Edgar Filing: BANCORPSOUTH INC

bxs10q63012.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________________________

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2012

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: 001-12991

BANCORPSOUTH, INC.

(Exact name of registrant as specified in its charter)

Mississippi	64-0659571
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

One Mississippi Plaza, 201 South Spring Street Tupelo, Mississippi	38804
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code: (662) 680-2000

NOT APPLICABLE

(Former name, former address, and former fiscal year, if changed since last report)

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). [X] Yes [ ] 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 [X] Accelerated filer [ ] 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]

As of August 1, 2012, the registrant had outstanding 94,436,377 shares of common stock, par value $2.50 per share.

BANCORPSOUTH, INC.

TABLE OF CONTENTS

PART I.	Financial Information		Page

	ITEM 1.	Financial Statements
		Consolidated Balance Sheets June 30, 2012 and 2011 (Unaudited) and December 31, 2011	3
		Consolidated Statements of Operations (Unaudited) Three Months and Six Months Ended June 30, 2012 and 2011	4
		Consolidated Statements of Comprehensive Income Three Months and Six Months Ended June 30, 2012 and 2011	5
		Consolidated Statements of Cash Flows (Unaudited) Six Months Ended June 30, 2012 and 2011	6
		Notes to Consolidated Financial Statements (Unaudited)	7
	ITEM 2.	Management's Discussion and Analysis of Financial
		Condition and Results of Operations	38
	ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	75
	ITEM 4.	Controls and Procedures	76

PART II.		Other Information
	ITEM 1.	Legal Proceedings	76
	ITEM 1A.	Risk Factors	77
	ITEM 6.	Exhibits	78

PART I.
FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

BANCORPSOUTH, INC. AND SUBSIDIARIES
Consolidated Balance Sheets

	June 30,		December 31,			June 30,
	2012		2011			2011
	(Unaudited)			(1)		(Unaudited)
	(Dollars in thousands, except per share amounts)
ASSETS
Cash and due from banks	$	224,084	$	195,681		$	166,761
Interest bearing deposits with other banks		603,458		303,663			304,344
Available-for-sale securities, at fair value		2,462,831		2,513,518			2,560,824
Loans and leases		8,771,642		8,911,258			9,255,879
Less: Unearned income		39,247		40,947			41,326
Allowance for credit losses		175,847		195,118			197,627
Net loans		8,556,548		8,675,193			9,016,926
Loans held for sale		108,134		83,458			70,519
Premises and equipment, net		320,419		323,383			328,075
Accrued interest receivable		47,358		51,266			55,525
Goodwill		271,297		271,297			271,297
Bank-owned life insurance		202,620		200,085			197,028
Other real estate owned		143,615		173,805			151,204
Other assets		207,454		204,502			244,547
TOTAL ASSETS	$	13,147,818	$	12,995,851		$	13,367,050

LIABILITIES
Deposits:
Demand: Noninterest bearing	$	2,312,044	$	2,269,799		$	2,096,655
Interest bearing		4,782,243		4,706,825			4,939,553
Savings		1,083,255		991,702			944,993
Other time		2,778,795		2,986,863			3,327,262
Total deposits		10,956,337		10,955,189			11,308,463
Federal funds purchased and securities sold under agreement to repurchase		361,990		373,933			426,097
Short-term Federal Home Loan Bank and other short-term borrowings		1,500		1,500			703
Accrued interest payable		7,161		8,644			11,348
Junior subordinated debt securities		160,312		160,312			160,312
Long-term Federal Home Loan Bank borrowings		33,500		33,500			35,000
Other liabilities		208,707		199,861			178,424
TOTAL LIABILITIES		11,729,507		11,732,939			12,120,347

SHAREHOLDERS' EQUITY
Common stock, $2.50 par value per share Authorized - 500,000,000 shares; Issued - 94,436,377, 83,483,796 and 83,488,962 shares, respectively		236,091		208,709			208,722
Capital surplus		310,388		227,567			226,362
Accumulated other comprehensive income (loss)		1,334		(2,261	)		6,289
Retained earnings		870,498		828,897			805,330
TOTAL SHAREHOLDERS' EQUITY		1,418,311		1,262,912			1,246,703
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	13,147,818	$	12,995,851		$	13,367,050

(1) Derived from audited financial statements.

See accompanying notes to consolidated financial statements.

BANCORPSOUTH, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)


	Three months ended				Six months ended
	June 30,				June 30,
	2012		2011		2012		2011
	(In thousands, except for per share amounts)
INTEREST REVENUE:
Loans and leases	$	107,737	$	116,892	$	216,749	$	234,250
Deposits with other banks		382		124		783		246
Federal funds sold and securities purchased under agreement to resell		1		35		1		166
Held-to-maturity securities:
Taxable		-		5,066		-		13,080
Tax-exempt		-		2,291		-		5,638
Available-for-sale securities:
Taxable		10,188		10,451		21,350		19,036
Tax-exempt		4,210		1,871		8,466		2,695
Loans held for sale		686		505		1,230		952
Total interest revenue		123,204		137,235		248,579		276,063

INTEREST EXPENSE:
Deposits:
Interest bearing demand		4,185		6,039		8,634		12,585
Savings		691		810		1,405		1,636
Other time		10,275		16,285		21,566		33,768

Federal funds purchased and securities sold under agreement to repurchase		66		135		129		287
Federal Home Loan Bank borrowings		366		1,194		733		2,717
Junior subordinated debt		2,879		2,860		5,758		5,719
Other		1		-		3		2
Total interest expense		18,463		27,323		38,228		56,714
Net interest revenue		104,741		109,912		210,351		219,349
Provision for credit losses		6,000		32,240		16,000		85,719
Net interest revenue, after provision for credit losses		98,741		77,672		194,351		133,630

NONINTEREST REVENUE:
Mortgage lending		11,040		2,003		26,182		9,584
Credit card, debit card and merchant fees		7,787		11,263		15,310		21,609
Service charges		13,697		16,556		28,813		31,924
Trust income		3,139		2,850		5,421		5,984
Security gains, net		177		10,045		251		10,062
Insurance commissions		22,964		22,941		46,117		45,490
Other		7,664		9,486		16,734		18,802
Total noninterest revenue		66,468		75,144		138,828		143,455

NONINTEREST EXPENSE:
Salaries and employee benefits		77,661		70,142		152,592		140,517
Occupancy, net of rental income		10,487		10,232		20,553		20,903
Equipment		5,124		5,595		10,457		11,253
Deposit insurance assessments		3,994		6,436		9,377		11,861
Prepayment penalty on FHLB borrowings		-		9,778		-		9,778
Other		39,240		34,886		79,207		72,767
Total noninterest expense		136,506		137,069		272,186		267,079
Income before income taxes		28,703		15,747		60,993		10,006
Income tax expense (benefit)		8,079		2,921		17,503		(2,326	)
Net income	$	20,624	$	12,826	$	43,490	$	12,332

Earnings per share: Basic	$	0.22	$	0.15	$	0.47	$	0.15
Diluted	$	0.22	$	0.15	$	0.47	$	0.15

Dividends declared per common share	$	0.01	$	0.01	$	0.02	$	0.12

See accompanying notes to consolidated financial statements.

BANCORPSOUTH, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(Unaudited)



	Three months ended				Six months ended
	June 30,				June 30,
	2012		2011		2012		2011
	(In thousands)
Net income	$	20,624	$	12,826	$	43,490	$	12,332

Other comprehensive income, net of tax
Unrealized gains on securities		5,076		22,477		2,123		19,960
Pension and other postretirement benefits		394		391		1,472		782
Other comprehensive income		5,470		22,868		3,595		20,742
Comprehensive income	$	26,094	$	35,694	$	47,085	$	33,074


See accompanying notes to consolidated financial statements.

BANCORPSOUTH, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)


	Six months ended
	June 30,
	2012			2011
	(In thousands)
Operating Activities:
Net income	$	43,490		$	12,332
Adjustment to reconcile net income to net cash provided by operating activities:
Provision for credit losses		16,000			85,719
Depreciation and amortization		13,540			14,789
Deferred taxes		-			(267	)
Amortization of intangibles		1,504			1,687
Amortization of debt securities premium and discount, net		6,562			13,936
Share-based compensation expense		1,524			1,285
Security gains, net		(251	)		(10,062	)
Net deferred loan origination expense		(4,085	)		(4,384	)
Excess tax benefit from exercise of stock options		-			(8	)
Decrease in interest receivable		3,908			5,500
Decrease in interest payable		(1,483	)		(2,988	)
Realized gain on mortgages sold		(27,693	)		(14,225	)
Proceeds from mortgages sold		441,930			483,065
Origination of mortgages held for sale		(444,051	)		(448,082	)
Increase in bank-owned life insurance		(2,535	)		(2,964	)
Decrease (increase) in prepaid pension asset		2,587			(186	)
Decrease in prepaid deposit insurance assessments		8,985			11,040
Other, net		(2,071	)		(1,035	)
Net cash provided by operating activities		57,861			145,152
Investing activities:
Proceeds from calls and maturities of held-to-maturity securities		-			135,781
Proceeds from calls and maturities of available-for-sale securities		266,829			131,124
Proceeds from sales of available-for-sale securities		4,727			180,057
Purchases of held-to-maturity securities		-			(151,105	)
Purchases of available-for-sale securities		(223,716	)		(119,089	)
Net decrease in short-term investments		-			150,000
Net decrease in loans and leases		136,920			20,141
Purchases of premises and equipment		(11,362	)		(10,520	)
Proceeds from sale of premises and equipment		968			1,693
Contingency earn-out payment		-			(1,200	)
Other, net		(16	)		(31	)
Net cash provided by investing activities		174,350			336,851
Financing activities:
Net increase (decrease) in deposits		1,147			(181,558	)
Net decrease in short-term debt and other liabilities		(11,950	)		(16,526	)
Repayment of long-term debt		-			(75,000	)
Issuance of common stock		108,678			110
Excess tax benefit from exercise of stock options		-			8
Payment of cash dividends		(1,888	)		(10,018	)
Net cash provided by (used in) financing activities		95,987			(282,984	)

Increase in cash and cash equivalents		328,198			199,019
Cash and cash equivalents at beginning of period		499,344			272,086
Cash and cash equivalents at end of period	$	827,542		$	471,105

See accompanying notes to consolidated financial statements.

BANCORPSOUTH, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 1 – BASIS OF FINANCIAL STATEMENT PRESENTATION AND PRINCIPLES OF CONSOLIDATION

The accompanying unaudited interim consolidated financial statements of BancorpSouth, Inc. (the “Company”) have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and follow general practices within the industries in which the Company operates. For further information, refer to the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. In the opinion of management, all adjustments necessary for a fair presentation of the consolidated financial statements have been included and all such adjustments were of a normal, recurring nature. The results of operations for the three-month and six-month period ended June 30, 2012 are not necessarily indicative of the results to be expected for the full year. Certain 2011 amounts have been reclassified to conform with the 2012 presentation.

The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, BancorpSouth Bank (the “Bank”) and Gumtree Wholesale Insurance Brokers, Inc., and the Bank’s wholly-owned subsidiaries, Century Credit Life Insurance Company, Personal Finance Corporation of Tennessee, BancorpSouth Insurance Services, Inc., BancorpSouth Investment Services, Inc., BancorpSouth Municipal Development Corporation and BancorpSouth Bank Securities Corporation.

NOTE 2 – LOANS AND LEASES

The Company’s loan and lease portfolio is disaggregated into the following segments: commercial and industrial; real estate; credit card; and all other loans and leases. The real estate segment is further disaggregated into the following classes: consumer mortgage; home equity; agricultural; commercial and industrial-owner occupied; construction, acquisition and development; and commercial real estate. A summary of gross loans and leases by segment and class as of the dates indicated follows:

	June 30,				December 31,
	2012		2011		2011
	(In thousands)

Commercial and industrial	$	1,507,382	$	1,540,048	$	1,484,967
Real estate
Consumer mortgages		1,904,420		1,971,499		1,945,190
Home equity		496,245		531,787		514,362
Agricultural		251,975		255,310		239,487
Commercial and industrial-owner occupied		1,288,887		1,366,734		1,301,575
Construction, acquisition and development		835,022		1,060,675		908,362
Commercial real estate		1,748,748		1,764,648		1,754,022
Credit cards		101,085		101,955		106,281
All other		637,878		663,223		657,012
Total	$	8,771,642	$	9,255,879	$	8,911,258

The following table shows the Company’s loans and leases, net of unearned income, as of June 30, 2012 by segment, class and geographical location:

	Alabama and Florida Panhandle		Arkansas*		Mississippi*		Missouri		Greater Memphis Area		Tennessee*		Texas and Louisiana		Other		Total
	(In thousands)

Commercial and industrial	$	57,950	$	191,231	$	340,454	$	56,176	$	17,036	$	83,517	$	248,738	$	502,576	$	1,497,678
Real estate
Consumer mortgages		104,590		266,625		748,850		44,442		83,380		161,013		448,735		46,785		1,904,420
Home equity		59,969		38,511		168,552		24,417		66,302		74,942		61,547		2,005		496,245
Agricultural		6,632		81,867		68,990		3,439		9,497		14,043		62,527		4,980		251,975
Commercial and industrial-owner occupied		116,744		159,231		454,193		81,542		90,680		89,351		250,432		46,714		1,288,887
Construction, acquisition and development		95,278		60,747		251,977		44,756		91,437		88,684		174,818		27,325		835,022
Commercial real estate		190,195		346,586		360,704		204,377		115,061		101,883		377,008		52,934		1,748,748
Credit cards		-		-		-		-		-		-		-		101,085		101,085
All other		30,890		86,350		190,620		6,852		56,187		49,481		95,729		92,226		608,335
Total	$	662,248	$	1,231,148	$	2,584,340	$	466,001	$	529,580	$	662,914	$	1,719,534	$	876,630	$	8,732,395

* Excludes the Greater Memphis Area.

The Company’s loan concentrations which exceed 10% of total loans are reflected in the preceding tables. A substantial portion of construction, acquisition and development loans are secured by real estate in markets in which the Company is located. The Company’s general loan policy prohibits the use of interest reserves on loans originated after March 2010. Certain of the construction, acquisition and development loans were structured with interest-only terms. A portion of the consumer mortgage and commercial real estate portfolios originated through the permanent financing of construction, acquisition and development loans. The prolonged economic downturn has negatively impacted many borrowers’ and guarantors’ ability to make payments under the terms of the loans as their liquidity has been depleted. Accordingly, the ultimate collectability of a substantial portion of these loans and the recovery of a substantial portion of the carrying amount of other real estate owned are susceptible to changes in real estate values in the corresponding market areas. Continued economic distress could negatively impact additional borrowers’ and guarantors’ ability to repay their debt which would make more of the Company’s loans collateral dependent.

The following tables provide details regarding the aging of the Company’s loan and lease portfolio, net of unearned income, by segment and class at June 30, 2012 and December 31, 2011:

	June 30, 2012
													90+ Days
	30-59 Days		60-89 Days		90+ Days		Total				Total		Past Due still
	Past Due		Past Due		Past Due		Past Due		Current		Outstanding		Accruing
	(In thousands)

Commercial and industrial	$	5,516	$	782	$	5,697	$	11,995	$	1,485,683	$	1,497,678	$	-
Real estate
Consumer mortgages		12,472		3,849		15,421		31,742		1,872,678		1,904,420		1,141
Home equity		1,268		547		157		1,972		494,273		496,245		-
Agricultural		1,162		952		4,209		6,323		245,652		251,975		-
Commercial and industrial-owner occupied		2,888		1,609		7,209		11,706		1,277,181		1,288,887		-
Construction, acquisition and development		7,449		1,012		17,319		25,780		809,242		835,022		-
Commercial real estate		1,549		3,305		8,592		13,446		1,735,302		1,748,748		-
Credit cards		420		286		564		1,270		99,815		101,085		324
All other		2,597		289		440		3,326		605,009		608,335		167
Total	$	35,321	$	12,631	$	59,608	$	107,560	$	8,624,835	$	8,732,395	$	1,632

	December 31, 2011
													90+ Days
	30-59 Days		60-89 Days		90+ Days		Total				Total		Past Due still
	Past Due		Past Due		Past Due		Past Due		Current		Outstanding		Accruing
	(In thousands)

Commercial and industrial	$	5,571	$	4,209	$	4,193	$	13,973	$	1,459,755	$	1,473,728	$	12
Real estate
Consumer mortgages		15,740		6,485		14,569		36,794		1,908,396		1,945,190		2,974
Home equity		1,837		265		594		2,696		511,666		514,362		-
Agricultural		666		54		719		1,439		238,048		239,487		-
Commercial and industrial-owner occupied		2,199		844		12,977		16,020		1,285,555		1,301,575		-
Construction, acquisition and development		4,826		4,955		33,584		43,365		864,997		908,362		-
Commercial real estate		3,778		2,702		9,397		15,877		1,738,145		1,754,022		-
Credit cards		595		303		697		1,595		104,686		106,281		299
All other		2,124		390		1,579		4,093		623,211		627,304		149
Total	$	37,336	$	20,207	$	78,309	$	135,852	$	8,734,459	$	8,870,311	$	3,434

The Company utilizes an internal loan classification system to grade loans according to certain credit quality indicators. These credit quality indicators include, but are not limited to, recent credit performance, delinquency, liquidity, cash flows, debt coverage ratios, collateral type and loan-to-value ratio. The Company’s internal loan classification system is compatible with classifications used by the Federal Deposit Insurance Corporation, as well as other regulatory agencies. Loans may be classified as follows:

Pass: Loans which are performing as agreed with few or no signs of weakness. These loans show sufficient cash flow, capital and collateral to repay the loan as agreed. Borrowers for these loans include well capitalized public corporations.

Special Mention: Loans where potential weaknesses have developed which could cause a more serious problem if not corrected.

Substandard: Loans where well-defined weaknesses exist that require corrective action to prevent further deterioration.

Doubtful: Loans having all the characteristics of Substandard and which have deteriorated to a point where collection and liquidation in full is highly questionable.

Loss: Loans that are considered uncollectible or with limited possible recovery.

Impaired: Loans for which it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement and for which a specific impairment reserve has been considered.

The following tables provide details of the Company’s loan and lease portfolio, net of unearned income, by segment, class and internally assigned grade at June 30, 2012 and December 31, 2011:

	June 30, 2012
	Pass		Special Mention		Substandard		Doubtful		Loss		Impaired		Total
	(In thousands)
Commercial and industrial	$	1,426,787	$	12,480	$	46,512	$	959	$	34	$	10,906	$	1,497,678
Real estate
Consumer mortgage		1,720,260		29,254		132,775		4,748		302		17,081		1,904,420
Home equity		472,291		3,476		17,759		908		243		1,568		496,245
Agricultural		225,886		2,989		15,687		20		-		7,393		251,975
Commercial and industrial-owner occupied		1,158,082		25,740		83,048		276		28		21,713		1,288,887
Construction, acquisition and development		607,942		26,947		99,471		589		20		100,053		835,022
Commercial real estate		1,515,262		48,217		144,301		71		199		40,698		1,748,748
Credit Cards		101,085		-		-		-		-		-		101,085
All other		572,073		18,060		16,425		803		9		965		608,335
Total	$	7,799,668	$	167,163	$	555,978	$	8,374	$	835	$	200,377	$	8,732,395

	December 31, 2011
	Pass		Special Mention		Substandard		Doubtful		Loss		Impaired		Total
	(In thousands)
Commercial and industrial	$	1,415,731	$	4,947	$	43,549	$	1,263	$	405	$	7,833	$	1,473,728
Real estate
Consumer mortgage		1,742,593		17,914		148,267		4,434		189		31,793		1,945,190
Home equity		492,235		2,775		17,050		1,134		493		675		514,362
Agricultural		213,280		3,795		19,296		20		-		3,096		239,487
Commercial and industrial-owner occupied		1,167,220		18,280		90,778		496		-		24,801		1,301,575
Construction, acquisition and development		619,497		23,429		136,412		845		-		128,179		908,362
Commercial real estate		1,501,196		37,409		179,295		-		-		36,122		1,754,022
Credit Cards		105,867		41		175		188		10		-		106,281
All other		587,970		16,104		20,263		470		73		2,424		627,304
Total	$	7,845,589	$	124,694	$	655,085	$	8,850	$	1,170	$	234,923	$	8,870,311

The following tables provide details regarding impaired loans and leases, net of unearned income, by segment and class at June 30, 2012 and December 31, 2011:

	June 30, 2012
							Average Recorded Investment				Interest Income Recognized
	Recorded Investment in Impaired Loans		Unpaid Principal Balance of Impaired Loans		Related Allowance for Credit Losses		Three months ended June 30, 2012		Six months ended June 30, 2012		Three months ended June 30, 2012		Six months ended June 30, 2012
	(In thousands)
With no related allowance:
Commercial and industrial	$	2,527	$	2,882	$	-	$	2,366	$	2,916	$	2	$	11
Real estate
Consumer mortgage		9,206		11,260		-		12,784		12,981		17		39
Home equity		868		1,011		-		869		790		2		2
Agricultural		6,192		7,606		-		4,548		3,075		3		7
Commercial and industrial-owner occupied		13,028		17,697		-		11,139		10,289		26		51
Construction, acquisition and development		56,319		75,149		-		60,735		60,576		73		160
Commercial		22,330		33,569		-		18,708		17,415		27		65
All other		706		1,019		-		711		750		1		3
Total	$	111,176	$	150,193	$	-	$	111,860	$	108,792	$	151	$	338

With an allowance:
Commercial and industrial	$	8,379	$	8,877	$	5,575	$	8,078	$	5,931	$	10	$	19
Real estate
Consumer mortgage		7,875		8,657		2,002		12,623		15,046		30		72
Home equity		700		700		168		703		481		3		3
Agricultural		1,201		1,207		378		1,264		1,373		3		3
Commercial and industrial-owner occupied		8,685		10,726		1,019		12,385		14,360		16		34
Construction, acquisition and development		43,734		58,264		10,641		47,429		54,153		101		226
Commercial		18,368		20,749		3,924		14,718		16,567		60		96
All other		259		330		232		265		296		1		2
Total	$	89,201	$	109,510	$	23,939	$	97,465	$	108,207	$	224	$	455

Total:
Commercial and industrial	$	10,906	$	11,759	$	5,575	$	10,444	$	8,847	$	12	$	30
Real estate
Consumer mortgage		17,081		19,917		2,002		25,407		28,027		47		111
Home equity		1,568		1,711		168		1,572		1,271		5		5
Agricultural		7,393		8,813		378		5,812		4,448		6		10
Commercial and industrial-owner occupied		21,713		28,423		1,019		23,524		24,649		42		85
Construction, acquisition and development		100,053		133,413		10,641		108,164		114,729		174		386
Commercial		40,698		54,318		3,924		33,426		33,982		87		161
All other		965		1,349		232		976		1,046		2		5
Total	$	200,377	$	259,703	$	23,939	$	209,325	$	216,999	$	375	$	793

	December 31, 2011
			Unpaid
	Recorded		Principal		Related
	Investment		Balance of		Allowance		Average		Interest
	in Impaired		Impaired		for Credit		Recorded		Income
	Loans		Loans		Losses		Investment		Recognized
	(In thousands)
With no related allowance:
Commercial and industrial	$	4,874	$	6,854	$	-	$	3,879	$	78
Real estate
Consumer mortgage		16,883		19,538		-		19,628		397
Home equity		627		771		-		541		1
Agricultural		1,549		2,676		-		2,502		20
Commercial and industrial-owner occupied		6,973		9,191		-		11,598		185
Construction, acquisition and development		69,843		89,782		-		107,596		941
Commercial real estate		15,184		24,198		-		20,702		311
All other		1,284		1,668		-		1,169		67
Total	$	117,217	$	154,678	$	-	$	167,615	$	2,000

With an allowance:
Commercial and industrial	$	2,959	$	3,301	$	4,071	$	3,558	$	49
Real estate
Consumer mortgage		14,910		16,224		4,386		14,960		323
Home equity		48		276		48		504		3
Agricultural		1,547		1,547		380		3,164		18
Commercial and industrial-owner occupied		17,828		21,085		3,601		10,329		146
Construction, acquisition and development		58,336		67,426		21,581		80,957		1,651
Commercial real estate		20,938		21,422		5,324		27,210		851
All other		1,140		1,140		317		1,307		8
Total	$	117,706	$	132,421	$	39,708	$	141,989	$	3,049

Total:
Commercial and industrial	$	7,833	$	10,155	$	4,071	$	7,437	$	127
Real estate
Consumer mortgage		31,793		35,762		4,386		34,588		720
Home equity		675		1,047		48		1,045		4
Agricultural		3,096		4,223		380		5,666		38
Commercial and industrial-owner occupied		24,801		30,276		3,601		21,927		331
Construction, acquisition and development		128,179		157,208		21,581		188,553		2,592
Commercial real estate		36,122		45,620		5,324		47,912		1,162
All other		2,424		2,808		317		2,476		75
Total	$	234,923	$	287,099	$	39,708	$	309,604	$	5,049

The following tables provide details regarding impaired real estate construction, acquisition and development loans and leases, net of unearned income, by collateral type at June 30, 2012 and December 31, 2011:

	June 30, 2012
			Unpaid				Average Recorded Investment				Interest Income Recognized
	Recorded		Principal		Related		Three months		Six months		Three months		Six months
	Investment		Balance of		Allowance		ended		ended		ended		ended
	in Impaired		Impaired		for Credit		June 30,		June 30,		June 30,		June 30,
	Loans		Loans		Losses		2012		2012		2012		2012
	(In thousands)
With no related allowance:
Multi-family construction	$	-	$	-	$	-	$	-	$	-	$	-	$	-
One-to-four family construction		8,577		12,623		-		8,616		7,660		7		21
Recreation and all other loans		359		532		-		362		365		1		3
Commercial construction		3,035		3,629		-		3,163		2,342		9		17
Commercial acquisition and development		14,324		19,560		-		12,666		12,756		14		33
Residential acquisition and development		30,024		38,805		-		35,928		37,453		42		86
Total	$	56,319	$	75,149	$	-	$	60,735	$	60,576	$	73	$	160

With an allowance:
Multi-family construction	$	-	$	-	$	-	$	-	$	-	$	-	$	-
One-to-four family construction		6,002		7,545		1,219		3,440		4,495		6		14
Recreation and all other loans		-		-		-		-		-		-		-
Commercial construction		1,131		1,434		980		930		1,662		4		5
Commercial acquisition and development		6,076		6,387		1,122		11,804		11,075		21		40
Residential acquisition and development		30,525		42,898		7,320		31,255		36,921		70		167
Total	$	43,734	$	58,264	$	10,641	$	47,429	$	54,153	$	101	$	226

Total:
Multi-family construction	$	-	$	-	$	-	$	-	$	-	$	-	$	-
One-to-four family construction		14,579		20,168		1,219		12,056		12,155		13		35
Recreation and all other loans		359		532		-		362		365		1		3
Commercial construction		4,166		5,063		980		4,093		4,004		13		22
Commercial acquisition and development		20,400		25,947		1,122		24,470		23,831		35		73
Residential acquisition and development		60,549		81,703		7,320		67,183		74,374		112		253
Total	$	100,053	$	133,413	$	10,641	$	108,164	$	114,729	$	174	$	386

	December 31, 2011
			Unpaid
	Recorded		Principal		Related
	Investment		Balance of		Allowance		Average		Interest
	in Impaired		Impaired		for Credit		Recorded		Income
	Loans		Loans		Losses		Investment		Recognized
	(In thousands)
With no related allowance:
Multi-family construction	$	1,067	$	2,259	$	-	$	5,474	$	18
One-to-four family construction		7,931		9,313		-		9,269		94
Recreation and all other loans		372		545		-		491		9
Commercial construction		633		917		-		9,663		83
Commercial acquisition and development		17,130		19,855		-		20,640		99
Residential acquisition and development		42,710		56,893		-		62,059		638
Total	$	69,843	$	89,782	$	-	$	107,596	$	941

With an allowance:
Multi-family construction	$	-	$	-	$	-	$	571	$	-
One-to-four family construction		5,313		6,083		1,589		5,334		108
Recreation and all other loans		-		-		-		271		2
Commercial construction		4,387		5,128		886		7,289		126
Commercial acquisition and development		5,091		7,728		1,418		12,965		429
Residential acquisition and development		43,545		48,487		17,688		54,527		986
Total	$	58,336	$	67,426	$	21,581	$	80,957	$	1,651

Total:
Multi-family construction	$	1,067	$	2,259	$	-	$	6,045	$	18
One-to-four family construction		13,244		15,396		1,589		14,603		202
Recreation and all other loans		372		545		-		762		11
Commercial construction		5,020		6,045		886		16,952		209
Commercial acquisition and development		22,221		27,583		1,418		33,605		528
Residential acquisition and development		86,255		105,380		17,688		116,586		1,624
Total	$	128,179	$	157,208	$	21,581	$	188,553	$	2,592

Loans considered impaired under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 310, Receivables (“FASB ASC 310”), are loans for which, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. The Company’s recorded investment in loans considered impaired at June 30, 2012 and December 31, 2011 was $200.4 million and $234.9 million, respectively. At June 30, 2012 and December 31, 2011, $89.2 million and $117.7 million, respectively, of those impaired loans had a valuation allowance of $23.9 million and $39.7 million, respectively. The remaining balance of impaired loans of $111.2 million and $117.2 million at June 30, 2012 and December 31, 2011, respectively, were charged down to fair value, less estimated selling costs which approximated net realizable value. Therefore, such loans did not have an associated valuation allowance. Impaired loans that were characterized as troubled debt restructurings (“TDRs”) totaled $59.3 million and $58.0 million at June 30, 2012 and December 31, 2011, respectively. The average recorded investment in impaired loans was $209.3 million and $217.0 million for the three months and six months ended June 30, 2012, respectively, and $309.6 million for the year ended December 31, 2011.

Non-performing loans and leases (“NPLs”) consist of non-accrual loans and leases, loans and leases 90 days or more past due and still accruing, and loans and leases that have been restructured because of the borrower’s weakened financial condition. The following table presents information concerning NPLs as of the dates indicated:

	June 30,				December 31,
	2012		2011		2011
	(In thousands)

Non-accrual loans and leases	$	240,246	$	331,076	$	276,798
Loans and leases 90 days or more past due, still accruing		1,632		3,980		3,434
Restructured loans and leases still accruing		25,071		44,786		42,018
Total non-performing loans and leases	$	266,949	$	379,842	$	322,250

The Bank’s policy for all loan classifications provides that loans and leases are generally placed in non-accrual status if, in management’s opinion, payment in full of principal or interest is not expected or payment of principal or interest is more than 90 days past due, unless such loan or lease is both well-secured and in the process of collection. At June 30, 2012, the Company’s geographic NPL distribution was concentrated primarily in its Alabama, Texas, Louisiana and Tennessee markets, including the greater Memphis, Tennessee area, a portion of which is in northwest Mississippi and Arkansas. The following table presents the Company’s nonaccrual loans and leases by segment and class as of the dates indicated:

	June 30,				December 31,
	2012		2011		2011
	(In thousands)

Commercial and industrial	$	13,156	$	9,337	$	12,260
Real estate
Consumer mortgages		35,660		34,174		47,878
Home equity		2,995		1,232		2,036
Agricultural		8,390		8,526		4,179
Commercial and industrial-owner occupied		26,957		26,387		33,112
Construction, acquisition and development		104,283		200,434		133,110
Commercial real estate		44,359		48,571		40,616
Credit cards		364		546		594
All other		4,082		1,869		3,013
Total	$	240,246	$	331,076	$	276,798

In the normal course of business, management will sometimes grant concessions, which would not otherwise be considered, to borrowers that are experiencing financial difficulty. Loans identified as meeting the criteria set out in FASB ASC 310 are identified as TDRs. The concessions granted most frequently for TDRs involve reductions or delays in required payments of principal and interest for a specified period, the rescheduling of payments in accordance with a bankruptcy plan or the charge-off of a portion of the loan. In most cases, the conditions of the credit also warrant nonaccrual status, even after the restructure occurs. Other conditions that warrant a loan being considered a TDR include reductions in interest rates to below market rates due to bankruptcy plans or by the bank in an attempt to assist the borrower in working through liquidity problems. As part of the credit approval process, the restructured loans are evaluated for adequate collateral protection in determining the appropriate accrual status at the time of restructure. TDRs recorded as nonaccrual loans may be returned to accrual status in years after the restructure if there has been at least a six-month period of sustained repayment performance by the borrower under the restructured loan terms and the interest rate at the time of restructure was at or above market for a comparable loan. During the second quarter and first six months of 2012, the most common concessions that were granted involved rescheduling payments of principal and interest over a longer amortization period, granting a period of reduced principal payment or interest only payment for a limited time period, or the rescheduling of payments in accordance with a bankruptcy plan.

The following tables summarize the financial effect of TDRs for the periods indicated:

	Three months ended June 30, 2012
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(Dollars in thousands)
Commercial and industrial		2	$	658	$	656
Real estate
Consumer mortgages		8		2,750		2,162
Agricultural		1		446		457
Commercial and industrial-owner occupied		9		3,837		3,254
Construction, acquisition and development		21		13,421		13,343
Commercial real estate		2		3,744		3,740
Total		43	$	24,856	$	23,612

	Six months ended June 30, 2012
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(Dollars in thousands)
Commercial and industrial		7	$	1,668	$	1,330
Real estate
Consumer mortgages		21		6,016		5,373
Agricultural		2		853		861
Commercial and industrial-owner occupied		17		5,965		5,371
Construction, acquisition and development		32		20,701		20,299
Commercial		8		6,924		6,912
All other		5		639		637
Total		92	$	42,766	$	40,783

	Year ended December 31, 2011
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(Dollars in thousands)
Commercial and industrial		7	$	3,142	$	2,374
Real estate
Consumer mortgages		35		6,901		6,424
Agricultural		4		2,650		1,479
Commercial and industrial-owner occupied		29		13,330		11,740
Construction, acquisition and development		30		23,863		19,228
Commercial real estate		24		16,121		15,046
All other		7		2,957		2,406
Total		136	$	68,964	$	58,697

The following tables summarize TDRs within the previous 12 months for which there was a payment default during the period indicated (i.e., 30 days or more past due at any given time during the period indicated):

	Three months ended June 30, 2012
	Number of Contracts		Recorded Investment
	(Dollars in thousands)
Real estate
Consumer mortgages		4	$	850
Commercial and industrial-owner occupied		2		248
Construction, acquisition and development		10		4,248
Commercial real estate		1		1,011
Total		17	$	6,357

	Six months ended June 30, 2012
	Number of Contracts		Recorded Investment
	(Dollars in thousands)
Commercial and industrial		1	$	129
Real estate
Consumer mortgages		10		1,368
Agricultural		1		170
Commercial and industrial-owner occupied		5		1,610
Construction, acquisition and development		10		4,248
Commercial		3		2,525
Total		30	$	10,050

	Year ended December 31, 2011
	Number of Contracts		Recorded Investment
	(Dollars in thousands)
Commercial and industrial		4	$	1,506
Real estate
Consumer mortgages		4		1,563
Agricultural		3		1,382
Commercial and industrial-owner occupied		6		1,683
Construction, acquisition and development		13		3,622
Commercial real estate		3		2,946
All other		1		302
Total		34	$	13,004

NOTE 3 – ALLOWANCE FOR CREDIT LOSSES

The following tables summarize the changes in the allowance for credit losses by segment and class for the periods indicated:

	Six months ended
	June 30, 2012
	Balance,										Balance,
	Beginning of										End of
	Period		Charge-offs			Recoveries		Provision			Period
	(In thousands)

Commercial and industrial	$	20,724	$	(5,854	)	$	2,582	$	8,363		$	25,815
Real estate
Consumer mortgage		36,529		(7,034	)		761		4,175			34,431
Home equity		8,630		(1,387	)		393		(300	)		7,336
Agricultural		3,921		(482	)		63		(243	)		3,259
Commercial and industrial-owner occupied		21,929		(6,600	)		1,865		165			17,359
Construction, acquisition and development		45,562		(20,954	)		4,110		4,037			32,755
Commercial real estate		39,444		(6,069	)		4,887		(1,096	)		37,166
Credit Cards		4,021		(1,150	)		239		49			3,159
All other		14,358		(1,196	)		555		850			14,567
Total	$	195,118	$	(50,726	)	$	15,455	$	16,000		$	175,847

	Year ended
	December 31, 2011
	Balance,									Balance,
	Beginning of									End of
	Period		Charge-offs			Recoveries		Provision		Period
	(In thousands)

Commercial and industrial	$	22,479	$	(17,337	)	$	1,567	$	14,015	$	20,724
Real estate
Consumer mortgage		35,540		(10,186	)		1,111		10,064		36,529
Home equity		7,305		(5,852	)		185		6,992		8,630
Agricultural		4,997		(3,420	)		123		2,221		3,921
Commercial and industrial-owner occupied		20,403		(10,302	)		393		11,435		21,929
Construction, acquisition and development		59,048		(67,362	)		3,951		49,925		45,562
Commercial real estate		33,439		(17,436	)		1,045		22,396		39,444
Credit Cards		4,126		(3,072	)		803		2,164		4,021
All other		9,576		(7,088	)		1,001		10,869		14,358
Total	$	196,913	$	(142,055	)	$	10,179	$	130,081	$	195,118

	Six months ended
	June 30, 2011
	Balance,									Balance,
	Beginning of									End of
	Period		Charge-offs			Recoveries		Provision		Period
	(In thousands)

Commercial and industrial	$	22,479	$	(14,365	)	$	773	$	13,953	$	22,840
Real estate
Consumer mortgage		35,540		(4,889	)		363		6,031		37,045
Home equity		7,305		(2,473	)		91		2,697		7,620
Agricultural		4,997		(965	)		47		630		4,709
Commercial and industrial-owner occupied		20,403		(4,944	)		194		8,991		24,644
Construction, acquisition and development		59,048		(49,126	)		2,057		41,941		53,920
Commercial real estate		33,439		(6,111	)		405		7,560		35,293
Credit Cards		4,126		(1,606	)		494		473		3,487
All other		9,576		(5,524	)		574		3,443		8,069
Total	$	196,913	$	(90,003	)	$	4,998	$	85,719	$	197,627

The following tables provide the allowance for credit losses by segment, class and impairment status as of the dates indicated:

	June 30, 2012
	Recorded		Allowance for		Allowance for
	Balance of		Impaired Loans		All Other Loans		Total
	Impaired Loans		and Leases		and Leases		Allowance
	(In thousands)

Commercial and industrial	$	10,906	$	5,575	$	20,240	$	25,815
Real estate
Consumer mortgage		17,081		2,002		32,429		34,431
Home equity		1,568		168		7,168		7,336
Agricultural		7,393		378		2,881		3,259
Commercial and industrial-owner occupied		21,713		1,019		16,340		17,359
Construction, acquisition and development		100,053		10,641		22,114		32,755
Commercial real estate		40,698		3,924		33,242		37,166
Credit Cards		-		-		3,159		3,159
All other		965		232		14,335		14,567
Total	$	200,377	$	23,939	$	151,908	$	175,847

	December 31, 2011
	Recorded		Allowance for		Allowance for
	Balance of		Impaired Loans		All Other Loans		Total
	Impaired Loans		and Leases		and Leases		Allowance
	(In thousands)

Commercial and industrial	$	7,833	$	4,071	$	16,653	$	20,724
Real estate
Consumer mortgage		31,793		4,386		32,143		36,529
Home equity		675		48		8,582		8,630
Agricultural		3,096		380		3,541		3,921
Commercial and industrial-owner occupied		24,801		3,601		18,328		21,929
Construction, acquisition and development		128,179		21,581		23,981		45,562
Commercial real estate		36,122		5,324		34,120		39,444
Credit Cards		-		-		4,021		4,021
All other		2,424		317		14,041		14,358
Total	$	234,923	$	39,708	$	155,410	$	195,118

Management evaluates impaired loans individually in determining the adequacy of the allowance for impaired loans.

NOTE 4 – OTHER REAL ESTATE OWNED

The following table presents the activity in other real estate owned for the periods indicated:

	Six months ended						Year ended
	June 30,						December 31,
	2012			2011			2011
	(In thousands)

Balance at beginning of period	$	173,805		$	133,412		$	133,412
Additions to foreclosed properties
New foreclosed properties		17,670			59,663			125,234
Reductions in foreclosed properties
Sales		(37,936	)		(34,663	)		(64,488	)
Writedowns		(9,924	)		(7,208	)		(20,353	)
Balance at end of period	$	143,615		$	151,204		$	173,805

The following tables present the other real estate owned by geographical location, segment and class as of the dates indicated:



	Alabama and Florida Panhandle		Arkansas*		Mississippi*		Missouri		Greater Memphis Area		Tennessee*		Texas and Louisiana		Other		Total
	(In thousands)

Commercial and industrial	$	564	$	212	$	-	$	-	$	814	$	-	$	-	$	-	$	1,590
Real estate
Consumer mortgages		2,457		469		2,612		-		2,334		1,402		188		2,470		11,932
Home equity		-		-		220		-		-		-		-		-		220
Agricultural		894		-		-		-		1,154		2,352		-		-		4,400
Commercial and industrial-owner occupied		554		448		2,337		76		1,814		163		149		246		5,787
Construction, acquisition and development		18,459		2,042		19,152		1,395		45,532		15,775		2,215		737		105,307
Commercial real estate		784		1,677		2,281		304		7,425		-		231		-		12,702
All other		47		60		243		116		1,177		-		2		32		1,677
Total	$	23,759	$	4,908	$	26,845	$	1,891	$	60,250	$	19,692	$	2,785	$	3,485	$	143,615

* Excludes the Greater Memphis Area.

	December 31, 2011
	Alabama and Florida Panhandle		Arkansas*		Mississippi*		Missouri		Greater Memphis Area		Tennessee*		Texas and Louisiana		Other		Total
	(In thousands)

Commercial and industrial	$	436	$	17	$	-	$	-	$	940	$	-	$	-	$	-	$	1,393
Real estate
Consumer mortgages		3,816		448		3,400		-		5,199		4,160		733		2,889		20,645
Home equity		-		-		51		-		600		-		-		-		651
Agricultural		899		-		275		-		4,542		-		-		-		5,716
Commercial and industrial-owner occupied		1,022		303		1,972		76		2,371		426		174		-		6,344
Construction, acquisition and development		19,318		2,241		18,850		1,974		69,822		6,918		2,763		-		121,886
Commercial real estate		1,121		1,605		3,604		-		7,672		753		232		-		14,987
All other		276		83		220		193		1,358		-		53		-		2,183
Total	$	26,888	$	4,697	$	28,372	$	2,243	$	92,504	$	12,257	$	3,955	$	2,889	$	173,805

* Excludes the Greater Memphis Area.

	June 30, 2011
	Alabama and Florida Panhandle		Arkansas*		Mississippi*		Missouri		Greater Memphis Area		Tennessee*		Texas and Louisiana		Other		Total
	(In thousands)

Commercial and industrial	$	439	$	18	$	-	$	-	$	946	$	-	$	-	$	-	$	1,403
Real estate
Consumer mortgages		3,985		327		3,391		762		6,078		2,642		1,120		1,649		19,954
Home equity		-		58		291		-		-		368		-		-		717
Agricultural		950		87		2,081		-		1,551		-		-		-		4,669
Commercial and industrial-owner occupied		930		109		1,740		79		3,515		446		228		292		7,339
Construction, acquisition and development		9,334		2,231		26,052		2,952		49,562		14,931		2,669		621		108,352
Commercial real estate		2,757		1,725		1,112		451		1,215		203		584		-		8,047
All other		172		44		312		195		-		-		-		-		723
Total	$	18,567	$	4,599	$	34,979	$	4,439	$	62,867	$	18,590	$	4,601	$	2,562	$	151,204

* Excludes the Greater Memphis Area.

The Company incurred total foreclosed property expenses of $10.2 million and $3.8 million for the three months ended June 30, 2012 and 2011, respectively. Realized net losses on dispositions and holding losses on valuations of these properties, a component of total foreclosed property expenses, were $7.6 million and $2.1 million for the three months ended June 30, 2012 and 2011, respectively. The Company incurred total foreclosed property expenses of $18.6 and $10.8 million for the six months ended June 30, 2012 and 2011, respectively. Realized net losses on dispositions and holding losses on valuations of these properties, a component of total foreclosed property expenses, were $13.4 and $7.6 million for the six months ended June 30, 2012 and 2011, respectively.

NOTE 5 – SECURITIES

During the second quarter of 2011, the Company determined that it no longer had the intent to hold until maturity all securities that were previously classified as held-to-maturity. As a result of this determination, all securities were classified as available-for-sale and recorded at fair value as of June 30, 2011. The Company reclassed held-to-maturity securities with amortized cost of $1.6 billion and fair value of $1.7 billion to available-for-sale resulting in an increase in other comprehensive income of $19.7 million during the second quarter of 2011. A comparison of amortized cost and estimated fair values of available-for-sale securities as of June 30, 2012 and December 31, 2011 follows:

	June 30, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(In thousands)

U.S. Government agencies	$	1,456,274	$	24,822	$	36	$	1,481,060
Government agency issued residential mortgage-backed securities		352,093		8,525		129		360,489
Government agency issued commercial mortgage-backed securities		31,538		4,357		-		35,895
Obligations of states and political subdivisions		546,972		30,806		149		577,629
Other		7,039		719		-		7,758
Total	$	2,393,916	$	69,229	$	314	$	2,462,831

	December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(In thousands)

U.S. Government agencies	$	1,471,920	$	29,347	$	24	$	1,501,243
Government agency issued residential mortgage-backed securities		394,894		9,786		70		404,610
Government agency issued commercial mortgage-backed securities		31,161		3,438		-		34,599
Obligations of states and political subdivisions		541,138		22,705		323		563,520
Other		8,938		608		-		9,546
Total	$	2,448,051	$	65,884	$	417	$	2,513,518

Gross gains of approximately $271,000 and gross losses of approximately $20,000 were recognized on available-for-sale securities during the first six months of 2012, while gross gains of $10.3 million and gross losses of approximately $260,000 were recognized during the first six months of 2011.

The amortized cost and estimated fair value of available-for-sale securities at June 30, 2012 by contractual maturity are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Equity securities are considered as maturing after ten years.

	June 30, 2012
	Amortized Cost		Estimated Fair Value		Weighted Average Yield
	(Dollars in thousands)

Maturing in one year or less	$	360,188	$	364,523		2.38	%
Maturing after one year through five years		1,496,505		1,525,453		1.80
Maturing after five years through ten years		87,604		92,402		4.44
Maturing after ten years		449,619		480,453		5.64
Total	$	2,393,916	$	2,462,831

The following tables summarize information pertaining to temporarily impaired available-for-sale securities with continuous unrealized loss positions at June 30, 2012 and December 31, 2011:

	June 30, 2012
	Continuous Unrealized Loss Position
	Less Than 12 Months				12 Months or Longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
	(In thousands)
U.S. Government agencies	$	65,845	$	36	$	-	$	-	$	65,845	$	36
Government agency issued residential mortgage-backed securities		20,519		33		3,364		96		23,883		129
Government agency issued commercial mortgage-backed securities		-		-		-		-		-		-
Obligations of states and political subdivisions		8,982		87		311		62		9,293		149
Other		-		-		-		-		-		-
Total	$	95,346	$	156	$	3,675	$	158	$	99,021	$	314

	December 31, 2011
	Continuous Unrealized Loss Position
	Less Than 12 Months				12 Months or Longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
	(In thousands)
U.S. Government agencies	$	34,850	$	24	$	-	$	-	$	34,850	$	24
Government agency issued residential mortgage-backed securities		-		-		3,751		70		3,751		70
Government agency issued commercial mortgage-backed securities		-		-		-		-		-		-
Obligations of states and political subdivisions		20,820		144		9,214		179		30,034		323
Other		-		-		-		-		-		-
Total	$	55,670	$	168	$	12,965	$	249	$	68,635	$	417

Based upon a review of the credit quality of these securities, and considering that the issuers were in compliance with the terms of the securities, management had no intent to sell these securities, and it was more likely than not that the Company would not be required to sell the securities prior to recovery of costs. Therefore, the impairments related to these securities were determined to be temporary. No other-than-temporary impairment was recorded during the first six months of 2012.

NOTE 6 – PER SHARE DATA

The computation of basic earnings per share (“EPS”) is based on the weighted average number of shares of common stock outstanding. The computation of diluted earnings per share is based on the weighted average number of shares of common stock outstanding plus the shares resulting from the assumed exercise of all outstanding share-based awards using the treasury stock method. Weighted-average antidilutive stock options to purchase 2.8 million and 3.0 million shares of Company common stock with a weighted average exercise price of $20.51 and $20.70 per share for the three months and six months ended June 30, 2012, respectively, were excluded from diluted shares. Weighted-average antidilutive stock options to purchase 3.0 million shares of Company common stock for both the three months and six months ended June 30, 2011, respectively, with a weighted average exercise price of $21.03 and $21.01 per share for the three months and six months ended June 30, 2011, respectively, were excluded from diluted shares. There were no antidilutive other equity awards for the three

months and six months ended June 30, 2012 and 2011. The basic and diluted earnings per share computations for the first six months of 2012 reflect the Company’s issuance of 10,952,381 shares of common stock on January 24, 2012 in connection with an underwritten public offering. The following tables provide a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the periods shown:

	Three months ended June 30,
	2012						2011
	Income		Shares		Per Share		Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount		(Numerator)		(Denominator)		Amount
	(In thousands, except per share amounts)
Basic EPS
Income available to commonshareholders	$	20,624		94,436	$	0.22	$	12,826		83,454	$	0.15
Effect of dilutive share-based awards		-		105				-		60

Diluted EPS
Income available to common shareholders plus assumedexercise of all outstanding share-based awards	$	20,624		94,541	$	0.22	$	12,826		83,514	$	0.15

	Six months ended June 30,
	2012						2011
	Income		Shares		Per Share		Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount		(Numerator)		(Denominator)		Amount
	(In thousands, except per share amounts)
Basic EPS
Income available to common shareholders	$	43,490		93,082	$	0.47	$	12,332		83,451	$	0.15
Effect of dilutive share-based awards		-		74				-		59

Diluted EPS
Income available to common shareholders plus assumedexercise of all outstanding share-based awards	$	43,490		93,156	$	0.47	$	12,332		83,510	$	0.15

NOTE 7 – COMPREHENSIVE INCOME

The following tables present the components of other comprehensive income and the related tax effects allocated to each component for the periods indicated:

	Three months ended June 30,
	2012									2011
	Before			Tax			Net			Before			Tax			Net
	tax			(expense)			of tax			tax			(expense)			of tax
	amount			benefit			amount			amount			benefit			amount
Net unrealized gains on available-for-sale securities:
Unrealized gains arising during holding period	$	8,404		$	(3,219	)	$	5,185		$	46,461		$	(17,781	)	$	28,680
Less: Reclassification adjustment for net gains realized in net income		(177	)		68			(109	)		(10,045	)		3,842			(6,203	)
Recognized employee benefit plan
net periodic benefit cost		1,192			(798	)		394			633			(242	)		391
Other comprehensive income	$	9,419		$	(3,949	)	$	5,470		$	37,049		$	(14,181	)	$	22,868
Net income								20,624									12,826
Comprehensive income							$	26,094								$	35,694

	Six months ended June 30,
	2012									2011
	Before			Tax			Net			Before			Tax			Net
	tax			(expense)			of tax			tax			(expense)			of tax
	amount			benefit			amount			amount			benefit			amount
Net unrealized gains on available-for- sale securities:
Unrealized gains arising during holding period	$	3,698		$	(1,420	)	$	2,278		$	42,417		$	(16,244	)	$	26,173
Less: Reclassification adjustment for net gains realized in net income		(251	)		96			(155	)		(10,062	)		3,849			(6,213	)
Recognized employee benefit plan net periodic benefit cost		2,384			(912	)		1,472			1,266			(484	)		782
Other comprehensive income	$	5,831		$	(2,236	)	$	3,595		$	33,621		$	(12,879	)	$	20,742
Net income								43,490									12,332
Comprehensive income							$	47,085								$	33,074

NOTE 8 – GOODWILL AND OTHER INTANGIBLE ASSETS

The carrying amounts of goodwill by operating segment for the six months ended June 30, 2012 were as follows:

	Community		Insurance
	Banking		Agencies		Total
	(In thousands)
Balance as of December 31, 2011	$	217,618	$	53,679	$	271,297
Goodwill recorded during the period		-		-		-
Balance as of June 30, 2012	$	217,618	$	53,679	$	271,297

its implied fair value. Accounting standards require management to estimate the fair value of each reporting segment in assessing impairment at least annually. The Company’s annual assessment date is during the Company’s fourth quarter. No events occurred during the second quarter or first six months of 2012 that indicated the necessity of an earlier goodwill impairment assessment.

In the current environment, forecasting cash flows, credit losses and growth in addition to valuing the Company’s assets with any degree of assurance is very difficult and subject to significant changes over very short periods of time. Management will continue to update its analysis as circumstances change. As market conditions continue to be volatile and unpredictable, impairment of goodwill related to the Company’s reporting segments may be necessary in future periods.

The following tables present information regarding the components of the Company’s identifiable intangible assets for the dates and periods indicated:

	As of				As of
	June 30, 2012				December 31, 2011
	Gross Carrying		Accumulated		Gross Carrying		Accumulated
	Amount		Amortization		Amount		Amortization
Amortized intangible assets:	(In thousands)
Core deposit intangibles	$	27,801	$	21,204	$	27,801	$	20,728
Customer relationship intangibles		32,749	$	24,944		32,749		23,935
Non-solicitation intangibles		75		57		75		38
Total	$	60,625	$	46,205	$	60,625	$	44,701

Unamortized intangible assets:
Trade names	$	688	$	-	$	688	$	-

	Three months ended				Six months ended
	June 30,				June 30,
	2012		2011		2012		2011
Aggregate amortization expense for:	(In thousands)
Core deposit intangibles	$	242	$	248	$	476	$	515
Customer relationship intangibles		511		575		1,009		1,153
Non-solicitation intangibles		9		9		19		19
Total	$	762	$	832	$	1,504	$	1,687

The following table presents information regarding estimated amortization expense on the Company’s amortizable identifiable intangible assets for the year ending December 31, 2012 and the succeeding four years:

	Core Deposit Intangibles		Customer Relationship Intangibles		Non- Solicitation Intangibles		Total
Estimated Amortization Expense:	(In thousands)
For year ending December 31, 2012	$	946	$	1,957	$	37	$	2,940
For year ending December 31, 2013		582		1,668		-		2,250
For year ending December 31, 2014		526		1,418		-		1,944
For year ending December 31, 2015		487		1,128		-		1,615
For year ending December 31, 2016		451		823		-		1,274

NOTE 9 – PENSION BENEFITS

The following table presents the components of net periodic benefit costs for the periods indicated:

	Three months ended						Six months ended
	June 30,						June 30,
	2012			2011			2012			2011
	(In thousands)

Service cost	$	2,592		$	2,082		$	5,184		$	4,164
Interest cost		2,072			2,028			4,144			4,056
Expected return on assets		(2,012	)		(3,713	)		(5,682	)		(7,426	)
Amortization of unrecognized transition amount		5			5			10			10
Recognized prior service cost		(192	)		50			(384	)		100
Recognized net loss		1,379			578			2,758			1,156
Net periodic benefit costs	$	3,844		$	1,030		$	6,030		$	2,060

NOTE 10 – RECENT PRONOUNCEMENTS

In April 2011, the FASB issued an accounting standards update (“ASU”) regarding reconsideration of effective control for repurchase agreements. This ASU removes from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (2) the collateral maintenance implementation guidance related to that criterion. Other criteria applicable to the assessment of effective control are not changed by this ASU. The ASU is effective for the first interim or annual period beginning on or after December 15, 2011 and should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. The adoption of this ASU did not have a material impact on the financial position and results of operations of the Company.

In May 2011, the FASB issued an ASU regarding amendments to achieve common fair value measurement and disclosure requirements in U.S. GAAP and International Financial Reporting Standards (“IFRS”). This ASU provides amendments to ensure that fair value has the same meaning in U.S. GAAP and IFRS and that their respective fair value measurements and disclosure requirements are the same. The ASU is effective during interim and annual periods beginning after December 15, 2011 and should be applied prospectively. The adoption of this ASU did not have a material impact on the financial position and results of operations of the Company.

In June 2011, the FASB issued an ASU regarding the presentation of comprehensive income. This ASU amends existing guidance and eliminates the option to present the components of other comprehensive income as part of the statement of changes in shareholder’s equity. This ASU requires that comprehensive income be presented in either a single continuous statement or in two separate but consecutive statements. This ASU is effective for interim and annual periods beginning on or after December 15, 2011. The adoption of this ASU changed the manner in which the Company’s other comprehensive income is disclosed and did not have an impact on the financial position and results of operations of the Company.

In September 2011, the FASB issued an ASU regarding goodwill impairment. This ASU gives companies the option to perform a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying value as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. This ASU is effective for interim and annual periods beginning after December 15, 2011. The adoption of this ASU did not have a material impact on the financial position and results of operations of the Company.

NOTE 11 - SEGMENT REPORTING

The Company is a financial holding company with subsidiaries engaged in the business of banking and activities closely related to banking. The Company determines reportable segments based upon the services offered, the significance of those services to the Company’s financial condition and operating results and management’s regular review of the operating results of those services. The Company’s primary segment is Community Banking, which includes providing a full range of deposit products, commercial loans and consumer loans. The Company has also designated two additional reportable segments -- Insurance Agencies and General Corporate and Other. The Company’s insurance agencies serve as agents in the sale of commercial lines of insurance and full lines of property and casualty, life, health and employee benefits products and services. The General Corporate and Other

operating segment includes mortgage lending, trust services, credit card activities, investment services and other activities not allocated to the Community Banking or Insurance Agencies operating segments.

Results of operations and selected financial information by operating segment for the three-month and six-month periods ended June 30, 2012 and 2011 were as follows:

	Community Banking		Insurance Agencies		General Corporate and Other			Total
	(In thousands)
Three months ended June 30, 2012:
Results of Operations
Net interest revenue	$	106,649	$	76	$	(1,984	)	$	104,741
Provision for credit losses		4,288		-		1,712			6,000
Net interest revenue after provision for credit losses		102,361		76		(3,696	)		98,741
Noninterest revenue		29,745		22,905		13,818			66,468
Noninterest expense		84,057		19,463		32,986			136,506
Income (loss) before income taxes		48,049		3,518		(22,864	)		28,703
Income tax expense (benefit)		15,721		1,404		(9,046	)		8,079
Net income (loss)	$	32,328	$	2,114	$	(13,818	)	$	20,624
Selected Financial Information
Total assets at end of period	$	10,606,406	$	179,106	$	2,362,306		$	13,147,818
Depreciation and amortization		5,911		842		700			7,453

Three months ended June 30, 2011:
Results of Operations
Net interest revenue	$	102,880	$	84	$	6,948		$	109,912
Provision for credit losses		32,534		-		(294	)		32,240
Net interest revenue after provision for credit losses		70,346		84		7,242			77,672
Noninterest revenue		40,913		22,890		11,341			75,144
Noninterest expense		91,936		19,011		26,122			137,069
Income (loss) before income taxes		19,323		3,963		(7,539	)		15,747
Income tax expense (benefit)		4,063		1,576		(2,718	)		2,921
Net income (loss)	$	15,260	$	2,387	$	(4,821	)	$	12,826
Selected Financial Information
Total assets at end of period	$	10,483,137	$	171,122	$	2,712,791		$	13,367,050
Depreciation and amortization		6,107		972		1,069			8,148

	Community Banking		Insurance Agencies		General Corporate and Other			Total
	(In thousands)
Six months ended June 30, 2012
Results of Operations
Net interest revenue	$	214,301	$	149	$	(4,099	)	$	210,351
Provision for credit losses		14,516		-		1,484			16,000
Net interest revenue after provision for credit losses		199,785		149		(5,583	)		194,351
Noninterest revenue		60,930		46,055		31,843			138,828
Noninterest expense		183,116		38,161		50,909			272,186
Income (loss) before income taxes		77,599		8,043		(24,649	)		60,993
Income tax expense (benefit)		25,033		3,223		(10,753	)		17,503
Net income (loss)	$	52,566	$	4,820	$	(13,896	)	$	43,490
Selected Financial Information
Total assets at end of period	$	10,606,406	$	179,106	$	2,362,306		$	13,147,818
Depreciation and amortization		11,933		1,716		1,396			15,045

Six months ended June 30, 2011:
Results of Operations
Net interest revenue	$	205,543	$	179	$	13,627		$	219,349
Provision for credit losses		85,775		-		(56	)		85,719
Net interest revenue after provision for credit losses		119,768		179		13,683			133,630
Noninterest revenue		68,905		45,427		29,123			143,455
Noninterest expense		174,654		37,063		55,362			267,079
Income (loss) before income taxes		14,019		8,543		(12,556	)		10,006
Income tax expense (benefit)		1,962		3,401		(7,689	)		(2,326	)
Net income (loss)	$	12,057	$	5,142	$	(4,867	)	$	12,332
Selected Financial Information
Total assets at end of period	$	10,483,137	$	171,122	$	2,712,791		$	13,367,050
Depreciation and amortization		12,381		1,946		2,149			16,476

The increased net income of the Community Banking operating segment for the three months and six months ended June 30, 2012 was primarily related to the decrease in the provision for credit losses.

NOTE 12 – MORTGAGE SERVICING RIGHTS

Mortgage servicing rights (“MSRs”), which are recognized as a separate asset on the date the corresponding mortgage loan is sold, are recorded at fair value as determined at each accounting period end. An estimate of the fair value of the Company’s MSRs is determined utilizing assumptions about factors such as mortgage interest rates, discount rates, mortgage loan prepayment speeds, market trends and industry demand. Data and assumptions used in the fair value calculation related to MSRs as of the dates indicated were as follows:

	June 30,				December 31,
	2012		2011		2011
	(Dollars in thousands)

Unpaid principal balance	$	4,600,799	$	4,026,851	$	4,293,552
Weighted-average prepayment speed (CPR)		19.2		15.4		22.7
Discount rate (annual percentage)		10.3		10.3		10.3
Weighted-average coupon interest rate (percentage)		4.7		5.2		4.9
Weighted-average remaining maturity (months)		309.0		315.0		311.0
Weighted-average servicing fee (basis points)		27.6		28.2		28.0

Because the valuation is determined by using discounted cash flow models, the primary risk inherent in valuing the MSRs is the impact of fluctuating interest rates on the estimated life of the servicing revenue stream. The use of different estimates or assumptions could also produce different fair values. The Company does not hedge the change in fair value of MSRs and, therefore, the Company is susceptible to significant fluctuations in the fair value of its MSRs in changing interest rate environments.

The Company has only one class of mortgage servicing asset comprised of closed end loans for one-to-four family residences, secured by first liens. The following table presents the activity in this class for the periods indicated:

	2012			2011
	(In thousands)

Fair value as of January 1	$	30,174		$	38,642
Additions:
Origination of servicing assets		7,601			2,431
Changes in fair value:
Due to payoffs/paydowns		(3,463	)		(1,300	)
Due to change in valuation inputs or assumptions used in the valuation model		(140	)		2,540
Other changes in fair value		(5	)		(7	)
Fair value as of June 30	$	34,167		$	42,306

All of the changes to the fair value of the MSRs are recorded as part of mortgage lending noninterest revenue on the income statement. As part of mortgage lending noninterest revenue, the Company recorded contractual servicing fees of $3.2 million and $2.9 million and late and other ancillary fees of approximately $323,000 and $311,000 for the three months ended June 30, 2012 and 2011, respectively. The Company recorded contractual servicing fees of $6.3 million and $5.7 million and late and other ancillary fees of approximately $685,000 and $632,000 for the six months ended June 30, 2012 and 2011, respectively.

NOTE 13 – DERIVATIVE INSTRUMENTS

The derivatives held by the Company include commitments to fund fixed-rate mortgage loans to customers and forward commitments to sell individual fixed-rate mortgage loans. The Company’s objective in obtaining the forward commitments is to mitigate the interest rate risk associated with the commitments to fund the fixed-rate mortgage loans. Both the commitments to fund fixed-rate mortgage loans and the forward commitments to sell individual fixed-rate mortgage loans are reported at fair value, with adjustments being recorded in current period earnings, and are not accounted for as hedges. At June 30, 2012, the notional amount of forward commitments to sell individual fixed-rate mortgage loans was $221.7 million with a carrying value and fair value reflecting a loss of $1.5 million. At June 30, 2011, the notional amount of forward commitments to sell individual fixed-rate mortgage loans was $131.1 million with a carrying value and fair value reflecting a loss of approximately $149,000. At June 30, 2012, the notional amount of commitments to fund individual fixed-rate mortgage loans was $246.8 million with a carrying value and fair value reflecting a gain of $5.0 million. At June 30, 2011, the notional amount of commitments to fund individual fixed-rate mortgage loans was $83.6 million with a carrying value and fair value reflecting a gain of approximately $990,000.

The Company also enters into derivative financial instruments in the form of interest rate swaps to meet the financing, interest rate and equity risk management needs of its customers. Upon entering into these interest rate swaps to meet customer needs, the Company enters into offsetting positions to minimize interest rate and equity risk to the Company. These derivative financial instruments are reported at fair value with any resulting gain or loss recorded in current period earnings. These instruments and their offsetting positions are recorded in other assets and other liabilities on the consolidated balance sheets. As of June 30, 2012, the notional amount of customer related derivative financial instruments was $481.2 million with an average maturity of 59 months, an average interest receive rate of 2.6% and an average interest pay rate of 5.9%.

NOTE 14 – FAIR VALUE DISCLOSURES

“Fair value” is defined by FASB ASC 820, Fair Value Measurements and Disclosure (“FASB ASC 820”), as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available.

Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s assumptions about the assumptions that market participants would use in pricing the asset or liability developed based on the best information available under the circumstances. The hierarchy is broken down into the following three levels, based on the reliability of inputs:

Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible at 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 for the asset or liability that reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability.

Determination of Fair Value

The Company uses the valuation methodologies listed below to measure different financial instruments at fair value. An indication of the level in the fair value hierarchy in which each instrument is generally classified is included. Where appropriate, the description includes details of the valuation models, the key inputs to those models as well as any significant assumptions.

Available-for-sale securities. Available-for-sale securities are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are determined by matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities. The Company’s available-for-sale securities that are traded on an active exchange, such as the New York Stock Exchange, are classified as Level 1. Available-for-sale securities valued using matrix pricing are classified as Level 2. Available-for-sale securities valued using matrix pricing that has been adjusted to compensate for the present value of expected cash flows, market liquidity, credit quality and volatility are classified as Level 3.

Mortgage servicing rights. The Company records MSRs at fair value on a recurring basis with subsequent remeasurement of MSRs based on change in fair value. An estimate of the fair value of the Company’s MSRs is determined by utilizing assumptions about factors such as mortgage interest rates, discount rates, mortgage loan prepayment speeds, market trends and industry demand. All of the Company’s MSRs are classified as Level 3. For additional information about the Company’s valuation of MSRs, see Note 12, Mortgage Servicing Rights.

Derivative instruments. The Company’s derivative instruments consist of commitments to fund fixed-rate mortgage loans to customers and forward commitments to sell individual fixed-rate mortgage loans. Fair value of these derivative instruments is measured on a recurring basis using recent observable market prices. The Company also enters into interest rate swaps to meet the financing, interest rate and equity risk management needs of its customers. The fair value of these instruments is either an observable market price or a discounted cash flow valuation using the terms of swap agreements but substituting original interest rates with prevailing interest rates ranging from 1.6% to 4.5%. The Company also considers the associated counterparty credit risk when determining the fair value of these instruments. The Company’s interest rate swaps, commitments to fund fixed-rate mortgage loans to customers and forward commitments to sell individual fixed-rate mortgage loans are classified as Level 3.

Loans held for sale. Loans held for sale are carried at the lower of cost or estimated fair value and are subject to nonrecurring fair value adjustments. Estimated fair value is determined on the basis of existing commitments or the current market value of similar loans. All of the Company’s loans held for sale are classified as Level 2.

Impaired loans. Loans considered impaired under FASB ASC 310 are loans for which, based on current information and events, it is probable that the creditor will be unable to collect all amounts due according to the

contractual terms of the loan agreement. Impaired loans are subject to nonrecurring fair value adjustments to reflect (1) partial write-downs that are based on the observable market price or current appraised value of the collateral, or (2) the full charge-off of the loan carrying value. All of the Company’s impaired loans are classified as Level 3.

Other real estate owned. Other real estate owned (“OREO”) is carried at the lower of cost or estimated fair value, less estimated selling costs and is subject to nonrecurring fair value adjustments. Estimated fair value is determined on the basis of independent appraisals and other relevant factors less an average of 7% for estimated selling costs. All of the Company’s OREO is classified as Level 3.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The following tables present the balances of the assets and liabilities measured at fair value on a recurring basis as of June 30, 2012 and 2011:

	June 30, 2012
	Level 1		Level 2		Level 3		Total
Assets:	(In thousands)
Available-for-sale securities:
U.S. Government agencies	$	-	$	1,481,060	$	-	$	1,481,060
Government agency issued residential mortgage-backed securities		-		360,489		-		360,489
Government agency issued commercial mortgage-backed securities		-		35,895		-		35,895
Obligations of states and political subdivisions		-		577,629		-		577,629
Other		673		7,085		-		7,758
Mortgage servicing rights		-		-		34,167		34,167
Derivative instruments		-		-		59,389		59,389
Total	$	673	$	2,462,158	$	93,556	$	2,556,387
Liabilities:
Derivative instruments	$	-	$	-	$	56,567	$	56,567

	June 30, 2011
	Level 1		Level 2		Level 3		Total
Assets:	(In thousands)
Available-for-sale securities:
U.S. Government agencies	$	-	$	1,599,231	$	-	$	1,599,231
Government agency issued residential mortgage-backed securities		-		430,402		-		430,402
Government agency issued commercial mortgage-backed securities		-		31,627		-		31,627
Obligations of states and political subdivisions		-		486,653		-		486,653
Other		703		12,208		-		12,911
Mortgage servicing rights		-		-		39,455		39,455
Derivative instruments		-		-		40,338		40,338
Total	$	703	$	2,560,121	$	79,793	$	2,640,617
Liabilities:
Derivative instruments	$	-	$	-	$	39,931	$	39,931

The following tables present the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the six-month periods ended June 30, 2012 and 2011:

	Mortgage				Available-
	Servicing		Derivative		for-sale
	Rights		Instruments		Securities
	(In thousands)

Balance at December 31, 2011	$	30,174	$	342	$	-
Year to date net gains included in:
Net income		3,993		2,480		-
Other comprehensive income		-		-		-
Purchases, sales, issuances and settlements, net		-		-		-
Transfers in and/or out of Level 3		-		-		-
Balance at June 30, 2012	$	34,167	$	2,822	$	-
Net unrealized gains included in net income for the quarter relating to assets and liabilities held at June 30, 2012	$	296	$	973	$	-

	Mortgage					Available-
	Servicing		Derivative			for-sale
	Rights		Instruments			Securities
	(In thousands)

Balance at December 31, 2010	$	38,642	$	2,685		$	-
Year to date net gains (losses) included in:
Net income (loss)		813		(2,278	)		-
Other comprehensive income		-		-			-
Purchases, sales, issuances and settlements, net		-		-			-
Transfers in and/or out of Level 3		-		-			-
Balance at June 30, 2011	$	39,455	$	407		$	-
Net unrealized gains included in net income for the quarter relating to assets and liabilities held at June 30, 2011	$	3,839	$	53		$	-

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

The following tables present the balances of assets and liabilities measured at fair value on a nonrecurring basis as of June 30, 2012 and 2011:

	June 30, 2012
									Total
	Level 1		Level 2		Level 3		Total		Losses
Assets:	(In thousands)
Loans held for sale	$	-	$	108,134	$	-	$	108,134	$	-
Impaired loans		-		-		200,377		200,377		(23,939	)
Other real estate owned		-		-		143,615		143,615		(26,411	)

	June 30, 2011
									Total
	Level 1		Level 2		Level 3		Total		Losses
Assets:	(In thousands)
Loans held for sale	$	-	$	70,519	$	-	$	70,519	$	-
Impaired loans		-		-		303,657		303,657		(46,810	)
Other real estate owned		-		-		151,204		151,204		(12,860	)

Fair Value of Financial Instruments

FASB ASC 825, Financial Instruments (“FASB ASC 825”), requires that the Company disclose estimated fair values for its financial instruments. Fair value estimates, methods and assumptions are set forth below for the Company's financial instruments.

Loans and Leases. Fair values are estimated for portfolios of loans and leases with similar financial characteristics. The fair value of loans and leases is calculated by discounting scheduled cash flows through the estimated maturity using rates the Company would currently offer customers based on the credit and interest rate risk inherent in the loan or lease. Assumptions regarding credit risk, cash flows and discount rates are judgmentally determined using available market and borrower information. Estimated maturity represents the expected average cash flow period, which in some instances is different than the stated maturity. This entrance price approach results in a calculated fair value that would be different than an exit or estimated actual sales price approach and such differences could be significant. All of the Company’s loans and leases are classified as Level 3.

Deposit Liabilities. Under FASB ASC 825, the fair value of deposits with no stated maturity, such as noninterest bearing demand deposits, interest bearing demand deposits and savings, is equal to the amount payable on demand as of the reporting date. The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the prevailing rates offered for deposits of similar maturities. The Company’s noninterest bearing demand deposits, interest bearing demand deposits and savings are classified as Level 1. Certificates of deposit are classified as Level 2.

Debt. The carrying amounts for federal funds purchased and repurchase agreements approximate fair value because of their short-term maturity. The fair value of the Company’s fixed-term Federal Home Loan Bank (“FHLB”) advances is based on the discounted value of contractual cash flows. The discount rate is estimated using the prevailing rates available for advances of similar maturities. The fair value of the Company’s junior subordinated debt is based on market prices or dealer quotes. The Company’s federal funds purchased, repurchase agreements and junior subordinated debt are classified as Level 1. FHLB advances are classified as Level 2.

Lending Commitments. The Company’s lending commitments are negotiated at prevailing market rates and are relatively short-term in nature. As a matter of policy, the Company generally makes commitments for fixed-rate loans for relatively short periods of time. Therefore, the estimated value of the Company’s lending commitments approximates the carrying amount and is immaterial to the financial statements. The Company’s lending commitments are classified as Level 1.

The following table presents carrying and fair value information of financial instruments at June 30, 2012 and December 31, 2011:

	June 30, 2012						December 31, 2011
	Carrying			Fair			Carrying			Fair
	Value			Value			Value			Value
	(In thousands)
Assets:
Cash and due from banks	$	224,084		$	224,084		$	195,681		$	195,681
Interest bearing deposits with other banks		603,458			603,458			303,663			303,663
Available-for-sale securities		2,462,831			2,462,831			2,513,518			2,513,518
Net loans and leases		8,556,548			8,609,787			8,675,193			8,730,819
Loans held for sale		108,134			108,190			83,458			83,503

Liabilities:
Noninterest bearing deposits		2,312,044			2,312,044			2,269,799			2,269,799
Savings and interest bearing deposits		5,865,498			5,865,498			5,698,527			5,698,527
Other time deposits		2,778,795			2,818,274			2,986,863			3,029,147
Federal funds purchased and securities sold under agreement to repurchase and other short-term borrowings		363,490			363,095			375,433			375,285
Long-term debt and other borrowings		193,877			204,011			193,880			200,166

Derivative instruments:

Forward commitments to sell fixed rate mortgage loans		(1,474	)		(1,474	)		(1,057	)		(1,057	)
Commitments to fund fixed rate mortgage loans		4,975			4,975			2,140			2,140
Interest rate swap position to receive		54,414			54,414			53,608			53,608
Interest rate swap position to pay		(55,093	)		(55,093	)		(54,349	)		(54,349	)

NOTE 15 – OTHER NONINTEREST REVENUE AND EXPENSE

The following table details other noninterest revenue for the three months and six months ended June 30, 2012 and 2011:

	Three months ended				Six months ended
	June 30,				June 30,
	2012		2011		2012		2011
	(In thousands)
Annuity fees	$	635	$	1,094	$	1,277	$	2,390
Brokerage commissions and fees		1,779		1,437		3,217		3,075
Bank-owned life insurance		1,812		2,223		4,425		3,922
Other miscellaneous income		3,438		4,732		7,815		9,415
Total other noninterest income	$	7,664	$	9,486	$	16,734	$	18,802

The following table details other noninterest expense for the three months and six months ended June 30, 2012 and 2011:

	Three months ended				Six months ended
	June 30,				June 30,
	2012		2011		2012		2011
	(In thousands)
Advertising	$	902	$	1,291	$	1,743	$	2,180
Foreclosed property expense		10,212		3,765		18,621		10,847
Telecommunications		2,023		2,036		4,229		4,179
Public relations		1,355		1,554		2,821		3,068
Data processing		2,444		2,365		5,208		4,666
Computer software		1,786		1,899		3,589		3,747
Amortization of intangibles		742		833		1,505		1,687
Legal		981		1,158		3,197		3,756
Postage and shipping		1,033		1,171		2,288		2,468
Other miscellaneous expense		17,762		18,814		36,006		36,169
Total other noninterest expense	$	39,240	$	34,886	$	79,207	$	72,767

NOTE 16 – COMMITMENTS AND CONTINGENT LIABILITIES

The nature of the Company’s business ordinarily results in a certain amount of claims, litigation, investigations and legal and administrative investigations and proceedings. Although the Company and its subsidiaries have developed policies and procedures to minimize the impact of legal noncompliance and other disputes, and endeavored to provide reasonable insurance coverage, litigation and regulatory actions present an ongoing risk.

The Company and its subsidiaries are engaged in lines of business that are heavily regulated and involve a large volume of financial transactions and potential transactions with numerous customers or applicants. From time to time, borrowers, customers, former employees and other third parties have brought actions against the Company or its subsidiaries, in some cases claiming substantial damages. Financial services companies are subject to the risk of class action litigation and, from time to time, the Company and its subsidiaries are subject to such actions brought against it. Additionally, the Bank is, and management expects it to be, engaged in a number of foreclosure proceedings and other collection actions as part of its lending and leasing collections activities, which, from time to time, have resulted in counterclaims against the Bank. Various legal proceedings have arisen and may arise in the future out of claims against entities to which the Company is a successor as a result of business combinations. The Company’s insurance has deductibles, and will likely not cover all such litigation or other proceedings or the costs of defense. The Company and its subsidiaries may also be subject to enforcement actions by federal or state regulators, including the Securities and Exchange Commission, the Federal Reserve, the FDIC, the Consumer Financial Protection Bureau, the Department of Justice, state attorneys general and the Mississippi Department of Banking and Consumer Finance.

When and as the Company determines it has meritorious defenses to the claims asserted, it vigorously defends against such claims. The Company will consider settlement of claims when, in management’s judgment and in consultation with counsel, it is in the best interests of the Company to do so.

The Company cannot predict with certainty the cost of defense, the cost of prosecution or the ultimate outcome of litigation and other proceedings filed by or against it, its directors, management or employees, including remedies or damage awards. On at least a quarterly basis, the Company assesses its liabilities and contingencies in connection with outstanding legal proceedings as well as certain threatened claims (which are not considered incidental to the ordinary conduct of the Company’s business) utilizing the latest and most reliable information available. For matters where a loss is not probable or the amount of the loss cannot be estimated, no accrual is established. For matters where it is probable the Company will incur a loss and the amount can be reasonably estimated, the Company establishes an accrual for the loss. Once established, the accrual is adjusted periodically to reflect any relevant developments. The actual cost of any outstanding legal proceedings or threatened claims, however, may turn out to be substantially higher than the amount accrued. Further, the Company’s insurance will not cover all such litigation, other proceedings or claims, or the costs of defense.

While the final outcome of any legal proceedings is inherently uncertain, based on the information available, advice of counsel and available insurance coverage, management believes that the litigation-related expense accrued as of June 30, 2012 is adequate and that any incremental liability arising from the Company’s legal proceedings and threatened claims, including the matters described herein and those otherwise arising in the ordinary course of business, will not have a material adverse effect on the Company's business or consolidated financial condition. It is possible, however, that future developments could result in an unfavorable outcome for or resolution of any one or more of the lawsuits in which the Company or its subsidiaries are defendants, which may be material to the Company’s results of operations for a given fiscal period.

On May 12, 2010, the Company and its Chief Executive Officer, President and Chief Financial Officer were named in a class action lawsuit filed in the U.S. District Court for the Middle District of Tennessee on behalf of certain purchasers of the Company’s common stock. On September 17, 2010, an Executive Vice President of the Company was added as a party to the lawsuit. The amended complaint alleges that the defendants issued materially false and misleading statements regarding the Company’s business and financial results. In particular, the allegations relate to the Company’s recording and reporting of its unaudited financial statements, including the allowance and provision for credit losses, and its internal control over financial reporting leading up to the filing of the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. The plaintiff sought class certification, an unspecified amount of damages and awards of costs and attorneys’ fees and other equitable relief. On May 24, 2012, the Company reached a settlement with the plaintiff. Pursuant to the terms of the settlement, subject to final court approval, the Company’s insurance carriers have funded the settlement payment, other than an immaterial amount of incidental expenses that the Company has covered. On July 11, 2012, the court preliminarily approved the settlement on the terms submitted by the parties and set a final settlement hearing for October 31, 2012. If settled on the terms preliminarily approved by the court, the settlement will not have a material adverse effect on the Company’s business, consolidated financial position or results of operations.

On August 16, 2011, a shareholder filed a putative derivative action purportedly on behalf of the Company in the Circuit Court of Lee County, Mississippi, against certain current and past executive officers and the members of the Board of Directors of the Company. The plaintiff in this shareholder derivative lawsuit asserts that the individual defendants violated their fiduciary duties based upon substantially the same facts as alleged in the purported class action lawsuit described above. The plaintiff is seeking to recover damages in an unspecified amount and equitable and/or injunctive relief. Although it is not possible to predict the ultimate resolution or financial liability with respect to this litigation, management is currently of the opinion that the outcome of this lawsuit will not have a material adverse effect on the Company’s business, consolidated financial position or results of operations.

In November 2010, the Company was informed that the Atlanta Regional Office of the SEC had issued an Order of Investigation concerning the Company. This investigation is ongoing and is primarily focused on the Company’s recording and reporting of its unaudited financial statements, including the allowance and provision for credit losses, its internal control over financial reporting and its communications with the independent auditors prior to the filing of the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. In connection with its investigation, the SEC issued subpoenas for documents and testimony, with which the Company has fully complied. The Company is cooperating fully with the SEC. No claims have been made by the SEC against the Company or against any individuals affiliated with the Company. At this time, it is not possible to predict when or how the investigation will be resolved or the cost or potential liabilities associated with this matter.

On May 18, 2010, the Bank was named as a defendant in a purported class action lawsuit filed by an Arkansas customer of the Bank in the U.S. District Court for the Northern District of Florida. The suit challenges the manner in which overdraft fees were charged and the policies related to posting order of debit card and ATM transactions. The suit also makes a claim under Arkansas’ consumer protection statute. The plaintiff is seeking to recover damages in an unspecified amount and equitable relief. The case was transferred to pending multi-district litigation in the U.S. District Court for the Southern District of Florida. On May 4, 2012, the judge presiding over the multi-district litigation entered an order certifying a class in this case. The Company has filed a petition for leave to appeal the class certification order, which, if granted, would provide the Company with an immediate right to appeal the class certification order. At this stage of the lawsuit, management of the Company cannot determine the probability of an unfavorable outcome to the Company. There are significant uncertainties involved in any purported class action litigation. Although it is not possible to predict the ultimate resolution or financial liability with respect to this litigation, management is currently of the opinion that the outcome of this lawsuit will not have a material adverse effect on the Company’s business, consolidated financial position or results of operations.

However, there can be no assurance that an adverse outcome or settlement would not have a material adverse effect on the Company’s consolidated results of operations for a given fiscal period.

NOTE 17 – SUBSEQUENT EVENTS

On July 2, 2012, the Company purchased certain assets of The Securance Group, an independent insurance agency with locations in Brewton, Montgomery and Troy, Alabama. Consideration paid to complete this transaction consisted of cash paid to The Securance Group shareholders in the aggregate amount of approximately $6,750,000. The provisions of the agreement also provide for additional aggregate consideration of up to $2,000,000 in cash to be paid in three annual installments if certain performance criteria are met. This acquisition was not material to the financial position or results of operations of the Company.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this report may not be based on historical facts and are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements may be identified by reference to a future period(s) or by the use of forward-looking terminology, such as “anticipate,” “assume,” “believe,” “estimate,” “expect,” “may,” “might,” “will,” “intend,” “indicated,” “could,” or “would,” or future or conditional verb tenses, and variations or negatives of such terms. These forward-looking statements include, without limitation, those relating to amortization expense for intangible assets, goodwill impairments, loan impairment, utilization of appraisals and inspections for real estate loans, maturity, renewal or extension of construction, acquisition and development loans, net interest revenue, fair value determinations, the amount of the Company’s non-performing loans and leases, credit quality, credit losses, liquidity, off-balance sheet commitments and arrangements, valuation of mortgage servicing rights, allowance and provision for credit losses, continued weakness in the economic environment, early identification and resolution of credit issues, utilization of non-GAAP financial measures, the ability of the Company to collect all amounts due according to the contractual terms of loan agreements, the Company’s reserve for losses from representation and warranty obligations, the Company’s foreclosure process related to mortgage loans, the impact of the Durbin Debit Interchange Amendment on the Company’s debit card revenue, the resolution of non-performing loans that are collaterally dependent, real estate values, fully-indexed interest rates, interest rate risk, interest rate sensitivity, calculation of economic value of equity, impaired loan charge-offs, troubled debt restructurings, diversification of the Company’s revenue stream, liquidity needs and strategies, sources of funding, net interest margin, declaration and payment of dividends, future acquisitions and consideration to be used therefore, the use of proceeds from the Company’s underwritten public offering and the impact of certain claims, legal and administrative proceedings and pending litigation. We caution you not to place undue reliance on the forward-looking statements contained in this report, in that actual results could differ materially from those indicated in such forward-looking statements as a result of a variety of factors. These factors may include, but are not limited to, conditions in the financial markets and economic conditions generally, the ongoing debt crisis and the downgrade of the sovereign credit ratings for various nations, the adequacy of the Company’s provision and allowance for credit losses to cover actual credit losses, the credit risk associated with real estate construction, acquisition and development loans, losses resulting from the significant amount of the Company’s other real estate owned, limitations on the Company’s ability to declare and pay dividends, the impact of legal or administrative proceedings, the availability of capital on favorable terms if and when needed, liquidity risk, governmental regulation, including the Dodd Frank Act, and supervision of the Company’s operations, the impact of regulations on service charges on the Company’s core deposit accounts, the susceptibility of the Company’s business to local economic conditions, the soundness of other financial institutions, changes in interest rates, the impact of monetary policies and economic factors on the Company’s ability to attract deposits or make loans, volatility in capital and credit markets, reputational risk, the impact of hurricanes or other adverse weather events, any requirement that the Company write down goodwill or other intangible assets, diversification in the types of financial services the Company offers, competition with other financial services companies, risks in connection with completed or potential acquisitions, the Company’s growth strategy, interruptions or breaches in the Company’s information system security, the failure of certain third party vendors to perform, dilution caused by

the Company’s issuance of any additional shares of its common stock to raise capital or acquire other banks, bank holding companies, financial holding companies and insurance agencies, the effectiveness of the Company’s internal controls, other factors generally understood to affect the financial results of financial services companies and other factors detailed from time to time in the Company’s press releases and filings with the Securities and Exchange Commission. We undertake no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date of this report.

OVERVIEW

BancorpSouth, Inc. (the “Company”) is a regional financial holding company headquartered in Tupelo, Mississippi with $13.1 billion in assets at June 30, 2012. BancorpSouth Bank (the “Bank”), the Company’s wholly-owned banking subsidiary, has commercial banking operations in Mississippi, Tennessee, Alabama, Arkansas, Texas, Louisiana, Florida and Missouri. The Bank’s insurance agency subsidiary also operates an office in Illinois. The Bank and its consumer finance, credit insurance, insurance agency and brokerage subsidiaries provide commercial banking, leasing, mortgage origination and servicing, insurance, brokerage and trust services to corporate customers, local governments, individuals and other financial institutions through an extensive network of branches and offices.

Management’s discussion and analysis provides a narrative discussion of the Company’s financial condition and results of operations. For a complete understanding of the following discussion, you should refer to the unaudited consolidated financial statements for the three-month and six-month periods ended June 30, 2012 and 2011 and the notes to such financial statements found under “Part I, Item 1. Financial Statements” of this report. This discussion and analysis is based on reported financial information. The information that follows is provided to enhance comparability of financial information between years and to provide a better understanding of the Company’s operations.

As a financial holding company, the financial condition and operating results of the Company are heavily influenced by economic trends nationally and in the specific markets in which the Company’s subsidiaries provide financial services. Generally, during the past several years, the pressures of the national and regional economic cycle have created a difficult operating environment for the financial services industry. The Company is not immune to such pressures and the continuing economic downturn has had a negative impact on the Company and its customers in all of the markets that it serves. While this impact has been reflected in the credit quality measures during the past two years, the Company’s financial condition at June 30, 2012 indicates decreases in the allowance for credit losses, total NPLs and non-performing assets (“NPAs”), and near-term past dues when compared to December 31, 2011 and June 30, 2011. Management believes that the Company is well positioned with respect to overall credit quality as evidenced by this improvement in credit quality metrics at June 30, 2012 compared to December 31, 2011 and June 30, 2011. Management believes, however, that continued weakness in the economic environment could adversely affect the strength of the credit quality of the Company’s assets overall. Therefore, management will continue to focus on early identification and resolution of any credit issues.

The largest source of the Company’s revenue is derived from the operation of its principal operating subsidiary, the Bank. The financial condition and operating results of the Bank are affected by the level and volatility of interest rates on loans, investment securities, deposits and other borrowed funds, and the impact of economic downturns on loan demand, collateral value and creditworthiness of existing borrowers. The financial services industry is highly competitive and heavily regulated. The Company’s success depends on its ability to compete aggressively within its markets while maintaining sufficient asset quality and cost controls to generate net income.

In the second quarter and first six months of 2012, the Company’s debit card revenue decreased by $3.7 million and $6.8 million, respectively, compared to the second quarter and first six months of 2011. Management estimates that debit card revenue could be reduced by approximately $13.0 million in 2012 compared to 2011, as a result of the impact of the final rule implementing the Durbin Debt Interchange Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Durbin Amendment”). This estimate is based on management’s assumptions that revenue associated with consumer signature activity would be 58% of the level prior to the implementation of the Durbin Amendment, revenue associated with business signature activity would be 12% of the level prior to the implementation of the Durbin Amendment and revenue associated with consumer and business PIN activity would be 80% of the level prior to the implementation of the Durbin Amendment.

The information that follows is provided to enhance comparability of financial information between periods and to provide a better understanding of the Company’s operations.

SELECTED FINANCIAL DATA

	Three months ended						Six months ended
	June 30,						June 30,
	2012			2011			2012			2011
	(Dollars in thousands, except per share data)

Earnings Summary:
Total interest revenue	$	123,204		$	137,235		$	248,579		$	276,063
Total interest expense		18,463			27,323			38,228			56,714
Net interest income		104,741			109,912			210,351			219,349
Provision for credit losses		6,000			32,240			16,000			85,719
Noninterest income		66,468			75,144			138,828			143,455
Noninterest expense		136,506			137,069			272,186			267,079
Income before income taxes		28,703			15,747			60,993			10,006
Income tax expense (benefit)		8,079			2,921			17,503			(2,326	)
Net income	$	20,624		$	12,826		$	43,490		$	12,332

Balance Sheet - Period-end balances:
Total assets	$	13,147,818		$	13,367,050		$	13,147,818		$	13,367,050
Total securities		2,462,831			2,560,824			2,462,831			2,560,824
Loans and leases, net of unearned income		8,732,395			9,214,553			8,732,395			9,214,553
Total deposits		10,956,337			11,308,463			10,956,337			11,308,463
Long-term debt		33,500			35,000			33,500			35,000
Total shareholders' equity		1,418,311			1,246,703			1,418,311			1,246,703

Balance Sheet-Average Balances:
Total assets	$	13,018,231		$	13,365,560		$	13,053,294		$	13,452,183
Total securities		2,520,932			2,707,282			2,514,437			2,722,763
Loans and leases, net of unearned income		8,735,225			9,249,127			8,763,383			9,274,415
Total deposits		10,908,919			11,355,871			10,976,435			11,426,363
Long-term debt		33,500			89,395			33,500			99,641
Total shareholders' equity		1,403,733			1,222,281			1,383,721			1,220,851

Common Share Data:
Basic earnings per share	$	0.22		$	0.15		$	0.47		$	0.15
Diluted earnings per share		0.22			0.15			0.47			0.15
Cash dividends per share		0.01			0.01			0.02			0.12
Book value per share		15.02			14.93			15.02			14.93
Dividend payout ratio		4.55	%		6.67	%		4.26	%		80.00	%

Financial Ratios (Annualized):
Return on average assets		0.64	%		0.38	%		0.67	%		0.18	%
Return on average shareholders' equity		5.91			4.21			6.32			2.04
Total shareholders' equity to total assets		10.79			9.33			10.79			9.33
Tangible shareholders' equity to tangible assets		8.80			7.32			8.80			7.32
Net interest margin-fully taxable equivalent		3.65			3.71			3.65			3.70

Credit Quality Ratios (Annualized):
Net charge-offs to average loans and leases		0.55	%		1.42	%		0.80	%		1.83	%
Provision for credit losses to average loans and leases		0.27			1.39			0.37			1.85
Allowance for credit losses to net loans and leases		2.01			2.14			2.01			2.14
Allowance for credit losses to NPLs		65.87			52.03			65.87			52.03
Allowance for credit losses to NPAs		42.83			37.21			42.83			37.21
NPLs to net loans and leases		3.06			4.12			3.06			4.12
NPAs to net loans and leases		4.70			5.76			4.70			5.76

Captial Adequacy:
Tier I capital		13.41	%		10.82	%		13.41	%		10.82	%
Total capital		14.66			12.08			14.66			12.08
Tier I leverage capital		10.07			8.22			10.07			8.22

In addition to financial ratios based on measures defined by accounting principles generally accepted in the United States (“U.S. GAAP”), the Company utilizes tangible shareholders’ equity and tangible asset measures when evaluating the performance of the Company. Tangible shareholders’ equity is defined by the Company as total shareholders’ equity less goodwill and identifiable intangible assets. Tangible assets are defined by the Company as total assets less goodwill and identifiable intangible assets. Management believes the ratio of tangible shareholders’ equity to tangible assets to be an important measure of financial strength of the Company. The following table

reconciles tangible assets and tangible shareholders’ equity as presented above to U.S. GAAP financial measures as reflected in the Company’s unaudited consolidated financial statements:

	June 30,
	2012			2011
	(Dollars, in thousands)
Tangible Assets:
Total assets	$	13,147,818		$	13,367,050
Less: Goodwill		271,297			271,297
Other identifiable intangible assets		15,108			18,249
Total tangible assets	$	12,861,413		$	13,077,504

Tangible Shareholders' Equity
Total shareholders' equity	$	1,418,311		$	1,246,703
Less: Goodwill		271,297			271,297
Other identifiable intangible assets		15,108			18,249
Total tangible shareholders' equity	$	1,131,906		$	957,157


Tangible shareholders' equity to tangible assets		8.80	%		7.32	%

FINANCIAL HIGHLIGHTS

The Company reported net income of $20.6 million for the second quarter of 2012, compared to net income of $12.8 for the same quarter of 2011. For the first six months of 2012, the Company reported net income of $43.5 million compared to net income of $12.3 million for the first six months of 2011. The decreased provision for credit losses was the most significant factor contributing to the increase in net income, as the charge in the second quarter and first six months of 2012 was $6.0 million and $16.0 million, respectively, compared to a charge of $32.2 million and $85.7 million during the second quarter and first six months of 2011, respectively. Net charge-offs decreased to $11.9 million, or 0.55% of average loans and leases, during the second quarter of 2012, compared to $32.9 million, or 1.42% of average loans and leases, during the second quarter of 2011. For the six months ended June 30, 2012, net charge-offs decreased to $35.3 million or 0.80% of average loans and leases, compared to $85.0 million or 1.83% of average loans and leases for the six months ended June 30, 2011. The decrease in the provision for credit losses reflected the impact of a significant decrease in NPL formation during the first six months of 2012 as NPLs decreased from $322.3 million at December 30, 2011 to $266.9 million at June 30, 2012. The impact of the economic environment continues to be evident on real estate construction, acquisition and development loans and more specifically on residential construction, acquisition and development loans. Many of these loans have become collateral-dependent, requiring recognition of an impairment loss to reflect the decline in real estate values. The Company has continued its focus on improving credit quality and reducing NPLs especially in the real estate construction, acquisition and development loan portfolio as evidenced by the decrease in that portfolio’s nonaccrual loans of $28.8 million to $104.3 million at June 30, 2012 from $133.1 million at December 31, 2011.

The primary source of revenue for the Company is the net interest revenue earned by the Bank. Net interest revenue is the difference between interest earned on loans, investments and other earning assets and interest paid on deposits and other obligations. Net interest revenue was $104.7 million for the second quarter of 2012, a decrease of $5.2 million, or 4.7%, from $109.9 million for the second quarter of 2011. Net interest revenue was $210.4 million for the first six months of 2012, a decrease of $9.0 million, or 4.1%, from $219.3 million for the first six months of 2011. Net interest revenue is affected by the general level of interest rates, changes in interest rates and changes in the amount and composition of interest earning assets and interest bearing liabilities. The Company’s objective is to manage those assets and liabilities to maximize net interest revenue, while balancing interest rate, credit, liquidity and capital risks. The Company experienced an increase in lower rate savings deposits and a decrease in higher rate other time deposits, which resulted in a decrease in interest expense of $8.9 million, or 32.4%, in the second quarter of 2012 compared to the second quarter of 2011 and a decrease in interest expense of $18.5 million, or 32.6%, in the first six months of 2012 compared to the first six months of 2011. The decrease in

net interest revenue for the second quarter and first six months of 2012 was a result of the decrease in interest expense being more than offset by the decrease in interest revenue that resulted from the declining interest rate environment combined with the low loan demand as interest revenue decreased $14.0 million, or 10.2%, in the second quarter of 2012 compared to the second quarter of 2011 and decreased $27.5 million, or 10.0%, in the first six months of 2012 compared to the first six months of 2011. Real estate construction, acquisition and development loans decreased $73.3 million, or 8.1%, to $835.0 million at June 30, 2012 from $908.4 million at December 31, 2011. While loan demand has been weak, the Company has managed to replace some loan runoff with new loan production, primarily in its Texas and Louisiana markets.

The Company attempts to diversify its revenue stream by increasing the amount of revenue received from mortgage lending operations, insurance agency activities, brokerage and securities activities and other activities that generate fee income. Management believes this diversification is important to reduce the impact of fluctuations in net interest revenue on the overall operating results of the Company. Noninterest revenue decreased $8.7 million, or 11.6%, for the second quarter of 2012 compared to the second quarter of 2011 and decreased $4.6 million, or 3.2%, for the first six months of 2012 compared to the first six months of 2011. One of the primary contributors to the decrease in noninterest revenue was the decrease in securities gains, which reflected a decrease of $9.9 million, or 98.2%, for the second quarter of 2012 compared to the second quarter of 2011 and a decrease of $9.8 million, or 97.5%, for the first six months of 2012 compared to the first six months of 2011. During the second quarter of 2011, the Company determined that it no longer had the intent to hold until maturity all securities that were previously classified as held-to-maturity. As a result of this determination, all securities were classified as available-for-sale and recorded at fair value at June 30, 2011, December 31, 2011 and June 30, 2012.

The decrease in noninterest revenue was somewhat offset by the increase in mortgage lending revenue to $11.0 million for the second quarter of 2012 compared to $2.0 million for the second quarter of 2011 and to $26.2 million for the first six months of 2012 compared to $9.6 million for the first six months of 2011. The increase in mortgage lending revenue was primarily related to the increase in mortgage originations. Mortgage origination volume increased in the second quarter of 2012 to $444.1 million from $245.3 million for the second quarter of 2011 and increased in the first six months of 2012 to $839.2 million compared to $448.1 million for the first six months of 2011. The increased level of mortgage origination volume resulted in an increase in origination revenue to $13.1 million in the second quarter of 2012 compared to $4.1 million in the second quarter of 2011 and an increase to $22.8 million for the first six months of 2012 compared to $7.3 million for the first six months of 2011.

Contributing to the decrease in noninterest revenue was the decrease in service charges and credit card, debit card and merchant fees, as these noninterest revenues decreased 22.8% and 17.6% in the aggregate in the second quarter and first six months of 2012, respectively, compared to the second quarter and first six months of 2011. Bank-owned life insurance revenue decreased 18.5% for the second quarter of 2012 compared to the second quarter of 2011 and increased 53.8% for the first six months of 2012 compared to the first six months of 2011 as a result of the Company recording life insurance proceeds of approximately $872,000 during the first three months of 2012 and approximately $478,000 during the second quarter of 2011. There were no significant non-recurring noninterest revenue items during the second quarter or first six months of 2012 and 2011.

Total noninterest expense remained relatively stable for the second quarter and first six months of 2012 compared to the second quarter and first six months of 2011. Salaries and employee benefits expense increased to $77.7 million and $152.6 million for the second quarter and first six months of 2012, respectively, compared to $70.1 million and $140.5 million for the second quarter and first six months of 2011. The increase in salaries and employee benefits was primarily related to increases in employee benefits and incentive compensation during the second quarter and first six months of 2012 compared to the same periods of 2011. Foreclosed property expense increased 171.2% and 71.7% for the second quarter and first six months of 2012, respectively, compared to the second quarter and first six months of 2011. Foreclosed property expense increased for these periods primarily as a result of the Company experiencing losses on the sale and larger writedowns of other real estate owned. During the second quarter of 2011, the Company recorded $9.8 million in expenses related to the early repayment of FHLB advances. No early repayments were made during the first six months of 2012. The Company continues to focus attention on controlling noninterest expense. The major components of net income are discussed in more detail in the various sections that follow.

RESULTS OF OPERATIONS

Net Interest Revenue

Net interest revenue is the difference between interest revenue earned on assets, such as loans, leases and securities, and interest expense paid on liabilities, such as deposits and borrowings, and continues to provide the Company with its principal source of revenue. Net interest revenue is affected by the general level of interest rates, changes in interest rates and changes in the amount and composition of interest earning assets and interest bearing liabilities. The Company’s long-term objective is to manage interest earning assets and interest bearing liabilities to maximize net interest revenue, while balancing interest rate, credit and liquidity risk. Net interest margin is determined by dividing fully taxable equivalent net interest revenue by average earning assets. For purposes of the following discussion, revenue from tax-exempt loans and investment securities has been adjusted to a fully taxable equivalent (“FTE”) basis, using an effective tax rate of 35%. The following tables present average interest earning assets, average interest bearing liabilities, net interest revenue-FTE, net interest margin-FTE and net interest rate spread for the three months and six months ended June 30, 2012 and 2011:

	Three months ended June 30,
	2012								2011
	Average Balance			Interest		Yield/ Rate			Average Balance			Interest		Yield/ Rate
	(Dollars in millions, yields on taxable equivalent basis)
ASSETS
Loans and leases (net of unearned income) (1)(2)	$	8,735.2		$	108.6		5.03	%	$	9,249.1		$	117.8		5.11	%
Loans held for sale		77.7			0.7		3.55	%		44.7			0.5		4.53	%
Held-to-maturity securities:
Taxable (3)		-			-		-			887.8			5.1		2.32	%
Non-taxable (4)		-			-		-			209.8			3.5		6.74	%
Available-for-sale securities:
Taxable (5)		2,068.7			10.3		2.00	%		1,432.8			10.5		2.94	%
Non-taxable (6)		452.2			6.5		5.76	%		176.9			2.9		6.53	%
Federal funds sold, securities purchased under agreement to resell and short-term investments		574.6			0.3		0.27	%		226.6			0.2		0.28	%
Total interest earning assets and revenue		11,908.4			126.4		4.27	%		12,227.7			140.5		4.61	%
Other assets		1,295.0								1,350.8
Less: Allowance for credit losses		(185.2	)							(213.0	)

Total	$	13,018.2							$	13,365.5

LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits:
Demand - interest bearing	$	4,769.3		$	4.1		0.35	%	$	4,977.8		$	6.0		0.49	%
Savings		1,074.9			0.7		0.26	%		941.2			0.8		0.35	%
Other time		2,815.8			10.3		1.47	%		3,418.7			16.3		1.91	%
Federal funds purchased, securities sold under agreement to repurchase, short-term FHLB borrowings and other short term borrowings		376.6			0.1		0.09	%		425.7			0.2		0.15	%
Junior subordinated debt securities		160.3			2.9		7.22	%		160.3			2.9		7.16	%
Long-term FHLB borrowings		33.5			0.4		4.19	%		89.4			1.1		5.27	%
Total interest bearing liabilities and expense		9,230.4			18.5		0.80	%		10,013.1			27.3		1.09	%
Demand deposits -noninterest bearing		2,248.9								2,018.2
Other liabilities		135.2								112.0
Total liabilities		11,614.5								12,143.3
Shareholders' equity		1,403.7								1,222.2
Total	$	13,018.2							$	13,365.5
Net interest revenue-FTE				$	107.9							$	113.2
Net interest margin-FTE							3.65	%							3.71	%
Net interest rate spread							3.47	%							3.51	%
Interest bearing liabilities to interest earning assets							77.51	%							81.89	%

(1) Includes taxable equivalent adjustment to interest of $0.9 million for both the three months ended June 30, 2012 and 2011, using an effective tax rate of 35%.
(2) Includes non-accrual loans.
(3) Includes taxable equivalent adjustment to interest of $0.1 million for the three months ended June 30, 2011 using an effective tax rate of 35%.
(4) Includes taxable equivalent adjustments to interest of $1.2 million for the three months ended June 30, 2011 using an effective tax rate of 35%.
(5) Includes taxable equivalent adjustment to interest of $0.1 million for the three months ended June 30, 2012 using an effective tax rate of 35%.
(6) Includes taxable equivalent adjustment to interest of $2.3 million and $1.0 million for the three months ended June 30, 2012 and 2011, respectively, using an effective tax rate of 35%.

	Six months ended June 30,
	2012								2011

	Average Balance			Interest		Yield/ Rate			Average Balance			Interest		Yield/ Rate
	(Dollars in millions, yields on taxable equivalent basis)
ASSETS
Loans and leases (net of unearned income) (1)(2)	$	8,763.4		$	218.4		5.01	%	$	9,274.4		$	236.0		5.13	%
Loans held for sale		69.5			1.2		3.56	%		41.9			0.9		4.58	%
Held-to-maturity securities:
Taxable (3)		-			-		-			1,104.0			13.3		2.42	%
Non-taxable (4)		-			-		-			269.9			8.7		6.48	%
Available-for-sale securities:
Taxable (5)		2,063.8			21.6		2.10	%		1,224.8			19.1		3.14	%
Non-taxable (6)		450.6			13.0		5.81	%		124.1			4.1		6.74	%
Federal funds sold, securities purchased under agreement to resell and short-term investments		589.3			0.8		0.27	%		271.7			0.4		0.31	%
Total interest earning assets and revenue		11,936.6			255.0		4.30	%		12,310.8			282.5		4.63	%
Other assets		1,310.4								1,356.9
Less: allowance for credit losses		(193.7	)							(215.5	)

Total	$	13,053.3							$	13,452.2

LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits:
Demand - interest bearing	$	4,864.7		$	8.6		0.36	%	$	5,064.9		$	12.6		0.50	%
Savings		1,051.3			1.4		0.27	%		919.4			1.6		0.36	%
Other time		2,866.3			21.5		1.51	%		3,485.8			33.8		1.95	%
Federal funds purchased, securities sold under agreement to repurchase, short-term FHLB borrowings and other short term borrowings		368.1			0.2		0.09	%		429.7			0.3		0.16	%
Junior subordinated debt securities		160.3			5.8		7.22	%		160.3			5.7		7.19	%
Long-term FHLB borrowings		33.5			0.7		4.19	%		99.6			2.7		5.38	%
Total interest bearing liabilities and expense		9,344.2			38.2		0.82	%		10,159.7			56.7		1.13	%
Demand deposits -noninterest bearing		2,194.1								1,956.3
Other liabilities		131.3								115.3
Total liabilities		11,669.6								12,231.3
Shareholders' equity		1,383.7								1,220.9
Total	$	13,053.3							$	13,452.2
Net interest revenue-FTE				$	216.8							$	225.8
Net interest margin-FTE							3.65	%							3.70	%
Net interest rate spread							3.47	%							3.50	%
Interest bearing liabilities to interest earning assets							78.28	%							82.53	%

(1) Includes taxable equivalent adjustment to interest of $1.7 million for both the six months ended June 30, 2012 and 2011 using an effective tax rate of 35%.
(2) Includes non-accrual loans.
(3) Includes taxable equivalent adjustments to interest of $0.2 million for the six months ended June 30, 2011 using an effective tax rate of 35%.
(4) Includes taxable equivalent adjustments to interest of $3.0 million for the six months ended June 30, 2011 using an effective tax rate of 35%.
(5) Includes taxable equivalent adjustment to interest of $0.2 million for the six months ended June 30, 2012 using an effective tax rate of 35%.
(6) Includes taxable equivalent adjustment to interest of $4.5 million and $1.5 million for the six months ended June 30, 2012 and 2011, respectively, using an effective tax rate of 35%.

Net interest revenue-FTE for the three-month period ended June 30, 2012 decreased $5.3 million, or 4.7%, compared to the same period in 2011. Net interest revenue-FTE for the six-month period ended June 30, 2012 decreased $9.0 million, or 4.0%, compared to the same period in 2011. The decrease in net interest revenue-FTE was primarily a result of the increase in short-term investments resulting from excess liquidity coupled with the continued lack of loan growth, as the short-term investments had lower average rates earned than the average rates paid on interest bearing liabilities.

Interest revenue-FTE for the three-month period ended June 30, 2012 decreased $14.1 million, or 10.0%, compared to the same period in 2011. Interest revenue-FTE for the six-month period ended June 30, 2012 decreased $27.5 million, or 9.7%, compared to the same period in 2011. The decrease in interest revenue-FTE for these periods was a result of the increase in lower rate securities combined with the declining loan yields, as interest rates continued to be at historically low levels resulting in a decrease in the yield on average interest-earning assets of 34 basis points for the second quarter of 2012 compared to the same period in 2011 and of 33 basis points for the first six months of 2012 compared to the same period in 2011. Average interest-earning assets decreased $319.3 million, or 2.6%, for the three-month period ended June 30, 2012, compared to the same period in 2011. Average interest-earning assets decreased $374.2 million, or 3.0%, for the six-month period ended June 30, 2012, compared to the same period in 2011. The decrease in average interest-earning assets for these periods was primarily a result of the larger decrease in net loans and leases and securities than the increase in short-term investment resulting from excess liquidity.

Interest expense for the three-month period ended June 30, 2012 decreased $8.9 million, or 32.4%, compared to the same period in 2011. Interest expense for the six-month period ended June 30, 2012 decreased $18.5 million, or 32.6%, compared to the same period in 2011. The decrease in interest expense for these periods was a result of the increase in average lower cost savings deposits combined with the decrease in interest bearing and other time deposit and their corresponding rates, coupled with the decrease in higher rate long-term FHLB borrowings. This activity resulted in an overall decrease in the average rate paid of 29 basis points for the second quarter of 2012 compared to the second quarter of 2011 and 31 basis points for the first six months of 2012 compared to the first six months of 2011. Average interest bearing liabilities decreased $782.7 million, or 7.8%, for the three-month period ended June 30, 2012 compared to the same period in 2011. Average interest bearing liabilities decreased $815.5 million, or 8.0%, for the six-month period ended June 30, 2012 compared to the same period in 2011. The decrease in average interest bearing liabilities for these periods was a result of increases in average lower cost savings deposits being more than offset by decreases in average interest bearing demand deposits, other time deposits, short-term borrowings and long-term borrowings.

Net interest margin was 3.65% for the three months ended June 30, 2012, a decrease of six basis points from 3.71% for the three months ended June 30, 2011. Net interest margin was also 3.65% for the six months ended June 30, 2012, a decrease of five basis points from 3.70% for the six months ended June 30, 2011. The slight decrease in the net interest margin for these periods was primarily a result of weak loan demand and an increase in short-term investments having lower yields than those earned on the loan portfolio.

Interest Rate Sensitivity

The interest rate sensitivity gap is the difference between the maturity or repricing opportunities of interest sensitive assets and interest sensitive liabilities for a given period of time. A prime objective of the Company’s asset/liability management is to maximize net interest margin while maintaining a reasonable mix of interest sensitive assets and liabilities. The following table presents the Company’s interest rate sensitivity at June 30, 2012:

	Interest Rate Sensitivity - Maturing or Repricing Opportunities
				91 Days			Over One
	0 to 90			to			Year to		Over
	Days			One Year			Five Years		Five Years
	(In thousands)
Interest earning assets:
Interest bearing deposits with banks	$	603,458		$	-		$	-	$	-
Available-for-sale and trading securities		111,583			271,442			1,270,545		809,261
Loans and leases, net of unearned income		3,902,067			1,710,612			2,730,619		389,097
Loans held for sale		87,771			359			2,086		17,918
Total interest earning assets		4,704,879			1,982,413			4,003,250		1,216,276
Interest bearing liabilities:
Interest bearing demand deposits and savings		5,865,498			-			-		-
Other time deposits		576,516			1,090,487			1,111,583		209
Federal funds purchased and securities sold under agreement to repurchase, short-term FHLB borrowings and other short-term borrowings		363,490			-			-		-
Long-term FHLB borrowings and junior subordinated debt securities		-			-			3,500		190,312
Other		-			-			61		-
Total interest bearing liabilities		6,805,504			1,090,487			1,115,144		190,521
Interest rate sensitivity gap	$	(2,100,625	)	$	891,926		$	2,888,106	$	1,025,755
Cumulative interest sensitivity gap	$	(2,100,625	)	$	(1,208,699	)	$	1,679,407	$	2,705,162

In the event interest rates increase after June 30, 2012, based on this interest rate sensitivity gap, the Company could experience decreased net interest revenue in the following one-year period, as the cost of funds could increase at a more rapid rate than interest revenue on interest-earning assets. However, the Company’s historical repricing sensitivity on interest bearing demand deposits and savings suggests that these deposits, while having the ability to reprice in conjunction with rising market rates, often exhibit less repricing sensitivity to a change in market rates, thereby somewhat reducing the exposure to rising interest rates. In the event interest rates decline after June 30, 2012, based on this interest rate sensitivity gap, it is possible that the Company could experience slightly increased net interest revenue in the following one-year period. However, any potential benefit to net interest revenue in a falling rate environment is mitigated by implied rate floors on interest bearing demand deposits and savings resulting from the historically low interest rate environment. It should be noted that the balances shown in the table above are at June 30, 2012 and may not be reflective of positions at other times during the year or in subsequent periods. Allocations to specific interest rate sensitivity periods are based on the earlier of maturity or repricing dates. The elevated liability sensitivity in the 0 to 90 day category as compared to other categories was primarily a result of the Company’s utilization of shorter term, lower cost deposits to fund earning assets.

As of June 30, 2012, the Bank had $1.8 billion in variable rate loans with interest rates determined by a floor, or minimum rate. This portion of the loan portfolio had an average interest rate earned of 4.60%, an average maturity of 31 months and a fully-indexed interest rate of 3.72% at June 30, 2012. The fully-indexed interest rate is the interest rate that these loans would be earning without the effect of interest rate floors. While the Bank benefits from interest rate floors in the current interest rate environment, loans currently earning their floored interest rate may not experience an immediate impact on the interest rate earned should key indices rise. Key indices include, but are not limited to, the Bank’s prime rate, the Wall Street Journal prime rate and the London Interbank Offering Rate. At June 30, 2012, the Company had $880.9 million, $1.1 billion and $705.3 million in variable rate loans with interest rates tied to the Bank’s prime rate, the Wall Street Journal prime rate and the London Interbank Offering Rate, respectively. The Bank’s net interest margin may be negatively impacted by the timing and magnitude of a rise in key indices.

Interest Rate Risk Management

Interest rate risk refers to the potential changes in net interest income and Economic Value of Equity (“EVE”) resulting from adverse movements in interest rates. EVE is defined as the net present value of the balance sheet’s cash flow. EVE is calculated by discounting projected principal and interest cash flows under the current interest rate environment. The present value of asset cash flows less the present value of liability cash flows derives the net present value of the Company’s balance sheet. The Company’s Asset / Liability Committee utilizes financial simulation models to measure interest rate exposure. These models are designed to simulate the cash flow and accrual characteristics of the Company’s balance sheet. In addition, the models incorporate assumptions about the direction and volatility of interest rates, the slope of the yield curve, and the changing composition of the Company’s balance sheet arising from both strategic plans and customer behavior. Finally, management makes assumptions regarding loan and deposit growth, pricing, and prepayment speeds.

The sensitivity analysis included in the tables below delineates the percentage change in net interest income and EVE derived from instantaneous parallel rate shifts of plus and minus 400, 300, 200 and 100 basis points. The impact of minus 400, 300, 200 and 100 basis point rate shocks as of June 30, 2012 and 2011 was not considered meaningful because of the historically low interest rate environment. However, the risk exposure should be mitigated by any downward rate shifts. Variances were calculated from the base case scenario, which reflected prevailing market rates, and the net interest income forecasts used in the calculations spanned 12 months for each scenario. For the tables below, management assumed all non-maturity deposits had an average life of one day for calculating EVE. In addition, management assumed a beta value of 1, or 100%, for all non-term deposits for purposes of calculating net interest income instantaneous rate shocks. “Beta,” in the context of deposit rates, is defined as the percentage change in interest rate paid given a change in market rates. Calculations using the aforementioned assumptions are designed to delineate maximum risk exposure.

	Net Interest Income % Variance from Base Case Scenario
Rate Shock	June 30, 2012	June 30, 2011
+400 basis points	-11.9%	-15.6%
+300 basis points	-9.5%	-12.2%
+200 basis points	-7.1%	-9.0%
+100 basis points	-4.0%	-5.1%
-100 basis points	NM	NM
-200 basis points	NM	NM
-300 basis points	NM	NM
-400 basis points	NM	NM

NM=not meaningful

	Economic Value of Equity % Variance from Base Case Scenario
Rate Shock	June 30, 2012	June 30, 2011
+400 basis points	-9.7%	-3.8%
+300 basis points	-7.9%	-2.9%
+200 basis points	-5.9%	-2.2%
+100 basis points	-3.4%	-1.4%
-100 basis points	NM	NM
-200 basis points	NM	NM
-300 basis points	NM	NM
-400 basis points	NM	NM

NM=not meaningful

In addition to instantaneous rate shocks, the Company monitors interest rate exposure through simulations of gradual interest rate changes over a 12-month time horizon. The results of these analyses are included in the following table:

	Net Interest Income % Variance from Base Case Scenario
Rate Ramp	June 30, 2012	June 30, 2011
+200 basis points	-5.9%	-6.8%
-200 basis points	NM	NM

NM=not meaningful

For the tables below, average life assumptions and beta values for non-maturity deposits were estimated based on the historical behavior. Calculations using these assumptions are designed to delineate more precise risk exposure under the various shock scenarios. While the falling rate shocks are not considered meaningful in the historically low interest rate environment, the risk profile would be negatively impacted by downward rate shifts under these assumptions.

	Net Interest Income % Variance from Base Case Scenario
Rate Shock	June 30, 2012	June 30, 2011
+400 basis points	12.6%	NA
+300 basis points	13.8%	NA
+200 basis points	12.2%	NA
+100 basis points	5.6%	NA
-100 basis points	NM	NM
-200 basis points	NM	NM
-300 basis points	NM	NM
-400 basis points	NM	NM

NM=not meaningful
NA=not available

	Economic Value of Equity % Variance from Base Case Scenario
Rate Shock	June 30, 2012	June 30, 2011
+400 basis points	11.0%	NA
+300 basis points	9.6%	NA
+200 basis points	7.4%	NA
+100 basis points	3.4%	NA
-100 basis points	NM	NM
-200 basis points	NM	NM
-300 basis points	NM	NM
-400 basis points	NM	NM

NM=not meaningful
NA=not available

	Net Interest Income % Variance from Base Case Scenario
Rate Ramp	June 30, 2012	June 30, 2011
+200 basis points	1.6%	NA
-200 basis points	NM	NM

NM=not meaningful
NA=not available

Provision for Credit Losses and Allowance for Credit Losses

In the normal course of business, the Bank assumes risks in extending credit. The Bank manages these risks through underwriting in accordance with its lending policies, loan review procedures and the diversification of its loan and lease portfolio. Although it is not possible to predict credit losses with certainty, management regularly reviews the characteristics of the loan and lease portfolio to determine its overall risk profile and quality.

The provision for credit losses is the periodic cost of providing an allowance or reserve for estimated probable losses on loans and leases. The Bank’s Board of Directors has appointed a loan loss reserve valuation committee (the “Loan Loss Committee”), which bases its estimates of credit losses on three primary components: (1) estimates of inherent losses that may exist in various segments of performing loans and leases; (2) specifically identified losses in individually analyzed credits; and (3) qualitative factors that may impact the performance of the loan and lease portfolio. Factors such as financial condition of the borrower and guarantor, recent credit performance, delinquency, liquidity, cash flows, collateral type and value are used to assess credit risk. Expected loss estimates are influenced by the historical losses experienced by the Bank for loans and leases of comparable creditworthiness and structure. Specific loss assessments are performed for loans and leases of significant size and delinquency based upon the collateral protection and expected future cash flows to determine the amount of impairment under FASB ASC 310, Receivables (“FASB ASC 310”). In addition, qualitative factors such as changes in economic and business conditions, concentrations of risk, loan and lease growth, acquisitions and changes in portfolio risk resulting from regulatory changes are considered in determining the adequacy of the level of the allowance for credit losses.

Attention is paid to the quality of the loan and lease portfolio through a formal loan review process. An independent loan review department of the Bank is responsible for reviewing the credit rating and classification of individual credits and assessing trends in the portfolio, adherence to internal credit policies and procedures and other factors that may affect the overall adequacy of the allowance for credit losses. The Loan Loss Committee is responsible for ensuring that the allowance for credit losses provides coverage of both known and inherent losses. The Loan Loss Committee meets at least quarterly to determine the amount of adjustments to the allowance for credit losses. The Loan Loss Committee is composed of senior management from the Bank’s loan administration and finance departments. In 2010, the Bank established a real estate risk management group and an Impairment Committee. The real estate risk management group oversees compliance with regulations and U.S. GAAP related to lending activities where real estate is the primary collateral. The Bank’s Board of Directors has appointed an impairment committee (the “Impairment Committee”), which is responsible for evaluating loans that have been specifically identified through various channels, including examination of the Bank’s watch list, past due listings, findings of the internal loan review department, loan officer assessments and loans to borrowers or industries known to be experiencing problems. For all loans identified, the responsible loan officer in conjunction with his or her credit administrator is required to prepare an impairment analysis to be reviewed by the Impairment Committee. The Impairment Committee deems that a loan is impaired if it is probable that the Company will be unable to collect all the contractual principal and interest on the loan. The Impairment Committee also evaluates the circumstances surrounding the loan in order to determine if the loan officer used the most appropriate method for assessing the impairment of the loan (i.e., present value of expected future cash flows, observable market price or fair value of the underlying collateral). The Impairment Committee meets on a monthly basis.

If concessions are granted to a borrower as a result of its financial difficulties, the loan is classified as a TDR and analyzed for possible impairment as part of the credit approval process. TDRs are reserved in accordance with FASB ASC 310 in the same manner as impaired loans that are not TDRs. Should the borrower’s financial condition, collateral protection or performance deteriorate, warranting reassessment of the loan rating or impairment, additional reserves may be required.

Loans of $200,000 or more that become 60 or more days past due are identified for review by the Impairment Committee, which decides whether an impairment exists and to what extent a specific allowance for credit loss should be made. Loans that do not meet these requirements may also be identified by management for impairment review, particularly if the loan is a small loan that is part of a larger relationship. Loans subject to such review are evaluated as to collateral dependency, current collateral value, guarantor or other financial support and likely disposition. Each such loan is individually evaluated for impairment. The impairment evaluation of real estate loans generally focuses on the fair value of underlying collateral obtained from appraisals, as the repayment of these loans may be dependent on the liquidation of the collateral. In certain circumstances, other information such as comparable sales data is deemed to be a more reliable indicator of fair value of the underlying collateral than the most recent appraisal. In these instances, such information is used in determining the impairment recorded

for the loan. As the repayment of commercial and industrial loans is generally dependent upon the cash flow of the borrower or guarantor support, the impairment evaluation generally focuses on the discounted future cash flows of the borrower or guarantor support, as well as the projected liquidation of any pledged collateral. The Impairment Committee reviews the results of each evaluation and approves the final impairment amounts, which are then included in the analysis of the adequacy of the allowance for credit losses in accordance with FASB ASC 310. Loans identified for impairment are placed in non-accrual status.

The Company’s policy is to obtain an appraisal at the time of loan origination for real estate collateral securing a loan of $250,000 or more, consistent with regulatory guidelines. The Company’s policy is to obtain an updated appraisal when certain events occur, such as the refinancing of the debt, the renewal of the debt or events that indicate potential impairment. A new appraisal is generally ordered for loans greater than $200,000 that have characteristics of potential impairment such as delinquency or other loan-specific factors identified by management, when a current appraisal (dated within the prior 12 months) is not available or when a current appraisal uses assumptions that are not consistent with the expected disposition of the loan collateral. In order to measure impairment properly at the time that a loan is deemed to be impaired, a staff appraiser may estimate the collateral fair value based upon earlier appraisals, sales contracts, approved foreclosure bids, comparable sales, officer estimates or current market conditions until a new appraisal is received. This estimate can be used to determine the extent of the impairment on the loan. After a loan is deemed to be impaired, it is management’s policy to obtain an updated appraisal on at least an annual basis. Management performs a review of the pertinent facts and circumstances of each impaired loan, such as changes in outstanding balances, information received from loan officers and receipt of re-appraisals, on a monthly basis. As of each review date, management considers whether additional impairment should be recorded based on recent activity related to the loan-specific collateral as well as other relevant comparable assets. Any adjustment to reflect further impairments, either as a result of management’s periodic review or as a result of an updated appraisal, are made through recording additional loan loss provisions or charge-offs.

At June 30, 2012, impaired loans totaled $200.4 million, which was net of cumulative charge-offs of $59.3 million. Additionally, the Company had specific reserves for impaired loans of $23.9 million included in the allowance for credit losses. Impaired loans at June 30, 2012 were primarily from the Company’s commercial and residential real estate construction, acquisition and development portfolios. Impaired loan charge-offs are determined necessary when management does not anticipate any future recovery of collateral values. The loans were evaluated for impairment based on the fair value of the underlying collateral securing the loan. As part of the impairment review process, appraisals are used to determine the property values. The appraised values that are used are generally based on the disposition value of the property, which assumes Bank ownership of the property “as-is” and a 180-360 day marketing period. If a current appraisal or one with an inspection date within the past 12 months using the necessary assumptions is not available, a new third-party appraisal is ordered. In cases where an impairment exists and a current appraisal is not available at the time of review, a staff appraiser may determine an estimated value based upon earlier appraisals, the sales contract, approved foreclosure bids, comparable sales, comparable appraisals, officer estimates or current market conditions until a new appraisal is received. After a new appraisal is received, the value used in the review will be updated and any adjustments to reflect further impairments are made. Appraisals are obtained from state-certified appraisers based on certain assumptions which may include foreclosure status, bank ownership, other real estate owned (“OREO”) marketing period of 180 days, costs to sell, construction or development status and the highest and best use of the property. A staff appraiser may make adjustments to appraisals based on sales contracts, comparable sales and other pertinent information if an appraisal does not incorporate the effect of these assumptions.

When a guarantor is relied upon as a source of repayment, it is the Company’s policy to analyze the strength of the guaranty. This analysis varies based on circumstances, but may include a review of the guarantor’s personal and business financial statements and credit history, a review of the guarantor’s tax returns and the preparation of a cash flow analysis of the guarantor. Management will continue to update its analysis on individual guarantors as circumstances change. Because of the continued weakness in the economy, subsequent analyses may result in the identification of the inability of some guarantors to perform under the agreed upon terms.

Any loan or portion thereof which is classified as “loss” by regulatory examiners or which is determined by management to be uncollectible, because of factors such as the borrower’s failure to pay interest or principal, the borrower’s financial condition, economic conditions in the borrower’s industry or the inadequacy of underlying collateral, is charged off.

The following table provides an analysis of the allowance for credit losses for the periods indicated:

	Three months ended						Six months ended
	June 30,						June 30,
	2012			2011			2012			2011
	(Dollars in thousands)

Balance, beginning of period	$	181,777		$	198,333		$	195,118		$	196,913

Loans and leases charged off:
Commercial and industrial		(1,582	)		(5,556	)		(5,854	)		(14,365	)
Real estate
Consumer mortgages		(2,818	)		(1,629	)		(7,034	)		(4,889	)
Home equity		(536	)		(1,391	)		(1,387	)		(2,473	)
Agricultural		(386	)		(373	)		(482	)		(965	)
Commercial and industrial-owner occupied		(2,732	)		(3,228	)		(6,600	)		(4,944	)
Construction, acquisition and development		(9,560	)		(16,783	)		(20,954	)		(49,126	)
Commercial real estate		(3,260	)		(1,597	)		(6,069	)		(6,111	)
Credit cards		(588	)		(725	)		(1,150	)		(1,606	)
All other		(438	)		(4,971	)		(1,196	)		(5,524	)
Total loans charged off		(21,900	)		(36,253	)		(50,726	)		(90,003	)

Recoveries:
Commercial and industrial		1,040			589			2,582			773
Real estate
Consumer mortgages		438			220			761			363
Home equity		78			46			393			91
Agricultural		53			45			63			47
Commercial and industrial-owner occupied		1,514			21			1,865			194
Construction, acquisition and development		1,955			1,493			4,110			2,057
Commercial real estate		4,504			392			4,887			405
Credit cards		121			239			239			494
All other		267			262			555			574
Total recoveries		9,970			3,307			15,455			4,998

Net charge-offs		(11,930	)		(32,946	)		(35,271	)		(85,005	)

Provision charged to operating expense		6,000			32,240			16,000			85,719
Balance, end of period	$	175,847		$	197,627		$	175,847		$	197,627

Average loans for period	$	8,735,225		$	9,249,127		$	8,763,383		$	9,274,415

Ratios:
Net charge-offs to average loans (annualized)		0.55	%		1.42	%		0.80	%		1.83	%
Provision for credit losses to average loans and leases, net of unearned income (annualized)		0.27	%		1.39	%		0.37	%		1.85	%
Allowance for credit losses to loans and leases, net of unearned income		2.01	%		2.14	%		2.01	%		2.14	%
Allowance for credit losses to net charge-offs (annualized)		368.50	%		149.96	%		249.28	%		116.24	%

Net charge-offs decreased $21.0 million, or 63.8%, in the second quarter of 2012 compared to the second quarter of 2011 and decreased $49.7 million, or 58.5%, in the first six months of 2012 compared to the first six months of 2011. Decreases in net charge-offs in the second quarter and first six months of 2012 contributed to a lower provision for credit losses of $6.0 million and $16.0 million during the second quarter and first six months of 2012 compared to a provision of $32.2 million and $85.7 million in the same periods of 2011. Annualized net charge-offs as a percentage of average loans and leases decreased to 0.55% and 0.80% for the second quarter and

first six months of 2012, respectively, compared to 1.42% and 1.83% for the second quarter and first six months of 2011, respectively. These decreases were primarily a result of decreased losses within the real estate construction, acquisition and development segment of the Company’s loan and lease portfolio. The losses experienced in this segment were primarily a result of the weakened financial condition of the corresponding borrowers and guarantors. These borrowers’ weakened state hindered their ability to service their loans with the Company, which caused a number of loans to become collateral dependent. Once it is determined a loan’s repayment is dependent upon the underlying collateral, the loan is charged down to net realizable value or a specific reserve is allocated to the loan. This process resulted in a decreased level of charge-offs in the first six months of 2012 compared to the first six months of 2011 as updated appraisals came in closer to loan carrying values. Total recoveries increased by $6.7 million for the three-month period ended June 30, 2012, compared to the same period of 2011 and $10.5 million for the six-month period ended June 30, 2012, compared to the same period of 2011.

The provision for credit losses decreased to $6.0 million and $16.0 million for the second quarter and first six months of 2012, respectively, compared to $32.2 million and $85.7 million for the second quarter and first six months of 2011, respectively. The decrease in the provision for credit losses was a result of the decrease in net charge-offs, a decline in the formation of new non-accrual loans, including fewer loans being identified for impairment, continued stabilization in values of previously impaired loans, and a significant decrease in NPLs.

As of June 30, 2012, 83.4% of nonaccrual loans had been charged down to net realizable value or had specific reserves to reflect recent appraised values. This resulted in impaired loans having an aggregate net book value of 68% of their contractual principal balance at June 30, 2012. As of June 30, 2011, 91.7% of nonaccrual loans had been charged down to net realizable value or had specific reserves to reflect recent appraised values. This resulted in impaired loans having an aggregate net book value of 69% of their contractual principal balance at June 30, 2011. Non-accrual loans not impaired are loans that either fall below the impairment threshold or are not determined to be collaterally dependant.

The breakdown of the allowance by loan and lease category is based, in part, on evaluations of specific loan and lease histories and on economic conditions within specific industries or geographical areas. Accordingly, because all of these conditions are subject to change, the allocation is not necessarily indicative of the breakdown of any future allowance or losses. The following table presents (i) the breakdown of the allowance for credit losses by segment and class and (ii) the percentage of each segment and class in the loan and lease portfolio to total loans and leases at the dates indicated:

	June 30,										December 31,
	2012					2011					2011
	Allowance for Credit Losses		% of Total Loans and Leases			Allowance for Credit Losses		% of Total Loans and Leases			Allowance for Credit Losses		% of Total Loans and Leases
	(Dollars in thousands)

Commercial and industrial	$	25,815		17.2	%	$	22,840		16.6	%	$	20,724		16.6	%
Real estate
Consumer mortgages		34,431		21.7	%		37,045		21.3	%		36,529		21.8	%
Home equity		7,336		5.7	%		7,620		5.8	%		8,630		5.8	%
Agricultural		3,259		2.9	%		4,709		2.8	%		3,921		2.7	%
Commercial and industrial-owner occupied		17,359		14.7	%		24,644		14.8	%		21,929		14.6	%
Construction, acquisition and development		32,755		9.5	%		53,920		11.5	%		45,562		10.2	%
Commercial real estate		37,166		19.9	%		35,293		19.1	%		39,444		19.7	%
Credit cards		3,159		1.2	%		3,487		1.1	%		4,021		1.2	%
All other		14,567		7.2	%		8,069		7.0	%		14,358		7.4	%
Total	$	175,847		100.0	%	$	197,627		100.0	%	$	195,118		100.0	%

Noninterest Revenue

The components of noninterest revenue for the three months and six months ended June 30, 2012 and 2011 and the corresponding percentage changes are shown in the following tables:

	Three months ended June 30,
	2012		2011		% Change
	(Dollars in thousands)

Mortgage lending	$	11,040	$	2,003	451.2	%
Credit card, debit card and merchant fees		7,787		11,263	(30.9	)
Service charges		13,697		16,556	(17.3	)
Trust income		3,139		2,850	10.1
Securities gains, net		177		10,045	(98.2	)
Insurance commissions		22,964		22,941	0.1
Annuity fees		635		1,094	(42.0	)
Brokerage commissions and fees		1,779		1,437	23.8
Bank-owned life insurance		1,812		2,223	(18.5	)
Other miscellaneous income		3,438		4,732	(27.3	)
Total noninterest revenue	$	66,468	$	75,144	(11.5	) %

	Six months ended June 30,
	2012		2011		% Change
	(Dollars in thousands)

Mortgage lending	$	26,182	$	9,584	173.2	%
Credit card, debit card and merchant fees		15,310		21,609	(29.1	)
Service charges		28,813		31,924	(9.7	)
Trust income		5,421		5,984	(9.4	)
Securities gains, net		251		10,062	(97.5	)
Insurance commissions		46,117		45,490	1.4
Annuity fees		1,277		2,390	(46.6	)
Brokerage commissions and fees		3,217		3,075	4.6
Bank owned life insurance		4,425		3,922	12.8
Other miscellaneous income		7,815		9,415	(17.0	)
Total noninterest revenue	$	138,828	$	143,455	(3.2	) %

The Company’s revenue from mortgage lending typically fluctuates as mortgage interest rates change and is primarily attributable to two activities - origination and sale of new mortgage loans and servicing mortgage loans. Since the Company does not hedge the change in fair value of its MSRs, mortgage revenue can be significantly affected by changes in the valuation of MSRs in changing interest rate environments. The Company’s normal practice is to originate mortgage loans for sale in the secondary market and to either retain or release the associated MSRs with the loan sold. The Company records MSRs at fair value on a recurring basis with subsequent remeasurement of MSRs based on change in fair value in accordance with FASB ASC 860, Transfers and Servicing.

In the course of conducting the Company’s mortgage lending activities of originating mortgage loans and selling those loans in the secondary market, various representations and warranties are made to the purchasers of the mortgage loans. These representations and warranties also apply to underwriting the real estate appraisal opinion of value for the collateral securing these loans. Under the representations and warranties, failure by the Company to comply with the underwriting and/or appraisal standards could result in the Company being required to repurchase the mortgage loan or to reimburse the investor for losses incurred (i.e., make whole requests) if such failure cannot

be cured by the Company within the specified period following discovery. During the first six months of 2012, nine mortgage loans totaling $1.4 million were repurchased or otherwise settled as a result of underwriting and appraisal standard exceptions or make whole requests. A loss of approximately $283,000 was recognized related to these repurchased or make whole loans. During the first six months of 2011, no mortgage loans were repurchased or otherwise settled as a result of underwriting and appraisal standard exceptions or make whole requests. Therefore, no loss was recognized related to repurchased or make whole loans.

At June 30, 2012, the Company had reserved approximately $959,000 for potential losses from representation and warranty obligations. The reserve was based on the Company’s repurchase and loss trends, and quantitative and qualitative factors that may result in anticipated losses different than historical loss trends, including loan vintage, underwriting characteristics and macroeconomic trends.

Management believes that the Company’s foreclosure process related to mortgage loans continues to operate effectively. Before beginning the foreclosure process, a mortgage loan foreclosure committee of the Bank reviews the identified delinquent loan. All documents and activities related to the foreclosure process are executed in-house by mortgage department personnel.

Origination revenue, a component of mortgage lending revenue, is comprised of gains or losses from the sale of the mortgage loans originated, origination fees, underwriting fees and other fees associated with the origination of loans. Mortgage loan origination volumes of $444.1 million and $245.3 million produced origination revenue of $13.1 million and $4.1 million for the quarters ended June 30, 2012 and 2011, respectively. Mortgage loan origination volumes of $839.2 million and $448.1 million produced origination revenue of $22.8 million and $7.3 million for the six months ended June 30, 2012 and 2011, respectively. The increase in mortgage origination revenue was a direct result of the increase in mortgage loan origination volumes for the second quarter and first six months of 2012 compared to the second quarter and first six months of 2011.

Revenue from the servicing process, another component of mortgage lending revenue, includes fees from the actual servicing of loans. Revenue from the servicing of loans was $3.5 million and $3.2 million for the quarters ended June 30, 2012 and 2011, respectively. For the six months ended June 30, 2012 and 2011, revenue from the servicing of loans was $6.9 million and $6.3 million, respectively.

Changes in the fair value of the Company’s MSRs are generally a result of changes in mortgage interest rates from the previous reporting date. An increase in mortgage interest rates typically results in an increase in the fair value of the MSRs while a decrease in mortgage interest rates typically results in a decrease in the fair value of MSRs. The fair value of MSRs is also impacted by principal payments, prepayments and payoffs on loans in the servicing portfolio. Decreases in value from principal payments, prepayments and payoffs were $1.7 million and $1.4 million for the quarters ended June 30, 2012 and 2011, respectively. Decreases in value from principal payments, prepayments and payoffs were $3.5 million and $2.7 million for the six months ended June 30, 2012 and 2011, respectively. The Company does not hedge the change in fair value of its MSRs and is susceptible to significant fluctuations in their value in a changing interest rate environment. Reflecting this sensitivity to interest rates, the fair value of MSRs decreased $3.8 million for both the second quarter of 2012 and 2011, respectively, and decreased approximately $140,000 and $1.3 million for the first six months of 2012 and 2011, respectively.

The following tables present the Company’s mortgage lending operations for the three months and six months ended June 30, 2012 and 2011:

	Three months ended June 30,
	2012		2011			% Change
	(Dollars in thousands)
Mortgage revenue:
Origination	$	13,119	$	4,066		222.7	%
Servicing		3,495		3,166		10.4
Payoffs/Paydowns		(1,737)		(1,390	)	25.0
Total		14,877		5,842		154.7
MSR market value adjustment		(3,837)		(3,839	)	(0.1	)
Mortgage lending revenue	$	11,040	$	2,003		451.2	%


	(Dollars in millions)
Origination volume	$	444	$	245		81.2	%

	Six months ended June 30,
	2012		2011			% Change
	(Dollars in thousands)
Mortgage revenue:
Origination	$	22,839	$	7,290		213.3	%
Servicing		6,946		6,283		10.6
Payoffs/Paydowns		(3,463)		(2,690	)	28.7
Total		26,322		10,883		141.9
MSR market value adjustment		(140)		(1,299	)	(89.2	)
Mortgage lending revenue	$	26,182	$	9,584		173.2

	(Dollars in millions)
Origination volume	$	839	$	448		87.3

Mortgage loans serviced at period-end	$	4,601	$	4,027		14.3

Credit card, debit card and merchant fees decreased for the comparable three-month and six-month periods as a result of the impact of the implementation of the Durbin Amendment with that decrease somewhat offset by the increase in the number and monetary volume of items processed. As a result of the impact of the Durbin Amendment implementation, among other factors, debit card revenue decreased by $3.7 million and $6.8 million for the second quarter and first six months of 2012, respectively, compared to the second quarter and first six months of 2011. Management estimates that debit card revenue could be reduced in 2012 by approximately $13.0 million as a result of the impact of the Durbin Amendment.

Recent changes in banking regulations and, in particular, the Federal Reserve’s rules pertaining to certain overdraft payments on consumer accounts and the FDIC’s Overdraft Payment Programs and Consumer Protection Final Overdraft Payment Supervisory Guidance, resulted in a decrease in insufficient fund fees for the second quarter of 2012 compared to the second quarter of 2011. As a result, service charges on deposit accounts, which include insufficient fund fees, decreased for the three-month and six-month periods ended June 30, 2012 compared to the same periods in 2011. The Company has taken steps to mitigate the impact of these new regulations on the Company’s service charge revenue by offering new deposit products to customers.

While trust income increased during the second quarter of 2012 compared to the second quarter of 2011, trust income decreased for the six-month periods ended June 30, 2012 and 2011 primarily as a result of decreases in the assets under management or in custody combined with non-recurring fees received in the first six months of

2011 and not received during the first six months of 2012. Net security gains of approximately $177,000 and $251,000 for the three-month and six-month periods ended June 30, 2012, respectively, were a result of calls and sales of available-for-sale securities. Net security gains of $10.0 million and $10.1 million for the three-month and six-month periods ending June 30, 2011, respectively, were primarily a result of sales of available-for-sale securities, some of which were previously classified as held-to-maturity.

Insurance commissions remained relatively stable for the comparable three-month and six-month periods. Annuity fees decreased by 42.0% and 46.6% for the comparable three-month and six-month periods, respectively, as a result of fewer annuity sales combined with reduced commissions on those sales. Brokerage commissions and fees increased by 23.8% and 4.6% for the comparable three-month and six-month periods, respectively, as a result of the increase in sales of real estate investment trust products. Bank-owned life insurance revenue decreased 18.5% for the comparable three-month periods and increased 12.8% for the comparable six-month periods as a result of the Company recording life insurance proceeds of approximately $478,000 during the second quarter of 2011 and approximately $872,000 during the first six months of 2012. Other miscellaneous income, which includes safe deposit box rental income, gain or loss on disposal of assets, and other non-recurring revenue items, decreased by 27.3% and 17.0% for the comparable three-month and six-month periods of 2012 and 2011, respectively, primarily as a result of a $1.1 million gain on the disposition of fixed assets during the second quarter of 2011.

Noninterest Expense

The components of noninterest expense for the three months and six months ended June 30, 2012 and 2011 and the corresponding percentage changes are shown in the following tables:

	Three months ended June 30,
	2012		2011		% Change
	(Dollars in thousands)

Salaries and employee benefits	$	77,661	$	70,142	10.7	%
Occupancy, net		10,487		10,232	2.5
Equipment		5,124		5,595	(8.4	)
Deposit insurance assessments		3,994		6,436	(37.9	)
Prepayment penalty on FHLB borrowings		-		9,778	NM
Advertising		902		1,291	(30.1	)
Foreclosed property expense		10,212		3,765	171.2
Telecommunications		2,023		2,036	(0.6	)
Public relations		1,355		1,554	(12.8	)
Data processing		2,444		2,365	3.3
Computer software		1,786		1,899	(6.0	)
Amortization of intangibles		742		833	(10.9	)
Legal fees		981		1,158	(15.3	)
Postage and shipping		1,033		1,171	(11.8	)
Other miscellaneous expense		17,762		18,814	(5.6	)
Total noninterest expense	$	136,506	$	137,069	(0.4	) %

	Six months ended June 30,
	2012		2011		% Change
	(Dollars in thousands)

Salaries and employee benefits	$	152,592	$	140,517	8.6	%
Occupancy, net of rental income		20,553		20,903	(1.7	)
Equipment		10,457		11,253	(7.1	)
Deposit insurance assessments		9,377		11,861	(20.9	)
Prepayment penalty on FHLB borrowings		-		9,778	NM
Advertising		1,743		2,180	(20.0	)
Foreclosed property expense		18,621		10,847	71.7
Telecommunications		4,229		4,179	1.2
Public relations		2,821		3,068	(8.1	)
Data processing		5,208		4,666	11.6
Computer software		3,589		3,747	(4.2	)
Amortization of intangibles		1,505		1,687	(10.8	)
Legal		3,197		3,756	(14.9	)
Postage and shipping		2,288		2,468	(7.3	)
Other miscellaneous expense		36,006		36,169	(0.5	)
Total noninterest expense	$	272,186	$	267,079	1.9	%

NM=Not meaningful

Salaries and employee benefits expense for the three months and six months ended June 30, 2012 increased compared to the same period in 2011, primarily because of increased employee benefits and incentive compensation. Equipment expense decreased for the comparable three-month and six-month periods primarily because of decreased depreciation. Deposit insurance assessments decreased for the comparable three-month and six-month periods as a result of improvement evidenced in various variables utilized by the FDIC in calculating the deposit insurance assessment. During the second quarter of 2011, the Company recorded $9.8 million in expenses related to the early repayment of FHLB advances. No early repayments were made during 2012.

Foreclosed property expense increased for the three months and six months ended June 30, 2012 compared to the same periods in 2011, as the Company experienced losses on the sale and larger writedowns of other real estate owned as a result of the decline in property values attributable to the prevailing economic environment combined with increased other foreclosed property expenses as a result of the increase in the number of properties owned. During the first six months of 2012, the Company added $17.7 million to other real estate owned through foreclosures. Sales of other real estate owned in the first six months of 2012 were $37.9 million resulting in a net loss of $3.5 million. The components of foreclosed property expense for the three months and six months ended June 30, 2012 and 2011 and the percentage change between periods are shown in the following tables:

	Three months ended June 30,
	2012		2011			% Change
	(Dollars in thousands)

Loss (gain) on sale of other real estate owned	$	2,708	$	(140	)	NM	%
Writedown of other real estate owned		4,932		2,272		117.1
Other foreclosed property expense		2,572		1,633		57.5
Total foreclosed property expense	$	10,212	$	3,765		171.2	%

	Six months ended
	June 30,
	2012		2011		% Change
	(Dollars in thousands)

Loss on sale of other real estate owned	$	3,478	$	352	NM	%
Writedown of other real estate owned		9,924		7,208	37.7
Other foreclosed property expense		5,219		3,287	58.8
Total foreclosed property expense	$	18,621	$	10,847	71.7	%

NM=Not meaningful

While the Company experienced some fluctuations in various components of other noninterest expense, including advertising, data processing, legal fees and amortization of intangibles, total noninterest expense remained relatively stable for the three months and six months ended June 30, 2012, compared with the same periods in 2011.

Income Tax

The Company recorded income tax expense of $8.1 million for the second quarter of 2012, compared to an income tax expense of $2.9 million for the second quarter of 2011. For the six-month period ended June 30, 2012, income tax expense was $17.5 million compared to an income tax benefit of $2.3 million for the six months ended June 30, 2011. Because of the volatility on the Company’s earnings, the Company’s tax calculations were based on actual results of operations, including tax preference items through June 30, 2012. The primary differences between the Company’s recorded expense for the first six months of 2012 and the expense that would have resulted from applying the U.S. statutory tax rate of 35% to the Company’s pre-tax income were primarily the effects of tax-exempt income and other tax preference items.

FINANCIAL CONDITION

The percentage of earning assets to total assets measures the effectiveness of management’s efforts to invest available funds into the most efficient and profitable uses. Earning assets at June 30, 2012 were $11.9 billion, or 90.6% of total assets, compared with $11.8 billion, or 90.6% of total assets, at December 31, 2011.

Loans and Leases

The Bank’s loan and lease portfolio represents the largest single component of the Company’s earning asset base, comprising 73.4% of average earning assets during the second quarter of 2012. The Bank’s lending activities include both commercial and consumer loans and leases. Loan and lease originations are derived from a number of sources, including direct solicitation by the Bank’s loan officers, existing depositors and borrowers, builders, attorneys, walk-in customers and, in some instances, other lenders, real estate broker referrals and mortgage loan companies. The Bank has established systematic procedures for approving and monitoring loans and leases that vary depending on the size and nature of the loan or lease, and applies these procedures in a disciplined manner. The Company’s loans and leases are widely diversified by borrower and industry. Loans and leases, net of unearned income, totaled $8.7 billion at June 30, 2012, representing a 1.6% decrease from $8.9 billion at December 31, 2011. The decrease in loans and leases, net of unearned income, was primarily a result of continued low loan demand in the markets served by the Company, combined with the strategic runoff of real estate construction, acquisition and development loans, as well as NPLs and other criticized loans; however, the Company was able to replace some loan runoff with new loan production, particularly in its Mississippi, Texas and Louisiana markets.

The following table shows the composition of the Company’s gross loans and leases by segment and class at the dates indicated:

	June 30,				December 31,
	2012		2011		2011
	(In thousands)

Commercial and industrial	$	1,507,382	$	1,540,048	$	1,484,967
Real estate
Consumer mortgages		1,904,420		1,971,499		1,945,190
Home equity		496,245		531,787		514,362
Agricultural		251,975		255,310		239,487
Commercial and industrial-owner occupied		1,288,887		1,366,734		1,301,575
Construction, acquisition and development		835,022		1,060,675		908,362
Commercial real estate		1,748,748		1,764,648		1,754,022
Credit cards		101,085		101,955		106,281
All other		637,878		663,223		657,012
Total	$	8,771,642	$	9,255,879	$	8,911,258

The following table shows the Company’s net loans and leases by segment, class and geographical location as of June 30, 2012:

	Alabama and Florida Panhandle		Arkansas*		Mississippi*		Missouri		Greater Memphis Area		Tennessee*		Texas and Louisiana		Other		Total
	(In thousands)

Commercial and industrial	$	57,950	$	191,231	$	340,454	$	56,176	$	17,036	$	83,517	$	248,738	$	502,576	$	1,497,678
Real estate
Consumer mortgages		104,590		266,625		748,850		44,442		83,380		161,013		448,735		46,785		1,904,420
Home equity		59,969		38,511		168,552		24,417		66,302		74,942		61,547		2,005		496,245
Agricultural		6,632		81,867		68,990		3,439		9,497		14,043		62,527		4,980		251,975
Commercial and industrial-owner occupied		116,744		159,231		454,193		81,542		90,680		89,351		250,432		46,714		1,288,887
Construction, acquisition and development		95,278		60,747		251,977		44,756		91,437		88,684		174,818		27,325		835,022
Commercial real estate		190,195		346,586		360,704		204,377		115,061		101,883		377,008		52,934		1,748,748
Credit cards		-		-		-		-		-		-		-		101,085		101,085
All other		30,890		86,350		190,620		6,852		56,187		49,481		95,729		92,226		608,335
Total	$	662,248	$	1,231,148	$	2,584,340	$	466,001	$	529,580	$	662,914	$	1,719,534	$	876,630	$	8,732,395

* Excludes the Greater Memphis Area.

The maturity distribution of the Bank’s loan portfolio is one factor in management’s evaluation by collateral type of the risk characteristics of the loan and lease portfolio. The following table shows the maturity distribution of the Company’s loans and leases, net of unearned income, as of June 30, 2012:

			One Year		One to		After
	Past Due		or Less		Five Years		Five Years		Total
	(In thousands)

Commercial and industrial	$	13,724	$	960,966	$	398,224	$	124,764	$	1,497,678
Real estate
Consumer mortgages		8,771		425,571		1,128,607		341,471		1,904,420
Home equity		-		120,209		375,996		40		496,245
Agricultural		2,382		68,545		134,187		46,861		251,975
Commercial and industrial-owner occupied		9,515		276,090		680,738		322,544		1,288,887
Construction, acquisition and development		15,154		474,930		313,733		31,205		835,022
Commercial real estate		13,878		427,100		1,082,549		225,221		1,748,748
Credit cards		-		101,085		-		-		101,085
All other		830		216,776		351,319		39,410		608,335
Total	$	64,254	$	3,071,272	$	4,465,353	$	1,131,516	$	8,732,395

Commercial and Industrial - Commercial and industrial loans are loans and leases to finance business operations, equipment and owner-occupied facilities primarily for small and medium-sized enterprises. These include both lines of credit for terms of one year or less and term loans which are amortized over the useful life of

the assets financed. Personal guarantees are generally required for these loans. Also included in this category are loans to finance agricultural production and business credit card lines. Commercial and industrial loans outstanding remained stable during the first six months of 2012, increasing by 1.6% at June 30, 2012 compared to December 31, 2011.

Real Estate – Consumer Mortgages - Consumer mortgages are first- or second-lien loans to consumers secured by a primary residence or second home. These loans are generally amortized over terms up to 15 or 20 years with maturities of three to five years. The loans are generally secured by properties located within the local market area of the community bank which originates and services the loan. These loans are underwritten in accordance with the Bank’s general loan policies and procedures which require, among other things, proper documentation of each borrower’s financial condition, satisfactory credit history and property value. Consumer mortgages outstanding remained stable during the first six months of 2012, decreasing by 2.1% at June 30, 2012 compared to December 31, 2011. In addition to loans originated through the Bank’s branches, the Bank originates and services consumer mortgages sold in the secondary market which are underwritten and closed pursuant to investor and agency guidelines. The Bank’s exposure to sub-prime mortgages is minimal.

Real Estate – Home Equity - Home equity loans include revolving credit lines which are secured by a first or second lien on a borrower’s residence. Each loan is underwritten individually by lenders who specialize in home equity lending and must conform to Bank lending policies and procedures for consumer loans as to borrower’s financial condition, ability to repay, satisfactory credit history and the condition and value of collateral. Properties securing home equity loans are generally located in the local market area of the Bank branch or office originating and servicing the loan. The Bank has not purchased home equity loans from brokers or other lending institutions. Home equity loans outstanding decreased 3.5% during the first six months of 2012.

Real Estate – Agricultural - Agricultural loans include loans to purchase agricultural land and production lines secured by farm land. Agricultural loans outstanding increased 5.2% during the first six months of 2012.

Real Estate – Commercial and Industrial-Owner Occupied - Commercial and industrial-owner occupied loans include loans secured by business facilities to finance business operations, equipment and owner-occupied facilities primarily for small and medium-sized enterprises. These include both lines of credit for terms of one year or less and term loans which are amortized over the useful life of the assets financed. Personal guarantees are generally required for these loans. Commercial and industrial-owner occupied loans remained stable during the first six months of 2012, decreasing 1.0%.

Real Estate – Construction, Acquisition and Development - Construction, acquisition and development loans include both loans and credit lines for the purpose of purchasing, carrying and developing land into commercial developments or residential subdivisions. Also included are loans and lines for construction of residential, multi-family and commercial buildings. These loans are often structured with interest reserves to fund interest costs during the construction and development period. Additionally, certain loans are structured with interest only terms. The Bank primarily engages in construction and development lending only in local markets served by its branches. The weakened economy and housing market has negatively impacted builders and developers in particular. Sales of finished houses slowed during 2009 and activity has remained slow since then, which has resulted in lower demand for residential lots and development land. The Company curtailed the origination of new construction, acquisition and development loans significantly during 2009 and the Company has continued to maintain that strategy. Construction, acquisition and development loans decreased 8.1% during the first six months of 2012.

The underwriting process for construction, acquisition and development loans with interest reserves is essentially the same as that for a loan without interest reserves and may include analysis of borrower and guarantor financial strength, market demand for the proposed project, experience and success with similar projects, property values, time horizon for project completion and the availability of permanent financing once the project is completed. The Company’s general loan policy prohibits the use of interest reserves on loans originated after March 2010. Construction, acquisition and development loans, with or without interest reserves, are inspected periodically to ensure that the project is on schedule and eligible for requested draws. Inspections may be performed by construction inspectors hired by the Company or by appropriate loan officers and are done periodically to monitor the progress of a particular project. These inspections may also include discussions with project managers and engineers. For performing construction, acquisition and development loans, interest is generally recognized as interest income as it is earned. Non-performing construction, acquisition and development loans are placed on non-accrual status and interest income is not recognized, except in those situations where principal is expected to be received in full. In such situations, interest income is recognized as payment is received.

At June 30, 2012, the Company had $23.6 million in construction, acquisition and development loans that provided for the use of interest reserves with approximately $163,000 and $361,000 recognized as interest income during the second quarter and first six months of 2012, respectively. The amount of construction, acquisition and development loans with interest reserves that were on non-accrual status was $1.8 million at June 30, 2012. Interest income is not recognized on construction, acquisition and development loans with interest reserves that are in non-accrual status. Loans with interest reserves normally have a budget that includes the various cost components involved in the project. Interest is such a cost, along with hard and other soft costs. The Company’s policy is to allow interest reserves only during the construction phase.

So that interest capitalization is appropriate, interest reserves are not included for any renewal period after construction is completed or otherwise ceases, requiring borrowers to make interest payments no less than quarterly. Loans for which construction is complete, or has ceased, and where interest payments are not made on a timely basis are usually considered non-performing and are placed in nonaccrual status. Procedures are in place to restrict the structuring of a loan with terms that do not require performance until the end of the loan term, as well as to restrict the advancement of funds to keep a loan from becoming non-performing with any such advancement identified as a TDR.

On a case-by-case basis, a construction, acquisition and development loan may be extended, renewed or restructured. Loans are sometimes extended for a short period of time (generally 90 days or less) beyond the contractual maturity to facilitate negotiations or allow the borrower to gain other financing or acquire more recent note-related information, such as appraisals or borrower financial statements. These short-term extensions are not ordinarily accounted for as TDRs if the loan and project are performing in accordance with the terms of the loan agreement and/or promissory note. Construction, acquisition and development loans may be renewed when the borrower has satisfied the terms and conditions of the original loan, including payment of interest, and when management believes that the borrower is able to continue to meet the terms of the renewed note during the renewal period. Many loans are structured to mature at the conclusion of the construction or development period or at least annually. If concessions are granted to a borrower as a result of its financial difficulties, the loan is classified as a TDR and analyzed for impairment.

The Bank’s real estate risk management group is responsible for reviewing and approving the structure and classification of all construction, acquisition and development loan renewals and modifications above a threshold of $500,000. The analysis performed by the real estate risk management group may include the review of updated appraisals, borrower and guarantor financial condition, construction status and proposed loan structure. If the new terms of the loan meet the criteria of a TDR as set out in FASB ASC 310, the loan is identified as such.

Each construction, acquisition and development loan is underwritten to address: (i) the desirability of the project, its market viability and projected absorption period; (ii) the creditworthiness of the borrower and the guarantor as to liquidity, cash flow and assets available to ensure performance of the loan; (iii) equity contribution to the project; (iv) the developer’s experience and success with similar projects; and (v) the value of the collateral.

The construction, acquisition and development portfolio may be further categorized by risk characteristics into the following six categories: commercial acquisition and development, residential acquisition and development, multi-family construction, one-to-four family construction, commercial construction and recreation and all other loans. Construction, acquisition and development loans were $835.0 million at June 30, 2012 and $908.4 million at December 31, 2011. The following table shows the Company’s construction, acquisition and development portfolio by geographical location and performing status at June 30, 2012:

Real Estate Construction, Acquisition and Development	Alabama and Florida Panhandle		Arkansas*		Mississippi*		Missouri		Greater Memphis Area		Tennessee*		Texas and Louisiana		Other		Total
	(In thousands)
Performing:
Multi-family construction	$	-	$	-	$	10	$	-	$	-	$	1,710	$	658	$	-	$	2,378
One-to-four family construction		20,874		10,965		41,925		3,529		7,947		33,072		34,232		13,821		166,365
Recreation and all other loans		2,046		8,565		31,321		309		2,577		3,769		16,224		-		64,811
Commercial construction		13,646		5,230		44,714		1,431		7,801		6,209		27,844		1,736		108,611
Commercial acquisition and development		12,189		16,088		51,667		12,101		24,219		11,861		31,340		1,104		160,569
Residential acquisition and development		28,181		18,423		74,188		14,968		22,390		18,287		39,897		5,728		222,062
Total	$	76,936	$	59,271	$	243,825	$	32,338	$	64,934	$	74,908	$	150,195	$	22,389	$	724,796

Non-performing:
Multi-family construction	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
One-to-four family construction		4,791		291		1,911		2,778		2,317		2,106		769		1,320		16,283
Recreation and all other loans		-		39		-		-		823		181		179		-		1,222
Commercial construction		42		153		-		1,088		-		2,440		595		-		4,318
Commercial acquisition and development		2,556		72		1,376		2,248		7,238		3,960		2,989		1,562		22,001
Residential acquisition and development		10,953		921		4,865		6,304		16,125		5,089		20,091		2,054		66,402
Total	$	18,342	$	1,476	$	8,152	$	12,418	$	26,503	$	13,776	$	24,623	$	4,936	$	110,226

Total:
Multi-family construction	$	-	$	-	$	10	$	-	$	-	$	1,710	$	658	$	-	$	2,378
One-to-four family construction		25,665		11,256		43,836		6,307		10,264		35,178		35,001		15,141		182,648
Recreation and all other loans		2,046		8,604		31,321		309		3,400		3,950		16,403		-		66,033
Commercial construction		13,688		5,383		44,714		2,519		7,801		8,649		28,439		1,736		112,929
Commercial acquisition and development		14,745		16,160		53,043		14,349		31,457		15,821		34,329		2,666		182,570
Residential acquisition and development		39,134		19,344		79,053		21,272		38,515		23,376		59,988		7,782		288,464
Total	$	95,278	$	60,747	$	251,977	$	44,756	$	91,437	$	88,684	$	174,818	$	27,325	$	835,022

* Excludes the Greater Memphis Area.

The following table shows the maturity distribution of the Company’s construction, acquisition and development portfolio as of June 30, 2012:

Real Estate Construction, Acquisition and Development	Past Due		One Year or Less		One to Five Years		After Five Years		Total
	(In thousands)
Outstanding loan balances:
Multi-family construction	$	-	$	1,498	$	880	$	-	$	2,378
One-to-four family construction		3,163		153,533		24,348		1,604		182,648
Recreation and all other loans		-		11,324		48,912		5,797		66,033
Commercial construction		878		55,771		41,178		15,102		112,929
Commercial acquisition and development		752		80,295		98,970		2,553		182,570
Residential acquisition and development		10,361		172,509		99,445		6,149		288,464
Total	$	15,154	$	474,930	$	313,733	$	31,205	$	835,022

Non-accrual loans:
Multi-family construction	$	-	$	-	$	-	$	-	$	-
One-to-four family construction		3,068		8,938		3,264		220		15,490
Recreation and all other loans		-		360		20		-		380
Commercial construction		721		2,440		1,157		-		4,318
Commercial acquisition and development		708		15,121		5,912		-		21,741
Residential acquisition and development		8,982		48,746		4,626		-		62,354
Total	$	13,479	$	75,605	$	14,979	$	220	$	104,283

As of June 30, 2012, approximately 56.9% of the loans included in the construction, acquisition and development portfolio were scheduled to mature within one year. Many of these maturities are expected to occur prior to the completion of the related projects; and it is therefore expected that these loans will be renewed for an additional period of time. The Company’s loan policy requires that updated appraisals from qualified third party appraisers be obtained for any real estate loan renewed for loans over $250,000. If the borrower is experiencing financial difficulties, and the renewal is made with concessions, the loan is considered to be a TDR. These TDRs are tested for impairment by assessing the estimated disposal value of the collateral from the recent appraisal or by assessing the present value of the discounted cash flows expected on these loans.

The following table presents the activity in the construction, acquisition and development nonaccrual loans for the six-months ended June 30, 2012:

	(In thousands)

Balance at December 31, 2011	$	133,110
Additions to CAD nonaccruals:
Formation of new nonaccrual loans		15,984
Reductions in CAD nonaccruals:
Charge-offs		(20,832	)
Foreclosures to OREO		(6,345	)
Payments		(25,308	)
Transfers to accrual status		(546	)
Transfer from other loan category		8,220
Balance at June 30, 2012	$	104,283

The five largest credits that made up the construction, acquisition and development nonaccrual loan balance at June 30, 2012 were located throughout the Company’s geographical locations and in various stages of development and maturity. The five largest credits made up 23.9% of the total construction, acquisition and development nonaccrual loan balance at June 30, 2012.

Real Estate – Commercial - Commercial loans include loans to finance income-producing commercial and multi-family properties. Lending in this category is generally limited to properties located in the Bank’s trade area with only limited exposure to properties located elsewhere but owned by in-market borrowers. Loans in this category include loans for neighborhood retail centers, medical and professional offices, single retail stores, warehouses and apartments leased generally to local businesses and residents. The underwriting of these loans takes into consideration the occupancy and rental rates as well as the financial health of the borrower. The Bank’s exposure to national retail tenants is minimal. The Bank has not purchased commercial real estate loans from brokers or third-party originators. Commercial loans remained stable during the first six months of 2012, decreasing 0.3% at June 30, 2012 compared to December 31, 2011.

Credit Cards - Credit cards include consumer and business MasterCard and Visa accounts. The Bank offers credit cards primarily to its deposit and loan customers. Credit card balances decreased 4.9% during the first six months of 2012.

All Other - All other loans and leases include consumer installment loans and loans and leases to state, county and municipal governments and non-profit agencies. Consumer installment loans and leases include term loans of up to five years secured by automobiles, boats and recreational vehicles. The Bank offers lease financing for vehicles and heavy equipment to state, county and municipal governments and medical equipment to healthcare providers across the southern states. All other loan and lease balances decreased 3.0% during the first six months of 2012.

NPLs consist of non-accrual loans and leases, loans and leases 90 days or more past due, still accruing, and accruing loans and leases that have been restructured (primarily in the form of reduced interest rates and modified payment terms) because of the borrower’s or guarantor’s weakened financial condition or bankruptcy proceedings. The Bank’s policy provides that loans and leases are generally placed in non-accrual status if, in management’s opinion, payment in full of principal or interest is not expected or payment of principal or interest is more than 90 days past due, unless the loan or lease is both well-secured and in the process of collection. NPAs consist of NPLs and other real estate owned, which consists of foreclosed properties. NPAs, which are carried either in the loan account or other real estate owned on the Company’s consolidated balance sheets, depending on foreclosure status, were as follows as of the dates presented:

	June 30,						December 31,
	2012			2011			2011
	(Dollars in thousands)

Non-accrual loans and leases	$	240,246		$	331,076		$	276,798
Loans 90 days or more past due, still accruing		1,632			3,980			3,434
Restructured loans and leases, still accruing		25,071			44,786			42,018
Total NPLs		266,949			379,842			322,250

Other real estate owned		143,615			151,204			173,805
Total NPAs	$	410,564		$	531,046		$	496,055

NPLs to net loans and leases		3.06	%		4.12	%		3.63	%
NPAs to net loans and leases		4.70	%		5.76	%		5.59	%

NPLs decreased 17.2% to $266.9 million at June 30, 2012 compared to $322.3 million at December 31, 2011 and decreased 29.7% compared to $379.8 million at June 30, 2011. Included in NPLs at June 30, 2012 were $200.4 million of loans that were impaired. These impaired loans had a specific reserve of $23.9 million included in the allowance for credit losses of $175.8 million at June 30, 2012, and were net of $59.3 million in partial charge-downs previously taken on these impaired loans. NPLs at December 31, 2011 included $234.9 million of loans that were impaired. These impaired loans had a specific reserve of $39.7 million included in the allowance for credit losses of $195.1 million at December 31, 2011. NPLs at June 30, 2011 included $303.7 million of loans that were impaired. These impaired loans had a specific reserve of $46.8 million included in the allowance for credit losses of $197.6 million at June 30, 2011.

The following table provides additional details related to the Company’s NPLs and the allowance for credits losses at the dates indicated:

	June 30,						December 31,
	2012			2011			2011
	(Dollars in thousands)

Unpaid principal balance of impaired loans	$	259,703		$	374,760		$	287,099
Cumulative charge offs on impaired loans		59,326			71,103			52,176
Outstanding balance of impaired loans		200,377			303,657			234,923

Other non-accrual loans and leases not impaired		39,869			27,419			41,875

Total non-accrual loans and leases	$	240,246		$	331,076		$	276,798

Allowance for impaired loans		23,939			46,810			39,708

Nonaccrual loans and leases, net of specific reserves	$	216,307		$	284,266		$	237,090

Loans and leases 90 days or more past due, still accruing		1,632			3,980			3,434
Restructured loans and leases, still accruing		25,071			44,786			42,018

Total non-performing loans and leases	$	266,949		$	379,842		$	322,250

Allowance for impaired loans	$	23,939		$	46,810		$	39,708
Allowance for all other loans and leases		151,908			150,817			155,410

Total allowance for credit losses	$	175,847		$	197,627		$	195,118


Outstanding balance of impaired loans	$	200,377		$	303,657		$	234,923
Allowance for impaired loans		23,939			46,810			39,708

Net book value of impaired loans	$	176,438		$	256,847		$	195,215

Net book value of impaired loans as a % of unpaid principal balance		68	%		69	%		68	%

Coverage of other non-accrual loans and leases not impaired by the allowance for all other loans and leases		381	%		550	%		371	%

Coverage of non-performing loans and leases not impaired by the allowance for all other loans and leases		228	%		198	%		178	%

Non-accrual loans at June 30, 2012 reflected a decrease of $36.6 million, or 13.2%, compared to December 30, 2011 and a decrease of $90.8 million, or 27.4%, compared to June 30, 2011. The Bank’s NPL levels over the past several years have been reflective of the continuing effects of the prevailing economic environment on the Bank’s loan portfolio, as a significant portion of the prior increases in the Bank’s NPLs was attributable to problems developing for established customers with real estate related loans, particularly residential construction and development loans, primarily in the Bank’s more urban markets. These problems resulted primarily from the decreased liquidity of certain borrowers and third party guarantors, as well as the declines in appraised real estate values for loans which became collateral dependent during the past two years and certain other borrower specific factors. The decrease in non-accrual loans was primarily recognized in the real estate construction, acquisition and development portfolio as non-accrual loans related to this portfolio decreased $28.8 million, or 21.7%, to $104.3

million at June 30, 2012 compared to $133.1 million at December 31, 2011 and decreased $96.2 million, or 48.0%, compared to $200.4 million at June 30, 2011.

Of the Bank’s construction, acquisition and development loans, which totaled $835.0 million at June 30, 2012, $450.2 million represented loans made by the Bank’s locations in Alabama, Texas, Louisiana and Tennessee, including the greater Memphis, Tennessee area, a portion of which is in northwest Mississippi and Arkansas. Residential acquisition and development loans were the largest component of the Bank’s construction, acquisition and development loans and totaled $288.5 million at June 30, 2012 with 55.8% of such loans made by the Bank’s locations in Alabama, Texas, Louisiana and Tennessee. These areas have experienced a higher incidence of NPLs, primarily as a result of a severe downturn in the housing market in these regions. Of the Bank’s total NPLs of $266.9 million at June 30, 2012, $149.5 million, or 56.0%, were loans made within these markets. These markets continue to be affected by high inventories of unsold homes, unsold lots and undeveloped land intended for use as housing developments. Unlike the Bank’s NPL concentrations in Alabama, Texas, Louisiana and Tennessee which have been affected by the severe downturn in the housing market, the Bank’s NPLs in Missouri are generally a result of borrowers experiencing financial difficulties, or difficulties with a specific project, rather than problems more associated with product types in specific geographic areas. The Bank’s NPLs in Missouri are represented by fewer and larger individual credits in the construction, acquisition and development and commercial real estate classes, some of which pre-date the Bank’s acquisition of The Signature Bank in 2007. The following table presents the NPLs by geographical location at June 30, 2012:

	Outstanding		90+ Days Past Due still Accruing		Non-accruing Loans		Restructured Loans, still accruing		NPLs		NPLs as a % of Outstanding
	(Dollars in thousands)

Alabama and Florida Panhandle	$	662,248	$	-	$	41,017	$	1,533	$	42,550		6.4	%
Arkansas*		1,231,148		12		19,293		2,628		21,933		1.8
Mississippi*		2,584,340		-		35,888		4,059		39,947		1.5
Missouri		466,001		-		32,687		7,075		39,762		8.5
Greater Memphis Area		529,580		-		33,066		4,781		37,847		7.1
Tennessee*		662,914		-		25,682		1,909		27,591		4.2
Texas and Louisiana		1,719,534		-		40,843		670		41,513		2.4
Other		876,630		1,620		11,770		2,416		15,806		1.8
Total	$	8,732,395	$	1,632	$	240,246	$	25,071	$	266,949		3.1	%

* Excludes the Greater Memphis Area.

Other real estate owned decreased by $7.6 million to $143.6 million at June 30, 2012 compared to $151.2 million at June 30, 2011 and decreased by $30.2 million compared to $173.8 million at December 31, 2011. Other real estate owned decreased as a result of sales of foreclosed properties exceeding new foreclosures. Writedowns were the result of continuing processes to value these properties at fair value. The Bank recorded losses from the loans that were secured by these foreclosed properties in the allowance for credit losses at the time of foreclosure.

The ultimate impact of the economic downturn on the Company’s financial condition and results of operations will depend on its severity and duration. Continued weakness in the economy could adversely affect the Bank’s volume of NPLs. The Bank will continue to focus on improving and enhancing existing processes related to the early identification and resolution of potential credit problems. Loans identified as meeting the criteria set out in FASB ASC 310 are identified as TDRs. The concessions granted most frequently for TDRs involve reductions or delays in required payments of principal and/or interest for a specified time, the rescheduling of payments in accordance with a bankruptcy plan or the charge-off of a portion of the loan. In most cases, the conditions of the credit also warrant non-accrual status, even after the restructure occurs. TDR loans may be returned to accrual status in years after the restructure if there has been at least a six-month sustained period of repayment performance under the restructured loan terms by the borrower and the interest rate at the time of restructure was at or above market for a comparable loan. For reporting purposes, if a restructured loan is 90 days or more past due or has been placed in non-accrual status, the restructured loan is included in the loans 90 days or more past due category or the non-accrual loan category of NPAs. Total restructured loans were $91.7 million and $104.7 million at June 30, 2012 and December 31, 2011, respectively. Restructured loans of $66.6 million and $62.7 million were included in the non-accrual loan category at June 30, 2012 and December 31, 2011, respectively.

At June 30, 2012, the Company did not have any concentration of loans or leases in excess of 10% of total loans and leases outstanding which were not otherwise disclosed as a category of loans or leases. Loan concentrations are considered to exist when there are amounts loaned to multiple borrowers engaged in similar

activities which would cause them to be similarly impacted by economic or other conditions. The Bank conducts business in a geographically concentrated area and has a significant amount of loans secured by real estate to borrowers in varying activities and businesses, but does not consider these factors alone in identifying loan concentrations. The ability of the Bank’s borrowers to repay loans is somewhat dependent upon the economic conditions prevailing in the Bank’s market areas.

The Company utilizes an internal loan classification system to grade loans according to certain credit quality indicators. These credit quality indicators include, but are not limited to, recent credit performance, delinquency, liquidity, cash flows, debt coverage ratios, collateral type and loan-to-value ratio. The following table provides details of the Company’s loan and lease portfolio, net of unearned income, by segment, class and internally assigned grade at June 30, 2012:

	Pass		Special Mention		Substandard		Doubtful		Loss		Impaired		Total
	(In thousands)

Commercial and industrial	$	1,426,787	$	12,480	$	46,512	$	959	$	34	$	10,906	$	1,497,678
Real estate
Consumer mortgage		1,720,260		29,254		132,775		4,748		302		17,081		1,904,420
Home equity		472,291		3,476		17,759		908		243		1,568		496,245
Agricultural		225,886		2,989		15,687		20		-		7,393		251,975
Commercial and industrial-owner occupied		1,158,082		25,740		83,048		276		28		21,713		1,288,887
Construction, acquisition and development		607,942		26,947		99,471		589		20		100,053		835,022
Commercial real estate		1,515,262		48,217		144,301		71		199		40,698		1,748,748
Credit Cards		101,085		-		-		-		-		-		101,085
All other		572,073		18,060		16,425		803		9		965		608,335
Total	$	7,799,668	$	167,163	$	555,978	$	8,374	$	835	$	200,377	$	8,732,395

In the normal course of business, management becomes aware of possible credit problems in which borrowers exhibit potential for the inability to comply with the contractual terms of their loans and leases, but which currently do not yet meet the criteria for disclosure as NPLs. However, based upon past experiences, some of these loans and leases with potential weaknesses will ultimately be restructured or placed in non-accrual status. At June 30, 2012, the Bank had $7.1 million of potential problem loans or leases or loans and leases with potential weaknesses that were not included in the non-accrual loans and leases or in the loans 90 days or more past due categories. These loans or leases are included in the above rated categories. Loans with identified weaknesses based upon analysis of the credit quality indicators are included in the loans 90 days or more past due category or in the non-accrual loan and lease category which would include impaired loans.

The following table provides details regarding the aging of the Company’s loan and lease portfolio, net of unearned income, by internally assigned grade at June 30, 2012:

			30-59 Days		60-89 Days		90+ Days
	Current		Past Due		Past Due		Past Due		Total
	(In thousands)

Pass	$	7,789,340	$	10,297	$	31	$	-	$	7,799,668
Special Mention		160,526		2,555		2,506		1,576		167,163
Substandard		528,022		11,337		4,014		12,605		555,978
Doubtful		6,187		697		482		1,008		8,374
Loss		614		-		19		202		835
Impaired		140,146		10,435		5,579		44,217		200,377
Total	$	8,624,835	$	35,321	$	12,631	$	59,608	$	8,732,395

While increases of 34.1% were realized in the Special Mention category, the Substandard and Impaired categories decreased 15.1% and 14.7% at June 30, 2012. Respectively, compared to December 31, 2011. Of the $167.2 million of Special Mention loans and leases, 96.0% remained current as to scheduled repayment of principal and interest, with 0.9% of such loans or leases having outstanding balances that were 90 days or more past due at June 30, 2012. Of the $556.0 million of Substandard loans and leases, 95.0% remained current as to scheduled repayment of principal and interest, with only 2.3% having outstanding balances that were 90 days or more past due at June 30, 2012. Of the $200.4 million of impaired loans and leases, 70.0% remained current as to scheduled repayment of principal and/or interest, with 22.1% having outstanding balances that were 90 days or more past due at June 30, 2012.

Collateral for some of the Bank’s loans and leases is subject to fair value evaluations that fluctuate with market conditions and other external factors. In addition, while the Bank has certain underwriting obligations related to such evaluations, the evaluations of some real property and other collateral are dependent upon third-party independent appraisers employed either by the Bank’s customers or as independent contractors of the Bank. During the current economic cycle, some subsequent fair value appraisals have reported lower values than were originally reported. These declining collateral values could impact future losses and recoveries.

The following table provides additional details related to the make-up of the Company’s loan and lease portfolio, net of unearned income, and the distribution of NPLs at June 30, 2012:

Loans and leases, net of unearned income	Outstanding		90+ Days Past Due still Accruing		Non-accruing Loans		Restructured Loans, still accruing		NPLs		NPLs as a % of Outstanding
	(Dollars in thousands)

Commercial and industrial	$	1,497,678	$	-	$	13,156	$	443	$	13,599		0.9	%
Real estate
Consumer mortgages		1,904,420		1,141		35,660		2,591		39,392		2.1
Home equity		496,245		-		2,995		-		2,995		0.6
Agricultural		251,975		-		8,390		456		8,846		3.5
Commercial and industrial-owner occupied		1,288,887		-		26,957		4,999		31,956		2.5
Construction, acquisition and development		835,022		-		104,283		5,943		110,226		13.2
Commercial real estate		1,748,748		-		44,359		7,636		51,995		3.0
Credit cards		101,085		324		364		2,173		2,861		2.8
All other		608,335		167		4,082		830		5,079		0.8
Total	$	8,732,395	$	1,632	$	240,246	$	25,071	$	266,949		3.1	%

The following table provides additional details related to the make-up of the Company’s real estate construction, acquisition and development loan class and the distribution of NPLs at June 30, 2012:

Real Estate Construction, Acquisition and Development	Outstanding		90+ Days Past Due still Accruing		Non-accruing Loans		Restructured Loans, still accruing		NPLs		NPLs as a % of Outstanding
	(Dollars in thousands)

Multi-family construction	$	2,378	$	-	$	-	$	-	$	-		-	%
One-to-four family construction		182,648		-		15,490		793		16,283		8.9
Recreation and all other loans		66,033		-		380		842		1,222		1.9
Commercial construction		112,929		-		4,318		-		4,318		3.8
Commercial acquisition and development		182,570		-		21,741		260		22,001		12.1
Residential acquisition and development		288,464		-		62,354		4,048		66,402		23.0
Total	$	835,022	$	-	$	104,283	$	5,943	$	110,226		13.2	%

Securities

The Company uses the Bank’s securities portfolios to make various term investments, to provide a source of liquidity and to serve as collateral to secure certain types of deposits. Available-for-sale securities were $2.5 billion at both June 30, 2012 and December 31, 2011. Available-for-sale securities, which are subject to possible sale, are recorded at fair value. At June 30, 2012, the Company held no securities whose decline in fair value was considered other than temporary.

The following table shows the available-for-sale securities portfolio by credit rating as obtained from Moody’s rating service as of June 30, 2012:

	Amortized Cost					Estimated Fair Value
	Amount		%			Amount		%
	(Dollars in thousands)
Available-for-sale Securities:
Aaa	$	1,879,680		78.5	%	$	1,918,587		77.9	%
Aa1 to Aa3		216,240		9.0	%		230,440		9.4	%
A1 to A3		26,600		1.1	%		27,573		1.1	%
Baa1 to Baa2		6,017		0.3	%		6,342		0.3	%
Ba1 to Ba3		-		-			-		-
Caa1		66		-			131		-
Not rated (1)		265,313		11.1	%		279,758		11.3	%
Total	$	2,393,916		100.0	%	$	2,462,831		100.0	%

(1) Not rated securities primarily consist of Mississippi and Arkansas municipal bonds.

Of the securities not rated by Moody’s, bonds with a book value of $91.0 million and a market value of $97.3 million were rated A- or better by Standard and Poor’s.

Goodwill

The Company’s policy is to assess goodwill for impairment at the reporting segment level on an annual basis or sooner if an event occurs or circumstances change which indicate that the fair value of a reporting unit is below its carrying amount. Impairment is the condition that exists when the carrying amount of goodwill exceeds its implied fair value. Accounting standards require management to estimate the fair value of each reporting segment in assessing impairment at least annually. The Company’s annual assessment date is during the Company’s fourth quarter. No events occurred during the second quarter or first six months of 2012 that indicated the necessity of an earlier goodwill impairment assessment.

Other Real Estate Owned

Other real estate owned totaled $143.6 million and $173.8 million at June 30, 2012 and December 31, 2011, respectively. Other real estate owned at June 30, 2012 had aggregate loan balances at the time of foreclosure of $281.7 million. Other real estate owned at December 31, 2011 had aggregate loan balances at time of foreclosure of $319.1 million. The following table presents the other real estate owned by segment, class and geographical location at June 30, 2012:

	Alabama and Florida Panhandle		Arkansas*		Mississippi*		Missouri		Greater Memphis Area		Tennessee*		Texas and Louisiana		Other		Total
	(In thousands)

Commercial and industrial	$	564	$	212	$	-	$	-	$	814	$	-	$	-	$	-	$	1,590
Real estate
Consumer mortgages		2,457		469		2,612		-		2,334		1,402		188		2,470		11,932
Home equity		-		-		220		-		-		-		-		-		220
Agricultural		894		-		-		-		1,154		2,352		-		-		4,400
Commercial and industrial-owner occupied		554		448		2,337		76		1,814		163		149		246		5,787
Construction, acquisition and development		18,459		2,042		19,152		1,395		45,532		15,775		2,215		737		105,307
Commercial real estate		784		1,677		2,281		304		7,425		-		231		-		12,702
All other		47		60		243		116		1,177		-		2		32		1,677
Total	$	23,759	$	4,908	$	26,845	$	1,891	$	60,250	$	19,692	$	2,785	$	3,485	$	143,615

* Excludes the Greater Memphis Area.

Because of the relatively high number of the Bank’s NPLs that have been determined to be collaterally dependent, management expects the resolution of a significant number of these loans to necessitate foreclosure proceedings resulting in a further additions to in other real estate owned. While management expects future foreclosure activity in virtually all loan categories, the magnitude of nonperforming loans in the construction,

acquisition and development portfolio indicated that a majority of additions to OREO in the near-term will be from that category.

At the time of foreclosure, the fair value of construction, acquisition and development properties is typically determined by an appraisal performed by a third party appraiser holding professional certifications. Such appraisals are then reviewed and evaluated by the Company’s internal appraisal group. A disposition value appraisal using a 180-360 day marketing period is typically ordered and the OREO is recorded at the time of foreclosure at its disposition value less estimated selling costs. For residential subdivisions that are not completed, the appraisals reflect the uncompleted status of the subdivision.

To ensure that OREO is carried at the lower of cost or fair value less estimated selling costs on an ongoing basis, new appraisals are obtained on at least an annual basis and the OREO carrying values are adjusted accordingly. The type of appraisals typically used for these periodic reappraisals are Restricted Use Appraisals, meaning the appraisal is for client use only. Other indications of fair value are also used to ensure that OREO is carried at the lower of cost or fair value. These include listing the property with a broker and acceptance of an offer to purchase from a third party. If a parcel of OREO is listed with a broker at an amount less than the current carrying value, the carrying value is immediately adjusted to reflect the list price less estimated selling costs and if an offer to purchase is accepted at a price less that the current carrying value, the carrying value is immediately adjusted to reflect that sales price, less estimated selling costs. The majority of the properties in OREO are actively marketed using a combination of real estate brokers, bank staff who are familiar with the particular properties and/or third parties.

Deposits and Other Interest-Bearing Liabilities

Deposits originating within the communities served by the Bank continue to be the Bank’s primary source of funding its earning assets. The Company has been able to compete effectively for deposits in its primary market areas, while continuing to manage the exposure to rising interest rates. The distribution and market share of deposits by type of deposit and by type of depositor are important considerations in the Company's assessment of the stability of its fund sources and its access to additional funds. Furthermore, management shifts the mix and maturity of the deposits depending on economic conditions and loan and investment policies in an attempt, within set policies, to minimize cost and maximize net interest margin.

The following table presents the Company’s noninterest bearing, interest bearing, savings and other time deposits as of the dates indicated and the percentage change between dates:

	June 30, 2012		December 31, 2011		% Change
	(Dollars in millions)

Noninterest bearing demand	$	2,312	$	2,270	1.9	%
Interest bearing demand		4,782		4,707	1.6
Savings		1,083		991	9.3
Other time		2,779		2,987	(7.0	)
Total deposits	$	10,956	$	10,955	0.0	%

Total deposits remained relatively stable at June 30, 2012 compared to December 31, 2011, increasing by $1.1 million. The average maturity of time deposits at June 30, 2012 was approximately 15 months, compared to 14 months at December 31, 2011.

Liquidity and Capital Resources

One of the Company's goals is to provide adequate funds to meet increases in loan demand or any potential increase in the normal level of deposit withdrawals. This goal is accomplished primarily by generating cash from the Bank’s operating activities and maintaining sufficient short-term liquid assets. These sources, coupled with a stable deposit base and a historically strong reputation in the capital markets, allow the Company to fund earning assets and maintain the availability of funds. Management believes that the Bank’s traditional sources of maturing loans and investment securities, sales of loans held for sale, cash from operating activities and a strong base of core deposits are adequate to meet the Company’s liquidity needs for normal operations over both the short-term and the long-term.

To provide additional liquidity, the Company utilizes short-term financing through the purchase of federal funds and securities sold under agreement to repurchase. All securities sold under agreements to repurchase are accounted for as collateralized financing transactions and are recorded at the amounts at which the securities were acquired or sold plus accrued interest. Further, the Company maintains a borrowing relationship with the FHLB which provides access to short-term and long-term borrowings. The Company also has access to the Federal Reserve discount window and other bank lines. The Company had short-term borrowings from the FHLB totaling $1.5 million at both June 30, 2012 and December 31, 2011. The Company had federal funds purchased and securities sold under agreement to repurchase of $362.0 million and $373.9 million at June 30, 2012 and December 31, 2011, respectively. The Company had long-term borrowings from the FHLB totaling $33.5 million at both June 30, 2012 and December 31, 2011. The Company has pledged eligible mortgage loans to secure the FHLB borrowings and had $3.0 billion in additional borrowing capacity under the existing FHLB borrowing agreement at June 30, 2012.

The Company had non-binding federal funds borrowing arrangements with other banks aggregating $556.0 million at June 30, 2012. Secured borrowing arrangements utilizing the Company’s securities portfolio provide substantial additional liquidity to the Company. Such arrangements typically provide for borrowings of 95% to 98% of the unencumbered fair value of the Company’s federal government and government agencies securities portfolio. The ability of the Company to obtain funding from these or other sources could be negatively affected should the Company experience a substantial deterioration in its financial condition or its debt rating, or should the availability of short-term funding become restricted as a result of the disruption in the financial markets. Management does not anticipate any short- or long-term changes to its liquidity strategies and believes that the Company has ample sources to meet the liquidity challenges caused by current economic conditions. The Company utilizes, among other tools, maturity gap tables, interest rate shock scenarios and an active asset and liability management committee to analyze, manage and plan asset growth and to assist in managing the Company’s net interest margin and overall level of liquidity.

Off-Balance Sheet Arrangements

In the ordinary course of business, the Company enters into various off-balance sheet commitments and other arrangements to extend credit that are not reflected in the consolidated balance sheets of the Company. The business purpose of these off-balance sheet commitments is the routine extension of credit. While most of the commitments to extend credit are made at variable rates, included in these commitments are forward commitments to fund individual fixed-rate mortgage loans. Fixed-rate lending commitments expose the Company to risks associated with increases in interest rates. As a method to manage these risks, the Company enters into forward commitments to sell individual fixed-rate mortgage loans. The Company also faces the risk of deteriorating credit quality of borrowers to whom a commitment to extend credit has been made; however, no significant credit losses are expected from these commitments and arrangements.

Regulatory Requirements for Capital

The Company is required to comply with the risk-based capital guidelines established by the Board of Governors of the Federal Reserve System. These guidelines apply a variety of weighting factors that vary according to the level of risk associated with the assets. Capital is measured in two “Tiers”: Tier I consists of common shareholders’ equity, qualifying non-cumulative perpetual preferred stock and minority interest in consolidated subsidiaries, less goodwill and certain other intangible assets; and Tier II consists of general allowance for losses on loans and leases, “hybrid” debt capital instruments and all or a portion of other subordinated capital debt, depending upon remaining term to maturity. Total capital is the sum of Tier I and Tier II capital. The required minimum ratio levels to be considered adequately capitalized for the Company’s Tier I capital, total capital, as a percentage of total risk-adjusted assets, and Tier I leverage capital (Tier I capital divided by total assets, less goodwill) are 4%, 8% and 4%, respectively. The Company exceeded the required minimum levels for these ratios at June 30, 2012 and December 31, 2011 as follows:

	June 30, 2012				December 31, 2011
	Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
BancorpSouth, Inc.
Tier I capital (to risk-weighted assets)	$	1,282,653	13.40	%	$	1,129,746	11.77	%
Total capital (to risk-weighted assets)		1,402,573	14.66			1,250,801	13.03
Tier I leverage capital (to average assets)		1,282,653	10.07			1,129,746	8.85

The FDIC’s capital-based supervisory system for insured financial institutions categorizes the capital position for banks into five categories, ranging from “well capitalized” to “critically undercapitalized.” For a bank to be classified as “well capitalized,” the Tier I capital, total capital and leverage capital ratios must be at least 6%, 10% and 5%, respectively. The Bank met the criteria for the “well capitalized” category at June 30, 2012 and December 31, 2011 as follows:

	June 30, 2012				December 31, 2011
	Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
BancorpSouth Bank
Tier I capital (to risk-weighted assets)	$	1,150,487	12.04	%	$	1,099,369	11.46	%
Total capital (to risk-weighted assets)		1,270,971	13.30			1,220,424	12.73
Tier I leverage capital (to average assets)		1,150,487	9.09			1,099,369	8.67

Federal and state banking laws and regulations and state corporate laws restrict the amount of dividends that the Company may declare and pay. For example, under guidance issued by the Federal Reserve, as a bank holding company, the Company is required to consult with the Federal Reserve before declaring dividends and is to consider eliminating, deferring or reducing dividends if (i) the Company’s net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends, (ii) the Company’s prospective rate of earnings retention is not consistent with its capital needs and overall current and prospective financial condition, or (iii) the Company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.

In addition, the Company needs the approval of the Federal Reserve and the Bank needs the approval of the FDIC before paying cash dividends. Further, the Bank’s board of directors has approved a resolution requested by the FDIC and the Mississippi Department of Banking and Consumer Finance such that the declaration and payment of dividends will be limited to the Bank’s current net operating income and conditioned upon the prior written consent of the regulators and maintenance of minimum capital ratios. Finally, the Company’s board of directors has approved a resolution requested by the Federal Reserve such that the Company needs the prior approval of the Federal Reserve before making any declaration or payment of dividends on any of its capital stock.

Uses of Capital

Subject to pre-approval of the Federal Reserve and other banking regulators, the Company may pursue acquisitions of depository institutions and businesses closely related to banking that further the Company’s business strategies, including FDIC-assisted transactions. Management anticipates that consideration for any transactions other than FDIC-assisted transactions would include shares of the Company’s common stock, cash or a combination thereof.

On January 24, 2012, the Company completed an underwritten public offering of 10,952,381 shares of Company common stock at a public offering price of $10.50 per share. The gross proceeds from the offering, before expenses, were $109.3 million. Offering expenses were approximately $575,000. The proceeds from the offering have been and will be used by the Company for general corporate purposes, including to maintain certain capital levels and liquidity at the Company, potentially provide equity capital to the Bank, fund growth either organically or through the acquisition of other financial institutions, insurance agencies, or other businesses that are closely aligned to the operations of the Company, and fund investments in its subsidiaries.

Certain Litigation Contingencies

approved the settlement on the terms submitted by the parties and set a final settlement hearing for October 31, 2012. If settled on the terms preliminarily approved by the court, the settlement will not have a material adverse effect on the Company’s business, consolidated financial position or results of operations.

CRITICAL ACCOUNTING POLICIES

During the three months ended June 30, 2012, there was no significant change in the Company’s critical accounting policies and no significant change in the application of critical accounting policies as presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

During the three months ended June 30, 2012, there were no significant changes to the quantitative and qualitative disclosures about market risks presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

ITEM 4. CONTROLS AND PROCEDURES.

The Company, with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based upon that evaluation and as of the end of the period covered by this report, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective to allow timely decisions regarding disclosure in its reports that the Company files or submits to the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended.

There have been no changes in the Company’s internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

ITEM 1A. RISK FACTORS.

There have been no material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, except for the addition of the following:

The short-term and long-term impact of changes to banking capital standards could negatively impact our regulatory capital and liquidity.

In December 2010, the Basel Committee on Banking Supervision issued final rules related to global regulatory standards on bank capital adequacy and liquidity. The new rules present details of the Basel III framework, which includes increased capital requirements and limits the types of instruments that can be included in Tier I capital, including a phase-out of Tier I capital treatment for trust preferred securities. Implementation of Basel III in the U.S. will require that federal banking regulators issue regulations and guidelines, which when promulgated in final form may significantly differ from the recommendations published by the Basel Committee. In June 2012, the federal banking agencies issued for comment proposed rules implementing the Basel III capital reforms as well as additional capital reforms required by the Dodd-Frank Act. While we cannot predict the final form the revised capital and liquidity regulations will take, the new standards will likely require that we maintain more capital and

manage the configuration of our assets and liabilities in order to comply with new liquidity requirements, which could have a material adverse effect on our liquidity, capital resources, results of operations and financial condition.

ITEM 6. EXHIBITS.

(3)	(a)	Restated Articles of Incorporation, as amended. (1)
	(b)	Bylaws, as amended and restated. (2)
	(c)	Amendment No. 1 to Amended and Restated Bylaws. (3)
	(d)	Amendment No. 2 to Amended and Restated Bylaws (4)
	(e)	Amendment No. 3 to Amended and Restated Bylaws (4)
(4)	(a)	Specimen Common Stock Certificate. (5)
	(b)	Amended and Restated Certificate of Trust of BancorpSouth Capital Trust I. (6)
	(c)	Second Amended and Restated Trust Agreement of BancorpSouth Capital Trust I, dated as of January 28, 2002, between BancorpSouth, Inc., The Bank of New York, The Bank of New York (Delaware) and the Administrative Trustees named therein. (7)
	(d)	Junior Subordinated Indenture, dated as of January 28, 2002, between BancorpSouth, Inc. and The Bank of New York. (7)
	(e)	Guarantee Agreement, dated as of January 28, 2002, between BancorpSouth, Inc. and The Bank of New York. (7)
	(f)	Junior Subordinated Debt Security Specimen. (7)
	(g)	Trust Preferred Security Certificate for BancorpSouth Capital Trust I. (7)
	(h)	Certain instruments defining the rights of certain holders of long-term debt securities of the Registrant are omitted pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K. The Registrant hereby agrees to furnish copies of these instruments to the SEC upon request.
(31.1)		Certification of the Chief Executive Officer of BancorpSouth, Inc. pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
(31.2)		Certification of the Chief Financial Officer of BancorpSouth, Inc. pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
(32.1)		Certification of the Chief Executive Officer of BancorpSouth, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
(32.2)		Certification of the Chief Financial Officer of BancorpSouth, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
(101)**		Pursuant to Rule 405 of Regulation S-T, the following financial information from the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2011, is formatted in XBRL (Extensible Business Reporting Language) interactive data files: (i) the Consolidated Balance Sheets as of September 30, 2011 and 2010, and December 31, 2010, (ii) the Consolidated Statements of Income for each of the three-month and nine-month periods ended September 30, 2011 and 2010, (iii) the Consolidated Statements of Cash Flows for each of the nine-month periods ended September 30, 2011 and 2010, and (iv) the Notes to Consolidated Financial Statements, tagged as blocks of text.*

____________________________

(1)	Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the three months ended June 30, 2009 (file number 1-12991) and incorporated by reference thereto.

(2)	Filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 1998 (file number 1-12991) and incorporated by reference thereto.

(3)	Filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000 (file number 1-12991) and incorporated by reference thereto.

(4)	Filed as exhibits 3.1 and 3.2 to the Company’s Current Report on Form 8-K filed on January 26, 2007 (file number 1-12991) and incorporated by reference thereto.

(5)	Filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 1994 (file number 0-10826) and incorporated by reference thereto.

(6)	Filed as exhibit 4.12 to the Company’s registration statement on Form S-3 filed on November 2, 2001 (Registration No. 33-72712) and incorporated by reference thereto.

(7)	Filed as an exhibit to the Company’s Current Report on Form 8-K filed on January 28, 2002 (file number 1-12991) and incorporated by reference thereto.

**	As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933, as amended, and Section 18 of the Securities Exchange Act of 1934, as amended.

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.

	BancorpSouth, Inc.
	(Registrant)

August 7, 2012	By:	/s/ William L. Prater
		William L. Prater
		Treasurer and Chief Financial Officer

INDEX TO EXHIBITS

Exhibit No.

Description

(3)	(a)	Restated Articles of Incorporation, as amended. (1)
	(b)	Bylaws, as amended and restated. (2)
	(c)	Amendment No. 1 to Amended and Restated Bylaws. (3)
	(d)	Amendment No. 2 to Amended and Restated Bylaws (4)
	(e)	Amendment No. 3 to Amended and Restated Bylaws (4)
(4)	(a)	Specimen Common Stock Certificate. (5)
	(b)	Amended and Restated Certificate of Trust of BancorpSouth Capital Trust I. (6)
	(c)	Second Amended and Restated Trust Agreement of BancorpSouth Capital Trust I, dated as of January 28, 2002, between BancorpSouth, Inc., The Bank of New York, The Bank of New York (Delaware) and the Administrative Trustees named therein. (7)
	(d)	Junior Subordinated Indenture, dated as of January 28, 2002, between BancorpSouth, Inc. and The Bank of New York. (7)
	(e)	Guarantee Agreement, dated as of January 28, 2002, between BancorpSouth, Inc. and The Bank of New York. (7)
	(f)	Junior Subordinated Debt Security Specimen. (7)
	(g)	Trust Preferred Security Certificate for BancorpSouth Capital Trust I. (7)
	(h)	Certain instruments defining the rights of certain holders of long-term debt securities of the Registrant are omitted pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K. The Registrant hereby agrees to furnish copies of these instruments to the SEC upon request.
(31.1)		Certification of the Chief Executive Officer of BancorpSouth, Inc. pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
(31.2)		Certification of the Chief Financial Officer of BancorpSouth, Inc. pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
(32.1)		Certification of the Chief Executive Officer of BancorpSouth, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
(32.2)		Certification of the Chief Financial Officer of BancorpSouth, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
(101)**		Pursuant to Rule 405 of Regulation S-T, the following financial information from the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2011, is formatted in XBRL (Extensible Business Reporting Language) interactive data files: (i) the Consolidated Balance Sheets as of September 30, 2011 and 2010, and December 31, 2010, (ii) the Consolidated Statements of Income for each of the three-month and nine-month periods ended September 30, 2011 and 2010, (iii) the Consolidated Statements of Cash Flows for each of the nine-month periods ended September 30, 2011 and 2010, and (iv) the Notes to Consolidated Financial Statements, tagged as blocks of text.*

____________________________

(1)	Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the three months ended June 30, 2009 (file number 1-12991) and incorporated by reference thereto.

(2)	Filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 1998 (file number 1-12991) and incorporated by reference thereto.

(3)	Filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000 (file number 1-12991) and incorporated by reference thereto.

(4)	Filed as exhibits 3.1 and 3.2 to the Company’s Current Report on Form 8-K filed on January 26, 2007 (file number 1-12991) and incorporated by reference thereto.

(5)	Filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 1994 (file number 0-10826) and incorporated by reference thereto.

(6)	Filed as exhibit 4.12 to the Company’s registration statement on Form S-3 filed on November 2, 2001 (Registration No. 33-72712) and incorporated by reference thereto.

(7)	Filed as an exhibit to the Company’s Current Report on Form 8-K filed on January 28, 2002 (file number 1-12991) and incorporated by reference thereto.

**	As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933, as amended, and Section 18 of the Securities Exchange Act of 1934, as amended.