News Column

RENASANT CORP - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

August 8, 2014

(In Thousands, Except Share Data) This Form 10-Q may contain or incorporate by reference statements regarding Renasant Corporation (referred to herein as the "Company", "we", "our", or "us") which may constitute "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. Such forward-looking statements usually include words such as "expects," "projects," "proposes," "anticipates," "believes," "intends," "estimates," "strategy," "plan," "potential," "possible" and other similar expressions. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties and that actual results may differ materially from those contemplated by such forward-looking statements. Important factors currently known to management that could cause actual results to differ materially from those in forward-looking statements include (1) the Company's ability to efficiently integrate acquisitions into its operations, retain the customers of these businesses and grow the acquired operations; (2) the effect of economic conditions and interest rates on a national, regional or international basis; (3) the timing of the implementation of changes in operations to achieve enhanced earnings or effect cost savings; (4) competitive pressures in the consumer finance, commercial finance, insurance, financial services, asset management, retail banking, mortgage lending and auto lending industries; (5) the financial resources of, and products available to, competitors; (6) changes in laws and regulations, including changes in accounting standards; (7) changes in policy by regulatory agencies; (8) changes in the securities and foreign exchange markets; (9) the Company's potential growth, including its entrance or expansion into new markets, and the need for sufficient capital to support that growth; (10) changes in the quality or composition of the Company's loan or investment portfolios, including adverse developments in borrower industries or in the repayment ability of individual borrowers; (11) an insufficient allowance for loan losses as a result of inaccurate assumptions; (12) general economic, market or business conditions; (13) changes in demand for loan products and financial services; (14) concentration of credit exposure; (15) changes or the lack of changes in interest rates, yield curves and interest rate spread relationships; and (16) other circumstances, many of which are beyond management's control. Management undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time. Financial Condition The following discussion provides details regarding the changes in significant balance sheet accounts at June 30, 2014 compared to December 31, 2013. Acquisition of First M&F Corporation On September 1, 2013, the Company completed its acquisition of First M&F Corporation ("First M&F") , a bank holding company headquartered in Kosciusko, Mississippi, and Renasant Bank (the "Bank") completed its acquisition of First M&F's wholly-owned subsidiary, Merchants and Farmers Bank. Prior to the merger, First M&F operated 35 full-service banking offices and eight insurance offices throughout Mississippi, Tennessee and Alabama. The Company issued approximately 6.2 million shares of its common stock for 100% of the voting equity interests in First M&F in a transaction valued at $156,845. Including the effect of purchase accounting adjustments, the Company acquired assets with a fair value of $1,516,603 including loans with a fair value of $899,236, and assumed liabilities with a fair value of $1,361,079, including deposits with a fair value of $1,325,872. In connection with the merger, approximately $91,512 of goodwill and $25,033 of core deposit intangible assets were recorded. See Note M, "Mergers and Acquisitions," in the Notes to Consolidated Financial Statements included in Item 1, "Financial Statements," for additional details regarding the Company's merger with First M&F. Assets Total assets were $5,826,020 at June 30, 2014 compared to $5,746,270 at December 31, 2013. Investments The securities portfolio is used to provide a source for meeting liquidity needs and to supply securities to be used in collateralizing certain deposits and other types of borrowings. The following table shows the carrying value of our securities portfolio by investment type and the percentage of such investment type relative to the entire securities portfolio as of the dates presented: 44



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Table of Contents Percentage of Percentage of June 30, 2014 Portfolio December 31, 2013 Portfolio Obligations of other U.S. Government agencies and corporations $ 131,688 13.07 % $ 131,129 13.72 % Obligations of states and political subdivisions 312,717 31.04 287,014 46.40 Mortgage-backed securities 521,458 51.77 453,644 33.78 Trust preferred securities 18,309 1.82 17,671 2.24 Other debt securities 18,701 1.86 19,554 3.40 Other equity securities 4,458 0.44 4,317 0.46 $ 1,007,331 100.00 % $ 913,329 100.00 % The balance of our securities portfolio at June 30, 2014 increased $94,002 to $1,007,331 from $913,329 at December 31, 2013. During the six months ended June 30, 2014, we purchased $251,965 in investment securities. Mortgage-backed securities and collateralized mortgage obligations ("CMOs"), in the aggregate, comprised 39.83%of the purchases. CMOs are included in the "Mortgage-backed securities" line item in the above table. The mortgage-backed securities and CMOs held in our investment portfolio are primarily issued by government sponsored entities. U.S. Government Agency securities and municipal securities accounted for 45.74% and 14.43%, respectively, of total securities purchased in the second quarter of 2014. There were no securities sold during the first six months of 2014. Maturities and calls of securities during the first six months of 2014 totaled $162,117. The Company holds investments in pooled trust preferred securities. This portfolio had a cost basis of $27,371 and $27,531 and a fair value of $18,309 and $17,671 at June 30, 2014 and December 31, 2013, respectively. The investment in pooled trust preferred securities consists of four securities representing interests in various tranches of trusts collateralized by debt issued by over 320 financial institutions. Management's determination of the fair value of each of its holdings is based on the current credit ratings, the known deferrals and defaults by the underlying issuing financial institutions and the degree to which future deferrals and defaults would be required to occur before the cash flow for our tranches is negatively impacted. The Company's quarterly evaluation of these investments for other-than-temporary-impairment resulted in no additional write-downs during the second quarter of 2014 or 2013. Furthermore, the Company's analysis of the pooled trust preferred securities during the current quarter supported a return to accrual status for two of the four securities. An observed history of interest payments combined with improved qualitative and quantitative factors described above justifies the accrual of interest on these securities going forward. However, the remaining two securities are still in "payment in kind" status where interest payments are not expected until a future date, and the Company's analysis of the qualitative and quantitative factors described above does not justify a return to accrual status. As such, these two securities were classified as nonaccruing with investment interest recorded on the cash-basis method. For more information about the Company's trust preferred securities, see Note B, "Securities," in the Notes to Consolidated Financial Statements of the Company in Item 1, "Financial Statements," in this report. Loans The table below sets forth the balance of loans outstanding by loan type and the percentage of each loan type to total loans as of the dates presented: Percentage of Percentage of June 30, 2014 Total Loans December 31, 2013 Total Loans Commercial, financial, agricultural $ 447,826 11.32 % $ 468,963 12.08 % Lease financing 1,767 0.05 52 - Real estate - construction 176,577 4.46 161,436 4.16 Real estate - 1-4 family mortgage 1,221,288 30.86 1,208,233 31.13 Real estate - commercial mortgage 2,015,319 50.92 1,950,572 50.26 Installment loans to individuals 94,753 2.39 91,762 2.37 Total loans, net of unearned income $ 3,957,530 100.00 % $ 3,881,018 100.00 % Loan concentrations are considered to exist when there are amounts loaned to a number of borrowers engaged in similar activities which would cause them to be similarly impacted by economic or other conditions. At June 30, 2014, there were no concentrations of loans exceeding 10% of total loans which are not disclosed as a category of loans separate from the categories listed above. Total loans at June 30, 2014 were $3,957,530, an increase of $76,512 from $3,881,018 at December 31, 2013. Loans covered under loss-share agreements with the FDIC (referred to as "covered loans") were $167,129 at June 30, 2014, a decrease of $14,545, or 8.01%, compared to $181,674 at December 31, 2013. For covered loans, the FDIC will reimburse Renasant Bank 80% of the 45



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losses incurred on these loans. Management intends to continue the Company's aggressive efforts to bring those covered loans that are commercial in nature to resolution and thus the balance of covered loans is expected to continue to decline. The loss-share agreements applicable to this portfolio provides reimbursement for five years from the acquisition date. Loans not covered under loss-share agreements with the FDIC at June 30, 2014 were $3,790,401, compared to $3,699,344 at December 31, 2013. Loans acquired from First M&F totaled $694,115 at June 30, 2014 compared to $813,543 at December 31, 2013. Excluding the loans acquired from First M&F, not covered loans increased $210,485 during the six months ended June 30, 2014. The increase in loans not covered under loss-share agreements was attributable to growth in owner and non-owner occupied commercial real estate loans and commercial loans, as well as loan production generated by our de novo expansion. Loans from our de novo locations in Columbus and Starkville, Mississippi, Tuscaloosa and Montgomery, Alabama and Maryville, Bristol, Jonesborough and Johnson City, Tennessee contributed $67,084 of the total increase in loans from December 31, 2013. During the first six months of 2014, loans in our de novo markets of Mississippi, Tennessee and Alabama , excluding the contribution from First M&F, increased $21,149, $23,674, $22,261, respectively. The following tables provide a breakdown of covered loans and loans not covered under loss-share agreements as of the dates presented: June 30, 2014 Acquired and Covered Under Acquired and Total Not Acquired Loss Share Non-covered Loans Commercial, financial, agricultural $ 365,262$ 7,677$ 74,887$ 447,826 Lease financing 1,767 - - 1,767 Real estate - construction: Residential 81,301 1,648 2,087 85,036 Commercial 90,456 - - 90,456 Condominiums 562 - 523 1,085 Total real estate - construction 172,319 1,648 2,610 176,577 Real estate - 1-4 family mortgage: Primary 550,943 16,203 141,323 708,469 Home equity 216,599 10,666 31,892 259,157 Rental/investment 152,233 17,937 28,107 198,277 Land development 46,771 4,810 3,804 55,385 Total real estate - 1-4 family mortgage 966,546 49,616 205,126 1,221,288 Real estate - commercial mortgage: Owner-occupied 603,868 52,366 197,323 853,557 Non-owner occupied 789,889 30,844 168,190 988,923 Land development 122,615 24,956 25,268 172,839 Total real estate - commercial mortgage 1,516,372 108,166 390,781 2,015,319 Installment loans to individuals 74,020 22 20,711 94,753



Total loans, net of unearned income $ 3,096,286$ 167,129

$ 694,115$ 3,957,530 46



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Table of Contents December 31, 2013 Acquired and Covered Under Acquired and Total Not Acquired Loss Share Non-covered Loans Commercial, financial, agricultural $ 341,600$ 9,546$ 117,817$ 468,963 Lease financing 52 - - 52 Real estate - construction: Residential 62,577 1,648 7,907 72,132 Commercial 84,498 - 4,279 88,777 Condominiums - - 527 527 Total real estate - construction 147,075 1,648 12,713 161,436 Real estate - 1-4 family mortgage: Primary 531,956 16,586 153,909 702,451 Home equity 196,387 13,167 34,482 244,036 Rental/investment 142,488 19,754 31,124 193,366 Land development 57,971 4,959 5,450 68,380 Total real estate - 1-4 family mortgage 928,802 54,466 224,965 1,208,233 Real estate - commercial mortgage: Owner-occupied 563,104 54,294 172,520 789,918 Non-owner occupied 727,744 31,855 229,559 989,158 Land development 113,769 29,837 27,890 171,496 Total real estate - commercial mortgage 1,404,617 115,986 429,969 1,950,572 Installment loans to individuals 63,655 28 28,079 91,762



Total loans, net of unearned income $ 2,885,801$ 181,674

$ 813,543$ 3,881,018

Mortgage loans held for sale were $28,116 at June 30, 2014 compared to $33,440 at December 31, 2013. Originations of mortgage loans to be sold totaled $254,578 in the six months ended June 30, 2014 compared to $374,448 for the same period in 2013. Mortgage rates in the latter half of 2011 declined to historic lows and remained at these historically low levels throughout the first quarter of 2013, which prompted a significant increase in refinancings and, thus mortgage originations during this time period. Beginning in the second quarter of 2013 and continuing through the second quarter of 2014, mortgage rates increased from these historically low levels, resulting in a slowdown in originations. The increase in mortgage rates could result in lower future mortgage originations as refinancings decrease. Mortgage loans to be sold are sold either on a "best efforts" basis or under a mandatory delivery sales agreement. Under a "best efforts" sales agreement, residential real estate originations are locked in at a contractual rate with third party private investors or directly with government sponsored agencies, and the Company is obligated to sell the mortgages to such investors only if the mortgages are closed and funded. The risk we assume is conditioned upon loan underwriting and market conditions in the national mortgage market. Under a mandatory delivery sales agreement, the Company commits to deliver a certain principal amount of mortgage loans to an investor at a specified price and delivery date. Penalties are paid to the investor if we fail to satisfy the contract. Gains and losses are realized at the time consideration is received and all other criteria for sales treatment have been met. These loans are typically sold within thirty days after the loan is funded. Although loan fees and some interest income are derived from mortgage loans held for sale, the main source of income is gains from the sale of these loans in the secondary market. Deposits The Company relies on deposits as its major source of funds. Total deposits were $4,886,731 and $4,841,912 at June 30, 2014 and December 31, 2013, respectively. Noninterest-bearing deposits were $902,766 and $856,020 at June 30, 2014 and December 31, 2013, respectively, while interest-bearing deposits were $3,983,965 and $3,985,892 at June 30, 2014 and December 31, 2013, respectively. The increase in total deposits at June 30, 2014 as compared to December 31, 2013 is primarily attributable to management's focus on growing and maintaining a stable source of funding, specifically core deposits, and allowing more costly deposits, including certain time deposits, to mature. The source of funds that we select depends on the terms and how those terms assist us in mitigating interest rate risk and maintaining our net interest margin. Accordingly, funds are only acquired when needed and at a rate that is prudent under the circumstances. Deposits from our de novo locations have also contributed to 47



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the increase in deposits during the first six months of 2014. Deposits from our de novo locations in Columbus and Starkville, Mississippi, Tuscaloosa and Montgomery, Alabama and Maryville and Jonesborough, Tennessee totaled $334,913 at June 30, 2014 representing an increase of $63,235 from December 31, 2013. Public fund deposits are those of counties, municipalities, or other political subdivisions and may be readily obtained based on the Company's pricing bid in comparison with competitors. Since public fund deposits are obtained through a bid process, these deposit balances may fluctuate as competitive and market forces change. The Company has focused on growing stable sources of deposits which has resulted in the Company relying less on public fund deposits. However, the Company continues to participate in the bidding process for public fund deposits. Our public fund transaction accounts are principally obtained from municipalities including school boards and utilities. Public fund deposits were $655,992 and $615,825 at June 30, 2014 and December 31, 2013, respectively. Deposits in our Alabama and Georgia markets decreased $26,060 and $33,594, respectively, at June 30, 2014 from December 31, 2013. Deposits in our Mississippi and Tennessee markets increased $69,738 and $19,558, respectively, at June 30, 2014 from December 31, 2013. Borrowed Funds Total borrowings include securities sold under agreements to repurchase, federal funds purchased, advances from the FHLB and junior subordinated debentures and are classified on the Consolidated Balance Sheets as either short-term borrowings or long-term debt. Short-term borrowings have original maturities less than one year and typically include securities sold under agreements to repurchase, federal funds purchased and FHLB advances. There was $25,505 of short-term borrowings on the balance sheet at June 30, 2014, which is an increase of $23,222 from December 31, 2013. The composition of our short-term borrowings was federal funds purchased of $20,100 and security repurchase agreements of $5,405 at June 30, 2014. At June 30, 2014, long-term debt totaled $164,325 compared to $169,592 at December 31, 2013. Funds are borrowed from the FHLB primarily to match-fund against certain loans, negating interest rate exposure when rates rise. Such match-funded loans are typically large, fixed rate commercial or real estate loans with long-term maturities. FHLB advances were $69,944 and $75,405 at June 30, 2014 and December 31, 2013, respectively. At June 30, 2014, $1,749 of the total FHLB advances outstanding were scheduled to mature within twelve (12) months or less. The Company had $1,603,437 of availability on unused lines of credit with the FHLB at June 30, 2014 compared to $1,595,864 at December 31, 2013. The cost of our FHLB advances was 4.15% and 4.25% for the first six months of 2014 and 2013, respectively. Results of Operations Three Months Ended June 30, 2014 as Compared to the Three Months Ended June 30, 2013 Net Income Net income for the three month period ended June 30, 2014 was $14,853 compared to net income of $8,019 for the three month period ended June 30, 2013. Basic and diluted earnings per share for the three month period ended June 30, 2014 were $0.47 as compared to $0.32 for the three month period ended June 30, 2013. The increase in net income and earnings per share in the second quarter of 2014 as compared to the second quarter of 2013 was due primarily to the acquisition of First M&F, improvement in our net interest margin and continued improvement in our credit risk profile. Net Interest Income Net interest income, the difference between interest earned on assets and the cost of interest-bearing liabilities, is the largest component of our net income, comprising 73.46% of total net revenue for the second quarter of 2014. Total net revenue consists of net interest income on a fully taxable equivalent basis and noninterest income. The primary concerns in managing net interest income are the volume, mix and repricing of assets and liabilities. Net interest income increased to $52,169 for the second quarter of 2014 compared to $34,404 for the same period in 2013. On a tax equivalent basis, net interest income was $53,893 for the second quarter of 2014 as compared to $35,790 for the second quarter 2013. Net interest margin, the tax equivalent net yield on earning assets, increased to 4.24% during the second quarter of 2014 compared to 3.87% for the second quarter 2013. Net interest margin and net interest income are influenced by internal and external factors. Internal factors include balance sheet changes on both volume and mix and pricing decisions. External factors include changes in market interest rates, competition and the shape of the interest rate yield curve. 48



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The following table sets forth average balance sheet data, including all major categories of interest-earning assets and interest-bearing liabilities, together with the interest earned or interest paid and the average yield or average rate paid on each such category for the periods presented: Three Months Ended June 30, 2014 2013 Interest Interest Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Balance Expense Rate Assets Interest-earning assets: Loans(1) $ 3,923,031$ 51,561 5.27 % $ 2,877,578$ 34,721 4.82 % Securities: Taxable(2) 721,841 4,340 2.41 536,113 3,408 2.68 Tax-exempt 305,107 4,037 5.29 218,401 3,148 5.76 Interest-bearing balances with banks 150,854 63 0.17 63,316 54 0.34 Total interest-earning assets 5,100,833 60,001 4.72 3,695,408 41,331 4.47 Cash and due from banks 88,131 51,523 Intangible assets 302,181 190,362 FDIC loss-share indemnification asset 23,742 32,584 Other assets 321,720 262,069 Total assets $ 5,836,607$ 4,231,946 Liabilities and shareholders' equity Interest-bearing liabilities: Deposits: Interest-bearing demand(3) $ 2,228,295$ 1,111 0.20 % $ 1,480,177$ 935 0.25 % Savings deposits 348,156 75 0.09 254,247 126 0.20 Time deposits 1,444,302 2,950 0.82 1,219,012 3,034 1.00 Total interest-bearing deposits 4,020,753 4,136 0.41 2,953,436 4,095 0.56 Borrowed funds 169,373 1,972 4.66 164,894 1,446 3.51 Total interest-bearing liabilities 4,190,126 6,108 0.58 3,118,330 5,541 0.71 Noninterest-bearing deposits 905,180 562,104 Other liabilities 54,506 45,289 Shareholders' equity 686,794 506,225 Total liabilities and shareholders' equity $ 5,836,606$ 4,231,948 Net interest income/net interest margin $ 53,893 4.24 % $ 35,790 3.87 %



(1) Includes mortgage loans held for sale and shown net of unearned income.

(2) U.S. Government and some U.S. Government agency securities are tax-exempt in

the states in which we operate.

(3) Interest-bearing demand deposits include interest-bearing transactional

accounts and money market deposits.

The average balances of nonaccruing assets are included in the table above. Interest income and weighted average yields on tax-exempt loans and securities have been computed on a fully tax equivalent basis assuming a federal tax rate of 35% and a state tax rate of 3.3%, which is net of federal tax benefit. 49



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The following table sets forth a summary of the changes in interest earned, on a tax equivalent basis, and interest paid resulting from changes in volume and rates for the Company for the second quarter of 2014 compared to the second quarter 2013: Volume Rate Net(1) Interest income: Loans (2) $ 13,397$ 3,443$ 16,840 Securities: Taxable 1,314 (382 ) 932 Tax-exempt 1,119 (230 ) 889



Interest-bearing balances with banks 14 (5 ) 9 Total interest-earning assets 15,844 2,826 18,670 Interest expense: Interest-bearing demand deposits 291 (115 ) 176 Savings deposits

104 (155 ) (51 ) Time deposits 512 (596 ) (84 ) Borrowed funds 40 486 526



Total interest-bearing liabilities 947 (380 ) 567 Change in net interest income $ 14,897$ 3,206$ 18,103

(1) Changes in interest due to both volume and rate have been allocated on a pro-rata basis using the absolute ratio value of amounts calculated.



(2) Includes mortgage loans held for sale and shown net of unearned income.

Interest income, on a tax equivalent basis, was $60,001 for the second quarter of 2014 compared to $41,331 for the same period in 2013. This increase in interest income, on a tax equivalent basis, is due primarily to the acquisition of First M&F which contributed to an increase in average earning assets. The following table presents the percentage of total average earning assets, by type and yield, for the periods presented: Percentage of Total Yield Three Months Ended Three Months Ended June 30, June 30, 2014 2013 2014 2013 Loans 76.91 % 77.87 % 5.27 % 4.82 % Securities 20.13 20.42 3.27 3.49 Other 2.96 1.71 0.17 0.34 Total earning assets 100.00 % 100.00 % 4.72 % 4.47 % For the second quarter of 2014, loan income, on a tax equivalent basis, increased $16,840 to $51,561 from $34,721 compared to the same period in 2013. The average balance of loans increased $1,045,453 from second quarter of 2014 compared to the second quarter 2013 due in large part to the First M&F merger and organic loan growth. The tax equivalent yield on loans was 5.27%, a 45 basis point increase from the second quarter 2013. The increase in loan yields was a result of accretion of nonaccretable difference due to higher than expected levels of payoffs from the First M&F portfolio, offset partially by replacing higher rate maturing loans with new or renewed loans at current market rates which are generally lower due to the current interest rate environment. The accelerated accretion on the acquired First M&F portfolio produced by higher levels of payoffs increased our loan yield by 36 basis points and increased the net interest margin by 28 basis points for the second quarter of 2014. Investment income, on a tax equivalent basis, increased $1,821 to $8,377 for the second quarter of 2014 from $6,556 for the second quarter of 2013. The average balance in the investment portfolio for the second quarter of 2014 was $1,026,948 compared to $754,514 for the same period in 2013. The increase in the average balance of the investment portfolio is due primarily to the First M&F merger. The tax equivalent yield on the investment portfolio for the second quarter of 2014 was 3.27%, down 22 basis points from the same period in 2013. The decline in yield was a result of the reinvestment of cash flows from the Company's portfolio that had higher rates than the rates on the securities that the Company purchased with the proceeds the Company received from 50



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the maturity or call of the securities with higher rates. The reinvestment rates on securities were lower due to the generally lower interest rate environment.

Interest expense was $6,108 for the second quarter of 2014 as compared to $5,541 for the same period in 2013. The increase in interest expense was due to an increase in average balance of interest bearing liabilities due to the First M&F merger partially offset by a decrease in the cost of interest-bearing liabilities as a result of the declining interest rate environment and a change in the mix of our interest-bearing liabilities in which we utilized lower cost deposits to replace higher costing liabilities, specifically time deposits and borrowed funds. The cost of interest-bearing liabilities was 0.58% for the three months ended June 30, 2014 as compared to 0.71% at June 30, 2013.



The following table presents, by type, the Company's funding sources, which consist of total average deposits and borrowed funds, and the total cost of each funding source for the periods presented:

Percentage of Total Cost of Funds Three Months Ended Three Months Ended June 30, June 30, 2014 2013 2014 2013 Noninterest-bearing demand 17.76 % 15.27 % - % - % Interest-bearing demand 43.73 40.22 0.20 0.25 Savings 6.83 6.91 0.09 0.20 Time deposits 28.35 33.12 0.82 1.00



Federal Home Loan Bank advances 1.38 2.12 4.15

4.23

Other borrowed funds 1.95 2.36 5.03



2.87

Total deposits and borrowed funds 100.00 % 100.00 % 0.48 %

0.60 %

Interest expense on deposits was $4,136 and $4,095 for the second quarter of 2014 and 2013, respectively. The cost of interest-bearing deposits was 0.41% and 0.56% for the same periods. Interest expense on total borrowings was $1,972 and $1,446 for the second quarter of 2014 and 2013, respectively. A more detailed discussion of the cost of our funding sources is set forth below under the heading "Liquidity and Capital Resources" in this item.



Noninterest Income

Noninterest Income to Average Assets (Excludes securities gains/losses) Three Months Ended June 30, 2014 2013 1.34% 1.64% Total noninterest income includes fees generated from deposit services, mortgage loan originations, insurance products, trust and other wealth management products and services, security gains and all other noninterest income. Our focus is to develop and enhance our products that generate noninterest income in order to diversify our revenue sources. Noninterest income was $19,471 for the second quarter of 2014 as compared to $17,317 for the same period in 2013. The increase in noninterest income and its related components is primarily attributable to the First M&F acquisition and is offset by declines in mortgage related income. Service charges on deposit accounts include maintenance fees on accounts, per item charges, account enhancement charges for additional packaged benefits and overdraft fees. Service charges on deposit accounts were $6,193 and $4,509 for the second quarter of 2014 and 2013, respectively. Overdraft fees, the largest component of service charges on deposits, were $4,644 for the three months ended June 30, 2014 compared to $3,504 for the same period in 2013. The increase in service charge revenues is primarily a result of the First M&F acquisition. Fees and commissions increased to $5,515 during the second quarter of 2014 as compared to $4,848 for the same period in 2013. Fees and commissions include fees related to deposit services, such as interchange fees on debit card transactions, as well as fees charged on mortgage loans originated to be sold, such as origination, underwriting, documentation and other administrative fees. Mortgage loan fees decreased to $1,868 during the second quarter of 2014 as compared to $1,980 for the same period in 2013 as a direct result of the lower levels of mortgage originations between the periods. For the second quarter of 2014, fees associated with debit card usage were $3,017 as compared to $2,198 for the same period in 2013. 51



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Table of Contents Through Renasant Insurance, we offer a range of commercial and personal insurance products through major insurance carriers. Income earned on insurance products was $2,088 and $951 for the three months ended June 30, 2014 and 2013, respectively. Contingency income is a bonus received from the insurance underwriters and is based both on commission income and claims experience on our clients' policies during the previous year. Contingency income, which is included in "Other noninterest income" in the Consolidated Statements of Income, was $57 and $25 for the three months ended June 30, 2014 and 2013, respectively. The First M&F acquisition is the primary factor contributing to the increase in insurance commissions and contingency income for 2014. The Trust division within the Wealth Management segment operates on a custodial basis which includes administration of benefit plans, as well as accounting and money management for trust accounts. The division manages a number of trust accounts inclusive of personal and corporate benefit accounts, self-directed IRAs, and custodial accounts. Fees for managing these accounts are based on changes in market values of the assets under management in the account, with the amount of the fee depending on the type of account. Additionally, the Financial Services division within the Wealth Management segment provides specialized products and services to our customers, which include fixed and variable annuities, mutual funds, and stocks offered through a third party provider. Wealth Management revenue was $2,170 for the second quarter of 2014 compared to $1,715 for the same period in 2013. The market value of trust assets under management was $2,653,957 and $2,404,016 at June 30, 2014 and June 30, 2013, respectively. Gains on the sale of mortgage loans held for sale were $2,006 and $3,870 for the three months ended June 30, 2014 and 2013, respectively. Originations of mortgage loans to be sold totaled $150,225 for the second quarter of 2014 as compared to $215,307 for the same period of 2013. Noninterest Expense



Noninterest Expense to Average Assets

Three Months Ended June 30, 2014 2013 3.39% 3.54% Noninterest expense was $49,396 and $37,734 for the second quarter of 2014 and 2013, respectively. The increase in noninterest expense and its related components is primarily attributable to the First M&F acquisition. Merger expense related to the First M&F acquisition were $385 for the three months ended June 30, 2013. There were no merger related expenses for the same period in 2014.



Salaries and employee benefits increased $7,904 to $29,810 for the second quarter of 2014 as compared to $21,906 for the same period in 2013, which is a result of the merger with First M&F.

Data processing costs increased to $2,850 in the second quarter of 2014 from $2,045 for the same period in 2013. The increase for the second quarter of 2014 as compared to the same period in 2013 was attributable to the addition of the First M&F deposit and loan customer databases, offset by cost savings achieved through efforts to improve the cost structure of loan and deposit processing by renegotiating contracts with data processing service providers.



Net occupancy and equipment expense for the second quarter of 2014 was $4,906, up from $3,668 for the same period in 2013.

Expenses related to other real estate owned for the second quarter of 2014 were $1,068 compared to $1,773 for the same period in 2013. Expenses on other real estate owned for the second quarter of 2014 included write downs of $207 of the carrying value to fair value on certain pieces of property held in other real estate owned. Other real estate owned with a cost basis of $8,769 was sold during the three months ended June 30, 2014, resulting in a net loss of $102. Expenses on other real estate owned for the three months ended June 30, 2013 included a $1,249 write down of the carrying value to fair value on certain pieces of property held in other real estate owned. Other real estate owned with a cost basis of $15,489 was sold during the three months ended June 30, 2013, resulting in a net gain of $252. 52



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Professional fees include fees for legal and accounting services. Professional fees were $1,389 for the second quarter of 2014 as compared to $1,304 for the same period in 2013. The increase in professional fees is in large part attributable to additional legal, accounting and consulting fees associated with compliance costs of newly enacted as well as existing banking and governmental regulation. Professional fees attributable to legal fees associated with loan workouts and foreclosure proceedings remain at higher levels in correlation with the overall economic downturn and credit deterioration identified in our loan portfolio and the Company's efforts to bring these credits to resolution.



Advertising and public relations expense was $1,888 for the second quarter of 2014 compared to $1,246 for the same period in 2013.

Amortization of intangible assets totaled $1,427 and $314 for the second quarter of 2014 and 2013, respectively. This amortization relates to finite-lived intangible assets which are being amortized over the useful lives as determined at acquisition. These finite-lived intangible assets have remaining estimated useful lives ranging from one and a half to thirteen years. The increase in amortization of intangible assets is attributable to amortization of finite-lived intangible assets associated with the acquisition of First M&F. Communication expenses, those expenses incurred for communication to clients and between employees, were $1,701 for the second quarter of 2014 as compared to $1,135 for the same period in 2013. Efficiency Ratio Three Months Ended June 30, 2014 2013 67.33% 71.05% The efficiency ratio is one measure of productivity in the banking industry. This ratio is calculated to measure the cost of generating one dollar of revenue. That is, the ratio is designed to reflect the percentage of one dollar which must be expended to generate that dollar of revenue. The Company calculates this ratio by dividing noninterest expense by the sum of net interest income on a fully tax equivalent basis and noninterest income. We remain committed to aggressively managing our costs within the framework of our business model. We expect the efficiency ratio to continue to improve from levels reported in 2013 and 2012 from incremental revenue driven by growth from the additional markets added via the First M&F acquisition and the maturity of the Company's de novo locations and continued reduction in credit related expenses as credit quality improves.



Income Taxes

Income tax expense for the second quarter of 2014 and 2013 was $5,941 and $2,968, respectively. The effective tax rates for those periods were 28.57% and 27.01%, respectively. The increased effective tax rate for the second quarter of 2014 as compared to the same period in 2013 is the result of the Company experiencing improvements in its financial results throughout 2013 and into the second quarter of 2014 resulting higher levels of taxable income. Results of Operations Six Months Ended June 30, 2014 as Compared to the Six Months Ended June 30, 2013 Net Income Net income for the six months ended June 30, 2014 was $28,450 compared to net income of $15,590 for the six months ended June 30, 2013. Basic and diluted earnings per share for the six months ended June 30, 2014 were $0.90 as compared to $0.62 for the six months ended June 30, 2013. The increase in net income and earnings per share in six months ended June 30, 2014 as compared to the six months ended June 30, 2013 was due primarily to the acquisition of First M&F, improvement in our net interest margin and continued improvement in our credit risk profile. 53



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Net Interest Income

Net interest income increased to $102,140 for the six months ended June 30, 2014 compared to $67,785 for the same period in 2013. On a tax equivalent basis, net interest income was $105,498 for the six months ended June 30, 2014 as compared to $70,597 for the six months ended June 30, 2013. Net interest margin, the tax equivalent net yield on earning assets, increased to 4.12% during the six months ended 2014 compared to 3.89% for the six months ended 2013. Net interest margin and net interest income are influenced by internal and external factors. Internal factors include balance sheet changes on both volume and mix and pricing decisions. External factors include changes in market interest rates, competition and the shape of the interest rate yield curve. The following table sets forth average balance sheet data, including all major categories of interest-earning assets and interest bearing liabilities, together with the interest earned or interest paid and the average yield or average rate paid on each such category for the periods presented: Six Months Ended June 30, 2014 2013 Interest Interest Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Balance Expense Rate Assets Interest-earning assets: Loans(1) $ 3,930,468$ 101,277 5.20 % $ 2,852,411$ 69,045 4.88 % Securities: Taxable(2) 716,852 8,317 2.32 % 505,801 6,176 2.46 Tax-exempt 297,803 7,956 5.34 221,042 6,379 5.82 Interest-bearing balances with banks 218,490 262 0.24 84,009 102 0.24 Total interest-earning assets 5,163,613 117,812 4.60 3,663,263 81,702 4.50 Cash and due from banks 90,840 54,938 Intangible assets 302,886 190,573 FDIC loss-share indemnification asset 24,521 38,405 Other assets 300,133 272,071 Total assets $ 5,927,884$ 4,219,250 Liabilities and shareholders' equity Interest-bearing liabilities: Deposits: Interest-bearing demand(3) $ 2,235,641$ 2,247 0.20 % $ 1,486,173$ 1,857 0.25 Savings deposits 342,437 146 0.09 250,545 246 0.20 Time deposits 1,469,522 6,116 0.84 1,211,651 6,072 1.01 Total interest-bearing deposits 4,047,601 8,509 0.42 2,948,369 8,175 0.56 Borrowed funds 169,730 3,805 4.51 164,440 2,930 3.59 Total interest-bearing liabilities 4,217,331 12,314 0.59 3,112,809 11,105 0.72 Noninterest-bearing deposits 927,126 555,844 Other liabilities 37,005 46,655 Shareholders' equity 679,959 503,942 Total liabilities and shareholders' equity $ 5,861,421$ 4,219,250 Net interest income/net interest margin $ 105,498 4.12 % $ 70,597 3.89 %



(1) Includes mortgage loans held for sale and shown net of unearned income.

(2) U.S. Government and some U.S. Government agency securities are tax-exempt in

the states in which we operate.

(3) Interest-bearing demand deposits include interest-bearing transactional

accounts and money market deposits. 54



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The average balances of nonaccruing assets are included in the table above. Interest income and weighted average yields on tax-exempt loans and securities have been computed on a fully tax equivalent basis assuming a federal tax rate of 35% and a state tax rate of 3.3%, which is net of federal tax benefit. The following table sets forth a summary of the changes in interest earned, on a tax equivalent basis, and interest paid resulting from changes in volume and rates for the Company for the six months ended June 30, 2014 compared to the same period in 2013: Volume Rate Net(1) Interest income: Loans (2) $ 27,467$ 4,765$ 32,232 Securities: Taxable 2,479 (338 ) 2,141 Tax-exempt 2,068 (491 ) 1,577



Interest-bearing balances with banks 160 - 160 Total interest-earning assets 32,174 3,936 36,110 Interest expense: Interest-bearing demand deposits 646 (256 ) 390 Savings deposits

200 (300 ) (100 ) Time deposits 1,165 (1,121 ) 44 Borrowed funds 98 777 875



Total interest-bearing liabilities 2,109 (900 ) 1,209 Change in net interest income $ 30,065$ 4,836$ 34,901

(1) Changes in interest due to both volume and rate have been allocated on a

pro-rata basis using the absolute ratio value of amounts calculated.

(2) Includes mortgage loans held for sale and shown net of unearned income.

Interest income, on a tax equivalent basis, was $117,812 for the six months ended June 30, 2014 compared to $81,702 for the same period in 2013. This increase in interest income, on a tax equivalent basis, is due primarily to the acquisition of First M&F which contributed to an increase in average earning assets. The following table presents the percentage of total average earning assets, by type and yield, for the periods presented: Percentage of Total Yield Six Months Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013 Loans 76.12 % 77.87 % 5.20 % 4.88 % Securities 19.65 19.84 3.23 3.48 Other 4.23 2.29 0.24 0.24 Total earning assets 100.00 % 100.00 % 4.60 % 4.50 % For the six months ending June 30, 2014, loan income, on a tax equivalent basis, increased $32,232 to $101,277 from $69,045 in the same period in 2013. The average balance of loans increased $1,078,057 for the six months ended June 30, 2014 compared to the same period in 2013 due in large part to the First M&F merger. The tax equivalent yield on loans was 5.20% for the first half of 2014, a 32 basis point increase from the same period in 2013. The increase in loan yields was a result of accelerated accretion of nonaccretable difference due to higher than expected levels of payoffs from the First M&F portfolio, offset partially by replacing higher rate maturing loans with new or renewed loans at current market rates which are generally lower due to the current interest rate environment. The accelerated accretion on the acquired M&F portfolio increased our loan yield by 32 basis points and increased the net interest margin by 24 basis points for the first six months of 2014. Investment income, on a tax equivalent basis, increased $3,718 to $16,273 for the six months ended June 30, 2014 from $12,555 for the same period, 2013. The average balance in the investment portfolio for the six months ended June 30, 2014 was $1,014,655 55



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compared to $726,843 for the same period in 2013. The increase in the average balance of the investment portfolio is due primarily to the First M&F merger. The tax equivalent yield on the investment portfolio for the first six months of 2014 was 3.23%, down 25 basis points from the same period in 2013. The decline in yield was a result of the reinvestment of cash flows from the Company's portfolio that had higher rates than the rates on the securities that the Company purchased with the proceeds the Company received from the maturity or call of the securities with higher rates. The reinvestment rates on securities were lower due to the generally lower interest rate environment. Interest expense for the six months ended June 30, 2014 was $12,314 as compared to $11,105 for the same period in 2013. The increase in interest expense was due to an increase in the average balance of interest bearing liabilities due to the First M&F merger partially offset by a decrease in the cost of interest-bearing liabilities as a result of the declining interest rate environment and a change in the mix of our interest-bearing liabilities in which we utilized lower cost deposits to replace higher costing liabilities, specifically time deposits and borrowed funds. The cost of interest-bearing liabilities was 0.59% for the six months ended June 30, 2014 as compared to 0.72% for the same period end, June 30, 2013.



The following table presents, by type, the Company's funding sources, which consist of total average deposits and borrowed funds, and the total cost of each funding source for the periods presented:

Percentage of Total Cost of Funds Six Months Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013 Noninterest-bearing demand 18.02 % 15.15 % - % - % Interest-bearing demand 43.46 40.51 0.20 0.25 Savings 6.65 6.83 0.09 0.20 Time deposits 28.57 33.03 0.84 1.01



Federal Home Loan Bank advances 1.41 2.26 4.17 4.11 Other borrowed funds

1.89 2.22 4.76



3.07

Total deposits and borrowed funds 100.00 % 100.00 % 0.48 % 0.61 %

Interest expense on deposits was $8,509 and $8,175 for the six months ended June 30, 2014 and 2013, respectively. The cost of interest bearing deposits was 0.42% and 0.56% for the same periods. Interest expense on total borrowings was $3,805 and $2,930 for the first six months of June 30, 2014 and 2013, respectively. A more detailed discussion of the cost of our funding sources is set forth below under the heading "Liquidity and Capital Resources" in this item.



Noninterest Income

Noninterest Income to Average Assets (Excludes securities gains/losses) Six Months Ended June 30, 2014 2013 1.31% 1.66% Noninterest income was $38,087 for the six months ended June 30, 2014 as compared to $34,695 for the same period in 2013. The increase in noninterest income and its related components is primarily attributable to the First M&F acquisition. Service charges on deposit accounts include maintenance fees on accounts, per item charges, account enhancement charges for additional packaged benefits and overdraft fees. Service charges on deposit accounts were $12,109 and $9,009 for the six months ended June 30, 2014 and 2013, respectively. Overdraft fees, the largest component of service charges on deposits, were $9,275 for the six months ended June 30, 2014 compared to $7,118 for the same period in 2013. The increase in service charge revenues is primarily a result of the First M&F acquisition. Fees and commissions increased to $10,487 for the first six months of June 30, 2014 as compared to $9,679 for the same period in 2013. Fees and commissions include fees related to deposit services, such as interchange fees on debit card transactions, as well as fees charged on mortgage loans originated to be sold, such as origination, underwriting, documentation and other administrative fees. Mortgage loan fees decreased to $3,313 during the six months ended June 30, 2014 as compared to $3,737 for the same 56



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period in 2013 as a direct result of the lower levels of mortgage originations between the periods. Fees associated with debit card usage were $5,747 for the first six months of 2014 as compared to $4,253 for the same period in 2013. Through Renasant Insurance, we offer a range of commercial and personal insurance products through major insurance carriers. Income earned on insurance products was $3,951 and $1,812 for the six months ended June 30, 2014 and 2013, respectively. Contingency income, which is included in "Other noninterest income" in the Consolidated Statements of Income, was $528 and $162 for the six months ended June 30, 2014 and 2013, respectively. The First M&F acquisition is a significant contributing factor to the increase in insurance commissions and contingency income for 2014. The Trust division within the Wealth Management segment operates on a custodial basis which includes administration of benefit plans, as well as accounting and money management for trust accounts. The division manages a number of trust accounts inclusive of personal and corporate benefit accounts, self-directed IRAs, and custodial accounts. Fees for managing these accounts are based on changes in market values of the assets under management in the account, with the amount of the fee depending on the type of account. Additionally, the Financial Services division within the Wealth Management segment provides specialized products and services to our customers, which include fixed and variable annuities, mutual funds, and stocks offered through a third party provider. Wealth Management revenue was $4,314 for the six months ended June 30, 2014 compared to $3,439 for the same period in 2013. The market value of trust assets under management was $2,653,957 and $2,404,016 at June 30, 2014 and June 30, 2013, respectively. Gains on sales of securities for the six months ended June 30, 2013 were $54, resulting from the sale of approximately $13,420 in securities. The Company did not sell any securities during the six months ended June 30, 2014. Gains on the sale of mortgage loans held for sale were $3,591 and $7,435 for the six months ended June 30, 2014 and 2013, respectively. Originations of mortgage loans to be sold totaled $254,578 for the six months ended June 30, 2014 as compared to $374,448 for the same period of 2013. Noninterest Expense



Noninterest Expense to Average Assets

Six Months Ended June 30, 2014 2013 3.33% 3.60% Noninterest expense was $97,041 and $75,334 for the six months ended June 30, 2014 and 2013, respectively. The increase in noninterest expense and its related components is primarily attributable to the First M&F acquisition. Merger expense related to the First M&F acquisition was $195 for the six months ended June 30, 2014 compared to $385 for the same period in 2013. Salaries and employee benefits increased $15,058 to $58,238 for the six months ended June 30, 2014 as compared to $43,180 for the same period in 2013, which is a result of the merger with First M&F. Data processing costs increased to $5,545 in the six months ended June 30, 2014 from $4,088 for the same period in 2013. The increase for the six months ended June 30, 2014 as compared to the same period in 2013 was attributable to the addition of the First M&F deposit and loan customer databases, offset by cost savings achieved through efforts to improve the cost structure of loan and deposit processing by renegotiating contracts with data processing service providers.



Net occupancy and equipment expense for the first six months of 2014 was $9,753, up from $7,276 for the same period in 2013.

Expenses related to other real estate owned for the first six months of 2014 were $2,769 compared to $3,822 for the same period in 2013. Expenses on other real estate owned for the six months ended June 30, 2014 included write downs of $1,045 of the carrying value to fair value on certain pieces of property held in other real estate owned. Other real estate owned with a cost basis of $14,342 was sold during the six months ended June 30, 2014, resulting in a net gain of $12. Expenses on other real estate owned for the six months ended June 30, 2013 included a $2,235 write down of the carrying value to fair value on certain pieces of property held in other real estate owned. Other real estate owned with a cost basis of $33,311 was sold during the six months ended June 30, 2013, resulting in a net loss of $218. Professional fees include fees for legal and accounting services. Professional fees were $2,589 for the six months ended June 30, 2014 as compared to $2,477 for the same period in 2013. The increase in professional fees is in large part attributable to additional 57



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legal, accounting and consulting fees associated with compliance costs of newly enacted as well as existing banking and governmental regulation. Professional fees attributable to legal fees associated with loan workouts and foreclosure proceedings remain at higher levels in correlation with the overall economic downturn and credit deterioration identified in our loan portfolio and the Company's efforts to bring these credits to resolution.



Advertising and public relations expense was $3,416 for the six months ended June 30, 2014 compared to $2,736 for the same period in 2013.

Amortization of intangible assets totaled $2,898 and $637 for the six months ended June 30, 2014 and 2013, respectively. This amortization relates to finite-lived intangible assets which are being amortized over the useful lives as determined at acquisition. These finite-lived intangible assets have remaining estimated useful lives ranging from one and a half to thirteen years. The increase in amortization of intangible assets is attributable to amortization of finite-lived intangible assets associated with the acquisition of First M&F.



Communication expenses, those expenses incurred for communication to clients and between employees, were $3,383 for the six months ended June 30, 2014 as compared to $2,262 for the same period in 2013.

Efficiency Ratio Six Months Ended June 30, 2014 2013 67.58% 71.55% The efficiency ratio is one measure of productivity in the banking industry. This ratio is calculated to measure the cost of generating one dollar of revenue. That is, the ratio is designed to reflect the percentage of one dollar which must be expended to generate that dollar of revenue. The Company calculates this ratio by dividing noninterest expense by the sum of net interest income on a fully tax equivalent basis and noninterest income. We remain committed to aggressively managing our costs within the framework of our business model. We expect the efficiency ratio to continue to improve from levels reported in 2013 and 2012 from incremental revenue driven by growth from the additional markets added via the First M&F acquisition in 2013 and the maturity of the Company's de novo locations and continued reduction in credit related expenses as credit quality improves.



Income Taxes

Income tax expense for the six months ended June 30, 2014 and 2013 was $11,836 and $5,506, respectively. The effective tax rates for those periods were 29.38% and 26.10%, respectively. The increased effective tax rate for the six months ended June 30, 2014 as compared to the same period in 2013 is the result of the Company experiencing improvements in its financial results throughout 2013 and into the six months ended June 30, 2014 resulting in higher levels of taxable income. Risk Management The management of risk is an on-going process. Primary risks that are associated with the Company include credit, interest rate and liquidity risk. Credit risk and interest rate risk are discussed below, while liquidity risk is discussed in the next subsection under the heading "Liquidity and Capital Resources." Credit Risk and Allowance for Loan Losses Inherent in any lending activity is credit risk, that is, the risk of loss should a borrower default. Credit risk is monitored and managed on an ongoing basis by a credit administration department, senior loan committee, a loss management committee and the Board of Directors loan committee. Credit quality, adherence to policies and loss mitigation are major concerns of credit administration and these committees. The Company's central appraisal review department reviews and approves third-party appraisals obtained by the Company on real estate collateral and monitors loan maturities to ensure updated appraisals are obtained. This department is managed by a licensed real estate appraiser and employs an additional three licensed appraisers. We have a number of documented loan policies and procedures that set forth the approval and monitoring process of the lending function. Adherence to these policies and procedures is monitored by management and the Board of Directors. A number of committees and an underwriting staff oversee the lending operations of the Company. These include in-house loan and loss 58



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management committees and the Board of Directors loan committee and problem loan review committee. In addition, we maintain a loan review staff to independently monitor loan quality and lending practices. Loan review personnel monitor and, if necessary, adjust the grades assigned to loans through periodic examination, focusing its review on commercial and real estate loans rather than consumer and consumer mortgage loans. In compliance with loan policy, the lending staff is given lending limits based on their knowledge and experience. In addition, each lending officer's prior performance is evaluated for credit quality and compliance as a tool for establishing and enhancing lending limits. Before funds are advanced on consumer and commercial loans below certain dollar thresholds, loans are reviewed and scored using centralized underwriting methodologies. Loan quality or "risk-rating" grades are assigned based upon certain factors, which include the scoring of the loans. This information is used to assist management in monitoring the credit quality. Loan requests of amounts greater than an officer's lending limits are reviewed by senior credit officers, in-house loan committees or the Board of Directors. For commercial and commercial real estate secured loans, risk-rating grades are assigned by lending, credit administration or loan review personnel, based on an analysis of the financial and collateral strength and other credit attributes underlying each loan. Loan grades range from 1 to 9, with 1 being loans with the least credit risk. Allowance factors established by management are applied to the total balance of loans in each grade to determine the amount needed in the allowance for loan losses. The allowance factors are established based on historical loss ratios experienced by the Company for these loan types, as well as the credit quality criteria underlying each grade, adjusted for trends and expectations about losses inherent in our existing portfolios. In making these adjustments to the allowance factors, management takes into consideration factors which it believes are causing, or are likely in the future to cause, losses within our loan portfolio but which may not be fully reflected in our historical loss ratios. For portfolio balances of consumer, consumer mortgage and certain other similar loan types, allowance factors are determined based on historical loss ratios by portfolio for the preceding eight quarters and may be adjusted by other qualitative criteria. The loss management committee and the Board of Directors' problem loan review committee monitor loans that are past due or those that have been downgraded and placed on the Company's internal watch list due to a decline in the collateral value or cash flow of the debtor; the committees then adjust loan grades accordingly. This information is used to assist management in monitoring credit quality. In addition, the Company's portfolio management committee monitors and identifies risks within the Company's loan portfolio by focusing its efforts on reviewing and analyzing loans which are not on the Company's internal watch list. The portfolio management committee monitors loans in portfolios or regions which management believes could be stressed or experiencing credit deterioration. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. Impairment is measured on a loan-by-loan basis for problem loans of $500 or greater by either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's obtainable market price or the fair value of the collateral if the loan is collateral dependent. For real estate collateral, the fair market value of the collateral is based upon a recent appraisal by a qualified and licensed appraiser of the underlying collateral. When the ultimate collectability of a loan's principal is in doubt, wholly or partially, the loan is placed on nonaccrual. After all collection efforts have failed, collateral securing loans may be repossessed and sold or, for loans secured by real estate, foreclosure proceedings are initiated. The collateral is sold at public auction for fair market value (based upon recent appraisals described in the above paragraph), with fees associated with the foreclosure being deducted from the sales price. The purchase price is applied to the outstanding loan balance. If the loan balance is greater than the sales proceeds, the deficient balance is sent to the Board of Directors' loan committee for charge-off approval. These charge-offs reduce the allowance for loan losses. Charge-offs reflect the realization of losses in the portfolio that were recognized previously through the provision for loan losses. Net charge-offs for the second quarter of 2014 were $2,194 compared to net charge-offs of $2,471 for the same period in 2013. The amount of net charge-offs totaled $3,261 for the first six months of 2014 compared to $3,363 in the same period 2013. The level of net charge-offs since 2011 are a direct result of the prolonged effects of the economic downturn in our markets on borrowers' ability to repay their loans coupled with the decline in market values of the underlying collateral securing loans, particularly real estate secured loans. The large inventories of both completed residential homes and land that had been developed for future residential home construction, coupled with declining consumer demand for residential real estate, caused a severe decline in the values of both homes and developed land. As a result, the credit quality of some of our loans in the construction and land development portfolios deteriorated. The allowance for loan losses is available to absorb probable credit losses inherent in the entire loan portfolio. The appropriate level of the allowance is based on an ongoing analysis of the loan portfolio and represents an amount that management deems adequate to provide for inherent losses, including collective impairment as recognized under the Financial Accounting Standards 59



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Board Accounting Standards Codification Topic ("ASC") 450, "Contingencies." Collective impairment is calculated based on loans grouped by grade. Another component of the allowance is losses on loans assessed as impaired under ASC 310, "Receivables." The balance of these loans and their related allowance is included in management's estimation and analysis of the allowance for loan losses. Other considerations in establishing the allowance for loan losses include economic conditions reflected within industry segments, the unemployment rate in our markets, loan segmentation and historical losses that are inherent in the loan portfolio. The allowance for loan losses is established after input from management, loan review and the loss management committee. An evaluation of the adequacy of the allowance is calculated quarterly based on the types of loans, an analysis of credit losses and risk in the portfolio, economic conditions and trends within each of these factors. In addition, on a regular basis, management and the Board of Directors review loan ratios. These ratios include the allowance for loan losses as a percentage of total loans, net charge-offs as a percentage of average loans, the provision for loan losses as a percentage of average loans, nonperforming loans as a percentage of total loans and the allowance coverage on nonperforming loans. Also, management reviews past due ratios by officer, community bank and the Company as a whole.



The following table presents the allocation of the allowance for loan losses by loan category as of the dates presented:

June 30, December 31, June



30,

2014 2013 2013 Commercial, financial, agricultural $ 3,264$ 3,090$ 3,478 Lease financing 1 - 1 Real estate - construction 1,267 1,091 863 Real estate - 1-4 family mortgage 11,797 18,629



19,432

Real estate - commercial mortgage 29,771 23,688



22,239

Installment loans to individuals 1,204 1,167 1,021 Total $ 47,304$ 47,665$ 47,034 For impaired loans, specific reserves are established to adjust the carrying value of the loan to its estimated net realizable value. The following table quantifies the amount of the specific reserves component of the allowance for loan losses and the amount of the allowance determined by applying allowance factors to graded loans as of the dates presented: June 30, December 31,



June 30,

2014 2013



2013

Specific reserves for impaired loans $ 10,891$ 14,650 $

15,944

Allocated reserves for remaining portfolio 36,413 33,015 31,090 Total $ 47,304$ 47,665$ 47,034 The provision for loan losses charged to operating expense is an amount which, in the judgment of management, is necessary to maintain the allowance for loan losses at a level that is believed to be adequate to meet the inherent risks of losses in our loan portfolio. Factors considered by management in determining the amount of the provision for loan losses include the internal risk rating of individual credits, historical and current trends in net charge-offs, trends in nonperforming loans, trends in past due loans, trends in the market values of underlying collateral securing loans and the current economic conditions in the markets in which we operate. The Company experienced lower levels of classified loans and nonperforming loans in 2013 and through the first half of 2014. In combination with lower levels of classified loans and nonperforming loans, the Company has experienced improving credit quality measures that has resulted in a decrease in the provision for loan losses for the three months ended June 30, 2014 as compared to the same period in 2013. The provision for loan losses was $1,450 and $3,000 for the second quarter of 2014 and 2013, respectively. The provision for loan losses was $2,900 for the first six months of 2014 compared to $6,050 for the same period 2013. All of the loans acquired in the Company's FDIC-assisted acquisitions and certain loans acquired in the First M&F merger and in previous acquisitions that are accounted for under ASC 310-30, "Loans and Debt Securities Acquired with Deteriorated Credit Quality" ("ASC 310-30"), are carried at values which, in management's opinion, reflect the estimated future cash flows, based on the facts and circumstances surrounding each respective loan at the date of acquisition. The Company continually monitors these loans as part of our normal credit review and monitoring procedures for changes in the estimated future cash flows; to the extent future cash flows deteriorate below initial projections, the Company may be required to reserve for these loans in the allowance for loan losses through future provision for loan losses. The Company did not increase the allowance for loan losses for loans accounted for under ASC 310-30 during the three months ended June 30, 2014 or 2013. 60



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The table below reflects the activity in the allowance for loan losses for the periods presented : Three Months Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013 Balance at beginning of period $ 48,048$ 46,505$ 47,665$ 44,347 Charge-offs Commercial, financial, agricultural - 46 119 280 Lease financing - - - - Real estate - construction - - - - Real estate - 1-4 family mortgage 1,985 652 2,872 1,266 Real estate - commercial mortgage 483 2,527 543 3,120 Installment loans to individuals 61 288 292 352 Total charge-offs 2,529 3,513 3,826 5,018 Recoveries Commercial, financial, agricultural 75 90 112 247 Lease financing - - - - Real estate - construction 3 47 8 63 Real estate - 1-4 family mortgage 206 132 357 471 Real estate - commercial mortgage 28 756 58 847 Installment loans to individuals 23 17 30 27 Total recoveries 335 1,042 565 1,655 Net charge-offs 2,194 2,471 3,261 3,363 Provision for loan losses 1,450 3,000 2,900 6,050 Balance at end of period $ 47,304$ 47,034$ 47,304$ 47,034 Net charge-offs (annualized) to average loans 0.23 % 0.35 % 0.17 % 0.24 % Allowance for loan losses to: Total loans not covered under loss share agreements 1.25 % 1.75 % 1.25 % 1.75 % Nonperforming loans not covered under loss share agreements 148.69 % 208.70 % 148.69 % 208.70 % 61



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The following table provides further details of the Company's net charge-offs (recoveries) of loans secured by real estate for the periods presented:

Three Months Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013 Real estate - construction: Residential $ (3 )$ (47 )$ (8 )$ (63 ) Commercial - - - - Condominiums - - - - Total real estate - construction (3 ) (47 ) (8 ) (63 ) Real estate - 1-4 family mortgage: Primary 27 276 120 402 Home equity 107 172 322 412 Rental/investment 280 35 430 97 Land development 1,365 37 1,643 (116 ) Total real estate - 1-4 family mortgage 1,779 520 2,515 795 Real estate - commercial mortgage: Owner-occupied 31 437 24 495 Non-owner occupied 84 1,338 64 1,777 Land development 340 (4 ) 397 1 Total real estate - commercial mortgage 455 1,771 485 2,273 Total net charge-offs of loans secured by real estate $ 2,231$ 2,244$ 2,992$ 3,005 Nonperforming Assets Nonperforming assets consist of nonperforming loans, other real estate owned and nonaccruing securities available-for-sale. Nonperforming loans are those on which the accrual of interest has stopped or loans which are contractually 90 days past due on which interest continues to accrue. Generally, the accrual of interest is discontinued when the full collection of principal or interest is in doubt or when the payment of principal or interest has been contractually 90 days past due, unless the obligation is both well secured and in the process of collection. Management, the loss management committee and our loan review staff closely monitor loans that are considered to be nonperforming. Debt securities may be transferred to nonaccrual status where the recognition of investment interest is discontinued. A number of qualitative factors, including but not limited to the financial condition of the underlying issuer and current and projected deferrals or defaults, are considered by management in the determination of whether a debt security should be transferred to nonaccrual status. The interest on these nonaccrual investment securities is accounted for on the cash-basis method until qualifying for return to accrual status. Nonaccruing securities available-for-sale consist of the Company's investments in pooled trust preferred securities issued by financial institutions, which are discussed earlier in this section under the heading "Investments". 62



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The following table provides details of the Company's nonperforming assets that are not acquired and not covered by FDIC loss-share agreements ("Not Acquired"), nonperforming assets that have been acquired and are covered by loss-share agreements with the FDIC ("Covered Assets"), and nonperforming assets acquired through the First M&F merger and not covered by loss-share agreements with the FDIC ("Acquired and Non-covered") as of the dates presented: Acquired and Not Acquired Covered Assets Non-covered Total June 30, 2014 Nonaccruing loans $ 17,175$ 41,425 $ 5,966 $ 64,566 Accruing loans past due 90 days or more 3,615 - 5,057 8,672 Total nonperforming loans 20,790 41,425 11,023 73,238 Other real estate owned 23,950 7,472 10,381 41,803 Total nonperforming loans and OREO 44,740 48,897 21,404 115,041 Nonaccruing securities available-for-sale, at fair value 18,309 - - 18,309



Total nonperforming assets $ 63,049$ 48,897 $

21,404 $ 133,350 Nonperforming loans to total loans 1.85 % Nonperforming assets to total assets 2.29 % December 31, 2013 Nonaccruing loans $ 16,863$ 49,194 $ 6,274 $ 72,331 Accruing loans past due 90 days or more 2,287 - 1,899 4,186 Total nonperforming loans 19,150 49,194 8,173 76,517 Other real estate owned 27,543 12,942 12,402 52,887 Total nonperforming loans and OREO 46,693 62,136 20,575 129,404 Nonaccruing securities available-for-sale, at fair value 17,671 - - 17,671



Total nonperforming assets $ 64,364$ 62,136 $

20,575 $ 147,075 Nonperforming loans to total loans 1.97 % Nonperforming assets to total assets 2.56 % Due to the significant difference in the accounting for the loans and other real estate owned covered by loss-share agreements and loss mitigation offered under the loss-share agreements with the FDIC, the Company believes that excluding the covered assets from its asset quality measures provides a more meaningful presentation of the Company's asset quality. The asset quality measures surrounding the Company's nonperforming assets discussed in the remainder of this section exclude covered assets relating to the Company's FDIC-assisted acquisitions. Another category of assets which contribute to our credit risk is restructured loans. Restructured loans are those for which concessions have been granted to the borrower due to a deterioration of the borrower's financial condition and are performing in accordance with the new terms. Such concessions may include reduction in interest rates or deferral of interest or principal payments. In evaluating whether to restructure a loan, management analyzes the long-term financial condition of the borrower, including guarantor and collateral support, to determine whether the proposed concessions will increase the likelihood of repayment of principal and interest. Restructured loans that are not performing in accordance with their restructured terms that are either contractually 90 days past due or placed on nonaccrual status are reported as nonperforming loans. 63



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The following table shows the principal amounts of nonperforming and restructured loans as of the dates presented. All loans where information exists about possible credit problems that would cause us to have serious doubts about the borrower's ability to comply with the current repayment terms of the loan have been reflected in the table below. June 30, 2014 December 31, 2013 June 30, 2013 Nonaccruing loans $ 23,141 $ 23,137 $ 20,554 Accruing loans past due 90 days or more 8,672 4,186 1,983 Total nonperforming loans 31,813 27,323 22,537



Restructured loans in compliance with modified terms 20,839

21,478 22,709 Total nonperforming and restructured loans $ 52,652 $



48,801 $ 45,246

Nonperforming loans to loans 0.84 % 0.74 % 0.84 % The acquisition of First M&F increased nonperforming loans $11,023 at June 30, 2014 which consisted of $5,966 in loans of nonaccrual status and $5,057 in accruing loans past due 90 days or more. At December 31, 2013 nonperforming loans on the acquired First M&F portfolio were $8,173. Excluding the nonperforming loans from the First M&F merger, nonperforming loans were $20,790 at June 30, 2014 and $19,150 at December 31, 2013. The following table presents nonperforming loans, not subject to a loss-share agreement, by loan category as of the dates presented: June 30, 2014 December 31, 2013 June 30, 2013 Commercial, financial, agricultural $ 1,882 $ 1,524 $ 1,515 Real estate - construction: Residential 11 - - Commercial - - - Condominiums - - - Total real estate - construction 11 - - Real estate - 1-4 family mortgage: Primary 7,058 4,323 3,734 Home equity 1,070 916 835 Rental/investment 1,315 1,972 4,888 Land development 1,490 2,969 3,871 Total real estate - 1-4 family mortgage 10,933 10,180 13,328 Real estate - commercial mortgage: Owner-occupied 5,055 1,306 1,368 Non-owner occupied 12,762 13,288 4,786 Land development 1,015 850 1,341 Total real estate - commercial mortgage 18,832 15,444 7,495 Installment loans to individuals 155 176 199 Total nonperforming loans $ 31,813 $



27,324 $ 22,537

Total nonperforming loans as a percentage of total loans were 0.84% as of June 30, 2014 compared to 0.74% as of December 31, 2013 and 0.84% as of June 30, 2013. The Company's coverage ratio, or its allowance for loan losses as a percentage of nonperforming loans, was 148.69% as of June 30, 2014 as compared to 174.44% as of December 31, 2013 and 208.70% as of June 30, 2013. Management has evaluated the aforementioned loans and other loans classified as nonperforming and believes that all nonperforming loans have been adequately reserved for in the allowance for loan losses at June 30, 2014. Management also continually monitors past due loans for potential credit quality deterioration. Total loans 30-89 days past due were $20,509 at June 30, 2014 as compared to $21,159 at December 31, 2013 and $7,190 at June 30, 2013. The acquisition of First M&F contributed $12,637 to loans 30-89 days past due at June 30, 2014, and $11,654 at December 31, 2013. 64



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As shown above, restructured loans totaled $20,839 at June 30, 2014 compared to $21,478 at December 31, 2013 and $22,709 at June 30, 2013. At June 30, 2014, loans restructured through interest rate concessions represented 70% of total restructured loans, while loans restructured by a concession in payment terms represented the remainder. The following table provides further details of the Company's restructured loans in compliance with their modified terms as of the dates presented: June 30, 2014 December 31, 2013 June 30, 2013 Commercial, financial, agricultural $ - $ 19 $ - Real estate - construction: Residential - - - Commercial - - - Condominiums - - - Total real estate - construction - - - Real estate - 1-4 family mortgage: Primary 1,794 2,063 1,267 Home equity - - - Rental/investment 1,363 1,821 1,734 Land development 2,727 6,470 6,928 Total real estate - 1-4 family mortgage 5,884 10,354 9,929 Real estate - commercial mortgage: Owner-occupied 4,809 3,702 3,236 Non-owner occupied 5,672 5,343 8,522 Land development 4,474 1,889 850 Total real estate - commercial mortgage 14,955 10,934 12,608 Installment loans to individuals - 171 172 Total restructured loans in compliance with modified terms $ 20,839 $ 21,478 $ 22,709



Changes in the Company's restructured loans are set forth in the table below:

2014 2013 Balance at January 1 $ 21,478$ 29,436



Additional loans with concessions 1,289 4,336 Reductions due to: Reclassified as nonperforming

(331 ) (3,227 ) Paid in full (338 ) - Charge-offs - (1,301 ) Transfer to other real estate owned - - Paydowns (1,259 ) (2,025 ) Lapse of concession period - (5,741 ) Balance at June 30 $ 20,839$ 21,478 Other real estate owned consists of properties acquired through foreclosure or acceptance of a deed in lieu of foreclosure. These properties are carried at the lower of cost or fair market value based on appraised value less estimated selling costs. Losses arising at the time of foreclosure of properties are charged against the allowance for loan losses. Reductions in the carrying value subsequent to acquisition are charged to earnings and are included in "Other real estate owned" in the Consolidated Statements of Income. Other real estate owned with a cost basis of $7,753 was sold during the six months ended June 30, 2014, resulting in a net loss of $52, while other real estate owned with a cost basis of $16,139 was sold during the six months ended June 30, 2013, resulting in a net loss of $210. 65



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The following table provides details of the Company's other real estate owned as of the dates presented: June 30, 2014 December 31, 2013 June 30, 2013 Residential real estate $ 6,507 $ 6,767 $ 3,368 Commercial real estate 8,557 8,984 9,139 Residential land development 8,563 12,334



15,137

Commercial land development 10,704 11,860



5,603

Other - -



-

Total other real estate owned $ 34,331 $ 39,945 $



33,247

Changes in the Company's other real estate owned were as follows:

2014 2013 Balance at January 1 $ 39,945$ 44,717 Acquired OREO - 13,527 Additions 2,666 11,164 Capitalized improvements - - Impairments (656 ) (1,434 ) Dispositions (7,753 ) (28,027 ) Other 129 (2 ) Balance at June 30 $ 34,331$ 39,945 Interest Rate Risk Market risk is the risk of loss from adverse changes in market prices and rates. The majority of assets and liabilities of a financial institution are monetary in nature and therefore differ greatly from most commercial and industrial companies that have significant investments in fixed assets and inventories. Our market risk arises primarily from interest rate risk inherent in lending and deposit-taking activities. Management believes a significant impact on the Company's financial results stems from our ability to react to changes in interest rates. To that end, management actively monitors and manages our interest rate risk exposure. We have an Asset/Liability Committee ("ALCO") which is authorized by the Board of Directors to monitor our interest rate sensitivity and to make decisions relating to that process. The ALCO's goal is to structure our asset/liability composition to maximize net interest income while managing interest rate risk so as to minimize the adverse impact of changes in interest rates on net interest income and capital. Profitability is affected by fluctuations in interest rates. A sudden and substantial change in interest rates may adversely impact our earnings because the interest rates borne by assets and liabilities do not change at the same speed, to the same extent or on the same basis. We monitor the impact of changes in interest rates on our net interest income and economic value of equity ("EVE") using rate shock analysis. Net interest income simulations measure the short-term earnings exposure from changes in market rates of interest in a rigorous and explicit fashion. Our current financial position is combined with assumptions regarding future business to calculate net interest income under varying hypothetical rate scenarios. EVE measures our long-term earnings exposure from changes in market rates of interest. EVE is defined as the present value of assets minus the present value of liabilities at a point in time. A decrease in EVE due to a specified rate change indicates a decline in the long-term earnings capacity of the balance sheet assuming that the rate change remains in effect over the life of the current balance sheet. The following rate shock analysis depicts the estimated impact on net interest income and EVE of immediate changes in interest rates at the specified levels for the dates presented: 66



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Table of Contents Percentage Change In: Economic Value Net Interest Income(2) of Equity (3) Change in Interest Rates(1) (In Basis Points) June 30, 2014 December 31, 2013 June 30, 2014 December 31, 2013 +400 0.11 % 1.31 % 11.42 % 16.85 % +300 0.21 % 0.94 % 11.53 % 15.06 % +200 0.12 % 0.41 % 10.72 % 12.76 % +100 (0.03 )% (0.08 )% 9.11 % 10.21 % -100 (2.06 )% (2.33 )% (3.84 )% (4.61 )%



(1) On account of the present position of the target federal funds rate, the

Company did not perform an analysis assuming a downward movement in rates of

more than 100 bps.

(2) The percentage change in this column represents the projected net interest

income for 12 months on a flat balance sheet in a stable interest rate

environment versus the projected net interest income in the various rate

scenarios.

(3) The percentage change in this column represents our EVE in a stable interest

rate environment versus EVE in the various rate scenarios.

The rate shock results for the net interest income simulation remains neutral at both June 30, 2014 and December 31, 2013. The Company's interest rate risk strategy surrounding net interest income sensitivity is to remain in a neutral position with a focus on asset and liability mix strategies which will result in an overall asset sensitive position over time. The EVE results are less asset sensitive reflecting the increased longer-term loan and investment portfolio somewhat offset by the improved level and value of the non-time deposits whose rates have declined versus the prior year-end. The preceding measures assume no change in the size or asset/liability compositions of the balance sheet. Thus, the measures do not reflect actions the ALCO may undertake in response to such changes in interest rates. The above results of the interest rate shock analysis are within the parameters set by the Board of Directors. The scenarios assume instantaneous movements in interest rates in increments of 100, 200, 300 and 400 basis points. With the present position of the target federal funds rate, the declining rate scenario seems improbable. Furthermore, it has been the Federal Reserve's policy to adjust the target federal funds rate incrementally over time. As interest rates are adjusted over a period of time, it is our strategy to proactively change the volume and mix of our balance sheet in order to mitigate our interest rate risk. The computation of the prospective effects of hypothetical interest rate changes requires numerous assumptions regarding characteristics of new business and the behavior of existing positions. These business assumptions are based upon our experience, business plans and published industry experience. Key assumptions employed in the model include asset prepayment speeds, competitive factors, the relative price sensitivity of certain assets and liabilities and the expected life of non-maturity deposits. Because these assumptions are inherently uncertain, actual results will differ from simulated results. The Company utilizes derivative financial instruments, including interest rate contracts such as swaps, caps and/or floors, as part of its ongoing efforts to mitigate its interest rate risk exposure and to facilitate the needs of its customers. The Company also enters into derivative instruments that are not designated as hedging instruments to help its commercial customers manage their exposure to interest rate fluctuations. To mitigate the interest rate risk associated with these customer contracts, the Company enters into an offsetting derivative contract position. The Company manages its credit risk, or potential risk of default by its commercial customers, through credit limit approval and monitoring procedures. At June 30, 2014, the Company had notional amounts of $73,628 on interest rate contracts with corporate customers and $73,628 in offsetting interest rate contracts with other financial institutions to mitigate the Company's rate exposure on its corporate customers' contracts and certain fixed rate loans. In March and April 2012, the Company entered into two interest rate swap agreements effective March 30, 2014 and March 17, 2014, respectively. The Company receives a variable rate of interest based on the three-month LIBOR plus a pre-determined spread and pays a fixed rate of interest. The agreements, which both terminate in March 2022, are accounted for as cash flow hedges to reduce the variability in cash flows resulting from changes in interest rates on $32,000 of the Company's junior subordinated debentures. In connection with its acquisition of First M&F, the Company assumed an interest rate swap designed to convert floating rate interest payments into fixed rate payments. Based on the terms of the agreement, which terminates in March 2018, the Company receives a variable rate of interest based on the three-month LIBOR plus a pre-determined spread and pays a fixed rate of interest. The interest rate swap is accounted for as a cash flow hedge to reduce the variability in cash flows resulting from changes in interest rates on $30,000 of the junior subordinated debentures assumed in the merger with First M&F. On June 5, 2014, the Company entered into two forward interest rate swap contracts on floating rate liabilities at the Bank level with notional amounts of $15.0 million each. The interest rate swap contracts are accounted for as a cash flow hedge with the 67



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objective of protecting against any interest rate volatility on future FHLB borrowings for a four-year and five-year period beginning June 1, 2018 and December 3, 2018 and ending June 2022 and June 2023, respectively. Under these contracts, Renasant Bank will pay a fixed interest rate of 3.593% and 3.738%, respectively, and will receive a variable interest rate based on the three-month LIBOR with quarterly net settlements. The Company also enters into interest rate lock commitments with its customers to mitigate the Company's interest rate risk associated with its commitments to fund fixed-rate residential mortgage loans. Under the interest rate lock commitments, interest rates for a mortgage loan are locked in with the customer for a period of time, typically thirty days. Once an interest rate lock commitment is entered into with a customer, the Company also enters into a forward commitment to sell the residential mortgage loan to secondary market investors. Accordingly, the Company does not incur risk if the interest rate lock commitment in the pipeline fails to close. For more information about the Company's derivative financial instruments, see Note J, "Derivative Instruments," in the Notes to Consolidated Financial Statements of the Company in Item 1, "Financial Statements," in this report.



Liquidity and Capital Resources

Liquidity management is the ability to meet the cash flow requirements of customers who may be either depositors wishing to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs. Core deposits, which are deposits excluding time deposits and public fund deposits, are a major source of funds used by Renasant Bank to meet cash flow needs. Maintaining the ability to acquire these funds as needed in a variety of markets is the key to assuring Renasant Bank's liquidity. Management continually monitors the liquidity through review of a variety of reports. Our investment portfolio is another alternative for meeting liquidity needs. These assets generally have readily available markets that offer conversions to cash as needed. Within the next twelve months the securities portfolio is forecasted to generate cash flow through principal payments and maturities equal to 12.50% of the carrying value of the total securities portfolio. Securities within our investment portfolio are also used to secure certain deposit types and short-term borrowings. At June 30, 2014, securities with a carrying value of $695,366 were pledged to secure public fund deposits and as collateral for short-term borrowings and derivative instruments as compared to securities with a carrying value of $608,401 similarly pledged at December 31, 2013. Other sources available for meeting liquidity needs include federal funds purchased and advances from the FHLB. Interest is charged at the prevailing market rate on federal funds purchased and FHLB advances. There were $20,100 outstanding federal funds purchased at June 30, 2014 and $222 of federal funds purchased at December 31, 2013. Funds obtained from the FHLB are used primarily to match-fund fixed rate loans in order to minimize interest rate risk and also be used to meet day to day liquidity needs, particularly when the cost of such borrowing compares favorably to the rates that we would be required to pay to attract deposits. At June 30, 2014, the balance of our outstanding advances with the FHLB was $69,944. The total amount of the remaining credit available to us from the FHLB at June 30, 2014 was $1,603,437. We also maintain lines of credit with other commercial banks totaling $75,000. These are unsecured lines of credit maturing at various times within the next twelve months. There were no amounts outstanding under these lines of credit at June 30, 2014 or December 31, 2013.



The following table presents, by type, the Company's funding sources, which consist of total average deposits and borrowed funds, and the total cost of each funding source for the periods presented:

Percentage of Total Cost of Funds Six Months Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013 Noninterest-bearing demand 18.02 % 15.15 % - % - % Interest-bearing demand 43.46 40.51 0.20 0.25 Savings 6.65 6.83 0.09 0.20 Time deposits 28.57 33.03 0.84 1.01 FHLB advances 1.41 2.26 4.17 4.11 Other borrowed funds 1.89 2.22 4.76 3.07 100.00 % 100.00 % 0.48 % 0.61 % 68



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Table of Contents Our strategy in choosing funds is focused on minimizing cost along with considering our balance sheet composition and interest rate risk position. Accordingly, management targets growth of non-interest bearing deposits. While we do not control the types of deposit instruments our clients choose, we do influence those choices with the rates and the deposit specials we offer. We constantly monitor our funds position and evaluate the effect that various funding sources have on our financial position. Our cost of funds has decreased 12 basis points for the six months ended June 30, 2014 as compared to the same period in 2013 as management improved our funding mix using non-interest bearing or lower costing deposits and repaying higher costing funding including time deposits and borrowed funds. Cash and cash equivalents were $181,220 at June 30, 2014 compared to $79,015 at June 30, 2013. Cash used in investing activities for the six months ended June 30, 2014 was $177,922 compared to $178,272 for the six months ended June 30, 2013. Proceeds from the sale, maturity or call of securities within our investment portfolio were $162,117 for the six months ended 2014. These proceeds from the investment portfolio were primarily reinvested back into the security portfolio or used to fund loan growth. Proceeds from the sale, maturity, or call of securities within our investment portfolio during the six months ended June 30, 2013 were $91,042. These proceeds were primarily reinvested in the securities portfolio. Purchases of investment securities were $251,965 for the first six months of 2014 compared to $176,596 for the same period in 2013. Cash provided by financing activities for the six months ended June 30, 2014 was $53,086 compared to cash provided by financing activities of $66,892 for the same period in 2013. Deposits increased $44,819 for the six months ended June 30, 2014 compared to an increase of $43,937 for the same period in 2013.



Restrictions on Bank Dividends, Loans and Advances

The Company's liquidity and capital resources, as well as its ability to pay dividends to our shareholders, are substantially dependent on the ability of Renasant Bank to transfer funds to the Company in the form of dividends, loans and advances. Under Mississippi law, a Mississippi bank may not pay dividends unless its earned surplus is in excess of three times capital stock. A Mississippi bank with earned surplus in excess of three times capital stock may pay a dividend, subject to the approval of the Mississippi Department of Banking and Consumer Finance. Accordingly, the approval of this supervisory authority is required prior to Renasant Bank paying dividends to the Company. Federal Reserve regulations also limit the amount Renasant Bank may loan to the Company unless such loans are collateralized by specific obligations. At June 30, 2014, the maximum amount available for transfer from Renasant Bank to the Company in the form of loans was $52,615. The Company maintains a line of credit collateralized by cash with Renasant Bank totaling $3,000. There were no amounts outstanding under this line of credit at June 30, 2014. These restrictions did not have any impact on the Company's ability to meet its cash obligations in the first six months of 2014, nor does management expect such restrictions to materially impact the Company's ability to meet its currently-anticipated cash obligations. Off-Balance Sheet Transactions The Company enters into loan commitments and standby letters of credit in the normal course of its business. Loan commitments are made to accommodate the financial needs of the Company's customers. Standby letters of credit commit the Company to make 69



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payments on behalf of customers when certain specified future events occur. Both arrangements have essentially the same credit risk as that involved in extending loans to customers and are subject to the Company's normal credit policies. Collateral (e.g., securities, receivables, inventory, equipment, etc.) is obtained based on management's credit assessment of the customer. Loan commitments and standby letters of credit do not necessarily represent future cash requirements of the Company in that while the borrower has the ability to draw upon these commitments at any time, these commitments often expire without being drawn upon. The Company's unfunded loan commitments and standby letters of credit outstanding were as follows for the periods presented: June 30, 2014 December 31, 2013 Loan commitments $ 677,880 $ 630,266 Standby letters of credit 29,544 30,062



The Company closely monitors the amount of remaining future commitments to borrowers in light of prevailing economic conditions and adjusts these commitments as necessary. The Company will continue this process as new commitments are entered into or existing commitments are renewed.

Shareholders' Equity and Regulatory Matters

Total shareholders' equity of the Company was $688,215 at June 30, 2014 compared to $665,652 at December 31, 2013. Book value per share was $21.83 and $21.21 at June 30, 2014 and December 31, 2013, respectively. The growth in shareholders' equity was attributable to the acquisition of First M&F along with earnings retention offset by dividends declared and changes in accumulated other comprehensive income. On September 5, 2012, the Company filed a shelf registration statement with the Securities and Exchange Commission ("SEC"). The shelf registration statement, which the SEC declared effective on September 17, 2012, allows the Company to raise capital from time to time, up to an aggregate of $150,000, through the sale of common stock, preferred stock, debt securities, warrants and units, or a combination thereof, subject to market conditions. Specific terms and prices will be determined at the time of any offering under a separate prospectus supplement that the Company will be required to file with the SEC at the time of the specific offering. The proceeds of the sale of securities, if and when offered, will be used for general corporate purposes as described in any prospectus supplement and could include the expansion of the Company's banking, insurance and wealth management operations as well as other business opportunities. The Company has junior subordinated debentures with a carrying value of $94,380 at June 30, 2014, of which $91,085 are included in the Company's Tier 1 capital. The Federal Reserve Board issued guidance in March 2005 providing more strict quantitative limits on the amount of securities that, similar to our junior subordinated debentures, are includable in Tier 1 capital. The new guidance, which became effective in March 2009, did not impact the amount of debentures we include in Tier 1 capital. In addition, although our existing junior subordinated debentures are unaffected, on account of changes enacted as part of the Dodd-Frank Act, any trust preferred securities issued after May 19, 2010 may not be included in Tier 1 capital. The Federal Reserve, the FDIC and the Office of the Comptroller of the Currency have issued guidelines governing the levels of capital that banks must maintain. Those guidelines specify capital tiers, which include the following classifications: Tier 1 Capital to Tier 1



Capital to Total Capital to

Average Assets Risk - Weighted Risk - Weighted Capital Tiers (Leverage) Assets Assets Well capitalized 5% or above 6% or above 10% or above Adequately capitalized 4% or above 4% or above 8% or above Undercapitalized Less than 4% Less than 4% Less than 8% Significantly undercapitalized Less than 3% Less than 3% Less than 6% Critically undercapitalized 2% or less 70



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The following table provides the capital and risk-based capital and leverage ratios for the Company and for Renasant Bank as of the dates presented:

Minimum Capital Minimum Capital Requirement to be Requirement to be Adequately Actual Well Capitalized Capitalized Amount Ratio Amount Ratio Amount Ratio June 30, 2014Renasant Corporation: Tier 1 Capital to Average Assets $ 495,168 8.91 % $ 277,753 5.00 % $ 222,202 4.00 % Tier 1 Capital to Risk-Weighted Assets 495,168 11.82 % 251,357 6.00 % 167,571 4.00 % Total Capital to Risk-Weighted Assets 543,103 12.96 % 418,929 10.00 % 335,143 8.00 % Renasant Bank: Tier 1 Capital to Average Assets $ 478,850 8.64 % $ 277,024 5.00 % $ 221,619 4.00 % Tier 1 Capital to Risk-Weighted Assets 478,850 11.46 % 250,664 6.00 % 167,109 4.00 % Total Capital to Risk-Weighted Assets 526,154 12.59 % 417,773 10.00 % 334,218 8.00 % December 31, 2013 Renasant Corporation: Tier 1 Capital to Average Assets $ 473,817 8.68 % $ 196,871 5.00 % $ 157,497 4.00 % Tier 1 Capital to Risk-Weighted Assets 473,817 11.41 % 182,964 6.00 % 121,976 4.00 % Total Capital to Risk-Weighted Assets 522,181 12.58 % 304,940 10.00 % 243,952 8.00 % Renasant Bank: Tier 1 Capital to Average Assets $ 457,798 8.40 % $ 196,192 5.00 % $ 156,954 4.00 % Tier 1 Capital to Risk-Weighted Assets 457,798 11.05 % 182,580 6.00 % 121,720 4.00 % Total Capital to Risk-Weighted Assets 505,463 12.20 % 304,300 10.00 % 243,440 8.00 % In July 2013, the Federal Reserve, the FDIC and the Office of the Comptroller of the Currency approved the implementation of the Basel III regulatory capital reforms and issued rules effecting certain changes required by the Dodd-Frank Act (the "Basel III Rules") that call for broad and comprehensive revision of regulatory capital standards for U.S. banking organizations. The Basel III Rules will implement a new common equity Tier 1 minimum capital requirement, a higher minimum Tier 1 capital requirement and other items that will affect the calculation of the numerator of a banking organization's risk-based capital ratios. Additionally, the Basel III Rules apply limits to a banking organization's capital distributions and certain discretionary bonus payments if the banking organization does not hold a specified amount of common equity Tier 1 capital in addition to the amount necessary to meet its minimum risk-based capital requirements. The new common equity Tier 1 capital ratio includes common equity as defined under GAAP and does not include any other type of non-common equity under GAAP. When the Basel III Rules are fully phased in in 2019, banks will be required to have common equity Tier 1 capital of 4.5% of average assets, Tier 1 capital of 6% of average assets, as compared to the current 4%, and total capital of 8% of risk-weighted assets to be categorized as adequately capitalized. The Basel III Rules require the phase-out of trust preferred securities as Tier 1 capital of bank holding companies of the Company's size in equal installments over a defined period. Further, the Basel III Rules changed the agencies' general risk-based capital requirements for determining risk-weighted assets, which will affect the calculation of the denominator of a banking organization's risk-based capital ratios. The Basel III Rules have revised the agencies' rules for calculating risk-weighted assets to enhance risk sensitivity and will incorporate certain international capital standards of the Basel Committee on Banking Supervision set forth in the standardized approach of the "International Convergence of Capital Measurement and Capital Standards: A Revised Framework". 71



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The calculation of risk-weighted assets in the denominator of the Basel III capital ratios would be adjusted to reflect the higher risk nature of certain types of loans. Specifically, as applicable to the Company and Renasant Bank:

- Residential mortgages: Replaces the current 50% risk weight for performing residential first-lien mortgages and a 100% risk-weight for all other mortgages with a risk weight of between 35% and 200% determined by the mortgage's loan-to-value ratio and whether the mortgage falls into one of two categories based on eight criteria that include the term, use of negative amortization and balloon payments, certain rate increases and documented and verified borrower income.



- Commercial mortgages: Replaces the current 100% risk weight with a 150% risk weight for certain high volatility commercial real estate acquisition, development and construction loans.

- Nonperforming loans: Replaces the current 100% risk weight with a 150% risk weight for loans, other than residential mortgages, that are 90 days past due or on nonaccrual status.



Generally, the new Basel III Rules become effective on January 1, 2015, although parts of the Basel III Rules will be phased in through 2019. Management is reviewing the new rules to assess their impact on the Company.


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