UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

þ		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 000-51904

HOME BANCSHARES, INC.

(Exact Name of Registrant as Specified in Its Charter)

Arkansas		71-0682831
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
719 Harkrider, Suite 100, Conway, Arkansas		72032
(Address of principal executive offices)		(Zip Code)

(501) 328-4770
(Registrant’s telephone number, including area code)

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 corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o     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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practical date.

Common Stock Issued and Outstanding: 28,429,291 shares as of August 4, 2010.

 

 

HOME BANCSHARES, INC.
FORM 10-Q
June 30, 2010

INDEX

				Page No.
Part I:		Financial Information
Item 1.		Financial Statements
		Consolidated Balance Sheets — June 30, 2010 (Unaudited) and December 31, 2009			4
		Consolidated Statements of Income (Unaudited) — Three and six months ended June 30, 2010 and 2009			5
		Consolidated Statements of Stockholders’ Equity (Unaudited) — Six months ended June 30, 2010 and 2009			6-7
		Consolidated Statements of Cash Flows (Unaudited) — Six months ended June 30, 2010 and 2009			8
		Condensed Notes to Consolidated Financial Statements (Unaudited)			9-34
		Report of Independent Registered Public Accounting Firm			35
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			36-70
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			71-73
Item 4.		Controls and Procedures			74
Part II:		Other Information
Item 1.		Legal Proceedings			74
Item1A.		Risk Factors			74
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			75
Item 3.		Defaults Upon Senior Securities			75
Item 4.		(Reserved)			75
Item 5.		Other Information			75
Item 6.		Exhibits			75
Signatures					76
EX-12.1
EX-15
EX-31.1
EX-31.2
EX-32.1
EX-32.2

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

     Some of our statements contained in this document, including matters discussed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operation” 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. Forward-looking statements relate to future events or our future financial performance and include statements about the competitiveness of the banking industry, potential regulatory obligations, our entrance and expansion into other markets, our other business strategies and other statements that are not historical facts. Forward-looking statements are not guarantees of performance or results. When we use words like “may,” “plan,” “contemplate,” “anticipate,” “believe,” “intend,” “continue,” “expect,” “project,” “predict,” “estimate,” “could,” “should,” “would,” and similar expressions, you should consider them as identifying forward-looking statements, although we may use other phrasing. These forward-looking statements involve risks and uncertainties and are based on our beliefs and assumptions, and on the information available to us at the time that these disclosures were prepared. These forward-looking statements involve risks and uncertainties and may not be realized due to a variety of factors, including, but not limited to, the following:

	•		the effects of future economic conditions, including inflation, deflation or a continued decrease in residential housing values;
	•		governmental monetary and fiscal policies, as well as legislative and regulatory changes;
	•		the risks of changes in interest rates or the level and composition of deposits, loan demand and the values of loan collateral, securities and interest sensitive assets and liabilities;
	•		the effects of terrorism and efforts to combat it;
	•		credit risks;
	•		the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions operating in our market area and elsewhere, including institutions operating regionally, nationally and internationally, together with competitors offering banking products and services by mail, telephone and the Internet;
	•		the effect of any mergers, acquisitions or other transactions to which we or our subsidiaries may from time to time be a party, including our ability to successfully integrate any businesses that we acquire;
	•		the failure of assumptions underlying the establishment of our allowance for loan losses; and
	•		the failure of assumptions underlying the estimates of the fair values for our covered assets and FDIC indemnification receivable.

     All written or oral forward-looking statements attributable to us are expressly qualified in their entirety by this Cautionary Note. Our actual results may differ significantly from those we discuss in these forward-looking statements. For other factors, risks and uncertainties that could cause our actual results to differ materially from estimates and projections contained in these forward-looking statements, see the “Risk Factors” section of our Form 10-K filed with the Securities and Exchange Commission on March 5, 2010.

PART I: FINANCIAL INFORMATION

Item 1: Financial Statements

Home BancShares, Inc.
Consolidated Balance Sheets

		June 30,				December 31,
(In thousands, except share data)		2010				2009
		(Unaudited)
Assets
Cash and due from banks		$	34,912			$	39,970
Interest-bearing deposits with other banks			153,302				133,520
Cash and cash equivalents			188,214				173,490
Federal funds sold			8,665				11,760
Investment securities — available for sale			346,621				322,115
Loans receivable not covered by loss share			1,965,489				1,950,285
Loans receivable covered by FDIC loss share			218,283				—
Allowance for loan losses			(43,614	)			(42,968	)
Loans receivable, net			2,140,158				1,907,317
Bank premises and equipment, net			75,314				70,810
Foreclosed assets held for sale not covered by loss share			11,638				16,484
Foreclosed assets held for sale covered by FDIC loss share			7,420				—
FDIC indemnification asset			83,262				—
Cash value of life insurance			51,366				52,176
Accrued interest receivable			13,071				13,137
Deferred tax asset, net			9,652				14,777
Goodwill			53,039				53,039
Core deposit and other intangibles			6,406				4,698
Mortgage servicing rights			—				1,090
Other assets			44,063				43,972
Total assets		$	3,038,889			$	2,684,865
Liabilities and Stockholders’ Equity
Deposits:
Demand and non-interest-bearing		$	337,073			$	302,228
Savings and interest-bearing transaction accounts			833,912				714,744
Time deposits			1,015,507				818,451
Total deposits			2,186,492				1,835,423
Federal funds purchased			—				—
Securities sold under agreements to repurchase			62,869				62,000
FHLB borrowed funds			232,416				264,360
Accrued interest payable and other liabilities			22,558				10,625
Subordinated debentures			47,439				47,484
Total liabilities			2,551,774				2,219,892
Stockholders’ equity:
Preferred stock; $0.01 par value; 5,500,000 shares authorized:
Series A fixed rate cumulative perpetual; liquidation preference of $1,000 per share; 50,000 shares issued and outstanding at June 30, 2010 and December 31, 2009.			49,366				49,275
Common stock, par value $0.01; shares authorized 50,000,000; shares issued and outstanding 28,343,726 in 2010 and 28,259,150 (stock dividend adjusted) in 2009			283				257
Capital surplus			431,343				363,519
Retained earnings			2,580				51,746
Accumulated other comprehensive income			3,543				176
Total stockholders’ equity			487,115				464,973
Total liabilities and stockholders’ equity		$	3,038,889			$	2,684,865

See Condensed Notes to Consolidated Financial Statements.

Home BancShares, Inc.
Consolidated Statements of Income

		Three Months Ended								Six Months Ended
		June 30,								June 30,
(In thousands, except per share data(1))		2010				2009				2010				2009
						(Unaudited)
Interest income:
Loans		$	33,136			$	29,389			$	63,002			$	58,527
Investment securities
Taxable			1,935				2,252				3,562				4,905
Tax-exempt			1,500				1,343				2,979				2,641
Deposits — other banks			81				8				166				20
Federal funds sold			5				4				10				11
Total interest income			36,657				32,996				69,719				66,104
Interest expense:
Interest on deposits			5,872				7,131				11,167				15,249
Federal funds purchased			—				2				—				4
FHLB borrowed funds			2,082				2,359				4,259				4,749
Securities sold under agreements to repurchase			118				124				212				235
Subordinated debentures			600				659				1,197				1,335
Total interest expense			8,672				10,275				16,835				21,572
Net interest income			27,985				22,721				52,884				44,532
Provision for loan losses			3,750				2,750				6,850				3,750
Net interest income after provision for loan losses			24,235				19,971				46,034				40,782
Non-interest income:
Service charges on deposit accounts			3,583				3,633				6,724				7,007
Other service charges and fees			1,899				1,841				3,537				3,625
Mortgage lending income			650				815				1,062				1,695
Mortgage servicing income			154				191				314				391
Insurance commissions			309				198				656				455
Income from title services			148				151				255				291
Increase in cash value of life insurance			348				574				776				1,051
Dividends from FHLB, FRB & bankers’ bank			142				99				268				206
Gain on acquisitions			—				—				9,334				—
Gain on sale of SBA loans			18				—				18				—
Gain (loss) on sale of premises and equipment, net			12				(19	)			219				(12	)
Gain (loss) on OREO, net			(404	)			(28	)			(245	)			(145	)
Gain (loss) on securities, net			—				(3	)			—				(3	)
FDIC indemnification asset			663				—				736				—
Other income			698				538				1,211				1,044
Total non-interest income			8,220				7,990				24,865				15,605
Non-interest expense:
Salaries and employee benefits			9,080				8,432				17,614				17,376
Occupancy and equipment			2,973				2,667				5,772				5,344
Data processing expense			954				844				1,816				1,651
Other operating expenses			5,983				8,355				12,343				15,219
Total non-interest expense			18,990				20,298				37,545				39,590
Income before income taxes			13,465				7,663				33,354				16,797
Income tax expense			4,508				2,222				11,516				5,111
Net income available to all stockholders			8,957				5,441				21,838				11,686
Preferred stock dividends and accretion of discount on preferred stock			670				670				1,340				1,236
Net income available to common stockholders		$	8,287			$	4,771			$	20,498			$	10,450
Basic earnings per common share		$	0.29			$	0.22			$	0.72			$	0.48
Diluted earnings per common share		$	0.29			$	0.22			$	0.72			$	0.47

See Condensed Notes to Consolidated Financial Statements.

Home BancShares, Inc.
Consolidated Statements of Stockholders’ Equity
Six Months Ended June 30, 2010 and 2009

																		Accumulated
																		Other
		Preferred				Common				Capital				Retained				Comprehensive
(In thousands, except share data(1))		Stock				Stock				Surplus				Earnings				Income (Loss)				Total
Balance at January 1, 2009		$	—			$	199			$	253,581			$	32,639			$	(3,375	)		$	283,044
Comprehensive income:
Net income			—				—				—				11,686				—				11,686
Other comprehensive income:
Unrealized gain on investment securities available for sale, net of tax effect of $1,053			—				—				—				—				1,632				1,632
Comprehensive income																							13,318
Issuance of 50,000 shares of preferred stock and a warrant for 158,471.50 shares of common stock			49,094				—				906				—				—				50,000
Accretion of discount on preferred stock			91				—				—				(91	)			—				—
Net issuance of 47,444 shares of common stock from exercise of stock options			—				—				301				—				—				301
Tax benefit from stock options exercised			—				—				237				—				—				237
Share-based compensation			—				—				(16	)			—				—				(16	)
Cash dividends — Preferred Stock — 5%			—				—				—				(1,145	)			—				(1,145	)
Cash dividends — Common Stock, $0.109 per share			—				—				—				(2,385	)			—				(2,385	)
Balances at June 30, 2009 (unaudited)			49,185				199				255,009				40,704				(1,743	)			343,354
Comprehensive income:
Net income			—				—				—				15,120				—				15,120
Other comprehensive income:
Unrealized gain on investment securities available for sale, net of tax effect of $1,239			—				—				—				—				1,919				1,919
Comprehensive income																							17,039
Issuance of 6,261,750 shares of common stock from public stock offering, net of offering costs of $5,634			—				57				107,284				—				—				107,341
Accretion of discount on preferred stock			90				—				—				(90	)			—				—
Net issuance of 92,377 shares of common stock from exercise of stock options			—				1				1,089				—				—				1,090
Tax benefit from stock options exercised			—				—				202				—				—				202
Share-based compensation			—				—				(65	)			—				—				(65	)
Cash dividends — Preferred stock — 5%			—				—				—				(1,250	)			—				(1,250	)
Cash dividends — Common Stock, $0.109 per share			—				—				—				(2,738	)			—				(2,738	)
Balances at December 31, 2009			49,275				257				363,519				51,746				176				464,973

See Condensed Notes to Consolidated Financial Statements.

Home BancShares, Inc.
Consolidated Statements of Stockholders’ Equity — Continued
Six Months Ended June 30, 2010 and 2009

																		Accumulated
																		Other
		Preferred				Common				Capital				Retained				Comprehensive
(In thousands, except share data(1))		Stock				Stock				Surplus				Earnings				Income (Loss)				Total
Comprehensive income:
Net income			—				—				—				21,838				—				21,838
Other comprehensive income:
Unrealized gain on investment securities available for sale, net of tax effect of $2,173			—				—				—				—				3,367				3,367
Comprehensive income																							25,205
Accretion of discount on preferred stock			91				—				—				(91	)			—				—
Net issuance of 66,205 shares of common stock from exercise of stock options			—				1				659				—				—				660
Disgorgement of profits			—				—				11				—				—				11
Tax benefit from stock options exercised			—				—				342				—				—				342
Share-based compensation			—				—				272				—				—				272
Cash dividend — Preferred Stock — 5%			—				—				—				(1,249	)			—				(1,249	)
Cash dividends — Common Stock, $0.109 per share			—				—				—				(3,088	)			—				(3,088	)
Stock dividend — Common Stock — 10%			—				25				66,540				(66,576	)			—				(11	)
Balances at June 30, 2010 (unaudited)		$	49,366			$	283			$	431,343			$	2,580			$	3,543			$	487,115

See Condensed Notes to Consolidated Financial Statements.

Home BancShares, Inc.
Consolidated Statements of Cash Flows

		Period Ended June 30,
(In thousands)		2010				2009
		(Unaudited)
Operating Activities
Net income		$	21,838			$	11,686
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation			2,605				2,653
Amortization/accretion			1,165				1,421
Share-based compensation			272				(16	)
Tax benefits from stock options exercised			(342	)			(237	)
(Gain) loss on assets			(54	)			160
Gain on acquisitions			(9,334	)			—
Provision for loan losses			6,850				3,750
Deferred income tax benefit			2,952				545
Increase in cash value of life insurance			(776	)			(1,051	)
Originations of mortgage loans held for sale			(54,144	)			(113,130	)
Proceeds from sales of mortgage loans held for sale			53,403				105,492
Changes in assets and liabilities:
Accrued interest receivable			66				275
Other assets			7,798				(4,044	)
Accrued interest payable and other liabilities			4,293				9,140
Net cash provided by operating activities			36,592				16,644
Investing Activities
Net (increase) decrease in federal funds sold			6,174				(23,940	)
Net (increase) decrease in loans net, excluding loans acquired			(20,653	)			(23,559	)
Purchases of investment securities — available for sale			(65,041	)			(35,765	)
Proceeds from maturities of investment securities — available for sale			76,028				60,554
Proceeds from sale of investment securities — available for sale			—				22,972
Proceeds from foreclosed assets held for sale			13,294				1,406
Proceeds from sale of SBA loans			268				—
Sale of mortgage servicing portfolio			225				—
Purchases of premises and equipment, net			(6,846	)			(969	)
Death benefits received			1,585				—
Acquisition of Centennial Bancshares, Inc., net funds received			—				(3,100	)
Net cash proceeds received in FDIC-assisted acquisitions			71,652				—
Net cash provided by (used in) investing activities			76,686				(2,401	)
Financing Activities
Net increase (decrease) in deposits, net of deposits acquired			(44,134	)			(15,843	)
Net increase (decrease) in securities sold under agreements to repurchase			869				(48,157	)
Net increase (decrease) in federal funds purchased			—				—
Net increase (decrease) in FHLB and other borrowed funds, net of acquired			(51,954	)			(5,335	)
Proceeds from exercise of stock options			660				301
Proceeds from issuance of preferred stock and common stock warrant			—				50,000
Disgorgement of profits			11				—
Tax benefits from stock options exercised			342				237
Dividends paid on preferred stock			(1,249	)			(1,145	)
Dividends paid on common stock			(3,099	)			(2,385	)
Net cash used in financing activities			(98,554	)			(22,327	)
Net change in cash and cash equivalents			14,724				(8,084	)
Cash and cash equivalents — beginning of year			173,490				54,168
Cash and cash equivalents — end of period		$	188,214			$	46,084

See Condensed Notes to Consolidated Financial Statements.

Home BancShares, Inc.
Condensed Notes to Consolidated Financial Statements
(Unaudited)

1. Nature of Operations and Summary of Significant Accounting Policies

     Home BancShares, Inc. (the Company or HBI) is a bank holding company headquartered in Conway, Arkansas. The Company is primarily engaged in providing a full range of banking services to individual and corporate customers through its wholly owned community bank subsidiary — Centennial Bank (the Bank). During 2009, the Company completed the combination of its former bank charters into a single charter, adopting Centennial Bank as the common name. The Bank has locations in central Arkansas, north central Arkansas, southern Arkansas, the Florida Keys, central Florida and southwestern Florida. The Company is subject to competition from other financial institutions. The Company also is subject to the regulation of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities.

     A summary of the significant accounting policies of the Company follows:

     Community banking is the Company’s only operating segment. No revenues are derived from foreign countries and no single external customer comprises more than 10% of the Company’s revenues.

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

     Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses and the valuation of foreclosed assets. In connection with the determination of the allowance for loan losses and the valuation of foreclosed assets, management obtains independent appraisals for significant properties.

     The consolidated financial statements include the accounts of HBI and its subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation.

     Various items within the accompanying consolidated financial statements for previous years have been reclassified to provide more comparative information. These reclassifications had no effect on net earnings or stockholders’ equity.

     Beginning in 2009, the Company accounts for its acquisitions under ASC Topic 805, Business Combinations, which requires the use of the purchase method of accounting. All identifiable assets acquired, including loans, are recorded at fair value. No allowance for loan losses related to the acquired loans is recorded on the acquisition date as the fair value of the loans acquired incorporates assumptions regarding credit risk. Loans acquired are recorded at fair value in accordance with the fair value methodology prescribed in ASC Topic 820, exclusive of the shared-loss agreements with the Federal Deposit Insurance Corporation (FDIC). The fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows.

     Over the life of the acquired loans, the Company continues to estimate cash flows expected to be collected on individual loans or on pools of loans sharing common risk characteristics and were treated in the aggregate when applying various valuation techniques. The Company evaluates at each balance sheet date whether the present value of its loans determined using the effective interest rates has decreased and if so, recognizes a provision for loan loss in its consolidated statement of income. For any increases in cash flows expected to be collected, the Company adjusts the amount of accretable yield recognized on a prospective basis over the loan’s or pool’s remaining life.

     Because the FDIC will reimburse the Company for certain acquired loans should the Company experience a loss, an indemnification asset is recorded at fair value at the acquisition date. The indemnification asset is recognized at the same time as the indemnified loans, and measured on the same basis, subject to collectability or contractual limitations. The shared-loss agreements on the acquisition date reflect the reimbursements expected to be received from the FDIC, using an appropriate discount rate, which reflects counterparty credit risk and other uncertainties.

     The shared-loss agreements continue to be measured on the same basis as the related indemnified loans. Because the acquired loans are subject to the accounting prescribed by ASC Topic 310, subsequent changes to the basis of the shared-loss agreements also follow that model. Deterioration in the credit quality of the loans (immediately recorded as an adjustment to the allowance for loan losses) would immediately increase the basis of the shared-loss agreements, with the offset recorded through the consolidated statement of income. Increases in the credit quality or cash flows of loans (reflected as an adjustment to yield and accreted into income over the remaining life of the loans) decrease the basis of the shared-loss agreements, with such decrease being accreted into income over 1) the same period or 2) the life of the shared-loss agreements, whichever is shorter. Loss assumptions used in the basis of the indemnified loans are consistent with the loss assumptions used to measure the indemnification asset. Fair value accounting incorporates into the fair value of the indemnification asset an element of the time value of money, which is accreted back into income over the life of the shared-loss agreements.

     Upon the determination of an incurred loss the indemnification asset will be reduced by the amount owed by the FDIC. A corresponding, claim receivable is recorded until cash is received from the FDIC.

     For further discussion of the Company’s acquisitions and loan accounting, see Note 2 and Note 5 to the consolidated financial statements.

     The accompanying unaudited consolidated financial statements as of June 30, 2010 and 2009 have been prepared in condensed format, and therefore do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.

     The information furnished in these interim statements reflects all adjustments, which are, in the opinion of management, necessary for a fair statement of the results for each respective period presented. Such adjustments are of a normal recurring nature. The results of operations in the interim statements are not necessarily indicative of the results that may be expected for any other quarter or for the full year. The interim financial information should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2009 Form 10-K, filed with the Securities and Exchange Commission.

Earnings per Share

     Basic earnings per share are computed based on the weighted average number of shares outstanding during each year. Diluted earnings per share are computed using the weighted average common shares and all potential dilutive common shares outstanding during the period. Prior year and end of period per share amounts have been adjusted for the stock dividend which occurred in June of 2010. The following table sets forth the computation of basic and diluted earnings per common share (EPS) for the three-month and six-month periods ended June 30:

		Three Months Ended June 30,								Six Months Ended June 30,
		2010				2009				2010				2009
		(In thousands)
Net income available to common stockholders		$	8,287			$	4,771			$	20,498			$	10,450
Average shares outstanding			28,320				21,877				28,299				21,863
Effect of common stock options			266				257				255				270
Diluted shares outstanding			28,586				22,134				28,554				22,133
Basic earnings per common share		$	0.29			$	0.22			$	0.72			$	0.48
Diluted earnings per common share		$	0.29			$	0.22			$	0.72			$	0.47

     Warrant to purchase 158,471.50 shares of common stock at $23.664 (stock dividend adjusted) were outstanding at June 30, 2010 and June 30, 2009, but were not included in the computation of diluted EPS because the exercise prices were greater than the average market price of the common shares.

2. Business Combinations

     On March 12, 2010, Centennial Bank entered into a purchase and assumption agreement (Old Southern Agreement) with the FDIC, as receiver, pursuant to which the Bank acquired certain assets and assumed substantially all of the deposits and certain liabilities of Old Southern Bank (Old Southern).

     Prior to the acquisition, Old Southern operated 7 banking centers in the Orlando, Florida metropolitan area. The Company plans to keep all of the branches except for one location in downtown Orlando. The downtown Orlando location will be closed during the third quarter of 2010. Excluding the effects of purchase accounting adjustments, Centennial Bank acquired $335.3 million in assets and assumed approximately $328.5 million of the deposits of Old Southern. Additionally, Centennial Bank purchased loans with an estimated fair value of $179.1 million, $3.0 million of foreclosed assets and $30.4 million of investment securities.

     Centennial Bank did not acquire the real estate, banking facilities, furniture and equipment of Old Southern as part of the purchase and assumption agreement but exercised its option late in the second quarter of 2010 to purchase these assets at fair market value from the FDIC. Fair market values for the real estate, facilities, furniture and equipment were based on current appraisals. Centennial Bank leased these facilities and equipment from the FDIC until it exercised its option. Late in the second quarter, Centennial Bank purchased $5.3 million of bank premises and equipment form the FDIC.

     In connection with the Old Southern acquisition, Centennial Bank entered into loss sharing agreements with the FDIC that covers $282.0 million of assets, based upon the seller’s records, including single family residential mortgage loans, commercial real estate, commercial and industrial loans, and foreclosed assets (collectively, “covered assets”). Centennial Bank acquired other Old Southern assets that are not covered by the loss sharing agreements with the FDIC including interest-bearing deposits with other banks, investment securities purchased at fair market value and other tangible assets. Pursuant to the terms of the loss sharing agreements, the covered assets are subject to a stated loss threshold of $110.0 million whereby the FDIC will reimburse Centennial Bank for 80% of losses of up to $110.0 million, and 95% of losses in excess of this amount. Centennial Bank will reimburse the FDIC for its share of recoveries with respect to losses for which the FDIC paid Centennial Bank a reimbursement under the loss sharing agreements. The FDIC’s obligation to reimburse Centennial Bank for losses with respect to covered assets begins with the first dollar of loss incurred.

     The amounts covered by the loss sharing agreements are the pre-acquisition book values of the underlying covered assets, the contractual balance of unfunded commitments that were acquired, and certain future net direct costs. The loss sharing agreement applicable to single family residential mortgage loans provide for FDIC loss sharing and Centennial Bank reimbursement to the FDIC, in each case as described above, for ten years. The loss sharing agreement applicable to all other covered assets provide for FDIC loss sharing for five years and Centennial Bank reimbursement of recoveries to the FDIC for eight years, in each case as described above.

     The loss sharing agreements are subject to certain servicing procedures as specified in agreements with the FDIC. The expected reimbursements under the loss sharing agreements were recorded as indemnification assets at their estimated fair values of $73.5 million for the Old Southern Agreement, on the acquisition date. The indemnification assets reflect the present value of the expected net cash reimbursement related to the loss sharing agreements described above.

     Centennial Bank has determined that the acquisition of the net assets of Old Southern constitute a business combination as defined by the FASB ASC Topic 805, Business Combinations. Accordingly, the assets acquired and liabilities assumed are presented at their fair values as required. Fair values were determined based on the requirements of FASB ASC Topic 820, Fair Value Measurements. In many cases, the determination of these fair values required management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and subject to change. These fair value estimates are considered preliminary, and are subject to change for up to one year after the closing date of the acquisition as additional information relative to closing date fair values becomes available. Centennial Bank and the FDIC are engaged in on-going discussions that may impact which assets and liabilities are ultimately acquired or assumed by Centennial Bank and/or the purchase prices. In addition, the tax treatment of the FDIC-assisted acquisition is complex and subject to interpretations that may result in future adjustments of deferred taxes as of the acquisition date.

     Centennial Bank recorded a preliminary one-time gain of $9.7 million based upon the initial estimated fair value of the assets acquired and liabilities assumed of Old Southern. Subsequent to the initial fair value estimate calculations reported in the first quarter of 2010, additional information was obtained about the fair value of assets acquired and liabilities assumed as of March 12, 2010, which resulted in an adjustment to the initial fair value estimates. Most significantly, additional information (as of the acquisition date) was obtained about the collectability of a loss sharing item with the FDIC. This adjustment resulted in a $2.5 million decrease to the first quarter initial FDIC indemnification asset and a related $2.5 million decrease to the first quarter 2010 initial one-time gain of $9.7 million. Thus, the new preliminary first quarter 2010 gain is $7.3 million related to the fair value of the acquired assets and assumed liabilities of Old Southern.

     The following schedule is a breakdown of the revised assets and liabilities acquired as of the acquisition date.

		Old Southern
		Acquired from				Fair Value				As Recorded
		the FDIC				Adjustments				by HBI
		(Dollars in thousands)
Assets
Cash and due from banks		$	1,759			$	30,675			$	32,434
Interest-bearing deposits with other banks			16,563				—				16,563
Investment securities			30,401				—				30,401
Federal funds sold			3,079				—				3,079
Loans receivable covered by loss share			273,166				(94,101	)			179,065
Total loans receivable			273,166				(94,101	)			179,065
Bank premises and equipment, net			44				—				44
Foreclosed assets held for sale covered by loss share			8,781				(5,821	)			2,960
FDIC indemnification asset			—				73,544				73,544
Core deposit intangibles			—				2,400				2,400
Other assets			1,505				633				2,138
Total assets acquired		$	335,298			$	7,330			$	342,628
Liabilities
Deposits
Demand and non-interest-bearing		$	25,178			$	—			$	25,178
Savings and interest-bearing transaction accounts			124,071				—				124,071
Time deposits			179,208				—				179,208
Total deposits			328,457				—				328,457
Accrued interest payable and other liabilities			375				6,535				6,910
Total liabilities assumed		$	328,832			$	6,535			$	335,367
Gain on acquisition										$	7,261

     The following is a description of the methods used to determine the fair values of significant assets and liabilities presented above.

     Cash and due from banks, interest-bearing deposits with other banks and federal funds sold — The carrying amount of these assets is a reasonable estimate of fair value based on the short-term nature of these assets. The $30.7 million adjustment is the first pro-forma cash settlement received from the FDIC on Monday following the closing weekend.

     Investment Securities — Investment securities were acquired from the FDIC at fair market value.

     Loans — Fair values for loans were based on a discounted cash flow methodology that considered factors including the type of loan and related collateral, classification status, fixed or variable interest rate, term of loan and whether or not the loan was amortizing, and current discount rates. The discount rates used for loans are based on current market rates for new originations of comparable loans and include adjustments for liquidity concerns. The discount rate does not include a factor for credit losses as that has been included in the estimated cash flows.

     Core deposit intangible — This intangible asset represents the value of the relationships that Old Southern had with its deposit customers. The fair value of this intangible asset was estimated based on a discounted cash flow methodology that gave appropriate consideration to expected customer attrition rates, cost of the deposit base, and the net maintenance cost attributable to customer deposits.

     Foreclosed assets held for sale — These assets are presented at the estimated present values that management expects to receive when the properties are sold, net of related costs of disposal.

     FDIC indemnification asset — This loss sharing asset is measured separately from the related covered assets as it is not contractually embedded in the covered assets and is not transferable with the covered assets should Centennial Bank choose to dispose of them. Fair value was estimated using projected cash flows related to the loss sharing agreements based on the expected reimbursements for losses and the applicable loss sharing percentages. These cash flows were discounted to reflect the uncertainty of the timing and receipt of the loss-sharing reimbursement from the FDIC.

     Deposits — The fair values used for the demand and savings deposits that comprise the transaction accounts acquired, by definition equal the amount payable on demand at the acquisition date. No fair value adjustment was applied for time deposits as the Bank was able to reset deposit rates to market rates currently offered.

     The Company’s operating results for the period ended June 30, 2010, include the operating results of the acquired assets and assumed liabilities subsequent to the March 12, 2010 acquisition date. Due to the significant fair value adjustments recorded, as well as the nature of the FDIC loss sharing agreements in place, Old Southern’s historical results are not believed to be relevant to the Company’s results, and thus no pro forma information is presented.

     On March 26, 2010, Centennial Bank, entered into separate purchase and assumption agreement (Key West Bank Agreement) with the FDIC, as receiver, pursuant to which Centennial Bank acquired certain assets and assumed substantially all of the deposits and certain liabilities of Key West Bank (Key West).

     Prior to the acquisition, Key West operated one banking center located in Key West, Florida. Excluding the effects of purchase accounting adjustments, Centennial Bank acquired $96.8 million in assets and assumed approximately $66.7 million of the deposits of Key West. Additionally, Centennial Bank purchased loans with an estimated fair value of $46.9 million, $5.7 million of foreclosed assets and assumed $20.0 million of FHLB advances.

     Centennial Bank did not acquire the real estate, banking facilities, furniture and equipment of Key West as part of the purchase and assumption agreement but exercised its option late in the second quarter of 2010 to purchase these assets at fair market value from the FDIC. Fair market values for the real estate, facilities, furniture and equipment were based on current appraisals. Centennial Bank leased these facilities and equipment from the FDIC until it exercised its option. Late in the second quarter, Centennial Bank purchased $1.0 million of bank premises and equipment form the FDIC.

     In connection with the Key West acquisition, Centennial Bank entered into loss-sharing agreements with the FDIC that collectively cover approximately $72.7 million of assets, based upon the seller’s records, which include single family residential mortgage loans, commercial real estate, commercial and industrial loans and foreclosed assets (covered assets). Centennial Bank acquired other Key West assets that are not covered by loss sharing agreements with the FDIC including interest-bearing deposits with other banks and other tangible assets. Pursuant to the terms of the loss sharing agreements, the covered assets of Key West are subject to a stated loss threshold of $23.0 million whereby the FDIC will reimburse Centennial Bank for 80% of losses of up to $23.0 million, and 95% of losses in excess of this amount. Centennial Bank will reimburse the FDIC for its share of recoveries with respect to losses for which the FDIC paid Centennial Bank a reimbursement under the loss sharing agreements. The FDIC’s obligation to reimburse Centennial Bank for losses with respect to covered assets begins with the first dollar of loss incurred.

     The amounts covered by the loss sharing agreements are the pre-acquisition book values of the underlying covered assets, the contractual balance of unfunded commitments that were acquired, and certain future net direct costs. The loss sharing agreement applicable to single family residential mortgage loans provide for FDIC loss sharing and Centennial Bank reimbursement to the FDIC, in each case as described above, for ten years. The loss sharing agreement applicable to all other covered assets provide for FDIC loss sharing for five years and Centennial Bank reimbursement of recoveries to the FDIC for eight years, in each case as described above.

     The loss sharing agreements are subject to certain servicing procedures as specified in agreements with the FDIC. The expected reimbursements under the loss sharing agreements were recorded as indemnification assets at their estimated fair values of $12.2 million for the Key West Agreement, on the acquisition date. The indemnification assets reflect the present value of the expected net cash reimbursement related to the loss sharing agreements described above.

     Centennial Bank has determined that the acquisition of the net assets of Key West constitute a business combination as defined by the FASB ASC Topic 805, Business Combinations. Accordingly, the assets acquired and liabilities assumed are presented at their fair values as required. Fair values were determined based on the requirements of FASB ASC Topic 820, Fair Value Measurements. In many cases, the determination of these fair values required management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and subject to change. These fair value estimates are considered preliminary, and are subject to change for up to one year after the closing date of the acquisition as additional information relative to closing date fair values becomes available. Centennial Bank and the FDIC are engaged in on-going discussions that may impact which assets and liabilities are ultimately acquired or assumed by Centennial Bank and/or the purchase prices. In addition, the tax treatment of the FDIC-assisted acquisition is complex and subject to interpretations that may result in future adjustments of deferred taxes as of the acquisition date.

		Key West
		Acquired from				Fair Value				As Recorded
		the FDIC				Adjustments				by HBI
		(Dollars in thousands)
Assets
Cash and due from banks		$	1,592			$	—			$	1,592
Interest-bearing deposits with other banks			21,063				—				21,063
Loans receivable covered by loss share			65,256				(18,315	)			46,941
Total loans receivable			65,256				(18,315	)			46,941
Foreclosed assets held for sale covered by loss share			7,412				(1,700	)			5,712
FDIC indemnification asset			—				12,200				12,200
Core deposit intangible			—				370				370
Other assets			1,438				276				1,714
Total assets acquired		$	96,761			$	(7,169	)		$	89,592
Liabilities
Deposits
Demand and non-interest-bearing		$	4,357			$	—			$	4,357
Savings and interest-bearing transaction accounts			5,543				—				5,543
Time deposits			56,846				—				56,846
Total deposits			66,746				—				66,746
FHLB borrowed funds			20,010				—				20,010
Accrued interest payable and other liabilities			593				170				763
Total liabilities assumed		$	87,349			$	170			$	87,519
Gain on acquisition										$	2,073

     The following is a description of the methods used to determine the fair values of significant assets and liabilities presented above.

     Cash and due from banks and interest-bearing deposits with other banks — The carrying amount of these assets is a reasonable estimate of fair value based on the short-term nature of these assets.

     Loans — Fair values for loans were based on a discounted cash flow methodology that considered factors including the type of loan and related collateral, classification status, fixed or variable interest rate, term of loan and whether or not the loan was amortizing, and current discount rates. The discount rates used for loans are based on current market rates for new originations of comparable loans and include adjustments for liquidity concerns. The discount rate does not include a factor for credit losses as that has been included in the estimated cash flows.

     Core deposit intangible — This intangible asset represents the value of the relationships that Key West had with its deposit customers. The fair value of this intangible asset was estimated based on a discounted cash flow methodology that gave appropriate consideration to expected customer attrition rates, cost of the deposit base, and the net maintenance cost attributable to customer deposits.

     Foreclosed assets held for sale — These assets are presented at the estimated present values that management expects to receive when the properties are sold, net of related costs of disposal.

     FDIC indemnification asset — This loss sharing asset is measured separately from the related covered assets as it is not contractually embedded in the covered assets and is not transferable with the covered assets should Centennial Bank choose to dispose of them. Fair value was estimated using projected cash flows related to the loss sharing agreements based on the expected reimbursements for losses and the applicable loss sharing percentages. These cash flows were discounted to reflect the uncertainty of the timing and receipt of the loss sharing reimbursement from the FDIC.

     Deposits — The fair values used for the demand and savings deposits that comprise the transaction accounts acquired, by definition equal the amount payable on demand at the acquisition date. No fair value adjustment was applied for time deposits because the weighted average interest rate of Key West’s CD’s were at the market rates of similar funding at the time of acquisition.

     The Company’s operating results for the period ended June 30, 2010, include the operating results of the acquired assets and assumed liabilities subsequent to the March 26, 2010 acquisition date. Due to the significant fair value adjustments recorded, as well as the nature of the FDIC loss sharing agreements in place, Key West’s historical results are not believed to be relevant to the Company’s results, and thus no pro forma information is presented.

3. Investment Securities

     The amortized cost and estimated market value of investment securities were as follows:

		June 30, 2010
		Available for Sale
						Gross				Gross
		Amortized				Unrealized				Unrealized				Estimated
		Cost				Gains				(Losses)				Fair Value
		(In thousands)
U.S. government-sponsored enterprises		$	88,498			$	2,019			$	—			$	90,517
Mortgage-backed securities			94,448				3,367				(1,087	)			96,728
State and political subdivisions			152,075				2,477				(871	)			153,681
Other securities			5,770				1				(76	)			5,695
Total		$	340,791			$	7,864			$	(2,034	)		$	346,621

		December 31, 2009
		Available for Sale
						Gross				Gross
		Amortized				Unrealized				Unrealized				Estimated
		Cost				Gains				(Losses)				Fair Value
		(In thousands)
U.S. government-sponsored enterprises		$	56,439			$	130			$	(463	)		$	56,106
Mortgage-backed securities			114,464				2,813				(1,690	)			115,587
State and political subdivisions			145,086				2,224				(1,375	)			145,935
Other securities			5,837				—				(1,350	)			4,487
Total		$	321,826			$	5,167			$	(4,878	)		$	322,115

     Assets, principally investment securities, having a carrying value of approximately $302.4 million and $231.3 million at June 30, 2010 and December 31, 2009, respectively, were pledged to secure public deposits and for other purposes required or permitted by law. Also, investment securities pledged as collateral for repurchase agreements totaled approximately $62.9 million and $62.0 million at June 30, 2010 and December 31, 2009, respectively.

     During the three-month and six-month periods ended June 30, 2010, no available for sale securities were sold.

     During the three-month and six-month periods ended June 30, 2009, $23.0 million in available for sale securities were sold. The gross realized gains and losses on these sales totaled $890,000 and $893,000, respectively. The income tax expense/benefit to net security gains and losses was 39.225% of the gross amounts.

     The amortized cost and estimated fair value of securities at June 30, 2010, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

		Available-for-Sale
		Amortized				Estimated
		Cost				Fair Value
		(In thousands)
Due in one year or less		$	110,782			$	111,897
Due after one year through five years			158,417				161,397
Due after five years through ten years			46,715				48,082
Due after ten years			24,877				25,245
Total		$	340,791			$	346,621

     For purposes of the maturity tables, mortgage-backed securities, which are not due at a single maturity date, have been allocated over maturity groupings based on anticipated maturities. The mortgage-backed securities may mature earlier than their weighted-average contractual maturities because of principal prepayments.

     The Company evaluates all securities quarterly to determine if any unrealized losses are deemed to be other than temporary. In completing these evaluations the Company follows the requirements of FASB ASC 320, Investments — Debt and Equity Securities. Certain investment securities are valued less than their historical cost. These declines are primarily the result of the rate for these investments yielding less than current market rates. Based on evaluation of available evidence, management believes the declines in fair value for these securities are temporary. The Company does not intend to sell or believe it will be required to sell these investments before recovery of their amortized cost bases, which may be maturity. Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified.

     No securities were deemed by management to have other-than-temporary impairment for the three and six month periods ended June 30, 2010, besides securities for which impairment was taken in prior periods.

     For the period ended June 30, 2010, the Company had $2.0 million in unrealized losses, which have been in continuous loss positions for more than twelve months. Included in the $2.0 million in unrealized losses are $1.1 million in unrealized losses, which were associated with government-sponsored mortgage-back securities. Excluding impairment write downs taken in prior periods, the Company’s assessments indicated that the cause of the market depreciation was primarily the change in interest rates and not the issuer’s financial condition, or downgrades by rating agencies. In addition, approximately 79.0% of the Company’s investment portfolio matures in five years or less. As a result, the Company has the ability and intent to hold such securities until maturity.

     The following shows gross unrealized losses and estimated fair value of investment securities available for sale aggregated by investment category and length of time that individual investment securities have been in a continuous loss position as of the periods ended June 30, 2010 and December 31, 2009:

		June 30, 2010
		Less Than 12 Months								12 Months or More								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
		Value				Losses				Value				Losses				Value				Losses
		(In thousands)
U.S. Government-sponsored enterprises		$	—			$	—			$	—			$	—			$	—			$	—
Mortgage-backed securities			224				(1	)			4,143				(1,086	)			4,367				(1,087	)
State and political subdivisions			9,691				(79	)			15,820				(792	)			25,511				(871	)
Other securities			—				—				2,663				(76	)			2,663				(76	)
Total		$	9,915			$	(80	)		$	22,626			$	(1,954	)		$	32,541			$	(2,034	)

		December 31, 2009
		Less Than 12 Months								12 Months or More								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
		Value				Losses				Value				Losses				Value				Losses
		(In thousands)
U.S. Government-sponsored enterprises		$	41,078			$	(463	)		$	—			$	—			$	41,078			$	(463	)
Mortgage-backed securities			10,837				(205	)			4,411				(1,485	)			15,248				(1,690	)
State and political subdivisions			10,647				(146	)			17,957				(1,229	)			28,604				(1,375	)
Other securities			—				—				1,562				(1,350	)			1,562				(1,350	)
Total		$	62,562			$	(814	)		$	23,930			$	(4,064	)		$	86,492			$	( 4,878	)

4: Loans Receivable Not Covered by Loss Share and Allowance for Loan Losses

     The various categories of loans not covered by loss share are summarized as follows:

		June 30,				December 31,
		2010				2009
		(In thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential		$	823,465			$	808,983
Construction/land development			365,779				368,723
Agricultural			26,989				33,699
Residential real estate loans
Residential 1-4 family			376,196				382,504
Multifamily residential			65,147				62,609
Total real estate			1,657,576				1,656,518
Consumer			33,566				39,084
Commercial and industrial			222,403				219,847
Agricultural			23,307				10,280
Other			28,637				24,556
Loans receivable not covered by loss share		$	1,965,489			$	1,950,285

     The following is a summary of activity within the allowance for loan losses:

		2010				2009
		(In thousands)
Balance, beginning of year		$	42,968			$	40,385
Additions
Provision charged to expense			6,850				3,750
Net loans charged off
Losses charged to allowance, net of recoveries of $1,568 and $1,008 for the first six months of 2010 and 2009, respectively			6,204				2,331
Balance, June 30		$	43,614				41,804
Additions
Provision charged to expense							7,400
Net loans charged off
Losses charged to allowance, net of recoveries of $894 for the last six months of 2009							6,236
Balance, end of year						$	42,968

     At June 30, 2010 and December 31, 2009, accruing loans not covered by loss share delinquent 90 days or more totaled $53,000 and $2.9 million, respectively. Non-accruing loans not covered by loss share at June 30, 2010 and December 31, 2009 were $38.1 million and $37.1 million, respectively.

     During the three-month and six-month periods ended June 30, 2010, the Company sold $247.5 of the guaranteed portion of certain SBA loans, which resulted in a gain of $18,000. The Company did not sell any of the guaranteed portions of SBA loans during 2009.

     Mortgage loans held for sale of approximately $5.5 million and $4.8 million at June 30, 2010 and December 31, 2009, respectively, are included in residential 1-4 family loans. Mortgage loans held for sale are carried at the lower of cost or fair value, determined using an aggregate basis. Gains and losses resulting from sales of mortgage loans are recognized when the respective loans are sold to investors. Gains and losses are determined by the difference between the selling price and the carrying amount of the loans sold, net of discounts collected or paid. The Company obtains forward commitments to sell mortgage loans to reduce market risk on mortgage loans in the process of origination and mortgage loans held for sale. The forward commitments acquired by the Company for mortgage loans in process of origination are not mandatory forward commitments. These commitments are structured on a best efforts basis; therefore the Company is not required to substitute another loan or to buy back the commitment if the original loan does not fund. Typically, the Company delivers the mortgage loans within a few days after the loans are funded. These commitments are derivative instruments and their fair values at June 30, 2010 and December 31, 2009 were not material.

     At June 30, 2010 and December 31, 2009, non-covered impaired loans totaled $58.1 million and $44.4 million, respectively. As of June 30, 2010 and 2009, average non-covered impaired loans were $51.5 million and $38.3 million, respectively. All non-covered impaired loans had designated reserves for possible loan losses. Reserves relative to non-covered impaired loans were $21.4 million and $12.7 million at June 30, 2010 and December 31, 2009, respectively. Interest recognized on non-covered impaired loans during the six months ended June 30, 2010 and 2009 was approximately $1.2 million and $910,000, respectively.

5: Loans Receivable Covered by FDIC Loss Share

     The Company evaluated loans purchased in conjunction with the acquisitions of Old Southern and Key West described in Note 2, Business Combinations, for impairment in accordance with the provisions of FASB ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. Purchased covered loans are considered impaired if there is evidence of credit deterioration since origination and if it is probable that not all contractually required payments will be collected. The following table reflects the carrying value of all purchased covered impaired loans as of June 30, 2010 for both the Old Southern and Key West FDIC-assisted transactions:

		Loans
		Receivable
		Covered
		by FDIC
		Loss Share
		(In thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential		$	82,137
Construction/land development			65,330
Agricultural			1,637
Residential real estate loans
Residential 1-4 family			43,320
Multifamily residential			8,158
Total real estate			200,582
Consumer			271
Commercial and industrial			17,423
Agricultural			—
Other			7
Total loans receivable covered by FDIC loss share (1)		$	218,283

     The acquired loans were grouped into pools based on common risk characteristics and were recorded at their estimated fair values, which incorporated estimated credit losses at the acquisition dates. These loan pools are systematically reviewed by the Company to determine the risk of losses that may exceed those identified at the time of the acquisition. Techniques used in determining risk of loss are similar to the Centennial Bank non-covered loan portfolio, with most focus being placed on those loan pools which include the larger loan relationships and those loan pools which exhibit higher risk characteristics.

     The following is a summary of the covered impaired loans acquired in the acquisitions during 2010 as of the dates of acquisition.

		Old Southern				Key West
		(In thousands)
Contractually required principal and interest at acquisitions		$	301,797			$	100,146
Non-accretable difference (expected losses and foregone interest)			(93,930	)			(32,699	)
Cash flows expected to be collected at acquisition			207,867				67,447
Accretable yield			(28,802	)			(20,506	)
Basis in acquired loans at acquisition		$	179,065			$	46,941