C1 Financial, Inc. - FORM 10-Q

Attached files

file	filename
EX-31.1 - EXHIBIT 31.1 - C1 Financial, Inc.	v437353_ex31-1.htm
EX-32.1 - EXHIBIT 32.1 - C1 Financial, Inc.	v437353_ex32-1.htm
EX-31.2 - EXHIBIT 31.2 - C1 Financial, Inc.	v437353_ex31-2.htm
EX-32.2 - EXHIBIT 32.2 - C1 Financial, Inc.	v437353_ex32-2.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2016.

¨ 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 001-36595

C1 FINANCIAL, INC.

(Exact name of registrant as specified in its charter)

Florida		46-4241720
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

100 5th Street South		33701
St. Petersburg, Florida		(Zip Code)
(Address of principal executive offices)

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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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

Large accelerated filer ¨	Accelerated filer x
Non-accelerated filer ¨ (Do not check if a smaller reporting company)	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

Indicate the number of shares outstanding of the issuer’s common stock, par value $1.00 per share, as of May 9, 2016: 16,100,966.

C1 FINANCIAL, INC. AND SUBSIDIARIES
INDEX

	Page
Part I Financial Information	2
Item 1. Financial Statements	2
Unaudited Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015	2
Unaudited Consolidated Statements of Income - Three Months Ended March 31, 2016 and 2015	3
Unaudited Consolidated Statements of Comprehensive Income - Three Months Ended March 31, 2016 and 2015	4
Unaudited Consolidated Statements of Changes in Stockholders’ Equity - Three Months Ended March 31, 2016 and 2015	5
Unaudited Consolidated Statements of Cash Flows - Three Months Ended March 31, 2016 and 2015	6
Notes to Unaudited Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3. Quantitative and Qualitative Disclosure About Market Risk	49
Item 4. Controls and Procedures.	50
Part II Other Information	51
Item 1. Legal Proceedings	51
Item 1A. Risk Factors	51
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	52
Item 3. Defaults Upon Senior Securities	52
Item 4. Mine Safety Disclosures	52
Item 5. Other Information	52
Item 6. Exhibits	52
Signatures	53
Exhibit Index	54

Forward-Looking Statements

We have made statements under the captions “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in other sections of this Quarterly Report on Form 10-Q that are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or “may,” the negative of these terms and other comparable terminology. In addition, forward-looking statements in this Quarterly Report on Form 10-Q include information regarding our proposed acquisition by Bank of the Ozarks, Inc. (“OZRK”), the potential effects of the pending acquisition on our business and operations prior to the consummation thereof, the effects on the Company if the acquisition is not consummated and information regarding the combined operations and business of OZRK and C1 Financial, Inc. (“C1 Financial”) following the acquisition, if consummated. These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, may include projections of our future financial performance, our anticipated growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events.

Any or all of our forward-looking statements in this Quarterly Report on Form 10-Q may turn out to be inaccurate. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs.

There are a number of potential factors, risks and uncertainties that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements, whether with respect to us as a stand-alone company or the combined company, if the merger with OZRK is consummated, including the following:

OZRK and C1 Financial’s businesses may not be combined successfully, or such combination may take longer to accomplish than expected;

the diversion of management’s time on transaction related issues;

regulatory approvals of the merger may not be obtained, or adverse regulatory conditions may be imposed in connection with regulatory approvals of the merger;

other closing conditions may not be satisfied on the expected terms, schedule, or at all, and other delays in closing the merger may occur;

changes in general economic and financial market conditions;

changes in the regulatory environment, economic conditions generally and in the financial services industry;

changes in the economy affecting real estate values;

our ability to achieve loan and deposit growth;

projected population and income growth in our 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

those other factors and risks described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in Item 1A of Part I of the Annual Report of C1 Financial on Form 10-K for the year ended December 31, 2015.

Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements, whether as a stand-alone company or of the combined company, if the merger is consummated. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. We are under no duty to update any of these forward-looking statements after the date of this Quarterly Report on Form 10-Q to conform our prior statements to actual results or revised expectations.

Part I
Financial Information

Item 1. Financial Statements

C1 Financial, Inc.

Consolidated Balance Sheets (Unaudited)
March 31, 2016 and December 31, 2015

(Dollars in thousands, except per share data)
(Balance Sheet data at December 31, 2015 is derived from audited financial statements)

	March 31, 2016		December 31, 2015
ASSETS
Cash and cash equivalents	$	183,746	$	137,259
Time deposits in other financial institutions		248		248
Federal Home Loan Bank stock, at cost		11,284		11,668
Loans receivable (net of allowance of $8,146 at March 31, 2016 and $8,031 at December 31, 2015)		1,445,995		1,429,131
Premises and equipment, net		64,570		65,139
Other real estate owned, net		27,557		28,330
Bank-owned life insurance (BOLI)		37,531		37,275
Accrued interest receivable		4,710		4,641
Core deposit intangible, net		643		699
Prepaid expenses		5,493		5,613
Other assets		5,294		5,517
Total assets	$	1,787,071	$	1,725,520

LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Noninterest bearing	$	379,464	$	321,034
Interest bearing		965,382		957,231
Total deposits		1,344,846		1,278,265
Federal Home Loan Bank advances		229,000		242,000
Other liabilities		7,594		4,274
Total liabilities		1,581,440		1,524,539
Commitments and contingencies (Note 7)

Stockholders’ equity
Common stock, par value $1.00; 100,000,000 shares authorized; 16,100,966 shares issued and outstanding at both March 31, 2016 and December 31, 2015		16,101		16,101
Additional paid-in capital		148,122		148,122
Retained earnings		41,408		36,758
Accumulated other comprehensive income		-		-
Total stockholders’ equity		205,631		200,981
Total liabilities and stockholders’ equity	$	1,787,071	$	1,725,520

See accompanying notes to unaudited consolidated financial statements.

C1 Financial, Inc.

Consolidated Income STATEMENTS

(Unaudited)
(Dollars in thousands, except per share data)

	Three Months Ended March 31,
	2016			2015
Interest income
Loans, including fees	$	20,495		$	17,564
Securities		3			3
Federal funds sold and other		286			202
Total interest income		20,784			17,769
Interest expense
Savings and interest-bearing demand deposits		682			602
Time deposits		839			784
Federal Home Loan Bank advances		1,030			808
Total interest expense		2,551			2,194
Net interest income		18,233			15,575
Provision (reversal of provision) for loan losses		(561	)		191
Net interest income after provision for loan losses		18,794			15,384
Noninterest income
Gains on sales of loans		199			230
Service charges and fees		619			567
Gains on sales of other real estate owned, net		307			348
Bank-owned life insurance		256			92
Other noninterest income		341			365
Total noninterest income		1,722			1,602
Noninterest expense
Salaries and employee benefits		5,386			5,217
Occupancy expense		1,231			1,212
Furniture and equipment		724			756
Regulatory assessments		462			361
Network services and data processing		1,199			1,084
Printing and office supplies		66			58
Postage and delivery		53			84
Advertising and promotion		859			826
Other real estate owned related expense, net		359			593
Other real estate owned – valuation allowance expense		14			31
Amortization of intangible assets		55			83
Professional fees		779			698
Loan collection expenses		103			84
Merger related expense		585			-
Other noninterest expense		723			748
Total noninterest expense		12,598			11,835
Income before income taxes		7,918			5,151
Income tax expense		3,268			1,977
Net income	$	4,650		$	3,174
Earnings per common share:
Basic	$	0.29		$	0.20
Diluted	$	0.29		$	0.20

See accompanying notes to unaudited consolidated financial statements.

C1 Financial, Inc.

Consolidated Statements of Comprehensive Income

(Unaudited)
(Dollars in thousands)

	Three Months Ended March 31,
	2016		2015
Net income	$	4,650	$	3,174
Other comprehensive income:
Unrealized gains/losses on available-for-sale securities:
Unrealized holding gains arising during the period		-		-
Reclassification adjustments for gains included in net income*		-		-
Tax effect*		-		-
Total other comprehensive income, net of tax		-		-
Comprehensive income	$	4,650	$	3,174

Amounts for realized gains on available-for-sale securities are included in gains on sales of securities in the consolidated income statements. Income taxes associated with the unrealized holding gains arising during the period, net of the reclassification adjustments for gains included in net income were $0 for both the three months ended March 31, 2016 and 2015, respectively. The amounts related to income taxes on gains included in net income are included in income tax expense in the consolidated income statements.

See accompanying notes to unaudited consolidated financial statements.

C1 Financial, Inc.

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)
Three Months Ended March 31, 2016 and 2015

(Dollars in thousands)

	Common Stock		Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
Balance at January 1, 2015	$	16,101	$	148,122	$	22,415	$	-	$	186,638
Net income		-		-		3,174		-		3,174
Other comprehensive income		-		-		-		-		-
Balance at March 31, 2015	$	16,101	$	148,122	$	25,589	$	-	$	189,812

Balance at January 1, 2016	$	16,101	$	148,122	$	36,758	$	-	$	200,981
Net income		-		-		4,650		-		4,650
Other comprehensive income		-		-		-		-		-
Balance at March 31, 2016	$	16,101	$	148,122	$	41,408	$	-	$	205,631

See accompanying notes to unaudited consolidated financial statements.

C1 Financial, Inc.

Consolidated Statements of Cash Flows

(Unaudited)
(Dollars in thousands)

	Three Months Ended March 31,
	2016			2015
Cash flows from operating activities
Net income	$	4,650		$	3,174
Adjustments to reconcile net income to net cash from operating activities:
Provision (reversal of provision) for loan losses		(561	)		191
Depreciation		856			791
Net accretion of purchase accounting adjustments		(317	)		(518	)
Accretion of loan discount		(52	)		(58	)
Amortization of other intangible assets		55			83
Increase in other real estate owned valuation allowance		14			31
Increase in cash surrender value of BOLI		(256	)		(92	)
Net change in deferred income tax expense		78			23
Gains on sales of loans		(199	)		(230	)
Gains on sales of other real estate owned, net		(307	)		(348	)
Net change in other assets and liabilities:
Accrued interest receivable and other assets		196			1,009
Other liabilities		3,362			623
Net cash from operating activities		7,519			4,679
Cash flows from investing activities
Loan originations, net of repayments		(17,985	)		(68,567	)
Proceeds from loans sold		2,021			1,983
Proceeds from sales of other real estate owned		1,254			5,140
Purchases of Federal Home Loan Bank stock		(169	)		(1,992	)
Proceeds from sales of Federal Home Loan Bank stock		553			1,227
Purchases of premises and equipment		(287	)		(1,689	)
Net cash from investing activities		(14,613	)		(63,898	)
Cash flows from financing activities
Net change in deposits		66,581			32,340
Repayment of Federal Home Loan Bank advances		(13,000	)		(16,000	)
Proceeds from Federal Home Loan Bank advances		-			40,000
Net cash from financing activities		53,581			56,340
Net change in cash and cash equivalents		46,487			(2,879	)
Cash and cash equivalents at beginning of the period		137,259			185,703
Cash and cash equivalents at end of the period	$	183,746		$	182,824
Supplemental information:
Cash paid during the period for interest	$	2,530		$	2,202
Cash paid during the period for income taxes		20			2,229
Non-cash items:
Transfers from loans to other real estate owned		188			228

See accompanying notes to unaudited consolidated financial statements.

C1 Financial, Inc.

NOTES TO Consolidated FINANCIAL Statements

(Unaudited)
March 31, 2016 and 2015

(Dollars in thousands, except per share data)

NOTE 1 – BASIS OF PRESENTATION

Nature of Operations and Principles of Consolidation: The consolidated financial statements as of and for the three months ended March 31, 2016 and 2015 include C1 Financial, Inc. (“C1 Financial”) and its wholly owned subsidiary, C1 Bank (the “Bank”), together referred to as the “Company”.

C1 Bank is a state chartered bank and is subject to the regulations of certain government agencies. The Bank provides a variety of banking services to individuals through its 32 banking centers and one loan production office, which are located in ten counties (Pinellas, Hillsborough, Pasco, Manatee, Sarasota, Charlotte, Lee, Miami-Dade, Broward and Orange). Its primary deposit products are checking, money market, savings, and term certificate accounts, and its primary lending products are commercial real estate loans, residential real estate loans, commercial loans, and consumer loans. Substantially all loans are secured by specific items of collateral including commercial and residential real estate, business assets and consumer assets. There are no significant concentrations of loans to any one industry or customer. However, the customers’ ability to repay their loans is dependent on real estate values and general economic conditions.

The consolidated financial information included herein as of and for the three months ended March 31, 2016 and 2015 is unaudited. Accordingly, it does not include all of the information and footnotes required by U.S. Generally Accepted Accounting Principles (“GAAP”) for complete financial statements. However, such information reflects all adjustments consisting of normal recurring accruals which are, in the opinion of management, necessary for a fair statement of the financial condition and results of operations for the interim periods, with all significant intercompany transactions eliminated. Certain account reclassifications have been made to the 2015 financial statements in order to conform to classifications used in the current year. Reclassifications had no effect on 2015 net income or stockholders’ equity. The results for the three months ended March 31, 2016 are not indicative of annual results. The accompanying unaudited consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The December 31, 2015 consolidated balance sheet was derived from the Company’s December 31, 2015 audited Consolidated Financial Statements.

Earnings per share: Basic earnings per common share is net income divided by the weighted average number of common shares outstanding during the period. Diluted earnings per share includes the effect of any potentially dilutive common stock equivalents (i.e., outstanding stock options). Earnings per common share is restated for all stock splits and stock dividends through the date of the issuance of the financial statements.

NOTE 2 – INVESTMENT SECURITIES

The Bank had no securities available for sale as of March 31, 2016 and December 31, 2015 due to the decision to sell all marketable securities in the Bank’s portfolio in 2013. This decision was based on the assessment that improving economic conditions could begin to put upward pressure on interest rates. This action eliminated the mark-to-market risk that holding the securities would have posed in a rising interest rate environment and allowed the excess funds to be redeployed into loans.

NOTE 3 – LOANS

The following table provides information on the loan portfolio by portfolio segment at the dates indicated:

	March 31, 2016			December 31, 2015
Real estate
Residential	$	295,925		$	303,644
Commercial		782,193			783,774
Construction		223,562			197,070
Total real estate		1,301,680			1,284,488
Commercial		61,019			63,635
Consumer		97,054			94,521
Total loans, gross		1,459,753			1,442,644
Less:
Net deferred loan fees		(5,612	)		(5,482	)
Allowance for loan losses		(8,146	)		(8,031	)
Total loans, net	$	1,445,995		$	1,429,131

The Bank has divided the loan portfolio into various portfolio segments, each with different risk characteristics and methodologies for assessing risk. The portfolio segments identified are as follows:

Residential real estate loans are typically secured by 1-4 family residential properties located mostly in Florida and are underwritten in accordance with policies set forth and approved by the Board of Directors, including repayment capacity and source, value of the underlying property, credit history and stability. Repayment of residential real estate loans is primarily dependent upon the personal income or business income generated by the secured rental property of the borrowers (in the case of investment properties), which can be impacted by the economic conditions in their market area or, in the case of loans to foreign borrowers, their country of origin from which their source of income originates.

Commercial real estate loans are typically segmented into classes such as office buildings and condominiums, retail buildings and shopping centers, warehouse and other. Commercial real estate loans are secured by the subject property and are underwritten based upon standards set forth in the Bank’s policies approved by the Board of Directors. Such standards include, among other factors, loan to value limits, cash flow and debt service coverage, and general creditworthiness of the obligors.

Construction loans to borrowers are extended for the purpose of financing the construction of owner occupied and nonowner occupied properties. These loans are categorized as construction loans during the construction period, later converting to commercial or residential real estate loans after the construction is complete and amortization of the loan begins. Construction loans are approved based on an analysis of the borrower and guarantor, the viability of the project and on an acceptable percentage of the appraised value of the property securing the loan. Construction loan funds are disbursed periodically based on the percentage of construction completed.

Commercial loans are primarily underwritten on the basis of the borrowers’ ability to service such debt from income. When possible, commercial loans are secured by real estate. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. As a general practice, collateral is taken as a security interest in any available real estate, equipment, or other chattel, although loans may also be made on an unsecured basis. Collateralized working capital loans typically are secured by short-term assets whereas long-term loans are primarily secured by long-term assets.

Consumer loans are extended for various purposes. This segment also includes home improvement loans, lines of credit, personal loans, and deposit account collateralized loans. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Loans to consumers are extended after a credit evaluation, including the creditworthiness of the borrower, the purpose of the credit, and the primary and secondary sources of repayment.

The following tables present the activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2016 and 2015:

Three Months Ended March 31, 2016	Residential Real Estate			Commercial Real Estate			Construction			Commercial			Consumer			Total
Allowance for loan losses:
Beginning balance	$	1,763		$	4,007		$	1,206		$	437		$	618		$	8,031

Loans charged-off		(15	)		-			(1	)		(34	)		(4	)		(54	)
Recoveries		55			469			124			46			36			730
Net recoveries		40			469			123			12			32			676

Provision (reversal of provision) for loan losses		(88	)		(468	)		8			(34	)		21			(561	)
Ending balance	$	1,715		$	4,008		$	1,337		$	415		$	671		$	8,146

Three Months Ended March 31, 2015	Residential Real Estate		Commercial Real Estate			Construction		Commercial		Consumer			Total
Allowance for loan losses:
Beginning balance	$	820	$	3,423		$	416	$	373	$	292		$	5,324

Loans charged-off		-		(1	)		-		-		(3	)		(4	)
Recoveries		69		112			23		33		39			276
Net recoveries		69		111			23		33		36			272

Provision (reversal of provision) for loan losses		41		(56	)		40		24		142			191
Ending balance	$	930	$	3,478		$	479	$	430	$	470		$	5,787

The following table provides the allocation of the allowance for loan losses by portfolio segment at March 31, 2016:

March 31, 2016	Residential Real Estate		Commercial Real Estate		Construction		Commercial		Consumer		Total
Specific reserves:
Impaired loans	$	151	$	182	$	125	$	72	$	-	$	530
Purchased credit impaired loans		73		48		4		-		-		125
Total specific reserves		224		230		129		72		-		655
General reserves		1,491		3,778		1,208		343		671		7,491
Total	$	1,715	$	4,008	$	1,337	$	415	$	671	$	8,146

Loans:
Individually evaluated for impairment	$	4,242	$	23,432	$	177	$	582	$	10	$	28,443
Purchased credit impaired loans		5,023		17,042		1,124		176		61		23,426
Collectively evaluated for impairment		286,660		741,719		222,261		60,261		96,983		1,407,884
Total ending loans balance	$	295,925	$	782,193	$	223,562	$	61,019	$	97,054	$	1,459,753

The following table provides the allocation of the allowance for loan losses by portfolio segment at December 31, 2015:

December 31, 2015	Residential Real Estate		Commercial Real Estate		Construction		Commercial		Consumer		Total
Specific reserves:
Impaired loans	$	156	$	189	$	125	$	77	$	-	$	547
Purchased credit impaired loans		72		48		4		-		-		124
Total specific reserves		228		237		129		77		-		671
General reserves		1,535		3,770		1,077		360		618		7,360
Total	$	1,763	$	4,007	$	1,206	$	437	$	618	$	8,031

Loans:
Individually evaluated for impairment	$	3,550	$	23,304	$	177	$	616	$	10	$	27,657
Purchased credit impaired loans		5,086		17,885		1,171		179		62		24,383
Collectively evaluated for impairment		295,008		742,585		195,722		62,840		94,449		1,390,604
Total ending loans balance	$	303,644	$	783,774	$	197,070	$	63,635	$	94,521	$	1,442,644

The following table presents loans individually evaluated for impairment by portfolio segment as of March 31, 2016 and December 31, 2015. The difference between the unpaid principal balance and the recorded investment is the amount of partial charge-offs that have been taken. The unpaid principal balance and recorded investment of commercial real estate loans secured by farmland were primarily related to two commercial real estate loans secured by Brazilian farmland.

	March 31, 2016						December 31, 2015
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated

With no related allowance recorded:
Residential real estate	$	3,856	$	3,747	$	-	$	3,079	$	2,970	$	-
Commercial real estate
Multifamily		-		-		-		-		-		-
Owner occupied		3,074		2,758		-		2,886		2,595		-
Nonowner occupied		2,071		2,045		-		2,071		2,071		-
Secured by farmland		17,458		17,416		-		17,458		17,416		-
Construction		-		-		-		-		-		-
Commercial		636		439		-		639		440		-
Consumer		11		10		-		11		10		-
With allowance recorded:
Residential real estate		523		495		151		610		580		156
Commercial real estate
Multifamily		-		-		-		-		-		-
Owner occupied		1,280		1,213		182		1,287		1,222		189
Nonowner occupied		-		-		-		-		-		-
Secured by farmland		-		-		-		-		-		-
Construction		177		177		125		177		177		125
Commercial		151		143		72		204		176		77
Consumer		-		-		-		-		-		-

Total	$	29,237	$	28,443	$	530	$	28,422	$	27,657	$	547

Average impaired loans and related interest income for the three months ended March 31, 2016 and 2015 were as follows:

	Three Months Ended March 31, 2016						Three Months Ended March 31, 2015
	Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized		Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized
With no related allowance recorded:
Residential real estate	$	3,775	$	-	$	-	$	1,300	$	-	$	-
Commercial real estate
Multifamily		-		-		-		-		-		-
Owner occupied		2,770		3		-		3,861		-		-
Nonowner occupied		2,045		-		-		548		-		-
Secured by farmland		17,416		-		-		143		-		-
Construction		-		-		-		130		-		-
Commercial		441		-		-		732		-		-
Consumer		10		-		-		2		-		-
With allowance recorded:
Residential real estate		496		-		-		539		-		-
Commercial real estate
Multifamily		-		-		-		-		-		-
Owner occupied		1,216		5		-		684		4		-
Nonowner occupied		-		-		-		-		-		-
Secured by farmland		-		-		-		-		-		-
Construction		177		-		-		-		-		-
Commercial		147		1		-		223		1		-
Consumer		-		-		-		-		-		-

Total	$	28,493	$	9	$	-	$	8,162	$	5	$	-

The following table presents the recorded investment in nonaccrual and loans past due over 90 days still on accrual as of March 31, 2016 and December 31, 2015:

	March 31, 2016				December 31, 2015
	Nonaccrual		Loans Past Due Over 90 Days Still Accruing		Nonaccrual		Loans Past Due Over 90 Days Still Accruing
Residential real estate	$	5,087	$	-	$	4,763	$	-
Commercial real estate		30,473		17,055		30,457		-
Construction		177		-		177		-
Commercial		537		-		544		-
Consumer		10		-		10		-
Total	$	36,284	$	17,055	$	35,951	$	-

The increase in loans past due over 90 days and still accruing was related to one loan that is well-secured by Brazilian farmland and on which we continue to collect payments (a payment was received after quarter end, which brought the loan below 90 days past due). The reported amounts as of March 31, 2016 and December 31, 2015 included nonaccrual purchased credit impaired loans of $8,395 and $8,880, respectively. Purchased credit impaired loans are placed on nonaccrual and accounted for under the cost recovery method when repayment is expected through foreclosure or repossession of the collateral, and the timing of foreclosure or repossession cannot be estimated with reasonable certainty. These loans are measured for impairment under the Bank’s policy for measuring impairment on collateral dependent impaired loans that were originated by the Bank and included in impaired loans if there is a subsequent decline in the value of the collateral.

The following table presents the aging of the recorded investment in past due loans as of March 31, 2016:

March 31, 2016	30 – 59 Days Past Due		60 – 89 Days Past Due		Greater than 89 Days Past Due		Total Past Due		Loans Not Past Due		Total
Residential real estate	$	2,222	$	265	$	4,220	$	6,707	$	289,218	$	295,925
Commercial real estate
Multifamily		-		-		-		-		31,311		31,311
Owner occupied		2,909		380		5,487		8,776		224,790		233,566
Nonowner occupied		-		786		2,179		2,965		464,053		467,018
Secured by farmland		-		-		34,470		34,470		15,828		50,298
Construction		-		-		177		177		223,385		223,562
Commercial		28		14		533		575		60,444		61,019
Consumer		139		16		-		155		96,899		97,054
Total	$	5,298	$	1,461	$	47,066	$	53,825	$	1,405,928	$	1,459,753

The shift during the first quarter from 60-89 days past due to greater than 89 days past due was primarily related to three commercial real estate loans secured by Brazilian farmland, two of which are on nonaccrual and the third is still accruing since we continue to collect payments on this well-secured credit.

The following table presents the aging of the recorded investment in past due loans as of December 31, 2015:

December 31, 2015	30 – 59 Days Past Due		60 – 89 Days Past Due		Greater than 89 Days Past Due		Total Past Due		Loans Not Past Due		Total
Residential real estate	$	464	$	118	$	3,525	$	4,107	$	299,537	$	303,644
Commercial real estate
Multifamily		-		-		-		-		33,950		33,950
Owner occupied		2,913		1,075		4,549		8,537		215,877		224,414
Nonowner occupied		3,043		799		2,211		6,053		467,323		473,376
Secured by farmland		-		34,349		143		34,492		17,542		52,034
Construction		424		-		177		601		196,469		197,070
Commercial		34		76		351		461		63,174		63,635
Consumer		141		-		-		141		94,380		94,521
Total	$	7,019	$	36,417	$	10,956	$	54,392	$	1,388,252	$	1,442,644

Troubled Debt Restructurings

The following table is a summary of troubled debt restructurings that were performing in accordance with the restructured terms at March 31, 2016 and December 31, 2015:

	March 31, 2016				December 31, 2015
	Number of Loans		Recorded Investment		Number of Loans		Recorded Investment
Residential real estate		-	$	-		-	$	-
Commercial real estate
Multifamily		-		-		-		-
Owner occupied		1		508		1		513
Nonowner occupied		1		365		1		367
Secured by farmland		-		-		-		-
Construction		-		-		-		-
Commercial		-		-		-		-
Consumer		1		73		1		74
Total		3	$	946		3	$	954

As of March 31, 2016 and December 31, 2015, the Bank had no nonaccruing troubled debt restructurings and was not committed to lend any additional amounts to customers with outstanding loans that were classified as troubled debt restructurings.

There were no loans modified as troubled debt restructurings during the three months ended March 31, 2016 and 2015.

There were no troubled debt restructurings that defaulted during the three months ended March 31, 2016 and 2015. A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.

Credit Quality Indicators

The Bank categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Bank analyzes loans individually by classifying the loans as to credit risk. This analysis is performed at least annually. The Bank uses the following definitions for risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution's credit position at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. Loans not meeting the criteria above include homogeneous loans, which include residential real estate and consumer loans. The credit quality indicators used for loans not meeting the criteria above are payment status and historical payment experience. As of March 31, 2016 and December 31, 2015, loans by risk category were as follows:

March 31, 2016	Pass		Special Mention		Substandard		Doubtful		Total
Residential real estate	$	284,997	$	3,809	$	7,119	$	-	$	295,925
Commercial real estate
Multifamily		31,311		-		-		-		31,311
Owner occupied		213,112		11,929		8,525		-		233,566
Nonowner occupied		460,337		1,639		5,042		-		467,018
Secured by farmland		15,412		17,470		17,416		-		50,298
Construction		222,021		853		688		-		223,562
Commercial		53,887		6,550		582		-		61,019
Consumer		96,975		69		10		-		97,054
Total	$	1,378,052	$	42,319	$	39,382	$	-	$	1,459,753

December 31, 2015	Pass		Special Mention		Substandard		Doubtful		Total
Residential real estate	$	294,790	$	1,683	$	7,171	$	-	$	303,644
Commercial real estate
Multifamily		33,950		-		-		-		33,950
Owner occupied		203,155		12,278		8,981		-		224,414
Nonowner occupied		462,288		5,976		5,112		-		473,376
Secured by farmland		17,126		17,492		17,416		-		52,034
Construction		195,468		877		725		-		197,070
Commercial		56,364		6,655		616		-		63,635
Consumer		94,381		130		10		-		94,521
Total	$	1,357,522	$	45,091	$	40,031	$	-	$	1,442,644

Special mention and substandard commercial real estate loans secured by farmland were primarily related to commercial real estate loans secured by Brazilian farmland.

The Bank acquired loans through the acquisitions of First Community Bank of America, The Palm Bank and First Community Bank of Southwest Florida for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of these purchased credit impaired loans at March 31, 2016 and December 31, 2015 was approximately $23,301 and $24,259, respectively.

The Bank maintained an allowance for loan losses of $125 and $124 at March 31, 2016 and December 31, 2015, respectively, for loans acquired with deteriorated quality. During the three months ended March 31, 2016 and 2015, the Bank accreted $90 and $141, respectively, into interest income on these loans. The remaining accretable discount was $1,714 at March 31, 2016 and $1,804 at December 31, 2015. The Bank did not transfer any nonaccretable discount on these loans during the periods presented.

NOTE 4 – FAIR VALUES

Fair value is the exchange price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels that may be used to measure fair value:

Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). Discounted cash flows are calculated using spread to swap and LIBOR curves that are updated to incorporate loss severities, volatility, credit spread and optionality. During times when trading is more liquid, broker quotes are used (if available) to validate the model. Rating agency and industry research reports as well as defaults and deferrals on individual securities are reviewed and incorporated into the calculations. The fair value of investment securities available for sale is considered a Level 2 in the fair value hierarchy and is measured on a recurring basis.

The Company had no assets or liabilities measured at fair value on a recurring basis at March 31, 2016 and December 31, 2015.

The fair values of impaired loans with specific allocations of the allowance for loan losses and other real estate owned are generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. For the commercial real estate impaired loans and other real estate owned, appraisers may use either a single valuation approach or a combination of approaches such as comparative sales, cost or the income approach. A significant unobservable input in the income approach is the estimated income capitalization rate for a given piece of collateral. At March 31, 2016 and December 31, 2015, the range of capitalization rates utilized to determine the fair value of the underlying collateral ranged from 8.0% to 12.0%. Adjustments to comparable sales may be made by the appraiser to reflect local market conditions or other economic factors and may result in changes in the fair value of a given asset over time. As such, the fair values of impaired loans with specific allocations of the allowance for loan losses and other real estate owned with an associated valuation allowance are considered a Level 3 in the fair value hierarchy and are measured on a nonrecurring basis.

The following tables present assets reported on the balance sheet at their fair value by level within the fair value hierarchy as of March 31, 2016 and December 31, 2015. As required by Accounting Standards Codification (“ASC”) 820, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

The fair value of assets measured on a nonrecurring basis was as follows at March 31, 2016:

	March 31, 2016 Using:
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Fair Value Measured on a Nonrecurring Basis:
Impaired loans
Residential real estate	$	-	$	-	$	344
Commercial real estate		-		-		1,031
Construction		-		-		52
Commercial		-		-		71
Consumer		-		-		-
Total impaired loans		-		-		1,498
Other real estate owned
Residential		-		-		940
Commercial		-		-		7,149
Total other real estate owned		-		-		8,089
Total	$	-	$	-	$	9,587

Impaired loans, which had a specific allowance for loan losses allocated, had a fair value of $1,498 (recorded investment of $2,028 with a valuation allowance of $530) at March 31, 2016, which reflected a reversal of provision for loan losses of $12 for the three months ended March 31, 2016.

Other real estate owned, which is measured at fair value less costs to sell, had a net carrying amount of $8,089 (recorded investment of $10,925, net of a valuation allowance of $2,836) at March 31, 2016, which reflected write-downs of $14 for the three months ended March 31, 2016.

The fair value of assets measured on a nonrecurring basis was as follows at December 31, 2015:

	December 31, 2015 Using:
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Fair Value Measured on a Nonrecurring Basis:
Impaired loans
Residential real estate	$	-	$	-	$	424
Commercial real estate		-		-		1,033
Construction		-		-		52
Commercial		-		-		99
Consumer		-		-		-
Total impaired loans		-		-		1,608
Other real estate owned
Residential		-		-		1,336
Commercial		-		-		7,354
Total other real estate owned		-		-		8,690
Total	$	-	$	-	$	10,298

Impaired loans, which had a specific allowance for loan losses allocated, had a fair value of $1,608 (recorded investment of $2,155 with a valuation allowance of $547) at December 31, 2015, which reflected a provision for loan losses of $37 for the year ended December 31, 2015.

Other real estate owned had a net carrying amount of $8,690 (recorded investment of $11,779, net of a valuation allowance of $3,089) at December 31, 2015, which reflected write-downs of $374 for the year ended December 31, 2015.

The following methods and assumptions were used to estimate the fair value of each class of financial assets and liabilities for which it is practicable to estimate that value. These financial assets and liabilities are reported in the Company’s consolidated balance sheets at their carrying amounts. Fair value methods and assumptions are periodically evaluated by the Company.

Cash and cash equivalents – For these short-term highly liquid instruments, the carrying amount is a reasonable estimate of fair value.

Investment securities – Fair values for investment securities, excluding Federal Home Loan Bank stock, are discussed above. It was not practicable to determine the fair value of Federal Home Loan Bank stock due to restrictions placed on its transferability.

Loans – The fair value measurement of certain impaired loans is discussed above. For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. Fair values for all other loans are estimated using discounted cash flow analyses, using the interest rates currently being offered for loans with similar terms to borrowers with similar credit quality. An overall valuation adjustment was made for specific credit risks as well as general portfolio credit risk. The methods utilized to estimate the fair value do not necessarily represent an exit price.

Accrued interest receivable and payable – The carrying amount of accrued interest receivable and payable approximates fair value due to the short-term nature of these financial instruments.

Deposits – The fair value of demand deposits, savings accounts and certain money market deposits is the amount payable upon demand at March 31, 2016 and December 31, 2015, resulting in a Level 1 classification in the fair value hierarchy. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities, resulting in a Level 2 classification in the fair value hierarchy.

Short-term borrowings – Rates currently available to the Company for borrowings with similar terms and remaining maturities are used to estimate the fair value of existing borrowings by discounting future cash flows.

Long-term debt – Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate the fair value of existing debt by discounting future cash flows.

Commitments to extend credit and standby letters of credit – The value of the unrecognized financial instruments is estimated based on the related deferred fee income associated with the commitments, which is not material to the Company's financial statements at March 31, 2016 and December 31, 2015.

The estimated fair values of the Bank's financial assets and liabilities at March 31, 2016 and December 31, 2015 approximated as follows:

			Fair Value Measurement at March 31, 2016 Using:
	Carrying amount		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	183,746	$	183,746	$	-	$	-
Loans, net		1,445,995		-		-		1,458,639
Accrued interest receivable		4,710		-		-		4,710
Financial liabilities
Deposits	$	1,344,846	$	1,054,160	$	292,753	$	-
Federal Home Loan Bank advances		229,000		-		233,614		-
Accrued interest payable		208		-		208		-

			Fair Value Measurement at December 31, 2015 Using:
	Carrying amount		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	137,259	$	137,259	$	-	$	-
Loans, net		1,429,131		-		-		1,431,551
Accrued interest receivable		4,641		-		-		4,641
Financial liabilities
Deposits	$	1,278,265	$	998,189	$	280,570	$	-
Federal Home Loan Bank advances		242,000		-		243,460		-
Accrued interest payable		145		-		145		-

NOTE 5 – EARNINGS PER COMMON SHARE

Basic earnings per common share is net income divided by the weighted average number of shares outstanding during the period. Diluted earnings per share includes the effect of any potentially dilutive common stock equivalents (i.e., outstanding stock options). There were no antidilutive common stock equivalents during the periods presented.

The following table provides information on the calculation of earnings per common share for the three months ended March 31, 2016 and 2015, respectively:

	Three Months Ended March 31,
	2016		2015
Basic
Net Income	$	4,650	$	3,174

Weighted average shares of common stock outstanding		16,100,966		16,100,966

Basic earnings per common share	$	0.29	$	0.20

Diluted
Net Income	$	4,650	$	3,174

Weighted average shares of common stock outstanding		16,100,966		16,100,966
Add: Dilutive effect of common stock equivalents		-		-

Average shares and dilutive potential common shares		16,100,966		16,100,966

Diluted earnings per common share	$	0.29	$	0.20

NOTE 6 – REGULATORY MATTERS

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies, including the Bank’s primary federal regulator, the Federal Deposit Insurance Corporation (“FDIC”). Failure to meet the minimum regulatory capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators, which if undertaken, could have a direct material effect on the Bank’s financial statements. Under the U.S. Basel III Capital Rules and the regulatory framework for prompt corrective action, the Bank must meet specific capital standards involving quantitative measures of the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and its classification under the prompt corrective action framework are also subject to qualitative judgments by the regulators about components of capital, risk weightings, and other factors.

The U.S. Basel III Capital Rules require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of Total capital, Tier 1 capital and Common Equity Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined), or leverage ratio. In addition, the Company and the Bank are subject to a greater than 2.5 percent Common Equity Tier 1 capital conservation buffer on top of the minimum risk-based capital ratios. The buffer will be phased in over three years beginning January 1, 2016, and the phase-in amount for 2016 is 0.625 percent of risk-weighted assets. Failure to maintain the buffer will result in restrictions on the ability to make capital distributions and to pay discretionary bonuses to executive officers. As of March 31, 2016, management believes that the Company and the Bank met all capital adequacy requirements to which they were subject.

To qualify as well capitalized, the Bank must maintain minimum Total risk-based, Tier 1 risk-based, Common Equity Tier 1 risk-based and Tier 1 leverage capital ratios as set forth in the table below. As of March 31, 2016 and December 31, 2015, the Bank met all capital adequacy requirements to be considered well capitalized. There were no conditions or events since the end of the first quarter of 2016 that management believes have changed the Bank’s classification as well capitalized. There is no threshold for well-capitalized status for bank holding companies.

Certain of our activities are restricted due to commitments entered into with the Federal Reserve by us and certain of our foreign national controlling stockholders, including but not limited to being prohibited from incurring additional debt to any third party without prior approval from the Federal Reserve.

The Company’s and Bank's actual and required capital ratios as of March 31, 2016 and December 31, 2015 were as follows:

	Actual					Required for Capital Adequacy Purposes					Well Capitalized Under Prompt Corrective Action Provision
March 31, 2016	Amount		Ratio			Amount		Ratio (1)			Amount		Ratio
Total capital to risk-weighted assets
C1 Financial, Inc.	$	213,065		13.94	%	$	131,831		8.625	%	$	N/A		N/A
C1 Bank		203,538		13.33	%		131,705		8.625	%		152,702		10.00	%
Tier 1 capital to risk-weighted assets
C1 Financial, Inc.		204,919		13.41	%		101,262		6.625	%		N/A		N/A
C1 Bank		195,392		12.80	%		101,165		6.625	%		122,161		8.00	%
Common equity tier 1 capital to risk-weighted assets
C1 Financial, Inc.		204,919		13.41	%		78,334		5.125	%		N/A		N/A
C1 Bank		195,392		12.80	%		78,260		5.125	%		99,256		6.50	%
Tier 1 capital to average assets
C1 Financial, Inc.		204,919		11.66	%		70,275		4.00	%		N/A		N/A
C1 Bank		195,392		11.13	%		70,216		4.00	%		87,770		5.00	%

(1) Minimum regulatory capital ratios at March 31, 2016 include the applicable minimum risk-based capital ratios and capital conservation buffer.

	Actual					Required for Capital Adequacy Purposes					Well Capitalized Under Prompt Corrective Action Provision
December 31, 2015	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital to risk-weighted assets
C1 Financial, Inc.	$	208,426		13.85	%	$	120,369		8.00	%	$	N/A		N/A
C1 Bank		198,316		13.19	%		120,252		8.00	%		150,315		10.00	%
Tier 1 capital to risk-weighted assets
C1 Financial, Inc.		200,396		13.32	%		90,277		6.00	%		N/A		N/A
C1 Bank		190,286		12.66	%		90,189		6.00	%		120,252		8.00	%
Common equity tier 1 capital to risk-weighted assets
C1 Financial, Inc.		200,396		13.32	%		67,707		4.50	%		N/A		N/A
C1 Bank		190,286		12.66	%		67,642		4.50	%		97,705		6.50	%
Tier 1 capital to average assets
C1 Financial, Inc.		200,396		11.55	%		69,410		4.00	%		N/A		N/A
C1 Bank		190,286		10.97	%		69,376		4.00	%		86,720		5.00	%

NOTE 7 – COMMITMENTS AND CONTINGENCIES

The financial statements do not reflect various commitments and contingent liabilities which arise in the normal course of business and which involve elements of credit risk, interest rate risk and liquidity risk. These commitments and contingent liabilities are commitments to extend credit and standby letters of credit. A summary of these commitments and contingent liabilities is as follows:

March 31, 2016	Fixed		Variable		Total
Unused lines of credit	$	8,311	$	32,022	$	40,333
Standby letters of credit		2,305		182		2,487
Commitments to fund loans		7,525		126,379		133,904
Total	$	18,141	$	158,583	$	176,724

December 31, 2015	Fixed		Variable		Total
Unused lines of credit	$	8,275	$	29,340	$	37,615
Standby letters of credit		2,294		34		2,328
Commitments to fund loans		9,207		127,250		136,457
Total	$	19,776	$	156,624	$	176,400

NOTE 8 - MERGER

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, C1 Financial will merge with and into OZRK with OZRK surviving the merger 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.

Subject to the terms and conditions of the Agreement, each holder of outstanding shares of common stock of C1 Financial will receive shares of common stock of OZRK. The number of OZRK shares to be issued will be determined based on OZRK’s ten day average closing stock price as of the second business day prior to the closing date, subject to a minimum and maximum stock price of $39.79 to $66.31, respectively. The consideration payable to C1 Financial shareholders is subject to downward adjustment on a dollar-for-dollar basis if the net book value of C1 Financial is less than $174 million as of the business day that, subject to adjustment as set forth in the Agreement, is closest to ten calendar days prior to the closing date and is subject to an upward adjustment if certain Brazilian loans of C1 Bank are sold at a price above a specified amount. The potential adjustments described in the immediately preceding sentence are not expected to result in any material change to the consideration payable and are described in the Agreement.

C1 Financial conducted a marketing process to solicit offers for the purchase of certain loans of C1 Bank (the “Brazilian loans”). The marketing process was concluded on March 10, 2016, and no offers for the Brazilian loans were received by C1 Financial in excess of the price to be paid under that certain standby purchase agreement between Marcelo Faria de Lima and OZRK (the “Brazilian standby purchase agreement”). The Agreement provides for an increase in the consideration payable to C1 Financial shareholders in the merger if the Brazilian loans are sold at a price in excess of the price to be paid under the Brazilian standby purchase agreement. (See “The Brazilian Standby Purchase Agreement” in C1 Financial’s definitive proxy statement filed with the SEC on February 1, 2016 (the “C1 Financial Proxy Statement”) for further information.) Based on the results of the marketing process, C1 Financial does not believe that there will be an increase in the consideration payable to C1 Financial shareholders under the Agreement as a result of a sale of the Brazilian loans.

We are subject to various restrictions, such as limits on capital expenditures, loans and investments, under the Agreement with OZRK that apply during the period from November 9, 2015 until the consummation of the merger. For additional information, see “The Merger Agreement” in the C1 Financial Proxy Statement.

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 (which occurred on March 3, 2016) and are described in the Agreement. Although there can be no assurance, the transaction is expected to close in the second quarter of 2016.

Item 2.

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

The following is management’s discussion and analysis of certain significant factors that have affected our financial condition and operating results during the periods included in the accompanying consolidated financial statements, and should be read in conjunction with such financial statements. The following discussion pertains to our historical results on a consolidated basis. However, because we conduct all of our material business operations through the Bank, the discussion and analysis relates to activities primarily conducted at the subsidiary level.

The following discussion should be read in conjunction with the consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q.

Overview

Our name expresses our ideals to put our Clients 1st and our Community 1st. 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 December 31, 2015, we were the 19^th largest bank headquartered in the state of Florida by assets and the 17th largest by equity, having grown both organically and through acquisitions.

We generate most of our revenue from interest on loans. Our primary source of funding for our loans is deposits. Our largest expenses are interest on those deposits and salaries plus related employee benefits. We measure our performance through our net interest margin, return on average assets, and return on average common equity, while maintaining appropriate regulatory leverage and risk-based capital ratios.

Our common stock is listed on the New York Stock Exchange under the symbol “BNK”.

Overview of Recent Financial Performance and Trends

Our financial performance reflects improvements in economic conditions in the areas in which we operate across Florida, the acquisitions we have completed, our progress in restructuring the acquired banks and disposing of classified assets, the implementation of our banking strategy and other general economic and competitive trends in our markets.

Our net interest income was $18.2 million and $15.6 million in the three-month periods ended March 31, 2016 and March 31, 2015, respectively. In the three-month periods ended March 31, 2016 and March 31, 2015, our net income of $4.7 million and $3.2 million, respectively, represented a return on average assets, or ROAA, of 1.06% and 0.82%, respectively, and a return on average equity, or ROAE, of 9.12% and 6.81%, respectively. Our ratio of average equity to average assets in the three-month periods ended March 31, 2016 and March 31, 2015 was 11.64% and 11.99%, respectively. Net income for the three-month period ended March 31, 2016 included after-tax merger related expenses of $585 thousand incurred pursuant to the Agreement with OZRK.

Our assets totaled $1.787 billion and $1.726 billion as of March 31, 2016 and December 31, 2015, respectively. Loans receivable, net, as of March 31, 2016 and December 31, 2015 were $1.446 billion and $1.429 billion, respectively. Total deposits were $1.345 billion and $1.278 billion as of March 31, 2016 and December 31, 2015, respectively.

Critical Accounting Policies and Estimates

To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, our management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ. The allowance for loan losses, fair value of other real estate owned, purchased credit impaired, or PCI, loans, deferred tax assets and fair values of financial instruments are particularly subject to change.

Allowance for Loan Losses

The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required for each loan portfolio segment using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off.

A loan is 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 of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

All substandard commercial real estate, construction and commercial loans are individually evaluated for impairment. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Large groups of smaller balance homogeneous loans, such as residential real estate and consumer loans, may be collectively evaluated for impairment and, accordingly, not separately identified for impairment disclosures.

Troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a troubled debt restructuring is considered to be a collateral-dependent loan, the loan is reported, net, at the fair value of the collateral. For troubled debt restructurings that subsequently default, we determine the amount of valuation allowance in accordance with the accounting policy for the allowance for loan losses.

The general component of our allowance analysis covers nonimpaired loans and is based on our historical loss experience over the past two years as adjusted for certain current factors described in the paragraph below. As of March 31, 2016, approximately 18% of our loan portfolio consisted of loans underwritten by different credit teams than our current team, including loans acquired from Community Bank of Manatee, First Community Bank of America, The Palm Bank and First Community Bank of Southwest Florida (together, the “Acquired Loans”). The Acquired Loans were originated under different economic conditions than exist today and were underwritten utilizing different underwriting standards. We consider the Acquired Loans to be seasoned since they were originated more than five years ago. As such, we use the historical loss experience for the pool of Acquired Loans over the past two years as part of the general component of our allowance analysis for the Acquired Loans.

This actual historical loss experience is supplemented with management adjustment factors based on the risks present for each portfolio segment (separated for originated and acquired loans), including: (i) levels of and trends in delinquencies and nonaccrual loans; (ii) trends in volume and terms of loans; (iii) changes in lending policies, procedures, and practices; (iv) experience, ability and depth of lending management and other relevant staff; (v) changes in the quality of the loan review system; (vi) changes in the underlying collateral; (vii) changes in competition, and the legal and regulatory environment; (viii) effects of changes in credit concentrations; and (ix) national and local economic trends and conditions. To determine the impact of these factors, management looks at external indicators such as unemployment rate, GDP growth, trends in consumer credit, real estate prices in the geographical areas where the Bank operates, information related to other Florida banks, the competitive and regulatory environment, as well as internal indicators such as loan growth, credit concentrations and the loan review process. Each of the adjustment factors is graded on a scale from “significantly improved compared to historical period” to “significantly declined compared to historical period,” and historical loss rates are adjusted based on this assessment. If a factor is graded “same compared to historical period,” no adjustments are made to the historical loss experience for that specific pool and loan category with respect to such factor. In addition, a risk-rating adjustment factor is determined at the loan level based on the individual risk rating of each loan.

As of March 31, 2016, approximately 82% of our loan portfolio consisted of loans originated by C1 Bank from 2010 to the present and, as such, may not be seasoned. Generally, the historical loss rate of the C1 Bank originated loans has been very low; however, due to the unseasoned nature of the C1 Bank originated loans, the historical loss rate may not effectively capture the probable incurred losses in this portion of our loan portfolio. Accordingly, we performed a peer statistical analysis of U.S. banks to determine what would be a normalized loss rate for our originated loans, considering characteristics like profitability, asset growth and geographical location, among others. While there are characteristics unique to each financial institution that drive loss rates and make a bank more or less risky than its peers, the purpose of this peer statistical analysis was to estimate a “better” loss rate, but in the context of a model that controls for characteristics like geography, asset growth and recovering economic conditions.

For this analysis, we first looked at two- and three-year median loss rates for all U.S. banks, which were both below loss rates in the C1 Bank originated loan portfolio after factoring in management adjustments. Understanding that the median peer loss rates may not capture specifics of the C1 Bank originated loans such as profitability, asset growth and geographical location, among others, we performed a regression-based study of credit-loss rates for all commercial banks in the United States over a three-year period ending in 2013. The model incorporated the following variables: amount of past due loans, geography, capitalization, bank age, management, asset size, asset quality, earnings, and credit risk. We completed this analysis during the second quarter of 2014 and it was first used for the calculation of the allowance for loan losses as of June 30, 2014.

This peer analysis affects the determination of our allowance for loan losses, as we use the highest of the actual losses and the outcome of the analysis as the input for the calculation of the general component of the allowance for loan losses for the C1 Bank originated loans. The peer analysis will be updated during the first quarter of each year and will be used as an element for the calculation of the allowance for loan losses during that specific year, until such time when we develop relevant loss history for C1 Bank originated loans. The purpose of using the highest of actual and peer analysis loss rates is to prevent relying on lower C1 Bank originated loan loss rates, which could actually be caused by an unseasoned portfolio and may not effectively capture the probable incurred losses in the C1 Bank originated loan portion of our portfolio.

During the first quarter of 2016, we reviewed the median loss trend for all U.S. banks, which slightly improved in 2015 compared to previous years. Based on this analysis, we have maintained the prior peer analysis for the first quarter of 2016.

We view this peer analysis as a short-term proxy until we develop additional loss history for the C1 Bank originated loans that approximate a full business cycle. The average business cycle length according to the National Bureau of Economic Research during the last 11 business cycles has been close to six years, and the FDIC defines seven years as a de novo period for extended supervisory activities for new charters (although we are not a de novo institution). At the end of fiscal 2015, our first loans (2010 vintage) were completing six years since origination, in line with the average U.S. business cycle and close to the seven-year de novo period defined by the FDIC. We expect our historical losses to become more representative as we get closer to this point.

Fair Value of Other Real Estate Owned

Other real estate owned (“OREO”) represents assets acquired through foreclosure or other proceedings. Foreclosed assets acquired are initially recorded at fair value at the date of foreclosure less estimated costs to sell, which establishes a new cost basis. Any write-down to fair value at the time of transfer to OREO is charged to the allowance for loan losses. After foreclosure, valuations are periodically performed by management to ensure that properties recorded in OREO are carried at the lower of cost or fair value less estimated costs of disposal. The OREO valuation allowance is adjusted as necessary. Expenses from the operations of OREO, net of rental income and changes in the OREO valuation allowance, are included in noninterest expense.

Purchased Credit Impaired, or PCI, Loans

As part of our acquisitions, we acquired loans that have evidence of credit deterioration since origination. These acquired loans are recorded at their fair value, such that there is no carryover of the allowance for loan losses.

Such purchased loans are accounted for individually or aggregated into pools of loans based on common risk characteristics. We estimate the amount and timing of expected cash flows for each purchased loan or pool, and the expected cash flow in excess of amount paid is recorded as interest income over the remaining life of the loan or pool (accretable discount). The excess of the loan’s or pool’s contractual principal and interest over expected cash flows is not recorded (nonaccretable difference). Over the life of the loan or pool, expected cash flows continue to be estimated. If the present value of expected cash flows is less than the carrying amount, a loss is recorded through the allowance for loan losses. If the present value of expected cash flows is greater than the carrying amount, it is recognized as part of future interest income.

PCI loans are placed on nonaccrual and accounted for under the cost recovery method when repayment is expected through foreclosure or repossession of the collateral, and the timing of foreclosure or repossession cannot be estimated with reasonable certainty. These loans are measured for impairment under the Bank’s policy for measuring impairment on collateral-dependent impaired loans that were originated by the Bank and included in impaired loans if there is a subsequent decline in the value of the collateral.

Deferred Tax Assets

Income taxes are provided for the tax effects of the transactions reported in the financial statements and consist of taxes currently due plus deferred taxes. The deferred tax assets and liabilities represent the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

A tax position is recognized 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 is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. We recognize interest and/or penalties related to income tax matters in income tax expense.

Fair Values of Financial Instruments

Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separate note. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect these estimates.

JOBS Act

The JOBS Act allows us to delay the implementation of certain new accounting standards on our financial statements. However, at March 31, 2016 and December 31, 2015, we have adopted all new accounting standards that could affect the comparability of our financial statements to those of other public entities.

Results of Operations

Net Interest Income

Net interest income is the largest component of our income, and is affected by the interest rate environment, and the volume and the composition of our interest-earning assets and interest-bearing liabilities. Net interest margin represents net interest income divided by average interest-earning assets. We earn interest income from interest, dividends and fees earned on interest-earning assets, as well as from accretion of discounts on acquired loans. Our interest-earning assets include loans, securities available for sale and other securities, federal funds sold and balances at the Federal Reserve Bank, time deposits in other financial institutions, and Federal Home Loan Bank (“FHLB”) stock. We incur interest expense on interest-bearing liabilities, including interest-bearing deposits, borrowings and other forms of indebtedness as well as from amortization of premiums on purchased time deposits and debt. Our interest-bearing liabilities include deposits, advances from the FHLB, and other borrowings.

Three-month period ended March 31, 2016 compared to three-month period ended March 31, 2015

Our net interest income increased 17.1% to $18.2 million in the three-month period ended March 31, 2016 from $15.6 million in the three-month period ended March 31, 2015, primarily due to increased average balances of interest-earning assets, which was partially offset by higher average balances of and rates on interest-bearing liabilities. Net interest margin in the three-month period ended March 31, 2016 increased to 4.63% from 4.56% in the three-month period ended March 31, 2015, mainly due to the yield on average earning assets increasing 6 basis points.

Interest income increased 17.0% to $20.8 million in the three-month period ended March 31, 2016 from $17.8 million in the three-month period ended March 31, 2015, due to higher average balances of interest-earning assets. In the three-month period ended March 31, 2016, average interest-earning assets increased to $1.581 billion from $1.384 billion in the three-month period ended March 31, 2015, mainly due to growth in our loan portfolio, which resulted from organic loan originations (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 average yield earned on interest-earning assets increased to 5.27% in the three-month period ended March 31, 2016 from 5.21% in the three-month period ended March 31, 2015, primarily due to a redeployment of lower-yielding cash investments into higher-yielding loans and despite a decline in the yield on loans (to 5.64% from 5.90% for the three-month period ended March 31, 2016 and 2015, respectively). Average loans receivable as a percentage of average interest-earning assets increased from 87.3% in the three-month period ended March 31, 2015 to 92.2% in the three-month period ended March 31, 2016.

Interest expense increased 16.3% to $2.6 million in the three-month period ended March 31, 2016 from $2.2 million in the three-month period ended March 31, 2015, due to an increase in the average balances of and rates paid on interest-bearing liabilities. In the three-month period ended March 31, 2016, average interest-bearing liabilities increased to $1.202 billion from $1.082 billion in the three-month period ended March 31, 2015. In addition, the average rate paid on interest-bearing liabilities increased from 0.82% to 0.85%, primarily due to a higher rate on FHLB advances. Borrowing longer term from the FHLB was an asset/liability management decision to reduce exposure to increasing interest rates. Partially offsetting the increase in rates due to FHLB advances was a reduction in rates on interest-bearing deposits, mainly due to an improvement in the deposit mix. The cost of interest-bearing deposits decreased to 0.63% in the three-month period ended March 31, 2016 when compared to 0.64% in the three-month period ended March 31, 2015, due to a lower share of time deposits. In addition, average noninterest-bearing deposits increased by 15.1% to $346.4 million in the three-month period ended March 31, 2016 (representing 26.4% of total average deposits), from $301.1 million in the three-month period ended March 31, 2015 (representing 25.4% of total average deposits).

The table below shows the average balances, income and expense, and yields and rates of each of our interest-earning assets and interest-bearing liabilities for the periods indicated:

	Three-Month Periods Ended March 31,
	2016							2015
	Average		Income/		Yields/			Average		Income/		Yields/
	Balances(1)		Expense		Rates			Balances(1)		Expense		Rates
	(in thousands)
Interest-earning assets:
Loans receivable(2)	$	1,457,301	$	20,495		5.64	%	$	1,207,295	$	17,564		5.90	%
Securities available for sale and other securities		250		3		4.82	%		250		3		4.56	%
Federal funds sold and balances at Federal Reserve Bank		111,860		150		0.54	%		166,413		97		0.24	%
Time deposits in other financial institutions		248		-		0.58	%		-		-		0.00	%
FHLB stock		11,487		136		4.75	%		10,001		105		4.25	%

Total interest-earning assets		1,581,146		20,784		5.27	%		1,383,959		17,769		5.21	%
Noninterest-earning assets:
Cash and due from banks		38,842							38,175
Other assets(3)		137,554							154,285
Total noninterest-earning assets		176,396							192,460

Total assets	$	1,757,542						$	1,576,419

Interest-bearing liabilities:
Interest-bearing deposits:
Time	$	285,459		839		1.18	%	$	290,695		784		1.09	%
Money market		460,471		500		0.44	%		409,553		445		0.44	%
Interest-bearing demand		180,962		161		0.36	%		145,943		136		0.38	%
Savings		37,925		21		0.22	%		38,788		21		0.22	%
Total interest-bearing deposits		964,817		1,521		0.63	%		884,979		1,386		0.64	%
Other interest-bearing liabilities:
FHLB advances		237,542		1,030		1.74	%		197,000		808		1.66	%

Total interest-bearing liabilities		1,202,359		2,551		0.85	%		1,081,979		2,194		0.82	%
Noninterest-bearing liabilities and stockholders’ equity:
Demand deposits		346,439							301,097
Other liabilities		4,209							4,289
Stockholders’ equity		204,535							189,054
Total noninterest-bearing liabilities and stockholders’ equity		555,183							494,440
Total liabilities and stockholders’ equity	$	1,757,542						$	1,576,419
Interest rate spread (taxable-equivalent basis)						4.42	%						4.39	%
Net interest income (taxable-equivalent basis)			$	18,233						$	15,575
Net interest margin (taxable-equivalent basis)						4.63	%						4.56	%
Average interest-earning assets to average interest-bearing liabilities						131.5	%						127.9	%

(1)

Calculated using daily averages.

(2)

Average loans are gross, including nonaccrual loans and overdrafts (net of deferred loan fees and before the allowance for loan losses). Interest on loans includes net deferred fees and costs, and other loan fees of $1.1 million and $913 thousand in the three-month periods ended March 31, 2016 and 2015, respectively.

(3)

Other assets include bank-owned life insurance, tax lien certificates, OREO, fixed assets, interest receivable, prepaid expense and others.

Rate/Volume Analysis

The tables below detail the components of the changes in net interest income for the three-month period ended March 31, 2016 when compared to the three-month period ended March 31, 2015. For each major category of interest-earning assets and interest-bearing liabilities, information is provided with respect to changes due to average volumes and changes due to average rates, with the changes in both volumes and rates allocated to these two categories based on the proportionate absolute changes in each category.

Three-month period ended March 31, 2016 compared to three-month period ended March 31, 2015

	Three-Month Period Ended March 31, 2016
	Compared to
	Three-Month Period Ended March 31, 2015
	Due to Changes in
	Average Volume			Average Rate			Net Increase (Decrease)
	(in thousands)
Interest income from earning assets:
Loans receivable(1)	$	3,742		$	(811	)	$	2,931
Securities available for sale and other securities		-			-			-
Federal funds sold and balances at Federal Reserve Bank		(41	)		94			53
Time deposits in other financial institutions		-			-			-
FHLB stock		18			13			31
Total interest income(2)		3,719			(704	)		3,015
Interest expense from deposits and borrowings:
Time deposits		(14	)		69			55
Money market deposit accounts		55			-			55
Interest-bearing demand deposits		33			(8	)		25
Savings deposits		-			-			-
FHLB advances		181			41			222
Total interest expense		255			102			357
Change in net interest income	$	3,464		$	(806	)	$	2,658

(1)

Average loans are gross, including nonaccrual loans and overdrafts (net of deferred loan fees and before the allowance for loan losses).

(2)

Interest on loans includes net deferred fees and costs, and other loan fees of $1.1 million and $913 thousand in the three-month periods ended March 31, 2016 and 2015, respectively.

The $3.0 million increase in interest income when comparing the three-month period ended March 31, 2016 to the three-month period ended March 31, 2015 was primarily due to changes in loan volumes and yields. Higher average loan balances increased interest income $3.7 million, while lower yields reduced interest income $811 thousand. The $357 thousand increase in interest expense when comparing the three-month period ended March 31, 2016 to the three-month period ended March 31, 2015 was primarily due to changes in volumes and rates of FHLB advances. Higher average balances and rates of FHLB advances increased interest expense $181 thousand and $41 thousand, respectively, for a total increase of $222 thousand. In addition, the changes in interest-bearing deposit volumes and rates increased interest expense by $135 thousand.

Provision for Loan Losses

Three-month period ended March 31, 2016 compared to three-month period ended March 31, 2015

We recorded a $561 thousand reversal of provision for loan losses for the three-month period ended March 31, 2016 and a $191 thousand provision for loan losses for the three-month period ended March 31, 2015. The reversal of provision for the three-month period ended March 31, 2016 included $312 thousand of allowance for new loans funded during the quarter, offset by $676 thousand in net recoveries, a $181 thousand reduction for general reserves related to existing loans paying down and a $16 thousand reduction in specific reserves for impaired and purchased credit impaired loans. The provision for the three-month period ended March 31, 2015 included $450 thousand of allowance for new loans funded during the quarter and a $43 thousand increase in specific reserves for impaired and purchased credit impaired loans. Partially offsetting the increase was $272 thousand in net recoveries, combined with a $30 thousand reduction in general reserves related to existing loans (primarily acquired loans as a result of credit quality improvements reflected in a net recovery position).

Noninterest Income

Noninterest income includes gains on sales of loans, service charges and fees, gains on sales of other real estate owned, net, bank-owned life insurance and other noninterest income.

Three-month period ended March 31, 2016 compared to three-month period ended March 31, 2015

Noninterest income increased 7.5% to $1.7 million in the three-month period ended March 31, 2016 from $1.6 million in the three-month period ended March 31, 2015. The increase was primarily due to $164 thousand in additional income from BOLI, mainly due to a $35.0 million investment completed in December 2014, the income from which was not fully reflected during the first quarter of 2015 as the ramp-up investment period was still in process. The increase in noninterest income was partially offset by declines in gains on sales of OREO ($41 thousand) and gains on sales of Small Business Administration (“SBA”) loans ($31 thousand).

The following table sets forth the components of noninterest income for the periods indicated:

	Three-Month Periods Ended March 31,
	2016		2015
	(in thousands)
Gains on sales of loans	$	199	$	230
Service charges and fees		619		567
Gains on sales of other real estate owned, net		307		348
Bank-owned life insurance		256		92
Other noninterest income		341		365
Total noninterest income	$	1,722	$	1,602

Noninterest Expense

Noninterest expense includes primarily salaries and employee benefits, occupancy expense, network services and data processing, advertising and promotion, OREO expenses and professional fees, among others. We monitor the ratio of noninterest expense to the sum of net interest income plus noninterest income, which is commonly known as the efficiency ratio.

Three-month period ended March 31, 2016 compared to three-month period ended March 31, 2015

Noninterest expense increased 6.4% to $12.6 million in the three-month period ended March 31, 2016 from $11.8 million in the three-month period ended March 31, 2015. The increase was mainly due to merger related expenses of $585 thousand pursuant to the Agreement with OZRK. Also impacting the increase in noninterest expense were higher salaries and employee benefits ($169 thousand), network services and data processing ($115 thousand) and regulatory assessments ($101 thousand), the higher amount of which was due to growth in the assessment base (mainly due to growth in assets) and a higher than anticipated assessment rate related to the fourth quarter of 2015 (mainly due to higher nonaccrual loans at the end of 2015). The increase in noninterest expense was partially offset by a reduction in other real estate owned related expense ($234 thousand), primarily due to fewer OREO properties.

The following table sets forth the components of noninterest expense for the periods indicated:

	Three-Month Periods Ended March 31,
	2016		2015
	(in thousands)
Salaries and employee benefits	$	5,386	$	5,217
Occupancy expense		1,231		1,212
Furniture and equipment		724		756
Regulatory assessments		462		361
Network services and data processing		1,199		1,084
Printing and office supplies		66		58
Postage and delivery		53		84
Advertising and promotion		859		826
Other real estate owned related expense		359		593
Other real estate owned – valuation allowance expense		14		31
Amortization of intangible assets		55		83
Professional fees		779		698
Loan collection expenses		103		84
Merger related expenses		585		-
Other noninterest expense		723		748
Total noninterest expense	$	12,598	$	11,835

In the three-month periods ended March 31, 2016 and March 31, 2015, our efficiency ratio was 63.1% and 68.9%, respectively. The improved efficiency ratio for the three-month period ended March 31, 2016 was mainly due to higher net interest income and noninterest income, and despite the $585 thousand in 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 $396 thousand in the three-month period ended March 31, 2016 as compared to $326 thousand in the three-month period ended March 31, 2015 and average assets per employee were $7.7 million in the three-month period ended March 31, 2016 as compared to $6.5 million in the three-month period ended March 31, 2015, which reflected our productivity gains and growth. We had 226 full-time equivalent employees at March 31, 2016 and 244 at March 31, 2015.

Income Taxes

The provision for income taxes includes federal and state income taxes. Fluctuations in effective tax rates reflect the effect of the differences in the inclusion or deductibility of certain income and expenses, respectively, for income tax purposes. Our future effective income tax rate will fluctuate based on the mix of taxable and tax-free investments we make and our overall level of taxable income.

Three-month period ended March 31, 2016 compared to three-month period ended March 31, 2015

In the three-month period ended March 31, 2016, we recorded income tax expense of $3.3 million, compared to income tax expense of $2.0 million in the three-month period ended March 31, 2015. The increase in income tax expense was due primarily to our greater income before taxes. The effective income tax rate was 41.3% for the three-month period ended March 31, 2016, higher than the effective income tax rate of 38.4% for the three-month period ended March 31, 2015 mainly due to our nondeductible merger related expenses associated with the Agreement with OZRK.

Net Income

We evaluate our net income using the common industry ratio, ROAA, which is equal to net income for the period annualized, divided by the daily average of total assets for the period. We also use ROAE, which is equal to net income for the period annualized, divided by the daily average of total stockholders’ equity for the period.

Three-month period ended March 31, 2016 compared to three-month period ended March 31, 2015

In the three-month period ended March 31, 2016, our net income of $4.7 million, or $0.29 basic and diluted net income per common share, represented an ROAA of 1.06% and an ROAE of 9.12%. Our average equity-to-assets ratio (average equity divided by average total assets) in the three-month period ended March 31, 2016 was 11.64%. In comparison, in the three-month period ended March 31, 2015, our net income of $3.2 million, or $0.20 basic and diluted net income per common share, represented an ROAA of 0.82% and an ROAE of 6.81%. Our average equity-to-assets ratio in the three-month period ended March 31, 2015 was 11.99%.

Financial Condition

Our assets totaled $1.787 billion and $1.726 billion at March 31, 2016 and December 31, 2015, respectively. Loans receivable, net, as of March 31, 2016 and December 31, 2015 were $1.446 billion and $1.429 billion, respectively. Total deposits were $1.345 billion and $1.278 billion as of March 31, 2016 and December 31, 2015, respectively. Total liabilities, consisting of deposits, FHLB advances and other liabilities totaled $1.581 billion and $1.525 billion as of March 31, 2016 and December 31, 2015, respectively. The increases in total assets, loans receivable, net, deposits and liabilities in 2016 were due to organic growth.

Stockholders’ equity was $205.6 million and $201.0 million as of March 31, 2016 and December 31, 2015, respectively. The increase in stockholders’ equity was due to $4.7 million of net income earned during the three-month period ended March 31, 2016.

Loans

Our loan portfolio is our primary earning asset. Our strategy is to grow the loan portfolio by originating commercial and consumer loans that we believe to be of high quality, that comply with our credit policies and that produce revenues consistent with our financial objectives. We originate SBA loans which may be sold on the secondary market depending on loan terms and market conditions.

Loans by Portfolio Segment

The following table sets forth the carrying amounts of our loans by portfolio segment as of the dates indicated:

	As of March 31, 2016					As of December 31, 2015
	Amount			% of Total		Amount			% of Total
	(in thousands, except %)
Real estate:
Residential	$	295,925			20.3	$	303,644			21.0
Commercial		782,193			53.6		783,774			54.3
Construction		223,562			15.3		197,070			13.7
Total real estate		1,301,680			89.2		1,284,488			89.0
Commercial		61,019			4.2		63,635			4.4
Consumer		97,054			6.6		94,521			6.6
Total loans		1,459,753			100.0		1,442,644			100.0
Less:
Net deferred loan fees		(5,612	)				(5,482	)
Allowance for loan losses		(8,146	)				(8,031	)
Loans receivable, net	$	1,445,995				$	1,429,131

As of March 31, 2016 and December 31, 2015, 89.2% and 89.0%, respectively, of the total loan portfolio was collateralized by commercial and residential real estate mortgages.

Loan Maturity and Sensitivities

The following tables show the contractual maturities of our loan portfolio at the dates indicated. Loans with scheduled maturities are reported in the maturity category in which the payment is due. Demand loans with no stated maturity and overdrafts are reported in the “due in 1 year or less” category. Loans that have adjustable rates are shown as amortizing to final maturity rather than when the interest rates are next subject to change. The tables do not include prepayment or scheduled principal repayments.

As of March 31, 2016	Due in 1 Year or Less		Due in 1 to 5 Years		Due After 5 Years		Total
	(in thousands)
Real estate:
Residential	$	45,100	$	113,580	$	137,245	$	295,925
Commercial		125,231		333,529		323,433		782,193
Construction		106,818		74,866		41,878		223,562
Total real estate		277,149		521,975		502,556		1,301,680
Commercial		11,494		26,337		23,188		61,019
Consumer		5,595		77,760		13,699		97,054
Total loans	$	294,238	$	626,072	$	539,443	$	1,459,753

As of December 31, 2015	Due in 1 Year or Less		Due in 1 to 5 Years		Due After 5 Years		Total
	(in thousands)
Real estate:
Residential	$	49,192	$	110,979	$	143,473	$	303,644
Commercial		123,767		356,141		303,866		783,774
Construction		99,652		59,599		37,819		197,070
Total real estate		272,611		526,719		485,158		1,284,488
Commercial		14,635		24,636		24,364		63,635
Consumer		5,833		79,301		9,387		94,521
Total loans	$	293,079	$	630,656	$	518,909	$	1,442,644

The following tables present the sensitivities to changes in interest rates of our portfolio at the dates indicated:

As of March 31, 2016	Fixed Interest Rate		Variable Interest Rate		Total
	(in thousands)
Real estate:
Residential	$	96,572	$	199,353	$	295,925
Commercial		287,009		495,184		782,193
Construction		57,371		166,191		223,562
Total real estate		440,952		860,728		1,301,680
Commercial		22,670		38,349		61,019
Consumer		35,859		61,195		97,054
Total loans	$	499,481	$	960,272	$	1,459,753

As of December 31, 2015	Fixed Interest Rate		Variable Interest Rate		Total
	(in thousands)
Real estate:
Residential	$	97,746	$	205,898	$	303,644
Commercial		288,124		495,650		783,774
Construction		61,542		135,528		197,070
Total real estate		447,412		837,076		1,284,488
Commercial		22,010		41,625		63,635
Consumer		36,252		58,269		94,521
Total loans	$	505,674	$	936,970	$	1,442,644

As part of our asset/liability management strategy, we rarely offer fixed-rate loans with maturity above five years. As of March 31, 2016, 2.1% of our total loans (and 1.3% of the loans in our originated loan portfolio) were fixed-rate with a maturity over 5 years. As of March 31, 2016, 65.8% of our total loans (and 64.3% of the loans in our originated loan portfolio) was made up of variable-rate loans. The fixed-rate portion of our originated portfolio had a weighted average time to maturity of 2.5 years. The following table presents the contractual maturities of our loan portfolio at the dates indicated, segregated into fixed and variable interest rate loans as of March 31, 2016:

As of March 31, 2016	Fixed Interest Rate		Variable Interest Rate		Total
	(in thousands)
Maturity
One year or less	$	97,779	$	196,459	$	294,238
One to five years		370,801		255,271		626,072
More than five years		30,901		508,542		539,443
Total loans	$	499,481	$	960,272	$	1,459,753

Loan Growth

We monitor new loan production by loan type, borrower type, market and profitability. Our operating strategy focuses on growing assets by originating commercial and consumer loans that we believe to be of high quality. For the three-month period ended March 31, 2016, we originated a total of $84.2 million of new loans, including $74.0 million of real estate loans ($6.1 million, $35.9 million and $31.9 million of which were residential, commercial and construction real estate loans, respectively), and $5.1 million each of commercial loans and consumer loans. As of March 31, 2016, the average loan outstanding size in our originated portfolio was $1.1 million. For the three-month period ended March 31, 2015, we originated a total of $176.4 million of new loans, including $135.2 million of real estate loans ($10.9 million, $52.6 million and $71.7 million of which were residential, commercial and construction real estate loans, respectively), $11.8 million of commercial loans, and $29.4 million of consumer loans.

	Three-Month Period Ended March 31, 2016				Three-Month Period Ended March 31, 2015
	Amount		% of Total		Amount		% of Total
	(in thousands, except %)
New loan originations
Real estate:
Residential	$	6,127		7.3	$	10,858		6.2
Commercial		35,890		42.6		52,592		29.8
Construction		31,937		38.0		71,734		40.6
Total real estate		73,954		87.9		135,184		76.6
Commercial		5,073		6.0		11,757		6.7
Consumer		5,138		6.1		29,415		16.7
Total loans	$	84,165		100.0	$	176,356		100.0

The total loan origination amount in the three-month period ended March 31, 2016 reflected organic growth across our markets.

In addition to growing organically, our acquisition strategy, which has focused on acquiring banks in Florida regional markets, has resulted in an increase in the number and balance of loans outstanding after each transaction. Subsequently, these balances decline as these loans mature and are paid down. These acquired loans were recorded at their fair value, such that there was no carryover of the allowance for loan losses. As of March 31, 2016 and December 31, 2015, the breakdown of our portfolio by originating bank was as follows:

	As of March 31, 2016				As of December 31, 2015
	Amount		% of Total		Amount		% of Total
	(in thousands, except %)
Originating Bank
C1 Bank	$	1,196,972		82.0	$	1,163,212		80.6
Community Bank of Manatee		47,989		3.3		50,493		3.5
First Community Bank of America		103,816		7.1		110,532		7.7
The Palm Bank		17,151		1.2		18,895		1.3
First Community Bank of Southwest Florida		93,825		6.4		99,512		6.9
Total loans	$	1,459,753		100.0	$	1,442,644		100.0

Asset Quality

In order to operate with a sound risk profile, we have focused on originating loans we believe to be of high quality and disposing of nonperforming assets as rapidly as possible.

For certain acquired loans, there was evidence at acquisition of deterioration of credit quality since origination and it was probable at acquisition that all contractually required payments would not be collected. The unpaid principal balance and carrying amount of these purchased credit impaired loans at March 31, 2016 and December 31, 2015 were as follows:

	March 31, 2016		December 31, 2015
	(in thousands)
Unpaid principal balance	$	32,246	$	33,637
Carrying amount, net of allowance of $125 and $124		23,301		24,259

Accretable discount, or income expected to be collected was $1.7 million and $1.8 million at March 31, 2016 and December 31, 2015, respectively.

Foreign Outstandings

We have made four commercial real estate loans to three Brazilian corporations, which at March 31, 2016 and December 31, 2015 in total exceeded 1% of our total assets. These loans to the three Brazilian borrowers are secured by collateral outside of the U.S., and had aggregate outstanding balances (including accrued interest) at March 31, 2016 and December 31, 2015, of $41.1 million and $41.3 million, representing 2.3% and 2.4% of our total assets, respectively. These loans to foreign borrowers were made in accordance with the credit policy and procedures in place at the time of origination. Two of these loans, which were made to one of the Brazilian borrowers, had a combined recorded investment of $17.3 million and are secured by a first lien on farmland appraised at $49.1 million (of which we are entitled to 50.9%, as the collateral is shared on a first lien basis with another bank), representing a 69% loan-to-value ratio. The three main parcels of this collateral pool (representing 83% of the collateral) were appraised during 2014 and the rest in 2012. During the first quarter of 2016, the borrower filed for bankruptcy. At March 31, 2016, these loans were included in the greater than 89 days past due category and on nonaccrual status. The third loan, which was made to another Brazilian borrower, had a recorded investment of $17.5 million and is secured by a first lien on farmland appraised at $43.8 million during 2015, representing a 40% loan-to-value ratio. This loan was included in the greater than 89 days past due category and accruing as of March 31, 2016, as we continue to collect (a payment was received after quarter end, which brought the loan below 90 days past due) and the loan is well-secured. The final loan, which was made to the third Brazilian borrower, had a recorded investment of $6.3 million and is secured by closely held stock. This loan is current and paying as agreed. There is inherent country risk associated with this international business. International trade laws, U.S. relations with Brazil, foreign exchange volatility, the foreign nature of the Brazilian legal system and government policy, and regulatory changes may inhibit our ability to collect payment, or claim collateral (if any) located in Brazil. Furthermore, we may experience loss due to unforeseen economic, social or weather conditions that affect Brazilian markets and in particular the market for Brazilian agriculture products. The expense of collecting on defaulted loans may be higher than in the United States, which may reduce the size of any recovery. We are also subject to the risk that the value of any real estate collateral could decline, further harming our ability to fully collect on any defaulted loan. The appraised values of the collateral securing these loans have decreased in U.S. Dollar terms as the Brazilian currency has devalued against the U.S. Dollar and could decrease further if the Brazilian currency continues to devalue. The Brazilian economy is experiencing negative growth, a material decline in the value of its currency, increasing rates of inflation, growing unemployment, banking strikes and higher interest rates; the country has been recently downgraded by the three rating agencies to non-investment grade (junk) status. These macroeconomic trends coupled with a growing corruption scandal involving the government, state-owned enterprises and some of the largest private corporations have resulted in a political crisis, which is placing stress on the Brazilian economy and may affect the ability of our borrowers to repay their loans and the value of our underlying collateral. Exchange rate fluctuations may stress the debt service coverage of these borrowers and impact the U.S. dollar value of the collateral. We may be forced to modify these loans in an attempt to collect, which would increase our level of classified assets, harm our earnings, negatively impact our capital, and which could increase regulatory scrutiny. The substantial size of each of these individual relationships could, if unpaid, materially adversely affect our earnings and capital. These three borrowers are not affiliates of our controlling stockholders and the loans were not made in consideration of our relationship with our controlling stockholders. We are not actively seeking additional loans with collateral in Brazil.

In connection with our merger agreement with OZRK, we conducted a marketing process to solicit offers for the purchase of these Brazilian loans. The marketing process was concluded on March 10, 2016, and no offers for the Brazilian loans were received by us in excess of the price to be paid under that certain standby purchase agreement between Marcelo Faria de Lima and OZRK (the “Brazilian standby purchase agreement”). The Agreement provides for an increase in the consideration payable to C1 Financial shareholders in the merger if the Brazilian loans are sold at a price in excess of the price to be paid under the Brazilian standby purchase agreement. (See “The Brazilian Standby Purchase Agreement” in the C1 Financial Proxy Statement for further information.) Based on the results of the marketing process, we do not believe that there will be an increase in the consideration payable to C1 Financial shareholders under the Agreement as a result of a sale of the Brazilian loans.

Nonperforming and Substandard Assets

Our nonperforming loans consist of loans that are on nonaccrual status and past due over 90 days and still accruing, including nonperforming troubled debt restructurings. Loans graded as substandard but still accruing, which may include loans restructured as troubled debt restructurings, may be impaired and classified substandard. Troubled debt restructurings include loans on which we have granted a concession on the interest rate or original repayment terms due to financial difficulties of the borrower.

We generally place loans on nonaccrual status when they become 90 days or more past due, unless they are well secured and in the process of collection. We also place loans on nonaccrual status if they are less than 90 days past due if the collection of principal or interest is in doubt. When a loan is placed on nonaccrual status, any interest previously accrued but not collected, is reversed from income. The interest on these loans is accounted for on the cash-basis or cost-recovery method until qualifying for return to accrual. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured. As of March 31, 2016 and December 31, 2015, there were $36.3 million and $36.0 million, respectively, in nonaccrual loans. If such nonaccrual loans would have been accruing during the three-month period ended March 31, 2016, the year ended December 31, 2015 and the three-month period ended March 31, 2015, we would have recorded an additional $489 thousand, $1.3 million and $268 thousand of interest income, respectively. No interest income from nonaccrual loans was recognized for the three-month period ended March 31, 2016, the year ended December 31, 2015 and the three-month period ended March 31, 2015.

As of March 31, 2016 and December 31, 2015, we had no accruing loans that were contractually past due 90 days or more as to principal and interest other than the one Brazilian loan discussed previously, since we continue to collect payments on this well-secured credit. As of March 31, 2016 and December31, 2015, we had three troubled debt restructurings totaling $946 thousand and $954 thousand, respectively.

Accounting standards require the Bank to identify loans, where full repayment of principal and interest is doubtful, as impaired loans. These standards require that impaired loans be valued at the present value of expected future cash flows, discounted at the loan’s effective interest rate, or by using the observable market price of the loan or the fair value of the underlying collateral if the loan is collateral dependent. We have implemented these standards in our monthly review of the adequacy of the allowance for loan losses, and identify and value impaired loans in accordance with guidance on these standards. As part of the review process, the Bank also identifies loans classified as special mention, which have a potential weakness that deserves management’s close attention. In our loan review process, we seek to identify and address classified and nonperforming loans as early as possible.

Loans totaling $39.4 million and $40.0 million were classified substandard under the Bank’s policy at March 31, 2016 and December 31, 2015, respectively. The following tables set forth information related to the credit quality of our loan portfolio at March 31, 2016 and December 31, 2015:

As of March 31, 2016	Pass		Special Mention		Substandard		Total
	(in thousands)
Real estate:
Residential	$	284,997	$	3,809	$	7,119	$	295,925
Commercial		720,172		31,038		30,983		782,193
Construction		222,021		853		688		223,562
Total real estate		1,227,190		35,700		38,790		1,301,680
Commercial		53,887		6,550		582		61,019
Consumer		96,975		69		10		97,054
Total loans	$	1,378,052	$	42,319	$	39,382	$	1,459,753

As of December 31, 2015	Pass		Special Mention		Substandard		Total
	(in thousands)
Real estate:
Residential	$	294,790	$	1,683	$	7,171	$	303,644
Commercial		716,519		35,746		31,509		783,774
Construction		195,468		877		725		197,070
Total real estate		1,206,777		38,306		39,405		1,284,488
Commercial		56,364		6,655		616		63,635
Consumer		94,381		130		10		94,521
Total loans	$	1,357,522	$	45,091	$	40,031	$	1,442,644

Real estate we have acquired through bank acquisitions or as a result of foreclosure is classified as OREO until sold. Our policy is to initially record OREO at fair value less estimated costs to sell at the date of foreclosure. After foreclosure, other real estate is carried at the lower of the initial carrying amount (fair value less estimated costs to sell or lease), or at the value determined by subsequent appraisals of the other real estate. Subsequent decreases in value are booked as other real estate owned—valuation allowance expense in the income statement. We held $27.6 million of OREO as of March 31, 2016, a decline of $773 thousand from the $28.3 million as of December 31, 2015, mainly due to sales. Our ratio of total nonperforming assets to total assets increased to 4.53% at March 31, 2016 from 3.73% at December 31, 2015, primarily due to the accruing Brazilian loan that was contractually past due 90 days or more.

The following table sets forth certain information on nonperforming loans and OREO, the ratio of such loans and OREO to total assets as of the dates indicated, and certain other related information:

	As of
	March 31, 2016			December 31, 2015

Total nonaccrual loans	$	36,284		$	35,951
Total accruing loans over 90 days delinquent		17,055			-
Total nonperforming loans		53,339			35,951
OREO		27,557			28,330
Total nonperforming assets	$	80,896		$	64,281
Total nonaccrual loans as a percentage of total loans		2.49	%		2.49	%
Total accruing loans over 90 days delinquent as a percentage of total loans		1.17	%		0.00	%
Total nonperforming loans as a percentage of total loans		3.65	%		2.49	%
Total nonperforming assets as a percentage of total assets		4.53	%		3.73	%
Loans restructured as troubled debt restructurings	$	946		$	954
Troubled debt restructurings as a percentage of total loans		0.06	%		0.07	%

Allowance for Loan Losses

The provision for loan losses is the amount of expense that, based on our judgment, is required to maintain the allowance for loan losses at an adequate level to absorb probable incurred losses in the loan portfolio at the balance sheet date and that, in management’s judgment, is appropriate under GAAP. The determination of the amount of the allowance is complex and involves a high degree of judgment and subjectivity. Among the material estimates required to establish the allowance are loss exposure at default, the amount and timing of future cash flows on impacted loans, value of collateral, and determination of the loss factors to be applied to the various elements of the portfolio.

Our allowance for loan losses consists of two components. The first component is allocated to individually evaluated loans found to be impaired and is calculated in accordance with ASC 310. The second component is allocated to all other loans that are not individually identified as impaired pursuant to ASC 450 (“nonimpaired loans”). This component is calculated for all nonimpaired loans on a collective basis in accordance with ASC 450. For additional discussion on our calculation of the allowance for loan losses, see “—Critical Accounting Policies and Estimates—Allowance for Loan Losses”.

The nonperforming loans related to acquired banks were marked to market and recorded at fair value at acquisition with no carryover of the allowance for loan losses. Therefore, our allowance for loan losses mainly reflects the general component allowance for performing loans originated by C1 Bank.

Our allowance for loan losses was allocated as follows as of the dates indicated in the table below:

	As of
	March 31, 2016				December 31, 2015
	Amount		% of Loans to Total Loans		Amount		% of Loans to Total Loans

Real estate:
Residential	$	1,715		20.3	$	1,763		21.0
Commercial		4,008		53.6		4,007		54.3
Construction		1,337		15.3		1,206		13.7
Total real estate		7,060		89.2		6,976		89.0
Commercial		415		4.2		437		4.4
Consumer		671		6.6		618		6.6
Total allowance for loan losses	$	8,146		100.0	$	8,031		100.0

The following table sets forth certain information with respect to activity in our allowance for loan losses during the periods indicated:

	Three-Month Periods Ended March 31,
	2016			2015

Allowance for loan losses at beginning of period	$	8,031		$	5,324
Charge-offs:
Residential real estate		(15	)		-
Commercial real estate		-			(1	)
Construction		(1	)		-
Commercial		(34	)		-
Consumer		(4	)		(3	)
Total charge-offs		(54	)		(4	)
Recoveries:
Residential real estate		55			69
Commercial real estate		469			112
Construction		124			23
Commercial		46			33
Consumer		36			39
Total recoveries		730			276
Net recoveries		676			272
Provision (reversal of provision) for loan losses		(561	)		191
Allowance for loan losses at end of period	$	8,146		$	5,787
Ratio of annualized net recoveries during the period to average loans outstanding during the period		(0.19	)%		(0.09	)%
Allowance for loan losses as a percentage of total loans at end of period		0.56			0.46
Allowance for loan losses as a percentage of nonaccrual loans		22.45			29.37
Allowance for loan losses as a percentage of nonperforming loans		15.27			29.37

Our allowance for loan losses to total loans increased to 0.56% at March 31, 2016 from 0.46% at March 31, 2015. Additionally, as a result of our acquisition strategy, we acquired the right to seek deficiency judgments resulting from defaulted loans from our acquired banks (including loans that defaulted before the acquisitions). We have actively pursued recovery of these deficiency amounts. This strategy has resulted in recoveries of $730 thousand and $276 thousand in the three-month periods ended March 31, 2016 and March 31, 2015, respectively.

Investment Securities

We did not carry any balance of investment securities available for sale as of March 31, 2016 and December 31, 2015 due to our decision to sell the entirety of our securities available for sale portfolio in 2013. This decision was based on our assessment that improving economic conditions could begin to put upward pressure on interest rates, which prompted us to redeploy these assets into loans.

Bank-Owned Life Insurance

As of March 31, 2016 and December 31, 2015, we maintained investments in bank-owned life insurance of $37.5 million and $37.3 million, respectively, $35.0 million of which was purchased during December 2014. This purchase allowed us to deploy excess cash, has enhanced noninterest income and offset the rising costs of employee benefits. Included in the balance at both March 31, 2016 and December 31, 2015 was $1.5 million relating to policies on former officers of an acquired bank. During the second quarter of 2015, we sent surrender notices for these acquired polices and expect to receive the proceeds within three to six months.

Deposits

We monitor deposit growth by account type, market and rate. We seek to fund asset growth primarily with low-cost customer deposits in order to maintain a stable liquidity profile and net interest margin. Total deposits as of March 31, 2016 and December 31, 2015 were $1.345 billion and $1.278 billion, respectively. Our growth in deposits during the first three months of 2016 was due to our organic growth efforts by our banking centers and marketing team to expand our client reach.

The following table sets forth the distribution by type of our deposit accounts for the dates indicated:

	As of
	March 31, 2016				December 31, 2015
	Amount		% of Total Deposits		Amount		% of Total Deposits
	(in thousands, except %)
Deposit Type
Noninterest-bearing demand	$	379,464		28.2	$	321,034		25.1
Interest-bearing demand		180,779		13.4		182,212		14.3
Money market and savings		493,917		36.8		494,943		38.7
Time		290,686		21.6		280,076		21.9
Total deposits	$	1,344,846		100.0	$	1,278,265		100.0
Time Deposits
0.00 - 0.50%	$	32,151		11.1	$	30,159		10.8
0.51 - 1.00%		40,466		13.9		44,421		15.9
1.01 - 1.50%		173,223		59.5		158,454		56.5
1.51 - 2.00%		27,520		9.5		28,233		10.1
2.01 - 2.50%		13,854		4.8		15,336		5.5
Above 2.50%		3,472		1.2		3,473		1.2
Total time deposits	$	290,686		100.0	$	280,076		100.0

The following tables set forth our time deposits segmented by months to maturity and deposit amount:

	As of March 31, 2016
	Time Deposits of $100 and Greater		Time Deposits of Less Than $100		Total
	(dollars in thousands)
Months to maturity:
Three or less	$	20,822	$	12,017	$	32,839
Over Three to Six		28,567		9,060		37,627
Over Six to Twelve		58,050		24,662		82,712
Over Twelve		72,049		65,459		137,508
Total	$	179,488	$	111,198	$	290,686

	As of December 31, 2015
	Time Deposits of $100 and Greater		Time Deposits of Less Than $100		Total
	(dollars in thousands)
Months to maturity:
Three or less	$	6,986	$	10,019	$	17,005
Over Three to Six		20,465		12,320		32,785
Over Six to Twelve		44,990		20,179		65,169
Over Twelve		97,115		68,002		165,117
Total	$	169,556	$	110,520	$	280,076

We had brokered deposits of $38.7 million as of March 31, 2016 and December 31, 2015.

Borrowings

Deposits are the primary source of funds for our lending activities and general business purposes; however, we may obtain advances from the FHLB, purchase federal funds, and engage in overnight borrowing from the Federal Reserve, correspondent banks, or by entering into client purchase agreements. We also use these sources of funds as part of our asset/liability management process to control our long-term interest rate risk exposure, even if it may increase our short-term cost of funds. This may include match funding of fixed-rate loans. Our level of short-term borrowings can fluctuate on a daily basis depending on funding needs and the source of funds to satisfy the needs. As of March 31, 2016, we had $229.0 million outstanding in advances from the FHLB with the following average rates and maturities:

	As of March 31, 2016
	Amount		% of total		Average rate (%)
Maturity year:
2016	$	32,000		14.0		1.66	%
2017		12,000		5.2		2.13	%
2018		45,000		19.7		1.52	%
2019		45,000		19.7		1.98	%
2020		85,000		37.0		1.85	%
2023		10,000		4.4		2.70	%
Total	$	229,000		100.0		1.83	%

Liquidity and Capital Resources

Liquidity Management

We are expected to maintain adequate liquidity at the Bank. Liquidity refers to our ability to maintain cash flow that is adequate to fund operations and meet present and future financial obligations through either the sale or maturity of existing assets or by obtaining additional funding through liability management. We manage liquidity based upon policy limits set by the board of directors and cash flow modeling. To maintain adequate liquidity, we also monitor indicators of potential liquidity risk, utilize cash flow projection models to forecast liquidity needs, model liquidity stress scenarios and develop contingency plans, and identify alternative back-up sources of liquidity. The liquidity reserve may consist of cash on hand, cash on demand in deposits with correspondent banks, cash equivalents such as federal funds sold, United States securities or securities guaranteed by the United States, and other investments. In addition, we have a fed funds line of $25 million with our correspondent bank and available borrowing capacity with the FHLB based on our collateral position. We believe that the sources of available liquidity are adequate to meet all reasonably immediate short-term and intermediate-term demands.

As of March 31, 2016, we held cash equal to 13.4% of total deposits and borrowings due in less than 12 months, which represented approximately $46.3 million of excess cash above our target.

We intend to use our current excess liquidity and capital for general corporate purposes, including loan growth.

Capital Management

We manage capital to comply with our internal planning targets and regulatory capital standards. We review capital levels on a monthly basis. We evaluate a number of capital ratios, including regulatory capital ratios required by the federal banking agencies such as Tier 1 capital to risk-weighted assets and Tier 1 capital to average total adjusted assets (the leverage ratio).

As of March 31, 2016 and December 31, 2015, we had an equity-to-assets ratio of 11.51% and 11.65%, respectively. As of March 31, 2016 and December 31, 2015, we had a Tier 1 capital to risk-weighted assets ratio of 13.41% and 13.32%, respectively, and a Tier 1 leverage ratio of 11.66% and 11.55%, respectively. There is no threshold for well-capitalized status for bank holding companies.

As of March 31, 2016 and December 31, 2015, the regulatory capital ratios of the Company and Bank exceeded the required minimums, as seen in the tables below:

	Actual					Required for Capital Adequacy Purposes					Well Capitalized Under Prompt Corrective Action Provision
March 31, 2016	Amount		Ratio			Amount		Ratio (1)			Amount		Ratio
	(in thousands, except %)
Total capital to risk-weighted assets
C1 Financial, Inc.	$	213,065		13.94	%	$	131,831		8.625	%	$	N/A		N/A
C1 Bank		203,538		13.33	%		131,705		8.625	%		152,702		10.00	%
Tier 1 capital to risk-weighted assets
C1 Financial, Inc.		204,919		13.41	%		101,262		6.625	%		N/A		N/A
C1 Bank		195,392		12.80	%		101,165		6.625	%		122,161		8.00	%
Common equity tier 1 capital to risk-weighted assets
C1 Financial, Inc.		204,919		13.41	%		78,334		5.125	%		N/A		N/A
C1 Bank		195,392		12.80	%		78,260		5.125	%		99,256		6.50	%
Tier 1 leverage ratio
C1 Financial, Inc.		204,919		11.66	%		70,275		4.00	%		N/A		N/A
C1 Bank		195,392		11.13	%		70,216		4.00	%		87,770		5.00	%

(1) Minimum regulatory capital ratios at March 31, 2016 include the applicable minimum risk-based capital ratios and capital conservation buffer.

	Actual					Required for Capital Adequacy Purposes					Well Capitalized Under Prompt Corrective Action Provision
December 31, 2015	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(in thousands, except %)
Total capital to risk-weighted assets
C1 Financial, Inc.	$	208,426		13.85	%	$	120,369		8.00	%	$	N/A		N/A
C1 Bank		198,316		13.19	%		120,252		8.00	%		150,315		10.00	%
Tier 1 capital to risk-weighted assets
C1 Financial, Inc.		200,396		13.32	%		90,277		6.00	%		N/A		N/A
C1 Bank		190,286		12.66	%		90,189		6.00	%		120,252		8.00	%
Common equity tier 1 capital to risk-weighted assets
C1 Financial, Inc.		200,396		13.32	%		67,707		4.50	%		N/A		N/A
C1 Bank		190,286		12.66	%		67,642		4.50	%		97,705		6.50	%
Tier 1 leverage ratio
C1 Financial, Inc.		200,396		11.55	%		69,410		4.00	%		N/A		N/A
C1 Bank		190,286		10.97	%		69,376		4.00	%		86,720		5.00	%

Off-Balance Sheet Arrangements

We are party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments largely include commitments to extend credit and standby letters of credit. Total amounts committed under these financial instruments were $176.7 million and $176.4 million as of March 31, 2016 and December 31, 2015, respectively. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets.

Our exposure to credit loss in the event of nonperformance by the other party to financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual notional amount of these instruments. We use the same credit policies in making commitments to extend credit and generally use the same credit policies for letters of credit as for on-balance sheet instruments.

Unused lines of credit and commitments to fund loans are legally binding agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since some of these commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. Unused commercial lines of credit, which comprise a substantial portion of these commitments, generally expire within a year from their date of origination. The amount of collateral obtained, if any, by us upon extension of credit is based on management’s credit evaluation of the borrower. Collateral held varies but may include security interests in business assets, mortgages on commercial and residential real estate, deposit accounts with financial institutions, and securities.

We believe the likelihood of our unused lines of credit and standby letters of credit either needing to be totally funded or funded at the same time is low. However, should significant funding requirements occur, we have cash and available borrowing capacity from various sources to meet these requirements.

Our off-balance sheet arrangements at March 31, 2016 and December 31, 2015 are summarized in the tables that follow:

	Amount of Commitment Expiration Per Period as of March 31, 2016
	1 Year or Less		Over 1 Through 3 Years		Over 3 Through 5 Years		Over 5 Years		Total Amounts Committed
	(in thousands)

Unused lines of credit	$	14,492	$	6,473	$	2,966	$	16,402	$	40,333
Standby letters of credit		1,838		548		101		-		2,487
Commitments to fund loans		41,839		19,315		24,944		47,806		133,904
Total	$	58,169	$	26,336	$	28,011	$	64,208	$	176,724

	Amount of Commitment Expiration Per Period as of December 31, 2015
	1 Year or Less		Over 1 Through 3 Years		Over 3 Through 5 Years		Over 5 Years		Total Amounts Committed
	(in thousands)

Unused lines of credit	$	10,386	$	8,450	$	2,892	$	15,887	$	37,615
Standby letters of credit		2,102		125		101		-		2,328
Commitments to fund loans		29,386		50,027		7,096		49,948		136,457
Total	$	41,874	$	58,602	$	10,089	$	65,835	$	176,400

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 Quarterly Report on Form 10-Q 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.

	First Quarter			Fourth Quarter			Third Quarter			Second Quarter			First Quarter
	2016			2015			2015			2015			2015

Loan loss reserves
Allowance for loan losses	$	8,146		$	8,031		$	7,932		$	7,675		$	5,787
Acquired performing loans discount		2,437			2,629			2,830			3,047			3,242
Total	$	10,583		$	10,660		$	10,762		$	10,722		$	9,029
Loans receivable, gross	$	1,459,753		$	1,442,644		$	1,390,275		$	1,361,459		$	1,256,606
Allowance for loan losses to total loans receivable		0.56	%		0.56	%		0.57	%		0.56	%		0.46	%
Allowance plus performing loans discount to total loans receivable		0.72	%		0.74	%		0.77	%		0.79	%		0.72	%

Efficiency ratio
Noninterest expense	$	12,598		$	15,720		$	11,972		$	11,845		$	11,835
Taxable-equivalent net interest income	$	18,233		$	17,734		$	18,040		$	16,811		$	15,575
Noninterest income	$	1,722		$	1,750		$	2,114		$	4,335		$	1,602
Gains on sales of securities		-			-			-			-			-
Adjusted noninterest income	$	1,722		$	1,750		$	2,114		$	4,335		$	1,602
Efficiency ratio		63.1	%		80.7	%		59.4	%		56.0	%		68.9	%

Revenue and average assets per average number of employees
Interest income	$	20,784		$	20,309		$	20,546		$	19,115		$	17,769
Noninterest income		1,722			1,750			2,114			4,335			1,602
Total revenue	$	22,506		$	22,059		$	22,660		$	23,450		$	19,371
Total revenue annualized	$	90,271		$	87,517		$	89,901		$	94,058		$	78,560
Total average assets	$	1,757,542		$	1,735,792		$	1,687,662		$	1,615,468		$	1,576,419
Average number of employees		228			237			245			245			241
Revenue per average number of employees	$	396		$	369		$	367		$	384		$	326
Average assets per average number of employees	$	7,709		$	7,324		$	6,888		$	6,594		$	6,541

Tangible stockholders' equity and Tangible book value per share
Total stockholders' equity	$	205,631		$	200,981		$	199,560		$	194,555		$	189,812
Less: Goodwill		(249	)		(249	)		(249	)		(249	)		(249	)
Other intangible assets		(643	)		(699	)		(754	)		(824	)		(904	)
Tangible stockholders' equity	$	204,739		$	200,033		$	198,557		$	193,482		$	188,659

Common shares outstanding		16,101			16,101			16,101			16,101			16,101
Book value per share	$	12.77		$	12.48		$	12.39		$	12.08		$	11.79
Tangible book value per share		12.72			12.42			12.33			12.02			11.72

Adjusted yield earned on loans
Reported yield on loans		5.64	%		5.67	%		5.87	%		5.89	%		5.90	%
Effect of accretion income on acquired loans		(0.08	)%		(0.10	)%		(0.10	)%		(0.10	)%		(0.14	)%
Adjusted yield on loans		5.56	%		5.57	%		5.77	%		5.79	%		5.76	%

Adjusted rate paid on total deposits
Reported rate paid on total deposits		0.47	%		0.47	%		0.46	%		0.44	%		0.47	%
Effect of premium amortization on acquired deposits		0.00	%		0.00	%		0.00	%		0.01	%		0.01	%
Adjusted rate paid on total deposits		0.47	%		0.47	%		0.46	%		0.45	%		0.48	%

Adjusted net interest margin
Reported net interest margin		4.63	%		4.51	%		4.75	%		4.71	%		4.56	%
Effect of accretion income on acquired loans		(0.08	)%		(0.10	)%		(0.09	)%		(0.09	)%		(0.12	)%
Effect of premium amortization on acquired
deposits and borrowings		(0.01	)%		(0.01	)%		(0.02	)%		(0.02	)%		(0.03	)%
Adjusted net interest margin		4.54	%		4.40	%		4.64	%		4.60	%		4.41	%

Average excess cash
Average total deposits	$	1,311,256		$	1,290,045		$	1,237,460		$	1,185,325		$	1,186,076
Borrowings due in one year or less		38,500			34,168			16,136			17,750			25,189
Total base for liquidity	$	1,349,756		$	1,324,213		$	1,253,596		$	1,203,075		$	1,211,265
Minimum liquidity level (10% of base) (a)	$	134,976		$	132,421		$	125,360		$	120,308		$	121,127
Average cash and cash equivalents (b)		150,702			181,789			159,767			168,740			204,588
Cash above liquidity level (b)-(a)		15,726			49,368			34,407			48,432			83,461
Less estimated short-term deposits		(13,813	)		(11,978	)		(23,834	)		(20,823	)		(11,353	)
Average excess cash	$	1,913		$	37,390		$	10,573		$	27,609		$	72,108

Tangible equity to tangible assets
Total stockholders' equity	$	205,631		$	200,981		$	199,560		$	194,555		$	189,812
Less: Goodwill		(249	)		(249	)		(249	)		(249	)		(249	)
Other intangible assets		(643	)		(699	)		(754	)		(824	)		(904	)
Tangible stockholders' equity	$	204,739		$	200,033		$	198,557		$	193,482		$	188,659

Total assets	$	1,787,071		$	1,725,520		$	1,712,483		$	1,677,806		$	1,596,739
Less: Goodwill		(249	)		(249	)		(249	)		(249	)		(249	)
Other intangible assets		(643	)		(699	)		(754	)		(824	)		(904	)
Tangible assets	$	1,786,179		$	1,724,572		$	1,711,480		$	1,676,733		$	1,595,586

Equity/Assets		11.51	%		11.65	%		11.65	%		11.60	%		11.89	%
Tangible Equity/Tangible Assets		11.46	%		11.60	%		11.60	%		11.54	%		11.82	%

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.

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.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

Interest Rate Risk Management

Interest rate risk management is carried out through our directors’ asset/liability committee (“ALCO”) & investments committee, which consists of certain directors and our Chief Executive Officer, supported by our Chief Financial Officer, business unit heads and certain other officers. To manage interest rate risk, our board of directors has established quantitative and qualitative guidelines with respect to our net interest income exposure and how interest rate shocks affect our financial performance. Consistent with industry practice, we measure interest rate risk by utilizing the concept of economic value of equity, which is the intrinsic value of assets, less the intrinsic value of liabilities. Economic value of equity does not take into account management intervention and assumes the change is instantaneous. Further, economic value of equity only evaluates risk to the current balance sheet. Therefore, in addition to this measurement, we also evaluate and consider the impact of interest rate shocks on other business factors, such as forecasted net interest income for subsequent years. In both cases, sensitivity is measured versus a base case, which assumes the forward curve for interest rates as of the balance sheet date.

Management continually reviews and refines its interest rate risk management process in response to the changing economic climate. Currently, our model projects minus 400, minus 300, minus 200, minus 100, 0, plus 100, plus 200, plus 300 and plus 400 basis point changes to evaluate our interest rate sensitivity and to determine whether specific action is needed to improve the current structure, either through economic hedges and matching strategies or by utilizing derivative instruments. In the current interest rate environment, management believes that the minus 200, minus 300 and minus 400 basis point scenarios are highly unlikely.

Based upon the current interest rate environment, as of March 31, 2016 and December 31, 2015, our sensitivity to interest rate risk based on a static scenario, assuming no change in asset and liability balances, was as follows:

As of March 31, 2016
			Next 12 Months
Interest Rate			Net Interest Income						Economic Value of Equity
Change in Basis Points			$ Change			% Change			$ Change			% Change
(in millions, except %)
	(400	)	$	(8.9	)		(12.0	)	$	(43.3	)		(19.0	)
	(300	)		(7.7	)		(10.4	)		(34.8	)		(15.3	)
	(200	)		(5.4	)		(7.3	)		(23.1	)		(10.2	)
	(100	)		(2.9	)		(3.9	)		(9.6	)		(4.2	)
	0			-			-			-			-
	100			4.4			6.0			8.7			3.8
	200			8.9			12.0			16.7			7.3
	300			13.3			17.9			23.7			10.4
	400			17.7			23.9			30.0			13.2

As of December 31, 2015
			Next 12 Months
Interest Rate			Net Interest Income						Economic Value of Equity
Change in Basis Points			$ Change			% Change			$ Change			% Change
(in millions, except %)
	(400	)	$	(10.3	)		(13.9	)	$	(43.8	)		(19.7	)
	(300	)		(8.6	)		(11.5	)		(33.5	)		(15.1	)
	(200	)		(6.0	)		(8.1	)		(21.5	)		(9.7	)
	(100	)		(2.7	)		(3.6	)		(7.3	)		(3.3	)
	0			-			-			-			-
	100			4.0			5.4			6.8			3.1
	200			8.0			10.8			12.7			5.7
	300			11.9			16.1			17.9			8.1
	400			15.9			21.4			22.3			10.1

We used many assumptions to calculate the impact of changes in interest rates on our portfolio, and actual results may not be similar to projections due to several factors, including the timing and frequency of rate changes, market conditions and the shape of the yield curve. Actual results may also differ due to our actions, if any, in response to the changing rates.

In the event the model indicates an unacceptable level of risk, we may take a number of actions to reduce this risk, including adjusting the maturity and/or rate sensitivity of our borrowings, changing our loan portfolio strategy or entering into hedging transactions, among others. As of March 31, 2016, we were in compliance with all of the limits and policies established by management.

Item 4. Controls and Procedures.

Our Chief Executive Officer and Chief Financial Officer have evaluated our disclosure controls and procedures, as defined in Rule 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), as of March 31, 2016, and have concluded that these disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time specified in the SEC’s rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II
Other Information

Item 1. Legal Proceedings

As previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2015, following the announcement of the merger with OZRK, a purported shareholder class action complaint was filed in the Court of the Sixth Circuit in Pinellas County, Florida (the “Court”) against C1 Financial and the individual members of C1 Financial’s board of directors, and OZRK (the “Action”). The Action generally alleged claims for breach of fiduciary duty by the individual directors of C1 Financial and also alleges that C1 Financial and OZRK have aided and abetted the C1 Financial board members’ breaches of their fiduciary duties. On January 22, 2016, the plaintiff in the Action filed an amended complaint adding, among other things, allegations of material misstatements and omissions concerning the content of the preliminary Registration Statement on Form S-4 filed by OZRK on January 5, 2016. The Action requests, among other things, that the Merger be enjoined.

On February 22, 2016, the parties to the Action entered into a memorandum of understanding (the “MOU”) reflecting the terms of an agreement, subject to final approval by the Court and certain other conditions, to settle the Action. Pursuant to the MOU, and without admitting any wrongdoing or that these supplemental disclosures are material or required to be made, defendants agreed to make certain supplemental disclosures requested by plaintiffs in the Action. The MOU further provides that, among other things, (a) after the completion of reasonable confirmatory discovery the parties will negotiate a definitive stipulation of settlement (the “Stipulation”) and will submit the Stipulation to the Court for review and approval; (b) the Stipulation will provide for dismissal of the Action with prejudice; (c) the Stipulation will include a general release of defendants of claims relating to, among other things, the Merger and the Merger Agreement; and (d) the settlement is conditioned on, among other things, consummation of the Merger, class certification and final approval by the Court after notice to C1 Financial’s shareholders. Defendants believe that the allegations and claims in the litigation are without merit and, if the settlement does not receive final approval, intend to defend them vigorously. Defendants are entering into the settlement solely to eliminate the burden and expense of further litigation and to put the claims that were or could have been asserted to rest. The settlement will not affect the timing of the Merger or the amount of consideration to be paid in the Merger.

We are currently involved in various claims and lawsuits incidental to the conduct of our business in the ordinary course. We carry insurance coverage in such amounts as we believe to be reasonable under the circumstances, although insurance may or may not cover any or all of our liabilities in respect of claims and lawsuits. We do not believe that the ultimate resolution of these matters will have a material adverse effect on our consolidated financial position, cash flows or operating results.

Item 1A. Risk Factors

As of May 9, 2016, there have been no material changes from the risk factors previously disclosed in response to “Part I—Item 1A Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2015, other than as set forth below. The risk factor presented below supersedes the risk factor having the same caption in our Annual Report on Form 10-K for the year ended December 31, 2015 and should be otherwise read in conjunction with all of the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2015.

Litigation Filed Against Us and Our Board Of Directors and OZRK Could Prevent Or Delay the Completion of the Merger Or Result in the Payment Of Damages Following Completion Of the Merger.

In connection with the merger, a putative class action lawsuit was filed by a purported shareholder of C1 Financial against us and our board of directors and OZRK. Among other remedies, the plaintiff seeks court approval of the plaintiff as a proper class representative and certification of the lawsuit as a shareholders’ class action, and seeks to enjoin the merger. On January 22, 2016, the plaintiff filed an amended complaint adding, among other things, details about the merger sales process and proposed transaction and allegations of material misrepresentations and omissions concerning the content of the preliminary Registration Statement on Form S-4 filed by OZRK on January 5, 2016. On February 22, 2016, the parties to the action entered into a memorandum of understanding reflecting the terms of an agreement, subject to final approval by the court and certain other conditions, to settle the action. If a dismissal is not granted or a settlement is not reached and approved by the court, the lawsuit could prevent or delay completion of the merger and result in substantial costs to OZRK and us, including any costs associated with indemnification. Additional lawsuits may be filed against us, OZRK, or the directors and officers of either company in connection with the merger. The defense or settlement of any lawsuit or claim seeking remedies against us, our board of directors or OZRK in connection with the merger transaction that remains unresolved at the effective time of the merger may adversely affect OZRK’s business, financial condition, results of operations and cash flows. See the section entitled “Legal Proceedings” for more information. See also “The Merger Agreement—Interests of C1 Executive Officers and Directors in the Merger—Indemnification” and “The Merger Agreement— Interests of C1 Executive Officers and Directors in the Merger—Officers’ and Directors’ Liability Insurance” in the C1 Financial Proxy Statement.

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None Applicable.

Item 5. Other Information

None.

Item 6. Exhibits

The exhibits filed or furnished with this quarterly report are shown on the Exhibit List that follows the signatures to this report, which list is incorporated herein by reference.

Signatures

Pursuant to the requirements 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.

C1 FINANCIAL, INC.

Signature	Title	Date

/s/ Cristian A. Melej	Chief Financial Officer	May 9, 2016
Cristian A. Melej	(Principal Financial Officer)

Exhibit Index***

Number		Exhibit Title

31.1*		Certification Statement of Chief Executive Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*		Certification Statement of Chief Financial Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1**		Certification Statement of Chief Executive Officer of the Company pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2**		Certification Statement of Chief Financial Officer of the Company pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101*		Interactive Data Files

*		Filed herewith.

**		Furnished herewith.

***		Reports filed under the Securities Exchange Act (Form 10-K, Form 10-Q and Form 8-K) are under File No. 001-36595.

C1 Financial, Inc. - FORM 10-Q - May 9, 2016

Attached files

C1 Financial, Inc. Reports