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EX-31.1 - EXHIBIT 31.1 - MIDSOUTH BANCORP INCex31_1.htm

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

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2015
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _____ to _____

COMMISSION FILE NUMBER 1-11826
MIDSOUTH BANCORP, INC.
(Exact name of registrant as specified in its charter)

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

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES      NO  
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company.
 
Large accelerated filer
Accelerated filer
Non-accelerated filer
Small reporting company

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

As of May 8, 2015, there were 11,354,497 shares of the registrant’s Common Stock, par value $0.10 per share, outstanding.
 

 

Part I – Financial Information
3
 
3
 
3
 
4
 
5
 
6
 
7
 
8
 
26
 
26
 
27
 
28
 
31
 
32
 
34
 
36
 
36
Part II – Other Information
37
 
37
 
Item 1A. Risk Factors.
37
 
37
 
37
 
37
 
37
 
Item 6. Exhibits.
37

Part I – Financial Information
 
Item 1. Financial Statements.
MidSouth Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
(dollars in thousands, except share data)
   
March 31, 2015
(unaudited)
   
December 31, 2014*
(audited)
 
Assets
       
Cash and due from banks, including required reserves of $9,814 and $10,019, respectively
 
$
40,816
   
$
45,142
 
Interest-bearing deposits in banks
   
60,665
     
39,031
 
Federal funds sold
   
2,921
     
2,699
 
Securities available-for-sale, at fair value (cost of $293,709 at March 31, 2015 and $272,588 at December 31, 2014)
   
299,690
     
276,984
 
Securities held-to-maturity (fair value of $139,462 at March 31, 2015 and $141,593 at December 31, 2014)
   
137,592
     
141,201
 
Other investments
   
9,644
     
9,990
 
Loans
   
1,310,929
     
1,284,431
 
Allowance for loan losses
   
(16,060
)
   
(11,226
)
Loans, net
   
1,294,869
     
1,273,205
 
Bank premises and equipment, net
   
69,762
     
69,958
 
Accrued interest receivable
   
6,741
     
6,635
 
Goodwill
   
42,171
     
42,171
 
Intangibles
   
6,558
     
6,834
 
Cash surrender value of life insurance
   
13,735
     
13,659
 
Other real estate
   
4,589
     
4,234
 
Other assets
   
5,505
     
4,997
 
Total assets
 
$
1,995,258
   
$
1,936,740
 
                 
Liabilities and Shareholders’ Equity
               
Liabilities:
               
Deposits:
               
Non-interest-bearing
 
$
421,897
   
$
390,863
 
Interest-bearing
   
1,194,201
     
1,194,371
 
Total deposits
   
1,616,098
     
1,585,234
 
Securities sold under agreements to repurchase
   
87,346
     
62,098
 
Short-term Federal Home Loan Bank advances
   
25,000
     
25,000
 
Long-term Federal Home Loan Bank advances
   
26,171
     
26,277
 
Junior subordinated debentures
   
22,167
     
22,167
 
Other liabilities
   
7,820
     
6,952
 
Total liabilities
   
1,784,602
     
1,727,728
 
Commitments and contingencies
               
Shareholders’ equity:
               
Series B Preferred stock, no par value; 5,000,000 shares authorized, 32,000 shares issued and outstanding at March 31, 2015 and December 31, 2014
   
32,000
     
32,000
 
Series C Preferred stock, no par value; 100,000 shares authorized, 93,248 and 93,680 issued and 93,248 and 93,680 outstanding at March 31, 2015 and December 31, 2014, respectively
   
9,325
     
9,368
 
Common stock, $0.10 par value; 30,000,000 shares authorized, 11,500,252 and 11,491,703 issued and 11,349,285 and 11,340,736 outstanding at March 31, 2015 and December 31, 2014, respectively
   
1,150
     
1,149
 
Additional paid-in capital
   
113,371
     
112,744
 
Unearned ESOP shares
   
(518
)
   
(250
)
Accumulated other comprehensive income
   
3,888
     
2,857
 
Treasury stock – 150,967 shares at March 31, 2015 and December 31, 2014, at cost
   
(3,295
)
   
(3,295
)
Retained earnings
   
54,735
     
54,439
 
Total shareholders’ equity
   
210,656
     
209,012
 
Total liabilities and shareholders’ equity
 
$
1,995,258
   
$
1,936,740
 
 
See notes to unaudited consolidated financial statements.
 
MidSouth Bancorp, Inc. and Subsidiaries
Consolidated Statements of Earnings (unaudited)
(in thousands, except per share data)
 
Three Months Ended March 31,
 
   
2015
   
2014
 
Interest income:
       
Loans, including fees
 
$
18,054
   
$
17,483
 
Securities and other investments:
               
Taxable
   
1,925
     
2,136
 
Nontaxable
   
584
     
693
 
Federal funds sold
   
2
     
1
 
Time and interest bearing deposits in other banks
   
37
     
16
 
Other investments
   
79
     
70
 
Total interest income
   
20,681
     
20,399
 
                 
Interest expense:
               
Deposits
   
947
     
871
 
Securities sold under agreements to repurchase
   
230
     
180
 
Other borrowings and payables
   
97
     
106
 
Junior subordinated debentures
   
150
     
347
 
Total interest expense
   
1,424
     
1,504
 
                 
Net interest income
   
19,257
     
18,895
 
Provision for loan losses
   
6,000
     
550
 
Net interest income after provision for loan losses
   
13,257
     
18,345
 
                 
Non-interest income:
               
Service charges on deposits
   
2,120
     
2,380
 
Gain on sale of securities, net
   
115
     
-
 
ATM and debit card income
   
1,841
     
1,714
 
Executive officer life insurance proceeds
   
-
     
3,000
 
Other charges and fees
   
891
     
823
 
Total non-interest income
   
4,967
     
7,917
 
                 
Non-interest expenses:
               
Salaries and employee benefits
   
7,942
     
8,813
 
Occupancy expense
   
3,685
     
3,791
 
FDIC insurance
   
281
     
262
 
Other
   
4,379
     
4,836
 
Total non-interest expenses
   
16,287
     
17,702
 
                 
Income before income taxes
   
1,937
     
8,560
 
Income tax expense
   
446
     
1,702
 
                 
Net earnings
   
1,491
     
6,858
 
Dividends on preferred stock
   
173
     
180
 
Net earnings available to common shareholders
 
$
1,318
   
$
6,678
 
                 
Earnings per share:
               
Basic
 
$
0.12
   
$
0.59
 
Diluted
 
$
0.12
   
$
0.57
 
Weighted average number of shares outstanding:
               
Basic
   
11,318
     
11,258
 
Diluted
   
11,351
     
11,879
 
Dividends declared per common share
 
$
0.09
   
$
0.08
 
See notes to unaudited consolidated financial statements.
 
MidSouth Bancorp, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (unaudited)
(in thousands)
   
Three Months Ended March 31,
 
   
2015
   
2014
 
Net earnings
 
$
1,491
   
$
6,858
 
Other comprehensive income, net of tax:
               
Unrealized gains on securities available-for-sale:
               
Unrealized holding gains arising during the year
   
1,701
     
2,946
 
Less: reclassification adjustment for gains on sales of securities available-for-sale
   
(115
)
   
-
 
Total other comprehensive income, before tax
   
1,586
     
2,946
 
Income tax effect related to items of other comprehensive income
   
(555
)
   
(1,031
)
Total other comprehensive income, net of tax
   
1,031
     
1,915
 
Total comprehensive income
 
$
2,522
   
$
8,773
 
See notes to unaudited consolidated financial statements.
 
MidSouth Bancorp, Inc. and Subsidiaries
Consolidated Statement of Shareholders’ Equity (unaudited)
For the Three Months Ended March 31, 2015
(in thousands, except share and per share data)
   
 
Preferred
Stock
   
Common
Stock
   
Additional
Paid-in
   
Unearned
ESOP
   
Accumulated
Other Comprehensive
   
Treasury
   
Retained
     
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Shares
   
Income
   
Stock
   
Earnings
   
Total
 
Balance - December 31, 2014
   
125,680
   
$
41,368
     
11,491,703
   
$
1,149
   
$
112,744
   
$
(250
)
 
$
2,857
   
$
(3,295
)
 
$
54,439
   
$
209,012
 
Net earnings
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
1,491
     
1,491
 
Dividends on Series B and Series C preferred stock
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(173
)
   
(173
)
Dividends on common stock, $0.09 per share
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(1,022
)
   
(1,022
)
Conversion of Series C preferred stock to common stock
   
(432
)
   
(43
)
   
2,394
     
-
     
43
     
-
     
-
     
-
     
-
     
-
 
Increase in ESOP obligation, net of repayments
   
-
     
-
     
-
     
-
     
-
     
(268
)
   
-
     
-
     
-
     
(268
)
Exercise of stock options
   
-
     
-
     
6,155
     
1
     
79
     
-
     
-
     
-
     
-
     
80
 
Tax benefit resulting from distribution from Directors Deferred Compensation Plan
   
-
     
-
     
-
     
-
     
420
     
-
     
-
     
-
     
-
     
420
 
Stock option expense
   
-
     
-
     
-
     
-
     
85
     
-
     
-
     
-
     
-
     
85
 
Change in accumulated other comprehensive income
   
-
     
-
     
-
     
-
     
-
     
-
     
1,031
     
-
     
-
     
1,031
 
Balance – March 31, 2015
   
125,248
   
$
41,325
     
11,500,252
   
$
1,150
   
$
113,371
   
$
(518
)
 
$
3,888
   
$
(3,295
)
 
$
54,735
   
$
210,656
 
 
See notes to unaudited consolidated financial statements.
 
MidSouth Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (unaudited)
(in thousands)
   
For the Three Months Ended March 31,
 
   
2015
   
2014
 
Cash flows from operating activities:
       
Net earnings
 
$
1,491
   
$
6,858
 
Adjustments to reconcile net earnings to net cash provided by operating activities:
               
Depreciation
   
1,555
     
1,473
 
Accretion of purchase accounting adjustments
   
(189
)
   
(981
)
Provision for loan losses
   
6,000
     
550
 
Provision for deferred tax expense
   
(1,951
)
   
277
 
Amortization of premiums on securities, net
   
633
     
930
 
Amortization of other investments
   
-
     
1
 
Stock option expense
   
85
     
195
 
Net gain on sale of investment securities
   
(115
)
   
-
 
Net (gain) loss on sale of other real estate owned
   
(50
)
   
26
 
Net write down of other real estate owned
   
29
     
31
 
Net gain on sale/disposal of premises and equipment
   
(1
)
   
(28
)
Change in accrued interest receivable
   
(106
)
   
197
 
Change in accrued interest payable
   
(4
)
   
(204
)
Change in other assets & other liabilities, net
   
1,684
     
1,565
 
Net cash provided by operating activities
   
9,061
     
10,890
 
                 
Cash flows from investing activities:
               
Proceeds from maturities and calls of securities available-for-sale
   
17,988
     
12,316
 
Proceeds from maturities and calls of securities held-to-maturity
   
3,326
     
4,191
 
Proceeds from sale of securities available-for-sale
   
34,509
     
-
 
Purchases of securities available-for-sale
   
(73,853
)
   
-
 
Purchases of securities held-to-maturity
   
-
     
(1,104
)
Proceeds from redemptions of other investments
   
-
     
150
 
Proceeds from sale of other investments
   
349
     
-
 
Purchases of other investments
   
(3
)
   
(3
)
Net change in loans
   
(28,461
)
   
(46,021
)
Purchases of premises and equipment
   
(1,362
)
   
(1,634
)
Proceeds from sale of premises and equipment
   
4
     
32
 
Proceeds from sale of other real estate owned
   
532
     
15
 
Net cash used in investing activities
   
(46,971
)
   
(32,058
)
                 
Cash flows from financing activities:
               
Change in deposits
   
30,901
     
29,206
 
Change in securities sold under agreements to repurchase
   
25,248
     
(1,921
)
Borrowings on Federal Home Loan Bank advances
   
25,000
     
25,000
 
Repayments of Federal Home Loan Bank advances
   
(25,000
)
   
(25,015
)
Repayments of notes payable
   
(15
)
   
(250
)
Proceeds and tax benefit from exercise of stock options
   
80
     
-
 
Tax benefit resulting from distribution from Directors Deferred Compensation Plan
   
420
     
-
 
Payment of dividends on preferred stock
   
(174
)
   
(180
)
Payment of dividends on common stock
   
(1,020
)
   
(900
)
Net cash provided by financing activities
   
55,440
     
25,940
 
                 
Net increase in cash and cash equivalents
   
17,530
     
4,772
 
Cash and cash equivalents, beginning of period
   
86,872
     
59,731
 
Cash and cash equivalents, end of period
 
$
104,402
   
$
64,503
 
                 
Supplemental cash flow information:
               
Interest paid
 
$
1,427
   
$
1,708
 
Noncash investing and financing activities:
               
Change in accrued common stock dividends
   
1
     
-
 
Financed sales of other real estate
   
-
     
84
 
Net change in loan to ESOP
   
(268
)
   
-
 
 
See notes to unaudited consolidated financial statements.
 

MidSouth Bancorp, Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements
March 31, 2015
(Unaudited)

 
1. Basis of Presentation
 
The accompanying unaudited consolidated financial statements and notes thereto contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly, in accordance with accounting principles generally accepted in the United States of America (“GAAP”), the financial position of MidSouth Bancorp, Inc. (the “Company”) and its subsidiaries as of March 31, 2015 and the results of their operations and their cash flows for the periods presented. The interim financial information should be read in conjunction with the annual consolidated financial statements and the notes thereto included in the Company’s 2014 Annual Report on Form 10-K.
 
The results of operations for the three-month period ended March 31, 2015 are not necessarily indicative of the results to be expected for the entire year.
 
Use of Estimates — The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.
 
Summary of Significant Accounting Policies — The accounting and reporting policies of the Company conform with GAAP and general practices within the banking industry.  There have been no material changes or developments in the application of accounting principles or in our evaluation of the accounting estimates and the underlying assumptions or methodologies that we believe to be Critical Accounting Policies and Estimates as disclosed in our 2014 Annual Report on Form 10-K.
 
2.
Investment Securities
 
The portfolio of investment securities consisted of the following (in thousands):
 
   
March 31, 2015
 
   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair Value
 
Available-for-sale:
               
Obligations of state and political subdivisions
 
$
41,336
   
$
1,476
   
$
35
   
$
42,777
 
GSE mortgage-backed securities
   
101,185
     
3,669
     
66
     
104,788
 
Collateralized mortgage obligations: residential
   
131,373
     
614
     
820
     
131,167
 
Collateralized mortgage obligations: commercial
   
17,459
     
93
     
69
     
17,483
 
Collateralized debt obligation
   
256
     
1,096
     
-
     
1,352
 
Mutual funds
   
2,100
     
23
     
-
     
2,123
 
   
$
293,709
   
$
6,971
   
$
990
   
$
299,690
 

   
December 31, 2014
 
   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair Value
 
Available-for-sale:
               
U.S. Government sponsored enterprises
 
$
10,339
   
$
-
   
$
112
   
$
10,227
 
Obligations of state and political subdivisions
   
43,079
     
1,555
     
29
     
44,605
 
GSE mortgage-backed securities
   
106,208
     
3,183
     
288
     
109,103
 
Collateralized mortgage obligations: residential
   
62,093
     
266
     
1,520
     
60,839
 
Collateralized mortgage obligations: commercial
   
24,462
     
190
     
107
     
24,545
 
Other asset-backed securities
   
24,041
     
321
     
19
     
24,343
 
Collateralized debt obligation
   
266
     
952
     
-
     
1,218
 
Mutual funds
   
2,100
     
4
     
-
     
2,104
 
   
$
272,588
   
$
6,471
   
$
2,075
   
$
276,984
 

   
March 31, 2015
 
   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair Value
 
Held-to-maturity:
               
Obligations of state and political subdivisions
 
$
45,343
   
$
621
   
$
56
   
$
45,908
 
GSE mortgage-backed securities
   
64,710
     
1,552
     
85
     
66,177
 
Collateralized mortgage obligations: residential
   
12,339
     
-
     
270
     
12,069
 
Collateralized mortgage obligations: commercial
   
15,200
     
108
     
-
     
15,308
 
   
$
137,592
   
$
2,281
   
$
411
   
$
139,462
 

   
December 31, 2014
 
   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair Value
 
Held-to-maturity:
               
Obligations of state and political subdivisions
 
$
45,914
   
$
267
   
$
192
   
$
45,989
 
GSE mortgage-backed securities
   
67,268
     
1,080
     
164
     
68,184
 
Collateralized mortgage obligations: residential
   
12,709
     
-
     
479
     
12,230
 
Collateralized mortgage obligations: commercial
   
15,310
     
53
     
173
     
15,190
 
   
$
141,201
   
$
1,400
   
$
1,008
   
$
141,593
 
 
With the exception of three private-label collateralized mortgage obligations (“CMOs”) with a combined balance remaining of $41,000 at March 31, 2015, all of the Company’s CMOs are government-sponsored enterprise (“GSE”) securities.
 
The amortized cost and fair value of debt securities at March 31, 2015 by contractual maturity are shown in the following table (in thousands) with the exception of other asset-backed securities, mortgage-backed securities, CMOs, and the collateralized debt obligation.   Expected maturities may differ from contractual maturities for mortgage-backed securities and CMOs because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

   
Amortized
Cost
   
Fair
Value
 
Available-for-sale:
       
Due in one year or less
 
$
6,916
   
$
6,998
 
Due after one year through five years
   
18,900
     
19,694
 
Due after five years through ten years
   
12,422
     
12,972
 
Due after ten years
   
3,098
     
3,113
 
Mortgage-backed securities and collateralized mortgage obligations:
               
Residential
   
232,558
     
235,955
 
Commercial
   
17,459
     
17,483
 
Collateralized debt obligation
   
256
     
1,352
 
Mutual funds
   
2,100
     
2,123
 
   
$
293,709
   
$
299,690
 

   
Amortized
Cost
   
Fair
Value
 
Held-to-maturity:
       
Due in one year or less
 
$
595
   
$
600
 
Due after one year through five years
   
2,819
     
2,857
 
Due after five years through ten years
   
12,205
     
12,346
 
Due after ten years
   
29,724
     
30,105
 
Mortgage-backed securities and collateralized mortgage obligations:
               
Residential
   
77,049
     
78,246
 
Commercial
   
15,200
     
15,308
 
   
$
137,592
   
$
139,462
 
 
Details concerning investment securities with unrealized losses are as follows (in thousands):
 
   
March 31, 2015
 
   
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
 
$
3,241
   
$
35
   
$
-
   
$
-
   
$
3,241
   
$
35
 
GSE mortgage-backed  securities
   
12,876
     
33
     
8,249
     
33
     
21,125
     
66
 
Collateralized mortgage  obligations: residential
   
24,659
     
103
     
35,097
     
717
     
59,756
     
820
 
Collateralized mortgage  obligations: commercial
   
-
     
-
     
3,617
     
69
     
3,617
     
69
 
   
$
40,776
   
$
171
   
$
46,963
   
$
819
   
$
87,739
   
$
990
 
 
   
December 31, 2014
 
   
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:
                       
U.S. Government sponsored enterprises
 
$
4,973
   
$
32
   
$
5,254
   
$
80
   
$
10,227
   
$
112
 
Obligations of state and  political subdivisions
   
2,029
     
29
     
-
     
-
     
2,029
     
29
 
GSE mortgage-backed  securities
   
6,668
     
25
     
21,538
     
263
     
28,206
     
288
 
Collateralized mortgage  obligations: residential
   
9,366
     
53
     
37,997
     
1,467
     
47,363
     
1,520
 
Collateralized mortgage  obligations: commercial
   
-
     
-
     
3,747
     
107
     
3,747
     
107
 
Other asset-backed securities
   
6,401
     
19
     
-
     
-
     
6,401
     
19
 
   
$
29,437
   
$
158
   
$
68,536
   
$
1,917
   
$
97,973
   
$
2,075
 

   
March 31, 2015
 
   
Securities with losses
under 12 months
   
Securities with losses
over 12 months
   
Total
 
   
Fair
Value
   
Gross
Unrealized
Loss
   
Fair
Value
   
Gross
Unrealized Loss
   
Fair
Value
   
Gross
Unrealized
Loss
 
Held-to-maturity:
                       
Obligations of state and political subdivisions
 
$
4,271
   
$
19
   
$
2,740
   
$
37
   
$
7,011
   
$
56
 
GSE mortgage-backed securities
   
-
     
-
     
7,957
     
85
     
7,957
     
85
 
Collateralized mortgage obligations: residential
   
-
     
-
     
12,068
     
270
     
12,068
     
270
 
   
$
4,271
   
$
19
   
$
22,765
   
$
392
   
$
27,036
   
$
411
 

   
December 31, 2014
 
   
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
 
$
11,761
   
$
35
   
$
13,263
   
$
157
   
$
25,024
   
$
192
 
GSE mortgage-backed securities
   
-
     
-
     
8,142
     
164
     
8,142
     
164
 
Collateralized mortgage obligations: residential
   
-
     
-
     
12,230
     
479
     
12,230
     
479
 
Collateralized mortgage obligations: commercial
   
7,599
     
173
     
-
     
-
     
7,599
     
173
 
   
$
19,360
   
$
208
   
$
33,635
   
$
800
   
$
52,995
   
$
1,008
 
 
Management evaluates each quarter whether unrealized losses on securities represent impairment that is other than temporary. For debt securities, the Company considers its intent to sell the securities or if it is more likely than not the Company will be required to sell the securities.  If such impairment is identified, based upon the intent to sell or the more likely than not threshold, the carrying amount of the security is reduced to fair value with a charge to earnings. Upon the result of the aforementioned review, management then reviews for potential other than temporary impairment based upon other qualitative factors.  In making this evaluation, management considers changes in market rates relative to those available when the security was acquired, changes in market expectations about the timing of cash flows from securities that can be prepaid, performance of the debt security, and changes in the market’s perception of the issuer’s financial health and the security’s credit quality.  If determined that a debt security has incurred other than temporary impairment, then the amount of the credit related impairment is determined.  If a credit loss is evident, the amount of the credit loss is charged to earnings and the non-credit related impairment is recognized through other comprehensive income.
 
As of March 31, 2015, 37 securities had unrealized losses totaling 1.21% of the individual securities’ amortized cost basis and 0.33% of the Company’s total amortized cost basis.  Of the 37 securities, 20 had been in an unrealized loss position for over twelve months at March 31, 2015.  These 20 securities had an amortized cost basis and unrealized loss of $70.9 million and $1.2 million, respectively.  The unrealized losses on debt securities at March 31, 2015 resulted from changing market interest rates over the yields available at the time the underlying securities were purchased.  Management identified no impairment related to credit quality.  At March 31, 2015, management had the intent and ability to hold impaired securities and no impairment was evaluated as other than temporary.  As a result, no other than temporary impairment losses were recognized during the three months ended March 31, 2015.
 
During the three months ended March 31, 2015, the Company sold 18 securities classified as available-for-sale at a net gain of $115,000.  Of the 18 securities sold, 8 were sold with gains totaling $250,000 and 10 securities were sold at a loss of $135,000.  During the three months ended March 31, 2014, the Company did not sell any securities.
 
Securities with an aggregate carrying value of approximately $294.4 million and $279.8 million at March 31, 2015 and December 31, 2014, respectively, were pledged to secure public funds on deposit and for other purposes required or permitted by law.
 
3.
Credit Quality of Loans and Allowance for Loan Losses
 
The loan portfolio consisted of the following (in thousands):
 
   
March 31, 2015
   
December 31, 2014
 
Commercial, financial and agricultural
 
$
484,508
   
$
467,147
 
Real estate - construction
   
76,964
     
68,577
 
Real estate – commercial
   
471,737
     
467,172
 
Real estate – residential
   
153,647
     
154,602
 
Installment loans to individuals
   
115,284
     
119,328
 
Lease financing receivable
   
6,350
     
4,857
 
Other
   
2,439
     
2,748
 
     
1,310,929
     
1,284,431
 
Less allowance for loan losses
   
(16,060
)
   
(11,226
)
   
$
1,294,869
   
$
1,273,205
 
 
The Company monitors loan concentrations and evaluates individual customer and aggregate industry leverage, profitability, risk rating distributions, and liquidity for each major standard industry classification segment.  At March 31, 2015, 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 $287.6 million, or 21.9% of total loans.  Additionally, the Company’s exposure to loans secured by commercial real estate is monitored.  At March 31, 2015, loans secured by commercial real estate (including commercial construction, farmland and multifamily loans) totaled approximately $521.9 million.  Of the $521.9 million, $471.7 million represent CRE loans, 55% of which are secured by owner-occupied commercial properties.  Of the $521.9 million in loans secured by commercial real estate, $8.1 million, or 1.6%, were on nonaccrual status at March 31, 2015.
 
Allowance for Loan Losses
 
The allowance for loan losses is a valuation account available to absorb probable losses on loans. All losses are charged to the allowance for loan losses when the loss actually occurs or when a determination is made that a loss is likely to occur. Recoveries are credited to the allowance for loan losses at the time of recovery.  Quarterly, the probable level of losses in the existing portfolio is estimated through consideration of various factors.  Based on these estimates, the allowance for loan losses is increased by charges to earnings and decreased by charge‑offs (net of recoveries).
 
The allowance is composed of general reserves and specific reserves.  General reserves are determined by applying loss percentages to segments of the portfolio.  The loss percentages are based on each segment’s historical loss experience, generally over the past twelve to eighteen months, and adjustment factors derived from conditions in the Company’s internal and external environment.  All loans considered to be impaired are evaluated on an individual basis to determine specific reserve allocations in accordance with GAAP.  Loans for which specific reserves are provided are excluded from the calculation of general reserves.
 
Loans acquired in business combinations are initially recorded at fair value, which includes an estimate of credit losses expected to be realized over the remaining lives of the loans, and therefore no corresponding allowance for loan losses is recorded for these loans at acquisition. Methods utilized to estimate any subsequently required allowance for loan losses for acquired loans not deemed credit-impaired at acquisition are similar to originated loans; however, the estimate of loss is based on the unpaid principal balance and then compared to any remaining unaccreted purchase discount. To the extent that the calculated loss is greater than the remaining unaccreted purchase discount, an allowance is recorded for such difference.
 
The Company has an internal loan review department that is independent of the lending function to challenge and corroborate the loan grade assigned by the lender and to provide additional analysis in determining the adequacy of the allowance for loan losses.
 
A rollforward of the activity within the allowance for loan losses by loan type and recorded investment in loans for the three months ended March 31, 2015 and 2014 is as follows (in thousands):
 
   
March 31, 2015
 
       
Real Estate
                 
   
Coml, Fin,
and Agric
   
Construction
   
Commercial
   
Residential
   
Installment
loans to
individuals
   
Lease
financing
receivable
   
Other
   
Total
 
Allowance for loan losses:
                               
Beginning balance
 
$
5,729
   
$
954
   
$
2,402
   
$
810
   
$
1,311
   
$
16
   
$
4
   
$
11,226
 
Charge-offs
   
(1,001
)
   
(6
)
   
-
     
(2
)
   
(323
)
   
-
     
-
     
(1,332
)
Recoveries
   
132
     
-
     
6
     
2
     
26
     
-
     
-
     
166
 
Provision
   
5,523
     
3
     
202
     
7
     
260
     
4
     
1
     
6,000
 
Ending balance
 
$
10,383
   
$
951
   
$
2,610
   
$
817
   
$
1,274
   
$
20
   
$
5
   
$
16,060
 
Ending balance: individually evaluated for impairment
 
$
737
   
$
-
   
$
645
   
$
57
   
$
206
   
$
-
   
$
-
   
$
1,645
 
Ending balance: collectively evaluated for impairment
 
$
9,646
   
$
951
   
$
1,965
   
$
760
   
$
1,068
   
$
20
   
$
5
   
$
14,415
 
                                                                 
Loans:
                                                               
Ending balance
 
$
484,508
   
$
76,964
   
$
471,737
   
$
153,647
   
$
115,284
   
$
6,350
   
$
2,439
   
$
1,310,929
 
Ending balance: individually evaluated for impairment
 
$
2,427
   
$
477
   
$
7,977
   
$
1,471
   
$
405
   
$
-
   
$
-
   
$
12,757
 
Ending balance: collectively evaluated for impairment
 
$
482,081
   
$
76,487
   
$
463,106
   
$
152,087
   
$
114,879
   
$
6,350
   
$
2,439
   
$
1,297,429
 
Ending balance: loans acquired with deteriorated credit quality
 
$
-
   
$
-
   
$
654
   
$
89
   
$
-
   
$
-
   
$
-
   
$
743
 
 
   
March 31, 2014
 
       
Real Estate
                 
   
Coml, Fin,
and Agric
   
Construction
   
Commercial
   
Residential
   
Installment
loans to
individuals
   
Lease
financing
receivable
   
Other
   
Total
 
Allowance for loan losses:
                               
Beginning balance
 
$
3,906
   
$
1,046
   
$
1,389
   
$
1,141
   
$
1,273
   
$
21
   
$
3
   
$
8,779
 
Charge-offs
   
(431
)
   
(1
)
   
(13
)
   
(84
)
   
(159
)
   
-
     
-
     
(688
)
Recoveries
   
14
     
-
     
37
     
8
     
65
     
-
     
-
     
124
 
Provision
   
749
     
36
     
8
     
(172
)
   
(69
)
   
(2
)
   
-
     
550
 
Ending balance
 
$
4,238
   
$
1,081
   
$
1,421
   
$
893
   
$
1,110
   
$
19
   
$
3
   
$
8,765
 
Ending balance: individually evaluated for impairment
 
$
86
   
$
3
   
$
57
   
$
71
   
$
131
   
$
-
   
$
-
   
$
348
 
Ending balance: collectively evaluated for impairment
 
$
4,152
   
$
1,078
   
$
1,364
   
$
822
   
$
979
   
$
19
   
$
3
   
$
8,417
 
                                                                 
Loans:
                                                               
Ending balance
 
$
435,523
   
$
78,988
   
$
408,546
   
$
150,551
   
$
101,869
   
$
5,102
   
$
3,610
   
$
1,184,189
 
Ending balance: individually evaluated for impairment
 
$
2,273
   
$
154
   
$
3,195
   
$
951
   
$
292
   
$
-
   
$
-
   
$
6,865
 
Ending balance: collectively evaluated for impairment
 
$
433,250
   
$
78,834
   
$
404,652
   
$
149,442
   
$
101,577
   
$
5,102
   
$
3,610
   
$
1,176,467
 
Ending balance: loans acquired with deteriorated credit quality
 
$
-
   
$
-
   
$
699
   
$
158
   
$
-
   
$
-
   
$
-
   
$
857
 
 
Non-Accrual and Past Due Loans
 
Loans are considered past due if the required principal and interest payment have not been received as of the date such payments were due.  Loans are placed on non-accrual status when, in management’s opinion, the probability of collection of interest is deemed insufficient to warrant further accrual.  For loans placed on non-accrual status, the accrual of interest is discontinued and subsequent payments received are applied to the principal balance.  Interest income is recorded after principal has been satisfied and as payments are received.  Non-accrual loans may be returned to accrual status if all principal and interest amounts contractually owed are reasonably assured of repayment within a reasonable period and there is a period of at least six months to one year of repayment performance by the borrower depending on the contractual payment terms.
 
An age analysis of past due loans (including both accruing and non-accruing loans) is as follows (in thousands):
 
   
March 31, 2015
 
                             
   
30-59
Days
Past Due
   
60-89
Days
Past
Due
   
Greater
than 90
Days
Past Due
   
Total
Past
Due
   
Current
   
Total Loans
   
Recorded
Investment
> 90 days
 and
Accruing
 
Commercial, financial, and agricultural
 
$
2,767
   
$
761
   
$
2,306
   
$
5,834
   
$
478,674
   
$
484,508
   
$
3
 
Commercial real estate - construction
   
17
     
-
     
13
     
30
     
50,164
     
50,194
     
-
 
Commercial real estate - other
   
12,643
     
639
     
4,372
     
17,654
     
454,083
     
471,737
     
-
 
Residential - construction
   
-
     
-
     
433
     
433
     
26,337
     
26,770
     
-
 
Residential - prime
   
2,226
     
225
     
1,010
     
3,461
     
150,186
     
153,647
     
-
 
Consumer - credit card
   
9
     
13
     
-
     
22
     
5,664
     
5,686
     
-
 
Consumer - other
   
603
     
106
     
321
     
1,030
     
108,568
     
109,598
     
37
 
Lease financing receivable
   
-
     
-
     
-
     
-
     
6,350
     
6,350
     
-
 
Other loans
   
62
     
-
     
-
     
62
     
2,377
     
2,439
     
-
 
   
$
18,327
   
$
1,744
   
$
8,455
   
$
28,526
   
$
1,282,403
   
$
1,310,929
   
$
40
 
                                                         
   
December 31, 2014
 
   
30-59
Days
Past Due
   
60-89
Days
Past
Due
   
Greater
than 90
Days
Past Due
   
Total
Past
Due
   
Current
   
Total Loans
   
Recorded
Investment
> 90 days
and
Accruing
 
Commercial, financial, and agricultural
 
$
2,179
   
$
654
   
$
2,556
   
$
5,389
   
$
461,758
   
$
467,147
   
$
26
 
Commercial real estate - construction
   
15
     
-
     
105
     
120
     
43,390
     
43,510
     
97
 
Commercial real estate - other
   
4,989
     
270
     
2,464
     
7,723
     
459,449
     
467,172
     
-
 
Residential - construction
   
431
     
-
     
-
     
431
     
24,636
     
25,067
     
-
 
Residential - prime
   
1,843
     
523
     
704
     
3,070
     
151,532
     
154,602
     
-
 
Consumer - credit card
   
5
     
19
     
18
     
42
     
5,970
     
6,012
     
18
 
Consumer - other
   
671
     
392
     
107
     
1,170
     
112,146
     
113,316
     
46
 
Lease financing receivable
   
-
     
-
     
-
     
-
     
4,857
     
4,857
     
-
 
Other loans
   
134
     
-
     
-
     
134
     
2,614
     
2,748
     
-
 
   
$
10,267
   
$
1,858
   
$
5,954
   
$
18,079
   
$
1,266,352
   
$
1,284,431
   
$
187
 
 
Non-accrual loans are as follows (in thousands):
 
   
March 31, 2015
   
December 31, 2014
 
Commercial, financial, and agricultural
 
$
2,413
   
$
2,642
 
Commercial real estate – construction
   
43
     
54
 
Commercial real estate - other
   
8,012
     
6,429
 
Residential - construction
   
433
     
-
 
Residential - prime
   
1,585
     
1,194
 
Consumer - credit card
   
-
     
-
 
Consumer - other
   
408
     
382
 
Lease financing receivable
   
-
     
-
 
Other
   
-
     
-
 
   
$
12,894
   
$
10,701
 
 
The amount of interest that would have been recorded on non-accrual loans, had the loans not been classified as non-accrual, totaled approximately $342,000 and $118,000 for the three months ended March 31, 2015 and 2014, respectively.  Interest actually received on non-accrual loans at March 31, 2015 and 2014 was $11,000 and $88,000, respectively.
 
Impaired Loans
 
Loans are considered impaired when, based upon current information, it is probable the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement.  All loans classified as special mention, substandard, or doubtful, based on credit risk rating factors, are reviewed to determine whether impairment testing is appropriate.  An allowance for each impaired loan is calculated based on the present value of expected future cash flows discounted at the loan’s effective interest rate or at the loan’s observable market price or the fair value of the collateral if the loan is collaterally dependent.  All impaired loans are reviewed, at a minimum, on a quarterly basis.  Existing valuations are reviewed to determine if additional discounts or new appraisals are required.  After this review, when comparing the resulting collateral valuation to the outstanding loan balance, if the discounted collateral value exceeds the loan balance no specific allocation is reserved.  Acquired impaired loans are generally not subject to individual evaluation for impairment and are not reported with impaired loans or troubled debt restructurings, even if they would otherwise qualify for such treatment.
 
Loans that are individually evaluated for impairment are as follows (in thousands):
 
   
March 31, 2015
 
   
Recorded
Investment
   
Unpaid
Principal
 Balance
   
Related
Allowance
   
Average
Recorded
Investment
   
Interest
 Income
Recognized
 
With no related allowance recorded:
                   
Commercial, financial, and agricultural
 
$
407
   
$
490
   
$
-
   
$
422
   
$
-
 
Commercial real estate – construction
   
43
     
43
     
-
     
49
     
-
 
Commercial real estate – other
   
3,852
     
3,852
     
-
     
2,886
     
12
 
Residential – prime
   
1,057
     
1,057
     
-
     
800
     
5
 
Residential – construction
   
434
     
434
     
-
     
217
     
-
 
Consumer – other
   
56
     
56
     
-
     
67
     
-
 
Subtotal:
   
5,849
     
5,932
     
-
     
4,441
     
17
 
With an allowance recorded:
                                       
Commercial, financial, and agricultural
   
2,020
     
2,134
     
737
     
2,119
     
-
 
Commercial real estate – other
   
4,125
     
4,125
     
645
     
4,296
     
-
 
Residential – prime
   
414
     
434
     
57
     
471
     
-
 
Consumer – other
   
349
     
363
     
206
     
324
     
1
 
Subtotal:
   
6,908
     
7,056
     
1,645
     
7,210
     
1
 
Totals:
                                       
Commercial
   
10,447
     
10,644
     
1,382
     
9,772
     
12
 
Residential
   
1,905
     
1,925
     
57
     
1,488
     
5
 
Consumer
   
405
     
419
     
206
     
391
     
1
 
Grand total:
 
$
12,757
   
$
12,988
   
$
1,645
   
$
11,651
   
$
18
 
   
December 31, 2014
 
   
Recorded
Investment
   
Unpaid
Principal
Balance
   
Related
Allowance
   
Average
Recorded
Investment
   
Interest
Income
Recognized
 
With no related allowance recorded:
                   
Commercial, financial, and agricultural
 
$
438
   
$
521
   
$
-
   
$
554
   
$
-
 
Commercial real estate – construction
   
54
     
54
     
-
     
58
     
-
 
Commercial real estate – other
   
1,921
     
1,921
     
-
     
1,885
     
17
 
Residential – prime
   
543
     
543
     
-
     
534
     
15
 
Consumer – other
   
78
     
78
     
-
     
72
     
-
 
Subtotal:
   
3,034
     
3,117
     
-
     
3,103
     
32
 
With an allowance recorded:
                                       
Commercial, financial, and agricultural