10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2012

Commission File number 1-11826

MIDSOUTH BANCORP, INC.

(Exact name of registrant as specified in its charter)

Louisiana	72-1020809
(State of Incorporation)	(I.R.S. EIN Number)

102 Versailles Boulevard, Lafayette, Louisiana  70501

(Address of principal executive offices)

Registrant's telephone number, including area code:  (337) 237-8343

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

Title of each class	Name of each exchange on which registered
Common Stock, $.10 par value	NYSE MKT Equities

Securities registered pursuant to Section 12(g) of the Act:  none

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes  o    No  þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.

Yes  o    No  þ

Indicate by check mark 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  þ   No  o

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

Yes  þ    No  o

Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a nonaccelerated filer, or a smaller reporting company.   A large accelerated filer  oAn accelerated filer  þA nonaccelerated filer  o A smaller reporting company  o

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

Yes  o   No   þ

The aggregate market value of the voting and nonvoting common equity held by nonaffiliates of the registrant at June 30, 2012 was approximately $102,418,342 based upon the closing market price on NYSE MKT Equities as of such date.   As of March 18, 2013 there were 11,238,786 outstanding shares of MidSouth Bancorp, Inc. common stock.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company’s Proxy Statement for its 2013 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K.

MIDSOUTH BANCORP, INC.

2012 Annual Report on Form 10-K

TABLE OF CONTENTS

Part I		5
Item 1 - Business		5
Overview		5
Products and Services		5
Markets		6
Competition		6
Employees		6
Additional Information		6
Supervision and Regulation		6
Item 1A – Risk Factors		14
Risks Relating to Our Business		14
Risks Relating to an Investment in Our Common Stock		22
Item 1B – Unresolved Staff Comments		24
Item 2 - Properties		24
Item 3 - Legal Proceedings		24
Item 4 – Mine Safety Disclosures		25
PART II		27
Item 5 - Market for Registrant's Common Equity, Related Shareholder Matters, and Issuer Purchases of Equity Securities		27
Item 6 – Five Year Summary of Selected Financial Data		29
Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations		30
Overview		30
Acquisition Activity during 2012 and 2011		30
Critical Accounting Policies		31
Results of Operations		32
Earnings Analysis		33
Balance Sheet Analysis		37
Impact of Inflation and Changing Prices		49
Item 7A – Quantitative and Qualitative Disclosures about Market Risk		49
Item 8 – Financial Statements and Supplementary Data		50
Notes to Consolidated Financial Statements		56
1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	56
2.	ACQUISITION ACTIVITY	61
3.	INVESTMENT SECURITIES	66
4.	OTHER INVESTMENTS	69
5.	LOANS	70
6.	PREMISES AND EQUIPMENT	78
7.	GOODWILL AND OTHER INTANGIBLE ASSETS	78
8.	DEPOSITS	79
9.	SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE	79
10.	NOTES PAYABLE	80
11.	JUNIOR SUBORDINATED DEBENTURES	81
12.	COMMITMENTS AND CONTINGENCIES	81
13.	INCOME TAXES	82
14.	EMPLOYEE BENEFITS	82
15.	EMPLOYEE STOCK PLANS	83
16.	SHAREHOLDERS’ EQUITY	85

17.	NET EARNINGS PER COMMON SHARE	86
18.	FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK	86
19.	REGULATORY MATTERS	87
20.	FAIR VALUE MEASUREMENTS AND DISCLOSURES	88
21.	OTHER NON-INTEREST INCOME AND EXPENSE	92
22.	SUBSEQUENT EVENTS	92
23.	CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY	93
Item 9 – Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		101
Item 9A – Controls and Procedures		101
Item 9B – Other Information		101
PART III		102
Item 10 - Directors, Executive Officers, and Corporate Governance		102
Item 11 - Executive Compensation		102
Item 12 - Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters		102
Securities Authorized for Issuance under Equity Compensation Plans		102
Item 13 - Certain Relationships and Related Transactions and Director Independence		103
Item 14 – Principal Accounting Fees and Services		103
Item 15 - Exhibits and Financial Statement Schedules		103

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

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

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

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

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

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

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

· the ability to integrate the operations of PSB Financial Corporation (“PSB”) and capitalize on new market opportunities resulting from the acquisition of PSB;

· the effect of the PSB acquisition on relations with customers and employees;

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

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

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

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

· legislative and regulatory changes, including the impact of regulations under the Dodd-Frank  Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) and other changes in banking, securities and tax laws and regulations and their application by our regulators, changes in the scope and cost of Federal Deposit Insurance Corporation (“FDIC”) insurance and other coverage;

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

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

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

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

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

- 4 -

Part I

Item 1 - Business

Overview

The Company was incorporated in 1984 as a Louisiana corporation and is a registered financial holding company headquartered in Lafayette, Louisiana.  Its operations have been conducted primarily through its wholly owned bank subsidiary MidSouth Bank, N.A.  The Bank, a national banking association, was chartered and commenced operations in 1985.  On December 28, 2012, we completed a merger with PSB Financial Corporation (“PSB”), the holding company of Many, Louisiana based The Peoples State Bank.  This transaction continued our strategic growth and enhanced the connection between Louisiana and Texas by expanding MidSouth Bank’s presence into central and northwest Louisiana and east Texas.  As of December 31, 2012, the Bank operated through a network of 59 offices located in Louisiana and Texas.

Unless otherwise indicated or unless the context requires otherwise, all references in this report to “the Company,” “we,” “us,” “our,” or similar references, mean MidSouth Bancorp, Inc. and our subsidiaries, including our banking subsidiary, MidSouth Bank, N.A., on a consolidated basis.  References to “MidSouth Bank” or the “Bank” mean our wholly owned banking subsidiary, MidSouth Bank, N.A.

Products and Services

The Bank is community oriented and focuses primarily on offering commercial and consumer loan and deposit services to small and middle market businesses, their owners and employees, and other individuals in our markets.  Our community banking philosophy emphasizes personalized service and building broad customer relationships.  Deposit products and services offered by the Bank include interest-bearing and noninterest-bearing checking accounts, investment accounts, cash management services, and electronic banking services, including remote deposit capturing services, internet banking, and debit and credit cards.  Most of the Bank’s deposit accounts are FDIC-insured up to the maximum allowed, and the Bank customers have access to a world-wide ATM network of more than 50,000 surcharge-free ATMs.

Loans offered by the Bank include commercial and industrial loans, commercial real estate loans (both owner-occupied and non-owner occupied), other loans secured by real estate and consumer loans.  We commenced operations during a severe economic downturn in Louisiana more than 25 years ago.  Our survival and growth in the ensuing years has instilled in us a conservative operating philosophy.  Our conservative attitude impacts our credit and funding decisions, including underwriting loans primarily based on the cash flows of the borrower (rather than just relying on collateral valuations) and focusing lending efforts on working capital and equipment loans to small and mid-sized businesses along with owner-occupied properties.

Our conservative operating philosophy extends to managing the various risks we face.  We maintain a separate risk management group to help identify and manage these various risks.  This group, which reports directly to the Chairman of our Audit Committee, not to other members of the senior management team, includes our audit, collections, compliance, in-house legal counsel, loan review and security functions and is staffed with experienced accounting and legal professionals.

We are committed to an exceptional level of customer care.  We maintain our own in-house call center so that customers enjoy live interaction with employees of the Bank rather than an automated telephone system.  Additionally, we provide our employees with the training and technological tools to improve customer care.  We also conduct focus groups within the communities we serve and strive to create a two-way dialog to ensure that we are offering the banking products and services that our customers and communities need.

With the PSB merger, we acquired a wholly owned insurance subsidiary, Peoples General Agency (“the Agency”).  The Agency has an affiliate relationship with Community Financial Insurance Center, LLC (“CFI”), a Louisiana based independent insurance agency which also serves as the affiliated agency of the Louisiana Bankers Association.  CFI offers a wide array of personal, commercial and life and health insurance products.  As an affiliate with CFI, the Agency receives a 15% commission on any successful referral to CFI.  Commissions were approximately $15,000 in 2012, which is not included in our 2012 operating results.

- 5 -

Markets

We operate in Louisiana and central and east Texas along the Interstate 10, Interstate 49, Highway 90, Interstate 45, and Interstate 20 corridors.  As of December 31, 2012, our market area in Louisiana included 45 offices and is bound by Lafourche Parish to the south, East Baton Rouge Parish to the east, Caddo Parish to the north and Calcasieu Parish to the west.  Our market areas in Texas include 14 offices located in the Beaumont, College Station, Conroe, Houston, Dallas-Fort Worth, Tyler and Texarkana areas. For additional information regarding our properties, see Item 2 – Properties of this Report.

We believe that high energy prices, clean-up of the 2010 Deepwater Horizon oil spill in the Gulf of Mexico and continued rebuilding from the storms of 2005 in Louisiana and Texas insulated our markets from the full impact of the national recession and have positioned us for growth as the national economy slowly improves.   Furthermore, our markets have not experienced the severity of real estate price declines that have plagued so much of the country, and have generally suffered fewer job losses than the rest of the U.S.  Oil and gas is the key industry within our markets.  However, medical, technology and research companies continue to develop within these markets thereby diversifying the economy.  Additionally, numerous major universities located within our market areas, including Louisiana State University, University of Houston, Rice University, Texas A&M University and University of Louisiana at Lafayette, provide a substantial number of jobs and help to contribute to the educated work force within our markets.

We believe our financial condition, coupled with our scalable operational capabilities, will facilitate future growth, both organically and through acquisition, including potential growth in new market areas.

Competition

We face strong competition in our market areas from both traditional and nontraditional financial services providers, such as commercial banks; savings banks; credit unions; finance companies; mortgage, leasing, and insurance companies; money market mutual funds; brokerage houses; and branches that provide credit facilities.  Several of the financial services competitors in our market areas are substantially larger and have far greater resources; however, we have effectively competed by building long-term customer relationships.  Customer loyalty has been built through our continued focus on quality customer care enhanced by technology and effective delivery systems.

Other factors, including economic, legislative, and technological changes, also impact our competitive environment.  Management continually evaluates competitive challenges in the financial services industry and develops appropriate responses consistent with our overall market strategy.

Employees

As of December 31, 2012, the Bank employed approximately 604 full-time equivalent employees.  The Company had no employees who are not also employees of the Bank.  Through the Bank, employees receive customary employee benefits, which include an employee stock ownership plan; a 401(K) plan; and life, health and disability insurance plans.  Our directors, officers, and employees are important to the success of the Company and play a key role in business development by actively participating in the communities served by the Company.  The Company considers the relationship of the Bank with its employees as a whole to be good.

Additional Information

More information on the Company and the Bank is available on the Bank’s website at www.midsouthbank.com.  The Company is not incorporating by reference into this Report the information contained on its website; therefore, the content of the website is not a part of this Report.  Copies of this Report and other reports filed or furnished by the Company pursuant to Section 13(a) or 15(d) of the Exchange Act, including exhibits, are available free of charge on the Company’s website under the “Investor Relations” link as soon as reasonably practicable after they have been filed or furnished electronically to the Securities and Exchange Commission (“SEC”).   Copies of these filings may also be obtained free of charge on the SEC’s website at www.sec.gov.

Supervision and Regulation

Under Federal Reserve policy, we are expected to act as a source of financial strength for, and to commit resources to support, the Bank.  This support may be required at times when, absent such Federal Reserve policy, we may not be inclined to provide such support.  In addition, any capital loans by a financial holding company to any of its banking subsidiaries are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary banks.  In the event of a financial holding company's bankruptcy, any commitment by a financial holding company to a federal bank regulatory agency to maintain the capital of a banking subsidiary will be assumed by the bankruptcy trustee and entitled to a priority of payment.

- 6 -

Regulatory Reform

The financial crisis of 2008, including the downturn of global economic, financial and money markets and the threat of collapse of numerous financial institutions, and other recent events have led to the adoption of numerous new laws and regulations that apply to, and focus on, financial institutions. The most significant of these new laws is the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), which was adopted on July 21, 2010 and, in part, is intended to implement significant structural reforms to the financial services industry. The Dodd-Frank Act is discussed in more detail below.

As a result of the Dodd-Frank Act and other regulatory reforms, the Company is experiencing a period of rapidly changing regulations. These regulatory changes could have a significant impact on how the Company conducts its business. The specific implications of the Dodd-Frank Act and other proposed regulatory reforms cannot yet be predicted and will depend to a large extent on the specific regulations that are adopted in the coming months and years to implement regulatory reform initiatives.

Bank Holding Companies and Financial Holding Companies

Historically, the activities of bank holding companies were limited to the business of banking and activities closely related or incidental to banking. Bank holding companies were generally prohibited from acquiring control of any company that was not a bank and from engaging in any business other than the business of banking or managing and controlling banks. The Gramm-Leach-Bliley Act, which took effect on March 12, 2000, dismantled many Depression-era restrictions against affiliation between banking, securities and insurance firms by permitting bank holding companies to engage in a broader range of financial activities, so long as certain safeguards are observed. Specifically, bank holding companies may elect to become “financial holding companies” that may affiliate with securities firms and insurance companies and engage in other activities that are financial in nature or incidental to a financial activity. Thus, with the enactment of the Gramm-Leach-Bliley Act, banks, security firms and insurance companies find it easier to acquire or affiliate with each other and cross-sell financial products. The Gramm-Leach-Bliley Act permits a single financial services organization to offer a more complete array of financial products and services than historically was permitted.

A financial holding company is essentially a bank holding company with significantly expanded powers. Under the Gramm-Leach-Bliley Act, in addition to traditional lending activities, the following activities are among those that are deemed “financial in nature” for financial holding companies: securities underwriting, dealing in or making a market in securities, sponsoring mutual funds and investment companies, insurance underwriting and agency activities, activities which the Federal Reserve Board determines to be closely related to banking, and certain merchant banking activities.

We elected to become a financial holding company in November 2012. As a financial holding company, we have very broad discretion to affiliate with securities firms and insurance companies, make merchant banking investments, and engage in other activities that the Federal Reserve Board has deemed financial in nature. In order to continue as a financial holding company, we must continue to be well-capitalized, well-managed and maintain compliance with the Community Reinvestment Act (the “CRA”). Depending on the types of financial activities that we may elect to engage in, under the Gramm-Leach-Bliley Act’s functional regulation principles, we may become subject to supervision by additional government agencies. The election to be treated as a financial holding company increases our ability to offer financial products and services that historically we were either unable to provide or were only able to provide on a limited basis. As a result, we will face increased competition in the markets for any new financial products and services that we may offer. Likewise, an increased amount of consolidation among banks and securities firms or banks and insurance firms could result in a growing number of large financial institutions that could compete aggressively with us.

- 7 -

Dodd-Frank Act

In July 2010, the Dodd-Frank Act was signed into law. The Dodd-Frank Act implements far-reaching changes across the financial regulatory landscape, including changes that will affect all bank holding companies, financial holding companies and banks, including us and the Bank, including the following provisions:

· Insurance of Deposit Accounts. The Dodd-Frank Act changed the assessment base for federal deposit insurance from the amount of insured deposits to consolidated assets less tangible capital. The Dodd-Frank Act also made permanent the $250,000 limit for federal deposit insurance and increased the cash limit of Securities Investor Protection Corporation protection from $100,000 to $250,000.

· Payment of Interest on Demand Deposits. The Dodd-Frank Act repealed the federal prohibitions on the payment of interest and demand deposits, thereby permitting depository institutions to pay interest on business transaction and other accounts.

· Creation of the Consumer Financial Protection Bureau.  The Dodd-Frank Act centralized significant aspects of consumer financial protection by creating a new agency, the Consumer Financial Protection Bureau (the “CFPB”), which is discussed in more detail below.

· Debit Card Interchange Fees. The Dodd-Frank Act amended the Electronic Fund Transfer Act to, among other things, require that debit card interchange fees be reasonable and proportional to the actual cost incurred by the issuer with respect to the transaction. In June 2011, the Federal Reserve Board adopted regulations setting the maximum permissible interchange fee as the sum of 21 cents per transaction and 5 basis points multiplied by the value of the transaction, with an additional adjustment of up to one cent per transaction if the issuer implements additional fraud-prevention standards. Although issuers that have assets of less than $10 billion are exempt from the Federal Reserve Board’s regulations that set maximum interchange fees, these regulations could significantly impact the interchange fees that financial institutions with less than $10 billion in assets, such as the Bank, are able to collect.

In addition, the Dodd-Frank Act implements other far-reaching changes to the financial regulatory landscape, including provisions that:

· Restrict the preemption of state law by federal law and disallow subsidiaries and affiliates of national banks from availing themselves of such preemption.

· Impose comprehensive regulation of the over-the-counter derivatives market, subject to significant rulemaking processes, which would include certain provisions that would effectively prohibit insured depository institutions from conducting certain derivatives businesses in the institution itself.

· Require depository institutions with total consolidated assets of more than $10 billion to conduct regular stress tests and require large, publicly traded bank holding companies and financial holding companies to create a risk committee responsible for the oversight of enterprise risk management.

· Require loan originators to retain 5% of any loan sold or securitized, unless it is a “qualified residential mortgage,” subject to certain exceptions.

· Prohibit banks and their affiliates from engaging in proprietary trading and investing in and sponsoring certain unregistered investment companies (the Volker Rule).

· Implement corporate governance revisions that apply to all public companies not just financial institutions.

Many aspects of the Dodd-Frank Act remain subject to rulemaking and will take effect over several years, making it difficult to anticipate the overall financial impact on the Company, the Bank, our customers or the financial industry more generally. Some of the rules that have been proposed and, in some cases, adopted to comply with the Dodd-Frank Act’s mandates are discussed further below.

Capital Requirements

We are subject to various regulatory capital requirements administered by the Federal Reserve and the Office of the Comptroller of the Currency (the “OCC”). Failure to meet minimum capital requirements could result in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action (described below), we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting policies. Our capital amounts and classification are also subject to judgments by the regulators regarding qualitative components, risk weightings, and other factors. For further detail on capital and capital ratios see discussion under Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

- 8 -

Under the risk-based capital requirements for bank holding companies and financial holding companies, the minimum requirement for the ratio of total capital to risk-weighted assets (including certain off-balance sheet activities, such as standby letters of credit) is 8%. At least half of the total capital (as defined below) is to be composed of common stockholders’ equity, retained earnings, qualifying perpetual preferred stock (in a limited amount in the case of cumulative preferred stock), minority interests in the equity accounts of consolidated subsidiaries, and qualifying trust preferred securities, less goodwill and certain intangibles (“Tier 1 Capital”). The remainder of total capital may consist of qualifying subordinated debt and redeemable preferred stock, qualifying cumulative perpetual preferred stock and allowance for loan losses (“Tier 2 Capital”, and together with Tier 1 Capital, “Total Capital”).  At December 31, 2012, our Tier 1 Capital ratio was 13.46% and Total Capital ratio was 14.10%.  As long as our total consolidated assets remain below $15 billion, under current capital standards we may continue to include our $28.5 million aggregate principal amount of trust preferred securities issued prior to May 19, 2011 in our Tier 1 and Total Capital calculations.

The Federal Reserve has established minimum leverage ratio guidelines for bank holding companies and financial holding companies. These requirements provide for a minimum leverage ratio of Tier 1 Capital to adjusted average quarterly assets (“Leverage Ratio”) equal to 3% for bank holding companies and financial holding companies that meet specified criteria, including having the highest regulatory rating. All other bank holding companies and financial holding companies will generally be required to maintain a leverage ratio of at least 4%. Our Leverage Ratio at December 31, 2012 was 11.82%. The capital guidelines also provide that bank holding companies and financial holding companies experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. Furthermore, the guidelines provide that the Federal Reserve will continue to consider a “tangible tier 1 leverage ratio” (deducting all intangibles) in evaluating proposals for expansion or to engage in new activity.

The Bank is subject to similar capital requirements adopted by the OCC. The risk-based capital requirements identify concentrations of credit risk and certain risks arising from non-traditional activities, and the management of those risks, as important factors to consider in assessing an institution’s overall capital adequacy. Other factors taken into consideration by federal regulators include: interest rate exposure; liquidity, funding and market risk; the quality and level of earnings; the quality of loans and investments; the effectiveness of loan and investment policies; and management’s overall ability to monitor and control financial and operational risks, including the risks presented by concentrations of credit and non-traditional activities.

Basel III Capital Framework

In June 2012, the federal bank regulatory agencies proposed (i) rules to implement the Basel III capital framework as outlined by the Basel Committee on Banking Supervision (the “Basel Committee”) and (ii) rules for calculating risk-weighted assets. The federal bank regulatory agencies have delayed the implementation of Basel III and the new risk-weighted assets calculations to consider comments received on the proposed rules. The timing for the agencies’ publication of revised proposed rules regarding, or final rules to implement, Basel III and the new risk-weighted assets calculations is uncertain.

Basel III, when implemented by the U.S. banking agencies and fully phased-in, will require bank holding companies and financial holding companies and their bank subsidiaries to maintain substantially more capital, with a greater emphasis on common equity.  The Basel III final capital framework, among other things, (i) introduces as a new capital measure “Common Equity Tier 1” (“CET1”), (ii) specifies that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting specified requirements, (iii) defines CET1 narrowly by requiring that most adjustments to regulatory capital measures be made to CET1 and not to the other components of capital and (iv) expands the scope of the adjustments as compared to existing regulations.

When fully phased in, Basel III would require banks to maintain (i) as a newly adopted international standard, a minimum ratio of CET1 to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (which is added to the 4.5% CET1 ratio as that buffer is phased in, effectively resulting in a minimum ratio of CET1 to risk-weighted assets of at least 7%), (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio as that buffer is phased in, effectively resulting in a minimum Tier 1 capital ratio of 8.5% upon full implementation), (iii) a minimum ratio of Total (that is, Tier 1 plus Tier 2) capital to risk-weighted assets of at least 8.0%, plus the capital conservation buffer (which is added to the 8.0% total capital ratio as that buffer is phased in, effectively resulting in a minimum total capital ratio of 10.5% upon full implementation) and (iv) as a newly adopted international standard, a minimum leverage ratio of 3%, calculated as the ratio of Tier 1 capital to balance sheet exposures plus certain off-balance sheet exposures (computed as the average for each quarter of the month-end ratios for the quarter).

- 9 -

Basel III also provides for a “countercyclical capital buffer,” generally designed to absorb losses during periods of economic stress and to be imposed when national regulators determine that excess aggregate credit growth becomes associated with a buildup of systemic risk. This buffer would be a CET1 add-on to the capital conservation buffer in the range of 0% to 2.5% when fully implemented (potentially resulting in total buffers of between 2.5% and 5%).

The Basel III final framework provides for a number of new deductions from and adjustments to CET1. These include, for example, the requirement that mortgage servicing rights, deferred tax assets dependent upon future taxable income and significant investments in non-consolidated financial entities be deducted from CET1 to the extent that any one such category exceeds 10% of CET1 or all such categories in the aggregate exceed 15% of CET1. Implementation of the deductions and other adjustments to CET1 are currently expected to be phased-in over a five-year period (20% per year). The implementation of the capital conservation buffer is expected to begin at 0.625% and be phased in over a four-year period (increasing by that amount each year until it reaches 2.5%).

The regulations ultimately applicable to the Company may be substantially different from the Basel III proposed rules that were issued in June 2012.  Requirements to maintain higher levels of capital or to maintain higher levels of liquid assets could adversely impact our net income and return on equity.

Prompt Corrective Action

The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) established a system of prompt corrective action to resolve the problems of undercapitalized institutions.  Under this system, the federal banking regulators have established five capital categories (well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized), and are required to take certain mandatory supervisory actions, and are authorized to take other discretionary actions, with respect to institutions in the three undercapitalized categories.  The severity of the action will depend upon the capital category in which the institution is placed.  Generally, subject to a narrow exception, the banking regulator must appoint a receiver or conservator for an institution that is critically undercapitalized.  The federal banking agencies have set the relevant capital level for each category.

An institution that is categorized as undercapitalized, significantly undercapitalized, or critically undercapitalized is required to submit an acceptable capital restoration plan to its appropriate federal regulatory agency.  A bank holding company and financial holding company must guarantee that a subsidiary depository institution meets its capital restoration plan, subject to certain limitations.  The controlling holding company's obligation to fund a capital restoration plan is limited to the lesser of 5.0% of an undercapitalized subsidiary's assets or the amount required to meet regulatory capital requirements.  An undercapitalized institution is also generally prohibited from increasing its average total assets, making acquisitions, establishing any branches or engaging in any new line of business, except under an accepted capital restoration plan or with FDIC approval.  In addition, the appropriate federal regulatory agency may treat an undercapitalized institution in the same manner as it treats a significantly undercapitalized institution if it determines that those actions are necessary.

At December 31, 2012, the Bank had the requisite capital level to qualify as “well capitalized” under the regulatory framework for prompt corrective action.

Insurance of Accounts and FDIC Insurance Assessments

The Bank’s deposits are insured by the Deposit Insurance Fund (the “DIF”) of the FDIC up to the standard maximum insurance amount for each deposit insurance ownership category. As of January 1, 2013, the basic limit on FDIC deposit insurance coverage is $250,000 per depositor. Under the FDIA, the FDIC may terminate deposit insurance upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC, subject to administrative and potential judicial hearing and review processes.

The DIF is funded by assessments on banks and other depository institutions. As required by the Dodd-Frank Act, in February 2011, the FDIC approved a final rule that changed the assessment base for DIF assessments from domestic deposits to average consolidated total assets minus average tangible equity (defined as Tier 1 capital). In addition, as also required by the Dodd-Frank Act, the FDIC has adopted a new large-bank pricing assessment scheme, set a current target “designated reserve ratio” (described in more detail below) of 2% for the DIF, and established a lower assessment rate schedule when the reserve ratio reaches 1.15% and, in lieu of dividends, provides for a lower assessment rate schedule when the reserve ratio reaches 2% and 2.5%.

- 10 -

An institution’s assessment rate depends upon the institution’s assigned risk category, which is based on supervisory evaluations, regulatory capital levels and certain other factors. Initial base assessment rates ranged from 2.5 to 45 basis points. The FDIC may make the following further adjustments to an institution’s initial base assessment rates: decreases for long-term unsecured debt, including most senior unsecured debt and subordinated debt; increases for holding long-term unsecured debt or subordinated debt issued by other insured depository institutions; and increases for broker deposits in excess of 10% of domestic deposits for insurances not well rated and well capitalized.  As of December 31, 2012, our risk category required a quarterly payment of approximately 6.69 basis points per $100 of assessable deposits.

The Dodd-Frank Act transferred to the FDIC increased discretion with regard to managing the required amount of reserves for the DIF, or the “designated reserve ratio.” Among other changes, the Dodd-Frank Act (i) raised the minimum designated reserve ratio to 1.35% and removed the upper limit on the designated reserve ratio, (ii) requires that the designated reserve ratio reach 1.35% by September 2020, and (iii) requires the FDIC to offset the effect on institutions with total consolidated assets of less than $10 billion of increasing of raising the designated reserve ratio from 1.15% to 1.35%.  The FDIA requires that the FDIC consider the appropriate level for the designated reserve ratio on at least an annual basis.  In October 2010, the FDIC adopted a new DIF restoration plan to ensure that the fund reserve ratio reaches 1.35% by September 30, 2020, as required by the Dodd-Frank Act.

Allowance for Loan and Lease Losses

The Allowance for Loan and Lease Losses (the “ALLL”) represents one of the most significant estimates in the Bank’s financial statements and regulatory reports.  Because of its significance, the Bank has established a system by which it develops, maintains, and documents a comprehensive, systematic, and consistently applied process for determining the amounts of the ALLL and the provision for loan and lease losses.  The Interagency Policy Statement on the ALLL encourages all banks and federal savings institutions to ensure controls are in place to consistently determine the ALLL in accordance with generally accepted accounting principles in the United States, the federal savings association’s stated policies and procedures, management’s best judgment and relevant supervisory guidance.  The Bank’s estimate of credit losses reflects consideration of significant factors that affect the collectability of the portfolio as of the evaluation date.

Safety and Soundness Standards

The Federal Deposit Insurance Act, as amended by the FDICIA and the Riegle Community Development and Regulatory Improvement Act of 1994, requires the federal bank regulatory agencies to prescribe standards, by regulations or guidelines, relating to internal controls, information systems and internal audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings, stock valuation and compensation, fees and benefits, and such other operational and managerial standards as the agencies deem appropriate.  The federal bank regulatory agencies have adopted a set of guidelines prescribing safety and soundness standards pursuant to FDICIA, as amended.  The guidelines establish general standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth and compensation and fees and benefits.  In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines.  The guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director, or principal shareholder.  In addition, the agencies adopted regulations that authorize, but do not require, an agency to order an institution that has been given notice by an agency that it is not satisfying any of such safety and soundness standards to submit a compliance plan.  If, after being so notified, an institution fails to submit an acceptable compliance plan or fails in any material respect to implement an acceptable compliance plan, the agency must issue an order directing action to correct the deficiency and may issue an order directing other actions of the types to which an undercapitalized institution is subject under the “prompt corrective action” provisions of FDICIA.  See “Prompt Corrective Action” above.  If an institution fails to comply with such an order, the agency may seek to enforce such order in judicial proceedings and to impose civil money penalties.  The federal regulatory agencies also proposed guidelines for asset quality and earnings standards.

- 11 -

Interagency Appraisal and Evaluation Guidelines

In December 2010, the federal banking agencies issued the Interagency Appraisal and Evaluation Guidelines. This guidance, which updated guidance originally issued in 1994, sets forth the minimum regulatory standards for appraisals. It incorporates previous regulatory issuances affecting appraisals, addresses advances in information technology used in collateral evaluation, and clarifies standards for use of analytical methods and technological tools in developing evaluations. This guidance also requires institutions to utilize strong internal controls to ensure reliable appraisals and evaluations and to monitor and periodically update valuations of collateral for existing real estate loans and transactions.

Community Reinvestment Act

Under the CRA, the Bank has an obligation to help meet the credit needs of the entire community, including low- and moderate-income neighborhoods, consistent with safe and sound banking practices. The CRA requires the appropriate federal regulator, in connection with its examination of an insured institution, to assess the institution's record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications, such as applications for a merger or the establishment of a branch.  An unsatisfactory rating may be used as the basis for the denial of an application by the federal banking regulator.  The Bank received a satisfactory rating in its most recent CRA examination.

Restrictions on Transactions with Affiliates

We are subject to the provisions of Section 23A of the Federal Reserve Act.  Section 23A places limits on: the amount of a bank’s loans or extensions of credit to affiliates; a bank’s investment in affiliates; assets a bank may purchase from affiliates, except for real and personal property exempted by the Federal Reserve; the amount of loans or extensions of credit to third parties collateralized by the securities or obligations of affiliates; and a bank’s guarantee, acceptance or letter of credit issued on behalf of an affiliate.

The total amount of the above transactions is limited in amount, as to any one affiliate, to 10.0% of a bank’s capital and surplus and, as to all affiliates combined, to 20.0% of a bank’s capital and surplus.  In addition to the limitation on the amount of these transactions, each of the above transactions must also meet specified collateral requirements.  The Bank must also comply with other provisions designed to avoid the taking of low-quality assets.

We are also subject to the provisions of Section 23B of the Federal Reserve Act which, among other things, prohibit an institution from engaging in the above transactions with affiliates unless the transactions are on terms substantially the same, or at least as favorable to the institution or its subsidiaries, as those prevailing at the time for comparable transactions with nonaffiliated companies.

The Dodd-Frank Act changed the definition of “covered transaction” in Sections 23A and 23B and limitations on asset purchases from insiders. With respect to the definition of “covered transaction,” the Dodd-Frank Act defines that term to include the acceptance of debt obligations issued by an affiliate as collateral for a bank’s loan or extension of credit to another person or company.  In addition, a “derivative transaction” with an affiliate is now deemed to be a “covered transaction” to the extent that such a transaction causes a bank or its subsidiary to have a credit exposure to the affiliate. In addition, the Dodd-Frank Act provides that the Bank may not “purchase an asset from, or sell an asset to” a Bank insider (or their related interests) unless (1) the transaction is conducted on market terms, and (2) if the proposed transaction represents more than 10% of the capital stock and surplus of the Bank, it has been approved in advance by a majority of the Bank’s non-interested directors.

The Bank is also subject to restrictions on extensions of credit to its executive officers, directors, principal stockholders and their related interests.  These extensions of credit must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with third parties, and must not involve more than the normal risk of repayment or present other unfavorable features.

- 12 -

Incentive Compensation

The Federal Reserve, the OCC and the FDIC have issued regulatory guidance (the “Incentive Compensation Guidance”) intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking. The Federal Reserve reviews, as part of the regular, risk-focused examination process, the incentive compensation arrangements of banking organizations, such as the Company, that are not “large, complex banking organizations.” The findings are included in reports of examination, and deficiencies are incorporated into the organization’s supervisory ratings. Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the organization's safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies.

The Dodd-Frank Act requires the SEC and the federal bank regulatory agencies to establish joint regulations or guidelines that require financial institutions with assets of at least $1 billion to disclose the structure of their incentive compensation practices and prohibit such institutions from maintaining compensation arrangements that encourage inappropriate risk-taking by providing excessive compensation or that could lead to material financial loss to the financial institution.  The SEC and the federal bank regulatory agencies proposed such regulations in March 2011, which may become effective before the end of 2013.  If the regulations are adopted in the form initially proposed, they will impose limitations on the manner in which we may structure compensation for our executives. These proposed regulations incorporate the three principles discussed in the Incentive Compensation Guidance.

USA Patriot Act of 2001

In October 2001, the USA Patriot Act of 2001 (the “Patriot Act”) was enacted in response to the terrorist attacks in New York, Pennsylvania, and Washington, D.C. that occurred on September 11, 2001.  The Patriot Act impacts financial institutions in particular through its anti-money laundering and financial transparency laws.  The Patriot Act amended the Bank Secrecy Act and the rules and regulations of the Office of Foreign Assets Control to establish regulations which, among others, set standards for identifying customers who open an account and promoting cooperation with law enforcement agencies and regulators in order to effectively identify parties that may be associated with, or involved in, terrorist activities or money laundering.

Privacy

Financial institutions are required to disclose their policies for collecting and protecting confidential information.  Customers generally may prevent financial institutions from sharing personal financial information with nonaffiliated third parties except for third parties that market the institutions’ own products and services.

Additionally, financial institutions generally may not disclose consumer account numbers to any nonaffiliated third party for use in telemarketing, direct mail marketing or other marketing through electronic mail to consumers.  The Bank has established policies and procedures designed to safeguard its customers’ personal financial information and to ensure compliance with applicable privacy laws.

Consumer Protection

The Dodd-Frank Act created the CFPB, a federal regulatory agency that is responsible for implementing, examining and enforcing compliance with federal consumer financial laws for institutions with more than $10 billion of assets and, to a lesser extent, smaller institutions. The Dodd-Frank Act gives the CFPB authority to supervise and regulate providers of consumer financial products and services, and establishes the CFPB’s power to act against unfair, deceptive or abusive practices, and gives the CFPB rulemaking authority in connection with numerous federal consumer financial protection laws (for example, but not limited to, the Truth-in-Lending Act and the Real Estate Settlement Procedures Act).

As a smaller institution (i.e., with assets of $10 billion or less), most consumer protection aspects of the Dodd-Frank Act will continue to be applied to the Company by the Federal Reserve and to the Bank by the OCC. However, the CFPB may include its own examiners in regulatory examinations by a smaller institution’s prudential regulators and may require smaller institutions to comply with certain CFPB reporting requirements. In addition, regulatory positions taken by the CFPB and administrative and legal precedents established by CFPB enforcement activities, including in connection with supervision of larger bank holding companies and financial holding companies, could influence how the Federal Reserve and OCC apply consumer protection laws and regulations to financial institutions that are not directly supervised by the CFPB. The precise impact of the CFPB’s consumer protection activities cannot be forecast.

Stress Testing

As required by the Dodd-Frank Act, the federal banking agencies have implemented stress testing requirements for certain financial institutions, including bank holding companies, financial holding companies and state chartered banks, with more than $10 billion in total consolidated assets. Although these requirements do not apply to institutions with less than $10 billion in total consolidated assets, the federal banking agencies emphasize that all banking organizations, regardless of size, should have the capacity to analyze the potential impact of adverse market conditions or outcomes on the organization’s financial condition. Based on existing regulatory guidance, the Company and the Bank will be expected to consider the institution’s interest rate risk management, commercial real estate concentrations and other credit-related information, and funding and liquidity management during this analysis of adverse outcomes.

- 13 -

Other Regulations

Interest and other charges collected or contracted for by the Bank are subject to federal laws concerning interest rates.  The Bank’s loan operations are also subject to federal laws applicable to credit transactions, such as the:

· Federal Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;

· Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;

· Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed, or other prohibited factors in extending credit;

· Fair Credit Reporting Act of 1978, governing the use and provision of information to credit reporting agencies; and

· rules and regulations of the various federal agencies charged with the responsibility of implementing these federal laws.

The deposit operations of the Bank are subject to the following:

· the Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;

· the Electronic Funds Transfer Act and Regulation E issued by the Federal Reserve to implement that act, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services; and

· the Truth in Savings Act, which requires disclosure of yields and costs of deposits and deposit accounts.

Effect of Governmental Monetary Policies

Our earnings are affected by the monetary and fiscal policies of the United States government and its agencies, as well as general domestic economic conditions.  The Federal Reserve’s power to implement national monetary policy has had, and is likely to continue to have, an important impact on the operating results of financial institutions.  The Federal Reserve affects the levels of bank loans, investments, and deposits through its control over the issuance of U.S. government securities and through its regulation of the discount rate on borrowings of member banks and the reserve requirements against member bank deposits.  It is not possible to predict the nature, timing or impact of future changes in monetary and fiscal policies.

Item 1A – Risk Factors

An investment in our stock involves a number of risks.  Investors should carefully consider the following risks as well as the other information in this Report and the documents incorporated by reference before making an investment decision.  The realization of any of the risks described below could have a material adverse effect on the Company and the price of our common stock.

Risks Relating to Our Business

The current economic environment continues to pose significant challenges and could adversely affect our financial condition and results of operations.

There was significant disruption and volatility in the financial and capital markets during the past few years.  The financial markets and the financial services industry in particular suffered unprecedented disruption, causing a number of institutions to fail or require government intervention to avoid failure.  These conditions were largely the result of the erosion of the U.S. and global credit markets, including a significant and rapid deterioration in mortgage lending and related real estate markets.  Continued declines in real estate values, high unemployment and financial stress on borrowers as a result of the uncertain economic environment could have an adverse effect on our borrowers or their customers, which could have a material adverse effect on our business, prospects, financial condition and results of operations.

- 14 -

As a consequence of the difficult economic environment, we experienced a significant decrease in earnings resulting primarily from increased provisions for loan losses and a decrease in our interest margin. While there have been some improvements in the national economy, there can be no assurance that the economic conditions that have adversely affected the financial services industry, and the capital, credit and real estate markets generally, will continue to improve or increase the rate at which it improves, in which case we could continue to experience write-downs of assets, and could face capital and liquidity constraints or other business challenges.  A further deterioration in economic conditions, particularly within our market areas, could result in the following consequences, any of which could have a material adverse effect on our business, prospects, financial condition and results of operations:

· Loan delinquencies may further increase causing additional increases in our provision and allowance for loan losses.

· Our ability to assess the creditworthiness of our customers may be impaired if the models and approaches we use to select, manage, and underwrite our customers become less predictive of future charge-offs.

· Collateral for loans made by the Bank, especially real estate, may continue to decline in value, in turn reducing a customer’s borrowing power, and reducing the value of assets and collateral associated with our loans.

· Consumer confidence levels may decline and cause adverse changes in payment patterns, resulting in increased delinquencies and default rates on loans and other credit facilities and decreased demand for our products and services.

Our market areas are heavily dependent on, and we have significant credit exposure to, the oil and gas industry.

The economy in a large portion of our market areas is heavily dependent on the oil and gas industry.  Many of our customers provide transportation and other services and products that support oil and gas exploration and production activities.  As of December 31, 2012, we had approximately $146.2 million in loans to borrowers in the oil and gas industry, representing approximately 14.0% of our total loans outstanding as of that date.  The oil and gas industry, especially in Louisiana and Texas, has been subject to significant volatility, including the “oil bust” of the 1980s that severely impacted the economies of many of our market areas.  President Obama’s administration proposed a number of legislative changes that could significantly impact the oil and gas industry, including the elimination of certain tax breaks, such as the intangible drilling and development costs, percentage depletion and manufacturing deduction, and the implementation of an excise tax focused specifically on production in the Gulf of Mexico.  If there is a significant downturn in the oil and gas industry, generally the cash flows of our customers in this industry would be adversely impacted which could impair their ability to service our loans outstanding to them and/or reduce demand for loans.  This could have a material adverse effect on our business, prospects, financial condition and results of operations.

We may suffer losses in our loan portfolio in excess of our allowance for loan losses.

We have experienced increases in the levels of our non-performing assets and loan charge-offs in recent periods. Our total non-performing assets amounted to $18.5 million, or 1.00% of our total assets, at December 31, 2012 and we had $2.0 million of net loan charge-offs and a $2.1 million provision for loan losses for the year ended December 31, 2012.  At December 31, 2012, the ratios of our ALLL to non-performing loans and to total loans outstanding were 67.78% and 0.70%, respectively.  Additional increases in our non-performing assets or loan charge-offs could have a material adverse effect on our financial condition and results of operations.

We seek to mitigate the risks inherent in our loan portfolio by adhering to specific underwriting practices.  These practices include analysis of a borrower’s prior credit history, financial statements, tax returns and cash flow projections, valuation of collateral based on reports of independent appraisers and verification of liquid assets.  Although we believe that our underwriting criteria are appropriate for the various kinds of loans we make, we still may incur losses on loans that meet our underwriting criteria, and these losses may exceed the amounts set aside as reserves in our ALLL. We create an ALLL in our accounting records, based on, among other considerations, the following:

- 15 -

· industry historical losses as reported by the FDIC;

· historical experience with our loans;

· evaluation of economic conditions;

· regular reviews of the quality mix, including our distribution of loans by risk grade within our portfolio, and size of our overall loan portfolio;

· regular reviews of delinquencies; and

· the quality of the collateral underlying our loans.

Although we maintain an ALLL at a level that we believe is adequate to absorb losses inherent in our loan portfolio, changes in economic, operating and other conditions, including conditions which are beyond our control such as a sharp decline in real estate values and changes in interest rates, may cause our actual loan losses to exceed our current allowance estimates.  Additions to the ALLL could result in a decrease in net earnings and capital and could hinder our ability to grow.  Further, if our actual loan losses exceed the amount reserved, it could have a material adverse effect on our financial condition and results of operations.

We cannot predict the effect of recent or future legislative and regulatory initiatives.

Financial institutions have been the subject of substantial legislative and regulatory changes and may be the subject of further legislation or regulation in the future, including: (i) changes in banking, securities and tax laws and regulations and their application by our regulators, including pursuant to the Dodd-Frank Act, as discussed above in Item 1 under the heading “Business – Supervision and Regulation”; and (ii) changes in the scope and cost of FDIC insurance and other coverage, none of which is within our control.  Significant new laws or regulations or changes in, or repeals of, existing laws or regulations may cause our results of operations to differ materially from those we currently anticipate.  In addition, the cost and burden of compliance with applicable laws and regulations have significantly increased and could adversely affect our ability to operate profitably.  Further, federal monetary policy significantly affects credit conditions for us, as well as for our borrowers, particularly as implemented by the Federal Reserve Board, primarily through open market operations in U.S. government securities, the discount rate for bank borrowings and reserve requirements.  A material change in any of these conditions could have a material impact on us or our borrowers, and therefore on our business, prospects, financial condition and results of operations.

We expect to continue to face increased regulation and supervision of our industry as a result of the continuing economic instability, and there may be additional requirements and conditions imposed on us as a result of our participation in the Small Business Lending Fund.  Such additional regulation and supervision may increase our costs and limit our ability to pursue business opportunities.  The effects of such recently enacted, and proposed, legislation and regulatory programs on us cannot reliably be determined at this time.

The CFPB may reshape the consumer financial laws through rulemaking and enforcement of the prohibitions against unfair, deceptive and abusive business practices, which may directly impact the business operations of depository institutions offering consumer financial products or services, including the Bank.

The CFPB has broad rulemaking authority to administer and carry out the provisions of the Dodd-Frank Act with respect to financial institutions that offer to consumers covered financial products and services.  The CFPB has also been directed to write rules identifying practices or acts that are unfair, deceptive or abusive in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service. The concept of what may be considered to be an “abusive” practice is new under the law.  While the Bank will not be supervised by the CFPB, it will still be subject to the regulations and policies promulgated by the CFPB and may be examined by the OCC for compliance therewith. The costs and limitations related to complying with any new regulations established by the CFPB have yet to be fully determined and could be material.  Further, the limitations and restrictions that will be placed upon the Bank with respect to its consumer product offering and services may also produce significant, material effects on the Bank’s (and our) profitability.

We have a concentration of exposure to a number of individual borrowers.  Given the size of these loan relationships relative to capital levels and earnings, a significant loss on any one of these loans could materially and adversely affect us.

We have a concentration of exposure to a number of individual borrowers.  Our largest exposure to one borrowing relationship as of December 31, 2012, was approximately $10.2 million, which is 5.40% of our total capital.  In addition, as of December 31, 2012, the aggregate exposure to the ten largest borrowing relationships was approximately $78.6 million, which was 7.51% of loans and 41.6% of total capital.  As a result of this concentration, a change in the financial condition of one or more of these borrowers could result in significant loan losses and have a material adverse effect on our financial condition and results of operations.

- 16 -

A large percentage of our deposits are attributable to a relatively small number of customers. The loss of all or some of these customers or a significant decline in their deposit balances may have a material adverse effect on our liquidity and results of operations.

Our 20 largest depositors accounted for approximately 12.69% of our total deposits and our five largest depositors accounted for approximately 6.72% of our total deposits as of December 31, 2012. The ability to attract these types of deposits has a positive effect on our net interest margin as they provide a relatively low cost of funds to the Bank. While we believe we have strong, long-term relationships with each of these customers, the loss of one or more of our 20 largest deposit customers, or a significant decline in the deposit balances would adversely affect our liquidity and require us to attract new deposits, purchase federal funds or borrow funds on a short term basis to replace such deposits, possibly at interest rates higher than those currently paid on these deposits.  This could increase our total cost of funds and could result in a decrease in our net interest income and net earnings.  If we were unable to develop alternative funding sources, we may have difficulty funding loans or meeting other deposit withdrawal requirements.

We occasionally purchase non-recourse loan participations from other banks based in part on information provided by the selling bank.

From time to time, we purchase loan participations from other banks in the ordinary course of business, usually without recourse to the selling bank.  As of December 31, 2012, we had approximately $49.3 million in purchased loan participations, or approximately 4.7% of our total loan portfolio.  When we purchase loan participations, we apply the same underwriting standards as we would to loans that we directly originate and seek to purchase only loans that would satisfy these standards.  However, we are not as familiar with the borrower and may rely on information provided to us by the selling bank and typically must rely on the selling bank’s administration of the loan relationship.  We therefore have less control over, and may incur more risk with respect to, loan participations that we purchase from selling banks as compared to loans that we originate.

Our focus on lending to small to mid-sized community-based businesses may increase our credit risk.

Most of our commercial business and commercial real estate loans are made to small business or middle market customers.  These businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities and have a heightened vulnerability to economic conditions.  If general economic conditions in the markets in which we operate negatively impact this important customer sector, our results of operations and financial condition and the value of our common stock may be adversely affected.  Moreover, a portion of these loans have been made by us in recent years and the borrowers may not have experienced a complete business or economic cycle.  Furthermore, the deterioration of our borrowers’ businesses may hinder their ability to repay their loans with us, which could have a material adverse effect on our financial condition and results of operations.

Our loan portfolio includes a substantial percentage of commercial and industrial loans, which may be subject to greater risks than those related to residential loans.

Our loan portfolio includes a substantial percentage of commercial and industrial loans.  Commercial and industrial loans generally carry larger loan balances and historically have involved a greater degree of financial and credit risks than residential first mortgage loans.  Repayment of our commercial and industrial loans is often dependent on cash flow of the borrower, which may be unpredictable, and collateral securing these loans may fluctuate in value.  Our commercial and industrial loans are primarily made based on the cash flow of the borrower and secondarily on the underlying collateral provided by the borrower.  Most often, this collateral is accounts receivable, inventory, equipment, or real estate.  In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.  Other collateral securing loans may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business.  At December 31, 2012, commercial and industrial loans totaled approximately 30.2% of our total loan portfolio.  Adverse changes in local economic conditions impacting our business borrowers could have a material adverse effect on our business, prospects, financial condition and results of operations.

- 17 -

We have a high concentration of loans secured by real estate, and the current downturn in the real estate market could have a material adverse effect on our financial condition and results of operations.

A significant portion of our loan portfolio is dependent on real estate.  At December 31, 2012, approximately 60.4% of our loans had real estate as a primary or secondary component of collateral.  The collateral in each case provides an alternate source of repayment if the borrower defaults and may deteriorate in value during the time the credit is extended.  An adverse change in the economy affecting values of real estate in our primary markets could significantly impair the value of real estate collateral and the ability to sell real estate collateral upon foreclosure. Furthermore, it is likely that we would be required to increase the provision for loan losses.  A related risk in connection with loans secured by real estate is the effect of unknown or unexpected environmental contamination, which could make the real estate effectively unmarketable or otherwise significantly reduce its value as collateral.  If we were required to liquidate real estate collateral securing a loan to satisfy the debt during a period of reduced real estate values or to increase the allowance for loan losses, it could have a material adverse effect on our financial condition and results of operations.

The integration of the recently acquired Peoples State Bank presents significant challenges that may result in a decline in the anticipated potential benefits of the acquisition.

On December 28, 2012, we completed our acquisition of PSB Financial Corporation, the holding company of Peoples State Bank.  The acquisition involved the combination of two institutions that previously operated independently, which process remains ongoing. The difficulties of combining Peoples State Bank’s operations with ours include:

• preserving important customer relationships in the North Louisiana market where we have not previously operated;

• costs and customer disruptions that may occur in converting the Peoples State Bank data processing system to ours;

• combining the best practices of two institutions;

• the necessity of coordinating geographically separated organizations, systems and facilities; and

• reducing the costs associated with each institutions’ operations.

The process of combining the two bank’s operations could cause an interruption of, or loss of momentum in, our business and the possible loss of key personnel. The diversion of management’s attention and any delays or difficulties encountered in connection with the recently completed acquisition and the integration of the two bank’s operations could have an adverse effect on the business, results of operations, financial condition or prospects of the combined bank.

We may face risks with respect to future expansion and acquisition opportunities.

We have expanded our business in part through acquisitions and will continue to look at future acquisitions as a way to further increase our growth.  However, we cannot assure you that we will be successful in completing any future acquisitions.  Further, failure to realize the potential expected revenue increases, cost savings, increases in geographic or product presence, and/or other projected benefits from an acquisition could have a material adverse effect on our business, prospects, financial condition and results of operations.

We may seek merger or acquisition partners that are culturally similar and have experienced management and possess either significant market presence or have potential for improved profitability through financial management, economies of scale or expanded services.  We cannot say with any certainty that we will be able to consummate, or if consummated, successfully integrate future acquisitions or that we will not incur disruptions or unexpected expenses in integrating such acquisitions.  In attempting to make such acquisitions, we anticipate competing with other financial institutions, many of which have greater financial and operational resources.  Acquiring other banks, businesses, or branches involves various risks commonly associated with acquisitions, including, among other things:

· potential exposure to unknown or contingent liabilities of the target company;

· expansion into new markets that may have different characteristics than our current markets and may otherwise present management challenges;

· exposure to potential asset quality issues of the target company;

· difficulty and expense of integrating the operations and personnel of the target company;

- 18 -

· potential disruption to our business;

· potential diversion of management’s time and attention;

· the possible loss of key employees and customers of the target institution;

· difficulty in estimating the value of the target company; and

· potential changes in banking, accounting or tax laws or regulations that may affect the target institution.

If we acquire the assets and liabilities of one or more target banks that are in receivership through the FDIC bid process for failed institutions, such an acquisition will require us, through our bank subsidiary, to enter into a Purchase and Assumption Agreement (the “P&A Agreement”) with the FDIC.  The P&A Agreement is a form document prepared by the FDIC, and our ability to negotiate the terms of this agreement is limited.  As a result, we expect that any P&A Agreement would provide for limited disclosure about, and limited indemnification for, risks associated with the target bank.  There is a risk that such disclosure regarding, and indemnification for, the assets and liabilities of target banks will not be sufficient and we will incur unanticipated losses.  There is also a risk that we may be required to make an additional payment to the FDIC under certain circumstances following the completion of an FDIC-assisted acquisition if, for example, actual losses related to the target bank’s assets acquired are substantially less than expected at the time the P&A Agreement was entered into.

In addition, the FDIC bid process for failed depository institutions is competitive. We cannot provide any assurances that we will be successful in bidding for any target bank or for other failed depository institutions.

We are subject to environmental liability risk associated with our lending activities.

A significant portion of the Bank’s loan portfolio is secured by real property. During the ordinary course of business, the Bank may foreclose on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, we may be liable for remediation costs, as well as for personal injury and property damage. Environmental laws may require us to incur substantial expenses and may materially reduce the affected property’s value or limit the Bank’s ability to use or sell the affected property.  In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability.  The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on our financial condition and results of operations.

Our future earnings could be adversely affected by non-cash charges for goodwill impairment, if a future test of goodwill indicates that goodwill has been impaired.

As prescribed by Accounting Standards Codification (“ASC”) Topic 350, “Intangibles — Goodwill and Other,” we undertake an annual review of the goodwill asset balance reflected in our financial statements.  We conduct an annual review in the fourth quarter of each year, unless there has been a triggering event prescribed by applicable accounting rules that warrants an earlier interim testing for possible goodwill impairment.  After our most recent annual review in the fourth quarter of 2012, we concluded there was no goodwill impairment as of such date.  As of December 31, 2012, we had $42.8 million in goodwill, including $18.0 million of goodwill that was recorded in 2012 as a result of the PSB acquisition.  Future goodwill impairment tests may result in future non-cash charges, which could adversely affect our earnings for any such future period.

Changes in the fair value of our securities may reduce our stockholders’ equity and net income.

At December 31, 2012, $424.6 million of our securities (at fair value) were classified as available-for-sale.  At such date, the aggregate net unrealized gain on our available-for-sale securities was $12.6 million.  We increase or decrease stockholders’ equity by the amount of change from the unrealized gain or loss (the difference between the estimated fair value and the amortized cost) of our available-for-sale securities portfolio, net of the related tax, under the category of accumulated other comprehensive income/loss.  Therefore, a decline in the estimated fair value of this portfolio will result in a decline in reported stockholders’ equity, as well as book value per common share and tangible book value per common share.  This decrease will occur even though the securities are not sold.  In the case of debt securities, if these securities are never sold and there are no credit impairments, the decrease will be recovered over the life of the securities. In the case of equity securities which have no stated maturity, the declines in fair value may or may not be recovered over time.

- 19 -

We monitor the fair value of our entire securities portfolio as part of our ongoing other than temporary impairment (“OTTI”) evaluation process.  No assurance can be given that we will not need to recognize OTTI charges related to securities in the future.  In addition, as a condition to membership in the Federal Home Loan Bank of Dallas (“FHLB-Dallas”), we are required to purchase and hold a certain amount of FHLB-Dallas stock.  Our stock purchase requirement is based, in part, upon the outstanding principal balance of advances from the FHLB-Dallas.  At December 31, 2012, we had stock in the FHLB-Dallas totaling approximately $588,000. The FHLB-Dallas stock held by us is carried at cost and is subject to recoverability testing under applicable accounting standards.  For the year ended December 31, 2012, we did not recognize an impairment charge related to our FHLB-Dallas stock holdings.  There can be no assurance, however, that future negative changes to the financial condition of the FHLB-Dallas may not require us to recognize an impairment charge with respect to such holdings.

Loss of key officers or employees may disrupt relationships with certain customers.

As a community bank, our business is primarily relationship-driven in that many of our key employees have extensive customer relationships. In addition, our success has been and will continue to be greatly influenced by the ability to retain existing senior management and, with expansion, to attract and retain qualified additional senior and middle management.  We do not have employment agreements with any of our executive officers.  Loss of a key employee with such customer relationships may lead to the loss of business if the customers were to follow that employee to a competitor. While we believe our relationship with our key personnel is good, we cannot guarantee that all of our key personnel will remain with our organization. Loss of such key personnel, should they enter into an employment relationship with one of our competitors, could result in the loss of some of our customers.

A natural disaster, especially one affecting one of our market areas, could adversely affect us.

Since most of our business is conducted in Louisiana and Texas, most of our credit exposure is in those states. Historically, Louisiana and Texas have been vulnerable to natural disasters.  Therefore, we are susceptible to the risks of natural disasters, such as hurricanes, floods and tornadoes.  Natural disasters could harm our operations directly through interference with communications, including the interruption or loss of our websites, which would prevent us from gathering deposits, originating loans and processing and controlling our flow of business, as well as through the destruction of facilities and our operational, financial and management information systems.  A natural disaster or recurring power outages may also impair the value of our largest class of assets, our loan portfolio, as uninsured or underinsured losses, including losses from business disruption, may reduce borrowers’ ability to repay their loans.  Disasters may also reduce the value of the real estate securing our loans, impairing our ability to recover on defaulted loans through foreclosure and making it more likely that we would suffer losses on defaulted loans.  Although we have implemented several back-up systems and protections (and maintain business interruption insurance), these measures may not protect us fully from the effects of a natural disaster.  The occurrence of natural disasters in our market areas could have a material adverse effect on our business, prospects, financial condition and results of operations.

Our profitability is vulnerable to interest rate fluctuations.

Our profitability is dependent to a large extent on net interest income, which is the difference between our interest income on interest-earning assets, such as loans and investment securities, and interest expense on interest-bearing liabilities, such as deposits and borrowings.  When interest-bearing liabilities mature or reprice more quickly than interest-earning assets in a given period, a significant increase in market rates of interest could adversely affect net interest income.  Conversely, when interest-earning assets mature or reprice more quickly than interest-bearing liabilities, falling interest rates could result in a decrease in net interest income.  For example, as securities in our investment portfolio have matured, they have been replaced by securities paying a lower yield.   We expect this trend to continue during 2013.  These changes in our investment portfolio have negatively impacted, and are expected to continue to negatively impact, our net interest margin.  Furthermore, some of our variable interest rate loans have minimum fixed interest rates (“floors”) that are currently above the contractual variable interest rate.  If interest rates rise, the interest income from our variable interest rate loans with floors may not increase as quickly as interest expense on our liabilities, which would negatively impact our net interest income.

In periods of increasing interest rates, loan originations may decline, depending on the performance of the overall economy, which may adversely affect income from lending activities.  Also, increases in interest rates could adversely affect the market value of fixed income assets. In addition, an increase in the general level of interest rates may affect the ability of certain borrowers to pay the interest and principal on their obligations.

- 20 -

Non-performing assets take significant time to resolve and adversely affect our results of operations and financial condition.

Non-performing assets adversely affect our net earnings in various ways.  Until economic and market conditions improve, we expect to incur provisions for loan losses relating to an increase in non-performing assets.  We generally do not record interest income on non-performing loans or other real estate owned, thereby adversely affecting our earnings, and increasing our loan administration costs.  When we take collateral in foreclosures and similar proceedings, we mark the related asset to the then fair market value of the collateral less estimated selling costs, which may result in a loss.  An increase in the level of non-performing assets increases our risk profile and may impact the capital levels our regulators believe are appropriate in light of the ensuing risk profile.  While we reduce problem assets through loan sales, workouts, restructurings and otherwise, decreases in the value of the underlying collateral, or in these borrowers’ performance or financial condition, whether or not due to economic and market conditions beyond our control, could adversely affect our business, results of operations and financial condition.  In addition, the resolution of non-performing assets requires significant commitments of time from management and our directors, which can be detrimental to the performance of their other responsibilities.  There can be no assurance that we will not experience future increases in non-performing assets.

The soundness of other financial institutions could adversely affect us.

Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships.  We have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial services industry, including commercial banks, brokers and dealers, investment banks and other institutional clients.  Many of these transactions expose us to credit risk in the event of a default by a counterparty or client.  In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized or is liquidated at prices not sufficient to recover the full amount of the credit or derivative exposure due to us.  Any such losses could have a material adverse effect on our business, prospects, financial condition and results of operations.

We operate within a highly regulated environment and our business and results are affected by the regulations to which we are subject.

We operate within a highly regulated environment.  The regulations to which we are subject will continue to have an impact on our operations and the degree to which we can grow and be profitable.  Certain regulators, to which we are subject, have significant power in reviewing our operations and approving our business practices.  In recent years the Bank, as well as other financial institutions, has experienced increased regulation and regulatory scrutiny, often requiring additional resources.  In addition, investigations or proceedings brought by regulatory agencies may result in judgments, settlements, fines, penalties, or other results adverse to us.  There is no assurance that any change to the regulatory requirements to which we are subject, or the way in which such regulatory requirements are interpreted or enforced, will not have a negative effect on our ability to conduct our business and our results of operations.

We rely heavily on technology and computer systems.  The negative effects of computer system failures and unethical individuals with the technological ability to cause disruption of service could adversely affect our reputation and our ability to generate deposits.

Our ability to compete depends on our ability to continue to adapt and deliver technology on a timely and cost-effective basis to meet customers’ demands for financial services.  We provide our customers the ability to bank online and many customers now remotely submit deposits to us through remote-capture systems.  The secure transmission of confidential information over the Internet is a critical element of these services.  Our network could be vulnerable to unauthorized access, computer viruses, phishing schemes and other security problems.  We may be required to spend significant capital and other resources to protect against the threat of security breaches and computer viruses, or to alleviate problems caused by security breaches or viruses.  To the extent that our activities or the activities of our customers involve the storage and transmission of confidential information, security breaches and viruses could expose us to claims, litigation and other possible liabilities.  Any inability to prevent security breaches or computer viruses could also cause existing customers to lose confidence in our systems and could adversely affect our reputation and our ability to generate deposits.

Consumers may decide not to use banks to complete their financial transactions.

Technology and other changes are allowing parties to complete financial transactions through alternative methods that historically have involved banks. For example, consumers can now maintain funds that would have historically been held as bank deposits in brokerage accounts, mutual funds or general-purpose reloadable prepaid cards. Consumers can also complete transactions such as paying bills and/or transferring funds directly without the assistance of banks. The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. The loss of these revenue streams and the lower cost of deposits as a source of funds could have a material adverse effect on our financial condition and results of operations.

- 21 -

Risks Relating to an Investment in Our Common Stock

Share ownership may be diluted by the issuance of additional shares of common stock in the future.

Our stock incentive plan provides for the granting of stock incentives to directors, officers, and employees.  As of December 31, 2012, there were 307,845 shares issued under options and 15,313 shares in restricted stock granted under that plan.  Likewise, approximately 546,000 shares, including shares issuable under currently outstanding options, may be issued in the future to directors, officers, and employees under our existing equity incentive plans.  In addition, in 2009, as part of our participation in the Treasury’s Capital Purchase Program (“CPP”), we also issued a stock purchase warrant that currently entitles the holder to purchase 104,384 shares of our common stock at an exercise price of $14.37 per share. It is probable that options and or/warrants will be exercised during their respective terms if the stock price exceeds the exercise price of the particular option or warrant.  The incentive plan also provides that all issued options automatically and fully vest upon a change in control.  If the options are exercised, share ownership will be diluted.

Additionally, share ownership of our common stock will be diluted from shares issued upon conversion of the convertible preferred equity issued in the PSB acquisition. The Company may redeem the Series C Preferred Stock, subject to regulatory approval, beginning on or after the fifth anniversary of the closing date of the Merger, at a redemption price equal to the liquidation value of the Series C Preferred Stock, plus declared but unpaid dividends, if any.  The Company may also redeem the Series C Preferred Stock, subject to regulatory approval, at the same redemption price prior to the fifth anniversary of the closing date in the event the Series C Preferred Stock no longer qualifies for ‘Tier 1 Capital” treatment by the applicable federal banking regulators.  Holders may convert the Series C Preferred Stock at any time into shares of the Company’s common stock at a conversion price of $18.00 per share, subject to customary antidilution adjustments.  In addition, on or after the fifth anniversary of the closing date, the Company will have the option to require conversion of the Series C Preferred Stock if the closing price of the Company’s common stock for 20 trading days within any period of 30 consecutive trading days, exceeds 130% of the conversion price.

In addition, our articles of incorporation authorize the issuance of up to 30,000,000 shares of common stock and 5,000,000 shares of preferred stock, but do not provide for preemptive rights to the stockholders; therefore, stockholders will not automatically have the right to subscribe for additional shares.  As a result, if we issue additional shares to raise additional capital or for other corporate purposes, you may be unable to maintain your pro rata ownership in the Company.

The holders of our preferred stock and trust preferred securities have rights that are senior to those of stockholders and that may impact our ability to pay dividends on our common stock and net income available to our common stockholders.

At December 31, 2012, we had outstanding $29.4 million of trust preferred securities.  These securities are senior to shares of common stock.  As a result, we must make payments on our trust preferred securities before any dividends can be paid on our common stock; moreover, in the event of our bankruptcy, dissolution, or liquidation, the obligations outstanding with respect to our trust preferred securities must be satisfied before any distributions can be made to our stockholders.  While we have the right to defer dividends on the trust preferred securities for a period of up to five years, if any such election is made, no dividends may be paid to our common or preferred stockholders during that time.

In addition, with respect to the $32.0 million in Series B Preferred Stock outstanding that was issued to the Treasury in the SBLF Transaction, we are required to pay cumulative dividends on the Series B Preferred Stock at an annual rate between 1% and 5.0% depending on our volume of qualified small business loans.  The $10.0 million in Series C Preferred Stock outstanding that was issued in connection with the PSB acquisition, calls for the non-cumulative payment of dividends at an annual rate of 4.0%. Dividends paid on our Series B Preferred Stock or Series C Preferred Stock will also reduce the net income available to our common stockholders and our earnings per common share.  We may not declare or pay dividends on our common stock or repurchase shares of our common stock without first having paid all accrued preferred dividends that are due.

- 22 -

Only a limited trading market exists for our common stock, which could lead to price volatility.

Our common stock is listed for trading on the NYSE MKT Equities under the trading symbol “MSL,” but there is low trading volume in our common stock.  The limited trading market for our common stock may cause fluctuations in the market value of our common stock to be exaggerated, leading to price volatility in excess of that which might occur in a more active trading market of our common stock.  Future sales of substantial amounts of common stock in the public market, or the perception that such sales may occur, could adversely affect the prevailing market price of our common stock. In addition, even if a more active market in our common stock develops, we cannot assure you that such a market will continue.

Our directors and executive management own a significant number of shares of stock, allowing further control over business and corporate affairs.

Our directors and executive officers beneficially own approximately 2.6 million shares, or 23.3%, of our outstanding common stock as of December 31, 2012.  As a result, in addition to their day-to-day management roles, they will be able to exercise significant influence on our business as stockholders, including influence over election of the Board and the authorization of other corporate actions requiring shareholder approval. In deciding on how to vote on certain proposals, our stockholders should be aware that our directors and executive officers may have interests that are different from, or in addition to, the interests of our stockholders generally.

Provisions of our articles of incorporation and by-laws, Louisiana law, and state and federal banking regulations, could delay or prevent a takeover by a third party.

Our articles of incorporation and by-laws could delay, defer, or prevent a third party takeover, despite possible benefit to the stockholders, or otherwise adversely affect the price of our common stock. Our governing documents:

· permit directors to be removed by stockholders only for cause and only upon an 80% vote;

· require 80% of the voting power for stockholders to amend the by-laws, call a special meeting, or amend the articles of incorporation, in each case if the proposed action was not approved by the Board;

· authorize a class of preferred stock that may be issued in series with terms, including voting rights, established by the Board without stockholder approval;

· authorize approximately 30 million shares of common stock and 5 million shares of preferred stock that may be issued by the Board without shareholder approval;

· classify our Board with staggered three year terms, preventing a change in a majority of the Board at any annual meeting;

· require advance notice of proposed nominations for election to the Board and business to be conducted at a shareholder meeting; and

· require 80% of the voting power for stockholders to approve business combinations not approved by the Board.

These provisions would likely preclude a third party from removing incumbent directors and simultaneously gaining control of the Board by filling the vacancies thus created with its own nominees.  Under the classified Board provisions, it would take at least two elections of directors for any individual or group to gain control of the Board.  Accordingly, these provisions could discourage a third party from initiating a proxy contest, making a tender offer or otherwise attempting to gain control.  These provisions may have the effect of delaying consideration of a shareholder proposal until the next annual meeting unless a special meeting is called by the Board or the chairman of the Board.  Moreover, even in the absence of an attempted takeover, the provisions make it difficult for stockholders dissatisfied with the Board to effect a change in the Board’s composition, even at annual meetings.

Also, we are subject to the provisions of the Louisiana Business Corporation Law (“LBCL”), which provides that we may not engage in certain business combinations with an “interested shareholder” (generally defined as the holder of 10.0% or more of the voting shares) unless (1) the transaction was approved by the Board before the interested shareholder became an interested shareholder or (2) the transaction was approved by at least two-thirds of the outstanding voting shares not beneficially owned by the interested shareholder and 80% of the total voting power or (3) certain conditions relating to the price to be paid to the stockholders are met.

- 23 -

The LBCL also addresses certain transactions involving “control shares,” which are shares that would have voting power with respect to the Company within certain ranges of voting power.  Control shares acquired in a control share acquisition have voting rights only to the extent granted by a resolution approved by our stockholders.  If control shares are accorded full voting rights and the acquiring person has acquired control shares with a majority or more of all voting power, stockholders of the issuing public corporation have dissenters’ rights as provided by the LBCL.

Our future ability to pay dividends and repurchase stock is subject to restrictions.

Since we are a holding company with no significant assets other than the Bank, we have no material source of income other than dividends received from the Bank.  Therefore, our ability to pay dividends to our stockholders will depend on the Bank’s ability to pay dividends to us.  Moreover, banks and financial holding companies are both subject to certain federal and state regulatory restrictions on cash dividends.  We are also restricted from paying dividends if we have deferred payments of the interest on, or an event of default has occurred with respect to, our trust preferred securities, Series B Preferred Stock or Series C Preferred Stock.  Additionally, terms and conditions of our outstanding shares of preferred stock place certain restrictions and limitations on our common stock dividends and repurchases of our common stock.

A shareholder’s investment is not an insured deposit.

An investment in our common stock is not a bank deposit and is not insured or guaranteed by the FDIC or any other government agency.  Your investment in our common stock will be subject to investment risk and you may lose all or part of your investment.

Item 1B – Unresolved Staff Comments

None.

Item 2 - Properties

We lease our principal executive and administrative offices and principal facility in Lafayette, Louisiana under a lease expiring July 31, 2021.  In addition to our principal facility, we also have eight other branches located in Lafayette, Louisiana, three in New Iberia, Louisiana, two in Baton Rouge, Louisiana, two in Lake Charles, Louisiana, two in Houma, Louisiana, and one branch in each of the following Louisiana cities: Breaux Bridge, Cecilia, St. Martinville, Larose, Jeanerette, Opelousas, Morgan City, Jennings, Sulphur, and Thibodaux.  We also have an operations office in Breaux Bridge, Louisiana.  Nineteen of these offices are owned and ten are leased.

We added fifteen branches through our acquisition with PSB.  These branches include three in Many, Louisiana, two in Alexandria, Louisiana, three in Natchitoches, Louisiana, and one branch in each of the following Louisiana cities: Robeline, Florien, Greenwood, Zwolle, Mansfield and Pleasant Hill.  We also acquired from PSB a branch in Texarkana, Texas.  Of the fifteen branches acquired from PSB, fourteen are owned and one is leased.

Additionally, in our Texas market area we have two full service branches located in Beaumont, Texas.  Our additional full service branches in the Texas market area are located in Vidor, Conroe, College Station, Houston, Dallas, Fort Worth, Mesquite, Rockwall, White Rock, and Tyler.  Of these offices, six are owned and six are leased.

Item 3 - Legal Proceedings

A Notice of Charge of Discrimination was filed against the Company in April 2011 with the U.S. Equal Employment Opportunity Commission by Karen L. Hail, a former Director and officer of the Company.  Ms. Hail’s claim alleges gender discrimination and retaliation.  In May 2011, Ms. Hail also filed an action in U.S. District Court for the Western District of Louisiana (“the Court”) against the Company and the Bank for discrimination and retaliation in violation of the Family Medical Leave Act and Title VII of the Civil Rights Act seeking unspecified monetary damages.  In July 2011, the Company and the Bank filed an answer and counterclaim along with a motion to partially dismiss Ms. Hail’s claims.  Ms. Hail filed a response to the motion to dismiss in August 2011.  The Court has not yet ruled on the motion filed by the Company and the Bank.  The Company believes Ms. Hail’s claims are without merit and will strongly defend against the claim.

- 24 -

The Bank has been named as a defendant in various other 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.

Item 4 – Mine Safety Disclosures

Not applicable.

- 25 -

Executive Officers of the Registrant

The names, ages as of December 31, 2012, and positions of our executive officers are listed below along with their business experience during the past five years.

C. R. Cloutier, 65 – President, Chief Executive Officer and Director of the Company and the Bank since 1984.

Troy Cloutier, 39 – Chief Banking Officer and Senior Executive Vice President of the Bank since February 2011.  Prior to his appointment as Chief Banking Officer, Mr. Cloutier had been with MidSouth Bank for 18 years and most recently served as Senior Vice President and Regional President for the South and East Louisiana Regions in addition to managing due diligence for the Bank’s mergers and acquisitions team.  Troy Cloutier is the son of C.R. Cloutier.

James R. McLemore, 53 – Senior Executive Vice President and Chief Financial Officer for the Company and the Bank since July 2009.  Prior to joining the Company and the Bank, Mr. McLemore served as Executive Vice President and Chief Financial Officer of Security Bank Corporation from 2002 until July 2009.  In July 2009, subsequent to Mr. McLemore’s departure, the six subsidiary banks of Security Bank Corporation were closed and the FDIC was appointed receiver of the banks.  Security Bank Corporation subsequently filed for bankruptcy in August of 2009.

John Nichols, 57 – Senior Executive Vice President and Chief Credit Officer for the Bank since July 2010.  Nichols, who previously served as Senior Vice President and President of the bank's West Louisiana Region, is based in Lake Charles. He continues to be a member of the Lake Charles market's Regional Loan Committee.  Nichols joined the Bank in 2001, having previously worked as Senior Vice President and Business Banking Manager for Bank One (now JPMorgan Chase) in Lake Charles and Alexandria.

Gerald “Jerry” Reaux Jr., 52 – Chief Operating Officer of the Company and the Bank since February 2011.  Prior to joining MidSouth, Mr. Reaux served three years as Chief Executive Officer of Tri-Parish Bancshares, Ltd. in Eunice, Louisiana and also served as the Vice Chairman for seven years. He has over 30 years of banking experience.  In May of 2011 at the Annual Meeting of Stockholders, Mr. Reaux was elected as a director of the Company and the Bank and succeeded Dr. J.B. Hargroder as Vice Chairman of the Board of Directors of the Company.

All executive officers are appointed for one year terms expiring at the first meeting of the Board of Directors after the annual stockholders meeting next succeeding his or her election and until his or her successor is elected and qualified.

- 26 -

PART II

Item 5 - Market for Registrant's Common Equity, Related Shareholder Matters, and Issuer Purchases of Equity Securities

As of February 28, 2013, there were 889 common stockholders of record.  The Company’s common stock trades on the NYSE MKT Equities under the symbol “MSL.”  The high and low sales price for the past eight quarters has been provided in the Selected Quarterly Financial Data tables that are included with this filing under Item 8 and is incorporated herein by reference.

Cash dividends totaling $2.9 million were declared to common stockholders during 2012.  The regular quarterly dividend of $0.07 per share was paid for all four quarters of 2012, for a total of $0.28 per share for the year.  Cash dividends totaling $2.8 million were declared to common stockholders during 2011.  A quarterly dividend of $0.07 per share was paid for each quarter of 2011, for a total of $0.28 per share for the year.

Under the Louisiana law, we may not pay a dividend if (i) we are insolvent or would thereby be made insolvent, or (ii) the declaration or payment thereof would be contrary to any restrictions contained in our articles of incorporation.  Our primary source of funds for dividends is the dividends we receive from the Bank; therefore, our ability to declare dividends is highly dependent upon future earnings, financial condition, and results of operation of the Bank as well as applicable legal restrictions on the Bank’s ability to pay dividends and other relevant factors. The Bank currently has the ability to declare dividends to us without prior approval of our primary regulators. However, the Bank’s ability to pay dividends to us will be prohibited if the result would cause the Bank’s regulatory capital to fall below minimum requirements.  Additionally, dividends to us cannot exceed a total of the Bank’s current year and prior two years’ earnings, net of dividends paid to us in those years.

Pursuant to the terms of our Series B Preferred Stock, Series C Preferred Stock, and the terms of our trust preferred securities, we are prohibited from paying dividends on our common stock during any period in which we have deferred interest payments on either the Series B Preferred Stock, Series C Preferred Stock or the trust preferred securities.

The following graph compares the cumulative total return on our common stock over a period beginning December 31, 2007 with (1) the cumulative total return on the stocks included in the Russell 3000 and (2) the cumulative total return on the stocks included in the SNL  Securities, LC (“SNL”) $1B - $5B Bank Index.  The comparison assumes an investment in our common stock on the indices of $100 at December 31, 2007 and assumes that all dividends were reinvested during the applicable period.

- 27 -

MidSouth Bancorp, Inc.

			Period Ending
Index	12/31/07		12/31/08		12/31/09		12/31/10		12/31/11		12/31/12
MidSouth Bancorp, Inc.		100.00		55.80		62.18		70.04		60.58		77.66
Russell 3000		100.00		62.69		80.46		94.08		95.05		110.65
SNL Bank $1B-$5B		100.00		82.94		59.45		67.39		61.46		75.78

The stock price information shown above is based on historical data and should not be considered indicative of future price performance.

- 28 -

Item 6 – Five Year Summary of Selected Financial Data

	At and For the Year Ended December 31,
	2012			2011			2010			2009			2008
	(dollars in thousands, except per share data)
Interest income	$	61,022		$	51,007		$	48,124		$	50,041		$	55,472
Interest expense		(5,840	)		(5,802	)		(7,395	)		(10,220	)		(16,085	)
Net interest income		55,182			45,205			40,729			39,821			39,387
Provision for loan losses		(2,050	)		(3,925	)		(5,020	)		(5,450	)		(4,555	)
Noninterest income		14,944			13,061			14,857			15,046			15,128
Noninterest expenses		(54,655	)		(49,304	)		(43,818	)		(44,693	)		(43,974	)
Earnings before income taxes		13,421			5,037			6,748			4,724			5,986
Income tax expense		(3,779	)		(564	)		(968	)		(125	)		(449	)
Net earnings	$	9,642		$	4,473		$	5,780		$	4,599		$	5,537
Preferred dividend requirement		(1,547	)		(1,802	)		(1,198	)		(1,175	)		-
Net earnings available to common stockholders	$	8,095		$	2,671		$	4,582		$	3,424		$	5,537
Basic earnings per common share	$	0.77		$	0.27		$	0.47		$	0.51		$	0.84
Diluted earnings per common share	$	0.77		$	0.27		$	0.47		$	0.51		$	0.83
Dividends per common share	$	0.28		$	0.28		$	0.28		$	0.28		$	0.32
Total loans	$	1,046,940		$	746,305		$	580,812		$	585,042		$	608,955
Total assets		1,851,731			1,396,756			1,002,339			972,142			936,815
Total deposits		1,551,904			1,164,806			800,772			773,285			766,704
Cash dividends on common stock		2,933			2,776			2,721			1,846			2,120
Long-term obligations		29,384			15,465			15,465			15,465			15,465
Selected ratios:
Loans to assets		56.54	%		53.43	%		58.00	%		60.18	%		65.00	%
Loans to deposits		67.46	%		64.07	%		72.53	%		75.66	%		79.43	%
Deposits to assets		83.81	%		83.39	%		79.89	%		79.54	%		81.84	%
Return on average assets		0.58	%		0.24	%		0.47	%		0.37	%		0.60	%
Return on average common equity		6.05	%		2.22	%		3.92	%		4.35	%		7.79	%

- 29 -

Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

The purpose of this discussion and analysis is to highlight changes in the financial condition of the Company and on its results of operations during 2012, 2011 and 2010.   This discussion and analysis is intended to highlight and supplement information presented elsewhere in this annual report on Form 10-K, particularly the consolidated financial statements and related notes appearing in Item 8.

Overview

We are a financial holding company, headquartered in Lafayette, Louisiana, that through our community banking subsidiary, MidSouth Bank, N.A., operates 59 offices in Louisiana and Texas.  We had approximately $1.9 billion in consolidated assets as of December 31, 2012.  We derive the majority of our income from interest received on our loans and investments.  Our primary source of funds for making these loans and investments is our deposits, on which we pay interest.  Approximately 75.5% of our total deposits are interest-bearing.  Consequently, one of the key measures of our success is our amount of net interest income, or the difference between the income on our interest-earning assets, such as loans and investments, and the expense on our interest-bearing liabilities, such as deposits and borrowings.  The resulting ratio of that difference as a percentage of our average earning assets represents our net interest margin.  Another key measure is the spread between the yield we earn on these interest-earning assets and the rate we pay on our interest-bearing liabilities, which is called our net interest spread.

There are risks inherent in all loans, so we maintain an allowance for loan losses to absorb probable losses on existing loans that may become uncollectible.  We maintain this allowance by charging a provision for loan losses against our operating earnings for each period. We have included a detailed discussion of this process, as well as several tables describing our allowance for loan losses.  Our financial performance for the years ended December 31, 2011 and 2012 were, and continue to be, significantly impacted by the disruptions in the national economy and the resulting financial uncertainty that has severely impacted the banking industry.  While we believe our market areas have fared better than the national economy during this most recent economic downturn, the economic uncertainty and difficult real estate markets had an impact on our loan losses, loan demand and our net interest margin.

In addition to earning interest on our loans and investments, we earn income through fees and other charges to our customers.  We have also included a discussion of the various components of this noninterest income, as well as of our noninterest expense.

We plan to continue to grow both organically and through acquisitions, including potential expansion into new market areas.  We believe our current financial condition, coupled with our scalable operational capabilities will allow us to act upon growth opportunities in the current banking environment.

The following discussion and analysis also identifies significant factors that have affected our financial position and operating results during the periods included in the financial statements accompanying or incorporated by reference in this report.  We encourage you to read this discussion and analysis in conjunction with our consolidated financial statements and the notes thereto and other statistical information included and incorporated by reference in this annual report on Form 10-K.

Acquisition Activity during 2012 and 2011

On December 28, 2012, we completed a merger with PSB Financial Corporation (“PSB”), the holding company of Many, Louisiana based The Peoples State Bank.  This transaction continued our strategic growth and enhanced the connection between Louisiana and Texas by expanding MidSouth Bank’s presence into central and northeast Louisiana and east Texas.

Under the terms of the definitive agreement, we issued 756,511 shares of the Company’s common stock valued at $11.5 million, $10.0 million in preferred equity through a newly created Series C 4.00% noncumulative convertible preferred stock, and $16.0 million in cash.  In addition, the merger agreement provided for potential additional cash consideration of up to $2.0 million, plus interest, based on the resolution of certain identified loans over a three-year period.  We acquired approximately $465.0 million in assets at fair value from PSB and added 15 banking centers with approximately $260.1 million in loans and approximately $400.6 million in deposits.  We also assumed approximately $13.9 million in junior subordinated debentures issued by PSB in connection with its trust preferred securities.  The systems conversion for PSB will be completed in March 2013.  Additional information regarding the PSB merger is included in Note 2 of the notes to the consolidated financial statements.

- 30 -

The Bank completed three acquisitions in 2011.  On July 29, 2011, the Bank acquired five Jefferson Bank branches in the Dallas-Fort Worth market from First Bank and Trust Company of Lubbock, Texas.  In connection with this acquisition, the Bank acquired $57.7 million of loans and assumed $165.8 million in deposits from Jefferson Bank.  In connection with the acquisition, the Bank also purchased $9.1 million of loan participations from First Bank and Trust.

On December 1, 2011, the Bank acquired substantially all of the assets and liabilities of First Louisiana National Bank (“FLNB”), Breaux Bridge, Louisiana.  In connection with this acquisition, the Bank acquired $48.0 million in loans and assumed $104.0 million in deposits from FLNB.

On December 2, 2011, the Bank acquired the Tyler, Texas branch of Beacon Federal.  In connection with this acquisition, the Bank acquired $22.2 million in loans and assumed $79.8 million in deposits from Beacon Federal. The system conversions for all three acquisitions were completed in the third and fourth quarters of 2011.

Critical Accounting Policies

Certain critical accounting policies affect the more significant judgments and estimates used in the preparation of the consolidated financial statements.  Our significant accounting policies are described in the notes to the consolidated financial statements included in this report. The accounting principles we follow and the methods of applying these principles conform to accounting principles generally accepted in the United States of America (“GAAP”) and general banking practices.  Our most critical accounting policy relates to the determination of the allowance for loan losses, which reflects the estimated losses resulting from the inability of its borrowers to make loan payments.  The determination of the adequacy of the allowance involves significant judgment and complexity and is based on many factors.  If the financial condition of our borrowers were to deteriorate, resulting in an impairment of their ability to make payments, the estimates would be updated and additional provisions for loan losses may be required.  See Asset Quality – Allowance for Loan Losses and Note 1 and Note 4 of the notes to the consolidated financial statements.

Another of our critical accounting policies relates to the valuation of goodwill, intangible assets and other purchase accounting adjustments.  We account for acquisitions in accordance with ASC Topic No. 805, which requires the use of the purchase method of accounting.  Under this method, we are required to record assets acquired and liabilities assumed at their fair value, including intangible assets.  Determination of fair value involves estimates based on internal valuations of discounted cash flow analyses performed, third party valuations, or other valuation techniques that involve subjective assumptions.  Additionally, the term of the useful lives and appropriate amortization periods of intangible assets is subjective.  Resulting goodwill from an acquisition under the purchase method of accounting represents the excess of the purchase price over the fair value of net assets acquired.  Goodwill is not amortized, but is evaluated for impairment annually or more frequently if deemed necessary.  If the fair value of an asset exceeds the carrying amount of the asset, no charge to goodwill is made.  If the carrying amount exceeds the fair value of the asset, goodwill will be adjusted through a charge to earnings.  In evaluating the goodwill on our consolidated balance sheet for impairment at December 31, 2012, we first assessed qualitative factors to determine whether it is more likely than not that the fair value of our acquired assets is less than the carrying amount of the acquired assets, as allowed under ASU 2011-08, Intangibles- Goodwill and Other (Topic 350): Testing Goodwill for Impairment.  After making the assessment based on several factors, which included but was not limited to the current economic environment, the economic outlook in our markets, our financial performance and common stock value as compared to our peers, we determined it is more likely than not that the fair value of our acquired assets is greater than the carrying amount and, accordingly, no impairment of goodwill was recorded for the year ended December 31, 2012.

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.

- 31 -

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

Results of Operations

Net income available to common stockholders for the year ended December 31, 2012 totaled $8.1 million compared to $2.7 million for the year ended December 31, 2011, or an increase of $5.4 million.  Diluted earnings per share were $0.77 for the year ended December 31, 2012, compared to $0.27 for 2011.  Merger related expenses totaled $1.2 million for 2012 versus $2.4 million for 2011.  With the closing of the PSB merger on December 28, 2012 and no material changes in the balance sheet or operating results of PSB between December 28, 2012 and December 31, 2012, net earnings for 2012 included no operating results for PSB.

In year-over-year comparison, net income available to common stockholders increased primarily as a result of a $10.0 million improvement in net interest income combined with a $1.9 million decrease in the provision for loan losses and a $1.9 million improvement in non-interest income.  Of the $10.0 million increase in net interest income, a total of $5.4 million was earned from the branches acquired in the third and fourth quarters of 2011.  Purchase accounting adjustments totaling $1.8 million also contributed to the increase in net interest income.  Interest income on investments and other interest-bearing accounts increased $2.1 million in prior year comparison and included interest earned on excess cash invested from the 2011 acquisitions.  Increases in noninterest income consisted primarily of $509,000 in service charges on deposit accounts, $803,000 in ATM and debit card income, $130,000 in mortgage banking fees, and a $105,000 net gain on sale of securities.

The improvement in revenues offset a $5.4 million increase in noninterest expense and a $3.2 million increase in income tax expense.  The increase in non-interest expense resulted primarily from a $3.0 million increase in salary and benefits costs, $2.0 million in occupancy expense, and $303,000 in ATM/debit card processing expense.

Total consolidated assets increased $422.8 million, or 29.6%, from $1.43 billion at December 31, 2011, to $1.85 billion at December 31, 2012.  The increase in assets resulted from the $465.0 million in assets acquired as a result of the PSB merger.  Total loans were $1.0 billion at December 31, 2012, an increase of $300.6 million, or 40.3%, from the $746.3 million reported as of December 31, 2011.  The $300.6 million growth in loans included $260.1 million acquired from PSB and $40.5 million in organic growth.  Deposits totaled $1.6 billion at December 31, 2012 compared to $1.2 billion at December 31, 2011 and included $400.6 million in deposits acquired from PSB.  The addition of $311.1 million in transaction deposits from PSB reinforced our strong relationship-based deposit mix.  Our noninterest-bearing deposit base represented 25% of total deposits at December 31, 2012.

Our Tier 1 leverage capital ratio increased to 11.82% at December 31, 2012 compared to 11.14% at December 31, 2011.  Tier 1 risk-weighted capital and total risk-weighted capital ratios were 13.46% and 14.10% at December 31, 2012, compared to 16.10% and 16.97% at December 31, 2011, respectively.  The Tier 1 common equity ratio at December 31, 2012 was 6.54%.  Return on average common equity was 6.05% for 2012 compared to 2.22% for 2011.  Return on average assets was 0.58% compared to 0.24% for the same periods, respectively.   Our return on average common equity and average assets ratios for the years ended December 31, 2012 and 2011 were significantly impacted by merger and acquisition expenses.

- 32 -

Nonperforming assets totaled $18.5 million at December 31, 2012, an increase of $4.3 million over the $14.2 million reported for year-end 2011.  The increase resulted primarily from the addition of $4.4 million in nonperforming assets acquired from PSB, which included $1.6 million in nonaccrual loans, $2.0 million in loans past due 90 days and over and accruing and $0.8 million in other real estate owned (“ORE”).  The addition of PSB nonperforming loans reduced the allowance coverage for nonperforming loans to 67.78% at December 31, 2012 from 112.63% at December 31, 2011 and decreased the ALL/total loans ratio to 0.70% from 0.97%.  Loans classified as troubled debt restructurings (“TDRs”) totaled $5.1 million at December 31, 2012 compared to $456,000 at December 31, 2012.  A total of $4.8 million in TDRs acquired with PSB included four credits, two of which are large commercial credits.

Table 1
Summary of Return on Equity and Assets
	2012			2011			2010
Return on average assets		0.58	%		0.24	%		0.47	%
Return on average common equity		6.05	%		2.22	%		3.92	%
Dividend payout ratio on common stock		36.36	%		103.70	%		59.57	%
Average equity to average assets		11.88	%		12.88	%		13.88	%

NOTE: 2012 and 2011 return on average assets and return on average common equity were impacted by approximately $1.2 million of merger costs and $2.4 million of acquisition and related system conversion charges due to the PSB merger and the branch acquisitions, respectively.  Excluding these merger costs, return on average assets for the year ended December 31, 2012 was 0.64% compared to 0.38% for the year ended December 31, 2011, and return on average common equity for the year ended December 31, 2012 was 6.64% compared to 3.56% for the year ended December 31, 2011.

Earnings Analysis

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 4.45%, 4.58%, and 4.72% for the years ended December 31, 2012, 2011, and 2010, respectively.  Tables 2 and 3 analyze the changes in net interest income for the years ended December 31, 2012, 2011, and 2010.

- 33 -

Table 2
Consolidated Average Balances, Interest, and Rates (in thousands)
	Year Ended December 31,
	2012								2011								2010
	Average Volume			Interest		Average Yield/ Rate			Average Volume			Interest		Average Yield/ Rate			Average Volume			Interest		Average Yield/ Rate
Assets
Investment securities1
Taxable	$	373,277		$	8,083		2.17	%	$	226,819		$	5,362		2.36	%	$	153,545		$	3,699		2.41	%
Tax exempt2		80,590			4,120		5.11	%		93,796			4,786		5.10	%		109,020			5,598		5.13	%
Total investment securities		453,867			12,203		2.69	%		320,615			10,148		3.17	%		262,565			9,297		3.54	%
Federal funds sold		3,482			7		0.20	%		6,567			14		0.21	%		3,328			7		0.21	%
Time and interest bearing deposits in other banks		34,087			92		0.27	%		61,292			196		0.32	%		41,999			274		0.65	%
Other investments		5,758			184		3.20	%		5,107			155		3.04	%		5,007			148		2.96	%
Loans
Commercial and real estate		661,759			42,217		6.36	%		545,480			35,254		6.46	%		489,799			32,201		6.57	%
Installment		104,259			7,559		7.23	%		79,409			6,633		8.35	%		94,391			7,828		8.29	%
Total loans3		766,018			49,776		6.48	%		624,889			41,887		6.70	%		584,190			40,029		6.85	%
Total earning assets		1,263,212			62,262		4.92	%		1,018,470			52,400		5.14	%		897,089			49,755		5.55	%
Allowance for loan losses		(7,182	)							(7,241	)							(8,050	)
Nonearning assets		140,085								106,447								92,732
Total assets	$	1,396,115							$	1,117,676							$	981,771
Liabilities and stockholders’ equity
NOW, money market, and savings	$	605,869		$	1,816		0.30	%	$	506,809		$	2,260		0.45	%	$	466,844		$	3,562		0.76	%
Time deposits		273,932			2,284		0.83	%		173,742			1,764		1.02	%		122,324			1,906		1.56	%
Total interest-bearing deposits		879,801			4,100		0.46	%		680,551			4,024		0.59	%		589,168			5,468		0.93	%
Borrowings:
Securities sold under agreements to repurchase		50,776			756		1.48	%		49,654			807		1.63	%		49,054			948		1.93	%
Federal funds purchased		21			-		-			-			-		-			243			2		0.82	%
Other borrowings		11			-		-			-			-		-			682			3		0.44	%
Total borrowings		50,808			756		1.48	%		49,654			807		1.63	%		49,979			953		1.91	%
Junior subordinated debentures		15,503			984		6.24	%		15,465			971		6.19	%		15,465			974		6.30	%
Total interest-bearing liabilities		946,112			5,840		0.62	%		745,670			5,802		0.78	%		654,612			7,395		1.13	%
Demand deposits		274,369								219,669								184,419
Other liabilities		9,721								8,367								6,457
Stockholders’ equity		165,913								143,970								136,283
Total liabilities and stockholders’ equity	$	1,396,115							$	1,117,676							$	981,771
Net interest income and net interest spread				$	56,422		4.30	%				$	46,598		4.36	%				$	42,360		4.42	%
Net yield on interest-earning assets							4.45	%							4.58	%							4.72	%

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

 

2 Interest income of $1,240,000 for 2012, $1,393,000 for 2011, and $1,631,000 for 2010 is added to interest earned on tax-exempt obligations to reflect tax-equivalent yields using a tax rate of 35% for 2012 and 34% for 2011 and 2010.

 

3 Interest income includes loan fees of $3,474,000 for 2012, $3,205,000 for 2011, and $3,150,000 for 2010.  Nonaccrual loans are included in average balances and income on such loans is recognized on a cash basis.

- 34 -

Table 3
Changes in Taxable-Equivalent Net Interest Income (in thousands)
	2012 Compared to 2011									2011 Compared to 2010
	Total Increase			Change Attributable to						Total Increase			Change Attributable to
	(Decrease)			Volume			Rates			(Decrease)			Volume			Rates
Taxable-equivalent interest earned on:
Investment securities
Taxable	$	2,721		$	3,205		$	(484	)	$	1,663		$	1,733		$	(70	)
Tax-exempt		(666	)		(675	)		9			(812	)		(777	)		(35	)
Federal funds sold		(7	)		(6	)		(1	)		7			7			-
Time and interest-bearing deposits in other banks		(104	)		(75	)		(29	)		(78	)		97			(175	)
Other investments		28			21			7			7			3			4
Loans, including fees		7,889			9,208			(1,319	)		1,858			2,743			(885	)
Total		9,861			11,678			(1,817	)		2,645			3,806			(1,161	)
Interest paid on:
Interest-bearing deposits		76			1,034			(958	)		(1,444	)		756			(2,200	)
Securities sold under agreements to repurchase		(51	)		18			(69	)		(141	)		12			(153	)
Federal funds purchased		-			-			-			(2	)		(2	)		-
Other borrowings		-			-			-			(3	)		(3	)		-
Junior subordinated debentures		13			6			7			(3	)		-			(3	)
Total		38			1,058			(1,020	)		(1,593	)		763			(2,356	)
Taxable-equivalent net interest income	$	9,823		$	10,620		$	(797	)	$	4,238		$	3,043		$	1,195

NOTE:  Changes due to both volume and rate have generally been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts to the changes in each.

Net interest income on a fully taxable-equivalent (“FTE”) basis increased $9.8 million for 2012 over 2011, the result of a $9.9 million increase in FTE interest income and a $0.1 million decrease in interest expense.  The increase in interest income on earning assets resulted primarily from a $244.7 million increase in the volume of average earnings assets primarily as a result of the three acquisitions in 2011.   The improvement in interest income from the increased average volume of earning assets was partially offset by a 22 basis point decline in the average yield on loans, from 6.70% for the year ended December 31, 2011 to 6.48% for the year ended December 31, 2012.  Loan yields declined as matured loans re-priced in the lower rate environment and new loan rates reflected competitive market pricing.  Additionally, interest income on investment securities for 2012 increased as a $133.3 million increase in the average volume of investment securities offset the impact of a 48 basis point reduction in the average FTE yield earned on investment securities.  The reduction in the FTE average yield on investment securities from 3.17% for the year ended December 31, 2011 to 2.69% for the year ended December 31, 2012 resulted from lower yields on investments purchased in 2012 with excess cash flow from the 2011 acquisitions and from maturing securities within the portfolio.   Interest expense increased minimally in year-over-year comparison as the impact of a $200.4 million increase in the average volume of interest-bearing liabilities was mostly offset by a 16 basis point reduction in the average rate paid on interest-bearing liabilities, from 0.78% for the year ended December 31, 2011 to 0.62% for the year ended December 31, 2012.  As a result, the FTE net interest margin declined 13 basis points, from 4.58% for the year ended December 31, 2011 to 4.45% for the year ended December 31, 2012.  Net of purchase accounting adjustments, the FTE net interest margin declined 25 basis points for 2012 over 2011, from 4.47% to 4.22% for the years ended December 31, 2011 and 2012, respectively.

- 35 -

Net interest income on a FTE basis increased $4.2 million for 2011 over 2010, the result of a $1.6 million reduction in interest expense and a $2.6 million increase in interest income.  The increase in interest income on earning assets resulted primarily from a $121.4 million increase in the volume of average earnings assets primarily as a result of the three acquisitions in 2011.   The improvement in interest income from the increased average volume of earning assets was partially offset by a 15 basis point decline in the average yield on loans, from 6.85% at December 31, 2010 to 6.70% at December 31, 2011.  Loan yields declined as matured loans re-priced in the lower rate environment and new loan rates reflected competitive market pricing.  Additionally, interest income on investment securities for 2011 increased as a $58.1 million increase in the average volume of investment securities offset the impact of a 37 basis point reduction in the average FTE yield earned on investment securities.  The reduction in the FTE average yield on investment securities from 3.54% at December 31, 2010 to 3.17% at December 31, 2011 resulted from lower yields on investments purchased in 2011 with excess cash flow from the acquisitions.   Interest expense decreased primarily due to a 34 basis point reduction in the average rate paid on interest-bearing deposits, from 0.93% at December 31, 2010 to 0.59% at December 31, 2011.  Additionally, interest paid on securities sold under agreements to repurchase and on the junior subordinated debentures decreased due to rate reductions.  As a result, the FTE net interest margin declined 14 basis points, from 4.72% for the year ended December 31, 2010 to 4.58% for the year ended December 31, 2011.  Net of purchase accounting adjustments, the FTE net interest margin declined 24 basis points for 2011 over 2010.

Noninterest Income

Noninterest income totaled $14.9 million at December 31, 2012, compared to $13.1 million at December 31, 2011 and $14.9 million at December 31, 2010.  Service charges and fees on deposit accounts represent the primary source of noninterest income for us.  Income from service charges and fees on deposit accounts, including insufficient funds fees (“NSF” fees), increased $0.5 million in 2012 compared to a $2.8 million decrease in 2011.  The increase in 2012 was primarily due to a higher volume of transaction accounts as a result of the 2011 acquisitions.  The decrease in 2011 was primarily due to a $2.7 million reduction of NSF fee income, which resulted from fewer NSF items processed.  We believe this was primarily driven by the changes implemented in our policies in connection with the changes in Regulation E in 2010.  Income on ATM and debit card transactions increased $803,000 in 2012 and $442,000 in 2011 as the result of an increase in electronic transactions processed.  Other noninterest income increased $571,000 in 2012 and increased $514,000 in 2011, including net gains on sales of securities.  The $571,000 increase in 2012 resulted primarily from an increase of $130,000 in mortgage banking fees and $105,000 in net gains on sales of securities.  The $514,000 increase in 2011 resulted primarily from a $468,000 increase in income from other real estate owned.  During the second quarter of 2011, we repossessed a condominium complex and have been earning income on the rentals until the property is sold.

Noninterest Expense

Total noninterest expense increased 10.9%, or $5.4 million, from 2011 to 2012 and 12.5%, or $5.5 million, from 2010 to 2011.  Salaries and employee benefits increased $3.0 million, or 13.6%, in 2012 and $1.4 million, or 6.9%, in 2011.  We employed 604 employees on a full-time equivalent (“FTE”) basis at year-end 2012.  Net of 140 FTEs added with the PSB merger, we increased 20 FTEs in 2012 over the 444 FTE’s employed at year-end 2011 and increased 75 FTEs over the 389 FTE’s at year-end 2010.  The increase of 20 FTE’s in 2012 resulted primarily from additional FTEs hired to staff four new full service branches throughout the year.  Salary and benefit costs and FTEs increased in 2011 primarily due to employees added with the three acquisitions completed in the second half of 2011.  The increase also included retention and merit bonuses paid following completion of the acquisitions and system conversions of all three acquisitions by year-end 2011.  Additionally, in the first quarter of 2011, we implemented a new management structure designed to increase shareholder value through a coordinated focus on achieving our expansion objectives.  The new structure included the appointment of two new executive officers, a Chief Operating Officer and a Chief Banking Officer.

Occupancy expenses increased $2.0 million in 2012 and $554,000 in 2011.  The increase in occupancy expense in 2012 and 2011 related to the acquired branches and primarily included additional lease expense and increased fuel and auto maintenance expenses.  Premises and equipment additions and leasehold improvements totaled approximately $22.7 million, $11.4 million and $1.3 million for the years 2012, 2011, and 2010, respectively.

ATM and debit card processing fees increased $303,000 in 2012 and decreased $209,000 in 2011. The increase in 2012 resulted primarily from an increased volume of electronic transactions processed.  Additionally, losses on electronic transactions increased $69,000, from $106,000 in 2011 to $175,000 in 2012.  The decrease in 2011 is primarily due to a decrease in the cost of third party processing.

- 36 -

Data processing costs, included in other non-interest expense, decreased $665,000 in 2012 and increased $1.1 million in 2011 primarily due to data processing charges of $1.2 million incurred as a result of three computer processing system conversions associated with the 2011 acquisitions.  Approximately $281,000 in PSB system conversion expenses are included in 2012 data processing costs.   Additionally, the cost of data lines, support, and internet banking processing increased $253,000 in 2012.

Other non-interest expense in 2012 included approximately $830,000 in merger and acquisition costs, primarily in legal and professional fees, marketing costs, and business travel expenses.  In 2011, acquisition costs included in other non-interest expense totaled approximately $1.2 million.  Comparatively, other non-interest expense increased minimally in 2012 versus 2011 as a $256,000 increase in net expenses on ORE and other assets repossessed offset the reduction in merger and acquisition costs for 2012.  Other decreases realized in other non-interest expense in 2012 included $327,000 in third party customer relationship management costs, $145,000 in shares taxes, and $131,000 in third party collection expenses.  These decreases were mostly offset by increases of $215,000 in the cost of printing and supplies, $143,000 in armored car and courier expenses, $113,000 in telephone expense, and $101,000 in corporate development and training costs, which are reflective of the expansion of our franchise.

In 2011, other non-interest expense was also impacted by a $713,000 increase in expenses on other real estate owned due primarily to the repossession of a condominium complex in the second quarter of 2011.  The increase was partially offset by a $410,000 decrease in FDIC fees due to a change in the assessment calculation.

Income Taxes

Income tax expense increased $3.2 million in 2012 and decreased by $404,000 in 2011 and approximated 28%, 11%, and 14% of income before taxes in 2012, 2011 and 2010, respectively.  In 2012, the Company exceeded $10.0 million in revenues which increased the statutory tax rate from 34% to 35%.  The impact of nontaxable municipal interest income and other tax considerations resulted in lower effective tax rates for each of the three years presented in the Consolidated Statement of Earnings included in Item 8 of this filing.  The notes to the consolidated financial statements provide additional information regarding income tax considerations.

Balance Sheet Analysis

Investment Securities

Total investment securities increased $110.4 million in 2012, from $467.7 million in 2011 to $578.1 million at December 31, 2012.  The increase resulted primarily from $152.7 million in securities acquired with the PSB acquisition and $138.5 million in purchased securities, partially offset by $170.4 million in maturities and calls of securities within the portfolio in 2012.  Average duration of the portfolio was approximately 3.50 years as of December 31, 2012 and the average taxable-equivalent yield was 2.69%.  For the year ended December 31, 2011, average duration of the portfolio was 3.44 years and the average taxable-equivalent yield was 3.17%.  Unrealized net gains before tax effect in the securities available-for-sale portfolio were $12.6 million at December 31, 2012, compared to unrealized net gains before tax effect of $11.7 million at December 31, 2011.  These amounts resulted from interest rate fluctuations.

At December 31, 2012, approximately $310.6 million, or 73.1%, of the securities available-for-sale portfolio represented mortgage-backed securities and CMOs.  All of the mortgage-backed securities and CMOs are government agency sponsored with the exception of three privately issued CMOs with a current market value of $96,000.  Risk due to changes in interest rates on mortgage-backed pools is monitored by monthly reviews of prepayment speeds, duration, and purchase yields as compared to current market yields on each security.  CMOs totaled $131.7 million and represented pools that each had a book value of less than 10% of stockholders' equity at December 31, 2012.  Other asset-backed securities totaled $12.7 million at December 31, 2012.  These securities are collateralized by student loans issued under the Federal Family Education Loan Program.  Under the program, the loans are re-insured by the Department of Education for amounts generally ranging from 97% - 100%.  An additional 3.2% of the available-for-sale portfolio consisted of short-term U.S. Government sponsored enterprises securities, while municipal securities represented 20.6%.  Given the current economic environment and concerns regarding the financial stability of municipalities in general, we contracted with an independent third party provider to conduct a review of our municipal portfolio in 2012 and in 2011.  As a result of the review, six municipal securities were sold in 2012 and six municipal securities were sold in 2011 due primarily to the inability to obtain current financial information.

- 37 -

With the PSB merger, we acquired a collateralized debt obligation at a fair value of $464,000. The debt security is a pool of financial institutions’ trust preferred securities.

Additional information on our investment securities portfolio is provided in Note 3 of the notes to consolidated financial statements.

Table 4 Composition of Investment Securities December 31 (in thousands)
	2012		2011		2010		2009		2008
Available-for-sale securities
U. S. Government sponsored enterprises	$	13,424	$	94,999	$	117,698	$	102,523	$	39,747
Obligations of state and political subdivisions		87,421		96,149		108,852		117,301		118,613
GSE mortgage-backed securities		178,819		109,487		11,472		15,634		19,661
Collateralized mortgage obligations: residential		101,986		41,468		22,688		36,278		47,829
Collateralized mortgage obligations: commercial		29,761		25,138		3,099		-		-
Other asset-backed securities		12,742		-		-		-		-
Collateralized debt obligation		464
Financial institution equity security		-		-		-		72		94
Total available-for-sale securities	$	424,617	$	367,241	$	263,809	$	271,808	$	225,944
Held-to-maturity securities
Obligations of state and political subdivisions	$	42,900	$	340	$	1,588	$	3,043	$	6,490
GSE mortgage-backed securities		89,383		82,497		-		-		-
Collateralized mortgage obligations: residential		5,009		-		-		-		-
Collateralized mortgage obligations: commercial		16,232		17,635		-		-		-
Total held-to-maturity securities	$	153,524	$	100,472	$	1,588	$	3,043	$	6,490
Total investment securities	$	578,141	$	467,713	$	265,397	$	274,851	$	232,434

- 38 -

Table 5 Investment Securities Portfolio Maturities and Average Taxable-Equivalent Yields For the Year Ended December 31, 2012 (dollars in thousands)
	Within 1 Year					After 1 but Within 5 Years					After 5 but Within 10 Year					After 10 Years
	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Total
Securities available-for-sale:
U.S. Government sponsored enterprises	$	1,206		0.40	%	$	12,218		0.79	%	$	-		-		$	-		-		$	13,424
Obligations of state and political subdivisions1		11,673		4.51	%		38,147		5.12	%		26,790		5.77	%		10,811		5.77	%		87,421
GSE mortgage-backs and CMOs: residential		17,249		2.50	%		257,631		2.39	%		5,843		2.04	%		82		2.40	%		280,805
GSE mortgage-backs and CMOs: commercial		-		-			29,761		2.46	%		-		-			-					29,761
Other asset-backed securities		-		-			12,742		1.54	%		-		-			-					12,742
Collateralized debt obligation		-		-			-		-			-		-			464		0.00	%		464
Total fair value	$	30,128				$	350,499				$	32,633				$	11,357				$	424,617
	Within 1 Year					After 1 but Within 5 Years					After 5 but Within 10 Year					After 10 Years
Held-to-Maturity:	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Total
Obligations of state and political subdivisions1	$	296		5.56	%	$	1,068		2.87	%	$	6,029		2.91	%	$	35,507		2.96	%	$	42,900
GSE mortgage-backs and CMOs: residential		-		-			94,392		2.19	%		-		-			-		-			94,392
GSE mortgage-backs and CMOs: commercial		-		-			16,232		2.25	%		-		-			-		-			16,232
Total cost	$	296				$	111,692				$	6,029				$	35,507				$	153,524

1 Tax exempt yields are expressed on a fully taxable equivalent basis.

- 39 -

Loan Portfolio

The loan portfolio totaled $1.0 billion at December 31, 2012, up 40.3%, or $300.6 million, from $746.3 million at December 31, 2011.  Of the $300.6 million in loan growth for 2012, $260.1 million was acquired from PSB at fair value and approximately $40.5 million was organic loan growth.  PSB’s loan mix consisted of 51% commercial real estate loans, 23% commercial and industrial loans, 13% residential real estate loans, 7% consumer installment loans, and 6% construction loans.  The organic loan growth in 2012 resulted from improved loan demand and funding activity primarily in the second and third quarters of 2012.  Organic growth has continued to be affected by commercial and consumer customers continuing to pay down debt in an unstable economic environment.

Our loan portfolio is diversified throughout our Louisiana and Texas markets, with a focus on commercial, financial, agricultural (“C&I”) and owner-occupied commercial real estate (“CRE”) loans.  Our C&I and CRE loans are primarily underwritten on cash flow analyses versus collateral valuations.  The C&I portfolio consists primarily of term loans or revolving lines of credit which are generally structured with annual maturity.  The term loans are generally structured with fixed rates and three to five year maturities.  The CRE portfolio consists primarily of credits that have fifteen to twenty year amortization terms with rates fixed primarily for three years, but up to five years.  We believe the shorter term structure of our C&I and CRE credits allows greater flexibility in controlling interest rate risk.

The loan portfolio at December 31, 2012 consisted of approximately 50.1% in fixed rate loans, with the majority maturing within five years.  Approximately 49.9% of the portfolio earns a variable rate of interest, the greater majority of which adjusts simultaneous with changes in the Prime rate and a smaller portion that adjusts on a scheduled repricing date.  The mix of variable and fixed rate loans provides some protection from changes in market rates of interest.  Additionally, over the past two years, we established rate floors, primarily for our commercial loans, that provided some protection to our net interest margin during a sustained low rate environment like we are currently facing.

Table 6 Composition of Loans
December 31 (in thousands)
	2012		2011		2010		2009		2008
Commercial, financial, and agricultural	$	315,655	$	223,283	$	177,598	$	193,350	$	208,473
Lease financing receivable		5,769		4,276		4,748		7,589		8,058
Real estate – commercial		414,384		280,798		208,764		188,045		167,242
Real estate – residential		142,858		113,582		72,460		77,130		67,346
Real estate – construction		75,334		52,712		54,164		39,544		65,327
Installment loans to individuals		90,561		69,980		62,272		77,069		87,743
Other		2,379		1,674		806		2,315		4,766
Total loans	$	1,046,940	$	746,305	$	580,812	$	585,042	$	608,955

- 40 -

Table 7
Loan Maturities and Sensitivity to Interest Rates For the Year Ended December 31, 2012 (in thousands)
	Fixed and Variable Rate Loans at Stated Maturities								Amounts Over One Year With
	1 Year or Less		1 Year – 5 Years		Over 5 years		Total		Predetermined Rates		Floating Rates		Total
Commercial, financial, and agricultural	$	154,242	$	106,574	$	54,839	$	315,655	$	92,245	$	69,168	$	161,413
Lease financing receivables		469		5,118		182		5,769		5,300		-		5,300
Real estate – commercial		45,777		146,031		222,576		414,384		137,244		231,363		368,607
Real estate – residential		17,060		45,482		80,316		142,858		91,146		34,652		125,798
Real estate – construction		32,130		14,894		28,310		75,334		18,759		24,445		43,204
Installment loans to individuals		26,538		45,100		18,923		90,561		57,096		6,927		64,023
Other		1,163		1,216		-		2,379		1,185		31		1,216
Total	$	277,379	$	364,415	$	405,146	$	1,046,940	$	402,975	$	366,586	$	769,561

Asset Quality

Credit Risk Management

We manage credit risk by observing written, board approved policies that govern all underwriting activities.  Our Chief Credit Officer (“CCO”) is responsible for credit underwriting and loan operations for the Bank.  The role of CCO includes on-going review and development of lending policies, commercial credit analysis, centralized consumer underwriting, loan operations documentation and funding, and overall credit risk management procedures.  The current risk management process requires that each individual loan officer review his or her portfolio on a quarterly basis and assign recommended credit ratings on each loan.  These efforts are supplemented by independent reviews performed by the loan review officer and other validations performed by the internal audit department.  The results of the reviews are reported directly to the Audit Committee of the Board of Directors.  We believe the conservative nature of our underwriting practices has resulted in strong credit quality in our loan portfolio. Completed loan applications, credit bureau reports, financial statements, and a committee approval process remain a part of credit decisions.  Documentation of the loan decision process is required on each credit application, whether approved or denied, to ensure thorough and consistent procedures.  Additionally, we have historically recognized and disclosed significant problem loans quickly and taken prompt action to address material weaknesses in those credits.

Our loan review process also includes monitoring and reporting of loan concentrations whereby individual customer and aggregate industry leverage, profitability, risk rating distributions, and liquidity are evaluated for each major standard industry classification segment.  At December 31, 2012, one industry segment concentration, the oil and gas industry, aggregated more than 10% of our loan portfolio.  Our exposure in the oil and gas industry, including related service and manufacturing industries, totaled approximately $146.2 million, or 14.0% of total loans.  Additionally, we monitor our exposure to loans secured by commercial real estate.  At December 31, 2012, loans secured by commercial real estate (including commercial construction and multifamily loans) totaled approximately $472.7 million, of which approximately $147.1 million was acquired with PSB. Of the $472.7 million, $359.2 million represent CRE loans, 57% of which are secured by owner-occupied commercial properties.  A total of $4.0 million, or 0.85%, in loans secured by commercial real estate were on nonaccrual status at December 31, 2012.

- 41 -

Nonperforming Assets

Table 8 contains information about nonperforming assets, including loans past due 90 days or greater (“90 days or >”) and still accruing.

Table 8 Asset Quality Information December 31 (dollars in thousands)
	2012			2011			2010			2009			2008
Loans on nonaccrual	$	8,887		$	6,229		$	19,603		$	16,183		$	9,355
Loans past due 90 days or > and still accruing		1,986			231			66			378			1,005
Total nonperforming loans		10,873			6,460			19,669			16,561			10,360
Other real estate owned		7,496			7,369			1,206			792			329
Other assets repossessed		151			326			36			51			306
Total nonperforming assets	$	18,520		$	14,155		$	20,911		$	17,404		$	10,995
Troubled debt restructurings	$	5,062		$	456		$	653		$	-		$	-
Nonperforming loans to total loans + ORE + other foreclosed assets		1.76	%		1.88	%		3.59	%		2.83	%		1.70	%
Nonperforming assets to total assets		1.00	%		1.01	%		2.09	%		1.79	%		1.17	%
ALLL to nonperforming loans		68	%		113	%		45	%		48	%		73	%
ALLL to total loans		0.70	%		0.97	%		1.52	%		1.37	%		1.25	%

Nonperforming assets totaled $18.5 million at December 31, 2012, an increase of $4.3 million over the $14.2 million reported for year-end 201l.  The increase resulted primarily from the addition of $4.4 million in nonperforming assets acquired from PSB, which included $1.6 million in nonaccrual loans, $2.0 million in loans past due 90 days and over and accruing and $0.8 million in other real estate owned (“ORE”).  The addition of PSB nonperforming loans reduced the allowance coverage for nonperforming loans to 68% at December 31, 2012 from 113% at December 31, 2012 and the ALL/total loans ratio decreased to 0.70% at year-end 2012, compared to 0.97% at year-end 2011.

Total nonperforming assets to total loans plus ORE and other assets repossessed decreased from 1.88% at December 31, 2011 to 1.76% at December 31, 2012 primarily due to the addition of $260.1 million in loans from PSB.  Total ORE and other assets repossessed (“OAR”) remained constant as a reduction in MidSouth Bank ORE and OAR offset the $0.8 million in ORE added from PSB.  Classified assets, including ORE, increased $7.7 million or 28.8%, from $26.7 million at December 31, 2011 to $34.4 million at December 31, 2012.  The increase in classified assets resulted primarily from $9.7 million in classified loans and $0.8 million in ORE from PSB.  Net of the PSB impact, classified assets declined $2.8 million as we continued to successfully work problem assets off the balance sheet.

Loans classified as troubled debt restructurings (“TDRs”) totaled $5.1 million at December 31, 2012 compared to $456,000 at December 31, 2012.  A total of $4.8 million in TDRs acquired with PSB included four credits, two of which are large commercial credits.  Additional information regarding impaired loans and TDRs is included in the notes to the consolidated financial statements.

Consumer and commercial loans are placed on nonaccrual status when principal or interest is 90 days past due, or sooner if the full collectability of principal or interest is doubtful, except if the underlying collateral fully supports both the principal and accrued interest and the loan is in the process of collection.  Our policy provides that retail (consumer) loans that become 120 days delinquent be routinely charged off.  Loans classified for regulatory purposes but not included in Table 8 do not represent material amounts that we have serious doubts as to the ability of the borrower to comply with loan repayment terms.  Further information regarding loan policy is provided in the notes to the consolidated financial statements.

- 42 -

Allowance for Loan Losses

Provisions totaling $2.1 million, $3.9 million, and $5.0 million, for the years 2012, 2011, and 2010, respectively, were considered necessary to bring the allowance for loan losses to a level we believe sufficient to cover probable losses in the loan portfolio.  In accordance with generally accepted accounting principles, PSB’s loans were purchased at fair value and accordingly the PSB allowance for loan losses was not brought forward on the consolidated balance sheet.  For additional information regarding the decrease in the year-end allowance to year-end total loans for 2012, see the discussion of “Nonperforming Assets” above.  Table 9 analyzes activity in the allowance for 2012, 2011, 2010, 2009, and 2008.

Table 9
Summary of Loan Loss Experience (dollars in thousands)
	2012			2011			2010			2009			2008
Balance at beginning of year	$	7,276		$	8,813		$	7,995		$	7,586		$	5,612
Charge-offs:
Commercial, financial, and agricultural		1,054			1,109			1,333			1,147			776
Lease financing receivables		-			19			1			26			-
Real estate – commercial		550			1,246			130			136			39
Real estate – residential		126			283			146			306			125
Real estate – construction		-			2,444			1,478			2,172			428
Installment loans to individuals		526			671			1,368			1,481			1,256
Other		-			-			-			-			-
Total charge-offs		2,256			5,772			4,456			5,268			2,624
Recoveries:
Commercial, financial, and agricultural		181			152			50			56			35
Lease financing receivables		-			1			1			-			-
Real estate – commercial		1			1			1			-			-
Real estate – residential		2			4			60			2			-
Real estate – construction		18			14			1			1			-
Installment loans to individuals		98			138			141			168			155
Other		-			-			-			-			2
Total recoveries		300			310			254			227			192
Net charge-offs		1,956			5,462			4,202			5,041			2,432
Additions to allowance charged to operating expenses		2,050			3,925			5,020			5,450			4,555
Reclassification1		-			-			-			-			(149	)
Balance at end of year	$	7,370		$	7,276		$	8,813		$	7,995		$	7,586
Net charge-offs to average loans		0.26	%		0.87	%		0.72	%		0.86	%		0.40	%
Year-end allowance to year-end loans		0.70	%		0.97	%		1.52	%		1.37	%		1.25	%

1 In the second quarter of 2008, approximately $149,000 of the allowance for loan loss was identified as a reserve for unfunded loan commitments.  The reserve was classified as a liability in accordance with SFAS No. 5, Accounting for Contingencies, in the same period.

- 43 -

Table 10 Allocation of Loan Loss by Category (dollars in thousands)
	2012				2011				2010				2009				2008
	Amount		% of loans to total loans		Amount		% of loans to total loans		Amount		% of loans to total loans		Amount		% of loans to total loans		Amount		% of loans to total loans
Commercial, financial, and agricultural	$	1,535		30.0	$	1,734		30.0	$	1,664		31.0	$	2,053		33.0	$	1,586		35.0
Real estate - construction		2,147		7.0		1,661		7.0		2,963		9.0		2,247		7.0		2,911		11.0
Real estate -mortgages6		-		-		-		-		-		-		2,296		45.0		1,999		38.0
Real estate - commercial		2,166		40.0		2,215		38.0		2,565		36.0		-		-		-		-
Real estate - residential		936		14.0		936		15.0		862		12.0		-		-		-		-
Installment loans to individuals		543		9.0		710		9.0		730		11.0		1,378		14.0		1,058		15.0
Lease financing receivables		41		-		19		1.0		29		1.0		21		1.0		32		1.0
Other		2		-		1		-		-		-		-		-		-		-
	$	7,370		100.0	$	7,276		100.0	$	8,813		100.0	$	7,995		100.0	$	7,586		100.0

Quarterly evaluations of the allowance for loan losses are performed in accordance with GAAP and regulatory guidelines.  The allowance is comprised of specific reserves assigned to each impaired loan for which 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 allowance, 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.  Additional information regarding the allowance for loan losses is included in the notes to the consolidated financial statements.

Funding Sources

Deposits

As of December 31, 2012, total deposits increased $387.1 million, or 33.2%, to $1.6 billion following an increase of $364.0 million in 2011 to $1.2 billion. Noninterest-bearing deposits increased $125.8 million to $380.6 million and represented 24.5% of total deposits at December 31, 2012, compared to 21.9% at December 31, 2011 and 24.9% at December 31, 2010.  Interest-bearing deposits in money market and savings accounts increased $170.2 million and NOW account deposits increased $103.1 million. Time deposits, which are comprised mostly of certificates of deposits (“CDs”), decreased $12.1 million in 2012.  Net of $90.0 million in PSB CDs acquired, total CDs decreased $102.1 million for the year-ended December 31, 2012 as higher cost, single service CDs added from the acquisitions in 2011 were converted into core deposit relationships or allowed to run-off at maturity.  Core deposits, defined as all deposits other than time deposits of $100,000 or more, increased to 88.5% of total deposits in 2012, following a decline to 84.2% of total deposits at year-end 2011 as a result of the acquisitions completed in that year.   Core deposits totaled 92.6% of total deposits at year-end 2010.  To manage the net interest margin and core deposit balances, we typically offer low- to mid-market rates on CDs.  Additional information on deposits appears in the tables below and in the notes to the consolidated financial statements.

1 Portfolio segments have been revised for 2010 in accordance with Accounting Standards Update 2010-20, effective for periods ending on or after December 15, 2010.

- 44 -

Table 11
Summary of Average Deposits (in thousands)
	2012					2011					2010
	Average Amount		Average Yield			Average Amount		Average Yield			Average Amount		Average Yield
Noninterest-bearing demand deposits	$	274,369		-		$	219,669		-		$	184,419		-
Interest-bearing deposits:
Savings, NOW, and money market		605,869		0.30	%		506,809		0.45	%		466,844		0.76	%
Time deposits		273,932		0.83	%		173,742		1.02	%		122,324		1.56	%
Total	$	1,154,170		0.36	%	$	900,220		0.45	%	$	773,587		0.71	%

Table 12 Maturity Schedule Time Deposits of $100,000 or More (in thousands)
	2012		2011		2010
3 months or less	$	58,938	$	40,621	$	24,555
Over 3 months through 6 months		31,808		33,435		8,992
Over 6 months through 12 months		53,462		59,779		11,601
Over 12 months		34,966		50,278		13,975
Total	$	179,174	$	184,113	$	59,123

Borrowed Funds

As of December 31, 2012, we had securities sold under repurchase agreements totaling $41.4 million and no federal funds purchased.  At December 31, 2011, we had $46.1 million in securities sold under repurchase agreements and no federal funds purchased.  Retail repurchase agreements, included in securities sold under agreements to repurchase, decreased $4.7 million, from $33.6 million at December 31, 2011 to $28.9 million at December 31, 2012.  Also included in securities sold under agreements to repurchase is a $12.5 million reverse repurchase agreement we entered into with Citigroup Markets, Inc. (“CGMI”) in July of 2007.  The reverse repurchase agreement provided low cost funding to meet liquidity demands.  Under the terms of the agreement, interest is payable at a fixed rate of 4.57% for the remainder of the term.  The repurchase date is scheduled for August 9, 2017; however, the agreement is subject to call by CGMI quarterly.

We assumed at fair value approximately $29.1 million of borrowed funds from PSB, which included $27.1 million in FHLB advances and $2.0 million of notes payable with First National Bankers Bank.  The FHLB advances are fixed rate advances with rates ranging from 1.985% to 5.057% and have a range of maturities from January 2013 to January 2019.  The FHLB advances are collateralized by a blanket lien on first mortgages and other qualifying loans.  The notes payable with First National Bankers Bank requires annual payments of $250,000 and bear a variable interest rate equal to New York Prime less fifty basis points.

- 45 -

A description of the junior subordinated debentures outstanding as of December 31, 2012 is as follows:

Table 13
Junior Subordinated Debentures (dollars in thousands)
Date Issued	Maturity Date	Interest Rate	Callable After	Amount
February 22, 2001	February 22, 2031	10.20%	February 22, 2011	$	7,217
July 31, 20011	July 9, 2031	3 month LIBOR plus 3.30%	July 31, 2006		5,671
September 20, 2004	September 20, 2034	3 month LIBOR plus 2.50%	September 20, 2009		8,248
October 12, 20061	October 12, 2036	3 month LIBOR plus 1.85%	June 26, 2011		5,155
June 21, 20071	June 21, 2037	3 month LIBOR plus 1.70%	June 15, 2012		3,093
				$	29,384

(1) Assumed in PSB acquisition.

Our outstanding debentures currently qualify as Tier 1 capital and are presented in the Consolidated Balance Sheets as Junior subordinated debentures.  Additional information regarding long-term debt is provided in the notes to the consolidated financial statements.

Regulations adopted as a result of the Dodd-Frank Act have resulted in changes to the regulatory capital treatment of securities similar to our debentures.  However, because of the issue date of our debentures and our asset size, we may continue to include the debentures in our Tier 1 capital.

In 2012, 2011, and 2010, we did not have an average balance in any category of short-term borrowings including retail repurchase agreements, reverse repurchase agreements, federal funds purchased, or FRB discount window that exceeded 30% of our stockholders’ equity for such year.

Capital

As described under “Business - Supervision and Regulation,” we are required to maintain certain minimum capital levels for the Company and the Bank.  Risk-based capital requirements are intended to make regulatory capital more sensitive to the risk profile of an institution's assets.  At December 31, 2012, the Company and the Bank were in compliance with statutory minimum capital requirements.  Minimum capital requirements include a total risk-based capital ratio of 8.0%, with Tier 1 capital not less than 4.0%, and a leverage ratio (Tier 1 capital to total average adjusted assets) of 4.0% based upon the regulators latest composite rating of the institution.  As of December 31, 2012, the Company’s leverage ratio was 11.82% as compared to 11.14% at December 31, 2011.  Tier 1 capital to risk weighted assets was 13.46% and 16.10% for 2012 and 2011, respectively.  Total capital to risk weighted assets was 14.10% and 16.97%, respectively, for the same periods.  For regulatory purposes, Tier 1 Capital includes $28.5 million of the junior subordinated debentures issued by the Company and assumed in the PSB acquisition.  For financial reporting purposes, these funds are included as a liability under GAAP.  The Bank’s leverage ratio was 11.58% and 8.91% at December 31, 2012 and 2011, respectively.

The FDIC Improvement Act of 1991 established a capital-based supervisory system for all insured depository institutions that imposes increasing restrictions on the institution as its capital deteriorates.  The Bank was classified as “well capitalized” as of December 31, 2012.  No significant restrictions are placed on the Bank as a result of this classification.

As discussed under the heading Balance Sheet Analysis - Securities, $12.6 million in unrealized gains on securities available-for-sale, less a deferred tax liability of $4.4 million, was recorded as an addition to stockholders’ equity as of December 31, 2012.  As of December 31, 2011, $11.7 million in unrealized gains on securities available-for-sale, less a deferred tax liability of $4.0 million, was recorded as an addition to stockholders' equity.  While the net unrealized loss or gain on securities available-for-sale is required to be reported as a separate component of stockholders' equity, it does not affect operating results or regulatory capital ratios.  The net unrealized gains and losses reported for December 31, 2012 and 2011, however, did affect the equity-to-assets ratio for financial reporting purposes.  The ratio of equity-to-assets was 10.22% at December 31, 2012 and 11.59% at December 31, 2011.

- 46 -

Asset/Liability Management and Interest Rate Sensitivity

Interest rate sensitivity is the sensitivity of net interest income and economic value of equity to changes in market rates of interest.  The primary objective of our asset and liability management process is to evaluate interest rate sensitivity inherent in our balance sheet components and establish guidelines to manage that risk within acceptable performance levels.  Management and our Board of Directors are responsible for determining the appropriate level of acceptable risk based on our strategic focus, regulatory requirements for capital and liquidity, and the market environment. Our Board of Directors established an Asset/Liability management committee (“ALCO”), comprised of certain executive and senior officers of the Bank, to measure and monitor interest rate risk within defined parameters.  During 2012, ALCO utilized an internal model of asset and liability management to measure interest rate risk using net interest income simulation and economic value of equity sensitivity analysis.  The model captures data from our internal operating systems, an external investment portfolio accounting system and additional information regarding rates and prepayment characteristics to construct an analysis that presents differences in repricing, cash flows and the maturity characteristics of earning assets and interest-bearing liabilities for selected time periods.

This data, combined with additional assumptions including repricing rates and payment characteristics, were used to perform instantaneous parallel rate shift and alternate rate shift simulations.  Instantaneous parallel rate shifts are known as “rate shocks” because all rates are modeled to change instantaneously by the indicated shock amount. Alternate rate shifts include floor rates that generally provide more realistic projections of changes in net interest income and market risk.  Results of the simulations were compared to a base case scenario that provided projected net interest income over the next 12 months with no change in the balance sheet.  The estimated percentage changes in projected net interest income due to changes in interest rates of alternate down 100 basis points, parallel up 200, and up300 basis points as determined through the simulations are detailed below.  At December 31, 2012, the interest rate risk model results were within policy guidelines and indicated that our balance sheet is slightly asset sensitive.  The results of the interest rate risk modeling are reviewed by ALCO and discussed quarterly at Funds Management committee meetings of our Board of Directors.

Net Interest Income at Risk in Year 1
Changes in Interest Rates	Estimated Increase /Decrease in NII at December 31, 2012
Shock Up 300 basis points		2.62%
Shock  Up 200 basis points		2.24%
Alternate Down 100 basis points		(1.16)%

In January 2011, we revised our asset/liability and funds management policy to allow for the use of interest rate derivatives.  During 2012, we entered into two loan level interest rate swaps with customers that had current notional balances totaling $2.5 million as of December 31, 2012.  These agreements effectively converted both fixed rate loans originated into floating rates that are tied to the one month LIBOR.  Concurrently, we entered into interest rate swap agreements with a third party brokerage firm that effectively offset the interest rate risk associated with the customers’ interest rate swaps.  As a result, these swap agreements have no impact on our earnings.

- 47 -

Liquidity

Bank Liquidity

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

Liquidity is provided primarily by three sources: a stable base of funding sources, an adequate level of assets that can be readily converted into cash, and borrowing lines with correspondent banks.  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 $98.9 million in projected cash flows from securities repayments during 2013 provides an additional source of liquidity.

The Bank also has significant borrowing capacity with the Federal Reserve Bank of Atlanta (“FRB”) and with the FHLB–Dallas.  As of December 31, 2012, we had no borrowings with the FRB-Atlanta.  We assumed at fair value $27.1 million in FHLB advances from PSB.  The Company has $20.3 million in borrowing capacity at the FRB Discount Window and has the ability to post additional collateral of approximately $322.3 million if necessary to meet liquidity needs.  Additionally, $137.8 million in loan collateral is pledged under a Borrower-in-Custody line with the FRB-Atlanta.  Under existing agreements with the FHLB-Dallas, our borrowing capacity totaled $206.1 million at December 31, 2012.  Additional unsecured borrowing lines totaling $48.5 million are available through correspondent banks.  We utilize these contingency funding alternatives to meet deposit volatility, which is more likely in the current environment, given unusual competitive offerings within our markets.

Company Liquidity

In August 2011, the Company repaid $20.0 million in Series A Preferred Stock issued in 2009 to the Treasury under the CPP with funds from the Treasury’s SBLF program authorized by Congress under the Small Business Jobs Act of 2010.  As a result of the repurchase of the Series A Preferred Stock, all of the TARP limitations affecting the Company were removed.  In connection with the SBLF transaction, the Company issued $32.0 million in Series B Preferred Stock to the Treasury.  Net of $20.0 million used to repay the Series A Preferred Stock, the remaining $12.0 million was injected into the Bank as additional common equity capital.  The dividend rate on the Series B Preferred Stock at March 31, 2012 was 5% per annum. For future quarters through the ninth calendar quarter, the dividend rate may be adjusted to between 1% per annum and 5% per annum to reflect changes to the Bank’s level of “Qualified Small Business Lending” or “QSBL.” If the level of the Bank’s qualified small business loans declines so that the percentage increase in QSBL as compared to the baseline level of QSBL is less than 10%, then the dividend rate payable on the Series B Preferred Stock would increase. For the tenth calendar quarter through four and one half years after issuance, the dividend rate will be fixed at between 1% and 7% based upon the increase in QSBL as of the ninth calendar quarter as compared to the baseline. After four and one half years from issuance, the dividend rate will increase to 9% per annum.  As of December 31, 2012, the dividend rate was 4.60% per annum.

At the Company level, cash is needed primarily to meet interest payments on the junior subordinated debentures, dividend payments on the Series B and Series C Preferred Stock and dividends on the common stock.  We issued $8,248,000 in unsecured junior subordinated debentures in September 2004 and $7,217,000 in February 2001.  In December 2012, we acquired $13.9 million in unsecured junior subordinated debentures from PSB.  The terms of the junior subordinated debentures are described in the notes to the consolidated financial statements.  No dividends were paid by the Bank to the Company in 2011 or 2012; however, as of January 1, 2013, the Bank had the ability to pay dividends to the Company of approximately $23.0 million without prior approval from the OCC.  At December 31, 2012, the parent company had approximately $5.0 million cash available for general corporate purposes, including injecting capital into the Bank.  As a publicly traded company, the Company also has the ability, subject to market conditions, to issue additional shares of common stock, preferred stock and other securities to provide funds as needed for operations and future growth of the Company and the Bank.

Dividends

The primary source of cash dividends on the Company's common stock is dividends from the Bank. The Bank has the ability to declare dividends to the Company of up to $23.0 million as of December 31, 2012 without prior approval of the OCC.  However, the Bank’s ability to pay dividends would be prohibited if the result would cause the Bank’s regulatory capital to fall below minimum requirements.

- 48 -

Cash dividends totaling $2.9 million and $2.8 million were declared to common stockholders during 2012 and 2011, respectively.  During 2010 and through August of 2011, pursuant to the terms of the agreements between us and the Treasury governing the CPP Transaction, we could not pay cash dividends on our common stock in excess of $0.28 per share per year.

Off Balance Sheet Arrangements and Other Contractual Obligations

In the normal course of business we use various financial instruments with off-balance sheet risk to meet the financing needs of customers and to reduce exposure to fluctuations in interest rates.  These financial instruments include commitments to extend credit and letters of credit.  Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the financial statements.  We did not have an average balance in any category of short-term borrowings detailed below in 2012, 2011, or 2010 that exceeded 30% of our stockholders’ equity for such year.  Additional information regarding contractual obligations appears in the notes to the consolidated financial statements.  The following table presents significant contractual obligations as of December 31, 2012.

Table 14
Contractual Obligations (in thousands)
	Payment due by period
			1 year		> 1-3		> 3-5		More than
	Total		or less		years		years		5 years
Time deposits	$	312,478	$	242,778	$	55,973	$	13,723	$	4
Federal funds purchased		-		-		-		-		-
Long-term debt obligations		58,512		309		636		17,315		40,252
Retail Repurchase Agreements		28,947		28,947		-		-		-
Reverse Repurchase Agreements		12,500		-		-		12,500		-
Operating lease obligations		21,223		2,264		4,081		3,267		11,611
Total	$	433,660	$	274,298	$	60,690	$	46,805	$	51,867

Impact of Inflation and Changing Prices

The consolidated financial statements and notes thereto, presented herein, have been prepared in accordance with GAAP, which generally 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 and due to inflation.  The impact of inflation is reflected in the increased cost of operations.  Unlike most industrial companies, nearly all of our assets and liabilities are financial in nature.  As a result, interest rates generally have a greater impact on our performance than do the effects of general levels of inflation. For additional information, see “Funding Sources – Asset Liability Management and Interest Rate Sensitivity.”

Item 7A – Quantitative and Qualitative Disclosures about Market Risk

Information regarding market risk appears under the heading Interest Rate Sensitivity under Item 7 – Management’s Discussion and Analysis of Financial Position and Results of Operations included in this filing.

- 49 -

Item 8 – Financial Statements and Supplementary Data

Consolidated Balance Sheets
December 31, 2012 and 2011
(dollars in thousands, except share data)
	2012			2011
Assets
Cash and due from banks, including required reserves of $14,083 and $7,990, respectively	$	46,297		$	26,775
Interest-bearing deposits in banks		20,276			56,128
Federal funds sold		7,000			400
Time deposits held in banks		881			710
Securities available-for-sale, at fair value (cost of $412,065 at December 31, 2012 and $355,496 at December 31, 2011)		424,617			367,241
Securities held-to-maturity (estimated fair value of $156,924 at December 31, 2012 and $101,131 at December 31, 2011)		153,524			100,472
Other investments		8,310			5,637
Loans		1,046,940			746,305
Allowance for loan losses		(7,370	)		(7,276	)
Loans, net		1,039,570			739,029
Bank premises and equipment, net		63,461			44,598
Accrued interest receivable		6,691			5,607
Goodwill		42,781			24,959
Intangibles		9,047			7,147
Cash surrender value of life insurance		13,183			4,853
Other real estate		7,496			7,369
Other assets		8,594			5,831
Total assets	$	1,851,728		$	1,396,756
Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Noninterest-bearing	$	380,557		$	254,755
Interest-bearing		1,171,347			910,051
Total deposits		1,551,904			1,164,806
Securities sold under agreements to repurchase		41,447			46,078
Notes payable		29,128			-
Junior subordinated debentures		29,384			15,465
Other liabilities		10,624			8,570
Total liabilities		1,662,487			1,234,919
Commitments and contingencies
Stockholders’ equity:
Series B Preferred stock, no par value; 5,000,000 shares authorized, 32,000 shares issued and outstanding at December 31, 2012 and 2011		32,000			32,000
Series C Preferred stock, no par value; 100,000 shares authorized, 99,971 shares issued and outstanding at December 31, 2012 and no shares issued and outstanding at December 31, 2011		9,997			-
Common stock, $0.10 par value; 30,000,000 shares authorized, 11,386,611 and 10,615,983 issued and 11,236,134 and 10,465,506 outstanding at December 31, 2012 and December 31, 2011, respectively		1,139			1,062
Additional paid-in capital		110,603			98,842
Accumulated other comprehensive income		8,159			7,752
Treasury stock- 150,477 shares at December 31, 2012 and 2011, at cost		(3,286	)		(3,286	)
Retained earnings		30,629			25,467
Total stockholders’ equity		189,241			161,837
Total liabilities and stockholders’ equity	$	1,851,728		$	1,396,756

See notes to consolidated financial statements.

- 50 -

Consolidated Statements of Earnings
Years Ended December 31, 2012, 2011 and 2010
(in thousands, except per share data)
	2012		2011		2010
Interest income:
Loans, including fees	$	49,776	$	41,887	$	40,029
Investment securities:
Taxable		8,083		5,362		3,699
Nontaxable		2,880		3,393		3,967
Other interest income		283		365		429
Total interest income		61,022		51,007		48,124
Interest expense:
Deposits		4,100		4,024		5,468
Borrowings		756		807		953
Junior subordinated debentures		984		971		974
Total interest expense		5,840		5,802		7,395
Net interest income		55,182		45,205		40,729
Provision for loan losses		2,050		3,925		5,020
Net interest income after provision for loan losses		53,132		41,280		35,709
Noninterest income:
Service charges on deposit accounts		7,430		6,921		9,673
Gain on securities, net		204		99		3
ATM and debit card income		4,605		3,802		3,360
Other charges and fees		2,705		2,239		1,821
Total noninterest income		14,944		13,061		14,857
Noninterest expenses:
Salaries and employee benefits		24,713		21,763		20,352
Occupancy expense		11,320		9,281		8,727
ATM and debit card expense		1,559		1,256		1,465
Other		17,063		17,004		13,274
Total noninterest expense		54,655		49,304		43,818
Income before income taxes		13,421		5,037		6,748
Income tax expense		3,779		564		968
Net earnings		9,642		4,473		5,780
Dividends on preferred stock and accretion of warrants		1,547		1,802		1,198
Net earnings available to common stockholders	$	8,095	$	2,671	$	4,582
Earnings per common share:
Basic	$	0.77	$	0.27	$	0.47
Diluted	$	0.77	$	0.27	$	0.47

See notes to consolidated financial statements.

- 51 -

Consolidated Statements of Comprehensive Income
Years Ended December 31, 2012, 2011 and 2010
(in thousands)
	2012			2011			2010
Net earnings	$	9,642		$	4,473		$	5,780
Other comprehensive income, net of tax:
Unrealized gains on securities available-for-sale:
Unrealized holding gains arising during the year net of income tax expense of $291, $1,872, and $143 respectively		540			3,635			280
Reclassification adjustment for net gains on sales of securities available-for-sale, net of income tax expense of $71, $34 and $1, respectively		(133	)		(65	)		(2	)
Total other comprehensive income		407			3,570			278
Total comprehensive income	$	10,049		$	8,043		$	6,058

See notes to consolidated financial statements.

- 52 -

Consolidated Statements of Stockholders’ Equity
Years Ended December 31, 2012, 2011 and 2010
(in thousands, except share and per share data)
	Preferred Stock						Common Stock									Accumulated Other
	Shares			Amount			Shares		Amount		Surplus		ESOP Obligation			Comprehensive Income		Treasury Stock			Retained Earnings			Total
Balance December 31, 2009		20,000		$	19,211			9,488,933	$	949	$	85,263	$	(217	)	$	3,904	$	(3,544	)	$	23,711		$	129,277
Net earnings		-			-			-		-		-		-			-		-			5,780			5,780
Issuance of common and treasury stock due to overallotment, net of discount and offering expenses		-			-			384,811		38		4,472		-			-		258			-			4,768
Dividends on preferred stock and accretion of common stock warrants		-			197			-		-		-		-			-		-			(1,198	)		(1,001	)
Dividends on common stock - $0.28 per share		-			-			-		-		-		-			-		-			(2,721	)		(2,721	)
Exercise of stock options		-			-			6,999		1		50		-			-		-			-			51
ESOP compensation expense		-			-			-		-		58		113			-		-			-			171
Stock compensation expense		-			-			-		-		50		-			-		-			-			50
Change in accumulated other comprehensive income		-			-			-		-		-		-			278		-			-			278
Balance December 31, 2010		20,000			19,408			9,880,743		988		89,893		(104	)		4,182		(3,286	)		25,572			136,653
Net earnings		-			-			-		-		-		-			-		-			4,473			4,473
Issuance of common stock for acquisitions		-			-			725,000		73		8,765		-			-		-			-			8,838
Dividends on Series A preferred stock and accretion of common stock warrants		-			592			-		-		-		-			-		-			(1,242	)		(650	)
Redemption of Series A preferred stock		(20,000	)		(20,000	)		-		-		-		-			-		-			-			(20,000	)
Issuance of Series B preferred stock		32,000			32,000			-		-		-		-			-		-			-			32,000
Dividends on Series B preferred stock		-			-			-		-		-		-			-		-			(560	)		(560	)
Dividends on common stock - $0.28 per share		-			-			-		-		-		-			-		-			(2,776	)		(2,776	)
Exercise of stock options		-			-			10,240		1		66		-			-		-			-			67
Tax benefit resulting from exercise of stock options		-			-			-		-		1		-			-		-			-			1
ESOP compensation expense		-			-			-		-		42		104			-		-			-			146
Stock option and restricted stock compensation expense		-			-			-		-		75		-			-		-			-			75
Change in accumulated other comprehensive income		-			-			-		-		-		-			3,570		-			-			3,570
Balance December 31, 2011		32,000			32,000			10,615,983		1,062		98,842		-			7,752		(3,286	)		25,467			161,837
Net earnings		-			-			-		-		-		-			-		-			9,642			9,642
Issuance of common stock for acquisitions		-						756,511		76		11,454		-			-		-			-			11,530
Issuance of Series C preferred stock for acquisitions		99,971			9,997			-		-		-		-			-		-			-			9,997
Dividends on Series B preferred stock		-			-			-		-		-		-			-		-			(1,547	)		(1,547	)
Dividends on common stock - $0.28 per share		-			-			-		-		-		-			-		-			(2,933	)		(2,933	)
Exercise of stock options		-			-			14,117		1		99		-			-		-			-			100
Tax benefit resulting from exercise of stock options, net adjustment		-			-			-		-		1		-			-		-			-			1
Stock option and restricted stock compensation expense		-			-			-		-		207		-			-		-			-			207
Change in accumulated other comprehensive income		-			-			-		-		-		-			407		-			-			407
Balance December 31, 2012		131,971		$	41,997			11,386,611	$	1,139	$	110,603	$	-		$	8,159	$	(3,286	)	$	30,629		$	189,241

See notes to consolidated financial statements.

- 53 -

Consolidated Statements of Cash Flows
Years Ended December 31, 2012, 2011, and 2010
(in thousands)
	2012			2011			2010
Cash flows from operating activities:
Net earnings	$	9,642		$	4,473		$	5,780
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation		3,799			3,265			3,300
Amortization (accretion) of purchase accounting adjustments		(2,067	)		(752	)		98
Provision for loan losses		2,050			3,925			5,020
Deferred tax expense (benefit)		1,651			(491	)		(1,033	)
Amortization of premiums on securities, net		1,878			910			1,226
Amortization of other investments		15			14			-
Net loss on sale of other real estate		163			66			150
Net write down of other real estate owned		582			476			241
Net loss on sale/disposal of premises and equipment		6			126			132
Stock compensation expense		150			13			6
Restricted stock expense		57			62			44
Gain on sale and liquidation of securities available-for-sale		(204	)		(99	)		(3	)
Change in accrued interest receivable		745			(331	)		180
Change in accrued interest payable		(181	)		(120	)		(149	)
Write-down of goodwill		136			-			-
Change in other assets and liabilities, net		(475	)		1,667			2,271
Net cash provided by operating activities		17,947			13,204			17,263
Cash flows from investing activities, net of effect of purchase acquisitions in 2011 and 2012:
Net change in time deposits in other banks		1			5,164			20,958
Proceeds from liquidation of equity security included in securities available-for-sale		-			-			75
Proceeds from maturities and calls of securities available-for-sale		146,019			81,030			33,242
Proceeds from maturities and calls of securities held-to-maturity		24,340			900			1,455
Proceeds from sale of securities available-for-sale		6,558			3,895			-
Purchases of securities available-for-sale		(100,384	)		(149,332	)		(26,107	)
Purchases of securities held-to-maturity		(38,160	)		(101,493	)		-
Proceeds from redemption of other investments		500			82			-
Purchases of other investments		(189	)		(449	)		(173	)
Net change in loans		(41,335	)		(49,875	)		(1,050	)
Purchases of premises and equipment		(10,245	)		(3,656	)		(1,291	)
Proceeds from sale of premises and equipment		-			9			3
Net cash associated with Jefferson Bank acquisition		-			93,800			-
Net cash associated with First Louisiana National Bank acquisition		-			19,708			-
Net cash associated with Beacon Federal acquisition		-			52,170			-
Net cash associated with Peoples State Bank acquisition		7,044			-			-
Proceeds from sale of other real estate owned		555			541			766
Purchase of other real estate		-			-			(450	)
Net cash (used in) provided by investing activities		(5,296	)		(47,506	)		27,428
Cash flows from financing activities, net of effect of purchase acquisitions in 2011 and 2012:
Change in deposits		(12,432	)		15,041			27,487
Change in securities sold under agreements to repurchase		(5,539	)		2,252			(3,233	)
Change in federal funds purchased		-			-			(1,700	)
Issuance of Series B preferred stock		-			32,000			-
Redemption of Series A preferred stock		-			(20,000	)		-
Issuance of common stock and treasury stock, net of offering expenses		-			-			4,768
Proceeds from exercise of stock options		100			67			51
Tax benefit due to exercise of stock options		1			1			-
Payment of dividends on preferred stock		(1,579	)		(938	)		(1,001	)
Payment of dividends on common stock		(2,932	)		(2,725	)		(2,507	)
Net cash (used in) provided by financing activities		(22,381	)		25,698			23,865
Net increase (decrease) in cash and cash equivalents		(9,730	)		(8,604	)		68,556
Cash and cash equivalents, beginning of year		83,303			91,907			23,351
Cash and cash equivalents, end of year	$	73,573		$	83,303		$	91,907

See notes to consolidated financial statements.

- 54 -

Consolidated Statements of Cash Flows (continued)
Years Ended December 31, 2012, 2011, and 2010
(in thousands)
	2012			2011		2010
Supplemental cash flow information:
Interest paid	$	5,978		$	5,608	$	7,544
Income taxes paid		2,785			835		1,051
Noncash investing and financing activities:
Common stock issued in acquisition		11,530			8,838		-
Accretion of warrants		-			592		197
Change in accrued common stock dividends		1			51		218
Change in accrued preferred stock dividends		(32	)		272		-
Net change in loan to ESOP		-			104		113
Change in unrealized gains/losses on securities available-for-sale, net of tax		407			3,570		278
Transfer of loans to other real estate		879			7,319		1,222
Financed sales of other real estate		290			73		30

See notes to consolidated financial statements.

- 55 -

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation—The consolidated financial statements include the accounts of MidSouth Bancorp, Inc. (the “Company”) and its wholly owned subsidiaries MidSouth Bank, N.A. (the “Bank”) and Financial Services of the South, Inc. (the “Finance Company”), which has liquidated its loan portfolio.  All significant intercompany accounts and transactions have been eliminated in consolidation.  We are subject to regulation under the Bank Holding Company Act of 1956.  The Bank is primarily regulated by the Office of the Comptroller of the Currency (“OCC”) and the Federal Deposit Insurance Corporation (“FDIC”).

We are a financial holding company headquartered in Lafayette, Louisiana operating principally in the community banking business by providing banking services to commercial and retail customers through the Bank. The Bank is community oriented and focuses primarily on offering competitive commercial and consumer loan and deposit services to individuals and small to middle market businesses in Louisiana and central and east Texas.

The accounting principles we follow and the methods of applying these principles conform with accounting principles generally accepted in the United States of America (“GAAP”) and with general practices within the banking industry.  In preparing the financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts in the financial statements.  Actual results could differ significantly from those estimates.  Material estimates common to the banking industry that are particularly susceptible to significant change in the near term include, but are not limited to, the determination of the allowance for loan losses, the valuation of real estate acquired in connection with or in lieu of foreclosure on loans, the assessment of goodwill for impairment, and valuation allowances associated with the realization of deferred tax assets which are based on future taxable income. Given the current instability of the economic environment, it is reasonably possible that the methodology of the assessment of potential loan losses, losses on other real estate owned, goodwill impairment, and other fair value measurements could change in the near term or could result in impairment going forward.

A summary of significant accounting policies follows:

Cash and cash equivalents—Cash and cash equivalents include cash on hand, amounts due from banks, interest-bearing deposits in other banks with original maturities of less than 90 days, and federal funds sold.

Investment Securities—We determine the appropriate classification of debt securities at the time of purchase and reassesses this classification periodically. Trading account securities are held for resale in anticipation of short-term market movements. Debt securities are classified as held-to-maturity when we have the positive intent and ability to hold the securities to maturity. Securities not classified as held-to-maturity or trading are classified as available-for-sale. We had no trading account securities during the three years ended December 31, 2012. Held-to-maturity securities are stated at amortized cost. Available-for-sale securities are stated at fair value, with unrealized gains and losses, net of deferred taxes, reported as a separate component of stockholders’ equity.

The amortized cost of debt securities classified as held-to-maturity or available-for-sale is adjusted for amortization of premiums and accretion of discounts to maturity or, in the case of mortgage-backed securities, over the estimated life of the security. Amortization, accretion, and accrued interest are included in interest income on securities. Realized gains and losses on the sale of securities available-for-sale are included in earnings and are determined using the specific-identification method.

Management evaluates investment securities for other than temporary impairment on a quarterly basis.  A decline in the fair value of available-for-sale and held-to-maturity securities below cost that is deemed other than temporary is charged to earnings for a decline in value deemed to be credit related and a new cost basis for the security is established.  The decline in value attributed to non-credit related factors is recognized in other comprehensive income.

- 56 -

Other Investments—Other investments include Federal Reserve Bank and Federal Home Loan Bank stock, as well as other correspondent bank stocks and our CRA investment which have no readily determined market value and are carried at cost.  Due to the redemption provisions of the investments, the fair value equals cost and no impairment exists.

Loans—Loans that we have the intent and ability to hold for the foreseeable future or until maturity are reported at the principal amount outstanding, net of the allowance for loan losses and any deferred fees or costs on originated loans. Interest income on commercial and real estate mortgage loans is calculated by using the simple interest method on the daily balance of the principal amount outstanding. Unearned income on installment loans is credited to operations based on a method which approximates the interest method. In-house legal counsel and the collections department are responsible for validating loans past due for reporting purposes.  Once loans are determined to be past due, the collections department actively works with customers to bring loans back to current status.

We consider a loan to be impaired when, based upon current information and events, we believe it is probable that we 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 for impairment.  Our impaired loans include troubled debt restructurings and performing and nonperforming major loans in which full payment of principal or interest is not expected. Although our policy requires that non-major homogenous loans, which include all loans under $250,000, be evaluated on an overall basis, our current volume of impaired loans allows us to evaluate each impaired loan individually. We calculate the allowance required for impaired loans 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.  A loan may be impaired but not on nonaccrual status when available information suggests that it is probable the Bank may not receive all contractual principal and interest, however, the loan is still current and payments are received in accordance with the terms of the loan. Payments received for impaired loans not on nonaccrual status are applied to principal and interest.

All impaired loans are reviewed, at minimum, on a quarterly basis.  Reviews may be performed more frequently if material information is available before the next scheduled quarterly review.  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.  All loans included in our impairment analysis are subject to the same procedure and review, with no distinction given to the dollar amount of the loan.

Our Special Assets Committee meets monthly on troubled credits to review loans with adverse classifications.  Loan officers, loan review officers, and in-house legal counsel contribute updated information on each credit, reviewing potential declines or improvements in the borrower’s repayment ability and our collateral position.  If deterioration in our collateral position is determined, additional discounts may be applied to the impairment analysis before the new appraisal is received.  The committee makes a determination of whether the loans reviewed have reached a point of collateral dependency and sufficient doubt exists as to collectability.  As a matter of policy, loans are placed on nonaccrual status when, in the judgment of committee members, the probability of collection of interest is deemed insufficient to warrant further accrual.  For loans placed on nonaccrual 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.  Additionally, loans may be placed on nonaccrual status when the loan becomes 90 days past due and any of the following conditions exist: it becomes evident that the borrower will not make payments or will not or cannot meet the Bank’s terms for the renewal of a matured loan, full repayment of principal and interest is not expected, the loan has a credit quality of substandard, the borrower files bankruptcy and an approved plan of reorganization or liquidation is not anticipated in the near future, or foreclosure action is initiated.  When a loan is placed on nonaccrual status, previously accrued but unpaid interest for the current year is deducted from interest income.  Prior year unpaid interest is charged to the allowance for loan losses.  Some loans may continue accruing after 90 days if the loan is in the process of renewing, being paid off, or the underlying collateral fully supports both the principal and accrued interest and the loan is in the process of collection.

Nonaccrual 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.  Our Special Assets Committee must approve the return of loans to accrual status as well as exceptions to any requirements of the non-accrual policy.

- 57 -

Generally, commercial, financial, and agricultural loans; construction loans; commercial real estate loans; consumer loans; and finance leases which become 90 days delinquent are either in the process of collection through repossession or foreclosure or are deemed currently uncollectible. The portion of loans deemed currently uncollectible, due to insufficient collateral, are charged-off against the allowance for loan losses. All loans requested to be charged-off must be specifically authorized by in-house legal counsel and the CEO.  Requests may be initiated by collection personnel, bank counsel, loan review, and lending personnel.  Charge-offs will be reviewed by in-house legal counsel and the CEO to ensure the propriety and accuracy of charge-off recommendations.  Factors considered when determining loan collectability and amount to be charged off for all segments in our loan portfolio include delinquent principal or interest repayment, the ability of borrower to make future payments, collateral value of outstanding debt, and the adequacy of guarantors support.  It is the responsibility of in-house legal counsel to report all charge-offs to the Board of Directors or its designated Committee for ratification.

Credit Risk Rating—We manage credit risk by observing written underwriting standards and lending policy established by the Board of Directors and management to govern all lending activities.  The risk management program requires that each individual loan officer review his or her portfolio on a quarterly basis and assign recommended credit ratings on each loan.  These efforts are supplemented by independent reviews performed by a loan review officer and other validations performed by the internal audit department.  The results of the reviews are reported directly to the Audit Committee of the Board of Directors.  Additionally, Bank concentrations are monitored and reported quarterly for risk rating distributions, major standard industry classification segments, real estate concentrations, and collateral distributions.

Consumer and residential real estate loans are normally graded at inception, and the grade generally remains the same throughout the life of the loan.  Loan grades on commercial, financial, and agricultural; construction; commercial real estate; and finance leases may be changed at any time when circumstances warrant, and are at a minimum reviewed quarterly.

Loans can be classified into the following three risk rating grades: pass, special mention, and substandard/doubtful.  Factors considered in determining a risk rating grade include debt service capacity, capital structure/liquidity, management, collateral quality, industry risk, company trends/operating performance, repayment source, revenue diversification/customer concentration, quality of financial information, and financing alternatives.  Pass grade signifies the highest quality of loans to loans with reasonable credit risk, which may include borrowers with marginally adequate financial performance, but have the ability to repay the debt.  Special mention loans have potential weaknesses that warrant extra attention from the loan officer and other management personnel, but still have the ability to repay the debt.  Substandard classification includes loans with well-defined weaknesses with risk of potential loss.  Loans classified as doubtful are considered to have little recovery value and are charged off.

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, we estimate the probable level of losses in the existing portfolio through consideration of such factors including, but not limited to, past loan loss experience; estimated losses in significant credits; known deterioration in concentrations of credit; trends in nonperforming assets; volume and composition of the loan portfolio, including percentages of special mention, substandard and past due loans; lending policies and control systems; known inherent risks in the portfolio; adverse situations that may affect the borrower’s ability to repay; the estimated value of any underlying collateral; current national and local economic conditions, including the unemployment rate, the price of oil, and real estate absorption time; the experience, ability and depth of lending management; collections personnel experience; 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 twelve to eighteen months, and adjustment factors derived from conditions in the Bank’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.

- 58 -

We have 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.

Management and the Board of Directors believe the allowance for loan losses is appropriate at December 31, 2012.  While determination of the allowance for loan losses is based on available information at a given point in time, future additions to the allowance may be necessary based on changes in economic conditions.  In addition, various regulatory agencies, as an integral part of their examination process, periodically review our allowance for loan losses.  Such agencies may require us to recognize additions or deductions to the allowance based on their judgment and information available to them at the time of their examination.

Interest Rate Swap Agreements—Derivative financial instruments are recognized as assets and liabilities on the consolidated balance sheets and, as required by ASC 815, the Company records all derivatives at fair value.  Interest rate swaps are contracts in which a series of interest rate cash flows are exchanged over a prescribed period.  The notional balance of interest rate swap agreements held by the Company at December 31, 2012 was minimal and not material to the consolidated balance sheet.

Premises and Equipment—Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets.  The estimated useful lives used to compute depreciation are:

Buildings and improvements	10 - 40 years
Furniture, fixtures, and equipment	3 - 10 years
Automobiles	5 years

Leasehold improvements are amortized over the estimated useful lives of the improvements or the term of the lease, whichever is shorter.

Other Real Estate Owned—Real estate properties acquired through, or in lieu of, loan foreclosures are initially recorded at the lower of carrying value or fair value less estimated costs to sell based on a current valuation at the time of foreclosure. After foreclosure, valuations are periodically performed by management and the real estate is carried at the lower of carrying amount or fair value less cost to sell. Revenues and expenses from operations and changes in the valuation allowance are charged to earnings.

Goodwill and Other Intangible Assets—Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets acquired in a business combination.  Goodwill and other intangible assets deemed to have an indefinite useful life are not amortized but instead are subject to review for impairment annually, or more frequently if deemed necessary.  Also, in connection with business combinations involving banks and branch locations, we generally record core deposit intangibles representing the value of the acquired core deposit base.  Core deposit intangibles are amortized over the estimated useful life of the deposit base, generally on either a straight-line basis not exceeding 15 years or an accelerated basis over 10 years.  The remaining useful lives of core deposit intangibles are evaluated periodically to determine whether events and circumstances warrant revision of the remaining period of amortization.

Cash Surrender Value of Life Insurance—Life insurance contracts represent single premium life insurance contracts on the lives of certain officers of the Company. The Company is the beneficiary of these policies. These contracts are reported at their cash surrender value and changes in the cash surrender value are included in other noninterest income.

Repurchase Agreements—Securities sold under agreements to repurchase are secured borrowings treated as financing activities and are carried at the amounts at which the securities will be subsequently reacquired as specified in the respective agreements.

Deferred Compensation—We record the expense of deferred compensation agreements over the service periods of the persons covered under these agreements.

Income Taxes—Deferred tax assets and liabilities are recorded for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis.  Future tax benefits, such as net operating loss carry forwards, are recognized to the extent that realization of such benefits is more likely than not.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the assets and liabilities are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period that includes the enactment date.

- 59 -

In the event the future tax consequences of differences between the financial reporting bases and the tax bases of our assets and liabilities results in deferred tax assets, an evaluation of the probability of being able to realize the future benefits indicated by such assets is required.  A valuation allowance is provided when it is more likely than not that a portion or the full amount of the deferred tax asset will not be realized.  In assessing the ability to realize the deferred tax assets, management considers the scheduled reversals of deferred tax liabilities, projected future taxable income, and tax planning strategies.  A deferred tax liability is not recognized for portions of the allowance for loan losses for income tax purposes in excess of the financial statement balance.  Such a deferred tax liability will only be recognized when it becomes apparent that those temporary differences will reverse in the foreseeable future.

A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur.  The amount recognized is the largest amount of tax benefit that is greater than 50 percent more likely of being realized on examination.  For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

The Company recognizes interest and/or penalties related to income tax matters in income tax expense.

Stock-Based Compensation—We expense stock-based compensation based upon the grant date fair value of the related equity award over the requisite service period of the employee.

Basic and Diluted Earnings Per Common Share—Basic earnings per common share (“EPS”) excludes dilution and is computed by dividing net earnings by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. Diluted EPS is computed by dividing net earnings by the total of the weighted-average number of shares outstanding plus the dilutive effect of outstanding options.  The amounts of common stock and additional paid-in capital are adjusted to give retroactive effect to large stock dividends.  Small stock dividends, or dividends less than 25% of issued shares at the declaration date, are reflected as an increase in common stock and additional paid-in capital and a decrease in retained earnings for the market value of the shares on the date the dividend is declared.

Comprehensive Income—Generally all recognized revenues, expenses, gains and losses are included in net earnings.  Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the consolidated balance sheets, such items, along with net earnings, are components of comprehensive income.  We present comprehensive income in a separate consolidated statement of comprehensive income.

Statements of Cash Flows—For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, federal funds sold, and interest-bearing deposits in other banks with original maturities of less than 90 days. Generally, federal funds are sold for one-day periods.

Recent Accounting Pronouncements—In April 2011, the FASB issued ASU No. 2011-03, Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements. The amendments in this Update remove from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (2) the collateral maintenance implementation guidance related to that criterion. Other criteria applicable to the assessment of effective control are not changed by the amendments in this Update.  ASU No. 2011-03 was effective for the quarter ended March 31, 2012 and did not have a material impact on the Company’s results of operations, financial position or disclosures.

- 60 -

In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in this Update result in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs. Consequently, the amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. For many of the requirements, the Board does not intend for the amendments in this Update to result in a change in the application of the requirements in Topic 820. The Update also reflects the FASB’s consideration of the different characteristics of public and non-public entities and the needs of users of their financial statements. Non-public entities will be exempt from a number of the new disclosure requirements.  The amendments in this Update are to be applied prospectively. For public entities, the amendments were effective for the quarter ended March 31, 2012 and did not have a material impact on the Company’s results of operations, financial position or disclosures.

In July 2012, the FASB issued ASU 2012-02, Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment.  The amendments in this Update are intended to reduce cost and complexity by providing an entity with the option to make a qualitative assessment about the likelihood that an indefinite-lived intangible asset is impaired to determine whether it should perform a quantitative impairment test.  The Update also enhances consistency of impairment testing guidance among long-lived asset categories by permitting entities to assess qualitative factors to determine whether it is necessary to calculate the asset’s fair value when testing for impairment, which is equivalent to the impairment testing requirements for other long-lived assets.  Under the amendments in this Update, an entity will have an option not to calculate annually the fair value of an indefinite-lived intangible asset if the entity determines that it is not more-likely-than-not that the asset is impaired.  The Update is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012.  Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance.  The adoption of ASU 2012-02 did not have a material impact on the Company’s results of operations, financial position or disclosures.

Reclassifications—Certain reclassifications have been made to the prior years’ financial statements in order to conform to the classifications adopted for reporting in 2012.  The reclassifications had no impact on net income or stockholders equity.

2.  ACQUISITION ACTIVITY

Acquisition of PSB Financial Corporation

On December 28, 2012, the Company acquired all of the outstanding common stock of PSB Financial Corporation (“PSB”), the holding company of Many, Louisiana based The Peoples State Bank, for total consideration of $39.5 million, which resulted in preliminary goodwill of $18.0 million, as shown in the following table (dollars in thousands):

	Number of Shares		Amount
Equity consideration:
Common stock issued		756,511	$	11,530
Preferred stock issued		99,971		9,997
Non-equity consideration:
Cash				16,003
Contingent value right				2,000
Total consideration paid				39,530
Fair value of net assets acquired including identifiable intangible assets				(21,572	)
Goodwill			$	17,958

The fair value of the 756,511 shares of common stock issued as part of the equity consideration paid for PSB ($11.5 million) was determined on the basis of the average of the closing market prices for the twenty days prior to the signing of the Agreement and Plan of Merger.

The transaction was accounted for using the acquisition method of accounting, and accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at their estimated fair values on the acquisition dates. Fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition as additional information relative to fair values become available.  Assets acquired, excluding goodwill, totaled $465.0 million, including $260.1 million in loans, $17.8 million in cash, $152.7 million of investment securities, $12.4 million of fixed assets and $2.7 million of identifiable intangible assets.  Liabilities assumed were $443.5 million, including $400.6 million of deposits.

- 61 -

Preliminary goodwill of $18.0 million is calculated as the purchase premium after adjusting for the fair value of net assets acquired and represents the value expected from the synergies created from combining the businesses as well as the economies of scale expected from combining the operations of the acquired banks with those of the Company.  None of the goodwill recognized is expected to be deductible for income tax purposes.

The following table provides the assets purchased and the liabilities assumed and the adjustments to fair value (in thousands):

	As Recorded		Fair Value			Fair
Assets	By PSB		Adjustments			Value
Cash	$	17,847	$	-		$	17,847
Federal funds sold		5,200		-			5,200
Time deposits held in banks		172		-			172
Investment securities		152,667		-			152,667
Loans receivable		269,053		(9,000	)		260,053
Fixed assets		11,845		578			12,423
Core deposit intangible		-		2,662			2,662
Cash surrender value of life insurance		8,234		-			8,234
Other real estate owned		838		-			838
Other assets		4,635		314			4,949
Total assets acquired	$	470,490	$	(5,446	)	$	465,045
Liabilities
Deposits	$	399,845	$	722		$	400,567
FHLB advances		25,296		1,832			27,128
Notes payable		2,000		-			2,000
Junior subordinated debentures		13,919		-			13,919
Other liabilities		2,606		(2,747	)		(141	)
Total liabilities assumed	$	443,666	$	(193	)		443,473
Fair value of net assets acquired including identifiable intangible assets						$	21,572

The discounts on loans receivable will be accreted to interest income over the estimated average life of the loans using the level yield method. The core deposit intangible asset is being amortized over a seven-year life on an accelerated basis.  The deposit premiums will be amortized over the average life of the related deposits as a reduction of interest expense.  The premiums on FHLB advances will be amortized over the life of the related advances as a reduction of interest expense.

There were no material operating results of PSB between December 28, 2012 and December 31, 2012.  Therefore, the operating results of the Company for the year ended December 31, 2012 includes no operating results for PSB.

The following unaudited pro forma information presents the results of operations for the years ended December 31, 2012 and 2011, as if the acquisition had occurred at January 1, 2011 (in thousands).  These adjustments include the impact of certain purchase accounting adjustments such as intangible assets amortization and the impact of the increase in the bond amortization as a result of the acquisition.  In addition, the $1.2 million in merger expenses related to the acquisition are included for the year ended December 31, 2012.

- 62 -

	December 31,
	2012		2011
Total revenues, net of interest expense	$	89,845	$	80,573
Net income		14,694		10,361
Earnings per share – basic		1.12		0.76
Earnings per share - diluted		1.09		0.75

In many cases, determining the fair value of the acquired assets and assumed liabilities requires the Company to estimate cash flows expected to result from those assets and liabilities and to discount those cash flows at appropriate rates of interest. The most significant of those determinations related to the fair valuation of acquired loans.  Acquired loans are initially recorded at their acquisition date fair values.  The carryover of the allowance for loan losses is prohibited as any credit losses in the loans are included in the determination of the fair value of the loans at acquisition date.  Fair values for acquired loans are based on a discounted cash flow methodology that involves assumptions including the remaining life of the acquired loans, estimated prepayments, estimated value of the underlying collateral and net present value of cash flows expected to be collected.  Acquired loans that have evidence of deterioration in credit quality since origination and for which it is probable, at acquisition, that the acquirer will be unable to collect all contractually required payments are specifically identified and analyzed.  The excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable discount and is recognized into interest income over the remaining life of the loan.  The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the non-accretable discount.  The non-accretable discount represents estimated future credit losses expected to be incurred over the life of the loan.

Loans at the acquisition date are presented in the following table (in thousands):

	Acquired Impaired Loans		Acquired Performing Loans		Total Acquired Loans
Commercial, financial and agricultural	$	82	$	59,011	$	59,093
Real estate – construction		-		16,431		16,431
Real estate – commercial		4,205		127,866		132,071
Real estate – residential		455		34,232		34,687
Installment loans to individuals		-		17,652		17,652
Other		-		119		119
Total	$	4,742	$	255,311	$	260,053

The following table presents information about the acquired impaired loans at acquisition (in thousands):

Contractually required principal and interest payments	$	7,449
Non-accretable discount		2,084
Cash flows expected to be collected		5,365
Accretable discount		623
Fair value of loans acquired with a deterioration of credit quality	$	4,742

In connection with the PSB acquisition, the Company recorded a liability for contingent payment of $2.0 million to stockholders of PSB based on the complete payoff before December 28, 2015 less charge-offs of up to $3.0 million of certain Identified Loans in The Peoples State Bank legacy loan portfolio.   Generally, no contingent payment will be made if the net charge-offs on the Identified Loans exceeds $3.0 million.

Acquisitions of certain locations of Jefferson Bank, First Louisiana National Bank and the Tyler, Texas branch of Beacon Federal

On July 29, 2011, the Bank purchased all five former Jefferson Bank locations in the Dallas-Fort Worth, Texas area. The Bank acquired the branch network from First Bank and Trust Company, which purchased Jefferson Bank’s assets in connection with the bankruptcy of Jefferson Bank’s parent company.  The Bank acquired at fair value approximately $57.7 million in performing loans and assumed approximately $165.8 million in Jefferson Bank deposits for a purchase price of approximately $10.4 million.

- 63 -

On December 1, 2011, the Bank purchased substantially all of the assets of First Louisiana National Bank (“FLNB”), a wholly owned subsidiary of First Bankshares of St. Martin, Ltd, for total consideration of $20.3 million, which resulted in preliminary goodwill of $4.1 million, as shown in the following table (in thousands):

	Number of Shares		Amount
Equity consideration:
Common stock issued		725,000	$	8,838
Non-equity consideration:
Cash				11,500
Total consideration paid				20,338
Fair value of net assets acquired including identifiable intangible assets				(16,230	)
Goodwill			$	4,108

On December 2, 2011, the Bank purchased the Tyler, Texas branch of Beacon Federal, a wholly owned federal savings bank of Beacon Federal Bancorp, Inc.  The Bank acquired at fair value approximately $22.2 million in performing loans and assumed approximately $79.8 million in Beacon Federal deposits.

The three transactions were accounted for using the acquisition method of accounting, and accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at their estimated fair values on the acquisition dates. Fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition as additional information relative to fair values become available.  Assets acquired totaled $370.4 million, including $127.8 million in loans, $177.2 million in cash, $32.8 million of investment securities, $7.8 million of fixed assets and $23.0 million of intangibles.  Liabilities assumed were $350.0 million, including $349.6 million of deposits.

Preliminary goodwill of $15.7 million is calculated as the purchase premium after adjusting for the fair value of net assets acquired and represents the value expected from the synergies created from combining the businesses as well as the economies of scale expected from combining the operations of the acquired banks with those of the Bank.

The following table provides the assets purchased and the liabilities assumed and the adjustments to fair value for the Jefferson Bank acquisition (in thousands):

	As Recorded		Fair Value			Fair
Assets	By Jefferson		Adjustments			Value
Cash	$	93,800	$	-		$	93,800
Investment securities		175		-			175
Loans receivable		59,818		(2,124	)		57,694
Fixed assets		2,240		1,392			3,632
Core deposit intangible		-		2,702			2,702
Other assets		327		-			327
Total assets acquired	$	156,360	$	1,970		$	158,330
Liabilities
Deposits	$	164,368	$	1,405		$	165,773
Other liabilities		283		-			283
Total liabilities assumed		164,651		1,405			166,056
Excess of liabilities assumed over assets acquired	$	8,291
Aggregate fair value adjustments			$	565
Goodwill						$	7,726

- 64 -

The following table provides the assets purchased and the liabilities assumed and the adjustments to fair value for the FLNB acquisition (in thousands):

	As Recorded		Fair Value			Fair
Assets	By FLNB		Adjustments			Value
Cash	$	31,208	$	-		$	31,208
Time deposits held in banks		710		-			710
Investment securities		32,625		(1	)		32,624
Other investments		140		-			140
Loans receivable		48,645		(693	)		47,952
Fixed assets		2,234		1,445			3,679
Core deposit intangible		-		3,434			3,434
Other assets		641		-			641
Total assets acquired	$	116,203	$	4,185		$	120,388
Liabilities
Deposits	$	103,857	$	134		$	103,991
Other liabilities		167		-			167
Total liabilities assumed	$	104,024	$	134			104,158
Fair value of net assets acquired including identifiable intangible assets						$	16,230

The following table provides the assets purchased and the liabilities assumed and the adjustments to fair value for the Beacon Federal acquisition (in thousands):

	As Recorded		Fair Value			Fair
Assets	By Beacon		Adjustments			Value
Cash	$	52,170	$	-		$	52,170
Loans receivable		23,760		(1,600	)		22,160
Fixed assets		288		153			441
Core deposit intangible		-		1,126			1,126
Other assets		51		-			51
Total assets acquired	$	76,269	$	(321	)	$	75,948
Liabilities
Deposits	$	76,466	$	3,331		$	79,797
Other liabilities		5		-			5
Total liabilities assumed		76,471		3,331			79,802
Excess of liabilities assumed over assets acquired	$	202
Aggregate fair value adjustments			$	(3,652	)
Goodwill						$	3,854

The discounts on loans receivable will be accreted to interest income over the estimated average life of the loans using the level yield method. The core deposit intangible assets are being amortized over a 10 year life on an accelerated basis. The deposit premiums will be amortized over the average life of the related deposits as a reduction of interest expense.

Management determined that the loans acquired in 2011 were performing and that there was no evidence of credit quality deterioration. Therefore, these loans are accounted for under ASC 310-20, and, accordingly, contractual cash flows equal the expected cash flows. The loans are categorized into different loan pools per loan types. The Company determined expected cash flows on the acquired loans based on the best available information at the date of acquisition.  In accordance with GAAP, there was no carry-over of each acquired bank’s previously established allowance for loan losses.

- 65 -

3. INVESTMENT SECURITIES

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

	December 31, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available-for-sale:
U.S. Government sponsored enterprises	$	13,422	$	2	$	-	$	13,424
Obligations of state and political subdivisions		83,093		4,328		-		87,421
GSE mortgage-backed securities		172,932		5,887		-		178,819
Collateralized mortgage obligations: residential		101,381		652		47		101,986
Collateralized mortgage obligations: commercial		28,528		1,233		-		29,761
Other asset-backed securities		12,245		497		-		12,742
Collateralized debt obligation		464		-		-		464
	$	412,065	$	12,599	$	47	$	424,617
	December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available-for-sale:
U.S. Government sponsored enterprises	$	94,339	$	662	$	2	$	94,999
Obligations of state and political subdivisions		90,284		5,865		-		96,149
GSE mortgage-backed securities		105,409		4,078		-		109,487
Collateralized mortgage obligations: residential		40,855		618		5		41,468
Collateralized mortgage obligations: commercial		24,609		529		-		25,138
	$	355,496	$	11,752	$	7	$	367,241

- 66 -

	December 31, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Held-to-maturity:
Obligations of state and political subdivisions	$	42,900	$	7	$	7	$	42,900
GSE mortgage-backed securities		89,383		2,819		-		92,202
Collateralized mortgage obligations: residential		5,009		-		-		5,009
Collateralized mortgage obligations: commercial		16,232		581		-		16,813
	$	153,524	$	3,407	$	7	$	156,924
	December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Held-to-maturity:
Obligations of state and political subdivisions	$	340	$	2	$	-	$	342
GSE mortgage-backed securities		82,497		550		-		83,047
Collateralized mortgage obligations: commercial		17,635		107		-		17,742
	$	100,472	$	659	$	-	$	101,131

With the exception of 3 private-label collateralized mortgage obligations (“CMOs”) with a combined balance remaining of $96,000 and $137,000 at December 31, 2012 and 2011, respectively, all of the Company’s CMOs are government-sponsored enterprise securities.

The amortized cost and fair value of debt securities at December 31, 2012 by contractual maturity are shown below (in thousands).  Except for mortgage backed securities, collateralized mortgage obligations, other assets backed securities, and collateralized debt obligations, expected maturities may differ from contractual maturities 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	$	12,731	$	12,879
Due after one year through five years		48,421		50,365
Due after five years through ten years		24,665		26,790
Due after ten years		10,698		10,811
Mortgage-backed securities and collateralized mortgage obligations:
Residential		274,313		280,805
Commercial		28,528		29,761
Other asset-backed securities		12,245		12,742
Collateralized debt obligation		464		464
	$	412,065	$	424,617

- 67 -

	Amortized Cost		Fair Value
Held-to-maturity:
Due in one year or less	$	296	$	296
Due after one year through five years		1,068		1,068
Due after five years through ten years		6,029		6,029
Due after ten years		35,507		35,507
Mortgage-backed securities and collateralized mortgage obligations:
Residential		94,392		97,211
Commercial		16,232		16,813
	$	153,524	$	156,924

Details concerning investment securities with unrealized losses as of December 31, 2012 are as follows (in thousands):

	Securities with losses under 12 months				Securities with losses over 12 months				Total
Available-for-sale:	Fair Value		Gross Unrealized Losses		Fair V alue		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Collateralized mortgage obligations: residential	$	10,085	$	45	$	96	$	2	$	10,181	$	47
	Securities with losses under 12 months				Securities with losses over 12 months				Total
Held-to-maturity:	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Obligations of state and political subdivisions	$	1,128	$	7	$	-	$	-	$	1,128	$	7

Details concerning investment securities with unrealized losses as of December 31, 2011 are as follows (in thousands):

	Securities with losses under 12 months				Securities with losses over 12 months				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Available-for-sale:
U.S. Government sponsored enterprises	$	6,204	$	2	$	-	$	-	$	6,204	$	2
Collateralized mortgage obligations: residential		1,849		1		136		4		1,985		5
	$	8,053	$	3	$	136	$	4	$	8,189	$	7

- 68 -

Management evaluates whether unrealized losses on securities represent impairment that is other than temporary on a quarterly basis. For debt securities, the Company considers its intent to sell 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.

The unrealized losses on debt securities at December 31, 2012 and 2011 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 December 31, 2012 and 2011, management had both the intent and ability to hold impaired securities, and no impairment was evaluated as other than temporary. As a result, no impairment losses were recognized on debt securities during the years ended December 31, 2012, 2011, or 2010.

During the year ended December 31, 2012, the Company sold six securities classified as available-for-sale at a net gain of $204,000.  Of the six securities sold, five securities were sold with gains totaling $235,000 and one security was sold at a loss of $31,000.  During the year ended December 31, 2011, the Company sold five securities classified as available-for-sale and one security classified as held-to-maturity.  Of the available-for-sale securities, four securities were sold with gains totaling $94,000 and one security was sold at a loss of $4,000 for a net gain of $90,000.  The decision to sell the one held-to-maturity security, which was sold at a gain of $9,000, was based on the inability to obtain current financial information on the municipality.  The sale was consistent with action taken on other securities with a similar deficiency, as identified in an external review performed on the municipal securities portfolio.

Of the collateralized mortgage obligations held by the Company at December 31, 2012, 4 out of 56 securities contained unrealized losses.  Of the securities issued by state and political subdivisions held by the Company at December 31, 2012, 4 out of 189 securities contained unrealized losses.

Of the securities issued by U.S. Government sponsored enterprises and SBA held by the Company at December 31, 2011, 5 out of 25 securities contained unrealized losses.  Of the collateralized mortgage obligations, 3 out of 29 contained unrealized losses.

Securities with an aggregate carrying value of approximately $226.2 million and $154.1 million at December 31, 2012 and 2011, respectively, were pledged to secure public funds on deposit and for other purposes required or permitted by law.

4. OTHER INVESTMENTS

The Company is required to own stock in the Federal Reserve Bank of Atlanta (“FRB-Atlanta”) and, as a member of the Federal Home Loan Bank system, own stock in the Federal Home Loan Bank of Dallas (“FHLB-Dallas”).  The Company accounts for FRB-Atlanta and FHLB-Dallas stock as other investments along with stock ownership in two correspondent banks and a Community Reinvestment Act (“CRA”) investment in a Senior Housing Crime Prevention program in Louisiana. The CRA investment consisted of three government-sponsored agency mortgage-backed securities purchased by the Company and held by the Senior Housing Crime Prevention program.  The majority of the interest earned on the security provides income to the program.

For impairment analysis, the Company reviews financial statements and regulatory capital ratios for each of the banks in which the Company owns stock to verify financial stability and regulatory compliance with capital requirements.  As of December 31, 2012 and 2011, based upon quarterly reviews, we determined that there was no impairment in the bank stocks held as other investments.

- 69 -

The aggregate carrying amount of other investments consisted of the following (in thousands):

	December 31, 2012		December 31, 2011
FRB-Atlanta	$	2,258	$	2,071
FHLB-Dallas		1,862		586
Other bank stocks		2,063		853
Other stocks		7		-
CRA investment		2,120		2,127
	$	8,310	$	5,637

5. LOANS

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

	December 31,
	2012			2011
Commercial, financial and agricultural	$	315,655		$	223,283
Lease financing receivable		5,769			4,276
Real estate – construction		75,334			52,712
Real estate – commercial		414,384			280,798
Real estate – residential		142,858			113,582
Installment loans to individuals		90,561			69,980
Other		2,379			1,674
		1,046,940			746,305
Less allowance for loan losses		(7,370	)		(7,276	)
	$	1,039,570		$	739,029

The amounts reported in other loans at December 31, 2012 and 2011 includes the DDA overdraft deposits and loans primarily made to non-profit entities reported for each period.

An analysis of the activity in the allowance for loan losses is as follows (in thousands):

	December 31,
	2012			2011			2010
Balance, beginning of year	$	7,276		$	8,813		$	7,995
Provision for loan losses		2,050			3,925			5,020
Recoveries		300			310			254
Loans charged-off		(2,256	)		(5,772	)		(4,456	)
Balance, end of year	$	7,370		$	7,276		$	8,813

During the years ended December 31, 2012, 2011, and 2010, there were approximately $879,000, $7.3 million, and $1.2 million, respectively, of transfers from loans to ORE.  Included in the $7.3 million added to ORE in 2011 is one credit totaling $4.9 million secured by a condominium complex.  The credit is currently producing positive cash flow from net rental income on a monthly basis.

In the opinion of management, all transactions entered into between the Company and such related parties have been and are made in the ordinary course of business, on substantially the same terms and conditions, including interest rates and collateral, as similar transactions with unaffiliated persons and do not involve more than the normal risk of collection.

- 70 -

An analysis of the 2012 activity with respect to these related party loans and commitments to extend credit is as follows (in thousands):

Balance, beginning of year	$	1,980
New loans		21
Change in related parties due to acquisition		4,941
Repayments and adjustments		(21	)
Balance, end of year	$	6,921

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 December 31, 2012, one industry segment concentration, the oil and gas industry, aggregate 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 $146.2 million, or 14.0% of total loans.  Additionally, the Company’s exposure to loans secured by commercial real estate is monitored.  At December 31, 2012, loans secured by commercial real estate (including commercial construction and multifamily loans) totaled approximately $472.4 million.  Of the $472.4 million, $359.2 million represent CRE loans, 57% of which are secured by owner-occupied commercial properties.  Of the $359.2 million in loans secured by commercial real estate, $4.0 million or 1.1% were on nonaccrual status at December 31, 2012.

Allowance for Loan Losses and Recorded Investment in Loans by Portfolio Segment
For the Year Ended December 31, 2012 (in thousands)
				Real Estate
	Coml, Fin, and Agric			Construction		Commercial			Residential			Consumer			Finance Leases Coml		Other		Total
Allowance for loan losses:
Beginning balance	$	1,734		$	1,661	$	2,215		$	936		$	710		$	19	$	1	$	7,276
Charge-offs		(1,054	)		-		(550	)		(126	)		(526	)		-		-		(2,256	)
Recoveries		181			18		1			2			98			-		-		300
Provision		674			468		500			124			261			22		1		2,050
Ending balance	$	1,535		$	2,147	$	2,166		$	936		$	543		$	41	$	2	$	7,370
Ending balance: individually evaluated for impairment	$	391		$	57	$	35		$	30		$	114		$	-	$	-	$	627
Loans:
Ending balance	$	315,655		$	75,334	$	414,384		$	142,858		$	90,561		$	5,769	$	2,379	$	1,046,940
Ending balance: individually evaluated for impairment	$	1,636		$	936	$	2,911		$	1,627		$	330		$	-	$	-	$	7,440

- 71 -

Allowance for Loan Losses and Recorded Investment in Loans by Portfolio Segment
For the Year Ended December 31, 2011 (in thousands)
				Real Estate
	Coml, Fin, and Agric			Construction			Commercial			Residential			Consumer			Finance Leases Coml			Other		Total
Allowance for loan losses:
Beginning balance	$	1,664		$	2,963		$	2,565		$	862		$	730		$	29		$	-	$	8,813
Charge-offs		(1,109	)		(2,444	)		(1,246	)		(283	)		(671	)		(19	)		-		(5,772	)
Recoveries		152			14			1			4			138			1			-		310
Provision		1,027			1,128			895			353			513			8			1		3,925
Ending balance	$	1,734		$	1,661		$	2,215		$	936		$	710		$	19		$	1	$	7,276
Ending balance: individually evaluated for impairment	$	240		$	2		$	321		$	21		$	98		$	-		$	-	$	682
Loans:
Ending balance	$	223,283		$	52,712		$	280,798		$	113,582		$	69,980		$	4,276		$	1,674	$	746,305
Ending balance: individually evaluated for impairment	$	2,341		$	901		$	2,271		$	1,142		$	287		$	-		$	-	$	6,942

- 72 -

Credit Quality Indicators by Class of Loans
As of December 31, 2012 (in thousands)
Commercial Credit Exposure
Credit Risk Profile by Creditworthiness Category
	Commercial, Financial, and Agricultural		Commercial Real Estate Construction		Commercial Real Estate – Other		Percentage of Total
Pass	$	304,219	$	54,737	$	396,077	95.76	%
Special mention		5,748		684		6,224	1.61	%
Substandard		4,503		2,925		7,514	1.90	%
Doubtful		1,185		4		4,569	0.73	%
	$	315,655	$	58,350	$	414,384	100.00	%
Consumer Credit Exposure
Credit Risk Profile by Creditworthiness Category
	Residential – Construction		Residential – Prime		Residential – Subprime		Percentage of Total
Pass	$	16,785	$	137,681	$	-	96.64	%
Special mention		-		1,612		-	1.01	%
Substandard		199		3,565		-	2.35	%
	$	16,984	$	142,858	$	-	100.00	%

Consumer and Commercial Credit Exposure
Credit Risk Profile Based on Payment Activity
	Consumer - Credit Card		Consumer – Other		Finance Leases Commercial		Other Loans		Percentage of Total
Performing	$	6,792	$	83,347	$	5,769	$	2,379	99.57	%
Nonperforming		15		407		-		-	0.43	%
	$	6,807	$	83,754	$	5,769	$	2,379	100.00	%

- 73 -

Credit Quality Indicators by Class of Loans
As of December 31, 2011 (in thousands)
Commercial Credit Exposure
Credit Risk Profile by Creditworthiness Category
	Commercial, Financial, and Agricultural		Commercial Real Estate Construction		Commercial Real Estate – Other		Percentage of Total
Pass	$	216,465	$	36,631	$	264,542		94.88	%
Special mention		1,705		1,104		10,755		2.49	%
Substandard		4,809		3,728		5,501		2.57	%
Doubtful		304		-		-		0.06	%
	$	223,283	$	41,463	$	280,798		100.00	%
Consumer Credit Exposure
Credit Risk Profile by Creditworthiness Category
	Residential – Construction		Residential – Prime		Residential – Subprime		Percentage of Total
Pass	$	9,041	$	104,965	$	-		91.33	%
Special mention		1,077		5,152		-		4.99	%
Substandard		1,131		3,465		-		3.68	%
	$	11,249	$	113,582	$	-		100.00	%

Consumer and Commercial Credit Exposure
Credit Risk Profile Based on Payment Activity
	Consumer - Credit Card		Consumer – Other		Finance Leases Commercial		Other Loans		Percentage of Total
Performing	$	5,182	$	64,497	$	4,276	$	1,674		99.60	%
Nonperforming		18		283		-		-		0.40	%
	$	5,200	$	64,780	$	4,276	$	1,674		100.00	%

- 74 -

Age Analysis of Past Due Loans by Class of Loans
(in thousands)
	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
As of December 31, 2012
Commercial, financial, and agricultural	$	2,220	$	321	$	2,580	$	5,121	$	310,534	$	315,655	$	1,019
Commercial real estate - construction		66		96		101		263		58,087		58,350		-
Commercial real estate - other		4,131		2,108		3,577		9,816		404,568		414,384		952 952952
Consumer - credit card		24		2		15		41		6,766		6,807		15 15
Consumer - other		421		134		186		741		83,013		83,754		-
Residential - construction		-		-		-		-		16,984		16,984		-
Residential - prime		1,140		317		1,408		2,865		139,993		142,858		-
Residential - subprime		-		-		-		-		-		-		-
Other loans		87		-		-		87		2,292		2,379		-
Finance leases commercial		-		-		-		-		5,769		5,769		-
	$	8,089	$	2,978	$	7,867	$	18,934	$	1,028,006	$	1,046,940	$	1,986
	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
As of December 31, 2011
Commercial, financial, and agricultural	$	622	$	242	$	1,856	$	2,720	$	220,563	$	223,283	$	64
Commercial real estate - construction		673		166		358		1,197		40,266		41,463		-
Commercial real estate - other		3,185		-		1,878		5,063		275,735		280,798		-
Consumer - credit card		79		-		19		98		5,102		5,200		19
Consumer - other		410		193		269		872		63,908		64,780		8
Residential - construction		-		-		-		-		11,249		11,249		-
Residential - prime		2,457		469		685		3,611		109,971		113,582		140
Residential - subprime		-		-		-		-		-		-		-
Other loans		118		-		-		118		1,556		1,674		-
Finance leases commercial		-		-		-		-		4,276		4,276		-
	$	7,544	$	1,070	$	5,065	$	13,679	$	732,626	$	746,305	$	231

- 75 -

Impaired Loans by Class of Loans
(in thousands)
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
As of December 31, 2012
With no related allowance recorded:
Commercial, financial, and agricultural	$	564	$	675	$	-	$	861	$	5
Commercial real estate – construction		771		770		-		834		1
Commercial real estate – other		2,530		3,059		-		1,780		38
Consumer – other		114		122		-		81		1
Residential – prime		1,575		1,575		-		1,213		26
Subtotal:		5,554		6,201		-		4,769		71
With an allowance recorded:
Commercial, financial, and agricultural		1,072		1,072		391		1,128		21
Commercial real estate – construction		165		165		57		85		7
Commercial real estate – other		381		381		35		811		3
Consumer – other		216		216		114		228		6
Residential – prime		52		52		30		172		4
Subtotal:		1,886		1,886		627		2,424		41
Totals:
Commercial		5,483		6,122		483		5,499		75
Consumer		330		338		114		309		7
Residential		1,627		1,627		30		1,385		30
Grand total:	$	7,440	$	8,087	$	627	$	7,193	$	112

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
As of December 31, 2011
With no related allowance recorded:
Commercial, financial, and agricultural	$	1,157	$	1,248	$	-	$	2,311	$	2
Commercial real estate – construction		897		963		-		4,511		9
Commercial real estate – other		1,029		1,029		-		2,958		31
Consumer – other		48		59		-		65		3
Residential – prime		851		851		-		1,334		28
Finance leases commercial		-		-		-		4		-
Other loans		-		-		-		3		-
Subtotal:		3,982		4,150		-		11,186		73
With an allowance recorded:
Commercial, financial, and agricultural		1,184		1,184		240		1,140		58
Commercial real estate – construction		4		4		2		1,580		-
Commercial real estate – other		1,242		1,242		321		1,639		98
Consumer – other		239		242		98		202		10
Residential – prime		291		291		21		255		1
Subtotal:		2,960		2,963		682		4,816		167
Totals:
Commercial		5,513		5,670		563		14,143		198
Consumer		287		301		98		267		13
Residential		1,142		1,142		21		1,589		29
Other		-		-		-		3		-
Grand total:	$	6,942	$	7,113	$	682	$	16,002	$	240

- 76 -

Modifications by Class of Loans
(in thousands)
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings as of December 31, 2012:
Commercial, financial, and agricultural		3	$	370	$	353
Real estate - commercial		3		4,983		4,709
			$	5,353	$	5,062
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings as of December 31, 2011:
Commercial, financial, and agricultural		4	$	447	$	444
Consumer - other		1		14		12
			$	461	$	456

Trouble Debt Restructurings that Subsequently Defaulted (in thousands)
	December 31, 2012				December 31, 2011
	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Commercial, financial, and agricultural		4	$	259		-	$	-

Of the $5.1 million of total trouble debt restructurings (“TDRs”), $4.8 million was acquired with PSB and included four credits, two of which are large commercial credits.  There were no loans added to TDR status during the year ended December 31, 2012.  Two loans identified as TDRs at December 31, 2011 were removed from TDR status during 2012 after the loans were charged off due to insufficient collateral.  One loan previously identified as a troubled debt restructuring at December 31, 2011 was removed from TDR status during 2012 after the loan was paid off.

For purposes of the determination of an allowance for loan losses on these TDRs, as an identified TDR, the Company considers a loss probable on the loan and, as a result, is reviewed for specific impairment in accordance with the Company’s allowance for loan loss methodology.  If it is determined that losses are probable on such TDRs, either because of delinquency or other credit quality indicator, the Company establishes specific reserves for these loans.

- 77 -

Loans on Nonaccrual Status by Class of Loans
(in thousands)
	December 31, 2012		December 31, 2011
Commercial, financial, and agricultural	$	2,015	$	1,897
Commercial real estate - construction		941		902
Commercial real estate - other		3,017		2,271
Consumer - credit card		-		-
Consumer - other		409		275
Residential - construction		-		-
Residential - prime		2,505		884
Residential - subprime		-		-
Other loans		-		-
Finance leases commercial	-			-
	$	8,887	$	6,229

The amount of interest that would have been recorded on nonaccrual loans, had the loans not been classified as nonaccrual, totaled approximately $582,000, $749,000, and $981,000 for the years ended December 31, 2012, 2011, and 2010.  Interest actually received on nonaccrual loans at December 31, 2012, 2011, and 2010 was $70,000,  $256,000, and $384,000 respectively.

6. PREMISES AND EQUIPMENT

Premises and equipment consisted of the following (in thousands):

	December 31,
	2012			2011
Land	$	14,949		$	9,521
Buildings and improvements		40,505			29,296
Furniture, fixtures, and equipment		23,775			19,647
Automobiles		812			495
Leasehold improvements		10,047			10,006
Construction-in-process		1,562			706
		91,650			69,671
Less accumulated depreciation and amortization		(28,189	)		(25,073	)
	$	63,461		$	44,598

Depreciation expense totaled approximately $3.8 million, $3.3 million, and $3.3 million for the years ended December 31, 2012, 2011, and 2010, respectively.

7. GOODWILL AND OTHER INTANGIBLE ASSETS

Changes to the carrying amount of goodwill for the years ended December 31, 2012 and 2011 are provided in the following table (in thousands):

Balance, December 31, 2010	$	9,271
Goodwill acquired during the year		15,688
Balance, December 31, 2011		24,959
Adjustment to goodwill		(136	)
Goodwill acquired during the year		17,958
Balance, December 31, 2012	$	42,781

The goodwill acquired during the year ended December 31, 2012 was a result of the PSB acquisition completed during the fourth quarter.  The goodwill acquired during the year ended December 31, 2011 was a result of the three acquisitions completed during the third and fourth quarters.

- 78 -

A summary of core deposit intangible assets as of December 31, 2012 and 2011 is as follows (in thousands):

	2012			2011
Gross carrying amount	$	11,674		$	9,012
Less accumulated amortization		(2,627	)		(1,865	)
Net carrying amount	$	9,047		$	7,147

During 2012, $2.7 million of core deposit intangibles were recorded as a result of the deposits acquired in the 2012 acquisition.  During 2011, $7.3 million of core deposit intangibles were recorded as a result of the deposits acquired in the three 2011 acquisitions.

Amortization expense on the core deposit intangible assets totaled approximately $762,000 in 2012, $230,000 in 2011, and $97,000 in 2010.

The estimated amortization expense on the core deposit intangible assets for the five succeeding years and thereafter is as follows (in thousands):

2013	$	1,106
2014		1,106
2015		1,106
2016		1,106
2017		1,106
Thereafter		3,517

8. DEPOSITS

Deposits consisted of the following (in thousands):

	December 31,
	2012		2011
Noninterest-bearing	$	380,557	$	254,755
Savings and money market		520,573		350,342
NOW accounts		338,296		235,168
Time deposits less than $100		133,304		140,428
Time deposits $100 or more		179,174		184,113
	$	1,551,904	$	1,164,806

Time deposits held consist primarily of certificates of deposits.  The maturities for these deposits at December 31, 2012 are as follows (in thousands):

2013	$	242,778
2014		43,222
2015		12,751
2016		7,682
2017 and thereafter		6,045
	$	312,478

Deposits from related parties totaled approximately $29.1 million and $15.7 million at December 31, 2012 and 2011, respectively.

9. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

Securities sold under agreements to repurchase totaled $41.4 million and $46.1 million at December 31, 2012 and 2011, respectively.

At December 31, 2012 and 2011, retail repurchase agreements, defined as securities sold under agreements to repurchase from our customers, totaled $28.9 million and $33.6 million, respectively.  These retail repurchase agreements are secured short term borrowings from customers, which may be drawn on demand.  The agreements bear interest at a rate determined by us.  The average rate of the outstanding agreements at December 31, 2012 and 2011 was 0.44% and 0.46%.   The Company had pledged securities with an approximate market value of $52.7 million and $51.1 million as collateral at December 31, 2012 and 2011, respectively.

- 79 -

Also included in securities sold under agreements to repurchase is a $12.5 million repurchase agreement the Company entered into with CitiGroup Global Markets, Inc. (“CGMI”) effective August 9, 2007.  Under the terms of the repurchase agreement, interest is payable quarterly based on a floating rate equal to the 3-month LIBOR for the first 12 months of the agreement and a fixed rate of 4.57% for the remainder of the term.  The rate at December 31, 2012 was 4.57%.  The repurchase date is scheduled for August 9, 2017; however, the agreement may be called by CGMI quarterly.  The Company had pledged securities with a market value $19.5 million and $17.2 million as collateral at December 31, 2012 and 2011, respectively.

In 2012, 2011, and 2010, the Company did not have an average balance in any category of short-term borrowings including retail repurchase agreements, reverse repurchase agreements, federal funds purchased, or FRB discount window that exceeded 30% of our stockholders’ equity for such year.

10. NOTES PAYABLE

The Company acquired at fair value approximately $29.1 million of borrowed funds from PSB, which included $27.1 million in FHLB advances and $2.0 million of notes payable with First National Bankers Bank.

FHLB advances at December 31, 2012 are summarized as follows (in thousands):

	Amount		Weighted Average Rate
FHLB advances maturing in:
2013	$	59		5.057	%
2014		65		5.057	%
2015		71		5.057	%
2016		77		5.057	%
2017		16,738		3.412	%
2019		10,118		1.985	%
Total FHLB advances	$	27,128

The FHLB advances are collateralized by a blanket lien on first mortgages and other qualifying loans totaling $231.4 million.

The notes payable with First National Bankers Bank requires annual payments of $250,000 and bear an interest rate equal to New York Prime.

The scheduled maturities of notes payable as of December 31, 2012 is as follows (in thousands):

2013	$	309
2014		315
2015		321
2016		327
2017		16,988
Thereafter		10,868
	$	29,128

- 80 -

11.  JUNIOR SUBORDINATED DEBENTURES

A description of the junior subordinated debentures outstanding is as follows (in thousands):

					December 31,
Date Issued	Maturity Date	Interest Rate		Callable After	2012		2011
February 22, 2001	February 22, 2031		10.20%	February 22, 2011	$	7,217	$	7,217
July 31, 20011	July 9, 2031	3 month LIBOR plus 3.30%		July 31, 2006		5,671		-
September 20, 2004	September 20, 2034	3 month LIBOR plus 2.50%		September 20, 2009		8,248		8,248
October 12, 20061	October 12, 2036	3 month LIBOR plus 1.85%		June 26, 2011		5,155		-
June 21, 20071	June 21, 2037	3 month LIBOR plus 1.70%		June 15, 2012		3,093		-
					$	29,384	$	15,465

(1) Assumed in PSB acquisition.

The trusts are considered variable-interest entities (“VIE”). The Trusts are not consolidated with the Company since the Company is not the primary beneficiary of the VIE.  Accordingly, the Company does not report the securities issued by the Trusts as liabilities, and instead reports as liabilities the junior subordinated debentures issued by the Company and held by the Trusts, as these are not eliminated in the consolidation.  The Trust Preferred Securities are recorded as junior subordinated debentures on the balance sheets, but subject to certain limitations qualify for Tier 1 capital for regulatory capital purposes.

12. COMMITMENTS AND CONTINGENCIES

At December 31, 2012, future annual minimum rental payments due under non-cancellable operating leases are as follows (in thousands):

2013	$	2,264
2014		2,125
2015		1,956
2016		1,701
2017		1,566
Thereafter		11,611
	$	21,223

Rental expense under operating leases for 2012, 2011, and 2010 was approximately $2.5 million, $2.0 million, and $1.7 million, respectively.

The Company is party to various legal proceedings arising in the ordinary course of business. In management’s opinion, the ultimate resolution of these legal proceedings will not have a material adverse effect on the Company’s financial position, results of operations, or cash flows.

At December 31, 2012, the Company had borrowing lines available through the Bank with the FHLB of Dallas and other correspondent banks.  The Bank had approximately $206.1 million available, subject to available collateral, under a secured line of credit with the FHLB of Dallas.  Additional federal funds lines of credit were available through correspondent banks with approximately $48.5 million available for overnight borrowing at December 31, 2012.  The Bank also had a credit line available through the Federal Reserve of $158.1 million.  As of December 31, 2012, the Company had no borrowings with the FRB-Atlanta.  The Company assumed at fair value $27.1 million in FHLB advances and $2.0 million in notes payable with FNBB from PSB.

- 81 -

13. INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities as of December 31, 2012 and 2011 are as follows (in thousands):

	2012		2011
Deferred tax assets:
Allowance for loan losses	$	6,325	$	2,474
Alternative minimum tax credit		1,300		1,158
Other		2,575		1,357
Total deferred tax assets		10,200		4,989
Deferred tax liabilities:
Premises and equipment		4,958		3,792
FHLB stock dividends		57		18
Unrealized gains on securities		5,914		3,993
Other		1,747		351
Total deferred tax liabilities		12,676		8,154
Net deferred tax liability	$	2,476	$	3,165

Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, we believe that it is more likely than not that we will realize the benefits of these deductible differences existing at December 31, 2012. Therefore, no valuation allowance is necessary at this time.  The net deferred tax liability is included in other liabilities on the consolidated balance sheets.

Components of income tax expense are as follows (in thousands):

	2012		2011			2010
Current	$	2,128	$	1,055		$	2,001
Deferred expense (benefit)		1,651		(491	)		(1,033	)
Total income tax expense	$	3,779	$	564		$	968

The provision for federal income taxes differs from the amount computed by applying the U.S. Federal income tax statutory rate of 35% for 2012 and 34% for 2011 and 2010 on pre-tax income as follows (in thousands):

	December 31,
	2012			2011			2010
Taxes calculated at statutory rate	$	4,697		$	1,713		$	2,294
Increase (decrease) resulting from:
Tax-exempt interest, net		(988	)		(1,121	)		(1,293	)
Tax credits		-			-			-
Other		70			(28	)		(33	)
	$	3,779		$	564		$	968

The Company’s federal income tax returns are open and subject to examination from the 2009 tax return year and forward. The various state income and franchise tax returns are generally open from the 2009 and later tax return years based on individual state statutes of limitation. We are not currently under examination by federal or state tax authorities for the 2009, 2010, or 2011 tax years.

14.  EMPLOYEE BENEFITS

The Company sponsors a leveraged employee stock ownership plan (“ESOP”) that covers all employees who meet minimum age and service requirements. The Company makes annual contributions to the ESOP in amounts as determined by the Board of Directors. These contributions are used to pay debt service and purchase additional shares. In past years, certain ESOP shares were pledged as collateral for debt. As the debt was repaid, shares were released from collateral and allocated to active employees, based on the proportion of debt service paid in the year.    The most recent borrowing transaction occurred on February 5, 2009, when the ESOP borrowed $300,000 payable to MidSouth Bank, N.A.    A total of 25,000 shares at $9.89 per share and 5,828 shares at $9.05 per share were purchased with the loan proceeds on February 6, 2009 and February 19, 2009, respectively.  The balance of the note was paid in full on November 10, 2011.  Because the source of the loan payments are contributions received by the ESOP from the Company, the related notes receivable is shown as a reduction of stockholders’ equity.  In accordance with GAAP, compensation costs relating to shares purchased are based on the fair value of shares committed to be released.  The unreleased shares are not considered outstanding in the computation of earnings per common share.  Dividends received on ESOP shares are allocated based on shares held for the benefit of each participant and used to purchase additional shares of stock for each participant.  ESOP compensation expense consisting of cash contributions for 2012 was approximately $428,000.  ESOP compensation expense consisting of both cash contributions and shares committed to be released for 2011 and 2010 was approximately $469,000 and $481,000, respectively.  The cost basis of the shares released for 2011 and 2010 was $9.73 per share.  ESOP shares as of December 31, 2012 and 2011 were as follows:

- 82 -

	2012		2011
Allocated shares		573,476		546,722
Shares released for allocation		-		10,757
Total ESOP shares		573,476		557,479

The Company has deferred compensation arrangements with certain officers, which will provide them with a fixed benefit after retirement. The Company recorded a liability of approximately $1.2 million at December 31, 2012 and $1.1 million at December 31, 2011 in connection with these agreements.  Deferred compensation expense recognized in 2012, 2011, and 2010 was approximately $68,000, $232,000, and $125,000, respectively.

The Company sponsors defined contribution post-retirement benefit agreements to provide death benefits for the designated beneficiaries of certain of the Company's executive officers.  Under the agreements, split-dollar whole life insurance contracts were purchased on certain executive officers. The increase in the cash surrender value of the contracts, less the Bank's cost of funds, constitutes the Company's contribution to the agreements each year.  In the event the insurance contracts fail to produce positive returns, the Company has no obligation to contribute to the agreements.  During 2012, 2011, and 2010, the Company incurred expenses of $39,000, $9,000 and $30,000, respectively, related to the agreements.  

The Company has a 401(k) retirement plan covering substantially all employees who have been employed for 90 days and meet certain other requirements.  Under this plan, employees can contribute a portion of their salary within the limits provided by the Internal Revenue Code into the plan.  The Company made contributions to the plan totaling $33,000 and $31,000 in 2012 and 2011, respectively.  The Company made no contributions to the plan in 2010.

15. EMPLOYEE STOCK PLANS

In May of 2007, our stockholders approved the 2007 Omnibus Incentive Compensation Plan to provide incentives and awards for directors, officers, and employees. “Awards” as defined in the Plan includes, with limitations, stock options (including restricted stock options), restricted stock awards, stock appreciation rights, performance shares, stock awards and cash awards, all on a stand-alone, combination, or tandem basis. The 2007 Omnibus Incentive Compensation Plan replaces the 1997 Stock Incentive Plan, which expired February of 2007.  A total of 525,000 of our common shares outstanding were reserved for issuance under the Plan, of which 222,825 were available to be granted as of December 31, 2012.

Stock Options – Of the 307,845 options outstanding at December 31, 2012, 20,983 were issued under the 1997 Stock Incentive Plan and 286,862 were issued under the 2007 Omnibus Incentive Compensation Plan.  All options outstanding at December 31, 2012 are incentive stock options with a term of ten years, 265,343 of which vest 20% each year on the anniversary date of the grant and 42,502 of which vest 16.67% each year.  The following table summarizes activity relating to stock options:

- 83 -

	Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at December 31, 2011		35,100		$	14.07		1.86
Granted		294,803			12.97
Exercised		(14,117	)		7.15
Forfeited		(7,941	)		12.97
Outstanding at December 31, 2012		307,845		$	13.36		8.87	$	920,000
Exercisable at December 31, 2012		20,983		$	18.72		1.68	$	-

A summary of changes in unvested options for the period ended December 31, 2012 is as follows:

	2012
	Number of Options			Weighted Average Grant Date Fair Value
Unvested options outstanding, beginning of year		-		$	-
Granted		294,803			4.41
Vested		-			-
Forfeited		(7,941	)		4.41
Unvested options outstanding, end of year		286,862		$	4.41

As of December 31, 2012 there was a total of $1.1 million in unrecognized compensation cost related to nonvested share-based compensation arrangements.  The total amount of options expensed during the years ended December 31, 2012, 2011 and 2010 was $150,000, $13,000 and $6,000, respectively.

The fair value of each option granted is estimated on the grant date using the Black-Scholes Option Pricing Model.  This model requires management to make certain assumptions, including the expected life of the option, the risk free rate of interest, the expected volatility, and the expected dividend yield.  The risk free rate of interest is based on the yield of a U.S. Treasury security with a similar term.  The expected volatility is based on historic volatility over a term similar to the expected life of the options.  The dividend yield is based on the current yield at the date of grant.  The following assumptions were made in estimating the fair value of the options granted in 2012:

Risk free rate of interest	0.7	%
Expected volatility	46.1	%
Dividend yield	2.0	%
Average expected life (in years)	5

The total intrinsic value of the options exercised was $130,000, $66,000, and $57,000 for the years ended December 31, 2012, 2011, and 2010, respectively.

Restricted Stock Awards – On June 30, 2010, the Compensation Committee (formerly the Personnel Committee) of the Board of Directors of the Company made grants of 22,047 shares of restricted stock under the Company’s 2007 Omnibus Incentive Compensation Plan to certain officers and employees of the Company.  The restricted shares of stock, which are subject to the terms of a Restricted Stock Grant Agreement between the Company and each recipient, will fully vest on the third anniversary of the grant date.  Prior to vesting, the recipient will be entitled to vote the shares and receive dividends, if any, declared by the Company with respect to its common stock.  Compensation expense for restricted stock is based on the fair value of the restricted stock awards at the time of the grant, which is equal to the market value of the Company’s common stock on the date of grant.  The value of restricted stock grants that are expected to vest is amortized monthly into compensation expense over the three year vesting period.

The restricted shares had a fair value of $12.77 per share on the date of issuance.  For the year ended December 31, 2012 and 2011, compensation expense of $57,000 and $62,000, respectively, was recognized related to non-vested restricted stock awards.  As of December 31, 2012, there was $33,000 of unrecognized compensation cost related to non-vested restricted stock awards granted under the plan.

- 84 -

The following table summarizes activity relating to non-vested restricted stock awards:

	2012
Balance at beginning of year		16,645
Granted		-
Forfeited		(1,332	)
Vested		-
Balance at end of year		15,313

16. STOCKHOLDERS’ EQUITY

The payment of dividends by the Bank to the Company is restricted by various regulatory and statutory limitations. At December 31, 2012, the Bank had approximately $23.0 million available to pay dividends to the parent company without regulatory approval.

On December 22, 2009 the Company closed an underwritten public offering of 2.7 million shares of its common stock at a price of $12.75 per share.  On January 7, 2010, the underwriters of the public offering exercised in full their overallotment option for 405,000 shares of our common stock.  Net proceeds from the offering and the exercise of the overallotment option totaled $37.2 million after deducting underwriting discounts and offering expenses.  The Company used the net proceeds for general corporate purposes including ongoing and anticipated growth, which may include potential acquisition opportunities.

On January 9, 2009 the Company issued ­­­­20,000 shares of Series A Preferred Stock associated with its participation in the Treasury’s Capital Purchase Plan (“CPP”) under the Troubled Asset Relief Program.  The proceeds from this sale of $20,000,000 less direct costs to issue were allocated to preferred stock.  As part of the CPP transaction, the Company issued the Treasury a warrant to purchase 208,768 shares of our common stock at an exercise price of $14.37 per share.  However, as a result of the completion of our public offering in December 2009, the number of shares subject to the warrants held by the Treasury was reduced to 104,384 shares.  In late 2011, the Treasury sold this warrant to an unrelated third party.  The Company did not receive any proceeds from such sale.

The Series A preferred stock qualified as Tier 1 capital and paid cumulative dividends at a rate of 5% per annum.  In August 2011, the Company redeemed all 20,000 outstanding shares of Series A preferred stock at its stated value of $1,000 per share with funds from our issuance of 32,000 shares of Series B preferred stock in connection with the Company’s participation under the U.S. Treasury’s Small Business Lending Fund (“SBLF”).  The remaining $12.0 million of net proceeds from the issuance was provided to the Bank as additional capital.  The dividend rate on the Series B preferred stock going forward will be between 1% and 5% based on the level of qualified small business loans.As of December 31, 2012, the dividend rate was 4.60% per annum.  The Series B preferred stock is nonvoting except for class voting rights on matters that would adversely affect the rights of the holders of the Series B preferred stock.

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.  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, beginning on April 15, 2013.  The Series C Preferred Stock ranks pari passu with the existing Senior Non-Cumulative Perpetual Preferred Stock, Series B, issued in connection with the Company’s participation under the U. S. Treasury’s Small Business Lending Fund and senior to the Company’s common stock.  The Company may redeem the Series C Preferred Stock, subject to regulatory approval, beginning on or after the fifth anniversary of the closing date of the Merger, at a redemption price equal to the liquidation value of the Series C Preferred Stock, plus declared but unpaid dividends, if any.  The Company may also redeem the Series C Preferred Stock, subject to regulatory approval, at the same redemption price prior to the fifth anniversary of the closing date in the event the Series C Preferred Stock no longer qualifies for ‘Tier 1 Capital” treatment by the applicable federal banking regulators.  Holders may convert the Series C Preferred Stock at any time into shares of the Company’s common stock at a conversion price of $18.00 per share, subject to customary antidilution adjustments.  In addition, on or after the fifth anniversary of the closing date, the Company will have the option to require conversion of the Series C Preferred Stock if the closing price of the Company’s common stock for 20 trading days within any period of 30 consecutive trading days, exceeds 130% of the conversion price.

- 85 -

17. NET EARNINGS PER COMMON SHARE

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

	December 31,
	2012		2011		2010
Net earnings	$	9,642	$	4,473	$	5,780
Dividends on preferred stock and accretion of warrants		1,547		1,802		1,198
Net earnings available to common stockholders	$	8,095	$	2,671	$	4,582
Weighted average number of common shares outstanding used in computation of basic earnings per common share		10,482		9,787		9,701
Effect of dilutive securities:
Stock options		24		7		15
Restricted stock		12		5		2
Preferred stock		6		-		-
Weighted average number of common shares outstanding plus effect of dilutive securities used in computation of diluted earnings per common share		10,524		9,799		9,718

Options to acquire 18,331, 18,331 and 23,335 shares of common stock were not included in computing diluted earnings per share for the year ended December 31, 2012, 2011 and 2010, respectively, because the effect of these shares was anti-dilutive.  For the years ended December 31, 2012, 2011 and 2010, 15,313, 16,645 and 20,847 shares of restricted stock, respectively, were included in computed diluted earnings because the effect of these shares was dilutive.  The remaining 104,384 shares subject to the outstanding warrant issued in connection with the CPP transaction were anti-dilutive and not included in the computation of diluted earnings per share for the years ended December 31, 2012, 2011 and 2010.  For the year ended December 31, 2012, 6,088 shares of preferred stock issued as part of the PSB acquisition were included in computed diluted earnings because the effect of these shares was dilutive.  Since the preferred stock issued in connection with the PSB acquisition was issued during the year ended December 31, 2012, there were no shares of preferred stock included in computed diluted earnings for the years ended December 31, 2011 and 2010.

18. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

The Bank is party to various financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the statements of financial condition. The contract or notional amounts of those instruments reflect the extent of the Bank’s involvement in particular classes of financial instruments.  Approximately $76.4 million in commitments to extend credit and $1.6 million in letters of credit were added with the PSB acquisition for the year ended December 31, 2012.

The Bank’s exposure to loan loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, standby letters of credit, and financial guarantees is represented by the contractual amount of those instruments. The Bank uses the same credit policies, including considerations of collateral requirements, in making these commitments and conditional obligations as it does for on-balance sheet instruments.

	Contract or Notional Amount
	2012		2011
Financial instruments whose contract amounts represent credit risk: (in thousands)
Commitments to extend credit	$	237,085	$	152,145
Letters of credit		9,958		8,347

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  Since many of the commitments are expected to expire without being fully drawn upon, the total commitment amounts disclosed above do not necessarily represent future cash requirements.  Substantially all of these commitments are at variable rates.

- 86 -

Commercial letters of credit and financial guarantees are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party.  The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to its customers.  Approximately 88% and 90% of these letters of credit were secured by marketable securities, cash on deposit, or other assets at December 31, 2012 and 2011, respectively.

19. REGULATORY MATTERS

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies.  Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the financial statements.  Under capital adequacy guidelines, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices.  The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and to average assets (as defined).

As of December 31, 2012, the most recent notifications from the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage capital ratios as set forth in the table (in thousands). There are no conditions or events since those notifications that management believes has changed the Bank’s category.

The Company’s and the Bank’s actual capital amounts and ratios are presented in the table below (in thousands):

	Actual					Required for Minimum Capital Adequacy Purposes					To be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2012:
Total capital to risk weighted assets:
Company	$	165,302		14.10	%	$	93,770		8.00	%		N/A		N/A
Bank	$	162,159		13.84	%	$	93,703		8.00	%	$	117,128		10.00	%
Tier I capital to risk weighted assets:
Company	$	157,753		13.46	%	$	46,885		4.00	%		N/A		N/A
Bank	$	154,610		13.20	%	$	46,851		4.00	%	$	70,277		6.00	%
Tier I capital to average assets:
Company	$	157,753		11.82	%	$	53,399		4.00	%		N/A		N/A
Bank	$	154,610		11.58	%	$	53,421		4.00	%	$	80,132		6.00	%

- 87 -

	Actual					Required for Minimum Capital Adequacy Purposes					To be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2011:
Total capital to risk weighted assets:
Company	$	144,439		16.97	%	$	68,085		8.00	%		N/A		N/A
Bank	$	116,988		13.75	%	$	68,071		8.00	%	$	85,089		10.00	%
Tier I capital to risk weighted assets:
Company	$	136,979		16.10	%	$	34,043		4.00	%		N/A		N/A
Bank	$	109,528		12.87	%	$	34,036		4.00	%	$	51,054		6.00	%
Tier I capital to average assets:
Company	$	136,979		11.14	%	$	49,193		4.00	%		N/A		N/A
Bank	$	109,528		8.91	%	$	49,149		4.00	%	$	73,723		6.00	%

20. FAIR VALUE MEASUREMENTS AND DISCLOSURES

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 are recorded at fair value on a recurring basis.  Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as impaired loans and other real estate.  These nonrecurring fair value adjustments typically involve the application of the lower of cost or market accounting or write-downs of individual assets.  Additionally, the Company is required to disclose, but not record, the fair value of other financial instruments.

Fair Value 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 cash equivalents—The carrying value of cash and cash equivalents is a reasonable estimate of fair value.

Time Deposits in Other Banks—Fair values for fixed-rate time deposits are estimated using a discounted cash flow analysis that applies interest rates currently being offered on time deposits of similar terms of maturity.

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

- 88 -

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

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

For non-performing loans, collateral valuations currently in file are reviewed for acceptability in terms of timeliness and applicability.  Although each determination is made based on the facts and circumstances of each credit, generally valuations are no longer considered acceptable when there has been physical deterioration of the property from when it was last appraised, or there has been a significant change in the underlying assumptions of the appraisal.  If the valuation is deemed to be unacceptable, a new appraisal is ordered.  New appraisals are typically received within 4-6 weeks.  While awaiting new appraisals, the valuation in 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: 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 6% for selling costs and an additional 4% for taxes, insurance and maintenance costs.  Additional discounts may be applied if research from the above sources indicates a discount is appropriate given devaluation of similar property from the time of the initial valuation.

Other Real Estate—Other real estate properties are adjusted to fair value upon transfer of the loans to other real estate, and annually thereafter to insure other real estate assets are carried at the lower of carrying value or fair value.  Exceptions to obtaining initial appraisals are properties where a buy/sell agreement exists for the loan value or greater, or where we have received a Sheriff’s valuation for properties liquidated through a Sheriff sale.  Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral.  When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the 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 other real estate asset as nonrecurring Level 3.

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

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

- 89 -

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

Notes Payable—The fair value of notes payable is estimated using a discounted cash flow analysis that applies interest rates currently being offered on similar types of borrowings with similar terms.

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

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

Assets Recorded at Fair Value

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

	Assets / Liabilities		Fair Value Measurements
	Measured at Fair Value		at December 31, 2012
Description	at December 31, 2012		Level 1		Level 2		Level 3
Available-for-sale securities:
U.S. Government sponsored enterprises	$	13,424	$	-	$	13,424	$	-
Obligations of state and political subdivisions		87,421		-		87,421		-
GSE mortgage-backed securities		178,819		-		178,819		-
Collateralized mortgage obligations: residential		101,986		-		101,986		-
Collateralized mortgage obligations: commercial		29,761		-		29,761		-
Other asset-backed securities		12,742		-		12,742		-
Collateralized debt obligation		464		-		464		-

	Assets / Liabilities		Fair Value Measurements
	Measured at Fair Value		at December 31, 2011
Description	at December 31, 2011		Level 1		Level 2		Level 3
Available-for-sale securities:
U.S. Government sponsored enterprises	$	94,999	$	-	$	94,999	$	-
Obligations of state and political subdivisions		96,149		-		96,149		-
GSE mortgage-backed securities		109,487		-		109,487		-
Collateralized mortgage obligations: residential		41,468		-		41,468		-
Collateralized mortgage obligations: commercial		25,138		-		25,138		-

Certain assets and liabilities are measured at fair value on a nonrecurring basis and therefore are not included in the table above. Impaired loans are level 2 assets measured using appraisals from external parties of the collateral less any prior liens.  Other real estate owned are also level 2 assets measured using appraisals from external parties.

- 90 -

Assets measured at fair value on a nonrecurring basis are as follows (in thousands):

	Assets / Liabilities		Fair Value Measurements
	Measured at Fair Value		at December 31, 2012
Description	at December 31, 2012		Level 1		Level 2		Level 3
Impaired loans	$	2,245	$	-	$	2,245	$	-
Other real estate		7,496		-		7,496		-

	Assets / Liabilities		Fair Value Measurements
	Measured at Fair Value		at December 31, 2011
Description	at December 31, 2011		Level 1		Level 2		Level 3
Impaired loans	$	2,994	$	-	$	2,994	$	-
Other real estate		7,369		-		7,369		-

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 estimated fair values of our financial instruments are as follows at December 31, 2012 and 2011 (in thousands):

			Fair Value Measurements at  December 31, 2012 Using:
	Carrying Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	73,573	$	73,573	$	-	$	-
Time deposits held in banks		881		-		-		883
Securities available-for-sale		424,617		-		424,617		-
Securities held-to-maturity		153,524		-		156,924		-
Other investments		8,310		8,310		-		-
Loans, net		1,039,570		-		-		1,046,495
Cash surrender value of life insurance policies		13,183		-		13,183		-
Financial liabilities:
Non-interest-bearing deposits		380,557		-		380,557		-
Interest-bearing deposits		1,171,347		-		859,183		314,783
Securities sold under agreements to repurchase		41,447		41,447		-		-
Notes payable		29,128		-		-		29,128
Junior subordinated debentures		29,384		-		22,167		7,776

- 91 -

			Fair Value Measurements at December 31, 2011 Using:
	Carrying Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	83,303	$	83,303	$	-	$	-
Time deposits held in banks		710		-		-		716
Securities available-for-sale		367,241		-		367,241		-
Securities held-to-maturity		100,472		-		101,131		-
Other investments		5,637		5,637		-		-
Loans, net		739,029		-		-		747,156
Cash surrender value of life insurance policies		4,853		-		4,853		-
Financial liabilities:
Non-interest-bearing deposits		254,755		-		254,755		-
Interest-bearing deposits		910,051		-		585,763		327,441
Securities sold under agreements to repurchase		46,078		46,078		-		-
Junior subordinated debentures		15,465		-		8,248		9,095

21. OTHER NON-INTEREST INCOME AND EXPENSE

For the years ended December 31, 2012, 2011, and 2010, none of the components of other noninterest income were greater than 1% of interest income and noninterest income.

Components of other noninterest expense greater than 1% of interest income and noninterest income consisted of the following for the years ended December 31, 2012, 2011, and 2010 (in thousands):

	2012		2011		2010
Professional fees	$	2,022	$	2,518	$	1,787
FDIC fees		930		921		1,331
Marketing expenses		1,648		1,663		1,178
Corporate development expense		1,022		984		656
Data processing		1,689		2,355		1,212
Printing and supplies		1,105		890		659
Expenses on other real estate owned and other assets repossessed		1,767		1,511		798
Amortization of intangibles		762		229		97

22. SUBSEQUENT EVENTS

The Company has evaluated all subsequent events and transactions that occurred after December 31, 2012 up through the date of filing this Annual Report on Form 10-K.  No events or changes in circumstances were identified that would have an adverse impact on the financial statements.

- 92 -

23.  CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY

Summarized financial information for MidSouth Bancorp, Inc. (parent company only) follows:

Balance Sheets
December 31, 2012 and 2011
(in thousands)
	2012		2011
Assets
Cash and interest-bearing deposits in banks	$	4,982	$	27,894
Other assets		2,233		174
Investment in and advances to subsidiaries		217,049		151,166
Total assets	$	224,264	$	179,234
Liabilities and Stockholders’ Equity
Liabilities:
Dividends payable	$	1,113	$	1,144
Notes payable		2,000		-
Junior subordinated debentures		29,384		15,465
Other		2,526		788
Total liabilities		35,023		17,397
Stockholders’ equity		189,241		161,837
Total liabilities and stockholders’ equity	$	224,264	$	179,234

Statements of Earnings
For the Years Ended December 31, 2012, 2011, and 2010
(in thousands)
	2012			2011			2010
Revenue:
Dividends from Bank and nonbank subsidiaries	$	-		$	-		$	-
Rental and other income		102			908			1,032
		102			908			1,032
Expenses:
Interest on short- and long-term debt		984			971			974
Professional fees		804			337			185
Other expenses		1,126			643			667
		2,914			1,951			1,826
Loss before equity in undistributed earnings of subsidiaries and income taxes		(2,812	)		(1,043	)		(794	)
Equity in undistributed earnings of subsidiaries		11,477			5,167			6,303
Income tax benefit		977			349			271
Net earnings	$	9,642		$	4,473		$	5,780

- 93 -

Statements of Cash Flows
For the Years Ended December 31, 2012, 2011, and 2010
(in thousands)
	2012			2011			2010
Cash flows from operating activities:
Net earnings	$	9,642		$	4,473		$	5,780
Adjustments to reconcile net earnings to net cash provided by operating activities:
Undistributed earnings of subsidiaries		(11,477	)		(5,167	)		(6,303	)
Other, net		(2,307	)		144			32
Net cash (used in) provided by operating activities		(4,142	)		(550	)		(491	)
Cash flows from investing activities:
Sale of equity securities		-			-			75
Investments in and advances to subsidiaries		-			(11,972	)		-
Outlays for business acquisition, net of cash acquired		(14,360	)		-			-
Net cash (used in) provided by investing activities		(14,360	)		(11,972	)		75
Cash flows from financing activities:
Proceeds from issuance of common stock		-			-			4,768
Proceeds from issuance of Series B preferred stock		-			32,000			-
Payment to redeem Series A preferred stock		-			(20,000	)		-
Proceeds from exercise of stock options		100			68			51
Payment of preferred dividends		(1,579	)		(938	)		(1,001	)
Payment of common dividends		(2,932	)		(2,724	)		(2,507	)
Other, net		1			-			-
Net cash provided by financing activities		(4,410	)		8,406			1,311
Net change in cash and cash equivalents		(22,912	)		(4,116	)		895
Cash and cash equivalents at beginning of year		27,894			32,010			31,115
Cash and cash equivalents at end of year	$	4,982		$	27,894		$	32,010

- 94 -

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Stockholders and Board of Directors

MidSouth Bancorp, Inc. and Subsidiaries

Lafayette, Louisiana

We have audited MidSouth Bancorp, Inc. and subsidiaries’ (the “Company”) internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). MidSouth Bancorp, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, MidSouth Bancorp, Inc. and subsidiaries maintained effective internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control-Integrated Framework issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of MidSouth Bancorp, Inc. and subsidiaries as of December 31, 2012 and 2011, and the related consolidated statements of earnings, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2012, and our report dated March 18, 2013, expressed an unqualified opinion.

Atlanta, Georgia

March 18, 2013

235 Peachtree Street NE | Suite 1800 | Atlanta, Georgia 30303 | Phone 404.588.4200 | Fax 404.588.4222

- 95 -

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Stockholders and Board of Directors

MidSouth Bancorp, Inc. and Subsidiaries

Lafayette, Louisiana

We have audited the accompanying consolidated balance sheets of MidSouth Bancorp, Inc. (the “Company”) and subsidiaries as of December 31, 2012 and 2011, and the related consolidated statements of earnings, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2012. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of MidSouth Bancorp, Inc. and subsidiaries as of December 31, 2012 and 2011 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2012, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of MidSouth Bancorp, Inc. and subsidiaries internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 18, 2013, expressed an unqualified opinion on the effectiveness of MidSouth Bancorp, Inc.’s internal control over financial reporting.

Atlanta, Georgia

March 18, 2013

235 Peachtree Street NE | Suite 1800 | Atlanta, Georgia 30303 | Phone 404.588.4200 | Fax 404.588.4222

- 96 -

INDEPENDENT ACCOUNTANT’S REPORT

To the Board of Directors

MidSouth Bank

Lafayette, Louisiana

We have examined the internal control over financial reporting of MidSouth Bank (the “Bank”) as of December 31, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). The Bank's management is responsible for maintaining effective internal control over financial reporting, and for its assertion of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management. Our responsibility is to express an opinion on the Bank’s internal control over financial reporting based on our examination.

We conducted our examination in accordance with attestation standards established by the American Institute of Certified Public Accountants. Those standards require that we plan and perform the examination to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our examination included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our examination also included performing such other procedures as we considered necessary in the circumstances. We believe that our examination provides a reasonable basis for our opinion.

An entity’s internal control over financial reporting is a process affected by those charged with governance, management, and other personnel, designed to provide reasonable assurance regarding the preparation of reliable financial statements in accordance with accounting principles generally accepted in the United States of America. An entity’s internal control over financial reporting includes those policies and procedures that (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the entity; (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the entity are being made only in accordance with authorizations of management and those charged with governance; and (c) provide reasonable assurance regarding prevention, or timely detection and correction of unauthorized acquisition, use, or disposition of the entity’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent, or detect and correct misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Bank maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based upon the criteria established in Internal Control – Integrated Framework issued by COSO.

235 Peachtree Street NE | Suite 1800 | Atlanta, Georgia 30303 | Phone 404.588.4200 | Fax 404.588.4222

- 97 -

We were not engaged to, and we have not, performed any procedures with respect to management's assertion regarding compliance with laws and regulations included in the accompanying Report of Management. Accordingly, we do not express any opinion, or any other form of assurance, on management's assertion regarding compliance with laws and regulations.

We also have audited, in accordance with auditing standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of MidSouth Bancorp, Inc. and subsidiaries as of December 31, 2012 and 2011, and the related consolidated statements of earnings, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2012, and our report dated March 18, 2013 expressed an unqualified opinion.

This report is intended solely for the information and use of the board of directors and management of the Bank and the Federal Deposit Insurance Corporation and is not intended to be and should not be used by anyone other than these specified parties.

Atlanta, Georgia

March 18, 2013

- 98 -

Stockholders and Board of Directors

MidSouth Bancorp, Inc. and Subsidiaries

Lafayette, Louisiana

We have audited, in accordance with auditing standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of MidSouth Bancorp, Inc. and subsidiaries (the “Company”) as of December 31, 2012, and the related consolidated statements of earnings, comprehensive income, stockholders’ equity and cash flows for the year then ended, and have issued our report thereon dated March 15, 2013.

In connection with our audit, nothing came to our attention that caused us to believe that the Company failed to comply with the Small Business Lending Fund Securities Purchase Agreement (the “Agreement”) between the Company and the United States Department of the Treasury (the “Treasury”) dated September 1, 2011, insofar as the Agreement relates to accounting matters provided on the Company’s Supplemental Reports filed with Treasury during the year ended December 31, 2012 under sections 1.3(j) and 3.1(d) of the Agreement, including that the Company’s Supplemental Reports set forth a complete and accurate statement of loans held by the Company in each of the categories described therein for the time periods specified therein. However, our audit was not directed primarily toward obtaining knowledge of such noncompliance.

This report is intended solely for the information and use of the Company and the Treasury and is not intended to be and should not be used by anyone other than these specified parties.

Atlanta, Georgia

March 18, 2013

235 Peachtree Street NE | Suite 1800 | Atlanta, Georgia 30303 | Phone 404.588.4200 | Fax 404.588.4222

- 99 -

Selected Quarterly Financial Data (unaudited)
(Dollars in thousands, except per share data)
	2012
	IV		III		II			I
Interest income	$	15,036	$	15,355	$	15,298	$	15,333
Interest expense		1,354		1,468		1,489		1,529
Net interest income		13,682		13,887		13,809		13,804
Provision for loan losses		500		300		575		675
Net interest income after provision for loan losses		13,182		13,587		13,234		13,129
Gain on sale of investments, net		-		69		135		-
Other noninterest income		3,697		3,685		3,830		3,528
Noninterest expense		14,567		13,630		13,790		12,668
Earnings before income taxes		2,312		3,711		3,409		3,989
Income tax expense		683		1,062		931		1,103
Net earnings		1,629		2,649		2,478		2,886
Dividends on preferred stock		367		400		380		400
Net earnings available to common stockholders	$	1,262	$	2,249	$	2,098	$	2,486
Earnings per common share - basic	$	0.12	$	0.21	$	0.20	$	0.24
Earnings per common share - diluted	$	0.12	$	0.21	$	0.20	$	0.24
Market price of common stock
High	$	17.06	$	16.38	$	14.72	$	14.39
Low	$	13.93	$	12.75	$	12.72	$	12.05
Close	$	16.35	$	16.17	$	14.08	$	13.60
Average shares outstanding - basic		10,512,255		10,478,456		10,469,681		10,465,506
Average shares outstanding - diluted		10,599,583		10,517,999		10,496,513		10,480,207

	2011
	IV			III			II				I
Interest income	$	14,564		$	13,120		$	11,935		$	11,388
Interest expense		1,489			1,462			1,404			1,447
Net interest income		13,075			11,658			10,531			9,941
Provision for loan losses		775			650			900			1,600
Net interest income after provision for loan losses		12,300			11,008			9,631			8,341
Noninterest income		3,420			3,398			3,213			3,030
Noninterest expense		14,169			13,175			11,233			10,727
Earnings before income tax expense		1,551			1,231			1,611			644
Income tax benefit (expense)		(272	)		(131	)		(258	)		97
Net earnings		1,279			1,100			1,353			741
Dividends on preferred stock		400			804			299			299
Net earnings available to common stockholders	$	879		$	296		$	1,054		$	442
Earnings per common share - basic	$	0.09		$	0.03		$	0.10		$	0.05
Earnings per common share - diluted	$	0.09		$	0.03		$	0.10		$	0.05
Market price of common stock
High	$	14.50		$	13.95		$	15.00		$	15.71
Low	$	10.15		$	9.70		$	12.78		$	12.82
Close	$	13.01		$	10.69		$	13.48		$	14.22
Average shares outstanding - basic		9,976,057			9,726,024			9,723,156			9,720,288
Average shares outstanding - diluted		9,988,472			9,740,275			9,739,482			9,735,779

- 100 -

Item 9 – Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A – 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 Annual Report on Form 10-K, the Chief Executive Officer and Chief Financial Officer have concluded that such disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission rules and forms.

During the fourth quarter of 2012, there were no significant changes in the Company’s internal controls over financial reporting that has materially affected, or is reasonably likely to affect, the Company’s internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

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 designed to ensure that 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.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2012 based on the criteria for effective internal control established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Based on the assessment, management determined that the Company maintained effective internal control over financial reporting as of December 31, 2012.

Our independent registered public accountants have issued an audit report on the Company’s internal control over financial reporting.  Their report is included on page 95 in this Annual Report on Form 10-K.

Item 9B – Other Information

Not applicable.

- 101 -

PART III

Item 10 - Directors, Executive Officers, and Corporate Governance

The information set forth under the heading “Executive Officers of the Registrant” in Part I of this Annual Report on Form 10-K, is incorporated herein by reference.

The information set forth under the headings “Item 1. Election of Directors,” “Corporate Governance – Section 16(a) Beneficial Ownership Reporting Compliance,” “Corporate Governance – Code of Ethics,” and “Corporate Governance – Standing Board Committees” in the Company’s Proxy Statement for the 2013 Annual Meeting of Stockholders is incorporated herein by reference.

The Company has adopted a code of ethics that applies to its principal executive officer, principal financial officer and principal accounting officer. This code of ethics (which is entitled “Code of Ethics”) and the Company’s corporate governance policies are posted on the Investor Relations page of Company’s website at http://www.midsouthbank.com. The Company intends to satisfy disclosure requirements regarding amendments to or waivers from its code of ethics by posting such information on this website. The charters of the Audit Committee, Compensation Committee, Executive Committee and the Corporate Governance and Nominating Committee of the Company’s Board of Directors are available on the Company’s website as well. This information is also available in print free of charge to any person who requests it.

Item 11 - Executive Compensation

The information set forth under the headings “Compensation Discussion and Analysis,” “Summary Compensation Table,” “Grants of Plan-Based Awards,” “Outstanding Equity Awards at Fiscal Year-End,” “Options Exercised and Stock Vested,” “Pension Benefits,” “Nonqualified Deferred Compensation,” “Potential Payments Upon Termination or Change of Control,” “Outside Director Compensation,” “Corporate Governance – Compensation Committee Interlocks and Insider Participation,” and “Compensation Committee Report” in the Company’s Proxy Statement for the 2013 Annual Meeting of Stockholders is incorporated herein by reference.

Item 12 - Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

The information set forth under the headings “Securities Authorized for Issuance under Equity Compensation Plans” in this Annual Report on Form 10-K, is incorporated by reference to the sections entitled “Security Ownership of Management and Certain Beneficial Owners – Security Ownership of Management” and “Security Ownership of Management and Certain Beneficial Owners – Security Ownership of Certain Beneficial Owners” in the Company’s Proxy Statement for the 2013 Annual Meeting of Stockholders is incorporated herein by reference.

Securities Authorized for Issuance under Equity Compensation Plans

As of December 31, 2012, the Company had outstanding stock options and restricted stock granted under our incentive compensation plans, which were approved by the Company’s stockholders.  Provided below is information regarding the Company’s equity compensation plans under which the Company’s equity securities are authorized for issuance as of December 31, 2012, subject to the Company’s available authorized shares.

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants, and rights (a)		Weighted-average exercise price of outstanding options, warrants, and rights (b)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders		323,158	$	13.33		222,825
Equity compensation plans not approved by security holders		-		-		-
Total		323,158	$	13.33		222,825

- 102 -

Item 13 - Certain Relationships and Related Transactions and Director Independence

The information set forth under the headings “Certain Relationships and Related Transactions” and “Corporate Governance – Board Independence” in the Company’s Proxy Statement for the 2013 Annual Meeting of Stockholders is incorporated herein by reference.

Item 14 – Principal Accounting Fees and Services

The information set forth under the heading “Relationship with Independent Registered Public Accountants” in the Company’s Proxy Statement for the 2013 Annual Meeting of Stockholders is incorporated herein by reference.

Item 15 - Exhibits and Financial Statement Schedules

The following documents are filed as a part of this report:

(a)(1) The following consolidated financial statements and supplementary data of the Company are included in Part II of this Form 10-K:

Selected Quarterly Financial Data

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets – December 31, 2012 and 2011

Consolidated Statements of Earnings – Years ended December 31, 2012, 2011, and 2010

Consolidated Statements of Changes in Stockholders’ Equity – Years ended December 31, 2012, 2011, and 2010

Consolidated Statements of Cash Flows – Years ended December 31, 2012, 2011, and 2010

Notes to Consolidated Financial Statements

(a)(2) All schedules have been outlined because the information required is included in the financial statements or notes or have been omitted because they are not applicable or not required.

- 103 -

Exhibits

Exhibit No.	Description
2.1	Agreement and Plan of Merger By and Between MidSouth Bancorp, Inc. and PSB Financial Corporation dated as of September 26, 2012 (filed as Exhibit 2.1 to Form 8-K filed September 27, 2012 and incorporated herein by reference).
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)*
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).
4.1	Specimen Common Stock Certificate. (filed as Exhibit 4.1 to MidSouth’s Registration Statement (No. 333-163361) on Form S-1 filed November 25, 2009 and incorporated herein by reference).
4.2	Warrant to Purchase Shares of Common Stock of MidSouth Bancorp, Inc. (filed as Exhibit 3.2 to Form 8-K filed January 14, 2009 and incorporated herein by reference).
10.1	MidSouth National Bank Lease Agreement with Southwest Bank Building Limited Partnership (filed as Exhibit 10.7 to the Company's annual report on Form 10-K for the Year Ended December 31, 1992, and incorporated herein by reference).
10.2	First Amendment to Lease between MBL Life Assurance Corporation, successor in interest to Southwest Bank Building Limited Partnership in Commendam, and MidSouth National Bank (filed as Exhibit 10.1 to the Company's annual report on Form 10-KSB for the year ended December 31, 1994, and incorporated herein by reference).
10.3+	Amended and Restated Deferred Compensation Plan and Trust effective dated December 17, 2008 (filed as Exhibit 10.3 to MidSouth’s Annual Report on Form 10-K for the year ended December 31, 2008 and incorporated herein by reference).
10.4+	MidSouth Bancorp, Inc. 2007 Omnibus Incentive Compensation Plan, as amended and restated effective May 23, 2012 (filed as Exhibit 10.1 to Form 8-K filed May 25, 2012 and incorporated herein by reference).
10.5+	Form of Incentive Stock Option Agreement under the 2007 Omnibus Incentive Compensation Plan (filed as Exhibit 10.2 to Form 8-K filed May 25, 2012 and incorporated herein by reference).
10.6+	Form of Restricted Stock Award Agreement (filed as Exhibit 10.1 to the Form 8-K filed July 6, 2010 and incorporated herein by reference).
10.7	Small Business Lending Fund Securities Purchase Agreement, dated August 25, 2011, between MidSouth Bancorp, Inc. and the Secretary of the Treasury (filed as Exhibit 10.1 to the Form 8-K filed on August 29, 2011 and incorporated herein by reference).

- 104 -

10.8+	MidSouth Bancorp, Inc. 2012 Annual Incentive Compensation Plan (filed as Exhibit 10.1 to MidSouth’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 and incorporated herein by reference).
10.9+	MidSouth Bancorp, Inc. 2013 Annual Incentive Compensation Plan*
10.10+	Executive Indexed Salary Continuation Agreement between MidSouth Bancorp, Inc. and C.R. Cloutier
21	Subsidiaries of the Registrant*
23.1	Consent of Porter, Keadle, Moore LLC*
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended *
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and  Rule 15d-14(a) of the Securities Exchange Act, as amended *
32.1	Certification by the Company’s Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
32.2	Certification by the Company’s Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
99.1	Contingent Value Rights Agreement, between MidSouth Bancorp, Inc. and Computershare Shareowner Services, LLC, dated December 28, 2012 (filed as Exhibit 99.1 to Form 8-K filed December 31, 2012 and incorporated herein by reference).
101	The following financial information from the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, formatted in Extensible Business Reporting Language (“XBRL”): (i) Consolidated Statements of Operations, (ii) Consolidated Balance Sheets, (iii) Consolidated Statements of Stockholders’ Equity, (iv) Consolidated Statements of Cash Flows and (v) Notes to Consolidated Financial Statements.**

  + Management contract or compensatory plan or arrangement

  * Included herewith

** 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.

Agreements with respect to certain of the Company’s long-term debt are not filed as Exhibits hereto inasmuch as the debt authorized under any such agreement does not exceed 10% of the Company’s total assets.  The Company agrees to furnish a copy of each such agreement to the Securities & Exchange Commission upon request.

- 105 -

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		MIDSOUTH BANCORP, INC.
		Registrant
		By:	/s/ C. R. Cloutier
			C. R. Cloutier
			President and Chief Executive Officer
Date:	March 18, 2013

- 106 -

Signatures	Title	Date
/s/ C.R. Cloutier	Principal Executive Officer, President, and Director	March 18, 2013
C.R. Cloutier
/s/ James R. McLemore	Principal Financial Officer and Senior Executive Vice President	March 18, 2013
James R. McLemore
/s/ Teri S. Stelly	Principal Accounting Officer and Controller	March 18, 2013
Teri S. Stelly
/s/ Gerald B. Reaux, Jr.	Director	March 18, 2013
Gerald B. Reaux, Jr.
/s/ J.B. Hargroder, M.D.	Director	March 18, 2013
J.B. Hargroder, M.D.
/s/ William M. Simmons	Director	March 18, 2013
William M. Simmons
/s/ Will Charbonnet, Sr.	Director	March 18, 2013
Will Charbonnet, Sr.
/s/ Clayton Paul Hillard	Director	March 18, 2013
Clayton Paul Hillard
/s/ James R. Davis, Jr.	Director	March 18, 2013
James R. Davis, Jr.
/s/ Timothy J. Lemoine	Director	March 18, 2013
Timothy J. Lemoine
/s/ Joseph V. Tortorice, Jr.	Director	March 18, 2013
Joseph V. Tortorice, Jr.
/s/ Milton B. Kidd, III	Director	March 18, 2013
Milton B. Kidd, III
/s/ R. Glenn Pumpelly	Director	March 18, 2013
R. Glenn Pumpelly
/s/ Leonard Q. Abington	Director	March 18, 2013
Leonard Q. Abington

- 107 -

EX-3.1

Exhibit 3.1

AMENDED AND RESTATED

ARTICLES OF INCORPORATION

OF

MIDSOUTH BANCORP, INC.

(As Amended through March 15, 2013 and Restated Solely for Purposes of Item 601(b)(3) of Regulation S-K)

ARTICLE I

Name

The name of the Corporation is “MidSouth Bancorp, Inc.”

ARTICLE II

Purpose

The Corporation’s purpose is to engage in any lawful activity for which corporations may be formed under the Business Corporation Law of Louisiana.

ARTICLE III

Capital

A.            Authorized Stock. The Corporation shall have the authority to issue 35,000,000 shares of capital stock, of which 30,000,000 shares shall be Common Stock, $0.10 par value per share, and 5,000,000 shares shall be Preferred Stock, no par value per share.

B.            Preferred Stock. Shares of Preferred Stock may be issued from time to time in one or more series. Authority is hereby vested in the Board of Directors of the Corporation to amend these Articles of Incorporation from time to time to fix the preferences, limitations and relative rights as between the Preferred Stock and the Common Stock and to fix variations in the preferences, limitations and relative rights as between different series of Preferred Stock.

C.            Authorization of Issuance of Common or Preferred Stock. Any issuance of Common or Preferred Stock must be authorized by a majority of Continuing Directors, as defined in these Articles of Incorporation, in addition to a majority of the members of the Board of Directors present at a meeting of directors.

D.            Total Voting Power. For purposes of these Articles of Incorporation, “Total Voting Power” means the total number of votes that shareholders (and holders of any bonds, debentures or other obligations granted voting rights by the Corporation pursuant to La. R.S. 12:75(H)) are entitled to cast with respect to the election of directors or, if such term is used in reference to any other particular matter properly brought before the shareholders for a vote, means the total number of such votes that are entitled to be cast with respect to such matter.

E.             Designated Preferred Stock.

(1) Designation and Number of Shares.  There is hereby created out of the authorized and unissued shares of preferred stock of the Corporation a series of preferred stock designated as the “Fixed Rate Cumulative Perpetual Preferred Stock, Series “A” (the “Designated Preferred Stock”).  The authorized number of shares of Designated Preferred Stock shall be 20,000.

(2) Standard Provisions.  The Standard Provisions contained in Annex A that immediately follows this Section E are incorporated herein by reference in their entirety and shall be deemed to be part of this Section E of Article III of the Articles of Incorporation.

(3) Definitions.  The following terms are used in this Section E (including the Standard Provisions in Annex A hereto) and are defined below:

(a) “Common Stock” means the common stock, par value $.10 per share, of the Corporation.

(b) “Dividend Payment Date” means February 15, May 15, August 15 and November 15 of each year.

(c) “Junior Stock” means the Common Stock and any other class or series of stock of the Corporation the terms of which expressly provide that it ranks junior to Designated Preferred Stock as to dividend rights and/or as to rights on liquidation, dissolution or winding up of the Corporation.

(d) “Liquidation Amount” means $1,000 per share of Designated Preferred Stock.

(e) “Minimum Amount” means $5,000,000.

(f) “Parity Stock” means any class or series of stock of the Corporation (other than Designated Preferred Stock) the terms of which do not expressly provide that such class or series will rank senior or junior to Designated Preferred Stock as to dividend rights and/or as to rights on liquidation, dissolution or winding up of the Corporation (in each case without regard to whether dividends accrue cumulatively or non-cumulatively).

(g) “Signing Date” means the Original Issue Date.

(4) Certain Voting Matters.  Holders of shares of Designated Preferred Stock will be entitled to one vote for each such share on any matter on which holders of Designated Preferred Stock are entitled to vote, including any action by written consent.

ANNEX A TO SECTION E OF ARTICLE III - STANDARD PROVISIONS

Section 1.    General Matters. Each share of Designated Preferred Stock shall be identical in all respects to every other share of Designated Preferred Stock. The Designated Preferred Stock shall be perpetual, subject to the provisions of Section 5 of these Standard Provisions that form a part of Article IIIE of the Articles of Incorporation. The Designated Preferred Stock shall rank equally with Parity Stock and shall rank senior to Junior Stock with respect to the payment of dividends and the distribution of assets in the event of any dissolution, liquidation or winding up of the Corporation.

2

Section 2.    Standard Definitions. As used herein with respect to Designated Preferred Stock:

(a)           “Applicable Dividend Rate” means (i) during the period from the Original Issue Date to, but excluding, the first day of the first Dividend Period commencing on or after the fifth anniversary of the Original Issue Date, 5% per annum and (ii) from and after the first day of the first Dividend Period commencing on or after the fifth anniversary of the Original Issue Date, 9% per annum.

(b)           “Appropriate Federal Banking Agency” means the “appropriate Federal banking agency” with respect to the Corporation as defined in Section 3(q) of the Federal Deposit Insurance Act (12 U.S.C. Section 1813(q)), or any successor provision.

(c)           “Business Combination” means a merger, consolidation, statutory share exchange or similar transaction that requires the approval of the Corporation’s stockholders.

(d)           “Business Day” means any day except Saturday, Sunday and any day on which banking institutions in the State of New York generally are authorized or required by law or other governmental actions to close.

(e)           “Bylaws” means the bylaws of the Corporation, as they may be amended from time to time.

(f)           “Certificate of Designations” means the Certificate of Designations or comparable instrument relating to the Designated Preferred Stock, of which these Standard Provisions form a part, as it may be amended from time to time.

(g)           “Charter” means the Corporation’s certificate or articles of incorporation, articles of association, or similar organizational document.

(h)           “Dividend Period” has the meaning set forth in Section 3(a).

(i)           “Dividend Record Date” has the meaning set forth in Section 3(a).

(j)           “Liquidation Preference” has the meaning set forth in Section 4(a).

(k)           “Original Issue Date” means the date on which shares of Designated Preferred Stock are first issued.

(l)           “Preferred Director” has the meaning set forth in Section 7(b).

3

(m)           “Preferred Stock” means any and all series of preferred stock of the Corporation, including the Designated Preferred Stock.

(n)           “Qualified Equity Offering” means the sale and issuance for cash by the Corporation to persons other than the Corporation or any of its subsidiaries after the Original Issue Date of shares of perpetual Preferred Stock, Common Stock or any combination of such stock, that, in each case, qualify as and may be included in Tier 1 capital of the Corporation at the time of issuance under the applicable risk-based capital guidelines of the Corporation’s Appropriate Federal Banking Agency (other than any such sales and issuances made pursuant to agreements or arrangements entered into, or pursuant to financing plans which were publicly announced, on or prior to October 13, 2008).

(o)           “Share Dilution Amount” has the meaning set forth in Section 3(b).

(p)           “Standard Provisions” mean these Standard Provisions that form a part of the Certificate of Designations relating to the Designated Preferred Stock.

(q)           “Successor Preferred Stock” has the meaning set forth in Section 5(a).

(r)           “Voting Parity Stock” means, with regard to any matter as to which the holders of Designated Preferred Stock are entitled to vote as specified in Sections 7(a) and 7(b) of these Standard Provisions that form a part of the Certificate of Designations, any and all series of Parity Stock upon which like voting rights have been conferred and are exercisable with respect to such matter.

Section 3.   Dividends.

(a) Rate. Holders of Designated Preferred Stock shall be entitled to receive, on each share of Designated Preferred Stock if, as and when declared by the Board of Directors or any duly authorized committee of the Board of Directors, but only out of assets legally available therefor, cumulative cash dividends with respect to each Dividend Period (as defined below) at a rate per annum equal to the Applicable Dividend Rate on (i) the Liquidation Amount per share of Designated Preferred Stock and (ii) the amount of accrued and unpaid dividends for any prior Dividend Period on such share of Designated Preferred Stock, if any. Such dividends shall begin to accrue and be cumulative from the Original Issue Date, shall compound on each subsequent Dividend Payment Date (i.e., no dividends shall accrue on other dividends unless and until the first Dividend Payment Date for such other dividends has passed without such other dividends having been paid on such date) and shall be payable quarterly in arrears on each Dividend Payment Date, commencing with the first such Dividend Payment Date to occur at least 20 calendar days after the Original Issue Date. In the event that any Dividend Payment Date would otherwise fall on a day that is not a Business Day, the dividend payment due on that date will be postponed to the next day that is a Business Day and no additional dividends will accrue as a result of that postponement. The period from and including any Dividend Payment Date to, but excluding, the next Dividend Payment Date is a “Dividend Period”, provided that the initial Dividend Period shall be the period from and including the Original Issue Date to, but excluding, the next Dividend Payment Date.

4

Dividends that are payable on Designated Preferred Stock in respect of any Dividend Period shall be computed on the basis of a 360-day year consisting of twelve 30-day months. The amount of dividends payable on Designated Preferred Stock on any date prior to the end of a Dividend Period, and for the initial Dividend Period, shall be computed on the basis of a 360-day year consisting of twelve 30-day months, and actual days elapsed over a 30-day month.

Dividends that are payable on Designated Preferred Stock on any Dividend Payment Date will be payable to holders of record of Designated Preferred Stock as they appear on the stock register of the Corporation on the applicable record date, which shall be the 15th calendar day immediately preceding such Dividend Payment Date or such other record date fixed by the Board of Directors or any duly authorized committee of the Board of Directors that is not more than 60 nor less than 10 days prior to such Dividend Payment Date (each, a “Dividend Record Date”). Any such day that is a Dividend Record Date shall be a Dividend Record Date whether or not such day is a Business Day.

Holders of Designated Preferred Stock shall not be entitled to any dividends, whether payable in cash, securities or other property, other than dividends (if any) declared and payable on Designated Preferred Stock as specified in this Section 3 (subject to the other provisions of the Certificate of Designations).

(b) Priority of Dividends. So long as any share of Designated Preferred Stock remains outstanding, no dividend or distribution shall be declared or paid on the Common Stock or any other shares of Junior Stock (other than dividends payable solely in shares of Common Stock) or Parity Stock, subject to the immediately following paragraph in the case of Parity Stock, and no Common Stock, Junior Stock or Parity Stock shall be, directly or indirectly, purchased, redeemed or otherwise acquired for consideration by the Corporation or any of its subsidiaries unless all accrued and unpaid dividends for all past Dividend Periods, including the latest completed Dividend Period (including, if applicable as provided in Section 3(a) above, dividends on such amount), on all outstanding shares of Designated Preferred Stock have been or are contemporaneously declared and paid in full (or have been declared and a sum sufficient for the payment thereof has been set aside for the benefit of the holders of shares of Designated Preferred Stock on the applicable record date). The foregoing limitation shall not apply to (i) redemptions, purchases or other acquisitions of shares of Common Stock or other Junior Stock in connection with the administration of any employee benefit plan in the ordinary course of business (including purchases to offset the Share Dilution Amount (as defined below) pursuant to a publicly announced repurchase plan) and consistent with past practice, provided that any purchases to offset the Share Dilution Amount shall in no event exceed the Share Dilution Amount; (ii) purchases or other acquisitions by a broker-dealer subsidiary of the Corporation solely for the purpose of market-making, stabilization or customer facilitation transactions in Junior Stock or Parity Stock in the ordinary course of its business; (iii) purchases by a broker-dealer subsidiary of the Corporation of capital stock of the Corporation for resale pursuant to an offering by the Corporation of such capital stock underwritten by such broker-dealer subsidiary; (iv) any dividends or distributions of rights or Junior Stock in connection with a stockholders’ rights plan or any redemption or repurchase of rights pursuant to any stockholders’ rights plan; (v) the acquisition by the Corporation or any of its subsidiaries of record ownership in Junior Stock or Parity Stock for the beneficial ownership of any other persons (other than the Corporation or any of its subsidiaries), including as trustees or custodians; and (vi) the exchange or conversion of Junior Stock for or into other Junior Stock or of Parity Stock for or into other Parity Stock (with the same or lesser aggregate liquidation amount) or Junior Stock, in each case, solely to the extent required pursuant to binding contractual agreements entered into prior to the Signing Date or any subsequent agreement for the accelerated exercise, settlement or exchange thereof for Common Stock. “Share Dilution Amount” means the increase in the number of diluted shares outstanding (determined in accordance with generally accepted accounting principles in the United States, and as measured from the date of the Corporation’s consolidated financial statements most recently filed with the Securities and Exchange Commission prior to the Original Issue Date) resulting from the grant, vesting or exercise of equity-based compensation to employees and equitably adjusted for any stock split, stock dividend, reverse stock split, reclassification or similar transaction.

5

When dividends are not paid (or declared and a sum sufficient for payment thereof set aside for the benefit of the holders thereof on the applicable record date) on any Dividend Payment Date (or, in the case of Parity Stock having dividend payment dates different from the Dividend Payment Dates, on a dividend payment date falling within a Dividend Period related to such Dividend Payment Date) in full upon Designated Preferred Stock and any shares of Parity Stock, all dividends declared on Designated Preferred Stock and all such Parity Stock and payable on such Dividend Payment Date (or, in the case of Parity Stock having dividend payment dates different from the Dividend Payment Dates, on a dividend payment date falling within the Dividend Period related to such Dividend Payment Date) shall be declared pro rata so that the respective amounts of such dividends declared shall bear the same ratio to each other as all accrued and unpaid dividends per share on the shares of Designated Preferred Stock (including, if applicable as provided in Section 3(a) above, dividends on such amount) and all Parity Stock payable on such Dividend Payment Date (or, in the case of Parity Stock having dividend payment dates different from the Dividend Payment Dates, on a dividend payment date falling within the Dividend Period related to such Dividend Payment Date) (subject to their having been declared by the Board of Directors or a duly authorized committee of the Board of Directors out of legally available funds and including, in the case of Parity Stock that bears cumulative dividends, all accrued but unpaid dividends) bear to each other. If the Board of Directors or a duly authorized committee of the Board of Directors determines not to pay any dividend or a full dividend on a Dividend Payment Date, the Corporation will provide written notice to the holders of Designated Preferred Stock prior to such Dividend Payment Date.

Subject to the foregoing, and not otherwise, such dividends (payable in cash, securities or other property) as may be determined by the Board of Directors or any duly authorized committee of the Board of Directors may be declared and paid on any securities, including Common Stock and other Junior Stock, from time to time out of any funds legally available for such payment, and holders of Designated Preferred Stock shall not be entitled to participate in any such dividends.

6

Section 4.   Liquidation Rights.

(a)  Voluntary or Involuntary Liquidation. In the event of any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, holders of Designated Preferred Stock shall be entitled to receive for each share of Designated Preferred Stock, out of the assets of the Corporation or proceeds thereof (whether capital or surplus) available for distribution to stockholders of the Corporation, subject to the rights of any creditors of the Corporation, before any distribution of such assets or proceeds is made to or set aside for the holders of Common Stock and any other stock of the Corporation ranking junior to Designated Preferred Stock as to such distribution, payment in full in an amount equal to the sum of (i) the Liquidation Amount per share and (ii) the amount of any accrued and unpaid dividends (including, if applicable as provided in Section 3(a) above, dividends on such amount), whether or not declared, to the date of payment (such amounts collectively, the “Liquidation Preference”).

(b)   Partial Payment. If in any distribution described in Section 4(a) above the assets of the Corporation or proceeds thereof are not sufficient to pay in full the amounts payable with respect to all outstanding shares of Designated Preferred Stock and the corresponding amounts payable with respect of any other stock of the Corporation ranking equally with Designated Preferred Stock as to such distribution, holders of Designated Preferred Stock and the holders of such other stock shall share ratably in any such distribution in proportion to the full respective distributions to which they are entitled.

(c)  Residual Distributions. If the Liquidation Preference has been paid in full to all holders of Designated Preferred Stock and the corresponding amounts payable with respect of any other stock of the Corporation ranking equally with Designated Preferred Stock as to such distribution has been paid in full, the holders of other stock of the Corporation shall be entitled to receive all remaining assets of the Corporation (or proceeds thereof) according to their respective rights and preferences.

(d)  Merger, Consolidation and Sale of Assets Not Liquidation. For purposes of this Section 4, the merger or consolidation of the Corporation with any other corporation or other entity, including a merger or consolidation in which the holders of Designated Preferred Stock receive cash, securities or other property for their shares, or the sale, lease or exchange (for cash, securities or other property) of all or substantially all of the assets of the Corporation, shall not constitute a liquidation, dissolution or winding up of the Corporation.

Section 5. Redemption.

(a)   Optional Redemption. Except as provided below, the Designated Preferred Stock may not be redeemed prior to the first Dividend Payment Date falling on or after the third anniversary of the Original Issue Date. On or after the first Dividend Payment Date falling on or after the third anniversary of the Original Issue Date, the Corporation, at its option, subject to the approval of the Appropriate Federal Banking Agency, may redeem, in whole or in part, at any time and from time to time, out of funds legally available therefor, the shares of Designated Preferred Stock at the time outstanding, upon notice given as provided in Section 5(c) below, at a redemption price equal to the sum of (i) the Liquidation Amount per share and (ii) except as otherwise provided below, any accrued and unpaid dividends (including, if applicable as provided in Section 3(a) above, dividends on such amount) (regardless of whether any dividends are actually declared) to, but excluding, the date fixed for redemption.

7

Notwithstanding the foregoing, prior to the first Dividend Payment Date falling on or after the third anniversary of the Original Issue Date, the Corporation, at its option, subject to the approval of the Appropriate Federal Banking Agency, may redeem, in whole or in part, at any time and from time to time, the shares of Designated Preferred Stock at the time outstanding, upon notice given as provided in Section 5(c) below, at a redemption price equal to the sum of (i) the Liquidation Amount per share and (ii) except as otherwise provided below, any accrued and unpaid dividends (including, if applicable as provided in Section 3(a) above, dividends on such amount) (regardless of whether any dividends are actually declared) to, but excluding, the date fixed for redemption; provided that (x) the Corporation (or any successor by Business Combination) has received aggregate gross proceeds of not less than the Minimum Amount (plus the “Minimum Amount” as defined in the relevant certificate of designations for each other outstanding series of preferred stock of such successor that was originally issued to the United States Department of the Treasury (the “Successor Preferred Stock”) in connection with the Troubled Asset Relief Program Capital Purchase Program) from one or more Qualified Equity Offerings (including Qualified Equity Offerings of such successor), and (y) the aggregate redemption price of the Designated Preferred Stock (and any Successor Preferred Stock) redeemed pursuant to this paragraph may not exceed the aggregate net cash proceeds received by the Corporation (or any successor by Business Combination) from such Qualified Equity Offerings (including Qualified Equity Offerings of such successor).

The redemption price for any shares of Designated Preferred Stock shall be payable on the redemption date to the holder of such shares against surrender of the certificate(s) evidencing such shares to the Corporation or its agent. Any declared but unpaid dividends payable on a redemption date that occurs subsequent to the Dividend Record Date for a Dividend Period shall not be paid to the holder entitled to receive the redemption price on the redemption date, but rather shall be paid to the holder of record of the redeemed shares on such Dividend Record Date relating to the Dividend Payment Date as provided in Section 3 above.

(b)   No Sinking Fund. The Designated Preferred Stock will not be subject to any mandatory redemption, sinking fund or other similar provisions. Holders of Designated Preferred Stock will have no right to require redemption or repurchase of any shares of Designated Preferred Stock.

(c)   Notice of Redemption. Notice of every redemption of shares of Designated Preferred Stock shall be given by first class mail, postage prepaid, addressed to the holders of record of the shares to be redeemed at their respective last addresses appearing on the books of the Corporation. Such mailing shall be at least 30 days and not more than 60 days before the date fixed for redemption. Any notice mailed as provided in this Subsection shall be conclusively presumed to have been duly given, whether or not the holder receives such notice, but failure duly to give such notice by mail, or any defect in such notice or in the mailing thereof, to any holder of shares of Designated Preferred Stock designated for redemption shall not affect the validity of the proceedings for the redemption of any other shares of Designated Preferred Stock. Notwithstanding the foregoing, if shares of Designated Preferred Stock are issued in book-entry form through The Depository Trust Corporation or any other similar facility, notice of redemption may be given to the holders of Designated Preferred Stock at such time and in any manner permitted by such facility. Each notice of redemption given to a holder shall state: (1) the redemption date; (2) the number of shares of Designated Preferred Stock to be redeemed and, if less than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (3) the redemption price; and (4) the place or places where certificates for such shares are to be surrendered for payment of the redemption price.

8

(d)   Partial Redemption. In case of any redemption of part of the shares of Designated Preferred Stock at the time outstanding, the shares to be redeemed shall be selected either pro rata or in such other manner as the Board of Directors or a duly authorized committee thereof may determine to be fair and equitable. Subject to the provisions hereof, the Board of Directors or a duly authorized committee thereof shall have full power and authority to prescribe the terms and conditions upon which shares of Designated Preferred Stock shall be redeemed from time to time. If fewer than all the shares represented by any certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without charge to the holder thereof.

(e)   Effectiveness of Redemption. If notice of redemption has been duly given and if on or before the redemption date specified in the notice all funds necessary for the redemption have been deposited by the Corporation, in trust for the pro rata benefit of the holders of the shares called for redemption, with a bank or trust company doing business in the Borough of Manhattan, The City of New York, and having a capital and surplus of at least $500 million and selected by the Board of Directors, so as to be and continue to be available solely therefor, then, notwithstanding that any certificate for any share so called for redemption has not been surrendered for cancellation, on and after the redemption date dividends shall cease to accrue on all shares so called for redemption, all shares so called for redemption shall no longer be deemed outstanding and all rights with respect to such shares shall forthwith on such redemption date cease and terminate, except only the right of the holders thereof to receive the amount payable on such redemption from such bank or trust company, without interest. Any funds unclaimed at the end of three years from the redemption date shall, to the extent permitted by law, be released to the Corporation, after which time the holders of the shares so called for redemption shall look only to the Corporation for payment of the redemption price of such shares.

(f)   Status of Redeemed Shares. Shares of Designated Preferred Stock that are redeemed, repurchased or otherwise acquired by the Corporation shall revert to authorized but unissued shares of Preferred Stock (provided that any such cancelled shares of Designated Preferred Stock may be reissued only as shares of any series of Preferred Stock other than Designated Preferred Stock).

Section 6.   Conversion. Holders of Designated Preferred Stock shares shall have no right to exchange or convert such shares into any other securities.

9

Section 7.  Voting Rights.

(a)   General. The holders of Designated Preferred Stock shall not have any voting rights except as set forth below or as otherwise from time to time required by law.

(b)   Preferred Stock Directors. Whenever, at any time or times, dividends payable on the shares of Designated Preferred Stock have not been paid for an aggregate of six quarterly Dividend Periods or more, whether or not consecutive, the authorized number of directors of the Corporation shall automatically be increased by two and the holders of the Designated Preferred Stock shall have the right, with holders of shares of any one or more other classes or series of Voting Parity Stock outstanding at the time, voting together as a class, to elect two directors (hereinafter the “Preferred Directors” and each a “Preferred Director”) to fill such newly created directorships at the Corporation’s next annual meeting of stockholders (or at a special meeting called for that purpose prior to such next annual meeting) and at each subsequent annual meeting of stockholders until all accrued and unpaid dividends for all past Dividend Periods, including the latest completed Dividend Period (including, if applicable as provided in Section 3(a) above, dividends on such amount), on all outstanding shares of Designated Preferred Stock have been declared and paid in full at which time such right shall terminate with respect to the Designated Preferred Stock, except as herein or by law expressly provided, subject to revesting in the event of each and every subsequent default of the character above mentioned; provided that it shall be a qualification for election for any Preferred Director that the election of such Preferred Director shall not cause the Corporation to violate any corporate governance requirements of any securities exchange or other trading facility on which securities of the Corporation may then be listed or traded that listed or traded companies must have a majority of independent directors. Upon any termination of the right of the holders of shares of Designated Preferred Stock and Voting Parity Stock as a class to vote for directors as provided above, the Preferred Directors shall cease to be qualified as directors, the term of office of all Preferred Directors then in office shall terminate immediately and the authorized number of directors shall be reduced by the number of Preferred Directors elected pursuant hereto. Any Preferred Director may be removed at any time, with or without cause, and any vacancy created thereby may be filled, only by the affirmative vote of the holders a majority of the shares of Designated Preferred Stock at the time outstanding voting separately as a class together with the holders of shares of Voting Parity Stock, to the extent the voting rights of such holders described above are then exercisable. If the office of any Preferred Director becomes vacant for any reason other than removal from office as aforesaid, the remaining Preferred Director may choose a successor who shall hold office for the unexpired term in respect of which such vacancy occurred.

(c)   Class Voting Rights as to Particular Matters. So long as any shares of Designated Preferred Stock are outstanding, in addition to any other vote or consent of stockholders required by law or by the Charter, the vote or consent of the holders of at least 66 2/3% of the shares of Designated Preferred Stock at the time outstanding, voting as a separate class, given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, shall be necessary for effecting or validating:

(i)  Authorization of Senior Stock. Any amendment or alteration of the Certificate of Designations for the Designated Preferred Stock or the Charter to authorize or create or increase the authorized amount of, or any issuance of, any shares of, or any securities convertible into or exchangeable or exercisable for shares of, any class or series of capital stock of the Corporation ranking senior to Designated Preferred Stock with respect to either or both the payment of dividends and/or the distribution of assets on any liquidation, dissolution or winding up of the Corporation;

10

(ii)  Amendment of Designated Preferred Stock. Any amendment, alteration or repeal of any provision of the Certificate of Designations for the Designated Preferred Stock or the Charter (including, unless no vote on such merger or consolidation is required by Section 7 (c)(iii) below, any amendment, alteration or repeal by means of a merger, consolidation or otherwise) so as to adversely affect the rights, preferences, privileges or voting powers of the Designated Preferred Stock; or (iii) Share Exchanges, Reclassifications, Mergers and Consolidations. Any consummation of a binding share exchange or reclassification involving the Designated Preferred Stock, or of a merger or consolidation of the Corporation with another corporation or other entity, unless in each case (x) the shares of Designated Preferred Stock remain outstanding or, in the case of any such merger or consolidation with respect to which the Corporation is not the surviving or resulting entity, are converted into or exchanged for preference securities of the surviving or resulting entity or its ultimate parent, and (y) such shares remaining outstanding or such preference securities, as the case may be, have such rights, preferences, privileges and voting powers, and limitations and restrictions thereof, taken as a whole, as are not materially less favorable to the holders thereof than the rights, preferences, privileges and voting powers, and limitations and restrictions thereof, of Designated Preferred Stock immediately prior to such consummation, taken as a whole; provided, however, that for all purposes of this Section 7(c), any increase in the amount of the authorized Preferred Stock, including any increase in the authorized amount of Designated Preferred Stock necessary to satisfy preemptive or similar rights granted by the Corporation to other persons prior to the Signing Date, or the creation and issuance, or an increase in the authorized or issued amount, whether pursuant to preemptive or similar rights or otherwise, of any other series of Preferred Stock, or any securities convertible into or exchangeable or exercisable for any other series of Preferred Stock, ranking equally with and/or junior to Designated Preferred Stock with respect to the payment of dividends (whether such dividends are cumulative or non-cumulative) and the distribution of assets upon liquidation, dissolution or winding up of the Corporation will not be deemed to adversely affect the rights, preferences, privileges or voting powers, and shall not require the affirmative vote or consent of, the holders of outstanding shares of the Designated Preferred Stock.

(d)   Changes after Provision for Redemption. No vote or consent of the holders of Designated Preferred Stock shall be required pursuant to Section 7(c) above if, at or prior to the time when any such vote or consent would otherwise be required pursuant to such Section, all outstanding shares of the Designated Preferred Stock shall have been redeemed, or shall have been called for redemption upon proper notice and sufficient funds shall have been deposited in trust for such redemption, in each case pursuant to Section 5 above.

(e)   Procedures for Voting and Consents. The rules and procedures for calling and conducting any meeting of the holders of Designated Preferred Stock (including, without limitation, the fixing of a record date in connection therewith), the solicitation and use of proxies at such a meeting, the obtaining of written consents and any other aspect or matter with regard to such a meeting or such consents shall be governed by any rules of the Board of Directors or any duly authorized committee of the Board of Directors, in its discretion, may adopt from time to time which rules and procedures shall conform to the requirements of the Charter, the Bylaws, and applicable law and the rules of any national securities exchange or other trading facility on which Designated Preferred Stock is listed or traded at the time.

11

Section 8.  Record Holders. To the fullest extent permitted by applicable law, the Corporation and the transfer agent for Designated Preferred Stock may deem and treat the record holder of any share of Designated Preferred Stock as the true and lawful owner thereof for all purposes, and neither the Corporation nor such transfer agent shall be affected by any notice to the contrary.

Section 9.  Notices. All notices or communications in respect of Designated Preferred Stock shall be sufficiently given if given in writing and delivered in person or by first class mail, postage prepaid, or if given in such other manner as may be permitted in this Certificate of Designations, in the Charter or Bylaws or by applicable law. Notwithstanding the foregoing, if shares of Designated Preferred Stock are issued in book-entry form through The Depository Trust Corporation or any similar facility, such notices may be given to the holders of Designated Preferred Stock in any manner permitted by such facility.

Section 10.  No Preemptive Rights. No share of Designated Preferred Stock shall have any rights of preemption whatsoever as to any securities of the Corporation, or any warrants, rights or options issued or granted with respect thereto, regardless of how such securities, or such warrants, rights or options, may be designated, issued or granted.

Section 11. Replacement Certificates. The Corporation shall replace any mutilated certificate at the holder’s expense upon surrender of that certificate to the Corporation. The Corporation shall replace certificates that become destroyed, stolen or lost at the holder’s expense upon delivery to the Corporation of reasonably satisfactory evidence that the certificate has been destroyed, stolen or lost, together with any indemnity that may be reasonably required by the Corporation.

Section 12.  Other Rights. The shares of Designated Preferred Stock shall not have any rights, preferences, privileges or voting powers or relative, participating, optional or other special rights, or qualifications, limitations or restrictions thereof, other than as set forth herein or in the Charter or as provided by applicable law.

F.   Designation of Senior Non-Cumulative Perpetual Preferred Stock, Series B.

Part 1. Designation and Number of Shares. There is hereby created out of the authorized and unissued shares of preferred stock of the Issuer a series of preferred stock designated as the “Senior Non-Cumulative Perpetual Preferred Stock, Series B” (the “Designated Preferred Stock”). The authorized number of shares of Designated Preferred Stock shall be 32,000.

12

Part 2.  Standard Provisions. The Standard Provisions contained in Schedule A attached hereto are incorporated herein by reference in their entirety and shall be deemed to be a part of this Section F to the same extent as if such provisions had been set forth in full herein.

Part 3.  Definitions. The following terms are used in this Section F (including the Standard Provisions in Schedule A hereto) as defined below:

(a)       “Common Stock” means the common stock, par value $0.10 per share, of the Issuer.

(b)      “Definitive Agreement” means that certain Securities Purchase Agreement by and between Issuer and Treasury, dated as of the Signing Date.

(c)       “Junior Stock” means the Common Stock and any other class or series of stock of the Issuer the terms of which expressly provide that it ranks junior to Designated Preferred Stock as to dividend and redemption rights and/or as to rights on liquidation, dissolution or winding up of the Issuer.

(d)       “Liquidation Amount” means $1,000 per share of Designated Preferred Stock.

(e)       “Minimum Amount” means (i) the amount equal to twenty-five percent (25%) of the aggregate Liquidation Amount of Designated Preferred Stock issued on the Original Issue Date or (ii) all of the outstanding Designated Preferred Stock, if the aggregate liquidation preference of the outstanding Designated Preferred Stock is less than the amount set forth in the preceding clause (i).

(f)       “Parity Stock” means any class or series of stock of the Issuer (other than Designated Preferred Stock) the terms of which do not expressly provide that such class or series will rank senior or junior to Designated Preferred Stock as to dividend rights and/or as to rights on liquidation, dissolution or winding up of the Issuer (in each case without regard to whether dividends accrue cumulatively or non-cumulatively).

(g)      “Signing Date” means August 25, 2011.

(h)       “Treasury” means the United States Department of the Treasury and any successor in interest thereto.

Part 4.  Certain Voting Matters. Holders of shares of Designated Preferred Stock will be entitled to one vote for each such share on any matter on which holders of Designated Preferred Stock are entitled to vote, including any action by written consent.

SCHEDULE A TO SECTION F OF ARTICLE III - STANDARD PROVISIONS

Section 1.  General Matters. Each share of Designated Preferred Stock shall be identical in all respects to every other share of Designated Preferred Stock. The Designated Preferred Stock shall be perpetual, subject to the provisions of Section 5 of these Standard Provisions that form a part of the Certificate of Designation. The Designated Preferred Stock shall rank equally with Parity Stock and shall rank senior to Junior Stock with respect to the payment of dividends and the distribution of assets in the event of any dissolution, liquidation or winding up of the Issuer, as set forth below.

13

Section 2.  Standard Definitions. As used herein with respect to Designated Preferred Stock:

(a)   “Acquiror,” in any Holding Company Transaction, means the surviving or resulting entity or its ultimate parent in the case of a merger or consolidation or the transferee in the case of a sale, lease or other transfer in one transaction or a series of related transactions of all or substantially all of the consolidated assets of the Issuer and its subsidiaries, taken as a whole.

(b)   “Affiliate” means, with respect to any person, any person directly or indirectly controlling, controlled by or under common control with, such other person. For purposes of this definition, “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”) when used with respect to any person, means the possession, directly or indirectly through one or more intermediaries, of the power to cause the direction of management and/or policies of such person, whether through the ownership of voting securities by contract or otherwise.

(c)   “Applicable Dividend Rate” has the meaning set forth in Section 3(a).

(d)   “Appropriate Federal Banking Agency” means the “appropriate Federal banking agency” with respect to the Issuer as defined in Section 3(q) of the Federal Deposit Insurance Act (12 U.S.C. Section 1813(q)), or any successor provision.

(e)   “Bank Holding Company” means a company registered as such with the Board of Governors of the Federal Reserve System pursuant to 12 U.S.C. §1842 and the regulations of the Board of Governors of the Federal Reserve System thereunder.

(f)   “Baseline” means the “Initial Small Business Lending Baseline” set forth on the Initial Supplemental Report (as defined in the Definitive Agreement), subject to adjustment pursuant to Section 3(a).

(g)   “Business Combination” means a merger, consolidation, statutory share exchange or similar transaction that requires the approval of the Issuer’s stockholders.

(h)   “Business Day” means any day except Saturday, Sunday and any day on which banking institutions in the State of New York or the District of Columbia generally are authorized or required by law or other governmental actions to close.

(i)   “Bylaws” means the bylaws of the Issuer, as they may be amended from time to time.

14

(j)    “Call Report” has the meaning set forth in the Definitive Agreement.

(k)    “Certificate of Designation” means the Certificate of Designation or comparable instrument relating to the Designated Preferred Stock, of which these Standard Provisions form a part, as it may be amended from time to time.

(l)    “Charge-Offs” means the net amount of loans charged off by the Issuer or, if the Issuer is a Bank Holding Company or a Savings and Loan Holding Company, by the IDI Subsidiary(ies) during quarters that begin on or after the Signing Date, determined as follows:

(i)    if the Issuer or the applicable IDI Subsidiary is a bank, by subtracting (A) the aggregate dollar amount of recoveries reflected on line RIAD4605of its Call Reports for such quarters from (B) the aggregate dollar amount of charge-offs reflected on line RIAD4635 of its Call Reports for such quarters (without duplication as a result of such dollar amounts being reported on a year-to-date basis); or

(ii)   if the Issuer or the applicable IDI Subsidiary is a thrift, by subtracting (A) the sum of the aggregate dollar amount of recoveries reflected on line VA140 of its Call Reports for such quarters and the aggregate dollar amount of adjustments reflected on line VA150 of its Call Reports for such quarters from (B) the aggregate dollar amount of charge-offs reflected on lineVA160 of its Call Reports for such quarters.

(m)   “Charter” means the Issuer’s certificate or articles of incorporation, articles of association, or similar organizational document.

(n)   “CPP Lending Incentive Fee” has the meaning set forth in Section 3(e).

(o)   “Current Period” has the meaning set forth in Section 3(a)(i)(2).

(p)   “Dividend Payment Date” means January 1, April 1, July 1, and October 1 of each year.

(q)   “Dividend Period” means the period from and including any Dividend Payment Date to, but excluding, the next Dividend Payment Date; provided, however, the initial Dividend Period shall be the period from and including the Original Issue Date to, but excluding, the next Dividend Payment Date (the “Initial Dividend Period”).

(r)    “Dividend Record Date” has the meaning set forth in Section 3(b).

(s)   “Dividend Reference Period” has the meaning set forth in Section 3(a)(i)(2).

(t)    “GAAP” means generally accepted accounting principles in the United States.

(u)   “Holding Company Preferred Stock” has the meaning set forth in Section 7(c)(v).

15

(v)    “Holding Company Transaction” means the occurrence of (a) any transaction (including, without limitation, any acquisition, merger or consolidation) the result of which is that a “person” or “group” within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended, (i) becomes the direct or indirect ultimate “beneficial owner,” as defined in Rule 13d-3 under that Act, of common equity of the Issuer representing more than 50% of the voting power of the outstanding Common Stock or (ii) is otherwise required to consolidate the Issuer for purposes of generally accepted accounting principles in the United States, or (b) any consolidation or merger of the Issuer or similar transaction or any sale, lease or other transfer in one transaction or a series of related transactions of all or substantially all of the consolidated assets of the Issuer and its subsidiaries, taken as a whole, to any Person other than one of the Issuer’s subsidiaries; provided that, in the case of either clause (a) or (b), the Issuer or the Acquiror is or becomes a Bank Holding Company or Savings and Loan Holding Company.

(w)   “IDI Subsidiary” means any Issuer Subsidiary that is an insured depository institution.

(x)    “Increase in QSBL” means:

(i) with respect to the first (1st) Dividend Period, the difference obtained by subtracting (A) the Baseline from (B) QSBL set forth in the Initial Supplemental Report (as defined in the Definitive Agreement); and

(ii) with respect to each subsequent Dividend Period, the difference obtained by subtracting (A) the Baseline from (B) QSBL for the Dividend Reference Period for the Current Period.

(y)    “Initial Dividend Period” has the meaning set forth in the definition of “Dividend Period”.

(z)    “Issuer Subsidiary” means any subsidiary of the Issuer.

(aa)  “Liquidation Preference” has the meaning set forth in Section 4(a).

(bb ) “Non-Qualifying Portion Percentage” means, with respect to any particular Dividend Period, the percentage obtained by subtracting the Qualifying Portion Percentage from one (1).

(cc)  “Original Issue Date” means the date on which shares of Designated Preferred Stock are first issued.

(dd)  “Percentage Change in QSBL” has the meaning set forth in Section 3(a)(ii).

(ee)  “Person” means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint-stock company, limited liability company or trust.

(ff)   “Preferred Director” has the meaning set forth in Section 7(c).

16

(gg)  “Preferred Stock” means any and all series of preferred stock of the Issuer, including the Designated Preferred Stock.

(hh)  “Previously Acquired Preferred Shares” has the meaning set forth in the Definitive Agreement.

(ii)    “Private Capital” means, if the Issuer is Matching Private Investment Supported (as defined in the Definitive Agreement), the equity capital received by the Issuer or the applicable Affiliate of the Issuer from one or more non-governmental investors in accordance with Section 1.3(m) of the Definitive Agreement.

(jj)    “Publicly-traded” means a company that (i) has a class of securities that is traded on a national securities exchange and (ii) is required to file periodic reports with either the Securities and Exchange Commission or its primary federal bank regulator.

(kk)  “Qualified Small Business Lending” or “QSBL” means, with respect to any particular Dividend Period, the “Quarter-End Adjusted Qualified Small Business Lending” for such Dividend Period set forth in the applicable Supplemental Report.

(ll)    “Qualifying Portion Percentage” means, with respect to any particular Dividend Period, the percentage obtained by dividing (i) the Increase in QSBL for such Dividend Period by (ii) the aggregate Liquidation Amount of then-outstanding Designated Preferred Stock.

(mm) “Savings and Loan Holding Company” means a company registered as such with the Office of Thrift Supervision pursuant to 12 U.S.C. §1467a(b) and the regulations of the Office of Thrift Supervision promulgated thereunder.

(nn) “Share Dilution Amount” means the increase in the number of diluted shares outstanding (determined in accordance with GAAP applied on a consistent basis, and as measured from the date of the Issuer’s most recent consolidated financial statements prior to the Signing Date) resulting from the grant, vesting or exercise of equity-based compensation to employees and equitably adjusted for any stock split, stock dividend, reverse stock split, reclassification or similar transaction.

(oo) “Signing Date Tier 1 Capital Amount” means $110,991,000.

(pp) “Standard Provisions” mean these Standard Provisions that form a part of the Certificate of Designation relating to the Designated Preferred Stock.

(qq) “Supplemental Report” means a Supplemental Report delivered by the Issuer to Treasury pursuant to the Definitive Agreement.

17

(rr)   “Tier 1 Dividend Threshold” means, as of any particular date, the result of the following formula:

( ( A + B – C ) * 0.9 ) – D
where:
A =	Signing Date Tier 1 Capital Amount;
B =	the aggregate Liquidation Amount of the Designated Preferred Stock issued to Treasury;
C =	the aggregate amount of Charge-Offs since the Signing Date; and
D =	(i) beginning on the first day of the eleventh (11th) Dividend Period, the amount equal to ten percent (10%) of the aggregate Liquidation Amount of the Designated Preferred Stock issued to Treasury as of the Effective Date (without regard to any redemptions of Designated Preferred Stock that may have occurred thereafter) for every one percent (1%) of positive Percentage Change in Qualified Small Business Lending between the ninth (9th) Dividend Period and the Baseline; and (ii) zero (0) at all other times.

(ss)  “Voting Parity Stock” means, with regard to any matter as to which the holders of Designated Preferred Stock are entitled to vote as specified in Section 7(d) of these Standard Provisions that form a part of the Certificate of Designation, any and all series of Parity Stock upon which like voting rights have been conferred and are exercisable with respect to such matter.

Section 3.   Dividends.

(a)   Rate.

(i) The “Applicable Dividend Rate” shall be determined as follows:

(1) With respect to the Initial Dividend Period, the Applicable Dividend Rate shall be five percent (5%).

(2) With respect to each of the second (2nd) through the tenth (10th) Dividend Periods, inclusive (in each case, the “Current Period”), the Applicable Dividend Rate shall be:

(A)   (x) the applicable rate set forth in column “A” of the table in Section 3(a)(iii), based on the Percentage Change in QSBL between the Dividend Period that was two Dividend Periods prior to the Current Period (the “Dividend Reference Period”) and the Baseline, multiplied by (y) the Qualifying Portion Percentage; plus

(B)    (x) five percent (5%) multiplied by (y) the Non-Qualifying Portion Percentage.

18

In each such case, the Applicable Dividend Rate shall be determined at the time the Issuer delivers a complete and accurate Supplemental Report to Treasury with respect to the Dividend Reference Period.

(3) With respect to the eleventh (11th) through the eighteenth (18th) Dividend Periods, inclusive, and that portion of the nineteenth (19th) Dividend Period prior to, but not including, the four and one half (4½) year anniversary of the Original Issue Date, the Applicable Dividend Rate shall be:

(A) (x) the applicable rate set forth in column “B” of the table in Section 3(a)(iii), based on the Percentage Change in QSBL between the ninth (9th) Dividend Period and the Baseline, multiplied by (y) the Qualifying Portion Percentage, calculated as of the last day of the ninth (9th) Dividend Period; plus

(B) (x) five percent (5%) multiplied by (y) the Non-Qualifying Portion Percentage, calculated as of the last day of the ninth (9th) Dividend Period.

In such case, the Applicable Dividend Rate shall be determined at the time the Issuer delivers a complete and accurate Supplemental Report to Treasury with respect to the ninth (9th) Dividend Period.

(4) With respect to (A) that portion of the nineteenth (19th) Dividend Period beginning on the four and one half (4½) year anniversary of the Original Issue Date and (B) all Dividend Periods thereafter, the Applicable Dividend Rate shall be nine percent (9%).

(5) Notwithstanding anything herein to the contrary, if the Issuer fails to submit a Supplemental Report that is due during any of the second (2nd) through tenth (10th)

Dividend Periods on or before the sixtieth (60th) day of such Dividend Period, the Issuer’s QSBL for the Dividend Period that would have been covered by such Supplemental Report shall be zero (0) for purposes hereof.

(6) Notwithstanding anything herein to the contrary, but subject to Section 3(a)(i)(5) above, if the Issuer fails to submit the Supplemental Report that is due during the tenth (10th) Dividend Period, the Issuer’s QSBL shall be zero (0) for purposes of calculating the Applicable Dividend Rate pursuant to Section 3(a)(i)(3) and (4). The Applicable Dividend Rate shall be re-determined effective as of the first day of the calendar quarter following the date such failure is remedied, provided it is remedied prior to the four and one half (4½) anniversary of the Original Issue Date.

(7) Notwithstanding anything herein to the contrary, if the Issuer fails to submit any of the certificates required by Sections 3.1(d)(ii) or 3.1(d)(iii) of the Definitive Agreement when and as required thereby, the Issuer’s QSBL shall be zero (0) for purposes of calculating the Applicable Dividend Rate pursuant to Section 3(a)(i)(2) or (3) above until such failure is remedied.

19

(ii)   The “Percentage Change in Qualified Lending” between any given Dividend Period and the Baseline shall be the result of the following formula, expressed as a percentage:

(	( QSBL for the Dividend Period – Baseline )	)	x 100
	Baseline

(iii)   The following table shall be used for determining the Applicable Dividend Rate:

	The Applicable Dividend Rate shall be:
If the Percentage Change in Qualified Lending is:	Column “A” (each of the 2nd – 10th Dividend Periods)	Column “B” (11th – 18th, and the first part of the 19th, Dividend Periods)
0% or less	5%	7%
More than 0%, but less than 2.5%	5%	5%
2.5% or more, but less than 5%	4%	4%
5% or more, but less than 7.5%	3%	3%
7.5% or more, but less than 10%	2%	2%
10% or more	1%	1%

(iv)   If the Issuer consummates a Business Combination, a purchase of loans or a purchase of participations in loans and the Designated Preferred Stock remains outstanding thereafter, then the Baseline shall thereafter be the “Quarter-End Adjusted Small Business Lending Baseline” set forth on the Quarterly Supplemental Report (as defined in the Definitive Agreement).

(b)   Payment. Holders of Designated Preferred Stock shall be entitled to receive, on each share of Designated Preferred Stock if, as and when declared by the Board of Directors or any duly authorized committee of the Board of Directors, but only out of assets legally available therefor, non-cumulative cash dividends with respect to:

(i)    each Dividend Period (other than the Initial Dividend Period) at a rate equal to one-fourth (¼) of the Applicable Dividend Rate with respect to each Dividend Period on the Liquidation Amount per share of Designated Preferred Stock, and no more, payable quarterly in arrears on each Dividend Payment Date; and

(ii)    the Initial Dividend Period, on the first such Dividend Payment Date to occur at least twenty (20) calendar days after the Original Issue Date, an amount equal to (A) the Applicable Dividend Rate with respect to the Initial Dividend Period multiplied by (B) the number of days from the Original Issue Date to the last day of the Initial Dividend Period (inclusive) divided by 360.

20

In the event that any Dividend Payment Date would otherwise fall on a day that is not a Business Day, the dividend payment due on that date will be postponed to the next day that is a Business Day and no additional dividends will accrue as a result of that postponement. For avoidance of doubt, “payable quarterly in arrears” means that, with respect to any particular Dividend Period, dividends begin accruing on the first day of such Dividend Period and are payable on the first day of the next Dividend Period.

The amount of dividends payable on Designated Preferred Stock on any date prior to the end of a Dividend Period, and for the initial Dividend Period, shall be computed on the basis of a 360-day year consisting of four 90-day quarters, and actual days elapsed over a 90-day quarter.

Dividends that are payable on Designated Preferred Stock on any Dividend Payment Date will be payable to holders of record of Designated Preferred Stock as they appear on the stock register of the Issuer on the applicable record date, which shall be the 15th calendar day immediately preceding such Dividend Payment Date or such other record date fixed by the Board of Directors or any duly authorized committee of the Board of Directors that is not more than 60 nor less than 10 days prior to such Dividend Payment Date (each, a “Dividend Record Date”). Any such day that is a Dividend Record Date shall be a Dividend Record Date whether or not such day is a Business Day.

Holders of Designated Preferred Stock shall not be entitled to any dividends, whether payable in cash, securities or other property, other than dividends (if any) declared and

payable on Designated Preferred Stock as specified in this Section 3 (subject to the other provisions of the Certificate of Designation).

(c)    Non-Cumulative. Dividends on shares of Designated Preferred Stock shall be non-cumulative. If the Board of Directors or any duly authorized committee of the Board of Directors does not declare a dividend on the Designated Preferred Stock in respect of any Dividend Period:

(i)    the holders of Designated Preferred Stock shall have no right to receive any dividend for such Dividend Period, and the Issuer shall have no obligation to pay a dividend for such Dividend Period, whether or not dividends are declared for any subsequent Dividend Period with respect to the Designated Preferred Stock; and

(ii)   the Issuer shall, within five (5) calendar days, deliver to the holders of the Designated Preferred Stock a written notice executed by the Chief Executive Officer and the Chief Financial Officer of the Issuer stating the Board of Directors’ rationale for not declaring dividends.

(d)    Priority of Dividends; Restrictions on Dividends.

(i)    Subject to Sections 3(d)(ii), (iii) and (v) and any restrictions imposed by the Appropriate Federal Banking Agency or, if applicable, the Issuer’s state bank supervisor (as defined in Section 3(r) of the Federal Deposit Insurance Act (12 U.S.C. § 1813(q)), so long as any share of Designated Preferred Stock remains outstanding, the Issuer may declare and pay dividends on the Common Stock, any other shares of Junior Stock, or Parity Stock, in each case only if (A) after giving effect to such dividend the Issuer’s Tier 1 capital would be at least equal to the Tier 1 Dividend Threshold, and (B) full dividends on all outstanding shares of Designated Preferred Stock for the most recently completed Dividend Period have been or are contemporaneously declared and paid.

21

(ii)   If a dividend is not declared and paid in full on the Designated Preferred Stock in respect of any Dividend Period, then from the last day of such Dividend Period until the last day of the third (3rd) Dividend Period immediately following it, no dividend or distribution shall be declared or paid on the Common Stock or any other shares of Junior Stock (other than dividends payable solely in shares of Common Stock) or Parity Stock; provided, however, that in any such Dividend Period in which a dividend is declared and paid on the Designated Preferred Stock, dividends may be paid on Parity Stock to the extent necessary to avoid any material breach of a covenant by which the Issuer is bound.

(iii)  When dividends have not been declared and paid in full for an aggregate of four (4) Dividend Periods or more, and during such time the Issuer was not subject to a regulatory determination that prohibits the declaration and payment of dividends, the Issuer shall, within five (5) calendar days of each missed payment, deliver to the holders of the Designated Preferred Stock a certificate executed by at least a majority of the Board of Directors stating that the Board of Directors used its best efforts

to declare and pay such dividends in a manner consistent with (A) safe and sound banking practices and (B) the directors’ fiduciary obligations.

(iv)  Subject to the foregoing and Section 3(e) below and not otherwise, such dividends (payable in cash, securities or other property) as may be determined by the Board of Directors or any duly authorized committee of the Board of Directors may be declared and paid on any securities, including Common Stock and other Junior Stock, from time to time out of any funds legally available for such payment, and holders of Designated Preferred Stock shall not be entitled to participate in any such dividends.

(v)   If the Issuer is not Publicly-Traded, then after the tenth (10th) anniversary of the Signing Date, so long as any share of Designated Preferred Stock remains outstanding, no dividend or distribution shall be declared or paid on the Common Stock or any other shares of Junior Stock (other than dividends payable solely in shares of Common Stock) or Parity Stock.

(e) Special Lending Incentive Fee Related to CPP. If Treasury held Previously Acquired Preferred Shares immediately prior to the Original Issue Date and the Issuer did not apply to Treasury to redeem such Previously Acquired Preferred Shares prior to December 16, 2010, and if the Issuer’s Supplemental Report with respect to the ninth (9th) Dividend Period reflects an amount of Qualified Small Business Lending that is less than or equal to the Baseline (or if the Issuer fails to timely file a Supplemental Report with respect to the ninth (9th) Dividend Period), then beginning on April 1, 2014 and on all Dividend Payment Dates thereafter ending on April 1, 2016, the Issuer shall pay to the Holders of Designated Preferred Stock, on each share of Designated Preferred Stock, but only out of assets legally available therefor, a fee equal to 0.5% of the Liquidation Amount per share of Designated Preferred Stock (“CPP Lending Incentive Fee”). All references in Section 3(d) to “dividends” on the Designated Preferred Stock shall be deemed to include the CPP Lending Incentive Fee.

22

Section 4.    Liquidation Rights.

(a)    Voluntary or Involuntary Liquidation. In the event of any liquidation, dissolution or winding up of the affairs of the Issuer, whether voluntary or involuntary, holders of Designated Preferred Stock shall be entitled to receive for each share of Designated Preferred Stock, out of the assets of the Issuer or proceeds thereof (whether capital or surplus) available for distribution to stockholders of the Issuer, subject to the rights of any creditors of the Issuer, before any distribution of such assets or proceeds is made to or set aside for the holders of Common Stock and any other stock of the Issuer ranking junior to Designated Preferred Stock as to such distribution, payment in full in an amount equal to the sum of (i) the Liquidation Amount per share and (ii) the amount of any accrued and unpaid dividends on each such share (such amounts collectively, the “Liquidation Preference”).

(b)    Partial Payment. If in any distribution described in Section 4(a) above the assets of the Issuer or proceeds thereof are not sufficient to pay in full the amounts payable with respect to all outstanding shares of Designated Preferred Stock and the corresponding amounts payable with respect of any other stock of the Issuer ranking equally with Designated Preferred Stock as to such distribution, holders of Designated Preferred Stock and the holders of such other

stock shall share ratably in any such distribution in proportion to the full respective distributions to which they are entitled.

(c)    Residual Distributions. If the Liquidation Preference has been paid in full to all holders of Designated Preferred Stock and the corresponding amounts payable with respect of any other stock of the Issuer ranking equally with Designated Preferred Stock as to such distribution has been paid in full, the holders of other stock of the Issuer shall be entitled to receive all remaining assets of the Issuer (or proceeds thereof) according to their respective rights and preferences.

(d)    Merger, Consolidation and Sale of Assets Is Not Liquidation. For purposes of this Section 4, the merger or consolidation of the Issuer with any other corporation or other entity, including a merger or consolidation in which the holders of Designated Preferred Stock receive cash, securities or other property for their shares, or the sale, lease or exchange (for cash, securities or other property) of all or substantially all of the assets of the Issuer, shall not constitute a liquidation, dissolution or winding up of the Issuer.

Section 5.    Redemption.

(a)   Optional Redemption.

(i)    Subject to the other provisions of this Section 5:

23

(1) The Issuer, at its option, subject to the approval of the Appropriate Federal Banking Agency, may redeem, in whole or in part, at any time and from time to time, out of funds legally available therefor, the shares of Designated Preferred Stock at the time outstanding; and

(2) If, after the Signing Date, there is a change in law that modifies the terms of Treasury’s investment in the Designated Preferred Stock or the terms of Treasury’s Small Business Lending Fund program in a materially adverse respect for the Issuer, the Issuer may, after consultation with the Appropriate Federal Banking Agency, redeem all of the shares of Designated Preferred Stock at the time outstanding.

(ii) The per-share redemption price for shares of Designated Preferred Stock shall be equal to the sum of:

(1) the Liquidation Amount per share,

(2) the per-share amount of any unpaid dividends for the then current Dividend Period at the Applicable Dividend Rate to, but excluding, the date fixed for redemption (regardless of whether any dividends are actually declared for that Dividend Period; and

(3) the pro rata amount of CPP Lending Incentive Fees for the current Dividend Period.

The redemption price for any shares of Designated Preferred Stock shall be payable on the redemption date to the holder of such shares against surrender of the certificate(s) evidencing such shares to the Issuer or its agent. Any declared but unpaid dividends for the then current Dividend Period payable on a redemption date that occurs subsequent to the Dividend Record Date for a Dividend Period shall not be paid to the holder entitled to receive the redemption price on the redemption date, but rather shall be paid to the holder of record of the redeemed shares on such Dividend Record Date relating to the Dividend Payment Date as provided in Section 3 above.

(b)   No Sinking Fund. The Designated Preferred Stock will not be subject to any mandatory redemption, sinking fund or other similar provisions. Holders of Designated Preferred Stock will have no right to require redemption or repurchase of any shares of Designated Preferred Stock.

(c)   Notice of Redemption. Notice of every redemption of shares of Designated Preferred Stock shall be given by first class mail, postage prepaid, addressed to the holders of record of the shares to be redeemed at their respective last addresses appearing on the books of the Issuer. Such mailing shall be at least 30 days and not more than 60 days before the date fixed for redemption. Any notice mailed as provided in this Subsection shall be conclusively presumed to have been duly given, whether or not the holder receives such notice, but failure duly to give such notice by mail, or any defect in such notice or in the mailing thereof, to any holder of shares of Designated Preferred Stock designated for redemption shall not affect the validity of the proceedings for the redemption of any other shares of Designated Preferred Stock. Notwithstanding the foregoing, if shares of Designated Preferred Stock are issued in book-entry form through The Depository Trust Company or any other similar facility, notice of redemption may be given to the holders of Designated Preferred Stock at such time and in any manner permitted by such facility. Each notice of redemption given to a holder shall state: (1) the redemption date; (2) the number of shares of Designated Preferred Stock to be redeemed and, if less than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (3) the redemption price; and (4) the place or places where certificates for such shares are to be surrendered for payment of the redemption price.

24

(d)   Partial Redemption. In case of any redemption of part of the shares of Designated Preferred Stock at the time outstanding, the shares to be redeemed shall be selected either pro rata or in such other manner as the Board of Directors or a duly authorized committee thereof may determine to be fair and equitable, but in any event the shares to be redeemed shall not be less than the Minimum Amount. Subject to the provisions hereof, the Board of Directors or a duly authorized committee thereof shall have full power and authority to prescribe the terms and conditions upon which shares of Designated Preferred Stock shall be redeemed from time to time, subject to the approval of the Appropriate Federal Banking Agency. If fewer than all the shares represented by any certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without charge to the holder thereof.

(e)   Effectiveness of Redemption. If notice of redemption has been duly given and if on or before the redemption date specified in the notice all funds necessary for the redemption have been deposited by the Issuer, in trust for the pro rata benefit of the holders of the shares called for redemption, with a bank or trust company doing business in the Borough of Manhattan, The City of New York, and having a capital and surplus of at least $500 million and selected by the Board of Directors, so as to be and continue to be available solely therefor, then, notwithstanding that any certificate for any share so called for redemption has not been surrendered for cancellation, on and after the redemption date dividends shall cease to accrue on all shares so called for redemption, all shares so called for redemption shall no longer be deemed outstanding and all rights with respect to such shares shall forthwith on such redemption date cease and terminate, except only the right of the holders thereof to receive the amount payable on such redemption from such bank or trust company, without interest. Any funds unclaimed at the end of three years from the redemption date shall, to the extent permitted by law, be released to the Issuer, after which time the holders of the shares so called for redemption shall look only to the Issuer for payment of the redemption price of such shares.

(f) Status of Redeemed Shares. Shares of Designated Preferred Stock that are redeemed, repurchased or otherwise acquired by the Issuer shall revert to authorized but unissued shares of Preferred Stock (provided that any such cancelled shares of Designated Preferred Stock may be reissued only as shares of any series of Preferred Stock other than Designated Preferred Stock).

Section 6.    Conversion. Holders of Designated Preferred Stock shares shall have no right to exchange or convert such shares into any other securities.

Section 7.    Voting Rights.

(a)    General. The holders of Designated Preferred Stock shall not have any voting rights except as set forth below or as otherwise from time to time required by law.

25

(b)    Board Observation Rights. Whenever, at any time or times, dividends on the shares of Designated Preferred Stock have not been declared and paid in full within five (5) Business Days after each Dividend Payment Date for an aggregate of five (5) Dividend Periods or more, whether or not consecutive, the Issuer shall invite a representative selected by the holders of a majority of the outstanding shares of Designated Preferred Stock, voting as a single class, to attend all meetings of its Board of Directors in a nonvoting observer capacity and, in this respect, shall give such representative copies of all notices, minutes, consents, and other materials that it provides to its directors in connection with such meetings; provided, that the holders of the Designated Preferred Stock shall not be obligated to select such a representative, nor shall such representative, if selected, be obligated to attend any meeting to which he/she is invited. The rights of the holders of the Designated Preferred Stock set forth in this Section 7(b) shall terminate when full dividends have been timely paid on the Designated Preferred Stock for at least four consecutive Dividend Periods, subject to revesting in the event of each and every subsequent default of the character above mentioned.

(c)    Preferred Stock Directors. Whenever, at any time or times, (i) dividends on the shares of Designated Preferred Stock have not been declared and paid in full within five (5) Business Days after each Dividend Payment Date for an aggregate of six (6) Dividend Periods or more, whether or not consecutive, and (ii) the aggregate liquidation preference of the then-outstanding shares of Designated Preferred Stock is greater than or equal to $25,000,000, the authorized number of directors of the Issuer shall automatically be increased by two and the holders of the Designated Preferred Stock, voting as a single class, shall have the right, but not the obligation, to elect two directors (hereinafter the “Preferred Directors” and each a “Preferred Director”) to fill such newly created directorships at the Issuer’s next annual meeting of stockholders (or, if the next annual meeting is not yet scheduled or is scheduled to occur more than thirty days later, the President of the Company shall promptly call a special meeting for that purpose) and at each subsequent annual meeting of stockholders until full dividends have been timely paid on the Designated Preferred Stock for at least four consecutive Dividend Periods, at which time such right shall terminate with respect to the Designated Preferred Stock, except as herein or by law expressly provided, subject to revesting in the event of each and every subsequent default of the character above mentioned; provided that it shall be a qualification for election for any Preferred Director that the election of such Preferred Director shall not cause the Issuer to violate any corporate governance requirements of any securities exchange or other trading facility on which securities of the Issuer may then be listed or traded that listed or traded companies must have a majority of independent directors. Upon any termination of the right of the holders of shares of Designated Preferred Stock to vote for directors as provided above, the Preferred Directors shall cease to be qualified as directors, the term of office of all Preferred Directors then in office shall terminate immediately and the authorized number of directors shall be reduced by the number of Preferred Directors elected pursuant hereto. Any Preferred Director may be removed at any time, with or without cause, and any vacancy created thereby may be filled, only by the affirmative vote of the holders a majority of the shares of Designated Preferred Stock at the time outstanding voting separately as a class. If the office of any Preferred Director becomes vacant for any reason other than removal from office as aforesaid, the holders of a majority of the outstanding shares of Designated Preferred Stock, voting as a single class, may choose a successor who shall hold office for the unexpired term in respect of which such vacancy occurred.

26

(d)   Class Voting Rights as to Particular Matters. So long as any shares of Designated Preferred Stock are outstanding, in addition to any other vote or consent of stockholders required by law or by the Charter, the written consent of (x) Treasury if Treasury holds any shares of Designated Preferred Stock, or (y) the holders of a majority of the outstanding shares of Designated Preferred Stock, voting as a single class, if Treasury does not hold any shares of Designated Preferred Stock, shall be necessary for effecting or validating:

(i)    Authorization of Senior Stock. Any amendment or alteration of the Certificate of Designation for the Designated Preferred Stock or the Charter to authorize or create or increase the authorized amount of, or any issuance of, any shares of, or any securities convertible into or exchangeable or exercisable for shares of, any class or series of capital stock of the Issuer ranking senior to Designated Preferred Stock with respect to either or both the payment of dividends and/or the distribution of assets on any liquidation, dissolution or winding up of the Issuer;

(ii)    Amendment of Designated Preferred Stock. Any amendment, alteration or repeal of any provision of the Certificate of Designation for the Designated Preferred Stock or the Charter (including, unless no vote on such merger or consolidation is required by Section 7(d)(iii) below, any amendment, alteration or repeal by means of a merger, consolidation or otherwise) so as to adversely affect the rights, preferences, privileges or voting powers of the Designated Preferred Stock;

(iii)   Share Exchanges, Reclassifications, Mergers and Consolidations. Subject to Section 7(d)(v) below, any consummation of a binding share exchange or reclassification involving the Designated Preferred Stock, or of a merger or consolidation of the Issuer with another corporation or other entity, unless in each case (x) the shares of Designated Preferred Stock remain outstanding or, in the case of any such merger or consolidation with respect to which the Issuer is not the surviving or resulting entity, are converted into or exchanged for preference securities of the surviving or resulting entity or its ultimate parent, and (y) such shares remaining outstanding or such preference securities, as the case may be, have such rights, preferences, privileges and voting powers, and limitations and restrictions thereof that are the same as the rights, preferences, privileges and voting powers, and limitations and restrictions thereof, of Designated Preferred Stock immediately prior to such consummation, taken as a whole; provided, that in all cases, the obligations of the Issuer are assumed (by operation of law or by express written assumption) by the resulting entity or its ultimate parent;

(iv)  Certain Asset Sales. Any sale of all, substantially all, or any material portion of, the assets of the Company, if the Designated Preferred Stock will not be redeemed in full contemporaneously with the consummation of such sale; and

27

(v)   Holding Company Transactions. Any consummation of a Holding Company Transaction, unless as a result of the Holding Company Transaction each share of Designated Preferred Stock shall be converted into or exchanged for one share with an equal liquidation preference of preference securities of the Issuer or the Acquiror (the “Holding Company Preferred Stock”). Any such Holding Company Preferred Stock shall entitle holders thereof to dividends from the date of issuance of such Holding Company Preferred Stock on terms that are equivalent to the terms set forth herein, and shall have such other rights, preferences, privileges and voting powers, and limitations and restrictions thereof that are the same as the rights, preferences, privileges and voting powers, and limitations and restrictions thereof, of Designated Preferred Stock immediately prior to such conversion or exchange, taken as a whole; provided, however, that for all purposes of this Section 7(d), any increase in the amount of the authorized Preferred Stock, including any increase in the authorized amount of Designated Preferred Stock necessary to satisfy preemptive or similar rights granted by the Issuer to other persons prior to the Signing Date, or the creation and issuance, or an increase in the authorized or issued amount, whether pursuant to preemptive or similar rights or otherwise, of any other series of Preferred Stock, or any securities convertible into or exchangeable or exercisable for any other series of Preferred Stock, ranking equally with and/or junior to Designated Preferred Stock with respect to the payment of dividends (whether such dividends are cumulative or non-cumulative) and the distribution of assets upon liquidation, dissolution or winding up of the Issuer will not be deemed to adversely affect the rights, preferences, privileges or voting powers, and shall not require the affirmative vote or consent of, the holders of outstanding shares of the Designated Preferred Stock.

(e)   Changes after Provision for Redemption. No vote or consent of the holders of Designated Preferred Stock shall be required pursuant to Section 7(d) above if, at or prior to the time when any such vote or consent would otherwise be required pursuant to such Section, all outstanding shares of the Designated Preferred Stock shall have been redeemed, or shall have been called for redemption upon proper notice and sufficient funds shall have been deposited in trust for such redemption, in each case pursuant to Section 5 above.

(f)    Procedures for Voting and Consents. The rules and procedures for calling and conducting any meeting of the holders of Designated Preferred Stock (including, without limitation, the fixing of a record date in connection therewith), the solicitation and use of proxies at such a meeting, the obtaining of written consents and any other aspect or matter with regard to such a meeting or such consents shall be governed by any rules of the Board of Directors or any duly authorized committee of the Board of Directors, in its discretion, may adopt from time to time, which rules and procedures shall conform to the requirements of the Charter, the Bylaws, and applicable law and the rules of any national securities exchange or other trading facility on which Designated Preferred Stock is listed or traded at the time.

Section 8.      Restriction on Redemptions and Repurchases.

(a)    Subject to Sections 8(b) and (c), so long as any share of Designated Preferred Stock remains outstanding, the Issuer may repurchase or redeem any shares of Capital Stock (as defined below), in each case only if (i) after giving effect to such dividend, repurchase or redemption, the Issuer’s Tier 1 capital would be at least equal to the Tier 1 Dividend Threshold and (ii) dividends on all outstanding shares of Designated Preferred Stock for the most recently completed Dividend Period have been or are contemporaneously declared and paid (or have been declared and a sum sufficient for the payment thereof has been set aside for the benefit of the holders of shares of Designated Preferred Stock on the applicable record date).

28

(b)    If a dividend is not declared and paid on the Designated Preferred Stock in respect of any Dividend Period, then from the last day of such Dividend Period until the last day of the third (3rd) Dividend Period immediately following it,neither the Issuer nor any Issuer Subsidiary shall, redeem, purchase or acquire any shares of Common Stock, Junior Stock, Parity Stock or other capital stock or other equity securities of any kind of the Issuer or any Issuer Subsidiary, or any trust preferred securities issued by the Issuer or any Affiliate of the Issuer (“Capital Stock”), (other than (i) redemptions, purchases, repurchases or other acquisitions of the Designated Preferred Stock and (ii) repurchases of Junior Stock or Common Stock in connection with the administration of any employee benefit plan in the ordinary course of business (including purchases to offset any Share Dilution Amount pursuant to a publicly announced repurchase plan) and consistent with past practice; provided that any purchases to offset the Share Dilution Amount shall in no event exceed the Share Dilution Amount, (iii) the acquisition by the Issuer or any of the Issuer Subsidiaries of record ownership in Junior Stock or Parity Stock for the beneficial ownership of any other persons (other than the Issuer or any other Issuer Subsidiary), including as trustees or custodians, (iv) the exchange or conversion of Junior Stock for or into other Junior Stock or of Parity Stock or trust preferred securities for or into other Parity Stock (with the same or lesser aggregate liquidation amount) or Junior Stock, in each case set forth in this clause (iv), solely to the extent required pursuant to binding contractual agreements entered into prior to the Signing Date or any subsequent agreement for the accelerated exercise, settlement or exchange thereof for Common Stock, (v) redemptions of securities held by the Issuer or any wholly-owned Issuer Subsidiary or (vi) redemptions, purchases or other acquisitions of capital stock or other equity securities of any kind of any Issuer Subsidiary required pursuant to binding contractual agreements entered into prior to (x) if Treasury held Previously Acquired Preferred Shares immediately prior to the Original Issue Date, the original issue date of such Previously Acquired Preferred Shares, or (y) otherwise, the Signing Date).

(c)    If the Issuer is not Publicly-Traded, then after the tenth (10th) anniversary of the Signing Date, so long as any share of Designated Preferred Stock remains outstanding, no Common Stock, Junior Stock or Parity Stock shall be, directly or indirectly, purchased, redeemed or otherwise acquired for consideration by the Issuer or any of its subsidiaries.

Section 9.      No Preemptive Rights. No share of Designated Preferred Stock shall have any rights of preemption whatsoever as to any securities of the Issuer, or any warrants, rights or options issued or granted with respect thereto, regardless of how such securities, or such warrants, rights or options, may be designated, issued or granted.

Section 10.    References to Line Items of Supplemental Reports. If Treasury modifies the form of Supplemental Report, pursuant to its rights under the Definitive Agreement, and any such modification includes a change to the caption or number of any line item on the Supplemental Report, then any reference herein to such line item shall thereafter be a reference to such re-captioned or re-numbered line item.

Section 11.    Record Holders. To the fullest extent permitted by applicable law, the Issuer and the transfer agent for Designated Preferred Stock may deem and treat the record holder of any share of Designated Preferred Stock as the true and lawful owner thereof for all purposes, and neither the Issuer nor such transfer agent shall be affected by any notice to the contrary.

29

Section 12.    Notices. All notices or communications in respect of Designated Preferred Stock shall be sufficiently given if given in writing and delivered in person or by first class mail, postage prepaid, or if given in such other manner as may be permitted in this Certificate of Designation, in the Charter or Bylaws or by applicable law. Notwithstanding the foregoing, if shares of Designated Preferred Stock are issued in book-entry form through The Depository Trust Company or any similar facility, such notices may be given to the holders of Designated Preferred Stock in any manner permitted by such facility.

Section 13.    Replacement Certificates. The Issuer shall replace any mutilated certificate at the holder’s expense upon surrender of that certificate to the Issuer. The Issuer shall replace certificates that become destroyed, stolen or lost at the holder’s expense upon delivery to the Issuer of reasonably satisfactory evidence that the certificate has been destroyed, stolen or lost, together with any indemnity that may be reasonably required by the Issuer.

Section 14.    Other Rights. The shares of Designated Preferred Stock shall not have any rights, preferences, privileges or voting powers or relative, participating, optional or other special rights, or qualifications, limitations or restrictions thereof, other than as set forth herein or in the Charter or as provided by applicable law.

G.    Designation of 4.00% Non-Cumulative Perpetual Convertible Preferred Stock, Series C.

Section 1. Designation of Series and Number of Shares. The shares of such series of Preferred Stock shall be designated “4.00% Non-Cumulative Perpetual Convertible Preferred Stock, Series C” (the “Series C Preferred Stock”), and the authorized number of shares that shall constitute such series shall be 100,000 shares and the shares shall have no par value per share. The Corporation may from time-to-time take such appropriate action as may be necessary to reduce the authorized number of shares of Series C Preferred Stock, but not below the number of shares of Series C Preferred Stock then outstanding.

Section 2. Ranking. The Series C Preferred Stock will rank, with respect to the payment of dividends and distributions upon liquidation, dissolution or winding-up, (1) on a parity with the Series B Preferred Stock and each class or series of capital stock the Corporation may issue in the future the terms of which expressly provide that such class or series will not rank senior or junior to the Series C Preferred Stock as to dividend rights and rights on liquidation, winding up or dissolution of the Corporation (collectively, the “Parity Securities”) and (2) senior to Common Stock and each other class or series of capital stock the Corporation may issue in the future the terms of which do not expressly provide that it ranks on a parity with or senior to the Series C Preferred Stock as to dividend rights and rights on liquidation, winding-up or dissolution of the Corporation (the “Junior Securities”).

Section 3. Definitions. As used herein with respect to the Series C Preferred Stock:

30

(a) “Applicable Conversion Rate” at any given time, means for each share of Series C Preferred Stock, the number of shares of Common Stock equal to the Liquidation Preference divided by the Conversion Price in effect at such time.

(b) “Appropriate Federal Banking Agency” means the “appropriate Federal banking agency” with respect to the Corporation as defined in Section 3(q) of the Federal Deposit Insurance Act (12 U.S.C. Section 1813(q)), or any successor provision.

(c) “Articles of Incorporation” shall mean the articles of incorporation of the Corporation, as it may be amended from time to time, and shall include this Series C Preferred Stock Designation.

(d) “Board of Directors” means the board of directors of the Corporation or any committee thereof duly authorized to act on behalf of such board of directors.

(e) “Business Day” means any day that is not Saturday or Sunday and that, in Lafayette, Louisiana, is not a day on which banking institutions generally are authorized or obligated by law or executive order to be closed.

(f) “Bylaws” means the Amended and Restated Bylaws of the Corporation, as may be amended from time to time.

(g) “Capital Treatment Event” means the receipt by the Corporation of an opinion of counsel experienced in such matters to the effect that, as a result of the occurrence of any amendment to, or change (including any announced prospective change) in, the laws, rules or regulations of the United States or any political subdivision thereof or therein, or as the result of any official or administrative pronouncement or action or decision interpreting or applying such laws, rules or regulations, which amendment or change is effective or which pronouncement, action or decision is announced on or after the Issue Date, there is more than an insubstantial risk that the Corporation will not, within 90 days of the date of such opinion, be entitled to treat an amount equal to the aggregate Liquidation Preference of the Series C Preferred Stock as “Tier 1 Capital” (or its then equivalent) for purposes of the capital adequacy guidelines of the Appropriate Federal Banking Agency, as then in effect and applicable to the Corporation.

(h) “Closing Price” of the Common Stock on any determination date means the closing sale price or, if no closing sale price is reported, the last reported sale price of the shares of the Common Stock on the NYSE MKT on such date. If the Common Stock is not traded on the NYSE MKT on any determination date, the Closing Price of the Common Stock on such determination date means the closing sale price as reported in the composite transactions for the principal U.S. national or regional securities exchange on which the Common Stock is so listed or quoted, or, if no closing sale price is reported, the last reported sale price on the principal U.S. national or regional securities exchange on which the Common Stock is so listed or quoted, or if the Common Stock is not so listed or quoted on a U.S. national or regional securities exchange, the last quoted bid price for the Common Stock in the over-the-counter market as reported by Pink Sheets LLC or a similar organization, or, if that bid price is not available, the market price of the Common Stock on that date as determined by a nationally recognized independent investment banking firm retained by the Corporation for this purpose.

31

For purposes of this Series C Preferred Stock Designation, all references herein to the “Closing Price” and “last reported sale price” of the Common Stock on the NYSE MKT shall be such closing sale price and last reported sale price as reflected on the website of the NYSE MKT (http://www.nyse.com) or any successor thereto and as reported by Bloomberg Professional Service or any successor thereto; provided that in the event that there is a discrepancy between the closing sale price or last reported sale price as reflected on the website of the NYSE MKT and as reported by Bloomberg Professional Service or any successor thereto, the closing sale price and last reported sale price on the website of the NYSE MKT shall govern. If a Reorganization Event has occurred and (1) the Exchange Property consists only of shares of common stock, the “Closing Price” shall be based on the closing price per share of such common stock; (2) the Exchange Property consists only of cash, the “Closing Price” shall be the cash amount paid per share; and (3) the Exchange Property consists of securities, cash and/or other property, the “Closing Price” shall be based on the sum, as applicable, of (x) the closing price of such common stock, (y) the cash amount paid per share and (z) the value (as determined by the Board of Directors from time-to-time) of any other securities or property paid to the holders of the Common Stock connection with the Reorganization Event.

(i) “Common Stock” means the common stock, $0.10 value per share, of the Corporation.

(j) “Corporation” means MidSouth Bancorp, Inc., a Louisiana corporation.

(k) “Conversion Agent” shall mean the Transfer Agent acting in its capacity as conversion agent for the Series C Preferred Stock, and its successors and assigns.

(l) “Conversion Date” has the meaning set forth in Section 9(e)(ii).

(m) “Conversion Price” means for each share of Series C Preferred Stock, $18.00 (subject to adjustment or limitation as provided herein).

(n) “Depositary” means DTC or its nominee or any successor depositary appointed by the Corporation.

(o) “Dividend Payment Date” has the meaning set forth in Section 4(b).

(p) “Dividend Period” has the meaning set forth in Section 4(b).

(q) “DTC” means The Depository Trust Company and its successors or assigns.

(r) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(s) “Exchange Property” has the meaning set forth in Section 12(a).

32

(t) “Holder” means the Person in whose name the shares of the Series C Preferred Stock are registered, which may be treated by the Corporation, Transfer Agent, Registrar, paying agent and Conversion Agent as the absolute owner of the shares of Series C Preferred Stock for the purpose of making payment and settling the related conversions and for all other purposes.

(u) “Issue Date” means the date on which shares of the Series C Preferred Stock are first issued.

(v) “Junior Securities” has the meaning set forth in Section 2.

(w) “Liquidation Preference” means, as to the Series C Preferred Stock, $100.00 per share.

(x) “Mandatory Conversion Date” has the meaning set forth in Section 10(a).

(y) “Notice of Mandatory Conversion” has the meaning set forth in Section 10(b).

(z) “Parity Securities” has the meaning set forth in Section 2.

(aa) “Person” means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint-stock company, limited liability company or trust.

(bb) “Preferred Stock” means any and all series of preferred stock of the Corporation, including the Series B Preferred Stock and the Series C Preferred Stock.

(cc) “Record Date” has the meaning set forth in Section 4(b).

(dd) “Registrar” shall mean the Transfer Agent acting in its capacity as registrar for the Series C Preferred Stock, and its successors and assigns or any other registrar duly appointed by the Corporation.

(ee) “Reorganization Event” has the meaning set forth in Section 12(a).

(ff) “Series B Preferred Stock” means the Senior Non-Cumulative Perpetual Preferred Stock, Series B, of the Corporation.

(gg) “Series C Preferred Stock Designation” means this Articles of Amendment relating to the Series C Preferred Stock, as it may be amended from time to time

(hh) “Trading Day” means a day on which the shares of Common Stock:

(i) are not suspended from trading on any national or regional securities exchange or association or over-the-counter market at the close of business; and

33

(ii) have traded at least once on the national or regional securities exchange or association or over-the-counter market that is the primary market for the trading of the Common Stock.

(ii) “Transfer Agent” means Computershare Shareowner Services LLC acting as Transfer Agent, Registrar, paying agent and Conversion Agent for the Series C Preferred Stock, and its successors and assigns, including any successor transfer agent appointed by the Corporation.

Section 4. Dividends.

(a)  From and after the Issue Date, Holders shall be entitled to receive, when, as and if authorized by the Board of Directors and declared by the Corporation, out of legally available funds, on a non-cumulative basis, cash dividends in the amount determined as set forth in Section 4(c), and no more.

(b) Subject to Section 4(a), dividends shall be payable quarterly in arrears on January 15, April 15, July 15 and October 15 of each year (each, a “Dividend Payment Date”) commencing on April 15, 2013. Each dividend will be payable to Holders of record as they appear in the stock register of the Corporation at the close of business on the first day of the month, whether or not a Business Day, in which the relevant Dividend Payment Date occurs (each, a “Record Date”). Each period from and including a Dividend Payment Date (or the date of the issuance of the Series C Preferred Stock) to but excluding the following Dividend Payment Date is herein referred to as a “Dividend Period.”

(c)  Dividends, if, when and as authorized and declared by the Board of Directors, will be payable, for each outstanding share of Series C Preferred Stock, at an annual rate of 4.00% on the per share Liquidation Preference. Dividends payable for a Dividend Period will be computed on the basis of a 360-day year of twelve 30-day months. If a scheduled Dividend Payment Date falls on a day that is not a Business Day, the dividend will be paid on the next Business Day as if it were paid on the scheduled Dividend Payment Date, and no interest or other amount will accrue on the dividend so payable for the period from and after that Dividend Payment Date to the date the dividend is paid. No interest or sum of money in lieu of interest will be paid on any dividend payment on shares of Series C Preferred Stock paid later than the scheduled Dividend Payment Date.

(d)  Dividends on the Series C Preferred Stock are non-cumulative. If the Board of Directors does not authorize and declare a dividend on the Series C Preferred Stock or if the Board of Directors authorizes and declares less than a full dividend in respect of any Dividend Period, the Holders will have no right to receive any dividend or a full dividend, as the case may be, for the Dividend Period, and the Corporation will have no obligation to pay a dividend or to pay full dividends for that Dividend Period, whether or not dividends are authorized, declared and paid for any future Dividend Period with respect to the Series C Preferred Stock or the Common Stock or any other class or series of Preferred Stock.

34

To the extent the Corporation declares dividends on the Series C Preferred Stock and on any Parity Securities but does not make full payment of such declared dividends, the Corporation shall allocate the dividend payments on a pro rata basis among the Holders of the shares of Series C Preferred Stock and the holders of any Parity Securities then outstanding. For purposes of calculating the pro rata allocation of partial dividend payments, the Corporation shall allocate those payments so that the respective amounts of those payments bear the same ratio to each other as all accrued and unpaid dividends per share on the Series C Preferred Stock and all Parity Securities bear to each other.

The Corporation is not obligated to pay Holders of the Series C Preferred Stock any dividend in excess of the dividends on the Series C Preferred Stock that are payable as described herein. Subject to the foregoing, and not otherwise, such dividends (payable in cash, stock or otherwise) as may be determined by the Board of Directors or any duly authorized committee of the Board of Directors may be declared and paid on any Junior Securities from time to time out of any assets legally available therefor, and the shares of Series C Preferred Stock shall not be entitled to participate in any such dividend.

(f)   Payments of cash for dividends will be delivered to the Holder or, in the case of global certificates, through a book-entry transfer through DTC or any successor Depositary.

(g)  If a Conversion Date on which a Holder elects to convert Series C Preferred Stock or the Mandatory Conversion Date is on or prior to the Record Date for any declared dividend for the Dividend Period, such Holder will not have the right to receive any declared dividends for that Dividend Period. If a Conversion Date on which a Holder elects to convert Series C Preferred Stock or the Mandatory Conversion Date is after the Record Date for any declared dividend and prior to the corresponding Dividend Payment Date, such Holder shall receive that dividend on the relevant Dividend Payment Date if such Holder was the Holder of record on the Record Date for that dividend. Notwithstanding the preceding sentence, whether or not such Holder was the Holder of record on the Record Date, if such Holder elects to convert Series C Preferred Stock after the Record Date for any declared dividend and prior to the corresponding Dividend Payment Date, such Holder must pay to the Conversion Agent upon conversion of the shares of Series C Preferred Stock an amount in cash equal to the full dividend actually paid on such Dividend Payment Date on the shares being converted, unless the shares of Series C Preferred Stock are converted pursuant to Section 10.

(h) Notwithstanding anything to the contrary herein, payment of dividends on the Series C Preferred Stock may be limited by the terms and conditions of other series of Preferred Stock that rank senior to the Series C Preferred Stock or that are Parity Securities, including without limitation, the Series B Preferred Stock.

Section 5. Liquidation.

(a) In the event the Corporation voluntarily or involuntarily liquidates, dissolves or winds up, the Holders at the time shall be entitled to receive liquidating distributions in the amount of per share Liquidation Preference, plus an amount equal to any authorized and declared but unpaid dividends thereon to and including the date of such liquidation, out of assets legally available for distribution to the Corporation’s shareholders, before any distribution of assets is made to the holders of the Common Stock or any other Junior Securities. After payment of the full amount of such liquidating distributions, the Holders will not be entitled to any further participation in any distribution of assets by, and shall have no right or claim to any remaining assets of, the Corporation.

35

(b) In the event the assets of the Corporation available for distribution to shareholders upon any liquidation, dissolution or winding-up of the affairs of the Corporation, whether voluntary or involuntary, shall be insufficient to pay in full the amounts payable with respect to all outstanding shares of the Series C Preferred Stock and the corresponding amounts payable on any Parity Securities, Holders and the holders of such Parity Securities shall share ratably in any distribution of assets of the Corporation in proportion to the full respective liquidating distributions to which they would otherwise be respectively entitled.

(c) The Corporation’s consolidation or merger with or into any other entity, the consolidation or merger of any other entity with or into the Corporation, or the sale of all or substantially all of the Corporation’s property or business will not constitute its liquidation, dissolution or winding up.

Section 6. Maturity. The Series C Preferred Stock shall be perpetual unless converted or redeemed in accordance with this Series C Preferred Stock Designation.

Section 7. Redemptions.

(a) Optional Redemption.

(i) Subject to the other provisions of this Section 7:

(1) The Corporation on or after the fifth anniversary of the Issue Date, at its option, subject to the approval of the Appropriate Federal Banking Agency, may redeem, in whole or in part, at any time and from time to time, out of funds legally available therefor, the shares of Series C Preferred Stock at the time outstanding; and

(2) If, after the Issue Date, there is a Capital Treatment Event, the Corporation may at anytime, subject to the approval of the Appropriate Federal Banking Agency, redeem all of the shares of Series C Preferred Stock at the time outstanding.

(ii) The per-share redemption price for shares of Series C Preferred Stock shall be equal to the sum of:

(1) the Liquidation Preference per share; and

(2) the per-share amount of any declared but unpaid dividends, without accumulation of any undeclared dividends, for the then current Dividend Period to the date fixed for redemption.

36

The redemption price for any shares of Series C Preferred Stock shall be payable on the redemption date to the Holder of such shares against surrender of the certificate(s) evidencing such shares to the Corporation or its agent. Any declared but unpaid dividends for the then current Dividend Period payable on a redemption date that occurs subsequent to the Record Date for a Dividend Period shall not be paid to the Holder entitled to receive the redemption price on the redemption date, but rather shall be paid to the Holder of record of the redeemed shares on such Record Date relating to the Dividend Payment Date as provided in Section 4 above.

(b)  No Sinking Fund. The Series C Preferred Stock will not be subject to any mandatory redemption, sinking fund or other similar provisions. Holders of Series C Preferred Stock will have no right to require redemption or repurchase of any shares of Series C Preferred Stock.

(c)  Notice of Redemption. Notice of every redemption of shares of Series C Preferred Stock shall be given by first class mail, postage prepaid, addressed to the Holders of record of the shares to be redeemed at their respective last addresses appearing on the books of the Corporation. Such mailing shall be at least 30 days and not more than 60 days before the date fixed for redemption. Any notice mailed as provided in this Subsection shall be conclusively presumed to have been duly given, whether or not the Holder receives such notice, but failure duly to give such notice by mail, or any defect in such notice or in the mailing thereof, to any Holder of shares of Series C Preferred Stock designated for redemption shall not affect the validity of the proceedings for the redemption of any other shares of Series C Preferred Stock. Notwithstanding the foregoing, if shares of Series C Preferred Stock are issued in book-entry form through the Depository, notice of redemption may be given to the Holders of Series C Preferred Stock at such time and in any manner permitted by such Depository. Each notice of redemption given to a Holder shall state: (1) the redemption date; (2) the number of shares of Series C Preferred Stock to be redeemed and, if less than all the shares held by such Holder are to be redeemed, the number of such shares to be redeemed from such Holder; (3) the redemption price; and (4) the place or places where certificates for such shares are to be surrendered for payment of the redemption price.

(d)  Partial Redemption. In case of any redemption of part of the shares of Series C Preferred Stock at the time outstanding, the shares to be redeemed shall be selected either pro rata or in such other manner as the Board of Directors or a duly authorized committee thereof may determine to be fair and equitable. Subject to the provisions hereof, the Board of Directors or a duly authorized committee thereof shall have full power and authority to prescribe the terms and conditions upon which shares of Series C Preferred Stock shall be redeemed from time to time, subject to the approval of the Appropriate Federal Banking Agency. If fewer than all the shares represented by any certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without charge to the Holder thereof.

(e)  Effectiveness of Redemption. If notice of redemption has been duly given and if on or before the redemption date specified in the notice all funds necessary for the redemption have been deposited by the Corporation, in trust for the pro rata benefit of the Holders of the shares called for redemption, with a bank or trust company selected by the Board of Directors, so as to be and continue to be available solely therefor, then, notwithstanding that any certificate for any share so called for redemption has not been surrendered for cancellation, on and after the redemption date dividends shall cease to accrue on all shares so called for redemption, all shares so called for redemption shall no longer be deemed outstanding and all rights with respect to such shares shall forthwith on such redemption date cease and terminate, except only the right of the holders thereof to receive the amount payable on such redemption from such bank or trust company, without interest. Any funds unclaimed at the end of three years from the redemption date shall, to the extent permitted by law, be released to the Corporation, after which time the Holders of the shares so called for redemption shall look only to the Corporation for payment of the redemption price of such shares.

37

(f)  Status of Redeemed Shares. Shares of Series C Preferred Stock that are redeemed, repurchased or otherwise acquired by the Corporation shall revert to authorized but unissued shares of Preferred Stock, undesignated as to series and available for future issuance.

Section 8. Right to Convert. Each Holder shall have the right, at such Holder’s option, to convert all or any portion of such Holder’s Series C Preferred Stock into shares of Common Stock at the Applicable Conversion Rate per share of Series C Preferred Stock (subject to the conversion procedures of Section 9) plus cash in lieu of fractional shares, subject to the provisions set forth in Section 16.

Section 9. Conversion Procedures.

(a)  Effective immediately prior to the close of business on the Mandatory Conversion Date or any applicable Conversion Date, dividends shall no longer be authorized and declared on any converted shares of Series C Preferred Stock and such shares of Series C Preferred Stock shall cease to be outstanding, in each case, subject to the right of Holders to receive any authorized, declared and unpaid dividends on such shares and any other payments to which they are otherwise entitled pursuant to Section 8, Section 10, Section 12 or Section 14, as applicable.

(b) No allowance or adjustment, except pursuant to Section 11, shall be made in respect of dividends payable to holders of the Common Stock of record as of any date prior to the close of business on the Mandatory Conversion Date or any applicable Conversion Date. Prior to the close of business on the Mandatory Conversion Date or any applicable Conversion Date, shares of Common Stock issuable upon conversion of, or other securities issuable upon conversion of, any shares of Series C Preferred Stock shall not be deemed outstanding for any purpose, and Holders shall have no rights with respect to the Common Stock or other securities issuable upon conversion (including voting rights, rights to respond to tender offers for the Common Stock or other securities issuable upon conversion and rights to receive any dividends or other distributions on the Common Stock or other securities issuable upon conversion) by virtue of holding shares of Series C Preferred Stock.

(c) Shares of Series C Preferred Stock duly converted in accordance with this Series C Preferred Stock Designation will resume the status of authorized but unissued Preferred Stock, undesignated as to series and available for future issuance.

38

(d) The Person or Persons entitled to receive the Common Stock and/or cash, securities or other property issuable upon conversion of Series C Preferred Stock shall be treated for all purposes as the record holder(s) of such shares of Common Stock and/or securities as of the close of business on the Mandatory Conversion Date or any applicable Conversion Date. In the event that a Holder shall not by written notice designate the name in which shares of Common Stock and/or cash, securities or other property (including payments of cash in lieu of fractional shares) to be issued or paid upon conversion of shares of Series C Preferred Stock should be registered or paid or the manner in which such shares should be delivered, the Corporation shall be entitled to register and deliver such shares, and make such payment, in the name of the Holder and in the manner shown on the records of the Corporation or, in the case of global certificates or uncertificated shares, through book-entry transfer through the Depositary.

(e) conversion into shares of Common Stock will occur on the Mandatory Conversion Date or any applicable Conversion Date as follows:

(i) On the Mandatory Conversion Date, shares of Common Stock shall be issued to Holders or their designee upon presentation and surrender of the certificate evidencing the Series C Preferred Stock to the Conversion Agent, if shares of the Series C Preferred Stock are held in certificated form, and, if required, the furnishing of appropriate endorsements and transfer documents and the payment of all transfer and similar taxes. If a Holder’s interest is a beneficial interest in a global certificate representing Series C Preferred Stock, a book-entry transfer through the Depositary will be made by the Conversion Agent upon compliance with the Depositary’s procedures for converting a beneficial interest in a global security.

(ii) On the date of any conversion at the option of a Holder pursuant to Section 8, if a Holder’s interest is in certificated form, a Holder must do each of the following in order to convert:

(A) complete and manually sign the conversion notice provided by the Conversion Agent, or a facsimile of the conversion notice, and deliver this irrevocable notice to the Conversion Agent;

(B) surrender the shares of Series C Preferred Stock to the Conversion Agent;

(C) if required, furnish appropriate endorsements and transfer documents;

(D) if required, pay all transfer or similar taxes; and

(E) if required, pay funds equal to any authorized, declared and unpaid dividend payable on the next Dividend Payment Date to which such Holder is entitled.

39

If a Holder’s interest is a beneficial interest in a global certificate representing Series C Preferred Stock, in order to convert, such Holder must comply with paragraphs (C) through (E) of this clause (ii) and comply with the Depositary’s procedures for converting a beneficial interest in a global security. The date on which a Holder complies with the procedures in this clause (ii) is the “Conversion Date.”

(iii) The Conversion Agent shall, on a Holder’s behalf, convert the Series C Preferred Stock into shares of Common Stock, in accordance with the terms of the notice delivered by such Holder described in Section 9(e)(ii).

Section 10. Mandatory Conversion at the Corporation’s Option.

(a)  On or after the fifth anniversary of the Issue Date, the Corporation shall have the right, at its option, at any time or from time to time to cause some or all of the Series C Preferred Stock to be converted into shares of Common Stock at the then Applicable Conversion Rate if, for 20 Trading Days within any period of 30 consecutive Trading Days (including the last Trading Day of such period), ending on the Trading Day preceding the date the Corporation delivers a Notice of Mandatory Conversion, the Closing Price of the Common Stock exceeds 130% of the Conversion Price of the Series C Preferred Stock. The Conversion Date shall be a date selected by the Corporation (the “Mandatory Conversion Date”).

(b)  Notice of Mandatory Conversion. Notice of every mandatory conversion of shares of Series C Preferred Stock (such notice, a “Notice of Mandatory Conversion”) shall be given by first class mail, postage prepaid, addressed to the Holders of record of the shares subject to the mandatory conversion at their respective last addresses appearing on the books of the Corporation. Such mailing shall be at least 30 days and not more than 60 days before the Mandatory Conversion Date. Any notice mailed as provided in this Subsection shall be conclusively presumed to have been duly given, whether or not the Holder receives such notice, but failure duly to give such notice by mail, or any defect in such notice or in the mailing thereof, to any Holder of shares of Series C Preferred Stock designated for mandatory conversion shall not affect the validity of the proceedings for the mandatory conversion of any other shares of Series C Preferred Stock. Notwithstanding the foregoing, if shares of Series C Preferred Stock are issued in book-entry form through the Depository, notice of mandatory conversion may be given to the Holders of Series C Preferred Stock at such time and in any manner permitted by such Depository. Each Notice of Mandatory Conversion given to a Holder shall state: (1) the Mandatory Conversion Date; (2) the number of shares of Series C Preferred Stock to be converted and, if less than all the shares held by such Holder are to be converted, the number of such shares to be converted from such Holder; (3) the number of shares of Common Stock to be issued upon conversion of each share of Series C Preferred Stock; and (4) the place or places where certificates for such shares are to be surrendered for conversion.

(c)  Partial Mandatory Conversion. In case of any mandatory conversion of part of the shares of Series C Preferred Stock at the time outstanding, the shares to be converted shall be selected either pro rata or in such other manner as the Board of Directors or a duly authorized committee thereof may determine to be fair and equitable. Subject to the provisions hereof, the Board of Directors or a duly authorized committee thereof shall have full power and authority to prescribe the terms and conditions upon which shares of Series C Preferred Stock shall be mandatorily converted from time to time, subject to the approval of the Appropriate Federal Banking Agency, if applicable. If fewer than all the shares represented by any certificate are converted, a new certificate shall be issued representing the unconverted shares without charge to the Holder thereof.

40

Section 11. Anti-Dilution Adjustments. If the Corporation at any time after the Issue Date subdivides (by any stock split, stock dividend, recapitalization or otherwise) its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision will be proportionately reduced and the number of shares of Common Stock obtainable upon conversion of the Series C Preferred Stock will be proportionately increased. If the Corporation at any time after the Issue Date combines (by combination, reverse stock split or otherwise) its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination will be proportionately increased and the number of shares of Common Stock obtainable upon conversion of the Series C Preferred Stock will be proportionately decreased.

Section 12. Reorganization Events.

(a) In the event of:

(i) any consolidation or merger of the Corporation with or into another Person, in each case pursuant to which the Common Stock will be converted into cash, securities or other property of the Corporation or another Person;

(ii) any sale, transfer, lease or conveyance to another Person of all or substantially all of the property and assets of the Corporation, in each case pursuant to which the Common Stock will receive a distribution of cash, securities or other property of the Corporation or another Person;

(iii) any reclassification of the Common Stock into securities including securities other than the Common Stock; or

(iv) any statutory exchange of the Corporation’s securities with another Person (other than in connection with a merger or acquisition);

(each of the foregoing events, a “Reorganization Event”), each share of Series C Preferred Stock outstanding immediately prior to such Reorganization Event will, without the consent of Holders, become convertible into the kind and amount of securities, cash, and other property or assets that a Holder (that was not the counterparty to the Reorganization Event or an affiliate of such other party) of a number of shares of Common Stock equal to the Applicable Conversion Rate per share of Series C Preferred Stock prior to such Reorganization Event would have owned or been entitled to receive upon such Reorganization Event (such securities, cash, and other property or assets, the “Exchange Property”).

(b) In the event that holders of the shares of Common Stock have the opportunity to elect the form of consideration to be received in such transaction, the consideration that the Holders are entitled to receive shall be deemed to be the types and amounts of consideration received by the majority of the holders of the shares of Common Stock that affirmatively make an election. The amount of Exchange Property receivable upon conversion of any Series C Preferred Stock in accordance with Section 8 or Section 10 shall be determined based upon the Applicable Conversion Rate in effect on such Conversion Date.

41

(c) The above provisions of this Section 12 shall similarly apply to successive Reorganization Events and the provisions of Section 11 shall apply to any shares of capital stock of the Corporation (or any successor) received by the holders of the Common Stock in any such Reorganization Event.

(d) The Corporation (or any successor) shall, within 20 days of the occurrence of any Reorganization Event, provide written notice to the Holders of such occurrence of such event and of the kind and amount of the cash, securities or other property or assets that constitutes the Exchange Property. Failure to deliver such notice shall not affect the operation of this Section 12.

Section 13. Voting Rights. The holders of Series C Preferred Stock will not have any voting rights except voting rights, if any, required by law.

Section 14. Fractional Shares.

(a) No fractional shares of Common Stock will be issued as a result of any conversion of shares of Series C Preferred Stock.

(b) In lieu of any fractional share of Common Stock otherwise issuable in respect of any mandatory conversion pursuant to Section 10 or any conversion at the option of the Holder pursuant to Section 8, the Holder shall be entitled to receive an amount in cash (computed to the nearest cent) equal to the same fraction of the Closing Price of the Common Stock determined as of the second Trading Day immediately preceding the effective date of conversion.

(c) If more than one share of the Series C Preferred Stock is surrendered for conversion at one time by or for the same Holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of the Series C Preferred Stock so surrendered.

Section 15. Reservation of Common Stock.

(a) The Corporation shall at all times reserve and keep available out of its authorized and unissued Common Stock, solely for issuance upon the conversion of shares of Series C Preferred Stock as provided in this Series C Preferred Stock Designation, free from any preemptive or other similar rights, such number of shares of Common Stock as shall from time to time be issuable upon the conversion of all the shares of Series C Preferred Stock then outstanding, assuming that the Conversion Price equaled the Base Price. For purposes of this Section 15(a), the number of shares of Common Stock that shall be deliverable upon the conversion of all outstanding shares of Series C Preferred Stock shall be computed as if at the time of computation all such outstanding shares were held by a single Holder.

42

(b) All shares of Common Stock delivered upon conversion of the Series C Preferred Stock shall be duly authorized, validly issued, fully paid and non-assessable.

Section 16. Limitations on Beneficial Ownership. Notwithstanding anything to the contrary contained herein, no holder of Series C Preferred Stock will be entitled to receive shares of Common Stock upon conversion pursuant to Section 8 or Section 10 to the extent (but only to the extent) that such receipt would cause such converting holder to become, directly or indirectly, a “beneficial owner” (within the meaning of Section 11(d) of the Exchange Act and the rules and regulations promulgated thereunder) of more than 9.9% of the shares of Common Stock outstanding at such time. Any purported delivery of shares of Common Stock upon conversion of Series C Preferred Stock shall be void and have no effect to the extent (but only to the extent) that such delivery would result in the converting holder becoming the beneficial owner of more than 9.9% of the shares of Common Stock outstanding at such time. If any delivery of shares of Common Stock owed to a holder upon conversion of Series C Preferred Stock is not made, in whole or in part, as a result of this limitation, the Corporation’s obligation to make such delivery shall not be extinguished and the Corporation shall deliver such shares as promptly as practicable after any such converting holder gives notice to the Corporation that such delivery would not result in it being the beneficial owner of more than 9.9% of the shares of Common Stock outstanding at such time. For the avoidance of doubt (i) (x) any converting holder shall have no right to cast any vote with respect to any shares of Common Stock that are not delivered to such converting holder due to the restrictions set forth in this Section 16 and (y) any dividends payable otherwise by the Corporation with respect to any shares of Common Stock that are not delivered to such converting holder due to the restrictions set forth in this Section 16 shall not be payable to such converting holder prior to the delivery of such shares of Common Stock to such converting holder, and (ii) these limitations on beneficial ownership provided for in this Section 16 shall not limit the number of shares of Series C Preferred Stock the Corporation may cause to be converted, or otherwise constrain in any way the Corporation’s ability to exercise its right to cause Series C Preferred Stock to be converted, pursuant to Section 10.

Section 17. Transfer Agent, Registrar, Paying Agent and Conversion Agent. The duly appointed Transfer Agent, Registrar, paying agent and Conversion Agent for the Series C Preferred Stock shall initially be Computershare Shareowner Services LLC. The Corporation may, in its sole discretion, remove the Transfer Agent; provided that the Corporation shall appoint a successor transfer agent who shall accept such appointment prior to the effectiveness of such removal.

Section 18. Replacement Certificates.

(a) The Corporation shall replace any mutilated certificate at the Holder’s expense upon surrender of that certificate to the Registrar. The Corporation shall replace certificates that become destroyed, stolen or lost at the Holder’s expense upon delivery to the Corporation and the Registrar of satisfactory evidence that the certificate has been destroyed, stolen or lost, together with any indemnity that may be required by the Registrar and the Corporation.

43

(b) The Corporation shall not be required to issue any certificates representing the Series C Preferred Stock on or after any applicable Conversion Date or Mandatory Conversion Date. In place of the delivery of a replacement certificate following any applicable Conversion Date or Mandatory Conversion Date, the Registrar, upon delivery of the evidence and indemnity described in Section 18(a), shall deliver the shares of Common Stock pursuant to the terms of the Series C Preferred Stock formerly evidenced by the certificate.

Section 19. Miscellaneous. All notices referred to herein shall be in writing, and, unless otherwise specified herein, all notices hereunder shall be deemed to have been given upon the earlier of receipt thereof or three Business Days after the mailing thereof if sent by registered or certified mail (unless first-class mail shall be specifically permitted for such notice under the terms of this Series C Preferred Stock Designation) with postage prepaid, addressed: (i) if to the Corporation, to the principal executive office of the Corporation or to the Transfer Agent at its principal office in the United States of America, or other agent of the Corporation designated as permitted by this Series C Preferred Stock Designation, or (ii) if to any Holder or holder of shares of Common Stock, as the case may be, to such Holder at the address of such Holder as listed in the stock record books of the Corporation (which may include the records of any transfer agent for the Series C Preferred Stock or the Common Stock, as the case may be), or (iii) to such other address as the Corporation or any such Holder, as the case may be, shall have designated by notice similarly given.

ARTICLE IV

Directors

A.           Number of Directors. The Board of Directors shall consist of such number of persons as shall be designated from time to time in the By-laws of the Corporation, provided that no decrease in the number of directors shall shorten the term of any incumbent director.

B.           Classification. The Board of Directors shall be divided, with respect to the time during which they shall hold office, into three classes as nearly equal in number as possible, with the initial term of office of the Class I directors expiring at the annual meeting of shareholders to be held in 1994, of the Class II directors expiring at the next succeeding annual meeting of shareholders, and of the Class III directors expiring at the second succeeding annual meeting, with all such directors to hold office until their successors are elected and qualified. Any increase or decrease in the number of directors shall be apportioned by the Board of Directors so that all classes of directors shall be as nearly equal in number as possible. At each annual meeting of shareholders, directors chosen to succeed those whose terms then expire shall be elected to hold office for a term expiring at the annual meeting of shareholders held in the third year following the year of their election and until their successors are duly elected and qualified.

C.           Definition of Continuing Directors. “Continuing Directors” shall mean the persons who (1) are members of the Board of Directors of the Corporation on March 3, 1993 or (2) become members of the Board of Directors after March 3, 1993 upon the nomination of the Board of Directors at a time when a majority of the members are Continuing Directors.

44

D.           Vacancies. Any vacancy on the Board of Directors (including any vacancy resulting from an increase in the authorized number of directors, from the removal of a director or from a failure of the shareholders to elect the full number of authorized directors) may, notwithstanding any resulting absence of a quorum of directors, be filled only by the affirmative vote of a majority of all of the Continuing Directors remaining in office, provided that the shareholders shall have the right to fill the vacancy at any special meeting called for such purpose prior to any such action by the Board of Directors. A director elected pursuant to this section shall serve until the next shareholders’ meeting held for the election of directors of the class to which he or she shall have been appointed and until his or her successor is elected and qualified.

E.           Removal. Any director may be removed at any time, but only for cause, at a special meeting of shareholders called for such purpose, by the affirmative vote of the holders of not less than 80% of the Total Voting Power. At the same meeting at which the shareholders remove one or more directors, a successor or successors may be elected for the unexpired term of the director or directors removed. Except as set forth in this Article IV(E), directors shall not be subject to removal.

F.           Removed and Reserved.

G.           Tender Offers and Other Extraordinary Transactions. The Board of Directors, when evaluating a tender offer or an offer to make a tender or exchange offer or to effect a merger, consolidation or share exchange may, in exercising its judgment in determining what is in the best interests of the Corporation and its shareholders, consider the following factors and any other factors that it deems relevant: (1) not only the consideration being offered in the proposed transaction, in relation to the then current market price for the outstanding capital stock of the Corporation, but also the market price for the capital stock of the Corporation over a period of years, the estimated price that might be achieved in a negotiated sale of the Corporation as a whole or in part or through orderly liquidation, the premiums over market price for the securities of other corporations in similar transactions, current political, economic and other factors bearing on securities prices and the Corporation’s financial condition and future prospects; (2) the social and economic effects of such transaction on the Corporation, its subsidiaries, or their employees, customers, creditors and the communities in which the Corporation and its subsidiaries do business; (3) the business and financial condition and earnings prospects of the acquiring party or parties, including, but not limited to, debt service and other existing or likely financial obligations of the acquiring party or parties, and the possible effect of such condition upon the Corporation and its subsidiaries and the communities in which the Corporation and its subsidiaries do business; and (4) the competence, experience, and integrity of the acquiring party or parties and its or their management. Notwithstanding any provision of this Article IV(G), this Article is not intended to confer any rights on any subsidiary of the Corporation, or on any of the Corporation’s or its subsidiaries’ employees, customers, creditors or other members of the communities in which it or they do business.

45

H.           Board Nominations. Unless otherwise permitted by applicable law, only persons who are nominated in accordance with the procedures set forth in this Article IV(H) shall be eligible for election as directors.  Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of shareholders by or at the direction of the Board of Directors or by any shareholder of the Corporation entitled to vote at such meeting for the election of directors who meets the eligibility requirements and has complied with the procedures set forth in this Article IV(H).  The following requirements must be satisfied in order for a shareholder or shareholder group to be entitled to nominate a person for election to the Board of Directors of the Corporation:

(1) The nominating shareholder individually, or the nominating shareholder group in the aggregate, must hold at least 3% of the total voting power of the Corporation’s securities that are entitled to be voted on the election of directors at the annual (or a special meeting in lieu of the annual) meeting of shareholders or on a written consent in lieu of such meeting, on the date the nominating shareholder or nominating shareholder group provides the Corporation with notice of such nomination;

(2) The nominating shareholder or each member of the nominating shareholder group must have held the amount of securities that are used for purposes of satisfying the minimum ownership requirement of paragraph (1) above continuously for at least three years as of the date the notice of such nomination is transmitted to the Corporation and must continue to hold that amount of securities through the date of the subject election of directors;

(3) The nominating shareholder or each member of the nominating shareholder group must provide proof of ownership of the amount of securities that are used for purposes of satisfying the ownership and holding period requirements of paragraphs (1) and (2) of above.  If the nominating shareholder or each member of the nominating shareholder group is not the registered holder of the securities, the nominating shareholder or each member of the nominating shareholder group must provide proof of ownership in the form of one or more written statements from the registered holder of the nominating shareholder’s securities (or the brokers or banks through which those securities are held) verifying that, as of a date within seven calendar days prior to transmitting the notice of such nomination to the Corporation, the nominating shareholder or each member of the nominating shareholder group, continuously held the amount of securities being used to satisfy the ownership threshold for a period of at least three years;

(4) The nominating shareholder or each member of the nominating shareholder group must provide a statement, on the date the notice of such nomination is transmitted to the Corporation, that the nominating shareholder or each member of the nominating shareholder group intends to continue to hold the amount of securities that are used for purposes of satisfying the minimum ownership requirement of paragraph (1) above through the date of the meeting;

(5) The nominating shareholder or each member of the nominating shareholder group must provide a statement, on the date the notice of such nomination is transmitted to the Corporation, regarding the nominating shareholder’s or group’s intent with respect to continued ownership of the registrant’s securities after the election;

46

(6) The nominating shareholder (or where there is a nominating shareholder group, each member of the nominating shareholder group) must not be holding any of the Corporation’s securities with the purpose, or with the effect, of changing control of the Corporation;

(7) There must not be an agreement with the Corporation regarding the nomination of the nominee with the nominee or the nominating shareholder (or where there is a nominating shareholder group, any member of the nominating shareholder group);

(8) The nominee’s candidacy or, if elected, board membership would not violate controlling federal law, state law, foreign law, or rules of a national securities exchange or national securities association (other than rules regarding director independence) or, in the case that the nominee’s candidacy or, if elected, board membership would violate such laws or rules, such violation could not be cured within 14 calendar days of the date of notice of such potential violation delivered by the Corporation to the nominating shareholder or shareholder group;

(9) The nominee must meet the objective criteria for “independence” of the national securities exchange or national securities association rules applicable to the Corporation, if any;

(10) The nominating shareholder or nominating shareholder group must provide its nomination to the Corporation no earlier than 150 calendar days, and no later than 120 calendar days, before the anniversary of the date that the Corporation mailed its proxy materials for the prior year’s annual meeting, except that, if the Corporation did not hold an annual meeting during the prior year, or if the date of the meeting has changed by more than 30 calendar days from the prior year, or if the registrant is holding a special meeting or conducting an election of directors by written consent, then the nominating shareholder or nominating shareholder group must transmit the nomination to the Corporation a reasonable time before the Corporation mails its proxy materials; and

(11) The nominating shareholder or nominating shareholder group provides the following information and certifications on the date the notice of such nomination is transmitted to the Corporation: (a) the name of the shareholder making such nomination, or if a group, the name of each shareholder in such nominating group; (b) the business address, or if none, residence of the nominating shareholder or members of a nominating group; (c) a statement that the nominee, if elected, consents to serve on the Board of Directors; (d) the disclosures regarding the nominee that would be required with respect to a director nominee required by Schedule 14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or any successor schedule thereto; (e) a description of any agreements, arrangements or relationships between the nominating shareholder or nominating group giving the notice and the nominee; (f) a statement regarding whether the nominating shareholder or any member of the nominating group has been involved in any litigation adverse to the Corporation or any of its subsidiaries within the past ten years and, if so, a description of such litigation; and (g) a statement that, to the best of the nominating shareholder’s or nominating group’s knowledge, such nominee meets the Corporation’s director qualification standards then in effect.

47

I.           Directors Elected by Preferred Shareholders. Notwithstanding anything in these Articles of Incorporation to the contrary, whenever the holders of Preferred Stock, or any series thereof, shall have the right, voting separately as a class, to elect one or more directors of the Corporation, the provisions of these Articles of Incorporation (as they may be duly amended from time to time) fixing the rights and preferences of such Preferred Stock shall govern with respect to the nomination, election, term, removal, vacancies or other related matters with respect to such directors.

ARTICLE V

Limitation of Liability and Indemnification

A.           Limitation of Liability. No director or officer of the Corporation shall be liable to the Corporation or to its shareholders for monetary damages for breach of his or her fiduciary duty as a director or officer, provided that the foregoing provision shall not eliminate or limit the liability of a director or officer for (1) any breach of the director’s or officer’s duty of loyalty to the Corporation or its shareholders; (2) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (3) liability for unlawful distributions of the Corporation’s assets to, or redemption or repurchase of the Corporation’s shares from, shareholders of the Corporation, under and to the extent provided in La.R.S. 12:92(D); or (4) any transaction from which the director or officer derived an improper personal benefit.

B.           Authorization of Further Actions. The Board of Directors may (1) cause the Corporation to enter into contracts with its directors and officers providing for the limitation of liability set forth in this Article to the full extent permitted by law, (2) adopt By-laws or resolutions, or cause the Corporation to enter into contracts, providing for indemnification of directors and officers of the Corporation and other persons (including but not limited to directors and officers of the Corporation’s direct and indirect subsidiaries) to the full extent permitted by law, and (3) cause the Corporation to exercise the powers set forth in La. R.S. 12:83(F), notwithstanding that some or all of the members of the Board of Directors acting with respect to the foregoing may be parties to such contracts or beneficiaries of such By-laws or resolutions or the exercise of such powers.

C.           Subsidiaries. The Board of Directors may cause the Corporation to approve for its direct and indirect subsidiaries limitation of liability and indemnification provisions comparable to the foregoing, notwithstanding that some or all of the directors of the Corporation are also directors or officers of such subsidiaries.

D.           Amendment of Article V. Any amendment or repeal of this Article shall not adversely affect any elimination or limitation of liability or right to indemnification under this Article with respect to any action or inaction occurring prior to the time of such amendment or repeal.

48

ARTICLE VI

Special Meetings of Shareholders

Special meetings of shareholders, for any purpose or purposes, may be called by directors or officers of the Corporation in any manner set forth in the By-laws. In addition, at any time, upon the written request of any shareholder or group of shareholders holding in the aggregate at least 80% of the Total Voting Power, the Secretary of the Corporation shall call a special meeting of shareholders to be held at the registered office of the Corporation at such time as the Secretary may fix, not less than 15 nor more than 60 days after the receipt of said request, and if the Secretary shall neglect or refuse to fix such time or to give notice of the meeting, the shareholder or shareholders making the request may do so. Such requests must state the specific purpose or purposes of the proposed special meeting, and the business to be conducted thereat shall be limited to such purpose or purposes. Except as set forth in this Article VI, shareholders of the Corporation shall not have the right to call or have called special meetings of the shareholders.

ARTICLE VII

Reversion

Cash, property or share dividends, shares issuable to shareholders in connection with a reclassification of stock, and the redemption price of redeemed shares, that are not claimed by the shareholders entitled thereto within one year after the dividend or redemption price became payable or the shares became issuable, despite reasonable efforts by the Corporation to pay the dividend or redemption price or deliver the certificates for the shares to such shareholders within such time, shall, at the expiration of such time, revert in full ownership to the Corporation, and the Corporation’s obligation to pay such dividend or redemption price or issue such shares, as the case may be, shall thereupon cease; provided, however, that the Board of Directors may, at any time, for any reason satisfactory to it, but need not, authorize (1) payment of the amount of any cash or property dividend or redemption price or (2) issuance of any shares, ownership of which has reverted to the Corporation pursuant to this Article, to the person or entity who or which would be entitled thereto had such reversion not occurred.

ARTICLE VIII

By-laws

A.           Adoption, Amendment and Repeal. By-laws of the Corporation may be adopted only by a majority vote of all of the Continuing Directors. By-laws may be amended or repealed only by a majority vote of all of the Continuing Directors or by the affirmative vote of the holders of at least 80% of the Total Voting Power at any annual or special meeting of shareholders, the notice of which expressly states that the proposed amendment or repeal is to be considered at the meeting.

49

B.           New Matters. Any purported amendment to the By-laws which would add thereto a matter not covered in the By-laws prior to such purported amendment shall be deemed to constitute the adoption of a By-law provision and not an amendment to the By-laws.

ARTICLE IX

Vote on Certain Transactions and Amendments to

Articles of Incorporation

A.           Vote Required for Shareholder Action. If the Board of Directors has recommended any proposal presented to the shareholders, including but not limited to a proposal to approve a merger, consolidation, share exchange, disposition of all or substantially all of the Corporation’s assets, dissolution or an amendment to these Articles of Incorporation, by the affirmative vote of a majority of all of the Continuing Directors, then the affirmative vote of holders of a majority of the voting power present shall be required to approve a merger, consolidation, share exchange, disposition of all or substantially all of the Corporation’s assets, dissolution or an amendment to these Articles of Incorporation and the affirmative vote of a majority of the votes cast shall be required to approve any other proposal. Otherwise, the affirmative vote of 80% of the Total Voting Power shall be required to constitute shareholder approval of any matter presented to the shareholders.

B.           Business Combinations and Control Share Acquisitions. The provisions of La. R.S. 12:132 et seq. and La. R.S. 12:135 et seq. shall apply in addition to any action required by these Articles of Incorporation.

50

EX-21

EXHIBIT 21

SUBSIDIARIES OF THE REGISTRANT

MidSouth Bank, N.A.

Louisiana

Financial Services of the South, Inc.

Louisiana

Peoples General Agency, Inc.

Louisiana

MidSouth Statutory Trust I

Connecticut

MidSouth Statutory Trust II

Delaware

PSB Statutory Trust I

Connecticut

PSB Statutory Trust III

Delaware

PSB Statutory Trust IV

Delaware

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in registration statements (File No. 33-27949, File No. 33-62773 and File No. 333-143322) on Forms S-8, (File No. 333-157464, File No. 333-176982 and File No. 333-183266) on Forms S-3, and on Form S3-D (File No. 333-178694) of our reports, dated March 18, 2013, relating to our audits of the consolidated financial statements and internal control over financial reporting of MidSouth Bancorp, Inc., included in and incorporated by reference in MidSouth Bancorp, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2012.

Atlanta, Georgia

March 18, 2013

EX-31.1

Exhibit 31.1

CERTIFICATION

I, C. R. Cloutier, President and CEO, certify that:

1. I have reviewed this Annual Report on Form 10-K of MidSouth Bancorp, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 18, 2013

/s/ C. R. Cloutier

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, James R. McLemore, Chief Financial Officer, certify that:

1. I have reviewed this Annual Report on Form 10-K of MidSouth Bancorp, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 18, 2013

/s/ James R. McLemore

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of MidSouth Bancorp, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2012 (the “Report”), I, C.R. Cloutier, Chief Executive Officer of the Company, certify that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

March 18, 2013

/s/ C. R. Cloutier

C.R. Cloutier

Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of MidSouth Bancorp, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2012 (the “Report”), I, James R. McLemore., Chief Financial Officer of the Company, certify that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

March 18, 2013

/s/ James R. McLemore

James R. McLemore

Chief Financial Officer

XML

PREMISES AND EQUIPMENT (Tables)

12 Months Ended

Dec. 31, 2012

PREMISES AND EQUIPMENT [Abstract]

Premises and equipment

Premises and equipment consisted of the following (in thousands):

	December 31,
	2012			2011
Land	$	14,949		$	9,521
Buildings and improvements		40,505			29,296
Furniture, fixtures, and equipment		23,775			19,647
Automobiles		812			495
Leasehold improvements		10,047			10,006
Construction-in-process		1,562			706
		91,650			69,671
Less accumulated depreciation and amortization		(28,189	)		(25,073	)
	$	63,461		$	44,598

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) (USD $)	12 Months Ended
	Dec. 31, 2012
Loans [Abstract]
Amount of non-major homogenous loan, maximum	$ 250,000
Number of days past due for loan to be placed on nonaccrual status	90 days
Period of repayment performance for nonaccrual loan to be returned to accrual status, lower range limit	6 months
Period of repayment performance for nonaccrual loan to be returned to accrual status, upper range limit	1 year
Credit Risk Rating [Abstract]
Number of risk rating grades	3
Allowance for Loan Losses [Abstract]
Period of historical loss experience in determining general reserves, minimum	12 months
Period of historical loss experience in determining general reserves, maximum	18 months
Finite-Lived Intangible Assets [Line Items]
Estimated useful life	7 years
Basic and Diluted Earnings Per Common Share [Abstract]
Percentage of issued shares on which small stock dividend is declared, maximum (in hundredths)	25.00%
Statements of Cash Flows [Abstract]
Period over which federal funds are sold	1 day
Core Deposits [Member] | Straight-line Basis [Member]
Finite-Lived Intangible Assets [Line Items]
Estimated useful life	15 years
Core Deposits [Member] | Accelerated Basis [Member]
Finite-Lived Intangible Assets [Line Items]
Estimated useful life	10 years
Building and improvements [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives	10 years
Building and improvements [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives	40 years
Furniture, fixtures, and equipment [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives	3 years
Furniture, fixtures, and equipment [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives	10 years
Automobiles [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives	5 years

XML

NET EARNINGS PER COMMON SHARE (Tables)

12 Months Ended

Dec. 31, 2012

NET EARNINGS PER COMMON SHARE [Abstract]

Information Used in the Computation of Earnings per Common Share

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

	December 31,
	2012		2011		2010
Net earnings	$	9,642	$	4,473	$	5,780
Dividends on preferred stock and accretion of warrants		1,547		1,802		1,198
Net earnings available to common stockholders	$	8,095	$	2,671	$	4,582
Weighted average number of common shares outstanding used in computation of basic earnings per common share		10,482		9,787		9,701
Effect of dilutive securities:
Stock options		24		7		15
Restricted stock		12		5		2
Preferred stock		6		-		-
Weighted average number of common shares outstanding plus effect of dilutive securities used in computation of diluted earnings per common share		10,524		9,799		9,718

XML

COMMITMENTS AND CONTINGENCIES (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Future annual minimum rental payments due under non-cancellable operating leases [Abstract
2013	$ 2,264,000
2014	2,125,000
2015	1,956,000
2016	1,701,000
2017	1,566,000
Thereafter	11,611,000
Total future annual minimum rental payments	21,223,000
Rent expense under operating leases	2,500,000	2,000,000	1,700,000
Line of Credit Facility [Line Items]
FHLB advances	27,128,000
FHLB of Dallas line of credit [Member]
Line of Credit Facility [Line Items]
Borrowing lines capacity	206,100,000
Borrowings line outstanding	0
Correspondent banks line of credit [Member]
Line of Credit Facility [Line Items]
Borrowing lines capacity	48,500,000
Borrowings line outstanding	0
Federal Reserve of Atlanta line of credit [Member]
Line of Credit Facility [Line Items]
Borrowing lines capacity	158,100,000
Borrowings line outstanding	0
FNBB [Member]
Line of Credit Facility [Line Items]
Notes payables with FNBB from PSB	$ 2,000,000

XML

ACQUISITION ACTIVITY (Details) (USD $)	0 Months Ended	12 Months Ended										0 Months Ended				12 Months Ended
	Dec. 28, 2012	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012 Commercial, financial and agricultural [Member]	Dec. 31, 2012 Real estate - construction [Member]	Dec. 31, 2012 Real estate - commercial [Member]	Dec. 31, 2012 Real Estate - Residential [Member]	Dec. 31, 2012 Installment loans to individuals [Member]	Dec. 31, 2012 Other [Member]	Dec. 31, 2012 PSB Financial Corp [Member]	Dec. 28, 2012 PSB Financial Corp [Member]	Dec. 28, 2012 PSB Financial Corp [Member] Common Stock [Member]	Dec. 28, 2012 PSB Financial Corp [Member] Preferred Stock [Member]	Dec. 02, 2011 Jefferson Bank [Member]	Dec. 02, 2011 Beacon Federal [Member]	Dec. 31, 2011 First Louisiana National Bank [Member]	Dec. 02, 2011 First Louisiana National Bank [Member]	Dec. 01, 2011 First Louisiana National Bank [Member]	Dec. 02, 2011 Combined Three Acquisition Transactions [Member]
Equity consideration [Abstract]
Stock issued (in shares)												756,511	99,971			725,000
Stock issued												$ 11,530,000	$ 9,997,000					$ 8,838,000
Non-equity consideration [Abstract]
Cash											16,003,000							11,500,000
Contingent value right											2,000,000
Total consideration paid											39,530,000							20,338,000
Fair value of net assets acquired including identifiable intangible assets										465,045,000	(21,572,000)			158,330,000	75,948,000		120,388,000	(16,230,000)	370,400,000
Goodwill											17,958,000			7,726,000	3,854,000			4,108,000	15,700,000
Refinement period of preliminary fair value after closing date of acquisition		1 year
Assets As Recorded By Acquired Company [Abstract]
Cash										17,847,000				93,800,000	52,170,000		31,208,000
Federal funds sold										5,200,000
Time deposits held in banks										172,000							710,000
Investment securities										152,667,000				175,000			32,625,000
Other investment																	140,000
Loans receivable										269,053,000				59,818,000	23,760,000		48,645,000
Fixed assets										11,845,000				2,240,000	288,000		2,234,000
Core deposit intangible										0				0	0		0
Cash surrender value of life insurance										8,234,000
Other real estate owned										838,000					51,000
Other assets										4,635,000				327,000			641,000
Total assets acquired										470,490,000				156,360,000	76,269,000		116,203,000
Liabilities As Recorded By Acquired Company [Abstract]
Deposits										399,845,000				164,368,000	76,466,000		103,857,000
FHLB advances										25,296,000
Notes payable										2,000,000
Junior subordinated debentures										13,919,000
Other liabilities										2,606,000				283,000	5,000		167,000
Total liabilities assumed										443,666,000				164,651,000	76,471,000		104,024,000
Excess of liabilities assumed over assets acquired														8,291,000	202,000
Assets Fair Value Adjustments [Abstract]
Cash										0				0	0		0
Federal funds sold										0
Time deposits held in banks										0							0
Investment securities										0				0			(1,000)
Other investments																	0
Loans receivable										(9,000,000)				(2,124,000)	(1,600,000)		(693,000)
Fixed Assets										578,000				1,392,000	153,000		1,445,000
Core deposit intangible										2,662,000				2,702,000	1,126,000		3,434,000
Cash surrender value of life insurance										0
Other real estate owned										0
Other assets										314,000				0	0		0
Total assets acquired										(5,446,000)				1,970,000	(321,000)		4,185,000
Liabilities Fair Value Adjustment [Abstract]
Deposits										722,000				1,405,000	3,331,000		134,000
FHLB advances										1,832,000
Notes payable										0
Junior subordinated debentures										0
Other liabilities										(2,747,000)				0	0		0
Total liabilities assumed										(193,000)				1,405,000	3,331,000		134,000
Aggregate fair value adjustments														565,000	(3,652,000)
Assets Fair Value [Abstract]
Cash										17,847,000				93,800,000	52,170,000		31,208,000		177,200,000
Federal funds sold										5,200,000
Time deposits held in banks										172,000							710,000
Investment securities										152,667,000				175,000			32,624,000		32,800,000
Other investments																	140,000
Loans receivable										260,053,000				57,694,000	22,160,000		47,952,000		127,800,000
Fixed assets										12,423,000				3,632,000	441,000		3,679,000		7,800,000
Core deposit intangible										2,662,000				2,702,000	1,126,000		3,434,000		23,000,000
Cash surrender value of life insurance										8,234,000
Other real estate owned										838,000
Other assets										4,949,000				327,000	51,000		641,000
Assets acquired										465,045,000	(21,572,000)			158,330,000	75,948,000		120,388,000	(16,230,000)	370,400,000
Liabilities Fair Value [Abstract]
Deposits										400,567,000				165,773,000	79,797,000		103,991,000		349,600,000
FHLB advances										27,128,000
Notes payable										2,000,000
Junior subordinated debentures										13,919,000
Other liabilities										(141,000)				283,000	5,000		167,000
Total liabilities assumed										443,473,000				166,056,000	79,802,000		104,158,000		350,000,000
Fair value of net assets acquired including identifiable intangible assets										21,572,000							16,230,000
Useful life of core intangible assets		7 years
Acquisition expense		1,200,000
Business Acquisition, Pro Forma Information [Abstract]
Total revenues, net of interest expense		89,845,000	80,573,000
Net income		14,694,000	10,361,000
Earnings per share - basic (in dollars per share)		$ 1.12	$ 0.76
Earnings per share - diluted (in dollars per share)		$ 1.09	$ 0.75
Acquired impaired loans at acquisition [Abstract]
Contractually required principal and interest payments		7,449,000
Non-accretable discount		2,084,000
Cash flows expected to be collected		5,365,000
Accretable discount		623,000
Fair value of loans acquired with a deterioration of credit quality		4,742,000
Contingent value rights terms	Generally, no contingent payment will be made if the net charge-offs on the Identified Loans exceeds $3.0 million.
Maturity date		Dec. 28, 2015
Acquisition of Loan [Line Items]
Acquired Impaired Loans		4,742,000		82,000	0	4,205,000	455,000	0	0
Acquired Performing Loans		255,311,000		59,011,000	16,431,000	127,866,000	34,232,000	17,652,000	119,000
Total Acquired Loans		$ 260,053,000		$ 59,093,000	$ 16,431,000	$ 132,071,000	$ 34,687,000	$ 17,652,000	$ 119,000

XML

FAIR VALUE MEASUREMENTS AND DISCLOSURES (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount for selling costs (in hundredths)	6.00%
Additional discount for taxes, insurance and maintenance costs (in hundredths)	4.00%
Financial Assets [Abstract]
Securities available-for-sale	$ 424,617	$ 367,241
Financial liabilities [Abstract]
Notes payable	29,100
Carrying Value [Member]
Financial Assets [Abstract]
Cash and cash equivalents	73,573	83,303
Time deposits held in banks	881	710
Securities available-for-sale	424,617	367,241
Securities held-to-maturity	153,524	100,472
Other investments	8,310	5,637
Loans, net	1,039,570	739,029
Cash surrender value of life insurance policies	13,183	4,853
Financial liabilities [Abstract]
Non-interest-bearing deposits	380,557	254,755
Interest-bearing deposits	1,171,347	910,051
Securities sold under agreements to repurchase	41,447	46,078
Notes payable	29,128
Junior subordinated debentures	29,384	15,465
Minimum [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Period when new appraisals are received (in weeks)	4
Maximum [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Period when new appraisals are received (in weeks)	6
Level 1 [Member] | Fair Value [Member]
Financial Assets [Abstract]
Cash and cash equivalents	73,573	83,303
Time deposits held in banks	0	0
Securities available-for-sale	0	0
Securities held-to-maturity	0	0
Other investments	8,310	5,637
Loans, net	0	0
Cash surrender value of life insurance policies	0	0
Financial liabilities [Abstract]
Non-interest-bearing deposits	0	0
Interest-bearing deposits	0	0
Securities sold under agreements to repurchase	41,447	46,078
Notes payable	0
Junior subordinated debentures	0	0
Level 2 [Member] | Fair Value [Member]
Financial Assets [Abstract]
Cash and cash equivalents	0	0
Time deposits held in banks	0	0
Securities available-for-sale	424,617	367,241
Securities held-to-maturity	156,924	101,131
Other investments	0	0
Loans, net	0	0
Cash surrender value of life insurance policies	13,183	4,853
Financial liabilities [Abstract]
Non-interest-bearing deposits	380,557	254,755
Interest-bearing deposits	859,183	585,763
Securities sold under agreements to repurchase	0	0
Notes payable	0
Junior subordinated debentures	22,167	8,248
Level 3 [Member] | Fair Value [Member]
Financial Assets [Abstract]
Cash and cash equivalents	0	0
Time deposits held in banks	883	716
Securities available-for-sale	0	0
Securities held-to-maturity	0	0
Other investments	0	0
Loans, net	1,046,495	747,156
Cash surrender value of life insurance policies	0	0
Financial liabilities [Abstract]
Non-interest-bearing deposits	0	0
Interest-bearing deposits	314,783	327,441
Securities sold under agreements to repurchase	0	0
Notes payable	29,128
Junior subordinated debentures	7,776	9,095
Fair Value, Measurements, Recurring [Member]
Available-for-sale Securities [Abstract]
U.S. Government sponsored enterprises	13,424	94,999
Obligations of state and political subdivisions	87,421	96,149
GSE mortgage-backed securities	178,819	109,487
Collateralized mortgage obligations: residential	101,986	41,468
Collateralized mortgage obligations: commercial	29,761	25,138
Other asset-backed securities	12,742
Collateralized debt obligation	464
Fair Value, Measurements, Recurring [Member] | Level 1 [Member]
Available-for-sale Securities [Abstract]
U.S. Government sponsored enterprises	0	0
Obligations of state and political subdivisions	0	0
GSE mortgage-backed securities	0	0
Collateralized mortgage obligations: residential	0	0
Collateralized mortgage obligations: commercial	0	0
Other asset-backed securities	0
Collateralized debt obligation	0
Fair Value, Measurements, Recurring [Member] | Level 2 [Member]
Available-for-sale Securities [Abstract]
U.S. Government sponsored enterprises	13,424	94,999
Obligations of state and political subdivisions	87,421	96,149
GSE mortgage-backed securities	178,819	109,487
Collateralized mortgage obligations: residential	101,986	41,468
Collateralized mortgage obligations: commercial	29,761	25,138
Other asset-backed securities	12,742
Collateralized debt obligation	464
Fair Value, Measurements, Recurring [Member] | Level 3 [Member]
Available-for-sale Securities [Abstract]
U.S. Government sponsored enterprises	0	0
Obligations of state and political subdivisions	0	0
GSE mortgage-backed securities	0	0
Collateralized mortgage obligations: residential	0	0
Collateralized mortgage obligations: commercial	0	0
Other asset-backed securities	0
Collateralized debt obligation	0
Fair Value, Measurements, Nonrecurring [Member]
Assets and Liabilities Measured on Nonrecurring Basis
Impaired Loans	2,245	2,994
Other real estate	7,496	7,369
Fair Value, Measurements, Nonrecurring [Member] | Level 1 [Member]
Assets and Liabilities Measured on Nonrecurring Basis
Impaired Loans	0	0
Other real estate	0	0
Fair Value, Measurements, Nonrecurring [Member] | Level 2 [Member]
Assets and Liabilities Measured on Nonrecurring Basis
Impaired Loans	2,245	2,994
Other real estate	7,496	7,369
Fair Value, Measurements, Nonrecurring [Member] | Level 3 [Member]
Assets and Liabilities Measured on Nonrecurring Basis
Impaired Loans	0	0
Other real estate	$ 0	$ 0

XML

EMPLOYEE BENEFITS (Tables)

12 Months Ended

Dec. 31, 2012

EMPLOYEE BENEFITS [Abstract]

Employee Stock Ownership Plan

The Company sponsors a leveraged employee stock ownership plan ("ESOP") that covers all employees who meet minimum age and service requirements. The Company makes annual contributions to the ESOP in amounts as determined by the Board of Directors. These contributions are used to pay debt service and purchase additional shares. In past years, certain ESOP shares were pledged as collateral for  debt. As the debt was  repaid, shares were  released from collateral and allocated to active employees, based on the proportion of debt service paid in the year.    The most recent borrowing transaction occurred on  February 5, 2009, when the ESOP borrowed  $300,000 payable to MidSouth Bank, N.A.    A total of 25,000 shares at $9.89 per share and 5,828 shares at $9.05 per share were purchased with the loan proceeds on February 6, 2009 and February 19, 2009, respectively.  The balance of the note was paid in full on November 10, 2011.  Because the source of the loan payments are contributions received by the ESOP from the Company, the related notes receivable is shown as a reduction of stockholders' equity.  In accordance with GAAP, compensation costs relating to shares purchased are based on the fair value of shares committed to be released.  The unreleased shares are not considered outstanding in the computation of earnings per common share.  Dividends received on ESOP shares are allocated based on shares held for the benefit of each participant and used to purchase additional shares of stock for each participant.  ESOP compensation expense consisting of cash contributions for 2012 was approximately $428,000.  ESOP compensation expense consisting of both cash contributions and shares committed to be released for 2011, and 2010 was approximately $469,000, and $481,000, respectively.  The cost basis of the shares released for 2011 and 2010 was $9.73 per share.  ESOP shares as of December 31, 2012 and 2011 were as follows:

	2012		2011
Allocated shares		573,476		546,722
Shares released for allocation		-		10,757
Total ESOP shares		573,476		557,479

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Dec. 31, 2012

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

Basic of Presentation

Basis of Presentation—The consolidated financial statements include the accounts of MidSouth Bancorp, Inc. (the "Company") and its wholly-owned subsidiaries MidSouth Bank, N.A. (the "Bank") and Financial Services of the South, Inc. (the "Finance Company"), which has liquidated its loan portfolio.  All significant intercompany accounts and transactions have been eliminated in consolidation.  We are subject to regulation under the Bank Holding Company Act of 1956.  The Bank is primarily regulated by the Office of the Comptroller of the Currency ("OCC") and the Federal Deposit Insurance Corporation ("FDIC").

We are a financial holding company headquartered in Lafayette, Louisiana operating principally in the community banking business by providing banking services to commercial and retail customers through the Bank. The Bank is community oriented and focuses primarily on offering competitive commercial and consumer loan and deposit services to individuals and small to middle market businesses in Louisiana and central and east Texas.

The accounting principles we follow and the methods of applying these principles conform with accounting principles generally accepted in the United States of America ("GAAP") and with general practices within the banking industry.  In preparing the financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts in the financial statements.  Actual results could differ significantly from those estimates.  Material estimates common to the banking industry that are particularly susceptible to significant change in the near term include, but are not limited to, the determination of the allowance for loan losses, the valuation of real estate acquired in connection with or in lieu of foreclosure on loans, the assessment of goodwill for impairment, and valuation allowances associated with the realization of deferred tax assets which are based on future taxable income. Given the current instability of the economic environment, it is reasonably possible that the methodology of the assessment of potential loan losses, losses on other real estate owned, goodwill impairment, and other fair value measurements could change in the near term or could result in impairment going forward.

Cash and cash equivalents

Cash and cash equivalents—Cash and cash equivalents include cash on hand, amounts due from banks, interest-bearing deposits in other banks with original maturities of less than 90 days, and federal funds sold.

Investment Securities

Investment Securities—We determine the appropriate classification of debt securities at the time of purchase and reassesses this classification periodically. Trading account securities are held for resale in anticipation of short-term market movements. Debt securities are classified as held-to-maturity when we have the positive intent and ability to hold the securities to maturity. Securities not classified as held-to-maturity or trading are classified as available-for-sale. We had no trading account securities during the three years ended December 31, 2012. Held-to-maturity securities are stated at amortized cost. Available-for-sale securities are stated at fair value, with unrealized gains and losses, net of deferred taxes, reported as a separate component of stockholders' equity.

The amortized cost of debt securities classified as held-to-maturity or available-for-sale is adjusted for amortization of premiums and accretion of discounts to maturity or, in the case of mortgage-backed securities, over the estimated life of the security. Amortization, accretion, and accrued interest are included in interest income on securities. Realized gains and losses on the sale of securities available-for-sale are included in earnings and are determined using the specific-identification method.

Management evaluates investment securities for other than temporary impairment on a quarterly basis.  A decline in the fair value of available-for-sale and held-to-maturity securities below cost that is deemed other than temporary is charged to earnings for a decline in value deemed to be credit related and a new cost basis for the security is established.  The decline in value attributed to non-credit related factors is recognized in other comprehensive income.

Other Investments

Other Investments—Other investments include Federal Reserve Bank and Federal Home Loan Bank stock, as well as other correspondent bank stocks and our CRA investment which have no readily determined market value and are carried at cost.  Due to the redemption provisions of the investments, the fair value equals cost and no impairment exists.

Loans

Loans—Loans that we have the intent and ability to hold for the foreseeable future or until maturity are reported at the principal amount outstanding, net of the allowance for loan losses and any deferred fees or costs on originated loans. Interest income on commercial and real estate mortgage loans is calculated by using the simple interest method on the daily balance of the principal amount outstanding. Unearned income on installment loans is credited to operations based on a method which approximates the interest method. In-house legal counsel and the collections department are responsible for validating loans past due for reporting purposes.  Once loans are determined to be past due, the collections department actively works with customers to bring loans back to current status.

We consider a loan to be impaired when, based upon current information and events, we believe it is probable that we 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 for impairment.  Our impaired loans include troubled debt restructurings and performing and nonperforming major loans in which full payment of principal or interest is not expected. Although our policy requires that non-major homogenous loans, which include all loans under $250,000, be evaluated on an overall basis, our current volume of impaired loans allows us to evaluate each impaired loan individually. We calculate the allowance required for impaired loans 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.  A loan may be impaired but not on nonaccrual status when available information suggests that it is probable the Bank may not receive all contractual principal and interest, however, the loan is still current and payments are received in accordance with the terms of the loan. Payments received for impaired loans not on nonaccrual status are applied to principal and interest.

All impaired loans are reviewed, at minimum, on a quarterly basis.  Reviews may be performed more frequently if material information is available before the next scheduled quarterly review.  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.  All loans included in our impairment analysis are subject to the same procedure and review, with no distinction given to the dollar amount of the loan.

Our Special Assets Committee meets monthly on troubled credits to review loans with adverse classifications.  Loan officers, loan review officers, and in-house legal counsel contribute updated information on each credit, reviewing potential declines or improvements in the borrower's repayment ability and our collateral position.  If deterioration in our collateral position is determined, additional discounts may be applied to the impairment analysis before the new appraisal is received.  The committee makes a determination of whether the loans reviewed have reached a point of collateral dependency and sufficient doubt exists as to collectability.  As a matter of policy, loans are placed on nonaccrual status when, in the judgment of committee members, the probability of collection of interest is deemed insufficient to warrant further accrual.  For loans placed on nonaccrual 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.  Additionally, loans may be placed on nonaccrual status when the loan becomes 90 days past due and any of the following conditions exist: it becomes evident that the borrower will not make payments or will not or cannot meet the Bank's terms for the renewal of a matured loan, full repayment of principal and interest is not expected, the loan has a credit quality of substandard, the borrower files bankruptcy and an approved plan of reorganization or liquidation is not anticipated in the near future, or foreclosure action is initiated.  When a loan is placed on nonaccrual status, previously accrued but unpaid interest for the current year is deducted from interest income.  Prior year unpaid interest is charged to the allowance for loan losses.  Some loans may continue accruing after 90 days if the loan is in the process of renewing, being paid off, or the underlying collateral fully supports both the principal and accrued interest and the loan is in the process of collection.

Nonaccrual 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.  Our Special Assets Committee must approve the return of loans to accrual status as well as exceptions to any requirements of the non-accrual policy.

Generally, commercial, financial, and agricultural loans; construction loans; commercial real estate loans; consumer loans; and finance leases which become 90 days delinquent are either in the process of collection through repossession or foreclosure or are deemed currently uncollectible. The portion of loans deemed currently uncollectible, due to insufficient collateral, are charged-off against the allowance for loan losses. All loans requested to be charged-off must be specifically authorized by in-house legal counsel and the CEO.  Requests may be initiated by collection personnel, bank counsel, loan review, and lending personnel.  Charge-offs will be reviewed by in-house legal counsel and the CEO to ensure the propriety and accuracy of charge-off recommendations.  Factors considered when determining loan collectability and amount to be charged off for all segments in our loan portfolio include delinquent principal or interest repayment, the ability of borrower to make future payments, collateral value of outstanding debt, and the adequacy of guarantors support.  It is the responsibility of in-house legal counsel to report all charge-offs to the Board of Directors or its designated Committee for ratification.

Credit Risk Rating

Credit Risk Rating—We manage credit risk by observing written underwriting standards and lending policy established by the Board of Directors and management to govern all lending activities.  The risk management program requires that each individual loan officer review his or her portfolio on a quarterly basis and assign recommended credit ratings on each loan.  These efforts are supplemented by independent reviews performed by a loan review officer and other validations performed by the internal audit department.  The results of the reviews are reported directly to the Audit Committee of the Board of Directors.  Additionally, Bank concentrations are monitored and reported quarterly for risk rating distributions, major standard industry classification segments, real estate concentrations, and collateral distributions.

Consumer and residential real estate loans are normally graded at inception, and the grade generally remains the same throughout the life of the loan.  Loan grades on commercial, financial, and agricultural; construction; commercial real estate; and finance leases may be changed at any time when circumstances warrant, and are at a minimum reviewed quarterly.

Loans can be classified into the following three risk rating grades: pass, special mention, and substandard/doubtful.  Factors considered in determining a risk rating grade include debt service capacity, capital structure/liquidity, management, collateral quality, industry risk, company trends/operating performance, repayment source, revenue diversification/customer concentration, quality of financial information, and financing alternatives.  Pass grade signifies the highest quality of loans to loans with reasonable credit risk, which may include borrowers with marginally adequate financial performance, but have the ability to repay the debt.  Special mention loans have potential weaknesses that warrant extra attention from the loan officer and other management personnel, but still have the ability to repay the debt.  Substandard classification includes loans with well-defined weaknesses with risk of potential loss.  Loans classified as doubtful are considered to have little recovery value and are charged off.

Allowance for Loan Losses

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, we estimate the probable level of losses in the existing portfolio through consideration of such factors including, but not limited to, past loan loss experience; estimated losses in significant credits; known deterioration in concentrations of credit; trends in nonperforming assets; volume and composition of the loan portfolio, including percentages of special mention, substandard and past due loans; lending policies and control systems; known inherent risks in the portfolio; adverse situations that may affect the borrower's ability to repay; the estimated value of any underlying collateral; current national and local economic conditions, including the unemployment rate, the price of oil, and real estate absorption time; the experience, ability and depth of lending management; collections personnel experience; 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 twelve to eighteen months, and adjustment factors derived from conditions in the Bank'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.

We have 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.

Management and the Board of Directors believe the allowance for loan losses is appropriate at December 31, 2012.  While determination of the allowance for loan losses is based on available information at a given point in time, future additions to the allowance may be necessary based on changes in economic conditions.  In addition, various regulatory agencies, as an integral part of their examination process, periodically review our allowance for loan losses.  Such agencies may require us to recognize additions or deductions to the allowance based on their judgment and information available to them at the time of their examination.

Interest Rate Swap Agreements

Interest Rate Swap Agreements—Derivative financial instruments are recognized as assets and liabilities on the consolidated balance sheets and, as required by ASC 815, the Company records all derivatives at fair value.  Interest rate swaps are contracts in which a series of interest rate cash flows are exchanged over a prescribed period.  The notional balance of interest rate swap agreements held by the Company at December 31, 2012 was minimal an dnot material to the consolidated balance sheet.

Premises and Equipment

Premises and Equipment—Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets.  The estimated useful lives used to compute depreciation are:

Buildings and improvements	10 - 40 years
Furniture, fixtures, and equipment	3 - 10 years
Automobiles	5 years

Leasehold improvements are amortized over the estimated useful lives of the improvements or the term of the lease, whichever is shorter.

Other Real Estate Owned

Other Real Estate Owned—Real estate properties acquired through, or in lieu of, loan foreclosures are initially recorded at the lower of carrying value or fair value less estimated costs to sell based on a current valuation at the time of foreclosure. After foreclosure, valuations are periodically performed by management and the real estate is carried at the lower of carrying amount or fair value less cost to sell. Revenues and expenses from operations and changes in the valuation allowance are charged to earnings.

Goodwill and Other Intangible Assets

Goodwill and Other Intangible Assets—Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets acquired in a business combination.  Goodwill and other intangible assets deemed to have an indefinite useful life are not amortized but instead are subject to review for impairment annually, or more frequently if deemed necessary.  Also, in connection with business combinations involving banks and branch locations, we generally record core deposit intangibles representing the value of the acquired core deposit base.  Core deposit intangibles are amortized over the estimated useful life of the deposit base, generally on either a straight-line basis not exceeding 15 years or an accelerated basis over 10 years.  The remaining useful lives of core deposit intangibles are evaluated periodically to determine whether events and circumstances warrant revision of the remaining period of amortization.

Cash Surrender Value of Life Insurance

Cash Surrender Value of Life Insurance—Life insurance contracts represent single premium life insurance contracts on the lives of certain officers of the Company. The Company is the beneficiary of these policies. These contracts are reported at their cash surrender value and changes in the cash surrender value are included in other noninterest income.

Repurchase Agreements

Repurchase Agreements—Securities sold under agreements to repurchase are secured borrowings treated as financing activities and are carried at the amounts at which the securities will be subsequently reacquired as specified in the respective agreements.

Deferred Compensation

Deferred Compensation—We record the expense of deferred compensation agreements over the service periods of the persons covered under these agreements.

Income Taxes

Income Taxes—Deferred tax assets and liabilities are recorded for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis.  Future tax benefits, such as net operating loss carry forwards, are recognized to the extent that realization of such benefits is more likely than not.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the assets and liabilities are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period that includes the enactment date.

In the event the future tax consequences of differences between the financial reporting bases and the tax bases of our assets and liabilities results in deferred tax assets, an evaluation of the probability of being able to realize the future benefits indicated by such assets is required.  A valuation allowance is provided when it is more likely than not that a portion or the full amount of the deferred tax asset will not be realized.  In assessing the ability to realize the deferred tax assets, management considers the scheduled reversals of deferred tax liabilities, projected future taxable income, and tax planning strategies.  A deferred tax liability is not recognized for portions of the allowance for loan losses for income tax purposes in excess of the financial statement balance.  Such a deferred tax liability will only be recognized when it becomes apparent that those temporary differences will reverse in the foreseeable future.

A tax position is recognized as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur.  The amount recognized is the largest amount of tax benefit that is greater than 50 percent more likely of being realized on examination.  For tax positions not meeting the "more likely than not" test, no tax benefit is recorded.

The Company recognizes interest and/or penalties related to income tax matters in income tax expense.

Stock-Based Compensation

Stock-Based Compensation—We expense stock-based compensation based upon the grant date fair value of the related equity award over the requisite service period of the employee.

Basic and Diluted Earnings Per Common Share

Basic and Diluted Earnings Per Common Share—Basic earnings per common share ("EPS") excludes dilution and is computed by dividing net earnings by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. Diluted EPS is computed by dividing net earnings by the total of the weighted-average number of shares outstanding plus the dilutive effect of outstanding options.  The amounts of common stock and additional paid-in capital are adjusted to give retroactive effect to large stock dividends.  Small stock dividends, or dividends less than 25% of issued shares at the declaration date, are reflected as an increase in common stock and additional paid-in capital and a decrease in retained earnings for the market value of the shares on the date the dividend is declared.

Comprehensive Income

Comprehensive Income—Generally all recognized revenues, expenses, gains and losses are included in net earnings.  Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the consolidated balance sheets, such items, along with net earnings, are components of comprehensive income.  We present comprehensive income in a separate consolidated statement of comprehensive income.

Statements of Cash Flows

Statements of Cash Flows—For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, federal funds sold, and interest-bearing deposits in other banks with original maturities of less than 90 days. Generally, federal funds are sold for one-day periods.

Recent Accounting Pronouncements

Recent Accounting Pronouncements—In April 2011, the FASB issued ASU No. 2011-03, Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements. The amendments in this Update remove from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (2) the collateral maintenance implementation guidance related to that criterion. Other criteria applicable to the assessment of effective control are not changed by the amendments in this Update.  ASU No. 2011-03 was effective for the quarter ended March 31, 2012 and did not have a material impact on the Company's results of operations, financial position or disclosures.

In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in this Update result in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs. Consequently, the amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. For many of the requirements, the Board does not intend for the amendments in this Update to result in a change in the application of the requirements in Topic 820. The Update also reflects the FASB's consideration of the different characteristics of public and non-public entities and the needs of users of their financial statements. Non-public entities will be exempt from a number of the new disclosure requirements.  The amendments in this Update are to be applied prospectively. For public entities, the amendments were effective for the quarter ended March 31, 2012 and did not have a material impact on the Company's results of operations, financial position or disclosures.

In July 2012, the FASB issued ASU 2012-02, Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment.  The amendments in this Update are intended to reduce cost and complexity by providing an entity with the option to make a qualitative assessment about the likelihood that an indefinite-lived intangible asset is impaired to determine whether it should perform a quantitative impairment test.  The Update also enhances consistency of impairment testing guidance among long-lived asset categories by permitting entities to assess qualitative factors to determine whether it is necessary to calculate the asset's fair value when testing for impairment, which is equivalent to the impairment testing requirements for other long-lived assets.  Under the amendments in this Update, an entity will have an option not to calculate annually the fair value of an indefinite-lived intangible asset if the entity determines that it is not more-likely-than-not that the asset is impaired.  The Update is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012.  Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity's financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance.  The adoption of ASU 2012-02 did not have a material impact on the Company's results of operations, financial position or disclosures.

Reclassifications

Reclassifications—Certain reclassifications have been made to the prior years' financial statements in order to conform to the classifications adopted for reporting in 2012.  The reclassifications had no impact on net income or stockholders equity.

XML

OTHER NON-INTEREST INCOME AND EXPENSE (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
OTHER NON-INTEREST INCOME AND EXPENSE [Abstract]
Threshold for analysis of noninterest income (in hundredths)	1.00%	1.00%	1.00%
Threshold for analysis of noninterest expense (in hundredths)	1.00%	1.00%	1.00%
Professional fees	$ 2,022	$ 2,518	$ 1,787
FDIC fees	930	921	1,331
Marketing expenses	1,648	1,663	1,178
Corporate development expense	1,022	984	656
Data processing	1,689	2,355	1,212
Printing and supplies	1,105	890	659
Expenses on other real estate owned and other assets repossessed	1,767	1,511	798
Amortization of intangibles	$ 762	$ 229	$ 97

XML

EMPLOYEE STOCK PLANS (Details) (USD $)		12 Months Ended				0 Months Ended	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2012 Stock Options [Member]	Dec. 31, 2011 Stock Options [Member]	Dec. 31, 2010 Stock Options [Member]	Feb. 28, 2007 2007 Omnibus Incentive Compensation Plan [Member]	Jun. 30, 2010 2007 Omnibus Incentive Compensation Plan [Member] Restricted Stock [Member]	Dec. 31, 2012 2007 Omnibus Incentive Compensation Plan [Member] Restricted Stock [Member]	Dec. 31, 2011 2007 Omnibus Incentive Compensation Plan [Member] Restricted Stock [Member]	Dec. 31, 2012 1997 Stock Incentive Plan [Member] Stock Options [Member]	Dec. 31, 2011 1997 Stock Incentive Plan [Member] Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares available for grant under the plan (in shares)					222,825
Shares reserved for issue (in shares)	222,825
Options vesting on an annual basis, 20% of group per year (in shares)									265,343
Annual vesting percentage, vesting group 20% per year (in hundredths)									20.00%
Options vesting on an annual basis, 16.67% of group per year (in shares)									42,502
Annual vesting percentage, vesting group 16.67% per year (in hundredths)									16.67%
Vesting period							3 years		10 years
Summary activity relating to stock options [Roll Forward]
Outstanding, beginning of period (in shares)									35,100
Granted (in shares)									294,803
Exercised (in shares)									(14,117)
Forfeited (in shares)									(7,941)
Outstanding, end of period (in shares)									307,845	35,100
Exercisable, end of period (in shares)									20,983
Weighted average exercise price [Roll Forward]
Outstanding, beginning of period (in dollars per share)									$ 14.07
Granted (in dollars per share)									$ 12.97
Exercised (in dollars per share)									$ 7.15
Forfeited (in dollars per share)									$ 12.97
Outstanding, end of period (in dollars per share)									$ 13.36	$ 14.07
Exercisable, end of period (in dollars per share)									$ 18.72
Weighted average remaining contractual term, outstanding, beginning of period									8 years 10 months 13 days	1 year 10 months 10 days
Weighted average remaining contractual term, outstanding, end of period									8 years 10 months 13 days	1 year 10 months 10 days
Weighted average remaining contractual term, exercisable, end of period									1 year 8 months 5 days
Aggregate intrinsic value, outstanding, end of period									$ 920,000,000
Aggregate intrinsic value, exercisable, end of period									0
Summary activity relating to non-vested stock awards [Roll Forward]
Balance at beginning of year (in shares)		0					16,645
Granted (in shares)		294,803				22,047	0
Vested (in shares)		0					0
Forfeited (in shares)		(7,941)					(1,332)
Balance at end of year (in shares)		286,862	0				15,313	16,645
Weighted Average Grant Date Fair Value [Roll Forward]
Unvested options outstanding, beginning of year (in dollars per share)		$ 0
Granted (in dollars per share)		$ 4.41					$ 12.77
Vested (in dollars per share)		$ 0
Forfeited (in dollars per share)		$ 4.41
Unvested options outstanding, end of year (in dollars per share)		$ 4.41	$ 0
Unrecognized compensation cost related to non-vested share-based compensation arrangements		1,100,000
Share-based compensation expense		150,000	13,000	6,000			57,000	62,000
Assumptions made in estimating fair value of the options granted [Abstract]
Risk free rate of interest (in hundredths)		0.70%
Expected volatility (in hundredths)		46.10%
Dividend yield (in hundredths)		2.00%
Average expected life		5 years
Intrinsic value of the options exercised		130,000	66,000	57,000
Fair value per shares on date of issuance (in dollars per share)		$ 4.41					$ 12.77
Unrecognized compensation cost related to non-vested restricted stock awards							$ 33,000

XML

OTHER INVESTMENTS (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
OTHER INVESTMENTS [Abstract]
Number of correspondent banks with stock ownership by Company	2
Number of government-sponsored agency mortgage-backed securities purchased by Company	3
Components Of Other Investments [Abstract]
FRB - Atlanta	$ 2,258	$ 2,071
FHLB - Dallas	1,862	586
Other bank stocks	2,063	853
Other stocks	7	0
CRA investment	2,120	2,127
Total other investments	$ 8,310	$ 5,637

XML

FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (Details) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Commitments to Extend Credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Financial instruments related to PSB acquisition	$ 76,400,000
Financial instruments whose contract amounts represent credit risk [Abstract]
Contract or Notional Amount	237,085,000	152,145,000
Letters of Credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Financial instruments related to PSB acquisition	1,600,000
Financial instruments whose contract amounts represent credit risk [Abstract]
Contract or Notional Amount	$ 9,958,000	$ 8,347,000
Letters of credit secured by marketable securities (in hundredths)	88.00%	90.00%

XML

REGULATORY MATTERS (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Actual [Abstract]
Total capital to risk weighted assets amount	$ 165,302	$ 144,439
Tier I capital to risk weighted assets amount	157,753	136,979
Tier I capital to average assets amount	157,753	136,979
Total capital to risk weighted assets ratio (in hundredths)	14.10%	16.97%
Tier I capital to risk weighted assets ratio (in hundredths)	13.46%	16.10%
Tier I capital to average assets ratio (in hundredths)	11.82%	11.14%
Required for Minimum Capital Adequacy Purposes [Abstract]
Total capital to risk weighted assets amount	93,770	68,085
Tier I capital to risk weighted assets amount	46,885	34,043
Tier I capital to average assets amount	53,399	49,193
Total capital to risk weighted assets ratio (in hundredths)	8.00%	8.00%
Tier I capital to risk weighted assets ratio (in hundredths)	4.00%	4.00%
Tier I capital to average assets ratio (in hundredths)	4.00%	4.00%
To be Well Capitalized Under Prompt Corrective Action Provisions [Abstract]
Total capital to risk weighted assets amount
Tier I capital to risk weighted assets amount
Tier I capital to average assets amount
Total capital to risk weighted assets ratio (in hundredths)
Tier I capital to risk weighted assets ratio (in hundredths)
Tier I capital to average assets ratio (in hundredths)
Bank [Member]
Actual [Abstract]
Total capital to risk weighted assets amount	162,159	116,988
Tier I capital to risk weighted assets amount	154,610	109,528
Tier I capital to average assets amount	154,610	109,528
Total capital to risk weighted assets ratio (in hundredths)	13.84%	13.75%
Tier I capital to risk weighted assets ratio (in hundredths)	13.20%	12.87%
Tier I capital to average assets ratio (in hundredths)	11.58%	8.91%
Required for Minimum Capital Adequacy Purposes [Abstract]
Total capital to risk weighted assets amount	93,703	68,071
Tier I capital to risk weighted assets amount	46,851	34,036
Tier I capital to average assets amount	53,421	49,149
Total capital to risk weighted assets ratio (in hundredths)	8.00%	8.00%
Tier I capital to risk weighted assets ratio (in hundredths)	4.00%	4.00%
Tier I capital to average assets ratio (in hundredths)	4.00%	4.00%
To be Well Capitalized Under Prompt Corrective Action Provisions [Abstract]
Total capital to risk weighted assets amount	117,128	85,089
Tier I capital to risk weighted assets amount	70,277	51,054
Tier I capital to average assets amount	$ 80,132	$ 73,723
Total capital to risk weighted assets ratio (in hundredths)	10.00%	10.00%
Tier I capital to risk weighted assets ratio (in hundredths)	6.00%	6.00%
Tier I capital to average assets ratio (in hundredths)	6.00%	6.00%

XML

INCOME TAXES (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Deferred tax assets [Abstract]
Allowance for loan losses	$ 6,325	$ 2,474
Alternative minimum tax credit	1,300	1,158
Other	2,575	1,357
Total deferred tax assets	10,200	4,989
Deferred tax liabilities [Abstract]
Premises and equipment	4,958	3,792
FHLB stock dividends	57	18
Unrealized gains on securities	5,914	3,993
Other	1,747	351
Total deferred tax liabilities	12,676	8,154
Net deferred tax liability	2,476	3,165
Components of income tax expense [Abstract]
Current	2,128	1,055	2,001
Deferred expense (benefit)	1,651	(491)	(1,033)
Total income tax expense	3,779	564	968
Income tax reconciliation [Abstract]
Federal income tax statutory rate (in hundredths)	35.00%	34.00%	34.00%
Taxes calculated at statutory rate	4,697	1,713	2,294
Increase (decrease) resulting from [Abstract]
Tax-exempt interest, net	(988)	(1,121)	(1,293)
Tax credits	0	0	0
Other	70	(28)	(33)
Total income tax expense	$ 3,779	$ 564	$ 968

XML

STOCKHOLDERS' EQUITY

12 Months Ended

Dec. 31, 2012

STOCKHOLDERS' EQUITY [Abstract]

SHAREHOLDERS' EQUITY

16. STOCKHOLDERS' EQUITY

The payment of dividends by the Bank to the Company is restricted by various regulatory and statutory limitations. At December 31, 2012, the Bank had approximately $23.0 million available to pay dividends to the parent company without regulatory approval.

On December 22, 2009 the Company closed an underwritten public offering of 2.7 million shares of its common stock at a price of $12.75 per share.  On January 7, 2010, the underwriters of the public offering exercised in full their overallotment option for 405,000 shares of our common stock.  Net proceeds from the offering and the exercise of the overallotment option totaled $37.2 million after deducting underwriting discounts and offering expenses.  The Company used the net proceeds for general corporate purposes including ongoing and anticipated growth, which may include potential acquisition opportunities.

On January 9, 2009 the Company issued ­­­­20,000 shares of Series A Preferred Stock associated with its participation in the Treasury's Capital Purchase Plan ("CPP") under the Troubled Asset Relief Program.  The proceeds from this sale of $20,000,000 less direct costs to issue were allocated to preferred stock.  As part of the CPP transaction, the Company issued the Treasury a warrant to purchase 208,768 shares of our common stock at an exercise price of $14.37 per share.  However, as a result of the completion of our public offering in December 2009, the number of shares subject to the warrants held by the Treasury was reduced to 104,384 shares.  In late 2011, the Treasury sold this warrant to an unrelated third party.  The Company did not receive any proceeds from such sale.

The Series A preferred stock qualified as Tier 1 capital and paid cumulative dividends at a rate of 5% per annum.  In August 2011, the Company redeemed all 20,000 outstanding shares of Series A preferred stock at its stated value of $1,000 per share with funds from our issuance of 32,000 shares of Series B preferred stock in connection with the Company's participation under the U.S. Treasury's Small Business Lending Fund ("SBLF").  The remaining $12.0 million of net proceeds from the issuance was provided to the Bank as additional capital.  The dividend rate on the Series B preferred stock going forward will be between 1% and 5% based on the level of qualified small business loans.As of December 31, 2012, the dividend rate was 4.60% per annum.  The Series B preferred stock is nonvoting except for class voting rights on matters that would adversely affect the rights of the holders of the Series B preferred stock.

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.  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, beginning on April 15, 2013.  The Series C Preferred Stock ranks pari passu with the existing Senior Non-Cumulative Perpetual Preferred Stock, Series B, issued in connection with the Company's participation under the U. S. Treasury's Small Business Lending Fund and senior to the Company's common stock.  The Company may redeem the Series C Preferred Stock, subject to regulatory approval, beginning on or after the fifth anniversary of the closing date of the Merger, at a redemption price equal to the liquidation value of the Series C Preferred Stock, plus declared but unpaid dividends, if any.  The Company may also redeem the Series C Preferred Stock, subject to regulatory approval, at the same redemption price prior to the fifth anniversary of the closing date in the event the Series C Preferred Stock no longer qualifies for "Tier 1 Capital" treatment by the applicable federal banking regulators.  Holders may convert the Series C Preferred Stock at any time into shares of the Company's common stock at a conversion price of $18.00 per share, subject to customary antidilution adjustment.  In addition, on or after the fifth anniversary of the closing date, the Company will have the option to require conversion of the Series C Preferred Stock if the closing price of the Company's common stock for 20 trading days within any period of 30 consecutive trading days, exceeds 130% of the conversion price.

XML

REGULATORY MATTERS (Tables)

12 Months Ended

Dec. 31, 2012

REGULATORY MATTERS [Abstract]

Actual Capital Amounts and Ratios

The Company's and the Bank's actual capital amounts and ratios are presented in the table below (in thousands):

	Actual					Required for Minimum Capital Adequacy Purposes					To be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2012:
Total capital to risk weighted assets:
Company	$	165,302		14.10	%	$	93,770		8.00	%		N/A		N/A
Bank	$	162,159		13.84	%	$	93,703		8.00	%	$	117,128		10.00	%
Tier I capital to risk weighted assets:
Company	$	157,753		13.46	%	$	46,885		4.00	%		N/A		N/A
Bank	$	154,610		13.20	%	$	46,851		4.00	%	$	70,277		6.00	%
Tier I capital to average assets:
Company	$	157,753		11.82	%	$	53,399		4.00	%		N/A		N/A
Bank	$	154,610		11.58	%	$	53,421		4.00	%	$	80,132		6.00	%

	Actual					Required for Minimum Capital Adequacy Purposes					To be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2011:
Total capital to risk weighted assets:
Company	$	144,439		16.97	%	$	68,085		8.00	%		N/A		N/A
Bank	$	116,988		13.75	%	$	68,071		8.00	%	$	85,089		10.00	%
Tier I capital to risk weighted assets:
Company	$	136,979		16.10	%	$	34,043		4.00	%		N/A		N/A
Bank	$	109,528		12.87	%	$	34,036		4.00	%	$	51,054		6.00	%
Tier I capital to average assets:
Company	$	136,979		11.14	%	$	49,193		4.00	%		N/A		N/A
Bank	$	109,528		8.91	%	$	49,149		4.00	%	$	73,723		6.00	%

XML

NOTES PAYABLE (Tables)

12 Months Ended

Dec. 31, 2012

NOTES PAYABLE [Abstract]

Schedule Of Federal Home Loan Bank Advances Of FHLB Bank [Table Text Block]

FHLB advances at December 31, 2012 are summarized as follows (in thousands):

	Amount		Weighted Average Rate
FHLB advances maturing in:
2013	$	59		5.057	%
2014		65		5.057	%
2015		71		5.057	%
2016		77		5.057	%
2017		16,738		3.412	%
2019		10,118		1.985	%
Total FHLB advances	$	27,128

Schedule of Maturities of Notes Payable

The scheduled maturities of notes payable as of December 31, 2012 is as follows (in thousands):

2013	$	309
2014		315
2015		321
2016		327
2017		16,988
Thereafter		10,868
	$	29,128

XML

NET EARNINGS PER COMMON SHARE (Details) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
NET EARNINGS PER COMMON SHARE [Abstract]
Net earnings	$ 9,642	$ 4,473	$ 5,780
Dividends on preferred stock and accretion of warrants	1,547	1,802	1,198
Net earnings available to common stockholders	$ 8,095	$ 2,671	$ 4,582
Weighted average number of common shares outstanding used in computation of basic earnings per common share (in shares)	10,482	9,787	9,701
Effect of dilutive securities [Abstract]
Stock options (in shares)	24	7	15
Restricted stock (in shares)	12	5	2
Preferred stock (in shares)	6	0	0
Weighted average number of common shares outstanding plus effect of dilutive securities used in computation of diluted earnings per common share (in shares)	10,524	9,799	9,718
Antidilutive Securities Included in computation of earnings per share [Abstract]
Restricted stock included in computed diluted earnings (in shares)	15,313	16,645	20,847
Preferred stock issued as part of the PSB acquisition (in shares)	6,088
Stock Options [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive shares excluded from computing diluted earnings per share (in shares)	18,331	18,331	23,335
Warrant [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive shares excluded from computing diluted earnings per share (in shares)	104,384	104,384	104,384

XML

OTHER INVESTMENTS (Tables)

12 Months Ended

Dec. 31, 2012

OTHER INVESTMENTS [Abstract]

Components of Other Investments

The aggregate carrying amount of other investments consisted of the following (in thousands):

	December 31, 2012		December 31, 2011
FRB-Atlanta	$	2,258	$	2,071
FHLB-Dallas		1,862		586
Other bank stocks		2,063		853
Other stocks		7		-
CRA investment		2,120		2,127
	$	8,310	$	5,637

XML

OTHER NON-INTEREST INCOME AND EXPENSE (Tables)

12 Months Ended

Dec. 31, 2012

OTHER NON-INTEREST INCOME AND EXPENSE [Abstract]

Components of Other Noninterest Expense

Components of other noninterest expense greater than 1% of interest income and noninterest income consisted of the following for the years ended December 31, 2012, 2011, and 2010 (in thousands):

	2012		2011		2010
Professional fees	$	2,022	$	2,518	$	1,787
FDIC fees		930		921		1,331
Marketing expenses		1,648		1,663		1,178
Corporate development expense		1,022		984		656
Data processing		1,689		2,355		1,212
Printing and supplies		1,105		890		659
Expenses on other real estate owned and other assets repossessed		1,767		1,511		798
Amortization of intangibles		762		229		97

XML

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE (Details) (USD $)						12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2012 Retail Repurchase Agreements [Member]	Dec. 31, 2011 Retail Repurchase Agreements [Member]	Dec. 31, 2012 Repurchase Agreement with CitiGroup Global Markets, Inc [Member]	Dec. 31, 2011 Repurchase Agreement with CitiGroup Global Markets, Inc [Member]
Short-term Debt [Line Items]
Securities sold under agreements to repurchase	$ 41,447,000	$ 46,078,000		$ 28,900,000	$ 33,600,000	$ 12,500,000
Average interest rate of outstanding agreements (in hundredths)	0.44%	0.46%
Securities pledged as collateral				$ 52,700,000	$ 51,100,000	$ 19,500,000	$ 17,200,000
Variable rate basis for the first term of the loan						3-month LIBOR
First term of loan						12 months
Fixed interest rate for remainder of term (in hundredths)						4.57%
Debt to equity threshold evaluation percentage (in hundredths)	30.00%	30.00%	30.00%

XML

LOANS, Credit Quality Indicators and Aging (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Credit Risk Profile [Abstract]
Loans	$ 1,046,940	$ 746,305
Age Analysis of Past Due Loans by Class of Loans [Abstract]
30-59 Days Past Due	8,089	7,544
60-89 Days Past Due	2,978	1,070
Greater than 90 Days Past Due	7,867	5,065
Total Past Due	18,934	13,679
Current	1,028,006	732,626
Total Loans	1,046,940	746,305
Recorded Investment > 90 days and Accruing	1,986	231
Commercial, Financial and Agricultural [Member]
Credit Risk Profile [Abstract]
Loans	315,655	223,283
Age Analysis of Past Due Loans by Class of Loans [Abstract]
30-59 Days Past Due	2,220	622
60-89 Days Past Due	321	242
Greater than 90 Days Past Due	2,580	1,856
Total Past Due	5,121	2,720
Current	310,534	220,563
Total Loans	315,655	223,283
Recorded Investment > 90 days and Accruing	1,019	64
Commercial Real Estate Construction [Member]
Credit Risk Profile [Abstract]
Loans	58,350	41,463
Age Analysis of Past Due Loans by Class of Loans [Abstract]
30-59 Days Past Due	66	673
60-89 Days Past Due	96	166
Greater than 90 Days Past Due	101	358
Total Past Due	263	1,197
Current	58,087	40,266
Total Loans	58,350	41,463
Recorded Investment > 90 days and Accruing	0	0
Commercial Real Estate - Other [Member]
Credit Risk Profile [Abstract]
Loans	414,384	280,798
Age Analysis of Past Due Loans by Class of Loans [Abstract]
30-59 Days Past Due	4,131	3,185
60-89 Days Past Due	2,108	0
Greater than 90 Days Past Due	3,577	1,878
Total Past Due	9,816	5,063
Current	404,568	275,735
Total Loans	414,384	280,798
Recorded Investment > 90 days and Accruing	952	0
Commercial Total [Member]
Credit Risk Profile [Abstract]
Percentage of Total Loans (in hundredths)	100.00%	100.00%
Residential - Construction [Member]
Credit Risk Profile [Abstract]
Loans	16,984	11,249
Age Analysis of Past Due Loans by Class of Loans [Abstract]
30-59 Days Past Due	0	0
60-89 Days Past Due	0	0
Greater than 90 Days Past Due	0	0
Total Past Due	0	0
Current	16,984	11,249
Total Loans	16,984	11,249
Recorded Investment > 90 days and Accruing	0	0
Residential - Prime [Member]
Credit Risk Profile [Abstract]
Loans	142,858	113,582
Age Analysis of Past Due Loans by Class of Loans [Abstract]
30-59 Days Past Due	1,140	2,457
60-89 Days Past Due	317	469
Greater than 90 Days Past Due	1,408	685
Total Past Due	2,865	3,611
Current	139,993	109,971
Total Loans	142,858	113,582
Recorded Investment > 90 days and Accruing	0	140
Residential - Subprime [Member]
Credit Risk Profile [Abstract]
Loans	0	0
Age Analysis of Past Due Loans by Class of Loans [Abstract]
30-59 Days Past Due	0	0
60-89 Days Past Due	0	0
Greater than 90 Days Past Due	0	0
Total Past Due	0	0
Current	0	0
Total Loans	0	0
Recorded Investment > 90 days and Accruing	0	0
Residential Total [Member]
Credit Risk Profile [Abstract]
Percentage of Total Loans (in hundredths)	100.00%	100.00%
Consumer - Credit Card [Member]
Credit Risk Profile [Abstract]
Loans	6,807	5,200
Age Analysis of Past Due Loans by Class of Loans [Abstract]
30-59 Days Past Due	24	79
60-89 Days Past Due	2	0
Greater than 90 Days Past Due	15	19
Total Past Due	41	98
Current	6,766	5,102
Total Loans	6,807	5,200
Recorded Investment > 90 days and Accruing	15	19
Consumer - Other [Member]
Credit Risk Profile [Abstract]
Loans	83,754	64,780
Age Analysis of Past Due Loans by Class of Loans [Abstract]
30-59 Days Past Due	421	410
60-89 Days Past Due	134	193
Greater than 90 Days Past Due	186	269
Total Past Due	741	872
Current	83,013	63,908
Total Loans	83,754	64,780
Recorded Investment > 90 days and Accruing	0	8
Finance Leases Commercial [Member]
Credit Risk Profile [Abstract]
Loans	5,769	4,276
Age Analysis of Past Due Loans by Class of Loans [Abstract]
30-59 Days Past Due	0	0
60-89 Days Past Due	0	0
Greater than 90 Days Past Due	0	0
Total Past Due	0	0
Current	5,769	4,276
Total Loans	5,769	4,276
Recorded Investment > 90 days and Accruing	0	0
Other Loans [Member]
Credit Risk Profile [Abstract]
Loans	2,379	1,674
Age Analysis of Past Due Loans by Class of Loans [Abstract]
30-59 Days Past Due	87	118
60-89 Days Past Due	0	0
Greater than 90 Days Past Due	0	0
Total Past Due	87	118
Current	2,292	1,556
Total Loans	2,379	1,674
Recorded Investment > 90 days and Accruing	0	0
Consumer Total [Member]
Credit Risk Profile [Abstract]
Percentage of Total Loans (in hundredths)	100.00%	100.00%
Pass [Member] | Commercial, Financial and Agricultural [Member]
Credit Risk Profile [Abstract]
Loans	304,219	216,465
Pass [Member] | Commercial Real Estate Construction [Member]
Credit Risk Profile [Abstract]
Loans	54,737	36,631
Pass [Member] | Commercial Real Estate - Other [Member]
Credit Risk Profile [Abstract]
Loans	396,078	264,542
Pass [Member] | Commercial Total [Member]
Credit Risk Profile [Abstract]
Percentage of Total Loans (in hundredths)	95.76%	94.88%
Pass [Member] | Residential - Construction [Member]
Credit Risk Profile [Abstract]
Loans	16,785	9,041
Pass [Member] | Residential - Prime [Member]
Credit Risk Profile [Abstract]
Loans	137,681	104,965
Pass [Member] | Residential - Subprime [Member]
Credit Risk Profile [Abstract]
Loans	0	0
Pass [Member] | Residential Total [Member]
Credit Risk Profile [Abstract]
Percentage of Total Loans (in hundredths)	96.64%	91.33%
Special Mention [Member] | Commercial, Financial and Agricultural [Member]
Credit Risk Profile [Abstract]
Loans	5,748	1,705
Special Mention [Member] | Commercial Real Estate Construction [Member]
Credit Risk Profile [Abstract]
Loans	684	1,104
Special Mention [Member] | Commercial Real Estate - Other [Member]
Credit Risk Profile [Abstract]
Loans	6,224	10,755
Special Mention [Member] | Commercial Total [Member]
Credit Risk Profile [Abstract]
Percentage of Total Loans (in hundredths)	1.61%	2.49%
Special Mention [Member] | Residential - Construction [Member]
Credit Risk Profile [Abstract]
Loans	0	1,077
Special Mention [Member] | Residential - Prime [Member]
Credit Risk Profile [Abstract]
Loans	1,612	5,152
Special Mention [Member] | Residential - Subprime [Member]
Credit Risk Profile [Abstract]
Loans	0	0
Special Mention [Member] | Residential Total [Member]
Credit Risk Profile [Abstract]
Percentage of Total Loans (in hundredths)	1.01%	4.99%
Substandard [Member] | Commercial, Financial and Agricultural [Member]
Credit Risk Profile [Abstract]
Loans	4,503	4,809
Substandard [Member] | Commercial Real Estate Construction [Member]
Credit Risk Profile [Abstract]
Loans	2,925	3,728
Substandard [Member] | Commercial Real Estate - Other [Member]
Credit Risk Profile [Abstract]
Loans	7,514	5,501
Substandard [Member] | Commercial Total [Member]
Credit Risk Profile [Abstract]
Percentage of Total Loans (in hundredths)	1.90%	2.57%
Substandard [Member] | Residential - Construction [Member]
Credit Risk Profile [Abstract]
Loans	199	1,131
Substandard [Member] | Residential - Prime [Member]
Credit Risk Profile [Abstract]
Loans	3,565	3,465
Substandard [Member] | Residential - Subprime [Member]
Credit Risk Profile [Abstract]
Loans	0	0
Substandard [Member] | Residential Total [Member]
Credit Risk Profile [Abstract]
Percentage of Total Loans (in hundredths)	2.35%	3.68%
Doubtful [Member] | Commercial, Financial and Agricultural [Member]
Credit Risk Profile [Abstract]
Loans	1,185	304
Doubtful [Member] | Commercial Real Estate Construction [Member]
Credit Risk Profile [Abstract]
Loans	4	0
Doubtful [Member] | Commercial Real Estate - Other [Member]
Credit Risk Profile [Abstract]
Loans	4,569	0
Doubtful [Member] | Commercial Total [Member]
Credit Risk Profile [Abstract]
Percentage of Total Loans (in hundredths)	0.73%	0.06%
Performing [Member] | Consumer - Credit Card [Member]
Credit Risk Profile [Abstract]
Loans	6,792	5,182
Performing [Member] | Consumer - Other [Member]
Credit Risk Profile [Abstract]
Loans	83,347	64,497
Performing [Member] | Finance Leases Commercial [Member]
Credit Risk Profile [Abstract]
Loans	5,769	4,276
Performing [Member] | Other Loans [Member]
Credit Risk Profile [Abstract]
Loans	2,379	1,674
Performing [Member] | Consumer Total [Member]
Credit Risk Profile [Abstract]
Percentage of Total Loans (in hundredths)	99.57%	99.60%
Nonperforming [Member] | Consumer - Credit Card [Member]
Credit Risk Profile [Abstract]
Loans	15	18
Nonperforming [Member] | Consumer - Other [Member]
Credit Risk Profile [Abstract]
Loans	407	283
Nonperforming [Member] | Finance Leases Commercial [Member]
Credit Risk Profile [Abstract]
Loans	0	0
Nonperforming [Member] | Other Loans [Member]
Credit Risk Profile [Abstract]
Loans	$ 0	$ 0
Nonperforming [Member] | Consumer Total [Member]
Credit Risk Profile [Abstract]
Percentage of Total Loans (in hundredths)	0.43%	0.40%

XML

EMPLOYEE STOCK PLANS (Tables)

12 Months Ended

Dec. 31, 2012

EMPLOYEE STOCK PLANS [Abstract]

Stock Option Activity

Stock Options – Of the 307,845 options outstanding at December 31, 2012, 20,983 were issued under the 1997 Stock Incentive Plan and 286,862 were issued under the 2007 Omnibus Incentive Compensation Plan.  All options outstanding at December 31, 2012 are incentive stock options with a term of ten years, 265,343 of which vest 20% each year on the anniversary date of the grant and, 42,502 of which vest 16.67% each year.  The following table summarizes activity relating to stock options:

	Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at December 31, 2011		35,100		$	14.07		1.86
Granted		294,803			12.97
Exercised		(14,117	)		7.15
Forfeited		(7,941	)		12.97
Outstanding at December 31, 2012		307,845		$	13.36		8.87	$	920,000
Exercisable at December 31, 2012		20,983		$	18.72		1.68	$	-

Summary of changes in unvested options

A summary of changes in unvested options for the period ended December 31, 2012 is as follows:

	2012
	Number of Options			Weighted Average Grant Date Fair Value
Unvested options outstanding, beginning of year		-		$	-
Granted		294,803			4.41
Vested		-			-
Forfeited		(7,941	)		4.41
Unvested options outstanding, end of year		286,862		$	4.41

Assumptions were made in estimating the fair value of the options

The fair value of each option granted is estimated on the grant date using the Black-Scholes Option Pricing Model.  This model requires management to make certain assumptions, including the expected life of the option, the risk free rate of interest, the expected volatility, and the expected dividend yield.  The risk free rate of interest is based on the yield of a U.S. Treasury security with a similar term.  The expected volatility is based on historic volatility over a term similar to the expected life of the options.  The dividend yield is based on the current yield at the date of grant.  The following assumptions were made in estimating the fair value of the options granted in 2012:

Risk free rate of interest	0.7	%
Expected volatility	46.1	%
Dividend yield	2.0	%
Average expected life (in years)	5

Non-vested Restricted Stock Awards Activity

The following table summarizes activity relating to non-vested restricted stock awards:

	2012
Balance at beginning of year		16,645
Granted		-
Forfeited		(1,332	)
Vested		-
Balance at end of year		15,313

XML

Consolidated Statements of Cash Flows (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Cash flows from operating activities:
Net earnings	$ 9,642,000	$ 4,473,000	$ 5,780,000
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation	3,799,000	3,265,000	3,300,000
Amortization (accretion) of purchase accounting adjustments	(2,067,000)	(752,000)	98,000
Provision for loan losses	2,050,000	3,925,000	5,020,000
Deferred tax expense (benefit)	1,651,000	(491,000)	(1,033,000)
Amortization of premiums on securities, net	1,878,000	910,000	1,226,000
Amortization of other investments	15,000	14,000	0
Net loss on sale of other real estate	163,000	66,000	150,000
Net write down of other real estate owned	582,000	476,000	241,000
Net loss/disposal on sale of premises and equipment	6,000	126,000	132,000
Stock compensation expense	150,000	13,000	6,000
Restricted stock expense	57,000	62,000	44,000
Gain on sale and liquidation of securities available-for-sale	(204,000)	(99,000)	(3,000)
Change in accrued interest receivable	745,000	(331,000)	180,000
Change in accrued interest payable	(181,000)	(120,000)	(149,000)
Write-down of goodwill	136,000	0	0
Change in other assets and liabilities, net	(475,000)	1,667,000	2,271,000
Net cash provided by operating activities	17,947,000	13,204,000	17,263,000
Cash flows from investing activities, net of effect of purchase acquisitions in 2011 and 2012:
Net change in time deposits in other banks	1,000	5,164,000	20,958,000
Proceeds from liquidation of equity security included in securities available-for-sale	0	0	75,000
Proceeds from maturities and calls of securities available-for-sale	146,019,000	81,030,000	33,242,000
Proceeds from maturities and calls of securities held-to-maturity	24,340,000	900,000	1,455,000
Proceeds from sale of securities available-for-sale	6,558,000	3,895,000	0
Purchases of securities available-for-sale	(100,384,000)	(149,332,000)	(26,107,000)
Purchases of securities held-to-maturity	(38,160,000)	(101,493,000)	0
Proceeds from redemption of other investments	500,000	82,000	0
Purchases of other investments	(189,000)	(449,000)	(173,000)
Net change in loans	(41,335,000)	(49,875,000)	(1,050,000)
Purchases of premises and equipment	(10,245,000)	(3,656,000)	(1,291,000)
Proceeds from sale of premises and equipment	0	9,000	3,000
Proceeds from sale of other real estate owned	555,000	541,000	766,000
Purchase of other real estate	0	0	(450,000)
Net cash (used in) provided by investing activities	(5,296,000)	(47,506,000)	27,428,000
Cash flows from financing activities, net of effect of purchase acquisitions in 2011 and 2012:
Change in deposits	(12,432,000)	15,041,000	27,487,000
Change in securities sold under agreements to repurchase	(5,539,000)	2,252,000	(3,233,000)
Change in federal funds purchased	0	0	(1,700,000)
Issuance of Series B preferred stock	0	32,000,000	0
Redemption of Series A preferred stock	0	(20,000,000)	0
Issuance of common stock and treasury stock, net of offering expenses	0	0	4,768,000
Proceeds from exercise of stock options	100,000	67,000	51,000
Tax benefit due to exercise of stock options	1,000	1,000	0
Payment of dividends on preferred stock	(1,579,000)	(938,000)	(1,001,000)
Payment of dividends on common stock	(2,932,000)	(2,725,000)	(2,507,000)
Net cash (used in) provided by financing activities	(22,381,000)	25,698,000	23,865,000
Net increase (decrease) in cash and cash equivalents	(9,730,000)	(8,604,000)	68,556,000
Cash and cash equivalents, beginning of year	83,303,000	91,907,000	23,351,000
Cash and cash equivalents, end of year	73,573,000	83,303,000	91,907,000
Supplemental cash flow information:
Interest paid	5,978,000	5,608,000	7,544,000
Income taxes paid	2,785,000	835,000	1,051,000
Noncash investing and financing activities:
Common stock issued in acquisition	11,530,000	8,838,000	0
Accretion of warrants	0	592,000	197,000
Change in accrued common stock dividends	1,000	51,000	218,000
Change in accrued preferred stock dividends	(32,000)	272,000	0
Net change in loan to ESOP	0	104,000	113,000
Change in unrealized gains/losses on securities available-for-sale, net of tax	407,000	3,570,000	278,000
Transfer of loans to other real estate	879,000	7,319,000	1,222,000
Financed sales of other real estate	290,000	73,000	30,000
Jefferson Bank [Member]
Cash flows from investing activities, net of effect of purchase acquisitions in 2011 and 2012:
Net cash associated with acquisition	0	93,800,000	0
First Louisiana National Bank [Member]
Cash flows from investing activities, net of effect of purchase acquisitions in 2011 and 2012:
Net cash associated with acquisition	0	19,708,000	0
Beacon Federal [Member]
Cash flows from investing activities, net of effect of purchase acquisitions in 2011 and 2012:
Net cash associated with acquisition	0	52,170,000	0
Peoples State Bank [Member]
Cash flows from investing activities, net of effect of purchase acquisitions in 2011 and 2012:
Net cash associated with acquisition	$ 7,044,000	$ 0	$ 0

XML

LOANS, Impaired Loans by Class of Loans (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
With no related allowance recorded [Abstract]
Recorded Investment	$ 5,554,000	$ 3,982,000
Unpaid Principal Balance	6,201,000	4,150,000
Related Allowance	0	0
Average Recorded Investment	4,769,000	11,186,000
Interest Income Recognized	71,000	73,000
With an allowance recorded [Abstract]
Recorded Investment	1,886,000	2,960,000
Unpaid Principal Balance	1,886,000	2,963,000
Related Allowance	627,000	682,000
Average Recorded Investment	2,424,000	4,816,000
Interest Income Recognized	41,000	167,000
Totals [Abstract]
Recorded Investment	7,440,000	6,942,000
Unpaid Principal Balance	8,087,000	7,113,000
Related Allowance	627,000	682,000
Average Recorded Investment	7,193,000	16,002,000
Interest Income Recognized	112,000	240,000
Loans on Nonaccrual Status [Abstract]
Loans on Nonaccrual Status	8,887,000	6,229,000
Interest lost on nonaccrual loans	582,000	749,000	981,000
Interest received on nonaccrual loans	70,000	256,000	384,000
Commercial, Financial and Agricultural [Member]
With no related allowance recorded [Abstract]
Recorded Investment	564,000	1,157,000
Unpaid Principal Balance	675,000	1,248,000
Related Allowance	0	0
Average Recorded Investment	861,000	2,311,000
Interest Income Recognized	5,000	2,000
With an allowance recorded [Abstract]
Recorded Investment	1,072,000	1,184,000
Unpaid Principal Balance	1,072,000	1,184,000
Related Allowance	391,000	240,000
Average Recorded Investment	1,128,000	1,140,000
Interest Income Recognized	21,000	58,000
Totals [Abstract]
Related Allowance	391,000	240,000
Loans on Nonaccrual Status [Abstract]
Loans on Nonaccrual Status	2,015,000	1,897,000
Commercial Real Estate Construction [Member]
With no related allowance recorded [Abstract]
Recorded Investment	771,000	897,000
Unpaid Principal Balance	770,000	963,000
Related Allowance	0	0
Average Recorded Investment	834,000	4,511,000
Interest Income Recognized	1,000	9,000
With an allowance recorded [Abstract]
Recorded Investment	165,000	4,000
Unpaid Principal Balance	165,000	4,000
Related Allowance	57,000	2,000
Average Recorded Investment	85,000	1,580,000
Interest Income Recognized	7,000	0
Totals [Abstract]
Related Allowance	57,000	2,000
Loans on Nonaccrual Status [Abstract]
Loans on Nonaccrual Status	941,000	902,000
Commercial Real Estate - Other [Member]
With no related allowance recorded [Abstract]
Recorded Investment	2,530,000	1,029,000
Unpaid Principal Balance	3,059,000	1,029,000
Related Allowance	0	0
Average Recorded Investment	1,780,000	2,958,000
Interest Income Recognized	38,000	31,000
With an allowance recorded [Abstract]
Recorded Investment	381,000	1,242,000
Unpaid Principal Balance	381,000	1,242,000
Related Allowance	35,000	321,000
Average Recorded Investment	811,000	1,639,000
Interest Income Recognized	3,000	98,000
Totals [Abstract]
Related Allowance	35,000	321,000
Loans on Nonaccrual Status [Abstract]
Loans on Nonaccrual Status	3,017,000	2,271,000
Consumer - Other [Member]
With no related allowance recorded [Abstract]
Recorded Investment	114,000	48,000
Unpaid Principal Balance	122,000	59,000
Related Allowance	0	0
Average Recorded Investment	81,000	65,000
Interest Income Recognized	1,000	3,000
With an allowance recorded [Abstract]
Recorded Investment	216,000	239,000
Unpaid Principal Balance	216,000	242,000
Related Allowance	114,000	98,000
Average Recorded Investment	228,000	202,000
Interest Income Recognized	6,000	10,000
Totals [Abstract]
Related Allowance	114,000	98,000
Loans on Nonaccrual Status [Abstract]
Loans on Nonaccrual Status	409,000	275,000
Residential - Prime [Member]
With no related allowance recorded [Abstract]
Recorded Investment	1,575,000	851,000
Unpaid Principal Balance	1,575,000	851,000
Related Allowance	0	0
Average Recorded Investment	1,213,000	1,334,000
Interest Income Recognized	26,000	28,000
With an allowance recorded [Abstract]
Recorded Investment	52,000	291,000
Unpaid Principal Balance	52,000	291,000
Related Allowance	30,000	21,000
Average Recorded Investment	172,000	255,000
Interest Income Recognized	4,000	1,000
Totals [Abstract]
Related Allowance	30,000	21,000
Loans on Nonaccrual Status [Abstract]
Loans on Nonaccrual Status	2,505,000	884,000
Finance Leases Commercial [Member]
With no related allowance recorded [Abstract]
Recorded Investment		0
Unpaid Principal Balance		0
Related Allowance		0
Average Recorded Investment		4,000
Interest Income Recognized		0
Loans on Nonaccrual Status [Abstract]
Loans on Nonaccrual Status	0	0
Other Loans [Member]
With no related allowance recorded [Abstract]
Recorded Investment		0
Unpaid Principal Balance		0
Related Allowance		0
Average Recorded Investment		3,000
Interest Income Recognized		0
Loans on Nonaccrual Status [Abstract]
Loans on Nonaccrual Status	0	0
Commercial Total [Member]
With an allowance recorded [Abstract]
Related Allowance	483,000	563,000
Totals [Abstract]
Recorded Investment	5,483,000	5,513,000
Unpaid Principal Balance	6,122,000	5,670,000
Related Allowance	483,000	563,000
Average Recorded Investment	5,499,000	14,143,000
Interest Income Recognized	75,000	198,000
Consumer Total [Member]
With an allowance recorded [Abstract]
Related Allowance	114,000	98,000
Totals [Abstract]
Recorded Investment	330,000	287,000
Unpaid Principal Balance	338,000	301,000
Related Allowance	114,000	98,000
Average Recorded Investment	309,000	267,000
Interest Income Recognized	7,000	13,000
Residential Total [Member]
With an allowance recorded [Abstract]
Related Allowance	30,000	21,000
Totals [Abstract]
Recorded Investment	1,627,000	1,142,000
Unpaid Principal Balance	1,627,000	1,142,000
Related Allowance	30,000	21,000
Average Recorded Investment	1,385,000	1,589,000
Interest Income Recognized	30,000	29,000
Other Total [Member]
With an allowance recorded [Abstract]
Related Allowance		0
Totals [Abstract]
Recorded Investment		0
Unpaid Principal Balance		0
Related Allowance		0
Average Recorded Investment		3,000
Interest Income Recognized		0
Consumer - Credit Card [Member]
Loans on Nonaccrual Status [Abstract]
Loans on Nonaccrual Status	0	0
Residential Construction [Member]
Loans on Nonaccrual Status [Abstract]
Loans on Nonaccrual Status	0	0
Residential - Subprime [Member]
Loans on Nonaccrual Status [Abstract]
Loans on Nonaccrual Status	$ 0	$ 0

XML

JUNIOR SUBORDINATED DEBENTURES (Tables)

12 Months Ended

Dec. 31, 2012

JUNIOR SUBORDINATED DEBENTURES [Abstract]

Description of junior subordinated debentures

A description of the junior subordinated debentures outstanding is as follows (in thousands):

					December 31,
Date Issued	Maturity Date	Interest Rate		Callable After	2012		2011
February 22, 2001	February 22, 2031		10.20%	February 22, 2011	$	7,217	$	7,217
July 31, 2001 1	July 9, 2031	3 month LIBOR plus 3.30%		July 31, 2006		5,671		-
September 20, 2004	September 20, 2034	3 month LIBOR plus 2.50%		September 20, 2009		8,248		8,248
October 12, 2006 1	October 12, 2036	3 month LIBOR plus 1.85%		June 26, 2011		5,155		-
June 21, 20071	June 21, 2037	3 month LIBOR plus 1.70%		June 15, 2012		3,093		-
					$	29,384	$	15,465

(1) Assumed in PSB acquisition.

XML

FAIR VALUE MEASUREMENTS AND DISCLOSURES

12 Months Ended

Dec. 31, 2012

FAIR VALUE MEASUREMENTS AND DISCLOSURES [Abstract]

FAIR VALUE MEASUREMENTS AND DISCLOSURES

20. FAIR VALUE MEASUREMENTS AND DISCLOSURES

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 are recorded at fair value on a recurring basis.  Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as impaired loans and other real estate.  These nonrecurring fair value adjustments typically involve the application of the lower of cost or market accounting or write-downs of individual assets.  Additionally, the Company is required to disclose, but not record, the fair value of other financial instruments.

Fair Value 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 cash equivalents—The carrying value of cash and cash equivalents is a reasonable estimate of fair value.

Time Deposits in Other Banks—Fair values for fixed-rate time deposits are estimated using a discounted cash flow analysis that applies interest rates currently being offered on time deposits of similar terms of maturity.

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

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

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

For non-performing loans, collateral valuations currently in file are reviewed for acceptability in terms of timeliness and applicability.  Although each determination is made based on the facts and circumstances of each credit, generally valuations are no longer considered acceptable when there has been physical deterioration of the property from when it was last appraised, or there has been a significant change in the underlying assumptions of the appraisal.  If the valuation is deemed to be unacceptable, a new appraisal is ordered.  New appraisals are typically received within 4-6 weeks.  While awaiting new appraisals, the valuation in 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: 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 6% for selling costs and an additional 4% for taxes, insurance and maintenance costs.  Additional discounts may be applied if research from the above sources indicates a discount is appropriate given devaluation of similar property from the time of the initial valuation.

Other Real Estate—Other real estate properties are adjusted to fair value upon transfer of the loans to other real estate, and annually thereafter to insure other real estate assets are carried at the lower of carrying value or fair value.  Exceptions to obtaining initial appraisals are properties where a buy/sell agreement exists for the loan value or greater, or where we have received a Sheriff's valuation for properties liquidated through a Sheriff sale.  Fair value is based upon independent market prices, appraised values of the collateral or management's estimation of the value of the collateral.  When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the 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 other real estate asset as nonrecurring Level 3.

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

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

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

Notes Payable—The fair value of notes payable is estimated using a discounted cash flow analysis that applies interest rates currently being offered on similar types of borrowings with similar terms.

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

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

Assets Recorded at Fair Value

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

	Assets / Liabilities		Fair Value Measurements
	Measured at Fair Value		at December 31, 2012
Description	at December 31, 2012		Level 1		Level 2		Level 3
Available-for-sale securities:
U.S. Government sponsored enterprises	$	13,424	$	-	$	13,424	$	-
Obligations of state and political subdivisions		87,421		-		87,421		-
GSE mortgage-backed securities		178,819		-		178,819		-
Collateralized mortgage obligations: residential		101,986		-		101,986		-
Collateralized mortgage obligations: commercial		29,761		-		29,761		-
Other asset-backed securities		12,742		-		12,742		-
Collateralized debt obligation		464		-		464		-

	Assets / Liabilities		Fair Value Measurements
	Measured at Fair Value		at December 31, 2011
Description	at December 31, 2011		Level 1		Level 2		Level 3
Available-for-sale securities:
U.S. Government sponsored enterprises	$	94,999	$	-	$	94,999	$	-
Obligations of state and political subdivisions		96,149		-		96,149		-
GSE mortgage-backed securities		109,487		-		109,487		-
Collateralized mortgage obligations: residential		41,468		-		41,468		-
Collateralized mortgage obligations: commercial		25,138		-		25,138		-

Certain assets and liabilities are measured at fair value on a nonrecurring basis and therefore are not included in the table above. Impaired loans are level 2 assets measured using appraisals from external parties of the collateral less any prior liens.  Other real estate owned are also level 2 assets measured using appraisals from external parties.

Assets measured at fair value on a nonrecurring basis are as follows (in thousands):

	Assets / Liabilities		Fair Value Measurements
	Measured at Fair Value		at December 31, 2012
Description	at December 31, 2012		Level 1		Level 2		Level 3
Impaired loans	$	2,245	$	-	$	2,245	$	-
Other real estate		7,496		-		7,496		-

	Assets / Liabilities Measured at Fair Value		Fair Value Measurements at December 31, 2011
Description	at December 31, 2011		Level 1		Level 2		Level 3
Impaired loans	$	2,994	$	-	$	2,994	$	-
Other real estate		7,369		-		7,369		-

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 estimated fair values of our financial instruments are as follows at December 31, 2012 and 2011 (in thousands):

			Fair Value Measurements at  December 31, 2012 Using:
	Carrying Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	73,573	$	73,573	$	-	$	-
Time deposits held in banks		881		-		-		883
Securities available-for-sale		424,617		-		424,617		-
Securities held-to-maturity		153,524		-		156,924		-
Other investments		8,310		8,310		-		-
Loans, net		1,039,570		-		-		1,046,495
Cash surrender value of life insurance policies		13,183		-		13,183		-
Financial liabilities:
Non-interest-bearing deposits		380,557		-		380,557		-
Interest-bearing deposits		1,171,347		-		859,183		314,783
Securities sold under agreements to repurchase		41,447		41,447		-		-
Notes payable		29,128		-		-		29,128
Junior subordinated debentures		29,384		-		22,167		7,776

			Fair Value Measurements at December 31, 2011 Using:
	Carrying Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	83,303	$	83,303	$	-	$	-
Time deposits held in banks		710		-		-		716
Securities available-for-sale		367,241		-		367,241		-
Securities held-to-maturity		100,472		-		101,131		-
Other investments		5,637		5,637		-		-
Loans, net		739,029		-		-		747,156
Cash surrender value of life insurance policies		4,853		-		4,853		-
Financial liabilities:
Non-interest-bearing deposits		254,755		-		254,755		-
Interest-bearing deposits		910,051		-		585,763		327,441
Securities sold under agreements to repurchase		46,078		46,078		-		-
Junior subordinated debentures		15,465		-		8,248		9,095

XML

REGULATORY MATTERS

12 Months Ended

Dec. 31, 2012

REGULATORY MATTERS [Abstract]

REGULATORY MATTERS

19. REGULATORY MATTERS

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies.  Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the financial statements.  Under capital adequacy guidelines, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices.  The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and to average assets (as defined).

As of December 31, 2012, the most recent notifications from the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage capital ratios as set forth in the table (in thousands). There are no conditions or events since those notifications that management believes has changed the Bank's category.

The Company's and the Bank's actual capital amounts and ratios are presented in the table below (in thousands):

	Actual					Required for Minimum Capital Adequacy Purposes					To be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2012:
Total capital to risk weighted assets:
Company	$	165,302		14.10	%	$	93,770		8.00	%		N/A		N/A
Bank	$	162,159		13.84	%	$	93,703		8.00	%	$	117,128		10.00	%
Tier I capital to risk weighted assets:
Company	$	157,753		13.46	%	$	46,885		4.00	%		N/A		N/A
Bank	$	154,610		13.20	%	$	46,851		4.00	%	$	70,277		6.00	%
Tier I capital to average assets:
Company	$	157,753		11.82	%	$	53,399		4.00	%		N/A		N/A
Bank	$	154,610		11.58	%	$	53,421		4.00	%	$	80,132		6.00	%

	Actual					Required for Minimum Capital Adequacy Purposes					To be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2011:
Total capital to risk weighted assets:
Company	$	144,439		16.97	%	$	68,085		8.00	%		N/A		N/A
Bank	$	116,988		13.75	%	$	68,071		8.00	%	$	85,089		10.00	%
Tier I capital to risk weighted assets:
Company	$	136,979		16.10	%	$	34,043		4.00	%		N/A		N/A
Bank	$	109,528		12.87	%	$	34,036		4.00	%	$	51,054		6.00	%
Tier I capital to average assets:
Company	$	136,979		11.14	%	$	49,193		4.00	%		N/A		N/A
Bank	$	109,528		8.91	%	$	49,149		4.00	%	$	73,723		6.00	%

XML

INVESTMENT SECURITIES (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Available-for-sale Securities [Abstract]
Amortized Cost	$ 412,065,000	$ 355,496,000
Gross Unrealized Gains	12,599,000	11,752,000
Gross Unrealized Losses	47,000	7,000
Fair Value	424,617,000	367,241,000
Held-to-maturity [Abstract]
Amortized Cost	153,524,000	100,472,000
Gross Unrealized Gains	3,407,000	659,000
Gross Unrealized Losses	7,000	0
Fair Value	156,924,000	101,131,000
Number of Private-label Collateralized Mortgage Obligations	3
Combined Balance of Private-label Collateralized Mortgage Obligations	96,000	137,000
Available-for-sale, Amortized Cost [Abstract]
Due in one year or less	12,731,000
Due after one year through five years	48,421,000
Due after five years through ten years	24,665,000
Due after ten years	10,698,000
Mortgage-backed securities and collateralized mortgage obligations: Residential, Amortized Cost	274,313,000
Mortgage-backed securities and collateralized mortgage obligations: Commercial, Amortized Cost	28,528,000
Other asset-backed securities	12,245,000
Collateralized debt obligation	464,000
Available-for-sale securities, Amortized Cost	412,065,000
Available-for-sale, Fair Value [Abstract]
Due in one year or less	12,879,000
Due after one year through five years	50,365,000
Due after five years through ten years	26,790,000
Due after ten years	10,811,000
Mortgage-backed securities and collateralized mortgage obligations: Residential, Fair Value	280,805,000
Mortgage-backed securities and collateralized mortgage obligations: Commercial, Fair Value	29,761,000
Asset-backed securities	12,742,000
Collateralized debt obligation, at fair Value	464,000
Available-for-sale securities, Fair Value	424,617,000
Held-to-maturity, Amortized Cost [Abstract]
Due in one year or less	296,000
Due after one year through five years	1,068,000
Due after five years through ten years	6,029,000
Due after ten years	35,507,000
Mortgage-backed securities and collateralized mortgage obligations: Residential, Amortized Cost	94,392,000
Mortgage-backed securities and collateralized mortgage obligations: Commercial, Amortized Cost	16,232,000
Held-to-maturity securities, Amortized Cost	153,524,000
Held-to-maturity, Fair Value [Abstract]
Due in one year or less	296,000
Due after one year through five years	1,068,000
Due after five years through ten years	6,029,000
Due after ten years	35,507,000
Mortgage-backed securities and collateralized mortgage obligations: Residential, Fair Value	97,211,000
Mortgage-backed securities and collateralized mortgage obligations: Commercial, Fair Value	16,813,000
Held-to-maturity securities, Fair Value	156,924,000
Available-for-sale Securities, Continuous Unrealized Loss Position [Abstract]
Securities with Losses Under 12 Months, fair value, Available-for-sale		8,053,000
Securities with Losses under 12 Months, gross unrealized loss, Available-for-sale		3,000
Securities with Losses over 12 Months, fair value, Available-for-sale		136,000
Securities with Losses over 12 Months, gross unrealized loss, Available-for-sale		4,000
Total securities, fair value, Available-for-sale		8,189,000
Total securities, gross unrealized loss, Available-for-sale		7,000
Held-to-maturity Securities, Continuous Unrealized Loss Position [Abstract]
Number of impairment related to credit quality	0	0
Number of impaired securities evaluated as other temporary	0	0
Impairment losses were recognized on debt securities	0	0	0
Number of available-for-sale securities sold	6	5
Number of available-for-sale securities sold with gains	5	4
Available-for-sale securities, gross realized gains	235,000	94,000
Number of available-for-sale securities sold with loss	1	1
Available-for-sale securities, gross realized losses	31,000	4,000
Available-for-sale securities, net gain	204,000	90,000
Number of held-to-maturity securities sold		1
Held to maturity security, net gain on sale		9,000
Securities pledged to secure public funds on deposits and for other purposes required or permitted by law	226,200,000	154,100,000
U.S. Government Sponsored Enterprises [Member]
Available-for-sale Securities [Abstract]
Amortized Cost	13,422,000	94,339,000
Gross Unrealized Gains	2,000	662,000
Gross Unrealized Losses	0	2,000
Fair Value	13,424,000	94,999,000
Available-for-sale Securities, Continuous Unrealized Loss Position [Abstract]
Securities with Losses Under 12 Months, fair value, Available-for-sale		6,204,000
Securities with Losses under 12 Months, gross unrealized loss, Available-for-sale		2,000
Securities with Losses over 12 Months, fair value, Available-for-sale		0
Securities with Losses over 12 Months, gross unrealized loss, Available-for-sale		0
Total securities, fair value, Available-for-sale		6,204,000
Total securities, gross unrealized loss, Available-for-sale		2,000
Obligation of State and Political Subdivisions [Member]
Available-for-sale Securities [Abstract]
Amortized Cost	83,093,000	90,284,000
Gross Unrealized Gains	4,328,000	5,865,000
Gross Unrealized Losses	0	0
Fair Value	87,421,000	96,149,000
Held-to-maturity [Abstract]
Amortized Cost	42,900,000	340,000
Gross Unrealized Gains	7,000	2,000
Gross Unrealized Losses	7,000	0
Fair Value	42,900,000	342,000
Held-to-maturity Securities, Continuous Unrealized Loss Position [Abstract]
Securities with Losses Under 12 Months, fair value, Held-to-maturity	1,128,000
Securities with Losses under 12 Months, gross unrealized loss, Held-to-maturity	7,000
Securities with Losses over 12 Months, fair value, Held-to-maturity	0
Securities with Losses over 12 Months, gross unrealized loss, Held-to-maturity	0
Total securities, fair value, Held-to-maturity	1,128,000
Total securities, gross unrealized loss, Held-to-maturity	7,000
Number of available-for-sale securities	189
Number of available-for-sale securities in unrealized loss positions	4
GSE Mortgage-backed Securities [Member]
Available-for-sale Securities [Abstract]
Amortized Cost	172,932,000	105,409,000
Gross Unrealized Gains	5,887,000	4,078,000
Gross Unrealized Losses	0	0
Fair Value	178,819,000	109,487,000
Held-to-maturity [Abstract]
Amortized Cost	89,383,000	82,497,000
Gross Unrealized Gains	2,819,000	550,000
Gross Unrealized Losses	0	0
Fair Value	92,202,000	83,047,000
Other asset-backed Securities [Member]
Available-for-sale Securities [Abstract]
Amortized Cost	12,245,000
Gross Unrealized Gains	497,000
Gross Unrealized Losses	0
Fair Value	12,742,000
Collateralized Mortgage Obligations: Residential [Member]
Available-for-sale Securities [Abstract]
Amortized Cost	101,381,000	40,855,000
Gross Unrealized Gains	652,000	618,000
Gross Unrealized Losses	47,000	5,000
Fair Value	101,986,000	41,468,000
Held-to-maturity [Abstract]
Amortized Cost	5,009,000
Gross Unrealized Gains	0
Gross Unrealized Losses	0
Fair Value	5,009,000
Available-for-sale Securities, Continuous Unrealized Loss Position [Abstract]
Securities with Losses Under 12 Months, fair value, Available-for-sale	10,085,000	1,849,000
Securities with Losses under 12 Months, gross unrealized loss, Available-for-sale	45,000	1,000
Securities with Losses over 12 Months, fair value, Available-for-sale	96,000	136,000
Securities with Losses over 12 Months, gross unrealized loss, Available-for-sale	2,000	4,000
Total securities, fair value, Available-for-sale	10,181,000	1,985,000
Total securities, gross unrealized loss, Available-for-sale	47,000	5,000
Collateralized Mortgage Obligations: Commercial [Member]
Available-for-sale Securities [Abstract]
Amortized Cost	28,528,000	24,609,000
Gross Unrealized Gains	1,233,000	529,000
Gross Unrealized Losses	0	0
Fair Value	29,761,000	25,138,000
Held-to-maturity [Abstract]
Amortized Cost	16,232,000	17,635,000
Gross Unrealized Gains	581,000	107,000
Gross Unrealized Losses	0	0
Fair Value	16,813,000	17,742,000
U.S. Government-sponsored Enterprises and SBA Debt Securities [Member]
Held-to-maturity Securities, Continuous Unrealized Loss Position [Abstract]
Number of available-for-sale securities		25
Number of available-for-sale securities in unrealized loss positions		5
Collateralized Mortgage Obligations [Member]
Held-to-maturity Securities, Continuous Unrealized Loss Position [Abstract]
Number of available-for-sale securities	56	29
Number of available-for-sale securities in unrealized loss positions	4	3
Collateralized Debt Obligations [Member]
Available-for-sale Securities [Abstract]
Amortized Cost	464,000
Gross Unrealized Gains	0
Gross Unrealized Losses	0
Fair Value	$ 464,000

XML

COMMITMENTS AND CONTINGENCIES (Tables)

12 Months Ended

Dec. 31, 2012

COMMITMENTS AND CONTINGENCIES [Abstract]

Future annual minimum rental payments due under non-cancellable operating leases

At December 31, 2012, future annual minimum rental payments due under non-cancellable operating leases are as follows (in thousands):

2013	$	2,264
2014		2,125
2015		1,956
2016		1,701
2017		1,566
Thereafter		11,611
	$	21,223

XML

OTHER NON-INTEREST INCOME AND EXPENSE

12 Months Ended

Dec. 31, 2012

OTHER NON-INTEREST INCOME AND EXPENSE [Abstract]

OTHER NON-INTEREST INCOME AND EXPENSE

21. OTHER NON-INTEREST INCOME AND EXPENSE

For the years ended December 31, 2012, 2011, and 2010, none of the components of other noninterest income were greater than 1% of interest income and noninterest income.

Components of other noninterest expense greater than 1% of interest income and noninterest income consisted of the following for the years ended December 31, 2012, 2011, and 2010 (in thousands):

	2012		2011		2010
Professional fees	$	2,022	$	2,518	$	1,787
FDIC fees		930		921		1,331
Marketing expenses		1,648		1,663		1,178
Corporate development expense		1,022		984		656
Data processing		1,689		2,355		1,212
Printing and supplies		1,105		890		659
Expenses on other real estate owned and other assets repossessed		1,767		1,511		798
Amortization of intangibles		762		229		97

XML

SUBSEQUENT EVENTS

12 Months Ended

Dec. 31, 2012

SUBSEQUENT EVENTS [Abstract]

SUBSEQUENT EVENTS

22. SUBSEQUENT EVENTS

The Company has evaluated all subsequent events and transactions that occurred after December 31, 2012 up through the date of filing this Annual Report on Form 10-K.  No events or changes in circumstances were identified that would have an adverse impact on the financial statements.

XML

Consolidated Statements of Shareholders' Equity (Parenthetical) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Consolidated Statement of Shareholders' Equity [Abstract]
Dividends on common stock (in dollars per share)	$ 0.28	$ 0.28	$ 0.28

XML

CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY

12 Months Ended

Dec. 31, 2012

CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY [Abstract]

CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY

23.  CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY

Summarized financial information for MidSouth Bancorp, Inc. (parent company only) follows:

Balance Sheets

December 31, 2012 and 2011

(in thousands)

	2012		2011
Assets
Cash and interest-bearing deposits in banks	$	4,982	$	27,894
Other assets		2,233		174
Investment in and advances to subsidiaries		217,049		151,166
Total assets	$	224,264	$	179,234
Liabilities and Stockholders' Equity
Liabilities:
Dividends payable	$	1,113	$	1,144
Notes payable		2,000		-
Junior subordinated debentures		29,384		15,465
Other		2,526		788
Total liabilities		35,023		17,397
Stockholders' equity		189,241		161,837
Total liabilities and stockholders' equity	$	224,264	$	179,234

Statements of Earnings
For the Years Ended December 31, 2012, 2011, and 2010
(in thousands)
	2012			2011			2010
Revenue:
Dividends from Bank and nonbank subsidiaries	$	-		$	-		$	-
Rental and other income		102			908			1,032
		102			908			1,032
Expenses:
Interest on short- and long-term debt		984			971			974
Professional fees		804			337			185
Other expenses		1,126			643			667
		2,914			1,951			1,826
Loss before equity in undistributed earnings of subsidiaries and income taxes		(2,812	)		(1,043	)		(794	)
Equity in undistributed earnings of subsidiaries		11,477			5,167			6,303
Income tax benefit		977			349			271
Net earnings	$	9,642		$	4,473		$	5,780

Statements of Cash Flows
For the Years Ended December 31, 2012, 2011, and 2010
(in thousands)
	2012			2011			2010
Cash flows from operating activities:
Net earnings	$	9,642		$	4,473		$	5,780
Adjustments to reconcile net earnings to net cash provided by operating activities:
Undistributed earnings of subsidiaries		(11,477	)		(5,167	)		(6,303	)
Other, net		(2,307	)		144			32
Net cash (used in) provided by operating activities		(4,142	)		(550	)		(491	)
Cash flows from investing activities:
Sale of equity securities		-			-			75
Investments in and advances to subsidiaries		-			(11,972	)		-
Outlays for business acquisition, net of cash acquired		(14,360	)		-			-
Net cash (used in) provided by investing activities		(14,360	)		(11,972	)		75
Cash flows from financing activities:
Proceeds from issuance of common stock		-			-			4,768
Proceeds from issuance of Series B preferred stock		-			32,000			-
Payment to redeem Series A preferred stock		-			(20,000	)		-
Proceeds from exercise of stock options		100			68			51
Payment of preferred dividends		(1,579	)		(938	)		(1,001	)
Payment of common dividends		(2,932	)		(2,724	)		(2,507	)
Other, net		1			-			-
Net cash provided by financing activities		(4,410	)		8,406			1,311
Net change in cash and cash equivalents		(22,912	)		(4,116	)		895
Cash and cash equivalents at beginning of year		27,894			32,010			31,115
Cash and cash equivalents at end of year	$	4,982		$	27,894		$	32,010

XML

GOODWILL AND OTHER INTANGIBLE ASSETS (Tables)

12 Months Ended

Dec. 31, 2012

GOODWILL AND OTHER INTANGIBLE ASSETS [Abstract]

Changes to carrying amount of goodwill

Changes to the carrying amount of goodwill for the years ended December 31, 2012 and 2011 are provided in the following table (in thousands):

Balance, December 31, 2010	$	9,271
Goodwill acquired during the year		15,688
Balance, December 31, 2011		24,959
Adjustment to goodwill		(136	)
Goodwill acquired during the year		17,958
Balance, December 31, 2012	$	42,781

Summary of core deposit intangible assets

A summary of core deposit intangible assets as of December 31, 2012 and 2011 is as follows (in thousands):

	2012			2011
Gross carrying amount	$	11,674		$	9,012
Less accumulated amortization		(2,627	)		(1,865	)
Net carrying amount	$	9,047		$	7,147

Estimated amortization expense on core deposit intangible assets

The estimated amortization expense on the core deposit intangible assets for the five succeeding years and thereafter is as follows (in thousands):

2013	$	1,106
2014		1,106
2015		1,106
2016		1,106
2017		1,106
Thereafter		3,517

XML

CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY (Tables)

12 Months Ended

Dec. 31, 2012

CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY [Abstract]

Condensed Financial Information of Parent Company

Summarized financial information for MidSouth Bancorp, Inc. (parent company only) follows:

Balance Sheets

December 31, 2012 and 2011

(in thousands)

	2012		2011
Assets
Cash and interest-bearing deposits in banks	$	4,982	$	27,894
Other assets		2,233		174
Investment in and advances to subsidiaries		217,049		151,166
Total assets	$	224,264	$	179,234
Liabilities and Stockholders' Equity
Liabilities:
Dividends payable	$	1,113	$	1,144
Notes payable		2,000		-
Junior subordinated debentures		29,384		15,465
Other		2,526		788
Total liabilities		35,023		17,397
Stockholders' equity		189,241		161,837
Total liabilities and stockholders' equity	$	224,264	$	179,234

Statements of Earnings
For the Years Ended December 31, 2012, 2011, and 2010
(in thousands)
	2012			2011			2010
Revenue:
Dividends from Bank and nonbank subsidiaries	$	-		$	-		$	-
Rental and other income		102			908			1,032
		102			908			1,032
Expenses:
Interest on short- and long-term debt		984			971			974
Professional fees		804			337			185
Other expenses		1,126			643			667
		2,914			1,951			1,826
Loss before equity in undistributed earnings of subsidiaries and income taxes		(2,812	)		(1,043	)		(794	)
Equity in undistributed earnings of subsidiaries		11,477			5,167			6,303
Income tax benefit		977			349			271
Net earnings	$	9,642		$	4,473		$	5,780

Statements of Cash Flows
For the Years Ended December 31, 2012, 2011, and 2010
(in thousands)
	2012			2011			2010
Cash flows from operating activities:
Net earnings	$	9,642		$	4,473		$	5,780
Adjustments to reconcile net earnings to net cash provided by operating activities:
Undistributed earnings of subsidiaries		(11,477	)		(5,167	)		(6,303	)
Other, net		(2,307	)		144			32
Net cash (used in) provided by operating activities		(4,142	)		(550	)		(491	)
Cash flows from investing activities:
Sale of equity securities		-			-			75
Investments in and advances to subsidiaries		-			(11,972	)		-
Outlays for business acquisition, net of cash acquired		(14,360	)		-			-
Net cash (used in) provided by investing activities		(14,360	)		(11,972	)		75
Cash flows from financing activities:
Proceeds from issuance of common stock		-			-			4,768
Proceeds from issuance of Series B preferred stock		-			32,000			-
Payment to redeem Series A preferred stock		-			(20,000	)		-
Proceeds from exercise of stock options		100			68			51
Payment of preferred dividends		(1,579	)		(938	)		(1,001	)
Payment of common dividends		(2,932	)		(2,724	)		(2,507	)
Other, net		1			-			-
Net cash provided by financing activities		(4,410	)		8,406			1,311
Net change in cash and cash equivalents		(22,912	)		(4,116	)		895
Cash and cash equivalents at beginning of year		27,894			32,010			31,115
Cash and cash equivalents at end of year	$	4,982		$	27,894		$	32,010

XML

EMPLOYEE BENEFITS (Details) (USD $)	0 Months Ended		12 Months Ended
	Feb. 19, 2009	Feb. 06, 2009	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Feb. 05, 2009
EMPLOYEE BENEFITS [Abstract]
ESOP loan						$ 300,000
Number of shares purchased (in shares)	5,828	25,000
Purchase price per share (in dollars per share)	$ 9.05	$ 9.89	$ 9.73	$ 9.73	$ 9.73
ESOP compensation expense			428,000	469,000	481,000
Cost basis of ESOP shares released (in dollars per share)	$ 9.05	$ 9.89	$ 9.73	$ 9.73	$ 9.73
ESOP shares [Abstract]
Allocated shares (in shares)			573,476	546,722
Shares released for allocation (in shares)			0	10,757
Total ESOP shares (in shares)			573,476	557,479
Deferred compensation liability			1,200,000	1,100,000
Deferred compensation expense			68,000	232,000	125,000
Defined contribution plan expense			39,000	9,000	30,000
Defined contribution plan participation service period			90 days
Employer contribution to 401(k) retirement plan			$ 33,000	$ 31,000	$ 0

XML

Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Assets
Cash and due from banks, including required reserves of $14,083 and $7,990, respectively	$ 46,297	$ 26,775
Interest-bearing deposits in banks	20,276	56,128
Federal funds sold	7,000	400
Time deposits held in banks	881	710
Securities available-for-sale, at fair value (cost of $412,065 at December 31, 2012 and $355,496 at December 31, 2011)	424,617	367,241
Securities held-to-maturity (estimated fair value of $156,924 at December 31, 2012 and $101,131 at December 31, 2011)	153,524	100,472
Other investments	8,310	5,637
Loans	1,046,940	746,305
Allowance for loan losses	(7,370)	(7,276)
Loans, net	1,039,570	739,029
Bank premises and equipment, net	63,461	44,598
Accrued interest receivable	6,691	5,607
Goodwill	42,781	24,959
Intangibles	9,047	7,147
Cash surrender value of life insurance	13,183	4,853
Other real estate	7,496	7,369
Other assets	8,594	5,831
Total assets	1,851,728	1,396,756
Deposits:
Noninterest-bearing	380,557	254,755
Interest-bearing	1,171,347	910,051
Total deposits	1,551,904	1,164,806
Securities sold under agreements to repurchase	41,447	46,078
Notes payable	29,128	0
Junior subordinated debentures	29,384	15,465
Other liabilities	10,624	8,570
Total liabilities	1,662,487	1,234,919
Commitments and contingencies
Stockholders' equity:
Common stock, $0.10 par value; 30,000,000 shares authorized, 11,386,611 and 10,615,983 issued and 11,236,134 and 10,465,506 outstanding at December 31, 2012 and December 31, 2011, respectively	1,139	1,062
Additional paid-in capital	110,603	98,842
Accumulated other comprehensive income	8,159	7,752
Treasury stock- 150,477 shares at December 31, 2012 and 2011, at cost	(3,286)	(3,286)
Retained earnings	30,629	25,467
Total stockholders' equity	189,241	161,837
Total liabilities and stockholders' equity	1,851,728	1,396,756
Preferred Stock Series B [Member]
Stockholders' equity:
Preferred stock	32,000	32,000
Preferred Stock Series C [Member]
Stockholders' equity:
Preferred stock	$ 9,997	$ 0

XML

INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2012

INCOME TAXES [Abstract]

Components of deferred tax assets and liabilities

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities as of December 31, 2012 and 2011 are as follows (in thousands):

	2012		2011
Deferred tax assets:
Allowance for loan losses	$	6,325	$	2,474
Alternative minimum tax credit		1,300		1,158
Other		2,575		1,357
Total deferred tax assets		10,200		4,989
Deferred tax liabilities:
Premises and equipment		4,958		3,792
FHLB stock dividends		57		18
Unrealized gains on securities		5,914		3,993
Other		1,747		351
Total deferred tax liabilities		12,676		8,154
Net deferred tax liability	$	2,476	$	3,165

Components of income tax expense

Components of income tax expense are as follows (in thousands):

	2012		2011			2010
Current	$	2,128	$	1,055		$	2,001
Deferred expense (benefit)		1,651		(491	)		(1,033	)
Total income tax expense	$	3,779	$	564		$	968

Income tax reconciliation

The provision for federal income taxes differs from the amount computed by applying the U.S. Federal income tax statutory rate of 35% for 2012 and 34% for 2011 and 2010 on pre-tax income as follows (in thousands):

	December 31,
	2012			2011			2010
Taxes calculated at statutory rate	$	4,697		$	1,713		$	2,294
Increase (decrease) resulting from:
Tax-exempt interest, net		(988	)		(1,121	)		(1,293	)
Tax credits		-			-			-
Other		70			(28	)		(33	)
	$	3,779		$	564		$	968

XML

Consolidated Statements of Comprehensive Income (Parenthetical) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Unrealized gains on securities available-for-sale:
Unrealized holding gains arising during the year, income tax expense	$ 291	$ 1,872	$ 143
Reclassification adjustment for gain on liquidation of equity security included in securities available-for-sale, income tax expense	$ 71	$ 34	$ 1

XML

LOANS, Aggregate Allowance for Loan Losses and Related Party Lending (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Activity in allowance for loan losses [Roll Forward]
Beginning balance	$ 7,276,000	$ 8,813,000	$ 7,995,000
Provision for loan losses	2,050,000	3,925,000	5,020,000
Recoveries	300,000	310,000	254,000
Loans charged-off	(2,256,000)	(5,772,000)	(4,456,000)
Ending balance	7,370,000	7,276,000	8,813,000
Transfers from loans to ORE	879,000	7,300,000	1,200,000
Number of secured credits transferred to ORE		1
Secured credit added to ORE		4,900,000
Activity in related party loans and commitments to extend credit [Roll Forward]
Balance, beginning of year	1,980,000
New loans	21,000
Change in related parties due to acquisition	4,941,000
Repayments and adjustments	(21,000)
Balance, end of year	6,921,000	1,980,000
Number of industry segment concentration above threshold limit	1
Threshold percentage of loan portfolio (in hundredths)	10.00%
Loans exposure in oil and gas industry	146,200,000
Exposure in oil and gas industry specified as percentage of total loans (in hundredths)	14.00%
Loans with exposure in commercial real estate	472,400,000
Percentage of CRE loans secured by owner-occupied commercial properties (in hundredths)	57.00%
Loans on nonaccrual status	8,887,000	6,229,000
Commercial, Financial and Agricultural [Member]
Activity in allowance for loan losses [Roll Forward]
Beginning balance	1,734,000	1,664,000
Provision for loan losses	674,000	1,027,000
Recoveries	181,000	152,000
Loans charged-off	(1,054,000)	(1,109,000)
Ending balance	1,535,000	1,734,000
Real Estate Construction [Member]
Activity in allowance for loan losses [Roll Forward]
Beginning balance	1,661,000	2,963,000
Provision for loan losses	468,000	1,128,000
Recoveries	18,000	14,000
Loans charged-off	0	(2,444,000)
Ending balance	2,147,000	1,661,000
Commercial Real Estate [Member]
Activity in allowance for loan losses [Roll Forward]
Beginning balance	2,215,000	2,565,000
Provision for loan losses	500,000	895,000
Recoveries	1,000	1,000
Loans charged-off	(550,000)	(1,246,000)
Ending balance	2,166,000	2,215,000
Activity in related party loans and commitments to extend credit [Roll Forward]
Loans with exposure in commercial real estate	359,200,000
Loans on nonaccrual status	4,000,000
Nonaccrual status of loans specified as percentage of total loans (in hundredths)	1.10%
Real Estate - Residential [Member]
Activity in allowance for loan losses [Roll Forward]
Beginning balance	936,000	862,000
Provision for loan losses	124,000	353,000
Recoveries	2,000	4,000
Loans charged-off	(126,000)	(283,000)
Ending balance	936,000	936,000
Consumer [Member]
Activity in allowance for loan losses [Roll Forward]
Beginning balance	710,000	730,000
Provision for loan losses	261,000	513,000
Recoveries	98,000	138,000
Loans charged-off	(526,000)	(671,000)
Ending balance	543,000	710,000
Finance Leases Commercial [Member]
Activity in allowance for loan losses [Roll Forward]
Beginning balance	19,000	29,000
Provision for loan losses	22,000	8,000
Recoveries	0	1,000
Loans charged-off	0	(19,000)
Ending balance	41,000	19,000
Other [Member]
Activity in allowance for loan losses [Roll Forward]
Beginning balance	1,000	0
Provision for loan losses	1,000	1,000
Recoveries	0	0
Loans charged-off	0	0
Ending balance	$ 2,000	$ 1,000

XML

ACQUISITION ACTIVITY (Tables)

12 Months Ended

Dec. 31, 2012

Business Acquisition [Line Items]

Information about the acquired impaired loans at acquisition

The following table presents information about the acquired impaired loans at acquisition (in thousands):

Contractually required principal and interest payments	$	7,449
Non-accretable discount		2,084
Cash flows expected to be collected		5,365
Accretable discount		623
Fair value of loans acquired with a deterioration of credit quality	$	4,742

Pro forma information presents the results of operations

The following unaudited pro forma information presents the results of operations for the years ended December 31, 2012 and 2011, as if the acquisition had occurred at January 1, 2011 (in thousands).  These adjustments include the impact of certain purchase accounting adjustments such as intangible assets amortization and the impact of the increase in the bond amortization as a result of the acquisition.  In addition, the $1.2 million in merger expenses related to the acquisition are included for the year ended December 31, 2012.

	December 31,
	2012		2011
Total revenues, net of interest expense	$	89,845	$	80,573
Net income		14,694		10,361
Earnings per share – basic		1.12		0.76
Earnings per share - diluted		1.09		0.75

Loans at the acquisition date

Loans at the acquisition date are presented in the following table (in thousands):

	Acquired Impaired Loans		Acquired Performing Loans		Total Acquired Loans
Commercial, financial and agricultural	$	82	$	59,011	$	59,093
Real estate – construction		-		16,431		16,431
Real estate – commercial		4,205		127,866		132,071
Real estate – residential		455		34,232		34,687
Installment loans to individuals		-		17,652		17,652
Other		-		119		119
Total	$	4,742	$	255,311	$	260,053

PSB Financial Corp [Member]

Business Acquisition [Line Items]

Schedule of business acquisition

Acquisition of PSB Financial Corporation

On December 28, 2012, the Company acquired all of the outstanding common stock of PSB Financial Corporation ("PSB"), the holding company of Many, Louisiana based The Peoples State Bank, for total consideration of $39.5 million, which resulted in preliminary goodwill of $18.0 million, as shown in the following table (dollars in thousands):

	Number of Shares		Amount
Equity consideration:
Common stock issued		756,511	$	11,530
Preferred stock issued		99,971		9,997
Non-equity consideration:
Cash				16,003
Contingent value right				2,000
Total consideration paid				39,530
Fair value of net assets acquired including identifiable intangible assets				(21,572	)
Goodwill			$	17,958

Assets purchased and liabilities assumed and adjustments to fair value for business acquisition

The following table provides the assets purchased and the liabilities assumed and the adjustments to fair value (in thousands):

	As Recorded		Fair Value			Fair
Assets	By PSB		Adjustments			Value
Cash	$	17,847	$	-		$	17,847
Federal funds sold		5,200		-			5,200
Time deposits held in banks		172		-			172
Investment securities		152,667		-			152,667
Loans receivable		269,053		(9,000	)		260,053
Fixed assets		11,845		578			12,423
Core deposit intangible		-		2,662			2,662
Cash surrender value of life insurance		8,234		-			8,234
Other real estate owned		838		-			838
Other assets		4,635		314			4,949
Total assets acquired	$	470,490	$	(5,446	)	$	465,045
Liabilities
Deposits	$	399,845	$	722		$	400,567
FHLB advances		25,296		1,832			27,128
Notes payable		2,000		-			2,000
Junior subordinated debentures		13,919		-			13,919
Other liabilities		2,606		(2,747	)		(141	)
Total liabilities assumed	$	443,666	$	(193	)		443,473
Fair value of net assets acquired including identifiable intangible assets						$	21,572

First Louisiana National Bank [Member]

Business Acquisition [Line Items]

Schedule of business acquisition

On December 1, 2011, the Bank purchased substantially all of the assets of First Louisiana National Bank ("FLNB"), a wholly owned subsidiary of First Bankshares of St. Martin, Ltd, for total consideration of $20.3 million, which resulted in preliminary goodwill of $4.1 million, as shown in the following table (in thousands):

	Number of Shares		Amount
Equity consideration:
Common stock issued		725,000	$	8,838
Non-equity consideration:
Cash				11,500
Total consideration paid				20,338
Fair value of net assets acquired including identifiable intangible assets				(16,230	)
Goodwill			$	4,108

Assets purchased and liabilities assumed and adjustments to fair value for business acquisition

The following table provides the assets purchased and the liabilities assumed and the adjustments to fair value for the FLNB acquisition (in thousands):

	As Recorded		Fair Value			Fair
Assets	By FLNB		Adjustments			Value
Cash	$	31,208	$	-		$	31,208
Time deposits held in banks		710		-			710
Investment securities		32,625		(1	)		32,624
Other investments		140		-			140
Loans receivable		48,645		(693	)		47,952
Fixed assets		2,234		1,445			3,679
Core deposit intangible		-		3,434			3,434
Other assets		641		-			641
Total assets acquired	$	116,203	$	4,185		$	120,388
Liabilities
Deposits	$	103,857	$	134		$	103,991
Other liabilities		167		-			167
Total liabilities assumed	$	104,024	$	134			104,158
Fair value of net assets acquired including identifiable intangible assets						$	16,230

Jefferson Bank [Member]

Business Acquisition [Line Items]

Assets purchased and liabilities assumed and adjustments to fair value for business acquisition

The following table provides the assets purchased and the liabilities assumed and the adjustments to fair value for the Jefferson Bank acquisition (in thousands):

	As Recorded		Fair Value			Fair
Assets	By Jefferson		Adjustments			Value
Cash	$	93,800	$	-		$	93,800
Investment securities		175		-			175
Loans receivable		59,818		(2,124	)		57,694
Fixed assets		2,240		1,392			3,632
Core deposit intangible		-		2,702			2,702
Other assets		327		-			327
Total assets acquired	$	156,360	$	1,970		$	158,330
Liabilities
Deposits	$	164,368	$	1,405		$	165,773
Other liabilities		283		-			283
Total liabilities assumed		164,651		1,405			166,056
Excess of liabilities assumed over assets acquired	$	8,291
Aggregate fair value adjustments			$	565
Goodwill						$	7,726

Beacon Federal [Member]

Business Acquisition [Line Items]

Assets purchased and liabilities assumed and adjustments to fair value for business acquisition

The following table provides the assets purchased and the liabilities assumed and the adjustments to fair value for the Beacon Federal acquisition (in thousands):

	As Recorded		Fair Value			Fair
Assets	By Beacon		Adjustments			Value
Cash	$	52,170	$	-		$	52,170
Loans receivable		23,760		(1,600	)		22,160
Fixed assets		288		153			441
Core deposit intangible		-		1,126			1,126
Other assets		51		-			51
Total assets acquired	$	76,269	$	(321	)	$	75,948
Liabilities
Deposits	$	76,466	$	3,331		$	79,797
Other liabilities		5		-			5
Total liabilities assumed		76,471		3,331			79,802
Excess of liabilities assumed over assets acquired	$	202
Aggregate fair value adjustments			$	(3,652	)
Goodwill						$	3,854

XML

GOODWILL AND OTHER INTANGIBLE ASSETS (Details) (USD $)	6 Months Ended	12 Months Ended
	Jun. 30, 2011	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Changes to carrying amount of goodwill [Roll Forward]
Goodwill, beginning of period	$ 9,271,000	$ 24,959,000	$ 9,271,000
Goodwill acquired during the year		17,958,000	15,688,000
Adjustment to goodwill		(136,000)	0	0
Goodwill, end of period		42,781,000	24,959,000	9,271,000
Number of businesses acquired	3
Finite-Lived Intangible Assets [Line Items]
Amortization expense		762,000	229,000	97,000
Core Deposit Intangible Assets [Member]
Finite-Lived Intangible Assets [Line Items]
Gross carrying amount		11,674,000	9,012,000
Less accumulated amortization		(2,627,000)	(1,865,000)
Net carrying amount		9,047,000	7,147,000
Core deposit intangibles acquired		2,700,000	7,300,000
Amortization expense		762,000	230,000	97,000
Summary of estimated amortization expense [Abstract]
2013		1,106,000
2014		1,106,000
2015		1,106,000
2016		1,106,000
2017		1,106,000
Thereafter		$ 3,517,000

XML

INCOME TAXES

12 Months Ended

Dec. 31, 2012

INCOME TAXES [Abstract]

INCOME TAXES

13. INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities as of December 31, 2012 and 2011 are as follows (in thousands):

	2012		2011
Deferred tax assets:
Allowance for loan losses	$	6,325	$	2,474
Alternative minimum tax credit		1,300		1,158
Other		2,575		1,357
Total deferred tax assets		10,200		4,989
Deferred tax liabilities:
Premises and equipment		4,958		3,792
FHLB stock dividends		57		18
Unrealized gains on securities		5,914		3,993
Other		1,747		351
Total deferred tax liabilities		12,676		8,154
Net deferred tax liability	$	2,476	$	3,165

Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, we believe that it is more likely than not that we will realize the benefits of these deductible differences existing at December 31, 2012. Therefore, no valuation allowance is necessary at this time.  The net deferred tax liability is included in other liabilities on the consolidated balance sheets.

Components of income tax expense are as follows (in thousands):

	2012		2011			2010
Current	$	2,128	$	1,055		$	2,001
Deferred expense (benefit)		1,651		(491	)		(1,033	)
Total income tax expense	$	3,779	$	564		$	968

The provision for federal income taxes differs from the amount computed by applying the U.S. Federal income tax statutory rate of 35% for 2012 and 34% for 2011 and 2010 on pre-tax income as follows (in thousands):

	December 31,
	2012			2011			2010
Taxes calculated at statutory rate	$	4,697		$	1,713		$	2,294
Increase (decrease) resulting from:
Tax-exempt interest, net		(988	)		(1,121	)		(1,293	)
Tax credits		-			-			-
Other		70			(28	)		(33	)
	$	3,779		$	564		$	968

The Company's federal income tax returns are open and subject to examination from the 2009 tax return year and forward. The various state income and franchise tax returns are generally open from the 2009 and later tax return years based on individual state statutes of limitation. We are not currently under examination by federal or state tax authorities for the 2009, 2010, or 2011 tax years.

XML

INVESTMENT SECURITIES (Tables)

12 Months Ended

Dec. 31, 2012

INVESTMENT SECURITIES [Abstract]

Available-for-sale Investment Securities

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

	December 31, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available-for-sale:
U.S. Government sponsored enterprises	$	13,422	$	2	$	-	$	13,424
Obligations of state and political subdivisions		83,093		4,328		-		87,421
GSE mortgage-backed securities		172,932		5,887		-		178,819
Collateralized mortgage obligations: residential		101,381		652		47		101,986
Collateralized mortgage obligations: commercial		28,528		1,233		-		29,761
Other asset-backed securities		12,245		497		-		12,742
Collateralized debt obligation		464		-		-		464
	$	412,065	$	12,599	$	47	$	424,617

	December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available-for-sale:
U.S. Government sponsored enterprises	$	94,339	$	662	$	2	$	94,999
Obligations of state and political subdivisions		90,284		5,865		-		96,149
GSE mortgage-backed securities		105,409		4,078		-		109,487
Collateralized mortgage obligations: residential		40,855		618		5		41,468
Collateralized mortgage obligations: commercial		24,609		529		-		25,138
	$	355,496	$	11,752	$	7	$	367,241

Held-to-maturity Securities

	December 31, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Held-to-maturity:
Obligations of state and political subdivisions	$	42,900	$	7	$	7	$	42,900
GSE mortgage-backed securities		89,383		2,819		-		92,202
Collateralized mortgage obligations: residential		5,009		-		-		5,009
Collateralized mortgage obligations: commercial		16,232		581		-		16,813
	$	153,524	$	3,407	$	7	$	156,924

	December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Held-to-maturity:
Obligations of state and political subdivisions	$	340	$	2	$	-	$	342
GSE mortgage-backed securities		82,497		550		-		83,047
Collateralized mortgage obligations: commercial		17,635		107		-		17,742
	$	100,472	$	659	$	-	$	101,131

Amortized Cost and Fair Value of Debt Securities by Contractual Maturity

The amortized cost and fair value of debt securities at December 31, 2012 by contractual maturity are shown below (in thousands).  Except for mortgage backed securities, collateralized mortgage obligations, other assets backed securities, and collateralized debt obligations, expected maturities may differ from contractual maturities 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	$	12,731	$	12,879
Due after one year through five years		48,421		50,365
Due after five years through ten years		24,665		26,790
Due after ten years		10,698		10,811
Mortgage-backed securities and collateralized mortgage obligations:
Residential		274,313		280,805
Commercial		28,528		29,761
Other asset-backed securities		12,245		12,742
Collateralized debt obligation		464		464
	$	412,065	$	424,617

	Amortized Cost		Fair Value
Held-to-maturity:
Due in one year or less	$	296	$	296
Due after one year through five years		1,068		1,068
Due after five years through ten years		6,029		6,029
Due after ten years		35,507		35,507
Mortgage-backed securities and collateralized mortgage obligations:
Residential		94,392		97,211
Commercial		16,232		16,813
	$	153,524	$	156,924

Investment Securities with Unrealized Losses

Details concerning investment securities with unrealized losses as of December 31, 2012 are as follows (in thousands):

	Securities with losses under 12 months				Securities with losses over 12 months				Total
Available-for-sale:	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Collateralized mortgage obligations: residential	$	10,085	$	45	$	96	$	2	$	10,181	$	47

	Securities with losses under 12 months				Securities with losses over 12 months				Total
Held-to-maturity:	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Obligations of state and political subdivisions	$	1,128	$	7	$	-	$	-	$	1,128	$	7

Details concerning investment securities with unrealized losses as of December 31, 2011 are as follows (in thousands):

	Securities with losses under 12 months				Securities with losses over 12 months				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Available-for-sale:
U.S. Government sponsored enterprises	$	6,204	$	2	$	-	$	-	$	6,204	$	2
Collateralized mortgage obligations: residential		1,849		1		136		4		1,985		5
	$	8,053	$	3	$	136	$	4	$	8,189	$	7

XML

EMPLOYEE STOCK PLANS

12 Months Ended

Dec. 31, 2012

EMPLOYEE STOCK PLANS [Abstract]

EMPLOYEE STOCK PLANS

15. EMPLOYEE STOCK PLANS

In May of 2007, our stockholders approved the 2007 Omnibus Incentive Compensation Plan to provide incentives and awards for directors, officers, and employees. "Awards" as defined in the Plan includes, with limitations, stock options (including restricted stock options), restricted stock awards, stock appreciation rights, performance shares, stock awards and cash awards, all on a stand-alone, combination, or tandem basis. The 2007 Omnibus Incentive Compensation Plan replaces the 1997 Stock Incentive Plan, which expired February of 2007.  A total of 222,825 of our common shares were reserved for issuance under the Plan, of which 222,825 were available to be granted as of December 31, 2012.

Stock Options – Of the 307,845 options outstanding at December 31, 2012, 20,983 were issued under the 1997 Stock Incentive Plan and 286,862 were issued under the 2007 Omnibus Incentive Compensation Plan.  All options outstanding at December 31, 2012 are incentive stock options with a term of ten years, 265,343 of which vest 20% each year on the anniversary date of the grant and, 42,502 of which vest 16.67% each year.  The following table summarizes activity relating to stock options:

	Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at December 31, 2011		35,100		$	14.07		1.86
Granted		294,803			12.97
Exercised		(14,117	)		7.15
Forfeited		(7,941	)		12.97
Outstanding at December 31, 2012		307,845		$	13.36		8.87	$	920,000
Exercisable at December 31, 2012		20,983		$	18.72		1.68	$	-

A summary of changes in unvested options for the period ended December 31, 2012 is as follows:

	2012
	Number of Options			Weighted Average Grant Date Fair Value
Unvested options outstanding, beginning of year		-		$	-
Granted		294,803			4.41
Vested		-			-
Forfeited		(7,941	)		4.41
Unvested options outstanding, end of year		286,862		$	4.41

As of December 31, 2012 there was a total of $1.1 million in unrecognized compensation cost related to nonvested share-based compensation arrangements.  The total amount of options expensed during the years ended December 31, 2012, 2011 and 2010 was $150,000, $13,000 and $6,000, respectively.

The fair value of each option granted is estimated on the grant date using the Black-Scholes Option Pricing Model.  This model requires management to make certain assumptions, including the expected life of the option, the risk free rate of interest, the expected volatility, and the expected dividend yield.  The risk free rate of interest is based on the yield of a U.S. Treasury security with a similar term.  The expected volatility is based on historic volatility over a term similar to the expected life of the options.  The dividend yield is based on the current yield at the date of grant.  The following assumptions were made in estimating the fair value of the options granted in 2012:

Risk free rate of interest	0.7	%
Expected volatility	46.1	%
Dividend yield	2.0	%
Average expected life (in years)	5

The total intrinsic value of the options exercised was $130,000, $66,000, and $57,000 for the years ended December 31, 2012, 2011, and 2010, respectively.

Restricted Stock Awards – On June 30, 2010, the Compensation Committee (formerly the Personnel Committee) of the Board of Directors of the Company made grants of 22,047 shares of restricted stock under the Company's 2007 Omnibus Incentive Compensation Plan to certain officers and employees of the Company.  The restricted shares of stock, which are subject to the terms of a Restricted Stock Grant Agreement between the Company and each recipient, will fully vest on the third anniversary of the grant date.  Prior to vesting, the recipient will be entitled to vote the shares and receive dividends, if any, declared by the Company with respect to its common stock.  Compensation expense for restricted stock is based on the fair value of the restricted stock awards at the time of the grant, which is equal to the market value of the Company's common stock on the date of grant.  The value of restricted stock grants that are expected to vest is amortized monthly into compensation expense over the three year vesting period.

The restricted shares had a fair value of $12.77 per share on the date of issuance.  For the year ended December 31, 2012 and 2011, compensation expense of $57,000 and $62,000, respectively, was recognized related to non-vested restricted stock awards.  As of December 31, 2012, there was $33,000 of unrecognized compensation cost related to non-vested restricted stock awards granted under the plan.

The following table summarizes activity relating to non-vested restricted stock awards:

	2012
Balance at beginning of year		16,645
Granted		-
Forfeited		(1,332	)
Vested		-
Balance at end of year		15,313

XML

NOTES PAYABLE (Details) (USD $)	12 Months Ended
	Dec. 31, 2012
Debt Instrument [Line Items]
Acquired notes payable, fair value	$ 29,100,000
Federal Home Loan Bank, Advances, Fiscal Year Maturity [Abstract]
2013	59,000
2014	65,000
2015	71,000
2016	77,000
2017	16,738,000
2019	10,118,000
Total FHLB advances	27,128,000
Weighted Average Rate [Abstract]
2013	5.057%
2014	5.057%
2015	5.057%
2016	5.057%
2017	3.412%
2019	1.985%
Qualifying loans collateralizing FHLB advances	231,400,000
Federal Home Loan Bank Advances [Member]
Debt Instrument [Line Items]
Acquired notes payable, fair value	27,100,000
Notes Payable [Member]
Debt Instrument [Line Items]
Acquired notes payable, fair value	2,000,000
Weighted Average Rate [Abstract]
Notes payable, annual payments	250,000
Notes payable, description of variable rate basis	New York Prime
Maturities of notes payable [Abstract]
2013	309,000
2014	315,000
2015	321,000
2016	327,000
2017	16,988,000
Thereafter	10,868,000
Notes payable	$ 29,128,000

XML

Consolidated Statements of Shareholders' Equity (USD $) In Thousands, except Share data, unless otherwise specified	Preferred Stock [Member]	Common Stock [Member]	Surplus [Member]	ESOP Obligation [Member]	Accumulated Other Comprehensive Income [Member]	Treasury Stock [Member]	Retained Earnings [Member]	Total
Balance at Dec. 31, 2009	$ 19,211	$ 949	$ 85,263	$ (217)	$ 3,904	$ (3,544)	$ 23,711	$ 129,277
Balance (in shares) at Dec. 31, 2009	20,000	9,488,933
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net earnings							5,780	5,780
Issuance of common and treasury stock due to overallotment, net of discount and offering expenses	0	38	4,472	0	0	258	0	4,768
Issuance of common and treasury stock due to overallotment, net of discount and offering expenses (in shares)	0	384,811
Dividends on preferred stock and accretion of common stock warrants	197	0	0	0	0	0	(1,198)	(1,001)
Dividends on common stock	0	0	0	0	0	0	(2,721)	(2,721)
Exercise of stock options	0	1	50	0	0	0	0	51
Exercise of stock options (in shares)	0	6,999
ESOP compensation expense	0	0	58	113	0	0	0	171
Stock compensation expense	0	0	50	0	0	0	0	50
Change in accumulated other comprehensive income	0	0	0	0	278	0	0	278
Balance at Dec. 31, 2010	19,408	988	89,893	(104)	4,182	(3,286)	25,572	136,653
Balance (in shares) at Dec. 31, 2010	20,000	9,880,743
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net earnings							4,473	4,473
Issuance of common stock for acquisitions	0	73	8,765	0	0	0	0	8,838
Issuance of common stock for acquisitions (in shares)	0	725,000
Dividends on preferred stock and accretion of common stock warrants	592	0	0	0	0	0	(1,242)	(650)
Redemption of Series A Preferred Stock	(20,000)	0	0	0	0	0	0	(20,000)
Redemption of Series A Preferred Stock (in shares)	(20,000)	0
Issuance of Series B Preferred Stock	32,000	0	0	0	0	0	0	32,000
Issuance of Series B Preferred Stock (in shares)	32,000	0
Dividends on Series B Preferred Stock	0	0	0	0	0	0	(560)	(560)
Dividends on common stock	0	0	0	0	0	0	(2,776)	(2,776)
Exercise of stock options	0	1	66	0	0	0	0	67
Exercise of stock options (in shares)	0	10,240
Tax benefit resulting from exercise of stock options, net adjustment	0	0	1	0	0	0	0	1
ESOP compensation expense	0	0	42	104	0	0	0	146
Stock option and restricted stock compensation expense	0	0	75	0	0	0	0	75
Change in accumulated other comprehensive income	0	0	0	0	3,570	0	0	3,570
Balance at Dec. 31, 2011	32,000	1,062	98,842	0	7,752	(3,286)	25,467	161,837
Balance (in shares) at Dec. 31, 2011	32,000	10,615,983
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net earnings							9,642	9,642
Issuance of common stock for acquisitions		76	11,454	0	0	0	0	11,530
Issuance of common stock for acquisitions (in shares)	0	756,511
Issuance of Series C preferred stock for acquisitions	9,997	0	0	0	0	0	0	9,997
Issuance of Series C preferred stock for acquisitions (in shares)	99,971	0
Dividends on Series B Preferred Stock	0	0	0	0	0	0	(1,547)	(1,547)
Dividends on common stock	0	0	0	0	0	0	(2,933)	(2,933)
Exercise of stock options	0	1	99	0	0	0	0	100
Exercise of stock options (in shares)	0	14,117
Tax benefit resulting from exercise of stock options, net adjustment	0	0	1	0	0	0	0	1
Stock option and restricted stock compensation expense	0	0	207	0	0	0	0	207
Change in accumulated other comprehensive income	0	0	0	0	407	0	0	407
Balance at Dec. 31, 2012	$ 41,997	$ 1,139	$ 110,603	$ 0	$ 8,159	$ (3,286)	$ 30,629	$ 189,241
Balance (in shares) at Dec. 31, 2012	131,971	11,386,611

XML

Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Assets
Cash and due from banks, reserves	$ 14,083	$ 7,990
Securities available-for-sale, at cost	412,065	355,496
Securities held-to-maturity, at fair value	$ 156,924	$ 101,131
Stockholders' equity:
Common stock, par value (in dollars per share)	$ 0.10	$ 0.10
Common stock, authorized (in shares)	30,000,000	30,000,000
Common stock, issued (in shares)	11,386,611	10,615,983
Common stock, outstanding (in shares)	11,236,134	10,465,506
Treasury stock (in shares)	150,477	150,477
Preferred Stock Series B [Member]
Stockholders' equity:
Preferred stock, par value (in dollars per share)	$ 0	$ 0
Preferred stock, authorized (in shares)	5,000,000	5,000,000
Preferred stock, issued (in shares)	32,000	32,000
Preferred stock, outstanding (in shares)	32,000	32,000
Preferred Stock Series C [Member]
Stockholders' equity:
Preferred stock, par value (in dollars per share)	$ 0	$ 0
Preferred stock, authorized (in shares)	100,000	100,000
Preferred stock, issued (in shares)	99,971	0
Preferred stock, outstanding (in shares)	99,971	0

XML

DEPOSITS

12 Months Ended

Dec. 31, 2012

DEPOSITS [Abstract]

DEPOSITS

8. DEPOSITS

Deposits consisted of the following (in thousands):

	December 31,
	2012		2011
Noninterest-bearing	$	380,557	$	254,755
Savings and money market		520,573		350,342
NOW accounts		338,296		235,168
Time deposits less than $100		133,304		140,428
Time deposits $100 or more		179,174		184,113
	$	1,551,904	$	1,164,806

Time deposits held consist primarily of certificates of deposits.  The maturities for these deposits at December 31, 2012 are as follows (in thousands):

2013	$	242,778
2014		43,222
2015		12,751
2016		7,682
2017 and thereafter		6,045
	$	312,478

Deposits from related parties totaled approximately $29.1 million and $15.7 million at December 31, 2012 and 2011, respectively.

XML

Document and Entity Information (USD $)	12 Months Ended
	Dec. 31, 2012	Mar. 18, 2013	Jun. 30, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	MIDSOUTH BANCORP INC
Entity Central Index Key	0000745981
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Public Float			$ 102,418,342
Entity Common Stock, Shares Outstanding		11,238,786
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	FY
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2012

XML

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

12 Months Ended

Dec. 31, 2012

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE [Abstract]

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

9. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

Securities sold under agreements to repurchase totaled $41.4 million and $46.1 million at December 31, 2012 and 2011, respectively.

At December 31, 2012 and 2011, retail repurchase agreements, defined as securities sold under agreements to repurchase from our customers, totaled $28.9 million and $33.6 million, respectively.  These retail repurchase agreements are secured short term borrowings from customers, which may be drawn on demand.  The agreements bear interest at a rate determined by us.  The average rate of the outstanding agreements at December 31, 2012 and 2011 was 0.44% and 0.46%.   The Company had pledged securities with an approximate market value of $52.7 million and $51.1 million as collateral at December 31, 2012 and 2011, respectively.

Also included in securities sold under agreements to repurchase is a $12.5 million repurchase agreement the Company entered into with CitiGroup Global Markets, Inc. ("CGMI") effective August 9, 2007.  Under the terms of the repurchase agreement, interest is payable quarterly based on a floating rate equal to the 3-month LIBOR for the first 12 months of the agreement and a fixed rate of 4.57% for the remainder of the term.  The rate at December 31, 2012 was 4.57%.  The repurchase date is scheduled for August 9, 2017; however, the agreement may be called by CGMI quarterly.  The Company had pledged securities with a market value $19.5 million and $17.2 million as collateral at December 31, 2012 and 2011, respectively.

In 2012, 2011, and 2010, the Company did not have an average balance in any category of short-term borrowings including retail repurchase agreements, reverse repurchase agreements, federal funds purchased, or FRB discount window that exceeded 30% of our stockholders' equity for such year.

XML

CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Assets
Cash and interest-bearing deposits in banks	$ 46,297,000	$ 26,775,000
Other assets	8,594,000	5,831,000
Total assets	1,851,728,000	1,396,756,000
Liabilities:
Notes payable	29,128,000	0
Junior subordinated debentures	29,384,000	15,465,000
Other	10,624,000	8,570,000
Total liabilities	1,662,487,000	1,234,919,000
Stockholders' equity:
Total shareholders' equity	189,241,000	161,837,000	136,653,000	129,277,000
Total liabilities and stockholders' equity	1,851,728,000	1,396,756,000
Expenses:
Interest on short- and long-term debt	756,000	807,000	953,000
Professional fees	2,022,000	2,518,000	1,787,000
Loss before equity in undistributed earnings of subsidiaries and income taxes	13,421,000	5,037,000	6,748,000
Income tax benefit	(3,779,000)	(564,000)	(968,000)
Net earnings	9,642,000	4,473,000	5,780,000
Cash flows from operating activities:
Net earnings	9,642,000	4,473,000	5,780,000
Adjustments to reconcile net earnings to net cash provided by operating activities:
Net cash provided by operating activities	17,947,000	13,204,000	17,263,000
Cash flows from investing activities:
Net cash (used in) provided by investing activities	(5,296,000)	(47,506,000)	27,428,000
Cash flows from financing activities:
Proceeds from issuance of common stock	0	0	4,768,000
Proceeds from issuance of Series B preferred stock	0	32,000,000	0
Proceeds from exercise of stock options	100,000	67,000	51,000
Payment of preferred dividends	(1,579,000)	(938,000)	(1,001,000)
Payment of common dividends	(2,932,000)	(2,725,000)	(2,507,000)
Net cash (used in) provided by financing activities	(22,381,000)	25,698,000	23,865,000
Net increase (decrease) in cash and cash equivalents	(9,730,000)	(8,604,000)	68,556,000
Cash and cash equivalents, beginning of year	83,303,000	91,907,000	23,351,000
Cash and cash equivalents, end of year	73,573,000	83,303,000	91,907,000
Parent Company [Member]
Assets
Cash and interest-bearing deposits in banks	4,982,000	27,894,000
Other assets	2,233,000	174,000
Investment in and advances to subsidiaries	217,049,000	151,166,000
Total assets	224,264,000	179,234,000
Liabilities:
Dividends payable	1,113,000	1,144,000
Notes payable	2,000,000	0
Junior subordinated debentures	29,384,000	15,465,000
Other	2,526,000	788,000
Total liabilities	35,023,000	17,397,000
Stockholders' equity:
Total shareholders' equity	189,241,000	161,837,000
Total liabilities and stockholders' equity	224,264,000	179,234,000
Revenue:
Dividends from Bank and nonbank subsidiaries	0	0	0
Rental and other income	102,000	908,000	1,032,000
Total revenue	102,000	908,000	1,032,000
Expenses:
Interest on short- and long-term debt	984,000	971,000	974,000
Professional fees	804,000	337,000	185,000
Other expenses	1,126,000	643,000	667,000
Total expenses	2,914,000	1,951,000	1,826,000
Loss before equity in undistributed earnings of subsidiaries and income taxes	(2,812,000)	(1,043,000)	(794,000)
Equity in undistributed earnings of subsidiaries	11,477,000	5,167,000	6,303,000
Income tax benefit	977,000	349,000	271,000
Net earnings	9,642,000	4,473,000	5,780,000
Cash flows from operating activities:
Net earnings	9,642,000	4,473,000	5,780,000
Adjustments to reconcile net earnings to net cash provided by operating activities:
Undistributed earnings of subsidiaries	(11,477,000)	(5,167,000)	(6,303,000)
Other, net	(2,307,000)	144,000	32,000
Net cash provided by operating activities	(4,142,000)	(550,000)	(491,000)
Cash flows from investing activities:
Sale of equity securities	0	0	75,000
Outlays for business acquisition, net of cash acquired	(14,360,000)	0	0
Investments in and advances to subsidiaries	0	(11,972,000)	0
Net cash (used in) provided by investing activities	(14,360,000)	(11,972,000)	75,000
Cash flows from financing activities:
Proceeds from issuance of common stock	0	0	4,768,000
Proceeds from issuance of Series B preferred stock	0	32,000,000	0
Payment to redeem Series A preferred stock	0	(20,000,000)	0
Proceeds from exercise of stock options	100,000	68,000	51,000
Payment of preferred dividends	(1,579,000)	(938,000)	(1,001,000)
Payment of common dividends	(2,932,000)	(2,724,000)	(2,507,000)
Other, net	1,000	0	0
Net cash (used in) provided by financing activities	(4,410,000)	8,406,000	1,311,000
Net increase (decrease) in cash and cash equivalents	(22,912,000)	(4,116,000)	895,000
Cash and cash equivalents, beginning of year	27,894,000	32,010,000	31,115,000
Cash and cash equivalents, end of year	$ 4,982,000	$ 27,894,000	$ 32,010,000

XML

Consolidated Statements of Earnings (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Interest income:
Loans, including fees	$ 49,776	$ 41,887	$ 40,029
Investment securities:
Taxable	8,083	5,362	3,699
Nontaxable	2,880	3,393	3,967
Other interest income	283	365	429
Total interest income	61,022	51,007	48,124
Interest expense:
Deposits	4,100	4,024	5,468
Borrowings	756	807	953
Junior subordinated debentures	984	971	974
Total interest expense	5,840	5,802	7,395
Net interest income	55,182	45,205	40,729
Provision for loan losses	2,050	3,925	5,020
Net interest income after provision for loan losses	53,132	41,280	35,709
Noninterest income:
Service charges on deposit accounts	7,430	6,921	9,673
Gain on securities, net	204	99	3
ATM and debit card income	4,605	3,802	3,360
Other charges and fees	2,705	2,239	1,821
Total noninterest income	14,944	13,061	14,857
Noninterest expenses:
Salaries and employee benefits	24,713	21,763	20,352
Occupancy expense	11,320	9,281	8,727
ATM and debit card expense	1,559	1,256	1,465
Other	17,063	17,004	13,274
Total noninterest expense	54,655	49,304	43,818
Income before income taxes	13,421	5,037	6,748
Income tax expense	3,779	564	968
Net earnings	9,642	4,473	5,780
Dividends on preferred stock and accretion of warrants	1,547	1,802	1,198
Net earnings available to common stockholders	$ 8,095	$ 2,671	$ 4,582
Earnings per common share:
Basic (in dollars per share)	$ 0.77	$ 0.27	$ 0.47
Diluted (in dollars per share)	$ 0.77	$ 0.27	$ 0.47

XML

INVESTMENT SECURITIES

12 Months Ended

Dec. 31, 2012

INVESTMENT SECURITIES [Abstract]

INVESTMENT SECURITIES

3. INVESTMENT SECURITIES

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

	December 31, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available-for-sale:
U.S. Government sponsored enterprises	$	13,422	$	2	$	-	$	13,424
Obligations of state and political subdivisions		83,093		4,328		-		87,421
GSE mortgage-backed securities		172,932		5,887		-		178,819
Collateralized mortgage obligations: residential		101,381		652		47		101,986
Collateralized mortgage obligations: commercial		28,528		1,233		-		29,761
Other asset-backed securities		12,245		497		-		12,742
Collateralized debt obligation		464		-		-		464
	$	412,065	$	12,599	$	47	$	424,617

	December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available-for-sale:
U.S. Government sponsored enterprises	$	94,339	$	662	$	2	$	94,999
Obligations of state and political subdivisions		90,284		5,865		-		96,149
GSE mortgage-backed securities		105,409		4,078		-		109,487
Collateralized mortgage obligations: residential		40,855		618		5		41,468
Collateralized mortgage obligations: commercial		24,609		529		-		25,138
	$	355,496	$	11,752	$	7	$	367,241

	December 31, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Held-to-maturity:
Obligations of state and political subdivisions	$	42,900	$	7	$	7	$	42,900
GSE mortgage-backed securities		89,383		2,819		-		92,202
Collateralized mortgage obligations: residential		5,009		-		-		5,009
Collateralized mortgage obligations: commercial		16,232		581		-		16,813
	$	153,524	$	3,407	$	7	$	156,924

	December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Held-to-maturity:
Obligations of state and political subdivisions	$	340	$	2	$	-	$	342
GSE mortgage-backed securities		82,497		550		-		83,047
Collateralized mortgage obligations: commercial		17,635		107		-		17,742
	$	100,472	$	659	$	-	$	101,131

With the exception of 3 private-label collateralized mortgage obligations ("CMOs") with a combined balance remaining of $96,000 and $137,000 at December 31, 2012 and 2011, respectively, all of the Company's CMOs are government-sponsored enterprise securities.

The amortized cost and fair value of debt securities at December 31, 2012 by contractual maturity are shown below (in thousands).  Except for mortgage backed securities, collateralized mortgage obligations, other assets backed securities, and collateralized debt obligations, expected maturities may differ from contractual maturities 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	$	12,731	$	12,879
Due after one year through five years		48,421		50,365
Due after five years through ten years		24,665		26,790
Due after ten years		10,698		10,811
Mortgage-backed securities and collateralized mortgage obligations:
Residential		274,313		280,805
Commercial		28,528		29,761
Other asset-backed securities		12,245		12,742
Collateralized debt obligation		464		464
	$	412,065	$	424,617

	Amortized Cost		Fair Value
Held-to-maturity:
Due in one year or less	$	296	$	296
Due after one year through five years		1,068		1,068
Due after five years through ten years		6,029		6,029
Due after ten years		35,507		35,507
Mortgage-backed securities and collateralized mortgage obligations:
Residential		94,392		97,211
Commercial		16,232		16,813
	$	153,524	$	156,924

Details concerning investment securities with unrealized losses as of December 31, 2012 are as follows (in thousands):

	Securities with losses under 12 months				Securities with losses over 12 months				Total
Available-for-sale:	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Collateralized mortgage obligations: residential	$	10,085	$	45	$	96	$	2	$	10,181	$	47

	Securities with losses under 12 months				Securities with losses over 12 months				Total
Held-to-maturity:	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Obligations of state and political subdivisions	$	1,128	$	7	$	-	$	-	$	1,128	$	7

Details concerning investment securities with unrealized losses as of December 31, 2011 are as follows (in thousands):

	Securities with losses under 12 months				Securities with losses over 12 months				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Available-for-sale:
U.S. Government sponsored enterprises	$	6,204	$	2	$	-	$	-	$	6,204	$	2
Collateralized mortgage obligations: residential		1,849		1		136		4		1,985		5
	$	8,053	$	3	$	136	$	4	$	8,189	$	7

Management evaluates whether unrealized losses on securities represent impairment that is other than temporary on a quarterly basis. For debt securities, the Company considers its intent to sell 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.

The unrealized losses on debt securities at December 31, 2012 and 2011 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 December 31, 2012 and 2011, management had both the intent and ability to hold impaired securities, and no impairment was evaluated as other than temporary. As a result, no impairment losses were recognized on debt securities during the years ended December 31, 2012, 2011, or 2010.

During the year ended December 31, 2012, the Company sold six securities classified as available-for-sale at a net gain of $204,000.  Of the six securities sold, five securities were sold with gains totaling $235,000 and one security was sold at a loss of $31,000.  During the year ended December 31, 2011, the Company sold five securities classified as available-for-sale and one security classified as held-to-maturity.  Of the available-for-sale securities, four securities were sold with gains totaling $94,000 and one security was sold at a loss of $4,000 for a net gain of $90,000.  The decision to sell the one held to maturity security, which was sold at a gain of $9,000, was based on the inability to obtain current financial information on the municipality.  The sale was consistent with action taken on other securities with a similar deficiency, as identified in an external review performed on the municipal securities portfolio.

Of the collateralized mortgage obligations held by the Company at December 31, 2012, 4 out of 56 securities contained unrealized losses.  Of the securities issued by state and political subdivisions held by the Company at December 31, 2012, 4 out of 189 securities contained unrealized losses.

Of the securities issued by U.S. Government sponsored enterprises and SBA held by the Company at December 31, 2011, 5 out of 25 securities contained unrealized losses.  Of the collateralized mortgage obligations, 3 out of 29 contained unrealized losses.

Securities with an aggregate carrying value of approximately $226.2 million and $154.1 million at December 31, 2012 and 2011, respectively, were pledged to secure public funds on deposit and for other purposes required or permitted by law.

XML

ACQUISITION ACTIVITY

12 Months Ended

Dec. 31, 2012

ACQUISITION ACTIVITY [Abstract]

ACQUISITION ACTIVITY

2.  ACQUISITION ACTIVITY

Acquisition of PSB Financial Corporation

On December 28, 2012, the Company acquired all of the outstanding common stock of PSB Financial Corporation ("PSB"), the holding company of Many, Louisiana based The Peoples State Bank, for total consideration of $39.5 million, which resulted in preliminary goodwill of $18.0 million, as shown in the following table (dollars in thousands):

	Number of Shares		Amount
Equity consideration:
Common stock issued		756,511	$	11,530
Preferred stock issued		99,971		9,997
Non-equity consideration:
Cash				16,003
Contingent value right				2,000
Total consideration paid				39,530
Fair value of net assets acquired including identifiable intangible assets				(21,572	)
Goodwill			$	17,958

The fair value of the 756,511 shares of common stock issued as part of the equity consideration paid for PSB ($11.5 million) was determined on the basis of the average of the closing market prices for the twenty days prior to the signing of the Agreement and Plan of Merger.

The transaction was accounted for using the acquisition method of accounting, and accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at their estimated fair values on the acquisition dates. Fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition as additional information relative to fair values become available.  Assets acquired, excluding goodwill, totaled $465.0 million, including $260.1 million in loans, $17.8 million in cash, $152.7 million of investment securities, $12.4 million of fixed assets and $2.7 million of identifiable intangible assets.  Liabilities assumed were $443.5 million, including $400.6 million of deposits.

Preliminary goodwill of $18.0 million is calculated as the purchase premium after adjusting for the fair value of net assets acquired and represents the value expected from the synergies created from combining the businesses as well as the economies of scale expected from combining the operations of the acquired banks with those of the Company.  None of the goodwill recognized is expected to be deductible for income tax purposes.

The following table provides the assets purchased and the liabilities assumed and the adjustments to fair value (in thousands):

	As Recorded		Fair Value			Fair
Assets	By PSB		Adjustments			Value
Cash	$	17,847	$	-		$	17,847
Federal funds sold		5,200		-			5,200
Time deposits held in banks		172		-			172
Investment securities		152,667		-			152,667
Loans receivable		269,053		(9,000	)		260,053
Fixed assets		11,845		578			12,423
Core deposit intangible		-		2,662			2,662
Cash surrender value of life insurance		8,234		-			8,234
Other real estate owned		838		-			838
Other assets		4,635		314			4,949
Total assets acquired	$	470,490	$	(5,446	)	$	465,045
Liabilities
Deposits	$	399,845	$	722		$	400,567
FHLB advances		25,296		1,832			27,128
Notes payable		2,000		-			2,000
Junior subordinated debentures		13,919		-			13,919
Other liabilities		2,606		(2,747	)		(141	)
Total liabilities assumed	$	443,666	$	(193	)		443,473
Fair value of net assets acquired including identifiable intangible assets						$	21,572

The discounts on loans receivable will be accreted to interest income over the estimated average life of the loans using the level yield method. The core deposit intangible asset is being amortized over a seven-year life on an accelerated basis. The deposit premiums will be amortized over the average life of the related deposits as a reduction of interest expense.  The premiums on FHLB advances will be amortized over the life of the related advances as a reduction of interest expense.

There were no material operating results of PSB between December 28, 2012 and December 31, 2012.  Therefore, the operating results of the Company for the year ended December 31, 2012 includes no operating results for PSB.

The following unaudited pro forma information presents the results of operations for the years ended December 31, 2012 and 2011, as if the acquisition had occurred at January 1, 2011 (in thousands).  These adjustments include the impact of certain purchase accounting adjustments such as intangible assets amortization and the impact of the increase in the bond amortization as a result of the acquisition.  In addition, the $1.2 million in merger expenses related to the acquisition are included for the year ended December 31, 2012.

	December 31,
	2012		2011
Total revenues, net of interest expense	$	89,845	$	80,573
Net income		14,694		10,361
Earnings per share – basic		1.12		0.76
Earnings per share - diluted		1.09		0.75

In many cases, determining the fair value of the acquired assets and assumed liabilities requires the Company to estimate cash flows expected to result from those assets and liabilities and to discount those cash flows at appropriate rates of interest. The most significant of those determinations related to the fair valuation of acquired loans. Acquired loans are initially recorded at their acquisition date fair values.  The carryover of the allowance for loan losses is prohibited as any credit losses in the loans are included in the determination of the fair value of the loans at acquisition date.  Fair values for acquired loans are based on a discounted cash flow methodology that involves assumptions including the remaining life of the acquired loans, estimated prepayments, estimated value of the underlying collateral and net present value of cash flows expected to be collected.  Acquired loans that have evidence of deterioration in credit quality since origination and for which it is probable, at acquisition, that the acquirer will be unable to collect all contractually required payments are specifically identified and analyzed.  The excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable discount and is recognized into interest income over the remaining life of the loan.  The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the non-accretable discount.  The non-accretable discount represents estimated future credit losses expected to be incurred over the life of the loan.

Loans at the acquisition date are presented in the following table (in thousands):

	Acquired Impaired Loans		Acquired Performing Loans		Total Acquired Loans
Commercial, financial and agricultural	$	82	$	59,011	$	59,093
Real estate – construction		-		16,431		16,431
Real estate – commercial		4,205		127,866		132,071
Real estate – residential		455		34,232		34,687
Installment loans to individuals		-		17,652		17,652
Other		-		119		119
Total	$	4,742	$	255,311	$	260,053

The following table presents information about the acquired impaired loans at acquisition (in thousands):

Contractually required principal and interest payments	$	7,449
Non-accretable discount		2,084
Cash flows expected to be collected		5,365
Accretable discount		623
Fair value of loans acquired with a deterioration of credit quality	$	4,742

In connection with the PSB acquisition, the Company recorded a liability for contingent payment of $2.0 million to stockholders of PSB based on the complete payoff before December 28, 2015 less charge-offs of up to $3.0 million of certain Identified Loans in The Peoples State Bank legacy loan portfolio. Generally, no contingent payment will be made if the net charge-offs on the Identified Loans exceeds $3.0 million.

Acquisitions of certain locations of Jefferson Bank, First Louisiana National Bank and the Tyler, Texas branch of Beacon Federal

On July 29, 2011, the Bank purchased all five former Jefferson Bank locations in the Dallas-Fort Worth, Texas area. The Bank acquired the branch network from First Bank and Trust Company, which purchased Jefferson Bank's assets in connection with the bankruptcy of Jefferson Bank's parent company. The Bank acquired at fair value approximately $57.7 million in performing loans and assumed approximately $165.8 million in Jefferson Bank deposits for a purchase price of approximately $10.4 million.

On December 1, 2011, the Bank purchased substantially all of the assets of First Louisiana National Bank ("FLNB"), a wholly owned subsidiary of First Bankshares of St. Martin, Ltd, for total consideration of $20.3 million, which resulted in preliminary goodwill of $4.1 million, as shown in the following table (in thousands):

	Number of Shares		Amount
Equity consideration:
Common stock issued		725,000	$	8,838
Non-equity consideration:
Cash				11,500
Total consideration paid				20,338
Fair value of net assets acquired including identifiable intangible assets				(16,230	)
Goodwill			$	4,108

On December 2, 2011, the Bank purchased the Tyler, Texas branch of Beacon Federal, a wholly owned federal savings bank of Beacon Federal Bancorp, Inc. The Bank acquired at fair value approximately $22.2 million in performing loans and assumed approximately $79.8 million in Beacon Federal deposits.

The three transactions were accounted for using the acquisition method of accounting, and accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at their estimated fair values on the acquisition dates. Fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition as additional information relative to fair values become available. Assets acquired totaled $370.4 million, including $127.8 million in loans, $177.2 million in cash, $32.8 million of investment securities, $7.8 million of fixed assets and $23.0 million of intangibles. Liabilities assumed were $350.0 million, including $349.6 million of deposits.

Preliminary goodwill of $15.7 million is calculated as the purchase premium after adjusting for the fair value of net assets acquired and represents the value expected from the synergies created from combining the businesses as well as the economies of scale expected from combining the operations of the acquired banks with those of the Bank.

The following table provides the assets purchased and the liabilities assumed and the adjustments to fair value for the Jefferson Bank acquisition (in thousands):

	As Recorded		Fair Value			Fair
Assets	By Jefferson		Adjustments			Value
Cash	$	93,800	$	-		$	93,800
Investment securities		175		-			175
Loans receivable		59,818		(2,124	)		57,694
Fixed assets		2,240		1,392			3,632
Core deposit intangible		-		2,702			2,702
Other assets		327		-			327
Total assets acquired	$	156,360	$	1,970		$	158,330
Liabilities
Deposits	$	164,368	$	1,405		$	165,773
Other liabilities		283		-			283
Total liabilities assumed		164,651		1,405			166,056
Excess of liabilities assumed over assets acquired	$	8,291
Aggregate fair value adjustments			$	565
Goodwill						$	7,726

The following table provides the assets purchased and the liabilities assumed and the adjustments to fair value for the FLNB acquisition (in thousands):

	As Recorded		Fair Value			Fair
Assets	By FLNB		Adjustments			Value
Cash	$	31,208	$	-		$	31,208
Time deposits held in banks		710		-			710
Investment securities		32,625		(1	)		32,624
Other investments		140		-			140
Loans receivable		48,645		(693	)		47,952
Fixed assets		2,234		1,445			3,679
Core deposit intangible		-		3,434			3,434
Other assets		641		-			641
Total assets acquired	$	116,203	$	4,185		$	120,388
Liabilities
Deposits	$	103,857	$	134		$	103,991
Other liabilities		167		-			167
Total liabilities assumed	$	104,024	$	134			104,158
Fair value of net assets acquired including identifiable intangible assets						$	16,230

The following table provides the assets purchased and the liabilities assumed and the adjustments to fair value for the Beacon Federal acquisition (in thousands):

	As Recorded		Fair Value			Fair
Assets	By Beacon		Adjustments			Value
Cash	$	52,170	$	-		$	52,170
Loans receivable		23,760		(1,600	)		22,160
Fixed assets		288		153			441
Core deposit intangible		-		1,126			1,126
Other assets		51		-			51
Total assets acquired	$	76,269	$	(321	)	$	75,948
Liabilities
Deposits	$	76,466	$	3,331		$	79,797
Other liabilities		5		-			5
Total liabilities assumed		76,471		3,331			79,802
Excess of liabilities assumed over assets acquired	$	202
Aggregate fair value adjustments			$	(3,652	)
Goodwill						$	3,854

The discounts on loans receivable will be accreted to interest income over the estimated average life of the loans using the level yield method. The core deposit intangible assets are being amortized over a 10 year life on an accelerated basis. The deposit premiums will be amortized over the average life of the related deposits as a reduction of interest expense.

Management determined that the loans acquired in 2011 were performing and that there was no evidence of credit quality deterioration. Therefore, these loans are accounted for under ASC 310-20, and, accordingly, contractual cash flows equal the expected cash flows. The loans are categorized into different loan pools per loan types. The Company determined expected cash flows on the acquired loans based on the best available information at the date of acquisition. In accordance with GAAP, there was no carry-over of each acquired bank's previously established allowance for loan losses.

XML

EMPLOYEE BENEFITS

12 Months Ended

Dec. 31, 2012

EMPLOYEE BENEFITS [Abstract]

EMPLOYEE BENEFITS

14.  EMPLOYEE BENEFITS

The Company sponsors a leveraged employee stock ownership plan ("ESOP") that covers all employees who meet minimum age and service requirements. The Company makes annual contributions to the ESOP in amounts as determined by the Board of Directors. These contributions are used to pay debt service and purchase additional shares. In past years, certain ESOP shares were pledged as collateral for  debt. As the debt was  repaid, shares were  released from collateral and allocated to active employees, based on the proportion of debt service paid in the year.    The most recent borrowing transaction occurred on  February 5, 2009, when the ESOP borrowed  $300,000 payable to MidSouth Bank, N.A.    A total of 25,000 shares at $9.89 per share and 5,828 shares at $9.05 per share were purchased with the loan proceeds on February 6, 2009 and February 19, 2009, respectively.  The balance of the note was paid in full on November 10, 2011.  Because the source of the loan payments are contributions received by the ESOP from the Company, the related notes receivable is shown as a reduction of stockholders' equity.  In accordance with GAAP, compensation costs relating to shares purchased are based on the fair value of shares committed to be released.  The unreleased shares are not considered outstanding in the computation of earnings per common share.  Dividends received on ESOP shares are allocated based on shares held for the benefit of each participant and used to purchase additional shares of stock for each participant.  ESOP compensation expense consisting of cash contributions for 2012 was approximately $428,000.  ESOP compensation expense consisting of both cash contributions and shares committed to be released for 2011, and 2010 was approximately $469,000, and $481,000, respectively.  The cost basis of the shares released for 2011 and 2010 was $9.73 per share.  ESOP shares as of December 31, 2012 and 2011 were as follows:

	2012		2011
Allocated shares		573,476		546,722
Shares released for allocation		-		10,757
Total ESOP shares		573,476		557,479

The Company has deferred compensation arrangements with certain officers, which will provide them with a fixed benefit after retirement. The Company recorded a liability of approximately $1.2 million at December 31, 2012 and $1.1 million at December 31, 2011 in connection with these agreements.  Deferred compensation expense recognized in 2012, 2011, and 2010 was approximately $68,000, $232,000, and $125,000, respectively.

The Company sponsors defined contribution post-retirement benefit agreements to provide death benefits for the designated beneficiaries of certain of the Company's executive officers.  Under the agreements, split-dollar whole life insurance contracts were purchased on certain executive officers. The increase in the cash surrender value of the contracts, less the Bank's cost of funds, constitutes the Company's contribution to the agreements each year.  In the event the insurance contracts fail to produce positive returns, the Company has no obligation to contribute to the agreements.  During 2012, 2011, and 2010, the Company incurred expenses of $39,000, $9,000 and $30,000, respectively, related to the agreements.

The Company has a 401(k) retirement plan covering substantially all employees who have been employed for 90 days and meet certain other requirements.  Under this plan, employees can contribute a portion of their salary within the limits provided by the Internal Revenue Code into the plan.  The Company made contributions to the plan totaling $33,000 and $31,000 in 2012 and 2011, respectively.  The Company made no contributions to the plan in 2010.

XML

NOTES PAYABLE

12 Months Ended

Dec. 31, 2012

NOTES PAYABLE [Abstract]

NOTES PAYABLE

10. NOTES PAYABLE

The Company acquired at fair value approximately $29.1 million of borrowed funds from PSB, which included $27.1 million in FHLB advances and $2.0 million of notes payable with First National Bankers Bank.  

FHLB advances at December 31, 2012 are summarized as follows (in thousands):

	Amount		Weighted Average Rate
FHLB advances maturing in:
2013	$	59		5.057	%
2014		65		5.057	%
2015		71		5.057	%
2016		77		5.057	%
2017		16,738		3.412	%
2019		10,118		1.985	%
Total FHLB advances	$	27,128

The FHLB advances are collateralized by a blanket lien on first mortgages and other qualifying loans totaling $231.4 million.

The notes payable with First National Bankers Bank requires annual payments of $250,000 and bear an interest rate equal to New York Prime.

The scheduled maturities of notes payable as of December 31, 2012 is as follows (in thousands):

2013	$	309
2014		315
2015		321
2016		327
2017		16,988
Thereafter		10,868
	$	29,128

XML

PREMISES AND EQUIPMENT

12 Months Ended

Dec. 31, 2012

PREMISES AND EQUIPMENT [Abstract]

PREMISES AND EQUIPMENT

6. PREMISES AND EQUIPMENT

Premises and equipment consisted of the following (in thousands):

	December 31,
	2012			2011
Land	$	14,949		$	9,521
Buildings and improvements		40,505			29,296
Furniture, fixtures, and equipment		23,775			19,647
Automobiles		812			495
Leasehold improvements		10,047			10,006
Construction-in-process		1,562			706
		91,650			69,671
Less accumulated depreciation and amortization		(28,189	)		(25,073	)
	$	63,461		$	44,598

Depreciation expense totaled approximately $3.8 million, $3.3 million, and $3.3 million for the years ended December 31, 2012, 2011, and 2010, respectively.

XML

LOANS, Allowance for Loan Losses by Segment (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Allowance for loan losses by portfolio [Roll Forward]
Beginning balance	$ 7,276	$ 8,813	$ 7,995
Charge-offs	(2,256)	(5,772)	(4,456)
Recoveries	300	310	254
Provision	2,050	3,925	5,020
Ending balance	7,370	7,276	8,813
Ending balance: individually evaluated for impairment	627	682
Loans [Abstract]
Ending balance	1,046,940	746,305
Ending balance: individually evaluated for impairment	7,440	6,942
Commercial, Financial and Agricultural [Member]
Allowance for loan losses by portfolio [Roll Forward]
Beginning balance	1,734	1,664
Charge-offs	(1,054)	(1,109)
Recoveries	181	152
Provision	674	1,027
Ending balance	1,535	1,734
Ending balance: individually evaluated for impairment	391	240
Loans [Abstract]
Ending balance	315,655	223,283
Ending balance: individually evaluated for impairment	1,636	2,341
Real Estate - Construction [Member]
Allowance for loan losses by portfolio [Roll Forward]
Beginning balance	1,661	2,963
Charge-offs	0	(2,444)
Recoveries	18	14
Provision	468	1,128
Ending balance	2,147	1,661
Ending balance: individually evaluated for impairment	57	2
Loans [Abstract]
Ending balance	75,334	52,712
Ending balance: individually evaluated for impairment	936	901
Real Estate - Commercial [Member]
Allowance for loan losses by portfolio [Roll Forward]
Beginning balance	2,215	2,565
Charge-offs	(550)	(1,246)
Recoveries	1	1
Provision	500	895
Ending balance	2,166	2,215
Ending balance: individually evaluated for impairment	35	321
Loans [Abstract]
Ending balance	414,384	280,798
Ending balance: individually evaluated for impairment	2,911	2,271
Real Estate - Residential [Member]
Allowance for loan losses by portfolio [Roll Forward]
Beginning balance	936	862
Charge-offs	(126)	(283)
Recoveries	2	4
Provision	124	353
Ending balance	936	936
Ending balance: individually evaluated for impairment	30	21
Loans [Abstract]
Ending balance	142,858	113,582
Ending balance: individually evaluated for impairment	1,627	1,142
Consumer [Member]
Allowance for loan losses by portfolio [Roll Forward]
Beginning balance	710	730
Charge-offs	(526)	(671)
Recoveries	98	138
Provision	261	513
Ending balance	543	710
Ending balance: individually evaluated for impairment	114	98
Loans [Abstract]
Ending balance	90,561	69,980
Ending balance: individually evaluated for impairment	330	287
Finance Leases Commercial [Member]
Allowance for loan losses by portfolio [Roll Forward]
Beginning balance	19	29
Charge-offs	0	(19)
Recoveries	0	1
Provision	22	8
Ending balance	41	19
Ending balance: individually evaluated for impairment	0	0
Loans [Abstract]
Ending balance	5,769	4,276
Ending balance: individually evaluated for impairment	0	0
Other [Member]
Allowance for loan losses by portfolio [Roll Forward]
Beginning balance	1	0
Charge-offs	0	0
Recoveries	0	0
Provision	1	1
Ending balance	2	1
Ending balance: individually evaluated for impairment	0	0
Loans [Abstract]
Ending balance	2,379	1,674
Ending balance: individually evaluated for impairment	$ 0	$ 0

XML

OTHER INVESTMENTS

12 Months Ended

Dec. 31, 2012

OTHER INVESTMENTS [Abstract]

OTHER INVESTMENTS

4. OTHER INVESTMENTS

The Company is required to own stock in the Federal Reserve Bank of Atlanta ("FRB-Atlanta") and, as a member of the Federal Home Loan Bank system, own stock in the Federal Home Loan Bank of Dallas ("FHLB-Dallas").  The Company accounts for FRB-Atlanta and FHLB-Dallas stock as other investments along with stock ownership in two correspondent banks and a Community Reinvestment Act ("CRA") investment in a Senior Housing Crime Prevention program in Louisiana. The CRA investment consisted of three government-sponsored agency mortgage-backed securities purchased by the Company and held by the Senior Housing Crime Prevention program.  The majority of the interest earned on the security provides income to the program.

For impairment analysis, the Company reviews financial statements and regulatory capital ratios for each of the banks in which the Company owns stock to verify financial stability and regulatory compliance with capital requirements.  As of December 31, 2012 and 2011, based upon quarterly reviews, we determined that there was no impairment in the bank stocks held as other investments.

The aggregate carrying amount of other investments consisted of the following (in thousands):

	December 31, 2012		December 31, 2011
FRB-Atlanta	$	2,258	$	2,071
FHLB-Dallas		1,862		586
Other bank stocks		2,063		853
Other stocks		7		-
CRA investment		2,120		2,127
	$	8,310	$	5,637

XML

LOANS

12 Months Ended

Dec. 31, 2012

LOANS [Abstract]

LOANS

5. LOANS

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

	December 31,
	2012			2011
Commercial, financial and agricultural	$	315,655		$	223,283
Lease financing receivable		5,769			4,276
Real estate – construction		75,334			52,712
Real estate – commercial		414,384			280,798
Real estate – residential		142,858			113,582
Installment loans to individuals		90,561			69,980
Other		2,379			1,674
		1,046,940			746,305
Less allowance for loan losses		(7,370	)		(7,276	)
	$	1,039,570		$	739,029

The amounts reported in other loans at December 31, 2012 and 2011 includes the DDA overdraft deposits and loans primarily made to non-profit entities reported for each period.

An analysis of the activity in the allowance for loan losses is as follows (in thousands):

	December 31,
	2012			2011			2010
Balance, beginning of year	$	7,276		$	8,813		$	7,995
Provision for loan losses		2,050			3,925			5,020
Recoveries		300			310			254
Loans charged-off		(2,256	)		(5,772	)		(4,456	)
Balance, end of year	$	7,370		$	7,276		$	8,813

During the years ended December 31, 2012, 2011, and 2010, there were approximately $879,000, $7.3 million, and $1.2 million, respectively, of transfers from loans to ORE.  Included in the $7.3 million added to ORE in 2011 is one credit totaling $4.9 million secured by a condominium complex.  The credit is currently producing positive cash flow from net rental income on a monthly basis.

In the opinion of management, all transactions entered into between the Company and such related parties have been and are made in the ordinary course of business, on substantially the same terms and conditions, including interest rates and collateral, as similar transactions with unaffiliated persons and do not involve more than the normal risk of collection.

An analysis of the 2012 activity with respect to these related party loans and commitments to extend credit is as follows (in thousands):

Balance, beginning of year	$	1,980
New loans		21
Change in related parties due to acquisition		4,941
Repayments and adjustments		(21	)
Balance, end of year	$	6,921

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 December 31, 2012, one industry segment concentration, the oil and gas industry, aggregate 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 $146.2 million, or 14.0% of total loans.  Additionally, the Company's exposure to loans secured by commercial real estate is monitored.  At December 31, 2012, loans secured by commercial real estate (including commercial construction and multifamily loans) totaled approximately $472.4 million.  Of the $472.4 million, $359.2 million represent CRE loans, 57% of which are secured by owner-occupied commercial properties.  Of the $359.2 million in loans secured by commercial real estate, $4.0 million or 1.1% were on nonaccrual status at December 31, 2012.

Allowance for Loan Losses and Recorded Investment in Loans by Portfolio Segment

For the Year Ended December 31, 2012  (in thousands)

				Real Estate
	Coml, Fin, and Agric			Construction		Commercial			Residential			Consumer			Finance Leases Coml		Other		Total
Allowance for loan losses:
Beginning balance	$	1,734		$	1,661	$	2,215		$	936		$	710		$	19	$	1	$	7,276
Charge-offs		(1,054	)		-		(550	)		(126	)		(526	)		-		-		(2,256	)
Recoveries		181			18		1			2			98			-		-		300
Provision		674			468		500			124			261			22		1		2,050
Ending balance	$	1,535		$	2,147	$	2,166		$	936		$	543		$	41	$	2	$	7,370
Ending balance: individually evaluated for impairment	$	391		$	57	$	35		$	30		$	114		$	-	$	-	$	627
Loans:
Ending balance	$	315,655		$	75,334	$	414,384		$	142,858		$	90,561		$	5,769	$	2,379	$	1,046,940
Ending balance: individually evaluated for impairment	$	1,636		$	936	$	2,911		$	1,627		$	330		$	-	$	-	$	7,440

Allowance for Loan Losses and Recorded Investment in Loans by Portfolio Segment

For the Year Ended December 31, 2011  (in thousands)

	Coml, Fin,			Real Estate												Finance Leases
	and Agric			Construction			Commercial			Residential			Consumer			Coml			Other		Total
Allowance for loan losses:
Beginning balance	$	1,664		$	2,963		$	2,565		$	862		$	730		$	29		$	-	$	8,813
Charge-offs		(1,109	)		(2,444	)		(1,246	)		(283	)		(671	)		(19	)		-		(5,772	)
Recoveries		152			14			1			4			138			1			-		310
Provision		1,027			1,128			895			353			513			8			1		3,925
Ending balance	$	1,734		$	1,661		$	2,215		$	936		$	710		$	19		$	1	$	7,276
Ending balance: individually evaluated for impairment	$	240		$	2		$	321		$	21		$	98		$	-		$	-	$	682
Loans:
Ending balance	$	223,283		$	52,712		$	280,798		$	113,582		$	69,980		$	4,276		$	1,674	$	746,305
Ending balance: individually evaluated for impairment	$	2,341		$	901		$	2,271		$	1,142		$	287		$	-		$	-	$	6,942

Credit Quality Indicators by Class of Loans

As of December 31, 2012  (in thousands)

Commercial Credit Exposure

Credit Risk Profile by Creditworthiness Category

	Commercial, Financial, and Agricultural		Commercial Real Estate Construction		Commercial Real Estate – Other		Percentage of Total
Pass	$	304,219	$	54,737	$	396,078		95.76	%
Special mention		5,748		684		6,224		1.61	%
Substandard		4,503		2,925		7,514		1.90	%
Doubtful		1,185		4		4,569		0.73	%
	$	315,655	$	58,350	$	414,384		100.00	%

Consumer Credit Exposure

Credit Risk Profile by Creditworthiness Category

	Residential – Construction		Residential – Prime		Residential – Subprime		Percentage of Total
Pass	$	16,785	$	137,681	$	-		96.64	%
Special mention		-		1,612		-		1.01	%
Substandard		199		3,565		-		2.35	%
	$	16,984	$	142,858	$	-		100.00	%

Consumer and Commercial Credit Exposure

Credit Risk Profile Based on Payment Activity

	Consumer - Credit Card		Consumer – Other		Finance Leases Commercial		Other Loans		Percentage of Total
Performing	$	6,792	$	83,347	$	5,769	$	2,379		99.57	%
Nonperforming		15		407		-		-		0.43	%
	$	6,807	$	83,754	$	5,769	$	2,379		100.00	%

Credit Quality Indicators by Class of Loans

As of December 31, 2011  (in thousands)

Commercial Credit Exposure

Credit Risk Profile by Creditworthiness Category

	Commercial, Financial, and Agricultural		Commercial Real Estate Construction		Commercial Real Estate – Other		Percentage of Total
Pass	$	216,465	$	36,631	$	264,542		94.88	%
Special mention		1,705		1,104		10,755		2.49	%
Substandard		4,809		3,728		5,501		2.57	%
Doubtful		304		-		-		0.06	%
	$	223,283	$	41,463	$	280,798		100.00	%

Consumer Credit Exposure

Credit Risk Profile by Creditworthiness Category

	Residential – Construction		Residential – Prime		Residential – Subprime		Percentage of Total
Pass	$	9,041	$	104,965	$	-		91.33	%
Special mention		1,077		5,152		-		4.99	%
Substandard		1,131		3,465		-		3.68	%
	$	11,249	$	113,582	$	-		100.00	%

Consumer and Commercial Credit Exposure

Credit Risk Profile Based on Payment Activity

	Consumer - Credit Card		Consumer – Other		Finance Leases Commercial		Other Loans		Percentage of Total
Performing	$	5,182	$	64,497	$	4,276	$	1,674		99.60	%
Nonperforming		18		283		-		-		0.40	%
	$	5,200	$	64,780	$	4,276	$	1,674		100.00	%

Age Analysis of Past Due Loans by Class of Loans

(in thousands)

	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
As of December 31, 2012
Commercial, financial, and agricultural	$	2,220	$	321	$	2,580	$	5,121	$	310,534	$	315,655	$	1,019
Commercial real estate - construction		66		96		101		263		58,087		58,350		-
Commercial real estate - other		4,131		2,108		3,577		9,816		404,568		414,384		952
Consumer - credit card		24		2		15		41		6,766		6,807		15
Consumer - other		421		134		186		741		83,013		83,754		-
Residential - construction		-		-		-		-		16,984		16,984		-
Residential - prime		1,140		317		1,408		2,865		139,993		142,858		-
Residential - subprime		-		-		-		-		-		-		-
Other loans		87		-		-		87		2,292		2,379		-
Finance leases commercial		-		-		-		-		5,769		5,769		-
	$	8,089	$	2,978	$	7,867	$	18,934	$	1,028,006	$	1,046,940	$	1,986

	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
As of December 31, 2011
Commercial, financial, and agricultural	$	622	$	242	$	1,856	$	2,720	$	220,563	$	223,283	$	64
Commercial real estate - construction		673		166		358		1,197		40,266		41,463		-
Commercial real estate - other		3,185		-		1,878		5,063		275,735		280,798		-
Consumer - credit card		79		-		19		98		5,102		5,200		19
Consumer - other		410		193		269		872		63,908		64,780		8
Residential - construction		-		-		-		-		11,249		11,249		-
Residential - prime		2,457		469		685		3,611		109,971		113,582		140
Residential - subprime		-		-		-		-		-		-		-
Other loans		118		-		-		118		1,556		1,674		-
Finance leases commercial		-		-		-		-		4,276		4,276		-
	$	7,544	$	1,070	$	5,065	$	13,679	$	732,626	$	746,305	$	231

Impaired Loans by Class of Loans

(in thousands)

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
As of December 31, 2012
With no related allowance recorded:
Commercial, financial, and agricultural	$	564	$	675	$	-	$	861	$	5
Commercial real estate – construction		771		770		-		834		1
Commercial real estate – other		2,530		3,059		-		1,780		38
Consumer – other		114		122		-		81		1
Residential – prime		1,575		1,575		-		1,213		26
Subtotal:		5,554		6,201		-		4,769		71
With an allowance recorded:
Commercial, financial, and agricultural		1,072		1,072		391		1,128		21
Commercial real estate – construction		165		165		57		85		7
Commercial real estate – other		381		381		35		811		3
Consumer – other		216		216		114		228		6
Residential – prime		52		52		30		172		4
Subtotal:		1,886		1,886		627		2,424		41
Totals:
Commercial		5,483		6,122		483		5,499		75
Consumer		330		338		114		309		7
Residential		1,627		1,627		30		1,385		30
Grand total:	$	7,440	$	8,087	$	627	$	7,193	$	112

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
As of December 31, 2011
With no related allowance recorded:
Commercial, financial, and agricultural	$	1,157	$	1,248	$	-	$	2,311	$	2
Commercial real estate – construction		897		963		-		4,511		9
Commercial real estate – other		1,029		1,029		-		2,958		31
Consumer – other		48		59		-		65		3
Residential – prime		851		851		-		1,334		28
Finance leases commercial		-		-		-		4		-
Other loans		-		-		-		3		-
Subtotal:		3,982		4,150		-		11,186		73
With an allowance recorded:
Commercial, financial, and agricultural		1,184		1,184		240		1,140		58
Commercial real estate – construction		4		4		2		1,580		-
Commercial real estate – other		1,242		1,242		321		1,639		98
Consumer – other		239		242		98		202		10
Residential – prime		291		291		21		255		1
Subtotal:		2,960		2,963		682		4,816		167
Totals:
Commercial		5,513		5,670		563		14,143		198
Consumer		287		301		98		267		13
Residential		1,142		1,142		21		1,589		29
Other		-		-		-		3		-
Grand total:	$	6,942	$	7,113	$	682	$	16,002	$	240

Modifications by Class of Loans

(in thousands)

	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings as of December 31, 2012:
Commercial, financial, and agricultural		3	$	370	$	353
Real estate - commercial		3		4,983		4,709
			$	5,353	$	5,062

	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings as of December 31, 2011:
Commercial, financial, and agricultural		4	$	447	$	444
Consumer - other		1		14		12
			$	461	$	456

Trouble Debt Restructurings that Subsequently Defaulted

(in thousands)

	December 31, 2012				December 31, 2011
	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Commercial, financial, and agricultural		4	$	259		-	$	-

Of the $5.1 million of total trouble debt restructurings ("TDRs"), $4.8 million was acquired with PSB and included four credits, two of which are large commercial credits.  There were no loans added to TDR status during the year ended December 31, 2012.  Two loans identified as TDRs at December 31, 2011 were removed from TDR status during 2012 after the loans were charged off due to insufficient collateral.  One loan previously identified as a troubled debt restructuring at December 31, 2011 was removed from TDR status during 2012 after the loan was paid off.  For purposes of the determination of an allowance for loan losses on these TDRs, as an identified TDR, the Company considers a loss probable on the loan and, as a result, is reviewed for specific impairment in accordance with the Company's allowance for loan loss methodology.  If it is determined that losses are probable on such TDRs, either because of delinquency or other credit quality indicator, the Company establishes specific reserves for these loans.

Loans on Nonaccrual Status by Class of Loans

(in thousands)

	December 31, 2012		December 31, 2011
Commercial, financial, and agricultural	$	2,015	$	1,897
Commercial real estate - construction		941		902
Commercial real estate - other		3,017		2,271
Consumer - credit card		-		-
Consumer - other		409		275
Residential - construction		-		-
Residential - prime		2,505		884
Residential - subprime		-		-
Other loans		-		-
Finance leases commercial		-		-
	$	8,887	$	6,229

The amount of interest that would have been recorded on nonaccrual loans, had the loans not been classified as nonaccrual, totaled approximately $582,000, $749,000, and $981,000 for the years ended December 31, 2012, 2011, and 2010.  Interest actually received on nonaccrual loans at December 31, 2012, 2011 and 2010 was $70,000, $256,000 and $384,000 respectively.

XML

GOODWILL AND OTHER INTANGIBLE ASSETS

12 Months Ended

Dec. 31, 2012

GOODWILL AND OTHER INTANGIBLE ASSETS [Abstract]

GOODWILL AND OTHER INTANGIBLE ASSETS

7. GOODWILL AND OTHER INTANGIBLE ASSETS

Changes to the carrying amount of goodwill for the years ended December 31, 2012 and 2011 are provided in the following table (in thousands):

Balance, December 31, 2010	$	9,271
Goodwill acquired during the year		15,688
Balance, December 31, 2011		24,959
Adjustment to goodwill		(136	)
Goodwill acquired during the year		17,958
Balance, December 31, 2012	$	42,781

The goodwill acquired during the year ended December 31, 2012 was a result of the PSB acquisition completed during the fourth quarter.  The goodwill acquired during the year ended December 31, 2011 was a result of the three acquisitions completed during the third and fourth quarters.

A summary of core deposit intangible assets as of December 31, 2012 and 2011 is as follows (in thousands):

	2012			2011
Gross carrying amount	$	11,674		$	9,012
Less accumulated amortization		(2,627	)		(1,865	)
Net carrying amount	$	9,047		$	7,147

During 2012, $2.7 million of core deposit intangibles were recorded as a result of the deposits acquired in the 2012 acquisition.  During 2011, $7.3 million of core deposit intangibles were recorded as a result of the deposits acquired in the three 2011 acquisitions.

Amortization expense on the core deposit intangible assets totaled approximately $762,000 in 2012, $230,000 in 2011, and $97,000 in 2010.

The estimated amortization expense on the core deposit intangible assets for the five succeeding years and thereafter is as follows (in thousands):

2013	$	1,106
2014		1,106
2015		1,106
2016		1,106
2017		1,106
Thereafter		3,517

XML

PREMISES AND EQUIPMENT (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Property, Plant and Equipment [Line Items]
Premises and equipment, gross	$ 91,650	$ 69,671
Less accumulated depreciation and amortization	(28,189)	(25,073)
Premises and equipment, net	63,461	44,598
Depreciation expense	3,799	3,265	3,300
Land [Member]
Property, Plant and Equipment [Line Items]
Premises and equipment, gross	14,949	9,521
Building and improvements [Member]
Property, Plant and Equipment [Line Items]
Premises and equipment, gross	40,505	29,296
Furniture, fixtures, and equipment [Member]
Property, Plant and Equipment [Line Items]
Premises and equipment, gross	23,775	19,647
Automobiles [Member]
Property, Plant and Equipment [Line Items]
Premises and equipment, gross	812	495
Leasehold improvements [Member]
Property, Plant and Equipment [Line Items]
Premises and equipment, gross	10,047	10,006
Construction-in-process [Member]
Property, Plant and Equipment [Line Items]
Premises and equipment, gross	$ 1,562	$ 706

XML

DEPOSITS (Details) (USD $)	Dec. 31, 2012	Dec. 31, 2011
DEPOSITS [Abstract]
Noninterest-bearing	$ 380,557,000	$ 254,755,000
Savings and money market	520,573,000	350,342,000
NOW accounts	338,296,000	235,168,000
Time deposits less than $100	133,304,000	140,428,000
Time deposits $100 or more	179,174,000	184,113,000
Total deposits	1,551,904,000	1,164,806,000
Maturities of time deposits [Abstract]
2013	242,778,000
2014	43,222,000
2015	12,751,000
2016	7,682,000
2017 and thereafter	6,045,000
Total time deposits	312,478,000
Related party deposits	$ 29,100,000	$ 15,700,000

XML

LOANS, Troubled Debt Restructuring (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Troubled Debt Restructuring [Abstract]
Pre-Modification Outstanding Recorded Investment	$ 5,353,000	$ 461,000
Post-Modification Outstanding Recorded Investment	5,062,000	456,000
Troubled debt restructurings executed during current period	4,800,000
Number of loans removed from TDR (Troubled debt restructuring) status after loan was paid off	2
Commercial, Financial and Agricultural [Member]
Troubled Debt Restructuring [Abstract]
Number of Contracts	3	4
Pre-Modification Outstanding Recorded Investment	370,000	447,000
Post-Modification Outstanding Recorded Investment	353,000	444,000
Trouble debt restructurings that Subsequently Defaulted, Number of Contracts	4	0
Trouble debt restructurings that Subsequently Defaulted, Recorded Investment	259,000	0
Real Estate - Commercial [Member]
Troubled Debt Restructuring [Abstract]
Number of Contracts	3
Pre-Modification Outstanding Recorded Investment	4,983,000
Post-Modification Outstanding Recorded Investment	4,709,000
Consumer - Other [Member]
Troubled Debt Restructuring [Abstract]
Number of Contracts		1
Pre-Modification Outstanding Recorded Investment		14,000
Post-Modification Outstanding Recorded Investment		$ 12,000

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

12 Months Ended

Dec. 31, 2012

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

Estimated Useful Lives

Premises and Equipment—Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets.  The estimated useful lives used to compute depreciation are:

Buildings and improvements	10 - 40 years
Furniture, fixtures, and equipment	3 - 10 years
Automobiles	5 years

XML

FAIR VALUE MEASUREMENTS AND DISCLOSURES (Tables)

12 Months Ended

Dec. 31, 2012

FAIR VALUE MEASUREMENTS AND DISCLOSURES [Abstract]

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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

	Assets / Liabilities		Fair Value Measurements
	Measured at Fair Value		at December 31, 2012
Description	at December 31, 2012		Level 1		Level 2		Level 3
Available-for-sale securities:
U.S. Government sponsored enterprises	$	13,424	$	-	$	13,424	$	-
Obligations of state and political subdivisions		87,421		-		87,421		-
GSE mortgage-backed securities		178,819		-		178,819		-
Collateralized mortgage obligations: residential		101,986		-		101,986		-
Collateralized mortgage obligations: commercial		29,761		-		29,761		-
Other asset-backed securities		12,742		-		12,742		-
Collateralized debt obligation		464		-		464		-

	Assets / Liabilities		Fair Value Measurements
	Measured at Fair Value		at December 31, 2011
Description	at December 31, 2011		Level 1		Level 2		Level 3
Available-for-sale securities:
U.S. Government sponsored enterprises	$	94,999	$	-	$	94,999	$	-
Obligations of state and political subdivisions		96,149		-		96,149		-
GSE mortgage-backed securities		109,487		-		109,487		-
Collateralized mortgage obligations: residential		41,468		-		41,468		-
Collateralized mortgage obligations: commercial		25,138		-		25,138		-

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Assets measured at fair value on a nonrecurring basis are as follows (in thousands):

	Assets / Liabilities		Fair Value Measurements
	Measured at Fair Value		at December 31, 2012
Description	at December 31, 2012		Level 1		Level 2		Level 3
Impaired loans	$	2,245	$	-	$	2,245	$	-
Other real estate		7,496		-		7,496		-

	Assets / Liabilities Measured at Fair Value		Fair Value Measurements at December 31, 2011
Description	at December 31, 2011		Level 1		Level 2		Level 3
Impaired loans	$	2,994	$	-	$	2,994	$	-
Other real estate		7,369		-		7,369		-

Estimated Fair Values of Financial Instruments

The estimated fair values of our financial instruments are as follows at December 31, 2012 and 2011 (in thousands):

			Fair Value Measurements at  December 31, 2012 Using:
	Carrying Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	73,573	$	73,573	$	-	$	-
Time deposits held in banks		881		-		-		883
Securities available-for-sale		424,617		-		424,617		-
Securities held-to-maturity		153,524		-		156,924		-
Other investments		8,310		8,310		-		-
Loans, net		1,039,570		-		-		1,046,495
Cash surrender value of life insurance policies		13,183		-		13,183		-
Financial liabilities:
Non-interest-bearing deposits		380,557		-		380,557		-
Interest-bearing deposits		1,171,347		-		859,183		314,783
Securities sold under agreements to repurchase		41,447		41,447		-		-
Notes payable		29,128		-		-		29,128
Junior subordinated debentures		29,384		-		22,167		7,776

			Fair Value Measurements at December 31, 2011 Using:
	Carrying Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	83,303	$	83,303	$	-	$	-
Time deposits held in banks		710		-		-		716
Securities available-for-sale		367,241		-		367,241		-
Securities held-to-maturity		100,472		-		101,131		-
Other investments		5,637		5,637		-		-
Loans, net		739,029		-		-		747,156
Cash surrender value of life insurance policies		4,853		-		4,853		-
Financial liabilities:
Non-interest-bearing deposits		254,755		-		254,755		-
Interest-bearing deposits		910,051		-		585,763		327,441
Securities sold under agreements to repurchase		46,078		46,078		-		-
Junior subordinated debentures		15,465		-		8,248		9,095

XML

COMMITMENTS AND CONTINGENCIES

12 Months Ended

Dec. 31, 2012

COMMITMENTS AND CONTINGENCIES [Abstract]

COMMITMENTS AND CONTINGENCIES

12. COMMITMENTS AND CONTINGENCIES

At December 31, 2012, future annual minimum rental payments due under non-cancellable operating leases are as follows (in thousands):

2013	$	2,264
2014		2,125
2015		1,956
2016		1,701
2017		1,566
Thereafter		11,611
	$	21,223

Rental expense under operating leases for 2012, 2011, and 2010 was approximately $2.5 million, $2.0 million, and $1.7 million, respectively.

The Company is party to various legal proceedings arising in the ordinary course of business. In management's opinion, the ultimate resolution of these legal proceedings will not have a material adverse effect on the Company's financial position, results of operations, or cash flows.

At December 31, 2012, the Company had borrowing lines available through the Bank with the FHLB of Dallas and other correspondent banks.  The Bank had approximately $206.1 million available, subject to available collateral, under a secured line of credit with the FHLB of Dallas.  Additional federal funds lines of credit were available through correspondent banks with approximately $48.5 million available for overnight borrowing at December 31, 2012.  The Bank also had a credit line available through the Federal Reserve of $158.1 million.  As of December 31, 2012, the Company had no borrowings with the FRB-Atlanta.  The Company assumed at fair value $27.1 million in FHLB advances and $2.0 million in notes payable with FNBB from PSB.

XML

NET EARNINGS PER COMMON SHARE

12 Months Ended

Dec. 31, 2012

NET EARNINGS PER COMMON SHARE [Abstract]

NET EARNINGS PER COMMON SHARE

17. NET EARNINGS PER COMMON SHARE

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

	December 31,
	2012		2011		2010
Net earnings	$	9,642	$	4,473	$	5,780
Dividends on preferred stock and accretion of warrants		1,547		1,802		1,198
Net earnings available to common stockholders	$	8,095	$	2,671	$	4,582
Weighted average number of common shares outstanding used in computation of basic earnings per common share		10,482		9,787		9,701
Effect of dilutive securities:
Stock options		24		7		15
Restricted stock		12		5		2
Preferred stock		6		-		-
Weighted average number of common shares outstanding plus effect of dilutive securities used in computation of diluted earnings per common share		10,524		9,799		9,718

Options to acquire 18,331, 18,331 and 23,335 shares of common stock were not included in computing diluted earnings per share for the year ended December 31, 2012, 2011 and 2010, respectively, because the effect of these shares was anti-dilutive.  For the years ended December 31, 2012, 2011 and 2010, 15,313, 16,645 and 20,847 shares of restricted stock, respectively, were included in computed diluted earnings because the effect of these shares was dilutive.  The remaining 104,384 shares subject to the outstanding warrant issued in connection with the CPP transaction were anti-dilutive and not included in the computation of diluted earnings per share for the years ended December 31, 2012, 2011 and 2010.  For the year ended December 31, 2012, 6,088 shares of preferred stock issued as part of the PSB acquisition were included in computed diluted earnings because the effect of these shares was dilutive.  Since the preferred stock issued in connection with the PSB acquisition was issued during the year ended December 31, 2012, there were no shares of preferred stock included in computed diluted earnings for the years ended December 31, 2011 and 2010.

XML

FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (Tables)

12 Months Ended

Dec. 31, 2012

FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK [Abstract]

Financial Instruments Whose Contract Amounts Represent Credit Risk

The Bank's exposure to loan loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, standby letters of credit, and financial guarantees is represented by the contractual amount of those instruments. The Bank uses the same credit policies, including considerations of collateral requirements, in making these commitments and conditional obligations as it does for on-balance sheet instruments.

	Contract or Notional Amount
	2012		2011
Financial instruments whose contract amounts represent credit risk: (in thousands)
Commitments to extend credit	$	237,085	$	152,145
Letters of credit		9,958		8,347

XML

DEPOSITS (Tables)

12 Months Ended

Dec. 31, 2012

DEPOSITS [Abstract]

Deposits

Deposits consisted of the following (in thousands):

	December 31,
	2012		2011
Noninterest-bearing	$	380,557	$	254,755
Savings and money market		520,573		350,342
NOW accounts		338,296		235,168
Time deposits less than $100		133,304		140,428
Time deposits $100 or more		179,174		184,113
	$	1,551,904	$	1,164,806

Maturities for certificates of deposits

Time deposits held consist primarily of certificates of deposits.  The maturities for these deposits at December 31, 2012 are as follows (in thousands):

2013	$	242,778
2014		43,222
2015		12,751
2016		7,682
2017 and thereafter		6,045
	$	312,478

XML

Consolidated Statements of Comprehensive Income (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Consolidated Statements of Comprehensive Income [Abstract]
Net earnings	$ 9,642	$ 4,473	$ 5,780
Unrealized gains on securities available-for-sale:
Unrealized holding gains arising during the year net of income tax expense of $291, $1,872, and $143 respectively	540	3,635	280
Reclassification adjustment for net gains on sales of securities available-for-sale, net of income tax expense of $71, $34 and $1, respectively	(133)	(65)	(2)
Total other comprehensive income	407	3,570	278
Total comprehensive income	$ 10,049	$ 8,043	$ 6,058

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 2012

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation—The consolidated financial statements include the accounts of MidSouth Bancorp, Inc. (the "Company") and its wholly-owned subsidiaries MidSouth Bank, N.A. (the "Bank") and Financial Services of the South, Inc. (the "Finance Company"), which has liquidated its loan portfolio.  All significant intercompany accounts and transactions have been eliminated in consolidation.  We are subject to regulation under the Bank Holding Company Act of 1956.  The Bank is primarily regulated by the Office of the Comptroller of the Currency ("OCC") and the Federal Deposit Insurance Corporation ("FDIC").

We are a financial holding company headquartered in Lafayette, Louisiana operating principally in the community banking business by providing banking services to commercial and retail customers through the Bank. The Bank is community oriented and focuses primarily on offering competitive commercial and consumer loan and deposit services to individuals and small to middle market businesses in Louisiana and central and east Texas.

The accounting principles we follow and the methods of applying these principles conform with accounting principles generally accepted in the United States of America ("GAAP") and with general practices within the banking industry.  In preparing the financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts in the financial statements.  Actual results could differ significantly from those estimates.  Material estimates common to the banking industry that are particularly susceptible to significant change in the near term include, but are not limited to, the determination of the allowance for loan losses, the valuation of real estate acquired in connection with or in lieu of foreclosure on loans, the assessment of goodwill for impairment, and valuation allowances associated with the realization of deferred tax assets which are based on future taxable income. Given the current instability of the economic environment, it is reasonably possible that the methodology of the assessment of potential loan losses, losses on other real estate owned, goodwill impairment, and other fair value measurements could change in the near term or could result in impairment going forward.

A summary of significant accounting policies follows:

Cash and cash equivalents—Cash and cash equivalents include cash on hand, amounts due from banks, interest-bearing deposits in other banks with original maturities of less than 90 days, and federal funds sold.

Investment Securities—We determine the appropriate classification of debt securities at the time of purchase and reassesses this classification periodically. Trading account securities are held for resale in anticipation of short-term market movements. Debt securities are classified as held-to-maturity when we have the positive intent and ability to hold the securities to maturity. Securities not classified as held-to-maturity or trading are classified as available-for-sale. We had no trading account securities during the three years ended December 31, 2012. Held-to-maturity securities are stated at amortized cost. Available-for-sale securities are stated at fair value, with unrealized gains and losses, net of deferred taxes, reported as a separate component of stockholders' equity.

The amortized cost of debt securities classified as held-to-maturity or available-for-sale is adjusted for amortization of premiums and accretion of discounts to maturity or, in the case of mortgage-backed securities, over the estimated life of the security. Amortization, accretion, and accrued interest are included in interest income on securities. Realized gains and losses on the sale of securities available-for-sale are included in earnings and are determined using the specific-identification method.

Management evaluates investment securities for other than temporary impairment on a quarterly basis.  A decline in the fair value of available-for-sale and held-to-maturity securities below cost that is deemed other than temporary is charged to earnings for a decline in value deemed to be credit related and a new cost basis for the security is established.  The decline in value attributed to non-credit related factors is recognized in other comprehensive income.

Other Investments—Other investments include Federal Reserve Bank and Federal Home Loan Bank stock, as well as other correspondent bank stocks and our CRA investment which have no readily determined market value and are carried at cost.  Due to the redemption provisions of the investments, the fair value equals cost and no impairment exists.

Loans—Loans that we have the intent and ability to hold for the foreseeable future or until maturity are reported at the principal amount outstanding, net of the allowance for loan losses and any deferred fees or costs on originated loans. Interest income on commercial and real estate mortgage loans is calculated by using the simple interest method on the daily balance of the principal amount outstanding. Unearned income on installment loans is credited to operations based on a method which approximates the interest method. In-house legal counsel and the collections department are responsible for validating loans past due for reporting purposes.  Once loans are determined to be past due, the collections department actively works with customers to bring loans back to current status.

We consider a loan to be impaired when, based upon current information and events, we believe it is probable that we 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 for impairment.  Our impaired loans include troubled debt restructurings and performing and nonperforming major loans in which full payment of principal or interest is not expected. Although our policy requires that non-major homogenous loans, which include all loans under $250,000, be evaluated on an overall basis, our current volume of impaired loans allows us to evaluate each impaired loan individually. We calculate the allowance required for impaired loans 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.  A loan may be impaired but not on nonaccrual status when available information suggests that it is probable the Bank may not receive all contractual principal and interest, however, the loan is still current and payments are received in accordance with the terms of the loan. Payments received for impaired loans not on nonaccrual status are applied to principal and interest.

All impaired loans are reviewed, at minimum, on a quarterly basis.  Reviews may be performed more frequently if material information is available before the next scheduled quarterly review.  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.  All loans included in our impairment analysis are subject to the same procedure and review, with no distinction given to the dollar amount of the loan.

Our Special Assets Committee meets monthly on troubled credits to review loans with adverse classifications.  Loan officers, loan review officers, and in-house legal counsel contribute updated information on each credit, reviewing potential declines or improvements in the borrower's repayment ability and our collateral position.  If deterioration in our collateral position is determined, additional discounts may be applied to the impairment analysis before the new appraisal is received.  The committee makes a determination of whether the loans reviewed have reached a point of collateral dependency and sufficient doubt exists as to collectability.  As a matter of policy, loans are placed on nonaccrual status when, in the judgment of committee members, the probability of collection of interest is deemed insufficient to warrant further accrual.  For loans placed on nonaccrual 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.  Additionally, loans may be placed on nonaccrual status when the loan becomes 90 days past due and any of the following conditions exist: it becomes evident that the borrower will not make payments or will not or cannot meet the Bank's terms for the renewal of a matured loan, full repayment of principal and interest is not expected, the loan has a credit quality of substandard, the borrower files bankruptcy and an approved plan of reorganization or liquidation is not anticipated in the near future, or foreclosure action is initiated.  When a loan is placed on nonaccrual status, previously accrued but unpaid interest for the current year is deducted from interest income.  Prior year unpaid interest is charged to the allowance for loan losses.  Some loans may continue accruing after 90 days if the loan is in the process of renewing, being paid off, or the underlying collateral fully supports both the principal and accrued interest and the loan is in the process of collection.

Nonaccrual 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.  Our Special Assets Committee must approve the return of loans to accrual status as well as exceptions to any requirements of the non-accrual policy.

Generally, commercial, financial, and agricultural loans; construction loans; commercial real estate loans; consumer loans; and finance leases which become 90 days delinquent are either in the process of collection through repossession or foreclosure or are deemed currently uncollectible. The portion of loans deemed currently uncollectible, due to insufficient collateral, are charged-off against the allowance for loan losses. All loans requested to be charged-off must be specifically authorized by in-house legal counsel and the CEO.  Requests may be initiated by collection personnel, bank counsel, loan review, and lending personnel.  Charge-offs will be reviewed by in-house legal counsel and the CEO to ensure the propriety and accuracy of charge-off recommendations.  Factors considered when determining loan collectability and amount to be charged off for all segments in our loan portfolio include delinquent principal or interest repayment, the ability of borrower to make future payments, collateral value of outstanding debt, and the adequacy of guarantors support.  It is the responsibility of in-house legal counsel to report all charge-offs to the Board of Directors or its designated Committee for ratification.

Credit Risk Rating—We manage credit risk by observing written underwriting standards and lending policy established by the Board of Directors and management to govern all lending activities.  The risk management program requires that each individual loan officer review his or her portfolio on a quarterly basis and assign recommended credit ratings on each loan.  These efforts are supplemented by independent reviews performed by a loan review officer and other validations performed by the internal audit department.  The results of the reviews are reported directly to the Audit Committee of the Board of Directors.  Additionally, Bank concentrations are monitored and reported quarterly for risk rating distributions, major standard industry classification segments, real estate concentrations, and collateral distributions.

Consumer and residential real estate loans are normally graded at inception, and the grade generally remains the same throughout the life of the loan.  Loan grades on commercial, financial, and agricultural; construction; commercial real estate; and finance leases may be changed at any time when circumstances warrant, and are at a minimum reviewed quarterly.

Loans can be classified into the following three risk rating grades: pass, special mention, and substandard/doubtful.  Factors considered in determining a risk rating grade include debt service capacity, capital structure/liquidity, management, collateral quality, industry risk, company trends/operating performance, repayment source, revenue diversification/customer concentration, quality of financial information, and financing alternatives.  Pass grade signifies the highest quality of loans to loans with reasonable credit risk, which may include borrowers with marginally adequate financial performance, but have the ability to repay the debt.  Special mention loans have potential weaknesses that warrant extra attention from the loan officer and other management personnel, but still have the ability to repay the debt.  Substandard classification includes loans with well-defined weaknesses with risk of potential loss.  Loans classified as doubtful are considered to have little recovery value and are charged off.

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, we estimate the probable level of losses in the existing portfolio through consideration of such factors including, but not limited to, past loan loss experience; estimated losses in significant credits; known deterioration in concentrations of credit; trends in nonperforming assets; volume and composition of the loan portfolio, including percentages of special mention, substandard and past due loans; lending policies and control systems; known inherent risks in the portfolio; adverse situations that may affect the borrower's ability to repay; the estimated value of any underlying collateral; current national and local economic conditions, including the unemployment rate, the price of oil, and real estate absorption time; the experience, ability and depth of lending management; collections personnel experience; 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 twelve to eighteen months, and adjustment factors derived from conditions in the Bank'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.

We have 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.

Management and the Board of Directors believe the allowance for loan losses is appropriate at December 31, 2012.  While determination of the allowance for loan losses is based on available information at a given point in time, future additions to the allowance may be necessary based on changes in economic conditions.  In addition, various regulatory agencies, as an integral part of their examination process, periodically review our allowance for loan losses.  Such agencies may require us to recognize additions or deductions to the allowance based on their judgment and information available to them at the time of their examination.

Interest Rate Swap Agreements—Derivative financial instruments are recognized as assets and liabilities on the consolidated balance sheets and, as required by ASC 815, the Company records all derivatives at fair value.  Interest rate swaps are contracts in which a series of interest rate cash flows are exchanged over a prescribed period.  The notional balance of interest rate swap agreements held by the Company at December 31, 2012 was minimal an dnot material to the consolidated balance sheet.

Premises and Equipment—Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets.  The estimated useful lives used to compute depreciation are:

Buildings and improvements	10 - 40 years
Furniture, fixtures, and equipment	3 - 10 years
Automobiles	5 years

Leasehold improvements are amortized over the estimated useful lives of the improvements or the term of the lease, whichever is shorter.

Other Real Estate Owned—Real estate properties acquired through, or in lieu of, loan foreclosures are initially recorded at the lower of carrying value or fair value less estimated costs to sell based on a current valuation at the time of foreclosure. After foreclosure, valuations are periodically performed by management and the real estate is carried at the lower of carrying amount or fair value less cost to sell. Revenues and expenses from operations and changes in the valuation allowance are charged to earnings.

Goodwill and Other Intangible Assets—Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets acquired in a business combination.  Goodwill and other intangible assets deemed to have an indefinite useful life are not amortized but instead are subject to review for impairment annually, or more frequently if deemed necessary.  Also, in connection with business combinations involving banks and branch locations, we generally record core deposit intangibles representing the value of the acquired core deposit base.  Core deposit intangibles are amortized over the estimated useful life of the deposit base, generally on either a straight-line basis not exceeding 15 years or an accelerated basis over 10 years.  The remaining useful lives of core deposit intangibles are evaluated periodically to determine whether events and circumstances warrant revision of the remaining period of amortization.

Cash Surrender Value of Life Insurance—Life insurance contracts represent single premium life insurance contracts on the lives of certain officers of the Company. The Company is the beneficiary of these policies. These contracts are reported at their cash surrender value and changes in the cash surrender value are included in other noninterest income.

Repurchase Agreements—Securities sold under agreements to repurchase are secured borrowings treated as financing activities and are carried at the amounts at which the securities will be subsequently reacquired as specified in the respective agreements.

Deferred Compensation—We record the expense of deferred compensation agreements over the service periods of the persons covered under these agreements.

Income Taxes—Deferred tax assets and liabilities are recorded for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis.  Future tax benefits, such as net operating loss carry forwards, are recognized to the extent that realization of such benefits is more likely than not.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the assets and liabilities are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period that includes the enactment date.

In the event the future tax consequences of differences between the financial reporting bases and the tax bases of our assets and liabilities results in deferred tax assets, an evaluation of the probability of being able to realize the future benefits indicated by such assets is required.  A valuation allowance is provided when it is more likely than not that a portion or the full amount of the deferred tax asset will not be realized.  In assessing the ability to realize the deferred tax assets, management considers the scheduled reversals of deferred tax liabilities, projected future taxable income, and tax planning strategies.  A deferred tax liability is not recognized for portions of the allowance for loan losses for income tax purposes in excess of the financial statement balance.  Such a deferred tax liability will only be recognized when it becomes apparent that those temporary differences will reverse in the foreseeable future.

A tax position is recognized as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur.  The amount recognized is the largest amount of tax benefit that is greater than 50 percent more likely of being realized on examination.  For tax positions not meeting the "more likely than not" test, no tax benefit is recorded.

The Company recognizes interest and/or penalties related to income tax matters in income tax expense.

Stock-Based Compensation—We expense stock-based compensation based upon the grant date fair value of the related equity award over the requisite service period of the employee.

Basic and Diluted Earnings Per Common Share—Basic earnings per common share ("EPS") excludes dilution and is computed by dividing net earnings by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. Diluted EPS is computed by dividing net earnings by the total of the weighted-average number of shares outstanding plus the dilutive effect of outstanding options.  The amounts of common stock and additional paid-in capital are adjusted to give retroactive effect to large stock dividends.  Small stock dividends, or dividends less than 25% of issued shares at the declaration date, are reflected as an increase in common stock and additional paid-in capital and a decrease in retained earnings for the market value of the shares on the date the dividend is declared.

Comprehensive Income—Generally all recognized revenues, expenses, gains and losses are included in net earnings.  Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the consolidated balance sheets, such items, along with net earnings, are components of comprehensive income.  We present comprehensive income in a separate consolidated statement of comprehensive income.

Statements of Cash Flows—For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, federal funds sold, and interest-bearing deposits in other banks with original maturities of less than 90 days. Generally, federal funds are sold for one-day periods.

Recent Accounting Pronouncements—In April 2011, the FASB issued ASU No. 2011-03, Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements. The amendments in this Update remove from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (2) the collateral maintenance implementation guidance related to that criterion. Other criteria applicable to the assessment of effective control are not changed by the amendments in this Update.  ASU No. 2011-03 was effective for the quarter ended March 31, 2012 and did not have a material impact on the Company's results of operations, financial position or disclosures.

In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in this Update result in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs. Consequently, the amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. For many of the requirements, the Board does not intend for the amendments in this Update to result in a change in the application of the requirements in Topic 820. The Update also reflects the FASB's consideration of the different characteristics of public and non-public entities and the needs of users of their financial statements. Non-public entities will be exempt from a number of the new disclosure requirements.  The amendments in this Update are to be applied prospectively. For public entities, the amendments were effective for the quarter ended March 31, 2012 and did not have a material impact on the Company's results of operations, financial position or disclosures.

In July 2012, the FASB issued ASU 2012-02, Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment.  The amendments in this Update are intended to reduce cost and complexity by providing an entity with the option to make a qualitative assessment about the likelihood that an indefinite-lived intangible asset is impaired to determine whether it should perform a quantitative impairment test.  The Update also enhances consistency of impairment testing guidance among long-lived asset categories by permitting entities to assess qualitative factors to determine whether it is necessary to calculate the asset's fair value when testing for impairment, which is equivalent to the impairment testing requirements for other long-lived assets.  Under the amendments in this Update, an entity will have an option not to calculate annually the fair value of an indefinite-lived intangible asset if the entity determines that it is not more-likely-than-not that the asset is impaired.  The Update is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012.  Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity's financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance.  The adoption of ASU 2012-02 did not have a material impact on the Company's results of operations, financial position or disclosures.

Reclassifications—Certain reclassifications have been made to the prior years' financial statements in order to conform to the classifications adopted for reporting in 2012.  The reclassifications had no impact on net income or stockholders equity.

XML

LOANS, Summary of Loan Portfolio (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Loan portfolio [Abstract]
Total loans	$ 1,046,940	$ 746,305
Less allowance for loan losses	(7,370)	(7,276)
Loans, net	1,039,570	739,029
Commercial, Financial and Agricultural [Member]
Loan portfolio [Abstract]
Total loans	315,655	223,283
Lease Financing Receivable [Member]
Loan portfolio [Abstract]
Total loans	5,769	4,276
Real Estate - Construction [Member]
Loan portfolio [Abstract]
Total loans	75,334	52,712
Real Estate - Commercial [Member]
Loan portfolio [Abstract]
Total loans	414,384	280,798
Real Estate - Residential [Member]
Loan portfolio [Abstract]
Total loans	142,858	113,582
Installment Loans to Individuals [Member]
Loan portfolio [Abstract]
Total loans	90,561	69,980
Other [Member]
Loan portfolio [Abstract]
Total loans	$ 2,379	$ 1,674

XML

JUNIOR SUBORDINATED DEBENTURES (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012		Dec. 31, 2011
Debt Instrument [Line Items]
Debt issued	$ 29,384		$ 15,465
Trust Preferred Securities Subject to Mandatory Redemption [Member]
Debt Instrument [Line Items]
Debt issued	29,384		15,465
Trust Preferred Securities Subject to Mandatory Redemption [Member] | Junior Subordinated Debt February 22, 2001 issuance [Member]
Debt Instrument [Line Items]
Date Issued	Feb. 22, 2001
Maturity date	Feb. 22, 2031
Interest rate (in hundredths)	10.20%
Callable After	Feb. 22, 2011
Debt issued	7,217		7,217
Trust Preferred Securities Subject to Mandatory Redemption [Member] | Junior Subordinated Debentures July 31, 2001 issuance [Member]
Debt Instrument [Line Items]
Date Issued	Jul. 31, 2001	[1]
Maturity date	Jul. 09, 2031
Variable rate basis	3 month LIBOR
Basis spread on variable rate (in hundredths)	3.30%
Callable After	Jul. 31, 2006
Debt issued	5,671		0
Trust Preferred Securities Subject to Mandatory Redemption [Member] | Junior Subordinated Debentures September 20, 2004 issuance [Member]
Debt Instrument [Line Items]
Date Issued	Sep. 20, 2004
Maturity date	Sep. 20, 2034
Variable rate basis	3 month LIBOR
Basis spread on variable rate (in hundredths)	2.50%
Callable After	Sep. 20, 2009
Debt issued	8,248		8,248
Trust Preferred Securities Subject to Mandatory Redemption [Member] | Junior Subordinated Debentures October 12, 2006 issuance [Member]
Debt Instrument [Line Items]
Date Issued	Oct. 12, 2006	[1]
Maturity date	Oct. 12, 2036
Variable rate basis	3 month LIBOR
Basis spread on variable rate (in hundredths)	1.85%
Callable After	Jun. 26, 2011
Debt issued	5,155		0
Trust Preferred Securities Subject to Mandatory Redemption [Member] | Junior Subordinated Debentures June 21, 2007 issuance [Member]
Debt Instrument [Line Items]
Date Issued	Jun. 21, 2007	[1]
Maturity date	Jun. 21, 2037
Variable rate basis	3 month LIBOR
Basis spread on variable rate (in hundredths)	1.70%
Callable After	Jun. 15, 2012
Debt issued	$ 3,093		$ 0

[1] Assumed in PSB acquisition.

XML

FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

12 Months Ended

Dec. 31, 2012

FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK [Abstract]

FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

18. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

The Bank is party to various financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the statements of financial condition. The contract or notional amounts of those instruments reflect the extent of the Bank's involvement in particular classes of financial instruments.  Approximately $76.4 million in commitments to extend credit and $1.6 million in letters of credit were added with the PSB acquisition for the year ended December 31, 2012.

The Bank's exposure to loan loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, standby letters of credit, and financial guarantees is represented by the contractual amount of those instruments. The Bank uses the same credit policies, including considerations of collateral requirements, in making these commitments and conditional obligations as it does for on-balance sheet instruments.

	Contract or Notional Amount
	2012		2011
Financial instruments whose contract amounts represent credit risk: (in thousands)
Commitments to extend credit	$	237,085	$	152,145
Letters of credit		9,958		8,347

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  Since many of the commitments are expected to expire without being fully drawn upon, the total commitment amounts disclosed above do not necessarily represent future cash requirements.  Substantially all of these commitments are at variable rates.

Commercial letters of credit and financial guarantees are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party.  The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to its customers.  Approximately 88% and 90% of these letters of credit were secured by marketable securities, cash on deposit, or other assets at December 31, 2012 and 2011, respectively.

XML

STOCKHOLDERS' EQUITY (Details) (USD $)	12 Months Ended			0 Months Ended			12 Months Ended	0 Months Ended	1 Months Ended	12 Months Ended	1 Months Ended	12 Months Ended			0 Months Ended	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Dec. 28, 2012 Common Stock [Member]	Jan. 07, 2010 Common Stock [Member]	Dec. 22, 2009 Common Stock [Member]	Dec. 31, 2010 Common Stock [Member]	Jan. 09, 2009 Series A Preferred Stock [Member]	Aug. 31, 2011 Series A Preferred Stock [Member]	Dec. 31, 2009 Series A Preferred Stock [Member]	Aug. 31, 2011 Series B Preferred Stock [Member]	Dec. 31, 2012 Series B Preferred Stock [Member]	Dec. 31, 2012 Series B Preferred Stock [Member] Minimum [Member]	Dec. 31, 2012 Series B Preferred Stock [Member] Maximum [Member]	Dec. 28, 2012 Series C Preferred Stock [Member]	Dec. 31, 2012 Series C Preferred Stock [Member]
Class of Stock [Line Items]
Funds available to pay dividends to the Parent Company without regulatory approval	$ 23,000,000
Stock issued during period (in shares)				756,511		2,700,000		20,000			32,000				99,971
Sale price per share (in dollars per share)						$ 12.75
Exercise of overallotment option (in shares)					405,000
Net proceeds from offering and exercise of overallotment option							37,200,000
Proceeds from issuance of preferred stock	0	32,000,000	0					20,000,000
Proceeds from issuance of preferred stock used for additional capital											$ 12,000,000
Number of securities called by warrants (in shares)								208,768		104,384
Exercise price of warrants (in dollars per share)								$ 14.37
Dividend rate on preferred stock (in hundredths)										5.00%		4.60%	1.00%	5.00%		4.00%
Stock redeemed during the period (in shares)									20,000
Stated value (in dollars per share)									$ 1,000
Conversion price (per share)																$ 18
Company right period to require conversion in trading days																P20D
Company right period to require conversion in consecutive days																30 days
Company right to require conversion above conversion price (in hundredths)																130.00%

XML

LOANS (Tables)

12 Months Ended

Dec. 31, 2012

LOANS [Abstract]

Components of Loans Receivable

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

	December 31,
	2012			2011
Commercial, financial and agricultural	$	315,655		$	223,283
Lease financing receivable		5,769			4,276
Real estate – construction		75,334			52,712
Real estate – commercial		414,384			280,798
Real estate – residential		142,858			113,582
Installment loans to individuals		90,561			69,980
Other		2,379			1,674
		1,046,940			746,305
Less allowance for loan losses		(7,370	)		(7,276	)
	$	1,039,570		$	739,029

Summary of Activity in Allowance for Loan Losses

An analysis of the activity in the allowance for loan losses is as follows (in thousands):

	December 31,
	2012			2011			2010
Balance, beginning of year	$	7,276		$	8,813		$	7,995
Provision for loan losses		2,050			3,925			5,020
Recoveries		300			310			254
Loans charged-off		(2,256	)		(5,772	)		(4,456	)
Balance, end of year	$	7,370		$	7,276		$	8,813

Activity in Related Party Loans and Commitments to Extend Credit

An analysis of the 2012 activity with respect to these related party loans and commitments to extend credit is as follows (in thousands):

Balance, beginning of year	$	1,980
New loans		21
Change in related parties due to acquisition		4,941
Repayments and adjustments		(21	)
Balance, end of year	$	6,921

Allowance for Loan Losses and Recorded Investment in Loans

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 December 31, 2012, one industry segment concentration, the oil and gas industry, aggregate 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 $146.2 million, or 14.0% of total loans.  Additionally, the Company's exposure to loans secured by commercial real estate is monitored.  At December 31, 2012, loans secured by commercial real estate (including commercial construction and multifamily loans) totaled approximately $472.4 million.  Of the $472.4 million, $359.2 million represent CRE loans, 57% of which are secured by owner-occupied commercial properties.  Of the $359.2 million in loans secured by commercial real estate, $4.0 million or 1.1% were on nonaccrual status at December 31, 2012.

Allowance for Loan Losses and Recorded Investment in Loans by Portfolio Segment

For the Year Ended December 31, 2012  (in thousands)

				Real Estate
	Coml, Fin, and Agric			Construction		Commercial			Residential			Consumer			Finance Leases Coml		Other		Total
Allowance for loan losses:
Beginning balance	$	1,734		$	1,661	$	2,215		$	936		$	710		$	19	$	1	$	7,276
Charge-offs		(1,054	)		-		(550	)		(126	)		(526	)		-		-		(2,256	)
Recoveries		181			18		1			2			98			-		-		300
Provision		674			468		500			124			261			22		1		2,050
Ending balance	$	1,535		$	2,147	$	2,166		$	936		$	543		$	41	$	2	$	7,370
Ending balance: individually evaluated for impairment	$	391		$	57	$	35		$	30		$	114		$	-	$	-	$	627
Loans:
Ending balance	$	315,655		$	75,334	$	414,384		$	142,858		$	90,561		$	5,769	$	2,379	$	1,046,940
Ending balance: individually evaluated for impairment	$	1,636		$	936	$	2,911		$	1,627		$	330		$	-	$	-	$	7,440

Allowance for Loan Losses and Recorded Investment in Loans by Portfolio Segment

For the Year Ended December 31, 2011  (in thousands)

	Coml, Fin,			Real Estate												Finance Leases
	and Agric			Construction			Commercial			Residential			Consumer			Coml			Other		Total
Allowance for loan losses:
Beginning balance	$	1,664		$	2,963		$	2,565		$	862		$	730		$	29		$	-	$	8,813
Charge-offs		(1,109	)		(2,444	)		(1,246	)		(283	)		(671	)		(19	)		-		(5,772	)
Recoveries		152			14			1			4			138			1			-		310
Provision		1,027			1,128			895			353			513			8			1		3,925
Ending balance	$	1,734		$	1,661		$	2,215		$	936		$	710		$	19		$	1	$	7,276
Ending balance: individually evaluated for impairment	$	240		$	2		$	321		$	21		$	98		$	-		$	-	$	682
Loans:
Ending balance	$	223,283		$	52,712		$	280,798		$	113,582		$	69,980		$	4,276		$	1,674	$	746,305
Ending balance: individually evaluated for impairment	$	2,341		$	901		$	2,271		$	1,142		$	287		$	-		$	-	$	6,942

Credit Quality Indicators by Class of Loans

Credit Quality Indicators by Class of Loans

As of December 31, 2012  (in thousands)

Commercial Credit Exposure

Credit Risk Profile by Creditworthiness Category

	Commercial, Financial, and Agricultural		Commercial Real Estate Construction		Commercial Real Estate – Other		Percentage of Total
Pass	$	304,219	$	54,737	$	396,078		95.76	%
Special mention		5,748		684		6,224		1.61	%
Substandard		4,503		2,925		7,514		1.90	%
Doubtful		1,185		4		4,569		0.73	%
	$	315,655	$	58,350	$	414,384		100.00	%

Consumer Credit Exposure

Credit Risk Profile by Creditworthiness Category

	Residential – Construction		Residential – Prime		Residential – Subprime		Percentage of Total
Pass	$	16,785	$	137,681	$	-		96.64	%
Special mention		-		1,612		-		1.01	%
Substandard		199		3,565		-		2.35	%
	$	16,984	$	142,858	$	-		100.00	%

Consumer and Commercial Credit Exposure

Credit Risk Profile Based on Payment Activity

	Consumer - Credit Card		Consumer – Other		Finance Leases Commercial		Other Loans		Percentage of Total
Performing	$	6,792	$	83,347	$	5,769	$	2,379		99.57	%
Nonperforming		15		407		-		-		0.43	%
	$	6,807	$	83,754	$	5,769	$	2,379		100.00	%

Credit Quality Indicators by Class of Loans

As of December 31, 2011  (in thousands)

Commercial Credit Exposure

Credit Risk Profile by Creditworthiness Category

	Commercial, Financial, and Agricultural		Commercial Real Estate Construction		Commercial Real Estate – Other		Percentage of Total
Pass	$	216,465	$	36,631	$	264,542		94.88	%
Special mention		1,705		1,104		10,755		2.49	%
Substandard		4,809		3,728		5,501		2.57	%
Doubtful		304		-		-		0.06	%
	$	223,283	$	41,463	$	280,798		100.00	%

Consumer Credit Exposure

Credit Risk Profile by Creditworthiness Category

	Residential – Construction		Residential – Prime		Residential – Subprime		Percentage of Total
Pass	$	9,041	$	104,965	$	-		91.33	%
Special mention		1,077		5,152		-		4.99	%
Substandard		1,131		3,465		-		3.68	%
	$	11,249	$	113,582	$	-		100.00	%

Consumer and Commercial Credit Exposure

Credit Risk Profile Based on Payment Activity

	Consumer - Credit Card		Consumer – Other		Finance Leases Commercial		Other Loans		Percentage of Total
Performing	$	5,182	$	64,497	$	4,276	$	1,674		99.60	%
Nonperforming		18		283		-		-		0.40	%
	$	5,200	$	64,780	$	4,276	$	1,674		100.00	%

Age Analysis of Past Due Loans by Class of Loans

Age Analysis of Past Due Loans by Class of Loans

(in thousands)

	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
As of December 31, 2012
Commercial, financial, and agricultural	$	2,220	$	321	$	2,580	$	5,121	$	310,534	$	315,655	$	1,019
Commercial real estate - construction		66		96		101		263		58,087		58,350		-
Commercial real estate - other		4,131		2,108		3,577		9,816		404,568		414,384		952
Consumer - credit card		24		2		15		41		6,766		6,807		15
Consumer - other		421		134		186		741		83,013		83,754		-
Residential - construction		-		-		-		-		16,984		16,984		-
Residential - prime		1,140		317		1,408		2,865		139,993		142,858		-
Residential - subprime		-		-		-		-		-		-		-
Other loans		87		-		-		87		2,292		2,379		-
Finance leases commercial		-		-		-		-		5,769		5,769		-
	$	8,089	$	2,978	$	7,867	$	18,934	$	1,028,006	$	1,046,940	$	1,986

	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
As of December 31, 2011
Commercial, financial, and agricultural	$	622	$	242	$	1,856	$	2,720	$	220,563	$	223,283	$	64
Commercial real estate - construction		673		166		358		1,197		40,266		41,463		-
Commercial real estate - other		3,185		-		1,878		5,063		275,735		280,798		-
Consumer - credit card		79		-		19		98		5,102		5,200		19
Consumer - other		410		193		269		872		63,908		64,780		8
Residential - construction		-		-		-		-		11,249		11,249		-
Residential - prime		2,457		469		685		3,611		109,971		113,582		140
Residential - subprime		-		-		-		-		-		-		-
Other loans		118		-		-		118		1,556		1,674		-
Finance leases commercial		-		-		-		-		4,276		4,276		-
	$	7,544	$	1,070	$	5,065	$	13,679	$	732,626	$	746,305	$	231

Impaired Loans by Class of Loans

Impaired Loans by Class of Loans

(in thousands)

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
As of December 31, 2012
With no related allowance recorded:
Commercial, financial, and agricultural	$	564	$	675	$	-	$	861	$	5
Commercial real estate – construction		771		770		-		834		1
Commercial real estate – other		2,530		3,059		-		1,780		38
Consumer – other		114		122		-		81		1
Residential – prime		1,575		1,575		-		1,213		26
Subtotal:		5,554		6,201		-		4,769		71
With an allowance recorded:
Commercial, financial, and agricultural		1,072		1,072		391		1,128		21
Commercial real estate – construction		165		165		57		85		7
Commercial real estate – other		381		381		35		811		3
Consumer – other		216		216		114		228		6
Residential – prime		52		52		30		172		4
Subtotal:		1,886		1,886		627		2,424		41
Totals:
Commercial		5,483		6,122		483		5,499		75
Consumer		330		338		114		309		7
Residential		1,627		1,627		30		1,385		30
Grand total:	$	7,440	$	8,087	$	627	$	7,193	$	112

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
As of December 31, 2011
With no related allowance recorded:
Commercial, financial, and agricultural	$	1,157	$	1,248	$	-	$	2,311	$	2
Commercial real estate – construction		897		963		-		4,511		9
Commercial real estate – other		1,029		1,029		-		2,958		31
Consumer – other		48		59		-		65		3
Residential – prime		851		851		-		1,334		28
Finance leases commercial		-		-		-		4		-
Other loans		-		-		-		3		-
Subtotal:		3,982		4,150		-		11,186		73
With an allowance recorded:
Commercial, financial, and agricultural		1,184		1,184		240		1,140		58
Commercial real estate – construction		4		4		2		1,580		-
Commercial real estate – other		1,242		1,242		321		1,639		98
Consumer – other		239		242		98		202		10
Residential – prime		291		291		21		255		1
Subtotal:		2,960		2,963		682		4,816		167
Totals:
Commercial		5,513		5,670		563		14,143		198
Consumer		287		301		98		267		13
Residential		1,142		1,142		21		1,589		29
Other		-		-		-		3		-
Grand total:	$	6,942	$	7,113	$	682	$	16,002	$	240

Modifications by Class of Loans

Modifications by Class of Loans

(in thousands)

	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings as of December 31, 2012:
Commercial, financial, and agricultural		3	$	370	$	353
Real estate - commercial		3		4,983		4,709
			$	5,353	$	5,062

	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings as of December 31, 2011:
Commercial, financial, and agricultural		4	$	447	$	444
Consumer - other		1		14		12
			$	461	$	456

Trouble Debt Restructurings that Subsequently Defaulted

(in thousands)

	December 31, 2012				December 31, 2011
	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Commercial, financial, and agricultural		4	$	259		-	$	-

Loans on Nonaccrual Status

Loans on Nonaccrual Status by Class of Loans

(in thousands)

	December 31, 2012		December 31, 2011
Commercial, financial, and agricultural	$	2,015	$	1,897
Commercial real estate - construction		941		902
Commercial real estate - other		3,017		2,271
Consumer - credit card		-		-
Consumer - other		409		275
Residential - construction		-		-
Residential - prime		2,505		884
Residential - subprime		-		-
Other loans		-		-
Finance leases commercial		-		-
	$	8,887	$	6,229

XML

JUNIOR SUBORDINATED DEBENTURES

12 Months Ended

Dec. 31, 2012

JUNIOR SUBORDINATED DEBENTURES [Abstract]

JUNIOR SUBORDINATED DEBENTURES

11.  JUNIOR SUBORDINATED DEBENTURES

A description of the junior subordinated debentures outstanding is as follows (in thousands):

					December 31,
Date Issued	Maturity Date	Interest Rate		Callable After	2012		2011
February 22, 2001	February 22, 2031		10.20%	February 22, 2011	$	7,217	$	7,217
July 31, 2001 1	July 9, 2031	3 month LIBOR plus 3.30%		July 31, 2006		5,671		-
September 20, 2004	September 20, 2034	3 month LIBOR plus 2.50%		September 20, 2009		8,248		8,248
October 12, 2006 1	October 12, 2036	3 month LIBOR plus 1.85%		June 26, 2011		5,155		-
June 21, 20071	June 21, 2037	3 month LIBOR plus 1.70%		June 15, 2012		3,093		-
					$	29,384	$	15,465

(1) Assumed in PSB acquisition.

The trusts are considered variable-interest entities ("VIE"). The Trusts are not consolidated with the Company since the Company is not the primary beneficiary of the VIE.  Accordingly, the Company does not report the securities issued by the Trusts as liabilities, and instead reports as liabilities the junior subordinated debentures issued by the Company and held by the Trusts, as these are not eliminated in the consolidation.  The Trust Preferred Securities are recorded as junior subordinated debentures on the balance sheets, but subject to certain limitations qualify for Tier 1 capital for regulatory capital purposes.