UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM ~~10-Q/A~~10-Q

~~Amendment No.1~~



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, ~~2018~~2019



☐	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)

Securities registered pursuant to Section 12(b) of the Act



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.10 par value	MSL	New York Stock Exchange

Indicate by checkmark whether the registrant: (1) has filed all reports required to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES ☒x NO ☐

Indicate by check mark whether the registrant has submitted electronically ~~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 ☒x NO ☐

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



☐Large accelerated filer	☒x Accelerated filer	☐Non-accelerated filer	☐x Smaller reporting company	☐Emerging growth company

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)

YES ☐ NO ☒x

As of August ~~9, 2018,~~6, 2019, there were ~~16,639,650~~16,732,149 shares of the registrant’s Common Stock, par value $0.10 per share, outstanding.

~~EXPLANATORY NOTE~~

We are filing this Amendment No. 1 on Form 10-Q/A to amend and restate in their entirety the following items of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2018 as originally filed with the Securities and Exchange Commission on August 9, 2018 (the “Original Form 10-Q”): (i) Item 2 of Part I, “Management’s Discussion and Analysis of Financial Condition and Results of Operations," (ii) “Exhibits,” and we have also updated the signature page, the certifications of our Chief Executive Officer and Chief Financial Officer in Exhibits 31.1, 31.2, 32.1 and 32.2, and our financial statements formatted in Extensible Business Reporting Language (XBRL) in Exhibits 101. No other sections were affected, but for the convenience of the reader, this report on Form 10-Q/A restates in its entirety, as amended, our Original Form 10-Q. This report on Form 10-Q/A is presented as of the filing date of the Original Form 10-Q and does not reflect events occurring after that date, or modify or update disclosures in any way other than as required to reflect the restatement described below.

We have determined that our previously reported Subsequent Event for the quarter ended June 30, 2018 erroneously stated the reduction of energy loans as a percentage of total loans from 14.5% to 1.38%, and should have stated a reduction of energy loans as a percentage of total loans from 14.5% to 13.8%. We have made necessary changes in Item 2 of Part I, “Management’s Discussion and Analysis of Financial Condition and Results of Operations," Subsequent Events for the correction of this error.



Part I – Financial Information		34
	Item 1. Financial Statements	34
	Consolidated Balance Sheets	35
	Consolidated Statements of Operations (unaudited)	46
	Consolidated Statements of Comprehensive ~~Loss~~Income (Loss) (unaudited)	57
	Consolidated Statement of Shareholders’ Equity (unaudited)	68
	Consolidated Statements of Cash Flows (unaudited)	710
	Notes to Interim Consolidated Financial Statements	811
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation.	3033
	Forward-Looking Statements	3134
	Critical Accounting Policies	3236
	Results of Operations	3237
	~~Analysis of~~ Balance Sheet Review	4044
	Liquidity and Capital	4145
	Asset Quality	4347
	Non-GAAP Financial Measures	50
	Item 3. Quantitative and Qualitative Disclosures About Market Risk.	4751
	Item 4. Controls and Procedures.	4752
Part II – Other Information		4854
	Item 1. Legal Proceedings.	4854
	Item 1A. Risk Factors.	4854
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	4855
	Item 3. Defaults Upon Senior Securities.	4855
	Item 4. Mine Safety Disclosures.	4855
	Item 5. Other Information.	4856
	Item 6. Exhibits.	4956

Part I – Financial Information

Item 1. Financial Statements.


MidSouth Bancorp, Inc. and Subsidiaries Consolidated Balance Sheets (dollars in thousands, except share data)
MidSouth Bancorp, Inc. and Subsidiaries Consolidated Balance Sheets (dollars in thousands, except share and per share amounts)							MidSouth Bancorp, Inc. and Subsidiaries Consolidated Balance Sheets (dollars in thousands, except share and per share amounts)
								June 30, 2019			December 31, 2018
	June 30, 2018 (unaudited)			December 31, 2017 (audited)				(unaudited)			(audited)
Assets
Cash and due from banks, including required reserves of $10,470 and $6,741, respectively	$	31,145		$	34,775
Cash and due from banks								$	20,175		$	27,701
Interest-bearing deposits in banks	241,492			114,839				207,902			174,909
Federal funds sold	6,139			3,350				4,375			2,761
Securities available-for-sale, at fair value (cost of $317,251 at June 30, 2018 and $312,584 at December 31, 2017)	308,937			309,191
Securities held-to-maturity (fair value of $66,758 at June 30, 2018 and $80,920 at December 31, 2017)	67,777			81,052
Securities available-for-sale, at fair value (cost $421,482 and $443,928)								425,638			437,754
Securities held-to-maturity, (fair value $33,363 and $36,974)								33,219			37,759
Total securities								458,857			475,513
Other investments	14,927			12,214				18,261			16,614
Loans held for sale	—			15,737				10,304			23,876
Loans	1,057,963			1,183,426				880,037			899,785
Allowance for loan losses	(23,514		)	(26,888		)		(28,129		)	(17,430		)
Loans, net	1,034,449			1,156,538				851,908			882,355
Bank premises and equipment, net	56,834			59,057				54,221			55,382
Accrued interest receivable	7,131			8,283
Goodwill	42,171			42,171
Intangibles	2,962			3,515
Operating lease right-of-use assets								7,865			—
Goodwill and Intangibles								44,026			44,580
Cash surrender value of life insurance	15,002			14,896				15,248			15,135
Other real estate	1,365			2,001				387			1,067
Assets held for sale	3,995			3,995
Other assets	24,591			19,538				21,577			23,505
Total assets	$	1,858,917		$	1,881,152
Total Assets								1,715,106			1,743,398

Liabilities and Shareholders’ Equity
Liabilities:
Deposits:
Non-interest-bearing	$	419,517		$	416,547
Noninterest-bearing								$	399,619		$	383,167
Interest-bearing	1,103,503			1,063,142				1,023,770			1,068,904
Total deposits	1,523,020			1,479,689				1,423,389			1,452,071
Securities sold under agreements to repurchase	14,886			67,133				5,456			11,220
Short-term Federal Home Loan Bank advances	27,500			40,000
Long-term Federal Home Loan Bank advances	10,011			10,021
Operating lease liability								7,816			—
Federal Home Loan Bank advances								27,500			27,500
Junior subordinated debentures	22,167			22,167				22,167			22,167
Other liabilities	12,661			8,127				7,786			8,450
Total liabilities	1,610,245			1,627,137				1,494,114			1,521,408
Commitments and contingencies

Shareholders’ equity:
Series B Preferred stock, no par value; 5,000,000 shares authorized, 32,000 shares issued and outstanding at June 30, 2018 and December 31, 2017	32,000			32,000
Series C Preferred stock, no par value; 100,000 shares authorized, 89,875 shares issued and outstanding at June 30, 2018 and December 31, 2017	8,987			8,987
Common stock, $0.10 par value; 30,000,000 shares authorized, 16,619,894 and 16,548,829 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively	1,662			1,655
Series B Preferred stock, no par value; 5,000,000 shares authorized, 32,000 shares issued and outstanding, respectively								32,000			32,000
Series C Preferred stock, $10 par value; 100,000 shares authorized, 89,721 and 89,721 shares issued and outstanding, respectively								8,972			8,972
Common stock, $0.10 par value; 30,000,000 shares authorized, 16,733,569 and 16,641,017 shares issued and outstanding, respectively								1,671			1,664
Additional paid-in capital	168,863			168,412				169,147			169,111
Unearned ESOP shares	(876		)	(937		)
Accumulated other comprehensive loss	(5,400		)	(1,828		)
Accumulated other comprehensive income (loss)								5,610			(4,035		)
Retained earnings	43,436			45,726				3,592			14,278
Total shareholders’ equity	248,672			254,015				220,992			221,990
Total liabilities and shareholders’ equity	$	1,858,917		$	1,881,152			$	1,715,106		$	1,743,398

See notes to unaudited consolidated financial statements.



MidSouth Bancorp, Inc. and Subsidiaries Consolidated Statements of Operations (unaudited) (dollars in thousands, except per share amounts)
	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Interest income:
Loans, including fees	$	13,023		$	15,344		$	26,010		$	31,359
Securities and other investments:
Taxable	3,100			2,093			6,170			4,140
Nontaxable	160			277			416			593
Interest bearing deposits in other banks	1,663			1,025			2,795			1,644
Total interest income	17,946			18,739			35,391			37,736

Interest expense:
Deposits	1,665			1,410			3,345			2,647
Securities sold under agreements to repurchase	9			25			23			66
Federal Home Loan Bank advances	74			120			155			249
Junior subordinated debentures	283			259			570			479
Total interest expense	2,031			1,814			4,093			3,441

Net interest income	15,915			16,925			31,298			34,295
Provision for loan losses	4,759			440			12,359			440
Net interest income after provision for loan losses	11,156			16,485			18,939			33,855

Non-interest income:
Service charges on deposits	1,854			2,065			3,647			4,271
ATM and debit card income	2,044			1,877			3,969			3,661
Credit card income	425			381			946			752
Gain on sale of securities, net	202			—			575			—
Gain on sale of loans, net	—			—			1,274			—
Other charges and fees	265			559			652			1,027
Total non-interest income	4,790			4,882			11,063			9,711

Non-interest expenses:
Salaries and employee benefits	8,940			7,916			18,638			15,635
Occupancy expense	2,962			3,193			6,269			6,238
ATM and debit card expense	682			648			1,306			1,224
Data processing	853			666			1,701			1,331
Regulatory remediation expense	—			5,323			—			9,249
Merger-related expense	1,149			—			1,149			—
Legal and professional fees	1,163			1,100			3,046			2,789
Loss on transfer of loans to held for sale	—			8			—			883
Other	3,100			3,419			6,626			6,796
Total non-interest expenses	18,849			22,273			38,735			44,145

Loss before income tax benefit	(2,903		)	(906		)	(8,733		)	(579		)
Income tax benefit	—			(237		)	—			(271		)
Net loss	(2,903		)	(669		)	(8,733		)	(308		)
Dividends on preferred stock	810			810			1,620			1,620
Net loss available to common shareholders	$	(3,713	)	$	(1,479	)	$	(10,353	)	$	(1,928	)

Basic loss per common share	$	(0.22	)	$	(0.09	)	$	(0.62	)	$	(0.12	)
Diluted loss per common share	$	(0.22	)	$	(0.09	)	$	(0.62	)	$	(0.12	)
Weighted average number of shares outstanding:
Basic	16,724			16,526			16,699			16,511
Diluted	16,724			16,529			16,699			16,514
Dividends declared per common share	$	0.01		$	0.01		$	0.02		$	0.02

See notes to unaudited consolidated financial statements.

MidSouth Bancorp, Inc. and Subsidiaries
Consolidated Statements of Operations (unaudited)
(in thousands, except share and per share data)

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Interest income:
Loans, including fees $ 15,344
$ 16,731
$ 31,359
$ 33,353
Securities and other investments:
Taxable 2,093
2,416
4,140
4,743
Nontaxable 277
374
593
781
Federal funds sold 21
9
39
15
Time and interest bearing deposits in other banks 912
150
1,426
235
Other investments 92
78
179
162
Total interest income 18,739
19,758
37,736
39,289

Interest expense:

Deposits 1,410
973
2,647
1,908
Securities sold under agreements to repurchase 25
236
66
470
Short-term FHLB advances 75
—
159
—
Long-term FHLB advances 45
91
90
179
Junior subordinated debentures 259
212
479
420
Total interest expense 1,814
1,512
3,441
2,977

Net interest income 16,925
18,246
34,295
36,312
Provision for loan losses 440
12,500
440
15,300
Net interest income after provision for loan losses 16,485
5,746
33,855
21,012

Non-interest income:

Service charges on deposits 2,065
2,396
4,271
4,876
Gain on sale of securities, net —
3
—
9
Loss on equity securities, other investments (51 ) —
(51 ) —
ATM and debit card income 1,877
1,766
3,661
3,469
Other charges and fees 991
1,058
1,830
1,913
Total non-interest income 4,882
5,223
9,711
10,267

Non-interest expenses:

Salaries and employee benefits 7,916
9,451
15,635
18,140
Occupancy expense 3,193
4,189
6,238
7,813
ATM and debit card expense 648
713
1,223
1,434
Data processing 666
667
1,331
1,288
FDIC insurance 507
430
937
827
Legal and professional fees 1,100
936
2,789
1,321
Loss on transfer of loans to held for sale 8
—
883
—
Other 8,235
3,218
15,109
6,011
Total non-interest expenses 22,273
19,604
44,145
36,834
Income before income tax benefit (906 ) (8,635 ) (579 ) (5,555 )
Loss tax benefit (237 ) (3,221 ) (271 ) (2,632 )

Net loss (669 ) (5,414 ) (308 ) (2,923 )
Dividends on preferred stock 810
811
1,620
1,622
Net loss available to common shareholders $ (1,479 ) $ (6,225 ) $ (1,928 ) $ (4,545 )
Loss per share:

Basic $ (0.09 ) $ (0.51 ) $ (0.12 ) $ (0.39 )
Diluted $ (0.09 ) $ (0.51 ) $ (0.12 ) $ (0.39 )
Weighted average number of shares outstanding:

Basic 16,526
12,227
16,511
11,749
Diluted 16,529
12,237
16,514
11,762
Dividends declared per common share $ 0.01
$ 0.09
$ 0.02
$ 0.18



MidSouth Bancorp, Inc. and Subsidiaries Consolidated Statements of Comprehensive Income (Loss) (unaudited) (dollars in thousands)
	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Net loss	$	(2,903	)	$	(669	)	$	(8,733	)	$	(308	)
Other comprehensive (loss) income, net of tax:
Unrealized gain (loss) on securities available-for-sale:
Unrealized holding gains (losses) arising during the year	4,428			(873		)	10,905			(4,922		)
Less: reclassification adjustment for net gain on sales of securities available- for-sale	(202		)	—			(575		)	—
Net change in unrealized gains (loss) on securities available-for-sale	4,226			(873		)	10,330			(4,922		)
Unrealized (losses) gain on derivative instruments designated as cash flow hedges:
Unrealized holding (losses) gains on derivatives arising during the period	(423		)	89			(685		)	400
Net change in unrealized (losses) gain on derivative instruments	(423		)	89			(685		)	400
Total other comprehensive income (loss), before tax	3,803			(784		)	9,645			(4,522		)
Income tax effect related to items of other comprehensive income (loss)	—			165			—			950
Total other comprehensive income (loss), net of tax	3,803			(619		)	9,645			(3,572		)
Total comprehensive income (loss)	$	900		$	(1,288	)	$	912		$	(3,880	)

See notes to unaudited consolidated financial statements.

MidSouth Bancorp, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Loss (unaudited)
(in thousands)

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Net loss $ (669 ) $ (5,414 ) $ (308 ) $ (2,923 )
Other comprehensive (loss) income, net of tax:

Unrealized (losses) gains on securities available-for-sale:

Unrealized holding (loss) gains arising during the year (873 ) 2,739
(4,922 ) 3,559
Less: reclassification adjustment for gains on sales of securities available-for-sale —
(3 ) —
(9 )
Net change in unrealized (loss) gains on securities available-for-sale (873 ) 2,736
(4,922 ) 3,550
Unrealized (loss) gain on derivative instruments designated as cash flow hedges:
Unrealized holding gains on derivatives arising during the period 152
(136 ) 502
(123 )
Less: reclassification adjustment for gains on derivative instruments (63 ) —
(102 ) —
Net change in unrealized gain on derivative instruments 89
(136 ) 400
(123 )
Total other comprehensive (loss) income, before tax (784 ) 2,600
(4,522 ) 3,427
Income tax effect related to items of other comprehensive (loss) income 165
(910 ) 950
(1,200 )
Total other comprehensive (loss) income, net of tax (619 ) 1,690
(3,572 ) 2,227
Total comprehensive loss $ (1,288 ) $ (3,724 ) $ (3,880 ) $ (696 )

~~See notes to unaudited consolidated financial statements.~~

MidSouth Bancorp, Inc. and Subsidiaries
Consolidated Statement of Shareholders’ Equity (unaudited)
For the Six Months Ended June 30, 2018
(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 Total
Balance - December 31, 2017 121,875
$ 40,987
16,548,829
$ 1,655
$ 168,412
$ (937 ) $ (1,828 ) $ 45,726
$ 254,015
Cumulative-effect adjustment due to the adoption of ASU 2016-01 —
—
—
—
—
—
31
(31 ) —
Net loss —
—
—
—
—
—
—
(308 ) (308 )
Dividends on Series B and Series C preferred stock —
—
—
—
—
—
—
(1,621 ) (1,621 )
Dividends on common stock, $0.02 per share —
—
—
—
—
—
—
(330 ) (330 )
Restricted stock grant —
—
66,335
7
(7 ) —
—
—
—
Restricted stock forfeitures —
—
(37,775 ) (4 ) 4
—
—
—
—
ESOP shares released for allocation —
—
—
—
—
61
—
—
61
ESOP compensation expense —
—
—
—
20
—
—
—
20
Exercise of stock options —
—
42,505
4
547
—
—
—
551
Stock option and restricted stock compensation expense —
—
—
—
(113 ) —
—
—
(113 )
Change in accumulated other comprehensive loss —
—
—
—
—
—
(3,603 ) —
(3,603 )
Balance – June 30, 2018 121,875
$ 40,987
16,619,894
$ 1,662
$ 168,863
$ (876 ) $ (5,400 ) $ 43,436
$ 248,672



MidSouth Bancorp, Inc. and Subsidiaries Consolidated Statement of Shareholders’ Equity (unaudited) (dollars in thousands, except per share amounts)
	Preferred Stock			Common Stock				Additional Paid-in Capital			Accumulated Other Comprehensive (Loss) Income			Retained Earnings
	Shares	Amount		Shares		Amount		Additional Paid-in Capital			Accumulated Other Comprehensive (Loss) Income			Retained Earnings			Total
Balance - December 31, 2018	121,721	$	40,972	16,641,017		$	1,664	$	169,111		$	(4,035	)	$	14,278		$	221,990
Net loss	—	—		—		—		—			—			(8,733		)	(8,733		)
Dividends on Series B and Series C preferred stock	—	—		—		—		—			—			(1,620		)	(1,620		)
Dividends on common stock, $0.02 per share	—	—		—		—		—			—			(333		)	(333		)
Restricted stock grant	—	—		97,602		7		(7		)	—			—			—
Restricted stock forfeitures	—	—		(5,050	)	—		—			—			—			—
Stock option and restricted stock compensation expense	—	—		—		—		43			—			—			43
Change in accumulated other comprehensive income	—	—		—		—		—			9,645			—			9,645
Balance – June 30, 2019	121,721	$	40,972	16,733,569		$	1,671	$	169,147		$	5,610		$	3,592		$	220,992

Balance - March 31, 2019	121,721	$	40,972	16,715,671		$	1,671	$	169,244		$	1,807		$	7,472		$	221,166
Net earnings	—	—		—		—		—			—			(2,903		)	(2,903		)
Dividends on Series B and Series C preferred stock	—	—		—		—		—			—			(810		)	(810		)
Dividends on common stock, $0.01 per share	—	—		—		—		—			—			(167		)	(167		)
Restricted stock grant	—	—		19,898		—		—			—			—			—
Restricted stock forfeitures	—	—		(2,000	)	—		—			—			—			—
Stock option and restricted stock compensation expense	—	—		—		—		(97		)	—			—			(97		)
Change in accumulated other comprehensive income	—	—		—		—		—			3,803			—			3,803
Balance – June 30, 2019	121,721	$	40,972	16,733,569		$	1,671	$	169,147		$	5,610		$	3,592		$	220,992

See notes to unaudited consolidated financial statements.

MidSouth Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (unaudited)
(in thousands)
For the Six Months Ended June 30,
2018 2017
Cash flows from operating activities:
Net loss $ (308 ) $ (2,923 )
Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation 2,368
2,933
Accretion of purchase accounting adjustments 340
(101 )
Provision for loan losses 440
15,300
Deferred tax expense (benefit) 8
(1,057 )
Amortization of premiums on securities, net 1,457
1,390
Stock-based compensation expense (113 ) 66
Net excess tax benefit from stock-based compensation 49
(357 )
ESOP compensation expense 20
50
Net gain on sale of investment securities —
(9 )
Loss on mutual fund 51
—
Proceeds from sale of loans held for sale 15,623
—
Net loss on sale of other real estate owned 1
4
Net write down of other real estate owned 146
83
Write down of assets held for sale —
570
Loss on transfer of loans to held for sale 883
—
Net loss on sale/disposal of premises and equipment 67
12
Change in accrued interest receivable 1,152
364
Change in accrued interest payable (42 ) 3
Change in other assets & other liabilities, net 718
(2,874 )
Net cash provided by operating activities 22,860
13,454

Cash flows from investing activities:

Proceeds from maturities and calls of securities available-for-sale 24,297
28,100
Proceeds from maturities and calls of securities held-to-maturity 12,875
9,431
Proceeds from sale of securities available-for-sale 410
6,965
Proceeds from sale of security held-to-maturity —
887
Purchases of securities available-for-sale (32,532 ) (39,172 )
Proceeds from sale of other investments —
57
Purchases of other investments (703 ) (368 )
Net change in loans 121,129
28,616
Purchases of premises and equipment (693 ) (1,662 )
Proceeds from sale of premises and equipment 481
249
Proceeds from sale of other real estate owned 504
1,611
Net cash provided by investing activities 125,768
34,714

Cash flows from financing activities:

Change in deposits 43,331
(43,210 )
Change in securities sold under agreements to repurchase (52,247 ) (3,662 )
Borrowings on Federal Home Loan Bank advances 165,000
—
Repayments of Federal Home Loan Bank advances (177,500 ) (35 )
Proceeds from exercise of stock options 551
266
Proceeds from issuance of common stock —
51,975
Stock offering expenses —
(622 )
Payment of dividends on preferred stock (1,621 ) (1,622 )
Payment of dividends on common stock (330 ) (2,049 )
Net cash used by financing activities (22,816 ) 1,041

Net increase (decrease) in cash and cash equivalents 125,812
49,209
Cash and cash equivalents, beginning of period 152,964
82,228
Cash and cash equivalents, end of period $ 278,776
$ 131,437

Supplemental cash flow information:

Interest paid $ 3,482
$ 2,975
Income taxes paid —
2,500
Noncash investing and financing activities:

Transfer of loans to other real estate 15
910
Transfer of loans to held for sale 221
—
Change in accrued common stock dividends 1
418
Change in unrealized gains/losses on securities available-for-sale, net of tax (3,918 ) 2,307
Change in unrealized gains on derivative instruments, net of tax 315
(80 )
Cumulative-effect adjustment to retained earnings due to ASU 2016-01, net of tax 31
—
Net change in loan to ESOP 61
219



MidSouth Bancorp, Inc. and Subsidiaries Consolidated Statement of Shareholders’ Equity (unaudited) (dollars in thousands, except per share amounts)
	Preferred Stock			Common Stock					Additional Paid-in Capital			Unearned ESOP Shares			Accumulated Other Comprehensive Loss			Retained Earnings
	Shares	Amount		Shares		Amount			Additional Paid-in Capital			Unearned ESOP Shares			Accumulated Other Comprehensive Loss			Retained Earnings			Total
Balance - December 31, 2017	121,875	$	40,987	16,548,829		$	1,655		$	168,412		$	(937	)	$	(1,828	)	$	45,726		$	254,015
Cumulative-effect adjustment due to the adoption of ASU 2016-01	—	—		—		—			—			—			31			(31		)	—
Net loss	—	—		—		—			—			—			—			(308		)	(308		)
Dividends on Series B and Series C preferred stock	—	—		—		—			—			—			—			(1,621		)	(1,621		)
Dividends on common stock, $0.02 per share	—	—		—		—			—			—			—			(330		)	(330		)
Restricted stock grant	—	—		66,335		7			(7		)	—			—			—			—
Restricted stock forfeitures	—	—		(37,775	)	(4		)	4			—			—			—			—
ESOP shares released for allocation	—	—		—		—			—			61			—			—			61
Exercise of stock options	—	—		42,505		4			547			—			—			—			551
ESOP compensation expense	—	—		—		—			20			—			—			—			20
Stock option and restricted stock compensation expense	—	—		—		—			(113		)	—			—			—			(113		)
Change in accumulated other comprehensive income	—	—		—		—			—			—			(3,603		)	—			(3,603		)
Balance – June 30, 2018	121,875	$	40,987	16,619,894		$	1,662		$	168,863		$	(876	)	$	(5,400	)	$	43,436		$	248,672

Balance - March 31, 2018	121,875	$	40,987	16,621,811		$	1,662		$	168,765		$	(906	)	$	(4,782	)	$	45,111		$	250,837
Cumulative-effect adjustment due to the adoption of ASU 2016-01	—	—		—		—			—			—			31			(31		)	—
Net loss	—	—		—		—			—			—			—			(669		)	(669		)
Dividends on Series B and Series C preferred stock	—	—		—		—			—			—			—			(810		)	(810		)
Dividends on common stock, $0.01 per share	—	—		—		—			—			—			—			(165		)	(165		)
Restricted stock grant	—	—		14,057		2			(2		)	—			—			—			—
Restricted stock forfeitures	—	—		(25,400	)	(3		)	3			—			—			—			—
ESOP shares released for allocation	—	—		—		—			—			30			—			—			30
Exercise of stock options	—	—		9,426		1			121			—			—			—			122
ESOP compensation expense	—	—		—		—			10			—			—			—			10
Stock option and restricted stock compensation expense	—	—		—		—			(34		)	—			—			—			(34		)
Change in accumulated other comprehensive income	—	—		—		—			—			—			(649		)	—			(649		)
Balance – June 30, 2018	121,875	$	40,987	16,619,894		$	1,662		$	168,863		$	(876	)	$	(5,400	)	$	43,436		$	248,672

See notes to unaudited consolidated financial statements.



MidSouth Bancorp, Inc. and Subsidiaries Consolidated Statements of Cash Flows (unaudited) (dollars in thousands)
	For the Six Months Ended June 30,
	2019			2018
Cash flows from operating activities:
Net loss	$	(8,733	)	$	(308	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation	3,772			4,165
Provision for loan losses	12,359			440
Deferred tax expense	—			8
ESOP and stock-based compensation expense	43			(44		)
Net gain on sale of investment securities	(575		)	—
Gain on sale of loans held for sale	(1,274		)	—
Proceeds from sale of loans held for sale	20,656			15,623
Net loss on sale of other real estate owned	37			1
Net write down of other real estate owned	116			146
Loss on transfer of loans to held for sale	—			883
Net loss on sale/disposal of premises and equipment	191			67
Change in other assets	(6,735		)	(2,523		)
Change in other liabilities	7,152			4,402
Net cash provided by operating activities	27,009			22,860

Cash flows from investing activities:
Proceeds from maturities and calls of securities available-for-sale	32,759			24,297
Proceeds from maturities and calls of securities held-to-maturity	4,504			12,875
Proceeds from sale of securities available-for-sale	56,286			410
Purchases of securities available-for-sale	(67,114		)	(32,532		)
Purchases of other investments	(1,647		)	(703		)
Net change in loans	12,278			121,129
Purchases of premises and equipment	(1,303		)	(693		)
Proceeds from sale of premises and equipment	181			481
Proceeds from sale of other real estate owned	527			504
Net cash provided by investing activities	36,471			125,768

Cash flows from financing activities:
Change in deposits	(28,682		)	43,331
Change in securities sold under agreements to repurchase	(5,764		)	(52,247		)
Borrowings from FHLB	110,000			165,000
Repayments to FHLB	(110,000		)	(177,500		)
Proceeds from exercise of stock options	—			551
Payment of dividends on preferred stock	(1,620		)	(1,621		)
Payment of dividends on common stock	(333		)	(330		)
Net cash used by financing activities	(36,399		)	(22,816		)

Net increase in cash and cash equivalents	27,081			125,812
Cash and cash equivalents, beginning of period	205,371			152,964
Cash and cash equivalents, end of period	$	232,452		$	278,776

Supplemental cash flow information:
Interest paid	$	4,065		$	3,482
Noncash investing and financing activities:
Transfer of loans to held for sale	5,810			221

See notes to unaudited consolidated financial statements.

MidSouth Bancorp, Inc. and Subsidiaries

Notes to Interim Consolidated Financial Statements

June 30, ~~2018~~

2019

(Unaudited)

~~1. Basis~~NOTE 1: BASIS OF PRESENTATION

Overview

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

The accompanying unaudited consolidated financial statements ~~and notes thereto contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly,~~for the Company have been prepared in accordance with accounting principles generally accepted in the United States of America ~~(“GAAP”~~("GAAP"), for interim financial information. Accordingly, the financial statements do not include all of the information and footnotes required by GAAP for complete financial statement presentation. The interim consolidated financial statements included herein are unaudited, but reflect all adjustments, consisting of normal and recurring items, which, in the opinion of management, are necessary for fair presentation of the consolidated financial position and result of ~~MidSouth Bancorp, Inc. (the “Company”)~~operations for the interim period presented. All significant intercompany accounts and ~~its subsidiaries as~~transactions have been eliminated in consolidation. The results of operations for the three and six-month period ended June 30, ~~2018 and~~2019 are not necessarily indicative of the results ~~of their operations and their cash flows~~expected for the ~~periods presented. The interim~~full year. These financial ~~information~~statements should be read in conjunction with the ~~annual consolidated~~ financial statements and ~~the~~ notes thereto and the report of our independent registered public accounting firm included in the Company’s ~~2017~~ Annual Report on Form ~~10-K.~~10-K for the year ended December 31, 2018.

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

Proposed Merger with Hancock Whitney Corporation

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

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

Accounting Standards Adopted in 2019

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

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This guidance was further modified in November 2018 by ASU No. 2018–19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses. The new guidance replaces the incurred loss impairment methodology in current GAAP with an expected credit loss methodology and requires consideration of a broader range of information to determine credit loss estimates. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. Purchased credit impaired loans will receive an allowance account at the acquisition date that represents a component of the purchase price allocation. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses, with such allowance limited to the amount by which fair value is below amortized cost. Application of this update will primarily be on a modified retrospective approach, although the guidance for debt securities for which an other-than-temporary impairment has been recognized before the effective date and for loans previously covered by ASC 310-30, Receivables - Loans and Debt Securities Acquired with Deteriorated Credit Quality will be applied on a prospective basis. For public entities, this update is effective for fiscal years beginning after December 15, 2019. Upon adoption, the Company expects that the allowance for credit losses will be higher given the change to estimated losses for the ~~six-month period ended June 30, 2018 are not necessarily indicative~~estimated life of the ~~results to be expected for~~financial asset, however management is still in the ~~entire year.~~

~~Use~~process of ~~Estimates~~ ~~— The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect~~determining the ~~reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date~~potential magnitude of the ~~consolidated financial statements~~increase. Management has formed a steering committee and has completed a gap assessment that became the ~~reported amounts of revenues~~basis for a full project plan. In addition, management has selected a vendor model and ~~expenses during~~begun the ~~reported period. Actual results could differ from those estimates.~~

~~Summary of Significant Accounting Policies~~ ~~— The accounting and reporting policies~~implementation phase of the project plan. The Company ~~conform with GAAP~~is implementing a new software program to ensure it is prepared for implementation by the effective date. At the FASB's July 17, 2019, public meeting, the FASB tentatively decided to delay the effective dates for Small Reporting Companies as defined by the Securities and ~~general practices within~~Exchange Commission. This decision is subject to public comment and a final determination. As such, 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 methodologiesCompany expects that ~~we believe~~it could be eligible to ~~be Critical Accounting Policies and Estimates as disclosed in our 2017 Annual Report on Form 10-K.~~delay implementation until January 2023.

~~Recent Accounting Pronouncements~~ — In ~~May~~June 2018, the FASB issued ASU ~~2018-06, Codification Improvements to Topic 942, Financial Services - Depository~~No. 2018-08, Not for Profit Entities (Topic 958): Clarifying the Scope and ~~Lending. ASU 2018-06 removes outdated~~the Accounting Guidance for Contributions Received and Contributions Made. This update clarifies the guidance ~~related to Circular 202 because that~~about whether a transfer of assets (or the reduction, settlement or cancellation of liabilities) is a contribution or an exchange transaction. In addition, the guidance ~~has been rescinded by~~clarifies the ~~Office~~determination of ~~the Comptroller of the Currency. The amendments in~~whether a transaction is conditional. For public entities, this update ~~are~~is effective ~~upon issuance. The adoption of this ASU did not~~

~~have a material effect on the Company’s financial position, result of operations or cash flows.~~

~~ASU 2018-03, Technical Corrections and Improvements to Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities~~ ~~was issued to clarify certain aspects of the guidance on recognizing and measuring financial assets and liabilities~~for contributions made in ~~ASU 2016-01:~~

~~Clarification regarding the ability to discontinue application of the measurement alternative for equity securities without a readily determinable fair value~~

~~Clarification of the measurement date for fair value adjustments to the carrying amount of equity securities without a readily determinable fair value for which the measurement alternative is elected~~

Clarification of the unit of account for fair value adjustments to forward contracts and purchased options on equity securities without a readily determinable fair value for which the measurement alternative is expected to be elected

~~Presentation requirements for certain hybrid financial liabilities for which the fair value option is elected~~

~~Measurement of financial liabilities denominated in a foreign currency for which the fair value option is elected~~

~~Transition guidance for equity securities without a readily determinable fair value~~

~~The effective date of this Update is for fiscal years beginning on or after December 15, 2017 and for interim periods within those~~ fiscal years beginning after ~~June~~December 15, 2018. ~~Public business entities with fiscal years beginning between December 15, 2017 and June 15, 2018 are~~The Company does not ~~required to adopt~~expect the ~~amendments until interim periods beginning after June 15, 2018. Adoption of this Update is not expected~~new guidance to have a material ~~effect~~impact on the ~~Company's~~consolidated financial ~~position, results of operations or its financial statement disclosures.~~

~~Adoption of New Accounting Standards~~ statements.—~~ASU 2016-01, Financial Statements - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities~~ was issued in January 2016 to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This standard impacts how the Company measures certain equity investments and discloses and presents certain financial instruments through the application of the “exit price” notion. The Company adopted the amendments beginning January 1, 2018. Under the new guidance, equity investments can no longer be classified as trading or available for sale (AFS), and related unrealized holding gains and losses can no longer be recognized in OCI. Per the ASU, such equity investments should be measured at fair value, with adjustments recognized in earnings at the end of each reporting period. As such, the Company reclassified its portfolio of equity investments (approximately $2.0 million at March 31, 2018) previously classified as AFS investment securities to “other investments.” As these equity investments were previously measured at fair value, implementation of the ASU did not impact the Company’s valuation method. In accordance with the ASU, the cumulative-effect adjustment from AOCI to retained earnings for previously recorded fair value adjustments related to these equity investments at adoption was immaterial. The

Company elected the practical expedient measurement alternative to prospectively account for other equity investments that do not have readily determinable fair values at cost less impairment plus or minus observable price changes in orderly transactions for an identical or similar investment of the same issuer. These investments are immaterial overall and are classified within “other investments” on the Company’s consolidated balance sheets.

In ~~May 2014,~~August 2018, the FASB issued ASU No. 2018-13,~~ASU 2014-09~~ Fair Value Measurement (Topic 820): Disclosure Framework - ~~Revenue from Contracts with Customers~~Changes to the Disclosure Requirements for Fair Value Measurement~~, which created a new principle-based framework~~. The update removes disclosures that are no longer considered cost beneficial, modifies certain requirements of disclosures, and adds disclosure requirements identified as relevant. For public entities, this guidance is effective for fiscal years ending after December 15, 2019 and, depending on the provision, requires either prospective or retrospective application to ~~determine when and how an entity recognizes revenue from its customer contracts. FASB has established a core principle for recognizing revenue within~~prior periods presented. The Company does not expect the new ~~rules, which states that revenue should only be recorded when services are provided or goods are transferred~~guidance to ~~customers at~~have a material impact on the ~~agreed price. The majority of our revenue-generating transactions are not subject to ASC Topic 606, including revenue generated from~~consolidated financial instruments, such as our loans, letters of credit and investment securities, as these activities are subject to other GAAP discussed elsewhere within our disclosures. Description of our revenue-generating activities that are within the scope of ASC Topic 606, which are presented in our income statements as components of non-interest income are as follows:statements.

Service charges on deposits - We collect service charges on most of our non-maturity deposits accounts on a monthly basis. Our fee earned is collected monthly when a particular cycle for a non-maturity deposit account closes. Each cycle is monthlyIn October 2018, the FASB issued ASU No. 2018-16, Derivatives and the fee earned is for our service for the month just closed. Our performance obligations are to process transactions, pay interest (on interest-bearing accounts), collect deposits, and allow access to on-line banking applications and other services ancillary to a banking relationship. Each month when our fee is charged, our obligation is complete. The contract-relationship is a month to month obligation - i.e. our obligation to perform these services would end if the customer closes their deposit account with MidSouth.

ATM and debit card income - ATM fees primarily consist of surcharges assessed to our customers for using a non-Bank ATM or a non-Bank customer using our ATM. Debit card income represents revenues earned from interchange fees, which are earned on debit card transactions conducted with payment networks. Such fees are generally recognized concurrently with the delivery of services on a daily basis.

~~2. Investment Securities~~

~~The portfolio of investment securities consisted~~Hedging (Topic 815): Inclusion of the ~~following (in thousands):~~

June 30, 2018

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses
Fair Value
Available-for-sale:
Obligations of state and political subdivisions $ 20,473
$ 82
$ 746
$ 19,809
GSE mortgage-backed securities 53,195
416
1,093
52,518
Collateralized mortgage obligations: residential 215,868
85
7,239
208,714
Collateralized mortgage obligations: commercial 2,149
—
48
2,101
Corporate debt securities 25,566
336
107
25,795
$ 317,251
$ 919
$ 9,233
$ 308,937

December 31, 2017

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses
Fair Value
Available-for-sale:
Obligations of state and political subdivisions $ 23,042
$ 209
$ 442
$ 22,809
GSE mortgage-backed securities 58,620
825
321
59,124
Collateralized mortgage obligations: residential 202,573
90
4,508
198,155
Collateralized mortgage obligations: commercial 2,274
—
34
2,240
Mutual funds 2,100
—
39
2,061
Corporate debt securities 23,975
837
10
24,802
$ 312,584
�� $ 1,961
$ 5,354
$ 309,191
Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. This update permits the OIS rate, based on SOFR, as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815. The Company does not expect the new guidance to have a material impact on the consolidated financial statements.

June 30, 2018

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses
Fair Value
Held-to-maturity:
Obligations of state and political subdivisions $ 27,486
$ 169
$ 95
$ 27,560
GSE mortgage-backed securities 31,978
—
687
31,291
Collateralized mortgage obligations: residential 6,833
—
394
6,439
Collateralized mortgage obligations: commercial 1,480
—
12
1,468
$ 67,777
$ 169
$ 1,188
$ 66,758

December 31, 2017

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses
Fair Value
Held-to-maturity:
Obligations of state and political subdivisions $ 35,908
$ 265
$ 22
$ 36,151
GSE mortgage-backed securities 35,751
171
219
35,703
Collateralized mortgage obligations: residential 7,450
—
321
7,129
Collateralized mortgage obligations: commercial 1,943
—
6
1,937
$ 81,052
$ 436
$ 568
$ 80,920

With the exception of one private-label collateralized mortgage obligations (“CMOs”) with a balance remaining of $7,000 at June 30, 2018, all of the Company’s CMOs are government-sponsored enterprise (“GSE”) securities.NOTE 3: INVESTMENT SECURITIES

The ~~following table presents the~~ amortized cost and fair value of ~~debt~~available-for-sale investment securities ~~at June 30, 2018~~are as follows (in thousands):



	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
June 30, 2019
U.S. Agencies	$	2,867	$	175	$	—	$	3,042
State, county, and municipal securities	12,233		500		—		12,733
Mortgage-backed securities	395,814		4,965		700		400,079
Corporate debt securities	10,568		202		986		9,784
	$	421,482	$	5,842	$	1,686	$	425,638

December 31, 2018
U.S. Agencies	$	3,016	$	56	$	—	$	3,072
State, county, and municipal securities	44,639		214		765		44,088
Mortgage-backed securities	370,706		1,092		5,921		365,877
Corporate debt securities	25,567		433		1,283		24,717
	$	443,928	$	1,795	$	7,969	$	437,754

The amortized cost and fair value of held-to-maturity investment securities are as follows (in thousands):



	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
June 30, 2019
State, county, and municipal securities	$	1,659	$	4	$	1	$	1,662
Mortgage-backed securities	31,560		281		140		31,701
	$	33,219	$	285	$	141	$	33,363

December 31, 2018
State, county, and municipal securities	$	1,977	$	1	$	10	$	1,968
Mortgage-backed securities	35,782		—		776		$	35,006
	$	37,759	$	1	$	786	$	36,974

The amortized cost and fair value of available-for-sale and held-to-maturity securities by contractual maturity ~~(in~~are shown below (in thousands). :



	Amortized Cost		Fair Value
June 30, 2019
Due after one year through five years	$	3,300	$	2,333
Due after five years through ten years	13,236		13,622
Due after ten years	9,132		9,604
Mortgage-backed securities¹	395,814		400,079
	$	421,482	$	425,638

Held-to-maturity:
Due in one year or less	$	766	$	767
Due after one year through five years	893		895
Mortgage-backed securities¹	31,560		31,701
	$	33,219	$	33,363

¹Actual maturities ~~will~~may differ from contractual maturities ~~because of rights to call or repay~~as borrowers may prepay obligations ~~with or~~ without ~~penalties and scheduled and unscheduled principal payments on mortgage-backed securities and collateralized mortgage obligations.~~prepayment penalties.

The following summarizes the fair value of securities available-for-sale in an unrealized loss position as of the dates indicated (in thousands):

Amortized
Cost

Fair
Value
Available-for-sale:
Due in one year or less $ —
$ —
Due after one year through five years 8,672
8,638
Due after five years through ten years 47,548
47,394
Due after ten years 261,031
252,905
$ 317,251
$ 308,937

Amortized
Cost

Fair
Value
Held-to-maturity:
Due in one year or less $ 515
$ 515
Due after one year through five years 5,044
5,006
Due after five years through ten years 43,312
42,639
Due after ten years 18,906
18,598
$ 67,777
$ 66,758



	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
June 30, 2019
Corporate debt securities	$	604	$	986	$	—	$	—	$	604	$	986
Mortgage-backed securities	—		—		101,623		700		101,623		700
	$	604	$	986	$	101,623	$	700	$	102,227	$	1,686
December 31, 2018
State, county, and municipal securities	$	2,573	$	11	$	19,539	$	754	$	22,112	$	765
Mortgage-backed securities	25,706		34		197,036		5,887		222,742		5,921
Corporate debt securities	3,307		1,283		—		—		3,307		1,283
	$	31,586	$	1,328	$	216,575	$	6,641	$	248,161	$	7,969

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

June 30, 2018

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 $ 576
$ 24
$ 12,405
$ 722
$ 12,981
$ 746
GSE mortgage-backed securities 34,138
893
5,344
200
39,482
1,093
Collateralized mortgage obligations: residential 82,531
1,430
124,108
5,809
206,639
7,239
Collateralized mortgage obligations: commercial —
—
2,101
48
2,101
48
Corporate debt securities 6,483
107
—
—
6,483
107
$ 123,728
$ 2,454
$ 143,958
$ 6,779
$ 267,686
$ 9,233

December 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 $ 596
$ 5
$ 12,716
$ 437
$ 13,312
$ 442
GSE mortgage-backed securities 29,725
224
5,858
97
35,583
321
Collateralized mortgage obligations: residential 57,665
548
137,598
3,960
195,263
4,508
Collateralized mortgage obligations: commercial —
—
2,240
34
2,240
34
Mutual funds 2,061
39
—
—
2,061
39
Corporate debt securities 2,990
10
—
—
2,990
10
$ 93,037
$ 826
$ 158,412
$ 4,528
$ 251,449
$ 5,354

June 30, 2018

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 $ 6,318
$ 95
$ —
$ —
$ 6,318
$ 95
GSE mortgage-backed securities $ 26,853
$ 475
$ 4,438
$ 212
$ 31,291
$ 687
Collateralized mortgage obligations: residential $ —
$ —
$ 6,439
$ 394
$ 6,439
$ 394
Collateralized mortgage obligations: commercial 1,468
12
—
—
1,468
12
$ 34,639
$ 582
$ 10,877
$ 606
$ 45,516
$ 1,188

December 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 $ 6,340
$ 22
$ —
$ —
$ 6,340
$ 22
GSE mortgage-backed securities 11,201
89
4,961
130
16,162
219
Collateralized mortgage obligations: residential —
—
7,129
321
7,129
321
Collateralized mortgage obligations: commercial 1,937
6
—
—
1,937
6
$ 19,478
$ 117
$ 12,090
$ 451
$ 31,568
$ 568

The following summarizes the fair value of securities held-to-maturity in an unrealized loss position as of the dates indicated (in thousands):



	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
June 30, 2019
State, county, and municipal securities	$	—	$	—	$	470	$	1	$	470	$	1
Mortgage-backed securities	—		—		10,093		140		10,093		140
	$	—	$	—	$	10,563	$	141	$	10,563	$	141

December 31, 2018
State, county, and municipal securities	$	—	$	—	$	1,703	$	10	$	1,703	$	10
Mortgage-backed securities	—		—		35,006		776		35,006		776
	$	—	$	—	$	36,709	$	786	$	36,709	$	786

At June 30, 2019, the Company had 38 securities in an unrealized loss position. Management evaluates ~~each quarter~~ whether unrealized losses on securities represent impairment that is other than ~~temporary.~~temporary on a quarterly basis. For debt securities, the Company considers its intent to sell or hold the securities orand 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~~ At June 30, ~~2018, 103 securities had unrealized losses totaling 3.22%~~2019, there was no intent to sell any of the ~~individual securities’ amortized cost basis and 2.71% of the Company’s total amortized cost basis. Of the 103~~ securities ~~45 had been~~ in an unrealized loss position, ~~for over twelve months at June 30, 2018. These 45 securities had an~~and it is more likely than not the Company will not be required to sell these securities. Furthermore, the present value of cash flows expected to be collected exceeded the Company's amortized cost basis of the investment securities; therefore, these securities are not deemed to be other than temporarily impaired.

Proceeds from sales of available-for-sale securities as of June 30, 2019 and ~~unrealized loss of $162.2~~2018 were $56.3 million and ~~$7.4 million,~~$410,000, respectively. ~~The unrealized losses~~Net gains on ~~debt~~sales of available-fo-sale securities atfor the three and six months ended June 30, ~~2018 resulted from changing market interest rates over~~2019 were $202,000 and $575,000 , respectively. There were no gains or losses recognized on the ~~yields available at~~sales of available-for-sale securities for the ~~time the underlying securities were purchased. Management identified no impairment related to credit quality. At June 30, 2018, management had the intent~~three 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~~six months ended June 30, 2018.

During the six months ended June 30, 2018, the Company sold 1 security classified as available-for-sale for $410,000 which resulted in neither a gain nor a loss. During the six months ended June 30, 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 $111,000 and 3 securities were sold at a loss of $109,000 for a net gain of $2,000. The decision to sell the 1 held-to-maturity security, which was sold

The composition of investment securities reflects the strategy of management to maintain an appropriate level of liquidity while providing a relatively stable source of revenue. The securities portfolio may at ~~a gain of $7,000, was based on the pre-refunding~~times be used to mitigate interest rate risk associated with other areas of the ~~bond which would accelerate~~balance sheet while also providing a means for the ~~maturity~~investment of ~~the bond by 15 years with an anticipated call date within six months.~~

available funds, providing liquidity and supplying investment securities that are required to be pledged as collateral against specific deposits and for other purposes. Securities with an aggregate carrying value of ~~approximately $207.4 million and $177.9~~$90.6 million at June 30, ~~2018~~2019 and $162.5 million at December 31, ~~2017, respectively,~~2018 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~~NOTE 4: LOANS

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


	June 30, 2018			December 31, 2017			June 30, 2019			December 31, 2018
Commercial, financial and agricultural	$	354,944		$	435,207		$	226,871		$	267,340
Real estate – construction	98,108			90,287			77,482			87,506
Real estate – commercial	414,526			448,406			409,694			368,449
Real estate – residential	141,104			146,751			126,043			132,435
Installment loans to individuals	47,406			56,398
Consumer and other							39,476			43,506
Lease financing receivable	632			732			471			549
Other	1,243			5,645
	1,057,963			1,183,426
Less allowance for loan losses	(23,514		)	(26,888		)
	$	1,034,449		$	1,156,538
Total loans							880,037			899,785
Allowance for loan and lease losses							(28,129		)	(17,430		)
Total loans, net							$	851,908		$	882,355

The Company monitors loan concentrations and evaluates individual customer and aggregate industry leverage, profitability, risk rating distributions, and liquidity for each major standard industry classification segment. At June 30, ~~2018,~~2019, one industry segment concentration, the oil and gas industry, constituted more than 10% of the loan portfolio. The Company’s exposure in the oil and gas industry, including related service and manufacturing industries, totaled approximately ~~$153.6~~$113.0 million, or 14.5% of total loans. Additionally, the Company’s exposure to loans secured by commercial real estate is monitored. At June 30, 2018, loans secured by commercial real estate (including commercial construction, farmland and multifamily loans) totaled approximately $481.0 million, or 45.5%12.8% of total loans, ~~of which 52% are secured by owner-occupied commercial properties. Of the $481.0~~with $3.0 million in ~~loans secured by commercial real estate, $31.4 million, or 6.5%, were on~~ nonaccrual ~~status at June 30, 2018.~~oil and gas loans.

Allowance for Loan Losses

The allowance for loan losses is a valuation account available to absorb probable losses on loans. All losses are charged to the allowance for loan losses when the loss actually occurs or when a determination is made that a loss is likely to occur. Recoveries are credited to the allowance for loan losses at the time of recovery. Quarterly, the probable level of losses in the existing portfolio is estimated through consideration of various quantitative and qualitative factors. As such, some of the factors considered in determining provisions include estimated losses relative to specific credits; known deterioration in concentrations of credit; historical loss experience; trends in nonperforming assets; volume, maturity and composition of the loan portfolio; off–balance sheet credit risk; lending policies and control systems; national and local economic conditions; the experience, ability and depth of lending management; and the results of examinations of the loan portfolio by regulatory agencies and others. Based on these estimates, the allowance for loan losses is increased by charges to earnings and decreased by charge‑offs (net of recoveries).

The allowance is composed of general reserves and specific reserves. General reserves are determined by applying loss percentages to segments of the portfolio. The loss percentages are based on each segment’s historical loss experience, generally over the past three to five years, and adjustment factors derived from conditions in the Company’s internal and external environment. All loans considered to be impaired are evaluated on an individual basis to determine specific reserve allocations in accordance with GAAP. Loans for which specific reserves are provided are excluded from the calculation of general reserves.

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. The current analysis indicates no additional allowance is necessary on our acquired loan portfolio as of June 30, 2018. 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. Additionally, the Company utilizes the services of a third party to supplement its loan review efforts.

A rollforward of the activity within the allowance for loan losses by loan type and recorded investment in loans as of and for the six months ended June 30, ~~2018~~2019 and ~~2017~~2018 is as follows (in thousands):


	June 30, 2018																							June 30, 2019
				Real Estate																							Real Estate
	Coml, Fin, and Agric			Construction			Commercial			Residential			Installment loans to individuals			Lease financing receivable		Other			Total			Coml, Fin, and Agric			Construction		Commercial		Residential			Consumer and other			Lease financing receivable			Total
Allowance for loan losses:																								and Agric
Beginning balance	$	20,577		$	596		$	3,893		$	837		$	957		$	3	$	25		$	26,888		$	10,633		$	140	$	4,913	$	1,156		$	585		$	3		$	17,430
Charge-offs	(3,647		)	(6		)	(216		)	(321		)	(448		)	—		—			(4,638		)	(1,775		)	—		—		—			(167		)	—			(1,942		)
Recoveries	696			—			6			1			121			—		—			824			184			—		30		1			67			—			282
Provision	172			(201		)	(460		)	623			323			—		(17		)	440			11,654			402		557		(215		)	(36		)	(3		)	12,359
Ending balance	$	17,798		$	389		$	3,223		$	1,140		$	953		$	3	$	8		$	23,514		$	20,696		$	542	$	5,500	$	942		$	449		$	—		$	28,129
Ending balance: individually evaluated for impairment	$	4,452		$	49		$	126		$	198		$	13		$	—	$	—		$	4,838		$	10,680		$	—	$	74	$	—		$	—		$	—		$	10,754
Ending balance: collectively evaluated for impairment	$	13,346		$	340		$	3,097		$	942		$	940		$	3	$	8		$	18,676		$	10,016		$	542	$	5,426	$	942		$	449		$	—		$	17,375

Loans:
Ending balance	$	354,944		$	98,108		$	414,526		$	141,104		$	47,406		$	632	$	1,243		$	1,057,963		$	226,871		$	77,482	$	409,694	$	126,043		$	39,476		$	471		$	880,037
Ending balance: individually evaluated for impairment	$	40,228		$	717		$	29,917		$	3,623		$	65		$	—	$	—		$	74,550		$	15,934		$	424	$	4,807	$	—		$	—		$	—		$	21,165
Ending balance: collectively evaluated for impairment	$	314,716		$	97,391		$	384,609		$	137,481		$	47,341		$	632	$	1,243		$	983,413		$	210,937		$	77,058	$	404,887	$	126,043		$	39,476		$	471		$	858,872


	June 30, 2017																							June 30, 2018
				Real Estate																							Real Estate
	Coml, Fin, and Agric			Construction			Commercial			Residential			Installment loans to individuals			Lease financing receivable			Other		Total			Coml, Fin, and Agric			Construction			Commercial			Residential			Consumer and other			Lease financing receivable		Total
Allowance for loan losses:
Beginning balance	$	16,057		$	585		$	5,384		$	940		$	1,395		$	5		$	6	$	24,372		$	20,577		$	596		$	3,918		$	837		$	957		$	3	$	26,888
Charge-offs	(11,319		)	(1		)	(3,448		)	(198		)	(599		)	—			—		(15,565		)	(1,524		)	(2		)	(86		)	(3		)	(221		)	—		(1,836		)
Recoveries	290			—			33			96			148			—			—		567			276			—			6			1			36			—		319
Provision	13,272			623			1,845			(438		)	(1		)	(2		)	1		15,300			(264		)	159			(105		)	64			146			—		—
Ending balance	$	18,300		$	1,207		$	3,814		$	400		$	943		$	3		$	7	$	24,674		$	19,065		$	753		$	3,733		$	899		$	918		$	3	$	25,371
Ending balance: individually evaluated for impairment	$	3,092		$	9		$	1,120		$	28		$	103		$	—		$	—	$	4,352		$	5,968		$	94		$	76		$	20		$	6		$	—	$	6,164
Ending balance: collectively evaluated for impairment	$	15,208		$	1,198		$	2,694		$	372		$	840		$	3		$	7	$	20,322		$	13,097		$	659		$	3,657		$	879		$	912		$	3	$	19,207

Loans:
Ending balance	$	451,767		$	98,695		$	461,064		$	156,394		$	70,031		$	866		$	1,436	$	1,240,253		$	401,048		$	94,679		$	444,277		$	145,671		$	50,888		$	692	$	1,137,255
Ending balance: individually evaluated for impairment	$	35,276		$	25		$	19,526		$	1,325		$	311		$	—		$	—	$	56,463		$	55,092		$	192		$	26,005		$	2,088		$	50		$	—	$	83,427
Ending balance: collectively evaluated for impairment	$	416,491		$	98,670		$	441,108		$	155,003		$	69,720		$	866		$	1,436	$	1,183,294		$	345,956		$	94,487		$	418,272		$	143,583		$	50,838		$	692	$	1,053,828
Ending balance: loans acquired with deteriorated credit quality	$	—		$	—		$	430		$	66		$	—		$	—		$	—	$	496

Non-Accrual and Past Due Loans

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

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

June 30, 2018

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 $ 8,504
$ 4,347
$ 24,762
$ 37,613
$ 317,331
$ 354,944
$ 3
Real estate - construction 1,175
—
220
1,395
96,713
98,108
—
Real estate - commercial 1,655
9,523
18,102
29,280
385,246
414,526
—
Real estate - residential 1,077
99
1,692
2,868
138,236
141,104
—
Installment loans to individuals 215
27
61
303
47,103
47,406
—
Lease financing receivable —
—
—
—
632
632
—
Other loans 51
10
—
61
1,182
1,243
—
$ 12,677
$ 14,006
$ 44,837
$ 71,520
$ 986,443
$ 1,057,963
$ 3

December 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 $ 1,195
$ 1,893
$ 14,847
$ 17,935
$ 417,272
$ 435,207
$ 545
Real estate - construction 616
—
190
806
89,481
90,287
125
Real estate - commercial 5,889
6,402
4,163
16,454
431,952
448,406
58
Real estate - residential 1,065
235
559
1,859
144,892
146,751
—
Installment loans to individuals 276
32
34
342
56,056
56,398
—
Lease financing receivable —
—
—
—
732
732
—
Other loans —
—
—
—
5,645
5,645
—
$ 9,041
$ 8,562
$ 19,793
$ 37,396
$ 1,146,030
$ 1,183,426
$ 728



	June 30, 2019
	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Total Loans		Loans >90 Days Past Due and Still Accruing
Commercial, financial and agricultural	$	559	$	11,506	$	3,726	$	15,791	$	211,080	$	226,871	$	—
Real estate – construction	4,097		—		262		4,359		73,123		77,482		—
Real estate – commercial	2,044		—		1,455		3,499		406,195		409,694		—
Real estate – residential	617		73		1,108		1,798		124,245		126,043		—
Consumer and other	129		60		27		216		39,260		39,476		—
Lease financing receivable	—		—		—		—		471		471		—
	$	7,446	$	11,639	$	6,578	$	25,663	$	854,374	$	880,037	$	—

	December 31, 2018
	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Total Loans		Loans >90 Days Past Due and Still Accruing
Commercial, financial and agricultural	$	385	$	902	$	2,173	$	3,460	$	263,880	$	267,340	$	—
Real estate – construction	47		—		117		164		87,342		87,506		—
Real estate – commercial	435		—		771		1,206		367,243		368,449		—
Real estate – residential	695		31		1,407		2,133		130,302		132,435		—
Consumer and other	176		28		56		260		43,246		43,506		—
Lease financing receivable	—		—		—		—		549		549		—
	$	1,738	$	961	$	4,524	$	7,223	$	892,562	$	899,785	$	—

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


	June 30, 2018		December 31, 2017		June 30, 2019		December 31, 2018
Commercial, financial, and agricultural	$	39,218	$	37,418	$	15,630	$	3,599
Real estate - construction	1,531		66		468		278
Real estate - commercial	29,916		11,128		4,854		2,977
Real estate - residential	2,808		618		2,308		2,008
Installment loans to individuals	65		48
Consumer and other					27		58
	$	73,538	$	49,278	$	23,287	$	8,920

The amount of interest that would have been recorded on non-accrual loans, had the loans not been classified as non-accrual, totaled approximately $3.4 million and $1.7 million for the six months ended June 30, 2018 and 2017, respectively. Interest received on non-accrual loans subsequent to their transfer to non-accrual status totaled $176,000 and $195,000 for the six months ended June 30, 2018 and 2017, 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 collateral dependent. All impaired loans are reviewed, at a minimum, on a quarterly basis. Existing valuations are reviewed to determine if additional discounts or new appraisals are required. After this review, when comparing the resulting collateral valuation to the outstanding loan balance, if the discounted collateral value exceeds the loan balance, no specific allocation is reserved.

The following table presents loans that are individually evaluated for impairment (in thousands). Interest income recognized represents interest on accruing loans modified in a troubled debt restructuring (TDR).


	June 30, 2018										June 30, 2019						December 31, 2018
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Recorded Investment⁽¹⁾		Unpaid Principal Balance		Related Allowance ⁽¹⁾		Recorded Investment ⁽¹⁾		Unpaid Principal Balance		Related Allowance ⁽¹⁾
With no related allowance recorded:
Commercial, financial, and agricultural	$	28,188	$	32,776	$	—	$	26,424	$	32	$	3,589	$	5,278	$	—	$	2,924	$	3,011	$	—
Real estate - construction	1,164		1,164		—		582		—		424		424		—		117		117		—
Real estate - commercial	29,020		30,242		—		19,745		—		4,676		5,835		—		3,395		3,395		—
Real estate - residential	1,599		1,599		—		950		—		—		—		—		—				—
Installment loans to individuals	24		24		—		12		—
Finance leases	—		—		—		—		—
Consumer and other											—		—		—		—		—		—
Subtotal:	59,995		65,805		—		47,713		32		8,689		11,537		—		6,436		6,523		—
With an allowance recorded:
Commercial, financial, and agricultural	12,040		13,959		4,452		13,079		—		12,345		12,488		10,680		1,025		1,025		470
Real estate - construction	367		367		49		216		—		—		—		—		131		131		4
Real estate - commercial	897		1,028		126		777		—		131		131		74		—		—		—
Real estate - residential	1,210		1,897		198		763		—		—		—		—		—		—		—
Installment loans to individuals	41		41		13		45		—
Finance leases	—		—		—		—		—
Consumer and other											—		—		—		—		—		—
Subtotal:	14,555		17,292		4,838		14,880		—		12,476		12,619		10,754		1,156		1,156		474
Totals:
Total impaired loans											21,165		24,156		10,754		7,592		7,679		474

⁽¹⁾Troubled debt restructurings totaling $1.6 million and $1.3 million are included in the recorded investment of impaired loans as of June 30, 2019 and December 31, 2018.

The average balances of impaired loans and income recognized on impaired loans while they were considered impaired are presented below for the periods indicated (in thousands).

Commercial 70,145
78,005
4,578
60,025
32
Construction 1,531
1,531
49
798
—
Residential 2,809
3,496
198
1,713
—
Consumer 65
65
13
57
—
Grand total: $ 74,550
$ 83,097
$ 4,838
$ 62,593
$ 32

December 31, 2017

Recorded
Investment

Unpaid
Principal
Balance

Related
Allowance

Average
Recorded
Investment

Interest Income
Recognized
With no related allowance recorded:
Commercial, financial, and agricultural $ 24,659
$ 30,630
$ —
$ 19,880
$ 90
Real estate - construction —
—
—
5
—
Real estate - commercial 10,471
11,965
—
11,590
—
Real estate - residential 302
302
—
602
—
Installment loans to individuals —
—
—
37
—
Subtotal: 35,432
42,897
—
32,114
90
With an allowance recorded:

Commercial, financial, and agricultural 14,119
14,150
7,197
15,245
1
Real estate - construction 66
136
23
33
—
Real estate - commercial 657
657
131
8,318
—
Real estate - residential 316
316
5
620
—
Installment loans to individuals 48
50
14
258
—
Subtotal: 15,206
15,309
7,370
24,474
1
Totals:

Commercial 49,906
57,402
7,328
55,033
91
Construction 66
136
23
38
—
Residential 618
618
5
1,222
—
Consumer 48
50
14
295
—
Grand total: $ 50,638
$ 58,206
$ 7,370
$ 56,588
$ 91



	June 30, 2019				June 30, 2018
	Average Recorded Investment		Interest Income Recognized During Impairment		Average Recorded Investment		Interest Income Recognized During Impairment
Commercial, financial, and agricultural	$	16,396	$	—	$	46,935	$	18
Real estate - construction	451		—		129		—
Real estate - commercial	7,126		—		18,567		—
Real estate - residential	—		—		1,353		—
Consumer and other	—		—		—		—
Total	$	23,973	$	—	$	66,984	$	18

Credit Quality

The Company manages credit risk by observing written underwriting standards and the 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~~Credit Risk 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.

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

June 30, 2018
Commercial Credit Exposure
Credit Risk Profile by
Creditworthiness Category

Commercial,
financial, and
agricultural Real estate - commercial Total % of Total
Pass $ 275,744
$ 361,281
$ 637,025
82.79 %
Special mention 21,320
9,985
31,305
4.07 %
Substandard 57,880
43,260
101,140
13.14 %
$ 354,944
$ 414,526
$ 769,470
100.00 %

Construction Credit Exposure
Credit Risk Profile by
Creditworthiness Category
Real estate - construction % of Total
Pass $ 96,225
98.08 %
Special mention 85
0.09 %
Substandard 1,798
1.83 %
$ 98,108
100.00 %

Residential Credit Exposure

Credit Risk Profile by
Creditworthiness Category

Real estate - residential % of Total
Pass

$ 134,952
95.64 %
Special mention

602
0.43 %
Substandard
5,550
3.93 %

$ 141,104
100.00 %

Consumer and Other Credit Exposure

Credit Risk Profile Based on
Payment Activity

Installment loans to individuals
Lease
financing
receivable
Other Total % of Total
Performing $ 47,355
$ 632
$ 1,243
$ 49,230
99.90 %
Nonperforming
51
—
—
51
0.10 %

$ 47,406
$ 632
$ 1,243
$ 49,281
100.00 %

December 31, 2017
Commercial Credit Exposure
Credit Risk Profile by
Creditworthiness Category

Commercial,
financial, and
agricultural Real estate - commercial Total
%
of Total
Pass $ 358,373
$ 411,280
$ 769,653
87.10 %
Special mention 9,687
3,823
13,510
1.53 %
Substandard 67,147
33,303
100,450
11.37 %
$ 435,207
$ 448,406
$ 883,613
100.00 %

Construction Credit Exposure
Credit Risk Profile by
Creditworthiness Category
Real estate - construction %
of Total
Pass $ 89,323
98.93 %
Special mention 600
0.67 %
Substandard 364
0.40 %
$ 90,287
100.00 %

Residential Credit Exposure

Credit Risk Profile by
Creditworthiness Category

Real estate - residential
%
of Total
Pass

$ 144,250
98.30 %
Special mention

1,233
0.84 %
Substandard

1,268
0.86 %

$ 146,751
100.00 %

Consumer and Other Credit Exposure

Credit Risk Profile Based on
Payment Activity

Installment loans to individuals
Lease
financing
receivable
Other Total
%
of Total
Performing
$ 56,041
$ 699
$ 5,645
$ 62,385
99.38 %
Nonperforming
357
33
—
390
0.62 %

$ 56,398
$ 732
$ 5,645
$ 62,775
100.00 %



			Special
	Pass		Mention		Substandard		Doubtful		Total
June 30, 2019
Commercial, financial and agricultural	$	194,672	$	10,727	$	21,472	$	—	$	226,871
Real estate – construction	70,963		1,463		5,047		9		77,482
Real estate – commercial	366,939		21,554		21,201		—		409,694
Real estate – residential	116,599		1,581		7,176		687		126,043
Consumer and other	39,399		—		64		13		39,476
Lease financing receivable	471		—		—		—		471
Total loans	$	789,043	$	35,325	$	54,960	$	709	$	880,037

December 31, 2018
Commercial, financial and agricultural	$	240,232	$	20,259	$	6,849	$	—	$	267,340
Real estate – construction	83,240		3,910		356		—		87,506
Real estate – commercial	329,213		23,475		15,761		—		368,449
Real estate – residential	125,984		1,955		4,496		—		132,435
Consumer and other	43,416		5		85		—		43,506
Lease financing receivable	549		—		—		—		549
Total loans	$	822,634	$	49,604	$	27,547	$	—	$	899,785

Troubled Debt Restructurings

A 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.

The following tables present information about TDRs that were modified during the periods presented by portfolio segment (in thousands):

~~Three months ended~~

~~June 30, 2018~~

~~June 30, 2017~~

~~Number of loans~~

~~Pre-modification recorded investment~~

~~Number of loans~~

~~Pre-modification recorded investment~~

~~Commercial, financial and agricultural~~

—



	Three months ended
	June 30, 2019			June 30, 2018
	Number of loans	Pre-modification recorded investment		Number of loans	Pre-modification recorded investment
Commercial, financial and agricultural ⁽¹⁾	—	$	—	—	$	—

	Six months ended
	June 30, 2019			June 30, 2018
	Number of loans	Pre-modification recorded investment		Number of loans	Pre-modification recorded investment
Commercial, financial and agricultural ⁽¹⁾	3	$	1,983	—	$	—

⁽¹⁾The pre-modification and post-modification recorded investment amount represent the recorded investment on the date of the loan modification. Since the modification of these loans were payment modifications, not principal reductions, the pre-modification and post-modification recorded investment amount is the same.

Six months ended
June 30, 2018 June 30, 2017
Number of loans Pre-modification recorded investment Number of loans Pre-modification recorded investment
Commercial, financial and agricultural —
$ —
1
$ 1,984

~~During the three month periods ending June 30, 2018 and 2017, there were no defaults on any loans that were modified as TDRs during the preceding twelve months.~~ During the six months ended ending June 30, 2019 and 2018, ~~there were no defaults on any loans~~TDRs that had a payment default during the twelve-month periods and that were modified ~~as TDRs during~~within the ~~preceding twelve months. During the six~~previous 12 months ~~ended June 30, 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.$713,000 and $0, respectively. The Company defines a payment default as any loan that is greater than 30 days past due or was past due greater than 30 days at any point during the reporting period, or since the date of modification, whichever is shorter.

~~For purposes of~~

A troubled debt restructuring by definition is an impaired loan, as such all TDRs that meet 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~~dollar threshold are 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,~~an impairment exists, either because of a delinquency or other credit ~~quality indicator,~~related issues, a specific reserve is recorded for the ~~Company establishes~~loan. There are no specific reserves ~~for these loans.As of June 30, 2018, 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~~on TDRs as of June 30, ~~2018~~2019 and ~~December 31, 2017 is as follows (in thousands):~~

June 30, 2018 December 31, 2017
Gross carrying amount $ 11,674
$ 11,674
Less accumulated amortization (8,712 ) (8,159 )
Net carrying amount $ 2,962
$ 3,515

~~5. Derivatives~~2018.

~~On July 6, 2016, the~~NOTE 5: DERIVATIVES

Derivatives Designated as Hedging Instruments

Cash Flow Hedges

The Company ~~entered into two forward~~uses interest rate ~~swap contracts on a reverse repurchase agreement and long-term FHLB advances. The~~swaps as part of its 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~~risk management strategy. Interest rate swaps, designated as cash flow hedges, ~~was recognized~~involve the receipt of variable amounts from a counterparty in ~~the consolidated statements of income~~exchange for the Company making fixed payments over the life of the agreements without the exchange of the underlying notional amount. Forward starting interest rate swaps with a notional amount totaling $12.5 million and $15.0 million were entered into on July 6, 2016 and were designated as cash flow hedges of certain repurchase agreements and FHLB advances. The swaps mature in August 2021 and December 2021, respectively. The swaps operate under a pay fixed of .993% and 1.043%, respectively, and receive variable each at LIBOR flat. The swaps were determined to be fully effective during the periods presented and therefore no ineffectiveness has been included in net loss. The aggregate fair value of the swaps is recorded in other assets/other liabilities with changes in fair value recorded in other comprehensive income (loss). The amount included in other comprehensive income (loss) would be reclassified to current earnings if the hedge transactions become probable of not occurring. The Company expects the hedges to remain fully effective during the remaining terms of the swaps. At June 30, 2019 and December 31, 2018, the fair value of the swap recorded in other assets totaled $381,000 and $1.1 million, respectively. Interest expense recorded on the swap transaction totaled $2,000 and $4,000 for the three and six months ended June 30, ~~2018. The accumulated net after-tax income related to~~2019, respectively and is reported as a component of interest expense.

NOTE 6: LEASES

As of January 1, 2019, the Company adopted ASU 2016-02 (Topic 842) on a prospective basis using the effective ~~cash flow hedge included~~date method. The adoption of the new standard did not have a material impact on MidSouth's financial statements; however, additional disclosures have been added in ~~accumulated other comprehensive income is reflected in~~ accordance with the ASU. See Note ~~6 - Other Comprehensive (Loss) Income~~2 for additional information on this new accounting standard..

We have operating leases for branches and corporate offices. Our leases have remaining lease terms from 1 to 40 years, some of which have options to extend the leases up to 5 years, and some which include options to terminate the leases within 1 year. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight -line basis over the lease term. We rent or sublease certain real estate to third parties.

The following ~~table discloses the notional amounts~~is a summary of net lease cost and ~~fair value of derivative instruments~~other selected information related to operating leases (cost, in ~~the Company's balance sheet as of June 30, 2018 and December 31, 2017 (in~~ thousands):

Notional Amounts Fair Value
Type of Hedge June 30, 2018 December 31, 2017 June 30, 2018 December 31, 2017
Derivatives designated as hedging instruments:
Interest rate swaps included in other assets Cash Flow $ 27,500
$ 27,500
$ 1,477
$ 1,078



	Three Months Ended June 30, 2019			Six Months Ended June 30, 2019
Net lease cost:
Operating lease cost	$	466		$	932
Variable lease cost	(43		)	(89		)
Sub lease income	(44		)	(88		)
Net lease cost	$	379		$	755

Weighted average remaining lease term (years)	14			14
Weighted average discount rate	3.4		%	3.4		%

Maturities of leases payments, undiscounted cash flow, lease liability were as follows (in thousands):



	Lease Payments		Undiscounted Cash Flow		Lease Liability
2019	$	908	$	126	$	782
2020	1,820		210		1,610
2021	1,364		158		1,206
2022	554		134		420
2023	378		124		254
Thereafter	5,248		1,704		3,544
	$	10,272	$	2,456	$	7,816

~~The following tables present the pre-tax effect of hedging derivative instruments on the Company's consolidated statements of operations:~~

Amount of Gain (Loss) Recognized in OCI on Derivative (Effective Portion) Location of Gain Reclassified from Accumulated OCI into Income (Effective Portion) Amount of Gain Reclassified from Accumulated OCI into Income (Effective Portion)
Three Months Ended June 30, Three Months Ended June 30,
2018 2017 2018 2017
Interest rate swaps 90
(136 ) Interest Expense 63
—

Amount of Gain (Loss) Recognized in OCI on Derivative (Effective Portion) Location of Gain Reclassified from Accumulated OCI into Income (Effective Portion) Amount of Gain Reclassified from Accumulated OCI into Income (Effective Portion)
Six Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Interest rate swaps 400
(123 ) Interest Expense 102
—

~~6. Other Comprehensive (Loss) Income~~NOTE 7: OTHER COMPREHENSIVE INCOME (LOSS)

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


	Three Months Ended June 30,																		Three Months Ended June 30,
	2018									2017									2019								2018
	Before Tax Amount			Tax Effect			Net of Tax Amount			Before Tax Amount			Tax Effect			Net of Tax Amount			Before Tax Amount			Tax Effect		Net of Tax Amount			Before Tax Amount			Tax Effect			Net of Tax Amount
Other comprehensive (loss) income:
Other comprehensive income (loss):
Securities available-for-sale:
Change in unrealized gains/losses during period	$	(873	)	$	184		$	(689	)	$	2,739		$	(959	)	$	1,780		$	4,428		$	—	$	4,428		$	(873	)	$	184		$	(689	)
Reclassification adjustment for gains included in net income	—			—			—			(3		)	1			(2		)	(202		)	—		(202		)	—			—			—
Derivative instruments designated as cash flow hedges:
Change in fair value of derivative instruments designated as cash flow hedges	152			(32		)	120			(136		)	48			(88		)	(423		)	—		(423		)	89			(19		)	70
Reclassification adjustment for gains included in net income	(63		)	13			(50		)	—			—			—
Total other comprehensive (loss) income	$	(784	)	$	165		$	(619	)	$	2,600		$	(910	)	$	1,690
Total other comprehensive income (loss)																			$	3,803		$	—	$	3,803		$	(784	)	$	165		$	(619	)


	Six Months Ended June 30,																		Six Months Ended June 30,
	2018									2017									2019								2018
	Before Tax Amount			Tax Effect			Net of Tax Amount			Before Tax Amount			Tax Effect			Net of Tax Amount			Before Tax Amount			Tax Effect		Net of Tax Amount			Before Tax Amount			Tax Effect			Net of Tax Amount
Other comprehensive (loss) income:
Other comprehensive income (loss):
Securities available-for-sale:
Change in unrealized gains/losses during period	$	(4,922	)	$	1,034		$	(3,888	)	$	3,559		$	(1,246	)	$	2,313		$	10,905		$	—	$	10,905		$	(4,922	)	$	1,034		$	(3,888	)
Reclassification adjustment for gains included in net income	—			—			—			(9		)	3			(6		)	(575		)	—		(575		)	—			—			—
Derivative instruments designated as cash flow hedges:
Change in fair value of derivative instruments designated as cash flow hedges	502			(105		)	397			(123		)	43			(80		)	(685		)	—		(685		)	400			(84		)	316
Reclassification adjustment for gains included in net income	(102		)	21			(81		)	—			—			—
Total other comprehensive (loss) income	$	(4,522	)	$	950		$	(3,572	)	$	3,427		$	(1,200	)	$	2,227
Total other comprehensive income (loss)																			$	9,645		$	—	$	9,645		$	(4,522	)	$	950		$	(3,572	)

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

Three Months Ended June 30,
2018 2017
Details about
Accumulated Other
Comprehensive (Loss) Income
Components

Reclassifications Out of
Accumulated Other
Comprehensive (Loss) Income

Income Statement
Line Item
Reclassifications Out of
Accumulated Other
Comprehensive (Loss) Income
Income Statement
Line Item
Unrealized gains and losses on securities available-for-sale:
$ —
Gain on sale of securities, net $ (3 ) Gain on sale of securities, net
—
Tax expense 1
Tax expense
$ —
Net of tax $ (2 ) Net of tax

Gains on derivative instruments:
$ (63 ) Interest expense $ —
Interest expense
13
Tax expense —
Tax expense
$ (50 ) Net of tax $ —
Net of tax


	Six Months Ended June 30,								Three months ended June 30,					Six Months Ended June 30,
	2018				2017				2019		2018			2019		2018
Details about Accumulated Other Comprehensive (Loss) Income Components	Reclassifications Out of Accumulated Other Comprehensive (Loss) Income			Income Statement Line Item	Reclassifications Out of Accumulated Other Comprehensive (Loss) Income			Income Statement Line Item
Details about Accumulated Other Comprehensive Income (Loss) Components									Reclassifications Out of Accumulated Other Comprehensive Income (Loss)		Reclassifications Out of Accumulated Other Comprehensive Income (Loss)			Reclassifications Out of Accumulated Other Comprehensive Income (Loss)		Reclassifications Out of Accumulated Other Comprehensive Income (Loss)			Income Statement Line Item
Unrealized gains and losses on securities available-for-sale:
	$	—		Gain on sale of securities, net	$	(9	)	Gain on sale of securities, net	$	202	$	—		575		—			Gain on sale of securities, net
	—			Tax expense	3			Tax expense	—		—			—		—			Tax expense
	$	—		Net of tax	$	(6	)	Net of tax	$	202	$	—		$	575	$	—		Net of tax

Gains on derivative instruments:
	$	(102	)	Interest expense	$	—		Interest expense	$	423	$	(63	)	$	685	$	(102	)	Interest expense
	21			Tax expense	—			Tax expense	—		13			—		21			Tax expense
	$	(81	)	Net of tax	$	—		Net of tax	$	423	$	(50	)	$	685	$	(81	)	Net of tax

~~7. Earnings Per Common Share~~

NOTE 8: LOSS PER COMMON SHARE

~~Following~~The following table is a summary of ~~the information used in the~~ computation of ~~earnings~~loss per common share ~~(in thousands)~~based on the weighted average number of common shares outstanding (dollars in thousands, except per share amounts):

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Net loss available to common shareholders $ (1,479 ) $ (6,225 ) $ (1,928 ) $ (4,545 )
Dividends on Series C preferred stock —
—
—
—
Adjusted net loss available to common shareholders $ (1,479 ) $ (6,225 ) $ (1,928 ) $ (4,545 )
Weighted average number of common shares outstanding used in computation of basic loss per common share 16,526
12,227
16,511
11,749
Effect of dilutive securities:

Stock options 3
10
3
13
Restricted stock —
—
—
—
Weighted average number of common shares outstanding plus effect of dilutive securities – used in computation of diluted loss per share 16,529
12,237
16,514
11,762

On July 11, 2017, the Company completed the sale of an additional 516,700 shares of its common stock, pursuant to the partial exercise of the option to purchase additional shares granted to the underwriter in connection with the Company’s recently completed public offering of 4,583,334 shares at $12.00 per share. The partial exercise of the underwriter’s option to purchase additional shares resulted in additional gross proceeds of approximately $6.2 million bringing the total gross proceeds to approximately $61.2 million and total net proceeds to approximately $57.2 million.



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Net loss	$	(2,903	)	$	(669	)	$	(8,733	)	$	(308	)
Dividends on preferred stock	810			810			1,620			1,620
Adjusted net loss available to common shareholders	$	(3,713	)	$	(1,479	)	$	(10,353	)	$	(1,928	)
Weighted average number of common shares outstanding used in computation of basic loss per common share	16,724			16,526			16,699			16,511
Effect of dilutive securities:
Stock options	—			3			—			3
Weighted average number of common shares outstanding plus effect of dilutive securities – used in computation of diluted loss per share	16,724			16,529			16,699			16,514
Net loss per common share:
Basic	$	(0.22	)	$	(0.09	)	$	(0.62	)	$	(0.12	)
Diluted	$	(0.22	)	$	(0.09	)	$	(0.62	)	$	(0.12	)

~~Following is~~The Company has reported a ~~summary of~~net loss for the ~~securities that~~three and six months ended June 30, 2019. As such, during those periods all potential common shares were excluded from the ~~computation~~calculation of diluted earnings per share ~~because~~as they would have an anti-dilutive effect for the ~~effects of the shares were anti-dilutive (in thousands):~~respective period.

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Stock options 31
84
31
84
Restricted stock —
—
—
—
Shares subject to the outstanding warrant issued in connection with the CPP transaction 104
104
104
104
Convertible preferred stock 500
505
500
505

NOTE 9: FAIR VALUE MEASUREMENT

The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securities available-for-sale and derivative financial instruments are recorded at fair value on a recurring basis. From time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as impaired loans, loans held-for-sale, other real estate and assets held-for-sale. Additionally, the Company is required to disclose, but not record, the fair value of other financial instruments.

Fair Value ~~Measurement~~

Hierarchy

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~~cash equivalents—The carrying value of ~~these short-term instruments is a reasonable estimate of~~cash and due from banks, federal funds sold and interest-bearing deposits in other banks, and time deposits in other banks approximate fair value.

Debt 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 and money market funds.

Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds, corporate debt securities and asset-backed securities and are valued based on observable inputs that include: quoted market prices for similar assets, quoted market prices that are not in an active market, or other inputs that are observable in the market and can be corroborated by observable market data for substantially the full term of the securities. 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~~3 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, asset-backed securities ~~municipal securities, single issue trust preferred securities, certain pooled trust preferred securities, collateralized debt obligations~~in less liquid markets. Securities classified as Level 3 are valued based on estimates obtained from broker-dealers and ~~certain equity securities that~~ are not ~~actively traded.~~

directly observable.

~~Securities Held-to-Maturity~~Loans held for sale—~~The fair value~~Loans held for sale are carried at the lower 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~~or fair value. Fair value is ~~a reasonable estimate of fair value.~~based upon quotes or bids on these loans directly from the purchaser.

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.~~made. 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~~

The fair value of impaired loans is ~~taken related to illiquidity discounts. However, from time to time, a~~estimated based on discounted contractual cash flows or underlying collateral values, where applicable. A loan is ~~considered~~determined to be impaired ~~and an allowance for loan losses is established. Loans for which~~if the Company believes it is probable that ~~payment~~all principal and interest amounts due according to the terms of ~~interest and principal~~the note will not be ~~made~~collected as scheduled. The fair value of impaired loans is determined in accordance with ASC 310-10, Accounting by Creditors for Impairment of a Loan, and generally results in a specific reserve established through a charge to the ~~contractual terms~~provision for loan losses. Losses on impaired loans are charged to the allowance when management believes the uncollectability of ~~the loan agreement are considered impaired. Once~~ a loan is ~~identified as individually impaired, management uses one~~confirmed. Management has determined that the majority 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~~are Level 3 assets due to the ~~fair value~~extensive use 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.appraisals

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.

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.

Other Real Estate—Other real estate ~~(“ORE”)~~ properties are adjusted to fair value upon transfer of the loans to other real ~~estate. Subsequently,~~estate, and annually thereafter to insure other real estate ~~properties~~assets are carried at the ~~net realizable value. Exceptions to obtaining initial appraisals are properties where a buy/sell agreement exists for the loan~~lower of carrying value or ~~greater, or where a Sheriff’s valuation has been received for properties liquidated through a Sheriff sale.~~fair value. 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~~other real estate 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~~other real estate asset as nonrecurring Level 3.

~~Assets Held For Sale—Assets held for sale are carried at the lower of carrying value or fair value. Fair value is based upon appraised values.~~

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 carrying 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~~repurchase agreements ~~to repurchase~~ due to their short-term nature.

~~Short-term Federal Home Loan Bank Advances~~ ~~—The fair value approximates the carrying value of short-term FHLB advances due to their short-term nature.~~

~~Long-term~~ Federal Home Loan Bank Advances—The fair value approximates carrying amount because of ~~long-term FHLB advances is estimated using a discounted cash flow analysis that applies interest rates currently being offered on similar types~~the short maturity of ~~borrowings with similar terms.~~these instruments.

Junior Subordinated Debentures—For junior subordinated debentures that bear interest on a floating basis, the fair value approximates carrying ~~amount approximates fair value.~~amount. 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~~Off-Balance-Sheet Instruments—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.~~immaterial for disclosure.

~~Assets Recorded at Fair Value~~

The following table ~~below~~ presents ~~information about~~the fair value measurements of certain assets and liabilities measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall (in thousands):

Assets / Liabilities
Measured at Fair Value at

Fair Value Measurements
at June 30, 2018
Description June 30, 2018 Level 1 Level 2 Level 3
Available-for-sale securities:
Obligations of state and political subdivisions $ 19,809
$ —
$ 19,809
$ —
GSE mortgage-backed securities 52,518
—
52,518
—
Collateralized mortgage obligations: residential 208,714
—
208,714
—
Collateralized mortgage obligations: commercial 2,101
—
2,101
—
Corporate debt securities 25,795
—
25,795
—
Total available-for-sale securities $ 308,937
$ —
$ 308,937
$ —

Derivative assets $ 1,477
$ —
$ 1,477
$ —

Assets / Liabilities
Measured at Fair Value at

Fair Value Measurements
at December 31, 2017
Description December 31, 2017 Level 1 Level 2 Level 3
Available-for-sale securities:
Obligations of state and political subdivisions $ 22,809
$ —
$ 22,809
$ —
GSE mortgage-backed securities 59,124
—
59,124
—
Collateralized mortgage obligations: residential 198,155
—
198,155
—
Collateralized mortgage obligations: commercial 2,240
—
2,240
—
Mutual funds 2,061
2,061
—
—
Corporate debt securities 24,802
—
24,802
—
Total available-for-sale securities $ 309,191
$ 2,061
$ 307,130
$ —

Derivative assets $ 1,078
$ —
$ 1,078
$ —



	Recurring Basis Fair Value Measurements
	June 30, 2019
	Fair Value		Level 1		Level 2		Level 3
Financial assets:
U.S. Government agencies	$	3,042	$	—	$	3,042	$	—
State, county, and municipal securities	12,733		$	—	12,733		$	—
Mortgage-backed securities	400,079		—		400,079		—
Corporate debt securities	9,784		—		9,784		—
Derivative assets	669		$	—	669		$	—
Total recurring assets at fair value	$	426,307	$	—	$	426,307	$	—

	Recurring Basis Fair Value Measurements
	December 31, 2018
	Fair Value		Level 1		Level 2		Level 3
Financial assets:
U.S. Government agencies	$	3,072	$	—	$	3,072	$	—
State, county, and municipal securities	44,088		$	—	44,088		$	—
Mortgage-backed securities	365,877		—		365,877		—
Corporate debt securities	24,717		—		24,717		—
Derivative assets	1,067		$	—	1,067		$	—
Total recurring assets at fair value	$	438,821	$	—	$	438,821	$	—

The Company records impaired loans at fair value, measured at the fair value of the collateral for collateral-dependent loans. Impaired loans are considered level 3 assets when measured using appraisals from third parties, discounted for selling costs and other collateral-based discounts. Other real estate properties are considered level 3 assets when measured using appraisals from third parties, discounted for selling costs, information from comparable sales and marketability of the property. Assets held for sale are considered level 2 assets when measured using appraisals from third parties. The following tables present the Company's financial assets that are measured at fair values on a nonrecurring basis (in thousands):

Assets / Liabilities
Measured at Fair Value at

Fair Value Measurements
at June 30, 2018
Description June 30, 2018 Level 1 Level 2 Level 3
Impaired loans $ 14,880
$ —
$ —
$ 14,880
Other real estate 1,365
—
—
1,365
Assets held for sale 3,995
—
3,995
—

Assets / Liabilities
Measured at Fair Value at

Fair Value Measurements
at December 31, 2017
Description December 31, 2017 Level 1 Level 2 Level 3
Impaired loans $ 10,227
$ —
$ —
$ 10,227
Loans held for sale 15,737
—
15,737
—
Other real estate 2,001
—
—
2,001
Assets held for sale 3,572
—
3,572
—

The following table presents the fair value measurements of certain assets and liabilities measured at fair value on a non-recurring basis and the level within the fair value hierarchy in which the fair value measurements fall (dollars in thousands):



	Nonrecurring Basis Fair Value Measurements
	June 30, 2019
	Fair Value		Level 1		Level 2		Level 3
Financial assets:
Impaired loans	$	4,307	$	—	$	—	$	4,307
Loans held for sale	10,304		—		10,304		—
Other real estate	387		—		—		387
Assets held for sale	1,024		—		1,024		—
Total nonrecurring assets at fair value	$	16,022	$	—	$	11,328	$	4,694

	Nonrecurring Basis Fair Value Measurements
	December 31, 2018
	Fair Value		Level 1		Level 2		Level 3
Financial assets:
Impaired loans	$	3,086	$	—	$	—	$	3,086
Loans held for sale	23,876		—		23,876		—
Other real estate	1,067		—		—		1,067
Assets held for sale	1,024		—		1,024		—
Total nonrecurring assets at fair value	$	29,053	$	—	$	24,900	$	4,153

The inputs used to determine estimated fair value of impaired loans include market conditions, loan terms, underlying collateral characteristics and discount rates. The inputs used to determine fair value of OREO include market conditions, estimated marketing period or holding period, underlying collateral characteristics and discount rates.

For the six months ended June 30, 2019 and the year ended December 31, 2018, there was not a change in the methods and significant assumptions used to estimate fair value for assets carried at fair value.

The following table shows ~~the~~ significant unobservable inputs used in the fair value measurement of Level 3 ~~assets:~~assets (dollars in thousands):

Fair Value at

Description

June 30, 2018

Technique

Unobservable Inputs

June 30, 2019

Technique

Unobservable Inputs

Impaired loans

14,880

Third party appraisals

Collateral discounts and estimated costs to sell

4,307

Third party appraisals

Collateral discounts and estimated costs to sell

Other real estate

1,365

Third party appraisals

Collateral discounts and estimated costs to sell

387

Third party appraisals

Collateral discounts and estimated costs to sell

Fair Value at

Description

December 31, 2017

Technique

Unobservable Inputs

December 31, 2018

Technique

Unobservable Inputs

Impaired loans

10,227

Third party appraisals

Collateral discounts and estimated costs to sell

3,086

Third party appraisals

Collateral discounts and estimated costs to sell

Other real estate

2,001

Third party appraisals

Collateral discounts and estimated costs to sell

1,067

Third party appraisals

Collateral discounts and estimated costs to sell

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 entire 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 June 30, ~~2018~~2019 and December 31, ~~2017 (in~~2018 (dollars in thousands):


									Fair Value Measurements
			Fair Value Measurements at June 30, 2018 Using:						June 30, 2019
	Carrying Value		Level 1		Level 2		Level 3		Carrying Value		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks, interest-bearing deposits in banks and federal funds sold	$	278,776	$	278,776	$	—	$	—
Available-for-sale securities	308,937				308,937
Cash and cash equivalents									$	243,430	$	243,430	$	—	$	—
Securities available-for-sale									425,638		—		425,638		—
Securities held-to-maturity	67,777		—		66,758		—		33,219		—		33,363		—
Other investments	14,927		14,927		—		—
Loans, net	1,034,449		—		—		1,038,460		851,908		—		—		862,519
Derivative assets									669		—		669		—
Cash surrender value of life insurance	15,002		—		15,002		—		15,248		—		15,248		—
Financial liabilities:
Non-interest-bearing deposits	419,517		—		419,517		—		$	399,619	$	—	$	399,619	$	—
Interest-bearing deposits	1,103,503		—		901,846		171,757		1,023,770		—		847,109		178,554
Securities sold under agreements to repurchase	14,886		14,886		—		—		7,816		7,816		—		—
Short-term Federal Home Loan Bank advances	27,500		27,500		—		—
Long-term Federal Home Loan Bank advances	10,011		—		9,991		—
Junior subordinated debentures	22,167		—		22,167		—
FHLB borrowings									27,500		—		27,500		—
Other borrowings									22,167		—		22,167		—

									December 31, 2018
									Carrying Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents									$	205,371	$	205,371	$	—	$	—
Available-for-sale securities									437,754		—		437,754		—
Securities held-to-maturity									37,759		—		36,974		—
Loans, net									882,355		—		—		885,054
Derivative assets									1,067		—		1,067		—
Cash surrender value of life insurance									15,135		—		15,135		—
Financial liabilities:
Non-interest-bearing deposits									$	383,167	$	—	$	383,167	$	—
Interest-bearing deposits									1,068,904		—		888,806		177,794
Securities sold under agreements to repurchase									11,220		11,220		—		—
FHLB borrowings									27,500		—		27,500		—
Other borrowings									22,167		—		22,167		—

Fair Value Measurements at
December 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 $ 152,964
$ 152,964
$ —
$ —
Available-for-sale securities 309,191
2,061
307,130

Securities held-to-maturity 81,052
—
80,920
—
Other investments 12,214
12,214
—
—
Loans, net 1,156,538
—
—
1,160,614
Cash surrender value of life insurance 14,896
—
14,896
—
Financial liabilities:

Non-interest-bearing deposits 416,547
—
416,547
—
Interest-bearing deposits 1,063,142
—
881,139
179,910
Securities sold under agreements to repurchase 67,133
67,133
—
—
Short-term Federal Home Loan Bank advances 40,000
40,000
—
—
Long-term Federal Home Loan Bank advances 10,021
—
10,011
—
Junior subordinated debentures 22,167
—
22,167
—

~~9. Subsequent Events~~

On August 1, 2018, the Bank received an $8.5 million payoff of a significant non-accruing classified energy relationship. Assuming this payoff had occurred on June 30, 2018, pro forma Classified Assets to Bank Capital would have been reduced to 47.9% from 52.9% and energy loans as a percentage of total loans would have decreased from 14.5% to 13.8%.

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

MidSouth Bancorp, Inc. (the “Company”) is a bank 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 42 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~~Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

Cautionary Statement regarding Forward-Looking Statements

Certain statements included in this ~~Report, other than statements~~report are "forward-looking statements" within the meaning of, ~~historical fact, are forward-looking statements (as such term is defined in~~and subject to the protections of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), 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.~~(the "Exchange Act"). Forward-looking statements include ~~but are not limited~~statements with respect to ~~certain statements under~~our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions and future performance and involve known and unknown risks, uncertainties and other factors, many of which may be beyond our control and which may cause the ~~captions “Business,” “Risk Factors” and “Management’s Discussion and Analysis~~actual results, performance or achievements of ~~Financial Condition and Results of Operations.”~~the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.

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 this Report and in our ~~2017~~2018 Annual 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 in the markets we serve, 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;

increases in competitive pressure in the banking and financial services industries;

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;

our ability to successfully implement and manage our ~~recently announced~~ strategic initiatives;

costs and expenses associated with our strategic initiatives and regulatory remediation efforts and possible changes in the size and components of the expected costs and charges associated with our strategic initiatives and regulatory remediation efforts;

our ability to realize the anticipated benefits and cost savings from our strategic initiatives within the anticipated time frame, if at all;

the ability of the Company to comply with the terms of the formal agreement and Consent Order with the Office of the Comptroller of the Currency;

risk of noncompliance with and further enforcement actions regarding the Bank Secrecy Act and other anti-money laundering statues and regulations;

credit losses due to loan concentration, particularly our energy lending and commercial real estate portfolios;

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

the adequacy of the level of our ~~ALL~~ALLL and the amount of loan loss provisions required in future periods including the impact of implementation of the new CECL (current expected credit loss) methodology;

future examinations by our regulatory authorities, including the possibility that the regulatory authorities may, among other things, impose additional enforcement actions or conditions on our operations, require additional regulatory remediation efforts or require us to increase our allowance for loan losses or write-down assets;

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

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

that required regulatory, shareholder or other approvals for the Company’s pending merger with Hancock Whitney Corporation are not obtained or the conditions to the parties’ obligations to complete the merger are not satisfied in a timely manner or at all;

mergers and acquisitions, including the degree of success in integrating operations following the Company’s pending merger with Hancock Whitney Corporation and merger integration risk in connection with the Company’s pending merger with Hancock Whitney Corporation such as potential deposit attrition, higher than expected costs, customer loss and business disruption associated with the integration with Hancock Whitney Corporation, including, without limitation, potential difficulties in maintaining relationships with key personnel and other integration-related matters;

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

the identified material weaknesses in our internal control over financial reporting;

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 impact of regulations under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and other changes in banking, securities and tax laws and regulations and their application by our regulators, changes in the scope and cost of 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;

increases in cybersecurity risk, including potential business disruptions or financial losses;

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~~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,~~do, 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~~There have been no significant ~~judgments and estimates used in the preparation of the consolidated financial statements. Our significant accounting policies are described in the notes~~changes 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~~from those disclosed in our 2018 Annual Report on Form 10-K. The reader should refer to the ~~valuation~~notes to our consolidated financial statements in our 2018 Annual Report on Form 10-K for a full disclosure of ~~goodwill, intangible assets~~all critical accounting policies.

The Company adopted ASU No. 2016-02 Leases (Topic 842). This ASU revised certain aspects of recognition, measurement, presentation and disclosure of leasing transactions.

Pending Merger with Hancock Whitney Corporation

On April 30, 2019, the Company and Hancock Whitney Corporation (“Hancock Whitney”) announced that they had entered into an Agreement and Plan of Merger (the “Merger Agreement”), providing for, among other ~~purchase accounting adjustments. We account for acquisitions in accordance with ASC Topic No. 805, which requires~~things, the ~~use~~acquisition of the ~~purchase method of accounting.~~Company by Hancock Whitney (the “Merger”). 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~~terms 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~~Merger Agreement, each share of the ~~purchase price over~~Company’s common stock will convert to the ~~fair~~right to receive 0.2952 shares of Hancock Whitney common stock, $3.33 par value per share, plus cash in lieu of ~~net assets acquired. Goodwill is not amortized, but is evaluated for impairment annually or more frequently if deemed necessary. If~~fractional shares. Immediately following the ~~fair value of an asset exceeds the carrying amount~~completion of the ~~asset, no charge to goodwill~~merger, the Bank will merge with and into Hancock Whitney’s wholly-owned bank subsidiary, Hancock Whitney Bank, with Hancock Whitney Bank continuing as the surviving bank.

The Merger 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.

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 recognizedsubject to the ~~extent that realization~~satisfaction of ~~such benefits~~customary closing conditions, including regulatory approvals and approval by the Company’s shareholders. For more information on the pending Merger, please refer to the Company’s Current Report on Form 8-K filed with the SEC on May 2, 2019. The Merger Agreement was included as Exhibit 2.1 to the Form 8-K filed on May 2, 2019 and 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 indicatedincorporated 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.reference herein.

Results of Operations

For the Three Months Ended June 30, ~~2018~~2019 and ~~2017~~2018

Net loss available to common shareholders totaled $3.7 million, or $0.22 per share, for the three months ended June 30, 2019, compared to net loss available to common shareholders of $1.5 million, or $0.09 per share, for the three months ended June 30, ~~2018, compared to a net~~2018. Provision for loan loss ~~available to common shareholders of $6.2~~totaled $4.8 million ~~or $0.51 per share,~~and $440,000 for the three months ended June 30, ~~2017.~~2019 and 2018, respectively. The second quarter of 2018 included non-operating expenses totaling $5.3 million of regulatory remediation costs and the second quarter of 2017 included non-operating expenses of $2.4 million consisting of $1.3 million for severance and $1.0 million for costs associated with branch closures. Excluding these non-operating expenses, diluted earnings for the second quarter of 2018 were $0.16 per diluted share, comparedloan loss provisions increased substantially during 2019 primarily due to a ~~loss of $0.38 per diluted share~~$3.4 million impairment charge for ~~the second quarter of 2017.~~a shared national healthcare credit.

Fully taxable-equivalent ("FTE") net interest income was $16.0 million for the second quarter of 2019, a $1.0 million decrease compared to $17.0 million for the second quarter of 2018, resulting from a ~~$1.4 million~~$821,000 decrease ~~compared to $18.4 million for the second quarter of 2017.~~in interest income and a $216,000 increase in interest expense. Our ~~annualized~~ net interest margin, on a FTE basis, ~~decreased 20~~increased 3 basis points in prior year quarterly comparison, from ~~4.18%~~3.97% for the second quarter of ~~2017~~2018 to ~~3.98%~~4.00% for the second quarter of ~~2018. Excluding the impact of purchase accounting adjustments, the FTE margin decreased 14 basis points, from 4.09% to 3.95% for the three months ended June 30, 2017 and 2018, respectively.~~

~~Net interest income decreased $1.3 million in quarterly comparison, resulting from a $1.0 million decrease in interest income and a $302,000 increase in interest expense.~~2019.

Excluding ~~non-operating~~remediation expenses of $5.3 million for the second quarter of 2018 and ~~$2.4~~merger-related expenses of $1.1 million for the second quarter ~~of 2017,~~2019, noninterest expenses ~~decreased $298,000~~increased $480,000 in quarterly comparison and consisted primarily of a $194,000 decrease in salaries and employee benefits costs and a $235,000 decrease in occupancy expense, which were partially offset by a $164,000 increase in legal and professional fees. The provision for loan losses decreased $12.1 million in quarterly comparison. The provision decrease is primarily due to payoffs and charge offs of large energy nonaccrual loans and a release of general energy reserves. A $237,000 income tax benefit was reported for the second quarter of 2018, compared to a $3.2 million income tax benefit that was reported in the second quarter of 2017.

Dividends on preferred stock totaled $810,000 for the three months ended June 30, 2019 and 2018, ~~and $811,000 for the three months ended June 30, 2017.~~respectively. Dividends on the Series B Preferred Stock were $720,000 for the ~~second quarter of~~three months ended June 30, 2019 and 2018, ~~unchanged from $720,000~~respectively. Dividends on the Series C Preferred Stock totaled $90,000 for the ~~second quarter~~three months ended June 30, 2019 and 2018, respectively.

For the Six Months Ended June 30, 2019 and 2018

Net loss available to common shareholders totaled $10.4 million, or $0.62 per share, for the six months ended June 30, 2019, compared to net loss available to common shareholders of ~~2017.~~$1.9 million, or $0.12 per share, for the six months ended June 30, 2018. Provision for loan loss totaled $12.4 million and $440,000 for the six months ended June 30, 2019 and 2018, respectively. The loan loss provisions increased substantially during 2019 primarily due to a $10.4 million impairment charge for a shared national healthcare credit.

FTE net interest income was $31.4 million for the of six months ended June 30, 2019, a $3.0 million decrease compared to $34.4 million for the six months ended June 30, 2018, resulting from a $2.3 million decrease in interest income and a $652,000 million increase in interest expense.Our net interest margin, on a FTE basis, increased 4 basis points in prior year quarterly comparison, from 4.04% for the six months ended June 30, 2018 to 4.08% for the six months ended June 30, 2019.

Excluding remediation expenses of $9.0 million for the six months ended June 30, 2018 and merger-related expenses of $1.1 million for the six months ended June 30, 2019, noninterest expenses increased $2.5 million for the six months ended June 30, 2019 compared to six months ended June 30, 2018.

Dividends on preferred stock totaled $1.6 million for the six months ended June 30, 2019 and 2018, respectively. Dividends on the Series B Preferred Stock were $1.4 million for the six months ended June 30, 2019 and 2018, respectively. Dividends on the Series C Preferred Stock issued with the December 28, 2012 acquisition of PSB Financial Corporation (“PSB”) totaled ~~$90,000 for the three months ended June 30, 2018 and $91,000 for the three months ended June 30, 2017.~~

~~For the Six Months Ended June 30, 2018 and 2017~~

~~We reported a net loss available to common shareholders of $1.9 million, or $0.09 per diluted share,~~$180,000 for the six months ended June 30, 2018, compared to net loss available to common shareholders of $4.5 million, or $0.39 per diluted share, for the six months ended June 30, 2017. The first six months of 2018 included non-operating expenses totaling $10.4 million which consisted of $9.2 million of regulatory remediation costs, a $883,000 loss on the transfer of loans held for sale, $100,000 on fees related to the bulk loan sale, and a $145,000 one-time charge related to discontinued branch projects. Excluding these non-operating expenses, the operating earnings per share for the first six months of 2018 was $0.37.

FTE net interest income was $34.4 million for the six months ended June 30, 2018, a $2.3 million decrease compared to $36.7 million for the six months ended June 30, 2017. Our annualized net interest margin, on a FTE basis, was 4.07% for the six months ended June 30, 2018, compared to 4.18% for the same period in 2017. Excluding the impact of purchase accounting adjustments, the FTE margin decreased 5 basis points, from 4.10% to 4.05% for the six months ended June 30, 20172019 and 2018, respectively.

Noninterest income decreased $556,000 in year-over-year comparison and consisted primarily of a $605,000 decrease in service charges on deposit accounts, and a $152,000 decrease in mortgage lending income which were partially offset by a $192,000 increase in ATM/ debit card income.

Excluding non-operating expenses of $10.4 million for the six months ended June 30, 2018 and $2.4 million for the six months ended June 30, 2017, noninterest expenses decreased $690,000 in year-over-year comparison and consisted primarily of a $1.2 million decrease in salaries and benefits costs, a $211,000 decrease in ATM/ debit card expense, and a $814,000 decrease in occupancy expense, which were partially offset by an increase of $1.5 million in legal and professional fees. The provision for loan losses decreased $14.9 million in year-over-year comparison, from $15.3 million for the six months ended June 30, 2017 to $440,000 for the six months ended June 30, 2018, primarily due to an $11.2 million reduction of charge-offs for the comparable period. A $271,000 income tax benefit was reported for the first six months of 2018, compared to income tax benefit of $2.6 million for the first six months of 2017.

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, was ~~3.98%~~4.00% and ~~4.18%~~3.97% for the three months ended June 30, 2019 and 2018, respectively. Net interest margin on a taxable equivalent basis was 4.08% and ~~2017,~~4.04% for the six months ended June 30, 2019 and 2018, respectively. ~~Tables 1 and 2~~The tables below analyze the changes in net interest income in the three and six months ended June 30, ~~2018~~2019 and ~~2017.~~2018.

FTE net interest income decreased ~~$1.4~~$1.0 million in prior year quarterly comparison. Interest income on loans decreased ~~$1.4~~$2.3 million due to a decrease in the average balance of loans of ~~$145~~$219.2 million in prior year quarterly comparison. The average yield on loans increased 2032 basis points in prior year quarterly comparison, from ~~5.35%~~5.53% to ~~5.55%~~5.85%.

Investment securities totaled $376.7 million, or 20.3% of total assets at June 30, 2018, versus $367.2 million, or 19.8% of total assets at March 31, 2018. The investment portfolio had an effective duration of 3.53 years and a net unrealized loss of $9.3 million at June 30, 2018. FTE interest income on investments ~~decreased $544,000~~increased $862,000 in prior year quarterly comparison. The average volume of investment securities ~~decreased $60.1~~increased $90.8 million during the three months ended June 30, 2019 compared to same period in ~~prior year quarterly comparison,~~2018 and the average tax equivalent yield on investment securities ~~decreased 15~~increased 24 basis points, from ~~2.69%~~2.54% to ~~2.54%~~2.78%.

The average yield on all earning assets increased 12 basis points in prior year quarterly comparison, from 4.39% for the second quarter of 2018 to 4.51% for the second quarter of 2019.

Interest expense increased $216,000 in comparison. The increase in interest is primarily a result of a $255,000 increase in interest expense on deposits and a $24,000 increase in interest expense on Trust Preferred Securities ("TruPs"), which were partially offset by a $63,000 decrease in interest expense on repurchase agreements and FHLB Borrowings.

FTE net interest income decreased $3.0 million in the first six months of 2019 compared with the same time period in 2018. Interest income on loans decreased $5.3 million over the same time period due to a decrease in the average balance of loans of $238.6 million in prior year semi-annual comparison. The average yield on loans increased 28 basis points in prior year semi-annual comparison, from 5.53% to 5.81%.

FTE interest income on investments increased $1.8 million in the first six months of 2019 compared with the same time period in 2018. The average volume of investment securities increased $47.5 million during the six months ended June 30, 2019 compared to same period in 2018 and the average tax equivalent yield on investment securities increased 56 basis points, from 2.55% to 3.11%.

The average yield on all earning assets ~~decreased 12~~increased 17 basis points in prior year ~~quarterly~~ comparison, from ~~4.52%~~4.44% for the ~~second quarter of 2017~~six months ended 2018 to ~~4.40%~~4.61% for the ~~second quarter of 2018.~~six months ended June 30, 2019.

~~Net interest income decreased $1.3 million~~Interest expense increased $652,000 in ~~quarterly comparison, resulting from a $1.0 million decrease~~the first six months of 2019 compared with the same time period in ~~interest income and a $302,000~~2018. The increase in interest ~~expense. Increases in interest reflect~~is primarily a ~~$437,000~~result of a $698,000 increase in interest expense on deposits and a ~~$29,000~~$91,000 increase in interest expense on ~~FHLB advances,~~TruPs, which were partially offset by a ~~$211,000~~$137,000 decrease in interest expense on repurchase ~~agreements.~~agreements and FHLB Borrowings.

As a result of these changes in volume and yield on earning assets and interest-bearing liabilities, the FTE net interest margin ~~decreased 20~~increased 4 basis points ~~from 4.18% for~~to 4.08% as of six months ended June 30, 2019 compared to the second quarter of 2017 to 3.98% for the second quarter of 2018. Excluding purchase accounting adjustments on loans, deposits and FHLB borrowings, the FTE margin decreased 14 basis points, from 4.09% for the second quarter of 2017 to 3.95% for the second quarter ofsame period in 2018.

Table 1
Consolidated Average Balances, Interest and Rates
(in thousands)
Three Months Ended June 30,
2018 2017

Average
Volume
Interest
Average
Yield/Rate

Average
Volume
Interest
Average
Yield/Rate
Assets
Investment securities¹

Taxable $ 340,080
$ 2,093
2.46 % $ 387,441
$ 2,416
2.49 %
Tax exempt²
43,858
348
3.18 % 56,622
570
4.03 %
Total investment securities 383,938
2,442
2.54 % 444,063
2,986
2.69 %
Federal funds sold 5,008
21
1.63 % 3,573
9
1.00 %
Time and interest bearing deposits in other banks 201,281
912

55,331
150

Other investments 14,924
92
1.79 % 11,493
78
1.07 %
Total loans³
1,109,371
15,344
2.45 % 1,254,402
16,731
2.71 %
Total earning assets 1,714,522
18,810
5.55 % 1,768,862
19,954
5.35 %
Allowance for loan losses (25,025 )
4.40%
(22,819 )
4.52%
Nonearning assets 171,409

180,365

Total assets $ 1,860,906

$ 1,926,408

Liabilities and shareholders’ equity

Total interest bearing deposits $ 1,087,746
$ 1,410
0.52 % $ 1,125,482
$ 973
0.35 %
Securities sold under repurchase agreements 26,230
25
0.39 % 90,807
236
1.04 %
Short-term FHLB advances 27,500
75
1.08 % —
—
— %
Long-term FHLB advances 10,014
45
1.79 % 25,260
91
1.43 %
Junior subordinated debentures 22,167
259
4.63 % 22,167
212
3.78 %
Total interest bearing liabilities 1,173,657
1,814
0.62 % 1,263,716
1,512
0.48 %
Demand deposits 426,575

426,017

Other liabilities 9,396

7,804

Shareholders’ equity 251,278

228,871

Total liabilities and shareholders’ equity $ 1,860,906

$ 1,926,408

Net interest income and net interest spread
$ 16,996
3.78 %
$ 18,442
4.04 %
Net interest margin

3.98 %

4.18 %


^1.The following tables shows the relationship between interest revenue and expense and the average balances of interest-earning assets are interest-bearing liabilities as of the dates indicated (in thousands):	~~Securities classified as available-for-sale are included in average balances. Interest income figures reflect interest earned on such securities.~~


^2.	~~Interest income of $71,000 for 2018 and $196,000 for 2017 is added to interest earned on tax-exempt obligations to reflect tax equivalent yields using a tax rate of 21% and 35%, respectively.~~


^3.	~~Interest income includes loan fees of $1,065,000 for 2018 and $853,000 for 2017. Nonaccrual loans are included in average balances and income on such loans is recognized on a cash basis.~~



Average Balances, Net Interest Income and Yields/Rates
	Three Months Ended June 30,
	2019						2018
	Average Balance		Income/Expense		Yield/Rate		Average Balance		Income/Expense		Yield/Rate
Assets
Investment securities ⁽¹⁾
Taxable	$	452,396	$	3,100	2.74	%	$	340,080	$	2,093	2.46	%
Tax exempt⁽²⁾	22,368		203		3.63	%	43,858		348		3.17	%
Total investment securities	474,764		3,303		2.78	%	383,938		2,441		2.54	%
Federal funds sold	4,370		30		2.75	%	5,008		21		1.68	%
Time and interest bearing deposits in other banks	209,254		1,224		2.34	%	201,281		912		1.81	%
Other investments	17,629		409		9.28	%	14,924		92		2.47	%
Total loans⁽³⁾	890,214		13,023		5.85	%	1,109,371		15,344		5.53	%
Total earning assets	1,596,231		17,989		4.51	%	1,714,522		18,810		4.39	%
Nonearning assets	132,403						146,384
Total assets	$	1,728,634					$	1,860,906

Liabilities and shareholders’ equity
Total interest bearing deposits	$	1,032,778	$	1,665	0.64	%	$	1,087,746	$	1,410	0.52	%
Securities sold under repurchase agreements	7,356		9		0.49	%	26,230		25		0.38	%
FHLB borrowings	27,500		74		1.08	%	37,514		120		1.28	%
Other borrowings	22,167		283		5.11	%	22,167		259		4.67	%
Total interest bearing liabilities	1,089,801		2,031		0.75	%	1,173,657		1,814		0.62	%
Other liabilities	416,443						435,971
Shareholders’ equity	222,390						251,278
Total liabilities and shareholders’ equity	1,728,634						$	1,860,906

Net interest income and net interest spread			$	15,958	3.76	%			$	16,996	3.77	%
Net interest margin					4.00	%					3.97	%

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

⁽²⁾Reflects taxable-equivalent adjustments using the federal statutory rate of 21% as of June 30, 2019 and 2018, respectively, in adjusting interest on tax-exempt securities to a fully taxable basis. The taxable equivalent adjustments included above are $43,000 for 2019 and $74,000 for 2018 for the quarter ended.

⁽³⁾ Interest income includes loan fees of $588,000 for 2019 and $1.1 million for 2018. Nonaccrual loans are included in average balances and income on such loans is recognized on a cash basis



Average Balances, Net Interest Income and Yields/Rates

	Six Months Ended June 30,
	2019						2018
Assets	Average Balance		Income/Expense		Yield/Rate		Average Balance		Income/Expense		Yield/Rate
Investment securities¹
Taxable	$	409,653	$	6,170	3.01	%	$	336,221	$	4,140	2.46	%
Tax exempt²	21,240		526		4.95	%	47,186		746		3.16	%
Total investment securities	430,893		6,696		3.11	%	383,407		4,886		2.55	%
Federal funds sold	4,928		61		2.48	%	4,993		39		1.56	%
Time and interest bearing deposits in other banks	191,497		2,229		2.33	%	167,299		1,426		1.70	%
Other investments	17,284		505		5.84	%	14,853		179		2.41	%
Total loans³	895,806		26,010		5.81	%	1,134,382		31,359		5.53	%
Total earning assets	1,540,408		35,501		4.61	%	1,704,934		37,889		4.44	%
Nonearning assets	193,947						155,556
Total assets	$	1,734,355					$	1,860,490

Liabilities and shareholders’ equity
Total interest bearing deposits	$	1,037,056	$	3,345	0.65	%	$	1,079,660	$	2,647	0.49	%
Securities sold under repurchase agreements	9,699		23		0.47	%	33,134		66		0.40	%
FHLB borrowings	27,500		155		1.13	%	38,124		249		1.31	%
Other borrowings	22,167		570		5.14	%	22,167		479		4.32	%
Total interest bearing liabilities	1,096,422		4,093		0.75	%	1,173,085		3,441		0.59	%
Other liabilities	415,997						447,460
Shareholders’ equity	221,936						255,170
Total liabilities and shareholders’ equity	$	1,734,355					$	1,875,715

Net interest income and net interest spread			$	31,408	3.81	%			$	34,448	3.85	%
Net interest margin					4.08	%					4.04	%

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

⁽²⁾Reflects taxable-equivalent adjustments using the federal statutory rate of 21% in adjusting interest on tax-exempt securities to a fully taxable basis. The taxable equivalent adjustments included above are $110,000 for 2019 and $153,000 for 2018. ⁽³⁾ Interest income includes loan fees of $1.1 million for 2019 and $2.1 million for 2018. Nonaccrual loans are included in average balances and income on such loans is recognized on a cash basis.

Table 2
Consolidated Average Balances, Interest and Rates
(in thousands)
Six Months Ended June 30,
2018 2017
Average
Volume Interest Average
Yield/Rate Average
Volume Interest Average
Yield/Rate
Assets
Investment securities¹

Taxable $ 336,221
$ 4,140
2.50 % $ 384,788
$ 4,743
2.47 %
Tax exempt²
47,186
746
3.20 % 58,609
1,191
4.06 %
Total investment securities 383,407
4,886
2.58 % 443,397
5,934
2.68 %
Federal funds sold 4,993
39
1.57 % 3,572
15
0.84 %
Time and interest bearing deposits in other banks 167,299
1,426
1.72 % 48,595
235
0.96 %
Other investments 14,853
179
2.44 % 11,424
162
2.84 %
Total loans³
1,134,382
31,359
5.57 % 1,264,253
33,353
5.32 %
Total earning assets 1,704,934
37,889
4.48 % 1,771,241
39,699
4.52 %
Allowance for loan losses (25,747 )

(23,416 )

Nonearning assets 181,303

181,628

Total assets $ 1,860,490

$ 1,929,453

Liabilities and shareholders’ equity

Total interest bearing deposits $ 1,079,660
$ 2,647
0.49 % $ 1,140,361
$ 1,908
0.34 %
Securities sold under repurchase agreements 33,134
66
0.40 % 91,684
470
1.03 %
Short-term FHLB advances 28,108
159
—
—
—
—
Long-term FHLB advances 10,016
90
1.80 % 25,315
179
1.41 %
Junior subordinated debentures 22,167
479
4.30 % 22,167
420
3.77 %
Total interest bearing liabilities 1,173,085
3,441
0.59 % 1,279,527
2,977
0.47 %
Demand deposits 425,505

419,933

Other liabilities 8,687

7,574

Shareholders’ equity 253,213

222,419

Total liabilities and shareholders’ equity $ 1,860,490

$ 1,929,453

Net interest income and net interest spread
$ 34,448
4.07 %
$ 36,722
4.05 %
Net interest margin

3.89 %

4.18 %


^1.The following tables shows the relative effect on net interest revenue resulting from changes in the average outstanding balances (volume) of interest-earning assets and interest-bearing liabilities and the rates earned and paid by the Company on such assets and liabilities (in thousands).	~~Securities classified as available-for-sale are included in average balances. Interest income figures reflect interest earned on such securities.~~


^2.	~~Interest income of $152,000 for 2018 and $410,000 for 2017 is added to interest earned on tax-exempt obligations to reflect tax equivalent yields using a tax rate of 21% and 35%.~~


^3.	~~Interest income includes loan fees of $2,073,000 for 2018 and $1,559,000 for 2017. Nonaccrual loans are included in average balances and income on such loans is recognized on a cash basis.~~

Table 3
Changes in Taxable-Equivalent Net Interest Income
(in thousands)

Three Months Ended
June 30, 2018 compared to June 30, 2017

Total
Increase

Change
Attributable To
(Decrease) Volume Rates
Taxable-equivalent earned on:
Investment securities
Taxable $ (323 ) $ (318 ) $ (5 )
Tax exempt (222 ) (118 ) (104 )
Federal funds sold 12
10
2
Time and interest bearing deposits in other banks 762
305
457
Other investments 14
9
5
Loans, including fees (1,387 ) (1,057 ) (330 )
Total (1,144 ) (1,169 ) 25

Interest paid on:

Interest bearing deposits 437
(34 ) 471
Securities sold under repurchase agreements (211 ) (112 ) (99 )
Short-term FHLB advances 75
75
—
Long-term FHLB advances (46 ) (65 ) 19
Junior subordinated debentures 47
—
47
Total 302
(136 ) 438
Taxable-equivalent net interest income $ (1,446 ) $ (1,033 ) $ (413 )



Rate/Volume Analysis on a Taxable Equivalent Basis
	Three Months Ended June 30, 2019 vs. 2018
	Change Attributable to
	Volume			Rate			Change(1)
Interest Income:
Investment securities	$	618		$	244		$	862
Federal funds sold	(16		)	25			9
Time and interest bearing deposits in other banks	40			272			312
Other investments	20			297			317
Loans, including fees	(7,095		)	4,774			(2,321		)
Total interest income	(6,433		)	5,612			(821		)

Interest Expense:
Deposits	(425		)	680			255
Securities sold under repurchase agreements	(39		)	22			(17		)
FHLB advances	(28		)	(18		)	(46		)
Other borrowings	—			24			24
Total interest expense	(492		)	708			216
Net interest income	$	(5,941	)	$	4,904		$	(1,037	)

~~Note: In Table 3, changes~~⁽¹⁾ Amounts shown as increase (decrease) due to changes in either volume or rate includes an allocation of the amount that reflects the interaction of volume and rate ~~have generally been allocated to volume and rate changes in proportion to the relationship of~~changes. This allocation is based on the absolute dollar amounts of change due solely to ~~the~~ changes in ~~each.~~

volume or rate.

Table 4
Changes in Taxable-Equivalent Net Interest Income
(in thousands)

Six Months Ended
June 30, 2018 compared to June 30, 2017

Total
Increase

Change
Attributable To
(Decrease) Volume Rates
Taxable-equivalent earned on:
Investment securities
Taxable $ (603 ) $ (624 ) $ 21
Tax exempt (445 ) (211 ) (234 )
Federal funds sold 24
8
16
Time and interest bearing deposits in other banks 1,191
909
282
Other investments 17
43
(26 )
Loans, including fees (1,994 ) (3,538 ) 1,544
Total (1,810 ) (3,413 ) 1,603

Interest paid on:

Interest bearing deposits 739
(107 ) 846
Securities sold under repurchase agreements (404 ) (206 ) (198 )
Short-term FHLB advances 159
80
79
Long-term FHLB advances (89 ) (127 ) 38
Junior subordinated debentures 59
—
59
Total 464
(360 ) 824
Taxable-equivalent net interest income $ (2,274 ) $ (3,053 ) $ 779



Rate/Volume Analysis on a Taxable Equivalent Basis
	Six Months Ended June 30, 2019 vs. 2018
	Change Attributable to
	Volume			Rate			Change(1)
Interest Income:
Investment securities	$	655		$	1,155		$	1,810
Federal funds sold	(1		)	23			22
Time and interest bearing deposits in other banks	226			577			803
Other investments	35			291			326
Loans, including fees	(9,385		)	4,036			(5,349		)
Total interest income	(8,470		)	6,082			(2,388		)

Interest Expense:
Deposits	(294		)	992			698
Securities sold under repurchase agreements	(70		)	27			(43		)
FHLB advances	(62		)	(32		)	(94		)
Other borrowings	—			91			91
Total interest expense	(426		)	1,078			652
Net interest income	$	(8,044	)	$	5,004		$	(3,040	)

~~Note: In Table 4, changes~~

⁽¹⁾ Amounts shown as increase (decrease) due to changes in either volume or rate includes an allocation of the amount that reflects the interaction of volume and rate ~~have generally been allocated to volume and rate changes in proportion to the relationship of~~changes. This allocation is based on the absolute dollar amounts of change due solely to ~~the~~ changes in ~~each.~~volume or rate.

Non-interest Income

~~Total~~The following table presents the components of non-interest income was $4.8 million for the three months ended March 31, 2018, compared to $5.0 million for the three months ended March 31, 2017. Our recurring non-interest income includes service charges on deposit accounts, ATM and debit card income, credit card income and mortgage lending.

~~Table 5 presents non-interest income for the three and six-month periods ended June 30, 2018 and 2017.~~

(in thousands):

Table 5
Non-Interest Income
(in thousands)
Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Service charges on deposit accounts $ 2,065
$ 2,396
$ 4,271
$ 4,879
ATM and debit card income 1,877
1,766
3,661
3,469
Gain on sales of securities, net —
3
—
9
Mortgage lending 66
167
158
310
Increase in cash value of life insurance 54
66
106
129
Credit card interchange income 285
297
571
591
Credit card merchant fee income 82
82
149
151
Check cashing income 63
—
122
—
Loss on equity securities, other investments (51 ) —
(51 ) —
Other 441
446
724
732
Total non-interest income $ 4,882
$ 5,223
$ 9,711
$ 10,270



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Service charges on deposits	$	1,854	$	2,065	3,647		4,271
ATM and debit card income	2,044		1,877		3,969		3,661
Credit card income	425		381		946		752
Gain on sale of securities, net	202		—		575		—
Gain on sale of loans, net	—		—		1,274		—
Other charges and fees	265		559		652		1,027
Total non-interest income	$	4,790	$	4,882	$	11,063	$	9,711

Non-interest income decreased ~~$341,000~~$92,000 in quarterly comparison, from ~~$5.2 million for the three months ended June 30, 2017 to~~ $4.9 million for the three months ended June 30, ~~2018.~~2018 to $4.8 million for the three months ended June 30, 2019. The decrease ~~consisted primarily of~~is due to a ~~$313,000~~$211,000 decrease in service charges on ~~deposit accounts,~~deposits and a ~~$12,000~~$294,000 decrease in ~~credit card interchange income,~~other charges and ~~a $101,000 decrease in mortgage lending income which were partially~~fees offset by ~~an $111,000 increase~~a $202,000 gain on sale of securities. The decline in ~~ATM/debit card income.~~

~~Non-interest~~service charge and other charges and fees income ~~decreased $559,000 in year-to-date comparison, from $10.3 million for~~during the six months ended June 30, ~~2017~~2019 is primarily a result of consumer behavior and a decline year over year in non-interest bearing deposits which is also contributing to the change in service charge income recognized.

Non-interest income increased $1.4 million in comparison, from $9.7 million for the six months ended June 30, 2018 to $11.1 million for the six months ended June 30, 2019. The increase is primarily due to a $1.8 million gain on sale of loans and ~~consisted primarily of~~securities offset by a ~~$608,000~~$624,000 decrease in service charges on ~~deposit accounts, a $152,000 decrease~~deposits. The decline in ~~mortgage lending~~service charge income ~~offset by a $192,000 increase in ATM/debit card income.~~

~~Non-interest Expense~~

Total non-interest expense was $22.3 million and $44.1 million for the three and six months ended June 30, 2018, compared to $19.6 million and $36.8 million for the three and six months ended June 30, 2017. Our recurring non-interest expense consists of salaries and employee benefits, occupancy expense, ATM and debit card expense and other operating expenses.

~~Table 6 presents non-interest expense for the three and six-month periods ended June 30, 2018 and 2017.~~

Table 6
Non-Interest Expense
(in thousands)
Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Salaries and employee benefits $ 7,916
$ 8,110
$ 15,635
$ 16,799
Occupancy expense 3,193
3,428
6,238
7,052
ATM and debit card 648
713
1,223
1,434
Legal and professional fees 1,100
936
2,789
1,321
FDIC premiums 507
430
937
827
Marketing 281
262
476
542
Corporate development 248
253
485
569
Data processing 666
667
1,331
1,288
Printing and supplies 133
135
256
318
Expenses on ORE, net 138
92
214
171
Amortization of core deposit intangibles 276
276
553
553
Severance and retention accruals (non-operating) —
1,341
—
1,341
Loss on transfer of loans to held for sale (non-operating) 8
—
883
—
One-time charge related to closure of branches (non-operating) —
465
145
465
Write-down of assets held for sale —
570
—
570
Regulatory remediation costs (non-operating) 5,323
—
9,249
—
Legal fees related to bulk loan sale (non-operating) 12
—
100
—
Other non-interest expense 1,824
1,926
3,631
3,584
Total non-interest expense $ 22,273
$ 19,604
$ 44,145
$ 36,834

Non-interest expenses increased $2.7 million in quarterly comparison. The second quarter of 2018 included non-operating expenses totaling $5.3 million which consisted of $8,000 loss on the transfer of loans to held for sale, $5.3 million of regulatory remediation costs, and $12,000 of legal fees related to the bulk loan sale. Excluding non-operating expenses of $5.3 million for the second quarter of 2018 and $2.4 million for the second quarter of 2017, noninterest expenses decreased $298,000 in quarterly comparison and consisted primarily of a $194,000 decrease in salaries and employee benefits costs and a $235,000 decrease in occupancy expense, which were partially offset by a $164,000 increase in legal and professional fees. The provision for loan losses decreased $12.1 million in quarterly comparison. The provision decrease is primarily due to payoffs and charge offs of large energy nonaccrual loans and a release of general energy reserves.

~~The $9.2 million of regulatory remediation costs incurred~~ during the six months ended June 30, ~~2018 represented consulting and outsourcing costs for assistance~~2019 is primarily a result of consumer behavior but more so due to the influx of tax refunds during this period. Furthermore, non-interest bearing deposits have declined year over year which is also contributing to the change in ~~complying with terms of our regulatory written agreement.~~service charge income recognized.

Non-interest Expenses

The following table presents the components of non-interest expense (in thousands).



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Salaries and employee benefits	8,940		7,916		18,638		15,635
Occupancy expense	2,962		3,193		6,269		6,328
ATM and debit card	682		648		1,306		1,223
Data processing	853		666		1,701		1,331
Loss on transfer of loans to held for sale	—		8		—		883
Legal and professional fees	1,163		1,100		3,046		2,789
Regulatory remediation expense	—		5,323		—		9,249
Merger-related expense	1,149		—		1,149		—
Amortization of core deposit intangibles	256		276		553		553
FDIC Insurance	246		507		477		937
Marketing	259		281		578		476
Corporate development	321		248		690		485
Other	2,018		2,107		4,328		4,256
Total non-interest expense	$	18,849	$	22,273	$	38,735	$	44,145

Total non-interest expense was $18.8 million for the three months ended June 30, 2019, compared to $22.3 million for the three months ended June 30, 2018. Salaries and employee benefits ~~costs decreased $1.2~~expense increased $1.0 million for the three months ended June 30, 2019, respectively, from the same periods in ~~year-to-date comparison and included a $801,000 decrease~~2018 due to continued investment in salary costs, a $139,000 decrease in bonus and incentive costs, and a $189,000 decrease in stock compensation expense. A decrease in the number of employees on a full-time equivalent basis of 61 duringcompliance staffing versus the same period ~~from 489 at~~a year ago.

Regulatory remediation expense decreased $5.3 million for the three months ended June 30, ~~2017~~2019, compared with the same period in 2018. The decrease is related to ~~428 at~~completion of various regulatory remediation projects. This was offset slightly by $1.1 million increase in merger-related expenses.

Total non-interest expense was $38.7 million for the six months ended June 30, 2019, compared to $44.1 million for the six months ended June 30, 2018. Salaries and employee benefits expense increased $3.0 million for the six months ended June 30, 2019 from the same period in 2018 ~~branch closures contributed~~due to continued investment in compliance staffing versus the ~~decrease in salaries expense and~~same period a ~~decrease in the number of employees.~~year ago.

~~Occupancy~~Regulatory remediation expense decreased ~~$814,000~~$9.2 million for the six months ended June 30, 2019 from the same period in ~~year-to-date comparison and~~2018. The decrease is ~~primarily due~~related to ~~the closure and sale~~completion of ~~9 branches in 2017 and 6 branches in 2018.~~

~~ATM and debit card expense decreased $211,000 in year-to-date comparison, primarily due to the 15 branch closures.~~

~~The~~various regulatory remediation projects. This was offset slightly by $1.1 million increase in ~~legal and professional fees is primarily due to increased legal fees related to the elevated level of non-performing loans as well as increased outsourcing costs related to internal audit services.~~

~~Analysis of Balance Sheet~~

~~Consolidated assets remained constant at $1.9 billion at June 30, 2018 and December 31, 2017.~~merger-related expenses.

~~Securities available-for-sale totaled $308.9~~Balance Sheet Review

At June 30, 2019, we had total assets of approximately $1.7 billion, consisting principally of $851.9 million in net loans, loans held for sale of $10.3 million, $458.9 million in investment securities and, $232.5 million in cash and cash equivalents. Loans held for sale of $10.3 million at June 30, ~~2018, a decrease~~2019 are anticipated to close in the third quarter of ~~$254,000 from~~2019. Our liabilities at June 30, 2019 totaled $1.5 billion, consisting primarily of $1.4 billion in deposits. At June 30, 2019, our shareholders' equity was $221.0 million.

At December 31, ~~2017. Securities held-to-maturity decreased $13.3~~2018, we had total assets of approximately $1.7 billion, consisting principally of $882.4 million ~~from $81.1~~in net loans, $475.5 million in investment securities and $205.4 million in cash and cash equivalents. Our liabilities at December 31, ~~2017 to $67.8~~2018 totaled $1.5 billion, consisting primarily of $1.45 billion in deposits. At December 31, 2018, our shareholders' equity was $222.0 million.

Investment securities totaled $458.9 million, or 26.8% of total assets at June 30, 2019, versus $475.5 million, or 27.3% of total assets at December 31, 2018. The investment ~~securities~~ portfolio had an effective duration of ~~3.5~~2.13 years, as measured on a 100 basis point parallel shock in interest rates and a net unrealized ~~loss~~gain of ~~$9.3~~$4.2 million at June 30, ~~2018.~~2019.

~~Total loans decreased $125.5 million during~~The following table shows the ~~six months ended June 30, 2018.~~

composition of the Company's loan portfolio (in thousands).

Table 7
Composition of Loans
(in thousands)
June 30, 2018 December 31, 2017
Commercial, financial, and agricultural (C&I) $ 354,944
$ 435,207
Real estate – construction 98,108
90,287
Real estate – commercial (CRE) 414,526
448,406
Real estate – residential 141,104
146,751
Installment loans to individuals 47,406
56,398
Lease financing receivable 632
732
Other 1,243
5,645
Total loans $ 1,057,963
$ 1,183,426
Less allowance for loan losses (23,514 ) (26,888 )
Net loans $ 1,034,449
$ 1,156,538



Composition of Loans
	June 30, 2019			December 31, 2018
Commercial, financial and agricultural	$	226,871		$	267,340
Real estate – construction	77,482			87,506
Real estate – commercial	409,694			368,449
Real estate – residential	126,043			132,435
Consumer and other	39,476			43,506
Lease financing receivable	471			549
Total loans	880,037			899,785
Allowance for loan and lease losses	(28,129		)	(17,430		)
Total loans, net	$	851,908		$	882,355

~~Our energy-related loan portfolio~~

Total deposits at June 30, ~~2018 totaled $153.6 million, or 14.5% of total loans, down from $172.8 million~~2019 remained stable at March 31, 2018. The majority of MidSouth’s energy lending is focused on oil field service companies. Of the 286 total relationships in our energy-related loan portfolio, 32 relationships totaling $51.3 million were classified,$1.4 billion with ~~$40.4 million on nonaccrual status at June 30, 2018. At June 30, 2018, reserves for potential energy-related loan losses approximated 5.6% of energy loans.~~

Within the $414.5 million commercial real estate portfolio, $389.6 million is secured by commercial property, $19.3 million is secured by multi-family property, and $5.6 million is secured by farmland. Of the $389.6 million secured by commercial property, $251.2 million, or 64.5%, is owner-occupied. Of the $141.1 million residential real estate portfolio, 77.3% represented loans secured by first liens.

~~Assets held for sale totaled $4.0 million at June 30, 2018 and~~only a slight decrease when compared to December 31, ~~2017 and consisted of seven former branch buildings that were previously closed.~~

~~Deposits increased $43.3 million from year-end 2017.~~2018. Our stable core deposit base, which excludes time deposits, totaled ~~$1.3~~$1.2 billion or 87.8% and 87.6% of total deposits at June 30, ~~2018~~2019 and ~~March~~December 31, 2018, ~~and accounted for 88.5% of deposits compared to 88.3% of deposits,~~ respectively.

~~Long-term~~ FHLB ~~advances totaled $10.0 million~~borrowings remained unchanged at June 30, 2018, compared to $25.2 million at June 30, 2017. Long-term FHLB advances at June 30, 2018 consisted of one advance that matures in January 2019 and bears a fixed interest rate of 1.985%. The FHLB advances are collateralized by a blanket lien on first mortgages and other qualifying loans. Short-term FHLB advances totaled $27.5 million at June 30, ~~2018~~2019 and ~~consisted of two advances with a maturity of 1 month at a fixed interest rate of 1.88%. There were no short-term FHLB advances outstanding at June 30, 2017.~~December 31, 2018.

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 June 30, ~~2018,~~2019, 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 available through four sources: a stable base of funding sources, an adequate level of assets that can be readily converted into cash, borrowing lines with correspondent banks and brokered deposits. 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 ~~$33.7~~$57.9 million in projected cash ~~flows~~flow from securities repayments for the remainder of ~~2018~~2019 provides an additional source of liquidity.

The Bank also has significant borrowing capacity with the FRB-Atlanta and with the FHLB–Dallas. As of June 30, ~~2018,~~2019, we had no borrowings with the FRB-Atlanta. ~~Long-term FHLB-Dallas advances totaled $10.0 million at June 30, 2018 and consisted of one advance that matures in January 2019 and bears a fixed interest rate of 1.985%. Short-term~~ FHLB advances totaled $27.5 million at June 30, ~~2018~~2019 and consisted of two advances ~~with a maturity of 1 month at a fixed interest rate of 1.88%.~~on existing swap contracts. Under existing agreements with the FHLB-Dallas, our borrowing capacity totaled ~~$291.6~~$292.5 million at June 30, ~~2018.~~2019. The Bank has the ability to post additional collateral of approximately ~~$148.1~~$356.9 million if necessary to meet liquidity needs. Additionally, ~~$143.2~~$130.7 million in loan collateral is pledged under a Borrower-in-Custody line with the FRB-Atlanta. Unsecured borrowing lines totaling ~~$33.5~~$20.0 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.

The Company holds minor investments in certain limited partnerships. As of June 30, 2019, the Bank had a recorded investment of $5.7 million in these limited partnerships and had committed to fund an additional $6.8 million related to future capital calls that has not been reflected in the consolidated balance sheet.

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 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 June 30, 2019 and 2018.

~~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, 2018,~~June 30, 2019, there were ~~89,875~~89,721 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 $90,000 for the three months ended June 30, 2019 and 2018.

On June 13, 2017, the Company completed the sale of 4,583,334 shares of its common stock pursuant to an underwritten public offering, and on July 11, 2017, the Company completed the sale of an additional 516,700 shares of common stock, pursuant to the partial exercise of the option to purchase additional shares granted to the underwriter. After deducting the underwriting discount and costs associated with the capital raise, the offering resulted in net proceeds of $57.2 million. The Company, subject to regulatory approval, intends to use $32.0 million of the net proceeds to redeem all of the outstanding Series B Preferred Stock issued to the U.S. Treasury as a result of its participation in the SBLF. The Company intends to use the remaining portion of the net proceeds to enhance its capital structure, to fund future organic growth, for working capital, and other general corporate purposes.

Due to the loss reported for ~~year~~quarter ended ~~December 31, 2017,~~June 30, 2019, we currently do not have the ability to approve dividends from the Bank to the Company without prior approval from the OCC. As of June 30, ~~2018,~~2019, the Company had ~~$47.8~~$40.8 million of cash to fund general corporate obligations. The Company renewed a $75.0 million Universal Shelf Registration during the third quarter of 2015 and has $13.8 million remaining after completion of its recent capital raise and overallotment issuance.

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 inon January 1, 2019 ~~will be~~was 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~~phased in ~~over time.~~as of January 2019.

At June 30, ~~2018,~~2019, 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 (total risk-based capital to risk-weighted assets) 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%. However, effective July 19, 2017, the OCC established higher individual minimum capital ratios for the Bank. Specifically, the Bank must maintain a Tier 1 leverage ratio of at least 8%, and a total risk-based capital ratio of at least 12%. The Bank had a Tier 1 leverage capital ratio of ~~10.10%~~9.08% and a total risk-based capital ratio of 15.61% at June 30, ~~2018.~~2019. As of June 30, ~~2018,~~2019, the Company’s Tier 1 leverage ratio was ~~12.71%~~11.53%, Tier 1 capital to risk-weighted assets was ~~18.07%~~18.23%, total capital to risk-weighted assets was ~~19.33%~~19.50% and common equity Tier 1 capital to risk-weighted assets was ~~13.20%~~12.37%.

Asset Quality

Credit Risk Management

We manage credit risk ~~primarily~~ by ~~observing~~following written, ~~board~~Board approved policies and procedures that govern all credit ~~underwriting and approval~~related activities. Our Chief Credit Officer (“CCO”) is responsible for all credit risk management including credit policy and procedure development, underwriting ~~as well as~~oversight, loan approval, portfolio management which includes the 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~~activities are performed through Relationship Managers, Underwriting Analysts, Special Assets and Portfolio Management groups. We have implemented ongoing portfolio management activities that include specific reviews of the largest credit relationships, past due monitoring, risk rating review and certification, annual credit reviews and loan exception tracking. In addition to the credit 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~~function are ~~supplemented by~~ independent reviews performed by ~~the~~a third party 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.~~review.

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 June 30, ~~2018,~~2019, 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 ~~$153.6~~$113.0 million, or ~~14.5%~~12.8% of total loans with $3.0 million in nonaccrual oil and gas loans. ~~Of the 286 credit relationships in the energy-related loan portfolio, 32 relationships totaling $51.3 million were classified with $40.4 million on nonaccrual status at June 30, 2018.~~

The federal banking agencies, including the OCC, have promulgated guidance governing financial institutions with concentrations in commercial real estate lending. The guidance provides that a bank has a concentration in commercial real estate lending if (1) total reported loans for construction, land development and other land represent 100% or more of total capital or (2) total reported loans secured by multifamily and non-farm residential properties and loans for construction, land development and other land represent 300% or more of total capital. Owner occupied loans are excluded from this second category. We monitor our exposure to each of these segments to ensure the concentration in consistent with our risk tolerance. At June 30, 2018, loans for construction, land development and other land totaled approximately $98.1 million, or 47% of our bank's risk-based capital. Loans secured by multifamily and non-farm residential properties and loans for construction, land development and other land totaled approximately $254.0 million at June 30, 2018, or 123% of our bank's risk-based capital. Additional information regarding credit quality by loan classification is provided in Note 34 – ~~Credit Quality of~~ Loans ~~and Allowance for Loan Losses~~ and Note 89 – Fair Value Measurement in the notes to the interim consolidated financial statements.

Nonperforming Assets and Allowance for Loan Loss

~~Table 6 summarizes~~The following table sets forth the Company's nonperforming assets ~~for the quarters ending June 30, 2018 and 2017, and December 31, 2017.~~

(in thousands):


Table 8 Nonperforming Assets and Loans Past Due 90 Days or More and Still Accruing (in thousands)
Nonperforming Assets and Loans Past Due 90 Days or More and Still Accruing										Nonperforming Assets and Loans Past Due 90 Days or More and Still Accruing
	June 30, 2018			December 31, 2017			June 30, 2017				June 30, 2019			December 31, 2018			June 30, 2018
Nonaccrual loans	$	73,538		$	49,278		$	54,810			$	23,287		$	8,920		$	73,538
Loans past due 90 days and over and still accruing	3			728			165				—			—			3
Total nonperforming loans	73,541			50,006			54,975				23,287			8,920			73,541
Nonperforming loans held for sale	—			5,067			—				—			20,441			—
Other real estate	1,365			2,001			1,387
Other foreclosed assets	—			192			36
Other real estate owned											387			1,067			1,365
Other assets repossessed											8			55			—
Total nonperforming assets	$	74,906		$	57,266		$	56,398			$	23,682		$	30,483		$	74,906

Troubled debt restructurings, accruing	$	1,010		$	1,360		$	1,653			$	593		$	1,334		$	1,010

Nonperforming assets to total assets	4.03		%	3.04		%	2.90		%		1.38		%	1.75		%	4.03		%
Nonperforming assets to total loans + ORE + other assets repossessed	7.07		%	4.83		%	4.54		%		2.69		%	3.39		%	7.07		%
ALL to nonperforming loans	31.97		%	53.77		%	44.88		%
ALL to total loans	2.22		%	2.27		%	1.99		%
ALLL to nonperforming loans											120.79		%	195.40		%	31.97		%
ALLL to total loans											3.20		%	1.94		%	2.22		%

QTD charge-offs	$	2,801		$	8,931		$	12,659			$	1,558		$	19,277		$	2,801
QTD recoveries	505			166			255				150			258			505
QTD net charge-offs	$	2,296		$	8,765		$	12,404			$	1,408		$	19,019		$	2,296
Annualized net charge-offs to total loans	0.87		%	2.94		%	4.01		%		0.64		%	8.45		%	0.87		%

Nonperforming assets totaled ~~$74.9~~$23.7 million at June 30, ~~2018, an increase~~2019, a decrease of ~~$17.6~~$6.6 million and $61.2 million from ~~the $57.3 million reported at year-end 2017~~December 31, 2018 and ~~an increase of $18.5 million from the $56.4 million reported at~~ June 30, ~~2017.~~2018 reported amounts, respectively. The ~~increase since~~decrease from December 31, ~~2017~~2018 to June 30, 2019 is primarily attributable to ~~$46.1~~the sale of $16.9 million of nonperforming loans, ~~placed on non-accrual during the period. This increase~~which was ~~partially~~ offset by ~~the payoffs/paydowns of $20.7~~a $13.2 million ofincrease in non-accrual loans ~~and the decrease of $4.3~~that was due primarily to a $11.4 million ~~in nonperforming loans held for sale.~~shared national healthcare credit.

Allowance coverage for nonperforming loans was 120.79% at June 30, 2019 compared to 195.40% at December 31, 2018 and 31.97% at June 30, ~~2018 compared to 53.77% at December 31, 2017 and 44.88% at June 30, 2017.~~2018. The ~~ALL/~~ALLL/total loans ratio was ~~2.22%~~3.20% at June 30, ~~2018,~~2019, compared to ~~2.27%~~1.94% at ~~year-end 2017~~December 31, 2018 and ~~1.99% at June 30, 2017. Including valuation accounting adjustments on acquired loans, the total adjustments and ALL was 2.30% of loans~~2.22% at June 30, 2018. The ratio of annualized net charge-offs to total loans ~~decreased~~was 0.64% for the three months ended June 30, 2019, compared to 8.45% for the three months ended December 31, 2018, and 0.87% for the three months ended June 30, ~~2018, compared to 2.94% for the three months ended December 31, 2017, and 4.01% for the three months ended June 30, 2017.~~2018.

Total nonperforming assets to total loans plus ORE and other assets repossessed ~~increased~~decreased to 2.69% at June 30, 2019 from 3.39% at December 31, 2018 and 7.07% at June 30, ~~2018 from 4.83% at December 31, 2017 and 4.54% at June 30, 2017.~~2018. Performing troubled debt restructurings (“TDRs”) totaled $593,000 at June 30, 2019, compared to $1.3 million at December 31, 2018 and $1.0 million at June 30, ~~2018, compared to $1.4 million at December 31, 2017 and $1.7 million at June 30, 2017. Classified assets, including ORE, were $105.8 million at June 30, 2018 compared to $113.7 million at March 31,~~ 2018. Additional information regarding impaired loans is included in Note 34 – ~~Credit Quality of~~ Loans ~~and Allowance for Loan Losses~~and Note 89 – 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~~ALLL 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,~~ALLL, 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 ~~$23.5~~$28.1 million in the ~~ALL~~ALLL as of June 30, ~~2018~~2019 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 7~~The table 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”, “core net interest margin”,~~ "diluted earnings per share, operating" and "operating earnings available to common shareholders". “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. "Diluted earnings per share, operating" is defined as net earnings available to common shareholders adjusted for specified one-time items divided by diluted weighted-average shares. "Operating earnings available to common shareholders" is defined as net earnings available to common shareholders adjusted for specified one-time items.

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.

Reconciliations of these non-GAAP financial measures to the most directly comparable measures as reported in accordance with GAAP are included in the table below (in thousands):

Table 9
Reconciliation of Non-GAAP Financial Measures
(in thousands except per share data)
Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Core Net Interest Margin

Net interest income (FTE) $ 16,996
$ 18,442
$ 34,447
$ 36,721
Less purchase accounting adjustments (98 ) (380 ) (213 ) (654 )
Core net interest income, net of purchase accounting adjustments A $ 16,898
$ 18,062
$ 34,234
$ 36,067

Total average earning assets $ 1,714,522
$ 1,768,862
$ 1,704,934
$ 1,771,241
Add average balance of loan valuation discount 859
1,720
915
1,841
Average earnings assets, excluding loan valuation discount B $ 1,715,381
$ 1,770,582
$ 1,705,849
$ 1,773,082

Core net interest margin A/B 3.95 % 4.09 % 4.05 % 4.10 %

Diluted Earnings Per Share, Operating

Diluted loss per share $ (0.09 ) $ (0.51 ) $ (0.12 ) $ (0.39 )
Effect of one-time charge related to closure of branches —
—
0.01
—
Effect of severance and retention accruals —
0.08
—
0.08
Effect of one-time charge related to discontinued branch projects —
0.02
—
0.02
Effect of write-down of assets held for sale —
0.03
—
0.03
Effect of loss on transfer of loans to held for sale —
—
0.04
—
Effect of regulatory remediation costs 0.25
—
0.44
—
Diluted earnings (loss) per share, operating $ 0.16
$ (0.38 ) $ 0.37
$ (0.26 )

Operating Earnings Available to Common Shareholders

Loss available to common shareholders $ (1,479 ) $ (6,225 ) $ (1,929 ) $ (4,545 )
Net gain on sales of securities, after-tax —
(2 ) —
(6 )
Net loss on equity securities not trading, after-tax 40
—
40
—
Severance and retention accruals, after-tax —
872
—
872
One-time charge related to discontinued branch projects, after-tax —
302
—
302
One-time charge related to closure of branches, after-tax —
—
115
—
Write-down of assets held for sale, after-tax —
371
—
371
Loss on transfer of loans to held for sale, after-tax 6
—
697
—
Regulatory remediation costs 4,205
—
7,307
—
Legal fees related to bulk loan sale 9
—
79
—
Operating earnings (loss) available to common shareholders $ 2,781
$ (4,682 ) $ 6,309
$ (3,006 )



Reconciliation of Non-GAAP Financial Measures
	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Operating Net (Loss) Income
Net loss available to common shareholders	$	(3,713	)	$	(1,479	)	(10,353		)	(1,928		)
Adjustment items:
Merger-related expense	1,149			—			1,149			—
Regulatory remediation costs	—			5,323			—			9,249
Loans held for sale expense	—			20			—			883
Branch closure expenses	—			—			—			145
Tax effect adjustments	—			(1,122		)	—			(2,108		)
Diluted (loss) earnings, operating	$	(2,564	)	$	2,742		$	(9,204	)	$	6,241

Weighted average number of shares - diluted	16,724			16,526			16,699			16,514
Net loss per diluted share	$	(0.22	)	$	(0.09	)	(0.62		)	(0.12		)
Effect of adjustment items	$	0.05		$	0.24		0.05			0.62
Operating net (loss) income per diluted share	$	(0.15	)	$	0.17		(0.57		)	0.50

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have been no significant changes ~~from the information regarding~~to disclosures impacting market risk from those disclosed under the heading ~~“Funding Sources - Interest~~"Funding Sources-Interest Rate ~~Sensitivity”~~Sensitivity" in ~~the Company’s~~our 2018 Annual Report on Form 10-K. The reader should reference our 2018 Annual Report on Form 10-K for the ~~year ended December 31, 2017.~~full disclosure over quantitative and qualitative market risk.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the 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 were not effective due to the material weaknesses in the Company’s internal control over financial reporting, as described below.

The management of MidSouth Bancorp, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s Chief Executive Officer and the Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with the accounting principles generally accepted in the United States of America. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended.

The Company’s internal control systems are ~~effective~~designed to ensure that ~~information required~~transactions are properly authorized and recorded in the financial records and to safeguard assets from material loss or misuse. Such assurance cannot be absolute because of inherent limitations in any internal control system.

As previously disclosed in Part II, Item 9A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, we identified a material weakness in our internal control over income tax reporting. This material weakness relates to an error in the Company’s tax entries for the fourth quarter of 2018 that included a misstatement of the Company’s valuation allowance and a related tax expense of $3.6 million. This error was identified by the ~~Company~~Company’s external auditors after the Company’s books were closed but prior to the public release of the Company’s fourth quarter 2018 earnings statement and the related filing with the SEC. With turnover in ~~reports that it submits under~~ the ~~Exchange Act is recorded, processed, summarized,~~Company’s Accounting Department, lack of a repeatable and ~~reported~~sustainable process for determining tax expense was revealed. The error was corrected in the Company’s fourth quarter 2018 earnings statement and the related filing with the SEC. Management performed a severity assessment to determine the significance of the control deficiency and concluded this was an isolated Material Weakness in the internal controls over the creation of the tax entries caused mainly by personnel turnover within the ~~time periods specified~~organization.

During the fourth quarter 2018 review of the Allowance for Loan & Lease Losses (ALLL” process management concluded that while controls were in place, they did not operate effectively with regard to: 1) formal documentation for some of the key management estimates, 2) robust documentation for model updates and methodology changes, and 3) well defined review controls. Management performed a severity assessment to determine the significance of the control deficiencies and concluded that although these issues did not require an audit adjustment, they did aggregate to a level of Material Weakness in the ~~Securities~~internal controls over the preparation of the ALLL.

The identified material weaknesses did not result in any material misstatement in the Company’s consolidated financial statements.

Remediation Activities

Management is committed to timely remediating the identified weaknesses with appropriate oversight from the Company’s Audit Committee. The Company has commenced efforts to remediate the material weaknesses identified above.

Prior to the end of the first quarter of 2019 we engaged Horne, LLC, a tax advisory firm, as a subject matter expert to assist management with ongoing income tax related matters including, but not limited to, preparation of the quarterly and ~~Exchange Commission rules~~annual income tax analyses and ~~forms.~~the associated period end journal entries. Additional remediation efforts include the development of an ASC 740, Income Taxes, accounting policy, documentation of internal controls and procedures surrounding income tax accounting and in-house training.

In February 2019, the Company engaged GlassRatner, a specialty financial advisory services firm, to review the internal control structure surrounding the ALLL, as well as the ALLL methodology, policies and procedures, and compliance with Generally Accepted Accounting Principles (GAAP) and regulatory guidance. The ALLL process was fully analyzed with interviews conducted with key members of Credit and Accounting, including the Chief Credit Officer, the Chief Financial Officer, the Director of Special Assets, Director of SEC Reporting, and other Special Assets employees. As part of the immediate remediation to improve documentation, a more robust ALLL memo for first quarter of 2019 was prepared for submission to the Credit Risk Committee and control procedures for review of model inputs that included loans, impairments, net charge-offs and qualitative factors had redundant reviews to ensure accuracy and completeness. During the second quarter of ~~2018, there~~2019 updated procedures were developed and approved by the Credit Risk Committee. Additional training was ~~no change~~implemented by the Chief Credit Officer

with a newly drafted supplemental procedure guide including job aides for the preparation of the ALLL workbook and its components. Each of these actions improved the overall design of the internal control structure surrounding the ALLL.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of June 30, 2019 based on the criteria for effective internal control established in Internal Control - Integrated Framework issued by the ~~Company’s~~Committee of Sponsoring Organizations of the Treadway Commission in 2013. Given the actions outlined above, management believes these efforts have improved the overall internal control structure and the specific internal control design deficiencies surrounding income taxes and the ALLL. Management has not tested the operating effectiveness of the internal controls over financial reporting surrounding income taxes and the ALLL as of June 30, 2019 and, as such, cannot conclude that ~~has~~the previously reported material weaknesses have been fully remediated. Management will continually assess the effectiveness of the remediation efforts and may determine to take additional measures to address control deficiencies or modify the remediation plan described above.

Changes in Internal Control Over Financial Reporting

Other than as described above, there have been no other changes in the Company’s internal control over financial reporting that occurred during the quarter ended June 30, 2019 that have materially affected, or isare reasonably likely to materially affect, the Company’s internal control over financial ~~reporting.~~reporting, other than the material weaknesses described above.

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.

~~We face~~Because the market price of Hancock Whitney common stock will fluctuate, the value of the merger consideration to be received by our shareholders may change.

Pursuant to the Agreement and Plan of Merger, dated as of April 30, 2019 (the “Merger Agreement”), between Hancock Whitney and the Company, upon completion of the merger, each share of Company common stock, except for certain shares to be canceled in accordance with Section 1.5(c) of the Merger Agreement, that is issued and outstanding immediately prior to the effective time, will cease to be outstanding and will be converted automatically into the right to receive 0.2952 shares of Hancock Whitney common stock, par value $3.33 per share. The closing price of Hancock Whitney common stock on the date that the merger is completed may vary from the closing price of Hancock Whitney common stock on the date Hancock Whitney and the Company announced the signing of the Merger Agreement and the date of the special meeting of the Company’s shareholders regarding the merger. Because the merger consideration is determined by a ~~risk~~fixed conversion ratio, at the time of ~~noncompliance~~the Company special meeting, Company shareholders will not know or be able to calculate the value of the shares of Hancock Whitney common stock they will receive upon completion of the merger. Any change in the market price of Hancock Whitney common stock prior to completion of the merger may affect the value of the merger consideration that Company shareholders will receive upon completion of the merger. Stock price changes may result from a variety of factors, including general market and ~~enforcement action~~economic conditions, changes in the companies’ respective businesses, operations and prospects, and regulatory considerations, among other things. Many of these factors are beyond the control of Hancock Whitney and the Company. Company shareholders should obtain current market quotations for shares of Hancock Whitney common stock and Company common stock before voting their shares at the Company special meeting.

Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or cannot be met.

Before the transactions contemplated by the Merger Agreement may be completed, various approvals must be obtained from bank regulatory authorities. In determining whether to grant these approvals, the applicable regulatory authorities consider a variety of factors, including the competitive impact of the proposal in the relevant geographic markets; financial, managerial and other supervisory considerations of each party; convenience and needs of the communities to be served and the record of the insured depository institution subsidiaries under the Community Reinvestment Act of 1977 and the regulations promulgated thereunder; effectiveness of the parties in combating money laundering activities; any significant outstanding supervisory matters; and the extent to which the proposal would result in greater or more concentrated risks to the stability of the United States banking or financial system. These regulatory authorities may impose conditions on the granting of such approvals. Such conditions or changes and the process of obtaining regulatory approvals could have the effect of delaying completion of the merger or of imposing additional costs or limitations on the combined company following the merger. The regulatory approvals may not be received at all, may not be received in a timely fashion, or may contain conditions on the completion of the merger that are not anticipated or cannot be met. Furthermore, such conditions or changes may constitute a materially burdensome regulatory condition that may allow the parties to terminate the Merger Agreement. If the consummation of the merger does not occur, or is delayed, including by a delay in receipt of necessary regulatory approvals, the business, financial condition and results of operations of the Company may be materially and adversely affected.

Failure of the merger to be completed, the termination of the Merger Agreement, or a significant delay in the consummation of the merger could negatively impact the Company.

The Merger Agreement is subject to a number of conditions which must be fulfilled in order to complete the merger. These conditions to the consummation of the merger may not be fulfilled and, accordingly, the merger may not be completed. In addition, if the merger is not completed on or before April 30, 2020, either Hancock Whitney or the Company may choose to terminate the Merger Agreement at any time after that date if the failure of the merger to occur on or before that date is not caused by any breach of the Merger Agreement by the party electing to terminate the Merger Agreement, before or after shareholder approval.

If the merger is not consummated, the ongoing business, financial condition and results of operations of the Company may be materially adversely affected and the market price of the Company’s common stock may decline significantly, particularly to the extent that the current market price reflects a market assumption that the merger will be consummated. If the consummation of the merger is delayed, the business, financial condition and results of operations of the Company may be materially adversely affected.

In addition, the Company has incurred and will incur substantial expenses in connection with the ~~Bank Secrecy Act~~negotiation and completion of the transactions contemplated by the Merger Agreement. If the merger is not completed, the Company would have to recognize these expenses without realizing the expected benefits of the merger. Any of the foregoing, or other ~~anti-money laundering statutes~~risks arising in connection with the failure of or delay in consummating the merger, including the diversion of management attention from pursuing other opportunities and ~~regulations.~~the constraints in the Merger Agreement on the ability to make significant changes to the Company’s ongoing business during the pendency of the merger, could have a material adverse effect on the Company’s business, financial condition and results of operations.

Additionally, the Company’s business may be adversely impacted by the failure to pursue other beneficial opportunities due to the focus of management on the merger, without realizing any of the anticipated benefits of completing the merger, and the market price of Company common stock might decline to the extent that the current market price reflects a market assumption that the merger will be completed. If the Merger Agreement is terminated and the Company’s board of directors seeks another merger or business combination, Company shareholders cannot be certain that the Company will be able to find a party willing to engage in a transaction on equally or more attractive terms than the merger with Hancock Whitney.

The ~~Bank Secrecy Act,~~Company will be subject to business uncertainties and contractual restrictions while the ~~USA PATRIOT Act~~merger is pending.

Uncertainty about the effect of ~~2001,~~the merger on employees, customers (including depositors and borrowers), suppliers and vendors may have an adverse effect on the business, financial condition and results of operations of the Company. These uncertainties may impair the Company’s ability to attract, retain and motivate key personnel and customers (including depositors and borrowers) pending the consummation of the merger, as such personnel and customers may experience uncertainty about their future roles and relationships following the consummation of the merger. Additionally, these uncertainties could cause customers (including depositors and borrowers), suppliers, vendors and others who deal with the Company to seek to change existing business relationships with the Company or fail to extend an existing relationship with the Company. In addition, competitors may target the Company’s existing customers by highlighting potential uncertainties and integration difficulties that may result from the merger.

The pursuit of the merger and the preparation for the integration may place a burden on the Company’s management and internal resources. Any significant diversion of management attention away from ongoing business concerns and any difficulties encountered in the transition and integration process could have a material adverse effect on the Company’s business, financial condition and results of operations.

In addition, the Merger Agreement restricts each party from taking certain actions without the other ~~laws~~party’s consent while the merger is pending. These restrictions could have a material adverse effect on the Company’s business, financial condition and ~~regulations require financial institutions, among~~results of operations.

The Merger Agreement contains provisions that may discourage other ~~duties,~~companies from pursuing, announcing or submitting a business combination proposal to ~~institute and maintain an effective anti-money laundering program (“BSA/AML Program”) and file suspicious activity and currency transaction reports as appropriate. Failure or~~ the ~~inability to comply with these laws and regulations could~~Company that might result in ~~fines~~greater value to Company shareholders.

The Merger Agreement contains provisions that may discourage a third party from pursuing, announcing or penalties, curtailment of expansion opportunities, enforcement actions, intervention or sanctions by regulators and costly litigation or expensive additional controls and systems. We have developed policies and continuesubmitting a business combination proposal to ~~augment procedures and systems designed to remediate and strengthen our BSA/AML Program. Our remediation measures will~~the Company that might result in ~~increased expense~~greater value to Company shareholders than the ~~Bank and~~merger with Hancock Whitney. These provisions include a general prohibition on the ~~issues giving rise~~Company from soliciting, or, subject to ~~those measures could result in other consequences that could adversely affect us such as those outlined above.~~certain exceptions, entering into discussions with any third party regarding any acquisition proposal or offers for competing transactions. Furthermore, if the Merger Agreement is terminated, under certain circumstances, the Company may be required to pay Hancock Whitney a termination fee equal to $8,000,000.

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 June 30, ~~2018.~~2019.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

None.

Item 6. Exhibits.



Exhibit Number	Document Description
2.1	Agreement and Plan of Merger, dated as of April 30, 2019, by and between Hancock Whitney Corporation and MidSouth Bancorp, Inc. (filed as Exhibit 2.1 to the Company's Current Report on Form 8-K filed on May 2, 2019)

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)

~~10.4~~	~~Second Amendment to the MidSouth Bankcorp, Inc . Amended and Restated MidSouth Bancorp, Inc. Deferred Compensation Plan Effective July, 25, 2018~~

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

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

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

32.2	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 June 30, ~~2018,~~2019, 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.

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 10, 2018~~August 9, 2019
	/s/ James R. McLemore
	James R. McLemore, President and CEO
	(Principal Executive Officer)

	/s/ Lorraine D. Miller
	Lorraine D. Miller, CFO
	(Principal Financial Officer and Principal Accounting Officer)

5057



	June 30, 2018
	Amortized Cost			Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available-for-sale:
Obligations of state and political subdivisions	$	20,473		$	82	$	746	$	19,809
GSE mortgage-backed securities	53,195			416		1,093		52,518
Collateralized mortgage obligations: residential	215,868			85		7,239		208,714
Collateralized mortgage obligations: commercial	2,149			—		48		2,101
Corporate debt securities	25,566			336		107		25,795
	$	317,251		$	919	$	9,233	$	308,937

	December 31, 2017
	Amortized Cost			Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available-for-sale:
Obligations of state and political subdivisions	$	23,042		$	209	$	442	$	22,809
GSE mortgage-backed securities	58,620			825		321		59,124
Collateralized mortgage obligations: residential	202,573			90		4,508		198,155
Collateralized mortgage obligations: commercial	2,274			—		34		2,240
Mutual funds	2,100			—		39		2,061
Corporate debt securities	23,975			837		10		24,802
	$	312,584	��	$	1,961	$	5,354	$	309,191



	June 30, 2018
	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	$	576	$	24	$	12,405	$	722	$	12,981	$	746
GSE mortgage-backed securities	34,138		893		5,344		200		39,482		1,093
Collateralized mortgage obligations: residential	82,531		1,430		124,108		5,809		206,639		7,239
Collateralized mortgage obligations: commercial	—		—		2,101		48		2,101		48
Corporate debt securities	6,483		107		—		—		6,483		107
	$	123,728	$	2,454	$	143,958	$	6,779	$	267,686	$	9,233

	December 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	$	596	$	5	$	12,716	$	437	$	13,312	$	442
GSE mortgage-backed securities	29,725		224		5,858		97		35,583		321
Collateralized mortgage obligations: residential	57,665		548		137,598		3,960		195,263		4,508
Collateralized mortgage obligations: commercial	—		—		2,240		34		2,240		34
Mutual funds	2,061		39		—		—		2,061		39
Corporate debt securities	2,990		10		—		—		2,990		10
	$	93,037	$	826	$	158,412	$	4,528	$	251,449	$	5,354



Commercial	70,145		78,005		4,578		60,025		32
Construction	1,531		1,531		49		798		—
Residential	2,809		3,496		198		1,713		—
Consumer	65		65		13		57		—
Grand total:	$	74,550	$	83,097	$	4,838	$	62,593	$	32

	December 31, 2017
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial, financial, and agricultural	$	24,659	$	30,630	$	—	$	19,880	$	90
Real estate - construction	—		—		—		5		—
Real estate - commercial	10,471		11,965		—		11,590		—
Real estate - residential	302		302		—		602		—
Installment loans to individuals	—		—		—		37		—
Subtotal:	35,432		42,897		—		32,114		90
With an allowance recorded:
Commercial, financial, and agricultural	14,119		14,150		7,197		15,245		1
Real estate - construction	66		136		23		33		—
Real estate - commercial	657		657		131		8,318		—
Real estate - residential	316		316		5		620		—
Installment loans to individuals	48		50		14		258		—
Subtotal:	15,206		15,309		7,370		24,474		1
Totals:
Commercial	49,906		57,402		7,328		55,033		91
Construction	66		136		23		38		—
Residential	618		618		5		1,222		—
Consumer	48		50		14		295		—
Grand total:	$	50,638	$	58,206	$	7,370	$	56,588	$	91



	June 30, 2018
Commercial Credit Exposure
Credit Risk Profile by Creditworthiness Category
			Commercial, financial, and agricultural		Real estate - commercial		Total		% of Total
Pass			$	275,744	$	361,281	$	637,025	82.79	%
Special mention			21,320		9,985		31,305		4.07	%
Substandard			57,880		43,260		101,140		13.14	%
			$	354,944	$	414,526	$	769,470	100.00	%

Construction Credit Exposure
Credit Risk Profile by Creditworthiness Category
							Real estate - construction		% of Total
Pass							$	96,225	98.08	%
Special mention							85		0.09	%
Substandard							1,798		1.83	%
							$	98,108	100.00	%

Residential Credit Exposure
Credit Risk Profile by Creditworthiness Category
							Real estate - residential		% of Total
Pass							$	134,952	95.64	%
Special mention							602		0.43	%
Substandard							5,550		3.93	%
							$	141,104	100.00	%

Consumer and Other Credit Exposure
Credit Risk Profile Based on Payment Activity
	Installment loans to individuals		Lease financing receivable		Other		Total		% of Total
Performing	$	47,355	$	632	$	1,243	$	49,230	99.90	%
Nonperforming	51		—		—		51		0.10	%
	$	47,406	$	632	$	1,243	$	49,281	100.00	%



	June 30, 2018			December 31, 2017
Gross carrying amount	$	11,674		$	11,674
Less accumulated amortization	(8,712		)	(8,159		)
Net carrying amount	$	2,962		$	3,515



		Notional Amounts				Fair Value
	Type of Hedge	June 30, 2018		December 31, 2017		June 30, 2018		December 31, 2017
Derivatives designated as hedging instruments:
Interest rate swaps included in other assets	Cash Flow	$	27,500	$	27,500	$	1,477	$	1,078



	Amount of Gain (Loss) Recognized in OCI on Derivative (Effective Portion)			Location of Gain Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain Reclassified from Accumulated OCI into Income (Effective Portion)
	Three Months Ended June 30,				Three Months Ended June 30,
	2018	2017			2018	2017
Interest rate swaps	90	(136	)	Interest Expense	63	—



	Assets / Liabilities Measured at Fair Value at		Fair Value Measurements at June 30, 2018
Description	June 30, 2018		Level 1		Level 2		Level 3
Available-for-sale securities:
Obligations of state and political subdivisions	$	19,809	$	—	$	19,809	$	—
GSE mortgage-backed securities	52,518		—		52,518		—
Collateralized mortgage obligations: residential	208,714		—		208,714		—
Collateralized mortgage obligations: commercial	2,101		—		2,101		—
Corporate debt securities	25,795		—		25,795		—
Total available-for-sale securities	$	308,937	$	—	$	308,937	$	—

Derivative assets	$	1,477	$	—	$	1,477	$	—



	Assets / Liabilities Measured at Fair Value at		Fair Value Measurements at December 31, 2017
Description	December 31, 2017		Level 1		Level 2		Level 3
Available-for-sale securities:
Obligations of state and political subdivisions	$	22,809	$	—	$	22,809	$	—
GSE mortgage-backed securities	59,124		—		59,124		—
Collateralized mortgage obligations: residential	198,155		—		198,155		—
Collateralized mortgage obligations: commercial	2,240		—		2,240		—
Mutual funds	2,061		2,061		—		—
Corporate debt securities	24,802		—		24,802		—
Total available-for-sale securities	$	309,191	$	2,061	$	307,130	$	—

Derivative assets	$	1,078	$	—	$	1,078	$	—



Table 3 Changes in Taxable-Equivalent Net Interest Income (in thousands)
	Three Months Ended June 30, 2018 compared to June 30, 2017
	Total Increase			Change Attributable To
	(Decrease)			Volume			Rates
Taxable-equivalent earned on:
Investment securities
Taxable	$	(323	)	$	(318	)	$	(5	)
Tax exempt	(222		)	(118		)	(104		)
Federal funds sold	12			10			2
Time and interest bearing deposits in other banks	762			305			457
Other investments	14			9			5
Loans, including fees	(1,387		)	(1,057		)	(330		)
Total	(1,144		)	(1,169		)	25

Interest paid on:
Interest bearing deposits	437			(34		)	471
Securities sold under repurchase agreements	(211		)	(112		)	(99		)
Short-term FHLB advances	75			75			—
Long-term FHLB advances	(46		)	(65		)	19
Junior subordinated debentures	47			—			47
Total	302			(136		)	438
Taxable-equivalent net interest income	$	(1,446	)	$	(1,033	)	$	(413	)



Table 4 Changes in Taxable-Equivalent Net Interest Income (in thousands)
	Six Months Ended June 30, 2018 compared to June 30, 2017
	Total Increase			Change Attributable To
	(Decrease)			Volume			Rates
Taxable-equivalent earned on:
Investment securities
Taxable	$	(603	)	$	(624	)	$	21
Tax exempt	(445		)	(211		)	(234		)
Federal funds sold	24			8			16
Time and interest bearing deposits in other banks	1,191			909			282
Other investments	17			43			(26		)
Loans, including fees	(1,994		)	(3,538		)	1,544
Total	(1,810		)	(3,413		)	1,603

Interest paid on:
Interest bearing deposits	739			(107		)	846
Securities sold under repurchase agreements	(404		)	(206		)	(198		)
Short-term FHLB advances	159			80			79
Long-term FHLB advances	(89		)	(127		)	38
Junior subordinated debentures	59			—			59
Total	464			(360		)	824
Taxable-equivalent net interest income	$	(2,274	)	$	(3,053	)	$	779