 million and $5.8
million at December 31, 2014 and 2013, respectively.
18. Regulatory Matters
The Company is subject to various regulatory capital requirements administered by federal and state banking
agencies. Failure to meet minimum capital requirements can initiate certain mandatory and discretionary actions by
regulators that, if undertaken, could have a direct material effect on the Company’s financial condition and results of
operations. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company
must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities and certain off-
balance sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classification
are also subject to qualitative judgments by the regulators about component risk weightings and other factors.
Federal and state regulatory agencies generally require the Company and the Bank to maintain minimum Tier 1 and
total capital to risk-weighted assets of 4.0% and 8.0%, respectively, and Tier 1 capital to average quarterly assets (Tier 1
leverage ratio) of at least 3.0%. Tier 1 capital generally consists of common equity, retained earnings, certain types of
preferred stock, qualifying minority interest and trust preferred securities, subject to limitations, and excludes goodwill and
various intangible assets. Total capital includes Tier 1 capital, any amounts of trust preferred securities excluded from Tier
1 capital, and the lesser of the ALLL or 1.25% of risk-weighted assets. At December 31, 2014 and 2013 the Company’s and
the Bank’s Tier 1 and total capital ratios and their Tier 1 leverage ratios exceeded minimum requirements.
141
The following table is a summary of the actual and required regulatory capital amounts and ratios of the Company
and the Bank as of the dates indicated.
Required
Actual
Amount
Ratio
For Capital
Adequacy Purposes
Amount
Ratio
(Dollars in thousands)
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
Amount
Ratio
December 31, 2014:
Total capital (to risk-
weighted assets):
Company .....................
Bank ............................
$904,600
877,038
12.47%
12.10
$580,425
580,259
8.00%
8.00
$725,532
725,324
10.00%
10.00
Tier 1 capital (to risk-
weighted assets):
Company .....................
Bank ............................
851,682
824,120
11.74
11.37
290,213
290,130
4.00
4.00
435,319
435,194
6.00
6.00
Tier 1 leverage (to average
assets):
Company .....................
Bank ............................
851,681
824,120
12.92
12.52
197,711
197,465
3.00
3.00
329,518
329,108
5.00
5.00
December 31, 2013: (1)
Total capital (to risk-
weighted assets):
Company .....................
Bank ............................
$719,519
702,840
17.18%
16.80
$335,140
334,676
8.00%
8.00
$418,924
418,345
10.00%
10.00
Tier 1 capital (to risk-
weighted assets):
Company .....................
Bank ............................
676,574
659,895
16.15
15.77
167,570
167,338
4.00
4.00
251,355
251,007
6.00
6.00
Tier 1 leverage (to average
assets):
Company .....................
Bank ............................
676,574
659,895
14.19
13.85
143,035
142,911
3.00
3.00
238,392
238,185
5.00
5.00
(1) During the second quarter of 2014, management revised its initial estimates and assumptions regarding the expected recovery of
acquired assets with built-in losses. As a result, management has recast the 2013 consolidated financial statements to increase the
bargain purchase gain on the First National Bank acquisition by $4.1 million to reflect this change in estimate. The Company’s and
Bank’s risk-based capital and leverage ratios have been recalculated to reflect this adjustment.
As of December 31, 2014 and 2013, the most recent notification from the regulators categorized the Company and
the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events
since that notification that management believes have changed the Company’s or the Bank’s category.
In July 2013, the FRB and other U.S. banking regulatory agencies approved a final rule to implement the revised
capital adequacy standards of the Basel Committee on Banking Supervision (“Basel III”) that establishes a new capital
framework for U. S. banking organizations. When implemented on January 1, 2015, Basel III increased existing risk-based
capital requirements, introduced new requirements, and changed various capital component definitions.
142
The state bank commissioner's approval is required before the Bank can declare and pay any dividend of 75% or
more of the net profits of the Bank after all taxes for the current year plus 75% of the retained net profits for the
immediately preceding year. At December 31, 2014 and 2013, respectively, $18.8 million and $43.9 million were available
for payment of dividends by the Bank without the approval of regulatory authorities.
Under FRB regulation, the Bank is also limited as to the amount it may loan to its affiliates, including the
Company, and such loans must be collateralized by specific types of collateral. The maximum amount available for loan
from the Bank to the Company is limited to 10% of the Bank’s capital and surplus or approximately $93 million and $67
million, respectively, at December 31, 2014 and 2013.
The Bank is required by bank regulatory agencies to maintain certain minimum balances of cash or deposits
primarily with the FRB. At December 31, 2014 and 2013, these required balances aggregated $2.1 and $12.8 million,
respectively.
19. 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. At December 31, 2014 and 2013, the Company had no liabilities that were accounted
for at fair value.
The Company applies the following fair value hierarchy.
Level 1 – Quoted prices for identical instruments in active markets.
Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar
instruments in markets that are not active; and model-derived valuations whose inputs are observable.
Level 3 – Instruments whose inputs are unobservable.
The following table sets forth the Company’s assets, as of the date indicated, that are accounted for at fair value.
December 31, 2014:
Investment securities AFS(1):
Obligations of state and political
subdivisions .....................................
U.S. Government agency securities .....
Corporate bonds ...................................
Total investment securities AFS..
Impaired non-purchased loans and
leases ................................................
Impaired purchased loans ......................
Foreclosed assets ...................................
Total assets at fair value ..............
Level 1
Level 2
Level 3
(Dollars in thousands)
Total
$ -
-
-
-
-
-
-
$ -
$553,808
251,233
654
805,695
-
-
-
$805,695
$ 19,401
-
-
19,401
19,480
14,040
37,775
$ 90,696
$573,209
251,233
654
825,096
19,480
14,040
37,775
$896,391
(1) Does not include $14.2 million of shares of FHLB-Dallas and FNBB stock that do not have readily determinable fair values
and are carried at cost.
143
The following table sets forth the Company’s assets, as of the date indicated, that are accounted for at fair value.
December 31, 2013:
Investment securities AFS(1):
Obligations of state and political
subdivisions .....................................
U.S. Government agency securities .....
Corporate bonds ...................................
Total investment securities AFS..
Impaired non-purchased loans and
leases ................................................
Impaired purchased loans .......................
Foreclosed assets ...................................
Total assets at fair value ..............
Level 1
Level 2
Level 3
(Dollars in thousands)
Total
$ -
-
-
-
-
-
-
$ -
$417,307
218,869
716
636,892
-
-
-
$636,892
$ 18,682
-
-
18,682
6,746
46,179
49,811
$121,418
$435,989
218,869
716
655,574
6,746
46,179
49,811
$758,310
(1) Does not include $13.8 million of shares of FHLB-Dallas and FNBB stock that do not have readily determinable fair values
and are carried at cost.
The following table presents information related to Level 3 non-recurring fair value measurements at December 31,
2014.
Description
Fair Value at
December 31, 2014
Technique
Unobservable Inputs
Impaired non-purchased
loans and leases
$19,480
(Dollars in thousands)
Third party
appraisal(1) or
discounted cash flows
Impaired purchased loans
$14,040
Foreclosed assets
$37,775
Third party
appraisal(1) or
discounted cash flows
Third party
appraisal(1), broker
price opinions and/or
discounted cash flows
1. Management discount
based on underlying
collateral characteristics
and market conditions
2. Life of loan
1. Management discount
based on underlying
collateral characteristics
and market conditions
2. Life of loan
1. Management discount
based on asset
characteristics and
market conditions
2. Discount rate
3. Holding period
(1) The Company utilizes valuation techniques consistent with the market, cost, and income approaches, or a combination thereof in
determining fair value.
The following methods and assumptions are used to estimate the fair value of the Company’s assets that are
accounted for at fair value.
Investment securities – The Company utilizes independent third parties as its principal sources for determining fair
value of investment securities which are measured on a recurring basis. As a result, the Company receives estimates of fair
values from at least two independent pricing sources for the majority of its individual securities within its investment
portfolio. For investment securities traded in an active market, the fair values are obtained from independent pricing
services and are based on quoted market prices if available. If quoted market prices are not available, fair values are based
on market prices for comparable securities, broker quotes or comprehensive interest rate tables, pricing matrices or a
combination thereof. For investment securities traded in a market that is not active, fair value is determined using
144
unobservable inputs. All fair value estimates received by the Company from its investment securities are reviewed and
approved on a quarterly basis by the Company’s Investment Portfolio Manager and its Chief Financial Officer.
The Company has determined that certain of its investment securities had a limited to non-existent trading market
at December 31, 2014 and 2013. 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 $19.4 million and $18.7 million at December 31,
2014 and 2013, respectively, were calculated using Level 3 hierarchy inputs and assumptions as the trading market for such
securities was determined to be “not active.” This determination was based on the limited number of trades or, in certain
cases, the existence of no reported trades for the private placement bonds. The private placement bonds are generally
prepayable at par value at the option of the issuer. As a result, management believes the private placement bonds should be
valued at the lower of (i) the matrix pricing provided by the Company’s third party pricing services for comparable unrated
municipal securities or (ii) par value. At December 31, 2014 and 2013, the third party pricing matrices valued the
Company’s total portfolio of private placement bonds at $19.4 million and $18.7 million, respectively, which was equal to
the par value of the private placement bonds at December 31, 2014 and 2013. Accordingly, at December 31, 2014 and 2013
the Company reported the private placement bonds at $19.4 million and $18.7 million, respectively.
Impaired non-purchased loans and leases – Fair values are measured on a non-recurring basis based on the
underlying collateral value of the impaired loan or lease, reduced for holding and selling costs, or the estimated discounted
cash flows for such loan or lease. The Company has reduced the carrying value of its impaired non-purchased loans and
leases (all of which are included in nonaccrual loans and leases) by $5.9 million and $7.0 million, respectively, to the
estimated fair value of $19.5 million and $6.7 million, respectively, for such loans and leases at December 31, 2014 and
2013. These adjustments to reduce the carrying value of impaired non-purchased loans and leases to estimated fair value at
December 31, 2014 and 2013 consisted of $4.8 million and $5.6 million, respectively, of partial charge-offs and $1.1
million and $1.4 million, respectively, of specific loan and lease loss allocations.
Impaired purchased loans – Impaired purchased loans are measured at fair value on a non-recurring basis. As of
December 31, 2014 and 2013, the Company had identified purchased loans where the company had determined it was
probable that it would be unable to collect all amounts according to the contractual terms thereof (for purchased loans
without evidence of credit deterioration at date of acquisition) or the expected performance of such loans had deteriorated
from management’s performance expectations established in conjunction with the determination of the Day 1 Fair Values or
since management’s most recent review of such portfolio’s performance (for purchased loans with evidence of credit
deterioration at date of acquisition). As a result the Company recorded partial charge-offs, net of adjustments to the FDIC
loss share receivable and the FDIC clawback payable for those loans previously covered by FDIC loss share agreements,
totaling $3.2 million during 2014 and $4.7 million during 2013 for such loans. The Company also recorded $3.2 million
during 2014 and $4.7 million during 2013 of provision for loan and lease losses to cover these charge-offs. In addition to
these charge-offs, the Company transferred certain of these purchased loans to foreclosed assets. As a result of these actions,
the Company had $14.0 million of impaired purchased loans at December 31, 2014 and $46.2 million of impaired
purchased loans at December 31, 2013.
Foreclosed assets – Repossessed personal properties and real estate acquired through or in lieu of foreclosure,
excluding purchased foreclosed assets, are initially recorded at the lesser of current principal investment or fair value less
estimated cost to sell (generally 8% to 10%) at the date of repossession or foreclosure. Purchased foreclosed assets,
including foreclosed assets previously covered by FDIC loss share, are initially recorded at Day 1 Fair Values. In
estimating such Day 1 Fair Values, management considered a number of factors including, among others, appraised value,
estimated selling price, estimated holding periods and net present value (calculated using discount rates ranging from 8.0%
to 9.5% per annum) of cash flows expected to be received.
Valuations of all foreclosed assets are periodically reviewed by management with the carrying value of such assets
adjusted through non-interest expense to the then estimated fair value, generally based on third party appraisals, broker price
opinions or other valuations of the property, net of estimated selling costs, if lower, until disposition.
145
The following table presents additional information for the periods indicated about assets measured at fair value on
a recurring basis and for which the Company has utilized Level 3 inputs to determine fair value.
Investment
Securities
AFS
(Dollars in thousands)
Balances – December 31, 2012 ....................................
Total realized gains/(losses) included in earnings .....
Total unrealized gains/(losses) included in other
comprehensive income ..........................................
Paydowns and maturities ...........................................
Sales ..........................................................................
Transfers in and/or out of Level 3 .............................
Balances – December 31, 2013 ....................................
Total realized gains/(losses) included in earnings .....
Total unrealized gains/(losses) included in other
comprehensive income ..........................................
Acquired....................................................................
Paydowns and maturities ...........................................
Sales ..........................................................................
Transfers in and/or out of Level 3 .............................
Balances – December 31, 2014 ....................................
$104,172
-
(1,941)
(32,762)
-
(50,787)
18,682
-
454
1,907
(786)
(856)
-
$ 19,401
20. Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of financial instruments.
Cash and due from banks – For these short-term instruments, the carrying amount is a reasonable estimate of fair
value.
Investment securities – The Company utilizes independent third parties as its principal sources for determining fair
value of investment securities which are measured on a recurring basis. As a result, the Company receives estimates of fair
values from at least two independent pricing sources for the majority of its individual securities within its investment
portfolio. For investment securities traded in an active market, the fair values are obtained from independent pricing
services and are based on quoted market prices if available. If quoted market prices are not available, fair values are based
on market prices for comparable securities, broker quotes, comprehensive interest rate tables, pricing matrices or a
combination thereof. For investment securities traded in a market that is not active, fair value is determined using
unobservable inputs. All fair value estimates received by the Company from its investment securities are reviewed and
approved on a quarterly basis by the Company’s Investment Portfolio Manager and its Chief Financial Officer. The
Company’s investments in the common stock of the FHLB-Dallas and FNBB of $14.2 million and $13.8 million at
December 31, 2014 and 2013 do not have readily determinable fair values and are carried at cost.
Loans and leases – The fair value of loans and leases, including purchased loans, is estimated by discounting the
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.
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.
146
Subordinated debentures – The fair values of these instruments are based primarily upon discounted cash flows
using rates for securities with similar terms and remaining maturities.
Off-balance sheet instruments – The fair values of commercial loan commitments and letters of credit are based on
fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and were
not material at December 31, 2014 and 2013.
The fair values of certain of these instruments were calculated by discounting expected cash flows, which contain
numerous uncertainties and involve significant judgments by management. Fair value is the estimated amount at which
financial assets or liabilities could be exchanged in a current transaction between willing parties other than in a forced or
liquidation sale. Because no market exists for certain of these financial instruments and because management does not
intend to sell these financial instruments, the Company does not know whether the fair values shown below represent values
at which the respective financial instruments could be sold individually or in the aggregate.
The following table presents the carrying amounts and estimated fair values as of the dates indicated and the fair
value hierarchy of the Company’s financial instruments.
Fair
Value
Hierarchy
Carrying
Amount
December 31,
2014
2013
Estimated
Fair
Value
Carrying
Amount
(Dollars in thousands)
Estimated
Fair
Value
Financial assets:
Cash and cash equivalents ........................
Investment securities AFS ........................ Levels 2 and 3
Loans and leases, net of ALLL .................
FDIC loss share receivable ......................
Level 3
Level 3
Level 1
$ 150,203
839,321
5,074,899
-
$ 150,203
839,321
5,042,831
-
$ 195,975
669,384
3,314,134
71,854
$ 195,975
669,384
3,286,600
71,770
Financial liabilities:
Demand, savings and interest bearing
transaction deposits ..............................
Time deposits ..........................................
Repurchase agreements with customers ...
Other borrowings .....................................
FDIC clawback payable...........................
Subordinated debentures .........................
Level 1
Level 2
Level 1
Level 2
Level 3
Level 2
$4,038,443
1,457,939
65,578
190,855
-
64,950
$4,038,443
1,463,590
65,578
203,493
-
39,103
$2,819,817
897,210
53,103
280,895
25,897
64,950
$2,819,817
897,708
53,103
319,650
25,897
30,974
21. Supplemental Cash Flow Information
Supplemental cash flow information is as follows:
2014
Year Ended December 31,
2013
(Dollars in thousands)
2012
Cash paid during the period for:
Interest .......................................................................................
Taxes ..........................................................................................
$21,471
47,293
$18,929
49,453
$22,540
49,888
Supplemental schedule of non-cash investing and financing
activities:
Loans and premises and equipment transferred to foreclosed
assets .......................................................................................
Loans advanced for sales of foreclosed assets ...........................
Net change in unrealized gains and losses on investment
securities AFS .........................................................................
Common stock issued in merger and acquisition transactions ...
Unsettled AFS investment security purchases ............................
20,139
1,423
29,295
166,314
-
44,220
2,942
(23,784)
60,079
917
42,067
12,710
2,395
14,123
2,513
147
22. Other Non-Interest Income and Other Operating Expenses
The following is a summary of other non-interest income for the periods indicated.
Gain on termination of FDIC loss share agreements .....
Other, net .......................................................................
Total other non-interest income ...............................
$ 7,996
9,289
$17,285
2014
Year Ended December 31,
2013
(Dollars in thousands)
$ -
5,110
$5,110
2012
$ -
3,965
$3,965
The following table is a summary of other operating expenses for the periods indicated.
2014
Year Ended December 31,
2013
(Dollars in thousands)
2012
Postage and supplies ...................................................... $ 4,090
4,765
Telephone and data lines ...............................................
3,029
Advertising and public relations ....................................
10,765
Professional and outside services ..................................
4,987
Software expense ...........................................................
3,023
Travel and meals ...........................................................
898
FDIC and state assessments ...........................................
2,380
FDIC insurance ..............................................................
1,485
ATM expense ................................................................
3,276
Loan collection and repossession expense .....................
1,299
Writedowns of foreclosed and other assets ....................
4,996
Amortization of intangible assets ..................................
8,062
FHLB-Dallas prepayment penalty .................................
11,974
Other ..............................................................................
Total other operating expenses ............................. $65,029
$ 3,297
3,419
2,205
6,690
5,400
2,236
695
1,875
1,036
4,381
1,203
2,805
-
7,292
$42,534
$ 3,195
3,374
4,089
4,401
3,265
2,705
703
1,505
871
6,135
1,713
2,037
-
5,648
$39,641
23. Earnings Per Common Share (“EPS”)
The following table sets forth the computation of basic and diluted EPS for the periods indicated.
Year Ended December 31,
2014
2012
2013
(In thousands, except per share amounts)
Numerator:
Distributed earnings allocated to common
stockholders................................................................
$ 36,130
$25,744
$17,293
Undistributed earnings allocated to common
stockholders................................................................
Net earnings allocated to common stockholders ...
82,476
$118,606
65,493
$91,237
59,751
$77,044
Denominator:
Denominator for basic EPS – weighted-average
common shares ...........................................................
Effect of dilutive securities – stock options ...................
Denominator for diluted EPS – weighted-average
common shares and assumed conversions ..........
77,538
522
71,910
492
78,060
72,402
Basic EPS .........................................................................
$ 1.53
$ 1.27
69,274
502
69,776
$ 1.11
Diluted EPS ......................................................................
$ 1.52
$ 1.26
$ 1.10
Options to purchase 559,050 shares, 476,100 shares and 514,700 shares, respectively, of the Company’s common
stock at a weighted-average exercise price of $36.05 per share, $24.80 per share and $15.93 per share, respectively, were
148
outstanding during 2014, 2013 and 2012, but were not included in the computation of diluted EPS because the options’
exercise price was greater than the average market price of the common shares and inclusion would have been antidilutive.
24. Parent Company Financial Information
The following condensed balance sheets, income statements and statements of cash flows reflect the financial
position, results of operations and cash flows for the parent company as of and for the periods indicated.
Condensed Balance Sheets
December 31,
2014
2013
(Dollars in thousands)
Assets:
Cash .........................................................................................
Investment in consolidated bank subsidiary .............................
Investment in unconsolidated Trusts ........................................
Excess cost over fair value of net assets acquired ....................
Other, net .................................................................................
Total assets ................................................................
Liabilities and Stockholders’ Equity:
Accounts payable .....................................................................
Accrued interest payable ..........................................................
Subordinated debentures ..........................................................
Total liabilities ..........................................................
Stockholders’ equity:
Common stock ....................................................................
Additional paid-in capital ....................................................
Retained earnings ................................................................
Accumulated other comprehensive income (loss) ...............
Treasury stock .....................................................................
Total stockholders’ equity ..............................................
Total liabilities and stockholders’ equity ...................
$ 23,068
942,736
1,950
1,092
5,054
$973,900
$ 277
283
64,950
65,510
799
324,354
571,454
14,132
(2,349)
908,390
$973,900
Condensed Statements of Income
$ 13,044
674,289
1,950
1,092
3,873
$694,248
$ 72
166
64,950
65,188
737
143,017
488,978
(3,672)
-
629,060
$694,248
2014
Year Ended December 31,
2013
(Dollars in thousands)
2012
Income:
Dividends from Bank ...................................................
Dividends from Trusts .................................................
Interest .........................................................................
Other ............................................................................
Total income ........................................................................
Expenses:
Interest .........................................................................
Other operating expenses .............................................
Total expenses .....................................................................
Net income before income tax benefit and equity in
undistributed earnings of Bank ....................................
Income tax benefit ...............................................................
Equity in undistributed earnings of Bank .............................
Net income available to common stockholders....................
$100,000
51
-
178
100,229
1,693
9,314
11,007
89,222
4,304
25,080
$118,606
$34,000
52
-
24
34,076
1,720
7,716
9,436
24,640
3,956
62,641
$91,237
$26,750
55
437
8
27,250
1,848
5,016
6,864
20,386
2,818
53,840
$77,044
149
Condensed Statements of Cash Flows
Cash flows from operating activities:
Net income available to common stockholders ...............
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in undistributed earnings of Bank .....................
Deferred income tax benefit .........................................
Stock-based compensation expense .............................
Excess tax benefits on exercise of stock options and
vesting of restricted common stock ......................
Changes in other assets and other liabilities .................
Net cash provided by operating activities .............................
Cash flows from investing activities:
Net paydowns of portfolio loans .....................................
Proceeds from sale of other assets ..................................
Cash paid in merger and acquisition transactions, net of
cash acquired ...............................................................
Net cash used by investing activities ....................................
Cash flows from financing activities:
Year Ended December 31,
2014
2013
2012
(Dollars in thousands)
$118,606
$91,237
$77,044
(25,080)
(417)
5,675
(4,682)
4,923
99,025
-
3,997
(63,928)
(59,931)
(62,641)
(566)
4,487
(3,173)
844
30,188
-
-
(53,840)
(396)
2,607
(1,538)
1,319
25,196
67
-
(8,707)
(8,707)
(13,223)
(13,156)
Proceeds from exercise of stock options ..........................
4,727
4,274
3,979
Excess tax benefits on exercise of stock options and
vesting of restricted common stock ............................
Repurchase of common stock ........................................
Cash dividends paid on common stock ...........................
Net cash used by financing activities ....................................
Net increase (decrease) in cash .............................................
Cash - beginning of year .......................................................
Cash - end of year .................................................................
4,682
(2,349)
(36,130)
(29,070)
10,024
13,044
$ 23,068
3,173
(1,370)
(25,744)
(19,667)
1,814
11,230
$13,044
1,538
(341)
(17,293)
(12,117)
(77)
11,307
$11,230
150
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable.
Item 9A. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures.
An evaluation as of the end of the period covered by this 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 its 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 or submits
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) Internal Control Over Financial Reporting.
Changes in Internal Control Over Financial Reporting
The Company’s management, including the Company’s Chairman and Chief Executive Officer and its Chief
Financial Officer and Chief Accounting Officer, have evaluated any changes in the Company’s internal control over
financial reporting that occurred during the Company’s fourth quarter ended December 31, 2014 and have concluded that
there was no change during the Company’s fourth quarter ended December 31, 2014 that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over financial reporting.
151
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
Board of Directors and Stockholders
Bank of the Ozarks, Inc.
We have audited Bank of the Ozarks, Inc.’s internal control over financial reporting as of December 31, 2014, based
on criteria established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Bank of the Ozarks, Inc.’s management is responsible for maintaining
effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over
financial reporting, included in the accompanying Report of Management on the Company’s Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on
our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in the United States of America. A company’s internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could
have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
As permitted, the Company excluded the operations of the financial institutions acquired during 2014, which is
described in Note 2 of the Consolidated Financial Statements, from the scope of management’s report on internal control
over financial reporting. As such they have also been excluded from the scope of our audit of internal control over financial
reporting.
In our opinion, Bank of the Ozarks, Inc. maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2014, based on the 2013 Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of Bank of the Ozarks, Inc. as of December 31, 2014 and 2013 and the related
consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years
in the period ended December 31, 2014, and our report dated February 27, 2015, expressed an unqualified opinion thereon.
Atlanta, Georgia
February 27, 2015 /s/ Crowe Horwath LLP
152
Report of Management on the Company’s Internal Control Over Financial Reporting
February 27, 2015
Management of Bank of the Ozarks, Inc. is responsible for establishing and maintaining adequate internal control
over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in the United States. Internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of assets; (2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the
United States, and that receipts and expenditures are made only in accordance with authorizations of management and
directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements and, even when effective, can provide only reasonable assurance with respect to financial statement
preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies
and procedures may deteriorate.
Management of Bank of the Ozarks, Inc., including the Chief Executive Officer and the Chief Financial Officer
and Chief Accounting Officer, has assessed the Company’s internal control over financial reporting as of December 31,
2014, based on criteria for effective internal control over financial reporting described in the 2013 Internal Control-
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As permitted,
management excluded from its assessment the operations of the Bancshares, Inc. and Summit Bancorp, Inc. acquisitions
made during 2014, which is described in Note 2 to the Consolidated Financial Statements. The assets acquired in these
acquisitions and excluded from management’s assessment on internal control over financial reporting comprised
approximately 14.1% of total consolidated assets at December 31, 2014. Based on this assessment, management has
concluded that the Company’s internal control over financial reporting was effective as of December 31, 2014, based on the
specified criteria.
Crowe Horwath LLP, the independent registered public accounting firm that audited the Company’s Consolidated
Financial Statements included in this Annual Report on Form 10-K, has issued a report on the effectiveness of the
Company’s internal control over financial reporting as of December 31, 2014. This report is included in this item under the
heading “Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting.”
/s/ George Gleason
George Gleason
Chairman and Chief Executive Officer
/s/ Greg McKinney
Greg McKinney
Chief Financial Officer and Chief Accounting Officer
Item 9B. OTHER INFORMATION
None.
153
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by Item 401 of Regulation S-K regarding directors is incorporated herein by this
reference to the Company’s Proxy Statement to be filed with the SEC within 120 days of the Company’s fiscal year-end.
The information required by Item 405, Item 407(c)(3), Item 407 (d)(4) and Item 407 (d)(5) of Regulation S-K is
incorporated herein by this reference to the Company’s Proxy Statement to be filed with the SEC within 120 days of the
Company’s fiscal year-end.
In accordance with Item 406 of Regulation S-K, the Company has adopted a code of ethics that applies to certain
Company executives. The code of ethics is posted on the Company’s Internet website at www.bankozarks.com under
“Investor Relations.”
Item 11. EXECUTIVE COMPENSATION
The information required by Item 402, Item 407 (e)(4) and Item 407 (e)(5) of Regulation S-K is incorporated
herein by this reference to the Company’s Proxy Statement to be filed with the SEC within 120 days of the Company’s fiscal
year-end.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
SHAREHOLDER MATTERS
The information required by Item 201(d) and Item 403 of Regulation S-K is incorporated herein by this reference
to the Company’s Proxy Statement to be filed with the SEC within 120 days of the Company’s fiscal year-end.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by Item 404 and Item 407(a) is incorporated herein by this reference to the Company’s
Proxy Statement to be filed with the SEC within 120 days of the Company’s fiscal year-end.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by Item 9(e) of Schedule 14A regarding audit fees, audit committee pre-approval
policies, and related information is incorporated herein by this reference to the Company’s Proxy Statement to be filed with
the SEC within 120 days of the Company’s fiscal year-end.
154
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) List the following documents filed as a part of this report:
(1) The Consolidated Financial Statements of the Registrant.
Reference is made to Part II, Item 8 of this Annual Report on Form 10-K.
(2) Financial Statement Schedules.
Reference is made to Part II, Item 6 of this Annual Report on Form 10-K.
(3) Exhibits.
See Item 15(b) to this Annual Report on Form 10-K.
(b) Exhibits.
The exhibits to this Annual Report on Form 10-K are listed in the Exhibit Index at the end of this Item 15.
(c) Financial Statement Schedules.
See Part IV, Item 15(a)(2) of this Annual Report on Form 10-K.
155
The following exhibits are filed with this report or are incorporated by reference to previously filed material.
EXHIBIT INDEX
Exhibit No.
2.1
2.2
2.3
2.4
3.1
3.2
3.3
3.4
3.5
4.1
Agreement and Plan of Merger among Bank of the Ozarks, Inc., Bank of the Ozarks and The First National Bank
of Shelby, dated as of January 24, 2013 (previously filed as Exhibit 2.1 to the Company’s Current Report on Form
8-K, as amended, filed with the Commission on January 25, 2013, and incorporated herein by this reference).
Pursuant to Item 601(b)(2) of Regulation S-K, certain schedules to this agreement have not been filed with this
exhibit. The schedules contain various items relating to the business of and the representations and warranties made
by The First National Bank of Shelby. The Registrant agrees to furnish supplementally any omitted schedule to the
Commission upon request.
Amendment No. 1 to the Agreement and Plan of Merger among Bank of the Ozarks, Inc., Bank of the Ozarks and
The First National Bank of Shelby, dated as of February 5, 2013 (previously filed as Exhibit 2(b) to the Company’s
Annual Report on Form 10-K filed with the Commission on February 29, 2013, and incorporated herein by this
reference).
Agreement and Plan of Merger among Bank of the Ozarks, Inc., Bank of the Ozarks, Summit Bancorp, Inc. and
Summit Bank, dated as of January 30, 2014 (previously filed as Exhibit 2.1 to the Company’s current report on
Form 8-K filed with the Commission on January 30, 2014, and incorporated herein by this reference). Pursuant to
Item 601(b)(2) of Regulation S-K, certain schedules to this agreement have not been filed with this exhibit. The
schedules contain various items relating to the business of and the representations and warranties made by Summit
Bancorp, Inc. and Summit Bank. The Registrant agrees to furnish supplementally any omitted schedule to the
Commission upon request.
Agreement and Plan of Merger among Bank of the Ozarks, Inc., Bank of the Ozarks, Intervest Bancshares
Corporation and Intervest National Bank, dated as of July 31, 2014 (previously filed as Exhibit 2.1 to the
Company’s Current Report on Form 8-K filed with the Commission on July 31, 2014, and incorporated herein by
this reference). Pursuant to Item 601(b)(2) of Regulation S-K, certain schedules to this agreement have not been
filed with this exhibit. The schedules contain various items relating to the business of and the representations and
warranties made by Intervest Bancshares Corporation and Intervest National Bank. The Registrant agrees to
furnish supplementally any omitted schedule to the Commission upon request.
Amended and Restated Articles of Incorporation of the Company, 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).
Articles of Amendment to the Amended and Restated Articles of Incorporation of the Company 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).
Articles of Amendment to the Amended and Restated Articles of Incorporation of Bank of the Ozarks, Inc., 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).
Articles of Amendment to the Amended and Restated Articles of Incorporation of Bank of the Ozarks, Inc. dated
May 19, 2014 (previously filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the
Commission on May 20, 2014 and incorporated herein by this reference).
Amended and Restated By Laws of Bank of the Ozarks, Inc., dated November 18, 2014 (previously filed as
Exhibit 3.1 to the Company's current report on Form 8-K filed with the Commission on November 21, 2014, and
incorporated herein by this reference).
Instruments defining the rights of security holders, including indentures. The Registrant hereby agrees to furnish to
the Commission upon request copies of instruments defining the rights of holders of long-term debt of the
Registrant and its consolidated subsidiaries; no issuance of debt exceeds ten percent of the assets of the Registrant
and its subsidiaries on a consolidated basis.
156
10.1* Bank of the Ozarks, Inc. Stock Option Plan, as amended April 17, 2007 (previously filed as Exhibit 10.1 to the
Company's quarterly report on Form 10-Q filed with the Commission for the period ended March 31, 2007, and
incorporated herein by this reference).
10.2* Third Amended and Restated Bank of the Ozarks, Inc. Non-Employee Director Stock Option Plan as Amended and
Restated as of April 15, 2013 (previously filed as Exhibit 10.2 to the Company’s Annual Report on Form 10-K for
the year ended December 31, 2013 and incorporated herein by this reference).
10.3* 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).
10.4* Bank of the Ozarks, Inc. Deferred Compensation Plan, dated January 1, 2005 (previously filed as Exhibit 10 (iii)
(A) to the Company’s current report on Form 8-K filed with the Commission on December 14, 2004, and
incorporated herein by this reference).
10.5* Bank of the Ozarks, Inc. 2009 Restricted Stock and Incentive Plan, as amended and restated effective May 19,
2014 (previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission
on May 20, 2014 and incorporated herein by this reference).
10.6* Amendment to the Bank of the Ozarks, Inc. Stock Option Plan adopted May 19, 2014 (previously filed as Exhibit
10.2 to the Company’s Current Report on Form 8-K filed with the Commission on May 20, 2014 and incorporated
herein by this reference).
10.7* Supplemental Executive Retirement Plan for George G. Gleason, II, effective May 4, 2010 by and among Bank of
the Ozarks, George G. Gleason, II and Bank of the Ozarks, Inc. (previously filed as Exhibit 10.1 to the Company’s
current report on Form 8-K filed with the Commission on May 7, 2010, and incorporated herein by reference).
10.8* Executive Life Insurance Agreement for George G. Gleason, II, effective May 4, 2010 by and among Bank of the
Ozarks, George G. Gleason, II and Bank of the Ozarks, Inc. (previously filed as Exhibit 10.2 to the Company’s
current report on Form 8-K filed with the Commission on May 7, 2010, and incorporated herein by reference).
10.9* Split Dollar Insurance Agreement, effective as of May 4, 2010 between Bank of the Ozarks and Bank of the
Ozarks as Trustee of the Linda and George Gleason Insurance Trust (previously filed as Exhibit 10.3 to the
Company’s current report on Form 8-K filed with the Commission on May 7, 2010, and incorporated herein by
reference).
10.10* Split Dollar Insurance Agreement, effective as of May 4, 2010 between Bank of the Ozarks and George G.
Gleason, II (previously filed as Exhibit 10.4 to the Company’s current report on Form 8-K filed with the
Commission on May 7, 2010, and incorporated herein by reference).
10.11* Split Dollar Designation by Bank of the Ozarks, dated as of May 4, 2010 in respect of George G. Gleason, II as the
insured (previously filed as Exhibit 10.5 to the Company’s current report on Form 8-K filed with the Commission
on May 7, 2010, and incorporated herein by reference).
10.12* Form of Notice of Grant of Restricted Stock and Award Agreement, as amended, filed herewith.
10.13* Form of stock option agreement for non-employee directors (previously filed as Exhibit 10.13 to the Company’s
Annual Report on Form 10-K for the year ended December 31, 2013 and incorporated herein by this reference).
10.14* Form of stock option agreement for executive officers (previously filed as Exhibit 10.14 to the Company’s Annual
Report on Form 10-K for the year ended December 31, 2013 and incorporated herein by this reference).
10.15* Bank of the Ozarks, Inc. 2014 Stock-Based Performance Award Plan (previously filed as Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed with the Commission on June 25, 2014 and incorporated herein by
this reference).
157
10.16* Bank of the Ozarks, Inc. 2014 Executive Cash Bonus Plan (previously filed as Exhibit 10.2 to the Company’s
Current Report on Form 8-K filed with the Commission on June 25, 2014 and incorporated herein by this
reference).
10.17* Bank of the Ozarks, Inc. 2015 Stock-Based Performance Award Plan (previously filed as Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed with the Commission on January 16, 2015 and incorporated herein
by this reference).
10.18* Bank of the Ozarks, Inc. 2015 Executive Cash Bonus Plan (previously filed as Exhibit 10.2 to the Company’s
Current Report on Form 8-K filed with the Commission on January 16, 2015 and incorporated herein by this
reference).
11.1
Earnings Per Share Computation (included in Note 23 to the Consolidated Financial Statements).
21
List of Subsidiaries of the Registrant, filed herewith.
23.1
Consent of Crowe Horwath, LLP, filed herewith.
31.1
Certification of Chairman and Chief Executive Officer, filed herewith.
31.2
Certification of Chief Financial Officer and Chief Accounting Officer, filed herewith.
32.1
32.2
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, furnished herewith.
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, furnished herewith.
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema
101.CAL XBRL Taxonomy Extension Calculation Linkbase
101.DEF XBRL Taxonomy Definition Linkbase
101.LAB XBRL Extension Label Linkbase
101.PRE XBRL Taxonomy Extension Presentation Linkbase
_______________________
*Management contract or a compensatory plan or arrangement.
158
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities 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.
By:
/s/ George Gleason
________________________________________________
Chairman and Chief Executive Officer
Date:
February 27, 2015
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE
TITLE
DATE
/s/ George Gleason
_____________________________
George Gleason
Chairman of the Board, Chief Executive Officer
and Director
February 27, 2015
/s/ Dan Thomas
_____________________________
Dan Thomas
Vice Chairman, President –Real Estate
Specialties Group and Chief Lending Officer
and Director
February 27, 2015
/s/ Greg McKinney
_____________________________
Greg McKinney
Chief Financial Officer and
Chief Accounting Officer and Director
February 27, 2015
/s/ Jean Arehart
Jean Arehart
Director
February 27, 2015
/s/ Nicholas Brown
Director
February 27, 2015
Nicholas Brown
/s/ Richard Cisne
____________________________
Richard Cisne
/s/ Robert East
____________________________
Robert East
/s/ Catherine B. Freedberg
____________________________
Catherine B. Freedberg
Director
February 27, 2015
Director
February 27, 2015
Director
February 27, 2015
159
/s/ Linda Gleason
____________________________
Linda Gleason
/s/ Peter Kenny
____________________________
Peter Kenny
/s/ Henry Mariani
____________________________
Henry Mariani
/s/ Robert Proost
Robert Proost
/s/ R. L. Qualls
R. L. Qualls
Director
February 27, 2015
Director
February 27, 2015
Director
February 27, 2015
Director
February 27, 2015
Director
February 27, 2015
/s/ John Reynolds
Director
February 27, 2015
John Reynolds
/s/ Sherece West-Scantlebury
Director
February 27, 2015
Sherece West-Scantlebury
/s/ Ross Whipple
Director
February 27, 2015
Ross Whipple
160
Registration Statement No.
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement No. 333-32173 on Form S-8 pertaining to the Bank
of the Ozarks, Inc. Stock Option Plan, Registration Statement No. 333-74577 on Form S-8 pertaining to the Bank of the
Ozarks, Inc. 401K Retirement Savings Plan, Registration Statement No. 333-32175 on Form S-8 pertaining to the Bank of
the Ozarks, Inc. Non-employee Director Stock Option Plan, Registration Statement No. 333-68596 on Form S-8 pertaining
to the Bank of the Ozarks, Inc. Stock Option Plan, Registration Statement No. 333-183909 on Form S-8 pertaining to the
Bank of the Ozarks, Inc. Stock Option Plan, Registration Statement No. 333-183910 on Form S-8 pertaining to the Bank of
the Ozarks, Inc. 2009 Restricted Stock Plan, Registration Statement No. 333-194720 on Form S-8 pertaining to the Bank of
the Ozarks, Inc. 401(k) Retirement Savings Plan, and Registration Statement No. 333-194721 on Form S-8 pertaining to the
Bank of the Ozarks, Inc. 2009 Restricted Stock Plan of our reports dated February 27, 2015 with respect to the
Consolidated Financial Statements of Bank of the Ozarks, Inc. and the effectiveness of internal control over financial
reporting, which reports appear in this Annual Report on Form 10-K of Bank of the Ozarks, Inc. for the year ended
December 31, 2014.
Atlanta, Georgia
February 27, 2015
/s/ Crowe Horwath LLP
CERTIFICATIONS
I, George Gleason, certify that:
Exhibit 31.1
1. I have reviewed this report on Form 10-K of Bank of the Ozarks, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize
and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant's internal control over financial reporting.
Date:
February 27, 2015
/s/ George Gleason
George Gleason
Chairman and Chief Executive Officer
I, Greg McKinney, certify that:
1. I have reviewed this report on Form 10-K of Bank of the Ozarks, Inc.;
Exhibit 31.2
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize
and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant's internal control over financial reporting.
Date:
February 27, 2015
/s/ Greg McKinney
Greg McKinney
Chief Financial Officer and Chief Accounting Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the accompanying Annual Report of Bank of the Ozarks, Inc. (the Company) on Form 10-K for the
period ended December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the Report), I,
George Gleason, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted
pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of the Company.
February 27, 2015
/s/ George Gleason
George Gleason
Chairman and Chief Executive Officer
In accordance with SEC Release No. 34-47986, this Exhibit 32.1 is furnished to the SEC as an accompanying document and
is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the
liabilities of that Section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the accompanying Annual Report of Bank of the Ozarks, Inc. (the Company) on Form 10-K for the
period ended December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the Report), I,
Greg McKinney, Chief Financial Officer and Chief Accounting Officer of the Company, certify, pursuant to 18 U.S.C. §
1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of the Company.
February 27, 2015
/s/ Greg McKinney
Greg McKinney
Chief Financial Officer and Chief Accounting
Officer
In accordance with SEC Release No. 34-47986, this Exhibit 32.2 is furnished to the SEC as an accompanying document and
is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the
liabilities of that Section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933.
Board of Directors
George Gleason
Chairman and
Chief Executive Officer—
Bank of the Ozarks, Inc.,
Little Rock, Arkansas
Dan Thomas
Vice Chairman, Chief
Lending Officer and
President, Real Estate
Specialties Group—
Bank of the Ozarks, Inc.,
Dallas, Texas
Jean Arehart
Retired Banker—
Newport, Arkansas
Nicholas Brown
President and Chief
Executive Officer—
Southwest Power Pool,
Little Rock, Arkansas
Richard Cisne
Founding Partner—
Hudson, Cisne and Co.,
LLP, Little Rock, Arkansas
Robert East
Chairman and Chief
Executive Officer—
Robert East Co., Inc.;
Managing Partner—
Advanced Cabling
Systems, LLC,
Little Rock, Arkansas
Catherine B.
Freedberg, Ph.D.
Former Lecturer—Harvard
University, Department
of Art and Architecture,
Washington, D.C.
Linda Gleason
Retired Banker—
Little Rock, Arkansas
Peter Kenny
Chief Market Strategist—
Clearpool Group,
New York, New York
Greg McKinney
Chief Financial Officer
and Chief Accounting
Officer—Bank of the
Ozarks, Inc., Little Rock,
Arkansas
Henry Mariani
Chairman and Chief
Executive Officer—
Allurtec, Inc.; Chairman—
NLC Products, Inc.,
Little Rock, Arkansas
Robert Proost
Retired Corporate Vice
President, Chief Financial
Officer and Director of
Administration—A.G.
Edwards, Inc., St. Louis,
Missouri
Our Board of Directors’
outstanding leadership
and vision have moved the
Company forward and created
a solid foundation for strong
future growth and profitability.
R.L. Qualls
Retired President and
Chief Executive Officer—
Baldor Electric Company,
Little Rock, Arkansas
John Reynolds
Pathologist and
Laboratory Director—
Memorial Hospital,
Bainbridge, Georgia
Dr. Sherece
West-Scantlebury
President and Chief
Executive Officer—
Winthrop Rockefeller
Foundation, Little Rock,
Arkansas
Ross Whipple
President—Horizon
Timber Services, Inc.,
Arkadelphia, Arkansas
Little Rock, Arkansas
(501) 978-2265, Fax (501) 320-4078
NASDAQ: OZRK • www.bankozarks.com
For additional information, contact:
Investor Relations,
Bank of the Ozarks, Inc.
P.O. Box 8811
Little Rock, Arkansas 72231-8811
Independent Auditors:
Transfer Agent:
Crowe Horwath LLP,
Certified Public Accountants
3399 Peachtree Road N.E., Suite 700
Atlanta, Georgia 30326-2832
Bank of the Ozarks Trust
and Wealth Management Division
P.O. Box 8811
Little Rock, Arkansas 72231-8811
Annual Report Design by Curran & Connors, Inc. / www.curran-connors.com