UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2009

OR

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

For the transition period from                                to                               

BANCORPSOUTH, INC.

(Exact name of registrant as specified in its charter)

Mississippi (State or other jurisdiction of incorporation or organization)		64-0659571 (I.R.S. Employer Identification No.)
One Mississippi Plaza, 201 South Spring Street Tupelo, Mississippi (Address of principal executive offices)		38804 (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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes o 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):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of May 1, 2009, the registrant had outstanding 83,330,034 shares of common stock, par value $2.50 per share.

BANCORPSOUTH, INC.
TABLE OF CONTENTS

				Page
PART I.  Financial Information
ITEM 1.		Financial Statements
		Consolidated Balance Sheets March 31, 2009 (Unaudited) and December 31, 2008		3
		Consolidated Statements of Income (Unaudited) Three Months Ended March 31, 2009 and 2008		4
		Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, 2009 and 2008		5
		Notes to Consolidated Financial Statements (Unaudited)		6
ITEM 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		15
ITEM 3.		Quantitative and Qualitative Disclosures About Market Risk		27
ITEM 4.		Controls and Procedures		27
PART II.  Other Information
ITEM 1A.		Risk Factors		28
ITEM 2.		Unregistered Sales of Equity Securities and Use of Proceeds		28
ITEM 6.		Exhibits		28
EX-31.1
EX-31.2
EX-32.1
EX-32.2

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,” “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 the Federal Deposit Insurance Corporation’s (“FDIC”) emergency special assessment, the Company’s net interest margin, payment of dividends, prepayment of Junior Subordinated Debt Securities, investment in pooled trust preferred securities, credit losses, credit quality, core deposits, off-balance sheet commitments and arrangements, amortization expense, valuation of mortgage servicing rights, allowance and provision for credit losses, continued weakness in the economic environment, volatility of interest rates, deteriorating credit quality of borrowers, consideration for future acquisitions, key indicators of the Company’s financial performance (such as return on average assets and return on average shareholders’ equity), liquidity needs and strategies, future acquisitions to further the Company’s business strategies, the effect of certain legal claims, the impact of federal and state regulatory requirements for capital, additional share repurchases under the Company’s stock repurchase program, diversification of the Company’s revenue stream and the application and impact of recent accounting pronouncements. 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 include, but are not limited to, the ability of the Company to increase noninterest revenue and expand noninterest revenue business, the ability of the Company to fund growth with lower cost liabilities, the ability of the Company to maintain credit quality, the ability of the Company to provide and market competitive services and products, the ability of the Company to diversify revenue, the ability of the Company to attract, train and retain qualified personnel, the ability of the Company to operate and integrate new technology, changes in consumer preferences, changes in the Company’s operating or expansion strategy, changes in economic conditions and government fiscal and monetary policies, legislation and court decisions related to the amount of damages recoverable in legal proceedings, fluctuations in prevailing interest rates and the effectiveness of the Company’s interest rate hedging strategies, the ability of the Company to balance interest rate, credit, liquidity and capital risks, the ability of the Company to collect amounts due under loan agreements and attract deposits, laws and regulations affecting financial institutions in general, the ability of the Company to identify and effectively integrate potential acquisitions, the ability of the Company to manage its growth and effectively serve an expanding customer and market base, geographic concentrations of the Company’s assets and susceptibility to economic downturns in that area, availability of and costs associated with maintaining and/or obtaining adequate and timely sources of liquidity, the ability of the Company to compete with other financial services companies, the ability of the Company to repurchase its common stock on favorable terms, possible adverse rulings, judgments, settlements and other outcomes of pending or threatened litigation, other factors generally understood to affect the financial condition or 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.

PART I.
FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

BANCORPSOUTH, INC. AND SUBSIDIARIES
Consolidated Balance Sheets

		March 31,				December 31,
		2009				2008
		(Unaudited)				(1)
		(Dollars in thousands, except per share amounts)
ASSETS
Cash and due from banks		$	242,180			$	291,055
Interest bearing deposits with other banks			34,230				13,542
Held-to-maturity securities, at amortized cost			1,330,810				1,333,521
Available-for-sale securities, at fair value			993,529				982,859
Loans and leases			9,759,787				9,740,867
Less: Unearned income			46,964				49,590
Allowance for credit losses			134,632				132,793
Net loans			9,578,191				9,558,484
Loans held for sale			168,769				189,242
Premises and equipment, net			348,734				351,204
Accrued interest receivable			77,503				79,183
Goodwill			269,062				268,966
Other assets			415,356				412,162
TOTAL ASSETS		$	13,458,364			$	13,480,218
LIABILITIES
Deposits:
Demand: Noninterest bearing		$	1,820,807			$	1,735,130
Interest bearing			4,005,620				3,904,307
Savings			719,676				678,326
Other time			3,545,871				3,394,109
Total deposits			10,091,974				9,711,872
Federal funds purchased and securities sold under agreement to repurchase			1,256,649				1,205,366
Short-term Federal Home Loan Bank and other short-term borrowings			210,000				691,510
Accrued interest payable			22,841				20,755
Junior subordinated debt securities			160,312				160,312
Long-term Federal Home Loan Bank borrowings			286,302				286,312
Other liabilities			174,627				163,831
TOTAL LIABILITIES			12,202,705				12,239,958
SHAREHOLDERS’ EQUITY
Common stock, $2.50 par value per share Authorized - 500,000,000 shares, Issued - 83,124,534 and 83,105,100 shares, respectively			207,811				207,763
Capital surplus			216,138				215,255
Accumulated other comprehensive loss			(23,620	)			(26,896	)
Retained earnings			855,330				844,138
TOTAL SHAREHOLDERS’ EQUITY			1,255,659				1,240,260
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	13,458,364			$	13,480,218

(1)

Derived from audited financial statements.

See accompanying notes to consolidated financial statements.

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

		Three months ended
		March 31,
		2009				2008
		(In thousands, except for per share amounts)
INTEREST REVENUE:
Loans and leases		$	129,209			$	159,184
Deposits with other banks			70				208
Federal funds sold and securities purchased under agreement to resell			1				67
Held-to-maturity securities:
Taxable			13,031				15,947
Tax-exempt			2,111				2,075
Available-for-sale securities:
Taxable			9,038				9,564
Tax-exempt			883				1,204
Loans held for sale			1,275				2,210
Total interest revenue			155,618				190,459
INTEREST EXPENSE:
Deposits:
Interest bearing demand			12,248				17,257
Savings			936				1,543
Other time			25,833				46,860
Federal funds purchased and securities sold under agreement to repurchase			572				5,195
Federal Home Loan Bank borrowings			2,823				6,285
Other			3,330				3,249
Total interest expense			45,742				80,389
Net interest revenue			109,876				110,070
Provision for credit losses			14,945				10,811
Net interest revenue, after provision for credit losses			94,931				99,259
NONINTEREST REVENUE:
Mortgage lending			7,652				1,543
Credit card, debit card and merchant fees			8,348				7,976
Service charges			14,085				15,839
Trust income			2,209				2,234
Security gains, net			5				78
Insurance commissions			22,645				24,668
Other			11,349				13,893
Total noninterest revenue			66,293				66,231
NONINTEREST EXPENSE:
Salaries and employee benefits			71,363				70,175
Occupancy, net of rental income			9,999				9,483
Equipment			6,222				6,433
Other			30,869				27,379
Total noninterest expense			118,453				113,470
Income before income taxes			42,771				52,020
Income tax expense			13,294				16,875
Net income		$	29,477			$	35,145
Earnings per share: Basic		$	0.35			$	0.43
Diluted		$	0.35			$	0.43
Dividends declared per common share		$	0.22			$	0.21

See accompanying notes to consolidated financial statements.

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

		Three months ended
		March 31,
		2009				2008
		(In thousands)
Operating Activities:
Net income		$	29,477			$	35,145
Adjustment to reconcile net income to net cash provided by operating activities:
Provision for credit losses			14,945				10,811
Depreciation and amortization			7,688				7,103
Deferred taxes			9,826				5,794
Amortization of intangibles			1,360				1,529
Amortization of debt securities premium and discount, net			1,228				731
Share-based compensation expense			591				756
Security gains, net			(5	)			(78	)
Net deferred loan origination expense			(2,286	)			(2,252	)
Excess tax benefit from exercise of stock options			(23	)			(147	)
Decrease in interest receivable			1,680				3,507
(Decrease) increase in interest payable			2,086				(3,543	)
Realized gain on student loans sold			(1,692	)			(17	)
Proceeds from student loans sold			62,080				1,186
Origination of student loans held for sale			(31,873	)			(36,751	)
Realized gain on mortgages sold			(5,992	)			(2,694	)
Proceeds from mortgages sold			426,154				281,109
Origination of mortgages held for sale			(424,306	)			(277,229	)
Increase in bank-owned life insurance			(1,754	)			(1,762	)
Decrease in prepaid pension asset			561				334
Other, net			(10,280	)			(8,627	)
Net cash provided by operating activities			79,465				14,905
Investing activities:
Proceeds from calls and maturities of held-to-maturity securities			9,637				106,296
Proceeds from calls and maturties of available-for-sale securities			41,210				109,204
Purchases of held-to-maturity securities			(7,154	)			(4,392	)
Purchases of available-for-sale securities			(48,709	)			(66,330	)
Net increase in loans and leases			(33,399	)			(59,884	)
Purchases of premises and equipment			(5,608	)			(18,254	)
Proceeds from sale of premises and equipment			622				8
Acquisition of businesses, net of cash acquired			(96	)			(10,106	)
Other, net			(64	)			(436	)
Net cash (used in) provided by investing activities			(43,561	)			56,106
Financing activities:
Net increase in deposits			380,102				22,102
Net decrease in short-term debt and other liabilities			(426,237	)			(302,849	)
Advances of long-term debt			-				200,000
Repayment of long-term debt			(10	)			(38	)
Issuance of common stock			316				1,127
Purchase of common stock			-				(326	)
Excess tax benefit from exercise of stock options			23				147
Payment of cash dividends			(18,285	)			(17,306	)
Net cash used in financing activities			(64,091	)			(97,143	)
Decrease in cash and cash equivalents			(28,187	)			(26,132	)
Cash and cash equivalents at beginning of period			304,597				335,636
Cash and cash equivalents at end of period		$	276,410			$	309,504

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 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, 2008. 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 period ended March 31, 2009 are not necessarily indicative of the results to be expected for the full year. Certain 2008 amounts have been reclassified to conform with the 2009 presentation.

The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, BancorpSouth Bank (the “Bank”) and Risk Advantage, 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. and BancorpSouth Municipal Development Corporation.

NOTE 2 — LOANS AND LEASES

The composition of the loan and lease portfolio by collateral type as of the dates indicated was as follows:

		March 31,								December 31,
		2009				2008				2008
		(In thousands)
Commercial and agricultural		$	1,266,066			$	1,248,622			$	1,288,227
Consumer and installment			403,079				428,654				401,688
Real estate mortgage:
One-to-four family			2,556,967				2,513,029				2,608,047
Other			5,046,625				4,595,286				4,957,726
Lease financing			269,259				278,590				279,505
Other			217,791				216,478				205,674
Total		$	9,759,787			$	9,280,659			$	9,740,867

The following table presents information concerning non-performing loans as of the dates indicated:

		March 31,								December 31,
		2009				2008				2008
		(In thousands)
Non-accrual loans and leases		$	38,936			$	14,709			$	28,168
Loans and leases 90 days or more past due			27,299				21,522				33,373
Restructured loans and leases still accruing			7,581				2,493				2,472
Total non-performing loans		$	73,816			$	38,724			$	64,013

NOTE 3 — ALLOWANCE FOR CREDIT LOSSES

The following table summarizes the changes in the allowance for credit losses for the periods indicated:

		Three months ended								Year ended
		March 31,								December 31,
		2009				2008				2008
		(In thousands)
Balance at beginning of period		$	132,793			$	115,197			$	115,197
Provision charged to expense			14,945				10,811				56,176
Recoveries			1,045				1,007				3,913
Loans and leases charged off			(14,151)				(7,714)				(42,067)
Acquisitions			-				-				(426)
Balance at end of period		$	134,632			$	119,301			$	132,793

NOTE 4 — SECURITIES

The following table summarizes information pertaining to temporarily impaired held-to-maturity and available-for-sale securities with continuous unrealized loss positions at March 31, 2009:

		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)
Held-to-maturity securities:
U.S. Treasury		$	-			$	-			$	-			$	-			$	-			$	-
U.S. government agencies			-				-				-				-				-				-
Obligations of states and political subdivisions			49,066				2,179				13,714				996				62,780				3,175
Total		$	49,066			$	2,179			$	13,714			$	996			$	62,780			$	3,175
Available-for-sale securities:
U.S. government agencies		$	165,588			$	591			$	80,147			$	384			$	245,735			$	975
Obligations of states and political subdivisions			18,113				661				156				9				18,269				670
Other			7				11				-				-				7				11
Total		$	183,708			$	1,263			$	80,303			$	393			$	264,011			$	1,656

Based upon a review of the credit quality of these securities, and considering the fact that the issuers are in compliance with the terms of the securities, and the Company’s ability and intent to hold these securities for a period of time sufficient for a recovery of costs, the impairments related to these securities were determined to be temporary.

NOTE 5 — 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.

The following table provides a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the periods shown:

		Three months ended March 31,
		2009												2008
		Income				Shares				Per Share				Income				Shares				Per Share
		(Numerator)				(Denominator)				Amount				(Numerator)				(Denominator)				Amount
Basic EPS		(In thousands, except per share amounts)
Income available to common shareholders		$	29,477				83,107			$	0.35			$	35,145				82,331			$	0.43
Effect of dilutive share- based awards			-				127								-				203
Diluted EPS
Income available to common shareholders plus assumed exercise of all outstanding share-based awards		$	29,477				83,234			$	0.35			$	35,145				82,534			$	0.43

NOTE 6 — COMPREHENSIVE INCOME

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

		Three months ended March 31,
		2009												2008
		Before				Tax				Net				Before				Tax				Net
		tax				(expense)				of tax				tax				(expense)				of tax
		amount				benefit				amount				amount				benefit				amount
Unrealized gains on available-for- sale securities:		(In thousands)
Unrealized gains (losses) arising during holding period		$	4,108			$	(1,576)			$	2,532			$	13,176			$	(4,971)			$	8,205
Less: Reclassification adjustment for net (gains) losses realized in net income			(5)				2				(3)				(78)				30				(48)
Recognized employee benefit plan net periodic benefit cost (gain)			1,210				(463)				747				145				(56)				89
Other comprehensive income (loss)		$	5,313			$	(2,037)			$	3,276			$	13,243			$	(4,997)			$	8,246
Net income											29,477												35,145
Comprehensive income										$	32,753											$	43,391

NOTE 7 — GOODWILL AND OTHER INTANGIBLE ASSETS

The changes in the carrying amount of goodwill by operating segment for the three months ended March 31, 2009 were as follows:

		Community				Insurance
		Banking				Agencies				Total
		(In thousands)
Balance as of December 31, 2008		$	217,618			$	51,348			$	268,966
Goodwill recorded during the period			-				96				96
Balance as of March 31, 2009		$	217,618			$	51,444			$	269,062

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
		March 31, 2009								December 31, 2008
		Gross Carrying				Accumulated				Gross Carrying				Accumulated
		Amount				Amortization				Amount				Amortization
Amortized intangible assets:		(In thousands)
Core deposit intangibles		$	27,801			$	17,124			$	27,801			$	16,607
Customer relationship intangibles			32,186				16,847				32,186				16,064
Non-solicitation intangibles			600				500				600				440
Total		$	60,587			$	34,471			$	60,587			$	33,111
Unamortized intangible assets:
Trade names		$	688			$	-			$	688			$	-
		Three months ended March 31,
			2009				2008
Aggregate amortization expense for:		(In thousands)
Core deposit intangibles		$	517			$	566
Customer relationship intangibles			783				903
Non-solicitation intangibles			60				60
Total		$	1,360			$	1,529

The following table presents information regarding estimated amortization expense on the Company’s amortizable identifiable intangible assets for the year ended December 31, 2009 and the succeeding four years:

						Customer				Non-
		Core Deposit				Relationship				Solicitation
		Intangibles				Intangibles				Intangibles				Total
Estimated Amortization Expense:		(In thousands)
For year ended December 31, 2009		$	1,800			$	2,996			$	160			$	4,956
For year ended December 31, 2010			1,308				2,551				-				3,859
For year ended December 31, 2011			1,016				2,178				-				3,194
For year ended December 31, 2012			946				1,863				-				2,809
For year ended December 31, 2013			582				1,595				-				2,177

NOTE 8 – PENSION BENEFITS

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

		Pension Benefits
		Three months ended
		March 31,
		2009				2008
		(In thousands)
Service cost		$	1,817			$	1,667
Interest cost			1,826				1,654
Expected return on assets			(2,797	)			(2,646	)
Amortization of unrecognized transition amount			5				5
Recognized prior service cost			75				67
Recognized net loss			1,130				73
Net periodic benefit costs		$	2,056			$	820

NOTE 9 – RECENT PRONOUNCEMENTS

In September 2006, Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements,” was issued. SFAS No. 157 establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. In February 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) FAS 157-2, “Effective Date of FASB Statement No. 157,” which delayed the effective date of SFAS 157 for non-financial assets and non-financial liabilities that are recognized or disclosed in the financial statements on a nonrecurring basis. The FSP partially deferred the effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years for items within the scope of this FSP. The adoption of SFAS No. 157 and FSP FAS 157-2 has had no material impact on the financial position or results of operations of the Company.

In December 2007, SFAS No. 141(R), “Business Combinations,” was issued. SFAS No. 141(R) expands the definition of transactions and events that qualify as business combinations; requires that the acquired assets and liabilities, including contingencies, be recorded at fair value determined on the acquisition date; changes the recognition timing for restructuring costs; and requires the expensing of acquisition costs as incurred. SFAS No. 141(R) is effective for fiscal years beginning on or after December 15, 2008. The adoption of SFAS No. 141(R) has had no material impact on the financial position or results of operations of the Company.

In December 2007, SFAS No. 160, “Noncontrolling Interest in Consolidated Financial Statements – an Amendment of ARB No. 51,” was issued. SFAS No. 160 requires that acquired assets and liabilities be measured at full fair value without consideration to ownership percentage. Under SFAS No. 160, any non-controlling interests in an acquiree should be presented as a separate component of equity rather than on a mezzanine level. Additionally, SFAS No. 160 provides that net income or loss should be reported in the consolidated income statement at its consolidated amount, with disclosure on the face of the consolidated income statement of the amount of consolidated net income which is attributable to the parent and noncontrolling interest, respectively. SFAS No. 160 is effective prospectively for periods beginning on or after December 15, 2008, with the exception of the presentation and disclosure requirements which should be retrospectively applied to all periods presented. The adoption of SFAS No. 160 has had no impact on the financial position or results of operations of the Company.

In March 2008, SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities – an Amendment of FASB Statement No. 133,” was issued. SFAS No. 161 changes the disclosure requirements for derivative instruments and hedging activities by requiring entities to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under FASB Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. SFAS No. 161 has impacted disclosures only and has not had an impact on the financial position or results of operations of the Company.

In April 2009, the FASB issued three related Staff Positions to clarify the application of SFAS 157. FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly,” provides guidance on how to determine the fair value of assets and liabilities in an environment where the volume and level of activity for the asset or liability have significantly decreased and re-emphasizes that the objective of a fair value measurement remains an exit price. FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-than-temporary Impairments,” amends the other-than-temporary impairment guidance in U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. FSP FAS 115-2 and FAS 124-2 does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. FSP FAS 107-1 and APB Opinion 28-1, “Interim Disclosures about Fair Value of Financial Instruments,” requires disclosures about fair value of financial instruments in interim reporting periods of publicly traded companies that were previously only required to be disclosed in annual financial statements. The Staff Positions are effective for interim and annual periods ending after June 15, 2009, with early adoption possible for the first quarter of 2009. The Company plans to adopt these three new Staff Positions in the second quarter of 2009 and believes that their adoption will have no material impact on the financial position or results of operations of the Company.

NOTE 10 – 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 title insurance, 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 leasing, mortgage lending, trust services, credit card activities, investment services and other activities not allocated to the Community Banking or Insurance Agencies operating segments. The increase in profitability of the General Corporate and Other operating segment is primarily related to mortgage lending.

Results of operations and selected financial information by operating segment for the three-month periods ended March 31, 2009 and 2008 were as follows:

										General
		Community				Insurance				Corporate
		Banking				Agencies				and Other				Total
		(In thousands)
Three months ended March 31, 2009:
Results of Operations
Net interest revenue		$	101,247			$	189			$	8,440			$	109,876
Provision for credit losses			13,723				-				1,222				14,945
Net interest revenue after provision for credit losses			87,524				189				7,218				94,931
Noninterest revenue			28,513				22,613				15,167				66,293
Noninterest expense			76,416				17,588				24,449				118,453
Income before income taxes			39,621				5,214				(2,064	)			42,771
Income taxes			12,315				2,069				(1,090	)			13,294
Net income		$	27,306			$	3,145			$	(974	)		$	29,477
Selected Financial Information
Total assets (at end of period)		$	11,041,535			$	159,888			$	2,256,941			$	13,458,364
Depreciation and amortization			7,298				1,178				572				9,048
Three months ended March 31, 2008:
Results of Operations
Net interest revenue		$	100,372			$	428			$	9,270			$	110,070
Provision for credit losses			9,521				-				1,290				10,811
Net interest revenue after provision for credit losses			90,851				428				7,980				99,259
Noninterest revenue			33,369				24,552				8,310				66,231
Noninterest expense			72,247				18,291				22,932				113,470
Income before income taxes			51,973				6,689				(6,642	)			52,020
Income taxes			16,860				2,632				(2,617	)			16,875
Net income		$	35,113			$	4,057			$	(4,025	)		$	35,145
Selected Financial Information
Total assets (at end of period)		$	10,858,526			$	154,439			$	2,141,906			$	13,154,871
Depreciation and amortization			6,817				1,198				617				8,632

NOTE 11 – 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. At March 31, 2009, the valuation of MSRs included an assumed average prepayment speed of 375 and an average discount rate of 10.25%. 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:

		2009				2008
		(In thousands)
Fair value as of January 1		$	24,972			$	32,482
Additions:
Origination of servicing assets			4,212				1,818
Changes in fair value:
Due to change in valuation inputs or assumptions used in the valuation model			(3,449)				(3,387)
Other changes in fair value			(4)				(4)
Fair value as of March 31		$	25,731			$	30,909

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 $2.27 million and $2.08 million and late and other ancillary fees of approximately $312,000 and approximately $293,000 for the quarters ended March 31, 2009 and 2008, respectively.

NOTE 12 — 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 March 31, 2009, the notional amount of forward commitments to sell individual fixed-rate mortgage loans was $210.15 million with a carrying value and fair value reflecting a loss of $1.49 million. At March 31, 2008, the notional amount of forward commitments to sell individual fixed-rate mortgage loans was $99.7 million with a carrying value and fair value reflecting a gain of approximately $4,000. At March 31, 2009, the notional amount of commitments to fund individual fixed-rate mortgage loans was $188.61 million with a carrying value and fair value reflecting a gain of $2.55 million. At March 31, 2008, the notional amount of commitments to fund individual fixed-rate mortgage loans was $53.7 million with a carrying value and fair value reflecting a gain of approximately $160,000.

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 March 31, 2009, the notional amount of customer related derivative financial instruments was $785.96 million with an average maturity of 86 months, an average interest receive rate of 2.48% and an average interest pay rate of 5.99%.

NOTE 13 — FAIR VALUE DISCLOSURES

“Fair value” is defined by SFAS No. 157 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. SFAS No. 157 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 the most 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 Company. Unobservable inputs are inputs that reflect the Company’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. Adjustments to the matrix prices on Level 3 available-for-sale securities were necessary for the quarter ended March 31, 2009 as the market prices of comparable instruments became harder to identify as a result of inactive markets.

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.

Derivative instruments. The Company’s derivative instruments consist of commitments to fund fixed-rate mortgage loans to customers, forward commitments to sell individual fixed-rate mortgage loans and interest rate swaps. The derivative instruments are traded in over-the-counter markets where quoted market prices are not readily available. Fair value is measured on a recurring basis using internally developed models that use primarily market observable inputs, such as yield curves and option volatilities. The Company’s interest rate swaps are classified as Level 2. The Company’s 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 subjected 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 SFAS No. 114, “Accounting by Creditors for Impairment of a Loan,” as amended by SFAS No. 118, “Accounting by Creditors for Impairment of a Loan — Income Recognition and Disclosure,” 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.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The following table presents the balances of the assets and liabilities measured at fair value on a recurring basis as of March 31, 2009:

		Level 1				Level 2				Level 3				Total
Assets:		(In thousands)
Available-for-sale securities		$	197			$	990,957			$	2,375			$	993,529
Mortgage servicing rights			-				-				25,731				25,731
Derivative instruments			-				41,276				2,572				43,848
Total		$	197			$	1,032,233			$	30,678			$	1,063,108
Liabilities:
Derivative instruments		$	-			$	41,276			$	1,464			$	42,740

The following table presents the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the three-month period ended March 31, 2009:

		Mortgage								Available-
		Servicing				Derivative				for-sale
		Rights				Instruments				Securities
		(In thousands)
Balance at December 31, 2008		$	24,972			$	(683)			$	2,375
Total net gains for the year included in:
Net income			759				1,791				-
Other comprehensive income			-				-				-
Purchases, sales, issuances and settlements, net			-				-				-
Transfers in and/or out of Level 3			-				-				-
Balance at March 31, 2009		$	25,731			$	1,108			$	2,375
Net unrealized gains included in net income for the quarter relating to assets and liabilities held at March 31, 2009		$	(3,449)			$	1,791			$	-

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

The following table presents the balances of assets and liabilities measured at fair value on a nonrecurring basis as of March 31, 2009:

																		Total
		Level 1				Level 2				Level 3				Total				Gains (Losses)
Assets:		(In thousands)
Loans held for sale		$	-			$	168,769			$	-			$	168,769			$	-
Impaired loans			-				-				22,208				22,208				(5,252)

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

OVERVIEW

BancorpSouth, Inc. (the “Company”) is a regional financial holding company headquartered in Tupelo, Mississippi with $13.5 billion in assets. 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 periods ended March 31, 2009 and 2008 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 periods 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 2008 and the first three months of 2009, the pressures of the national and regional economic cycle created a difficult operating environment for the financial services industry. The Company is not immune to such pressures and their impact is reflected in our awareness of credit quality and the increases in the Company’s measures of non-performing loans and net charge-offs, compared to the first quarter of 2008. While these measures have increased, the Company believes that it is well positioned with respect to overall credit quality and strength of its allowance for credit losses to meet the challenges of the current economic cycle. Management believes, however, that continued weakness in the economic environment could adversely affect the strength of the Company’s credit quality and, therefore, management intends to move decisively to address any emerging credit issues.

Most of the revenue of the Company 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 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.

The tables below summarize the Company’s net income, net income per share, return on average assets and return on average shareholders’ equity for the three months ended March 31, 2009 and 2008. Management believes these amounts and ratios are key indicators of the Company’s financial performance.

		Three months ended
		March 31,
		2009				2008				% Change
(Dollars in thousands, except per share amounts)
Net income		$	29,477			$	35,145				(16.13) %
Net income per share:     Basic		$	0.35			$	0.43				(18.60)
Diluted		$	0.35			$	0.43				(18.60)
Return on average assets (annualized)			0.90%				1.08%				(16.67)
Return on average shareholders’ equity (annualized)			9.65%				11.78%				(18.08)

The primary source of revenue for the Company is the amount of net interest revenue earned by the Bank. Net interest revenue is the difference between interest earned on loans and investments and interest paid on deposits and other obligations. While the Company experienced moderate loan growth, a declining interest rate environment resulted in a decrease in interest revenue of 18.29% in the first quarter of 2009 compared to the same period in 2008. The Company experienced a decrease in interest expense of 43.10% in the first quarter of 2009 compared to the first quarter of 2008 due to the substantial decline in rates paid on deposits and other funding sources. The Company continued with its asset/liability strategies, which include funding loan growth with the proceeds from maturing lower yielding investment securities, short-term borrowings and by growing lower rate demand deposits which somewhat offset the reduction in higher rate time deposits. These factors combined to decrease the Company’s net interest revenue to $109.88 million for the first quarter of 2009, a decrease of approximately $194,000, or 0.18%, from $110.07 million for the first quarter of 2008.

Also contributing to the decrease in net income was the increase in the provision for credit losses in the first quarter of 2009 compared to the first quarter of 2008. The provision for credit losses was $14.95 million for the first quarter of 2009 compared to $10.81 million for the first quarter of 2008. Consistent with the increase in the provision for credit losses, annualized net charge-offs increased to 0.54% of average loans for the first quarter of 2009 from 0.29% of average loans for the first quarter of 2008. The increase in the provision for credit losses for the first quarter 2009 was primarily reflective of the slowing economic environment as well as the Company’s focus on early identification and resolution of any emerging credit issues.

The Company has taken steps that have diversified 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. Overall, noninterest revenue remained relatively static during the first quarter of 2009 when compared to 2008. Mortgage lending revenue increased 395.92% to $7.65 million for the first quarter of 2009 compared to $1.54 million for the first quarter of 2008 primarily as a result of the increase in mortgage originations attributable primarily to refinancings resulting from historically low mortgage interest rates. This large increase in mortgage lending revenue was offset, however, by the decrease in service charges of 11.07% to $14.09 million for the first quarter of 2009 compared to $15.84 million for the first quarter of 2008 as a result of lower volumes of items processed. The increase was further offset by a decrease in insurance commissions of 8.20% to $22.65 million for the first quarter 2009 compared to $24.67 million for the first quarter of 2008 resulting from the soft market cycle experienced in the insurance industry.

Noninterest expense totaled $118.45 million for the first quarter of 2009 compared to $113.47 million for the first quarter of 2008, an increase of $4.98 million, or 4.39%. This increase in noninterest expense resulted primarily from incremental costs related to the 17 full-service branch bank offices opened during 2008 and the four branch bank offices opened in 2009, coupled with the significant increase in the Company’s FDIC insurance expense for the first quarter of 2009, despite being assessed at the FDIC’s lowest rate because of its status as being well capitalized under federal regulations. The FDIC has also proposed a one-time emergency special assessment of 20 basis points as part of the restoration plan for the Deposit Insurance Fund. As a result, the Company would be assessed approximately $18.40 million in the second quarter of 2009, which amount would be paid in the third quarter. The one-time assessment has attracted significant attention and might be reduced to 10 basis points, which would result in an assessment of approximately $9.20 million for the Company. A final determination on the rate of the one-time emergency special assessment is expected in the second quarter. 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, liquidity and capital risks. For purposes of the following discussion, revenue from tax-exempt loans and investment securities has been adjusted to a fully taxable equivalent basis, using an effective tax rate of 35%.

Net interest revenue was $112.45 million for the three months ended March 31, 2009, compared to $112.71 million for the same period in 2008, representing a decrease of approximately $256,000, or 0.23%. This slight increase in net interest revenue for the first quarter of 2009 was primarily related to the Company’s asset/liability management strategy that focused on funding the Company’s loan growth with the proceeds of maturing lower yielding investment securities, short-term borrowings and growth in demand deposits.

Interest revenue decreased $34.90 million, or 18.08%, to $158.19 million for the three months ended March 31, 2009 from $193.10 million for the three months ended March 31, 2008. While average interest earning assets increased $239.39 million, or 2.00%, to $12.19 billion for the first quarter of 2009 from $11.95 billion for the first quarter of 2008, the interest revenue attributable to this increase was more than offset by a decrease of 124 basis points in the yield on those assets to 5.26% for the first quarter of 2009 from 6.50% for the first quarter of 2008 resulting in an overall decrease in interest revenue.

Interest expense decreased $34.65 million, or 43.10%, to $45.74 million for the three months ended March 31, 2009 from $80.39 million for the three months ended March 31, 2008. While average interest bearing liabilities increased $99.75 million, or 0.98%, to $10.24 billion for the first quarter of 2009 from $10.14 billion for the first quarter of 2008, the interest expense attributable to this increase in average interest bearing liabilities was more than offset by a decrease of 138 basis points in the average rate paid on those liabilities to 1.81% from 3.19%. The decrease in interest expense for the three months ended March 31, 2009 compared to the same period in 2008 was a result of the Company’s ability to reduce higher cost time deposits while increasing lower cost demand deposits and short-term borrowings.

The relative performance of the Company’s lending and deposit-raising functions is frequently measured by two calculations — net interest margin and net interest rate spread. Net interest margin is determined by dividing fully taxable equivalent net interest revenue by average earning assets. Net interest rate spread is the difference between the average fully taxable equivalent yield earned on interest earning assets (earning asset yield) and the average rate paid on interest bearing liabilities. Net interest margin is generally greater than the net interest rate spread because of the additional income earned on assets funded by noninterest bearing liabilities, or interest free funding, such as noninterest bearing demand deposits and shareholders’ equity.

Net interest margin for the three months ended March 31, 2009 and 2008 was 3.74% and 3.79%, respectively, representing a decrease of five basis points. Net interest rate spread for the first quarter of 2009 was 3.45%, an increase of 14 basis points from 3.31% for the first quarter of 2008. The average rate earned on interest earning assets for the three months ended March 31, 2009 and 2008 was 5.26% and 6.50%, respectively, representing a decrease of 124 basis points. The average rate paid on interest bearing liabilities for the three months ended March 31, 2009 and 2008 was 1.81% and 3.19%, respectively, representing a decrease of 138 basis points. The earning asset yield decrease for the three months ended March 31, 2009 as compared to the three months ended March 31, 2008 was a result of the decline in interest rates that affected the Company’s loan and lease portfolio. The decrease in the average rate paid on interest bearing liabilities was a result of the Company’s ability to reduce higher rate time deposits while increasing lower cost demand deposits and short-term FHLB and other borrowings.

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 Company’s current asset/liability strategy of partially funding loan growth with short-term borrowings from the FHLB and federal funds purchased has contributed to the increased liability sensitivity in the 0 to 90 days category. The following table presents the Company’s interest rate sensitivity at March 31, 2009:

		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		$	34,230			$	-			$	-			$	-
Held-to-maturity securities			104,121				312,090				688,696				225,903
Available-for-sale and trading securities			47,492				23,037				433,871				489,129
Loans and leases, net of unearned income			5,114,794				1,559,544				2,861,301				177,184
Loans held for sale			143,768				318				1,919				22,764
Total interest earning assets			5,444,405				1,894,989				3,985,787				914,980
Interest bearing liabilities:
Interest bearing demand deposits and savings			4,725,296				-				-				-
Other time deposits			783,719				1,936,890				823,810				1,452
Federal funds purchased and securities sold under agreement to repurchase, short-term FHLB borrowings and other short-term borrowings			1,417,146				-				49,503				-
Long-term FHLB borrowings and junior subordinated debt securities			-				201,000				56,802				188,812
Other			2				13				-				98
Total interest bearing liabilities			6,926,163				2,137,903				930,115				190,362
Interest rate sensitivity gap		$	(1,481,758	)		$	(242,914	)		$	3,055,672			$	724,618
Cumulative interest sensitivity gap		$	(1,481,758	)		$	(1,724,672	)		$	1,331,000			$	2,055,618

Provision for Credit Losses and Allowance for Credit Losses

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 employs a systematic methodology for determining its allowance for credit losses that considers both qualitative and quantitative factors and requires that management make material estimates and assumptions that are particularly susceptible to significant change. Some of the quantitative factors considered by the Bank include loan and lease growth, changes in nonperforming and past due loans and leases, historical loan and lease loss experience, delinquencies, management’s assessment of loan and lease portfolio quality, the value of collateral and concentrations of loans and leases to specific borrowers or industries. Some of the qualitative factors that the Bank considers include existing general economic conditions and the inherent risks of individual loans and leases.

The allowance for credit losses is based principally upon the Bank’s loan and lease classification system, delinquencies and historic loss rates. The Bank has a disciplined approach for assigning credit ratings and classifications to individual credits. Each credit is assigned a grade by the appropriate loan officer, which serves as a basis for the credit analysis of the entire portfolio. The assigned grade reflects the borrower’s creditworthiness, collateral values, cash flows and other factors. 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. The work of the loan review department is supplemented by governmental regulatory agencies in connection with their periodic examinations of the Bank, which provide an additional independent level of review. The loss factors assigned to each classification are based upon the attributes of the loans and leases typically assigned to each grade (such as loan-to-collateral values and borrower creditworthiness). Further, the Bank requires that a group of loans that have adverse internal ratings or that are significantly past due be subject to testing for impairment as required by SFAS No. 114. The overall allowance generally includes a component representing the results of other analyses intended to ensure that the allowance is adequate to cover other probable losses inherent in the portfolio. This component considers analyses of changes in credit risk resulting from the differing underwriting

criteria in acquired loan and lease portfolios, industry concentrations, changes in the mix of loans and leases originated, overall credit criteria and other economic indicators.

The Company’s provision for credit losses, allowance for credit losses and net charge-offs are shown in the following table:

		Three months ended
		March 31,
		2009				2008				% Change
		(Dollars in thousands)
Provision for credit losses		$	14,945			$	10,811				38.24	%
Allowance for credit losses as a percentage of loans and leases outstanding at period-end			1.39%				1.29%				7.75
Net charge-offs		$	13,106			$	6,707				95.41
Net charge-offs as a percentage of average loans and leases (annualized)			0.54%				0.29%				86.21

The increase in the provision for credit losses for the first three months of 2009 compared to the same period of 2008 was a result of the increased credit risk from the loan growth experienced by the Company, an increase in net charge-offs and some downward migration of loans within the Bank’s loan and lease credit ratings and classifications attributable to the current economic environment. Net charge-offs as a percentage of average loans and leases increased for the first three months of 2009 compared to the same period of 2008 as a result of the Company addressing emerging credit issues. Because the Company’s mortgage lending decisions are based on conservative lending policies, the Company continues to have only nominal direct exposure to the credit issues affecting the sub-prime residential mortgage market.

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 (a) the breakdown of the allowance for credit losses by loan and lease category and (b) the percentage of each category in the loan and lease portfolio to total loans and leases at the dates indicated:

		March 31,																December 31,
		2009								2008								2008
		Allowance				% of				Allowance				% of				Allowance				% of
		for				Total				for				Total				for				Total
		Credit				Loans				Credit				Loans				Credit				Loans
		Losses				and Leases				Losses				and Leases				Losses				and Leases
		(Dollars in thousands)
Commercial and agricultural		$	15,727				13.21	%		$	15,852				13.46	%		$	16,210				13.22	%
Consumer and installment			5,174				4.21	%			7,520				4.62	%			5,313				4.13	%
Real estate mortgage			107,202				77.75	%			92,681				76.59	%			105,666				77.67	%
Lease financing			3,057				2.85	%			2,823				3.00	%			2,940				2.87	%
Other			3,472				1.98	%			425				2.33	%			2,664				2.11	%
Total		$	134,632				100.00	%		$	119,301				100.00	%		$	132,793				100.00	%

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

		Three months ended								Year ended
		March 31,								December 31,
		2009				2008				2008
		(Dollars in thousands)
Balance, beginning of period		$	132,793			$	115,197			$	115,197
Loans and leases charged off:
Commercial and agricultural			(740	)			(4,069	)			(6,798	)
Consumer, installment and other			(1,968	)			(1,454	)			(6,978	)
Real estate mortgage			(11,036	)			(2,085	)			(27,965	)
Lease financing			(407	)			(106	)			(326	)
Total loans charged off			(14,151	)			(7,714	)			(42,067	)
Recoveries:
Commercial and agricultural			124				184				1,082
Consumer, installment and other			491				660				1,856
Real estate mortgage			375				159				923
Lease financing			55				4				52
Total recoveries			1,045				1,007				3,913
Net charge-offs			(13,106	)			(6,707	)			(38,154	)
Provision charged to operating expense			14,945				10,811				56,176
Acquisitions			-				-				(426	)
Balance, end of period		$	134,632			$	119,301			$	132,793
Average loans for period		$	9,695,475			$	9,213,294			$	9,429,963
Ratios:
Net charge-offs to average loans (annualized)			0.54	%			0.29	%			0.40	%

Noninterest Revenue

The components of noninterest revenue for the three months ended March 31, 2009 and 2008 and the corresponding percentage changes are shown in the following table:

		Three months ended
		March 31,
		2009				2008				% Change
		(Dollars in thousands)
Mortgage lending		$	7,652			$	1,543				395.92	%
Credit card, debit card and merchant fees			8,348				7,976				4.66
Service charges			14,085				15,839				(11.07	)
Trust income			2,209				2,234				(1.12	)
Securities gains, net			5				78				(93.59	)
Insurance commissions			22,645				24,668				(8.20	)
Other			11,349				13,893				(18.31	)
Total noninterest revenue		$	66,293			$	66,231				0.09	%

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. The Company’s normal practice is to originate mortgage loans to sell them in the secondary market and to either retain or release the associated MSRs with the loan sold.

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. Origination volume of $424.31 million and $277.23 million produced origination revenue of $8.52 million and $2.56 million for the quarters ended March 31, 2009 and 2008, respectively. Significantly increased volume and better pricing and delivery execution for the three months ended March 31, 2009 when compared to the three months ended March 31, 2008 resulted in much higher revenue during the first quarter of 2009 when compared to the first quarter of 2008.

Revenue from the servicing process, the other component of mortgage lending revenue, includes fees from the actual servicing of loans and the recognition of changes in the valuation of the Company’s MSRs. Revenue from the servicing of loans was $2.58 million and $2.38 million for the quarters ended March 31, 2009 and 2008, respectively. Changes in the fair value of the Company’s MSRs are generally a result of changes in mortgage rates from the previous reporting date. The fair value is also impacted by principal payments, prepayments and payoffs on loans in the servicing portfolio. An increase in mortgage rates typically results in an increase in the fair value of the MSRs while a decrease in mortgage rates typically results in a decrease in the fair value of MSRs. The Company does not hedge the change in fair value of its MSRs and is susceptible to significant fluctuations in their value in changing interest rate environments. Reflecting this sensitivity to interest rates, the fair value of MSRs decreased $3.45 million for the quarter ended March 31, 2009 and decreased $3.39 million for the quarter ended March 31, 2008.

Credit card, debit card and merchant fees increased as a result of an increase in the numerical and monetary volume of items processed. Service charges on deposit accounts decreased as a result of lower volumes of items processed. Trust income decreased slightly in 2009 when compared to 2008 as a result of decreases in the value of assets under care (either managed or in custody). The decrease in insurance commissions was primarily the result of the reduced commissions paid by the underwriters.

Contributing to the decline in other noninterest revenue for the first quarter of 2009 compared to the first quarter of 2008 was the $2.78 million gain reflected in other noninterest revenue in the first quarter of 2008 related to the sale of shares of Visa, Inc. common stock in connection with its initial public offering. The Company also noticed decreases in annuity fees and brokerage revenue coupled with increased losses related to the disposition of other real estate owned when comparing the first quarter of 2009 to the first quarter of 2008. During the first quarter of 2009, the Company recorded a gain from the sale of student loans of $1.69 million. The Company had no significant loan sales during the first quarter of 2008. The Company currently has contracts that will allow it to sell its student loan portfolio in the future. All of the Company’s student loans are fully guaranteed by the federal government.

Noninterest Expense

The components of noninterest expense for the three months ended March 31, 2009 and 2008 and the corresponding percentage changes are shown in the following table:

		Three months ended
		March 31,
		2009				2008				% Change
		(Dollars in thousands)
Salaries and employee benefits		$	71,363			$	70,175				1.69	%
Occupancy, net of rental income			9,999				9,483				5.44
Equipment			6,222				6,433				(3.28	)
Other			30,869				27,379				12.75
Total noninterest expense		$	118,453			$	113,470				4.39	%