The following provides a narrative discussion and analysis of the financial condition, changes in financial condition and results of operations of the Corporation). You should read this discussion in conjunction with the Consolidated Financial Statements, including the notes thereto, and the Supplemental Financial Data included elsewhere in this report.

INTRODUCTION AND MANAGEMENT OVERVIEW

The Corporation is a financial holding company that owns Cadence. Cadence operates in the states of Mississippi, Alabama, Tennessee, Florida and Georgia. Cadence's primary business is providing traditional commercial and retail banking services to customers. Cadence also provides other financial services, including trust services, mortgage services, insurance and investment products. Our stock is traded on The NASDAQ Global Select Market ("NASDAQ") under the ticker symbol of "CADE".

Cadence's profitability, like that of many financial institutions, is dependent on its ability to generate revenue from net interest income and noninterest income sources. Net interest income is the difference between the interest income Cadence receives on earning assets, such as loans and securities, and the interest expense Cadence pays on interest-bearing liabilities, principally deposits and borrowings. Noninterest income includes fees from service charges on deposit accounts, trust, investment activities, mortgage origination, insurance and other customer services which Cadence provides. Results of operations are also affected by the provision for loan losses and noninterest expenses such as salaries, employee benefits, occupancy and other operating expenses, including taxes.

Economic conditions, competition, the regulatory environment, and the monetary and fiscal policies of the Federal government in general, significantly affect financial institutions, including Cadence. Lending and deposit activities and fee income generation are influenced by the level of business spending and investment, consumer income, spending and savings, capital market activities, competition among financial institutions, customer preferences, interest rate conditions and prevailing market rates on competing products in Cadence's market areas.

During 2008, three major factors significantly impacted our operating results, as follows:

• A $20.5 million increase in provision for loan losses due to a general deterioration in the real estate sectors of some of our markets, overall economic conditions, and credit downgrades on some customer relationships.

• Federal Reserve rate reductions totaling four hundred basis points in 2008. These rate reductions impacted our yields on earning assets and cost of funds.

• A $3.6 million increase in legal fees, appraisal fees and other maintenance and holding expenses, as well as losses on sales of other real estate owned ("OREO"), due to an increase in properties on which Cadence has foreclosed.

For 2008, our non-tax equivalent net interest margin was 3.07%, compared to 3.28% for 2007. Our loan yields declined by 171 basis points between 2007 and 2008; however, our overall cost of funds only declined by 127 basis points. Pricing for deposits did not decline at the same pace as variable rate loans (which comprise approximately 64% of our loan portfolio) because of the strong competition for these funds. Our margins were continually under pressure due to the rate reductions occurring throughout 2008 and the timing differences between the repricing of our interest-bearing assets and liabilities.

Our provision for loan losses was substantially higher in 2008 as compared to 2007, due to a further deterioration in the real estate sectors of some of our markets, overall economic conditions, and credit downgrades on some customer relationships. We do not engage in any sub-prime or Alt A lending; therefore, none of the increase in our provision for loan losses related to or was affected by these types of loans. Our underwriting standards have tightened based on recent changes in market conditions, and we believe that the current level of our allowance for loan losses is adequate as of December 31, 2008.

During 2008, noninterest income, including gains and losses on securities, increased from $17.5 million to $23.0 million. Noninterest income for 2007 reflects an impairment loss on certain investment securities that related to our decision to rescind the application of FASB Statement No. 159 to these securities. The components of and other reasons for the increase in noninterest income are discussed more fully below. Noninterest income accounted for 29.3% of income in 2008, 23.4% of income in 2007, and 28.4% of income in 2006. The growth of noninterest income continues to be an important part of our strategic goals.

One of our goals in 2008 was to continue to control the level of noninterest expenses. During 2008, total noninterest expenses increased by $4.3 million, or 7.9%, as compared to the year ended December 31, 2007. The majority of the increase, or $3.6 million, is attributable to increased costs associated with OREO.

For 2008, we reported a net loss of $3.4 million, or $0.28 per diluted share, compared to net income of $9.8 million, or $0.82 per diluted share, for 2007.

In January 2009, we closed on the sale of $44 million in non-voting preferred stock to the U.S. Treasury Department under its Capital Purchase Program. This additional capital strengthens our capital base significantly above regulatory requirements. We will deploy these funds into short-term investments so that we can convert them quickly to fund future loan growth while minimizing our interest rate risks. Our goal is to offset the cost of the preferred stock dividend by conservatively leveraging this capital; however, this objective will be difficult in the current low interest rate and slow loan growth environment.

Our most significant challenge for 2009 is credit quality. We have taken an aggressive stance in addressing credit issues in our loan portfolio to minimize future risks. We have increased our focus on underwriting standards and have revamped our

loan policy. We also have a special assets team in place to manage workout situations and to assist in the timely disposition of defaulted assets. Our management information systems relating to loan concentrations provide us with current and detailed information about the status of the loans in our portfolio. We feel that these steps place us in the best position possible to manage credit quality; however, credit quality will remain an issue as long as current economic trends, including increasing unemployment rates and declining real estate prices, continue.

We expect our loan portfolio balance to remain flat or decline slightly during the first part of 2009. Our recent loan growth was mostly attributable to real estate-related credits, but with declining demand, higher credit standards for these loans, and the regulatory attitude toward real estate-related loans, generating new loans in this current environment will be a challenge. We intend to diversify our portfolio with more commercial loans as opportunities arise. Currently, we expect that interest rates will remain flat for 2009. We based our 2009 projections, budgets and goals on these expectations. If these trends move differently than expected in either direction or speed, they could have a material impact on our financial condition and results of operations. The areas of our operations most directly impacted would be the net interest margin, loan and deposit growth and the provision for loan losses.

We remain focused on our strategy to build future earnings and understand that improved asset quality and margin growth are the real keys to achieving that strategy. We also continue to refine our funding plan, including both the mix and the funding decisions we make, but remain within our policies regarding types of funding to be used. To optimize costs, we must remain somewhat flexible. The additional capital raised through the preferred stock sale to the U.S. Treasury will play an important part in supporting future loan growth.

We will also continue our efforts to control noninterest expenses by working to achieve maximum efficiencies within our new expanded footprint. We continue to leverage the investments in infrastructure that we have made over the past few years and believe that they will continue to have a positive impact on our costs going forward, as well as provide us with a solid platform on which to expand future operations. Reducing our efficiency ratio remains a key objective. However, our noninterest expenses will be negatively affected by the significant increase in FDIC insurance premiums. Costs associated with OREO will also negatively affect our noninterest expenses in 2009.

In summary, our largest challenges in 2009 are credit quality and improving our net interest margin. We are managing our credit problems aggressively and refining our risk management processes in order to enhance our future earnings.

RECENTLY ISSUED ACCOUNTING STANDARDS AND CRITICAL ACCOUNTING POLICIES

Our accounting and financial reporting policies conform to United States generally accepted accounting principles and, where applicable, to general practices within the banking industry. Note A of the Notes to Consolidated Financial Statements contains a summary of our accounting policies. Management is of the opinion that Note A, read in conjunction with all other information in this report, including this Management's Discussion and Analysis, is sufficient to provide the reader with the information needed to understand our financial condition and results of operations.

Critical Accounting Policies

It is management's opinion that the areas of the financial statements that require the most difficult, subjective and complex judgments, and therefore contain the most critical accounting estimates, are the provision for loan losses and the resulting allowance for loan losses; the liability and expense relating to our pension and other postretirement benefit plans; issues relating to other-than-temporary impairment losses in the securities portfolio; and goodwill and other intangible assets.

Provision/Allowance for Loan Losses

Our provision for loan losses is utilized to replenish the allowance for loan losses on the balance sheet. The allowance is maintained at a level deemed adequate by management after their evaluation of the risk exposure contained in our loan portfolio. The senior credit officers and the loan review staff perform the methodology used to make this determination of risk exposure on a quarterly basis. As a part of this evaluation, certain loans are individually reviewed to determine if there is an impairment of our ability to collect the loans and the related interest. This determination is generally made based on collateral value securing such loans. If the senior credit officers and loan review staff determine that impairments exist, specific portions of the allowance are allocated to these individual loans. We group all other loans into homogeneous pools and determine risk exposure by considering the following non-exclusive list of factors: historical loss experiences; trends in delinquencies and non-accruals; and national, regional and local economic conditions. These economic conditions would include, but not be limited to, general real estate conditions, the current interest rate environment and trends, unemployment levels and other information, as deemed appropriate. Additionally, management looks at specific external credit risk factors that bring additional risk into the portfolio. For the year ended December 31, 2008, we identified the following external risk factors: (1) declining national and local economic conditions;
(2) increased risk associated with commercial real estate

credits; and (3) the deterioration of real estate sectors in specific markets. These external risk factors are re-evaluated on a quarterly basis. Management makes its estimates of the credit risk in the portfolio and the amount of provision needed to keep the allowance for loan losses at an appropriate level using what management believes are the best and most current sources of information available at the time of the estimates; however, many of these factors can change quickly and with no advance warning. Due to the speed in which some real estate credits are deteriorating in the current environment, it has been very difficult to project future potential losses in the loan portfolio. If management significantly misses its estimates in any period, it can have a material impact on the results of operations for that period and for subsequent periods.

Pension and Other Postretirement Benefit Plans

Another area that requires subjective and complex judgments is the liability and expense relating to our pension and other postretirement benefit plans. We maintain several benefit plans for our employees. They include a defined benefit pension plan, a defined contribution pension plan, a 401(k) plan and a deferred compensation plan. We make all contributions to these plans when due.

The defined benefit pension plan is the only plan that requires multiple assumptions to determine the liability under the plan. This plan has been frozen to new participants for several years. Management evaluates, reviews with the plan actuaries, and updates as appropriate the assumptions used in the determination of pension liability, including the discount rate, the expected rate of return on plan assets, and increases in future compensation. Actual experience that differs from the assumptions could have a significant impact on our financial position and results of operations. The discount rate and the expected rate of return on the plan assets have a significant impact on the actuarially computed present value of future benefits that is recorded on the financial statements as a liability and the corresponding pension expense.

In selecting the expected rate of return, management, in consultation with the plan trustees, selected a rate based on assumptions compared to recent returns and economic forecasts. We consider the current allocation of the portfolio and the probable rates of return of each investment type. Management, with the assistance of actuarial consultants, selects the appropriate discount rate by performing an analysis of the plan's projected benefit cash flows against discount rates from a national Pension Discount Curve (a yield curve used to measure pension liabilities). Based on the analysis, management used a discount rate of 5.75% in 2006 and 2007 and a discount rate of 6.0% in 2008. We used an expected rate of return of 7.5% for 2006, 2007 and 2008. From a historical perspective, the rates of return on the plan were 9.5% for 2006, 7.6% for 2007, and (21.7%) for 2008. Additionally, our philosophy has been to fund the plan annually to the maximum amount deductible under the Internal Revenue Service rules. As of December 31, 2008, the plan had a current accumulated benefit obligation of approximately $10.7 million, and plan assets with a fair value of approximately $10.7 million.

FASB Statement No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans," requires us to recognize the funded status of the plan (defined as the difference between the fair value of plan assets and the projected benefit obligation) on the balance sheet and to recognize in other comprehensive income any gains or losses and prior service costs or benefits not included as components of periodic benefit cost. Detailed information on our pension plan and the related impacts of these changes on the amounts recorded in our financial statements can be found in Note M ("Employee Benefits") of the Notes to Consolidated Financial Statements.

Other-Than-Temporary Impairment of Investment Securities

A third area that requires subjective and complex judgments on the part of management is the review of the investments in the securities portfolio for other-than-temporary impairments. EITF Issue 03-01 and FASB FSP FAS 115-1 and FAS 124-1, "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments," require us to review our investment portfolio and determine if it has impairment losses that are other-than-temporary. In making its determination, management considers the following items: (1) the length of time and extent to which the current market value is less than cost;
(2) evidence of a forecasted recovery; (3) financial condition and the industry environment of the issuer; (4) downgrades of the securities by rating agencies;
(5) whether there has been a reduction or elimination of dividends or interest payments; (6) whether we have the intent or ability to hold the securities for a period of time sufficient to allow for anticipated recovery of fair value; and
(7) interest rate trends that may impact recovery and realization.

During the first quarter of 2007, we recognized a $5.1 million impairment loss relating to certain collateralized mortgage obligations and mortgage-backed securities. During the third quarter of 2006, we recognized a $2.0 million other-than-temporary impairment charge relating to certain Fannie Mae and Freddie Mac preferred stock.

As of December 31, 2008, our securities portfolio included certain securities that were, by definition, impaired. We reviewed each of these securities to determine if any of the impairments were other-than-temporary. Using the criteria listed above, we determined that none of the impairments were other-than-temporary as of December 31, 2008.

Goodwill and Other Intangible Assets

Although FASB Statement No. 142, "Goodwill and Other Intangible Assets," eliminated the requirement to amortize goodwill, it does require periodic testing for impairment. Due to the deterioration in the national financial markets in 2008 and the related impact on the fair value of the Corporation, we engaged a third party to conduct our goodwill impairment testing in accordance with FASB Statement No. 142. This testing was performed in the fourth quarter of 2008 and resulted in the conclusion that no impairment writedown was warranted. At December 31, 2008, we had approximately $66.8 million of goodwill on our balance sheet.

Other Accounting/Regulatory Issues

In the normal course of business, Cadence makes loans to related parties, including our directors and executive officers and their relatives and affiliates. We make these loans on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other parties. Also, the loans are consistent with sound banking practices and within applicable regulatory and lending limitations. Please see Note O in the Notes to Consolidated Financial Statements and our proxy statement for additional details concerning related party transactions.

Section 402 of the Sarbanes-Oxley Act generally prohibits loans to executive officers. However, the rule does not apply to any loan made or maintained by an insured depository institution if the loan is subject to the insider lending restrictions of section 22(h) of the Federal Reserve Act. All loans that the Bank makes to executive officers are subject to the above referenced section of the Federal Reserve Act.

During 2007 and 2008, we owned NBC Capital Corporation (MS) Statutory Trust I and Enterprise (TN) Statutory Trust I, both organized under the laws of the State of Connecticut for the purpose of issuing trust preferred securities. In accordance with FASB Interpretation No. 46 (revised December 2003), the trusts, which are considered variable interest entities, are not consolidated into our financial statements because the only activity of the variable interest entities is the issuance of the trust preferred securities. The trust preferred securities related to Enterprise (TN) Statutory Trust I were fully redeemed in December 2007, and the trust was dissolved in January 2008.

RESULTS OF OPERATIONS

Net loss for 2008 was $3.4 million, or $0.28 per diluted share, a decrease from net income of $9.8 million, or $0.82 per diluted share, in 2007 and $14.2 million, or $1.37 per diluted share, in 2006. Return on average equity was
(1.8)% in 2008, 5.1% in 2007, and 9.0% in 2006. Return on average assets was
(0.2)% in 2008, 0.5% in 2007, and 0.9% in 2006.

Net interest income, the primary source of our earnings, represents income generated from earning assets, less the interest expense of funding those assets. Changes in net interest income may be divided into two components:
(1) the change in average earning assets (volume component) and (2) the change in the net interest spread (rate component). Net interest spread represents the difference between yields on earning assets and rates paid on interest-bearing liabilities.

Net interest income decreased by $1.7 million, or 3.0%, from $57.3 million in 2007 to $55.5 million in 2008. Average earning assets increased from $1.74 billion in 2007 to $1.81 billion in 2008, an increase of $64.5 million, or 3.7%. During this period, the net interest margin declined to 3.07%, compared to 3.28% for 2007. Net interest margin is net interest income divided by average earning assets.

In analyzing the rate component of net interest income, from 2007 to 2008, we lost 131 basis points of yield on our earning assets. However, during this period, the cost of funds decreased by 127 basis points. Our loan portfolio, which is comprised of approximately 64% variable rate loans, reflected a yield decrease from 7.75% to 6.04% from 2007 to 2008, due to the 400 basis point reduction in interest rates in 2008. The yield on our investment securities portfolio also declined from 2007 to 2008, from 4.89% to 4.77%. However, our cost of deposits declined from 4.00% to 2.88%, and our cost of other borrowings declined from 5.08% to 3.15%.

Our loan yields and margin were also impacted by the reversal of interest income on loans that were placed on non-accrual status. During 2008, these reversals of interest income totaled $1,139,000, compared to $461,000 for 2007. This difference amounted to five basis points of yield on our loan portfolio and four basis points on our margin. Also, we have recently generated fewer real estate development loans, which typically have higher yields. This reduction in higher yield loans is a result of the softening economy, a reduction in demand for real estate development loans, and our focus on credit quality.

The increase of $64.5 million in our average earning asset balances between 2007 and 2008 is attributable primarily to a $66.1 million increase in average loan balance. From 2007 to 2008, the average balance of interest-bearing deposits decreased by $10.7 million, and the average balance of other borrowings increased by $77.3 million.

Net interest income increased by $6.8 million, or 13.5%, from $50.5 million in 2006 to $57.3 million in 2007. Average earning assets increased from $1.46 billion in 2006 to $1.74 billion in 2007, an increase of $285.5 million, or 19.6%. During this period, the net interest margin declined to 3.28%, compared to 3.46% for 2006.

In analyzing the rate component of net interest income, from 2006 to 2007, we gained 35 basis points of yield on our earning assets. However, during this period, the cost of funds increased by 55 basis points. Our loan portfolio, which is comprised of approximately 61% variable rate loans, reflected a yield increase from 7.62% to 7.75% from 2006 to 2007. The yield on our investment securities portfolio also increased from 2006 to 2007, from 4.68% to 4.89%. However, our cost of deposits increased from 3.39% to 4.00%.

The primary reason for our increased net interest income between 2006 and 2007 is the increase in average earning asset balances. The increase in average earning assets from 2006 to 2007 is composed of the following: average loans increased by $311.3 million; average federal funds sold and other interest-bearing assets decreased by $6.5 million; and average investment securities decreased by $19.3 million. From 2006 to 2007, the average balance of interest-bearing deposits increased by $187.6 million, and the average balance of other borrowings increased by $85.2 million.

The following table shows, for the periods indicated, an analysis of net interest income, including the average amount of earning assets and interest-bearing liabilities outstanding during the period, the interest earned or paid on such amounts, the average yields/rates paid and the net yield on earning assets on both a book and tax equivalent basis:

                                                                   ($ in Thousands)
                                                                    Average Balance
                                                               Year Ended    Year Ended
                                                                12/31/08      12/31/07
EARNING ASSETS:
Net loans                                                      $ 1,350,870   $ 1,284,762
Federal funds sold and other interest-bearing assets                21,581        19,384
Securities:
Taxable                                                            326,097       335,564
Tax-exempt                                                         110,691       104,995

Totals                                                           1,809,239     1,744,705

INTEREST-BEARING LIABILITIES:
Interest-bearing deposits                                        1,238,156     1,248,812
Borrowed funds, federal funds purchased and securities sold
under agreements to repurchase and other interest-bearing
liabilities                                                        370,358       293,087

Totals                                                           1,608,514     1,541,899

Net amounts                                                    $   200,725   $   202,806

                                                  ($ in Thousands)             Yields Earned And
                                                    Interest For                 Rates Paid (%)
                                             Year Ended      Year Ended     Year Ended    Year Ended
                                              12/31/08        12/31/07       12/31/08      12/31/07
EARNING ASSETS:
Net loans                                   $     81,533    $     99,591          6.04          7.75
Federal funds sold and other
interest-bearing assets                              492             970          2.28          5.00
Securities:
Taxable                                           16,296          17,173          5.00          5.12
Tax-exempt                                         4,536           4,379          4.10          4.17

Totals                                           102,857         122,113          5.69          7.00

INTEREST-BEARING LIABILITIES:
Interest-bearing deposits                         35,682          49,945          2.88          4.00
Borrowed funds, federal funds purchased
and securities sold under agreements to
repurchase and other interest-bearing
liabilities                                       11,648          14,900          3.15          5.08
. . .