Company Quick10K Filing
Quick10K
Midsouth Bancorp
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$12.49 17 $209
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
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
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-29 Other Events, Exhibits
8-K 2019-04-30 Enter Agreement, Exhibits
8-K 2019-04-30 Earnings, Exhibits
8-K 2019-04-30 Other Events, Exhibits
8-K 2019-03-27 Officers
8-K 2019-03-22 Other Events
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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JRSS JRSIS Health Care 0
RETC 12 Retech 0
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MSL 2019-03-31
Part I - Financial Information
Item 1. Financial Statements.
Note 1: Basis of Presentation
Note 2: Recent Accounting Pronouncements and Adoption of New Accounting Standards
Note 3: Investment Securities
Note 4: Loans
Note 5: Derivatives
Note 6: Leases
Note 7: Other Comprehensive Loss
Note 8: Loss per Common Share
Note 9: 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-10.1 exhibit101kramerconsulti.htm
EX-31.1 a2019q110qex-311.htm
EX-31.2 a2019q110qex-312.htm
EX-32.1 a2019q110qex-321.htm
EX-32.2 a2019q110qex-322.htm

Midsouth Bancorp Earnings 2019-03-31

MSL 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 a2019q110q.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 March 31, 2019
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
logoa47.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)
Securities registered pursuant to Section 12(b) of the Act
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common stock, $0.10 par value
MSL
New York Stock Exchange

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 May 8, 2019, there were 16,717,021 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.

3


MidSouth Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
(dollars in thousands, except share and per share amounts)
 
 
March 31, 2019
 
December 31, 2018
 
 
(unaudited)
 
(audited)
Assets
 
 
 
 
Cash and due from banks
 
$
28,257

 
$
27,701

Interest-bearing deposits in banks
 
212,973

 
174,909

Federal funds sold
 
2,200

 
2,761

Securities available-for-sale, at fair value (cost $434,749 and $443,928)
 
434,679

 
437,754

Securities held-to-maturity, (fair value $34,834 and $36,974)
 
35,107

 
37,759

Total securities
 
469,786

 
475,513

Other investments
 
17,083

 
16,614

Loans held for sale
 
1,511

 
23,876

Loans
 
893,650

 
899,785

Allowance for loan losses
 
(24,779
)
 
(17,430
)
Loans, net
 
868,871

 
882,355

Bank premises and equipment, net
 
55,097

 
55,382

Operating lease right-of-use assets
 
8,263

 

Goodwill and Intangibles
 
44,303

 
44,580

Cash surrender value of life insurance
 
15,188

 
15,135

Other real estate
 
664

 
1,067

Other assets
 
21,139

 
23,505

Total Assets
 
1,745,335

 
1,743,398

 
 
 
 
 
Liabilities:
 
 

 
 

Deposits:
 
 

 
 

Noninterest-bearing
 
$
418,321

 
$
383,167

Interest-bearing
 
1,027,314

 
1,068,904

Total deposits
 
1,445,635

 
1,452,071

Securities sold under agreements to repurchase
 
11,968

 
11,220

Operating lease liability
 
8,203

 

Short-term Federal Home Loan Bank advances
 
27,500

 
27,500

Junior subordinated debentures
 
22,167

 
22,167

Other liabilities
 
8,696

 
8,450

Total liabilities
 
1,524,169

 
1,521,408

 
 


 


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, 89,721 and 89,721 shares issued and outstanding, respectively
 
8,972

 
8,972

Common stock, $0.10 par value; 30,000,000 shares authorized, 16,715,671 and 16,641,017 shares issued and outstanding, respectively
 
1,671

 
1,664

Additional paid-in capital
 
169,244

 
169,111

Accumulated other comprehensive income (loss)
 
1,807

 
(4,035
)
Retained earnings
 
7,472

 
14,278

Total shareholders’ equity
 
221,166

 
221,990

Total liabilities and shareholders’ equity
 
$
1,745,335

 
$
1,743,398

 
See notes to unaudited consolidated financial statements.

4


MidSouth Bancorp, Inc. and Subsidiaries
Consolidated Statements of Operations (unaudited)
(dollars in thousands, except per share amounts)
 
 
Three Months Ended March 31,
 
 
2019
 
2018
Interest income:
 
 
 
 
Loans, including fees
 
$
12,987

 
$
16,015

Securities and other investments:
 
 
 
 
Taxable
 
3,071

 
2,047

Nontaxable
 
255

 
316

Interest bearing deposits in other banks
 
1,132

 
619

Total interest income
 
17,445

 
18,997

 
 
 
 
 
Interest expense:
 
 

 
 

Deposits
 
1,680

 
1,238

Securities sold under agreements to repurchase
 
14

 
40

Federal Home Loan Bank advances
 
81

 
129

Junior subordinated debentures
 
287

 
220

Total interest expense
 
2,062

 
1,627

 
 
 
 
 
Net interest income
 
15,383

 
17,370

Provision for loan losses
 
7,600

 

Net interest income after provision for loan losses
 
7,783

 
17,370

 
 
 
 
 
Non-interest income:
 
 

 
 

Service charges on deposits
 
1,793

 
2,206

ATM and debit card income
 
1,925

 
1,784

Credit card income
 
520

 
371

Gain on sale of securities, net
 
373

 

Gain on sale of loans, net
 
1,274

 

Other charges and fees
 
388

 
468

Total non-interest income
 
6,273

 
4,829

 
 
 
 
 
Non-interest expenses:
 
 

 
 

Salaries and employee benefits
 
9,700

 
7,719

Occupancy expense
 
3,307

 
3,045

ATM and debit card expense
 
624

 
576

Data processing
 
848

 
665

Regulatory remediation expense
 

 
3,926

Legal and professional fees
 
1,883

 
1,689

Loss on transfer of loans to held for sale
 

 
875

Other
 
3,524

 
3,378

Total non-interest expenses
 
19,886

 
21,873

 
 
 
 
 
(Loss) Income before income tax benefit
 
(5,830
)
 
326

Income tax benefit
 

 
(34
)
Net (loss) income
 
(5,830
)
 
360

Dividends on preferred stock
 
810

 
810

Net loss available to common shareholders
 
$
(6,640
)
 
$
(450
)
 
 
 

 
 

Basic loss per common share
 
$
(0.40
)
 
$
(0.03
)
Diluted loss per common share
 
$
(0.40
)
 
$
(0.03
)
Weighted average number of shares outstanding:
 
 

 
 

Basic
 
16,674

 
16,495

Diluted
 
16,674

 
16,500

Dividends declared per common share
 
$
0.01

 
$
0.01

See notes to unaudited consolidated financial statements.

5


MidSouth Bancorp, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss) (unaudited)
(dollars in thousands)
 
 
Three Months Ended March 31,
 
 
2019
 
2018
Net (loss) income
 
$
(5,830
)
 
$
360

Other comprehensive (loss) income, net of tax:
 
 

 
 

Unrealized gain (loss) on securities available-for-sale:
 
 
 
 
          Unrealized holding gains (losses) arising during the year
 
6,476

 
(4,048
)
      Less: reclassification adjustment for net gain on sales of securities available-for-sale
 
(373
)
 

Net change in unrealized gains (loss) on securities available-for-sale
 
6,103

 
(4,048
)
Unrealized gain on derivative instruments designated as cash flow hedges:
 
 
 
 
           Unrealized holding gains on derivatives arising during the period
 
(261
)
 
309

     Net change in unrealized (loss) gain on derivative instruments
 
(261
)
 
309

Total other comprehensive income (loss), before tax
 
5,842

 
(3,739
)
Income tax effect related to items of other comprehensive income (loss)
 

 
785

Total other comprehensive income (loss), net of tax
 
5,842

 
(2,954
)
Total comprehensive income (loss)
 
$
12

 
$
(2,594
)
See notes to unaudited consolidated financial statements.

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
 
Accumulated
Other Comprehensive (Loss) Income
 
Retained Earnings
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
Total
Balance - December 31, 2018
 
121,721

 
$
40,972

 
16,641,017

 
$
1,664

 
$
169,111

 
$
(4,035
)
 
$
14,278

 
$
221,990

Net loss
 

 

 

 

 

 

 
(5,830
)
 
(5,830
)
Dividends on Series B and Series C preferred stock
 

 

 

 

 

 

 
(810
)
 
(810
)
Dividends on common stock, $0.01 per share
 

 

 

 

 

 

 
(166
)
 
(166
)
Restricted stock grant
 

 

 
77,704

 
7

 
(7
)
 

 

 

Restricted stock forfeitures
 

 

 
(3,050
)
 

 

 

 

 

Stock compensation expense
 

 

 

 

 
140

 

 

 
140

Change in accumulated other comprehensive income
 

 

 

 

 

 
5,842

 

 
5,842

Balance – March 31, 2019
 
121,721

 
$
40,972

 
16,715,671

 
$
1,671

 
$
169,244

 
$
1,807

 
$
7,472

 
$
221,166

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

Net income
 

 

 

 

 

 

 

 
360

 
360

Dividends on Series B and Series C preferred stock
 

 

 

 

 

 

 

 
(810
)
 
(810
)
Dividends on common stock, $0.01 per share
 

 

 

 

 

 

 

 
(165
)
 
(165
)
Restricted stock grant
 

 

 
52,278

 
5

 
(5
)
 

 

 

 

Restricted stock forfeitures
 

 

 
(12,375
)
 
(1
)
 
1

 

 

 

 

ESOP shares released for allocation
 

 

 

 

 

 
31

 

 

 
31

Exercise of stock options
 

 

 
33,079

 
3

 
426

 

 

 

 
429

ESOP compensation expense
 

 

 

 

 
10

 

 

 

 
10

Stock option and restricted stock compensation expense
 

 

 

 

 
(79
)
 

 

 

 
(79
)
Change in accumulated other comprehensive income
 

 

 

 

 

 

 
(2,954
)
 

 
(2,954
)
Balance – March 31, 2018
 
121,875

 
40,987

 
16,621,811

 
1,662

 
168,765

 
(906
)
 
(4,782
)
 
45,111

 
250,837



7


MidSouth Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (unaudited)
(dollars in thousands)
 
 
For the Three Months Ended March 31,
 
 
2019
 
2018
Cash flows from operating activities:
 
 
 
 
Net (loss) income
 
$
(5,830
)
 
$
360

Adjustments to reconcile net loss to net cash provided by operating activities:
 
 

 
 
Depreciation
 
1,956

 
2,072

Provision for loan losses
 
7,600

 

Deferred tax expense
 

 
1,614

ESOP and stock-based compensation expense
 
140

 
(51
)
Net gain on sale of investment securities
 
(373
)
 

Gain on sale of loans held for sale
 
(1,274
)
 

Proceeds from sale of loans held for sale
 
19,273

 
14,514

Net loss (gain) on sale of other real estate owned
 
24

 
(1
)
Net write down of other real estate owned
 
27

 
48

Loss on transfer of loans to held for sale
 

 
875

Net loss on sale/disposal of premises and equipment
 
135

 
55

Change in other assets
 
(5,940
)
 
(1,831
)
Change in other liabilities
 
8,177

 
2,063

Net cash provided by operating activities
 
23,915

 
19,718

 
 
 
 
 
Cash flows from investing activities:
 
 

 
 

Proceeds from maturities and calls of securities available-for-sale
 
13,374

 
12,272

Proceeds from maturities and calls of securities held-to-maturity
 
2,619

 
7,583

Proceeds from sale of securities available-for-sale
 
32,352

 
410

Purchases of securities available-for-sale
 
(36,763
)
 
(2,000
)
Purchases of other investments
 
(469
)
 
(682
)
Net change in loans
 
10,250

 
44,026

Purchases of premises and equipment
 
(1,186
)
 
(275
)
Proceeds from sale of premises and equipment
 
279

 
224

Proceeds from sale of other real estate owned
 
352

 
151

Net cash provided by investing activities
 
20,808

 
61,709

 
 
 
 
 
Cash flows from financing activities:
 
 

 
 

Change in deposits
 
(6,436
)
 
24,248

Change in securities sold under agreements to repurchase
 
748

 
(34,107
)
Borrowings from FHLB
 
55,000

 
82,500

Repayments to FHLB
 
(55,000
)
 
(95,000
)
Proceeds from exercise of stock options
 

 
429

Payment of dividends on preferred stock
 
(810
)
 
(810
)
Payment of dividends on common stock
 
(166
)
 
(165
)
Net cash used by financing activities
 
(6,664
)
 
(22,905
)
 
 
 
 
 
Net increase in cash and cash equivalents
 
38,059

 
58,522

Cash and cash equivalents, beginning of period
 
205,371

 
152,964

Cash and cash equivalents, end of period
 
$
243,430

 
$
211,486

 
 
 
 
 
Supplemental cash flow information:
 
 

 
 

Interest paid
 
$
2,073

 
$
1,654

Noncash investing and financing activities:
 
 

 
 

Transfer of loans to held for sale
 

 
221

 See notes to unaudited consolidated financial statements.

8


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


9


NOTE 1: BASIS OF PRESENTATION

Overview

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 operations for the three-month period ended March 31, 2019 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, 2018.

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.

Proposed Merger with Hancock Whitney Corporation

On April 30, 2019, the Company entered into a definitive agreement ("Merger Agreement") with Hancock Whitney Corporation ("Hancock Whitney"), whereby MidSouth will merge into Hancock Whitney in a stock-for-stock transaction. The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, the Company will merge with and into Hancock Whitney, with Hancock Whitney continuing as the surviving corporation. Immediately following the completion of the merger, the Bank will merge with and into Hancock Whitney Corporation's wholly-owned bank subsidiary, Hancock Whitney Bank, with Hancock Whitney Bank continuing as the surviving bank. Subject to the terms and conditions of the Merger Agreement, if the merger is completed, Company shareholders will receive 0.2952 shares of Hancock Whitney Corporation common stock, par value $3.33 per share, for each share of Company common stock, par value $0.10 per share, they hold immediately prior to the merger, plus cash in lieu of fractional shares.

 


10


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

Accounting Standards Adopted in 2019
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842). This guidance was further modified in July 2018 by ASU No. 2018-10, Codification Improvements to Topic 842 Leases and ASU No. 2018-11, Leases (Topic 842): Targeted Improvements. These updates require a lessee to recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election not to recognize lease assets and lease liabilities. For public entities, these updates are effective for fiscal years beginning after December 15, 2018, with the option to transition with a modified retrospective application to prior periods presented or to apply the guidance as of the adoption date without restating prior periods. The Company adopted the standard on January 1, 2019 without restating prior periods, and recorded a $8.7 million right of use asset and corresponding lease liability as a result of including leases on the consolidated balance sheet. The adopted guidance did not have an effect on Company's consolidated statement of operations or statement of shareholders' equity.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This guidance was further modified in November 2018 by ASU No. 2018–19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses. The new guidance replaces the incurred loss impairment methodology in current GAAP with an expected credit loss methodology and requires consideration of a broader range of information to determine credit loss estimates. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. Purchased credit impaired loans will receive an allowance account at the acquisition date that represents a component of the purchase price allocation. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses, with such allowance limited to the amount by which fair value is below amortized cost. Application of this update will primarily be on a modified retrospective approach, although the guidance for debt securities for which an other-than-temporary impairment has been recognized before the effective date and for loans previously covered by ASC 310-30, Receivables - Loans and Debt Securities Acquired with Deteriorated Credit Quality will be applied on a prospective basis. For public entities, this update is effective for fiscal years beginning after December 15, 2019. Upon adoption, the Company expects that the allowance for credit losses will be higher given the change to estimated losses for the estimated life of the financial asset, however management is still in the process of determining the potential magnitude of the increase. Management has formed a steering committee and has completed a gap assessment that became the basis for a full project plan. In addition, management has selected a vendor model and begun the implementation phase of the project plan. The Company is implementing a new software program to ensure it is prepared for implementation by the effective date.

In June 2018, the FASB issued ASU No. 2018-08, Not for Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made. This update clarifies the guidance about whether a transfer of assets (or the reduction, settlement or cancellation of liabilities) is a contribution or an exchange transaction. In addition, the guidance clarifies the determination of whether a transaction is conditional. For public entities, this update is effective for contributions made in fiscal years beginning after December 15, 2018. The Company does not expect the new guidance to have a material impact on the consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The update removes disclosures that are no longer considered cost beneficial, modifies certain requirements of disclosures, and adds disclosure requirements identified as relevant. For public entities, this guidance is effective for fiscal years ending after December 15, 2019 and, depending on the provision, requires either prospective or retrospective application to prior periods presented. The Company does not expect the new guidance to have a material impact on the consolidated financial statements.

In October 2018, the FASB issued ASU No. 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. This update permits the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815. The Company does not expect the new guidance to have a material impact on the consolidated financial statements.





11


NOTE 3: INVESTMENT SECURITIES
 
The amortized cost and fair value of available-for-sale investment securities are as follows (in thousands):
 
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Value
March 31, 2019
 
 
 
 
 
 
 
 
U.S. Agencies
 
$
2,868

 
$
109

 
$

 
$
2,977

State, county, and municipal securities
 
28,492

 
352

 
187

 
28,657

Mortgage-backed securities
 
385,321

 
2,757

 
2,820

 
385,258

Corporate debt securities
 
18,068

 
280

 
561

 
17,787

 
 
$
434,749

 
$
3,498

 
$
3,568

 
$
434,679

 
 
 
 
 
 
 
 
 
December 31, 2018
 
 
 
 
 
 
 
 
U.S. Agencies
 
$
3,016

 
$
56

 
$

 
$
3,072

State, county, and municipal securities
 
44,639

 
214

 
765

 
44,088

Mortgage-backed securities
 
370,706

 
1,092

 
5,921

 
365,877

  Corporate debt securities
 
25,567

 
433

 
1,283

 
24,717

 
 
$
443,928

 
$
1,795

 
$
7,969

 
$
437,754


The amortized cost and fair value of held-to-maturity investment securities are as follows (in thousands):
 
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Value
March 31, 2019
 
 
 
 
 
 
 
 
State, county, and municipal securities
 
$
1,662

 
$
2

 
$
5

 
$
1,659

Mortgage-backed securities
 
33,445

 
104

 
374

 
33,175

 
 
$
35,107

 
$
106

 
$
379

 
$
34,834

 
 
 
 
 
 
 
 
 
December 31, 2018
 
 
 
 
 
 
 
 
State, county, and municipal securities
 
$
1,977

 
$
1

 
$
10

 
$
1,968

Mortgage-backed securities
 
35,782

 

 
776

 
$
35,006

 
 
$
37,759

 
$
1

 
$
786

 
$
36,974





















12


The amortized cost and fair value of available-for-sale and held-to-maturity securities by contractual maturity are shown below (in thousands):  
 
 
Amortized
Cost
 
Fair
Value
March 31, 2019
 
 
 
 
Due after one year through five years
 
$
6,389

 
$
5,888

Due after five years through ten years
 
24,097

 
24,505

Due after ten years
 
18,942

 
19,028

Mortgage-backed securities¹
 
385,321

 
385,258

 
 
$
434,749

 
$
434,679

 
 
 
 
 
Held-to-maturity:
 
 
 
 
Due in one year or less
 
$
451

 
$
451

Due after one year through five years
 
1,211

 
1,208

Mortgage-backed securities¹
 
33,445

 
33,175

 
 
$
35,107

 
$
34,834

¹Actual maturities may differ from contractual maturities as borrowers may prepay obligations without prepayment penalties.

The following summarizes the fair value of securities available-for-sale in an unrealized loss position as of the dates indicated (in thousands):
 
 
 
Less than 12 Months
 
12 Months or More
 
Total
 
 
Fair
Value
 
Unrealized
 Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
State, county, and municipal securities
 
$

 
$

 
$
11,647

 
$
187

 
$
11,647

 
$
187

Mortgage-backed securities
 

 

 
169,319

 
2,820

 
169,319

 
2,820

Corporate debt securities
 
2,029

 
561

 

 

 
2,029

 
561

 
 
$
2,029

 
$
561

 
$
180,966

 
$
3,007

 
$
182,995

 
$
3,568

December 31, 2018
 


 


 


 


 


 


State, county, and municipal securities
 
$
2,573

 
$
11

 
$
19,539

 
$
754

 
$
22,112

 
$
765

Mortgage-backed securities
 
25,706

 
34

 
197,036

 
5,887

 
222,742

 
5,921

Corporate debt securities
 
3,307

 
1,283

 

 

 
3,307

 
1,283

 
 
$
31,586

 
$
1,328

 
$
216,575

 
$
6,641

 
$
248,161

 
$
7,969












13


The following summarizes the fair value of securities held-to-maturity in an unrealized loss position as of the dates indicated (in thousands):
 
 
Less than 12 Months
 
12 Months or More
 
Total
 
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized Loss
 
Fair
Value
 
Unrealized
Loss
March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
State, county, and municipal securities
 
$

 
$

 
$
819

 
$
5

 
$
819

 
$
5

Mortgage-backed securities
 

 

 
18,778

 
374

 
18,778

 
374

 
 
$

 
$

 
$
19,597

 
$
379

 
$
19,597

 
$
379

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
State, county, and municipal securities
 
$

 
$

 
$
1,703

 
$
10

 
$
1,703

 
$
10

Mortgage-backed securities
 

 

 
35,006

 
776

 
35,006

 
776

 
 
$

 
$

 
$
36,709

 
$
786

 
$
36,709

 
$
786

 
At March 31, 2019, the Company had 66 securities in an unrealized loss position. Management evaluates whether unrealized losses on securities represent impairment that is other than temporary on a quarterly basis. For debt securities, the Company considers its intent to sell or hold the securities and 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.  For equity securities, management reviews the near term prospects of the issuer, the nature and cause of the unrealized loss, the severity and duration of the impairments and other factors when determining if an unrealized loss is other than temporary. If a credit loss is evident, the amount of the credit loss is charged to earnings and the non-credit related impairment is recognized through other comprehensive income. At March 31, 2019, there was no intent to sell any of the securities in an unrealized loss position, and it is more likely than not the Company will not be required to sell these securities. Furthermore, the present value of cash flows expected to be collected exceeded the Company's amortized cost basis of the investment securities; therefore, these securities are not deemed to be other than temporarily impaired.

Proceeds from sales of available-for-sale securities as of March 31, 2019 and 2018 were $32.4 million and $410,000, respectively. Gross gains and losses on sales of available-for-sale securities for the three months ended March 31, 2019 were $375,000 and $2,000, respectively. There were not any gains or losses recognized on the sales of available-for-sale securities for the three months ended March 31, 2018.

The composition of investment securities reflects the strategy of management to maintain an appropriate level of liquidity while providing a relatively stable source of revenue. The securities portfolio may at times be used to mitigate interest rate risk associated with other areas of the balance sheet while also providing a means for the investment of available funds, providing liquidity and supplying investment securities that are required to be pledged as collateral against specific deposits and for other purposes. Securities with an aggregate carrying value of $110.9 million at March 31, 2019 and $162.5 million at December 31, 2018 were pledged to secure public funds on deposit and for other purposes required or permitted by law.
 

14


NOTE 4: LOANS
 
The loan portfolio consisted of the following (in thousands):
 
 
March 31, 2019
 
December 31, 2018
Commercial, financial and agricultural
 
$
255,410

 
$
267,340

Real estate – construction
 
89,723

 
87,506

Real estate – commercial
 
376,523

 
368,449

Real estate – residential
 
130,700

 
132,435

Consumer and other
 
40,784

 
43,506

Lease financing receivable
 
510

 
549

Total loans
 
893,650

 
899,785

Allowance for loan and lease losses
 
(24,779
)
 
(17,430
)
Total loans, net
 
$
868,871

 
$
882,355

 
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 March 31, 2019, 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 $106.8 million, or 12.0% of total loans, with $3.7 million in nonaccrual oil and gas loans. 
 
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 quantitative and qualitative factors. As such, some of the factors considered in determining provisions include estimated losses relative to specific credits; known deterioration in concentrations of credit; historical loss experience; trends in nonperforming assets; volume, maturity and composition of the loan portfolio; off–balance sheet credit risk; lending policies and control systems; national and local economic conditions; the experience, ability and depth of lending management; and the results of examinations of the loan portfolio by regulatory agencies and others. 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.
 

15


A rollforward of the activity within the allowance for loan losses by loan type and recorded investment in loans as of and for the three months ended March 31, 2019 and 2018 is as follows (in thousands):
 
 
 
March 31, 2019
 
 
Commercial, Financial & Agricultural
 
Real Estate - Construction
 
Real Estate- Commercial
 
Real Estate - Residential
 
Consumer and other
 
Lease
financing
receivable
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
10,633

 
$
140

 
$
4,913

 
$
1,156

 
$
585

 
$
3

 
$
17,430

Charge-offs
 
(293
)
 

 


 

 
(91
)
 

 
(384
)
Recoveries
 
82

 

 
25

 
1

 
25

 

 
133

Provision
 
8,431

 
271

 
(560
)
 
(504
)
 
(35
)
 
(3
)
 
7,600

Ending balance
 
$
18,853

 
$
411

 
$
4,378

 
$
653

 
$
484

 
$

 
$
24,779

Ending balance: individually evaluated for impairment
 
$
8,040

 
$

 
$
75

 
$

 
$

 
$

 
$
8,115

Ending balance: collectively evaluated for impairment
 
$
10,813

 
$
411

 
$
4,303

 
$
653

 
$
484

 
$

 
$
16,664

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Ending balance
 
$
255,410

 
$
89,723

 
$
376,523

 
$
130,700

 
$
40,784

 
$
510

 
$
893,650

Ending balance: individually evaluated for impairment
 
$
16,938

 
$
323

 
$
4,412

 
$

 
$

 
$

 
$
21,673

Ending balance: collectively evaluated for impairment
 
$
238,472

 
$
89,400

 
$
372,111

 
$
130,700

 
$
40,784

 
$
510

 
$
871,977

 
 
March 31, 2018
 
 
Commercial, Financial & Agricultural
 
Real Estate - Construction
 
Real Estate- Commercial
 
Real Estate - Residential
 
Consumer and other
 
Lease
financing
receivable
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
20,577

 
$
596

 
$
3,918

 
$
837

 
$
957

 
$
3

 
$
26,888

Charge-offs
 
(1,524
)
 
(2
)
 
(86
)
 
(3
)
 
(221
)
 

 
(1,836
)
Recoveries
 
276

 

 
6

 
1

 
36

 

 
319

Provision
 
(264
)
 
159

 
(105
)
 
64

 
146

 

 

Ending balance
 
$
19,065

 
$
753

 
$
3,733

 
$
899

 
$
918

 
$
3

 
$
25,371

Ending balance: individually evaluated for impairment
 
$
5,968

 
$
94

 
$
76

 
$
20

 
$
6

 
$

 
$
6,164

Ending balance: collectively evaluated for impairment
 
$
13,097

 
$
659

 
$
3,657

 
$
879

 
$
912

 
$
3

 
$
19,207

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Ending balance
 
$
401,048

 
$
94,679

 
$
444,277

 
$
145,671

 
$
50,888

 
$
692

 
$
1,137,255

Ending balance: individually evaluated for impairment
 
$
55,092

 
$
192

 
$
26,005

 
$
2,088

 
$
50

 
$

 
$
83,427

Ending balance: collectively evaluated for impairment
 
$
345,956

 
$
94,487

 
$
418,272

 
$
143,583

 
$
50,838

 
$
692

 
$
1,053,828


 

16


Non-Accrual and Past Due Loans
 Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due.  Loans are placed on non-accrual status when, in management’s opinion, the probability of collection of interest is deemed insufficient to warrant further accrual.  For loans placed on non-accrual status, the accrual of interest is discontinued and subsequent payments received are applied to the principal balance.  Interest income is recorded after principal has been satisfied and as payments are received.  Non-accrual loans may be returned to accrual status if all principal and interest amounts contractually owed are reasonably assured of repayment within a reasonable period and there is a period of at least six months to one year of repayment performance by the borrower depending on the contractual payment terms.

An age analysis of past due loans (including both accruing and non-accruing loans) is as follows (in thousands):
 
 
March 31, 2019
 
 
30-59
Days
Past Due
 
60-89
Days
Past
Due
 
Greater
than 90
Days
Past Due
 
Total
Past
Due
 
Current
 
Total Loans
 
Loans >90 Days Past Due and Still Accruing
Commercial, financial and agricultural
 
$
1,658

 
$
62

 
$
3,630

 
$
5,350

 
$
250,060

 
$
255,410

 
$

Real estate – construction
 
4,332

 
128

 
117

 
4,577

 
85,146

 
89,723

 

Real estate – commercial
 
984

 

 
1,394

 
2,378

 
374,145

 
376,523

 

Real estate – residential
 
213

 
427

 
1,194

 
1,834

 
128,866

 
130,700

 

Consumer and other
 
85

 
27

 
29

 
141

 
40,643

 
40,784

 

Lease financing receivable
 

 

 

 

 
510

 
510

 

 
 
$
7,272

 
$
644

 
$
6,364

 
$
14,280

 
$
879,370

 
$
893,650

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
 
 
30-59
Days
Past Due
 
60-89
Days
Past
Due
 
Greater
than 90
Days
Past Due
 
Total
Past
Due
 
Current
 
Total Loans
 
Loans >90 Days Past Due and Still Accruing

Commercial, financial and agricultural
 
$
385

 
$
902

 
$
2,173

 
$
3,460

 
$
263,880

 
$
267,340

 
$

Real estate – construction
 
47

 

 
117

 
164

 
87,342

 
87,506

 

Real estate – commercial
 
435

 

 
771

 
1,206

 
367,243

 
368,449

 

Real estate – residential
 
695

 
31

 
1,407

 
2,133

 
130,302

 
132,435

 

Consumer and other
 
176

 
28

 
56

 
260

 
43,246

 
43,506

 

Lease financing receivable
 

 

 

 

 
549

 
549

 

 
 
$
1,738

 
$
961

 
$
4,524

 
$
7,223

 
$
892,562

 
$
899,785

 
$

 

17


Non-accrual loans are as follows (in thousands):
 
 
 
March 31, 2019
 
December 31, 2018
Commercial, financial, and agricultural
 
$
16,629

 
$
3,599

Real estate - construction
 
351

 
278

Real estate - commercial
 
4,462

 
2,977

Real estate - residential
 
1,720

 
2,008

Consumer and other
 
29

 
58

 
 
$
23,191

 
$
8,920



Impaired Loans
 
Loans are considered impaired when, based upon current information, it is probable the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. All loans classified as special mention, substandard, or doubtful, based on credit risk rating factors, are reviewed to determine whether impairment testing is appropriate.  All loan relationships with an outstanding commitment balance above a specified threshold are evaluated for potential impairment. All loan relationships with an outstanding commitment balance below the specified threshold are assigned an allowance allocation percentage that is determined by management and adjusted periodically based on certain factors. An allowance for each impaired loan is calculated based on the present value of expected future cash flows discounted at the loan’s effective interest rate or at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent.  All impaired loans are reviewed, at a minimum, on a quarterly basis.  Existing valuations are reviewed to determine if additional discounts or new appraisals are required.  After this review, when comparing the resulting collateral valuation to the outstanding loan balance, if the discounted collateral value exceeds the loan balance, no specific allocation is reserved. 

The following table presents loans that are individually evaluated for impairment (in thousands). Interest income recognized represents interest on accruing loans modified in a troubled debt restructuring (TDR).
 
 
March 31, 2019
 
December 31, 2018
 
 
Recorded
Investment(1)
 
Unpaid Principal Balance
 
Related
Allowance (1)
 
Recorded
Investment (1)
 
Unpaid Principal Balance
 
Related
Allowance (1)
With no related allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial, financial, and agricultural
 
$
3,299

 
$
4,988

 
$

 
$
2,924

 
$
3,011

 
$

Real estate - construction
 
323

 
323

 

 
117

 
117

 

Real estate - commercial
 
4,281

 
5,439

 

 
3,395

 
3,395

 

Real estate - residential
 

 

 

 

 
 
 

Consumer and other