Part
I - Financial Information
MidSouth
Bancorp, Inc. and Subsidiaries
|
|
Consolidated
Statements
of Condition
|
|
|
|
March
31, 2007
(unaudited)
|
|
December
31, 2006
(audited)
|
|
Assets
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
24,501,529
|
|
$
|
30,564,604
|
|
Federal
funds sold and interest bearing deposits in banks
|
|
|
30,525,775
|
|
|
26,839,737
|
|
Total
cash and cash equivalents
|
|
|
55,027,304
|
|
|
57,404,341
|
|
Securities
available-for-sale, at fair value (cost of $183,478,372 at March
31, 2007
and $181,973,949 at December 31, 2006)
|
|
|
182,285,279
|
|
|
180,673,747
|
|
Securities
held-to-maturity (estimated fair value of $13,622,099 at March
31, 2007
and $16,166,937 at December 31, 2006)
|
|
|
13,403,631
|
|
|
15,900,611
|
|
Loans,
net of allowance for loan losses of $4,899,937 at March 31, 2007
and
$4,976,857 at December 31, 2006
|
|
|
505,660,633
|
|
|
494,068,845
|
|
Other
investments
|
|
|
2,525,075
|
|
|
2,501,150
|
|
Accrued
interest receivable
|
|
|
5,237,049
|
|
|
5,491,730
|
|
Bank
premises and equipment, net
|
|
|
31,487,509
|
|
|
30,609,332
|
|
Goodwill
and intangibles
|
|
|
9,904,950
|
|
|
9,957,364
|
|
Cash
surrender value of life insurance
|
|
|
4,101,662
|
|
|
4,068,116
|
|
Other
assets
|
|
|
5,026,942
|
|
|
4,346,450
|
|
Total
assets
|
|
$
|
814,660,034
|
|
$
|
805,021,686
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
Non-interest
bearing
|
|
$
|
180,435,459
|
|
$
|
182,595,931
|
|
Interest
bearing
|
|
|
548,403,814
|
|
|
533,583,610
|
|
Total
deposits
|
|
|
728,839,273
|
|
|
716,179,541
|
|
Securities
sold under repurchase agreements
|
|
|
4,791,194
|
|
|
4,474,786
|
|
Federal
Home Loan Banks advances
|
|
|
-
|
|
|
5,650,000
|
|
Accrued
interest payable
|
|
|
971,119
|
|
|
1,196,822
|
|
Junior
subordinated debentures
|
|
|
15,465,000
|
|
|
15,465,000
|
|
Other
liabilities
|
|
|
2,917,073
|
|
|
2,312,061
|
|
Total
liabilities
|
|
|
752,983,659
|
|
|
745,278,210
|
|
Stockholders’
Equity:
|
|
|
|
|
|
|
|
Common
stock, $0.10 par value- 10,000,000 shares authorized, 6,393,580
and
6,355,946 issued and 6,271,390 and 6,236,989 outstanding at March
31, 2007
and December 31, 2006, respectively
|
|
|
639,358
|
|
|
635,595
|
|
Surplus
|
|
|
43,256,120
|
|
|
42,907,597
|
|
Unearned
ESOP shares
|
|
|
(222,246
|
)
|
|
(251,259
|
)
|
Accumulated
other comprehensive income
|
|
|
(787,441
|
)
|
|
(858,133
|
)
|
Treasury
stock- 122,190 shares at March 31, 2007 and 118,957 shares at
December 31,
2006, at cost
|
|
|
(2,610,838
|
)
|
|
(2,518,411
|
)
|
Retained
earnings
|
|
|
21,401,422
|
|
|
19,828,087
|
|
Total
stockholders’ equity
|
|
|
61,676,375
|
|
|
59,743,476
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
814,660,034
|
|
$
|
805,021,686
|
|
|
|
|
|
|
|
|
|
See
notes to unaudited consolidated financial statements.
|
|
|
|
|
|
|
|
MidSouth
Bancorp, Inc. and Subsidiaries
|
|
|
|
|
|
Three
Months Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
Interest
income:
|
|
|
|
|
|
|
Loans,
including fees
|
$
|
10,993,865
|
|
$
|
8,964,364
|
|
Securities:
|
|
|
|
|
|
|
Taxable
|
|
980,536
|
|
|
917,341
|
|
Nontaxable
|
|
1,016,138
|
|
|
723,714
|
|
Federal
funds sold
|
|
429,928
|
|
|
405,892
|
|
Other
interest income
|
|
21,544
|
|
|
24,002
|
|
Total
interest income
|
|
13,442,011
|
|
|
11,035,313
|
|
|
|
|
|
|
|
|
Interest
expense:
|
|
|
|
|
|
|
Deposits
|
|
4,682,230
|
|
|
3,303,913
|
|
Securities
sold under repurchase agreements
|
|
75,721
|
|
|
20,032
|
|
Junior
subordinated debentures
|
|
330,226
|
|
|
314,149
|
|
Total
interest expense
|
|
5,088,177
|
|
|
3,638,094
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
8,353,834
|
|
|
7,397,219
|
|
Provision
for loan losses
|
|
-
|
|
|
320,000
|
|
Net
interest income after provision for loan losses
|
|
8,353,834
|
|
|
7,077,219
|
|
|
|
|
|
|
|
|
Non-interest
income:
|
|
|
|
|
|
|
Service
charges on deposits
|
|
2,306,183
|
|
|
1,926,598
|
|
Other
charges and fees
|
|
940,953
|
|
|
916,001
|
|
Total
non-interest income
|
|
3,247,136
|
|
|
2,842,599
|
|
|
|
|
|
|
|
|
Non-interest
expenses:
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
4,786,564
|
|
|
3,785,751
|
|
Occupancy
expense
|
|
1,715,252
|
|
|
1,486,455
|
|
Other
|
|
2,577,234
|
|
|
2,223,940
|
|
Total
non-interest expense
|
|
9,079,050
|
|
|
7,496,146
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
2,521,920
|
|
|
2,423,672
|
|
Provision
for income taxes
|
|
575,677
|
|
|
605,152
|
|
|
|
|
|
|
|
|
Net
earnings
|
$
|
1,946,243
|
|
$
|
1,818,520
|
|
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
Basic
|
$
|
0.31
|
|
$
|
0.30
|
|
Diluted
|
$
|
0.31
|
|
$
|
0.29
|
|
|
|
|
|
|
|
|
See
notes to unaudited consolidated financial statements.
|
|
|
|
|
|
|
MidSouth
Bancorp, Inc. and Subsidiaries
|
|
|
|
|
|
Three
Months Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
Net
earnings
|
$
|
1,946,243
|
|
$
|
1,818,520
|
|
Other
comprehensive income (loss), net of tax
|
|
|
|
|
|
|
Unrealized
losses on securities available-for-sale:
|
|
|
|
|
|
|
Unrealized holding gains (losses) arising during the year, net
of income
tax (benefit) of $23,511 and ($259,408), respectively
|
|
70,692
|
|
|
(532,605
|
)
|
Total
other comprehensive income (loss)
|
|
70,692
|
|
|
(532,605
|
)
|
Total
comprehensive income
|
$
|
2,016,935
|
|
$
|
1,285,915
|
|
MidSouth
Bancorp, Inc. and Subsidiaries
|
|
Consolidated
Statement of Stockholders’
Equity (unaudited)
|
|
For
the Three Months Ended March 31, 2007
|
|
|
|
Common Stock
Shares
Amount
|
|
Surplus
|
|
ESOP
obligation
|
|
Unrealized
gains (losses) on securities AFS, net
|
|
Treasury
Stock
|
|
Retained
Earnings
|
|
Total
|
|
Balance-
January 1, 2007
|
|
|
6,355,946
|
|
$
|
635,595
|
|
$
|
42,907,597
|
|
$
|
(251,259
|
)
|
$
|
(858,133
|
)
|
$
|
(2,518,411
|
)
|
$
|
19,828,087
|
|
$
|
59,743,476
|
|
Dividends
on common stock, $0.06 per share
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(372,908
|
)
|
|
(372,908
|
)
|
Exercise
of stock options
|
|
|
37,634
|
|
|
3,763
|
|
|
183,503
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
187,266
|
|
Tax
benefit resulting from exercise of stock options
|
|
|
-
|
|
|
-
|
|
|
109,221
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
109,221
|
|
Purchase
of treasury stock
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(92,427
|
)
|
|
-
|
|
|
(92,427
|
)
|
Net
earnings
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,946,243
|
|
|
1,946,243
|
|
ESOP
obligation, net of repayments
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
29,013
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
29,013
|
|
Excess
of market value over book value of ESOP shares released, net
adjustment
|
|
|
-
|
|
|
-
|
|
|
31,250
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
31,250
|
|
Net
change in unrealized gains on securities AFS, net of taxes
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
70,692
|
|
|
-
|
|
|
-
|
|
|
70,692
|
|
Stock
option expense
|
|
|
-
|
|
|
-
|
|
|
24,549
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
24,549
|
|
Balance-
March 31, 2007
|
|
|
6,393,580
|
|
$
|
639,358
|
|
$
|
43,256,120
|
|
$
|
(222,246
|
)
|
$
|
(787,441
|
)
|
$
|
(2,610,838
|
)
|
$
|
21,401,422
|
|
$
|
61,676,375
|
|
MidSouth
Bancorp, Inc. and Subsidiaries
|
|
Consolidated
Statements of Cash Flows (unaudited)
|
|
|
For
the Three Months Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
earnings
|
$
|
1,946,243
|
|
$
|
1,818,520
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
Depreciation
|
|
688,140
|
|
|
642,697
|
|
Provision
for loan losses
|
|
-
|
|
|
320,000
|
|
Deferred
income tax benefit
|
|
(83,896
|
)
|
|
(501
|
)
|
Amortization
of premiums on securities, net
|
|
159,230
|
|
|
185,997
|
|
Net
gain on sale of premises and equipment
|
|
(4,807
|
)
|
|
-
|
|
Net
loss on sale of other real estate owned
|
|
17,849
|
|
|
-
|
|
Impairment
on premises and equipment
|
|
13,637
|
|
|
-
|
|
Stock
option compensation expense
|
|
24,549
|
|
|
-
|
|
Change
in accrued interest receivable
|
|
254,681
|
|
|
272,055
|
|
Change
in accrued interest payable
|
|
(225,703
|
)
|
|
(147,144
|
)
|
Other,
net
|
|
(51,628
|
)
|
|
143,035
|
|
Net
cash provided by operating activities
|
$
|
2,738,295
|
|
$
|
3,234,659
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
Proceeds
from maturities and calls of securities held-to-maturity
|
$
|
2,500,000
|
|
$
|
1,249,650
|
|
Proceeds
from maturities and calls of securities available-for-sale
|
|
8,245,043
|
|
|
8,440,298
|
|
Purchases
of securities available-for-sale
|
|
(9,911,640
|
)
|
|
(35,422,672
|
)
|
Purchases
of other investments
|
|
(24,000
|
)
|
|
(331,550
|
)
|
Loan
originations, net of repayments
|
|
(11,705,589
|
)
|
|
(8,739,380
|
)
|
Purchase
of premises and equipment
|
|
(1,577,793
|
)
|
|
(3,956,978
|
)
|
Proceeds
from sale of premises and equipment
|
|
55,060
|
|
|
-
|
|
Proceeds
from sales of other real estate owned
|
|
334,716
|
|
|
89,077
|
|
Net
cash used in investing activities
|
$
|
(12,084,203
|
)
|
$
|
(38,671,555
|
)
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
Change
in deposits
|
$
|
12,659,732
|
|
$
|
49,440,712
|
|
Change
in repurchase agreements
|
|
316,408
|
|
|
1,179,026
|
|
Repayments
of FHLB advances
|
|
(13,013,000
|
)
|
|
-
|
|
Proceeds
from FHLB advances
|
|
7,363,000
|
|
|
-
|
|
Purchase
of treasury stock
|
|
(92,427
|
)
|
|
(321,881
|
)
|
Payment
of dividends on common stock
|
|
(561,329
|
)
|
|
(593,574
|
)
|
Proceeds
from exercise of stock options
|
|
296,487
|
|
|
44,757
|
|
Net
cash provided by financing activities
|
$
|
6,968,871
|
|
$
|
49,749,040
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash and cash equivalents
|
$
|
(2,377,037
|
)
|
$
|
14,312,144
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of quarter
|
|
57,404,341
|
|
|
52,437,002
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of quarter
|
$
|
55,027,304
|
|
$
|
66,749,146
|
|
|
|
|
|
|
|
|
See
notes to unaudited consolidated financial statements.
|
|
|
|
|
|
|
MidSouth
Bancorp, Inc. and Subsidiaries
|
|
Notes
to Interim Consolidated Financial
Statements
|
|
March
31, 2007
|
|
(Unaudited)
|
|
1. Basis
of Presentation
The
accompanying unaudited consolidated financial statements and notes thereto
contain all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly, in accordance with accounting principles generally
accepted in the United States of America, the financial position of the
Company
and its subsidiaries as of March 31, 2007 and the results of their operations
and their cash flows for the periods presented. The interim financial
information should be read in conjunction with the annual consolidated
financial
statements and the notes thereto included in the Company’s 2006 Annual Report
and Form 10K.
The
results of operations for the three month period ended March 31, 2007 are
not
necessarily indicative of the results to be expected for the entire
year.
Use
of Estimates
-
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management
to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of
the consolidated financial statements and the reported amounts of revenues
and
expenses during the reported period. Actual results could differ from those
estimates.
Summary
of Significant Accounting Policies—
The accounting and reporting policies of the Company conform with accounting
principles generally accepted in the United States of America and general
practices within the banking industry. With the exception of the adoption
of
FASB Interpretation No. 48 discussed herein, there have been no material
changes
or developments in the application of accounting principles or in our evaluation
of the accounting estimates and the underlying assumptions or methodologies
that
we believe to be Critical Accounting Policies and Estimates as disclosed
in our
Form 10-K for the year ended December 31, 2006.
Recent
Accounting Pronouncements—In
June 2006, the FASB issued Interpretation No. 48 (“FIN 48”), Accounting
for Uncertainty in Income Taxes.
FIN 48 provides detailed guidance for the financial statement recognition,
measurement, and disclosure of uncertain tax positions recognized in the
financial statements. FIN 48 requires an entity to recognize the financial
statement impact of a tax position when it is more likely than not that
the
position will be sustained upon examination. If the tax position meets
the
more-likely-than-not recognition threshold, the tax effect is recognized
at the
largest amount of the benefit that is greater than 50% likely of being
realized
upon ultimate settlement. Any difference between the tax position taken
in the
tax return and the tax position recognized in the financial statements
using the
criteria above results in the recognition of a liability in the financial
statements for the unrecognized benefit. Similarly, if a tax position fails
to
meet the more-likely-than-not recognition threshold, the benefit taken
in a tax
return will also result in the recognition of a liability in the financial
statements for the full amount of the unrecognized benefit. The new
interpretation was effective for the Company for the three months ended
March
31, 2007. The adoption of this new accounting principle did not have a
significant impact on the Company’s financial position, results of operations,
or cash flows.
In
September 2006, the FASB issued SFAS No. 157, Fair
Value Measurements
(“SFAS No. 157”). SFAS No. 157 establishes a framework for measuring fair value
and expands disclosures about fair value measurements. The changes to current
practice resulting from the application of this statement relate to the
definition of fair value, the methods used to measure fair value, and the
expanded disclosures about fair value measurements. SFAS No. 157 is effective
for the fiscal years beginning after November 15, 2007 and interim periods
within those fiscal years. The Company does not anticipate the adoption
of this
new accounting principle to have a material effect on its financial position,
results of operations, or cash flows.
In
February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities
(“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure many
financial instruments and certain other items at fair value. The objective
is to
improve financial reporting by providing entities with the opportunity
to
mitigate volatility in reported earnings caused by measuring related assets
and
liabilities differently without having to apply complex hedge accounting
provisions. SFAS No. 159 is effective for the fiscal years beginning after
November 15, 2007 and interim periods within those fiscal years. The Company
has
not yet made a determination if it will elect to apply the options available
in
FAS 159.
In
September 2006, the FASB ratified the consensus the EITF reached regarding
EITF
No.06-5, Accounting
for Purchases of Life Insurance — Determining the Amount that Could Be Realized
in Accordance with FASB Technical Bulletin 85-4
(“EITF 06-5”). The EITF concluded that a policy holder should consider any
additional amounts included in the contractual terms of the life insurance
policy in determining the “amount that could be realized under the insurance
contract.” For group policies with multiple certificates or multiple policies
with a group rider, the Task Force also tentatively concluded that the
amount
that could be realized should be determined at the individual policy or
certificate level, i.e., amounts that would be realized only upon surrendering
all of the policies or certificates would not be included when measuring
the
assets. This interpretation is effective for the Company beginning in fiscal
year 2007. The Company does not believe the adoption of EITF 06-5 will
have a
material impact on its financial position, results of operations, or cash
flows.
2. Allowance
for Loan Losses
A
summary of the activity in the allowance for loan losses is as follows
(in
thousands):
|
|
Three
Months Ended March
31,
|
|
|
|
2007
|
|
|
2006
|
|
Balance,
beginning of period
|
|
$
|
4,977
|
|
$
|
4,355
|
|
Provision
for loan losses
|
|
|
-
|
|
|
320
|
|
Recoveries
|
|
|
18
|
|
|
109
|
|
Loans
charged-off
|
|
|
(95
|
)
|
|
(132
|
)
|
Balance,
end of period
|
|
$
|
4,900
|
|
$
|
4,652
|
|
3. Earnings
Per Common Share
Following
is a summary of the information used in the computation of earnings per
common
share (in thousands):
|
|
Three
Months Ended March
31,
|
|
|
|
|
2007
|
|
|
2006
|
|
Net
earnings
|
|
$
|
1,946
|
|
$
|
1,818
|
|
Weighted
average number of common shares outstanding used in computation
of basic
earnings per common share
|
|
|
6,240
|
|
|
6,177
|
|
Effect
of dilutive securities:
Stock
options
|
|
|
90
|
|
|
173
|
|
Weighted
average number of common shares outstanding plus effect of dilutive
securities - used in computation of diluted earnings per
share
|
|
|
6,330
|
|
|
6,350
|
|
4. Declaration
of Dividends
On
February 14, 2007, the Company declared a $.06 per share quarterly dividend
for
holders of record on March 14, 2007.
Item
2. Management’s Discussion and Analysis of Financial
Condition
and Results of Operation.
MidSouth
Bancorp, Inc. (“the Company") is a two-bank holding company that conducts
substantially all of its business through its wholly-owned subsidiary banks
(the
“Banks”), MidSouth Bank, N.A. (“MidSouth LA”), headquartered in Lafayette,
Louisiana and MidSouth Bank (“MidSouth TX”), headquartered in Beaumont, Texas.
Following is management's discussion of factors that management believes
are
among those necessary for an understanding of the Company's financial
statements. The discussion should be read in conjunction with the Company's
consolidated financial statements and the notes thereto presented herein
and
with the financial statements, the notes thereto and related Management’s
Discussion & Analysis in the Company’s 10-K for the year ended December 31,
2006.
Forward
Looking Statements
The
Private Securities Litigation Act of 1995 provides a safe harbor for disclosure
of information about a company’s anticipated future financial performance. This
act protects a company from unwarranted litigation if actual results differ
from
management expectations. This management’s discussion and analysis reflects
management’s current views and estimates of future economic circumstances,
industry conditions, the Company’s performance, and financial results based on
reasonable assumptions. A number of factors and uncertainties could cause
actual
results to differ materially from the anticipated results and expectations
expressed in the discussion. These factors and uncertainties include, but
are
not limited to:
|
·
|
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 that could adversely
affect
customers and their ability to repay borrowings under agreed
upon terms
and/or adversely affect the value of the underlying collateral
related to
the borrowings;
|
|
·
|
increased
competition for deposits and loans which could affect 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 the Allowance for Loan Losses
(“ALL”);
|
|
·
|
changes
in the availability of funds resulting from reduced liquidity
or increased
costs;
|
|
·
|
the
timing and impact of future acquisitions, the success or failure
of
integrating 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 which would
impact
capital levels and regulatory capital
ratios;
|
|
·
|
loss
of critical personnel and the challenge of hiring qualified personnel
at
reasonable compensation levels;
|
|
·
|
changes
in government regulations and accounting principles, policies,
and
guidelines applicable to financial holding companies and banking;
and
|
|
·
|
acts
of terrorism, weather, or other events beyond the Company’s
control.
|
Critical
Accounting Policies
Certain
critical accounting policies affect the more significant judgments and
estimates
used in the preparation of the consolidated financial statements. The Company’s
significant accounting policies are described in the notes to the consolidated
financial statements included in Form 10-K for the year ended December
31, 2006.
The accounting principles followed by the Company and the methods of applying
these principles conform with accounting principles generally accepted
in the
United States of America (“GAAP”) and general banking practices. The Company’s
most critical accounting policy relates to its allowance for loan losses,
which
reflects the estimated losses resulting from the inability of its borrowers
to
make loan payments. If the financial condition of its borrowers were to
deteriorate, resulting in an impairment of their ability to make payments,
the
Company’s estimates would be updated and additional provisions for loan losses
may be required, see “Asset Quality”.
Another
of the Company’s critical accounting policies relates to its goodwill and
intangible assets. Goodwill represents the excess of the purchase price
over the
fair value of net assets acquired. In accordance with SFAS No. 142, Goodwill
and Other Intangible Assets, goodwill is not amortized but evaluated for
impairment annually. 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.
A
third critical accounting policy relates to stock-based compensation and
the
Company’s adoption of the provisions of SFAS No. 123R Share-Based
Payment (Revised 2004), on a modified basis, on January 1, 2006. The
Company had previously adopted SFAS No. 123R on January 1, 2005. Among
other
things, SFAS No. 123R eliminates the ability to account for stock-based
compensation using the intrinsic value based method of accounting and requires
that such transactions be recognized as compensation expense in the income
statement based on the fair market value on the date of the grant. SFAS
No. 123R
further requires that management make assumptions including stock price
volatility and employee turnover that are utilized to measure compensation
expense. The fair value of the stock options granted is estimated at the
date of
grant using the Black-Scholes option-pricing model. This model requires
the
input of highly subjective assumptions. The Company recognized stock option
expense of $24,549 for the grant date fair value of stock options vested
in the
quarter ended March 31, 2007. As of March 31, 2007, options granted to
acquire 154,425 shares were outstanding under the 1997 Stock Incentive
Plan and
no new options were granted during the first quarter of 2007 under that
expiring
plan. A new incentive plan, the 2007 Omnibus Incentive Compensation Plan,
was
included as an exhibit to the Company’s Proxy Statement filed with the
Securities and Exchange Commission on April 23, 2007. The new plan, pending
shareholder approval, provides for grants of equity-based incentive awards,
including stock options, restricted stock, restricted stock units, stock
appreciation rights, performance shares, performance units, stock awards,
and
cash awards.
First
quarter 2007 earnings totaled $1,946,243, a 7.02% increase over earnings
of
$1,818,520 for the same period in 2006. A decrease in the provision for
loan
losses of $320,000 was the principal reason for the positive change in
earnings
in quarterly comparison. Revenues for the Company, defined as net interest
income and non-interest income, increased $1,361,152 for the first quarter
of
2007 compared to the first quarter of 2006. A $1,582,904 increase in
non-interest expenses attributed to franchise expansion offset the improvement
in revenues. Diluted earnings per share were $0.31 for the first quarter
of
2007, compared to $0.29 per share for the first quarter of 2006. Return
on
average equity was 13.07% for the first quarter of 2007 compared to 13.74%
for
the first quarter of 2006. The leverage capital ratio was 8.50% at March
31,
2007 compared to 8.48% at March 31, 2006. Earnings per share data have
been
adjusted to reflect a five-for-four (25%) stock dividend distributed on
October
23, 2006.
Net
interest income before provision for loan losses for the first quarter
of 2007
increased 12.9% to $8,353,834 compared to $7,397,219 for the first quarter
of
2006. Net interest margin, on a fully taxable-equivalent basis, was 4.86%
in the
first quarter of 2007, an improvement of 6 basis points from 4.80% in the
first
quarter of 2006.
Total
consolidated assets increased $9.7 million, or 1.2%, from $805.0 million
at the
year end 2006 to $814.7 million at the end of the first quarter of 2007.
Total
loans grew $11.6 million, or 2.3%, from $499.0 million at December 31,
2006 to
$510.6 million at March 31, 2007, primarily in real estate construction
loans. Total
deposits increased $12.6 million, or 1.8%, from $716.2 million at December
31,
2006 to $728.8 million at March 31, 2007. Deposit growth has been primarily
in
the Company’s Platinum money market and checking accounts, which represented
35.8% of total deposits at March 31, 2007. The Platinum money market and
checking accounts offer competitive rates of interest that adjust to changes
in
market rates and are more economically beneficial to the Company.
Nonperforming
assets, including loans 90 days or more past due, remained stable, totaling
$2.3
million at March 31, 2007 and December 31, 2006. As a percentage of total
assets, nonperforming assets were 0.28% and 0.29% for March 31, 2007 and
December 31, 2006, respectively. Net charge-offs to total loans were 0.02%
for
the first quarter of 2007 as compared to .01% for the first quarter of
2006.
Continued
strong credit quality ratios, supported by management’s most recent analysis of
the ALL, indicated that the ALL to total loans ratio of 0.96% was appropriate
at
March 31, 2007. Accordingly, no provision expense for loan losses was recorded
in the first quarter 2007, compared to $320,000 in provision expense recorded
for the first quarter of 2006 and $180,000 recorded for the fourth quarter
of
2006. As a percentage of total loans, the allowance for loan losses for
the
quarters ended March 31, 2007 and 2006 was 0.96% and 1.03%, respectively.
The
primary source of earnings for the Company is the difference between interest
earned on loans and investments (earning assets) and interest paid on deposits
and other liabilities (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.
The
Company’s net interest margin on a taxable-equivalent basis, which is net income
as a percentage of average earning assets, was 4.86% at March 31, 2007,
up 6
basis points from 4.80% at March 31, 2006. Tables 1 and 2 following this
discussion analyze the changes in taxable-equivalent net interest income
for the
two quarters ended March 31, 2007 and 2006.
Average
earning assets increased $81.3 million, or 12.5%, from $650.3 million in
March
2006 to $731.6 million in March 2007. The average yield on earning assets
improved 61 basis points, from 7.07% at March 31, 2006 to 7.68% at March
31,
2007. The average volume of loans increased $56.7 million, or 12.8%, and
loan
yields increased 71 basis points, from 8.20% for the quarter ended March
31,
2006 to 8.91% for the quarter ended March 31, 2007. The average
taxable-equivalent yield on investment securities increased 30 basis points,
from 4.63% to 4.93%, respectively. The average volume of investment securities
increased $28.4 million, from $169.3 million at March 31, 2006 to $197.7
million
at March 31, 2007. The mix of average earning assets remained constant,
with
average loans at 68% of average earning assets for both quarters reviewed.
Improvement in the yield on average earning assets, from 7.07% at March
31, 2006
to 7.68% at March 31, 2007, resulted primarily from a 50 basis point increase
in
the Prime rate during the period reviewed.
The
Company’s strong demand deposit mix, defined as all deposits except Certificates
of Deposit (“CDs”), reflected improvement in average volume from $521.4 million,
or 81.2%, of average total deposits at March 31, 2006, to $595.6 million,
or
83.0%, of average total deposits at March 31, 2007. The average volume
of CDs
increased $1.2 million, from $121.0 million at March 31, 2006 to $122.2
million
at March 31, 2007 and represented 18.8% of total deposits at March 31,
2006
compared to 17.0% at March 31, 2007. The higher volume of demand deposits
reflects the Company’s retail strategy of developing long-term banking
relationships with depositors. That strategy, along with competitive market
rates, yielded growth in the Company’s Platinum Money Market and Platinum
Checking accounts. The competitive rates on the Platinum accounts contributed
greatly to the 64 basis point increase in the average rate paid on average
interest-bearing deposits between the two quarters compared, from 2.86%
at March
31, 2006 to 3.50% at March 31, 2007.
The
average rate paid on the Company’s junior subordinated debentures increased 42
basis points from first quarter of 2006 to first quarter of 2007 due to
increases in the floating rate paid on the $8.2 million of adjustable
debentures. The rate at March 31, 2007 was 7.85%. The debentures mature
on
September 20, 2034 and, under certain circumstances, are subject to repayment
on
September 20, 2009 or thereafter. In February 2001, the Company issued
$7,217,000 of junior subordinated debentures. The debentures carry a fixed
interest rate of 10.20% and mature on February 22, 2031.
The
impact of the changes in yield and volume of the earning assets and
interest-bearing liabilities discussed above resulted in an increase of
$1.1
million to taxable-equivalent net interest income from March 31, 2006 to
March
31, 2007.
Table
1
|
|
Consolidated
Average Balances, Interest and Rates
(in
thousands)
|
|
|
|
Three
Months Ended March 31,
|
|
|
2007
|
|
|
2006
|
|
|
|
Average
Volume
|
|
|
Interest
|
|
|
Average
Yield/Rate
|
|
|
|
|
Average
Volume
|
|
|
Interest
|
|
|
Average
Yield/Rate
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities and interest
bearing deposits:1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
$
|
85,373
|
|
$
|
981
|
|
|
4.60
|
%
|
|
|
$
|
85,638
|
|
$
|
917
|
|
|
4.28
|
%
|
Tax
exempt2
|
|
|
109,859
|
|
|
1,435
|
|
|
5.22
|
%
|
|
|
|
81,630
|
|
|
1,020
|
|
|
5.00
|
%
|
Other
investments
|
|
|
2,511
|
|
|
22
|
|
|
3.50
|
%
|
|
|
|
2,025
|
|
|
24
|
|
|
4.74
|
%
|
Total
investments
|
|
|
197,743
|
|
|
2,438
|
|
|
4.93
|
%
|
|
|
|
169,293
|
|
|
1,961
|
|
|
4.63
|
%
|
Federal
funds sold
|
|
|
33,550
|
|
|
430
|
|
|
5.20
|
%
|
|
|
|
37,349
|
|
|
406
|
|
|
4.41
|
%
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
and real estate
|
|
|
395,224
|
|
|
8,721
|
|
|
8.95
|
%
|
|
|
|
349,123
|
|
|
7,029
|
|
|
8.17
|
%
|
Installment
|
|
|
105,047
|
|
|
2,272
|
|
|
8.77
|
%
|
|
|
|
94,487
|
|
|
1,935
|
|
|
8.31
|
%
|
Total
loans3
|
|
|
500,271
|
|
|
10,993
|
|
|
8.91
|
%
|
|
|
|
443,610
|
|
|
8,964
|
|
|
8.20
|
%
|
Total
earning assets
|
|
|
731,564
|
|
|
13,861
|
|
|
7.68
|
%
|
|
|
|
650,252
|
|
|
11,331
|
|
|
7.07
|
%
|
Allowance
for loan losses
|
|
|
(4,949
|
)
|
|
|
|
|
|
|
|
|
|
(4,358
|
)
|
|
|
|
|
|
|
Nonearning
assets
|
|
|
76,843
|
|
|
|
|
|
|
|
|
|
|
71,265
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
803,458
|
|
|
|
|
|
|
|
|
|
$
|
717,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and stockholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW,
money market, and savings
|
|
$
|
419,573
|
|
$
|
3,469
|
|
|
3.35
|
%
|
|
|
$
|
347,759
|
|
$
|
2,336
|
|
|
2.72
|
%
|
Certificates
of deposits
|
|
|
122,235
|
|
|
1,213
|
|
|
4.02
|
%
|
|
|
|
120,998
|
|
|
968
|
|
|
3.24
|
%
|
Total
interest bearing deposits
|
|
|
541,808
|
|
|
4,682
|
|
|
3.50
|
%
|
|
|
|
468,757
|
|
|
3,304
|
|
|
2.86
|
%
|
Securities
sold under agreements to repurchase
|
|
|
4,346
|
|
|
49
|
|
|
4.57
|
%
|
|
|
|
2,038
|
|
|
20
|
|
|
3.98
|
%
|
FHLB
advances
|
|
|
1,593
|
|
|
27
|
|
|
6.87
|
%
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Junior
subordinated debentures
|
|
|
15,465
|
|
|
330
|
|
|
8.65
|
%
|
|
|
|
15,465
|
|
|
314
|
|
|
8.23
|
%
|
Total
interest bearing liabilities
|
|
|
563,212
|
|
|
5,088
|
|
|
3.66
|
%
|
|
|
|
486,260
|
|
|
3,638
|
|
|
3.03
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand
deposits
|
|
|
176,000
|
|
|
|
|
|
|
|
|
|
|
173,612
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
3,874
|
|
|
|
|
|
|
|
|
|
|
3,581
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
60,372
|
|
|
|
|
|
|
|
|
|
|
53,706
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
803,458
|
|
|
|
|
|
|
|
|
|
$
|
717,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income and net interest spread
|
|
|
|
|
$
|
8,773
|
|
|
4.02
|
%
|
|
|
|
|
|
$
|
7,693
|
|
|
4.03
|
%
|
Net
yield on interest earning assets
|
|
|
|
|
|
|
|
|
4.86
|
%
|
|
|
|
|
|
|
|
|
|
4.80
|
%
|
1
Securities classified as available-for-sale are included in average balances
and
interest income figures reflect interest earned on such securities.
2
Interest income of $419,433 for 2007 and $295,521 for 2006 is added to
interest
earned on tax-exempt obligations to reflect tax equivalent yields using
a 34%
tax rate.
3
Interest income includes loan fees of $778,475 for 2007 and $661,310 for
2006.
Nonaccrual loans are included in average balances and income on such loans
is
recognized on a cash basis.
Table
2
Changes
in Taxable-Equivalent Net Interest Income
(in
thousands)
|
|
|
|
Three
Months Ended
March
31, 2007 Compared to March 31, 2006
|
|
|
|
|
Total
Increase
|
|
Change
Attributable
To
|
|
|
|
(Decrease)
|
|
|
Volume
|
|
|
Rates
|
|
Taxable-equivalent
earned on:
|
|
|
|
|
|
|
|
|
|
|
Investment
securities and interest bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
$
|
64
|
|
$
|
(3
|
)
|
$
|
67
|
|
Tax
exempt
|
|
|
415
|
|
|
367
|
|
|
48
|
|
Other
investments
|
|
|
(2
|
)
|
|
5
|
|
|
(7
|
)
|
Federal
funds sold
|
|
|
24
|
|
|
(44
|
)
|
|
68
|
|
Loans,
including fees
|
|
|
2,029
|
|
|
1,204
|
|
|
825
|
|
|
|
|
|
|
|
|
|
|
|
|
T Total
|
|
$
|
2,530
|
|
$
|
1,529
|
|
$
|
1,001
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid on:
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing deposits
|
|
$
|
1,378
|
|
$
|
563
|
|
$
|
815
|
|
Securities
sold under agreement to repurchase
|
|
|
29
|
|
|
26
|
|
|
3
|
|
FHLB
advances
|
|
|
27
|
|
|
27
|
|
|
-
|
|
Junior
subordinated debentures
|
|
|
16
|
|
|
16
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,450
|
|
$
|
632
|
|
$
|
818
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable-equivalent
net interest income
|
|
$
|
1,080
|
|
$
|
897
|
|
$
|
183
|
|
Excluding
Securities Transactions.
Total non-interest income for the first quarter of 2007 increased $404,537,
or
14.2%, to $3.2 million, compared to $2.8 million for the first quarter
of 2006.
The Company’s primary source of non-interest income is service charges and fees
on deposit accounts, which include insufficient funds (“NSF”) fees. Income from
service charges on deposit accounts increased from March 2006 to March
2007 in
three-month comparison by $379,585. The increase resulted primarily from
a
higher number of deposit accounts within the Company’s customer base and from
increased volume of NSF activity. Additionally, the Company increased the
NSF
processing fee from $23.47 per NSF item processed to $24.47 per item effective
July 1, 2006. Despite the increase in the fee, the $24.47 per item charge
remains lower than most competitors’ charges within the Company’s
markets.
Income
from other charges and fees increased $24,952 for the three months ended
March
31, 2007 as compared to March 31, 2006, primarily due to a $60,406 increase
in
ATM and debit card processing fees. The increased fees were partially offset
by
a decrease of $34,822 in income realized from the accretion of a deposit
valuation associated with the 2004 merger with MidSouth TX.
Non-interest
expenses increased $1.6 million in the first quarter 2007 compared to the
first
quarter 2006 primarily due to increased salaries and benefits costs. The
number
of full-time equivalent employees increased from 339 at March 31, 2006
to 387 at
March 31, 2007 as a result of franchise expansion and recruitment of talented
leaders to support the expansion. Additional increases were recorded in
occupancy and data processing expenses, professional fees, marketing costs,
and
other growth-related expenses.
Other
expenses increased $353,294 in quarterly comparison. The increase resulted
primarily from increases of $135,765 in professional fees, including accounting
fees, $107,361 in data processing fees, $56,484 in marketing costs and
$37,044
in ATM/debit card processing fees.
Consolidated
assets totaled $814.7 million at March 31, 2007, up $9.7 million from $805.0
million at December 31, 2006. The increase resulted primarily from loan
growth
of $11.6 million, which was funded by deposit growth of $12.6 million.
The
deposit growth is attributed to new branches and to increased corporate
and
government spending due to rebuilding efforts in the Company’s markets.
Total
loans grew $11.6 million, from $499.0 million at year-end 2006 to $510.6
million
at March 31, 2007. Most of the loan growth was added late in the first
quarter.
Loan growth had slowed in the fourth quarter of 2006 and early in the first
quarter of 2007 as a result of higher levels of prepayments due to sales
of
customers’ businesses, higher levels of liquidity reported by customers, and
highly competitive pricing. Loan growth is expected to improve with recent
hires, new branches, and positive economic and demographic data recently
reported in the Company’s markets. The loan growth occurred primarily in the
Company’s real estate construction loan portfolio as reflected in Table
6.
Table
6
Composition
of Loans
|
|
(in
thousands)
|
|
|
|
|
March
31, 2007
|
|
|
December
31, 2006
|
|
Commercial,
financial, and agricultural
|
|
$
|
155,094
|
|
$
|
155,098
|
|
Lease
financing receivable
|
|
|
8,694
|
|
|
7,902
|
|
Real
estate - mortgage
|
|
|
191,381
|
|
|
192,583
|
|
Real
estate - construction
|
|
|
74,379
|
|
|
64,126
|
|
Installment
loans to individuals
|
|
|
80,371
|
|
|
78,613
|
|
Other
|
|
|
642
|
|
|
724
|
|
Total
loans
|
|
$
|
510,561
|
|
$
|
499,046
|
|
Securities
available-for-sale totaled $182.3 million at March 31, 2007, up $1.6 million
from $180.7 million at December 31, 2006. Cash flows in the first three
months
of 2007, net of loan fundings, were invested in tax-free municipal securities
and collateralized mortgage obligations that were added to the
available-for-sale portfolio. Excess cash flows increased federal funds
sold by
$3.7 million. The portfolio of securities held-to-maturity decreased $2.5
million, from $15.9 million at December 31, 2006 to $13.4 million at March
31,
2007, due to maturities and calls within that portfolio.
Bank
premises, net of accumulated depreciation, and equipment increased $878,177
for
the first three months of 2007 and reflected the impact of the Company’s
continued expansion.
Liquidity
is the availability of funds to meet operational cash flow requirements
and to
meet contractual obligations as they become due. The Banks’ primary liquidity
needs involve their ability to accommodate customers’ demands for deposit
withdrawals as well as their requests for credit. Liquidity is deemed adequate
when sufficient cash to meet these needs can be promptly raised at a reasonable
cost to the Banks. 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. The
Banks’
core deposits are their most stable and important source of funding. Further,
the low variability of the core deposit base lessens the need for liquidity.
Cash deposits at other banks, federal funds sold, principal payments received
on
loans and mortgage-backed securities, and maturities of investment securities
provide additional primary sources of asset liquidity for the Banks. The
Banks
also have significant borrowing capacity with the FHLB of Dallas, Texas
and
borrowing lines with other correspondent banks. At March 31, 2007, the
Banks had
no net borrowings with the FHLB or with any other correspondent
banks.
At
the parent company level, cash is needed primarily to meet interest payments
on
the junior subordinated debentures and pay dividends on common stock. Dividends
from the Banks primarily provide liquidity for the parent company. As a
publicly
traded company, the parent company also has the ability to issue additional
trust preferred and other securities instruments to provide funds as needed
for
operations and future growth.
The
Company and the Banks are required to maintain certain minimum capital
levels.
Risk-based capital requirements are intended to make regulatory capital
more
sensitive to the risk profile of an institution's assets. At March 31,
2007, the
Company and the Banks were in compliance with statutory minimum capital
requirements and were classified as “well capitalized”. Minimum capital
requirements include a total risk-based capital ratio of 8.0%, with Tier
1
capital not less than 4.0%, and a leverage ratio (Tier 1 to total average
adjusted assets) of 4.0% based upon the regulators latest composite rating
of
the institution. As
of March 31, 2007, the Company’s leverage ratio was 8.50%, Tier 1 capital to
risk-weighted assets was 11.34% and total capital to risk-weighted assets
was
12.16%. MidSouth LA and MidSouth TX had leverage capital ratios of 8.18%
and
9.67%, respectively, at March 31, 2007.
The
Company manages its credit risk by observing written, board approved policies
that govern all underwriting 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 external and internal independent reviews 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 to the Board
of
Directors quarterly whereby individual customer and aggregate industry
leverage,
profitability, risk rating distributions, and liquidity are evaluated for
each
major standard industry classification segment.
Table
7 summarizes the Company's nonperforming assets and loans past due 90 days
and
over for the quarters ending March 31, 2007 and 2006 and for the year-ended
December 31, 2006.
Table
7
Nonperforming
Assets and Loans Past Due 90 Days or More
(in
thousands)
|
|
|
|
March
31, 2007
|
|
March
31, 2006
|
|
December
31, 2006
|
|
|
|
|
|
|
|
|
|
Nonaccrual
loans
|
|
$
|
1,574
|
|
$
|
672
|
|
$
|
1,793
|
|
Loans
past due 90 days and over
|
|
|
481
|
|
|
1,127
|
|
|
98
|
|
Total
nonperforming loans
|
|
|
2,055
|
|
|
1,799
|
|
|
1,891
|
|
Other
real estate owned
|
|
|
158
|
|
|
68
|
|
|
368
|
|
Other
foreclosed assets
|
|
|
58
|
|
|
54
|
|
|
55
|
|
Total
nonperforming assets
|
|
$
|
2,271
|
|
$
|
1,921
|
|
$
|
2,314
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming
assets to total assets
|
|
|
0.28
|
%
|
|
0.26
|
%
|
|
0.29
|
%
|
Nonperforming
assets to total loans + OREO + other foreclosed
assets
|
|
|
0.44
|
%
|
|
0.43
|
%
|
|
0.46
|
%
|
ALL
to nonperforming assets
|
|
|
215.76
|
%
|
|
242.16
|
%
|
|
215.08
|
%
|
ALL
to nonperforming loans
|
|
|
238.44
|
%
|
|
285.59
|
%
|
|
263.19
|
%
|
ALL
to total loans
|
|
|
0.96
|
%
|
|
1.03
|
%
|
|
1.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Year-to-date
charge-offs
|
|
$
|
95
|
|
$
|
132
|
|
$
|
542
|
|
Year-to-date
recoveries
|
|
|
18
|
|
|
109
|
|
|
314
|
|
Year-to-date
net charge-offs
|
|
$
|
77
|
|
$
|
23
|
|
$
|
228
|
|
Net
YTD charge-offs to total loans
|
|
|
0.02
|
%
|
|
0.01
|
%
|
|
0.05
|
%
|
Nonperforming
assets, including loans 90 days or more past due, totaled $2.3 million
at March
31, 2007, relatively unchanged from December 31, 2006 and an increase
of
approximately $400,000 compared to $1.9 million at March 31, 2006. Net
charge-offs were 0.02% of total loans for the first quarter of 2007 compared
to
0.01% for the first quarter of 2006 and 0.05% for the year-ended December
31,
2006. The stable credit quality ratios, supported by management’s recent
analysis of the ALL, resulted in no provision expense in the first quarter
2007.
Provision expense totaled $320,000 for the first quarter of 2006 and
$180,000
for the fourth quarter of 2006. As a percentage of total loans, the ALL
for the
quarters ended March 31, 2007 and 2006 was 0.96% and 1.03%, respectively,
compared to 1.00% at December 31, 2006.
Specific
reserves have been established in the ALL to cover probable losses on
nonperforming assets. The ALL is analyzed quarterly and additional reserves,
if
needed, are allocated at that time. 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 management determines 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. Management believes the $4,899,937
in the allowance as of March 31, 2007 is sufficient to cover probable losses
in
nonperforming assets and in the loan portfolio.
Impact
of Inflation and Changing Prices
The
consolidated financial statements of and notes thereto, presented herein,
have
been prepared in accordance with accounting principles generally accepted
in the
United States of America, which require the measurement of financial position
and operating results in terms of historical dollars without considering
the
change in the relative purchasing power of money over time and due to inflation.
The impact of inflation is reflected in the increased cost of the Company’s
operations. Unlike most industrial companies, nearly all the assets and
liabilities of the Company are financial. As a result, interest rates have
a
greater impact on the Company’s performance than do the effects of general
levels of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the prices of goods and
services.
Item
3. Quantitative and Qualitative Disclosures About
Market
Risk.
In
the normal course of conducting business, the Company is exposed to market
risk,
principally interest rate risk, through operation of its subsidiaries.
Interest
rate risk arises from market fluctuations in interest rates that affect
cash
flows, income, expense and values of financial instruments. The Asset/Liability
Management Committee (“ALCO”) is responsible for managing the Company’s interest
rate risk position in compliance with policy approved by the Board of
Directors.
There
have been no significant changes from the information regarding market
risk
disclosed under the heading “Interest Rate Sensitivity” in the Company’s Annual
Report for the year ended December 31, 2006.
Item
4. Controls and Procedures.
The
Company’s Chief Executive Officer and Chief Financial Officer have evaluated the
effectiveness of the disclosure controls and procedures (as such term is
defined
in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934,
as
amended (the “Exchange Act”). As of the end of the period covered by this
Quarterly Report on Form 10-Q (the “Evaluation Date”), the principal executive
officer and principal financial officer have concluded that such disclosure
controls and procedures are effective to ensure that information required
to be
disclosed by the Company in reports that it submits under the Exchange
Act is
recorded, processed, summarized, and reported within the time periods specified
in the Securities and Exchange Commission rules and forms.
During
the first quarter of 2007, 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 controls over financial
reporting.
Part
II - Other Information
The
Banks have been named as a defendant in various legal actions arising from
normal business activities in which damages of various amounts are claimed.
While the amount, if any, of ultimate liability with respect to such matters
cannot be currently determined, management believes, after consulting with
legal
counsel, that any such liability will not have a material adverse effect
on the
Company’s consolidated financial position, results of operations, or cash
flows.
No
change.
Item
2. Unregistered Sales of Equity Securities and Use
of
Proceeds.
The
following table provides information with respect to purchases made by
or on
behalf of the Company or any “affiliated purchaser,” as defined in Securities
Exchange Act Rule 10b-8(a)(3), of equity securities during the quarter
ended
March 31, 2007.
|
|
Total
Number
of
Shares Purchased
|
|
Average
Price Paid per Share
|
|
Total
Number of Shares Purchased as Part of a Publicly Announced
Plan1
|
|
Maximum
Number of Shares That May Yet be Purchased Under the
Plan1
|
|
January
2007
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
194,613
|
|
February
2007
|
|
|
2,500
|
|
$
|
28.90
|
|
|
2,500
|
|
|
192,113
|
|
March
2007
|
|
|
733
|
|
$
|
27.53
|
|
|
733
|
|
|
191,380
|
|
1 Under
a share repurchase program approved by the Company’s Board of Directors on
November 13, 2002, the Company can repurchase up to 5% of its common stock
outstanding through open market or privately negotiated transactions. The
repurchase program does not have an expiration date
None.
None.
None.
(a)
Exhibits
Exhibit
Number
|
|
Document
Description
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b)
Reports Filed on Form 8-K
A
press release regarding the Company’s earnings for the quarter ended March 31,
2007 was attached as Exhibit 99.1 to the Form 8-K filed on April 26,
2007.
In
accordance with the requirements of the Exchange Act, the registrant caused
this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
MidSouth
Bancorp, Inc.
(Registrant)
|
Date:
May
10, 2007
|
|
|
/s/
C. R. Cloutier
|
|
C.
R. Cloutier, President /CEO
|
|
|
|
/s/
J. E. Corrigan, Jr.
|
|
J.
E. Corrigan, Jr., Executive Vice President/CFO
|
|
|
|
/s/
Teri S. Stelly
|
|
Teri
S. Stelly, SVP/Controller
|