Bank of the Ozarks, Inc. announced Monday that net income for the first quarter of 2014 was $25.3 million, a 26.4% increase from $20.0 million for the first quarter of 2013. Diluted earnings per common share for the first quarter of 2014 were $0.68, a 21.4% increase from $0.56 for the first quarter of 2013.

The Company’s results for the first quarter of 2014 included three significant unusual items. First, on March 5, 2014 the Company completed its acquisition in Texas of Bancshares, Inc. (“Bancshares”) and its wholly-owned OMNIBANK, N.A. subsidiary. This acquisition resulted in a tax-exempt bargain purchase gain of $4.7 million. Second, the Company incurred acquisition-related costs, net of applicable taxes, of approximately $0.4 million. Third, the Company, after entering into an agreement for its newly acquired core banking software, incurred charges, net of applicable taxes, of $3.1 million as a result of providing notices of termination to existing core banking software providers. Collectively, the net effect of these items added approximately $1.2 million, or approximately $0.03 of diluted earnings per share, to the Company’s after tax net income for the first quarter of 2014.

The Company’s returns on average assets and average common stockholders’ equity for the first quarter of 2014 were 2.12% and 16.06%, respectively, compared to 2.06% and 15.77%, respectively, for the first quarter of 2013.

Loans and leases, excluding loans covered by FDIC loss share agreements (“covered loans”) and purchased loans not covered by loss share (“purchased non-covered loans”), were $2.78 billion at March 31, 2014, a 28.8% increase from $2.16 billion at March 31, 2013. Including covered loans and purchased non-covered loans, total loans and leases were $3.57 billion at March 31, 2014, a 30.4% increase from $2.74 billion at March 31, 2013.

In commenting on these results, George Gleason, Chairman and Chief Executive Officer, stated, “We are pleased to report our excellent first quarter results. While our results reflect some of the headwinds typically encountered during the first quarter, our excellent loan and lease growth, our favorable asset quality as shown by our net charge-off ratio, and our record trust income provided a great start for 2014. Our balance of loans and leases outstanding, excluding covered loans and purchased non-covered loans, increased $146 million in the quarter just ended, reflecting unusually strong growth for the first quarter, which has been a quarter of minimal growth in most years. Additionally, our unfunded balance of closed loans increased $206 million during the first quarter, growing to $1.42 billion at March 31, 2014 compared to $1.21 billion at December 31, 2013. Further, the completion of our Bancshares acquisition late in the first quarter is an important step in positioning us for future growth in Texas.”

Deposits were $3.92 billion at March 31, 2014, a 30.9% increase compared to $2.99 billion at March 31, 2013.

Total assets were $5.03 billion at March 31, 2014, a 27.3% increase compared to $3.95 billion at March 31, 2013.

Common stockholders’ equity was $653 million at March 31, 2014, a 24.7% increase from $524 million at March 31, 2013. Book value per common share was $17.68 at March 31, 2014, a 19.4% increase from $14.81 at March 31, 2013. Changes in common stockholders’ equity and book value per common share reflect earnings, dividends paid, stock option and stock grant transactions, stock consideration issued in connection with the Company’s July 2013 acquisition of The First National Bank of Shelby ("FNB Shelby") and changes in the Company’s mark-to-market adjustment for unrealized gains and losses on investment securities available for sale.

The Company’s ratio of common stockholders’ equity to total assets was 12.99% at March 31, 2014, compared to 13.25% at March 31, 2013. Its ratio of tangible common stockholders’ equity to tangible total assets was 12.62% at March 31, 2014, compared to 13.00% at March 31, 2013. The calculation of the Company’s ratio of tangible common stockholders’ equity to tangible total assets and the reconciliation to generally accepted accounting principles (“GAAP”) is included in the schedules accompanying this release.

NET INTEREST INCOME

Net interest income for the first quarter of 2014 was $52.4 million, an 18.7% increase from $44.1 million for the first quarter of 2013, but a 5.2% decrease from $55.3 million for the fourth quarter of 2013. Net interest margin, on a fully taxable equivalent (“FTE”) basis, was 5.46% in the first quarter of 2014, a 37 basis point decrease from 5.83% in the first quarter of 2013, and a 17 basis point decrease from 5.63% in the fourth quarter of 2013. Average earning assets were $4.07 billion in the first quarter of 2014, a 26.6% increase from $3.21 billion in the first quarter of 2013, and a 0.2% increase from $4.06 billion in the fourth quarter of 2013.

NON-INTEREST INCOME

Non-interest income for the first quarter of 2014 increased 24.5% to $20.4 million compared to $16.4 million for the first quarter of 2013. Non-interest income for the first quarter of 2014 included a tax-exempt bargain purchase gain of $4.7 million on the Bancshares acquisition. There was no bargain purchase gain in the first quarter of 2013.

Service charges on deposit accounts increased 19.4% to $5.64 million in the first quarter of 2014 compared to $4.72 million in the first quarter of 2013, but decreased 6.5% compared to $6.03 million in the fourth quarter of 2013.

Mortgage lending income decreased 45.2% to $0.95 million in the first quarter of 2014 compared to $1.74 million in the first quarter of 2013, and decreased 1.3% compared to $0.97 million in the fourth quarter of 2013.

Trust income for the first quarter of 2014 increased 49.0% to a record $1.32 million compared to $0.88 million for the first quarter of 2013, and increased 2.1% compared to $1.29 million for the fourth quarter of 2013.

Income from accretion of the Company’s FDIC loss share receivable, net of amortization of the Company’s FDIC clawback payable, decreased 71.1% to $0.69 million in the first quarter of 2014 compared to $2.39 million in the first quarter of 2013, and decreased 23.2% compared to $0.90 million in the fourth quarter of 2013.

Other income from loss share and purchased non-covered loans increased 53.6% to $3.31 million in the first quarter of 2014 compared to $2.16 million in the first quarter of 2013, but decreased 31.4% compared to $4.83 million in the fourth quarter of 2013.

Net gains on sales of other assets decreased to $0.97 million in the first quarter of 2014 compared to $1.97 million in the first quarter of 2013 and $1.80 million in the fourth quarter of 2013. The net gains on sales of other assets in each of these periods were primarily due to net gains on sales of foreclosed assets covered by FDIC loss share agreements.

NON-INTEREST EXPENSE

Non-interest expense for the first quarter of 2014 increased 28.1% to $37.5 million, compared to $29.2 million for the first quarter of 2013, and increased 7.8% compared to $34.7 million for the fourth quarter of 2013. During the first quarter of 2014, the Company incurred pre-tax non-interest expense of $5.0 million as a result of providing notices to terminate existing core banking software contracts and approximately $0.7 million in connection with its Bancshares acquisition and pending acquisition of Summit Bancorp, Inc. There were no software termination charges or acquisition-related costs in the first quarter of 2013.

The Company’s efficiency ratio (non-interest expense divided by the sum of net interest income FTE and non-interest income) for the first quarter of 2014 increased to 49.8% compared to 46.8% for the first quarter of 2013 and 45.5% in the fourth quarter of 2013.

ASSET QUALITY, CHARGE-OFFS AND ALLOWANCE

Loans, repossessions and foreclosed assets covered by FDIC loss share agreements, along with the related FDIC loss share receivable, are presented in the Company’s financial reports with a carrying value equal to the net present value of expected future proceeds. At March 31, 2014, the carrying value of covered loans was $305 million, foreclosed assets covered by loss share was $44 million and the FDIC loss share receivable was $58 million. At March 31, 2013, the carrying value of covered loans was $544 million, foreclosed assets covered by loss share was $51 million and the FDIC loss share receivable was $133 million.

Purchased non-covered loans include a small volume of non-covered loans acquired in FDIC-assisted acquisitions and loans acquired in non FDIC-assisted acquisitions, including the FNB Shelby and Bancshares acquisitions. Purchased non-covered loans that contain evidence of credit deterioration on the date of purchase are initially recorded at fair value and are presented in the Company’s financial reports with a carrying value equal to the net present value of expected future proceeds. Other purchased non-covered loans are initially recorded at fair value on the date of purchase and are presented in the Company’s financial reports 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 adjustments to carrying value. The carrying value of purchased non-covered loans was $489 million at March 31, 2014 compared to $38 million at March 31, 2013 and $373 million at December 31, 2013.

Excluding covered loans and purchased non-covered loans, nonperforming loans and leases as a percent of total loans and leases increased to 0.42% at March 31, 2014 compared to 0.40% at March 31, 2013 and 0.33% at December 31, 2013.

Excluding covered loans, purchased non-covered loans and foreclosed assets covered by loss share, nonperforming assets as a percent of total assets increased to 0.57% at March 31, 2014 compared to 0.50% at March 31, 2013 and 0.43% at December 31, 2013.

Excluding covered loans and purchased non-covered loans, the Company’s ratio of loans and leases past due 30 days or more, including past due non-accrual loans and leases, to total loans and leases increased to 0.75% at March 31, 2014 compared to 0.56% at March 31, 2013 and 0.45% at December 31, 2013.

The Company’s net charge-offs decreased to $0.4 million for the first quarter of 2014, including $0.2 million for non-covered loans and leases and $0.2 million for covered loans. The Company’s net charge-offs were $3.0 million for the first quarter of 2013, including $1.0 million for non-covered loans and leases and $2.0 million for covered loans. The Company’s net charge-offs were $1.6 million for the fourth quarter of 2013, including $0.9 million for non-covered loans and leases and $0.7 million for covered loans. Net charge-offs for covered loans are reported net of adjustments to applicable FDIC loss share receivable and FDIC clawback payable amounts.

The Company’s annualized net charge-off ratio for its non-covered loans and leases improved to 0.02% for the first quarter of 2014, compared to 0.19% for the first quarter of 2013 and 0.12% for the fourth quarter of 2013. The Company’s annualized net charge-off ratio for all loans and leases, including covered loans, improved to 0.05% for the first quarter of 2014, compared to 0.45% for the first quarter of 2013 and 0.18% for the fourth quarter of 2013.

For the first quarter of 2014, the Company’s provision for loan and lease losses decreased to $1.3 million, including $1.1 million for non-covered loans and leases and $0.2 million for covered loans. For the first quarter of 2013, the Company’s provision for loan and lease losses was $2.7 million, including $0.7 million for non-covered loans and leases and $2.0 million for covered loans. For the fourth quarter of 2013, the Company’s provision for loan and lease losses was $2.9 million, including $2.2 million for non-covered loans and leases and $0.7 million for covered loans.

The Company’s allowance for loan and lease losses was $43.9 million, or 1.58% of total loans and leases, excluding covered loans and purchased non-covered loans, at March 31, 2014, compared to $38.4 million, or 1.78% of total loans and leases, excluding covered loans and purchased non-covered loans, at March 31, 2013, and $42.9 million, or 1.63% of total loans and leases, excluding covered loans and purchased non-covered loans, at December 31, 2013.

PROPOSED TRANSACTION

On January 30, 2014, the Company and its wholly-owned bank subsidiary, Bank of the Ozarks, entered into a definitive agreement and plan of merger with Summit Bancorp, Inc. (“Summit”) and Summit’s wholly-owned bank subsidiary, Summit Bank, in Arkadelphia, Arkansas, pursuant to which the Company expects to acquire all of the outstanding common stock of Summit in a transaction valued at approximately $216 million, subject to potential adjustments. Summit, through its wholly-owned bank subsidiary, Summit Bank, operates 23 banking offices and one loan production office in nine Arkansas counties. At December 31, 2013, Summit had approximately $1.2 billion of total assets, $778 million of loans and $994 million of deposits. Completion of the transaction is subject to certain closing conditions, including customary regulatory approvals and approval by Summit’s shareholders.