BANCTRUST FINANCIAL GROUP INC - FORM 10-Q

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EX-32.2 - EXHIBIT 32.2 - BANCTRUST FINANCIAL GROUP INC	a6721920ex322.htm
EX-31.2 - EXHIBIT 31.2 - BANCTRUST FINANCIAL GROUP INC	a6721920ex312.htm
EX-31.1 - EXHIBIT 31.1 - BANCTRUST FINANCIAL GROUP INC	a6721920ex311.htm
EX-32.1 - EXHIBIT 32.1 - BANCTRUST FINANCIAL GROUP INC	a6721920ex321.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2011 or

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

For the transition period from ______ to _______

Commission File Number:	0-15423

BANCTRUST FINANCIAL GROUP, INC.
(Exact name of registrant as specified in its charter)

Alabama	63-0909434
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

100 St. Joseph Street, Mobile, Alabama	36602
(Address of principal executive offices)	(Zip Code)

(251) 431-7800
(Registrant's telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

______________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act:

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Shares of common stock ($0.01 par) outstanding at May 9, 2011: 17,983,482

BANCTRUST FINANCIAL GROUP, INC. AND SUBSIDIARIES

INDEX TO FORM 10 - Q

PART I.	Financial Information		Page Number

	Item 1 - Financial Statements

		Unaudited Condensed Consolidated Statements of Condition - March 31, 2011 and December 31, 2010	1

		Unaudited Condensed Consolidated Statements of Operations - Three Months Ended March 31, 2011 and 2010	2

		Unaudited Condensed Consolidated Statements of Shareholders' Equity and Comprehensive Income - Three Months Ended March 31, 2011 and 2010	3

		Unaudited Condensed Consolidated Statements of Cash Flows – Three Months Ended March 31, 2011 and 2010	4

		Notes to Unaudited Condensed Consolidated Financial Statements – March 31, 2011 and 2010	5

	Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations		28

	Item 3 - Quantitative and Qualitative Disclosures about Market Risk		57

	Item 4 - Controls and Procedures		57

PART II.	Other Information		58

	Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds		58

	Item 6 - Exhibits		58

	Signatures		59

	Exhibit Index		60

PART I. FINANCIAL INFORMATION

BANCTRUST FINANCIAL GROUP, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CONDITION

(Dollars and shares in thousands, except per share amounts)	March 31, 2011			December 31, 2010
ASSETS
Cash and Due from Banks	$	31,284		$	25,852
Interest-Bearing Deposits in Other Financial Institutions	96,326				144,022
Securities Available for Sale, at Fair Value	523,475				425,560
Loans Held for Sale	98				5,129

Loans and Leases	1,356,186				1,378,156
Allowance for Loan and Lease Losses	(45,711		)		(47,931	)
Loans and Leases, Net	1,310,475				1,330,225

Premises and Equipment, Net	74,647				75,604
Accrued Income Receivable	6,446				6,485
Other Intangible Assets	4,340				4,632
Cash Surrender Value of Life Insurance	17,201				17,048
Other Real Estate Owned	85,293				82,419
Other Assets	35,175				41,172
Total Assets	$	2,184,760		$	2,158,148

LIABILITIES
Non-Interest-Bearing Demand Deposits	$	254,640		$	224,703
Interest-Bearing Demand Deposits	534,817				505,006
Savings Deposits	138,711				141,738
Large Denomination Time Deposits (of $100 or more)	507,068				528,656
Other Time Deposits	455,832				464,702
Total Deposits	1,891,068				1,864,805
Short-Term Borrowings	20,000				20,000
Federal Home Loan Bank Advances and Long-Term Debt	92,742				92,804
Other Liabilities	16,301				16,609
Total Liabilities	2,020,111				1,994,218

SHAREHOLDERS' EQUITY
Preferred Stock - No Par Value, 500 Shares Authorized, 50 Shares Outstanding in 2011 and 2010	48,284				48,140
Common Stock – Par Value $0.01 Per Share, 100 Shares Authorized, Shares Issued: 2011-18,192; 2010-17,895	182				179
Additional Paid in Capital	194,629				193,901
Accumulated Other Comprehensive Loss, Net	(5,539		)		(5,132	)
Deferred Compensation Payable in Common Stock	894				826
Accumulated Deficit	(70,499		)		(70,750	)
Treasury Stock of 256 Common Shares in 2011 and 2010, at Cost	(2,408		)		(2,408	)
Common Stock Held in Grantor Trust, 151 Shares in 2011 and 124 Shares in 2010	(894		)		(826	)
Total Shareholders' Equity	164,649				163,930
Total Liabilities and Shareholders' Equity	$	2,184,760		$	2,158,148

(See accompanying notes to unaudited condensed consolidated financial statements.)

BANCTRUST FINANCIAL GROUP, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars and shares in thousands, except per share amounts)
		Three Months Ended March 31,
		2011			2010
Interest Revenue:
Loans and Leases		$	17,008		$	18,508
Securities Available for Sale:	Taxable		3,253			2,189
	Non-Taxable		29			97
Other			72			26
Total Interest Revenue			20,362			20,820

Interest Expense:
Deposits			4,457			5,042
Short-Term Borrowings			250			248
FHLB Advances and Long-Term Debt			489			638
Total Interest Expense			5,196			5,928

Net Interest Revenue			15,166			14,892
Provision for Loan Losses			3,500			2,850
Net Interest Revenue after Provision for Loan Losses			11,666			12,042

Non-Interest Revenue:
Service Charges on Deposit Accounts			1,539			1,921
Trust Income			1,045			952
Securities Gains			484			837
Other Income			1,769			1,614
Total Non-Interest Revenue			4,837			5,324

Non-Interest Expense:
Salaries			5,531			5,580
Pensions and Employee Benefits			1,666			1,777
Net Occupancy Expense			1,502			1,442
Furniture and Equipment Expense			896			1,100
Intangible Amortization			292			567
Losses on Other Real Estate Owned			173			162
Gains on Repossessed and Other Assets			(3	)		(206	)
ATM Processing Expense			268			321
FDIC Assessments			1,143			940
Telephone and Data Line Expense			501			377
Legal Expense			352			342
Other Real Estate Carrying Cost Expense			554			694
Other Expense			2,555			2,611
Total Non-Interest Expense			15,430			15,707

Income Before Income Taxes			1,073			1,659
Income Tax Expense			53			534
Net Income			1,020			1,125
Effective Preferred Stock Dividend			769			739
Net Income to Common Shareholders		$	251		$	386
Basic Earnings Per Common Share		$	0.01		$	0.02
Diluted Earnings Per Common Share		$	0.01		$	0.02
Weighted-Average Common Shares Outstanding – Basic			17,754			17,638
Weighted-Average Common Shares Outstanding – Diluted			17,831			17,734

(See accompanying notes to unaudited condensed consolidated financial statements.)

BANCTRUST FINANCIAL GROUP, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE

INCOME - For the Three Months Ended March 31, 2011 and 2010

(Dollars and shares in thousands, except per share amounts)	Preferred Stock		Common Stock Shares Issued		Common Stock Amount		Additional Paid in Capital		Accumulated Other Compre-hensive Loss Net			Deferred Compensation Payable in Common Stock			Accumu-lated Deficit			Treasury Stock			Common Stock Held in Grantor Trust			Total
Balance, January 1, 2011	$	48,140		17,895	$	179	$	193,901	$	(5,132	)	$	826		$	(70,750	)	$	(2,408	)	$	(826	)	$	163,930
Comprehensive income:
Net income																1,020									1,020
Recognized net periodic pension benefit cost, net of taxes										70															70
Change in fair value of securities available for sale, net of taxes										(477	)														(477	)
Total comprehensive income																									613
Amortization of preferred stock discount		144														(144	)								-
Dividends-preferred																(625	)								(625	)
Purchase of deferred compensation shares													73									(73	)		-
Deferred compensation paid in common stock held in grantor trust													(5	)								5			-
Stock compensation expense								26																	26
Common stock issued				297		3		702																	705
Balance, March 31, 2011	$	48,284		18,192	$	182	$	194,629	$	(5,539	)	$	894		$	(70,499	)	$	(2,408	)	$	(894	)	$	164,649

Balance, January 1, 2010	$	47,587		17,890	$	179	$	193,800	$	(3,768	)	$	780		$	(71,592	)	$	(2,408	)	$	(780	)	$	163,798
Comprehensive income:
Net income																1,125									1,125
Recognized net periodic pension benefit cost, net of taxes										74															74
Change in fair value of securities available for sale, net of taxes										425															425
Total comprehensive income																									1,624
Amortization of preferred stock discount		135														(135	)								-
Dividends-preferred																(604	)								(604	)
Purchase of deferred compensation shares													36									(36	)		-
Deferred compensation paid in common stock held in grantor trust													(13	)								13			-
Stock compensation expense								29																	29
Restricted stock fully vested			5																						-
Balance, March 31, 2010	$	47,722		17,895	$	179	$	193,829	$	(3,269	)	$	803		$	(71,206	)	$	(2,408	)	$	(803	)	$	164,847

(See accompanying notes to unaudited condensed consolidated financial statements.)

BANCTRUST FINANCIAL GROUP, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended March 31,
(Dollars in thousands)	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	1,020		$	1,125
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of premises and equipment		1,114			1,265
Amortization and accretion of premiums and discounts, net		756			222
Amortization of intangible assets		292			567
Provision for loan losses		3,500			2,850
Securities gains, net		(484	)		(837	)
Loss on other real estate owned		173			162
Gains on repossessed and other assets		(3	)		(206	)
Gain on sale of loans originated for sale		(213	)		(155	)
Stock compensation expense		26			29
Increase in cash surrender value of life insurance		(153	)		(151	)
Changes in operating assets and liabilities:
Loans originated for sale		(12,484	)		(12,130	)
Loans sold		17,728			13,763
Decrease in accrued income receivable		39			209
Decrease in other assets		6,245			1,451
Decrease in other liabilities		(197	)		(31	)
Net cash provided by operating activities		17,359			8,133
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease (increase) in interest-bearing deposits in other financial institutions		47,696			(82,934	)
Net decrease in loans and leases		12,580			10,024
Proceeds from sales of other real estate owned, net		812			1,278
Purchases of premises and equipment		(157	)		(202	)
Proceeds from sales of securities available for sale		24,498			27,931
Proceeds from maturities of securities available for sale		28,014			22,941
Purchases of securities available for sale		(151,651	)		(72,547	)
Net cash used in investing activities		(38,208	)		(93,509	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits		26,263			82,522
Payments of FHLB advances and long-term debt		(62	)		(57	)
Issuance of common stock		705			-
Dividends paid		(625	)		(604	)
Net cash provided by financing activities		26,281			81,861
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		5,432			(3,515	)
Cash and cash equivalents at beginning of period		25,852			37,287
Cash and cash equivalents at end of period	$	31,284		$	33,772
Supplemental disclosures of cash flow information:
Interest paid	$	5,676		$	6,301
Income taxes (received) paid, net		(5,804	)		4
Supplemental schedule of non-cash investing and financing activity
Loans transferred to other real estate owned		3,859			7,170

(See accompanying notes to unaudited condensed consolidated financial statements.)

BANCTRUST FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2011 AND 2010

Note 1: General Information

The accompanying unaudited condensed consolidated financial statements of BancTrust Financial Group, Inc. and its subsidiary bank (referred to collectively in this discussion as "BancTrust," "the Company," "our," "us" or "we") have been prepared in accordance with U.S. generally accepted accounting principles and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for audited financial statements. The information furnished reflects all adjustments and consolidating entries, consisting of normal and recurring accruals, which in the opinion of management of the Company ("Management") are necessary for a fair presentation of the results for the interim periods. Results for interim periods may not necessarily be indicative of results to be expected for the year or any other period. For further information, refer to the consolidated financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2010.

Estimates

In preparing the consolidated financial statements, Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statement of condition and revenues and expenses for the period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowance for loan and lease losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans.

A substantial portion of the Company's loans are secured by real estate in the Southern two-thirds of Alabama and Northwest Florida. Accordingly, the ultimate collectability of a substantial portion of the Company's loan portfolio is susceptible to changes in market conditions in these areas. Management believes that the allowance for losses on loans and leases is adequate. Management uses available information to recognize losses on loans and leases, and future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for loan and lease losses. Such agencies may require the Company to make changes to the allowance based on their judgment about information available to them at the time of their examination.

Reclassifications

Certain reclassifications of 2010 balances have been made to conform to classifications used in 2011. These reclassifications did not change shareholders' equity or net income.

Note 2: Recent Accounting Pronouncements

In July 2010, the Financial Accounting Standards Board (“FASB”) issued an update to the accounting standards for disclosures associated with credit quality and the allowance for loan and lease losses. This update requires additional disclosures related to the allowance for loan and lease losses with the objective of providing financial statement users with greater transparency about an entity’s loan and lease loss reserves and overall credit quality. Additional disclosures include presenting on a disaggregated basis the aging of receivables, credit quality indicators and troubled debt restructurings and their effect on the allowance for loan and lease losses. The provisions of this update are effective for interim and annual periods ending on or after December 15, 2010, except for the disclosures about activity that occurs during a reporting period, which are effective for interim and annual reporting periods beginning on or after December 15, 2010. The adoption of this updated standard did not have a material impact on the Company’s financial condition or results of operations; however, the updated standard did increase the number of disclosures in the notes to the consolidated financial statements.

In January 2010, the FASB issued an update to the accounting standards for the presentation of fair value disclosures. The new guidance requires disclosures about inputs and valuation techniques for Level 2 and Level 3 fair value measurements, clarifies two existing disclosure requirements and requires two new disclosures as follows: (1) a “gross” presentation of activities (purchases, sales, and settlements) within the Level 3 rollforward reconciliation, which will replace the “net” presentation format; and (2) detailed disclosures about the transfers in and out of Level 1 and Level 2 measurements. This guidance is effective for the first interim or annual reporting period beginning after December 15, 2009, except for the gross presentation of the Level 3 rollforward information, which is required for annual and interim reporting periods beginning after December 15, 2010. The Company adopted the fair value disclosures guidance on January 1, 2010, except for the gross presentation of the Level 3 rollforward information guidance, which was adopted by the Company on January 1, 2011.

In April 2011, the FASB issued an update to the accounting standards to provide additional guidance to assist creditors in determining whether a restructuring is a troubled debt restructuring (“TDR”). The provisions of this update are effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. For purposes of measuring the impairment of newly identified receivables as a result of applying this guidance, an entity should apply the provisions prospectively for the first interim or annual period beginning on or after June 15, 2011. The information required to be disclosed regarding TDRs within the new credit quality disclosures will now be required for interim and annual periods beginning on or after June 15, 2011 as well. The Company is currently evaluating the impact of adoption on its financial position and results of operations, but does not believe that adoption will have a material impact.

Note 3: Securities Available for Sale

The Company classifies all its investment securities as available for sale. The following summary sets forth the amortized cost and the corresponding fair value of investment securities available for sale at March 31, 2011 and December 31, 2010:

(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value

March 31, 2011
U.S. Treasury securities	$	400	$	2	$	0	$	402
Obligations of U.S. Government sponsored enterprises		147,977		28		1,390		146,615
Obligations of states and political subdivisions		2,380		21		0		2,401
Mortgage-backed securities		375,886		2,300		4,129		374,057
Total	$	526,643	$	2,351	$	5,519	$	523,475

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value

December 31, 2010
U.S. Treasury securities	$	400	$	5	$	0	$	405
Obligations of U.S. Government sponsored enterprises		83,537		89		1,193		82,433
Obligations of states and political subdivisions		2,380		22		0		2,402
Mortgage-backed securities		341,648		2,302		3,630		340,320
Total	$	427,965	$	2,418	$	4,823	$	425,560

Securities available for sale with a carrying value of approximately $192.436 million at March 31, 2011 and $175.342 million at December 31, 2010 were pledged to secure deposits of public funds and trust deposits.

For the three months ended March 31, 2011, proceeds from the sales of securities available for sale were $24.498 million. Gross realized gains on the sale of these securities were $484 thousand and there were no gross realized losses. For the three months ended March 31, 2010, proceeds from the sales of securities available for sale were $27.931 million. Gross realized gains on the sale of these securities were $861 thousand and gross realized losses were $24 thousand. The Company did not record any other-than-temporary impairment charge in the first quarters of 2011 or 2010.

Maturities of securities available for sale as of March 31, 2011, were as follows:

(in thousands)	Amortized Cost		Fair Value

Due in 1 year or less	$	27,445	$	26,359
Due in 1 to 5 years		29,461		29,279
Due in 5 to 10 years		26,142		26,130
Due in over 10 years		67,709		67,650
Mortgage-backed securities		375,886		374,057
Total	$	526,643	$	523,475

The following table shows the Company's combined gross unrealized losses on, and fair value of, investment securities with unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2011 and December 31, 2010.

(in thousands)	March 31, 2011
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Obligations of U.S. Government sponsored enterprises	$	113,537	$	1,390	$	0	$	0	$	113,537	$	1,390
Mortgage-backed securities		167,230		3,350		3,367		779		170,597		4,129
Total	$	280,767	$	4,740	$	3,367	$	779	$	284,134	$	5,519

	December 31, 2010
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Obligations of U.S. Government sponsored enterprises	$	56,633	$	1,193	$	0	$	0	$	56,633	$	1,193
Mortgage-backed securities		120,936		2,849		3,556		781		124,492		3,630
Total	$	177,569	$	4,042	$	3,556	$	781	$	181,125	$	4,823

At March 31, 2011, the Company had 43 investment securities that were in an unrealized loss position or impaired for the less than 12 months time frame and one investment security in an unrealized loss position or impaired for the more than 12 months time frame. The Company has one bond whose impairment was deemed in 2009 to be other-than-temporary. All other investment securities' impairments are deemed by Management to be temporary. All mortgage-backed securities are backed by one-to-four-family mortgages, and approximately 99.1 percent of the mortgage-backed securities represent U.S. Government-sponsored enterprise securities. These securities have fluctuated with the changes in market interest rates on home mortgages. Additionally, the fair value of the Company’s only non-U.S. government-sponsored enterprise mortgage-backed security has been negatively affected by liquidity risk considerations and by concerns about potential default and delinquency risk of the underlying individual mortgage loans. The Company has credit support from subordinate tranches of this security, but the Company concluded in 2009 that a portion of its unrealized loss position is other-than-temporary. Accordingly, the Company recorded an impairment charge related to potential credit loss of $400 thousand in 2009 on this security. The amount related to credit loss was determined based on a discounted cash flow method that takes into account several factors including default rates, prepayment rates, delinquency rates, and foreclosure and loss severity of the underlying collateral. Changes in these factors in the future could result in an increase in the amount deemed to be credit-related other-than-temporary impairment, which would result in the Company recognizing additional impairment charges to earnings for this security. Additionally, the Company recorded $779 thousand and $781 thousand in accumulated other comprehensive loss (pre-tax) related to this security at March 31, 2011 and December 31, 2010, respectively. No credit-related other-than-temporary impairment occurred during the three month periods ended March 31, 2011 and 2010. Management will continue to closely monitor this security. The security has an estimated fair value of $3.367 million and represents all of the unrealized losses at March 31, 2011 in the greater than 12 months category. Management believes that the fair value of obligations of U.S. government sponsored enterprises and obligations of state and political subdivisions has changed due to current market conditions and not due to credit concerns related to the issuers of the securities. The Company does not believe any credit-related other-than-temporary impairments exist related to these investment securities. As of March 31, 2011, there was no intent to sell any of the securities classified as available for sale. Furthermore, Management does not believe it is likely that the Company will be required to sell such securities before a recovery of the carrying value.

Note 4. Loans, Leases and Other Real Estate Owned

A summary of loans and leases follows:


	March 31,			December 31,
	2011			2010
	(Dollars in thousands)
Commercial, financial and agricultural:
Commercial and industrial	$	281,327		$	279,422
Agricultural		3,151			3,450
Equipment leases		17,768			19,407
Total commercial, financial and agricultural		302,246			302,279

Commercial real estate:
Commercial construction, land and land development		314,519			315,079
Other commercial real estate		406,437			417,700
Total commercial real estate		720,956			732,779

Residential real estate:
Residential construction		18,471			20,745
Residential mortgage		254,434			263,472
Total residential real estate		272,905			284,217

Consumer, installment and single pay:
Consumer		52,059			54,934
Other		8,676			9,849
Total consumer, installment and single pay		60,735			64,783

Total loans and leases		1,356,842			1,384,058
Less unearned discount leases		(1,783	)		(2,032	)
Less deferred cost (unearned loan fees), net		1,225			1,259
Total loans and leases, net	$	1,356,284		$	1,383,285

Loans include loans held for sale of $98 thousand at March 31, 2011 and $5.129 million at December 31, 2010 which are accounted for at the lower of cost or market value, in the aggregate.

The following section describes the composition of the various categories in our loan and lease portfolio and discusses management of risk in these categories.

Commercial and Industrial loans, or C and I loans, include loans to commercial customers for use in normal business to finance working capital needs, equipment purchases, or other expansion projects. These credits are typically loans and lines secured by inventories, equipment, or receivables, or secured in whole or in part by real estate unrelated to the principal purpose of the loan, and they are generally guaranteed by the principals of the borrower. Variable rate loans in this portfolio have interest rates that are periodically adjusted. Risk is minimized in this portfolio by requiring adequate cash flow to service the debt and the personal guaranties of principals of the borrowers.

Equipment Leases include leases that were acquired with the acquisition of The Peoples Bank and Trust Company. BankTrust is not actively engaged in equipment leasing. These loans are secured by the equipment being leased and are being paid over a relatively short period.

Commercial Real Estate loans include commercial construction loans, land loans, and land development loans, and other commercial real estate loans.

Commercial construction, land, and land development loans include loans for the development of residential housing projects, loans for the development of commercial and industrial use property, and loans for the purchase and improvement of raw land. These loans are secured in whole or in part by the underlying real estate collateral and are generally guaranteed by the principals of the borrower. The Bank’s lenders work to cultivate long-term relationships with established developers. We disburse funds for construction projects as pre-specified stages of construction are completed.

Risk is minimized in this portfolio by requiring a review of the borrower’s financial data and verification of the borrower’s income prior to making a commitment to fund the loan. Personal guaranties are obtained for substantially all construction loans to builders. Personal financial statements of guarantors are obtained as part of the loan underwriting process. For construction loans, regular site inspections are performed upon completion of each construction phase, prior to advancing additional funds for additional phases. Commercial construction and commercial real estate loans have been curtailed over the past two years due to the downturn in the real estate market.

Residential Construction loans include loans to individuals for the construction of their residences, either primary or secondary, where the borrower is the owner and independently engages the builder. Residential construction loans also include loans to builders for the construction of one-to-four family residences where the collateral, a proposed one-to-four family dwelling, is the primary source of repayment. These loans are made to builders to finance the construction of homes that are either pre-sold or those that are built on a speculative basis, although speculative lending in this category has been strictly limited and controlled over the past two to three years. Loan proceeds are disbursed incrementally as construction is completed.

Residential Mortgage loans include conventional mortgage loans on one-to-four family residential properties. These properties may serve as the borrower’s primary residence, vacation home, or investment property. We sell the majority of our residential mortgage loans originated with terms to maturity of 15 years or greater in the secondary market. We generally originate fixed and adjustable rate residential mortgage loans using secondary market underwriting and documentation standards. Also included in this portfolio are home equity loans and lines of credit. This type of lending, which is secured by a first or second mortgage on the borrower’s residence, allows customers to borrow against the equity in their home. Risk is minimized in this portfolio by reviewing the borrower’s financial data and ability to meet both existing financial obligations and the proposed loan obligation, and by verification of the borrower’s income. The Bank does not engage in subprime lending.

Consumer loans include a variety of secured and unsecured personal loans including automobile loans, marine loans, loans for household and personal purpose, and all other direct consumer installment loans. Risk is minimized in this portfolio by reviewing the borrower’s financial data, ability to meet existing obligations and the proposed loan obligation, and verification of the borrower’s income. Repossessions and chargeoffs have been minimal in this portfolio since December 31, 2010.

Other loans comprise primarily short-term loans to municipalities to fund operating expenses during periods prior to revenue collection, and capital projects.

Non-Accrual Loans

At March 31, 2011 and December 31, 2010, non-accrual loans totaled $109.907 million and $103.084 million, respectively, which included non-accruing restructured loans of $3.832 million and $3.088 million, respectively. The allowance for loan and lease losses allocated to restructured loans at March 31, 2011 and December 31, 2010 was $331 thousand and $281 thousand, respectively. The amount of interest income that would have been recorded during the first three months of 2011, if these non-accrual loans had been current in accordance with their original terms, was $1.518 million. The amount of interest income actually recognized on these loans during the first three months of 2011 was $61 thousand. At March 31, 2011 and December 31, 2010, performing restructured loans totaled $3.127 million and $3.430 million, respectively. There was no material effect on interest income recognition as a result of the modification of these loans.

Non-accrual loans at March 31, 2011 and December 31, 2010, segregated by class of loans, were as follows:

LOANS ON NON-ACCRUAL

	March 31,		December 31,
	2011		2010
	(Dollars in thousands)
Non-accrual loans:
Commercial, financial and agricultural	$	2,857	$	3,883
Commercial real estate:
Construction, land and land development		77,289		69,349
Other		11,048		10,105
Consumer		441		477
Residential:
Construction		1,542		1,864
Mortgage		16,730		17,406
Total non-accrual loans	$	109,907	$	103,084

An age analysis of past due loans, segregated by class of loans, as of March 31, 2011 and December 31, 2010, was as follows:

AGE ANALYSIS OF PAST DUE LOANS

March 31, 2011
(Dollars in thousands)
	30-89 days past due		Greater than 90 days past due		Total past due		Current		Total loans		Loans over 90 days and accruing
Loans:
Commercial, financial and agricultural	$	2,096	$	2,857	$	4,953	$	297,293	$	302,246	$	0
Commercial real estate:
Construction, land and land development		5,108		77,289		82,397		232,122		314,519		0
Other		6,078		11,048		17,126		389,311		406,437		0
Consumer		974		441		1,415		59,320		60,735		0
Residential
Construction		0		1,542		1,542		16,929		18,471		0
Mortgage		5,054		16,730		21,784		232,650		254,434		0
Total	$	19,310	$	109,907	$	129,217	$	1,227,625	$	1,356,842	$	0

December 31, 2010
(Dollars in thousands)
	30-89 days past due		Greater than 90 days past due		Total past due		Current		Total loans		Loans over 90 days and accruing
Loans:
Commercial, financial and agricultural	$	1,088	$	3,883	$	4,971	$	297,308	$	302,279	$	0
Commercial real estate:
Construction, land and land development		3,002		69,349		72,351		242,728		315,079		0
Other		5,608		10,105		15,713		401,987		417,700		0
Consumer		667		477		1,144		63,639		64,783		0
Residential
Construction		0		1,864		1,864		18,881		20,745		0
Mortgage		2,690		17,406		20,096		243,376		263,472		0
Total	$	13,055	$	103,084	$	116,139	$	1,267,919	$	1,384,058	$	0

Impaired Loans

Loans are considered impaired when, based on current information, it is probable that all amounts contractually due, including scheduled principal and interest payments, are not likely to be collected. Factors considered by management in determining if a loan is impaired include payment status, probability of collecting scheduled principal and interest payments when due and value of collateral for collateral dependent loans. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. All loans placed on non-accrual status are considered to be impaired. If a loan is impaired, a specific valuation allowance is allocated to that loan in the allowance for loan and lease losses, if necessary, based on the present value of estimated future cash flows using the loan’s existing rate, or the fair value of the collateral if repayment is expected solely from the collateral. Impaired loans, or portions thereof, are charged off when deemed uncollectible.

Information on impaired loans at March 31, 2011 and December 31, 2010 follows. Additionally, partial charge-offs of impaired loans that did not have specific allowances for loan losses were $4.126 million at March 31, 2011 and $2.183 million at December 31, 2010.

IMPAIRED LOANS March 31, 2011
(Dollars in thousands)
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
Impaired Loans:

With no related allowance recorded:
Commercial, financial and agricultural	$	719	$	1,176	$	0	$	798	$	1
Commercial real estate construction, land and land development		19,012		21,570		0		18,756		0
Commercial real estate other		9,537		9,537		0		7,848		7
Consumer		0		0		0		0		0
Residential construction		1,173		1,173		0		1,480		0
Residential mortgage		8,344		9,455		0		7,658		15
Total		38,785		42,911		0		36,540		23

With a related allowance recorded:
Commercial, financial and agricultural		1,422		1,463		709		1,857		0
Commercial real estate construction, land and land development		56,566		59,883		12,888		53,089		38
Commercial real estate other		3,462		3,462		354		5,105		31
Consumer		47		47		24		50		1
Residential construction		369		369		11		548		0
Residential mortgage		6,439		6,515		1,662		6,773		1
Total		68,305		71,739		15,648		67,422		71

Total commercial		90,718		97,091		13,951		87,453		77
Total consumer		47		47		24		50		1
Total residential		16,325		17,512		1,673		16,459		16
Total Impaired Loans	$	107,090	$	114,650	$	15,648	$	103,962	$	94

December 31, 2010
(Dollars in thousands)
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
Impaired Loans:

With no related allowance recorded:
Commercial, financial and agricultural	$	878	$	878	$	0	$	1,037	$	40
Commercial real estate construction, land and land development		18,500		19,851		0		23,430		95
Commercial real estate other		6,159		6,159		0		9,097		94
Consumer		0		0		0		0		0
Residential construction		1,787		1,787		0		1,565		10
Residential mortgage		6,972		7,804		0		5,515		49
Total		34,296		36,479		0		40,644		288

With a related allowance recorded:
Commercial, financial and agricultural		2,292		2,292		1,140		2,852		1
Commercial real estate construction, land and land development		49,611		52,928		13,121		46,993		276
Commercial real estate other		6,749		6,749		636		7,336		198
Consumer		53		53		27		50		3
Residential construction		726		726		68		741		0
Residential mortgage		7,108		7,184		2,052		9,026		49
Total		66,539		69,932		17,044		66,998		527

Total commercial		84,189		88,857		14,897		90,745		704
Total consumer		53		53		27		50		3
Total residential		16,593		17,501		2,120		16,847		108
Total Impaired Loans	$	100,835	$	106,411	$	17,044	$	107,642	$	815

Credit Quality Indicators

A risk grading matrix is utilized to assign a risk grade to each loan. Loans are graded on a scale of 1 to 9. A description of the general characteristics of the 9 risk grades follows:

●

Grades 1 and 2 – These grades include “excellent” loans which are virtually risk-free and are secured by cash-equivalent instruments or readily marketable collateral, or are within guidelines to borrowers with liquid financial statements. These loans have excellent sources of repayment with no significant identifiable risk of collection, and conform in all respects to Bank policy, guidelines, underwriting standards and regulations.

●

Grade 3 – This grade includes “guideline” loans that have excellent sources of repayment, with no significant identifiable risk of collection, and that conform to Bank policy, guidelines, underwriting standards, and regulations. These loans have documented historical cash flow that meets or exceeds minimum guidelines and have adequate secondary sources to repay the debt.

●

Grade 4 – This grade includes “satisfactory” loans that have adequate sources of repayment with little identifiable risk of collection. These loans generally conform to Bank policy, guidelines and underwriting standards with limited exceptions that have been adequately mitigated by other factors, and they have documented historical cash flow that meets or exceeds minimum guidelines and adequate secondary sources to repay the debt.

●

Grade 5 – This grade includes “low satisfactory” loans that show signs of weakness in either adequate sources of repayment or collateral, but have demonstrated mitigating factors that minimize the risk of delinquency or loss. These loans have additional exceptions to Bank policy, guidelines or underwriting standards that have been properly mitigated by other factors, unproved or insufficient primary sources of repayment that appear sufficient to service the debt at the time, or marginal or unproven secondary sources to repay the debt.

Consumer loans with grades 1 through 5 are identified as “Pass.”

●

Grade 6 – This grade includes “special mention” loans that are currently protected but are potentially weak. These loans have potential or actual weaknesses that may weaken the asset or inadequately protect the Bank’s credit position at some future date. These loans may have well-defined weaknesses in the primary repayment source but are protected by the secondary source of repayment.

●

Grade 7 – This grade includes “substandard” loans that are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the repayment of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

●

Grade 8 – This grade includes “doubtful” loans that have all the weaknesses inherent in those classified as substandard with the added characteristic that the weaknesses make collection or repayment in full, on the basis of currently known facts, conditions, and values, highly questionable and improbable.

●

Grade 9 – This grade includes “loss” loans that are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value but rather that it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be realized in the future.

The Bank did not have any loss (grade 9) loans at March 31, 2011 or December 31, 2010.

The tables below set forth credit exposure for the commercial and consumer residential portfolio based on internally assigned grades, and the consumer portfolio based on payment activity at March 31, 2011 and December 31, 2010. These tables reflect continuing issues with credit quality, primarily in the Company’s coastal markets.

COMMERCIAL CREDIT EXPOSURE

CREDIT RISK PROFILE BY INTERNALLY ASSIGNED GRADE

	Commercial, Financial and Agricultural				Commercial Real Estate- Construction, Land and Land Development				Commercial Real Estate- Other
	March 31,		December 31,		March 31,		December 31,		March 31,		December 31,
	2011		2010		2011		2010		2011		2010
	(Dollars in thousands)
Grade:
Excellent	$	7,208	$	6,587	$	306	$	296	$	1,620	$	2,345
Guideline		84,005		84,378		20,551		21,450		110,923		118,051
Satisfactory		76,117		77,401		18,470		18,824		124,460		130,520
Low satisfactory		108,897		107,207		128,944		129,242		129,777		130,016
Special mention		15,618		15,700		10,653		17,811		13,722		11,980
Substandard		10,375		10,980		135,595		127,456		25,915		24,766
Doubtful		26		26		0		0		20		22
Loss		0		0		0		0		0		0
Total	$	302,246	$	302,279	$	314,519	$	315,079	$	406,437	$	417,700

CONSUMER RESIDENTIAL CREDIT EXPOSURE

CREDIT RISK PROFILE BY INTERNALLY ASSIGNED GRADE

	Residential - Construction				Residential - Mortgage
	March 31,		December 31,		March 31,		December 31,
	2011		2010		2011		2010
	(Dollars in thousands)
Grade:
Pass	$	16,929	$	18,881	$	215,377	$	222,943
Special mention		0		0		8,692		10,334
Substandard		1,542		1,864		30,278		30,100
Doubtful		0		0		87		95
Total	$	18,471	$	20,745	$	254,434	$	263,472

CONSUMER CREDIT EXPOSURE

CREDIT RISK PROFILE BASED ON PAYMENT ACTIVITY

	Consumer
	March 31,		December 31,
	2011		2010
	(Dollars in thousands)
Grade:
Performing	$	60,294	$	64,306
Non-performing		441		477
Total	$	60,735	$	64,783

The following table sets forth certain information with respect to the Company’s recorded investment in loans and the allocation of the Company’s allowance for loan and lease losses, charge-offs and recoveries by loan category as of March 31, 2011 and December 31, 2010. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

ALLOWANCE FOR LOAN AND LEASE LOSSES AND RECORDED INVESTMENT IN LOANS

March 31, 2011
(Dollars in thousands)
	Commercial, Financial and Agricultural		Commercial Real Estate		Residential		Consumer			Unallocated			Total

Allowance for loan and lease losses -
Balance at beginning of year	$	5,429	$	31,431	$	6,669	$	890		$	3,512		$	47,931
Charge-offs		1,088		3,982		811		50			0			5,931
Recoveries		14		147		8		42			0			211
Provision charged to operating expense		776		3,245		604		(223	)		(902	)		3,500
Balance at end of period	$	5,131	$	30,841	$	6,470	$	659		$	2,610		$	45,711

Period-end amount allocated to:
Loans individually evaluated for impairment	$	709	$	13,242	$	1,673	$	24		$	0		$	15,648
Other loans not individually evaluated		4,422		17,599		4,797		635			2,610			30,063
Ending balance	$	5,131	$	30,841	$	6,470	$	659		$	2,610		$	45,711

Loans -
Loans individually evaluated for impairment	$	2,141	$	88,577	$	16,325	$	47		$	0		$	107,090
Other loans not individually evaluated		300,105		632,379		256,580		60,688			0			1,249,752
Ending balance	$	302,246	$	720,956	$	272,905	$	60,735		$	0		$	1,356,842


December 31, 2010
(Dollars in thousands)
	Commercial, Financial and Agricultural		Commercial Real Estate		Residential		Consumer			Unallocated			Total

Allowance for loan and lease losses -
Period-end amount allocated to:
Loans individually evaluated for impairment	$	1,140	$	13,757	$	2,120	$	27		$	0		$	17,044
Other loans not individually evaluated		4,289		17,674		4,549		863			3,512			30,887
Ending balance	$	5,429	$	31,431	$	6,669	$	890		$	3,512		$	47,931

Loans -
Loans individually evaluated for impairment	$	3,170	$	81,019	$	16,593	$	53		$	0		$	100,835
Other loans not individually evaluated		299,109		651,760		267,624		64,730			0			1,283,223
Ending balance	$	302,279	$	732,779	$	284,217	$	64,783		$	0		$	1,384,058

Other Real Estate Owned

A summary of other real estate owned follows:

	March 31,		December 31,
	2011		2010
	(Dollars in thousands)

Construction, land development, lots and other land	$	71,424	$	71,097
1-4 family residential properties		5,526		4,390
Multi-family residential properties		3,499		3,499
Non-farm non-residential properties		4,844		3,433
Total other real estate owned	$	85,293	$	82,419

The Company carries its other real estate owned at the estimated fair value less any cost to dispose. A substantial portion of our other real estate is concentrated along the Gulf Coast of South Alabama and Northwest Florida which has seen a decline in the values of real estate. If real estate values in our Gulf Coast markets remain depressed for an extended period or decline further, our earnings and capital could be materially adversely affected. Other real estate owned activity for the first three months of 2011 and 2010 is summarized as follows:

	Three Months Ended
	March 31,
	2011				2010
	(Dollars in thousands)
Balance at the beginning of the year		$	82,419			$	52,185
Loan foreclosures			3,859				7,170
Property sold			(812	)			(1,278	)
Losses on sale and write-downs			(173	)			(162	)
Balance at the end of the period		$	85,293			$	57,915

Note 5: Change in Allowance for Losses on Loans and Leases

The changes in the allowance for losses on loans and leases for the three-month periods ended March 31, 2011 and 2010 are summarized as follows:

	Three Months Ended
(in thousands)	March 31, 2011			March 31, 2010
Balance at beginning of period	$	47,931		$	45,905
Provision charged to operating expense		3,500			2,850
Loans charged-off		(5,931	)		(1,084	)
Recoveries		211			121
Balance at end of period	$	45,711		$	47,792

The Company continues to experience the adverse effects of a severe downturn in the real estate markets in which it operates, primarily in our coastal markets of northwest Florida, and this has led to a significant increase in defaults by borrowers compared to historical periods, a significant increase in loans charged-off, and a reduction in the value of real estate serving as collateral for some of the Company's loans.

Note 6: Retirement Plans

	Three Months Ended
	March 31, 2011			March 31, 2010
(in thousands)
Service cost	$	236		$	243
Interest cost		447			448
Expected return on plan assets		(564	)		(506	)
Amortization of prior service cost		1			1
Amortization of net loss		111			118
Net periodic pension cost	$	231		$	304

The Company previously disclosed, in its annual report on Form 10-K for the year ended December 31, 2010, that it expected to contribute $1.084 million to its pension plan in 2011, none of which was contributed in the first three months of 2011. The weighted-average discount rate assumed in the actuarial calculation of the benefit obligation for 2011 was 5.36 percent.

Note 7: Earnings Per Share

Basic earnings per share for the three-month periods ended March 31, 2011 and 2010 were computed by dividing net income to common shareholders by the weighted-average number of shares of common stock outstanding, which consists of issued shares less treasury stock.

Diluted earnings per share for the three-month periods ended March 31, 2011 and 2010 were computed by dividing net income to common shareholders by the weighted-average number of shares of common stock outstanding and the dilutive effect of the shares awarded under the Company's stock option plans and the warrants issued in connection with the issuance of preferred stock to the U.S. Treasury, assuming the exercise of all in-the-money options and warrants, based on the treasury stock method using an average fair market value of the stock during the respective periods.

The following tables present the earnings per share calculations for the three-month periods ended March 31, 2011 and 2010. The Company excluded from the calculations of diluted earnings per share for the quarters ended March 31, 2011 and 2010, 70 thousand shares and 97 thousand shares, respectively, which shares were subject to options issued with exercise prices in excess of the average market value per share during those periods. The Company also excluded from the calculations of diluted earnings per share for the quarters ended March 31, 2011 and 2010, 731 thousand shares, which shares were subject to warrants issued with exercise prices in excess of the average market value per share during those periods.

	Three Months Ended
Basic Earnings Per Common Share	March 31, 2011		March 31, 2010
(in thousands, except per share amounts)

Net income to common shareholders	$	251	$	386
Weighted average common shares outstanding		17,754		17,638
Basic earnings per common share	$	0.01	$	0.02

	Three Months Ended
Diluted Earnings Per Common Share	March 31, 2011		March 31, 2010
(in thousands, except per share amounts)

Net income to common shareholders	$	251	$	386
Weighted average shares outstanding		17,754		17,638
Dilutive effects of assumed conversion and exercise of common stock options, warrants and restricted stock		77		96
Weighted average common and dilutive potential common shares outstanding		17,831		17,734
Diluted earnings per common share	$	0.01	$	0.02

Note 8: Comprehensive Income

The following table shows comprehensive income for the three-month periods ended March 31, 2011 and 2010:

	Three Months Ended
(in thousands)	March 31,			March 31,
	2011			2010

Net income	$	1,020		$	1,125
Recognized pension net periodic benefit cost, net of taxes of $(42) and $(45), respectively		70			74
Less reclassification adjustments for gains included in net income (loss), net of taxes of $182 and $314, respectively		(302	)		(523	)
Net change in fair value of securities available for sale, net of taxes of $105 and ($536), respectively		(175	)		948
Comprehensive income	$	613		$	1,624

Note 9: Commitments

The Company, as part of its ongoing business operations, issues financial guaranties in the form of financial and performance standby letters of credit. Standby letters of credit are contingent commitments issued by the Company generally to guarantee the performance of a customer to a third party. A financial standby letter of credit is a commitment by the Company to guarantee a customer's repayment of an outstanding loan or financial obligation. In a performance standby letter of credit, the Company guarantees a customer's performance under a contractual non-financial obligation for which it receives a fee. The Company has recourse against the customer for any amount it is required to pay to a third party under a standby letter of credit. Revenues are recognized over the life of the standby letter of credit. At March 31, 2011, the Company had standby letters of credit outstanding with maturities ranging from less than one year to three years. The maximum potential amount of future payments the Company could be required to make under its standby letters of credit at March 31, 2011 was $23.060 million, and that sum represents the Company's maximum credit risk under these arrangements. At March 31, 2011, the Company had $231 thousand of liabilities associated with standby letter of credit agreements.

Note 10: Fair Value Measurement and Fair Value of Financial Instruments

Accounting standards define fair value as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Accounting standards also establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The applicable standard describes three levels of inputs that may be used to measure fair value: Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data. Level 3: Significant unobservable inputs that reflect a company's own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Company utilizes a third-party valuation service provider to value its available for sale investment securities portfolio. Despite most of these securities being U.S. Government agency debt obligations, agency mortgage-backed securities and municipal securities traded in active markets, third party valuations are based on the characteristics of a security (such as maturity, durations and rating) and a comparison to similar or comparable securities. Due to the nature and methodology of these valuations, the Company considers these fair value measurements as Level 2.

During the three months ended March 31, 2011, no securities were transferred between Levels.

Assets and Liabilities Measured on a Recurring Basis:

Assets and liabilities measured at fair value on a recurring basis are summarized below.

March 31, 2011
(In thousands)
	Carrying Value in Balance Sheet		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	Carrying Value in Balance Sheet				Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

U.S. Treasury securities	$	402	$	0	$	402	$	0
Obligations of U.S. Government sponsored enterprises		146,615		0		146,615		0
Obligations of states and political subdivisions		2,401		0		2,401		0
Mortgage-backed securities		374,057		0		374,057		0
Available-for-sale securities	$	523,475	$	0	$	523,475	$	0

December 31, 2010
(In thousands)
	Carrying Value in Balance Sheet		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	Carrying Value in Balance Sheet				Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

U.S. Treasury securities	$	405	$	0	$	405	$	0
Obligations of U.S. Government sponsored enterprises		82,433		0		82,433		0
Obligations of states and political subdivisions		2,402		0		2,402		0
Mortgage-backed securities		340,320		0		340,320		0
Available-for-sale securities	$	425,560	$	0	$	425,560	$	0

Assets and Liabilities Measured on a Nonrecurring Basis:

Assets and liabilities measured at fair value on a nonrecurring basis are summarized below.

March 31, 2011
(In thousands)
	Carrying Value in Balance Sheet		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	Carrying Value in Balance Sheet				Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Impaired Loans	$	52,657		-		-	$	52,657
Impaired Loans with partial charge off with no allowance remaining	$	5,484		-		-	$	5,484
Other Real Estate Owned	$	85,293		-		-	$	85,293

December 31, 2010
(In thousands)
	Carrying Value in Balance Sheet		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	Carrying Value in Balance Sheet				Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Impaired Loans	$	49,495		-		-	$	49,495
Impaired Loans with partial charge off with no allowance remaining	$	3,234		-		-	$	3,234
Other Real Estate Owned	$	82,419		-		-	$	82,419

Loans considered impaired are loans for which, based on current information and events, it is probable that the creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans are subject to nonrecurring fair value adjustments to reflect write-downs that are based on the market price or current appraised value of the collateral, adjusted to reflect local market conditions or other economic factors. After evaluating the underlying collateral, the fair value of the impaired loans is recorded by allocating specific reserves from the allowance for loan and lease losses to the loans. Thus, the fair value reflects the loan balance less the specifically allocated reserve. Impaired loans for which no reserve has been specifically allocated are not included in the table above.

Other real estate owned is initially accounted for at fair value, less estimated costs to dispose of the property. Any excess of the recorded investment over fair value, less costs to dispose, is charged to the allowance for loan and lease losses at the time of foreclosure. Updated appraisals or evaluations are obtained at least annually for all other real estate owned properties. These appraisals are used to update fair value estimates. A provision is charged to earnings for subsequent losses on other real estate owned when these updates indicate such losses have occurred. The ability of the Company to recover the carrying value of other real estate owned is based upon future sales of the real estate. The ability to effect such sales is subject to market conditions and other factors beyond the Company’s control, and future declines in the value of the real estate could result in a charge to earnings. The recognition of sales and sales gains is dependent upon whether the nature and terms of the sales, including possible future involvement of the Company, if any, meet certain defined requirements. If those requirements are not met, sale and gain recognition is deferred.

Accounting standards require disclosure of fair value information about financial instruments, whether or not recognized in the Statements of Condition, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair value is based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Also, the fair value estimates presented herein are based on pertinent information available to Management as of March 31, 2011 and December 31, 2010.

The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:

CASH, DUE FROM BANKS, FEDERAL FUNDS SOLD AND INTEREST-BEARING DEPOSITS - For those short-term instruments, the carrying amount is a reasonable estimate of fair value.

SECURITIES AVAILABLE FOR SALE - Fair value for securities available for sale are primarily estimated using market prices for similar securities. For any Level 3 securities, the Company generally uses a discounted cash flow methodology.

LOANS AND LEASES - For equity lines and other loans or leases with short-term or variable rate characteristics, the carrying value reduced by an estimate for credit losses inherent in the portfolio is a reasonable estimate of fair value. The fair value of all other loans and leases is estimated by discounting their future cash flows using interest rates currently being offered for loans and leases with similar terms, reduced by an estimate of credit losses inherent in the portfolio. The discount rates used are commensurate with the interest rate and prepayment risks involved for the various types of loans. The estimated fair value also includes an estimate of certain liquidity risk.

DEPOSITS - The fair value disclosed for demand deposits (i.e., interest- and non-interest-bearing demand, savings and money market savings) is equal to the amounts payable on demand at the reporting date (i.e., their carrying amounts). Fair value for certificates of deposit is estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates of deposit to a schedule of aggregated monthly maturities.

SHORT-TERM BORROWINGS - The fair value for these short-term liabilities is estimated using a discounted cash flow calculation that applies interest rates currently being offered on similar borrowings.

FHLB ADVANCES AND LONG-TERM DEBT - The fair value of the Company's fixed rate borrowings is estimated using discounted cash flows, based on the Company's current incremental borrowing rates for similar borrowing arrangements.

COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT - The value of these unrecognized financial instruments is estimated based on the fee income associated with the commitments which, in the absence of credit exposure, is considered to approximate their settlement value. Since no significant credit exposure existed, and because such fee income is not material to the Company's financial statements at March 31, 2011 and December 31, 2010, the fair value of these commitments is not presented.

Many of the Company's assets and liabilities are short-term financial instruments whose carrying amounts reported in the Statement of Condition approximate fair value. These items include cash and due from banks, interest-bearing bank balances, federal funds sold, other short-term borrowings and accrued interest receivable and payable balances. The estimated fair value of the Company's remaining on-balance sheet financial instruments as of March 31, 2011 and December 31, 2010 are summarized below.

(in thousands)	March 31, 2011				December 31, 2010
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial assets:
Cash, due from banks and federal funds sold	$	31,284	$	31,284	$	25,852	$	25,852
Interest-bearing deposits		96,326		96,326		144,022		144,022
Securities available for sale		523,475		523,475		425,560		425,560
Loans and leases, net		1,310,573		1,276,429		1,335,354		1,300,925
Accrued interest receivable		6,446		6,446		6,485		6,485
Financial liabilities:
Deposits	$	1,891,068	$	1,895,549	$	1,864,805	$	1,870,448
Short-term borrowings		20,000		20,920		20,000		21,001
FHLB advances and long-term debt		92,742		75,812		92,804		75,836
Accrued interest payable		3,805		3,805		4,285		4,285

Certain financial instruments and all non-financial instruments are excluded from fair value disclosure requirements. The disclosures also do not include certain intangible assets, such as customer relationships and deposit base intangibles. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

Note 11: Common Stock Issuance

On November 10, 2010, BancTrust entered into a Standby Equity Distribution Agreement (the “Standby Agreement”) with YA Global Master SPV Ltd. (“YA Global”), a fund managed by Yorkville Advisors, LLC.

During the first quarter of 2011, we raised $750 thousand through the sale of 296,550 shares of our common stock to YA Global pursuant to the Standby Agreement. The weighted average price per share issued was $2.53.

Note 12: Subsequent Events

On April 22, 2011, the Company entered into a Modification of Loan Documents to be effective as of April 16, 2011 with the Federal Deposit Insurance Corporation, as receiver for Silverton Bank, N.A. This Modification was dated April 18, 2011 but was executed and delivered on April 22, 2011. The Modification amends the Loan Agreement dated October 16, 2007 between the Company and The Bankers Bank, N.A. (whose name was changed to Silverton Bank, N.A.), as modified by a First Amendment to Loan Agreement dated October 28, 2009 and further modified by the Second Loan Modification Agreement dated November 10, 2010. The Loan Agreement, as modified, governs the loan to the Company in the original principal amount of $38 million evidenced by a Promissory Note dated October 16, 2007 from the Company to The Bankers Bank, which Note is secured by the Company’s common stock in BankTrust, its banking subsidiary. The Modification also amends the Promissory Note. The current principal balance outstanding under this Note is $20 million.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Introduction

Presented below is an analysis of the consolidated financial condition and results of operations of BancTrust Financial Group, Inc., a bank holding company ("BancTrust"), and its wholly owned subsidiary, BankTrust (the "Bank"). As used in the following discussion, the terms "we," "us," "our" and the "Company" mean BancTrust Financial Group, Inc. and its subsidiary on a consolidated basis (unless the context indicates another meaning). This analysis focuses upon significant changes in financial condition between December 31, 2010 and March 31, 2011 and significant changes in operations for the three-month periods ended March 31, 2011 and 2010.

Cautionary Notice Concerning Forward-Looking Statements

This report on Form 10-Q contains certain forward-looking statements with respect to critical accounting policies, financial condition, liquidity, non-performing assets, results of operations and other matters. Forward-looking statements may be found in the Notes to Unaudited Consolidated Condensed Financial Statements and in the following discussion. These statements can generally be identified by the use of words such as "expect," "may," "could," "should," “contemplate,” "intend," "plan," "project," "estimate," "will," "believe," "continue," "predict," "anticipate" or words of similar meaning. The Company's forward-looking statements are based on information presently available to Management and assumptions that Management believes to be reasonable. Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions, and future performance, and involve known and unknown risks, uncertainties and other factors, in addition to the inherent uncertainty of predictions, which may be beyond our control and which may cause the actual results, performance, capital, ownership or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Factors that may cause actual results to differ materially from those contemplated include, among others:

-	the risk that indications of an improving economy may prove to be premature;

-	the risks presented by the recent economic recession and the slow recovery of the economy, which could continue to adversely affect credit quality, collateral values, including the value of real estate collateral and other real estate owned, investment values, liquidity and loan originations, reserves for loan losses, charge offs of loans and loan portfolio delinquency rates;

-	we may be compelled to seek additional capital in the future to augment capital levels or ratios or improve liquidity, but capital or liquidity may not be available when needed or on favorable terms;

-	the reputation of the financial services industry could further deteriorate, which could adversely affect our ability to access markets for funding and to acquire and retain customers;

-	existing regulatory requirements, changes in regulatory requirements, including accounting standards and legislation, and our inability to meet those requirements, including capital requirements, and increases in our deposit insurance premiums, could adversely affect the businesses in which we are engaged, our results of operations and financial condition;

-	changes in monetary and fiscal policies of the U.S. government may adversely affect the business in which we are engaged;

-	the frequency and magnitude of foreclosure of our loans may increase;

-	the assumptions and estimates underlying the establishment of reserves for possible loan and lease losses, loan impairments and other estimates may be inaccurate;

-	competitive pressures among depository and other financial institutions may increase significantly;

-	changes in the interest rate environment may reduce margins, reduce net interest income and negatively affect funding sources;

-	we may be unable to obtain required shareholder or regulatory approval for any proposed acquisitions or financings or capital-raising transactions;

-	we may be unable to achieve anticipated results from mergers, acquisitions and divestitures, including, without limitation, the related time and costs of implementing such transactions and integrating operations as part of these transaction; possible failures to achieve expected gain, revenue growth and/or expense savings from such transactions; and greater than expected deposit attrition, customer loss or revenue loss;

-	competitors may have greater financial resources and develop products that enable or competitors to compete more successfully than we can compete;

-	adverse changes may occur in the equity capital markets;

-	the risks that our deferred tax assets could be reduced if estimates of future taxable income from our operations and tax planning strategies are less than currently estimated, and that sales of our capital stock could trigger a reduction in the amount of net operating loss carryforwards or unrealized built-in losses that we may be able to utilize for income tax purposes; and

-	we may not be able to effectively manage the risks involved in the foregoing.

All written or oral forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary notice and by those risks and uncertainties described under “Item 1A. Risk Factors” of this quarterly report and in our annual report on Form 10-K for the year ended December 31, 2010 under “Special Cautionary Notice Regarding Forward-Looking Statements” and “Risk Factors,” and by those risks and uncertainties otherwise disclosed in our Securities and Exchange Commission (“SEC”) reports and filings. Such reports are available upon request from the Company, including through the Company’s website at http://www.banktrustonline.com under the “Investor Relations” tab. These reports are also available from the SEC, including through the SEC’s website at http://www.sec.gov.

We caution you not to place undue reliance on our forward-looking statements, which speak only as of the date such statements were made. We do not intend to update or revise, and we assume no responsibility for updating or revising, any forward-looking statement attributable to us.

Recent Accounting Pronouncements

See Note 2 in the notes to unaudited condensed consolidated financial statements.

Critical Accounting Policies

Basis of Financial Statement Presentation

The financial statements included in this report have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and with general practices within the banking industry. In preparing the consolidated financial statements, Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statement of condition and revenues and expenses for the period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan and lease losses, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, and the valuation of deferred tax assets.

Allowance for Loan and Lease Losses

The allowance for loan and lease losses is maintained at a level considered by Management to be adequate to absorb losses inherent in the loan and lease portfolio. Loans and leases are charged off against the allowance for loan and lease losses when Management believes that the collection of the principal is unlikely. Subsequent recoveries are added to the allowance. BancTrust’s determination of its allowance for loan and lease losses is determined in accordance with GAAP and other regulatory guidance. The amount of the allowance for loan and lease losses and the amount of the provision charged to expense are based on periodic reviews of the portfolio, past loan and lease loss experience, current economic conditions and such other factors which, in Management’s judgment, deserve current recognition in estimating loan and lease losses.

Management has developed and uses a documented systematic methodology for determining and maintaining an allowance for loan and lease losses. A regular, formal and ongoing loan and lease review is conducted to identify loans and leases with unusual risks and probable loss. Management uses the loan and lease review process to stratify the loan and lease portfolio into risk grades. For higher-risk graded loans and leases in the portfolio, Management determines estimated amounts of loss based on several factors, including historical loss experience, Management’s judgment of economic conditions and the resulting impact on higher-risk graded loans and leases, the financial capacity of the borrower, secondary sources of repayment including collateral and guarantors, and regulatory guidelines. This determination also considers the balance of impaired loans and leases. Specific allowances for impaired loans and leases are based on comparisons of the recorded carrying values of the loans and leases to the present value of these loans’ and leases’ estimated cash flows discounted at each loan’s and lease’s effective interest rate, the fair value of the collateral, or the loan’s or lease’s observable market price. Recovery of the carrying value of loans and leases is dependent to a great extent on economic, operating and other conditions that may be beyond the Company’s control.

In addition to evaluating probable losses on individual loans and leases, Management also determines probable losses for all other loans and leases that are not individually evaluated. The amount of the allowance for loan and lease losses related to all other loans and leases in the portfolio is determined based on historical and current loss experience, portfolio mix by loan and lease type and by collateral type, current economic conditions, the level and trend of loan and lease quality ratios and such other factors that, in Management’s judgment, deserve current recognition in estimating inherent loan and lease losses. The methodology and assumptions used to determine the allowance are continually reviewed as to their appropriateness given the most recent losses realized and other factors that influence the estimation process. The assumptions and resulting allowance level are adjusted accordingly as these factors change.

Other Real Estate Owned

Assets acquired through, or in lieu of, foreclosure, are held for sale and are initially recorded at fair value less estimated cost to sell at the date of foreclosure, establishing a new cost basis. Principal and interest losses existing at the time of acquisition of such assets are charged against the allowance for loan and lease losses and interest income, respectively. Subsequent to foreclosure, valuations are periodically performed by Management, and the assets are carried at the lower of carrying amount or fair value less estimated costs to sell. Revenue and expenses from other real estate and the impact of any subsequent changes in the carrying value are included in other expenses.

Income Taxes

Management estimates income tax expense using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the amounts of assets and liabilities reported in the consolidated financial statements and their respective tax bases. In estimating the liabilities and corresponding expense related to income taxes, Management assesses the relative merits and risk of various tax positions considering statutory, judicial and regulatory guidance. Because of the complexity of tax laws and regulations, interpretation is difficult and subject to differing judgments. Judgments are also exercised in assessing the realization of deferred tax assets and any needed valuation allowances. At March 31, 2011, the Company had net deferred tax assets of $11.014 million. Accounting principles require that the Company assess whether a valuation allowance should be established with respect to its deferred tax assets based on the consideration of all available evidence using a “more likely than not” standard as to whether some or all of its deferred tax assets will not be realized. Management considers both positive and negative evidence, including the scheduling of reversing differences, tax planning strategies, available tax carrybacks, recent and historical performance, expectations for future results of operations, and other factors in making this assessment. In making such judgments, significant weight is given to evidence that can be objectively verified. Realization of a deferred tax asset requires the Company to apply significant judgment and is inherently speculative because it requires the future occurrence of circumstances that cannot be predicted with certainty. The Company may not achieve sufficient future taxable income to allow the ultimate realization of its net deferred tax assets, and, therefore, the Company may have to establish a valuation allowance at some point in the future. If a valuation allowance is necessary, the Company would incur a charge to operations in the period in which the allowance is established, which could have a material adverse effect on its earnings and capital position.

Changes in the estimate of income tax liabilities occur periodically due to changes in actual or estimated future tax rates and projections of taxable income, interpretations of tax laws, the complexities of multi-state income tax reporting, the effects of uncertain tax positions, the status of examinations being conducted by various taxing authorities and the impact of newly enacted legislation or guidance, as well as income tax accounting pronouncements.

Financial Condition at March 31, 2011 and December 31, 2010

Overview

Total assets at March 31, 2011 were $2.185 billion, an increase of $26.612 million, or 1.2 percent, from $2.158 billion at December 31, 2010. The increase in total assets is due to the increase in deposits of $26.263 million. This increase in deposits and the decrease in interest-bearing deposits in other financial institutions (overnight funds) of $47.696 million was used to fund an increase in investment securities of $97.915 million since December 31, 2010. We increased our investment portfolio in the first quarter of 2011 to increase our net interest revenue and net interest margin. The increase in deposits at March 31, 2011 was not a result of our offering higher than market rates or a result of increasing our brokered deposits, but was a result of the stabilization and growth of our deposit base, which has been helped by increased FDIC insurance coverage. Deposit growth in the first quarter of 2011 was concentrated in demand deposits. Time deposits over $100,000 decreased by $21.588 million, in part due to the maturity of $11.581 million in brokered deposits which we did not replace.

Our net interest margin for the first quarter of 2011 decreased to 3.14 percent compared to 3.40 percent for the same period last year due to increased liquidity and lower yields on our investment portfolio. We estimate that our high level of non-performing assets resulted in our quarterly net interest margin being approximately 51 basis points lower than it would have been if these assets had been earning interest.

We continue to experience the adverse effects of a severe downturn in the real estate markets in which we operate, primarily in our coastal markets of northwest Florida, and this has led to a significant increase in defaults by borrowers compared to historical periods, a significant increase in loans charged-off, a reduction in the value of real estate serving as collateral for some of our loans, and a decrease in values of foreclosed real estate. Loan demand in our Florida markets has remained weak. Our loans in central Alabama have decreased slightly due to lower demand. Management is committed to reducing future losses in the loan portfolio.

Recent Legislation

On July 21, 2010, sweeping financial regulatory reform legislation entitled the “Dodd-Frank Wall Street Reform and Consumer Protection Act” (the “Dodd-Frank Act”) was signed into law. The Dodd-Frank Act implements far-reaching changes across the financial regulatory landscape, including provisions that, among other things:

●	Create a Financial Services Oversight Council to identify emerging systemic risks and improve interagency cooperation;

●	Centralize responsibility for consumer financial protection by creating a new agency, the Consumer Financial Protection Bureau, responsible for implementing, examining and enforcing compliance with federal consumer financial laws;

●	Establish strengthened capital standards for banks and bank holding companies, and disallow trust preferred securities from being included in a bank's Tier 1 capital determination (subject to a grandfather provision for existing trust preferred securities);

●	Implement new provisions covering mortgage loan origination standards affecting, among other things, originator compensation, minimum repayment standards and pre-payments;

●	Require a bank holding company to be well-capitalized and well-managed to become a financial holding company and require bank holding companies and banks to be both well-capitalized and well-managed in order to acquire banks located outside their home state;

●	Grant the Federal Reserve the power to regulate debit card interchange fees;

●	Implement corporate governance revisions, including with regard to executive compensation and proxy access by shareholders, that apply to all public companies, not just financial institutions;

●

Make permanent the $250 thousand limit for federal deposit insurance and increase the cash limit of Securities Investor Protection Corporation protection from $100 thousand to $250 thousand and provide unlimited federal deposit insurance until January 1, 2013 for non-interest bearing demand transaction accounts at all insured depository institutions;

●	Repeal the federal prohibitions on the payment of interest on demand deposits, thereby permitting depository institutions to pay interest on business transaction and other accounts; and

●	Increase the authority of the Federal Reserve to examine the Company and its nonbank subsidiaries.

Many aspects of the Dodd-Frank Act are subject to rulemaking and will take effect over several years, making it difficult to anticipate the overall financial impact on the Company, its customers or the financial industry as a whole. Provisions in the legislation that affect deposit insurance assessments, payment of interest on demand deposits and interchange fees could increase the costs associated with deposits and place limitations on certain revenues those deposits may generate. Provisions in the legislation that revoke the Tier 1 capital treatment of trust preferred securities and otherwise require revisions to the capital requirements of the Company and the Bank could require us to seek other sources of capital in the future. For institutions such as BancTrust with assets less than $15 billion, currently outstanding trust preferred securities will continue to be included in Tier 1 capital indefinitely under the Dodd-Frank Act, but new trust preferred securities would be excluded from Tier 1 capital.

Loans

Total loans and leases at March 31, 2011 were down $27.001 million from December 31, 2010. Most of the decrease was within the commercial and residential real estate portfolio. Economic conditions have continued to diminish loan demand in the first quarter of 2011. BankTrust is seeking new credit relationships and renewing existing ones, but the overall demand level has been insufficient to overcome the effect of repayments, maturities, and the problem loan resolution process of work-outs, charge-offs and transfers to other real estate.

The following table shows loan and lease balances by loan type at March 31, 2011, and at the end of the four prior quarters.

	2011			2010
	March 31			December 31			September 30			June 30			March 31
	(Dollars in thousands)
Commercial, financial and agricultural:
Commercial and industrial	$	281,327		$	279,422		$	281,187		$	283,383		$	282,656
Agricultural		3,151			3,450			2,528			2,130			1,980
Equipment leases		17,768			19,407			21,094			22,608			24,090
Total commercial, financial and agricultural		302,246			302,279			304,809			308,121			308,726
Commercial real estate:
Commercial construction, land and land development		314,519			315,079			321,332			332,045			353,059
Other commercial real estate		406,437			417,700			414,680			419,793			420,149
Total commercial real estate		720,956			732,779			736,012			751,838			773,208

Residential real estate:
Residential construction		18,471			20,745			22,286			21,747			24,285
Residential mortgage		254,434			263,472			266,402			271,792			272,334
Total residential real estate:		272,905			284,217			288,688			293,539			296,619

Consumer, installment and single pay:
Consumer		52,059			54,934			57,626			60,933			62,483
Other		8,676			9,849			9,690			8,499			9,718
Total consumer, installment and single pay		60,735			64,783			67,316			69,432			72,201

Total		1,356,842			1,384,058			1,396,825			1,422,930			1,450,754
Less unearned discount leases		(1,783	)		(2,032	)		(2,303	)		(2,593	)		(2,901	)
Less deferred cost (unearned loan fees), net		1,225			1,259			1,299			1,267			1,289
	$	1,356,284		$	1,383,285		$	1,395,821			1,421,604			1,449,142

For further discussion of these loan types and a more detailed breakdown of the types of loans in our portfolio, see “Risk Management in the Loan Portfolio and the Allowance for Loan and Lease Losses” below. The following table shows the distribution of loans by the geographic regions from which the loans and leases are serviced at March 31, 2011 and December 31, 2010.

	March 31, 2011
	Southern Alabama			Central Alabama			Northwest Florida			Total
	(Dollars in thousands)

Commercial, financial and agricultural:
Commercial and industrial	$	205,703		$	65,755		$	9,869		$	281,327
Agricultural		986			2,165			0			3,151
Equipment leases		0			17,768			0			17,768
Total commercial, financial and agricultural		206,689			85,688			9,869			302,246
Commercial real estate:
Commercial construction, land and land development		125,619			65,198			123,702			314,519
Other commercial real estate		188,066			163,464			54,907			406,437
Total commercial real estate		313,685			228,662			178,609			720,956

Residential real estate:
Residential construction		7,634			7,297			3,540			18,471
Residential mortgage		108,894			93,525			52,015			254,434
Total residential real estate		116,528			100,822			55,555			272,905

Consumer, installment and single pay:
Consumer		27,397			23,690			972			52,059
Other		485			8,191			0			8,676
Total consumer, installment and single pay		27,882			31,881			972			60,735
Total	$	664,784		$	447,053		$	245,005		$	1,356,842
Percent of total		49	%		33	%		18	%		100	%

	December 31, 2010
	Southern Alabama			Central Alabama			Northwest Florida			Total
	(Dollars in thousands)

Commercial, financial and agricultural:
Commercial and industrial	$	206,587		$	63,044		$	9,791		$	279,422
Agricultural		2,181			1,269			0			3,450
Equipment leases		0			19,407			0			19,407
Total commercial, financial and agricultural		208,768			83,720			9,791			302,279
Commercial real estate:
Commercial construction, land and land development		120,445			67,591			127,043			315,079
Other commercial real estate		195,047			166,983			55,670			417,700
Total commercial real estate		315,492			234,574			182,713			732,779

Residential real estate:
Residential construction		7,551			6,802			6,392			20,745
Residential mortgage		116,296			95,748			51,428			263,472
Total residential real estate		123,847			102,550			57,820			284,217

Consumer, installment and single pay:
Consumer		28,880			24,925			1,129			54,934
Other		710			9,139			0			9,849
Total consumer, installment and single pay		29,590			34,064			1,129			64,783
Total	$	677,697		$	454,908		$	251,453		$	1,384,058
Percent of total		49	%		33	%		18	%		100	%

Our portfolio of Commercial and Industrial (“C and I”) loans increased $1.905 million, or 0.7 percent from December 31, 2010 to March 31, 2011, as a result of new loan activity in our Central Alabama market.

Our C and I loan portfolio at March 31, 2011 was diversified over a range of industries, including manufacturing (13.9 percent), construction (10.5 percent), real estate (9.8 percent), retail trade (8.9 percent), finance and insurance (6.2 percent), health care (5.1 percent) and agriculture (5.1 percent). Approximately 73.1 percent of the C and I portfolio is serviced in the Southern Alabama region, primarily in the Mobile office.

At March 31, 2011, approximately 53.1 percent of our loan portfolio was comprised of commercial real estate, primarily commercial construction, land, land development, and non-residential and commercial mortgages.

Project financing is an important component of our commercial real estate loan portfolio, which was impacted by charge-offs and foreclosures during the first three months of 2011 and the year 2010. Management expects that the current economic conditions will continue to limit this type of lending in the foreseeable future.

The following table shows the composition of our real estate – construction portfolio at March 31, 2011 and December 31, 2010, by geographic region in which the loans are serviced.

	March 31, 2011
	Southern Alabama			Central Alabama			Northwest Florida			Total
	(Dollars in Thousands)

Construction:
Commercial	$	34,996		$	2,071		$	7,908		$	44,975
Residential		7,634			7,297			3,540			18,471
Land development		36,878			40,637			69,297			146,812
Land		53,733			22,490			46,497			122,720
Other		12			0			0			12
Total	$	133,253		$	72,495		$	127,242		$	332,990
Percent of total		40	%		22	%		38	%		100	%

	December 31, 2010
	Southern Alabama			Central Alabama			Northwest Florida			Total
	(Dollars in Thousands)

Construction:
Commercial	$	28,979		$	2,107		$	7,524		$	38,610
Residential		7,551			6,802			6,392			20,745
Land development		37,379			41,037			71,038			149,454
Land		53,818			23,172			48,481			125,471
Other		269			1,275			0			1,544
Total	$	127,996		$	74,393		$	133,435		$	335,824
Percent of total		38	%		22	%		40	%		100	%

The construction, land, and land development portfolio is comprised primarily of land and land development loans. Commercial construction loans in the Southern Alabama region increased in the first three months of 2011 due to advances made on a large construction project. There was a decrease in the Northwest Florida region over the same time primarily due to the foreclosure and charge-off process. Loans in this category remained at a consistent level as compared to December 31, 2010.

Our involvement in commercial real estate lending, when measured as a percentage of risk-based capital, has steadily decreased over the last four years.

At March 31, 2011, residential mortgage loans comprised 19% of the total loan portfolio and contributed approximately 15% of non-performing assets. Delinquency rates for this loan category have been similar to the delinquency rates for the total loan portfolio.

In late April 2010, an oil drilling platform exploded and sank in the Gulf of Mexico off the coast of Louisiana. The resulting oil spill in 2010 caused us to analyze our portfolio in order to assess possible credit losses resulting from the spill. The spill was capped in the late summer of 2010, and we currently do not expect any material negative impact on our customer base as a result of the spill. The ability to sell other real estate in our coastal markets in the Southern Alabama and Northwest Florida regions in 2010 was negatively affected during this period of uncertainty.

Asset Quality

Non-performing assets include accruing loans and leases 90 days or more past due, restructured loans on non-accrual, loans and leases on non-accrual, and other real estate owned. Commercial, business and installment loans and leases are classified as non-accrual by Management upon the earlier of: (i) a determination that collection of interest is doubtful, or (ii) the time at which such loans or leases become 90 days past due, unless collateral or other circumstances reasonably assure full collection of principal and interest.

Non-performing assets were $195.200 million at March 31, 2011 compared to $185.503 million at year-end 2010. Restructured loans on non-accrual at March 31, 2011 were $3.832 million compared to $3.088 million at December 31, 2010. Loans are classified as restructured by the Company when certain modifications are made to the loan terms and concessions are granted to the borrowers due to financial difficulty experienced by those borrowers. The Company only restructures loans for borrowers in financial difficulty that have designed a viable business plan to fully pay off all obligations, including outstanding debt, interest, and fees, either by generating additional income from the business or through liquidation of assets. Generally, these loans are restructured to provide the borrower additional time to execute upon their plans. All restructured loans are considered to be impaired and are evaluated as such in the quarterly allowance calculation. As of March 31, 2011 and December 31, 2010, the allowance for loan and lease losses allocated to restructured loans on non-accrual totaled $281 thousand. Loans on non-accrual and restructured loans on non-accrual increased to $109.907 million at March 31, 2011 from $103.084 million at December 31, 2010, primarily a result of two significant relationships in Central Alabama being placed on non-accrual status. As previously discussed, the real estate markets along our Gulf Coast markets have experienced a substantial slow-down. Management anticipates foreclosing on certain loans in the Gulf Coast market and has established an amount in the allowance for loan losses to cover the anticipated losses on these loans. These estimated losses were considered in Management’s evaluation of the allowance for loan losses. Management continues to monitor these loans and other real estate loans along our coastal markets and meets regularly with local Bank personnel to discuss and evaluate these loans, other potential problem loans, and the overall economic conditions within the market. The allowance for loan and lease losses as a percentage of loans decreased to 3.37% at March 31, 2011 from 3.47% at December 31, 2010, due largely to a partial charge off on a large development property in coastal Northwest Florida to reflect current appraisals.

Total non-performing assets as a percentage of loans and other real estate owned at March 31, 2011 was 13.5 percent compared to 12.7 percent at year-end 2010.

The following table is a summary of non-performing assets at March 31, 2011 and December 31, 2010.

(Dollars in Thousands)
	March 31, 2011			December 31, 2010

Accruing loans 90 days or more past due
Non-farm non-residential property loans	$	-		$	-
Commercial and industrial loans		-			-
Consumer loans		-			-
Total accruing loans 90 days or more past due		-			-
Restructured loans on non-accrual
Construction, land development and other land loans		2,619			2,596
1-4 family residential loans		435			435
Non-farm non-residential property loans		682			0
Commercial and industrial loans and leases		30			0
Consumer loans		66			57
Total restructured loans		3,832			3,088
Loans on non-accrual
Construction, land development and other land loans		76,212			68,617
1-4 family residential loans		16,295			16,971
Multifamily residential loans		1,768			1,773
Non-farm non-residential property loans		8,598			8,332
Commercial and industrial loans and leases		2,827			3,883
Consumer loans		375			420
Other loans		-			-
Total loans and leases on non-accrual		106,075			99,996
Total non-performing loans and leases		109,907			103,084
Other real estate owned
Construction, land development and other land		71,424			71,097
1-4 family residential properties		5,526			4,390
Multifamily residential		3,499			3,499
Non-farm non-residential properties		4,844			3,433
Total other real estate owned		85,293			82,419
Total non-performing assets	$	195,200		$	185,503

Accruing loans 90 days or more past due as a percentage of loans and leases		0.00	%		0.00	%
Total non-performing loans and leases as a percentage of loans and leases		8.10	%		7.45	%
Total non-performing assets as a percentage of loans, leases and other real estate owned		13.54	%		12.66	%

The following tables contain a summary by location of non-performing assets at March 31, 2011 and December 31, 2010.

March 31, 2011
(Dollars in Thousands)	Central Alabama		Southern Alabama		Northwest Florida		Other		Total

Restructured loans on non-accrual	$	110	$	691	$	3,031	$	0	$	3,832
Non-accrual loans and leases		27,751		9,633		67,893		798		106,075
Other real estate owned		17,983		5,518		51,614		10,178		85,293
Total	$	45,844	$	15,842	$	122,538	$	10,976	$	195,200

December 31, 2010
(Dollars in Thousands)	Central Alabama		Southern Alabama		Northwest Florida		Other		Total

Restructured loans on non-accrual	$	46	$	11	$	3,031	$	0	$	3,088
Non-accrual loans and leases		19,747		11,651		67,992		606		99,996
Other real estate owned		17,366		3,319		51,546		10,188		82,419
Total	$	37,159	$	14,981	$	122,569	$	10,794	$	185,503

Not included in the non-performing assets tables are potential problem loans totaling $101.121 million at March 31, 2011, with a related allowance of $11.132 million. This compares with potential problem loans of $101.542 million at December 31, 2010, with a related allowance of $9.088 million. Potential problem loans are loans as to which Management has serious doubts as to the ability of the borrowers to comply with present repayment terms. These loans do not meet the criteria for, and are therefore not included in, non-performing assets. These loans were considered in determining the adequacy of the allowance for loan and lease losses and are closely and regularly monitored to protect the Company’s interest. Most of these loans are residential and commercial real estate development loans in our primary markets.

Also not included in the non-performing assets tables are restructured loans that are performing loans and, therefore, accruing interest. The amount of restructured performing loans at March 31, 2011 totaled $3.127 million as compared to $3.430 million at December 31, 2010. These restructurings primarily involve extending repayment terms with an insignificant effect on interest income to the Company.

Risk Management in the Loan Portfolio and the Allowance for Loan and Lease Losses

Credit risk is managed mainly through compliance with credit underwriting and administration policies established by the Board of Directors and through the efforts of the credit administration function to oversee the uniform application and monitoring of these policies throughout the Company. The first line of responsibility for the monitoring of credit quality and the assignment of risk grades based on policy guidelines to individual loans is the loan officer. The loan review function, which reports to the Board, assesses the accuracy of risk grading and performs periodic reviews of the overall credit and underwriting process.

The evaluation of credit risk in the loan portfolio is quantified as the allowance for loan and lease losses that is reported in the Company’s financial statements. The overall determination of the allowance for loan and lease losses involves significant judgment. Factors that affect this judgment are reviewed quarterly in response to changing conditions.

The recorded allowance is comprised of amounts needed to offset losses on criticized loans and amounts which we estimate are needed to cover historical losses on homogeneous groups of loans not subject to criticism. Historical loss factors are modified based on general economic conditions and other environmental risk factors.

Loans subject to criticism through the Company’s risk grading process totaled $254.447 million at March 31, 2011, representing 18.8 percent of total loans and an increase of $1.721 million from December 31, 2010. The range of risk grades identifies loans on a spectrum from loans that warrant close monitoring due to potential weakness to loans with a high probability of loss.

Management classifies certain loans as criticized loans. Criticized loans are further classified as doubtful, substandard, or special mention. Criticized loans are those loans which Management considers to have greater risk that the borrower will not repay in full all contractual principal and interest. All non-performing loans are classified as criticized loans. Performing loans may be classified as criticized loans based on payment history, the financial condition of the borrower, or other factors that, in Management’s opinion, raise doubt as to the borrower’s willingness and/or ability to repay. A deterioration of collateral values underlying the loans does not in itself lead to a loan being criticized. An individual report on each criticized loan over $1 million is completed quarterly by Bank personnel. This report provides an update on information about the loan as well as an update of the action plan for the ultimate collection of the loan. This report includes information on the value of underlying collateral. Real estate collateral is valued primarily based on outside appraisals, although some real estate collateral is valued based on an internal evaluation. Real estate collateral values are updated periodically.

The geographic concentration of criticized loans in the Northwest Florida region was the direct result of the deterioration in real estate values in this area. The majority of criticized loans in Northwest Florida are land and land development loans. Once the rapid deterioration in real estate values commenced, many developers in this area were no longer able to complete projects, and conversion of their properties could not be completed. Total charge-offs in the Northwest Florida region were approximately $4.046 million during the first three months of 2011, which represented 68.2 percent of total charge-offs for the period.

In order to monitor the movement in collateral values for real properties in the Northwest Florida region, Management undertook a study in April 2009 to evaluate to what extent real estate values had deteriorated in this market based on type of property. From this analysis, Management was able to discount prior appraisals in order to estimate current collateral values. These values were then compared to current loan balances in order to establish a loss reserve allocation. This study was updated during the second quarter of 2010, and further adjustments to collateral values were made at that time. Likewise, in order to more closely monitor declines in real estate values in other geographic areas, Management engaged outside consultants to estimate average deterioration in real estate values on the Alabama Gulf Coast, and certain geographic areas in Central Alabama.

The majority of criticized loans in the Central Alabama region were commercial real estate, mostly construction, land, and land development loans. The primary criticized construction, land, and land development loans in the Central Alabama region were located in the Montgomery County, Autauga County, and Lake Martin areas, which also saw significant declines in real estate values. From the deterioration analysis described above, Management was able to discount prior appraisals to estimate current property values. This analysis is being used by Management in determining loss reserve allocations for these specific loans.

The following tables show the composition of criticized loans at March 31, 2011 and December 31, 2010, distributed by the geographic region in which the loans are serviced. Commercial construction, land, and land development loans represent 57.5% of the total criticized loans. Approximately 56.2% of criticized loans are serviced by Florida, with 67.9% of the Florida region's criticized loans comprised of commercial construction, land, and land development loans.

	March 31, 2011
	Southern Alabama			Central Alabama			Northwest Florida			Total
	(Dollars in Thousands)

Commercial and industrial	$	17,806		$	3,473		$	4,624		$	25,903
Residential construction		0			369			1,173			1,542
Commercial construction, land and land development		29,153			20,048			97,073			146,274
Other commercial real estate		9,646			11,094			18,917			39,657
Agricultural		96			0			0			96
Residential mortgage		9,465			8,971			21,023			39,459
Consumer		799			652			65			1,516
Equipment leases		0			0			0			0
Total	$	66,965		$	44,607		$	142,875		$	254,447
Percent of total		26	%		18	%		56	%		100	%

	December 31, 2010
	Southern Alabama			Central Alabama			Northwest Florida			Total
	(Dollars in Thousands)

Commercial and industrial	$	19,087		$	3,585		$	3,938		$	26,610
Residential construction		321			369			1,173			1,863
Commercial construction, land and land development		28,804			16,284			100,179			145,267
Other commercial real estate		9,916			10,572			16,280			36,768
Agricultural		97			0			0			97
Residential mortgage		10,560			9,184			20,784			40,528
Consumer		779			736			78			1,593
Equipment leases		0			0			0			0
Total	$	69,564		$	40,730		$	142,432		$	252,726
Percent of total		28	%		16	%		56	%		100	%

Criticized C and I loans decreased in the Southern Alabama market during the first three months of 2011 primarily due to chargeoffs and reclassifications. Criticized commercial construction, land and land development loans increased in the Central Alabama market during this period primarily as a result of a downgrade of one significant relationship. Total criticized loans in the Northwest Florida market remained constant during this time period.

The following table shows the composition of the criticized construction, land, and land development loans at March 31, 2011, distributed by the geographic region in which the loans are serviced. The majority of criticized loans in this category are serviced by the Northwest Florida region, and they are primarily land and land development loans.

	March 31, 2011
	Southern Alabama			Central Alabama			Northwest Florida			Total
	(Dollars in Thousands)

Construction:
Commercial	$	1,475		$	0		$	7,908		$	9,383
Residential		0			369			1,173			1,542
Land development		13,982			18,168			58,630			90,780
Land		13,696			1,880			30,535			46,111
Other		0			0			0			0
Total	$	29,153		$	20,417		$	98,246		$	147,816
Percent of total		20	%		14	%		66	%		100	%

	December 31, 2010
	Southern Alabama			Central Alabama			Northwest Florida			Total
	(Dollars in Thousands)

Construction:
Commercial	$	1,475		$	0		$	7,524		$	8,999
Residential		321			369			1,173			1,863
Land development		13,786			14,297			60,604			88,687
Land		13,543			1,987			32,051			47,581
Other		0			0			0			0
Total	$	29,125		$	16,653		$	101,352		$	147,130
Percent of total		20	%		11	%		69	%		100	%

There was no significant change in total criticized construction, land, and land development loans from March 31, 2011 to December 31, 2010. There was an increase in criticized construction, land, and land development loans in the Central Alabama market due to the downgrade of one significant relationship.

The allowance for loan and lease losses represents Management's assessment and estimate of the risks associated with extending credit and its evaluation of the quality of the loan and lease portfolio. Management analyzes the loan and lease portfolio to determine the adequacy of the allowance for loan and lease losses and the appropriate provision required to maintain the allowance for loan and lease losses at a level believed to be adequate to absorb anticipated loan and lease losses. In assessing the adequacy of the allowance, Management reviews the size, quality and risk characteristics of loans and leases in the portfolio. Management also considers such factors as our loan and lease loss experience, the amount of past due and non-performing loans and leases, specific known risks, the status, amounts and values of non-performing assets (including loans and leases), underlying collateral values securing loans and leases, current and anticipated economic conditions and other factors which affect the allowance for loan and lease losses. Impaired loans and leases were considered in determining the adequacy of the allowance for loan and lease losses and are regularly monitored for changes within a particular industry or general economic trends that could cause the borrowers severe financial difficulties.

The allowance for loan and lease losses represented 41.59 percent and 46.50 percent of non-performing loans and leases at March 31, 2011 and December 31, 2010, respectively. The allowance for loan and lease losses as a percentage of loans and leases, net of unearned income, was 3.37 percent at March 31, 2011 and 3.47 percent at December 31, 2010. Management reviews the adequacy of the allowance for loan and lease losses on a continuous basis by assessing the quality of the loan and lease portfolio, including non-performing loans and leases and classified loans and leases, and adjusting the allowance when appropriate. Management considered the allowance for loan and lease losses adequate at March 31, 2011 to absorb probable losses inherent in the loan and lease portfolio. However, adverse economic circumstances or other events, including additional loan and lease review, future regulatory examination findings or changes in borrowers' financial conditions, could result in increased losses in the loan and lease portfolio or in the need for increases in the allowance for loan and lease losses.

The following section describes the composition of the various categories in our loan and lease portfolio and discusses management of risk in these categories.

Agricultural loans include loans to fund seasonal production and longer term investments in land, buildings, equipment and breeding stock. The repayment of agricultural loans is dependent on the successful production and marketing of a product. Risk is minimized in this portfolio by performing a review of the borrower’s financial data and cash flow to service the debt, and by obtaining personal guaranties of principals of the borrower. This type of lending represents $3.151 million, or less than one percent, of the total loan portfolio. The portfolio of agricultural loans decreased $299 thousand, or 8.7 percent, from December 31, 2010 to March 31, 2011, as a result of paydowns.

Equipment Leases include leases that were acquired with the acquisition of The Peoples Bank and Trust Company. BankTrust is not actively engaged in equipment leasing. These leases paid down $1.639 million, or 8.5 percent, from December 31, 2010 to March 31, 2011. These loans are secured by the equipment being leased and are being paid over a relatively short period.

Commercial Real Estate loans include commercial construction loans, land loans, and land development loans, and other commercial real estate loans.

Commercial construction, land, and land development loans include loans for the development of residential housing projects, loans for the development of commercial and industrial use property, and loans for the purchase and improvement of raw land. These loans are secured in whole or in part by the underlying real estate collateral and are generally guaranteed by the principals of the borrower. The bank’s lenders work to cultivate long-term relationships with established developers. We disburse funds for construction projects as pre-specified stages of construction are completed. The portfolio of commercial construction, land and land development loans decreased $560 thousand, or 0.2 percent, from December 31, 2010 to March 31, 2011, a change not considered significant.

Other commercial real estate loans include loans secured by commercial and industrial properties, apartment buildings, office or mixed-use facilities, strip shopping centers, or other commercial property. These loans are generally guaranteed by the principals of the borrower. The portfolio of other commercial real estate loans decreased $11.263 million, or 2.7 percent, from December 31, 2010 to March 31, 2011, primarily as a result of foreclosures and paydowns.

Residential Construction loans include loans to individuals for the construction of their residences, either primary or secondary, where the borrower is the owner and independently engages the builder. Residential construction loans also include loans to builders for the construction of one-to-four family residences whereby the collateral, a proposed one-to-four family dwelling, is the primary source of repayment. These loans are made to builders to finance the construction of homes that are either pre-sold or those that are built on a speculative basis, although speculative lending in this category has been strictly limited and controlled over the past two to three years. Loan proceeds are disbursed incrementally as construction is completed. The portfolio of residential construction loans decreased $2.274 million, or 10.9 percent, from December 31, 2010 to March 31, 2011, primarily as a result of the completion of a residential construction project in Florida, which has moved to an amortizing residential mortgage.

Consumer loans include a variety of secured and unsecured personal loans including automobile loans, marine loans, loans for household and personal purpose, and all other direct consumer installment loans. Risk is minimized in this portfolio by reviewing the borrower’s financial data, ability to meet existing obligations and the proposed loan obligation, and verification of the borrower’s income. The portfolio of consumer loans decreased $2.875 million, or 5.2 percent, from December 31, 2010 to March 31, 2011, primarily as a result of paydowns. Repossessions and chargeoffs have been minimal in this portfolio since December 31, 2010.

Other loans comprise primarily short-term loans to municipalities to fund operating expenses during periods prior to revenue collection, and capital projects. The portfolio of other loans decreased $1.173 million, or 11.9 percent, from December 31, 2010 to March 31, 2011, as a result of paydowns.

The following table shows a more detailed risk profile of the loan portfolio by breaking down the loan categories described above into more specific categories of loans and showing the related percentage of non-performing loans at March 31, 2011 and December 31, 2010 for each specific category. Commercial real estate continued to be our largest loan category at March 31, 2011, comprising 54.6% of total loans. Commercial real estate also represented the majority of non-performing loans at 81.8%, with approximately 69.7% of non-performing loans consisting of land development and vacant land loans. The downturn in the real estate market, primarily in our Florida panhandle market, has had a significant impact on the commercial real estate portfolio as explained in the discussion above regarding criticized loans.

	March 31, 2011						December 31, 2010
	Loans as a Percentage of Total Loans Outstanding			Non- performing Loans as a Percentage of Total Non- performing Loans			Loans as a Percentage of Total Loans Outstanding			Non- performing Loans as a Percentage of Total Non-performing Loans
Multi-family		2.1	%		1.6	%		2.1	%		1.7	%
Churches		1.7	%		0.0	%		1.6	%		0.0	%
Hotels		2.3	%		0.0	%		2.3	%		0.0	%
Office buildings		6.9	%		2.9	%		6.9	%		3.7	%
Shopping centers		3.2	%		3.3	%		3.2	%		1.6	%
Warehouses		3.2	%		1.1	%		3.3	%		1.1	%
Convenience stores		2.0	%		0.0	%		2.0	%		0.0	%
Healthcare		0.9	%		0.0	%		1.4	%		0.0	%
Commercial development		3.3	%		1.3	%		2.8	%		1.4	%
Other owner-occupied commercial real estate		3.9	%		0.1	%		3.5	%		1.0	%
Other commercial real estate		2.8	%		0.4	%		3.2	%		0.5	%
Total Investment Property		32.3	%		10.7	%		32.3	%		11.0	%

1-4 family construction		1.4	%		1.4	%		1.5	%		1.8	%
Total 1-4 Family Properties		1.4	%		1.4	%		1.5	%		1.8	%

Land acquisition & development		10.9	%		39.8	%		10.8	%		40.3	%
Vacant land/non-development		7.2	%		19.7	%		7.2	%		19.7	%
Vacant land/future development		1.6	%		9.5	%		1.7	%		5.8	%
Farmland & timberland		1.2	%		0.7	%		1.0	%		0.2	%
Total Land Portfolio		20.9	%		69.7	%		20.7	%		66.0	%

Total Commercial Real Estate		54.6	%		81.8	%		54.5	%		78.8	%

Commercial & Industrial Portfolio		20.7	%		2.5	%		20.2	%		3.7	%
Total Commercial and Industrial Loans		20.7	%		2.5	%		20.2	%		3.7	%

Home equity		3.5	%		0.8	%		3.5	%		1.1	%
Residential mortgages		15.3	%		14.4	%		15.5	%		15.8	%
Consumer loans		3.8	%		0.4	%		4.0	%		0.5	%
Total Retail		22.6	%		15.6	%		23.0	%		17.4	%

Agricultural loans		0.2	%		0.1	%		0.2	%		0.1	%
Other loans		0.6	%		0.0	%		0.7	%		0.0	%
Total Lease Financing		1.3	%		0.0	%		1.4	%		0.0	%

TOTAL LOAN PORTFOLIO		100.0	%		100.0	%		100.0	%		100.0	%

Investment Securities

At March 31, 2011, the composition of the investment portfolio by carrying amount was 0.08 percent U.S. Treasuries, 28.00 percent securities of U.S. government-sponsored enterprises, 0.46 percent securities of state and political subdivisions, and 71.46 percent mortgage-backed securities. All mortgage-backed securities are backed by one-to-four-family mortgages, and approximately 99.1 percent of the mortgage-backed securities represent U.S. government-sponsored enterprise securities. The tax-equivalent yield of the portfolio at March 31, 2011 and December 31, 2010, was 2.76 percent and 2.77 percent, respectively. The average life of the portfolio at March 31, 2011 and December 31, 2010, was 5.90 years and 4.62 years, respectively. We hold no trading securities or securities that are classified as held-to-maturity. The net unrealized loss on securities available-for-sale increased by $763 thousand from December 31, 2010 to March 31, 2011, due in part to our sale of investment securities which resulted in a realized gain of $484 thousand.

The Company recorded impairment charges related to potential credit loss of $150 thousand in the third quarter of 2009 and $250 thousand in the fourth quarter of 2009 related to one investment security. The Company has credit support from subordinate tranches of this security, but the Company concluded in 2009 that a portion of its unrealized loss position was other-than-temporarily impaired. The amount related to credit loss was determined based on a discounted cash flow method that takes into account several factors including default rates, prepayment rates, delinquency rates, and foreclosure and loss severity of the underlying collateral. Changes in these factors in the future could result in an increase in the amount deemed to be credit-related other-than-temporary impairment, which would result in the Company recognizing additional impairment charges to earnings for this security. Management will continue to closely monitor this security. The security has an estimated fair value of $3.367 million and an unrealized loss of $779 thousand at March 31, 2011. Management concluded that the value of this security is temporarily impaired based on liquidity risk. The Company believes it has addressed all of its other-than-temporary impairments in its investment portfolio as of March 31, 2011 with the other-than-temporary impairment charges the Company took in the third and fourth quarters of 2009. The Company does not own, and has not owned, preferred or common stock issue by the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac). The Company does not own any trust preferred securities.

Deposits

Total deposits increased from $1.865 billion at December 31, 2010 to $1.891 billion at March 31, 2011, an increase of $26.263 million, or 1.4 percent. Core deposits, considered to be total deposits less time deposits of $100 thousand or more, increased by $47.851 million, or 3.5 percent. We believe the increase in FDIC insurance coverage from $100 thousand to $250 thousand for interest bearing accounts and to an unlimited amount for non-interest bearing transaction accounts, has helped expand our deposit base. The Dodd-Frank Act has permanently increased deposit insurance from $100,000 to $250,000 and has extended the unlimited coverage for non-interest bearing transaction accounts until December 31, 2012. Our primary focus continues to be attracting and retaining core deposits from customers who will use other products and services we offer. During the remainder of 2011 we will evaluate our non-core funding sources, such as brokered deposits and other borrowed funds such as Federal Home Loan Bank ("FHLB") advances, as they mature and determine if it is advisable to replace them with similar non-core funding sources. At this time, we do not plan to increase the amount of funding from non-core sources. At March 31, 2011, we had $15.109 million in brokered time deposits and $42.854 million of CDARS brokered time deposits, compared to $26.677 million and $39.158 million, respectively, at December 31, 2010. During the first quarter of 2011 we paid off $11.568 million in brokered deposits. Brokered deposits, including CDARS deposits, accounted for 3.07 percent of total deposits at March 31, 2011 compared to 3.53 percent at December 31, 2010. We also had FHLB advances of $57.848 million at March 31, 2011 compared to $57.917 million at December 31, 2010.

The table below shows the breakdown of deposits at March 31, 2011 and December 31, 2010.

(In thousands)	March 31, 2011		December 31, 2010
Non-Interest-Bearing Demand Deposits	$	254,640	$	224,703
Interest-Bearing Demand Deposits		534,817		505,006
Savings Deposits		138,711		141,738
Large Denomination Time Deposits (of $100 or more)		507,068		528,656
Other Time Deposits		455,832		464,702
Total Deposits	$	1,891,068	$	1,864,805

Federal Home Loan Bank Advances, Short-Term Debt and Long-Term Debt

As of March 31, 2011, our debt consisted of advances from the FHLB of $57.848 million, a note payable to the FDIC as receiver for an unaffiliated bank of $20.000 million, $34.021 million in junior subordinated notes issued by BancTrust to statutory trust subsidiaries in connection with offerings of trust preferred securities and $873 thousand of other long-term debt. These amounts are relatively unchanged from December 31, 2010. During the first three months of 2011, we did not borrow any additional funds from the FHLB.

BancTrust’s $20.000 million note payable secured by the stock of the Bank matured in October of 2010 and was renewed with modifications. The maturity date was extended from October 16, 2010 to April 16, 2013, and a principal payment of $10.000 million was due on April 16, 2011. In April of 2011, this note payable was again modified. Pursuant to this modification, we will be required to make the $10.000 million principal payment in January of 2012 and to then begin making quarterly principal payments of $1.250 million. At the time the principal payment is made, the interest rate on the note payable will be reduced. The interest rate until the 2012 principal reduction will be one-month LIBOR plus 5.00%. After the 2012 principal reduction, the interest rate will be one-month LIBOR plus 4.50%. In order to make the January 2012 principal payment and satisfy its other obligations under this note payable, BancTrust must either raise additional capital or issue debt in a sufficient amount to enable repayment, or renew or extend the note payable. Any renewal or extension of the note would require FDIC approval. In addition, we are currently required to obtain approval from the Federal Reserve Bank of Atlanta prior to incurring additional debt or modifying or refinancing the terms of existing debt. Further discussion of the terms of the note renewal is included under the heading “Liquidity.”

Capital Resources

Our shareholders’ equity as a percentage of total assets at March 31, 2011 was 7.54 percent, compared to 7.60 percent at December 31, 2010. This decrease resulted primarily from the increase in total assets in the first three months of 2010.

We are required by our various banking regulators to maintain certain capital-to-asset ratios under the regulators' risk-based capital guidelines. These guidelines are intended to provide an additional measure of a financial institution's capital adequacy by assigning weighted levels of risk to various components of the institution's assets, both on and off the statement of condition. Under these guidelines capital is measured in two tiers. These capital tiers are used in conjunction with "risk-weighted" assets in determining "risk-weighted" capital ratios. If we fail to meet minimum capital adequacy requirements, our banking regulators could take regulatory action against us that could have a direct material adverse effect on our consolidated financial statements.

Our Tier 1 capital was $198.116 million at March 31, 2011 and $196.670 million at December 31, 2010. Our Tier 2 capital consists of the allowable portion of the allowance for loan losses, which was $19.345 million at March 31, 2011 and $19.670 million at December 31, 2010. Total capital, which is Tier 1 capital plus Tier 2 capital, was $217.461 million at March 31, 2011, and $216.340 million at December 31, 2010. Our consolidated Tier 1 and Total capital ratios, expressed as a percentage of total risk-weighted assets, were 13.00 percent and 14.27 percent, respectively, at March 31, 2011, and 12.71 percent and 13.98 percent, respectively, at December 31, 2010. Both the March 31, 2011 and December 31, 2010 ratios exceed the minimum ratios of four percent and eight percent for Tier 1 and Total capital, respectively, required by our regulators.

We closely monitor the adequacy of regulatory capital and strive to maintain adequate capital at our Bank and on a consolidated basis. At March 31, 2011 the Bank was considered "well capitalized" by regulatory definitions. The Bank has assured its regulators that it intends to maintain a Tier 1 leverage capital ratio of not less than 8.00 percent and to maintain its Tier 1 risk based capital ratio and total risk based capital ratios at “well-capitalized” levels, which are 6.00 percent and 10.00 percent, respectively. At March 31, 2011, the Bank’s capital ratios exceeded all three of these target ratios with a Tier 1 leverage capital ratio of 10.02%, a Tier 1 Capital to risk-weighted assets ratio of 14.25% and a total capital to risk-weighted assets ratio of 15.52%.

The components of the Company’s risk-based capital calculations at March 31, 2011 are shown below:

	March 31, 2011
	(Dollars in Thousands)
Tier 1 capital-
Preferred stock	$	48,284
Allowable common shareholders' equity		116,832
Debt related to issuance of trust preferred securities		33,000
Total Tier 1 capital		198,116

Tier 2 capital-Allowable portion of the allowance for loan losses		19,345
Total capital (Tiers 1 and 2)	$	217,461

Risk-weighted assets	$	1,523,385
Quarterly average assets		2,163,561
Risk-based capital ratios:
Tier 1 capital ratio		13.00	%
Total capital ratio (Tiers 1 and 2)		14.27	%

The Company did not declare a dividend on its common stock for the first quarter of 2011. The Company believes it is important for it to preserve its capital during this turbulent economic period and that its recent results of operations did not justify the payment of a dividend this quarter. The Company will continue to evaluate the advisability of future cash dividends to balance its goals of maintaining a strong capital base and building long-term shareholder value.

We are required by federal and state regulatory authorities, as well as good business practices, to maintain adequate levels of capital to support our operations. The Company is considering its capital needs in light of, among other things, its debt obligation, the current economic conditions and its level of non-performing assets. On November 10, 2010, the Company entered into a Standby Equity Distribution Agreement (the “SEDA”) with YA Global Master SPV Ltd. (“YA Global”), a fund managed by Yorkville Advisors, LLC. Pursuant to the SEDA, YA Global has agreed to purchase up to $15 million of newly issued common stock of the Company in increments of not more than $250 thousand weekly if notified to do so by the Company in accordance with the terms and conditions of the SEDA. The SEDA includes the following provisions regarding the sale of our common shares to YA Global:

●	We may not sell, in the aggregate, more than 19.9% of the total outstanding shares of the Company’s Common Stock at the date of the SEDA.

●	YA Global may not hold more than 4.9% of the Company’s total shares outstanding at any time.

●	Each advance must be preceded by at least 5 trading days since the previous advance.

●	YA Global will pay 96.0% of the market price, as defined in the SEDA, for our common stock purchased under the SEDA.

●	We may not require YA Global to purchase our common stock when BancTrust is in possession of material nonpublic information.

Unless terminated earlier, the SEDA will terminate automatically on the earlier of November 10, 2012 or the date on which the aggregate purchases by YA Global under the SEDA total $15 million.

Our ability to raise additional capital, if needed, will depend on conditions in the capital markets at the time and on our financial performance, among other factors. We are currently required to obtain approval from the Federal Reserve Bank of Atlanta prior to declaring dividends on our common or preferred stock and before making distributions on our trust preferred securities. Also, participation in the Troubled Asset Relief Program Capital Purchase Program limits our ability to increase our quarterly dividend on common stock above $0.13 per share.

Liquidity

Liquidity management involves the ability to meet the day-to-day cash flow requirements of customers, primarily depositors' withdrawals and borrowers' requirements for funds, in a cost efficient and timely manner. Appropriate liquidity management is achieved by carefully monitoring anticipated liquidity demands and the amount of available liquid assets to meet those demands. Liquid assets (cash and cash items, interest-bearing deposits in other financial institutions, federal funds sold and securities available for sale, excluding pledged assets) totaled $458.449 million at March 31, 2011, up from $419.892 million at December 31, 2010. This increase in liquid assets is primarily due to the increase in total deposits at March 31, 2011 from December 31, 2010 of $26.263 million. Management believes that in the current economic environment it is very important to maintain a high level of liquidity. As a result, liquid assets represented 20.98 percent of total assets at March 31, 2011 compared to 19.46 percent at December 31, 2010. The net change in cash and cash equivalents for the three-month period ended March 31, 2011 was an increase of $5.432 million, or 21.0 percent. Cash includes currency on hand and demand deposits with other financial institutions. Cash equivalents are defined as short-term and highly liquid investments, which are readily convertible to known amounts of cash and so near maturity that there is no significant risk of changes in value due to changes in interest rates. We had available unused federal fund lines of credit and FHLB lines of credit totaling approximately $67.688 million at March 31, 2011, and these lines constitute one element of our liquidity management plan. The Company has not borrowed federal funds in 2011 and did not borrow federal funds in 2010.

BancTrust’s liquidity, on an unconsolidated basis at the holding company level, is dependent on the holding company’s ability to pay its commitments as they come due. BancTrust’s most significant recurring commitments consist of interest payments on debt obligations, dividends on the preferred stock held by the U.S. Treasury and operating costs. BancTrust typically relies on dividends from the Bank to fund these payments. The Bank is currently unable to pay dividends without regulatory approval. In addition, we are unable to declare dividends on our preferred stock held by the U.S. Treasury or our common stock without prior approval from the Federal Reserve Bank of Atlanta. The Bank did not request permission to pay a dividend in the first quarter of 2011 because of our cash position at the holding company, and we have, to date, been able to obtain Federal Reserve approval for the declaration of dividends on our preferred stock held by the U.S. Treasury, including a first quarter 2011 dividend on our preferred stock. Management plans to request approval for additional Bank and holding company dividends as needed. As long as the Bank remains classified under regulatory guidelines as well capitalized, we expect to be able to obtain approval for the Bank to make dividend payments sufficient to enable BancTrust to meet its regular ongoing commitments. We also expect to be able to obtain Federal Reserve approval to declare dividends on our preferred stock. However, we cannot provide assurance that the applicable regulatory agencies will grant our requests in full or in part.

Additionally, BancTrust’s $20.000 million note payable secured by the stock of the Bank matured in October of 2010 and was renewed with modifications. In April of 2011, this note payable was again modified. Pursuant to this modification, we will be required to make a $10 million principal payment in January of 2012 and to then begin making quarterly principal payments of $1.25 million in addition to quarterly interest payments. The maturity date of this note is April 16, 2013. The interest rate until the 2012 principal reduction will be one-month LIBOR plus 5.00%. After the 2012 principal reduction, the interest rate will be one-month LIBOR plus 4.50%. In order to make the January 2012 principal payment and satisfy its other obligations under this note payable, BancTrust must either raise additional capital or issue debt in a sufficient amount to enable repayment, or renew or extend the note payable. The FDIC as receiver for Silverton Bank, N.A. is the holder of the note payable, and any renewal or extension of the note would require FDIC approval. In addition, we are currently required to obtain approval from the Federal Reserve Bank of Atlanta prior to incurring additional debt or modifying or refinancing the terms of existing debt.

Except as discussed in this Management's Discussion and Analysis, elsewhere in this quarterly report on Form 10-Q and in our annual report on Form 10-K for the year ended December 31, 2010, Management is not aware of any trends, events or uncertainties that will have or that are reasonably likely to have a material adverse effect on our liquidity, capital resources or operations, and Management is not aware of any current proposals or recommendations by applicable regulatory authorities which, if implemented, would have such an effect.

Results of Operations

Three Months Ended March 31, 2011 and 2010

Net Income

The Company recorded net income to common shareholders of $251 thousand, or $0.01 per basic and diluted common share, during the first quarter of 2011, compared to net income to common shareholders in the first quarter of 2010 of $386 thousand, or $0.02 per basic and diluted common share. Net income before the preferred stock dividend was $1.020 million in the first quarter of 2011 compared to net income before the preferred dividend of $1.125 million in the first quarter of 2010.

Net Interest Revenue

Net interest revenue, the difference between amounts earned on interest-earning assets and the amounts paid on interest-bearing liabilities, is the most significant component of earnings for a financial institution. Major factors influencing net interest revenue are changes in interest rates, changes in the volume of assets and liabilities and changes in the asset/liability mix.

Quarterly average interest-earning assets increased to $1.958 billion for the first quarter of 2011 from $1.782 billion in the first quarter of 2010, an increase of $176.660 million, or 9.9 percent. Our quarterly net interest margin was 3.14 percent for the first quarter of 2011 compared to 3.40 percent for the first quarter of 2010 and 3.04 percent for the fourth quarter of 2010. Net interest revenue increased by $274 thousand, or 1.8 percent, from the first quarter of 2010 to the first quarter of 2011. The increase in our net interest revenue and net interest margin was due primarily to the shift in funds from interest-bearing deposits to our securities portfolio and to our efforts to reduce the cost of our interest-bearing liabilities. We estimate that non-performing assets resulted in our net interest margin being approximately 51 basis points lower than it would have been if these assets had been earning interest. Interest rate cuts, response to future competitive deposit pricing pressures, or increases in our non-performing assets could have the effect of decreasing our margins.

The following table presents an analysis of net interest revenue, weighted-average yields on interest-earnings assets and weighted-average yields on interest-bearing liabilities for the three months ended March 31, 2011 and 2010.

	Three Months Ended March 31, 2011								Three Months Ended March 31, 2010
	Average Amount Outstanding			Average Rate			Interest Earned/ Paid		Average Amount Outstanding			Average Rate			Interest Earned/ Paid
	(Dollars in Thousands)
Interest earning assets:
Taxable securities	$	474,185			2.78	%	$	3,253	$	254,074			3.49	%	$	2,189
Non-taxable securities		2,401			4.90			29		8,426			4.67			97
Total securities		476,586			2.79			3,282		262,500			3.53			2,286
Loans and leases(1)		1,368,499			5.04			17,008		1,461,165			5.14			18,508
Federal funds sold		0			0.00			0		0			0.00			0
Interest-bearing deposits		113,130			0.26			72		57,890			0.18			26
Total interest-earning assets		1,958,215			4.22			20,362		1,781,555			4.74			20,820

Non-interest-earning assets
Cash and due from banks		35,668								37,323
Premises and equipment, net		75,242								78,788
Other real estate owned, net		83,566								56,493
Other assets		61,091								64,066
Intangible assets, net		4,530								6,570
Allowance for loan and leases losses		(49,367	)							(47,321	)
Total Assets	$	2,168,945							$	1,977,474


Interest-bearing liabilities:
Interest-bearing demand deposits	$	526,221			0.45	%	$	586	$	485,740			0.52	%	$	617
Savings deposits		138,561			0.42			143		126,452			0.68			211
Time deposits		975,982			1.55			3,728		854,410			2.00			4,214
Short-term borrowings		20,000			5.07			250		20,000			5.03			248
FHLB advances and long-term debt		92,786			2.13			489		93,028			2.78			638
Total interest-bearing liabilities		1,753,550			1.20			5,196		1,579,630			1.52			5,928
Non-interest-bearing liabilities:
Non-interest bearing demand deposits		235,098								216,312
Other liabilities		16,521								16,541
		251,619								232,853

Common shareholders equity		115,586								117,353
Preferred stock		48,190								47,638
Shareholders’ equity		163,776								164,991
Total	$	2,168,945							$	1,977,474
Net Interest Revenue					3.02	%	$	15,166					3.22	%	$	14,892
Net yield on interest-earning assets					3.14	%							3.39	%
Tax equivalent adjustment					0.00								0.01
Net yield on interest-earning assets (tax equivalent)					3.14	%							3.40	%

(1) Loans classified as non-accrual are included in the average volume classification. Net loan (costs) fees are included in the interest amounts for loans.

Provision for Loan and Lease Losses

The provision for loan and lease losses is the charge to earnings that is added to the allowance for loan and lease losses in order to maintain the allowance at a level that Management deems adequate to absorb inherent losses in our loan and lease portfolio. See "Asset Quality" above. Net charge-offs in the first quarter of 2011 were $5.720 million compared to $963 thousand in the same period in 2010. The provision for loan and lease losses was $3.500 million in the first quarter of 2011, compared to $2.850 million for the comparable period in 2010. The allowance for loan and lease losses as a percentage of loans, net of unearned income, was 3.37 percent at March 31, 2011 and 3.47 percent at December 31, 2010. The decrease in the allowance for loan and lease losses as a percentage of loans, net of unearned income, from December 31, 2010 to March 31, 2011 was due largely to the charge-off of non-performing loans in the first quarter of 2011.

Non-Interest Revenue and Expense

Non-interest revenue was $4.837 million for the first quarter of 2011, a decrease of $487 thousand from the first quarter of 2010. Net securities gains decreased $353 thousand in the first quarter of 2011 compared to the same period in 2010. We sold investment securities in part to lengthen the average life of the portfolio. Service charges on deposit accounts decreased $382 thousand, or 19.9 percent, from $1.921 million for the first quarter of 2010 to $1.539 million for the same period in 2011. The volume of insufficient funds (“NSF”) activity, fees for which are included in service charge income, has decreased. Management believes part of this decrease is due to customers more diligently monitoring their personal accounts and to the increased use of debit cards, which do not typically generate NSF fees because transactions for which our customers do not have available funds are declined at the point of sale instead of posting to the account and generating a NSF charge. We expect this trend to continue in the foreseeable future. Additionally, restrictions in the Dodd-Frank Act may decrease our income related to debit card transactions. Trust revenue in the first quarter of 2011 was $1.045 million compared to $952 thousand for the same period in 2010. Trust assets increased from $841.092 million at March 31, 2010 to $869.891 million at March 31, 2011. The increase in trust assets is a result of the increase in the stock market in 2011 compared to 2010 and to new trust department customers.

Salary and employee benefit expense in the first quarter of 2011 was $7.197 million, a decrease of $160 thousand from the first quarter of 2010. Full time equivalent employees decreased from 552 at March 31, 2010 to 546 at March 31, 2011. The decrease in full time equivalent employees is a result of efficiencies created by the consolidation of our banks and the completion of several efficiency projects.

Net occupancy expense was $1.502 million in the first quarter of 2011, an increase of $60 thousand, or 4.2 percent, from the same period in 2010. Furniture and equipment expense decreased by $204 thousand, or 18.5 percent primarily a result of decreased depreciation expense as some older assets were fully depreciated between the two periods and due to decreased maintenance cost. The Company operates in 50 branches.

Losses on other real estate owned reflect both net losses on the sale of other real estate owned and the write-down of other real estate owned to its estimated fair value. Losses on other real estate owned increased to $173 thousand in the first quarter of 2011, compared to $162 thousand in the first quarter of 2010. Other real estate owned carrying cost decreased $140 thousand from $694 thousand in the first quarter of 2010 to $554 thousand in the first quarter of 2011. These costs were lower in 2011 due in part to appeals of property insurance assessments, discounts on quarterly payment of certain taxes and because in 2010 the Company brought past-due property taxes current following foreclosures. Other real estate owned carrying costs consist primarily of property taxes, insurance and maintenance.

FDIC assessments were $1.143 million for the quarter ended March 31, 2011, compared to $940 thousand for the same period in 2010, reflecting higher levels of deposits in 2011. Beginning in the second quarter of 2011, the FDIC will change the assessment base for FDIC insurance premiums from domestic deposits to average assets minus average tangible equity. The Company does not expect this change to have a material impact on the Company’s results of operations.

Other expense was $2.555 million for the quarter ended March 31, 2011, a decrease of $56 thousand from the first quarter of 2010. Other expense includes items such as advertising, audit fees, director fees, insurance costs and stationery and supplies.

Income tax expense was $53 thousand for the first quarter of 2011, compared to income tax expense of $534 thousand for the same period in 2010, reflecting a decrease in taxable income and adjustment of the tax liability accounts, including those relating to uncertain tax positions. Our effective rate for the quarter ended March 31, 2011 was 4.9 percent, compared to 32.2 percent for the same period last year.

Contractual Obligations

In the normal course of business, the Company enters into various contractual obligations. For a discussion of contractual obligations see "Contractual Obligations and Off-Balance Sheet Arrangements" in BancTrust's 2010 Annual Report on Form 10-K. Items disclosed in the Annual Report on Form 10-K have not changed materially since the report was filed.

Off-Balance Sheet Arrangements

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk Management

Market risk is a risk of loss arising from adverse changes in market prices and rates. The Company's market risk is composed primarily of interest rate risk created by its lending and deposit-taking activities. The primary purpose of managing interest rate risk is to reduce the effects of interest rate volatility on our financial condition and results of operations. Management addresses this risk through an active Asset/Liability management process and through management of maturities and repricing of interest-earning assets and interest-bearing liabilities. The Company's market risk and strategies for market risk management are more fully described in its 2010 Annual Report on Form 10-K. There have been no changes in the assumptions used in monitoring interest rate risk as of March 31, 2011. Through March 31, 2011, Management has not utilized derivatives as a part of this process, but it may do so in the future.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company's Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company's disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Disclosure controls are controls and other procedures that are designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's ("SEC") rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to Management, including the Company's Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Based on their evaluation, the Company's Chief Executive Officer and Chief Financial Officer believe the controls and procedures in place are effective to ensure that information required to be disclosed complies with the SEC's rules and forms.

Changes in Internal Controls

There were no changes in the Company's internal control over financial reporting during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II. OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information about purchases by or on behalf of BancTrust or any affiliated purchaser (as defined in SEC Rule 10b-18(a)(3)) of BancTrust during the quarter ended March 31, 2011 of equity securities that are registered by BancTrust pursuant to Section 12 of the Exchange Act.

Period	Total Number Of Shares Purchased(1)		Average Price Paid Per Share		Total Number of Shares Purchased As Part Of Publicly Announced Plans Or Programs		Maximum Number of Shares That May Yet Be Purchased Under The Plans Or Programs(2)
01/01/11-01/31/11		2,000	$	2.86		0		229,951
02/01/11-02/28/11		2,615	$	2.73		0		229,951
03/01/11-03/31/11		22,050	$	2.72		0		229,951
Total		26,665	$	2.73		0		229,951

(1)

26,665 shares of common stock were purchased on the open market to provide shares of common stock to participants in BancTrust's grantor trust related to its deferred compensation plan for directors.

(2)

Under a share repurchase program announced on September 28, 2001, BancTrust may buy up to 425,000 shares of its common stock. The repurchase program does not have an expiration date. As a participant in the U.S. Treasury’s TARP Capital Purchase Program, BancTrust currently may not repurchase its common shares pursuant to its repurchase program without the consent of the U.S. Treasury. Shares of common stock purchased in BancTrust's grantor trust do not decrease the number of shares of common stock that may be purchased under the share repurchase program.

Item 6. Exhibits


31.1	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	BancTrust Financial Group, Inc.


May 13, 2011	By: /s/W. Bibb Lamar, Jr.
Date	W. Bibb Lamar, Jr.
	President and Chief Executive Officer


May 13, 2011	By: /s/F. Michael Johnson
Date	F. Michael Johnson
	Chief Financial Officer and Secretary

	EXHIBIT INDEX


SEC Assigned Exhibit No.	Description of Exhibit

31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Attached files

BANCTRUST FINANCIAL GROUP INC Reports

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