experienced increased growth in our higher cost certificate of deposit balances than in any other category. This increase in reliance on higher cost deposits has contributed to a reduced net interest margin between the two periods. Capital and Liquidity. At March 31, 2009, our capital ratios, including our bank's capital ratios, met regulatory minimum capital requirements. Additionally, at March 31, 2009, our bank would be considered to be "well-capitalized" pursuant to banking regulations. As our bank grows it may require additional capital from us over that which can be earned through operations. We anticipate that we will continue to use various capital raising techniques in order to support the growth of our bank.
During 2008, we increased our capital accounts through our participation in the U.S. Department of Treasury's Capital Purchase Program (the "CPP"). As a result of our participation in the CPP, we issued 95,000 shares of preferred stock for $95 million. Additionally, we issued 534,910 common stock warrants to the U.S. Treasury as a condition to our participation in the CPP. The warrants have an exercise price of $26.64 each, are immediately exercisable and expire 10 years from the date of issuance. The common stock warrants have been assigned a fair value of $6.7 million as of December 12, 2008. As a result, $6.7 million has been recorded as the discount on the preferred stock issued in the CPP which will be accreted as a reduction in net income available for common stockholders over the next five years at approximately $1.1 million to $1.3 million per year. The resulting $88.3 million has been assigned to the Series A preferred stock issued in the CPP and will be accreted up to the redemption amount of $95 million over the next five years.
Additionally, during 2008, we sold one million shares of our common stock for $21.5 million which also increased our capital accounts. In the past, we have been successful in procuring additional capital from the capital markets (via public and private offerings of trust preferred securities and common stock). This additional capital was required to support our growth. As of March 31, 2009, we believe we have access to sufficient capital to support our current growth plans. However, expansion by acquisition of other banks or by branching into a new geographic market or by redemption of the preferred shares issued in connection with our participation in the CPP (which we may redeem at anytime subject to prior consultation with our primary federal regulator), could result in issuance of additional capital, including additional common shares. Critical Accounting Estimates
The accounting principles we follow and our methods of applying these principles conform with U.S. generally accepted accounting principles and with general practices within the banking industry. In connection with the application of those principles, we have made judgments and estimates which, in the case of the determination of our allowance for loan losses and the assessment of impairment of the intangibles resulting from our mergers with Mid-America Bancshares, Inc. ("Mid-America") and Cavalry Bancorp, Inc. ("Cavalry") have been critical to the determination of our financial position and results of operations.
Allowance for Loan Losses ("allowance"). Our management assesses the adequacy of the allowance prior to the end of each calendar quarter. This assessment includes procedures to estimate the allowance and test the adequacy and appropriateness of the resulting balance. The level of the allowance is based upon management's evaluation of the loan portfolios, past loan loss experience, current asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay (including the timing of future payment), the estimated value of any underlying collateral, composition of the loan portfolio, economic conditions, industry and peer bank loan quality indications and other pertinent factors, including regulatory recommendations. This evaluation is inherently subjective as it requires material estimates including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. Loan losses are charged off when management believes that the full collectability of the loan is unlikely. A loan may be partially charged-off after a "confirming event" has occurred which serves to validate that full repayment pursuant to the terms of the loan is unlikely. Allocation of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management's judgment, is deemed to be uncollectible. Larger balance commercial and commercial real estate loans are impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Collection of all amounts due according to the contractual terms means that both the interest and principal payments of a loan will be collected as scheduled in the loan agreement.
An impairment allowance is recognized if the fair value of the loan is less than the recorded investment in the loan (recorded investment in the loan is the principal balance plus any accrued interest, net of deferred loan fees or costs and unamortized premium or discount). The impairment is recognized through the allowance. Loans that are impaired are recorded at the present value of expected future cash flows discounted at the loan's effective interest rate, or if the loan is collateral dependent, impairment measurement is based on the fair value of the collateral, less estimated disposal costs. Management believes it follows appropriate accounting and regulatory guidance in determining impairment and accrual status of impaired loans.

The level of allowance maintained is believed by management to be adequate to absorb probable losses inherent in the portfolio at the balance sheet date. The allowance is increased by provisions charged to expense and decreased by charge-offs, net of recoveries of amounts previously charged-off.
In assessing the adequacy of the allowance, we also consider the results of our ongoing independent loan review process. We undertake this process both to ascertain whether there are loans in the portfolio whose credit quality has weakened over time and to assist in our overall evaluation of the risk characteristics of the entire loan portfolio. Our loan review process includes the judgment of management, the input from our independent loan reviewers, and reviews that may have been conducted by bank regulatory agencies as part of their usual examination process. We incorporate loan review results in the determination of whether or not it is probable that we will be able to collect all amounts due according to the contractual terms of a loan. As part of management's quarterly assessment of the allowance, management divides the loan portfolio into four segments: commercial, commercial real estate, consumer and consumer real estate. Each segment is then analyzed such that an allocation of the allowance is estimated for each loan segment. The allowance allocation for commercial and commercial real estate loans begins with a process of estimating the probable losses inherent for these types of loans. The estimates for these loans are established by category and based on our internal system of credit risk ratings and historical loss data. The estimated loan loss allocation rate for our internal system of credit risk grades for commercial and commercial real estate loans is based on management's experience with similarly graded loans, discussions with banking regulators and industry loss factors. During the year ended December 31, 2008, we also performed a migration analysis of all loans that were charged-off during the previous two years. A migration analysis assists in evaluating loan loss allocation rates for the various risk grades assigned to loans in our portfolio. We incorporated the migration analysis along with other factors to determine the loss allocation rates for the commercial and commercial real estate portfolios. Subsequently, we weighted the allocation methodologies for the commercial and commercial real estate portfolios and determined a weighted average allocation for these portfolios.
The allowance allocation for consumer and consumer real estate loans which includes installment, home equity, consumer mortgages, automobiles and others is established for each of the categories by estimating probable losses inherent in that particular category of consumer and consumer real estate loans. The estimated loan loss allocation rate for each category is based on management's experience, consideration of our actual loss rates, industry loss rates and loss rates of various peer bank groups. Consumer and consumer real estate loans are evaluated as a group by category (i.e. retail real estate, installment, etc.) rather than on an individual loan basis because these loans are smaller and homogeneous. We weight the allocation methodologies for the consumer and consumer real estate portfolios and determine a weighted average allocation for these portfolios.
The estimated loan loss allocation for all four loan portfolio segments is then adjusted for management's estimate of probable losses for several "environmental" factors. The allocation for environmental factors is particularly subjective and does not lend itself to exact mathematical calculation. This amount represents estimated probable inherent credit losses which exist, but have not yet been identified, as of the balance sheet date, and are based upon quarterly trend assessments in delinquent and nonaccrual loans, unanticipated charge-offs, credit concentration changes, prevailing economic conditions, changes in lending personnel experience, changes in lending policies or procedures and other influencing factors. These environmental factors are considered for each of the four loan segments and the allowance allocation, as determined by the processes noted above for each component, is increased or decreased based on the incremental assessment of these various "environmental" factors.
The assessment also includes an unallocated component. We believe that the unallocated amount is warranted for inherent factors that cannot be practically assigned to individual loan categories. An example is the imprecision in the overall measurement process, in particular the volatility of the national and local economy.
We then test the resulting allowance by comparing the balance in the allowance to historical trends and industry and peer information. Our management then evaluates the result of the procedures performed, including the result of our testing, and concludes on the appropriateness of the balance of the allowance in its entirety. The audit committee of our board of directors reviews and approves the assessment prior to the filing of quarterly and annual financial information.
Impairment of Intangible Assets - Long-lived assets, including purchased intangible assets subject to amortization, such as our core deposit intangible asset, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its

estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated.
Goodwill and intangible assets that have indefinite useful lives are evaluated for impairment annually and are evaluated for impairment more frequently if events and circumstances indicate that the asset might be impaired. That annual assessment date is September 30. An impairment loss is recognized to the extent that the carrying amount exceeds the asset's fair value. The goodwill impairment analysis is a two-step test. The first step, used to identify potential impairment, involves comparing each reporting unit's estimated fair value to its carrying value, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying value, goodwill is considered not to be impaired. If the carrying value exceeds estimated fair value, there is an indication of potential impairment and the second step is performed to measure the amount of impairment.
If required, the second step involves calculating an implied fair value of goodwill for each reporting unit for which the first step indicated impairment. The implied fair value of goodwill is determined in a manner similar to the amount of goodwill calculated in a business combination, by measuring the excess of the estimated fair value of the reporting unit, as determined in the first step, over the aggregate estimated fair values of the individual assets, liabilities and identifiable intangibles as if the reporting unit was being acquired in a business combination. If the implied fair value of goodwill exceeds the carrying value of goodwill assigned to the reporting unit, there is no impairment. If the carrying value of goodwill assigned to a reporting unit exceeds the implied fair value of the goodwill, an impairment charge is recorded for the excess. An impairment loss cannot exceed the carrying value of goodwill assigned to a reporting unit, and the loss establishes a new basis in the goodwill.
Our stock price has historically traded above its book value per common share and tangible book value per common share and was trading above its book value per common share and tangible book value per common share as of March 31, 2009. In the event our stock price were to trade below its book value per common share and tangible book value per common share, we would perform our usual evaluation of the carrying value of goodwill as of the reporting date. Such a circumstance would be one factor in our evaluation that could result in an eventual goodwill impairment charge. Additionally, should our future earnings and cash flows decline and/or discount rates increase, an impairment charge to goodwill and other intangible assets may also be required. Results of Operations
The following is a summary of our results of operations (dollars in thousands):

                                                                                               2009-2008
                                                               Three months ended               Percent
                                                                   March 31,                   Increase
                                                             2009              2008           (decrease)

Interest income                                           $ 49,518          $ 52,161               -5.1 %
Interest expense                                            20,818            24,802              -16.1 %

Net interest income                                         28,700            27,359                4.9 %
Provision for loan losses                                   13,610             1,591              755.4 %

Net interest income after provision for loan losses         15,090            25,768              -41.4 %
Noninterest income                                          13,136             8,367               57.0 %
Noninterest expense                                         25,243            25,491               -1.0 %

Net income before income taxes                               2,983             8,644              -65.5 %
Income tax expense                                             893             2,579              -65.4 %

Net income                                                   2,090             6,065              -65.5 %

Preferred dividends and preferred stock discount
accretion                                                    1,447                 -

Net income available to common shareholders               $    643          $  6,065              -89.4 %

Basic net income per common share available to
common stockholders                                       $   0.03          $   0.27              -88.9 %

Diluted net income per common share available to
common stockholders                                       $   0.03          $   0.26              -88.5 %

Net Interest Income. Net interest income represents the amount by which interest earned on various earning assets exceeds interest paid on deposits and other interest bearing liabilities and is the most significant component of our earnings. For the three months ended March 31, 2009 and 2008, we recorded net interest income of $28.7 million and $27.4 million respectively, which resulted in a net interest margin of 2.72% and 3.37%.
The following table sets forth the amount of our average balances, interest income or interest expense for each category of interest-earning assets and interest-bearing liabilities and the average interest rate for total interest-earning assets and total interest-bearing liabilities, net interest spread and net interest margin for the three months ended March 31, 2009 and 2008 (dollars in thousands):

                                        Three months ended                                 Three months ended
(dollars in thousands)                    March 31, 2009                                     March 31, 2008
                              Average                           Rates/           Average                           Rates/
                             Balances          Interest         Yields          Balances          Interest         Yields

Interest-earning
assets:
Loans                       $ 3,416,462        $  38,526           4.57 %      $ 2,761,745        $  45,392           6.61 %
Securities:
Taxable                         716,317            9,088           5.15 %          367,125            4,637           5.12 %
Tax-exempt (1)                  147,963            1,475           5.33 %          136,690            1,351           5.24 %
Federal funds sold and
other                            73,435              429           2.57 %           58,892              781           5.56 %

Total interest-earning
assets                        4,354,177           49,518           4.66 %        3,324,452           52,161           6.37 %

Nonearning assets
Intangible assets               260,729                                            258,807
Other nonearning
assets                          254,484                                            190,783

Total assets                $ 4,869,390                                        $ 3,774,042


Interest-bearing
liabilities:
Interest bearing
deposits
Interest checking           $   359,524        $     428           0.48 %      $   404,307        $   2,129           2.12 %
Savings and money
market                          715,704            1,940           1.10 %          735,899            4,098           2.24 %
Time                          2,155,478           15,366           2.89 %        1,372,899           14,859           4.35 %

Total interest bearing
deposits                      3,230,706           17,734           2.23 %        2,513,105           21,086           3.37 %
Securities sold under
agreements to
repurchase                      229,918              361           0.64 %          169,146              832           1.98 %
Federal Home Loan Bank
advances and other
borrowings                      234,887            1,571           2.71 %          143,802            1,426           3.99 %
Subordinated debt                97,476            1,152           4.80 %           82,476            1,458           7.11 %

Total interest-bearing
liabilities                   3,792,987           20,818           2.23 %        2,908,529           24,802           3.43 %
Noninterest-bearing
deposits                        417,861                -              -            368,413                -              -

Total deposits and
interest-bearing
liabilities                   4,210,848           20,818           2.01 %        3,276,942           24,802           3.04 %

Other liabilities                24,061                                             22,661
Stockholders' equity            634,481                                            474,439

Total liabilities and
stockholders' equity        $ 4,869,390                                        $ 3,774,042

Net interest income                            $  28,700                                          $  27,359

Net interest spread
(2)                                                                2.43 %                                             2.94 %
Net interest margin
(3)                                                                2.72 %                                             3.37 %

(1) Yields computed on tax-exempt instruments on a tax equivalent basis.

(2) Yields realized on interest-earning assets less the rates paid on interest-bearing liabilities.

(3) Net interest margin is the result of annualized net interest income calculated on a tax-equivalent basis divided by average interest-earning assets for the period.

As noted above, the net interest margin for the three months ended March 31, 2009 was 2.72%, compared to a net interest margin of 3.37% for the same period in 2008. Our net interest margin for the three months ended March 31, 2009 was 19.3% less than our margin during the same period in the previous year. The reduction in the net interest margin was significant as the net decreases in the yield on interest-earning assets was 171 basis points compared to the decrease in the rate paid on total deposits and interest-bearing liabilities of only 103 basis points. Other matters related to the changes in net interest income, net interest yields and rates, and net interest margin are presented below:
• Our loan yields were 2.04% less during the three months ended March 31, 2009 when compared to the same period in 2008. A significant amount of our loan portfolio has variable rate pricing with a large portion of these loans tied to our prime lending rate. Our weighted average prime rate for the three months ended March 31, 2009 was 3.25% compared to 6.22% for the same period in 2008 reflecting the reduction of the Federal Funds rate between these periods. Our prime lending rate moves in concert with the Federal Reserve's changes to its Federal funds rate. The reduction in loan rates had a negative impact on our margin when comparing the three months ended March 31, 2009 with the same period in 2008.

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