C1 Financial Reports 2015 Fourth Quarter Results

ST. PETERSBURG, Fla., Jan. 28, 2016 /PRNewswire/ -- C1 Financial, Inc. (NYSE: BNK) today reported net income of $1.4 million, or $0.09 per diluted common share for the fourth quarter of 2015 ("4Q15"), compared to net income of $5.0 million, or $0.31 per diluted common share for the third quarter of 2015 ("3Q15"), and net income of $1.3 million, or $0.08 per diluted common share for the fourth quarter of 2014 ("4Q14").

On November 9, 2015, C1 Financial and its wholly owned bank subsidiary, C1 Bank, entered into a definitive agreement and plan of merger ("Agreement") with Bank of the Ozarks, Inc. ("OZRK") and its wholly owned bank subsidiary, Bank of the Ozarks ("Ozarks Bank"), whereby, subject to the terms and conditions of the Agreement, OZRK will acquire C1 Financial and C1 Bank in an all-stock transaction valued at approximately $402.5 million, or approximately $25.00 per share of C1 Financial common stock, subject to potential adjustments as described in the Agreement. Upon the closing of the transaction, C1 Financial will merge into OZRK and C1 Bank will merge into Ozarks Bank, with each of OZRK and Ozarks Bank to continue as the surviving entity, respectively. Completion of the transaction is subject to certain closing conditions, including customary regulatory approvals and approval by C1 Financial shareholders and are described in the Agreement. Although there can be no assurance, the transaction is expected to close in the first half of 2016.

FOURTH QUARTER SUMMARY

4Q15 results were impacted by the following:

1. We originated $102 million in new loans in the quarter, resulting in C1 Bank originated loans outstanding up $68 million (+6%) from the prior quarter and $323 million (+38%) year-over-year. Loan originations for the year were $549 million, up $60 million (+12%) compared to last year. Overall loans outstanding (including acquired loans) were $1.443 billion at the end of 4Q15 (up 4% from the prior quarter and up 21% year-over-year);
2. Total deposits grew $14 million (+1.1%) compared to the prior quarter and 9.5% year-over-year. Quarterly growth was primarily due to higher time deposits and a slight increase in core deposits, while year-over-year growth was driven by core deposits, which were up $144 million (+17%). At the end of 4Q15, 3Q15 and 4Q14, core deposits were 78.1%, 78.9% and 73.2% of total deposits, respectively, and noninterest-bearing deposits were 25.1%, 26.6% and 23.9% of total deposits, respectively. These deposit mix changes impacted our cost of total deposits, which grew 1 basis point ("bps") to 0.47% for 4Q15 when compared to 3Q15, but was down 3 bps when compared to 4Q14;
3. Adjusted net interest margin (a non-GAAP measure which excludes the impact of purchase accounting accretion income) declined from 4.64% for 3Q15 to 4.40% for 4Q15, reflecting a normalized level of loan fees and reversal of interest income on nonaccrual loans, and was up from 4.05% for 4Q14, reflecting the deployment of excess cash during the year. On a GAAP basis, net interest margin was 4.51% for 4Q15, compared to 4.75% for 3Q15 and 4.24% for 4Q14;
4. Annualized revenue per employee was $369 thousand in 4Q15, compared to $367 thousand in 3Q15 and $307 thousand in 4Q14, and average assets per employee were $7.3 million in 4Q15, compared to $6.9 million in 3Q15 and $6.4 million in 4Q14, as a result of our efforts to improve our efficiency through the use of technology;
5. In 4Q15, total nonperforming assets increased $21.0 million when compared to the previous quarter (+$19.2 million in nonaccrual loans and +$1.8 million in other estate owned ("OREO")), and increased $8.5 million (+$15.1 million in nonaccrual loans and -$6.6 million in OREO) when compared to 4Q14. The increase in nonaccrual loans was primarily due to two commercial real estate loans to a Brazilian borrower. Our Texas Ratio (a non-GAAP measure) was 30.9% at the end of 4Q15, compared to 21.0% at the end of 3Q15 and 29.3% at the end of 4Q14;
6. C1 Bank originated nonperforming assets accounted for 35% of our total nonperforming assets (with C1 Bank originated nonperforming loans equal to 1.83% of C1 Bank originated loans outstanding). Our allowance for loan losses was 0.56% of total loans at the end of 4Q15 and 0.57% at the end of 3Q15, up from 0.45% at the end of 4Q14 (primarily driven by an increase in general reserves); 
7. Our headcount ended the quarter at 229, down from 239 at the end of 3Q15 and 238 at the end of 4Q14, as a result of our continuing headcount efficiency initiatives and deployment of technology;
8. Net income for 4Q15 included after-tax merger related expenses of $2.6 million incurred pursuant to the Agreement with OZRK and $100 thousand income tax expense related to BOLI policies surrendered in 2015.

ASSETS

Total assets at the end of 4Q15 were $1.726 billion, $13.0 million higher (+0.8%) than at the end of 3Q15, primarily funded by deposit growth ($13.9 million).

LOANS

Total loans at the end of 4Q15 were $1.443 billion, up $52.4 million (+3.8%) from the end of 3Q15. Loan growth in 4Q15 was mainly driven by loan originations of $101.7 million and funding of unfunded commitments, partially offset by loan prepayments in the C1 Bank originated loan portfolio, and loans paying off in both the C1 Bank originated loan portfolio and in the acquired portfolio. The outstanding balance of C1 Bank originated loans grew $68.0 million (+6.2%) during 4Q15, while the outstanding balance of acquired loans decreased $15.6 million (-5.3%) to $279.4 million at the end of 4Q15. At the end of 4Q15, C1 Bank originated loans represented 81% of the loan portfolio, up from 79% at the end of 3Q15.

DEPOSITS

Total deposits at the end of 4Q15 were $1.278 billion, an increase of $13.9 million (+1.1%) from the end of 3Q15. Core deposits were $998.2 million, or 78.1% of total deposits at the end of 4Q15, compared to $997.8 million, or 78.9% of total deposits at the end of 3Q15. This deposit mix change impacted our cost of total deposits, which was 0.47% in 4Q15 and 0.46% in 3Q15.

ASSET QUALITY

Nonperforming assets totaled $64.3 million at the end of 4Q15, increasing $21.0 million (+48.6%) when compared to the end of 3Q15. The higher amount in 4Q15 was due to an increase of $19.2 million in nonaccrual loans (primarily due to two commercial real estate loans to a Brazilian borrower) and $1.8 million in OREO balances. As a percentage of total assets, nonperforming assets were 3.73% and 2.53% at the end of 4Q15 and 3Q15, respectively, while our Texas Ratio was 30.9% and 21.0% at the end of 4Q15 and 3Q15, respectively. At the end of 4Q15, $22.8 million (35.4%) of total nonperforming assets were related to loans originated by C1 Bank, compared to $2.0 million (4.6%) at the end of 3Q15.

As of December 31, 2015, a loan to a second Brazilian borrower was past due 81 days and we have been informed that the borrower is in the process of making the payments to bring the loan current. If the past due payments are not received as expected, our nonperforming assets would increase to 4.71% of total assets and our Texas Ratio would increase to 39.1% at the end of 4Q15.

Total recoveries of $474 thousand, net of charge-offs of $93 thousand, resulted in net recoveries of $381 thousand in 4Q15 (0.11% of total average loans on an annualized basis as compared to 0.09% for 3Q15). Net recoveries reflected our continued effort to collect deficiencies and a lower level of charge-offs, and provided a $282 thousand reversal of provision for loan losses after covering the allowance for loan losses required for net loan growth.

Our allowance for loan losses at the end of 4Q15 was $8.0 million (representing 0.56% of total loans) as compared to $7.9 million (representing 0.57% of total loans) at the end of 3Q15. On a non-GAAP basis (including remaining loan discount from acquired performing loans), the allowance plus discount amount totaled $10.7 million (representing 0.74% of total loans) at the end of 4Q15, compared to $10.8 million (representing 0.77% of total loans) at the end of 3Q15.

NET INTEREST INCOME AND MARGIN

Net interest income was $17.7 million for 4Q15 and $18.0 million for 3Q15. Net interest margin for 4Q15 declined 24 bps to 4.51% from 4.75% in 3Q15, mainly driven by a lower yield on average earning assets (primarily related to a normalized level of loan fees and reversal of interest income on nonaccrual loans). Adjusted net interest margin (which excludes the effect of purchase accounting) was 4.40% for 4Q15 and 4.64% in 3Q15.

Our excess cash (defined as our available cash above our target liquidity level – See explanation of non-GAAP financial measures) was $5.2 million at the end of 4Q15, while our average excess cash was $37.4 million for 4Q15, $26.8 million higher than for 3Q15.

NONINTEREST INCOME

Noninterest income for 4Q15 totaled $1.8 million, $364 thousand less when compared to 3Q15. The decrease was primarily due to a $670 thousand gain on the early redemption of long-term Federal Home Loan Bank ("FHLB") advances (included in other noninterest income) in 3Q15, which was partially offset by a $247 thousand increase in gains on sales of loans (due to a higher volume of Small Business Administration ("SBA") loans sold in 4Q15).

NONINTEREST EXPENSE & TAXES

Noninterest expense totaled $15.7 million in 4Q15, $3.7 million more when compared to 3Q15. The increase was primarily due to higher salaries and employee benefits of $1.2 million (mainly driven by bonus expense) and pre-tax merger related expenses of $2.6 million pursuant to the Agreement with OZRK.

Our income tax expense was $2.6 million for 4Q15 and $3.2 million for 3Q15. The effective tax rate for 4Q15 was 64.9%, which reflected nondeductible merger related expenses relating to the Agreement with OZRK and $100 thousand income tax expense related to BOLI policies surrendered during 2015. The effective tax rate for 3Q15 was 39.3%.

EFFICIENCY

Our efficiency ratio was 80.7% in 4Q15, higher than the 59.4% in 3Q15 primarily due to the increase in noninterest expenses (mainly driven by merger related expense). We also closely track annualized revenue per employee and average assets per employee, as measures of efficiency. Annualized revenue per employee was $369 thousand in 4Q15, compared to $367 thousand in 3Q15, and average assets per employee were $7.3 million in 4Q15, compared to $6.9 million in 3Q15, as a result of our efforts to improve our efficiency through the use of technology.

NET INCOME

Net income was $1.4 million for 4Q15, compared to $5.0 million for 3Q15. This corresponded to a return on average assets of 0.32% and 1.18% for 4Q15 and 3Q15, respectively, and a return on average equity of 2.79% and 10.02% for 4Q15 and 3Q15, respectively.

CAPITAL

Our consolidated Tier 1 leverage ratio was 11.55% and total risk-based capital ratio was 13.85% as of the end of 4Q15, reflecting that we remained well capitalized under Interim Final Basel III rules. Additional capital ratios are presented in the financial tables.

OTHER EVENTS DURING 4Q15

In November 2015, C1 Bank opened in Ft. Lauderdale, its 32^nd banking center.

C1 Financial, Inc. Information
Our name expresses our ideals to put our Clients 1^st and our Community 1^st. We are focused on serving the needs of entrepreneurs, tailoring a wide range of relationship banking services to entrepreneurs and their families, including commercial loans and a full line of depository products. We are based in St. Petersburg, Florida and operate from 32 banking centers and one loan production office on the West Coast of Florida and in Miami-Dade, Broward and Orange Counties. As of September 30, 2015, we were the 17^th largest bank headquartered in the state of Florida by assets and the 16^th largest by equity, having grown both organically and through acquisitions. Additional information is available at www.c1bank.com.

Forward-Looking Statements
This communication contains certain forward-looking information about C1 and OZRK that is intended to be covered by the safe harbor for "forward-looking statements" provided by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are forward-looking statements. In some cases, you can identify forward-looking statements by words such as "may," "hope," "will," "should," "expect," "plan," "anticipate," "intend," "believe," "estimate," "predict," "potential," "continue," "could," "future" or the negative of those terms or other words of similar meaning. These forward-looking statements include, without limitation, statements relating to the terms and closing of the proposed transaction between C1 and OZRK, the proposed impact of the merger on OZRK's financial results, including any expected increase in OZRK's book value and tangible book value per common share and any expected increase in diluted earnings per common share, acceptance by C1's customers of OZRK's products and services, the opportunities to enhance market share in certain markets, market acceptance of OZRK generally in new markets, and the integration of C1's operations. You should carefully read forward-looking statements, including statements that contain these words, because they discuss the future expectations or state other "forward-looking" information about C1 and OZRK. A number of important factors could cause actual results or events to differ materially from those indicated by such forward-looking statements, many of which are beyond the parties' control, including the parties' ability to consummate the transaction or satisfy the conditions to the completion of the transaction, including the receipt of shareholder approval, the receipt of regulatory approvals required for the transaction on the terms expected or on the anticipated schedule; the parties' ability to meet expectations regarding the timing, completion and accounting and tax treatments of the transaction; the possibility that any of the anticipated benefits of the proposed merger will not be realized or will not be realized within the expected time period; the risk that integration of C1's operations with those of OZRK will be materially delayed or will be more costly or difficult than expected; the failure of the proposed merger to close for any other reason; the effect of the announcement of the merger on customer relationships and operating results (including, without limitation, difficulties in maintaining relationships with employees or customers); dilution caused by OZRK's issuance of additional shares of its common stock in connection with the merger; the possibility that the merger may be more expensive to complete than anticipated, including as a result of unexpected factors or events; the diversion of management time on transaction related issues; general competitive, economic, political and market conditions and fluctuations; changes in the regulatory environment; changes in the economy affecting real estate values; C1's ability to achieve loan and deposit growth; projected population and income growth in C1's targeted market areas; volatility and direction of market interest rates and a weakening of the economy which could materially impact credit quality trends and the ability to generate loans; and the other factors described in C1's Annual Report on Form 10-K for the fiscal year ended December 31, 2014 and in its most recent Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission ("SEC") or described in OZRK's Annual Report on Form 10-K for the fiscal year ended December 31, 2014 and in its most recent Quarterly Report on Form 10-Q filed with the SEC. C1 and OZRK assume no obligation to update the information in this communication, except as otherwise required by law. Readers are cautioned not to place undue reliance on these forward-looking statements, all of which speak only as of the date hereof.

ADDITIONAL INFORMATION

This communication is being made in respect of the proposed merger transaction involving C1 Financial, Inc. ("C1") and Bank of the Ozarks, Inc. ("OZRK"). This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction. In connection with the proposed merger, OZRK has filed with the SEC a registration statement on Form S-4 (Registration Statement No. 333-208877) that includes a prospectus of the Company and a proxy statement of C1. C1 and OZRK also plan to file other documents with the SEC regarding the proposed merger transaction and a definitive proxy statement/prospectus will be mailed to shareholders of C1. BEFORE MAKING ANY VOTING OR INVESTMENT DECISION, INVESTORS ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS REGARDING THE PROPOSED TRANSACTION AND ANY OTHER RELEVANT DOCUMENTS CAREFULLY IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. The proxy statement/prospectus, as well as other filings containing information about C1 and OZRK will be available without charge, at the SEC's Internet site (http://www.sec.gov). Copies of the proxy statement/prospectus and the filings with the SEC that will be incorporated by reference in the proxy statement/prospectus can also be obtained, when available, without charge, from C1's website at https://www.c1bank.com (in the case of documents filed by C1) and on OZRK's website at http://www.bankozarks.com under the Investor Relations tab (in the case of documents filed by OZRK).

C1 and OZRK, and certain of their respective directors, executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies from the shareholders of C1 in respect of the proposed merger transaction.   Certain information about the directors and executive officers of C1 is set forth in its Annual Report on Form 10-K for the year ended December 31, 2014, which was filed with the SEC on February 20, 2015, its proxy statement for its 2015 annual meeting of shareholders, which was filed with the SEC on March 10, 2015, and its Current Reports on Form 8-K, which were filed with the SEC on July 1, 2015 and September 14, 2015.  Certain information about the directors and executive officers of OZRK is set forth in its Annual Report on Form 10-K for the year ended December 31, 2014, which was filed with the SEC on February 27, 2015 and its proxy statement for its 2015 annual meeting of shareholders, which was filed with the SEC on March 25, 2015.  Other information regarding the participants in the proxy solicitations and a description of their direct and indirect interests, by security holdings or otherwise, will be included in the proxy statement/prospectus and other relevant documents filed with the SEC when they become available.

C1 Financial, Inc.
Generally Accepted Accounting Principles (GAAP) Reconciliation and
  Explanation of Non-GAAP Financial Measures
(In thousands, except per share and employee data)

Some of the financial measures included in this earnings release are not measures of financial performance recognized by GAAP. We believe these non-GAAP financial measures provide useful information to management and investors that is supplementary to our financial condition and results of operations computed in accordance with GAAP; however, we acknowledge that our non-GAAP financial measures have a number of limitations. As such, you should not view these disclosures as a substitute for results determined in accordance with GAAP, and they are not necessarily comparable to non-GAAP measures that other companies use. The following tables provide a more detailed analysis of these non-GAAP financial measures.

Definitions of Non-GAAP financial measures

Allowance for loan losses plus performing loans discount to total loans receivable adds the remaining discount on acquired performing loans to the allowance for loan losses to determine the total reserves and loan discounts established against our loans.  Our management believes that this metric provides useful information for investors to analyze the overall level of reserves in banks that have completed acquisitions with no allowance carryover.

Efficiency ratio is defined as total noninterest expense divided by the sum of taxable-equivalent net interest income and noninterest income.  Noninterest income is adjusted for nonrecurring gains and losses on sales of securities.  This ratio is important to investors looking for a measure of efficiency in the Company's productivity measured by the amount of revenue generated for each dollar spent.

Revenue per average number of employees is annualized total interest income and total noninterest income divided by the average number of employees during the period and measures the Company's productivity by calculating the average amount of revenue generated per employee.  Average assets per average number of employees is average assets divided by the average number of employees during the period and measures the average value of assets per employee.

Tangible stockholders' equity is defined as total equity reduced by goodwill and other intangible assets.  Tangible book value per share is tangible stockholders' equity divided by total common shares outstanding.  This measure is important to investors interested in changes from period-to-period in book value per share exclusive of changes in intangible assets. We have not considered loan servicing rights as an intangible asset for purposes of this calculation.

Adjusted yield earned on loans is our yield on loans after excluding loan accretion from our acquired loan portfolio.  Our management uses this metric to better assess the impact of purchase accounting on yield on loans, as the effect of loan discounts accretion is expected to decrease as the acquired loans mature or roll off of our balance sheet.

Adjusted rate paid on total deposits is our cost of deposits after excluding amortization of premiums for acquired time deposits.  Our management uses this metric to better assess the impact of purchase accounting on cost of deposits, as the effect of amortization of premiums related to deposits is expected to decrease as the acquired deposits mature or roll off of our balance sheet.

Adjusted net interest margin is net interest margin after excluding loan accretion from the acquired loan portfolio and amortization of premiums for acquired time deposits and Federal Home Loan Bank advances.  Our management uses this metric to better assess the impact of purchase accounting on net interest margin, as the effect of loan discounts accretion and amortization of premiums related to deposits or borrowings is expected to decrease as the acquired loans and deposits mature or roll off of our balance sheet.

Average excess cash represents the cash and cash equivalents in excess of our minimum liquidity level (defined as 10% of average total deposits plus borrowings due in one year or less), minus Company estimated short-term deposits. In 2015, based on an historical analysis, we changed our methodology for estimating short-term deposits, which reduced the results beginning in 1Q15.

Tangible equity to tangible assets is defined as total equity reduced by goodwill and other intangible assets, divided by total assets reduced by goodwill and other intangible assets.  This measure is important to investors interested in relative changes from period-to-period in total equity and total assets, each exclusive of changes in intangible assets.  We have not considered loan servicing rights as an intangible asset for purposes of this calculation.

SOURCE C1 Financial, Inc.