first_quarter10-q.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
|
|
|
FORM
10-Q
|
|
|
xQUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For
the quarterly period ended March 31,
2008
OR
¨TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For
the transition period from _____ to _____
|
|
|
COMMISSION
FILE NUMBER 1-11826
MIDSOUTH BANCORP,
INC.
(Exact
name of registrant as specified in its charter)
|
|
|
Louisiana
|
72
–1020809
|
(State
of other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
|
102 Versailles Boulevard, Lafayette,
Louisiana 70501
(Address
of principal executive offices, including zip code)
(337)
237-8343
(Registrant’s
telephone number, including area code)
|
|
|
Indicate
by checkmark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES x NO ¨
|
|
|
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a small reporting
company.
Large
accelerated filer ¨ Accelerated
filer x Non-accelerated
filer ¨
Small reporting company ¨
|
|
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act.)
YES ¨ NO x
|
|
|
As of April 30, 2008, there were
6,615,942 shares of the registrant’s Common Stock, par value $0.10 per
share, outstanding.
|
Part I –
Financial Information
Item 1.
Financial Statements.
|
Consolidated
Statements of Condition
|
|
Consolidated
Statements of Earnings (Unaudited)
|
|
Consolidated
Statement of Stockholders’ Equity
(unaudited)
|
|
Consolidated
Statement of Stockholders’ Equity
(unaudited)
|
|
Consolidated
Statements of Cash Flows
(unaudited)
|
|
Notes
to Interim Consolidated Financial
Statements
|
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of
Operation.
|
Forward
Looking Statements
|
|
Critical
Accounting Policies
|
|
Analysis
of Statement of Condition
|
|
Impact
of Inflation and Changing Prices
|
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
Part
I – Financial Information
Item
1. Financial Statements.
|
|
MidSouth
Bancorp, Inc. and Subsidiaries
|
|
Consolidated
Statements of Condition
|
|
|
|
March
31,
2008
(unaudited)
|
|
|
December
31, 2007
(audited)
|
|
Assets
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$ |
26,303,790 |
|
|
$ |
25,419,029 |
|
Interest
bearing deposits in banks and federal funds sold
|
|
|
89,346,832 |
|
|
|
5,453,499 |
|
Total cash and cash
equivalents
|
|
|
115,650,622 |
|
|
|
30,872,528 |
|
Securities
available-for-sale, at fair value (cost of $178,747,679 at March 31, 2008
and $180,220,461 at December 31, 2007)
|
|
|
181,617,999 |
|
|
|
181,452,189 |
|
Securities
held-to-maturity (estimated fair value of $10,002,956 at March 31, 2008
and $10,974,266 at December 31, 2007)
|
|
|
9,747,090 |
|
|
|
10,745,947 |
|
Loans,
net of allowance for loan losses of $6,130,139 at March 31, 2008 and
$5,611,582 at December 31, 2007
|
|
|
563,614,828 |
|
|
|
563,893,656 |
|
Other
investments
|
|
|
3,553,334 |
|
|
|
4,020,537 |
|
Accrued
interest receivable
|
|
|
5,246,276 |
|
|
|
5,748,784 |
|
Bank
premises and equipment, net
|
|
|
39,967,219 |
|
|
|
39,229,018 |
|
Goodwill
and intangibles
|
|
|
9,718,468 |
|
|
|
9,759,295 |
|
Cash
surrender value of life insurance
|
|
|
4,257,432 |
|
|
|
4,219,117 |
|
Other
assets
|
|
|
3,657,104 |
|
|
|
4,114,983 |
|
Total assets
|
|
$ |
937,030,372 |
|
|
$ |
854,056,054 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Non-interest
bearing
|
|
$ |
184,109,401 |
|
|
$ |
182,588,179 |
|
Interest
bearing
|
|
|
633,894,399 |
|
|
|
550,928,818 |
|
Total deposits
|
|
|
818,003,800 |
|
|
|
733,516,997 |
|
Securities
sold under repurchase agreements
|
|
|
26,517,828 |
|
|
|
26,316,572 |
|
Federal
Home Loan Bank advances
|
|
|
- |
|
|
|
4,400,000 |
|
Accrued
interest payable
|
|
|
1,143,887 |
|
|
|
1,314,110 |
|
Junior
subordinated debentures
|
|
|
15,465,000 |
|
|
|
15,465,000 |
|
Other
liabilities
|
|
|
5,568,340 |
|
|
|
4,574,495 |
|
Total liabilities
|
|
|
866,698,855 |
|
|
|
785,587,174 |
|
Stockholders’
Equity:
|
|
|
|
|
|
|
|
|
Preferred
stock, no par value; 5,000,000 shares authorized, none issued or
outstanding
|
|
|
- |
|
|
|
- |
|
Common
stock, $0.10 par value; 10,000,000 shares authorized; 6,762,532 and
6,722,993 issued and 6,602,610 and 6,576,165 outstanding at March 31, 2008
and December 31, 2007, respectively
|
|
|
676,253 |
|
|
|
672,299 |
|
Capital
surplus
|
|
|
51,732,461 |
|
|
|
51,326,349 |
|
Unearned
ESOP shares
|
|
|
(101,893 |
) |
|
|
(132,708 |
) |
Accumulated
other comprehensive income
|
|
|
1,894,411 |
|
|
|
812,941 |
|
Treasury
stock- 159,922 shares at March 31, 2008 and 146,828 shares at December 31,
2007, at cost
|
|
|
(3,327,523 |
) |
|
|
(3,040,489 |
) |
Retained
earnings
|
|
|
19,457,808 |
|
|
|
18,830,488 |
|
Total stockholders’
equity
|
|
|
70,331,517 |
|
|
|
68,468,880 |
|
Total liabilities and
stockholders’ equity
|
|
$ |
937,030,372 |
|
|
$ |
854,056,054 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes to unaudited consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
MidSouth
Bancorp Inc. and Subsidiaries
|
|
|
|
Consolidated
Statements of Earnings (Unaudited)
|
|
|
|
Three
Months Ended March 31,
|
|
|
|
|
|
|
|
|
Interest
income:
|
|
|
|
|
|
|
Loans,
including fees
|
|
$ |
12,006,053 |
|
|
$ |
10,993,865 |
|
Investment
securities:
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
960,297 |
|
|
|
980,536 |
|
Nontaxable
|
|
|
1,040,674 |
|
|
|
1,016,138 |
|
Federal
funds sold
|
|
|
305,009 |
|
|
|
451,472 |
|
Total interest
income
|
|
|
14,312,033 |
|
|
|
13,442,011 |
|
|
|
|
|
|
|
|
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
4,477,601 |
|
|
|
4,682,230 |
|
Securities
sold under repurchase agreements, federal funds purchased and
advances
|
|
|
228,248 |
|
|
|
75,721 |
|
Junior subordinated
debentures
|
|
|
332,309 |
|
|
|
346,169 |
|
Total interest
expense
|
|
|
5,038,158 |
|
|
|
5,104,120 |
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
9,273,875 |
|
|
|
8,337,891 |
|
Provision
for loan losses
|
|
|
1,200,000 |
|
|
|
- |
|
Net
interest income after provision for loan losses
|
|
|
8,073,875 |
|
|
|
8,337,891 |
|
|
|
|
|
|
|
|
|
|
Non-interest
income:
|
|
|
|
|
|
|
|
|
Service
charges on deposits
|
|
|
2,369,861 |
|
|
|
2,306,183 |
|
Credit
life insurance
|
|
|
37,216 |
|
|
|
36,511 |
|
Other
charges and fees
|
|
|
1,180,563 |
|
|
|
920,385 |
|
Total non-interest
income
|
|
|
3,587,640 |
|
|
|
3,263,079 |
|
|
|
|
|
|
|
|
|
|
Non-interest
expenses:
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
|
5,177,942 |
|
|
|
4,786,564 |
|
Occupancy
expense
|
|
|
1,949,983 |
|
|
|
1,571,502 |
|
Other
|
|
|
3,165,504 |
|
|
|
2,720,984 |
|
Total non-interest
expenses
|
|
|
10,293,429 |
|
|
|
9,079,050 |
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
1,368,086 |
|
|
|
2,521,920 |
|
Provision
for income taxes
|
|
|
168,738 |
|
|
|
575,677 |
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$ |
1,199,348 |
|
|
$ |
1,946,243 |
|
|
|
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.18 |
|
|
$ |
0.30 |
|
Diluted
|
|
$ |
0.18 |
|
|
$ |
0.29 |
|
|
|
|
|
|
|
|
|
|
|
|
MidSouth
Bancorp, Inc. and Subsidiaries
|
|
Consolidated
Statement of Stockholders’ Equity (unaudited)
|
|
For
the Three Months Ended March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Other Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
Balance-
January 1, 2008
|
|
|
6,722,993 |
|
|
$ |
672,299 |
|
|
$ |
51,326,349 |
|
|
$ |
(132,708 |
) |
|
$ |
812,941 |
|
|
$ |
(3,040,489 |
) |
|
$ |
18,830,488 |
|
|
$ |
68,468,880 |
|
Cumulative-effect
adjustment resulting from the adoption of EITF 06-04
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(114,954 |
) |
|
|
(114,954 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,199,348 |
|
|
|
1,199,348 |
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
change in unrealized gain on securities available-for-sale, net of
taxes
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,081,470 |
|
|
|
- |
|
|
|
- |
|
|
|
1,081,470 |
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,280,818 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends on common stock, $0.07 per share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(457,074 |
) |
|
|
(457,074 |
) |
Exercise
of stock options
|
|
|
39,539 |
|
|
|
3,954 |
|
|
|
301,639 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
305,593 |
|
Tax
benefit resulting from exercise of stock options
|
|
|
- |
|
|
|
- |
|
|
|
76,633 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
76,633 |
|
Purchase
of treasury stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(287,034 |
) |
|
|
- |
|
|
|
(287,034 |
) |
ESOP
obligation, net of repayments
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
30,815 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
30,815 |
|
Excess
of market value over book value of ESOP shares released, net
adjustment
|
|
|
- |
|
|
|
- |
|
|
|
10,500 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
10,500 |
|
Stock
option expense
|
|
|
- |
|
|
|
- |
|
|
|
17,340 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
17,340 |
|
Balance-
March 31, 2008
|
|
|
6,762,532 |
|
|
$ |
676,253 |
|
|
$ |
51,732,461 |
|
|
$ |
(101,893 |
) |
|
$ |
1,894,411 |
|
|
$ |
(3,327,523 |
) |
|
$ |
19,457,808 |
|
|
$ |
70,331,517 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes to unaudited consolidated financial statements.
|
|
|
|
MidSouth
Bancorp, Inc. and Subsidiaries
|
|
Consolidated
Statement of Stockholders’ Equity (unaudited)
|
|
For
the Three Months Ended March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Other Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
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 |
|
Net
earnings
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,946,243 |
|
|
|
1,946,243 |
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
change in unrealized losses on securities available-for-sale, net of
taxes
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
70,692 |
|
|
|
- |
|
|
|
- |
|
|
|
70,692 |
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,016,935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
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 |
) |
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 |
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes to unaudited consolidated financial statements.
|
|
|
|
MidSouth
Bancorp, Inc. and Subsidiaries
|
|
Consolidated
Statements of Cash Flows (unaudited)
|
|
|
|
For
the Three Months Ended March 31,
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
earnings
|
|
$ |
1,199,348 |
|
|
$ |
1,946,243 |
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
786,889 |
|
|
|
688,140 |
|
Provision
for loan losses
|
|
|
1,200,000 |
|
|
|
- |
|
Deferred
income tax benefit
|
|
|
(363,230 |
) |
|
|
(83,896 |
) |
Amortization
of premiums on securities, net
|
|
|
107,102 |
|
|
|
159,230 |
|
Net
loss (gain) on sale of premises and equipment
|
|
|
2,835 |
|
|
|
(4,807 |
) |
Net
loss on sale of other real estate owned
|
|
|
- |
|
|
|
17,849 |
|
Impairment
on premises and equipment
|
|
|
- |
|
|
|
13,637 |
|
Stock
option compensation expense
|
|
|
17,340 |
|
|
|
24,549 |
|
Change
in accrued interest receivable
|
|
|
502,508 |
|
|
|
254,681 |
|
Change
in accrued interest payable
|
|
|
(170,223 |
) |
|
|
(225,703 |
) |
Other,
net
|
|
|
1,381,252 |
|
|
|
(51,628 |
) |
Net cash provided by operating
activities
|
|
|
4,663,821 |
|
|
|
2,738,295 |
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from maturities and calls of securities available-for-sale
|
|
|
24,418,752 |
|
|
|
8,245,043 |
|
Proceeds
from maturities and calls of securities held-to-maturity
|
|
|
1,000,000 |
|
|
|
2,500,000 |
|
Proceeds
from maturities and calls of other investments
|
|
|
1,158,900 |
|
|
|
- |
|
Purchases
of securities available-for-sale
|
|
|
(23,054,912 |
) |
|
|
(9,911,640 |
) |
Purchases
of other investments
|
|
|
(691,000 |
) |
|
|
(24,000 |
) |
Loan
originations, net of repayments
|
|
|
(890,357 |
) |
|
|
(11,705,589 |
) |
Purchase
of premises and equipment
|
|
|
(1,492,604 |
) |
|
|
(1,577,793 |
) |
Proceeds
from sale of premises and equipment
|
|
|
5,507 |
|
|
|
55,060 |
|
Proceeds
from sales of other real estate owned
|
|
|
- |
|
|
|
334,716 |
|
Net cash provided by (used in)
investing activities
|
|
|
454,286 |
|
|
|
(12,084,203 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Change
in deposits
|
|
|
84,486,803 |
|
|
|
12,659,732 |
|
Change
in repurchase agreements
|
|
|
201,256 |
|
|
|
316,408 |
|
Proceeds
from FHLB advances
|
|
|
19,100,000 |
|
|
|
7,363,000 |
|
Repayments
of FHLB advances
|
|
|
(23,500,000 |
) |
|
|
(13,013,000 |
) |
Purchase
of treasury stock
|
|
|
(287,034 |
) |
|
|
(92,427 |
) |
Payment
of dividends on common stock
|
|
|
(723,264 |
) |
|
|
(561,329 |
) |
Proceeds
from exercise of stock options
|
|
|
305,593 |
|
|
|
187,266 |
|
Excess
tax benefit from stock option exercises
|
|
|
76,633 |
|
|
|
109,221 |
|
Net cash provided by financing
activities
|
|
|
79,659,987 |
|
|
|
6,968,871 |
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
84,778,094 |
|
|
|
(2,377,037 |
) |
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period
|
|
|
30,872,528 |
|
|
|
57,404,341 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of period
|
|
$ |
115,650,622 |
|
|
$ |
55,027,304 |
|
|
|
|
|
|
|
|
|
|
See
notes to unaudited consolidated financial statements.
|
|
|
|
|
|
|
|
|
MidSouth
Bancorp, Inc. and Subsidiaries
|
Notes
to Interim Consolidated Financial Statements
|
March
31, 2008
|
(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, 2008 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 2007 Annual Report
and Form 10-K.
The
results of operations for the three month period ended March 31, 2008 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. 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, 2007.
Recent Accounting
Pronouncements—In December 2007, FASB issued Statement No. 141R,
Business Combinations
(“SFAS No. 141R”). Under SFAS No. 141, organizations utilized
the announcement date as the measurement date for the purchase price of the
acquired entity. SFAS No. 141R requires measurement at the date the acquirer
obtains control of the acquiree, generally referred to as the acquisition date.
SFAS No. 141R will have a significant impact on the accounting for transaction
and restructuring costs, as well as the initial recognition of contingent assets
and liabilities assumed during a business combination. Under SFAS No.
141R, adjustments to the acquired entity’s deferred tax assets and uncertain tax
position balances occurring outside the measurement period are recorded as a
component of the income tax expense, rather than goodwill. SFAS No.
141R is effective for business combinations for which the acquisition date is on
or after the beginning of the first annual reporting period beginning on or
after December 15, 2008. As the provisions of SFAS No. 141R are
applied prospectively, the impact to the Company cannot be determined until a
transaction occurs.
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements (“SFAS No. 160”), which will require
noncontrolling interests (previously referred to as minority interests) to be
treated as a separate component of equity, not as a liability or other item
outside of permanent equity. SFAS No. 160 applies to the accounting for
noncontrolling interests and transactions with noncontrolling interest holders
in consolidated financial statements. SFAS No. 160 is effective for periods
beginning on or after December 15, 2008. Earlier application is prohibited.
SFAS No. 160 will be applied prospectively to all noncontrolling interests,
including any that arose before the effective date except that comparative
period information must be recast to classify noncontrolling interests in
equity, attribute net income and other comprehensive income to noncontrolling
interests, and provide other disclosures required by SFAS No. 160. The
Company does not expect the adoption of SFAS No. 160 to have any impact on
its financial position, results of operation, and cash flows.
In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133
(“SFAS No. 161”). SFAS No. 161 requires qualitative
disclosures about objectives and strategies for using derivatives, quantitative
disclosures about fair value amounts of derivative instruments and related gains
and losses, and disclosures about credit-risk-related contingent features in
derivative agreements. SFAS No. 161 is effective for financial statements issued
for fiscal years and interim periods beginning after November 15,
2008. The statement provides only for enhanced disclosures.
Therefore, adoption will have no impact on our financial position, results of
operations, and cash flows.
Reclassifications—Certain
reclassifications have been made to the prior years’ financial statements in
order to conform to the classifications adopted for reporting in
2008. The reclassifications had no impact on stockholders equity or
net income.
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,
|
|
|
|
|
|
|
|
|
Balance,
beginning of period
|
|
$ |
5,612 |
|
|
$ |
4,977 |
|
Provision
for loan losses
|
|
|
1,200 |
|
|
|
- |
|
Recoveries
|
|
|
9 |
|
|
|
18 |
|
Loans
charged-off
|
|
|
(691 |
) |
|
|
(95 |
) |
Balance,
end of period
|
|
$ |
6,130 |
|
|
$ |
4,900 |
|
3. Earnings
Per Common Share
Following
is a summary of the information used in the computation of earnings per common
share as adjusted for a 5% stock dividend declared on July 18, 2007 (in
thousands):
|
|
Three
Months Ended March 31,
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$ |
1,199 |
|
|
$ |
1,946 |
|
Weighted
average number of common shares outstanding used in computation of basic
earnings per common share
|
|
|
6,586 |
|
|
|
6,552 |
|
Effect
of dilutive securities:
Stock options
|
|
|
36 |
|
|
|
95 |
|
Weighted
average number of common shares outstanding plus effect of dilutive
securities – used in computation of diluted earnings per
share
|
|
|
6,622 |
|
|
|
6,647 |
|
4. Declaration
of Dividends
On
January 28, 2008, the Company declared a $0.07 per share quarterly dividend for
holders of record on March 12, 2008.
5. Deferred
Compensation and Postretirement Benefits
In
September 2006, the FASB’s Emerging Issues Task Force (“EITF”) reached a
consensus on the issue No. 06-4 Accounting for Deferred Compensation
and Postretirement Benefit Aspects of Endorsement Split-Dollar Lift Insurance
Arrangements (“EITF 06-4”). The issue was ratified by FASB on
March 28, 2007. Entities affected by this issue purchase life
insurance on “key” employees, which extend into the individual’s retirement
period. The issue requires affected entities to recognize a liability
for future benefits based on the substantive agreement with the
employee. EITF 06-4 is effective for all financial statements issued
for fiscal years beginning after December 15, 2007. This issue was
applied through a cumulative-effect adjustment to retained earnings as of
January 1, 2008 in the amount of $114,954.
6. Fair
Value Measurement
Effective
January 1, 2008, the Company adopted Statements of Financial Accounting
Standards (“SFAS”) No. 157, Fair Value Measurements
(“SFAS No. 157”) and SFAS No. 159 The Fair Value Option for Financial
Assets and Liabilities (“SFAS No. 159”). SFAS No. 157, which was
issued in September 2006, establishes a framework for using fair value. It
defines fair value as the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants at
the measurement date. SFAS No. 159, which was issued in February 2007,
generally permits the measurement of selected eligible financial instruments at
fair value at specified election dates. Upon adoption of SFAS No. 159, the
Company did not elect to apply the fair value measurement option
In
accordance with SFAS No. 157, we group our financial assets and financial
liabilities measured at fair value in three levels, based on the markets in
which the assets and liabilities are traded and the reliability of the
assumptions used to determine fair value. These levels are:
Level 1 —
Valuations for assets and liabilities traded in active exchange markets, such as
the New York Stock Exchange. Level 1 also includes securities that are traded by
dealers or brokers in active markets. Valuations are obtained from readily
available pricing sources for market transactions involving identical assets or
liabilities.
Level 2 —
Valuations for assets and liabilities traded in less active dealer or broker
markets. For example, municipal securities valuations are based on markets that
are currently offering similar financial products. Valuations are obtained from
third party pricing services for identical or comparable assets or
liabilities.
Level 3 —
Valuations for assets and liabilities that are derived from other valuation
methodologies, including option pricing models, discounted cash flow models and
similar techniques, and not based on market exchange, dealer, or broker traded
transactions. Level 3 valuations incorporate certain assumptions and projections
and projections in determining the fair value assigned to such assets or
liabilities.
Below is
a table that presents information about certain assets and liabilities measured
at fair value on a recurring basis (in thousands):
|
|
|
|
|
|
|
|
Fair
Value Measurements at March 31, 2008 using:
|
|
|
|
Total
Carrying Amount in Statement of Financial Position at March 31,
2008
|
|
|
Assets
/ Liabilities Measured at Fair Value at March 31,
2008
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities
|
|
$ |
181,618 |
|
|
$ |
181,618 |
|
|
$ |
189 |
|
|
$ |
181,429 |
|
|
$ |
- |
|
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operation.
MidSouth
Bancorp, Inc. (“the Company") is a bank holding company headquartered in
Lafayette, Louisiana that conducts substantially all of its business through its
wholly-owned subsidiary bank MidSouth Bank, N.A (“the
Bank”). MidSouth Bank, N.A. offers complete banking services to
commercial and retail customers in south Louisiana and southeast Texas with 34
locations and more than 120 ATMs. The Company is community oriented
and focuses primarily on offering commercial and consumer loan and deposit
services to individuals, small businesses, and middle market
businesses.
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 and Analysis in the Company’s 10-K for the year ended
December 31, 2007.
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, 2007. 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. SFAS
No. 123R requires that stock based compensation transactions be recognized as
compensation expense in the statement of earnings 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 $17,340, for the grant-date fair value of stock options vested in the
three months ended March 31, 2008. The Company did not grant any new
stock options in the first quarter of 2008.
Results
of Operations
First
quarter 2008 earnings totaled $1.2 million, a 38.4% decrease from earnings of
$1.9 million for the same period in 2007. Diluted earnings per share
were $0.18 for the first quarter of 2008, compared to $0.29 per share for the
first quarter of 2007. Earnings per share data for the first quarter
of 2007 have been adjusted to reflect a 5% stock dividend declared on July 18,
2007.
First
quarter 2008 earnings were impacted by a $1.2 million provision for loan losses
prompted by credit downgrades related to borrower liquidity concerns and
softness in the real estate market as a result of the ongoing housing crisis
throughout the country. General market conditions and concern for
borrower deterioration was reflected in an increase of $1.8 million in loans
past due 90 days and over and an increase of $325,000 in nonaccrual loans for
the first quarter of 2008 compared to the first quarter of
2007. Additionally, $189,000 of the provision expense was necessary
to cover probable losses resulting from fraudulent activity in the indirect auto
loan portfolio during the first quarter of 2008. No loan loss
provisions were expensed in the first quarter of 2007.
Revenues
for the Company, defined as net interest income and non-interest income,
increased $1.3 million for the first quarter of 2008 compared to the first
quarter of 2007. Net interest income for the first quarter of 2008
increased $936,000, or 11.2% compared to the first quarter of 2007, primarily
due to an increase in average loan volume. Net interest margin, on a
fully taxable-equivalent basis, was 4.88% in the first quarter of 2008, an
improvement of 3 basis points from 4.85% in the first quarter of
2007. A $1.2 million increase in non-interest expenses attributed to
franchise expansion offset the improvement in revenues.
First
quarter 2008 results were positively impacted by a lower effective tax rate of
approximately 12.35% that reduced income tax expense by $407,000 compared to the
first quarter of 2007. The effective tax rate for first quarter 2007
was 22.84%. The lower effective tax rate resulted from decreased
earnings due to the $1,200,000 expensed in provisions for loan losses combined
with sustained nontaxable interest income from municipal securities within the
investment portfolio.
Return on
average equity was 6.90% for the first quarter of 2008 compared to 13.07% for
the first quarter of 2007. The leverage capital ratio was 8.44% at
March 31, 2008 compared to 8.50% at March 31, 2007.
Total
consolidated assets increased $82.9 million, or 9.7%, from $854.1 million at the
year end 2007 to $937.0 million at the end of the first quarter of
2008. Total loans were flat, increasing $240,000, from $569.5 million
at December 31, 2007 to $569.7 million at March 31, 2008 due to a decline in
loan demand and a higher volume of loans paid out in the first quarter of
2008. Total deposits increased $84.5 million, or 11.5%, from $733.5
million at December 31, 2007 to $818.0 million at March 31,
2008. Deposits grew primarily in the Company’s commercial and
consumer Platinum money market accounts, consumer certificates of deposit, and
in public funds deposits.
Nonperforming
assets, including loans 90 days or more past due, totaled $4.6 million at March
31, 2008, as compared to the $3.0 million at December 31, 2007. As a
percentage of total assets, nonperforming assets were 0.49% and 0.35% for March
31, 2008 and December 31, 2007, respectively. Net charge-offs to
total loans were 0.12% for the first quarter of 2008. As a percentage
of total loans, the allowance for loan losses for the quarters ended March 31,
2008 and 2007 was 1.08% and 0.96%, respectively.
Earnings
Analysis
Net Interest
Income
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
interest income as a percentage of average earning assets, was 4.88% for the
three months ended March 31, 2008, up 3 basis points from 4.85% for the three
months ended March 31, 2007. Tables 1 and 2 following this discussion
analyze the changes in taxable-equivalent net interest income for the three
months ended March 31, 2008 and 2007.
Taxable-equivalent
net interest income totaled $9,707,000 for the first quarter of 2008, an
increase of 10.8%, or $950,000, from the $8,757,000 reported for the first
quarter of 2007. The improvement in net interest income resulted
primarily from an increase of $68.4 million in average earning
assets. Total taxable-equivalent interest income from earning assets
increased $884,000 for the first quarter of 2008 compared to
2007. The increase in taxable-equivalent interest income was
primarily due to a $68.9 million increase in average loan volume, partially
offset by a 43 basis point decrease in the average yield on loans, from 8.91% to
8.48%.
The
taxable-equivalent yield on investment securities increased 21 basis points,
from 4.93% to 5.14% in quarterly comparison, while the average volume decreased
$5.9 million from the first quarter of 2008 to the same period in
2007. A 235 basis point decrease in the yield on federal funds sold
reduced interest income by $156,000 in quarterly comparison, despite a $5.4
million average volume increase in federal funds sold for the same
period. The yields on loans and overnight federal funds sold declined
during the first quarter of 2008 as New York Prime (“Prime”) fell 200 basis
points, from 7.25% at year-end 2007 to 5.25% at March 31, 2008, and the Federal
Reserve Bank Target (“FRB Target”) rate was lowered to 2.25%.
Interest
expense for the first quarter of 2008 decreased $66,000 in comparison to the
first quarter of 2007. A 49 basis point decrease in the average
rate paid on interest-bearing liabilities lessened the impact of a $71.8 million
increase in the average volume of interest-bearing liabilities in quarterly
comparison. The 49 basis point rate decrease reflects rate
adjustments made in the first quarter of 2008 in response to the
200 basis
point decreases in Prime and the 225 basis point decrease in FRB Target
rates. The increase in interest-bearing liabilities was primarily in
commercial and consumer Platinum money market deposits, consumer certificates of
deposit and public funds deposits.
The
average volume of federal funds purchased and securities sold under repurchase
agreements increased $21.8 million in quarterly comparison primarily due to a
$12.5 million repurchase agreement entered into in July of 2007 with Citigroup
Global Markets, Inc. (“CGMI”). The repurchase agreement provided low
cost funding to meet liquidity demands in the third quarter of
2007. Under the terms of the repurchase agreement, interest is
payable quarterly based on a floating rate equal to the 3-month LIBOR for the
first 12 months of the agreement and a fixed rate of 4.57% for the remainder of
the term. The repurchase date is scheduled for August 9, 2017;
however, the agreement may be called by CGMI on August 9, 2008, or every
quarterly period thereafter.
The
average rate paid on the Company’s junior subordinated debentures decreased 46
basis points from first quarter of 2007 to first quarter of 2008 on the $8.2
million of such debentures issued in the fourth quarter of 2004. The
debentures carry a floating rate equal to the 3-month LIBOR plus 2.50%,
adjustable and payable quarterly. The rate at March 31, 2008 was
5.04%. 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 $7.2 million of
junior subordinated debentures. The debentures carry a fixed interest
rate of 10.20% and mature on February 22, 2031.
|
|
Table
1
|
|
Consolidated
Average Balances, Interest and Rates
(in
thousands)
|
|
|
|
Three
Months Ended March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities and interest bearing deposits1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
$ |
79,211 |
|
|
$ |
960 |
|
|
|
4.85 |
% |
|
$ |
85,373 |
|
|
$ |
981 |
|
|
|
4.60 |
% |
|
|
|
108,933 |
|
|
|
1,474 |
|
|
|
5.41 |
% |
|
|
109,859 |
|
|
|
1,435 |
|
|
|
5.22 |
% |
Other
investments
|
|
|
3,693 |
|
|
|
31 |
|
|
|
3.36 |
% |
|
|
2,511 |
|
|
|
22 |
|
|
|
3.50 |
% |
Total
investments
|
|
|
191,837 |
|
|
|
2,465 |
|
|
|
5.14 |
% |
|
|
197,743 |
|
|
|
2,438 |
|
|
|
4.93 |
% |
Federal
funds sold and securities purchased under agreements to
resell
|
|
|
38,970 |
|
|
|
274 |
|
|
|
2.78 |
% |
|
|
33,550 |
|
|
|
430 |
|
|
|
5.13 |
% |
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
and real estate
|
|
|
456,435 |
|
|
|
9,419 |
|
|
|
8.30 |
% |
|
|
395,224 |
|
|
|
8,721 |
|
|
|
8.95 |
% |
Installment
|
|
|
112,719 |
|
|
|
2,587 |
|
|
|
9.23 |
% |
|
|
105,047 |
|
|
|
2,272 |
|
|
|
8.77 |
% |
|
|
|
569,154 |
|
|
|
12,006 |
|
|
|
8.48 |
% |
|
|
500,271 |
|
|
|
10,993 |
|
|
|
8.91 |
% |
Total
earning assets
|
|
|
799,961 |
|
|
|
14,745 |
|
|
|
7.41 |
% |
|
|
731,564 |
|
|
|
13,861 |
|
|
|
7.68 |
% |
Allowance
for loan losses
|
|
|
(5,531 |
) |
|
|
|
|
|
|
|
|
|
|
(4,949 |
) |
|
|
|
|
|
|
|
|
Nonearning
assets
|
|
|
89,728 |
|
|
|
|
|
|
|
|
|
|
|
76,843 |
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
884,158 |
|
|
|
|
|
|
|
|
|
|
$ |
803,458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and stockholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW,
money market, and savings
|
|
$ |
450,702 |
|
|
$ |
2,929 |
|
|
|
2.61 |
% |
|
$ |
419,573 |
|
|
$ |
3,469 |
|
|
|
3.35 |
% |
Certificates
of deposits
|
|
|
141,073 |
|
|
|
1,549 |
|
|
|
4.42 |
% |
|
|
122,235 |
|
|
|
1,213 |
|
|
|
4.02 |
% |
Total
interest bearing deposits
|
|
|
591,775 |
|
|
|
4,478 |
|
|
|
3.04 |
% |
|
|
541,808 |
|
|
|
4,682 |
|
|
|
3.50 |
% |
Federal
funds purchased and securities sold under repurchase
agreements
|
|
|
26,150 |
|
|
|
212 |
|
|
|
3.21 |
% |
|
|
4,346 |
|
|
|
49 |
|
|
|
4.51 |
% |
FHLB
advances
|
|
|
1,663 |
|
|
|
16 |
|
|
|
3.81 |
% |
|
|
1,593 |
|
|
|
27 |
|
|
|
6.78 |
% |
Junior
subordinated debentures
|
|
|
15,465 |
|
|
|
332 |
|
|
|
8.49 |
% |
|
|
15,465 |
|
|
|
346 |
|
|
|
8.95 |
% |
Total
interest bearing liabilities
|
|
|
635,053 |
|
|
|
5,038 |
|
|
|
3.19 |
% |
|
|
563,212 |
|
|
|
5,104 |
|
|
|
3.68 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand
deposits
|
|
|
174,109 |
|
|
|
|
|
|
|
|
|
|
|
176,000 |
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
5,095 |
|
|
|
|
|
|
|
|
|
|
|
3,874 |
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
69,901 |
|
|
|
|
|
|
|
|
|
|
|
60,372 |
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$ |
884,158 |
|
|
|
|
|
|
|
|
|
|
$ |
803,458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income and net interest spread
|
|
|
|
|
|
$ |
9,707 |
|
|
|
4.22 |
% |
|
|
|
|
|
$ |
8,757 |
|
|
|
4.01 |
% |
Net
yield on interest earning assets
|
|
|
|
|
|
|
|
|
|
|
4.88 |
% |
|
|
|
|
|
|
|
|
|
|
4.85 |
% |
1 Securities classified as
available-for-sale are included in average balances. Interest income
figures reflect interest earned on such securities.
2 Interest income of $433,000 for 2008
and $419,000 for 2007 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
$929,000 for 2008 and $778,000 for 2007. 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, 2008 compared to March 31, 2007
|
|
|
|
Total
Increase
|
|
|
Change
Attributable
To
|
|
|
|
|
|
|
|
|
|
|
|
Taxable-equivalent
earned on:
|
|
|
|
|
|
|
|
|
|
Investment
securities and interest bearing deposits
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
$ |
(21 |
) |
|
$ |
(73 |
) |
|
$ |
52 |
|
Tax
exempt
|
|
|
39 |
|
|
|
(12 |
) |
|
|
51 |
|
Other
investments
|
|
|
9 |
|
|
|
10 |
|
|
|
(1 |
) |
Federal
funds sold and securities purchased under agreement to
resell
|
|
|
(156 |
) |
|
|
61 |
|
|
|
(217 |
) |
Loans,
including fees
|
|
|
1,013 |
|
|
|
1,469 |
|
|
|
(456 |
) |
Total
|
|
$ |
884 |
|
|
$ |
1,455 |
|
|
$ |
(571 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid on:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing deposits
|
|
$ |
(204 |
) |
|
$ |
410 |
|
|
$ |
(614 |
) |
Federal
funds purchased and securities sold under repurchase
agreements
|
|
|
163 |
|
|
|
181 |
|
|
|
(18 |
) |
FHLB
advances
|
|
|
(11 |
) |
|
|
1 |
|
|
|
(12 |
) |
Junior
subordinated debentures
|
|
|
(14 |
) |
|
|
- |
|
|
|
(14 |
) |
Total
|
|
$ |
(66 |
) |
|
$ |
592 |
|
|
$ |
(658 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable-equivalent
net interest income
|
|
$ |
950 |
|
|
$ |
863 |
|
|
$ |
87 |
|
Non-Interest
Income
Non-interest
income for the first quarter of 2008 totaled $3.6 million an increase of
$320,000, or 9.9%, from $3.3 million for the first quarter of
2007. The increase resulted primarily from a $115,000 increase in
debit card and ATM transaction fee income due to a higher volume of transactions
processed. Additionally, a one-time payment totaling $131,000 was
received from VISA during the first quarter 2008. The one-time
payment was related to VISA’s redemption of a portion of its Class B shares
outstanding in connection with its initial public offering.
Non-interest
Expenses
Non-interest
expenses increased $1.2 million in quarterly comparison, primarily due to
increased salaries and benefits costs and occupancy
expenses. Salaries and benefits costs increased $391,000 as the
number of full-time equivalent employees increased from 387 at March 31, 2007,
to 423 at March 31, 2008, due to franchise expansion and recruitment of talented
leaders to support corporate growth initiatives. Occupancy expenses
increased $378,000, primarily in lease expense and depreciation expenses on
fixed assets. Additional increases were recorded in marketing
expense, data processing expense, education and travel costs and other
growth-related expenses.
Analysis
of Statement of Condition
Consolidated
assets totaled $937.0 million at March 31, 2008, up $83.0 million from $854.0
million at December 31, 2007 due to growth in federal funds sold, which was the
direct result of an increase in deposits. Deposits totaled $818.0
million at the end of the first quarter of 2008, an increase of $84.5 million
from $733.5 million at December 31, 2007. Deposit growth occurred
primarily in commercial Platinum money market accounts, reflecting significant
liquidity held by oil-related companies within the Company’s
markets. Additionally, increases were noted in public funds deposits,
consumer Platinum money market deposits and consumer Certificates of Deposits
(“CDs”). The growth in CDs resulted from special promotions held in
conjunction with grand opening events for newly constructed retail
offices. The special promotions offered short-term CDs at competitive
rates within the selected markets for a limited time.
Loans
totaled $569.7 million at March 31, 2008 compared to $569.5 million at December
31, 2007. Decreased loan demand combined with an increased volume of
loans paid off during the quarter, held the loan portfolio flat over the first
three months of 2008, as reflected in Table 3 below.
|
|
Table
3
Composition
of Loans
(in
thousands)
|
|
|
|
|
|
|
|
|
Commercial,
financial, and agricultural
|
|
$ |
181,540 |
|
|
$ |
187,544 |
|
Lease
financing receivable
|
|
|
7,115 |
|
|
|
8,089 |
|
Real
estate – mortgage
|
|
|
205,875 |
|
|
|
204,291 |
|
Real
estate – construction
|
|
|
86,998 |
|
|
|
80,864 |
|
Installment
loans to individuals
|
|
|
87,347 |
|
|
|
87,775 |
|
Other
|
|
|
870 |
|
|
|
942 |
|
Total loans
|
|
$ |
569,745 |
|
|
$ |
569,505 |
|
Within
the $205.9 million real estate mortgage portfolio at March 31, 2008, $128.5
million represented loans secured by commercial real estate, 79% of which was
owner-occupied. Of the $77.4 million in real estate mortgage loans
secured by 1-4 family residential properties, 76% represented loans secured by
first liens. Within the $87.0 million real estate construction portfolio, 83%
represented commercial construction and land development and 17% represented
residential construction and consumer property. Management believes
the Company’s risk within the real estate and construction portfolios is
diversified throughout its markets and that current exposure within the two
portfolios is sufficiently provided for within the ALL at March 31,
2008.
Securities
available-for-sale totaled $181.6 million at March 31, 2008, up $166,000 from
$181.5 million at December 31, 2007. The portfolio of securities
held-to-maturity decreased $1.0 million, from $10.7 million at December 31, 2007
to $9.7 million at March 31, 2008, due to maturities and calls within that
portfolio. Other investments decreased $467,000 from year-end 2007
due to the redemption of FHLB stock required with the decrease in borrowings
under FHLB advances.
Liquidity
Liquidity
is the availability of funds to meet operational cash flow requirements and to
meet contractual obligations as they become due. The Bank’s primary
liquidity needs involve its 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 Bank. Liquidity is provided
primarily by three sources: a stable base of funding sources, an adequate level
of assets that can be readily converted into cash, and borrowing lines with
correspondent banks. The Bank’s core deposits are its 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 Bank. The Bank
also has significant borrowing capacity with the FHLB of Dallas, Texas and
borrowing lines with other correspondent banks. At March 31, 2008,
the Bank did not have any borrowings with the FHLB or a correspondent
bank.
At the
parent company level, cash is needed primarily to meet interest payments on the
junior subordinated debentures and to pay dividends on common
stock. An $8.2 million issuance of junior subordinated debentures was
completed on September 20, 2004, the proceeds of which were used to partially
fund the Lamar Bancshares acquisition. The parent company previously
issued $7.2 million in junior subordinated debentures in February
2001. Dividends from the Bank primarily provide liquidity for the
parent company. As a publicly traded company, the parent company also
has the ability to issue other securities instruments to provide funds as needed
for operations and future growth.
Capital
The
Company and the Bank are required to maintain certain minimum capital
levels. Risk-based capital requirements are intended to make
regulatory capital more sensitive to the risk profile of an institution's
assets. At March 31, 2008, the Company and the Bank were in
compliance with statutory minimum capital requirements and was 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, 2008,
the Company’s leverage ratio was 8.44%, Tier 1 capital to risk-weighted assets
was 11.07% and total capital to risk-weighted assets was 11.99%. The
Bank had a leverage capital ratio of 8.32% at March 31, 2008.
Asset
Quality
Credit
Risk Management
The
Company manages its credit risk by observing written, board approved policies
that govern all underwriting activities. The credit risk management
program requires that each individual loan officer review his or her portfolio
on a scheduled basis and assign recommended credit ratings on each
loan. These efforts are supplemented by internal ireviews 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.
Nonperforming
Assets and Allowance for Loan Losses
Table 4
summarizes the Company's nonperforming assets for the quarters ending March 31,
2008 and 2007, and December 31, 2007.
|
|
Table
4
Nonperforming
Assets and Loans Past Due 90 Days or More
(in
thousands)
|
|
|
|
March
31,
|
|
|
March
31,
|
|
|
December
31,
|
|
Nonaccrual
loans
|
|
$ |
1,899 |
|
|
$ |
1,574 |
|
|
$ |
1,602 |
|
Loans
past due 90 days and over
|
|
|
2,275 |
|
|
|
481 |
|
|
|
980 |
|
Total
nonperforming loans
|
|
|
4,174 |
|
|
|
2,055 |
|
|
|
2,582 |
|
Other
real estate owned
|
|
|
143 |
|
|
|
158 |
|
|
|
143 |
|
Other
foreclosed assets
|
|
|
315 |
|
|
|
58 |
|
|
|
280 |
|
Total nonperforming
assets
|
|
$ |
4,632 |
|
|
$ |
2,271 |
|
|
$ |
3,005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming
assets to total assets
|
|
|
0.49 |
% |
|
|
0.28 |
% |
|
|
0.35 |
% |
Nonperforming
assets to total loans + OREO + other foreclosed assets
|
|
|
0.81 |
% |
|
|
0.44 |
% |
|
|
0.53 |
% |
ALL
to nonperforming assets
|
|
|
132.34 |
% |
|
|
215.76 |
% |
|
|
186.76 |
% |
ALL
to nonperforming loans
|
|
|
146.86 |
% |
|
|
238.44 |
% |
|
|
217.35 |
% |
ALL
to total loans
|
|
|
1.08 |
% |
|
|
0.96 |
% |
|
|
0.99 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter-to-date
charge-offs
|
|
$ |
691 |
|
|
$ |
95 |
|
|
$ |
218 |
|
Quarter-to-date
recoveries
|
|
|
9 |
|
|
|
18 |
|
|
|
8 |
|
Quarter-to-date
net charge-offs
|
|
$ |
682 |
|
|
$ |
77 |
|
|
$ |
210 |
|
Net
QTD charge-offs to total loans
|
|
|
0.12 |
% |
|
|
0.02 |
% |
|
|
0.04 |
% |
At March
31, 2008, nonperforming assets, including loans past due 90 days and over,
totaled $4.6 million, or 0.49% of total assets, as compared to the $2.3 million,
or 0.28% of total assets, recorded at March 31, 2007. The increase in
non-performing assets in prior year comparison resulted primarily from an
increase of $1.8 million in loans past due 90 days and over and an increase in
nonaccrual loans of $325,000.
Of the
$2.3 million in loans past due 90 days and over at March 31, 2008, one loan
totaling $674,000 has been renewed and one loan totaling $87,000 has been paid
off. Of the remaining $1.5 million in loans past due 90 days or more,
approximately $1.0 million represents two commercial credits. Of the
$1.9 million in nonaccrual loans, approximately $800,000 is expected to be
returned to accrual status or to be paid off in the second quarter of
2008.
Allowance
coverage for nonperforming loans was 146.86% at March 31, 2008, compared to
238.44% at March 31, 2007. Net quarter-to-date charge-offs were 0.12%
of total loans for the first quarter 2008 compared to 0.02 % the first quarter
of 2007. The increase resulted primarily from $353,000 in indirect
auto loans charged-off due to fraudulent activity and a $232,000 commercial loan
charged-off in the first quarter of 2008. Management’s most recent
analysis of the ALL indicated that the ALL to total loans ratio of 1.08% was
appropriate at March 31, 2008.
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 $6.1 million in the allowance as
of March 31, 2008 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 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 the 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, 2007.
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-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). As of the end of the period covered by
this Quarterly Report on Form 10-Q (the “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 2008, 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
Item
1. Legal Proceedings.
The Bank
has been named as a defendant in various legal actions arising from normal
business activities in which damages of various amounts are
claimed. While the amount, if any, of ultimate liability with respect
to such matters cannot be currently determined, management believes, after
consulting with legal counsel, that any such liability will not have a material
adverse effect on the Company’s consolidated financial position, results of
operations, or cash flows.
Item
1A. Risk Factors.
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, 2008.
|
|
Total
Number
of
Shares Purchased
|
|
|
Average
Price Paid per Share
|
|
|
Total
Number of Shares Purchased as Part of a Publicly Announced Plan4
|
|
|
Maximum
Number of Shares That May Yet be Purchased Under the Plan4
|
|
January
2008
|
|
|
2,958 |
|
|
$ |
22.19 |
|
|
|
2,958 |
|
|
|
188,342 |
|
February
2008
|
|
|
8,355 |
|
|
$ |
22.50 |
|
|
|
8,355 |
|
|
|
179,987 |
|
March
2008
|
|
|
1,782 |
|
|
$ |
18.75 |
|
|
|
1,782 |
|
|
|
178,205 |
|
Item
3. Defaults Upon Senior Securities.
None.
Item
4. Submission of Matters to a Vote of Security Holders.
None.
Item
5. Other Information.
None.
Item
6. Exhibits.
(a) Exhibits
Exhibit
Number Document
Description
31.1
|
Certification
pursuant to Exchange Act Rules 13(a) –
15(e)
|
31.2
|
Certification
pursuant to Exchange Act Rules 13(a) –
15(e)
|
32.1
|
Certification
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
32.2
|
Certification
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
(b) Reports
Filed on Form 8-K
A press
release regarding the Company’s earnings for the quarter ended March 31, 2008
was attached as Exhibit 99.1 to the Form 8-K filed on April 24,
2008.
4 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.
Signatures
In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
MidSouth
Bancorp, Inc.
(Registrant)
|
|
|
Date: May 8, 2008
|
|
|
/s/
C. R. Cloutier
|
|
C.
R. Cloutier, President /CEO
|
|
|
|
/s/
J. E. Corrigan, Jr.
|
|
J.
E. Corrigan, Jr., Executive Vice
President/CFO
|