MIDSOUTH BANCORP INC - FORM 10-Q

Attached files

file	filename
EX-32.1 - EXHIBIT 32.1 - MIDSOUTH BANCORP INC	msl10-q03312017exx321.htm
EX-31.1 - EXHIBIT 31.1 - MIDSOUTH BANCORP INC	msl10-q03312017exx311.htm
EX-23.1 - EXHIBIT 23.1 - MIDSOUTH BANCORP INC	midsouth-201610xkconsent.htm
EX-10.2 - EXHIBIT 10.2 - MIDSOUTH BANCORP INC	midsouth-formofperformance.htm
EX-10.1 - EXHIBIT 10.1 - MIDSOUTH BANCORP INC	a2017annualincentivecompen.htm

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, 2017



☐	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

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 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 ☒ NO ☐

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 (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES ☒ 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	☒Accelerated filer	☐Non-accelerated filer	☐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 ☒

As of May 8, 2017, there were 11,383,914 shares of the registrant’s Common Stock, par value $0.10 per share, outstanding.



Part I – Financial Information		3
	Item 1. Financial Statements	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Earnings (unaudited)	4
	Consolidated Statements of Comprehensive Income (unaudited)	5
	Consolidated Statement of Shareholders’ Equity (unaudited)	6
	Consolidated Statements of Cash Flows (unaudited)	7
	Notes to Interim Consolidated Financial Statements	8
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation.	28
	Forward-Looking Statements	28
	Critical Accounting Policies	29
	Results of Operations	30
	Analysis of Balance Sheet	34
	Liquidity and Capital	35
	Asset Quality	36
	Item 3. Quantitative and Qualitative Disclosures About Market Risk.	40
	Item 4. Controls and Procedures.	40
Part II – Other Information		41
	Item 1. Legal Proceedings.	41
	Item 1A. Risk Factors.	41
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	41
	Item 3. Defaults Upon Senior Securities.	41
	Item 4. Mine Safety Disclosures.	41
	Item 5. Other Information.	41
	Item 6. Exhibits.	42

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Part I – Financial Information

Item 1. Financial Statements.



MidSouth Bancorp, Inc. and Subsidiaries Consolidated Balance Sheets (dollars in thousands, except share data)
	March 31, 2017 (unaudited)			December 31, 2016 (audited)
Assets
Cash and due from banks, including required reserves of $6,561 and $6,669, respectively	$	32,188		$	31,687
Interest-bearing deposits in banks	45,183			47,091
Federal funds sold	1,100			3,450
Securities available-for-sale, at fair value (cost of $359,532 at March 31, 2017 and $344,416 at December 31, 2016)	357,803			341,873
Securities held-to-maturity (fair value of $91,767 at March 31, 2017 and $98,261 at December 31, 2016)	91,242			98,211
Other investments	11,362			11,355
Loans	1,272,000			1,284,082
Allowance for loan losses	(24,578		)	(24,372		)
Loans, net	1,247,422			1,259,710
Bank premises and equipment, net	68,216			68,954
Accrued interest receivable	7,516			7,576
Goodwill	42,171			42,171
Intangibles	4,345			4,621
Cash surrender value of life insurance	14,398			14,335
Other real estate	1,643			2,175
Other assets	10,350			10,131
Total assets	$	1,934,939		$	1,943,340

Liabilities and Shareholders’ Equity
Liabilities:
Deposits:
Non-interest-bearing	$	426,998		$	414,921
Interest-bearing	1,145,946			1,164,509
Total deposits	1,572,944			1,579,430
Securities sold under agreements to repurchase	89,807			94,461
Long-term Federal Home Loan Bank advances	25,318			25,424
Junior subordinated debentures	22,167			22,167
Other liabilities	8,641			7,482
Total liabilities	1,718,877			1,728,964
Commitments and contingencies
Shareholders’ equity:
Series B Preferred stock, no par value; 5,000,000 shares authorized, 32,000 shares issued and outstanding at March 31, 2017 and December 31, 2016	32,000			32,000
Series C Preferred stock, no par value; 100,000 shares authorized, 91,098 shares issued and outstanding at March 31, 2017 and December 31, 2016	9,110			9,110
Common stock, $0.10 par value; 30,000,000 shares authorized, 11,383,914 and 11,362,716 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively	1,138			1,136
Additional paid-in capital	111,538			111,166
Unearned ESOP shares	(1,124		)	(1,233		)
Accumulated other comprehensive loss	(473		)	(1,010		)
Retained earnings	63,873			63,207
Total shareholders’ equity	216,062			214,376
Total liabilities and shareholders’ equity	$	1,934,939		$	1,943,340

See notes to unaudited consolidated financial statements.

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MidSouth Bancorp, Inc. and Subsidiaries Consolidated Statements of Earnings (unaudited) (in thousands, except per share data)
	Three Months Ended March 31,
	2017		2016
Interest income:
Loans, including fees	$	16,622	$	16,866
Securities and other investments:
Taxable	2,327		2,036
Nontaxable	407		458
Federal funds sold	6		5
Time and interest bearing deposits in other banks	85		94
Other investments	84		88
Total interest income	19,531		19,547

Interest expense:
Deposits	935		907
Securities sold under agreements to repurchase	234		233
Other borrowings and payables	88		113
Junior subordinated debentures	208		167
Total interest expense	1,465		1,420

Net interest income	18,066		18,127
Provision for loan losses	2,800		2,800
Net interest income after provision for loan losses	15,266		15,327

Non-interest income:
Service charges on deposits	2,480		2,313
Gain on sale of securities, net	6		—
ATM and debit card income	1,703		1,609
Other charges and fees	855		822
Total non-interest income	5,044		4,744

Non-interest expenses:
Salaries and employee benefits	8,689		7,990
Occupancy expense	3,624		3,597
ATM and debit card expense	721		785
Data processing	621		458
FDIC insurance	397		429
Legal and professional fees	385		383
Other	2,793		3,117
Total non-interest expenses	17,230		16,759
Income before income taxes	3,080		3,312
Income tax expense	589		963

Net earnings	2,491		2,349
Dividends on preferred stock	811		427
Net earnings available to common shareholders	$	1,680	$	1,922
Earnings per share:
Basic	$	0.15	$	0.17
Diluted	$	0.15	$	0.17
Weighted average number of shares outstanding:
Basic	11,264		11,262
Diluted	11,282		11,262
Dividends declared per common share	$	0.09	$	0.09

See notes to unaudited consolidated financial statements.

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MidSouth Bancorp, Inc. and Subsidiaries Consolidated Statements of Comprehensive Income (unaudited) (in thousands)
	Three Months Ended March 31,
	2017			2016
Net earnings	$	2,491		$	2,349
Other comprehensive income, net of tax:
Unrealized gains on securities available-for-sale:
Unrealized holding gains arising during the year	820			2,802
Less: reclassification adjustment for gains on sales of securities available-for-sale	(6		)	—
Unrealized gains on securities available-for-sale	814			2,802
Fair value of derivative instruments designated as cash flow hedges:
Change in fair value of derivative instruments designated as cash flow hedges during the period	13			—
Total other comprehensive income, before tax	827			2,802
Income tax effect related to items of other comprehensive income	(290		)	(980		)
Total other comprehensive income, net of tax	537			1,822
Total comprehensive income	$	3,028		$	4,171

See notes to unaudited consolidated financial statements.

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MidSouth Bancorp, Inc. and Subsidiaries Consolidated Statement of Shareholders’ Equity (unaudited) For the Three Months Ended March 31, 2017 (in thousands, except share and per share data)
	Preferred Stock			Common Stock			Additional Paid-in Capital		Unearned ESOP Shares			Accumulated Other Comprehensive Loss			Retained Earnings
	Shares	Amount		Shares	Amount		Additional Paid-in Capital		Unearned ESOP Shares			Accumulated Other Comprehensive Loss			Retained Earnings			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	—	—		—	—		—		—			—			2,491			2,491
Dividends on Series B and Series C preferred stock	—	—		—	—		—		—			—			(811		)	(811		)
Dividends on common stock, $0.09 per share	—	—		—	—		—		—			—			(1,014		)	(1,014		)
ESOP shares released for allocation	—	—		—	—		27		109			—			—			136
Exercise of stock options	—	—		20,498	2		264		—			—			—			266
Vested restricted stock	—	—		700	—		—		—			—			—			—
Stock option and restricted stock compensation expense	—	—		—	—		81		—			—			—			81
Change in accumulated other comprehensive income	—	—		—	—		—		—			537			—			537
Balance – March 31, 2017	123,098	$	41,110	11,383,914	$	1,138	$	111,538	$	(1,124	)	$	(473	)	$	63,873		$	216,062

See notes to unaudited consolidated financial statements.

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MidSouth Bancorp, Inc. and Subsidiaries Consolidated Statements of Cash Flows (unaudited) (in thousands)
	For the Three Months Ended March 31,
	2017			2016
Cash flows from operating activities:
Net earnings	$	2,491		$	2,349
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation	1,493			1,512
Amortization (accretion) of purchase accounting adjustments	2			(288		)
Provision for loan losses	2,800			2,800
Deferred tax benefit	(222		)	(503		)
Amortization of premiums on securities, net	686			681
Stock-based compensation expense	81			97
Tax benefit from exercise of stock options and vesting of restricted common stock	10			—
Tax benefit resulting from distribution from Directors Deferred Compensation Plan	300			39
Tax benefit resulting from dividends paid to the ESOP	23			87
Excess of market value over book value of ESOP shares released	27			(36		)
Net gain on sale of investment securities	(6		)	—
Net (gain) loss on sale of other real estate owned	(8		)	24
Net write down of other real estate owned	23			120
Net gain on sale/disposal of premises and equipment	(12		)	(14		)
Change in accrued interest receivable	60			(135		)
Change in accrued interest payable	(11		)	(9		)
Change in other assets & other liabilities, net	510			454
Net cash provided by operating activities	8,247			7,178

Cash flows from investing activities:
Proceeds from maturities and calls of securities available-for-sale	14,631			18,379
Proceeds from maturities and calls of securities held-to-maturity	5,865			2,919
Proceeds from sale of securities available-for-sale	6,462			—
Proceeds from sale of security held-to-maturity	887			—
Purchases of securities available-for-sale	(36,672		)	—
Purchases of other investments	(7		)	(7		)
Net change in loans	9,687			12,293
Purchases of premises and equipment	(887		)	(915		)
Proceeds from sale of premises and equipment	144			40
Proceeds from sale of other real estate owned	612			245
Net cash provided by investing activities	722			32,954

Cash flows from financing activities:
Change in deposits	(6,486		)	7,366
Change in securities sold under agreements to repurchase	(4,654		)	1,922
Borrowings on Federal Home Loan Bank advances	—			25,000
Repayments of Federal Home Loan Bank advances	(17		)	(50,017		)
Proceeds from exercise of stock options	266			—
Payment of dividends on preferred stock	(811		)	(171		)
Payment of dividends on common stock	(1,024		)	(1,023		)
Net cash used by financing activities	(12,726		)	(16,923		)

Net (decrease) increase in cash and cash equivalents	(3,757		)	23,209
Cash and cash equivalents, beginning of period	82,228			89,201
Cash and cash equivalents, end of period	$	78,471		$	112,410

Supplemental cash flow information:
Interest paid	$	1,476		$	1,429
Noncash investing and financing activities:
Transfer of loans to other real estate	95			110
Change in accrued common stock dividends	1			—
Change in accrued preferred stock dividends	—			256
Net change in loan to ESOP	109			(191		)

See notes to unaudited consolidated financial statements.

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MidSouth Bancorp, Inc. and Subsidiaries

Notes to Interim Consolidated Financial Statements

March 31, 2017

(Unaudited)

1. Basis of Presentation

The accompanying unaudited consolidated financial statements and notes thereto contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly, in accordance with accounting principles generally accepted in the United States of America (“GAAP”), the financial position of MidSouth Bancorp, Inc. (the “Company”) and its subsidiaries as of March 31, 2017 and the results of their operations and their cash flows for the periods presented. The interim financial information should be read in conjunction with the annual consolidated financial statements and the notes thereto included in the Company’s 2016 Annual Report on Form 10-K.

The results of operations for the three-month period ended March 31, 2017 are not necessarily indicative of the results to be expected for the entire year.

Use of Estimates — The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.

Summary of Significant Accounting Policies — The accounting and reporting policies of the Company conform with GAAP and general practices within the banking industry. There have been no material changes or developments in the application of accounting principles or in our evaluation of the accounting estimates and the underlying assumptions or methodologies that we believe to be Critical Accounting Policies and Estimates as disclosed in our 2016 Annual Report on Form 10-K.

Recent Accounting Pronouncements — ASU 2017-03, Accounting Changes and Error Corrections (Topic 250) and Investments - Equity Method and Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings. ASU 2017-03 addresses and codifies the practical considerations and application of the required disclosures under SAB Topic 11.M for the implementation of ASU 2014-09, Revenue from Contracts with Customers (Topic 606); ASU 2016-02, Leases (Topic 842); and ASU 2016-13, Financial Instruments-Credit Losses (Topic 326); Measurement of Credit Losses on Financial Instruments. The SEC Staff has emphasized on a number of occasions, including the December 2016 AICPA National Conference on Current SEC and PCAOB Developments, the requirements to disclose the potential material effects of newly issued standards and the importance of providing investors with this information. Such disclosures should explain the impact the new standard is expected to have on the financial statements and how the adoption of the new standard will affect comparability. Entities should discuss both quantitative and qualitative information as available when assessing implementation of a new standard. This ASU was effective immediately for public business entities.

ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment was issued in order to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under the amendments in this ASU, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity will then recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The effective date of this Update is for fiscal years beginning on or after December 15, 2020. The Company does not expect ASU 2017-04 to have an impact on its goodwill impairment tests.

ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities was issued in response to diversity in practice in the amortization period for premiums of callable debt securities and in how the potential for exercise of a call is factored into current impairment assessments. As such, these amendments reduce the amortization period for certain callable debt securities carried at a premium and require the premium to be amortized over the period not to exceed the earliest call date. These amendments do not apply to securities carried at a discount. The effective date of this Update is for fiscal years beginning on or after December 15, 2018. The Company is currently amortizing premiums of callable debt securities over a period through the earliest call date. As a result, it does not expect ASU 2017-08 to have an impact on its financial position, results of operations or its financial statement disclosures.

Accounting Changes, Reclassifications and Restatements — Certain items in prior financial statements have been reclassified to conform to the current presentation.

On January 1, 2017, the Company adopted the provisions of ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,”. ASU 2016-09 requires that all income tax effects associated with share-

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based payment awards be reported in earnings as an adjustment to income tax expense. Previously, excess tax benefits associated with share-based payments awards were recorded in additional paid-in-capital when the excess tax benefits were realized. The requirement to report those income tax effects in earnings has been applied to settlements occurring on or after January 1, 2017. ASU 2016-09 also requires that all income tax-related cash flows resulting from share-based payments be reported as operating activities in the statement of cash flows. Previously, income tax benefits at settlement of an award were reported as a reduction to operating cash flows and an increase to financing cash flows to the extent that those benefits exceeded the income tax benefits reported in earnings during the award's vesting period. The Company has elected to apply that change in cash flow classification on a retrospective basis, which resulted in a $126,000 increase to net cash from operating activities and a corresponding decrease to net cash from financing activities in the accompanying consolidated statements of cash flows for 2016, as compared to the amounts previously reported.

2. Investment Securities

The portfolio of investment securities consisted of the following (in thousands):



	March 31, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available-for-sale:
Obligations of state and political subdivisions	$	26,465	$	114	$	968	$	25,611
GSE mortgage-backed securities	78,554		1,618		146		80,026
Collateralized mortgage obligations: residential	230,413		282		3,181		227,514
Collateralized mortgage obligations: commercial	3,027		—		36		2,991
Mutual funds	2,100		—		41		2,059
Corporate debt securities	18,973		629		—		19,602
	$	359,532	$	2,643	$	4,372	$	357,803

	December 31, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available-for-sale:
Obligations of state and political subdivisions	$	29,935	$	226	$	1,020	$	29,141
GSE mortgage-backed securities	72,144		1,736		302		73,578
Collateralized mortgage obligations: residential	223,602		206		3,606		220,202
Collateralized mortgage obligations: commercial	3,135		—		53		3,082
Mutual funds	2,100		—		41		2,059
Corporate debt securities	13,500		311		—		13,811
	$	344,416	$	2,479	$	5,022	$	341,873

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	March 31, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Held-to-maturity:
Obligations of state and political subdivisions	$	37,338	$	523	$	6	$	37,855
GSE mortgage-backed securities	42,004		433		140		42,297
Collateralized mortgage obligations: residential	8,605		—		273		8,332
Collateralized mortgage obligations: commercial	3,295		—		12		3,283
	$	91,242	$	956	$	431	$	91,767

	December 31, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Held-to-maturity:
Obligations of state and political subdivisions	$	40,515	$	309	$	39	$	40,785
GSE mortgage-backed securities	44,375		426		311		44,490
Collateralized mortgage obligations: residential	8,969		—		323		8,646
Collateralized mortgage obligations: commercial	4,352		—		12		4,340
	$	98,211	$	735	$	685	$	98,261

With the exception of two private-label collateralized mortgage obligations (“CMOs”) with a combined balance remaining of $15,000 at March 31, 2017, all of the Company’s CMOs are government-sponsored enterprise (“GSE”) securities.

The following table presents the amortized cost and fair value of debt securities at March 31, 2017 by contractual maturity (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
Available-for-sale:
Due in one year or less	$	2,682	$	2,688
Due after one year through five years	6,265		6,430
Due after five years through ten years	51,206		52,768
Due after ten years	297,279		293,858
	$	357,432	$	355,744

	Amortized Cost		Fair Value
Held-to-maturity:
Due in one year or less	$	354	$	354
Due after one year through five years	6,535		6,579
Due after five years through ten years	31,540		32,064
Due after ten years	52,813		52,770
	$	91,242	$	91,767

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Details concerning investment securities with unrealized losses are as follows (in thousands):



	March 31, 2017
	Securities with losses under 12 months				Securities with losses over 12 months				Total
	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss
Available-for-sale:
Obligations of state and political subdivisions	$	12,827	$	968	$	—	$	—	$	12,827	$	968
GSE mortgage-backed securities	26,478		146		—		—		26,478		146
Collateralized mortgage obligations: residential	162,695		2,806		11,051		375		173,746		3,181
Collateralized mortgage obligations: commercial	—		—		2,991		36		2,991		36
Mutual funds	2,059		41		—		—		2,059		41
	$	204,059	$	3,961	$	14,042	$	411	$	218,101	$	4,372

	December 31, 2016
	Securities with losses under 12 months				Securities with losses over 12 months				Total
	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss
Available-for-sale:
Obligations of state and political subdivisions	$	13,402	$	1,020	$	—	$	—	$	13,402	$	1,020
GSE mortgage-backed securities	29,119		302		—		—		29,119		302
Collateralized mortgage obligations: residential	187,235		3,099		14,194		507		201,429		3,606
Collateralized mortgage obligations: commercial	961		4		2,121		49		3,082		53
Mutual funds	2,059		41		—		—		2,059		41
	$	232,776	$	4,466	$	16,315	$	556	$	249,091	$	5,022

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	March 31, 2017
	Securities with losses under 12 months				Securities with losses over 12 months				Total
	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss
Held-to-maturity:
Obligations of state and political subdivisions	$	4,249	$	6	$	—	$	—	$	4,249	$	6
GSE mortgage-backed securities	5,694		140		—		—		5,694		140
Collateralized mortgage obligations: residential	—		—		8,332		273		8,332		273
Collateralized mortgage obligations: commercial	3,283		12		—		—		3,283		12
	$	13,226	$	158	$	8,332	$	273	$	21,558	$	431

	December 31, 2016
	Securities with losses under 12 months				Securities with losses over 12 months				Total
	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss
Held-to-maturity:
Obligations of state and political subdivisions	$	8,054	$	39	$	—	$	—	$	8,054	$	39
GSE mortgage-backed securities	19,408		311		—		—		19,408		311
Collateralized mortgage obligations: residential	—		—		8,645		323		8,645		323
Collateralized mortgage obligations: commercial	4,340		12		—		—		4,340		12
	$	31,802	$	362	$	8,645	$	323	$	40,447	$	685

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. 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.

As of March 31, 2017, 64 securities had unrealized losses totaling 1.96% of the individual securities’ amortized cost basis and 1.07% of the Company’s total amortized cost basis. Of the 64 securities, 10 had been in an unrealized loss position for over twelve months at March 31, 2017. These 10 securities had an amortized cost basis and unrealized loss of $23.1 million and $684,000, respectively. The unrealized losses on debt securities at March 31, 2017 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 March 31, 2017, 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 March 31, 2017.

During the three months ended March 31, 2017, the Company sold 10 securities classified as available-for-sale and 1 security classified as held-to-maturity. Of the available-for-sale securities, 7 securities were sold with gains totaling $108,000 and 3 securities were sold at a loss of $109,000 for a net loss of $1,000. The decision to sell the 1 held-to-maturity security, which was sold at a gain of $7,000, was

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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. During the three months ended March 31, 2016, the Company did not sell any securities.

Securities with an aggregate carrying value of approximately $295.6 million and $293.4 million at March 31, 2017 and December 31, 2016, respectively, were pledged to secure public funds on deposit and for other purposes required or permitted by law.

3. Credit Quality of Loans and Allowance for Loan Losses

The loan portfolio consisted of the following (in thousands):



	March 31, 2017			December 31, 2016
Commercial, financial and agricultural	$	469,815		$	459,574
Real estate – construction	100,248			100,959
Real estate – commercial	464,859			481,155
Real estate – residential	159,426			157,872
Installment loans to individuals	75,258			82,660
Lease financing receivable	969			1,095
Other	1,425			767
	1,272,000			1,284,082
Less allowance for loan losses	(24,578		)	(24,372		)
	$	1,247,422		$	1,259,710

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, 2017, 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 $231.8 million, or 18.2% of total loans. Additionally, the Company’s exposure to loans secured by commercial real estate is monitored. At March 31, 2017, loans secured by commercial real estate (including commercial construction, farmland and multifamily loans) totaled approximately $539.9 million, 48% of which are secured by owner-occupied commercial properties. Of the $539.9 million in loans secured by commercial real estate, $20.6 million, or 3.8%, were on nonaccrual status at March 31, 2017.

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 twelve to eighteen months, 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.

Loans acquired in business combinations are initially recorded at fair value, which includes an estimate of credit losses expected to be realized over the remaining lives of the loans, and therefore no corresponding allowance for loan losses is recorded for these loans at acquisition. Methods utilized to estimate any subsequently required allowance for loan losses for acquired loans not deemed credit-impaired at acquisition are similar to originated loans; however, the estimate of loss is based on the unpaid principal balance and then compared to any remaining unaccreted purchase discount. To the extent that the calculated loss is greater than the remaining unaccreted purchase discount, an allowance is recorded for such difference.

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.

A rollforward of the activity within the allowance for loan losses by loan type and recorded investment in loans for the three months ended March 31, 2017 and 2016 is as follows (in thousands):

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	March 31, 2017
				Real Estate
	Coml, Fin, and Agric			Construction			Commercial			Residential			Installment loans to individuals			Lease financing receivable			Other		Total
Allowance for loan losses:
Beginning balance	$	16,057		$	585		$	5,384		$	940		$	1,395		$	5		$	6	$	24,372
Charge-offs	(1,705		)	—			(823		)	(117		)	(261		)	—			—		(2,906		)
Recoveries	154			—			10			90			58			—			—		312
Provision	3,832			(321		)	(238		)	(249		)	(222		)	(2		)	—		2,800
Ending balance	$	18,338		$	264		$	4,333		$	664		$	970		$	3		$	6	$	24,578
Ending balance: individually evaluated for impairment	$	4,173		$	9		$	1,656		$	217		$	160		$	—		$	—	$	6,215
Ending balance: collectively evaluated for impairment	$	14,165		$	255		$	2,677		$	447		$	810		$	3		$	6	$	18,363

Loans:
Ending balance	$	469,815		$	100,248		$	464,859		$	159,426		$	75,258		$	969		$	1,425	$	1,272,000
Ending balance: individually evaluated for impairment	$	35,346		$	26		$	20,623		$	1,956		$	487		$	—		$	—	$	58,438
Ending balance: collectively evaluated for impairment	$	434,469		$	100,222		$	443,802		$	157,401		$	74,771		$	969		$	1,425	$	1,213,059
Ending balance: loans acquired with deteriorated credit quality	$	—		$	—		$	434		$	69		$	—		$	—		$	—	$	503

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	March 31, 2016
				Real Estate
	Coml, Fin, and Agric			Construction			Commercial		Residential			Installment loans to individuals			Lease financing receivable			Other		Total
Allowance for loan losses:
Beginning balance	$	11,268		$	819		$	4,614	$	816		$	1,468		$	14		$	12	$	19,011
Charge-offs	(1,307		)	—			—		(4		)	(283		)	—			—		(1,594		)
Recoveries	26			—			76		3			25			—			—		130
Provision	2,194			(420		)	861		(170		)	336			(3		)	2		2,800
Ending balance	$	12,181		$	399		$	5,551	$	645		$	1,546		$	11		$	14	$	20,347
Ending balance: individually evaluated for impairment	$	1,021		$	—		$	2,586	$	267		$	278		$	—		$	—	$	4,152
Ending balance: collectively evaluated for impairment	$	11,160		$	399		$	2,965	$	378		$	1,268		$	11		$	14	$	16,195

Loans:
Ending balance	$	441,160		$	84,790		$	467,648	$	149,961		$	103,181		$	1,590		$	1,719	$	1,250,049
Ending balance: individually evaluated for impairment	$	29,097		$	35		$	27,511	$	2,230		$	506		$	—		$	—	$	59,379
Ending balance: collectively evaluated for impairment	$	412,063		$	84,755		$	439,530	$	147,653		$	102,675		$	1,590		$	1,719	$	1,189,985
Ending balance: loans acquired with deteriorated credit quality	$	—		$	—		$	607	$	78		$	—		$	—		$	—	$	685

Non-Accrual and Past Due Loans

Loans are considered past due if the required principal and interest payment 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.

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An age analysis of past due loans (including both accruing and non-accruing loans) is as follows (in thousands):



	March 31, 2017
	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Total Loans		Recorded Investment > 90 days and Accruing
Commercial, financial, and agricultural	$	1,849	$	1,022	$	28,154	$	31,025	$	438,790	$	469,815	$	546
Real estate - construction	709		—		125		834		99,414		100,248		99
Real estate - commercial	9,326		1,389		18,542		29,257		435,602		464,859		—
Real estate - residential	2,237		136		1,620		3,993		155,433		159,426		130
Installment loans to individuals	302		190		487		979		74,279		75,258		—
Lease financing receivable	—		—		—		—		969		969		—
Other loans	41		6		—		47		1,378		1,425		—
	$	14,464	$	2,743	$	48,928	$	66,135	$	1,205,865	$	1,272,000	$	775

	December 31, 2016
	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Total Loans		Recorded Investment > 90 days and Accruing
Commercial, financial, and agricultural	$	2,297	$	902	$	31,425	$	34,624	$	424,950	$	459,574	$	96
Real estate - construction	2,613		399		9		3,021		97,938		100,959		—
Real estate - commercial	5,159		1,931		25,408		32,498		448,657		481,155		140
Real estate - residential	1,956		207		1,553		3,716		154,156		157,872		16
Installment loans to individuals	756		36		538		1,330		81,330		82,660		16
Lease financing receivable	—		—		—		—		1,095		1,095		—
Other loans	89		5		—		94		673		767		—
	$	12,870	$	3,480	$	58,933	$	75,283	$	1,208,799	$	1,284,082	$	268

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Non-accrual loans are as follows (in thousands):



	March 31, 2017		December 31, 2016
Commercial, financial, and agricultural	$	33,351	$	31,461
Real estate - construction	26		9
Real estate - commercial	20,623		28,688
Real estate - residential	1,956		1,881
Installment loans to individuals	487		541
Lease financing receivable	—		—
Other	—		—
	$	56,443	$	62,580

The amount of interest that would have been recorded on non-accrual loans, had the loans not been classified as non-accrual, totaled approximately $931,000 and $757,000 for the three months ended March 31, 2017 and 2016, respectively. Interest actually received on non-accrual loans subsequent to their transfer to non-accrual status totaled at March 31, 2017 and 2016 was $244,000 and $59,000, respectively.

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 collaterally 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. Acquired impaired loans are generally not subject to individual evaluation for impairment and are not reported with impaired loans or troubled debt restructurings, even if they would otherwise qualify for such treatment.

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Loans that are individually evaluated for impairment are as follows (in thousands):



	March 31, 2017
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial, financial, and agricultural	$	19,185	$	19,688	$	—	$	17,143	$	26
Real estate - construction	—		—		—		5		—
Real estate - commercial	6,320		6,320		—		9,515		3
Real estate - residential	389		389		—		646		1
Installment loans to individuals	—		—		—		37		—
Subtotal:	25,894		26,397		—		27,346		30
With an allowance recorded:
Commercial, financial, and agricultural	16,161		16,344		4,173		16,267		1
Real estate - construction	26		26		9		13		—
Real estate - commercial	14,303		14,503		1,656		15,141		—
Real estate - residential	1,567		1,567		217		1,245		—
Installment loans to individuals	487		524		160		477		—
Subtotal:	32,544		32,964		6,215		33,143		1
Totals:
Commercial	55,969		56,855		5,829		58,066		30
Construction	26		26		9		18		—
Residential	1,956		1,956		217		1,891		1
Consumer	487		524		160		514		—
Grand total:	$	58,438	$	59,361	$	6,215	$	60,489	$	31

	December 31, 2016
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial, financial, and agricultural	$	15,101	$	15,428	$	—	$	18,815	$	191
Real estate - construction	9		9		—		23		—
Real estate - commercial	12,710		12,710		—		9,297		64
Real estate - residential	903		903		—		1,134		—
Installment loans to individuals	73		87		—		54		1
Subtotal:	28,796		29,137		—		29,323		256
With an allowance recorded:
Commercial, financial, and agricultural	16,372		16,470		4,369		10,781		42
Real estate - commercial	15,979		15,979		2,216		14,992		28
Real estate - residential	923		923		260		730		—
Installment loans to individuals	468		478		308		419		11
Subtotal:	33,742		33,850		7,153		26,922		81
Totals:
Commercial	60,162		60,587		6,585		53,885		325
Construction	9		9		—		23		—
Residential	1,826		1,826		260		1,864		—
Consumer	541		565		308		473		12
Grand total:	$	62,538	$	62,987	$	7,153	$	56,245	$	337

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Credit Quality

The Company manages credit risk by observing written underwriting standards and lending policy established by the Board of Directors and management to govern all lending activities. The risk management program requires that each individual loan officer review his or her portfolio on a quarterly basis and assign recommended credit ratings on each loan. These efforts are supplemented by independent reviews performed by a loan review officer and other validations performed by the internal audit department. The results of the reviews are reported directly to the Audit Committee of the Board of Directors.

Loans are categorized into risk categories based on relevant information about the ability of borrowers to serve their debt, such as: current financial information, historical payment experience, credit documentation, public information, current economic trends, and other factors. Loans are analyzed individually and classified according to their credit risk. This analysis is performed on a continuous basis. The following definitions are used for risk ratings:

Special Mention: Weakness exists that could cause future impairment, including the deterioration of financial ratios, past due status, and questionable management capabilities. Collateral values generally afford adequate coverage but may not be immediately marketable.

Substandard: Specific and well-defined weaknesses exist that may include poor liquidity and deterioration of financial ratios. Currently the borrower maintains the capacity to service the debt. The loan may be past due and related deposit accounts experiencing overdrafts. Immediate corrective action is necessary.

Doubtful: Specific weaknesses characterized as Substandard exist that are severe enough to make collection in full unlikely. There is no reliable secondary source of full repayment. Loans classified as Doubtful will usually be placed on non-accrual status. The probability of some loss is extremely high but because of certain important and reasonably specific factors, the amount of loss cannot be determined.

Loans not meeting the criteria above that are analyzed individually as part of the above-described process are considered to be Pass rated loans.

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The following tables present the classes of loans by risk rating (in thousands):



	March 31, 2017
Commercial Credit Exposure
Credit Risk Profile by Creditworthiness Category
			Commercial, financial, and agricultural		Real estate - commercial		Total		% of Total
Pass			$	354,424	$	412,694	$	767,118	82.07	%
Special mention			10,916		14,188		25,104		2.69	%
Substandard			104,261		37,977		142,238		15.22	%
Doubtful			214		—		214		0.02	%
			$	469,815	$	464,859	$	934,674	100.00	%

Construction Credit Exposure
Credit Risk Profile by Creditworthiness Category
							Real estate - construction		% of Total
Pass							$	100,050	99.80	%
Special mention							—		—	%
Substandard							198		0.20	%
							$	100,248	100.00	%

Residential Credit Exposure
Credit Risk Profile by Creditworthiness Category
							Real estate - residential		% of Total
Pass							$	154,943	97.19	%
Special mention							1,131		0.71	%
Substandard							3,352		2.10	%
							$	159,426	100.00	%

Consumer and Commercial Credit Exposure
Credit Risk Profile Based on Payment Activity
	Installment loans to individuals		Lease financing receivable		Other		Total		% of Total
Performing	$	74,753	$	969	$	1,425	$	77,147	99.35	%
Nonperforming	505		—		—		505		0.65	%
	$	75,258	$	969	$	1,425	$	77,652	100.00	%

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	December 31, 2016
Commercial Credit Exposure
Credit Risk Profile by Creditworthiness Category
				Commercial, financial, and agricultural		Real estate - commercial		Total		% of Total
Pass				$	346,246	$	420,970	$	767,216	81.56	%
Special mention				22,611		23,085		45,696		4.86	%
Substandard				90,300		37,100		127,400		13.54	%
Doubtful				417		—		417		0.04	%
				$	459,574	$	481,155	$	940,729	100.00	%

Construction Credit Exposure
Credit Risk Profile by Creditworthiness Category
								Real estate - construction		% of Total
Pass								$	100,775	99.82	%
Special mention								—		—	%
Substandard								184		0.18	%
								$	100,959	100.00	%

Residential Credit Exposure
Credit Risk Profile by Creditworthiness Category
								Real estate - residential		% of Total
Pass								$	153,403	97.17	%
Special mention								1,181		0.75	%
Substandard								3,288		2.08	%
								$	157,872	100.00	%

Consumer and Commercial Credit Exposure
Credit Risk Profile Based on Payment Activity
		Installment loans to individuals		Lease financing receivable		Other		Total		% of Total
Performing		$	82,103	$	1,095	$	767	$	83,965	99.34	%
Nonperforming		557		—		—		557		0.66	%
		$	82,660	$	1,095	$	767	$	84,522	100.00	%

Troubled Debt Restructurings

A troubled debt restructuring (“TDR”) is a restructuring of a debt made by the Company to a debtor for economic or legal reasons related to the debtor’s financial difficulties that it would not otherwise consider. The Company grants the concession in an attempt to protect as much of its investment as possible.

Information about the Company’s TDRs is as follows (in thousands):

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	March 31, 2017
	Current		Past Due Greater Than 30 Days		Nonaccrual TDRs		Total TDRs
Commercial, financial and agricultural	$	1,995	$	—	$	21,864	$	23,859
Real estate – commercial	—		—		808		808
	$	1,995	$	—	$	22,672	$	24,667

	December 31, 2016
	Current		Past Due Greater Than 30 Days		Nonaccrual TDRs		Total TDRs
Commercial, financial and agricultural	$	12	$	—	$	24,331	$	24,343
Real estate – commercial	—		140		808		948
	$	12	$	140	$	25,139	$	25,291

During the three months ended March 31, 2017, there was one loan relationship with a pre-modification balance of $2.0 million identified as a TDR after a reduction in payments. There were no defaults on any loans that were modified as TDRs during the preceding twelve months. During the three months ended March 31, 2016, there was one loan relationship with a pre-modification balance of $5.5 million identified as a TDR after conversion of the loans to interest only for a limited amount of time. This one TDR subsequently defaulted on the modified terms and totaled $5.5 million at March 31, 2016. For purposes of the determination of an allowance for loan losses on these TDRs, as an identified TDR, the Company considers a loss probable on the loan and, as a result is reviewed for specific impairment in accordance with the Company’s allowance for loan loss methodology. If it is determined losses are probable on such TDRs, either because of delinquency or other credit quality indicator, the Company establishes specific reserves for these loans. As of March 31, 2017, there were no commitments to lend additional funds to debtors owing sums to the Company whose terms have been modified in TDRs.

4. Intangibles

A summary of core deposit intangible assets as of March 31, 2017 and December 31, 2016 is as follows (in thousands):



	March 31, 2017			December 31, 2016
Gross carrying amount	$	11,674		$	11,674
Less accumulated amortization	(7,329		)	(7,053		)
Net carrying amount	$	4,345		$	4,621

5. Derivatives

On July 6, 2016, the Company entered into two forward interest rate swap contracts on a reverse repurchase agreement and long-term FHLB advances. The interest rate swap contracts were designated as derivative instruments in a cash flow hedge under ASC Topic 815, Derivatives and Hedging to convert forecasted variable interest payment to a fixed rate and the Company has concluded that the forecasted transactions are probable of occurring. For cash flow hedges, the effective portion of the gain or loss related to the derivative instrument is initially reported as a component of other comprehensive income and subsequently reclassified into earnings when the forecasted transaction affects earnings or when the hedge is terminated. The ineffective portion of the gain or loss is reported in earnings immediately.

No ineffectiveness related to the interest rate swaps designated as cash flow hedges was recognized in the consolidated statements of income for the three months ended March 31, 2017. The accumulated net after-tax income related to the effective cash flow hedge included in accumulated other comprehensive income is reflected in Note 6 - Other Comprehensive Income.

The following table discloses the notional amounts and fair value of derivative instruments in the Company's balance sheet as of March 31, 2017 and December 31, 2016 (in thousands):

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		Notional Amounts				Fair Value
	Type of Hedge	March 31, 2017		December 31, 2016		March 31, 2017		December 31, 2016
Derivatives designated as hedging instruments:
Interest rate swaps included in other assets	Cash Flow	$	27,500	$	27,500	$	1,002	$	989

6. Other Comprehensive Income

The following is a summary of the tax effects allocated to each component of other comprehensive income (in thousands):



	Three Months Ended March 31,
	2017									2016
	Before Tax Amount			Tax Effect			Net of Tax Amount			Before Tax Amount		Tax Effect			Net of Tax Amount
Other comprehensive income:
Securities available-for-sale:
Change in unrealized gains during period	$	820		$	(287	)	$	533		$	2,802	$	(980	)	$	1,822
Reclassification adjustment for gains included in net income	(6		)	2			(4		)	—		—			—
Derivative instruments designated as cash flow hedges:
Change in fair value of derivative instruments designated as cash flow hedges	13			(5		)	8			—		—			—
Total other comprehensive income	$	827		$	(290	)	$	537		$	2,802	$	(980	)	$	1,822

The reclassifications out of accumulated other comprehensive loss into net income are presented below (in thousands):



	Three Months Ended March 31,
	2017				2016
Details about Accumulated Other Comprehensive Loss Components	Reclassifications Out of Accumulated Other Comprehensive Loss			Income Statement Line Item	Reclassifications Out of Accumulated Other Comprehensive Loss		Income Statement Line Item
Unrealized gains and losses on securities available-for-sale:
	$	(6	)	Gain on sale of securities, net	$	—	Gain on sale of securities, net
	2			Tax expense	—		Tax expense
	$	(4	)	Net of tax	$	—	Net of tax

7. Earnings Per Common Share

Following is a summary of the information used in the computation of earnings per common share (in thousands):

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	Three Months Ended March 31,
	2017		2016
Net earnings available to common shareholders	$	1,680	$	1,922
Dividends on Series C preferred stock	—		—
Adjusted net earnings available to common shareholders	$	1,680	$	1,922
Weighted average number of common shares outstanding used in computation of basic earnings per common share	11,264		11,262
Effect of dilutive securities:
Stock options	14		—
Restricted stock	4		—
Convertible preferred stock and warrants	—		—
Weighted average number of common shares outstanding plus effect of dilutive securities – used in computation of diluted earnings per share	11,282		11,262

Following is a summary of the securities that were excluded from the computation of diluted earnings per share because the effects of the shares were anti-dilutive (in thousands):



	Three Months Ended March 31,
	2017	2016
Stock options	84	345
Restricted stock	4	11
Shares subject to the outstanding warrant issued in connection with the CPP transaction	104	104
Convertible preferred stock	507	507

8. Fair Value Measurement

The Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets.

Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3 – Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

Following is a description of valuation methodologies used for assets and liabilities which are either recorded or disclosed at fair value.

Cash and Due From Banks, Interest-Bearing Deposits in Banks and Federal Funds Sold—The carrying value of these short-term instruments is a reasonable estimate of fair value.

Securities Available-for-Sale—Securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange and U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter market funds. Securities are classified as Level 2 within the valuation hierarchy when the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the bond’s terms and conditions, among other things. Level 2 inputs are used to value U.S. Agency securities, mortgage-backed securities,

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asset-backed securities, municipal securities, single issue trust preferred securities, certain pooled trust preferred securities, collateralized debt obligations and certain equity securities that are not actively traded.

Securities Held-to-Maturity—The fair value of securities held-to-maturity is estimated using the same measurement techniques as securities available-for-sale.

Other Investments—The carrying value of other investments is a reasonable estimate of fair value.

Loans—For disclosure purposes, the fair value of fixed rate loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings. For variable rate loans, the carrying amount is a reasonable estimate of fair value. The Company does not record loans at fair value on a recurring basis. No adjustment to fair value is taken related to illiquidity discounts. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management uses one of three methods to measure impairment, which, include collateral value, market value of similar debt, and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. Impaired loans where an allowance is established based on the fair value of collateral or where the loan balance has been charged down to fair value require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the impaired loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and adjusts the appraisal value by taking an additional discount for market conditions and there is no observable market price, the Company records the impaired loan as nonrecurring Level 3.

For non-performing loans, collateral valuations currently in file are reviewed for acceptability in terms of timeliness and applicability. Although each determination is made based on the facts and circumstances of each credit, generally valuations are no longer considered acceptable when there has been physical deterioration of the property from when it was last appraised, or there has been a significant change in the underlying assumptions of the appraisal. If the valuation is deemed to be unacceptable, a new appraisal is ordered. New appraisals are typically received within 4-6 weeks. While awaiting new appraisals, the valuation in the file is utilized, net of discounts. Discounts are derived from available relevant market data, selling costs, taxes, and insurance. Any perceived collateral deficiency utilizing the discounted value is specifically reserved (as required by ASC Topic 310) until the new appraisal is received or charged off. Thus, provisions or charge-offs are recognized in the period the credit is identified as non-performing.

The following sources are utilized to set appropriate discounts: in-market real estate agents, current local sales data, bank history for devaluation of similar property, Sheriff’s valuations and buy/sell contracts. If a real estate agent is used to market and sell the property, values are discounted 10% for selling costs. Additional discounts may be applied if research from the above sources indicates a discount is appropriate given devaluation of similar property from the time of the initial valuation.

Other Real Estate—Other real estate (“ORE”) properties are adjusted to fair value upon transfer of the loans to other real estate, and annually thereafter to insure other real estate assets are carried at the lower of carrying value or fair value. Exceptions to obtaining initial appraisals are properties where a buy/sell agreement exists for the loan value or greater, or where a Sheriff’s valuation has been received for properties liquidated through a Sheriff sale. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the ORE as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and adjusts the appraisal value by taking an additional discount for market conditions and there is no observable market prices, the Company records the ORE asset as nonrecurring Level 3.

Cash Surrender Value of Life Insurance Policies—Fair value for life insurance cash surrender value is based on cash surrender values indicated by the insurance companies.

Derivative Financial Instruments—The fair value of derivatives are determined by an independent valuation firm and are estimated using prices of financial instruments with similar characteristics. As a result, they are classified within Level 2 of the fair value hierarchy.

Deposits—The fair value of demand deposits, savings accounts, NOW accounts, and money market deposits is the amount payable on demand at the reporting date. The fair value of fixed maturity certificates of deposit is estimated by discounting the future cash flows using the rates currently offered for deposits of similar remaining maturities. The estimated fair value does not include customer related intangibles.

Securities Sold Under Agreements to Repurchase—The fair value approximates the carrying value of securities sold under agreements to repurchase due to their short-term nature.

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Long-term Federal Home Loan Bank Advances—The fair value of long-term FHLB advances is estimated using a discounted cash flow analysis that applies interest rates currently being offered on similar types of borrowings with similar terms.

Junior Subordinated Debentures—For junior subordinated debentures that bear interest on a floating basis, the carrying amount approximates fair value. For junior subordinated debentures that bear interest on a fixed rate basis, the fair value is estimated using a discounted cash flow analysis that applies interest rates currently being offered on similar types of borrowings.

Commitments to Extend Credit, Standby Letters of Credit and Credit Card Guarantees—Because commitments to extend credit and standby letters of credit are generally short-term and made using variable rates, the carrying value and estimated fair value associated with these instruments are immaterial.

Assets Recorded at Fair Value

The table below presents information about certain assets and liabilities measured at fair value on a recurring basis (in thousands):



	Assets / Liabilities Measured at Fair Value at		Fair Value Measurements at March 31, 2017
Description	March 31, 2017		Level 1		Level 2		Level 3
Available-for-sale securities:
Obligations of state and political subdivisions	$	25,611	$	—	$	25,611	$	—
GSE mortgage-backed securities	80,026		—		80,026		—
Collateralized mortgage obligations: residential	227,514		—		227,514		—
Collateralized mortgage obligations: commercial	2,991		—		2,991		—
Mutual funds	2,059		2,059		—		—
Corporate debt securities	19,602		—		19,602		—
Total available-for-sale securities	$	357,803	$	2,059	$	355,744	$	—

Derivative assets	$	1,002	$	—	$	1,002	$	—



	Assets / Liabilities Measured at Fair Value at		Fair Value Measurements at December 31, 2016
Description	December 31, 2016		Level 1		Level 2		Level 3
Available-for-sale securities:
Obligations of state and political subdivisions	$	29,141	$	—	$	29,141	$	—
GSE mortgage-backed securities	73,578		—		73,578		—
Collateralized mortgage obligations: residential	220,202		—		220,202		—
Collateralized mortgage obligations: commercial	3,082		—		3,082		—
Mutual funds	2,059		2,059		—		—
Corporate debt securities	13,811		—		13,811		—
Total available-for-sale securities	$	341,873	$	2,059	$	339,814	$	—

Derivative assets	$	989	$	—	$	989	$	—

Certain assets and liabilities are measured at fair value on a nonrecurring basis and are included in the table below (in thousands). Impaired loans are Level 2 assets measured using appraisals from external parties of the collateral less any prior liens. Other real estate properties are also Level 2 assets measured using appraisals from external parties.

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	Assets / Liabilities Measured at Fair Value at		Fair Value Measurements at March 31, 2017
Description	March 31, 2017		Level 1		Level 2		Level 3
Impaired loans	$	27,051	$	—	$	27,051	$	—
Other real estate	1,643		—		1,643		—

	Assets / Liabilities Measured at Fair Value at		Fair Value Measurements at December 31, 2016
Description	December 31, 2016		Level 1		Level 2		Level 3
Impaired loans	$	26,956	$	—	$	26,956	$	—
Other real estate	2,175		—		2,175		—

Limitations

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on many judgments. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial instruments include deferred income taxes and premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

The carrying amounts and estimated fair values of the Company’s financial instruments are as follows at March 31, 2017 and December 31, 2016 (in thousands):



			Fair Value Measurements at March 31, 2017 Using:
	Carrying Value		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks, interest-bearing deposits in banks and federal funds sold	$	78,471	$	78,471	$	—	$	—
Securities available-for-sale	357,803		2,059		355,744		—
Securities held-to-maturity	91,242		—		91,767		—
Other investments	11,362		11,362		—		—
Loans, net	1,247,422		—		27,051		1,225,251
Cash surrender value of life insurance policies	14,398		—		14,398		—
Derivative asset	1,002		—		1,002		—
Financial liabilities:
Non-interest-bearing deposits	426,998		—		426,998		—
Interest-bearing deposits	1,145,946		—		996,201		148,598
Securities sold under agreements to repurchase	89,807		89,807		—		—
Long-term Federal Home Loan Bank advances	25,318		—		25,614		—
Junior subordinated debentures	22,167		—		22,167		—

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			Fair Value Measurements at December 31, 2016 Using:
	Carrying Value		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks, interest-bearing deposits in banks and federal funds sold	$	82,228	$	82,228	$	—	$	—
Securities available-for-sale	341,873		2,059		339,814		—
Securities held-to-maturity	98,211		—		98,261		—
Other investments	11,355		11,355		—		—
Loans, net	1,259,710		—		26,956		1,236,133
Cash surrender value of life insurance policies	14,335		—		14,335		—
Derivative asset	989		—		989		—
Financial liabilities:
Non-interest-bearing deposits	414,921		—		414,921		—
Interest-bearing deposits	1,164,509		—		1,012,633		150,879
Securities sold under agreements to repurchase	94,461		94,461		—		—
Long-term Federal Home Loan Bank advances	25,424		—		25,808		—
Junior subordinated debentures	22,167		—		22,167		—

9. Subsequent Events

Classified loans totaled $148.5 million at May 4, 2017, a $1.7 million increase from the $146.8 million of classified loans at March 31, 2017. A total of $25.2 million of downgrades since March 31, 2017 were partially offset by $23.6 million of payoffs of classified loans.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation.

MidSouth Bancorp, Inc. (the “Company”) is a financial holding company headquartered in Lafayette, Louisiana that conducts substantially all of its business through its wholly owned subsidiary bank, MidSouth Bank, N.A. (the “Bank”). We offer complete banking services to commercial and retail customers in Louisiana and south and central Texas with 57 locations and are connected to a worldwide ATM network that provides customers with access to more than 55,000 surcharge-free ATMs. We are community oriented and focus primarily on offering commercial and consumer loan and deposit services to individuals, small businesses, and middle market businesses.

The following discussion and analysis identifies significant factors that have affected our financial position and operating results during the periods included in the financial statements accompanying this report. We encourage you to read this discussion in conjunction with our consolidated financial statements and the notes thereto presented herein and with the financial statements, the notes thereto, and related Management’s Discussion and Analysis of Financial Condition and Results of Operation in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

Forward-Looking Statements

Certain statements included in this Report, other than statements of historical fact, are forward-looking statements (as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and the regulations thereunder), which are intended to be covered by the safe harbors created thereby. Forward-looking statements include, but are not limited to certain statements under the captions “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “will,” “would,” “could,” “should,” “guidance,” “potential,” “continue,” “project,” “forecast,” “confident,” and similar expressions are typically used to identify forward-looking statements. These statements are based on assumptions and assessments made by management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate. Any forward-looking statements are not guarantees of our future performance and are subject to risks and uncertainties and may be affected by various factors that may cause actual results, developments and business decisions to differ materially from those in the forward-looking statements. Some of the factors that may cause actual results, developments and business decisions to differ materially from those contemplated by such forward-looking statements include the factors discussed under the caption “Risk Factors” in our 2016 Annual

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Report on form 10-K and under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Report and the following:


•	changes in interest rates and market prices that could affect the net interest margin, asset valuation, and expense levels;


•	changes in local economic and business conditions, including, without limitation, changes related to the oil and gas industries, that could adversely affect customers and their ability to repay borrowings under agreed upon terms, adversely affect the value of the underlying collateral related to their borrowings, and reduce demand for loans;


•	increased competition for deposits and loans which could affect compositions, rates and terms;


•	changes in the levels of prepayments received on loans and investment securities that adversely affect the yield and value of the earning assets;


•	a deviation in actual experience from the underlying assumptions used to determine and establish our allowance for loan losses (“ALL”), which could result in greater than expected loan losses;


•	changes in the availability of funds resulting from reduced liquidity or increased costs;


•	the timing, ability to complete and the impact of proposed and/or future acquisitions, the success or failure of integrating acquired operations, and the ability to capitalize on growth opportunities upon entering new markets;


•	the timing, ability to complete and the impact of proposed and/or future efficiency initiatives;


•	the ability to acquire, operate, and maintain effective and efficient operating systems;


•	increased asset levels and changes in the composition of assets that would impact capital levels and regulatory capital ratios;


•	loss of critical personnel and the challenge of hiring qualified personnel at reasonable compensation levels;

•

legislative and regulatory changes, including the changes in the regulatory capital framework under the Federal Reserve Board’s Basel III regulatory capital reforms, the impact of regulations under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), including the implementation of the Consumer Financial Protection Bureau, and other changes in banking, securities and tax laws and regulations and their application by our regulators, changes in the scope and cost of Federal Deposit Insurance Corporation (“FDIC”) insurance and other coverage;


•	regulations and restrictions resulting from our participation in government sponsored programs such as the U.S. Treasury’s Small Business Lending Fund, including potential retroactive changes in such programs;


•	changes in accounting principles, policies, and guidelines applicable to financial holding companies and banking;


•	acts of war, terrorism, cyber intrusion, weather, or other catastrophic events beyond our control; and


•	the ability to manage the risks involved in the foregoing.

We can give no assurance that any of the events anticipated by the forward-looking statements will occur or, if any of them does, what impact they will have on our results of operations and financial condition. We disclaim any intent or obligation to publicly update or revise any forward-looking statements, regardless of whether new information becomes available, future developments occur or otherwise.

Critical Accounting Policies

Certain critical accounting policies affect the more significant judgments and estimates used in the preparation of the consolidated financial statements. Our significant accounting policies are described in the notes to the consolidated financial statements included in this report. The accounting principles we follow and the methods of applying these principles conform to accounting principles generally accepted in the United States of America (“GAAP”) and general banking practices. Our most critical accounting policy relates to the determination of the allowance for loan losses, which reflects the estimated losses resulting from the inability of its borrowers to make loan payments. The determination of the adequacy of the allowance involves significant judgment and complexity and is based on many factors. If the financial condition of our borrowers were to deteriorate, resulting in an impairment of their ability to make payments, the estimates would be updated and additional provisions for loan losses may be required. See Asset Quality – Nonperforming Assets and Allowance for Loan Losses and Note 1 and Note 3 of the footnotes to the consolidated financial statements.

Another of our critical accounting policies relates to the valuation of goodwill, intangible assets and other purchase accounting adjustments. We account for acquisitions in accordance with ASC Topic No. 805, which requires the use of the purchase method of accounting. Under this method, we are required to record assets acquired and liabilities assumed at their fair value, including intangible assets. Determination of fair value involves estimates based on internal valuations of discounted cash flow analyses performed, third party valuations, or other valuation techniques that involve subjective assumptions. Additionally, the term of the useful lives and appropriate amortization periods of intangible assets is subjective. Resulting goodwill from an acquisition under the purchase method of accounting represents the excess of the purchase price over the fair value of net assets acquired. Goodwill is not amortized, but is evaluated for impairment annually or more frequently if deemed necessary. If the fair value of an asset exceeds the carrying amount of the asset, no charge to goodwill is made. If the carrying amount exceeds the fair value of the asset, goodwill will be adjusted through a charge to earnings. Given the instability of the economic environment, it is reasonably possible that the methodology of the assessment of potential loan losses and goodwill impairment could change in the near-term or could result in impairment going forward.

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A third critical accounting policy relates to deferred tax assets and liabilities. We record deferred tax assets and deferred tax liabilities for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Future tax benefits, such as net operating loss carry forwards, are recognized to the extent that realization of such benefits is more likely than not. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the assets and liabilities are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period that includes the enactment date. In the event the future tax consequences of differences between the financial reporting bases and the tax bases of our assets and liabilities results in deferred tax assets, an evaluation of the probability of being able to realize the future benefits indicated by such assets is required. A valuation allowance is provided when it is more likely than not that a portion or the full amount of the deferred tax asset will not be realized. In assessing the ability to realize the deferred tax assets, management considers the scheduled reversals of deferred tax liabilities, projected future taxable income, and tax planning strategies. A deferred tax liability is not recognized for portions of the allowance for loan losses for income tax purposes in excess of the financial statement balance. Such a deferred tax liability will only be recognized when it becomes apparent that those temporary differences will reverse in the foreseeable future. A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% more likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

Results of Operations

For the Three Months Ended March 31, 2017 and 2016

Net earnings available to common shareholders totaled $1.7 million for the first quarter of 2017, compared to net earnings available to common shareholders of $1.9 million reported for the first quarter of 2016. Diluted earnings for the first quarter of 2017 were $0.15 per common share, compared to $0.17 per common share reported for the first quarter of 2016.

Fully taxable-equivalent ("FTE") net interest income was $18.3 million for the first quarter of 2017, an $89,000 decrease compared to $18.4 million for the first quarter of 2016. Our annualized net interest margin, on a FTE basis, remained unchanged in prior year quarterly comparison at 4.18%. Excluding the impact of purchase accounting adjustments, the FTE margin increased 6 basis points, from 4.05% to 4.11% for the three months ended March 31, 2016 and 2017, respectively.

Noninterest income increased $300,000 in quarterly comparison and consisted primarily of a $94,000 increase in ATM/debit card income and a $111,000 increase in service charges on deposit accounts.

Noninterest expenses increased $471,000 in quarterly comparison and consisted primarily of a $699,000 increase in salaries and employee benefits costs and a $163,000 increase in data processing costs, which were partially offset by a $101,000 decrease in marketing expense. The provision for loan losses remained unchanged at $2.8 million in quarterly comparison. Income tax expense decreased $374,000 in quarterly comparison, primarily due to a tax credit recorded on a deferred compensation distribution.

Dividends on preferred stock totaled $811,000 for the three months ended March 31, 2017 and $427,000 for the three months ended March 31, 2016. Dividends on the Series B Preferred Stock were $720,000 for the first quarter of 2017 and totaled $336,000 for the first quarter of 2016 based on a dividend rate of 4.2%. The dividend rate increased to 9% on February 25, 2016. Dividends on the Series C Preferred Stock issued with the December 28, 2012 acquisition of PSB Financial Corporation (“PSB”) totaled $91,000 for the three months ended March 31, 2017 and March 31, 2016.

Net Interest Income

Our primary source of earnings is net interest income, which is the difference between interest earned on loans and investments and interest paid on deposits and other interest-bearing liabilities. Changes in the volume and mix of earning assets and interest-bearing liabilities combined with changes in market rates of interest greatly affect net interest income. Our net interest margin on a taxable equivalent basis, which is net interest income as a percentage of average earning assets, remained unchanged at 4.18% for the three months ended March 31, 2017 and 2016. Tables 1 and 2 below analyze the changes in net interest income in the three months ended March 31, 2017 and 2016.

FTE net interest income, after reflecting a reclassification of certain credit card income to noninterest income, decreased $89,000 in prior year quarterly comparison. Interest income on loans decreased $244,000 due to a decrease in the average yield on loans of 12 basis points. The average balance of loans increased $21.5 million in prior year quarterly comparison. Purchase accounting adjustments added 7 basis points to the average yield on loans for the first quarter of 2017 and 25 basis points to the average yield on loans for the first quarter of 2016. Excluding the impact of the purchase accounting adjustments, average loan yields decreased 3

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basis points in prior year quarterly comparison, from 5.25% to 5.22%. Loan yields have declined primarily as the result of a sustained low interest rate environment and a higher volume of loans on nonaccrual status.

Investment securities totaled $449.0 million, or 23.2% of total assets at March 31, 2017, versus $440.1 million, or 22.6% of total assets at December 31, 2016. The investment portfolio had an effective duration of 4.1 years and a net unrealized loss of $1.2 million at March 31, 2017. The average volume of investment securities increased $19.1 million in prior year quarterly comparison. The average tax equivalent yield on investment securities increased 8 basis points, from 2.58% to 2.66%.

The average yield on all earning assets remained unchanged in prior year quarterly comparison at 4.51%. Excluding the impact of purchase accounting adjustments, the average yield on total earning assets increased 8 basis points, from 4.39% to 4.47% for the three-month periods ended March 31, 2016 and 2017, respectively.

Interest expense increased $45,000 in prior year quarterly comparison. Increases in interest expense included a $28,000 increase in interest expense on deposits and a $41,000 increase in interest expense on variable rate junior subordinated debentures. These increases were partially offset by a $23,000 decrease in interest expense on short-term FHLB advances. Excluding purchase accounting adjustments on acquired certificates of deposit and FHLB borrowings, the average rate paid on interest-bearing liabilities was 0.49% for the three months ended March 31, 2017 and 0.46% for the three months ended March 31, 2016.

Long-term FHLB advances totaled $25.3 million at March 31, 2017, compared to $25.7 million at March 31, 2016. The FHLB advances are fixed rate advances with rates ranging from 1.99% to 5.06% and have a range of maturities from April 2017 to January 2019. The FHLB advances are collateralized by a blanket lien on first mortgages and other qualifying loans.

As a result of these changes in volume and yield on earning assets and interest-bearing liabilities, the FTE net interest margin remained unchanged in prior year quarterly comparison at 4.18%. Excluding purchase accounting adjustments on loans, deposits and FHLB borrowings, the FTE margin increased 6 basis points, from 4.05% for the first quarter of 2016 to 4.11% for the first quarter of 2017.

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Table 1 Consolidated Average Balances, Interest and Rates (in thousands)
	Three Months Ended March 31,
	2017							2016
	Average Volume			Interest		Average Yield/Rate		Average Volume			Interest		Average Yield/Rate
Assets
Investment securities¹
Taxable	$	382,105		$	2,327	2.44	%	$	358,623		$	2,036	2.27	%
Tax exempt²	60,618			620		4.09	%	64,971			699		4.30	%
Total investment securities	442,723			2,947		2.66	%	423,594			2,735		2.58	%
Federal funds sold	3,571			6		0.67	%	3,843			5		0.51	%
Time and interest bearing deposits in other banks	41,785			85		0.81	%	74,271			94		0.50	%
Other investments	11,355			84		2.96	%	11,189			88		3.15	%
Total loans³	1,274,213			16,622		5.29	%	1,252,742			17,123		5.50	%
Total earning assets	1,773,647			19,744		4.51	%	1,765,639			20,045		4.57	%
Allowance for loan losses	(24,021		)					(19,499		)
Nonearning assets	183,192							185,764
Total assets	$	1,932,818						$	1,931,904

Liabilities and shareholders’ equity
Total interest bearing deposits	$	1,155,407		$	935	0.33	%	$	1,180,581		$	907	0.31	%
Securities sold under repurchase agreements	92,571			234		1.03	%	85,756			233		1.09	%
Short-term FHLB advances	—			—		—	%	22,802			23		0.40	%
Long-term FHLB advances	25,370			88		1.39	%	25,794			90		1.38	%
Junior subordinated debentures	22,167			208		3.75	%	22,167			167		2.98	%
Total interest bearing liabilities	1,295,515			1,465		0.46	%	1,337,100			1,420		0.43	%
Demand deposits	413,781							371,636
Other liabilities	7,627							6,569
Shareholders’ equity	215,895							216,599
Total liabilities and shareholders’ equity	$	1,932,818						$	1,931,904

Net interest income and net interest spread				$	18,279	4.05	%				$	18,625	4.14	%
Net interest margin						4.18	%						4.24	%


^1.	Securities classified as available-for-sale are included in average balances. Interest income figures reflect interest earned on such securities.


^2.	Interest income of $213,000 for 2017 and $241,000 for 2016 is added to interest earned on tax-exempt obligations to reflect tax equivalent yields using a tax rate of 35%.


^3.	Interest income includes loan fees of $707,000 for 2017 and $934,000 for 2016. Nonaccrual loans are included in average balances and income on such loans is recognized on a cash basis.

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Table 2 Changes in Taxable-Equivalent Net Interest Income (in thousands)
	Three Months Ended March 31, 2017 compared to March 31, 2016
	Total Increase			Change Attributable To
	(Decrease)			Volume			Rates
Taxable-equivalent earned on:
Investment securities
Taxable	$	291		$	138		$	153
Tax exempt	(79		)	(46		)	(33		)
Federal funds sold	1			—			1
Time and interest bearing deposits in other banks	(9		)	(50		)	41
Other investments	(4		)	1			(5		)
Loans, including fees	(501		)	288			(789		)
Total	(301		)	331			(632		)

Interest paid on:
Interest bearing deposits	28			(19		)	47
Securities sold under repurchase agreements	1			17			(16		)
Short-term FHLB advances	(23		)	(23		)	—
Long-term FHLB advances	(2		)	(2		)	—
Junior subordinated debentures	41			—			41
Total	45			(27		)	72
Taxable-equivalent net interest income	$	(346	)	$	358		$	(704	)

Note: In Table 2, changes due to volume and rate have generally been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts to the changes in each.

Non-interest Income

Total non-interest income was $5.0 million and $4.7 million for the three month periods ended March 31, 2017 and 2016, respectively. Our recurring non-interest income includes service charges on deposit accounts, ATM and debit card income, mortgage lending and increase in cash value of life insurance.

Table 3 presents non-interest income for the three-month periods ended March 31, 2017 and 2016.



Table 3 Non-Interest Income (in thousands)
	Three Months Ended March 31,
	2017		2016
Service charges on deposit accounts	$	2,480	$	2,369
ATM and debit card income	1,703		1,609
Gain on securities, net	6		—
Mortgage lending	143		109
Increase in cash value of life insurance	63		70
Credit card interchange income	294		257
Credit card merchant fee income	69		78
Other	355		252
Total non-interest income	$	5,113	$	4,744

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Non-interest income increased $300,000 in quarterly comparison, from $4.7 million for the three months ended March 31, 2016 to $5.0 million for the three months ended March 31, 2017 and consisted primarily of a $94,000 increase in ATM/debit card income and a $111,000 increase in service charges on deposits accounts. Of the $111,000 increase in service charge income, $35,000 was due to a reclass of program expenses from service charge income to data processing costs.

Non-interest Expense

Total non-interest expense was $17.2 million for the three month period ended March 31, 2017, compared to $16.8 million for the same period in 2016. Our recurring non-interest expense consists of salaries and employee benefits, occupancy expense, ATM and debit card expense and other operating expenses.

Table 4 presents non-interest expense for the three-month periods ended March 31, 2017 and 2016.



Table 4 Non-Interest Expense (in thousands)
	Three Months Ended March 31,
	2017		2016
Salaries and employee benefits	$	8,689	$	7,990
Occupancy expense	3,624		3,597
ATM and debit card	721		785
Legal and professional fees	385		383
FDIC premiums	397		429
Marketing	280		381
Corporate development	316		335
Data processing	621		458
Printing and supplies	183		188
Expenses on ORE, net	79		194
Amortization of core deposit intangibles	277		277
Other non-interest expense	1,658		1,742
Total non-interest income	$	17,230	$	16,759

Non-interest expenses increased $471,000 in quarterly comparison and consisted primarily of a $699,000 increase in salaries and employee benefits costs and a $163,000 increase in data processing costs, which were partially offset by a $101,000 decrease in marketing expense.

Salaries and employee benefits costs increased $699,000 in prior year quarterly comparison and included a $262,000 increase in group health costs, a $135,000 increase in incentive pay and $81,000 of sign-on bonuses. The number of full-time equivalent (“FTE”) employees decreased in prior year quarterly comparison, from 522 at March 31, 2016 to 515 at March 31, 2017.

ATM and debit card expense decreased $64,000 in prior year quarterly comparison and was primarily driven by an $80,000 decrease in losses on ATM/debit card processing.

Data processing costs increased $163,000 in prior year quarterly comparison. A reclass of certain hosted services subscriptions from corporate development into data processing contributed to the increase.

Analysis of Balance Sheet

Consolidated assets remained constant at $1.9 billion at March 31, 2017 and December 31, 2016. Deposits decreased $6.5 million from year-end 2016. Our stable core deposit base, which excludes time deposits, totaled $1.4 billion at March 31 , 2017 and December 31, 2016 and accounted for 90.4% of deposits compared to 90.0% of deposits, respectively.

Securities available-for-sale totaled $357.8 million at March 31, 2017, an increase of $15.9 million from December 31, 2016. Securities held-to-maturity decreased $7.0 million, from $98.2 million at December 31, 2016 to $91.2 million at March 31, 2017. The investment securities portfolio had an effective duration of 4.1 years and a net unrealized loss of $1.2 million at March 31, 2017.

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Total loans decreased $12.1 million during the three months ended March 31, 2017, resulting primarily from the payoff of $9.9 million in nonperforming loans.



Table 7 Composition of Loans (in thousands)
	March 31, 2017			December 31, 2016
Commercial, financial, and agricultural (C&I)	$	469,815		$	459,574
Real estate – construction	100,248			100,959
Real estate – commercial (CRE)	464,859			481,155
Real estate – residential	159,426			157,872
Installment loans to individuals	75,258			82,660
Lease financing receivable	969			1,095
Other	1,425			767
	$	1,272,000		$	1,284,082
Less allowance for loan losses	(24,578		)	(24,372		)
Net loans	$	1,247,422		$	1,259,710

Our energy-related loan portfolio at March 31, 2017 totaled $231.8 million, or 18.2% of total loans, down from $237.4 million at December 31, 2016. The majority of MidSouth’s energy lending is focused on oil field service companies. Of the 375 total relationships in our energy-related loan portfolio, 34 relationships totaling $105.2 million were classified, with $27.0 million on nonaccrual status at September 30, 2016. At March 31, 2017, reserves for potential energy-related loan losses approximated 5.5% of energy loans.

Within the $464.9 million commercial real estate portfolio, $433.2 million is secured by commercial property, $20.6 million is secured by multi-family property, and $11.1 million is secured by farmland. Of the $433.2 million secured by commercial property, $259.8 million, or 60.0%, is owner-occupied. Of the $159.4 million residential real estate portfolio, 80.1% represented loans secured by first liens.

Off-Balance Sheet Arrangements

In the normal course of operations, the Company engages in a variety of financial transactions that, in accordance with GAAP, are not recorded in the financial statements. These transactions involve, to varying degrees, elements of credit, interest rate, and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments, letters of credit and lines of credit. For the period ended March 31, 2017, we did not engage in any off-balance sheet transactions reasonably likely to have a material impact on our financial condition, results of operations, or cash flows.

Liquidity and Capital

Bank Liquidity

Liquidity is the availability of funds to meet maturing contractual obligations and to fund operations. The Bank’s primary liquidity needs involve its ability to accommodate customers’ demands for deposit withdrawals as well as customers’ requests for credit. Liquidity is deemed adequate when sufficient cash to meet these needs can be promptly raised at a reasonable cost to the Bank.

Liquidity is provided primarily by three sources: a stable base of funding sources, an adequate level of assets that can be readily converted into cash, and borrowing lines with correspondent banks. Although the Bank historically has not utilized brokered deposits, this is a fourth potential source of liquidity, albeit one that is more costly and volatile. Our core deposits are our most stable and important source of funding. Cash deposits at other banks, federal funds sold, and principal payments received on loans and mortgage-backed securities provide additional primary sources of liquidity. Approximately $56.0 million in projected cash flows from securities repayments for the remainder of 2017 provides an additional source of liquidity.

The Bank also has significant borrowing capacity with the FRB-Atlanta and with the FHLB–Dallas. As of March 31, 2017, we had no borrowings with the FRB-Atlanta. Long-term FHLB-Dallas advances totaled $25.3 million at March 31, 2017 and are fixed rate advances with rates ranging from 1.99% to 5.06% and have a range of maturities from April 2017 to January 2019. Under existing agreements with the FHLB-Dallas, our borrowing capacity totaled $243.1 million at March 31, 2017. The Bank has the ability to post additional collateral of approximately $148.8 million if necessary to meet liquidity needs. Additionally, $182.9 million in loan collateral is pledged

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under a Borrower-in-Custody line with the FRB-Atlanta. Unsecured borrowing lines totaling $53.5 million are available through correspondent banks. We utilize these contingency funding alternatives to meet deposit volatility, which is more likely in the current environment, given unusual competitive offerings within our markets.

Company Liquidity

At the Company level, cash is needed primarily to meet interest payments on the junior subordinated debentures, dividends on our common stock and dividend payments on the Series B and Series C Preferred Stocks. The weighted average dividend rate on the $32.0 million of Series B Preferred Stock issued to the U.S. Treasury for participation in the Small Business Lending Fund (“SBLF”) was 9.0% for the three month period ended March 31, 2017. The dividend rate increased to 9.0% on February 25, 2016. Management is reviewing options to repay all or a portion of the $32.0 million, but it is unlikely that any amount will be repaid in the near term until credit pressures in the energy portfolio improve.

On December 28, 2012, the Company issued 756,511 shares of common stock and 99,971 shares of Series C Preferred Stock in connection with the PSB acquisition. As of March 31, 2017, there were 91,098 shares of Series C Preferred Stock issued and outstanding. The Series C Preferred Stock is entitled to the payment of noncumulative dividends, if and when declared by the Company’s Board of Directors, at the rate of 4.00% per annum, payable quarterly in arrears on January 15, April 15, July 15 and October 15 of each year. The Series C Preferred Stock paid dividends totaling $91,000 for the three months ended March 31, 2017.

Dividends from the Bank totaling $2.0 million provided additional liquidity for the Company during the three months ended March 31, 2017. As of March 31, 2017, the Bank had the ability to pay dividends to the Company of approximately $4.4 million without prior approval from its primary regulator. As a publicly traded company, the Company also has the ability, subject to market conditions, to issue additional shares of common stock and other securities to provide funds as needed for operations and future growth of the Company. The Company renewed a $75.0 million Universal Shelf Registration during the third quarter of 2015.

Capital

The Company and the Bank are required to maintain certain minimum capital levels. Risk-based capital requirements are intended to make regulatory capital more sensitive to the risk profile of an institution's assets. Effective January 1, 2015, the Company and the Bank adopted the Basel III rules which included new minimum risk-based and leverage ratios, and modified capital and asset definitions for purposes of calculating these ratios. These rules also created a new regulatory capital standard based on Tier 1 common equity and increased the minimum leverage and risk-based capital ratios applicable to all banking organizations.

In addition, the Basel III rules subject banking organizations to certain limitations on capital distributions and discretionary bonus payments to executive officers if the organization does not maintain a capital conservation buffer phased in by 2019 of 2.5% above the new regulatory minimum capital ratios. The effect of the capital conservation buffer once fully implemented in 2019 will be to increase the minimum common equity Tier 1 capital ratio to 7.0%, the minimum Tier 1 risk-based capital ratio to 8.5% and the minimum total risk-based capital ratio to 10.5% for banking organizations seeking to avoid the limitations on capital distributions and discretionary bonus payments to executive officers. The new minimum capital requirements were effective on January 1, 2015 for community banking organizations, such as MidSouth, whereas other requirements of the Basel III rules including the conservation buffer phase in over time.

At March 31, 2017, the Company and the Bank were in compliance with statutory minimum capital requirements and were classified as “well capitalized.” Minimum capital requirements include a total risk-based capital ratio of 8.0%, with Tier 1 capital not less than 6.0%, a Tier 1 leverage ratio (Tier 1 to total average adjusted assets) of 4.0% based upon the regulators latest composite rating of the institution, and a common equity Tier 1 capital to total risk-weighted assets of 4.5%. As of March 31, 2017, the Company’s Tier 1 leverage ratio was 10.27%, Tier 1 capital to risk-weighted assets was 13.14%, total capital to risk-weighted assets was 14.40% and common equity Tier 1 capital to risk-weighted assets was 8.91%. The Bank had a Tier 1 leverage capital ratio of 9.45% at March 31, 2017.

Asset Quality

Credit Risk Management

We manage credit risk primarily by observing written, board approved policies that govern all credit underwriting and approval activities. Our Chief Credit Officer (“CCO”) is responsible for credit underwriting as well as management of classified and criticized assets for the Bank. The role of the CCO includes on-going review and development of lending policies, commercial credit analysis, centralized consumer underwriting, and overall credit risk management procedures. The current risk management process requires that each individual loan officer review his or her portfolio on a quarterly basis and assign recommended credit ratings on each loan. These efforts are supplemented by independent reviews performed by the loan review officer and other validations performed by the internal audit department. The results of the reviews are reported directly to the Audit Committee of the Board of Directors. Historically, we have recognized and disclosed significant problem loans quickly and taken prompt action to address material weaknesses in those credits.

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Credit concentrations are monitored and reported quarterly whereby individual customer and aggregate industry leverage, profitability, risk rating distributions, and liquidity are evaluated for each major standard industry classification segment. At March 31, 2017, one industry segment concentration, the oil and gas industry, aggregated more than 10% of our loan portfolio. Our exposure in the oil and gas (energy-related) industry, including related service and manufacturing industries, totaled approximately $231.8 million, or 18.2% of total loans. Of the 375 credit relationships in the energy-related loan portfolio, 34 relationships totaling $105.2 million were classified with $27.0 million on nonaccrual status at March 31, 2017.

Additionally, we monitor our exposure to CRE loans. At March 31, 2017, CRE loans (including commercial construction and multifamily loans) totaled approximately $539.9 million, 48% of which are secured by owner-occupied commercial properties. Our non-owner occupied CRE loans as a percentage of our risk-based capital totaled 132% at March 31, 2017. A total of $20.6 million, or 3.8%, were on nonaccrual status at March 31, 2017. Additional information regarding credit quality by loan classification is provided in Note 3 – Credit Quality of Loans and Allowance for Loan Losses and Note 8 – Fair Value Measurement in the notes to the interim consolidated financial statements.

Nonperforming Assets and Allowance for Loan Loss

Table 8 summarizes the Company's nonperforming assets for the quarters ending March 31, 2017 and 2016, and December 31, 2016.



Table 8 Nonperforming Assets and Loans Past Due 90 Days or More and Still Accruing (in thousands)
	March 31, 2017			December 31, 2016			March 31, 2016
Nonaccrual loans	$	56,443		$	62,580		$	53,714
Loans past due 90 days and over and still accruing	775			268			258
Total nonperforming loans	57,218			62,848			53,972
Other real estate	1,643			2,175			3,908
Other foreclosed assets	30			16			265
Total nonperforming assets	$	58,891		$	65,039		$	58,145

Troubled debt restructurings, accruing	$	1,995		$	152		$	5,675

Nonperforming assets to total assets	3.04		%	3.35		%	3.03		%
Nonperforming assets to total loans + ORE + other assets repossessed	4.62		%	5.06		%	4.64		%
ALL to nonperforming loans	42.96		%	38.78		%	37.70		%
ALL to total loans	1.93		%	1.90		%	1.63		%

QTD charge-offs	$	2,906		$	1,835		$	1,594
QTD recoveries	312			339			130
QTD net charge-offs	$	2,594		$	1,496		$	1,464
Annualized net charge-offs to total loans	0.83		%	0.46		%	0.47		%

Nonperforming assets totaled $58.9 million at March 31, 2017, a decrease of $6.1 million from the $65.0 million reported at year-end 2016 and an increase of $746,000 from the $58.1 million reported at March 31, 2016. The decrease in the first three months of 2017 resulted primarily from the payoff of four relationships during the quarter that were on non-accrual at December 31, 2016 and totaled $9.6 million.

Allowance coverage for nonperforming loans was 42.96% at March 31, 2017 compared to 37.78% at December 31, 2016 and 37.70% at March 31, 2016. The ALL/total loans ratio increased to 1.93% at March 31, 2017, compared to 1.90% at year-end 2016 and 1.63% at March 31, 2016. Including valuation accounting adjustments on acquired loans, the total adjustments and ALL was 2.08% of loans at March 31, 2017. The ratio of annualized net charge-offs to total loans was 0.83% for the three months ended March 31, 2017, compared to 0.46% for the three months ended December 31, 2016, and 0.47% for the three months ended March 31, 2016. Energy-related charge-offs totaled $657,000 in the first three months of 2017.

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Total nonperforming assets to total loans plus ORE and other assets repossessed increased to 4.62% at March 31, 2017 from 5.06% at December 31, 2016 and 4.64% at March 31, 2016. Performing troubled debt restructurings (“TDRs”) totaled $2.0 million at March 31, 2017, compared to $152,000 at December 31, 2016 and $5.7 million at March 31, 2016. Classified assets, including ORE, increased $14.2 million, or 10.6%, to $148.4 million at March 31, 2017 compared to $134.2 million at December 31, 2016. The increase in classified assets during the quarter ended March 31, 2017 is primarily due to the downgrade of two energy-related credits totaling $22.2 million. Additional information regarding impaired loans is included in Note 3 – Credit Quality of Loans and Allowance for Loan Losses and Note 8 – Fair Value Measurement in the notes to the interim consolidated financial statements.

Quarterly evaluations of the allowance for loan losses are performed in accordance with GAAP and regulatory guidelines. The ALL is comprised of specific reserves assigned to each impaired loan for which a probable loss has been identified as well as general reserves to maintain the allowance at an acceptable level for other loans in the portfolio where historical loss experience is available that indicates certain probable losses may exist. Factors considered in determining provisions include estimated losses in significant 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. The processes by which we determine the appropriate level of the ALL, and the corresponding provision for probable credit losses, involves considerable judgment; therefore, no assurance can be given that future losses will not vary from current estimates. We believe the $24.6 million in the ALL as of March 31, 2017 is sufficient to cover probable losses in the loan portfolio.

Impact of Inflation and Changing Prices

The consolidated financial statements and notes thereto, presented herein, have been prepared in accordance with GAAP, which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of the Company’s operations. Unlike most industrial companies, nearly all the assets and liabilities of the Company are financial. As a result, interest rates have a greater impact on the Company’s performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

Non-GAAP Financial Measures

Certain financial information included in the Management’s Discussion and Analysis of Financial Condition and Results of Operations is determined by methods other than in accordance with GAAP. Table 9 below presents a reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures. These non-GAAP financial measures include “core net interest income” and “core net interest margin”. “Core net interest income” is defined as net interest income excluding net purchase accounting adjustments. “Core net interest margin” is defined as core net interest income expressed as a percentage of average earnings assets.

We use non-GAAP measures because we believe they are useful for evaluating our financial condition and performance over periods of time, as well as in managing and evaluating our business and in discussions about our performance. We also believe these non-GAAP financial measures provide users of our financial information with a meaningful measure for assessing our financial condition as well as comparison to financial results for prior periods. These results should not be viewed as a substitute for results determined in accordance with GAAP, and are not necessarily comparable to non-GAAP performance measures that other companies may use.

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Table 9 Reconciliation of Non-GAAP Financial Measures (in thousands except per share data)
		Three Months Ended March 31,
		2017			2016
Core Net Interest Margin

Net interest income (FTE)		$	18,279		$	18,368
Less purchase accounting adjustments		(274		)	(565		)
Core net interest income, net of purchase accounting adjustments	A	$	18,005		$	17,803

Total average earning assets		$	1,773,647		$	1,765,639
Add average balance of loan valuation discount		1,964			3,323
Average earnings assets, excluding loan valuation discount	B	$	1,775,611		$	1,768,962

Core net interest margin	A/B	4.11		%	4.05		%

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have been no significant changes from the information regarding market risk disclosed under the heading “Funding Sources - Interest Rate Sensitivity” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

Item 4. Controls and Procedures.

The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As of the end of the period covered by this Quarterly Report on Form 10-Q, the Chief Executive Officer and Chief Financial Officer have concluded that such disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission rules and forms.

During the first quarter of 2017, there was no change in the Company’s internal controls over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Part II – Other Information

Item 1. Legal Proceedings.

The Bank has been named as a defendant in various legal actions arising from normal business activities in which damages of various amounts are claimed. While the amount, if any, of ultimate liability with respect to such matters cannot be currently determined, management believes, after consulting with legal counsel, that any such liability will not have a material adverse effect on the Company’s consolidated financial position, results of operations, or cash flows. However, in the event of unexpected future developments in these matters, if the ultimate resolution of any such matter is unfavorable, the result may be material to the Company’s consolidated financial position, consolidated results of operations or consolidated cash flows.

Item 1A. Risk Factors.

There have been no material changes from the risk factors previously disclosed in our Form 10-K for the year ended December 31, 2016.

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

The Company did not sell any unregistered equity securities or repurchase any equity securities during the quarter ended March 31, 2017.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

None.

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Item 6. Exhibits.



Exhibit Number	Document Description

3.1	Amended and Restated Articles of Incorporation of MidSouth Bancorp, Inc. (restated solely for purposes of Item 601(b)(3) of Regulation S-K) (filed as Exhibit 3.1 to MidSouth's Annual Report on Form 10-K filed on March 18, 2013 and incorporated herein by reference).

3.2	Amended and Restated By-laws of MidSouth Bancorp, Inc. effective as of September 26, 2012 (restated solely for purposes of Item 601(b)(3) of Regulation S-K (filed as Exhibit 3.3 to MidSouth’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 and incorporated herein by reference).

10.1	MidSouth Bancorp, Inc. 2017 Annual Incentive Compensation Plan

10.2	Form of Performance-Based Restricted Stock Unit Grant Agreement

23.1	Consent of Porter Keadle Moore, LLC

31.1	Certification pursuant to Exchange Act Rules 13(a) – 14(a)

32.1	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101	The following financial information from the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2017, formatted in Extensible Business Reporting Language (“XBRL”): (i) Consolidated Statements of Operations, (ii) Consolidated Balance Sheets, (iii) Consolidated Statements of Cash Flows and (iv) Notes to Consolidated Financial Statements.*



*	Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not to be “filed” or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Act of 1934, as amended, and otherwise are not subject to liability under these sections.

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Signatures

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



	MidSouth Bancorp, Inc. (Registrant)

Date: May 8, 2017
	/s/ James R. McLemore
	James R. McLemore, President, CEO and CFO
	(Principal Executive Officer and Principal Financial Officer)

	/s/ Teri S. Stelly
	Teri S. Stelly, Controller (Principal Accounting Officer)

MIDSOUTH BANCORP INC - FORM 10-Q - May 8, 2017

Attached files

MIDSOUTH BANCORP INC Reports