Company Quick10K Filing
Quick10K
Midsouth Bancorp
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$11.52 17 $192
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
8-K 2019-01-30 Earnings, Exhibits
8-K 2018-12-12 Officers
8-K 2018-10-30 Earnings, Exhibits
8-K 2018-10-26 Enter Agreement, Other Events, Exhibits
8-K 2018-10-25 Other Events, Exhibits
8-K 2018-10-15 Officers
8-K 2018-09-10 Other Events
8-K 2018-08-15 Officers
8-K 2018-08-01 Officers
8-K 2018-07-30 Earnings, Exhibits
8-K 2018-05-30 Officers, Shareholder Vote, Other Events, Exhibits
8-K 2018-04-26 Earnings, Exhibits
8-K 2018-03-21 Officers, Other Events
8-K 2018-03-01 Officers
8-K 2018-02-27 Other Events, Exhibits
8-K 2018-01-24 Earnings, Officers, Exhibits
8-K 2018-01-02 Officers, Other Events
8-K 2017-12-26 Exit Costs, Officers, Other Events
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MSL 2018-09-30
Part I - Financial Information
Item 1. Financial Statements.
Note 1: Basis of Presentation
Note 2: Adoption of New Accounting Standards and Recent Accounting Pronouncements
Note 3: Investment Securities
Note 4: Loans
Note 5: Derivatives
Note 6: Other Comprehensive (Loss) Income
Note 7: Earnings per Common Share
Note 8: Fair Value Measurement
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II - Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-31.1 a2018q310qex-311.htm
EX-31.2 a2018q310qex-312.htm
EX-32.1 a2018q310qex-321.htm
EX-32.2 a2018q310qex-322.htm

Midsouth Bancorp Earnings 2018-09-30

MSL 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 a2018q310q.htm 10-Q Document
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
 
FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
OR
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 1-11826
logoa36.jpg
MIDSOUTH BANCORP, INC.
(Exact name of registrant as specified in its charter)

Louisiana
 
72 –1020809
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)

102 Versailles Boulevard, Lafayette, Louisiana 70501
 (Address of principal executive offices, including zip code)
(337) 237-8343
(Registrant’s telephone number, including area code)

Indicate by checkmark whether the registrant: (1) has filed all reports required to be filed by Section 13 of 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   ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
YES   x   NO   ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
☐Large accelerated filer
x Accelerated filer
☐Non-accelerated filer
x Smaller reporting company
☐Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of November 9, 2018, there were 16,641,105 shares of the registrant’s Common Stock, par value $0.10 per share, outstanding.






Part I – Financial Information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Part II – Other Information
 
 
Item 1A. Risk Factors.
 
 
 
 
 
Item 6. Exhibits.



Part I – Financial Information
 
Item 1. Financial Statements.
MidSouth Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
(dollars in thousands, except per share amounts)
 
 
September 30, 2018
(unaudited)
 
December 31, 2017
(audited)
Assets
 
 
 
 
Cash and due from banks, including required reserves of $13,843 and $6,741, respectively
 
$
33,066

 
$
34,775

Interest-bearing deposits in other banks
 
261,985

 
114,839

Federal funds sold
 
7,837

 
3,350

Investment securities available-for-sale, at fair value
 
352,606

 
309,191

Investment securities held-to-maturity (fair value of $63,581 and $80,920, respectively)
 
64,893

 
81,052

Other investments
 
16,508

 
12,214

Loans held for sale
 

 
15,737

Loans
 
962,743

 
1,183,426

Allowance for loan losses
 
(24,450
)
 
(26,888
)
Loans, net
 
938,293

 
1,156,538

Bank premises and equipment, net
 
56,006

 
59,057

Accrued interest receivable
 
6,606

 
8,283

Goodwill
 
42,171

 
42,171

Intangibles
 
2,685

 
3,515

Cash surrender value of life insurance
 
15,071

 
14,896

Other real estate
 
1,022

 
2,001

Assets held for sale
 
1,372

 
3,995

Other assets
 
26,133

 
19,538

Total assets
 
$
1,826,254

 
$
1,881,152

 
 
 
 
 
Liabilities and Shareholders’ Equity
 
 

 
 

Liabilities:
 
 

 
 

Deposits:
 
 

 
 

Non-interest-bearing
 
$
425,696

 
$
416,547

Interest-bearing
 
1,083,433

 
1,063,142

Total deposits
 
1,509,129

 
1,479,689

Securities sold under agreements to repurchase
 
13,676

 
67,133

FHLB borrowings
 
27,506

 
50,021

Other borrowings
 
22,167

 
22,167

Other liabilities
 
12,325

 
8,127

Total liabilities
 
1,584,803

 
1,627,137

 
 


 


Shareholders’ equity:
 
 

 
 

Series B Preferred stock, no par value; 5,000,000 shares authorized, 32,000 shares issued and outstanding, respectively
 
32,000

 
32,000

Series C Preferred stock, no par value; 100,000 shares authorized, 89,725 and 89,875 shares issued and outstanding, respectively
 
8,972

 
8,987

Common stock, $0.10 par value; 30,000,000 shares authorized, 16,641,105 and 16,548,829 shares issued and outstanding, respectively
 
1,664

 
1,655

Additional paid-in capital
 
169,070

 
168,412

Unearned ESOP shares
 
(845
)
 
(937
)
Accumulated other comprehensive loss
 
(6,972
)
 
(1,828
)
Retained earnings
 
37,562

 
45,726

Total shareholders’ equity
 
241,451

 
254,015

Total liabilities and shareholders’ equity
 
$
1,826,254

 
$
1,881,152

 
See notes to unaudited consolidated financial statements.

3


MidSouth Bancorp, Inc. and Subsidiaries
Consolidated Statements of Operations (unaudited)
(dollars in thousands, except per share amounts)
 
 
 
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
Interest income:
 
 
 
 
 
 
 
 
Loans, including fees
 
$
14,590

 
$
17,329

 
$
45,948

 
$
50,682

Securities and other investments:
 
 
 
 
 
 
 
 
Taxable
 
2,156

 
2,276

 
6,296

 
7,019

Nontaxable
 
273

 
363

 
866

 
1,144

Interest bearing deposits in other banks
 
1,417

 
411

 
3,061

 
823

Total interest income
 
18,436

 
20,379

 
56,171

 
59,668

 
 
 
 
 
 
 
 
 
Interest expense:
 
 

 
 

 
 
 
 
Deposits
 
1,602

 
1,094

 
4,249

 
3,002

Securities sold under agreements to repurchase
 
16

 
149

 
82

 
619

FHLB borrowings
 
81

 
111

 
330

 
290

Other borrowings
 
271

 
212

 
750

 
632

Total interest expense
 
1,970

 
1,566

 
5,411

 
4,543

 
 
 
 
 
 
 
 
 
Net interest income
 
16,466

 
18,813

 
50,760

 
55,125

Provision for loan losses
 
4,300

 
4,300

 
4,740

 
19,600

Net interest income after provision for loan losses
 
12,166

 
14,513

 
46,020

 
35,525

 
 
 
 
 
 
 
 
 
Non-interest income:
 
 

 
 

 
 
 
 
Service charges on deposits
 
2,159

 
2,463

 
6,430

 
7,339

Gain on sale of securities, net
 

 
338

 

 
347

Loss on equity securities, other investments
 
(16
)
 

 
(66
)
 

ATM and debit card income
 
1,796

 
1,687

 
5,457

 
5,156

Other charges and fees
 
1,151

 
998

 
2,981

 
2,911

Total non-interest income
 
5,090

 
5,486

 
14,802

 
15,753

 
 
 
 
 
 
 
 
 
Non-interest expenses:
 
 

 
 

 
 
 
 
Salaries and employee benefits
 
7,762

 
7,849

 
23,398

 
25,989

Occupancy expense
 
3,077

 
3,711

 
9,315

 
11,524

ATM and debit card expense
 
653

 
654

 
1,876

 
2,088

Data processing
 
730

 
640

 
2,061

 
1,928

FDIC insurance
 
360

 
448

 
1,296

 
1,275

Regulatory remediation expense
 
5,502

 
856

 
14,658

 
856

Legal and professional fees
 
2,543

 
548

 
5,425

 
2,127

Other
 
2,900

 
3,053

 
9,644

 
8,806

Total non-interest expenses
 
23,527

 
17,759

 
67,673

 
54,593

 
 
 
 
 
 
 
 
 
(Loss)Income before income tax benefit
 
(6,271
)
 
2,240

 
(6,851
)
 
(3,315
)
Income tax (benefit)expense
 
(1,373
)
 
574

 
(1,644
)
 
(2,058
)
Net (loss)income
 
(4,898
)
 
1,666

 
(5,207
)
 
(1,257
)
Dividends on preferred stock
 
810

 
810

 
2,430

 
2,432

Net (loss)income available to common shareholders
 
$
(5,708
)
 
$
856

 
$
(7,637
)
 
$
(3,689
)
 
 
 

 
 

 
 
 
 
Basic (loss)earnings per common share
 
$
(0.34
)
 
$
0.05

 
$
(0.46
)
 
$
(0.28
)
Diluted (loss)earnings per common share
 
$
(0.34
)
 
$
0.05

 
$
(0.46
)
 
$
(0.28
)
Weighted average number of shares outstanding:
 
 

 
 

 
 
 
 
Basic
 
16,558

 
16,395

 
16,531

 
13,314

Diluted
 
16,558

 
16,396

 
16,531

 
13,314

Dividends declared per common share
 
$
0.01

 
$
0.01

 
$
0.03

 
$
0.19


See notes to unaudited consolidated financial statements.

4


MidSouth Bancorp, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Loss (unaudited)
(dollars in thousands)
 
 
 
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
Net loss
 
$
(4,898
)
 
$
1,666

 
$
(5,207
)
 
$
(1,257
)
Other comprehensive (loss) income, net of tax:
 
 

 
 

 
 

 
 

Net change in unrealized (loss) gains on securities available-for-sale
 
(2,025
)
 
(673
)
 
(6,946
)
 
2,877

Net change in unrealized gain on derivative instruments
 
35

 
(11
)
 
434

 
(134
)
Other comprehensive (loss) income, before tax
 
(1,990
)
 
(684
)
 
(6,512
)
 
2,743

Income tax effect related to items of other comprehensive (loss) income
 
418

 
240

 
1,368

 
(960
)
Total other comprehensive (loss) income, net of tax
 
(1,572
)
 
(444
)
 
(5,144
)
 
1,783

Total comprehensive loss
 
$
(6,470
)
 
$
1,222

 
$
(10,351
)
 
$
526

See notes to unaudited consolidated financial statements.

5


MidSouth Bancorp, Inc. and Subsidiaries
Consolidated Statement of Shareholders’ Equity (unaudited)
(dollars in thousands, except per share amounts)
 
 
Preferred
Stock
 
Common
Stock
 
Additional
Paid-in Capital
 
Unearned
ESOP Shares
 
Accumulated
Other Comprehensive Loss
 
Retained Earnings
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
Total
Balance - December 31, 2016
 
123,098

 
$
41,110

 
11,362,716

 
$
1,136

 
$
111,166

 
$
(1,233
)
 
$
(1,010
)
 
$
63,207

 
$
214,376

Net earnings
 

 

 

 

 

 

 

 
(1,257
)
 
(1,257
)
Dividends on Series B and Series C preferred stock
 

 

 

 

 

 

 

 
(2,432
)
 
(2,432
)
Dividends on common stock, $0.19 per share
 

 

 

 

 

 

 

 
(2,645
)
 
(2,645
)
Issuance of common stock
 

 

 
5,100,034

 
510

 
56,641

 

 

 

 
57,151

Restricted stock grant
 

 

 
58,090

 
6

 
(6
)
 

 

 

 

Conversion of Series C preferred stock to common stock
 
(1,223
)
 
(123
)
 
6,791

 
1

 
122

 

 

 

 

ESOP shares released for allocation
 

 

 

 

 
50

 
266

 

 

 
316

Exercise of stock options
 

 

 
20,498

 
2

 
264

 

 

 

 
266

Vested restricted stock
 

 

 
700

 

 

 

 

 

 

Stock option and restricted stock compensation expense
 

 

 

 

 
85

 

 

 

 
85

Change in accumulated other comprehensive income
 

 

 

 

 

 

 
1,783

 

 
1,783

Balance – September 30, 2017
 
121,875

 
$
40,987

 
16,548,829

 
$
1,655

 
$
168,322

 
$
(967
)
 
$
773

 
$
56,873

 
$
267,643


6


MidSouth Bancorp, Inc. and Subsidiaries
Consolidated Statement of Shareholders’ Equity (unaudited)
(dollars in thousands, except per share amounts)
 
 
Preferred
Stock
 
Common
Stock
 
Additional
Paid-in Capital
 
Unearned
ESOP Shares
 
Accumulated
Other Comprehensive Loss
 
Retained Earnings
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
Total
Balance, December 31, 2017
 
121,875

 
$
40,987

 
16,548,829

 
$
1,655

 
$
168,412

 
$
(937
)
 
$
(1,828
)
 
$
45,726

 
$
254,015

Adoption of ASU 2016-01
 

 

 

 

 

 

 
31

 
(31
)
 

Net loss
 

 

 

 

 

 

 

 
(5,207
)
 
(5,207
)
Dividends on Series B and Series C preferred stock
 

 

 

 

 

 

 

 
(2,430
)
 
(2,430
)
Dividends on common stock, $0.03 per share
 

 

 

 

 

 

 

 
(496
)
 
(496
)
Restricted stock grant
 

 

 
80,748

 
8

 
(8
)
 

 

 

 

Restricted stock forfeitures
 

 

 
(38,837
)
 
(4
)
 
4

 

 

 

 

Conversion of Series C preferred stock to common stock
 
(150
)
 
(15
)
 
833

 

 
15

 

 

 

 

ESOP shares released for allocation
 

 

 

 

 

 
92

 

 

 
92

ESOP compensation expense
 

 

 

 

 
31

 

 

 

 
31

Exercise of stock options
 

 

 
49,532

 
5

 
637

 

 

 

 
642

Stock option and restricted stock compensation expense
 

 

 

 

 
(21
)
 

 

 

 
(21
)
Change in accumulated other comprehensive loss
 

 

 

 

 

 

 
(5,175
)
 

 
(5,175
)
Balance, September 30, 2018
 
121,725

 
$
40,972

 
16,641,105

 
$
1,664

 
$
169,070

 
$
(845
)
 
$
(6,972
)
 
$
37,562

 
$
241,451

See notes to unaudited consolidated financial statements.


7


MidSouth Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (unaudited)
(dollars in thousands)
 
 
For the Nine Months Ended September 30,
 
 
2018
 
2017
Cash flows from operating activities:
 
 
 
 
Net loss
 
$
(5,207
)
 
$
(1,257
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 

 
 

Depreciation
 
3,484

 
4,345

Accretion of purchase accounting adjustments
 
569

 
(180
)
Provision for loan losses
 
4,740

 
19,600

Deferred tax expense (benefit)
 
(1,359
)
 
(704
)
Amortization of premiums on securities, net
 
2,224

 
2,128

Stock-based compensation expense
 
(21
)
 
85

Net excess tax benefit from stock-based compensation
 
163

 
379

ESOP compensation expense
 
31

 
50

Net gain on sale of investment securities
 

 
(347
)
Loss on mutual fund
 
66

 

Proceeds from sale of loans held for sale
 
15,623

 

Net loss on sale of other real estate owned
 
67

 
(15
)
Net write down of other real estate owned
 
154

 
83

Write down of assets held for sale
 

 
570

Loss on transfer of loans to held for sale
 
879

 

Net loss on sale/disposal of premises and equipment
 
(183
)
 
648

Change in accrued interest receivable
 
1,677

 
(121
)
Change in accrued interest payable
 
(11
)
 
(12
)
Change in other assets & other liabilities, net
 
3,069

 
(3,236
)
Net cash provided by operating activities
 
25,965

 
22,016

 
 
 
 
 
Cash flows from investing activities:
 
 

 
 

Proceeds from maturities and calls of securities available-for-sale
 
38,015

 
42,585

Proceeds from maturities and calls of securities held-to-maturity
 
15,578

 
12,940

Proceeds from sale of securities available-for-sale
 
410

 
16,979

Proceeds from sale of security held-to-maturity
 

 
887

Purchases of securities available-for-sale
 
(92,529
)
 
(42,172
)
Proceeds from sale of other investments
 

 
57

Purchases of other investments
 
(2,300
)
 
(902
)
Net change in loans
 
213,002

 
28,649

Purchases of premises and equipment
 
(1,058
)
 
(2,940
)
Proceeds from sale of premises and equipment
 
808

 
249

Proceeds from sale of other real estate owned
 
834

 
1,728

Net cash provided by investing activities
 
172,760

 
58,060

 
 
 
 
 
Cash flows from financing activities:
 
 

 
 

Change in deposits
 
29,440

 
(23,495
)
Change in securities sold under agreements to repurchase
 
(53,457
)
 
(39,586
)
Borrowings from FHLB
 
247,500

 
25,000

Repayments to FHLB
 
(270,000
)
 
(12,546
)
Repayments of notes payable
 

 

Proceeds from exercise of stock options
 
642

 
266

Proceeds from issuance of common stock
 

 
57,834

Stock offering expenses
 

 
(683
)
Payment of dividends on preferred stock
 
(2,430
)
 
(2,433
)
Payment of dividends on common stock
 
(496
)
 
(3,538
)
Net cash used by financing activities
 
(48,801
)
 
819

 
 
 
 
 
Net increase (decrease) in cash and cash equivalents
 
149,924

 
80,895

Cash and cash equivalents, beginning of period
 
152,964

 
82,228

Cash and cash equivalents, end of period
 
$
302,888

 
$
163,123

 
 
 
 
 
Supplemental cash flow information:
 
 

 
 

Interest paid
 
$
5,422

 
$
4,555

Income taxes paid
 

 
2,500

Noncash investing and financing activities:
 
 

 
 

Transfer of loans to other real estate
 
76

 
1,552

Transfer of loans to held for sale
 
221

 

Change in accrued common stock dividends
 
1

 
(859
)
Change in accrued preferred stock dividends
 

 
(1
)
Change in unrealized gains/losses on securities available-for-sale, net of tax
 
(5,518
)
 

Change in unrealized gains on derivative instruments, net of tax
 
343

 

Cumulative-effect adjustment to retained earnings due to ASU 2016-01, net of tax
 
31

 

Net change in loan to ESOP
 
92

 
266

 
See notes to unaudited consolidated financial statements.


8


MidSouth Bancorp, Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements
September 30, 2018
(Unaudited)

NOTE 1: BASIS OF PRESENTATION

Midsouth Bancorp (the "Company" or "we") is a bank holding company whose business is primarily conducted through its wholly-owned banking subsidiary, Midsouth Bank (the "Bank"). We operate a full-service banking business and offer a broad range of commercial and retail banking products to our customers.

The accompanying unaudited consolidated financial statements for the Company have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information. Accordingly, the financial statements do not include all of the information and footnotes required by GAAP for complete financial statement presentation. The interim consolidated financial statements included herein are unaudited, but reflect all adjustments, consisting of normal and recurring items, which, in the opinion of management, are necessary for fair presentation of the consolidated financial position and result of operations for the interim period presented. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operation for the period ended September 30, 2018 are not necessarily indicative of the results expected for the full year. These financial statements should be read in conjunction with the financial statements and notes thereto and the report of our independent registered public accounting firm included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

Certain amounts have been reclassified to conform with current period presentation. The reclassifications had no effect on net income or shareholders' equity as previously reported.
 

NOTE 2: ADOPTION OF NEW ACCOUNTING STANDARDS AND RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Standards Adopted in 2018

— In May 2018, the FASB issued ASU 2018-06, Codification Improvements to Topic 942, Financial Services - Depository and Lending. ASU 2018-06 removes outdated guidance related to Circular 202 because that guidance has been rescinded by the Office of the Comptroller of the Currency. The amendments in this update are effective upon issuance. The adoption of this ASU did not
have a material effect on the Company’s financial position, result of operations or cash flows.

ASU 2018-03, Technical Corrections and Improvements to Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities was issued to clarify certain aspects of the guidance on recognizing and measuring financial assets and liabilities in ASU 2016-01:
Clarification regarding the ability to discontinue application of the measurement alternative for equity securities without a readily determinable fair value
Clarification of the measurement date for fair value adjustments to the carrying amount of equity securities without a readily determinable fair value for which the measurement alternative is elected
Clarification of the unit of account for fair value adjustments to forward contracts and purchased options on equity securities without a readily determinable fair value for which the measurement alternative is expected to be elected
Presentation requirements for certain hybrid financial liabilities for which the fair value option is elected
Measurement of financial liabilities denominated in a foreign currency for which the fair value option is elected
Transition guidance for equity securities without a readily determinable fair value
The effective date of this Update is for fiscal years beginning on or after December 15, 2017 and for interim periods within those fiscal years beginning after June 15, 2018. Public business entities with fiscal years beginning between December 15, 2017 and June 15, 2018 are not required to adopt the amendments until interim periods beginning after June 15, 2018. Adoption of this Update is not expected to have a material effect on the Company's financial position, results of operations or its financial statement disclosures.


9


Adoption of New Accounting Standards ASU 2016-01, Financial Statements - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities was issued in January 2016 to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This standard impacts how the Company measures certain equity investments and discloses and presents certain financial instruments through the application of the “exit price” notion. The Company adopted the amendments beginning January 1, 2018. Under the new guidance, equity investments can no longer be classified as trading or available for sale (AFS), and related unrealized holding gains and losses can no longer be recognized in OCI. Per the ASU, such equity investments should be measured at fair value, with adjustments recognized in earnings at the end of each reporting period. As such, the Company reclassified its portfolio of equity investments previously classified as AFS investment securities to “other investments.” As these equity investments were previously measured at fair value, implementation of the ASU did not impact the Company’s valuation method. In accordance with the ASU, the cumulative-effect adjustment from AOCI to retained earnings for previously recorded fair value adjustments related to these equity investments at adoption was immaterial. The Company elected the practical expedient measurement alternative to prospectively account for other equity investments that do not have readily determinable fair values at cost less impairment plus or minus observable price changes in orderly transactions for an identical or similar investment of the same issuer. The investments are immaterial overall and are classified within “other investments” on the Company’s consolidated balance sheets rather than as available-for-sale securities.

In May 2014, the FASB issued ASU 2014-09 - Revenue from Contracts with Customers, which created a new principle-based framework to determine when and how an entity recognizes revenue from its customer contracts. FASB has established a core principle for recognizing revenue within the new rules, which states that revenue should only be recorded when services are provided or goods are transferred to customers at the agreed price. The majority of our revenue-generating transactions are not subject to ASC Topic 606, including revenue generated from financial instruments, such as our loans, letters of credit and investment securities, as these activities are subject to other GAAP discussed elsewhere within our disclosures. Description of our revenue-generating activities that are within the scope of ASC Topic 606, which are presented in our income statements as components of non-interest income are as follows:

Service charges on deposits - We collect service charges on most of our non-maturity deposits accounts on a monthly basis. Our fee earned is collected monthly when a particular cycle for a non-maturity deposit account closes. Each cycle is monthly and the fee earned is for our service for the month just closed. Our performance obligations are to process transactions, pay interest (on interest-bearing accounts), collect deposits, and allow access to on-line banking applications and other services ancillary to a banking relationship. Each month when our fee is charged, our obligation is complete. The contract-relationship is a month to month obligation - i.e. our obligation to perform these services would end if the customer closes their deposit account with MidSouth.
ATM and debit card income - ATM fees primarily consist of surcharges assessed to our customers for using a non-Bank ATM or a non-Bank customer using our ATM. Debit card income represents revenues earned from interchange fees, which are earned on debit card transactions conducted with payment networks. Such fees are generally recognized concurrently with the delivery of services on a daily basis.


10


NOTE 3: INVESTMENT SECURITIES
 
The amortized cost and estimated fair value of available-for-sale investment securities are as follows (dollars in thousands):

 
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Value
September 30, 2018
 
 
 
 
 
 
 
 
Available for sale:
 
 
 
 
 
 
 
 
State, county, and municipal securities
 
$
23,775

 
$
27

 
$
1,043

 
$
22,759

Mortgage-backed securities
 
313,605

 
468

 
10,028

 
304,045

Corporate debt securities
 
25,566

 
328

 
92

 
25,802

 
 
$
362,946

 
$
823

 
$
11,163

 
$
352,606

 
 
 
 
 
 
 
 
 
December 31, 2017
 
 
 
 
 
 
 
 
State, county, and municipal securities
 
$
23,042

 
$
209

 
$
442

 
$
22,809

Mortgage-backed securities
 
263,467

 
915

 
4,863

 
259,519

Mutual funds
 
2,100

 

 
39

 
2,061

  Corporate debt securities
 
23,975

 
837

 
10

 
24,802

 
 
$
312,584

 
$
1,961

 
$
5,354

 
$
309,191


The amortized cost and estimated fair value of held-to-maturity investment securities are as follows (dollars in thousands):
 
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Value
September 30, 2018
 
 
 
 
 
 
 
 
Held-to-maturity:
 
 
 
 
 
 
 
 
State, county, and municipal securities
 
$
27,148

 
$
83

 
$
149

 
$
27,082

Mortgage-backed securities
 
37,745

 

 
1,246

 
36,499

 
 
$
64,893

 
$
83

 
$
1,395

 
$
63,581

 
 
 
 
 
 
 
 
 
December 31, 2017
 
 
 
 
 
 
 
 
State, county, and municipal securities
 
$
35,908

 
$
265

 
$
22

 
$
36,151

Mortgage-backed securities
 
45,144

 
171

 
546

 
$
44,769

 
 
$
81,052

 
$
436

 
$
568

 
$
80,920



 

11


The amortized cost and estimated fair value of debt securities by contractual maturity are summarized in the tables below (dollars in thousands):   Actual maturities will differ from contractual maturities because of rights to call or repay obligations with or without penalties and scheduled and unscheduled principal payments on mortgage-backed securities and collateralized mortgage obligations.

 
 
Amortized
Cost
 
Fair
Value
September 30, 2018
 
 
 
 
Available for sale:
 
 
 
 
Due in one year or less
 
$

 
$

Due after one year through five years
 
8,140

 
8,150

Due after five years through ten years
 
22,640

 
22,805

Due after ten years
 
270,755

 
261,169

Mortgage-backed securities
 
61,411

 
60,482

 
 
$
362,946

 
$
352,606

 
 
 
 
 
Held-to-maturity:
 
 
 
 
Due in one year or less
 
$
768

 
$
767

Due after one year through five years
 
4,821

 
4,763

Due after five years through ten years
 
13,347

 
13,316

Due after ten years
 
15,963

 
15,563

Mortgage-backed securities
 
29,994

 
29,172

 
 
$
64,893

 
$
63,581


The following tables detail the gross unrealized losses and estimated fair value of available for sale and held-to-maturity securities aggregated by category and duration of continuous unrealized loss position at September 30, 2018 and December 31, 2017 (dollars in thousands):
 
 
 
Less than 12 Months
 
12 Months or More
 
Total
 
 
Fair
Value
 
Unrealized
 Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Available for sale:
 
 
 
 
 
 
 
 
 
 
 
 
State, county, and municipal securities
 
$
5,948

 
$
44

 
$
12,714

 
$
999

 
$
18,662

 
$
1,043

Mortgage-backed securities
 
96,704

 
1,193

 
179,082

 
8,835

 
275,786

 
10,028

Corporate debt securities
 
2,908

 
92

 

 

 
2,908

 
92

 
 
$
105,560

 
$
1,329

 
$
191,796

 
$
9,834

 
$
297,356

 
$
11,163

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
State, county, and municipal securities
 
$
596

 
$
5

 
$
12,716

 
$
437

 
$
13,312

 
$
442

Mortgage-backed securities
 
87,390

 
772

 
145,696

 
4,091

 
233,086

 
4,863

Mutual funds
 
2,061

 
39

 

 

 
2,061

 
39

Corporate debt securities
 
2,990

 
10

 

 

 
2,990

 
10

 
 
$
93,037

 
$
826

 
$
158,412

 
$
4,528

 
$
251,449

 
$
5,354



12


 
 
Less than 12 Months
 
12 Months or More
 
Total
 
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized Loss
 
Fair
Value
 
Unrealized
Loss
September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Held-to-maturity:
 
 
 
 
 
 
 
 
 
 
 
 
State, county, and municipal securities
 
$
12,645

 
$
149

 
$

 
$

 
$
12,645

 
$
149

Mortgage-backed securities
 
15,922

 
226

 
20,578

 
1,020

 
36,500

 
1,246

 
 
$
28,567

 
$
375

 
$
20,578

 
$
1,020

 
$
49,145

 
$
1,395

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
State, county, and municipal securities
 
$
6,340

 
$
22

 
$

 
$

 
$
6,340

 
$
22

Mortgage-backed securities
 
13,138

 
95

 
12,090

 
451

 
25,228

 
546

 
 
$
19,478

 
$
117

 
$
12,090

 
$
451

 
$
31,568

 
$
568


Management evaluates each quarter whether unrealized losses on securities represent impairment that is other than temporary. For debt securities, the Company considers its intent to sell the securities or if it is more likely than not the Company will be required to sell the securities.  If such impairment is identified, based upon the intent to sell or the more likely than not threshold, the carrying amount of the security is reduced to fair value with a charge to earnings. Upon the result of the aforementioned review, management then reviews for potential other than temporary impairment based upon other qualitative factors.  In making this evaluation, management considers changes in market rates relative to those available when the security was acquired, changes in market expectations about the timing of cash flows from securities that can be prepaid, performance of the debt security, and changes in the market’s perception of the issuer’s financial health and the security’s credit quality.  If determined that a debt security has incurred other than temporary impairment, then the amount of the credit related impairment is determined.  Effective January 1, 2018, equity securities with readily determinable fair values are measured at fair value with changes in the fair value recognized through net income.
 
As of September 30, 2018, 124 securities had unrealized losses totaling 3.50% of the individual securities’ amortized cost basis and 2.94% of the Company’s total amortized cost basis.  Of the 124 securities, 60 had been in an unrealized loss position for over twelve months at September 30, 2018.  These 60 securities had an amortized cost basis and unrealized loss of $223.2 million and $10.9 million, respectively.  The unrealized losses on debt securities at September 30, 2018 resulted from changing market interest rates over the yields available at the time the underlying securities were purchased.  Management identified no impairment related to credit quality.  At September 30, 2018, management had the intent and ability to hold impaired securities and no impairment was evaluated as other than temporary.  As a result, no other than temporary impairment losses were recognized during the three months ended September 30, 2018.
 
During the nine months ended September 30, 2018, the Company sold 1 security classified as available-for-sale for $410,000 which resulted in neither a gain nor a loss. During the nine months ended September 30, 2017, the Company sold 16 securities classified as available-for-sale and 1 security classified as held-to-maturity. Of the available-for-sale securities, 13 securities were sold with gains totaling $449,000 and 3 securities were sold at a loss of $109,000 for a net gain of $340,000. The decision to sell the 1 held-to-maturity security, which was sold at a gain of $7,000, was based on the pre-refunding of the bond which would accelerate the maturity of the bond by 15 years with an anticipated call date within six months.

Securities with a carrying value of approximately $189.4 million serve as collateral to secure public deposits, securities sold under agreements to repurchase and for other purposes required or permitted by law at September 30, 2018, compared with $189.0 million at December 31, 2017.
 

13


NOTE 4: LOANS
 
The loan portfolio consisted of the following (in thousands):
 
 
September 30, 2018
 
December 31, 2017
Commercial, financial and agricultural
 
$
295,802

 
$
435,207

Real estate – construction
 
90,444

 
90,287

Real estate – commercial
 
394,416

 
454,051

Real estate – residential
 
136,151

 
146,751

Consumer and other
 
45,338

 
56,398

Lease financing receivable
 
592

 
732

Total loans
 
962,743

 
1,183,426

Allowance for loan and lease losses
 
(24,450
)
 
(26,888
)
Total loans, net
 
$
938,293

 
$
1,156,538

 
The Company monitors loan concentrations and evaluates individual customer and aggregate industry leverage, profitability, risk rating distributions, and liquidity for each major standard industry classification segment.  At September 30, 2018, one industry segment concentration, the oil and gas industry, constituted more than 10% of the loan portfolio.  The Company’s exposure in the oil and gas industry, including related service and manufacturing industries, totaled approximately $128.1 million, or 13.3% of total loans.  Additionally, the Company’s exposure to loans secured by commercial real estate is monitored.  At September 30, 2018, loans secured by commercial real estate (including commercial construction, farmland and multifamily loans) totaled approximately $484.9 million, or 45.5% of total loans, of which 52% are secured by owner-occupied commercial properties.  Of the $484.9 million in loans secured by commercial real estate, $24.1 million, or 5.0%, were on nonaccrual status at September 30, 2018.
 
Allowance for Loan Losses
 
The allowance for loan losses is a valuation account available to absorb probable losses on loans. All losses are charged to the allowance for loan losses when the loss actually occurs or when a determination is made that a loss is likely to occur. Recoveries are credited to the allowance for loan losses at the time of recovery.  Quarterly, the probable level of losses in the existing portfolio is estimated through consideration of various factors.  Based on these estimates, the allowance for loan losses is increased by charges to earnings and decreased by charge‑offs (net of recoveries).

The allowance is composed of general reserves and specific reserves.  General reserves are determined by applying loss percentages to segments of the portfolio.  The loss percentages are based on each segment’s historical loss experience, generally over the past three to five years, and adjustment factors derived from conditions in the Company’s internal and external environment.  All loans considered to be impaired are evaluated on an individual basis to determine specific reserve allocations in accordance with GAAP.  Loans for which specific reserves are provided are excluded from the calculation of general reserves.
 
The Company has an internal loan review department that is independent of the lending function to challenge and corroborate the loan grade assigned by the lender and to provide additional analysis in determining the adequacy of the allowance for loan losses. Additionally, the Company utilizes the services of a third party to supplement its loan review efforts.
 

14


A rollforward of the activity within the allowance for loan losses by loan type and recorded investment in loans for the nine months ended September 30, 2018 and 2017 is as follows (in thousands):
 
 
 
September 30, 2018
 
 
 
 
Real Estate
 
 
 
 
 
 
 
 
Coml, Fin,
and Agric
 
Construction
 
Commercial
 
Residential
 
Consumer and other
 
Lease
financing
receivable
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
20,577

 
$
596

 
$
3,893

 
$
837

 
$
982

 
$
3

 
$
26,888

Charge-offs
 
(6,782
)
 
(6
)
 
(1,034
)
 
(549
)
 
(606
)
 

 
(8,977
)
Recoveries
 
1,628

 

 
7

 
1

 
163

 

 
1,799

Provision
 
2,872

 
(240
)
 
687

 
1,094

 
327

 

 
4,740

Ending balance
 
$
18,295

 
$
350

 
$
3,553

 
$
1,383

 
$
866

 
$
3

 
$
24,450

Ending balance: individually evaluated for impairment
 
$
7,373

 
$
69

 
$
105

 
$

 
$

 
$

 
$
7,547

Ending balance: collectively evaluated for impairment
 
$
10,922

 
$
281

 
$
3,448

 
$
1,383

 
$
866

 
$
3

 
$
16,903

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Ending balance
 
$
295,802

 
$
90,444

 
$
394,416

 
$
136,151

 
$
45,338

 
$
592

 
$
962,743

Ending balance: individually evaluated for impairment
 
$
24,923

 
$
610

 
$
23,175

 
$

 
$

 
$

 
$
48,708

Ending balance: collectively evaluated for impairment
 
$
270,879

 
$
89,834

 
$
371,241

 
$
136,151

 
$
45,338

 
$
592

 
$
914,035


15


 
 
September 30, 2017
 
 
 
 
Real Estate
 
 
 
 
 
 
 
 
Coml, Fin,
and Agric
 
Construction
 
Commercial
 
Residential
 
Consumer and other
 
Lease
financing
receivable
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
16,057

 
$
585

 
$
5,384

 
$
940

 
$
1,401

 
$
5

 
$
24,372

Charge-offs
 
(15,106
)
 
(70
)
 
(3,618
)
 
(293
)
 
(860
)
 

 
(19,947
)
Recoveries
 
537

 

 
158

 
97

 
235

 

 
1,027

Provision
 
17,413

 
28

 
2,024

 
(40
)
 
177

 
(1
)
 
19,601

Ending balance
 
$
18,901

 
$
543

 
$
3,948

 
$
704

 
$
953

 
$
4

 
$
25,053

Ending balance: individually evaluated for impairment
 
$
3,254

 
$
17

 
$
904

 
$
7

 
$
69

 
$
1

 
$
4,252

Ending balance: collectively evaluated for impairment
 
$
15,647

 
$
526

 
$
3,044

 
$
697

 
$
884

 
$
3

 
$
20,801

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans: