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 June 30, 2008

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		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 þ No o

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 þ		Accelerated filer o		Non-accelerated filer   o (Do not check if a smaller reporting company)		Smaller reporting company o

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 August 5, 2008, the registrant had outstanding 82,393,037 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 June 30, 2008 (Unaudited) and December 31, 2007			3
				Consolidated Statements of Income (Unaudited) Three Months and Six Months Ended June 30, 2008 and 2007			4
				Consolidated Statements of Cash Flows (Unaudited) Six Months Ended June 30, 2008 and 2007			5
				Notes to Consolidated Financial Statements (Unaudited)			6
		ITEM 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			19
		ITEM 3.		Quantitative and Qualitative Disclosures About Market Risk			32
		ITEM 4.		Controls and Procedures			32
PART II. Other Information
		ITEM 1A.		Risk Factors			33
		ITEM 2.		Unregistered Sales of Equity Securities and Use of Proceeds			33
		ITEM 4.		Submission of Matters to a Vote of Security Holders			33
		ITEM 6.		Exhibits			34
EX-31.1 Section 302 Certification of the CEO
EX-31.2 Section 302 Certification of the CFO
EX-32.1 Section 906 Certification of the CEO
EX-32.2 Section 906 Certification of the CFO

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,” “believe,” “estimate,” “expect,” “foresee,” “may,” “might,” “will,” “intend,” “could,” “would” or “plan,” or future or conditional verb tenses, and variations or negatives of such terms. These forward-looking statements include, without limitation, those relating to the Company’s net interest margin, payment of dividends, prepayment of Junior Subordinated Debt Securities, credit losses, credit quality, core deposits, off-balance sheet commitments and arrangements, amortization expense, valuation of mortgage servicing rights, allowance for credit losses, continued weakness in the economic environment, deteriorating credit quality of borrowers, consideration for future acquisitions, estimation of pension and other postretirement benefit amounts, 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

		June 30,				December 31,
		2008				2007
		(Unaudited)				(1)
		(Dollars in thousands, except per share amounts)
ASSETS
Cash and due from banks		$	307,038			$	322,926
Interest bearing deposits with other banks			15,531				12,710
Held-to-maturity securities, at amortized cost			1,447,806				1,625,916
Available-for-sale securities, at fair value			1,023,065				1,001,194
Loans and leases			9,529,978				9,227,495
Less: Unearned income			48,598				47,811
Allowance for credit losses			123,478				115,197
Net loans			9,357,902				9,064,487
Loans held for sale			171,765				128,532
Premises and equipment, net			334,869				317,379
Accrued interest receivable			83,739				96,027
Goodwill			270,807				254,889
Other assets			386,629				365,781
TOTAL ASSETS		$	13,399,151			$	13,189,841
LIABILITIES
Deposits:
Demand: Noninterest bearing		$	1,737,356			$	1,670,198
Interest bearing			3,364,873				3,276,275
Savings			740,207				698,449
Other time			3,964,117				4,419,177
Total deposits			9,806,553				10,064,099
Federal funds purchased and securities sold under agreement to repurchase			1,093,805				809,898
Short-term Federal Home Loan Bank and other short-term borrowings			643,427				706,586
Accrued interest payable			29,134				37,746
Junior subordinated debt securities			160,312				160,312
Long-term Federal Home Loan Bank borrowings			288,900				88,977
Other liabilities			143,244				125,597
TOTAL LIABILITIES			12,165,375				11,993,215
SHAREHOLDERS’ EQUITY
Common stock, $2.50 par value per share Authorized - 500,000,000 shares, Issued - 82,377,811 and 82,299,297 shares, respectively			205,945				205,748
Capital surplus			201,612				198,620
Accumulated other comprehensive income (loss)			(9,232	)			(7,214	)
Retained earnings			835,451				799,472
TOTAL SHAREHOLDERS’ EQUITY			1,233,776				1,196,626
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	13,399,151			$	13,189,841

See accompanying notes to consolidated financial statements.

BANCORPSOUTH, INC. AND SUBSIDIARIES

Consolidated Statements of Income

(Unaudited)

		Three months ended								Six months ended
		June 30,								June 30,
		2008				2007				2008				2007
		(In thousands, except for per share amounts)
INTEREST REVENUE:
Loans and leases		$	147,289			$	169,717			$	306,473			$	322,958
Deposits with other banks			193				268				401				554
Federal funds sold and securities purchased under agreement to resell			—				633				67				3,144
Held-to-maturity securities:
Taxable			15,044				16,962				30,991				33,667
Tax-exempt			2,025				2,044				4,100				4,059
Available-for-sale securities:
Taxable			8,531				10,839				18,095				20,431
Tax-exempt			1,260				1,010				2,464				2,125
Loans held for sale			1,420				1,082				3,630				2,757
Total interest revenue			175,762				202,555				366,221				389,695
INTEREST EXPENSE:
Deposits:
Interest bearing demand			12,938				21,992				30,195				41,879
Savings			1,291				2,481				2,834				4,864
Other time			39,778				55,459				86,638				107,444
Federal funds purchased and securities sold under agreement to repurchase			3,321				9,283				8,516				17,107
FHLB borrowings			5,359				3,332				11,644				6,633
Other			3,232				3,350				6,481				6,442
Total interest expense			65,919				95,897				146,308				184,369
Net interest revenue			109,843				106,658				219,913				205,326
Provision for credit losses			11,237				7,843				22,048				9,198
Net interest revenue, after provision for credit losses			98,606				98,815				197,865				196,128
NONINTEREST REVENUE:
Mortgage lending			9,507				5,484				11,050				7,263
Credit card, debit card and merchant fees			8,846				7,391				16,822				14,265
Service charges			17,093				17,677				32,932				33,073
Trust income			2,261				2,457				4,495				4,671
Security gains, net			199				10				277				17
Insurance commissions			21,462				17,665				46,130				37,459
Other			13,898				9,548				27,791				21,843
Total noninterest revenue			73,266				60,232				139,497				118,591
NONINTEREST EXPENSE:
Salaries and employee benefits			68,121				63,851				138,296				127,479
Occupancy, net of rental income			9,716				8,709				19,199				17,172
Equipment			6,245				6,053				12,678				12,079
Other			27,982				27,315				55,361				54,808
Total noninterest expense			112,064				105,928				225,534				211,538
Income before income taxes			59,808				53,119				111,828				103,181
Income tax expense			19,683				17,238				36,558				33,723
Net income		$	40,125			$	35,881			$	75,270			$	69,458
Earnings per share: Basic		$	0.49			$	0.44			$	0.91			$	0.86
Diluted		$	0.49			$	0.43			$	0.91			$	0.86
Dividends declared per common share		$	0.22			$	0.21			$	0.43			$	0.41

See accompanying notes to consolidated financial statements.

BANCORPSOUTH, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

		Six months ended
		June 30,
		2008				2007
		(In thousands)
Operating Activities:
Net income		$	75,270			$	69,458
Adjustment to reconcile net income to net cash provided by operating activities:
Provision for credit losses			22,048				9,198
Depreciation and amortization			14,360				13,745
Deferred taxes			(1,016	)			1,173
Amortization of intangibles			3,003				2,406
Amortization of debt securities premium and discount, net			1,382				3,670
Share-based compensation expense			1,381				925
Security gains, net			(277	)			(17	)
Net deferred loan origination expense			(4,731	)			(4,093	)
Excess tax benefit from exercise of stock options			(165	)			(670	)
Decrease (increase) in interest receivable			12,288				(2,393	)
(Decrease) increase in interest payable			(8,612	)			5,599
Realized gain on student loans sold			(17	)			(2,158	)
Proceeds from student loans sold			1,483				80,593
Origination of student loans held for sale			(43,101	)			(46,240	)
Realized gain on mortgages sold			(5,696	)			(5,162	)
Proceeds from mortgages sold			548,696				426,128
Origination of mortgages held for sale			(546,194	)			(440,061	)
Increase in bank-owned life insurance			(3,432	)			(3,406	)
Decrease (increase) in prepaid pension asset			668				(38,423	)
Other, net			(3,695	)			10,742
Net cash provided by operating activities			63,643				81,014
Investing activities:
Proceeds from calls and maturities of held-to-maturity securities			186,681				79,043
Proceeds from calls and maturties of available-for-sale securities			249,015				302,399
Purchases of held-to-maturity securities			(8,860	)			(141,788	)
Purchases of available-for-sale securities			(274,541	)			(388,836	)
Net decrease in short-term investments			—				125,871
Net increase in loans and leases			(314,881	)			(323,166	)
Purchases of premises and equipment			(31,797	)			(15,030	)
Proceeds from sale of premises and equipment			490				667
Acquisition of businesses, net of cash acquired			(10,152	)			(59,862	)
Other, net			(440	)			(717	)
Net cash used in investing activities			(204,485	)			(421,419	)
Financing activities:
Net (decrease) increase in deposits			(257,546	)			123,927
Net increase in short-term debt and other liabilities			219,602				129,386
Advances of long-term debt			200,000				—
Repayment of long-term debt			(77	)			(9,561	)
Issuance of common stock			1,386				3,414
Purchase of common stock			(326	)			(10,846	)
Excess tax benefit from exercise of stock options			165				670
Payment of cash dividends			(35,429	)			(32,994	)
Net cash provided by financing activities			127,775				203,996
Decrease in cash and cash equivalents			(13,067	)			(136,409	)
Cash and cash equivalents at beginning of period			335,636				451,451
Cash and cash equivalents at end of period		$	322,569			$	315,042

See accompanying notes to consolidated financial statements.

BANCORPSOUTH, INC. AND SUBSIDIARIES

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 footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007. 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 periods ended June 30, 2008 are not necessarily indicative of the results to be expected for the full year. Certain 2007 amounts have been reclassified to conform with the 2008 presentation. Also, beginning March 1, 2007, the financial statements include the accounts of The Signature Bank. See Note 11, Business Combinations, for further information regarding The Signature Bank.

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:

		June 30,								December 31,
		2008				2007				2007
		(In thousands)
Commercial and agricultural		$	1,302,595			$	1,250,113			$	1,236,776
Consumer and installment			419,789				391,075				450,882
Real estate mortgage:
One-to-four family			2,573,784				2,540,356				2,529,986
Other			4,757,771				4,275,168				4,490,445
Lease financing			276,860				292,752				285,865
Other			199,179				262,898				233,541
Total		$	9,529,978			$	9,012,362			$	9,227,495

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

		June 30,								December 31,
		2008				2007				2007
		(In thousands)
Non-accrual loans		$	17,710			$	9,135			$	9,789
Loans 90 days or more past due			25,719				13,706				18,671
Restructured loans			2,620				1,066				721
Total non-performing loans		$	46,049			$	23,907			$	29,181

NOTE 3 — ALLOWANCE FOR CREDIT LOSSES

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

		Six months ended								Year ended
		June 30,								December 31,
		2008				2007				2007
		(In thousands)
Balance at beginning of period		$	115,197			$	98,834			$	98,834
Provision charged to expense			22,048				9,198				22,696
Recoveries			2,169				1,840				4,355
Loans and leases charged off			(15,936	)			(6,682	)			(16,841	)
Acquisitions			—				6,138				6,153
Balance at end of period		$	123,478			$	109,328			$	115,197

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 June 30, 2008:

		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			52,203				47				—				—				52,203				47
Obligations of states and political subdivisions			51,857				1,258				25,201				395				77,058				1,653
Total		$	104,060			$	1,305			$	25,201			$	395			$	129,261			$	1,700
Available-for-sale securities:
U.S. government agencies		$	287,402			$	970			$	113,060			$	2,065			$	400,462			$	3,035
Obligations of states and political subdivisions			11,411				483				422				14				11,833				497
Other			7,740				3,260				—				—				7,740				3,260
Total		$	306,553			$	4,713			$	113,482			$	2,079			$	420,035			$	6,792

Based upon review of the credit quality of these securities, the ability and intent to hold these securities for a period of time sufficient for recovery of costs and the volatility of their market price, the impairments related to these securities were determined to be temporary.

The Company’s unrealized losses on other securities relate to its investment in pooled trust preferred securities. The decline in value of these securities is attributable to the current illiquidity in these markets and not credit quality of the individual securities. Due to the illiquidity, it is unlikely that the Company would be able to recover its investment in these securities if it sold them at this time. Because the Company has analyzed the cash flow characteristics of the securities and has the intent and ability to hold them until a recovery of fair value, which may be at maturity, it did not consider the investment in these securities to be other-than-temporarily impaired at June 30, 2008.

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 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,
		2008												2007
		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		$	40,125				82,369			$	0.49			$	35,881				82,170			$	0.44
Effect of dilutive share- based awards			—				197								—				365
Diluted EPS
Income available to common shareholders plus assumed exercise of all outstanding share-based awards		$	40,125				82,566			$	0.49			$	35,881				82,535			$	0.43

		Six months ended June 30,
		2008												2007
		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		$	75,270				82,350			$	0.91			$	69,458				80,813			$	0.86
Effect of dilutive stock options			—				200								—				401
Diluted EPS
Income available to common shareholders plus assumed exercise		$	75,270				82,550			$	0.91			$	69,458				81,214			$	0.86

NOTE 6 — 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,
		2008												2007
		Before				Tax				Net				Before				Tax				Net
		tax				(expense)				of tax				tax				(expense)				of tax
		amount				benefit				amount				amount				benefit				amount
		(In thousands)
Unrealized gains on available-for- sale securities:
Unrealized gains (losses) arising during holding period		$	(16,684	)		$	6,452			$	(10,232	)		$	(6,078	)		$	2,326			$	(3,752	)
Less: Reclassification adjustment for net (gains) losses realized in net income			(199	)			76				(123	)			(10	)			4				(6	)
Recognized employee benefit plan net periodic benefit cost			146				(55	)			91				985				(377	)			608
Other comprehensive income (loss)		$	(16,737	)		$	6,473			$	(10,264	)		$	(5,103	)		$	1,953			$	(3,150	)
Net income											40,125												35,881
Comprehensive income										$	29,861											$	32,731

		Six months ended June 30,
		2008												2007
		Before				Tax				Net				Before				Tax				Net
		tax				(expense)				of tax				tax				(expense)				of tax
		amount				benefit				amount				amount				benefit				amount
		(In thousands)
Unrealized gains on available-for- sale securities:
Unrealized (losses) gains arising during holding period		$	(3,508	)		$	1,481			$	(2,027	)		$	(3,452	)		$	1,322			$	(2,130	)
Less: Reclassification adjustment for net (gains) losses realized in net income			(277	)			106				(171	)			(10	)			4				(6	)
Recognized employee benefit plan net periodic benefit cost			291				(111	)			180				985				(377	)			608
Other comprehensive (loss) income		$	(3,494	)		$	1,476			$	(2,018	)		$	(2,477	)		$	949			$	(1,528	)
Net income											75,270												69,458
Comprehensive income										$	73,252											$	67,930

NOTE 7 — JUNIOR SUBORDINATED DEBT SECURITIES

In 2002, the Company issued $128,866,000 in 8.15% Junior Subordinated Debt Securities to BancorpSouth Capital Trust I (the “Trust”), a business trust. The Trust used the proceeds from the issuance of five million shares of 8.15% trust preferred securities, $25 face value per share, to acquire the Junior Subordinated Debt Securities. Both the Junior Subordinated Debt Securities and the trust preferred securities mature on January 28, 2032 and are callable at the option of the Company.

Pursuant to the merger with Business Holding Corporation on December 31, 2004, the Company assumed the liability for $6,186,000 in Junior Subordinated Debt Securities issued to Business Holding Company Trust I, a statutory trust. Business Holding Company Trust I used the proceeds from the issuance of 6,000 shares of trust preferred securities to acquire the Junior Subordinated Debt Securities. Both the Junior Subordinated Debt Securities and the trust preferred securities mature on April 7, 2034, and are callable at the option of the Company, in whole or in part, on any January 7, April 7, July 7 or October 7 on or after April 7, 2009. The Junior Subordinated Debt Securities and the trust preferred securities pay a per annum rate of interest, reset quarterly, equal to the three-month London Interbank Offered Rate (“LIBOR”) plus 2.80% from January 30, 2004 to April 7, 2009 and thereafter at LIBOR plus 2.85%.

Pursuant to the merger with American State Bank Corporation on December 1, 2005, the Company assumed the liability for $6,702,000 in Junior Subordinated Debt Securities issued to American State Capital Trust I, a statutory trust. American State Capital Trust I used the proceeds from the issuance of 6,500 shares of trust preferred securities to acquire the Junior Subordinated Debt Securities. Both the Junior Subordinated Debt Securities and the trust preferred securities mature on April 7, 2034, and are callable at the option of the Company, in whole or in part, on any July 7, October 7, January 7 or April 7 on or after April 7, 2009. The Junior Subordinated Debt Securities and the trust preferred securities pay a per annum rate of interest, reset quarterly, equal to the three-month LIBOR plus 2.80%.

Pursuant to the merger with City Bancorp on March 1, 2007, the Company assumed the liability for $8,248,000 in Junior Subordinated Debt Securities issued to Signature Bancshares Preferred Trust I, a statutory trust. Signature Bancshares Preferred Trust I used the proceeds from the issuance of 8,000 shares of trust preferred securities to acquire the Junior Subordinated Debt Securities. Both the Junior Subordinated Debt Securities and the trust preferred securities mature on October 8, 2033, and are callable at the option of the Company, in whole or in part, on any January 8, April 8, July 8 or October 8 on or after October 8, 2008. The Junior Subordinated Debt Securities and the trust preferred securities pay a per annum rate of interest, reset quarterly, equal to the three-month LIBOR plus 3.00%.

Pursuant to the merger with City Bancorp on March 1, 2007, the Company also assumed the liability for $10,310,000 in Junior Subordinated Debt Securities issued to City Bancorp Preferred Trust I, a statutory trust. City Bancorp Preferred Trust I used the proceeds from the issuance of 10,000 shares of trust preferred securities to acquire the Junior Subordinated Debt Securities. Both the Junior Subordinated Debt Securities and the trust preferred securities mature on March 15, 2035, and are callable at the option of the Company, in whole or in part, on any March 15, June 15, September 15 or December 15 on or after March 15, 2010. The Junior Subordinated Debt Securities and the trust preferred securities pay a per annum rate of interest, reset quarterly, equal to the three-month LIBOR plus 2.2%.

NOTE 8 — GOODWILL AND OTHER INTANGIBLE ASSETS

The changes in the carrying amount of goodwill by operating segment for the six months ended June 30, 2008 were as follows:

		Community				Insurance
		Banking				Agencies				Total
		(In thousands)
Balance as of December 31, 2007		$	214,780			$	40,109			$	254,889
Goodwill acquired during the period			673				10,329				11,002
Purchase accounting adjustments			4,916				—				4,916
Balance as of June 30, 2008		$	220,369			$	50,438			$	270,807

As reflected in the table above, the community banking goodwill acquired during the period is related to the acquisition of City Bancorp and the additional purchase price paid as a result of the settlement of a contingency during the first quarter of 2008. Also, an adjustment was made in the first quarter of 2008 to the allocation of the purchase price in conjunction with the acquisition of City Bancorp that related to a loan acquired which was subsequently determined to be unsubstantiated. See Note 11, Business Combinations, for more information regarding that transaction.

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, 2008								December 31, 2007
		Gross Carrying				Accumulated				Gross Carrying				Accumulated
		Amount				Amortization				Amount				Amortization
		(In thousands)
Amortized intangible assets:
Core deposit intangibles		$	27,801			$	15,545			$	27,801			$	14,448
Customer relationship intangibles			32,186				14,322				24,639				12,536
Non-solicitation intangibles			600				320				665				265
Total		$	60,587			$	30,187			$	53,105			$	27,249
Unamortized intangible assets:
Trade names		$	688			$	—			$	688			$	—

		Three months ended								Six months ended
		June 30,								June 30,
		2008				2007				2008				2007
		(In thousands)
Aggregate amortization expense for:
Core deposit intangibles		$	531			$	811			$	1,097			$	1,325
Customer relationship intangibles			883				527				1,786				1,078
Non-solicitation intangibles			60				2				120				4
Total		$	1,474			$	1,340			$	3,003			$	2,407

The following table presents information regarding estimated amortization expense on the Company’s amortizable identifiable intangible assets for the year ended December 31, 2008 and the succeeding four years:

						Customer				Non-
		Core Deposit				Relationship				Solicitation
		Intangibles				Intangibles				Intangibles				Total
		(In thousands)
Estimated Amortization Expense:
For year ended December 31, 2008		$	1,977			$	3,477			$	240			$	5,694
For year ended December 31, 2009			1,709				2,948				160				4,817
For year ended December 31, 2010			1,308				2,508				—				3,816
For year ended December 31, 2011			1,016				2,139				—				3,155
For year ended December 31, 2012			946				1,828				—				2,774

NOTE 9 — PENSION BENEFITS

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

		Pension Benefits
		Three months ended								Six months ended
		June 30,								June 30,
		2008				2007				2008				2007
		(In thousands)
Service cost		$	1,667			$	2,179			$	3,334			$	3,917
Interest cost			1,654				1,624				3,308				3,066
Expected return on assets			(2,646	)			(2,829	)			(5,292	)			(4,560	)
Amortization of unrecognized transition amount			5				3				10				8
Recognized prior service cost			67				68				134				128
Recognized net loss			73				499				146				849
Net periodic benefit costs		$	820			$	1,544			$	1,640			$	3,408

NOTE 10 — 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 delays 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 defers 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. The Company has not applied the provisions of SFAS 157 to its non-financial assets and non-financial liabilities in accordance with FSP FAS 157-2. The Company will apply the provisions of SFAS 157 to these assets and liabilities beginning January 1, 2009 as required by FSP FAS 157-2.

In September, 2006, the Emerging Issues Task Force (“EITF”) reached a final consensus on Issue No. 06-4, “Accounting for the Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements.” EITF Issue No. 06-4 requires employers to recognize a liability for future benefits provided through endorsement split-dollar life insurance arrangements that extend into postretirement periods in accordance with SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions” or APB Opinion No. 12, “Omnibus Opinion — 1967.” EITF Issue No. 06-4 is effective for fiscal years beginning after December 15, 2007. Entities should recognize the effects of applying EITF Issue No. 06-04 through either (a) a change in accounting principle through a cumulative-effect adjustment to retained earnings or to other components of equity or net assets in the statement of financial position as of the beginning of the year of adoption or (b) a change in accounting principle through retrospective application to all prior periods. The initial adoption of EITF Issue No. 06-4 resulted in a cumulative-effect adjustment to retained earnings of approximately $1.1 million at January 1, 2008. During the second quarter of 2008, management identified certain endorsement split-dollar life insurance arrangements that were not included in the original adoption of EITF Issue No. 06-4. The correction of this immaterial error resulted in an additional cumulative-effect adjustment to retained earnings of approximately $2.5 million for a total cumulative-effect adjustment to retained earnings at January 1, 2008 of approximately $3.6 million. Retained earnings was originally reported at March 31, 2008 as $816.0 million. Subsequent to the adjustment of $2.5 million, retained earnings was $813.5 million. Other liabilities was originally reported at March 31, 2008 as $147.0 million. Subsequent to the adjustment of $2.5 million, other liabilities was $149.5 million.

In February, 2007, SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” was issued. SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company did not elect the fair value option in regards to items not previously recorded at fair value. Therefore, the adoption of SFAS No. 159 has had no material impact on the financial position or results of operations of the Company.

In November 2007, the SEC issued Staff Accounting Bulletin (“SAB”) No. 109, “Written Loan Commitments Recorded at Fair Value Through Earnings.” SAB No. 109 rescinds SAB No. 105’s prohibition on inclusion of expected net future cash flows related to loan servicing activities in the fair value measurement of a written loan commitment. SAB No. 109 also applies to any loan commitments for which fair value accounting is elected under SFAS No. 159. SAB No. 109 is effective prospectively for derivative loan commitments issued or modified in fiscal quarters beginning after December 15, 2007. The adoption of SAB No. 109 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 Company believes that the

adoption of SFAS No. 141(R) will have 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 Company believes that the adoption of SFAS No. 160 will have 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 will impact disclosures only and will not have an impact on the financial position or results of operations of the Company.

NOTE 11 — BUSINESS COMBINATIONS

On March 1, 2007, City Bancorp, a bank holding company with approximately $850 million in assets headquartered in Springfield, Missouri, merged with and into the Company. As a result of the merger, City Bancorp’s subsidiary, The Signature Bank, became a subsidiary of the Company. Effective July 1, 2007, The Signature Bank merged with and into the Bank. Consideration paid to complete this transaction consisted of 3,327,564 shares of the Company’s common stock in addition to cash paid to City Bancorp’s shareholders in the aggregate amount of approximately $83.8 million. The consideration paid to complete the transaction has been adjusted to reflect the additional amount paid as a result of the settlement of a contingency during the first quarter of 2008. In addition, all outstanding City Bancorp stock options were converted into stock options to purchase 272,834 shares of the Company’s common stock. This transaction was accounted for as a purchase. This acquisition was not material to the financial position or results of operations of the Company.

NOTE 12 — SEGMENT REPORTING

The Company’s principal activity is community banking, which includes providing a full range of deposit products, commercial loans and consumer loans. During the first quarter of 2008, the Company determined that an additional operating segment, insurance agencies, should be created based upon the services offered, the significance of those services to the Company’s financial statements and the regular review of the operating results of the insurance agencies by the chief operating decision makers of the Company. The 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 community banking. 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 and six-month periods ended June 30, 2008 and 2007 were as follows:

										General
		Community				Insurance				Corporate
		Banking				Agencies				and Other				Total
		(In thousands)
Three months ended June 30, 2008:
Results of Operations
Net interest revenue		$	101,032			$	338			$	8,473			$	109,843
Provision for credit losses			11,241				—				(4	)			11,237
Net interest revenue after provision for credit losses			89,791				338				8,477				98,606
Noninterest revenue			30,259				21,486				21,521				73,266
Noninterest expense			70,865				17,577				23,622				112,064
Income before income taxes			49,185				4,247				6,376				59,808
Income taxes			16,187				1,661				1,835				19,683
Net income		$	32,998			$	2,586			$	4,541			$	40,125
Selected Financial Information
Total assets (at end of period)		$	11,078,459			$	152,581			$	2,168,111			$	13,399,151
Depreciation and amortization			6,876				1,191				670				8,737
Three months ended June 30, 2007:
Results of Operations
Net interest revenue		$	97,330			$	627			$	8,701			$	106,658
Provision for credit losses			7,850				—				(7	)			7,843
Net interest revenue after provision for credit losses			89,480				627				8,708				98,815
Noninterest revenue			31,345				17,497				11,390				60,232
Noninterest expense			71,877				13,661				20,390				105,928
Income before income taxes			48,948				4,463				(292	)			53,119
Income taxes			15,884				2,614				(1,260	)			17,238
Net income		$	33,064			$	1,849			$	968			$	35,881
Selected Financial Information
Total assets (at end of period)		$	11,053,648			$	127,930			$	2,027,515			$	13,209,093
Depreciation and amortization			6,920				761				614				8,295

										General
		Community				Insurance				Corporate
		Banking				Agencies				and Other				Total
		(In thousands)
Six months ended June 30, 2008:
Results of Operations
Net interest revenue		$	201,404			$	766			$	17,743			$	219,913
Provision for credit losses			22,058				—				(10	)			22,048
Net interest revenue after provision for credit losses			179,346				766				17,753				197,865
Noninterest revenue			58,919				46,038				34,540				139,497
Noninterest expense			139,741				35,868				49,925				225,534
Income before income taxes			98,524				10,936				2,368				111,828
Income taxes			32,209				4,293				56				36,558
Net income		$	66,315			$	6,643			$	2,312			$	75,270
Selected Financial Information
Total assets (at end of period)		$	11,078,459			$	152,581			$	2,168,111			$	13,399,151
Depreciation and amortization			11,243				2,389				3,731				17,363
Six months ended June 30, 2007:
Results of Operations
Net interest revenue		$	185,833			$	1,139			$	18,354			$	205,326
Provision for credit losses			9,193				—				5				9,198
Net interest revenue after provision for credit losses			176,640				1,139				18,349				196,128
Noninterest revenue			60,002				37,185				21,404				118,591
Noninterest expense			138,873				27,216				45,449				211,538
Income before income taxes			97,769				11,108				(5,696	)			103,181
Income taxes			31,954				4,377				(2,608	)			33,723
Net income		$	65,815			$	6,731			$	(3,088	)		$	69,458
Selected Financial Information
Total assets (at end of period)		$	11,053,648			$	127,930			$	2,027,515			$	13,209,093
Depreciation and amortization			13,352				1,543				1,269				16,164

NOTE 13 — MORTGAGE SERVICING RIGHTS

Mortgage servicing rights (“MSRs”) are recognized based on the fair value of the servicing right on the date the corresponding mortgage loan is sold. 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. This estimate and the assumptions used are reviewed by management. At June 30, 2008, the valuation of MSRs included an assumed average prepayment speed of 199 PSA and an average discount rate of 9.87%. 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 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:

		2008				2007
		(In thousands)
Fair value as of January 1		$	32,482			$	35,286
Additions:
Origination of servicing assets			4,212				2,635
Changes in fair value:
Due to change in valuation inputs or assumptions used in the valuation model			1,527				(570	)
Other changes in fair value			(10	)			(13	)
Fair value as of June 30		$	38,211			$	37,338

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 approximately $2.10 million and $2.02 million and late and other ancillary fees of approximately $294,000 and $230,000 for the quarters ended June 30, 2008 and 2007, respectively. The Company recorded contractual servicing fees of $4.18 million and $4.05 million and late and other ancillary fees of approximately $587,000 and approximately $492,000 for the six months ended June 30, 2008 and 2007, respectively.

NOTE 14 — 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, 2008, the notional amount of forward commitments to sell individual fixed-rate mortgage loans was $86.5 million with a carrying value and fair value reflecting a loss of approximately $76,000. At June 30, 2007, the notional amount of forward commitments to sell individual fixed-rate mortgage loans was $85.1 million with a carrying value and fair value reflecting a gain of approximately $461,000. At June 30, 2008, the notional amount of commitments to fund individual fixed-rate mortgage loans was $31.7 million with a carrying value and fair value reflecting a gain of approximately $339,000. At June 30, 2007, the notional amount of commitments to fund individual fixed-rate mortgage loans was $35.0 million with a carrying value and fair value reflecting a loss of approximately $33,000.

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, 2008, the notional amount of customer related derivative financial instruments was $379.2 million with an average maturity of 92 months, an average interest receive rate of 4.40% and an average interest pay rate of 6.63%.

NOTE 15 — FAIR VALUE DISCLOSURES

Fair value is defined 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 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 three levels based on the reliability of inputs as follows:

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.

The Company adopted the provisions of SFAS 157 and FSP FAS 157-2 on January 1, 2008. The adoption of these pronouncements did not have a material effect on the Company’s financial position or results of operations.

Determination of Fair Value

The valuation methodologies listed below are used by the Company 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. All other available-for-sale securities are valued using matrix pricing and are classified as Level 2.

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. In determining fair value, the Company utilizes the expertise of an independent third party. An estimate of the fair value of the Company’s MSRs is determined by the independent third party 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 June 30, 2008:

		Level 1				Level 2				Level 3				Total
		(In thousands)
Assets:
Available-for-sale securities		$	1,014			$	1,022,051			$	—			$	1,023,065
Mortgage servicing rights			—				—				38,211				38,211
Derivative instruments			—				5,502				521				6,023
Total		$	1,014			$	1,027,553			$	38,732			$	1,067,299
Liabilities:
Derivative instruments		$	—			$	5,502			$	257			$	5,759