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  **UNITED STATES SECURITIES AND EXCHANGE COMMISSION****Washington, D.C. 20429****FORM 10-Q**(Mark One)   þ **QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934****For the quarterly period ended June 30, 2007**   o **TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT PF 1`934****For the Transition Period from                      to                     ****Commission File No. 000-52212****MID-AMERICA BANCSHARES, INC.**(Exact name of small business issuer as specified in its charter)TENNESSEE(State or other jurisdiction of incorporation or organization)16-1754596(I.R.S. Employer Identification No.)2019 Richard Jones Road, Nashville, Tennessee 37215(Address of principal executive offices)615-690-5800(Issuer’s telephone number)(Former name, former address and former fiscal year, if changed since last report)     Check whether the registrant (1) 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 periodthat the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.Yes þ       No o     Indicate by check mark whether the registrant is a large accelerated filer, an acceleratedfiler, or a non accelerated filer. See definition “accelerated filer and large accelerated filer”in Rule 12b-2 of the Exchange Act). (Check one):Large accelerated filer o       Accelerated filer o       Non-accelerated filer þ     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 ofthe Exchange Act).Yes o       No þ     State the number of shares outstanding of each of the issuer’s classes of common equity, as ofthe latest practicable date:          Commonstock outstanding, $1.00 par value: 13,934,156 shares at August 7, 2007  
 

 
***TABLE OF CONTENTS*** ***PART I — FINANCIAL INFORMATION*** ***Item 1. Financial Statements*** The unaudited consolidated financial statements of the registrant, Mid-America Bancshares, Inc. (the “Company”) are as follows: Consolidated Balance Sheets — June 30, 2007 and December 31, 2006 Consolidated Statements of Earnings — For the three months and six months ended June 30, 2007 and 2006 Consolidated Statements of Comprehensive Earnings — For the three months and six months ended June 30, 2007 and 2006 Consolidated Statements of Cash Flows — For the six months ended June 30, 2007 and 2006 ***Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations*** ***Item 3. Quantitative and Qualitative Disclosures About Market Risk*** ***Item 4. Controls and Procedures*** ***PART II – OTHER INFORMATION*** ***Item 1. Legal Proceedings*** ***Item 1A. Risk Factors*** ***Item 2. Unregistered Sales of Equity securities and Use of Proceeds*** ***Item 3. Defaults Upon Senior Securities*** ***Item 4. Submission of Matters to a Vote of Security Holders*** ***Item 5. Other Information*** ***Item 6. Exhibits*** ***SIGNATURES*** ***CERTIFICATIONS*** EX - 31.1 SECTION 302 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICEREX - 31.2 SECTION 302 CERTIFICATION OF THE CHIEF FINANCIAL OFFICEREX - 32 SECTION 906 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER & CHIEF FINANCIAL OFFICER Ex-31.1 Sections 302 Certification of the CEO Ex-31.2 Sections 302 Certification of the CFO Ex-32 Section 906 Certification of the CEO and CFO
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***MID-AMERICA BANCSHARES, INC.******Consolidated Balance Sheets******June 30, 2007 and December 31, 2006******(Unaudited)***           June 30,  December 31,   2007  2006   (In Thousands) Assets                 Loans, less allowance for loan losses of $8,237,000and $7,754,000, respectively $764,690  $686,690 Securities:        Available-for-sale, at market (amortized cost — $179,664,000 and$169,391,000, respectively)  176,101   168,395 Held-to-maturity, at amortized cost (market value — $9,528,000and $9,774,000, respectively)  9,740   9,740        Total securities  185,841   178,135                 Restricted equity securities  2,567   2,174 Federal funds sold  20,173   7,145 Interest-bearing deposits in financial institutions  2,639   2,559 Loans held for sale  8,994   5,190        Total earning assets  984,904   881,893          Cash and due from banks  19,929   20,728 Premises and equipment, net  31,732   32,626 Accrued interest receivable  6,046   5,505 Other real estate  438   185 Intangible assets, net  4,310   4,714 Goodwill  19,147   19,147 Other assets  2,857   3,173        Total assets $1,069,363  $967,971                 Liabilities and Stockholders’ Equity                 Deposits $904,665  $823,755 Federal funds purchased  —   5,095 Line of credit  3,500   2,000 Securities sold under repurchase agreements  18,295   11,353 Deferred tax liability  138   1,153 Accrued interest and other liabilities  5,764   5,928 Advances from Federal Home Loan Bank  32,325   15,747        Total liabilities  964,687   865,031                 Stockholders’ equity:        Series A Preferred Stock, authorized 25,000,000 shares  —   — Common stock, $1 par value; authorized 75,000,000 shares, issued13,933,006 and 13,922,956 shares issued and outstanding, respectively  13,933   13,923 Additional paid-in capital  87,919   87,666 Retained earnings  5,023   1,966 Net unrealized losses on available-for-sale securities, net ofincome taxes of $1,364,000 and $381,000, respectively  (2,199)  (615)       Total stockholders’ equity  104,676   102,940                 Total liabilities and stockholders’ equity $1,069,363  $967,971        See accompanying notes to consolidated financial statements (unaudited).
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***MID-AMERICA BANCSHARES, INC.******Consolidated Statements of Earnings******Three Months and Six Months Ended June 30, 2007 and 2006******(Unaudited)***                   Three Months Ended  Six Months Ended   June 30,  June 30,   2007  2006  2007  2006   (In Thousands, Except Per Share Amounts) Interest income:                Interest and fees on loans $15,446  $6,692  $29,906  $12,818 Interest and dividends on taxable securities  1,741   790   3,405   1,418 Interest and dividends on non-taxable securities  471   162   918   267 Interest on Federal funds sold  223   123   568   387 Interest on loans held for sale  65   32   117   55 Interest and dividends on restricted equity securities  37   19   70   33 Interest on interest-bearing deposit in financial institution  28   89   56   114 Other interest income  3   —   6   —              Total interest income  18,014   7,907   35,046   15,092                               Interest expense:                Interest on negotiable order of withdrawal accounts  959   120   1,916   213 Interest on money market and savings accounts  1,399   505   2,627   979 Interest on certificates of deposit over $100,000  3,936   2,012   8,268   3,736 Interest on certificates of deposit — other  3,004   1,204   5,507   2,298 Interest on securities sold under repurchase agreements  169   38   278   51 Interest on Federal funds purchased and other borrowed funds  103   —   158   — Interest on advances from the Federal Home Loan Bank  348   176   585   358              Total interest expense  9,918   4,055   19,339   7,635                               Net interest income before provision for loan losses  8,096   3,852   15,707   7,457 Provision for loan losses  412   102   600   164              Net interest income after provision for loan losses  7,684   3,750   15,107   7,293                               Other income:                Service charges on deposit accounts  589   215   1,137   414 Investment banking fees and commissions, net  417   344   869   668 Mortgage broker fees and fees on mortgage originations  660   338   1,231   625 Gain on sale of SBA loans  30   16   39   89 Title company income  71   68   140   131 Other fees and commissions  295   136   545   254              Total other income  2,062   1,117   3,961   2,181               Other expenses:                Salaries and employee benefits  4,107   2,378   8,368   4,739 Occupancy expenses, net  624   406   1,242   732 Furniture and equipment expense  532   348   1,053   656 Data processing expense  425   196   842   354 Advertising and marketing  86   155   165   252 Printing, postage, stationary and supplies  175   117   336   221 Amortization of intangible assets  204   —   404   — Loss on sale of securities, net  —   —   —   145 Other operating expenses  1,048   464   2,089   900 Loss on disposal of fixed assets  2   —   2   — Loss and expense related to sale of other real estate  —   —   1   —              Total other expenses  7,203   4,064   14,502   7,999                               Earnings before income taxes  2,543   803   4,566   1,475 Income taxes  861   266   1,509   338              Net earnings $1,682   537  $3,057   1,137                               Basic earnings per common share $.12   .08  $.22   .17                               Diluted earnings per common share $.12   .08  $.21   .17              See accompanying notes to consolidated financial statements (unaudited).
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***MID-AMERICA BANCSHARES, INC.******Consolidated Statements of Comprehensive Earnings******Three Months and Six Months and Ended June 30, 2007 and 2006******(Unaudited)***                   Three Months Ended  Six Months Ended   June 30,  June 30,   2007  2006  2007  2006   *(In Thousands)* Net earnings $1,682  $537  $3,057  $1,137                               Other comprehensive loss:                Unrealized losses on available-for-sale securities arising duringperiod, net of taxes of $1,080,000, $442,000, $983,000 and$254,000, respectively  (1,741)  (711)  (1,584)  (411)Reclassification adjustment for losses included in earnings,net of taxes of $55,000 in 2006  —   —   —   90              Other comprehensive loss  (1,741)  (711)  (1,584)  (321)                              Comprehensive earnings (loss) $(59)  (174) $1,473   816              See accompanying notes to consolidated financial statements (unaudited).
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***MID-AMERICABANCSHARES, INC.******Consolidated Statements of Cash Flows******Six Months Ended June 30, 2007 and 2006******Increase (Decrease) in Cash and Cash Equivalents******(Unaudited)***           2007  2006   *(In Thousands)* Cash flows from operating activities:        Interest received $34,214  $14,722 Fees and commissions received  2,738   1,556 Interest paid  (19,136)  (7,295)Cash paid to suppliers and employees  (12,989)  (7,771)Origination of loans held for sale  (61,677)  (28,374)Proceeds from loan sales  59,104   29,707 Income taxes paid  (1,073)  (1,334)       Net cash provided by operating activities  1,181   1,211                 Cash flows from investing activities:        Purchase of available-for-sale securities  (22,874)  (43,024)Proceeds from sales, calls, principal payments and maturitiesof available-for-sale securities  12,580   13,151 Purchase of restricted equity securities  (391)  (175)Loans made to customers, net of repayments  (78,787)  (27,096)Purchase of premises and equipment  (404)  (2,189)Proceeds from sale of fixed assets  19   — Proceeds from sale of other real estate  187   668 Purchase of interest-bearing deposits in financial institutions  (80)  (7,100)Proceeds from sale of repossessed assets  37   —        Net cash used in investing activities  (89,713)  (65,765)                Cash flows from financing activities:        Net increase in non-interest bearing, savings and NOW depositaccounts  73,346   23,870 Net increase in time deposits  7,425   27,495 Proceeds from sale of common stock pursuant to exercise ofstock options  65   92 Increase in securities sold under repurchase agreements  6,942   3,555 Net proceeds from (reduction in) Federal Home Loan Bankadvances, net of repayments  16,578   (1,569)Repayments of Federal funds purchased  (5,095)  — Proceeds from advances from line of credit  1,500   —        Net cash provided by financing activities  100,761   53,443                 Net increase (decrease) in cash and cash equivalents  12,229   (11,111)         Cash and cash equivalents at beginning of period  27,873   33,134                 Cash and cash equivalents at end of period $40,102  $22,023        See accompanying notes to consolidated financial statements (unaudited).
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***MID-AMERICABANCSHARES, INC.******Consolidated Statements of Cash Flows, Continued******Six Months Ended June 30, 2007 and 2006******Increase (Decrease) in Cash and Cash Equivalents******(Unaudited)***           2007  2006   *(In Thousands)* Reconciliation of net earnings to net cash provided by operatingactivities:        Net earnings $3,057  $1,137 Adjustments to reconcile net earnings to net cash provided byoperating activities:        Depreciation, amortization and accretion  1,298   674 Amortization of intangible assets, loan and CD discount  233     Provision for loan losses  600   164 Stock based compensation expense  198   — Restricted equity securities dividend reinvestment  (2)  (27)Loss on sale of securities, net  —   145 Loss on sale of repossessed assets  8   — Loss on sale of other real estate and related expenses  1   — Loss on disposal of fixed assets  2   — (Increase) decrease in loans held for sale  (3,804)  708 Increase in accrued interest receivable  (541)  (373)Increase in accrued interest payable  64   340 Decrease in other liabilities  (260)  (1,087)(Increase) decrease in other assets  327   (470)       Total adjustments  (1,876)  74                 Net cash provided by operating activities $1,181  $1,211                 Supplemental Schedule of Non-Cash Activities:                 Change in unrealized gains (losses) in value of securities available-for sale $(1,584) $321                 Net non-cash transfer from loans to other real estate andrepossessed assets, net $497  $114        See accompanying notes to consolidated financial statements (unaudited).
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***MID-AMERICA BANCSHARES, INC.******Notes to Consolidated Financial Statements******(Unaudited)******Forward-Looking Statements***     Management’s discussion of the Company and management’s analysis of the Company’s operationsand prospects, and other matters, may include forward-looking statements within the meaning of thePrivate Securities Litigation Reform Act of 1995 and other provisions of federal and statesecurities laws. Although the Company believes that the assumptions underlying suchforward-looking statements contained in this Report are reasonable, any of the assumptions could beinaccurate and, accordingly, there can be no assurance that the forward-looking statements includedherein will prove to be accurate. The use of such words as expect, anticipate, forecast, project,and comparable terms should be understood by the reader to indicate that the statement is“forward-looking” and thus subject to change in a manner that can be unpredictable. Factors thatcould cause actual results to differ from the results anticipated, but not guaranteed, in thisReport, include (without limitation) economic and social conditions, competition for loans,mortgages, and other financial services and products, changes in interest rates, unforeseen changesin liquidity, results of operations, and financial conditions affecting the Company’s customers, aswell as other risks that cannot be accurately quantified or completely identified. Many factorsaffecting the Company’s financial condition and profitability, including changes in economicconditions, the volatility of interest rates, political events and competition from other providersof financial services simply cannot be predicted. Because these factors are unpredictable andbeyond the Company’s control, earnings may fluctuate from period to period. The purpose of thistype of information is to provide Form 10-Q readers with information relevant to understanding andassessing the financial condition and results of operations of the Company, and not to predict thefuture or to guarantee results. The Company is unable to predict the types of circumstances,conditions, and factors that can cause anticipated results to change. Except as may be expresslyrequired by applicable law, the Company does not undertake and specifically disclaims any plan orobligations to publicly release the result of any revisions that may be made to any forward-lookingstatements to reflect actual events, changes, circumstances or results.***(1) Basis of Presentation***The unaudited consolidated financial statements include the financial results of Mid-AmericaBancshares, Inc. and the wholly-owned subsidiaries, PrimeTrust Bank and Bank of the South, for thesix months ending June 30, 2007. The comparable period in 2006 includes only the results ofPrimeTrust Bank — see note (2) to the consolidated financial statements.The accompanying consolidated financial statements have been prepared, without audit, pursuant tothe rules and regulations of the Securities and Exchange Commission. Certain information andfootnote disclosures normally included in financial statements prepared in accordance withgenerally accepted accounting principles have been condensed or omitted pursuant to such rules andregulations. Certain prior period financial information has been reclassified to conform withcurrent period presentation.
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***MID-AMERICA BANCSHARES, INC.******Notes to Consolidated Financial Statements******(Unaudited)******(1) Basis of Presentation, Continued***In the opinion of management, the consolidated financial statements contain all adjustments anddisclosures necessary to summarize fairly the financial position of Mid-America Bancshares, Inc.(the “Company”) as of June 30, 2007 and December 31, 2006 and the net earnings for the three andsix months ended June 30, 2007 and 2006, comprehensive earnings for the three and six months endedJune 30, 2007 and 2006, and changes in cash flows for the six months ended June 30, 2007 and 2006.All significant intercompany transactions have been eliminated. The interim consolidated financialstatements should be read in conjunction with the notes to the December 31, 2006 consolidatedfinancial statements. The results for interim periods are not necessarily indicative of results tobe expected for the complete fiscal year.***(2) Share Exchange***Effective September 1, 2006, the Company completed a share exchange with Bank of the South. Foraccounting purposes the transaction was treated as an acquisition of Bank of the South. Inconnection with the acquisition, 6,792,838 shares of the Company’s common stock were issued alongwith $11,000 of cash for fractional shares in exchange for 100% of the outstanding shares of Bankof the South (this represents a 2.1814 to 1 share exchange ratio). This resulted in a purchaseprice of $59,516,000 based on a valuation of the Company’s stock prior to the acquisition of $8.76per share. A summary of the transaction is as follows:       *(In Thousands)* Assets and liabilities of Bank of the South:         Cash and Federal funds $15,323 Loans, net  287,950 Securities  71,532 Fixed assets  14,316 Other assets  4,137 Deposits  (350,164 )Other liabilities  (7,203 )    Net book value  35,891 Value of stock issued  59,516     Excess purchase price $23,625     Allocation of excess purchase price:    Premium on purchased deposits $4,720 Market value adjustment to buildings  4,315 Loan discounts  (2,581 )Deposit discounts  526        6,980 Deferred taxes at 38.29%  (2,673 )       4,307 Initial goodwill  19,318     Total allocation of excess purchase price $23,625     
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***MID-AMERICA BANCSHARES, INC.******Notes to Consolidated Financial Statements******(Unaudited)******(3) Allowance for Loan Losses***We believe that our determination of the allowance for loan loss is an important judgment andestimate used in the preparation of our consolidated financial statements. The allowance for loanlosses is an amount that management believes will be adequate to absorb estimated losses in theloan portfolio. The calculation is an estimate of the amount of loss in the loan portfolios of oursubsidiary banks. A formal review is prepared quarterly by the Credit Administration Officer toassess the risk in the portfolio and to determine the adequacy of the allowance for loan losses.The review includes analysis of historical performance, the level of non-performing and adverselyrated loans, specific analysis of certain problem loans, loan activity since the previousassessment, consideration of current and anticipated economic conditions, and other pertinentinformation. The level of the allowance to net loans outstanding will vary depending on theoverall results of this quarterly assessment. The review is presented to and subsequently approvedby the Board of Directors.The Company uses a 9 point rating system for its loans. Ratings of 1 to 5 are considered passratings, 6 is special mention, 7 is substandard, 8 is doubtful and 9 is loss. These ratings areinitially assigned by the loan officer and subsequently reviewed and adjusted, when determined tobe appropriate, by the Credit Administration department. A summary of internally graded loans ispresented in Item 2 of this Report.Transactions in the allowance for loan losses were as follows:           Six Months Ended   June 30,   *(In Thousands)*   2007  2006 Balance, January 1, 2007 and 2006, respectively $7,754  $3,649 Add (deduct):        Losses charged to allowance  (162)  (44)Recoveries credited to allowance  45   111 Provision for loan losses  600   164        Balance, June 30, 2007 and 2006, respectively $8,237  $3,880        The provision for loan losses was $600,000 and $164,000 for the first six months of 2007 and 2006.The provision for loan losses is based on past loan experience for comparable institutions andother factors which, in management’s judgment, deserve current recognition in estimating loanlosses. Such factors include growth and composition of the loan portfolio, review of specific loanproblems, the relationship of the allowance for loan losses to outstanding loans, and current andanticipated economic conditions that may affect the borrower’s ability to repay. Management has inplace a system designed to identify and monitor problems on a timely basis.
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***MID-AMERICA BANCSHARES, INC.******Notes to Consolidated Financial Statements, Continued******(Unaudited)******(4) Earnings Per Share***Statement of Financial Accounting Standards (SFAS) No. 128 “Earnings Per Share” establishes uniformstandards for computing and presenting earnings per share. SFAS No. 128 replaces the presentationof primary earnings per share with the presentation of basic earnings per share and dilutedearnings per share. The computation of basic earnings per share is based on the weighted averagenumber of common shares outstanding during the period. For the Company the computation of dilutedearnings per share begins with the basic earnings per share plus the effect of common sharescontingently issuable from stock options. Shares outstanding at June 30, 2006 have been adjustedto reflect a 2 for 1 stock split as of August 31, 2006.The following is a summary of the components comprising basic and diluted earnings per share (EPS)for the three months and six months ended June 30, 2007 and 2006:           Three Months Ended   June 30, *(In Thousands, except share amounts)* 2007  2006 Basic EPS Computation:        Numerator – net earnings available to common shareholders $1,682  $537        Denominator — weighted average number of common sharesoutstanding  13,932,290   6,790,510                 Basic earnings per common share $.12  $.08                 Diluted EPS Computation:        Numerator — net earnings available to common shareholders $1,682  $537        Denominator:        Weighted average number of common shares outstanding  13,932,290   6,790,510 Dilutive effect of stock options  689,056   103,846           14,621,346   6,894,356                 Diluted earnings per common share $.12  $.08                   Six Months Ended   June 30, *(In Thousands, except share amounts)* 2007  2006 Basic EPS Computation:        Numerator – net earnings available to common shareholders $3,057  $1,137        Denominator — weighted average number of common sharesoutstanding  13,929,929   6,784,972                 Basic earnings per common share $.22  $.17                 Diluted EPS Computation:        Numerator — net earnings available to common shareholders $3,057  $1,137        Denominator:        Weighted average number of common shares outstanding  13,929,929   6,784,972 Dilutive effect of stock options  708,675   103,846           14,638,604   6,888,818                 Diluted earnings per common share $.21  $.17        
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***MID-AMERICA BANCSHARES, INC.******Notes to Consolidated Financial Statements, Continued******(Unaudited)******(5) Employee Based Compensation Plans*****Stock Options**Pursuant to the share exchange which became effective on September 1, 2006, the Company assumed thebanks’ respective obligations under the PrimeTrust Bank 2001 Statutory-Nonstatutory Stock OptionPlan, the PrimeTrust Bank 2005 Statutory-Nonstatutory Stock Option Plan and the Bank of the South2001 Stock Option Plan. Options previously granted under these plans will continue to beexercisable for shares of holding company stock. All options related to the PrimeTrust Bank planswere converted at a ratio of 2 for 1 and all options related to Bank of the South plans wereconverted at a ratio of 2.1814 to 1. All options related to the previous plans of PrimeTrust Bankand Bank of the South were fully vested and thus exercisable. No other options can be issued underthe previous plans. Options issued under these bank plans are now exercisable solely for commonstock of the Company rather than for securities of the respective bank.The directors and shareholders of Mid-America Bancshares, Inc. adopted the Mid-America Bancshares,Inc. 2006 Omnibus Equity Incentive Plan (“Company Plan”) on September 1, 2006. The EquityIncentive Plan will be utilized for future Equity Incentive Awards. Awards granted under theEquity Incentive Plan will be in addition to stock options that may be exercised under the banks’respective plans. The Company plan provides for granting of stock options, and authorizes theissuance of common stock upon the exercise of such options for up to one million shares (1,000,000)of common stock to the employees and directors of the Company. Under the Company Plan, stockoption awards may be granted in the form of incentive stock options, non-qualified stock options,stock appreciation rights, restricted shares, stock units, performance units and other awards.They are generally exercisable for ten years following the date such award is granted.**Restricted Equity Incentive Plan**The Company has authorized the issuance of shares of its common stock for restricted stock awardsto executive employees and non-employee directors. At December 31, 2006, the Board had granted260,000 restricted shares. The recipients have the right to vote and receive dividends but cannotsell, transfer, assign, exchange, pledge, hypothecate or otherwise encumber the shares so long asrestrictions apply. Restrictions lapse at the rate of 10% each year of service. The firstrestrictions lapse on September 1, 2007, and at that time 10% of the shares so granted will becomerestricted.Statement of Financial Accounting Standards No. 123 (Revised 2004) SFAS No. 123R, “Share-BasedPayment” was adopted by the Company as of January 1, 2006. This accounting standard revisesStatement of Financial Accounting Standards No. 123 (SFAS No. 123), “Accounting for Stock-BasedCompensation” by requiring that all share-based payments to employees, including grants of employeestock options, be recognized in the financial statements based on their fair values at the date ofgrant.
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***MID-AMERICA BANCSHARES, INC.******Notes to Consolidated Financial Statements, Continued******(Unaudited)******(5) Employee Based Compensation Plans, Continued*****Restricted Equity Incentive Plan, Continued**A summary of the activity within the equity incentive plans during the six months ended June 30,2007 and information regarding expected vesting, contractual terms remaining, intrinsic values andother matters is as follows:                       *Incentive*  *Stock*      *Non-*      *Stock*  *Appreciation*  *Restricted*  *Qualified*      *Options*  *Rights*  *Stock*  *Stock Options*  *Total* Outstanding at December 31, 2006  622,191   36,150   260,000   565,704   1,484,045                      Granted  —   —   —   4,000   4,000                      Exercised  (10,050 )  —   —   —   (10,050 )                     Forfeited or expired  (11,616 )  (2,550 )  —   —   (14,166 )                                     Outstanding at June 30, 2007  600,525   33,600   260,000   569,704   1,463,829                                      Exercisable at June 30, 2007  600,525   —   —   50,704   651,229                                      Weighted average exercise price forshares outstanding $7.49  $8.76  $8.76  $8.44                                           Weighted average exercise price forshares exercisable $7.49   —   —  $5.00                                           Remaining weighted average contractuallife for shares outstanding, in years  6.97   9.18   9.18   8.76                                           Remaining weighted average contractuallife for shares exercisable, in years  6.97   —   —   4.46                                           Aggregate intrinsic values of sharesoutstanding $2,376,082  $90,384  $699,400  $1,714,191                                           Aggregate intrinsic value of exercisableshares $2,376,082  $—  $—  $327,041                      As of June 30, 2007, the Company had recorded an estimated $3,108,000 of total unrecognizedcompensation expense related to unvested share-based compensation arrangements granted under ourequity incentive plans. That expense is expected to be recognized over a weighted-average periodof 4.75 years.
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***MID-AMERICA BANCSHARES, INC.******Notes to Consolidated Financial Statements, Continued******(Unaudited)******(5) Employee Based Compensation Plans, Continued*****Restricted Equity Incentive Plan, Continued**During the three month and six month period ended June 30, 2007, we recorded stock-basedcompensation expense for stock-based awards granted after January 1, 2006, based on fair valueestimated using the Black-Scholes valuation model. For these awards, we have recognizedcompensation expense using a straight-line amortization method reduced for estimated forfeitures.The impact of recording stock-based compensation in accordance with SFAS No. 123(R) for the threemonth and six month period ended June 30, 2007 is as follows:           Three Months  Six Months   Ended June 30,  Ended June 30,   2007  2007   *(In Thousands)* Stock-based compensation expense $96  $198 Deferred income tax benefit  (37)  (76)       Impact of stock-basedcompensation expense,after tax effect $59  $122        For 2007 the fair value of each equity incentive award is estimated on the date of grant using theBlack-Scholes valuation model that uses the assumptions noted in the following table. Expectedvolatilities are based on monthly calculations performed by management using industry data. TheCompany’s expected dividend yield is based on future projections of income and capital level tosupport anticipated growth. The expected term of equity incentives granted was calculated usingthe “simplified” method for plain vanilla options as explained in Staff Accounting Bulletin 107.The risk-free rate for periods within the contractual life of the equity incentive is based on theU.S. Treasury yield curve in effect at the time of grant.               2006/2007  Stock      Appreciation Restricted Stock  Rights Stock OptionsExpected volatility  15.20 %  15.20 % 14.30% to 15.20%Expected dividend yield  1.00 %  1.00 %  1.00 %Expected term, in years  6.50   7.75   7.00 Risk-free rate  4.69 %  4.69 % 4.51% to 4.69%Expected volatility was most recently calculated at 14.37% based upon the consideration ofhistorical and implied volatility of similar publicly traded companies.Prior to December 31, 2005, the Company approved the acceleration of vesting of all of its equityincentives that had been granted prior to adoption of SFAS No. 123R. The impact was to eliminate$289,000 from net earnings for periods subsequent to January 1, 2006.
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***MID-AMERICA BANCSHARES, INC.******Notes to Consolidated Financial Statements, Continued******(Unaudited)******(6) Acquisition***As referenced in the “Share Exchange”, at note 2 we consummated our share exchange, which we regardas a “merger of equals,” on September 1, 2006. For accounting purposes, the transaction wastreated as if the shareholders of PrimeTrust Bank had formed a holding company, exchanged theirshares of PrimeTrust Bank for the holding company’s shares, and then acquired Bank of the South.In the share exchange, shareholders of PrimeTrust Bank received 2.00 shares of MBI stock for eachshare of PrimeTrust Bank stock and shareholders of Bank of the South received 2.1814 shares of MBIstock for each share of Bank of the South stock. Immediately prior to the acquisition of Bank ofthe South, a reorganization of PrimeTrust Bank occurred whereby 100% of the stock of PrimeTrustBank was exchanged for 100% of the stock of Mid-America Bancshares, Inc. and then a two-for-onesplit occurred resulting in 6,814,462 shares being issued to PrimeTrust Bank shareholders. Inconnection with the acquisition (share exchange), 6,792,838 shares of Mid-America Bancshares, Inc.were issued to Bank of the South shareholders which results in a 2.1814 exchange ratio to the Bankof the South shareholders. The proforma share exchange was valued at $8.76 per share. All pershare amounts for 2006 have been retroactively adjusted to reflect the impact of the two for onestock split in PrimeTrust Bank stock.Proforma results of operations for the six months ended June 30, 2006 are as follows:                       June 30, 2006   *(In Thousands)*       Mid-         Bank of the  America         South  Bancshares  Pro Forma Adjustments  Pro Forma   (6)  (7)  Dr.  Cr.  Combined Interest income $12,333   15,092       310 (1)  27,735 Interest expense  5,656   7,635   139 (2)      13,430                   Net interest income  6,677   7,457           14,305 Provision for loan losses  (184 )  (164 )          (348 )                  Net interest income afterprovision for loan losses  6,493   7,293           13,957  Non-interest income  1,451   2,181           3,632 Non-interest expense  5,748   7,999   337 (3)                                      54 (4)      14,138                     Income before incometaxes  2,196   1,475           3,451 Income tax expense  763   338       85 (5)  1,016                   Net income $1,433   1,137           2,435                   Proforma per share information:                    Basic earnings per commonshare                 $.18                     Diluted earnings per commonshare                 $.18                     Weighted average shareoutstanding:                    Basic                  13,307,168                     Diluted                  13,615,837                      (1) Amortization of loan discount for 6 months ($2,581,000 over 4.2 years). (2) Amortization of certificate of deposit discount for 6 months ($526,000 in various amounts over 4 years). (3) Amortization of core deposits — base premium for 6 months ($4,720,000 over 7 years). (4) Additional depreciation of step-up of fixed asset for 6 months. (5) Income tax benefit related to amortization of intangible assets for 6 months. (6) Actual Bank of the South results for the 6 months ended June 30, 2006. (7) Actual PrimeTrust Bank results for the 6 months ended June 30, 2006.
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***MID-AMERICA BANCSHARES, INC.******Notes to Consolidated Financial Statements, Continued******(Unaudited)******(7) Acquired Intangible Assets and Goodwill***In connection with the share exchange certain intangible assets were acquired and goodwill arosesummarized as follows:       *In Thousands* *Intangibles:*    Deposit base premium $4,720          Accumulated amortization as of June 30, 2007 $578          Amortization expense for the six months endedJune 30, 2007 $354          Estimated amortization expense:    Remaining for 2007 $361 For year ended 2008  704 For year ended 2009  704 For year ended 2010  704 For year ended 2011  704 For year ended 2012  704 The deposit base premium is being amortized on a straight-line basis over 7 years.       *In Thousands* *Goodwill:*    Balance January 1, 2007 $19,147      Goodwill acquired during 2007  —          Balance June 30, 2007 $19,147     Goodwill will be evaluated for impairment annually.In connection with its acquisition of Academy Bank; Bank of the South entered into certainnon-compete agreements. One agreement totaling $288,000 covers a five year non-compete period andcertain other agreements totaling $112,000 cover two year periods. All agreements commencedeffective June 1, 2005 and are being amortized on a straight-line basis over the lives of theirrespective contracts.
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***MID-AMERICA BANCSHARES, INC.******Notes to Consolidated Financial Statements, Continued******(Unaudited)******(7) Acquired Intangible Assets and Goodwill, Continued***In addition to the deposit base premium and goodwill the transaction to acquire Bank of the Southresulted in additional allocations of excess purchase price including a loan discount of$2,581,000, a discount on time deposits of $526,000 and a mark to market adjustment of $4,315,000related to real estate. These items are included in their respective categories in the attachedfinancial statements. The amortization of the loan discounts and deposit will be reflected asyield adjustments and the real estate market adjustment will be depreciated. The following is asummary of the amortization and depreciation of these items for the next five years.                               Real Estate                Loan Discount Time              Discount Adjustment Deposit            Remaining for 2007  (312 ) 54    80            Year ended 2008  (620 ) 108    102            Year ended 2009  (620 ) 108    85            Year ended 2010  (513 ) 108    28            Year ended 2011  —  108    —            Year ended 2012  —  108    —                                     Amortization/(accretion)depreciation period4.2 Years 40 years  Various          
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***MID-AMERICA BANCSHARES, INC.******FORM 10-Q******Item 2.******Management’s Discussion and Analysis of Financial Condition and Result ofOperations******General***     Mid-America Bancshares, Inc. is a two-bank holding company headquartered in Nashville,Tennessee. We began operations as a result of the share exchange between PrimeTrust Bank, a statebank chartered under Tennessee law, that began operations on December 17, 2001, and Bank of theSouth, a state bank chartered under Tennessee law that began operations on April 30, 2001. Bothbanks offer a wide range of banking services including checking, savings, money market accounts,certificates of deposit, and loans for consumer, commercial and real estate purposes. The companyserves individuals, small to medium-sized businesses, community organizations, and public entities.Our deposits are insured to the extent provided by law through the Bank Insurance Fund administeredby the FDIC. The company is subject to regulations, supervisions and examinations by the TennesseeDepartment of Financial Institutions, the FDIC, the Federal Reserve, and the Securities andExchange Commission. However, such regulations, supervisions and examinations are for theprotection of the consumers, the Deposit Insurance Fund administered by the FDIC, and the bankingsystem, and not for the protection of investors or shareholders. We seek to exercise prudent riskmanagement and lending including diversification of loan category and industry segment, as well asby an identification of credit risks.     We employ approximately 242 staff members in 14 offices located in six contiguous counties inMiddle Tennessee. On June 6, 2007, we relocated out headquarters to 2019 Richard Jones Road,Nashville, Tennessee 37215.     Both banks provide full-service brokerage services (selling products such as stocks, bonds,mutual funds, limited partnerships, annuities and other investments, insurance products) throughthe network arrangement with Raymond James Financial Services, a non-affiliated company. Thecompany benefits from the commissions generated through this arrangement.     At June 30, 2007, total assets equaled $1.07 billion, total loans equaled $764.7 million,total deposits equaled $904.7 million, and shareholders’ equity equaled $104.7 million. The growthin our balance sheet increased substantially from the second quarter of 2006 when total assetsequaled $472.8 million, total loans, net of allowance for loan losses, equaled $328.6 million,total deposits equaled $410.4 million, and shareholders’ equity equaled $39.3 million. Assetsincreased $417 million, net loans increased $288 million, deposits increased $350 million andstockholders’ equity increased $60 million related to the merger of equals with Bank of the Southeffective September 1, 2006.     We recorded net-income of $3,057,000 (basic earnings per common share of $0.22) and $1,137,000for the six months ended June 30, 2007 and 2006, respectively, an increase 168.9%.     We recorded net-income of $1,682,000, (basic earnings per common share of $0.12) for thesecond quarter of 2007. This increased 213.2% when compared to our second quarter results in 2006of net income of $537,000, and represents a 50.0% increase in basic earnings per share. The rapidincrease of growth in both our asset base and our income level is a combined result of the mergerof equals with the Bank of the South, which was consummated on September 1, 2006, and internalorganic growth.
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***MID-AMERICA BANCSHARES, INC.******FORM 10-Q******Item 2.*** ***Management’s Discussion and Analysis of Financial Condition and Result of Operations, Continued******General, Continued***     Since December 31, 2006, we have experienced substantial growth in our combined company. Totalassets have increased $101.4 million, or 10.5%, from $968.0 million at December 31, 2006 to $1.07billion at June 30, 2007. This asset growth is primarily a result of the increase in our net loanportfolio by $78.0 million or 11.4%.     We have experienced substantial growth in our deposit base. Total deposits have increased$80.9 million since December 31, 2006, from a level of $823.8 million to $904.7 million as of June30, 2007. Our Federal Home Loan Bank borrowings increased by $16.6 million from a level of $15.7million to $32.3 million. These funds were used as part of the funding for our loan and investmentportfolio. Our equity increased $1,736,000 (1.7%) since December 31, 2006. This is primarily aresult of earnings of $3,057,000, an increase in the unrealized loss on available-for-salesecurities net of tax benefits of $1,584,000, $65,000 from the exercise of vested options and$198,000 from stock based compensation.     The purpose of this discussion is to provide insight into the financial conditions and resultsof operations of Mid-America Bancshares, Inc. This discussion should be read in conjunction withthe annual financial statements filed in conjunction with the forms 10-K and 10-KSB from previousyears. The following is a discussion of our financial condition at June 30, 2007 and December 31,2006.     Although both banks continue to operate as separate entities and both remain separatelychartered banks, for purposes of the discussion that follows, reference to the Company includesboth banks unless otherwise noted.***Critical Accounting Policies***     The accounting principles we follow and our methods of applying these principles conform withaccounting principles generally accepted in the United States and with general practices within thebanking industry. In connection with the application of those principles to the determination ofour allowance for loan losses (ALL), we have made judgments and estimates which have significantlyimpacted our financial position and results of operations.     Our management assesses the adequacy of the ALL on a regular basis. This assessment includesprocedures to estimate the ALL and test the adequacy and appropriateness of the resulting balance.The ALL consists of two portions: (1) an allocated amount representative of specifically identifiedcredit exposure and exposures readily predictable by historical or comparative experience, and (2)an unallocated amount representative of inherent loss which is not readily identifiable. Eventhough the ALL is composed of two components, the entire allowance is available to absorb anycredit losses.
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***MID-AMERICA BANCSHARES, INC.******FORM 10-Q CONTINUED******Item 2.******Management’s Discussion and Analysis of Financial Condition and Result of Operations,Continued******Critical Accounting Policies, Continued***     We establish the allocated amount separately for two different risk groups (1) unique loans(commercial loans, including those loans considered impaired); and (2) homogenous loans (generallyconsumer loans). We base the allocation for unique loans primarily on risk rating grades assignedto each of these loans as a result of our loan management and review processes. Each risk-ratinggrade is assigned an estimated loss ratio, which is determined based on the experience ofmanagement, discussions with banking regulators, historical and current economic conditions and ourindependent loanreview process. We estimate losses on impaired loans based on estimated cash flows discounted atthe loan’s original effective interest rate or the underlying collateral value. We also assignestimated loss ratios to our consumer portfolio. However, we base the estimated loss ratios forthese homogenous loans on the category of consumer credit (e.g., automobile, residential mortgage,home equity) and not on the results of individual loan reviews.     The unallocated amount is particularly subjective and does not lend itself to the exactmathematical calculation. We use the unallocated amount to absorb inherent losses which may existas of the balance sheet date for such matters as changes in the local or national economy, thedepth or experience of the lending staff, any concentrations of credit in any particular industrygroup, and new banking laws or regulations. After we assess applicable factors, we evaluate theaggregate unallocated amount based on our management’s experience.     We then test the resulting ALL balance by comparing the balance in the allowance account tohistorical trends and peer information. Our management then evaluates the result of the proceduresperformed, including the result of our testing, and concludes on the appropriateness of the balanceof the ALL in its entirety. The Loan Review Committee and the Board of Directors review theassessment prior to the filing of financial information.***Results of Operations***     The Company had earnings of $1,682,000 and $3,057,000 for the three and six months ended June30, 2007 as compared to earnings of $537,000 and $1,137,000 for the same period in 2006. Theincrease is primarily a result of continued growth in the assets of the Company and the shareexchange previously discussed. On a per share basis, the net earnings for the three months endedJune 30, 2007 resulted in basic and diluted earnings per common share of $.12, and basic anddiluted earnings per share of $.22 and $.21, respectively for the six months ended June 30, 2007.For the same periods in 2006 the net earnings resulted in basic and diluted earnings per commonshare of $.08, and basic and diluted earnings per common share of $.17.
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***MID-AMERICA BANCSHARES, INC.******FORM 10-Q, CONTINUED******Item 2.******Management’s Discussion and Analysis of Financial Condition and Result of Operations,Continued******Net Interest Income***     Net interest income represents the amount by which interest earned on various earning assetsexceeds interest paid on deposits and other interest-bearing liabilities and is the mostsignificant component of the Company’s earnings. Total interest income for the six months endedJune 30, 2007 and 2006 was $35,046,000 and $15,092,000, respectively. Total interest expense forthe six months ended June 30, 2007 and 2006 was $19,339,000 and $7,635,000, respectively. Thisresulted in an increase in net interest income of $8,250,000 or 110.6% during the six months endedJune 30, 2007 as compared to the comparable period in the prior year. Total interest income forthe three months ended June 30, 2007 and 2006 was $18,014,000 and $7,907,000, respectively. Totalinterest expense for the three months ended June 30, 2007 and 2006 was $9,918,000 and $4,055,000.This resulted in an increase in net interest income of $4,244,000 or 11.2% during the three monthsended June 30, 2007. Net interest income increased as a result of continued growth of the Companyand the share exchange previously discussed. Managing interest rate risk is a very subjectiveexercise based on a wide variety of factors. This activity is based significantly on management’ssubjective beliefs about future events (such as potential actions of the Federal Reserve Board andthe conduct of competitors) and is never guaranteed.***Provision for Loan Losses***     The Company has designed a system calculated and intended to identify weaknesses or losses inits loan portfolio. The provision for loan losses represents a charge to earnings necessary toestablish an allowance for loan losses that, in management’s evaluation, is adequate to providecoverage for estimated losses on outstanding loans and to provide for uncertainties in the economy.The provision for loan losses was $412,000 and $600,000 for the three and six months ended June30, 2007, respectively. The provision for loan losses was $102,000 and $164,000 for the sameperiods in 2006.     The allowance for loan losses at June 30, 2007 was $8,237,000 an increase of 6.2% from$7,754,000 at December 31, 2006. The level of the allowance and the amount of the provisioninvolve evaluation of uncertainties and matters of judgment. Management believes the allowance forloan losses at June 30, 2007 to be adequate. The allowance for loan losses was 1.07% and 1.12% ofloans at June 30, 2007 and December 31, 2006, respectively. Asset quality continues to beexcellent in that net charge-offs for the second quarter were $81,000, year to date net charge-offswere $117,000 or .02% of total loans. As a result of the combination of PrimeTrust Bank and Bankof the South, our scope of the internal loan review process has expanded. In addition, bothBank’s, while they remain separately chartered, utilize the same loan grading matrix. As a resultof this change, our continued excellent history of asset quality, as evidenced by our nominalcharge-off amount, and our expanded loan review process, we have been able to improve the accuracyof our risk grading criteria. Thus, our allowance target has been adjusted.
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***MID-AMERICA BANCSHARES, INC.******FORM 10-Q, CONTINUED******Item 2.******Management’s Discussion and Analysis of Financial Condition and Result of Operations,Continued******Non-Interest Income***     The Company’s non-interest income consists of service charges on deposit accounts, gain onsale of SBA loans, investment banking fees and commissions, mortgage broker fees and fees onmortgage originations, title company income, and other fees and commissions. Non-interest incomeincreased $1,780,000 or 81.6% to $3,961,000 during the six months ended June 30, 2007 as comparedto the same period in 2006. The increase for the quarter endedJune 30, 2007 was $945,000 or 84.6%as compared to the same period in 2006. Non-interest income continues to increase as managementachieves service and product growth. Management projects that other fees, commissions, investmentbanking fees and commissions, mortgage broker fees and fees on mortgage originations, title companyincome and service charges on deposit accounts will increase for the remainder of 2007 due to theexpected growth of the Company.***Non-Interest Expense***     Non-interest expense consist primarily of salaries and employee benefits, occupancy expenses,furniture and equipment expenses, data processing expense, advertising expense, printing, postage,stationary and supplies, loss on disposal of fixed assets and other operating expenses.Non-interest expense, exclusive of securities losses increased $6,648,000 or 84.6% to $14,502,000during the six months ended June 30, 2007 as compared to the same period in 2006. The increase forthe three months ended June 30, 2007 was $3,139,000 or 77.2% as compared to the same period in2006. The increases in non-interest expense are attributable primarily to increases in salariesand benefits and occupancy expenses due to continued growth of the Company and the merger of equalspreviously discussed. Other operating expenses for the six months ended June 30, 2007 increased to$2,089,000 from $900,000 from the first six months of 2006. These expenses include taxes,professional fees, directors fees and general operating costs which increased as a result ofcontinued growth of the Company. A significant portion of this increase is directly attributableto the share exchange with a significant amount of this expense resulting from increased fees dueto compliance with expanded SEC reporting and preparation for compliance with the Sarbanes-OxleyAct.***Income Taxes***     Income taxes were $861,000 and $1,509,000 for the three and six months ended June 30, 2007,respectively. Because of net operating loss carryovers the Company did not become fully taxableuntil 2006. As a result, income tax expense for the three and six months ended June 30, 2006 was$266,000 and $338,000, respectively.
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***MID-AMERICA BANCSHARES, INC.******FORM 10-Q, CONTINUED******Item 2.******Management’s Discussion and Analysis of Financial Condition andResult of Operations, Continued******Financial Condition***     ***Balance Sheet Summary***     The Company’s total assets were $1,069,363,000 and $967,971,000 at June 30, 2007 and December31, 2006, respectively. Loans, net of allowance for loan losses, totaled $764,690,000 and$686,690,000 at June 30, 2007 and December 31, 2006, respectively, and investment securitiestotaled $185,841,000 and $178,135,000, respectively. Restricted equity securities totaled$2,567,000 and $2,174,000 at June 30, 2007 and December 31, 2006, respectively. Federal funds soldincreased to $20,173,000 from $7,145,000 at December 31, 2006. Interest bearing deposits infinancial institutions increased to $2,639,000 at June 30, 2007 from $2,559,000 at December 31,2006. These consist mostly of overnight deposits at the Federal Home Loan Bank.     Total liabilities were $964,687,000 and $865,031,000 at June 30, 2007 and December 31, 2006,respectively, and stockholders’ equity was $104,676,000 and $102,940,000 at June 30, 2007 andDecember 31, 2006, respectively. A more detailed discussion of assets, liabilities and capitalfollows.     ***Loans***     Loan categories are as follows:           June 30,  December 31,   2007  2006   *(In Thousands)* Commercial, financial and agricultural $361,350  $324,283 Installment  23,890   22,123 Real estate – mortgage  218,581   183,910 Real estate – construction  167,817   162,312 Lease financing  1,289   1,816        Total $772,927  $694,444             As represented in the table, primary loan growth was in commercial, financial and agriculturaland real estate — mortgage loans. Management is increasing loans in an orderly fashion to maintainquality. As discussed previously, a portion of the loan growth was also achieved through themerger of equals. The loan discounts resulting from the share exchange have been assigned to therespective category to which it was derived.     In the normal course of business the Company’s subsidiaries have made loans at prevailinginterest rates and terms to its executive officers, directors and their affiliates aggregating$17.5 million. As of June 30, 2007 none of these loans were restructured, nor were any relatedparty loans charged off during the past three years nor did they involve more than the normal riskof collectibility or present other unfavorable features.
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***MID-AMERICA BANCSHARES, INC.******FORM 10-Q, CONTINUED******Item 2.******Management’s Discussion and Analysis of Financial Condition and Result of Operations,Continued******Financial Condition, Continued***     ***Loans, Continued***     The Company follows the provisions of Statement of Financial Accounting Standards (“SFAS”) No.114, “Accounting by Creditors for Impairment of a Loan” and SFAS No. 118, “Accounting by Creditorsfor Impairment of a Loan — Income Recognition and Disclosures”. These pronouncements apply toimpaired loans except for large groups of smaller-balance homogeneous loans that are collectivelyevaluated for impairment including credit card, residential mortgage, and installment loans.     A loan is impaired when it is probable that the Company will be unable to collect thescheduled payments of principal and interest due under the contractual terms of the loan agreement.Impaired loans are measured at the present value of expected future cash flows discounted at theloan’s effective interest rate, at the loan’s observable market price, or the fair value of thecollateral if the loan is collateral dependent. If the measure of the impaired loan is less thanthe recorded investment in the loan, the Company shall recognize an impairment by creating avaluation allowance with a corresponding charge to the provision for loan losses or by adjusting anexisting valuation allowance for the impaired loan with a corresponding charge or credit to theprovision for loan losses.     The Company’s first mortgage single family residential and consumer loans which totalapproximately $136,368,000 and $23,890,000, respectively at June 30, 2007, are divided into variousgroups of smaller-balance homogeneous loans that are collectively evaluated for impairment and thusare not subject to the provisions of SFAS Nos. 114 and 118. Substantially all other loans of theCompany are evaluated for impairment under the provisions of SFAS Nos. 114 and 118.     The Company considers all loans subject to the provisions of SFAS Nos. 114 and 118 that are onnonaccrual status to be impaired. Loans are placed on nonaccrual status when doubt as to timelycollection of principal or interest exists, or when principal or interest is past due 90 days ormore unless such loans are well-secured and in the process of collection. Delays or shortfalls inloan payments are evaluated with various other factors to determine if a loan is impaired.Generally, delinquencies under 90 days are considered insignificant unless certain other factorsare present which indicate impairment is probable. The decision to place a loan on nonaccrualstatus is also based on Management’s subjective evaluation of the borrower’s financial condition,collateral, liquidation value, and other factors that affect the borrower’s ability to pay.     Generally, at the time a loan is placed on nonaccrual status, all interest accrued on the loanin the current fiscal year is reversed from income, and all interest accrued and uncollected fromthe prior year is charged off against the allowance for loan losses. Thereafter, interest onnonaccrual loans is recognized as interest income only to the extent that cash is received andfuture collection of principal is not believed to be in doubt. If the collectibility ofoutstanding principal is doubtful, such interest received is applied as a reduction of principal.A nonaccrual loan may be restored to accruing status when principal and interest are no longerpast due and unpaid and future collection of principal and interest on a timely
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***MID-AMERICA BANCSHARES, INC.******FORM 10-Q, CONTINUED******Item 2.******Management’s Discussion and Analysis of Financial Condition and Result of Operations,Continued******Financial Condition, Continued***     ***Loans, Continued***basis is not believed to be in doubt. At June 30, 2007 the Company had $2,868,000 of loans onnonaccrual status and $1,977,000 of loans on non-accrual status as of December 31, 2006. Thisincrease in non-accrual loans is the primary result of three loans that are 75% guaranteed by theSmall Business Administration. Liquidation plans are in progress and specific reserves have beenallocated. We do not anticipate a substantial loss after liquidation of the collateral.     Generally the Company also classifies as impaired any loans the terms of which have beenmodified in a troubled debt restructuring. Interest is accrued on such loans that continue to meetthe modified terms of their loan agreements. At June 30, 2007 and 2006, the Company had no loansthat have had the terms modified in a troubled debt restructuring.     The Company’s charge-off policy for impaired loans is similar to its charge-off policy for allloans in that loans are charged-off in the month when they are considered uncollectible.     As of June 30, 2007, the Company had impaired loans totaling $13,846,000. The amount ofspecific reserve assigned to these loans is $976,000. The total amount of interest recognizedduring the period on impaired loans approximated $741,000 and the average recorded investment forthe six months ended June 30, 2007 was $9,050,000. At December 31, 2006, impaired loans totaled$3,096,000 and had a specific allowance for loan losses of $359,000 allocated. The impaired loansare generally commercial loans and meet the above mentioned criteria for impaired loans. Thisincrease in impaired loans is the primary result of five relationships. Repayment and/orliquidation plans are in place. We do not anticipate any significant loss and each impaired loanhas been specifically allocated to a portion of our loan loss reserve.     Non-performing loans, which include non-accrual loans and loans 90 days past due, at June 30,2007, totaled $4,119,000. There were $2,066,000 of non-performing loans at December 31, 2006.     The following schedule details selected information as to non-performing loans of the Companyat June 30, 2007 and December 31, 2006:                   June 30, 2007  December 31, 2006   Past Due      Past Due      90 Days  Non-Accrual  90 Days  Non-Accrual   *(In Thousands)*  *(In Thousands)* Commercial, financialand agricultural $1,083  $2,082  $30  $1,295 Installment loans  57   243   1   83 Real estate mortgage  98   364   58   581 Real estate -construction  —   179   —   18 Lease financing  13   —   —   —                 $1,251  $2,868  $89  $1,977               Renegotiated loans $—      $—                    
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***MID-AMERICA BANCSHARES, INC.******FORM 10-Q, CONTINUED******Item 2.******Management’s Discussion and Analysis of Financial Condition and Result of Operations,Continued******Financial Condition, Continued***     ***Loans, Continued***     The following tables present internally graded loans as of June 30, 2007 and December 31,2006:                   *(In Thousands)*  Special       June 30, 2007 Total  Mention  Substandard  Doubtful Commercial, financial andagricultural $13,546  $3,934  $8,724  $888 Real estate mortgage  3,940   682   3,258   — Real estate construction  3,368   1,736   1,632   — Installment  471   102   369   — Lease financing  11   —   11   —                $21,336  $6,454  $13,994  $888                                 *(In Thousands)*  Special       December 31, 2006 Total  Mention  Substandard  Doubtful Commercial, financial andagricultural $4,253  $995  $3,258  $— Real estate mortgage  2,668   569   2,099   — Real estate construction  2,826   2,740   86   — Installment  321   69   252   — Lease financing  —   —   —   —                $10,068  $4,373  $5,695  $—                   The outstanding balance of our internally graded loans increased by approximately $11.3million from a level of $10.0 million at December 31, 2006 to a level of $21.3 million at June 30,2007. This increase has been discussed previously in the impaired loans section.     The collateral values at June 30, 2007, based on estimates received by management, securinginternally graded loans total approximately $30,737,000 ($20,866,000 related to real estate loansand $9,871,000 related to commercial and other non-real estate loans). Such loans are listed asclassified when information obtained about possible credit problems of the borrower has promptedmanagement to question the ability of the borrower to comply with the repayment terms of the loanagreement. The loan classifications do not represent or result from trends or uncertainties thatmanagement expects will materially and adversely impact future operating results, liquidity orcapital resources.
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***MID-AMERICA BANCSHARES, INC.******FORM 10-Q, CONTINUED******Item 2.******Management’s Discussion and Analysis of Financial Condition and Result of Operations,Continued******Financial Condition, Continued***     ***Loans, Continued***     The following detail provides a breakdown of the allocation of the allowance for loan losses:                   June 30, 2007  December 31, 2006       Percent of      Percent of       Loans In      Loans In   In  Each Category  In  Each Category   Thousands  To Total Loans  Thousands  To Total Loans Commercial, financial andagricultural $4,491   46.7 % $4,141   46.7 %Real estate construction  2,090   21.7   2,073   23.4 Real estate mortgage  1,364   28.3   1,245   26.5 Installment  268   3.1   260   3.2 Lease financing  24   0.2   35   0.2                $8,237   100.0 % $7,754   100.0 %                  The Company has targeted commercial business lending, commercial and residential realestate lending and consumer lending as potential growth areas. The Company seeks to build a loanportfolio which is capable to adjusting to swings in the interest rate market, and it is theCompany’s policy to maintain a diverse loan portfolio not dependent on any particular market orindustrial segment.***Securities***     Securities totaled $185,841,000 and $178,135,000 at June 30, 2007 and December 31, 2006,respectively, and are a primary component of the Company’s earning assets. Restricted equitysecurities, which consists primarily of investments in FHLB stock, totaled $2,567,000 and$2,174,000 at June 30, 2007 and December 31, 2006, respectively. The Company has adopted theprovisions of Statement of Financial Accounting Standards No. 115 (SFAS No. 115), “Accounting forCertain Investments in Debt and Equity Securities”. Under the provisions of the Statement,securities are to be classified in three categories and accounted for as follows: **•** Debt securities for which the enterprise has the positive intent and ability to hold tomaturity are classified as held-to-maturity securities and reported at amortized costs.  **•** Debt and equity securities that are bought and held principally for the purpose ofselling them in the near term are classified as trading securities and reported at fairvalue, with unrealized gains and losses included in earnings.  **•** Debt and equity securities not classified as either held-to-maturity securities ortrading securities are classified as available-for-sale securities and reported at fairvalue, with unrealized gains and losses excluded from earnings and reported in a separatecomponent of stockholders’ equity.
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***MID-AMERICA BANCSHARES, INC.******FORM 10-Q, CONTINUED******Item 2.******Management’s Discussion and Analysis of Financial Condition and Result of Operations,Continued******Financial Condition, Continued******Securities, Continued***     The Company’s classification of securities as of June 30, 2007 and December 31, 2006 are asfollows:                   Available-for-Sale   June 30, 2007  December 31, 2006   *(In Thousands)*       Estimated      Estimated   Amortized  Market  Amortized  Market   Cost  Value  Cost  Value U.S. Treasury and other U.S.Governmentagencies and corporations $59,204  $58,529  $59,219  $58,991 Mortgage-backed securities  81,204   79,047   76,281   75,343 Obligations of states and politicalsubdivisions  37,756   37,034   32,391   32,570 Corporate bonds  900   891   900   891 Equity investment  600   600   600   600                $179,664  $176,101  $169,391  $168,395                                 Held-to-Maturity   June 30, 2007  December 31, 2006   *(In Thousands)*       Estimated      Estimated   Amortized  Market  Amortized  Market   Cost  Value  Cost  Value Obligation of states and politicalsubdivisions $9,740  $9,528  $9,740  $9,774                $9,740  $9,528  $9,740  $9,774                   There were no securities classified as trading during 2007 or 2006.***Deposits***     Deposits, which in the future are expected to be the principal source of funds for theCompany, totaled $904,665,000 and $823,755,000 at June 30, 2007 and December 31, 2006,respectively. The Company has targeted local consumers, professionals, local governments andcommercial businesses as its central clientele; therefore, deposit instruments in the form ofdemand deposits, savings accounts, money market demand accounts, certificates of deposits andindividual retirement accounts are offered to customers.
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***MID-AMERICA BANCSHARES, INC.******FORM 10-Q, CONTINUED******Item 2.******Management’s Discussion and Analysis of Financial Condition and Result of Operations,Continued******Financial Condition, Continued***     Management believes the Middle Tennessee area is a growing economic market offering growthopportunities for the Company; however, the Company competes with several of the larger bankholding companies that have bank offices in this area; and therefore, no assurances of marketgrowth can be given. However, even though the Company’s are in a very competitive market,management currently believes that it is possible to increase the Company’s deposit and asset size.Management believes that its position as a locally oriented financial institution that offerspersonalized service will contribute significantly to quality loan and deposit growth and,ultimately, to overall profitability. However, no assurance of continued market growth can begiven.***Liquidity and Asset Management***     The Company’s management seeks to maximize net interest income by managing the Company’sassets and liabilities within appropriate constraints on capital, liquidity and interest rate risk.Liquidity is the ability to maintain sufficient cash levels necessary to fund operations, meet therequirements of depositors and borrowers and fund attractive investment opportunities. TheCompany’s primary source of liquidity is expected to be a stable core deposit base. In addition,short-term investments, loan payments and investment security maturities provide a secondarysource.     The Company maintains a formal asset and liability management process to quantify, monitor andcontrol interest rate risk and to assist management in maintaining stability in the net interestmargin under varying interest rate environments. The Company accomplishes this process through thedevelopment and implementation of lending, funding and pricing strategies designed to maximize netinterest income under varying interest rate environments subject to specific liquidity and interestrate risk guidelines.     Analysis of rate sensitivity and rate gap analysis are the primary tools used to assess thedirection and magnitude of changes in net interest income resulting from changes in interest rates.Included in the analysis are cash flows and maturities of financial instruments held for purposesother than trading, changes in market conditions, loan volumes and pricing and deposit volume andmix. These assumptions are inherently uncertain, and, as a result, net interest income cannot beprecisely estimated nor can the impact of higher or lower interest rates on net interest income beprecisely predicted. Actual results will differ due to timing, magnitude and frequency ofinterest rate changes and changes in market conditions and managements strategies, among otherfactors.     The Company’s securities portfolio consists of earning assets that provide interest income.Securities classified as available-for-sale include securities intended to be used as part of theCompany’s asset/liability strategy and/or securities that may be sold in response to changes ininterest rate, prepayment risk, the need or desire to increase capital and similar economicfactors. Securities totaling approximately $24.0 million mature or will be subject to rateadjustments within the next twelve months.
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***MID-AMERICA BANCSHARES, INC.******FORM 10-Q, CONTINUED******Item 2.******Management’s Discussion and Analysis of Financial Condition and Result of Operations,Continued******Financial Condition, Continued******Liquidity and Asset Management, Continued***     A secondary source of liquidity is the Company’s loan portfolio. At June 30, 2007, loans ofapproximately $447.5 million either will become due or will be subject to rate adjustments withintwelve months from the respective date.     As for liabilities, certificates of deposit of $100,000 or greater of approximately $275.1million will become due during the next twelve months. Management anticipates that there will beno significant reductions from withdrawal accounts such as negotiable order of withdrawal accounts,money market demand accounts, demand deposit and regular savings accounts in the future.***Capital Position and Dividends***     At June 30, 2007 and December 31, 2006, total stockholders’ equity was $104,676,000 and$102,940,000 or 9.8% and 10.6%, respectively, of total assets.     The Company’s principal regulators have established minimum risk-based capital requirementsand leverage capital requirements for the Company. These guidelines classify capital into twocategories of Tier I and Total risk-based capital. Total risk-based capital consists of Tier I (orcore) capital (essentially common equity less intangible assets) and Tier II capital (essentiallyqualifying long-term debt, of which the Company has none, and a part of the allowance for loanlosses). In determining risk-based capital requirements, assets are assigned risk-weights of 0% to100%, depending on regulatory assigned levels of credit risk associated with such assets. Therisk-based capital guidelines require the Company to have a Total risk-based capital ratio of 8.0%and a Tier I risk-based capital ratio of 4.0%. At June 30, 2007, the Company’s Total risk-basedcapital ratio was 10.78% and its Tier I risk-based capital ratio was 9.82%. At December 31, 2006,the Company’s total risk-based capital ratio was 11.12% and its Tier I risk-based capital ratio was10.15%. The required Tier I leverage capital ratio (Tier I capital to average assets for the mostrecent quarter) for the Company is 4%. At June 30, 2007, the Company had a leverage ratio of8.27%, as compared to 8.80% at December 31, 2006.     There is no established trading market for the Company’s stock. During the six months endedJune 30, 2007, the Company issued 10,050 shares of its voting common stock for $65,000 inconnection with the exercise of options. Privately negotiated trades may involve the Company, itsdirectors and officials and, accordingly, may not be reliable indicators of value. During the sixmonths ended June 30, 2007 the market for our stock was very thin as only 42,707 shares,representing less than 1% of total outstanding shares, were traded. The Company may seek to listits shares in the next 12 to 24 months, but no application for listing has been filed.
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***MID-AMERICA BANCSHARES, INC.******FORM 10-Q, CONTINUED******Item 2.******Management’s Discussion and Analysis of Financial Condition and Result of Operations,Continued******Financial Condition, Continued******Capital Position and Dividends, Continued***     The payment of dividends by the Company is subject to the Tennessee Business Corporation Act.The act provides that the Company may not make distributions to shareholders or declare dividendsat any time that the Company is insolvent or if such action would render the Company insolvent.The Company is dependent on dividends from its two subsidiary banks for its own funding, includingfunds that could be utilized to pay dividends. Under Tennessee law, the ability of our twosubsidiary banks to pay dividends is limited. First, no Tennessee charter bank may pay dividendsin any calendar year that exceeds the total of its net income of that year combined with itsretained net income of the preceding two years without the approval of the TDFI. Thereafter, 10%of net profits must be transferred to capital surplus prior to payment of dividends until capitalsurplus equals capital stock. The subsidiary banks and the Company are also subject to the minimumcapital requirements of the FDIC and the Federal Reserve Board, respectively, which impact thebanks’ and the Company’s ability to pay dividends. If the Company fails to meet these standards,it may not be able to pay dividends or to accept additional deposits because of regulatoryrequirements. Presently, our dividend policy remains as announced in earlier filings, which isthat we expect for the foreseeable future to retain most if not all of our earnings to reinvest inoperations and to support anticipated growth. Dividends, if any, will be subject to the discretionof the board and to the above-described legal limitations, and may be declared and paid asdetermined by the board subject to legal, regulatory and prudential considerations.     The Company is subject to numerous federal and state laws, rules and regulations, andcompliance with these legal requirements is mandatory. One significant and developing area of lawinvolves Homeland Security and the Bank Secrecy Act. The Company currently believes that itssystems are adequate to meet its compliance needs with respect to these and other regulations.However, compliance with the Bank Secrecy Act may prove expensive to the Company in the near-termand in the long-term. Current regulatory statements indicate that the cost of non-compliance, eveninadvertent non-compliance, can be harsh. Management cannot at this time quantify the costs ofcompliance or the expense of inadvertent non-compliance.***Off Balance Sheet Arrangements***     At June 30, 2007 the Company had unfunded loan commitments outstanding of $200.5 million andoutstanding standby letters of credit of $20.9 million. Because these commitments generally havefixed expiration dates and many will expire without being drawn upon, the total commitment leveldoes not necessarily represent future cash requirements. If needed to fund these outstandingcommitments, the Company has the ability to liquidate Federal funds sold or securitiesavailable-for-sale or on a short-term basis to borrow and purchase Federal funds from otherfinancial institutions. Additionally, the Company could sell participations in these or otherloans to correspondent banks. As mentioned above, the Company has been able to fund its ongoingliquidity needs through its stable core deposit base, loan payments, its investment securitymaturities and short-term borrowings.
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***MID-AMERICA BANCSHARES, INC.******FORM 10-Q, CONTINUED******Item 2.******Management’s Discussion and Analysis of Financial Condition and Result of Operations,Continued******Off Balance Sheet Arrangements, Continued***     The Company is currently leasing five branch locations and its operations center. Minimumlease payments pursuant to these leases are as follows:     Remainder of 2007 $351 2008  694 2009  704 2010  606 2011  370 Thereafter  2,288     Total $5,013     ***Impact of Inflation***     The primary impact which inflation has on the results of the Company’s operations, isevidenced by its effects on interest rates. Interest rates tend to reflect, in part, the financialmarket’s expectations of the level of inflation, and, therefore, will generally rise or fall as thelevel of expected inflation fluctuates. To the extent interest rates paid on deposits and othersources of funds rise or fall at a faster rate than the interest income earned on funds, loans orinvestments, net interest income will vary. Inflation also affects non-interest expenses as goodsand services are purchased, although this has not had a significant effect on net earnings inrecent years. If the inflation rate stays flat or increases slightly, the effect on profits is notexpected to be significant.***Item 3.******Quantitative and Qualitative Disclosures About Market Risk***     The Company’s primary component of market risk is interest rate volatility. Fluctuations ininterest rates will ultimately impact both the level of income and expense recorded on a largeportion of the Company’s assets and liabilities, and the market value of all interest-earningassets and interest-bearing liabilities, other than those which possess a short term to maturitysuch as Federal funds sold or purchased and loans, securities and deposits as discussed in Item 2.Based upon the nature of the Company’s operations, the Company is not subject to foreign currencyexchange or commodity price risk.     Interest rate risk (sensitivity) management focuses on the earnings risk associated withchanging interest rates. Management seeks to maintain profitability in both immediate and longterm earnings through funds management/interest rate risk management. The Company’s ratesensitivity position has an important impact on earnings. Senior management of the Company meetsperiodically to analyze the rate sensitivity position. These meetings focus on the spread betweenthe cost of funds and interest yields generated primarily through loans and investments.     There have been no material changes in reported market risks during the three months endedJune 30, 2007. Please refer to Item 2 of Part I of this Report of additional information relatedto market and other risks.
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***MID-AMERICA BANCSHARES, INC.******FORM 10-Q, CONTINUED******Item 4.******Controls and Procedures***     As of the end of the period covered by this report, we carried out an evaluation, under thesupervision and with the participation of the Company’s Chief Executive Officer and the ChiefFinancial Officer, of the design and operation of our disclosure controls and procedures (asdefined in Rule 13a-15(e) of the Exchange Act of 1934, as amended (the “Exchange Act”)). Based onthis evaluation, our Chief Executive Officer and Chief Financial Officer concluded that ourdisclosure controls and procedures are effective for gathering, analyzing and disclosing theinformation that we are required to disclose in the reports we file under the Exchange Act, withinthe time periods specified in the SEC’s rules and forms. Our Chief Executive Officer and ChiefFinancial Officer also concluded that our disclosure controls and procedures are effective andtimely, alerting them to material information relating to our Company required to be included inour periodic SEC filings.     During the quarter ended June 30, 2007 there have been no changes in our internal controlsover financial reporting or in other factors that could materially affect, or are reasonably likelyto materially affect, our internal controls over financial reporting.
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***PART II. OTHER INFORMATION******Item 1. LEGAL PROCEEDINGS***None***Item 1A. RISK FACTORS***There are no material changes to the Company’s risk factors as previously disclosed inPart I, Item 1A, of the Company’s Annual Report on Form 10-K for the fiscal year endedDecember 31, 2006.***Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS*** (a) None  (b) Not Applicable.  (c) The Company did not repurchase any shares of Company common stock duringthe quarter ended June 30, 2007.***Item 3. DEFAULTS UPON SENIOR SECURITIES*** (a) None  (b) None***Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS*** (a) The annual meeting of shareholders was held on April 24, 2007.  (b) The following members of the board of directors were elected at the annualmeeting of shareholders held on April 24, 2007:         *Class I:*                    Gary L Scott