form10-k_2008.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
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Washington,
D.C. 20549
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FORM
10-K
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES
EXCHANGE ACT OF 1934
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For
the fiscal year ended December 31, 2008
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Commission
File number
1-11826
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MIDSOUTH
BANCORP, INC.
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(Exact
name of registrant as specified in its charter)
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Louisiana
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72-1020809
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(State
of Incorporation)
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(I.R.S.
EIN Number)
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102
Versailles Boulevard, Lafayette, LA 70501
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(Address
of principal executive offices)
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Registrant's
telephone number, including area code: (337)
237-8343
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Securities
registered pursuant to Section 12(b) of the Act:
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Title
of each class
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Name
of each exchange on which registered
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Common Stock, $.10 par
value
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New York Stock
Exchange Alternext
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Securities
registered pursuant to Section 12(g) of the
Act: none
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Indicate
by check mark if this registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
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Yes ¨ No þ
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Indicate
by check mark if the registrant is not required to file reports pursuant
to Section 13 or 15(d) of the Act.
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Yes ¨ No þ
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Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90
days. Yes þ No ¨
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Indicate
by check mark if disclosure of delinquent filers in response to Item 405
of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K þ
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Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated
filer. A large accelerated
filer ¨An accelerated
filer þA non-accelerated
filer ¨
A
smaller reporting company ¨
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Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act.)
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Yes ¨ No þ
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The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant at June 30, 2008 was approximately
$68,042,660 based upon the closing market price on NYSE Alternext as of
such date. As of February 27, 2009, there were 6,618,220
outstanding shares of MidSouth Bancorp, Inc. common
stock.
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DOCUMENTS
INCORPORATED BY REFERENCE
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Portions
of the Company’s Proxy Statement for its 2009 Annual Meeting of
Shareholders are incorporated by reference into Part III, Items 10-14 of
this Form 10-K.
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MIDSOUTH
BANCORP, INC.
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2008
Annual Report on Form 10-K
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TABLE
OF CONTENTS
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Item
1B – Unresolved Staff Comments
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Item
3 - Legal Proceedings
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Item
4 - Submission of Matters to a Vote of Security
Holders
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Item
4A - Executive Officers of the
Registrant
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Item
5 - Market for Registrant's Common Stock, Related Shareholder Matters, and
Issuer Purchases of Equity
Securities
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Item
6 – Five Year Summary of Selected Consolidated Financial
Data
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Item
7 – Management’s Discussion and Analysis of Financial Position and Results
of Operations
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Item
7A – Quantitative and Qualitative Disclosures about Market
Risk
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Item
8 – Financial Statements and Supplementary
Data
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Notes
to Consolidated Financial
Statements
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Item
9 – Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
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Item
9A – Controls and Procedures
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Item
9B – Other Information
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Item
10 - Directors, Executive Officers, Promoters, and Control Persons;
Compliance with Section 16(a) of the Exchange
Act
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Item
11 - Executive Compensation
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Item
12 - Security Ownership of Certain Beneficial Owners and Management and
Related Shareholder Matters
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Item
13 - Certain Relationships and Related
Transactions
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Item
14 – Principal Accountant Fees and
Services
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Item
15 - Exhibits and Financial Statement
Schedules
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Part
I
Item
1 - Business
MidSouth
Bancorp, Inc. (the “Company”) is a Louisiana corporation registered as a bank
holding company under the Bank Holding Company Act of 1956. Its
operations are conducted primarily through a wholly-owned bank subsidiary,
MidSouth Bank, N.A. (the “Bank”), chartered in February 1985. The Company merged
its two wholly-owned banking subsidiaries, MidSouth Bank, N.A. (Louisiana) and
MidSouth Bank Texas, N.A. into MidSouth Bank, N.A., at the end of the first
quarter of 2008.
MidSouth
Bank, N.A. is a national banking association domiciled in Lafayette,
Louisiana. The Bank provides a broad range of commercial and retail
community banking services primarily to professional, commercial, and industrial
customers in their market areas. These services include, but are not
limited to, interest-bearing and noninterest-bearing checking accounts,
investment accounts, cash management services, electronic banking services,
credit cards, and secured and unsecured loan products. The Bank is a
U.S. government depository and a member of the Pulse network, which provides its
customers with automatic teller machine services through the Pulse and Cirrus
networks. Membership in the Community Cash Network provides the
customers of the Bank with access to all ATMs operated by the Bank with no
surcharge. The MidSouth franchise operates locations throughout south Louisiana
and southeast Texas described below under Item 2 -
Properties.
As of
December 31, 2008, the Bank employed approximately 419 full-time equivalent
employees. The Company has no employees who are not also employees of
the Bank. Through the Bank, employees receive employee benefits,
which include an employee stock ownership plan; a 401(K) plan; and life, health
and disability insurance plans. The Company’s directors, officers,
and employees are important to the success of the Company and play a key role in
business development by actively participating in the communities served by the
Company. The Company considers the relationship of the Bank with its
employees to be excellent.
The Bank
faces strong competition in its market areas from both traditional and
nontraditional financial services providers, such as commercial banks; savings
banks; credit unions; finance companies; mortgage, leasing, and insurance
companies; money market mutual funds; brokerage houses; and branches that
provide credit facilities. Several of the financial services
competitors in the Company’s market areas are substantially larger and have far
greater resources, but the Company has effectively competed by building
long-term customer relationships. Customer loyalty has been built through a
continued focus on quality customer service enhanced by current technology and
effective delivery systems.
Other
factors, including economic, legislative, and technological changes, also impact
the Company’s competitive environment. The Company’s management
continually evaluates competitive challenges in the financial services industry
and develops appropriate responses consistent with its overall market
strategy.
The
Company opened a third branch in the Baton Rouge market in 2008, following the
addition of four new branches and three replacement branches throughout the
existing corporate footprint in 2007. In 2009, the Company plans to
continue its focus in existing markets, solidifying and expanding its banking
presence and commercial lending base throughout Houston and southeast Texas. The
Company is continually receptive to new growth opportunities in both our
existing markets and locations that are in accordance with our long-term
strategic goal of building shareholder wealth.
Supervision
and Regulation
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Participants
in the financial services industry are subject to varying degrees of regulation
and government supervision. The following contains important aspects
of the supervision and regulation of bank and bank holding
companies. The current system of laws and regulations can change over
time and it cannot be predicted whether these changes will be favorable or
unfavorable to the Company or the Bank.
Current
unfavorable economic conditions prompted government to pass the Emergency
Economic Stabilization Act of 2008 (the “EESA”). Under the EESA, the
Company issued $20.0 million in preferred stock to the United States Department
of the Treasury (the “Treasury”) under the Capital Purchase Plan (“CPP”) in an
effort to help stimulate the economy through increased lending
efforts. Under the CPP, the Company is required to pay cumulative
dividends on the senior preferred shares at an annual rate of 5% for the first
five years and 9% thereafter, unless the Company redeems the shares
earlier. Redemptions will be at 100% of issue price plus accrued
dividends and are subject to prior regulatory approval. The Company
may not declare or pay dividends on its common stock or repurchase common stock
without first having paid all accrued cumulative preferred dividends that are
due. For three years after Treasury’s investment in the senior
preferred shares, the Company also may not increase its per share common stock
dividend rate or repurchase its common shares without the Treasury’s consent,
unless the Treasury has transferred all the senior preferred shares to third
parties.
General
As a bank
holding company, the Company is subject to the Bank Holding Company Act of 1956
(the “Act”) and to supervision by the Board of Governors of the Federal Reserve
System (the “Federal Reserve Board”). The Act requires the Company to
file periodic reports with the Federal Reserve Board and subjects the Company to
regulation and examination by the Federal Reserve Board. The Act also
requires the Company to obtain the prior approval of the Federal Reserve Board
for acquisitions of substantially all of the assets of any bank or bank holding
company or more than 5% of the voting shares of any bank or bank holding
company. The Act prohibits the Company from engaging in any business
other than banking or bank-related activities specifically allowed by the
Federal Reserve Board, including modifications to the Act brought about by the
enactment of the Gramm-Leach-Bliley Act (“GLB”) of 1999.
Gramm-Leach-Bliley
Act
This
financial services reform legislation (1) permits commercial banks to affiliate
with investment banks, (2) permits companies that own commercial banks to engage
in any type of financial activity, and (3) allows subsidiaries of banks to
engage in a broad range of financial activities beyond those permitted for banks
themselves. As a result, banks, securities firms, and insurance
companies are able to combine much more readily.
Under
provisions of GLB, two types of regulated entities are authorized to engage in a
broad range of financial activities much more extensive than those of standard
holding companies. A “financial holding company” can engage in all
authorized activities and is simply a bank holding company whose depository
institutions are well-capitalized, well-managed, and has a Community
Reinvestment Act (“CRA”) rating of “satisfactory” or better. The
Company is not registered as a financial holding company. A
“financial subsidiary” is a direct subsidiary of a bank that satisfies the same
conditions as a “financial holding company,” plus several more. The
“financial subsidiary” can engage in most of the authorized activities, which
are defined as securities, insurance, merchant banking/equity investment,
“financial in nature,” and “complementary” activities that do not pose a
substantial risk to the safety and soundness of an institution or to the
financial system generally.
GLB also
defines the concept of “functional supervision” meaning similar activities
should be regulated by the same regulator, with the Federal Reserve Board
serving as an “umbrella” supervisory authority over bank and financial holding
companies.
Support
of Subsidiary Banks by Holding Companies
Under
current Federal Reserve Board policy, the Company is expected to act as a source
of financial strength for the Bank and to commit resources to support the Bank
in circumstances where it might not do so absent such policy. In addition, any
loans by a bank holding company to a subsidiary bank are subordinate in right of
payment to deposits and certain other indebtedness of the subsidiary bank. In
the event of a bank holding company's bankruptcy, any commitment by the bank
holding company to a federal bank regulatory agency to maintain the capital of a
subsidiary bank at a certain level would be assumed by the bankruptcy trustee
and entitled to priority of payment.
Limitations
on Acquisitions of Bank Holding Companies
As a
general proposition, other companies seeking to acquire control of a bank
holding company, such as the Company, would require the approval of the Federal
Reserve Board under the Act. In addition, individuals or groups of individuals
seeking to acquire control of a bank holding company would need to file a prior
notice with the Federal Reserve Board (which the Federal Reserve Board may
disapprove under certain circumstances) under the Change in Bank Control Act.
Control is conclusively presumed to exist if an individual or company acquires
25% or more of any class of voting securities of the bank holding company.
Control may exist under the Act or the Change in Bank Control Act if the
individual or company acquires 10% or more of any class of voting securities of
the bank holding company.
Sarbanes-Oxley
Act of 2002
Signed
into law on July 30, 2002, the Sarbanes-Oxley Act of 2002 (“SOX”) addresses many
aspects of corporate governance and financial accounting and
disclosure. Primarily, it provides a framework for the oversight of
public company auditing and for insuring the independence of auditors and audit
committees. Under SOX, audit committees are responsible for the
appointment, compensation, and oversight of the work of external and internal
auditors. SOX also provides for enhanced and accelerated financial
disclosures, establishes certification requirements for a company’s chief
executive and chief financial officers, and imposes new restrictions on and
accelerated reporting of certain insider trading
activities. Significant penalties for fraud and other violations are
included in SOX.
Under
Section 404 of SOX, the Company is required to include in its annual report a
statement of management’s responsibility to establish and maintain adequate
internal control over financial reporting and management’s conclusion on the
effectiveness of internal controls at year-end.
Anti-Money
Laundering
Financial
institutions must maintain anti-money laundering programs that include
established internal policies, procedures, and controls; a designated compliance
officer; an ongoing employee training program; and testing of the program by an
independent audit function. The Company and the Bank are also prohibited from
entering into specified financial transactions and account relationships and
must meet enhanced standards for due diligence and “knowing your customer” in
their dealings with foreign financial institutions and foreign customers.
Financial institutions must take reasonable steps to conduct enhanced scrutiny
of account relationships to guard against money laundering and to report any
suspicious transactions, and recent laws provide the law enforcement authorities
with increased access to financial information maintained by banks. Anti-money
laundering regulations have been substantially strengthened as a result of the
USA PATRIOT Act, enacted in 2001. Bank regulators routinely examine institutions
for compliance with these obligations and are required to consider compliance in
connection with the regulatory review of applications. The regulatory
authorities have been active in imposing “cease and desist” orders and money
penalty sanctions against institutions found in violation of these
obligations.
Capital
Adequacy Requirements
The
Federal Reserve Board and the Office of the Comptroller of Currency (the “OCC”)
require that the Company and the Bank meet certain minimum ratios of capital to
assets in order to conduct its activities. Two measures of regulatory capital
are used in calculating these ratios: Tier 1 Capital and Total Capital. Tier 1
Capital generally includes common equity, retained earnings and a limited amount
of qualifying preferred stock, reduced by goodwill and specific intangible
assets, such as core deposit intangibles, and certain other assets. Total
Capital generally consists of Tier 1 Capital plus the allowance for loan losses,
preferred stock that did not qualify as Tier 1 Capital, particular types of
subordinated debt, and a limited amount of other items.
The Tier
1 Capital ratio and the Total Capital ratio are calculated against an asset
total weighted for risk. Certain assets, such as cash and U.S. Treasury
securities, have a zero risk weighting. Others, such as commercial and consumer
loans, often have a 100% risk weighting. Assets also include amounts that
represent the potential funding of off-balance sheet obligations such as loan
commitments and letters of credit. These potential assets are assigned to risk
categories in the same manner as funded assets. The total assets in each
category are multiplied by the appropriate risk weighting to determine
risk-adjusted assets for the capital calculations.
The
leverage ratio also provides a measure of the adequacy of Tier 1 Capital, but
assets are not risk-weighted for this calculation. Assets deducted from
regulatory capital, such as goodwill and other intangible assets, are excluded
from the asset base used to calculate capital ratios. The minimum capital ratios
for both the Company and the Bank are generally 8% for Total Capital, 4% for
Tier 1 Capital and 4% for leverage.
At
December 31, 2008, the Company's ratios of Tier 1 and total capital to
risk-weighted assets were 11.04% and 12.16%, respectively. The
Company's leverage ratio (Tier 1 capital to total average adjusted assets) was
8.38% at December 31, 2008. All three regulatory capital ratios for
the Company exceeded regulatory minimums at December 31, 2008.
To be
eligible to be classified as “well-capitalized,” the Bank must generally
maintain a Total Capital ratio of 10% or greater, a Tier 1 Capital ratio of 6%
or greater, and a leverage ratio of 6% or greater. If an institution fails to
remain well-capitalized, it will be subject to a series of restrictions that
increase as the capital condition worsens. For instance, federal law generally
prohibits a depository institution from making any capital distributions,
including the payment of a dividend, or paying any management fee to its holding
company, if the depository institution would be undercapitalized as a result.
Undercapitalized depository institutions may not accept brokered deposits absent
a waiver from the Federal Deposit Insurance Corporation (the “FDIC”), are
subject to growth limitations, and must submit a capital restoration plan that
is guaranteed by the institution's parent holding company. Significantly
undercapitalized depository institutions may be subject to a number of
requirements and restrictions, including orders to sell sufficient voting stock
to become adequately capitalized, requirements to reduce total assets, and
cessation of receipt of deposits from correspondent banks. Critically
undercapitalized institutions are subject to the appointment of a receiver or
conservator.
As of
December 31, 2008, the most recent notification from the FDIC placed the Bank in
the “well capitalized” category under the regulatory framework for prompt
corrective action. All three regulatory capital ratios for the Bank
exceeded these minimums at December 31, 2008.
General
As a
national banking association, the Bank is supervised and regulated by the OCC
(its primary regulatory authority), the Federal Reserve Board, and the
FDIC. Under Section 23A of the Federal Reserve Act, the Bank is
restricted in its ability to extend credit to or make investments in the Company
and other affiliates as that term is defined in that act. National
banks are required by the National Bank Act to adhere to branch banking laws
applicable to state banks in the states in which they are located and are
limited as to powers, locations and other matters of applicable federal
law.
Restrictions
on loans to directors, executive officers, principal shareholders, and their
related interests (collectively referred to herein as “insiders”) are contained
in the Federal Reserve Act and Regulation O and apply to all insured
institutions and its subsidiaries and holding companies. These
restrictions include limits on loans to one borrower and conditions that must be
met before such a loan can be made. There is also an aggregate
limitation on all loans to insiders and their related
interests. These loans cannot exceed the institution’s unimpaired
capital and surplus, and the OCC may determine that a lesser amount is
appropriate. Insiders are subject to enforcement actions for
knowingly accepting loans in violation of applicable restrictions.
Deposit
Insurance
The
Bank’s deposits are insured by the FDIC up to the amount permitted by
law. The Bank is thus subject to FDIC deposit insurance premium
assessments. The FDIC uses a risk-based assessment system that assigns insured
depository institutions to different premium categories based primarily on each
institution's capital position and its overall risk rating as determined by its
primary regulator. For several years, as a well-capitalized financial
institution, the Company had not been required to pay FDIC insurance premiums,
but had been required to pay the Financing Corporation (“FICO”) assessments that
currently total approximately $21,000 a quarter, or $84,000
annually. FICO has assessment authority to collect funds from
FDIC-insured institutions sufficient to pay interest on noncallable thrift bonds
issued between 1987 and 1989, which expire with the bonds in 2019. In
2007, the FDIC resumed deposit insurance assessments and issued one-time credits
against the assessments to qualifying institutions. The Company
qualified for a one-time credit totaling approximately $240,000, which partially
offset the new FDIC assessment and resulted in $157,000 in total assessments in
2007. FDIC assessments totaled $506,000 in 2008 and are expected to
increase significantly in 2009 due to provisions of the EESA.
Emergency
Economic Stabilization Act of 2008
On
October 3, 2008, the EESA was signed into law by the President of the United
States in response to a national economic and financial crisis. The EESA
included a provision for an increase in the amount of deposits insured by the
FDIC from $100,000 to $250,000 until December 2009. In addition, the
FDIC announced a new program called the Temporary Liquidity Guarantee Program
(“TLGP”) on October 14, 2008. The TLGP provided for a debt guarantee
and increased deposit insurance coverage for certain noninterest-bearing
accounts. The Bank opted into both programs. Neither
the Bank nor the Company has issued debt under the TLGP. Under the
new program, unlimited deposit insurance was provided on funds in
noninterest-bearing transaction deposit accounts. Coverage under the
program is available for a limited period of time without charge and,
thereafter, at a cost of 10 basis points per annum for noninterest-bearing
transaction accounts with balances above $250,000. Annual premium
rates on deposit insurance ranges from 8 to 21 basis points per $100 of
assessable deposits for institutions that are judged to pose the least risk to
the insurance fund and up to 78 basis points per $100 of assessable deposits for
the most risky institutions. The Company’s FDIC assessments for 2009,
based on premium increases and current deposit growth projections, are expected
to total approximately $306,000 per quarter, or $1,224,000 for the
year.
On
February 27, 2009, the FDIC approved an interim rule that would raise second
quarter 2009 deposit insurance premiums for Risk Category I banks from 10 to 14
basis points to 12 to 16 basis points. Under the interim rule, the
FDIC would also impose a 10 to 20 basis point special assessment as of June 30,
2009, payable on September 30, 2009 and provide the authorization to implement
an additional 10 basis point premium increase in any quarter.
Financial
Institutions Reform, Recovery and Enforcement Act
The Bank
is held liable by the Financial Institutions Reform, Recovery and Enforcement
Act of 1989 (“FIRREA”) for any losses incurred by, or
reasonably expected to be incurred by, the FDIC in connection with (1) the
default of a commonly controlled FDIC-insured financial institution or (2) any
assistance provided by the FDIC to a commonly controlled financial institution
in danger of default.
Community
Reinvestment Act
The Bank
is subject to the provisions of the Community Reinvestment Act
(“CRA”), as amended, and the related regulations
issued by federal banking agencies. The CRA states that all banks have a
continuing and affirmative obligation, consistent with safe and sound operation,
to help meet the credit needs for its entire communities, including low- and
moderate-income neighborhoods. The CRA also charges a bank's primary federal
regulator, in connection with the examination of the institution or the
evaluation of certain regulatory applications filed by the institution, with the
responsibility to assess the institution's record in fulfilling its obligations
under the CRA. The regulatory agency's assessment of the institution's record is
made available to the public. The Bank received a satisfactory rating
following its most recent CRA examination.
Consumer
Regulation
Activities
of the Bank are subject to a variety of statutes and regulations designed to
protect consumers. These laws and regulations include provisions
that:
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govern
the Bank’s disclosures of credit terms to consumer
borrowers;
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·
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limit
the interest and other charges collected or contracted for by the
Bank;
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·
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require
the Bank to provide information to enable the public and public officials
to determine whether it is fulfilling its obligation to help meet the
housing needs of the community it
serves;
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·
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prohibit
the Bank from discriminating on the basis of race, creed, or other
prohibited factors when it makes decisions to extend
credit;
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·
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require
that the Bank safeguard the personal nonpublic information of its
customers, provide annual notices to consumers regarding the usage and
sharing of such information, and limit disclosure of such information to
third parties except under specific circumstances;
and
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·
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govern
the manner in which the Bank may collect consumer
debts.
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The
deposit operations of the Bank are also subject to laws and regulations
that:
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require
the Bank to adequately disclose the interest rates and other terms of
consumer deposit accounts;
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·
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impose
a duty on the Bank to maintain the confidentiality of consumer financial
records and prescribe procedures for complying with administrative
subpoenas of financial records; and
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·
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govern
automatic deposits to and withdrawals from deposit accounts with the Bank
and the rights and liabilities of customers who use automated teller
machines and other electronic banking
services.
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The
operations of financial institutions may be affected by the policies of various
regulatory authorities. In particular, bank holding companies and its
subsidiaries are affected by the credit policies of the Federal Reserve
Board. An important function of the Federal Reserve Board is to
regulate the national supply of bank credit. Among the instruments of
monetary policy used by the Federal Reserve Board to implement its objectives
are open market operations in United States Government securities, changes in
the discount rate on bank borrowings, and changes in reserve requirements on
bank deposits. These policies have significant effects on the overall
growth and profitability of the loan, investment, and deposit
portfolios. The general effects of such policies upon future
operations cannot be accurately predicted.
The
Company files annual, quarterly, and current reports with the Securities and
Exchange Commission (“SEC”). The public may read and copy any materials the
Company files with the SEC at the SEC’s Public Reference Room at 450 Fifth
Street, NW, Washington, DC 20549. The public may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
SEC maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC. The SEC’s website is www.sec.gov. The Company maintains
a corporate website at www.midsouthbank.com. It provides public
access free of charge to its annual reports on Form 10-K for the last two years,
and its most recent quarterly report on Form 10-Q under the Corporate Relations
section of the corporate website.
Item
1A – Risk Factors
An
investment in the Company’s stock involves a number of
risks. Investors should carefully consider the following risks as
well as the other information in this Annual Report on Form 10-K and the
documents incorporated by reference before making an investment
decision. The realization of any of the risks described below could
have a material adverse effect on the Company and the price of its common
stock.
Risks
Relating to the Company’s
Business
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The
current economic environment poses significant challenges and could adversely
affect the Company’s financial condition and results of operations.
Although
the Company remains well capitalized and liquid, the current economic
environment is challenging and uncertain. Recessionary conditions in
the broader economy could adversely affect the financial capacity of businesses
and individuals in the Company’s market area. This could increase the
credit risk inherent in the loan portfolio, reduce loan demand from creditworthy
borrowers, and prompt tightened underwriting criteria. The impact on
the Company’s financial results could include continued high levels of
nonperforming loans, provisions for loan losses, and expenses associated with
loan collection efforts. Additionally, decreased demand for deposit
products and services combined with a highly competitive rate environment could
adversely affect the Company’s liquidity position. Decisions
regarding credit risk involve a high degree of judgment. If the
allowance for loan losses is not sufficient to cover actual losses, then
earnings would decrease.
The loan
and investment portfolio subjects the Company to credit
risk. In-depth analysis is performed to maintain an appropriate
allowance for probable loan losses inherent in the loan
portfolio. During 2008, recorded provisions for loan losses totaled
$4.6 million based on an overall evaluation of this risk. As of
December 31, 2008, the allowance was $7.6 million, which is approximately 1.25%
of total loans.
There is
no precise method of predicting loan losses; therefore, the Company faces the
risk that additional increases in the allowance for loan losses will be
required. Additions to the allowance will result in a decrease in net
earnings and capital and could hinder the Company’s ability to
grow.
The
Company has a concentration of exposure to a number of individual
borrowers. Given the size of these loan relationships relative to
capital levels and earnings, a significant loss on any one of these loans could
materially and adversely affect the Company.
The
Company has a high concentration of loans secured by real estate, and the
current downturn in the real estate market could materially and adversely affect
earnings.
A
significant portion of our loan portfolio is dependent on real
estate. At December 31, 2008, approximately 50% of the Company’s
loans had real estate as a primary or secondary component of
collateral. The collateral in each case provides an alternate source
of repayment if the borrower defaults and may deteriorate in value during the
time the credit is extended. An adverse change in the economy
affecting values of real estate in the Company’s primary markets could
significantly impair the value of collateral and the ability to sell the
collateral upon foreclosure. Furthermore, it is likely that the
Company would be required to increase the provision for loan
losses. If the Company were required to liquidate the collateral
securing a loan to satisfy the debt during a period of reduced real estate
values or to increase the allowance for loan losses, the Company’s profitability
and financial condition could be adversely impacted.
The
Company may face risks with respect to future expansion and
acquisition.
The
Company has expanded its business in part through acquisitions and cannot assure
the continuance of this trend or the profitability of future
acquisitions. The Company’s ability to implement its strategy for
continued growth depends on the ability to continue to identify and integrate
profitable acquisition targets, to attract and retain customers in a highly
competitive market, to increase the deposit base, and the growth of its
customers’ businesses. Many of these growth prerequisites may be
affected by circumstances that are beyond the control of the Company’s
management and could have a material adverse effect on the size and quality of
the Company’s assets. Current levels of market disruption and
volatility have pressured stock prices and limited credit availability for
issuers, seemingly without regard to the issuers’ financial stability, limiting
issuers’ access to the capital markets.
The
Company cannot predict the effect of recent legislative and regulatory
initiatives.
Congress
recently enacted the EESA in an effort to stabilize the financial
markets. The initiative provided funding of up to $700 billion to
purchase troubled assets and loans from financial institutions pursuant to the
Troubled Asset Relief Program (“TARP”) and created the CPP directed by the
Treasury. On January 9, 2009, the Company completed a CPP transaction
and received $20 million in capital from the Treasury. Pursuant to
terms and conditions of the CPP transaction, which is described in the Company’s
8-K filing dated January 14, 2009, the Company faces certain restrictions and
limitations that could adversely affect its ability to support the value of the
common stock.
A
natural disaster, especially one affecting the Company’s market areas, could
adversely affect the Company.
Since
most of the Company’s business is conducted in Louisiana and Texas, most of its
credit exposure is in those states; thus, the Company is at risk from natural
hazards such as hurricanes, floods, and tornadoes that affect Louisiana and
Texas. If the economies of Louisiana or Texas experience an overall
decline as a result of these natural hazards, the rates of delinquencies,
foreclosures, bankruptcies, and losses on loan portfolios would probably
increase substantially and the value of real estate or other collateral could be
adversely affected.
The
Company faces substantial competition in originating loans and in attracting
deposits. The competition in originating loans comes principally from
other U.S. banks, mortgage banking companies, consumer finance companies, credit
unions, insurance companies, and other institutional lenders and purchasers of
loans. Many of the Company’s competitors are institutions that have
significantly greater assets, capital, and other resources. Increased
competition could require the Company to increase the rates paid on deposits or
lower the rates offered on loans, which could adversely affect and also limit
future growth and earnings prospects.
The
Company’s profitability is vulnerable to interest rate
fluctuations.
The
Company’s profitability is dependent to a large extent on net interest income,
which is the difference between its interest income on interest-earning assets,
such as loans and investment securities, and interest expense on
interest-bearing liabilities, such as deposits and borrowings. When
interest-bearing liabilities mature or reprice more quickly than
interest-earning assets in a given period, a significant increase in market
rates of interest could adversely affect net interest
income. Conversely, when interest-earning assets mature or reprice
more quickly than interest-bearing liabilities, falling interest rates could
result in a decrease in net interest income.
In
periods of increasing interest rates, loan originations may decline, depending
on the performance of the overall economy, which may adversely affect income
from these lending activities. Also, increases in interest rates
could adversely affect the market value of fixed income assets. In
addition, an increase in the general level of interest rates may affect the
ability of certain borrowers to pay the interest and principal on their
obligations.
The
Company relies heavily on its management team and the unexpected loss of key
officers may adversely affect operations.
The
Company’s success has been and will continue to be greatly influenced by the
ability to retain existing senior management and, with expansion, to attract and
retain qualified additional senior and middle management. C.R.
Cloutier, President and Chief Executive Officer, and other executive officers
have been instrumental in developing and managing the business. The loss of
services of Mr. Cloutier or any other executive could have an adverse
effect on the Company. While the Company has employment agreements with some of
its executive officers, a formal management succession plan has been
established. Accordingly, should the Company lose any member of
senior management, there can be no assurance that the Company will be able to
locate and hire a qualified replacement on a timely basis.
The
Company’s management is required to report on, and the independent auditors to
attest to, the effectiveness of internal controls over financial reporting as of
December 31, 2008. The rules governing the standards that must be met
for management to assess internal controls are complex, and require significant
documentation, testing, and possible remediation. In connection with
this effort, the Company has incurred increased expenses and diversion of
management's time and other internal resources. In connection with
the attestation process by the Company’s independent auditors, management may
encounter problems or delays in completing the implementation of any requested
improvements and receiving a favorable attestation. If the Company
cannot make the required report, or if the Company’s external auditors are
unable to provide an unqualified attestation, investor confidence and the
Company’s common stock price could be adversely affected.
Monetary
policy and other economic factors could affect profitability
adversely.
Many
factors affect the demand for loans and the ability to attract deposits,
including:
·
|
changes
in governmental economic and monetary
policies;
|
·
|
modifications
to tax, banking, and credit laws and
regulations;
|
·
|
national,
state, and local economic growth
rates;
|
The
Company’s success will depend in significant part upon the ability to maintain a
sufficient interest margin between the rates of interest received on loans and
other investments and the rates paid out on deposits and other
liabilities. The monetary and economic factors listed above and the
need to pay rates sufficient to attract deposits may adversely affect the
Company’s ability to maintain a sufficient interest margin that results in
operating profits.
The
Company operates within a highly regulated environment. The
regulations to which the Company is subject will continue to have a significant
impact on its operations and the degree to which it can grow and be
profitable. Certain regulators, to which the Company is subject, have
significant power in reviewing the Company’s operations and approving its
business practices. In recent years the Company’s bank, as well as
other financial institutions, has experienced increased regulation and
regulatory scrutiny, often requiring additional resources. In
addition, investigations or proceedings brought by regulatory agencies may
result in judgments, settlements, fines, penalties, or other results adverse to
the Company. There is no assurance that any change to the regulatory
requirements to which the Company is subject, or the way in which such
regulatory requirements are interpreted or enforced, will not have a negative
effect on the Company’s ability to conduct its business and its results of
operations.
The
Company relies heavily on technology and computer systems. The
negative effects of computer system failures and unethical individuals with the
technological ability to cause disruption of service could significantly affect
the Company’s operations.
The
Company’s ability to compete depends on the ability to continue to adapt and
deliver technology on a timely and cost-effective basis to meet customers’
demands for financial services.
Risks
Relating to an Investment in the Company’s Common
Stock
|
Share
ownership may be diluted by the issuance of additional shares of common stock in
the future.
The
Company’s stock incentive plan provides for the granting of stock incentives to
directors, officers, and employees. As of December 31, 2008, there
were 83,996 shares issued under options granted under that
plan. Likewise, a number of shares equal to 8% of outstanding shares,
including existing shares issuable under current options, are reserved for
future issuance to directors, officers, and employees.
It
is probable that options will be exercised during their respective terms if the
stock price exceeds the exercise price of the particular option. The
incentive plan also provides that all issued options automatically and fully
vest upon a change in control. If the options are exercised, share
ownership will be diluted.
In
addition, the Company’s articles of incorporation authorize the issuance of up
to 10,000,000 shares of common stock and 5,000,000 shares of preferred stock,
but do not provide for preemptive rights to the
shareholders. Authorized but unissued shares are available for
issuance by the Company’s Board. Shareholders will not automatically
have the right to subscribe for additional shares. As a result, if
the Company issues additional shares to raise capital or for other corporate
purposes, shareholders may be unable to maintain a pro rata ownership in the
Company.
On
January 9, 2009, the Company issued $20.0 million in preferred stock to the
Treasury under the CPP. As part of the CPP transaction, the Company
also issued the Treasury a 10-year warrant for the purchase of 208,768 shares of
its common stock. The warrant has an aggregate market price equal to
15% of the amount of Treasury’s investment in the senior preferred stock and an
initial exercise price of $14.37 per share.
The
holders of the Company’s preferred stock and trust preferred
securities have rights that are senior to those of shareholders.
At
December 31, 2008, the Company had outstanding $15.5 million of trust preferred
securities. Payment of these securities is senior to shares of common
stock. As a result, the Company must make payments on the trust
preferred before any dividends can be paid on common stock; moreover, in the
event of bankruptcy, dissolution, or liquidation, the holders of the trust
preferred securities must be satisfied before any distributions can be made to
shareholders. The Company has the right to defer distributions on the
trust preferred for up to five years, and if such an election is made, no
dividends may be paid to shareholders during that time.
On
January 9, 2009, the Company issued $20.0 million in preferred stock to the
Treasury under the CPP. Under the CPP, the Company is required to pay
cumulative dividends on the senior preferred shares at an annual rate of 5% for
the first five years and 9% thereafter, unless the Company redeems the shares
earlier. Redemptions will be at 100% of issue price plus accrued
dividends and are subject to prior regulatory approval. The Company
may not declare or pay dividends on its common stock or repurchase common stock
without first having paid all accrued cumulative preferred dividends that are
due. For three years after the Treasury’s investment in the senior
preferred shares, the Company also may not increase its per share common stock
dividend rate or repurchase its common shares without the Treasury’s consent,
unless the Treasury has transferred all the senior preferred shares to third
parties.
The
directors of the Company and executive management own a significant number of
shares of stock, allowing further control over business and corporate
affairs.
The
Company’s directors and executive officers beneficially own approximately
2,519,403 shares, or 38.1%, of outstanding common stock. As a result, in
addition to their day-to-day management roles, they will be able to exercise
significant influence on the Company’s business as shareholders, including
influence over election of the Board and the authorization of other corporate
actions requiring shareholder approval.
Provisions
of the Company’s articles of incorporation and bylaws, Louisiana law, and state
and federal banking regulations, could delay or prevent a takeover by a third
party.
The
Company’s articles of incorporation and bylaws could delay, defer, or prevent a
third party takeover, despite possible benefit to the shareholders, or otherwise
adversely affect the price of the common stock. The Company’s
governing documents:
·
|
require
Board action to be taken by a majority of the entire Board rather than a
majority of a quorum;
|
·
|
permit
shareholders to fill vacant Board seats only if the Board has not filled
the vacancy within 90 days;
|
·
|
permit
directors to be removed by shareholders only for cause and only upon an
80% vote;
|
·
|
require
an 80% shareholder vote to amend the Bylaws (85% in the case of certain
provisions), a 75% vote to approve amendments to the Articles (85% in the
case of certain provisions) and a 66-2/3% vote for any other proposal, in
each case if the proposed action was not approved by two-thirds of the
entire Board;
|
·
|
require
80% of the voting power for shareholders to call a special
meeting;
|
·
|
authorize
a class of preferred stock that may be issued in series with terms,
including voting rights, established by the Board without shareholder
approval;
|
·
|
authorize
approximately 10 million shares of common stock that may be issued by the
Board without shareholder approval;
|
·
|
classify
its Board with staggered three year terms, preventing a change in a
majority of the Board at any annual
meeting;
|
·
|
require
advance notice of proposed nominations for election to the Board and
business to be conducted at a shareholder meeting;
and
|
·
|
require
supermajority shareholder voting to approve business combinations not
approved by the Board.
|
These
provisions would preclude a third party from removing incumbent directors and
simultaneously gaining control of the board by filling the vacancies thus
created with its own nominees. Under the classified Board provisions,
it would take at least two elections of directors for any individual or group to
gain control of the board. Accordingly, these provisions could
discourage a third party from initiating a proxy contest, making a tender offer
or otherwise attempting to gain control. These provisions may have
the effect of delaying consideration of a shareholder proposal until the next
annual meeting unless a special meeting is called by the Board or the chairman
of the Board. Moreover, even in the absence of an attempted takeover,
the provisions make it difficult for shareholders dissatisfied with the Board to
effect a change in the Board’s composition, even at annual
meetings.
Also, the
Company is subject to the provisions of the Louisiana Business Corporation Law
(“LBCL”), which provides that the Company may not engage in certain business
combinations with an “interested shareholder” (generally defined as the holder
of 10.0% or more of the voting shares) unless (1) the transaction was
approved by the Board before the interested shareholder became an interested
shareholder or (2) the transaction was approved by at least two-thirds of
the outstanding voting shares not beneficially owned by the interested
shareholder and 80% of the total voting power or (3) certain conditions relating
to the price to be paid to the shareholders are met.
The LBCL
also addresses certain transactions involving “control shares,” which are shares
that would have voting power with respect to the Company within certain ranges
of voting power. Control shares acquired in a control share
acquisition have voting rights only to the extent granted by a resolution
approved by the Company’s shareholders. If control shares are
accorded full voting rights and the acquiring person has acquired control shares
with a majority or more of all voting power, shareholders of the issuing public
corporation have dissenters’ rights as provided by the LBCL.
The
Company’s future ability to pay dividends and repurchase stock is subject to
restrictions.
Since the
Company is a holding company with no significant assets other than the Bank, the
Company has no material source of income other than dividends received from the
Bank. Therefore, the ability to pay dividends to the shareholders
will depend on the Bank’s ability to pay dividends to the
Company. Moreover, banks and bank holding companies are both subject
to certain federal and state regulatory restrictions on cash
dividends. The Company is also restricted from paying dividends under
the terms of its Series A Preferred Stock and if it has deferred payments of the
interest on, or an event of default has occurred with respect to, its trust
preferred securities. Additionally, terms and conditions of the CPP
transaction place certain restrictions and limitations on common stock dividends
and common stock repurchases.
A
shareholder’s investment is not an insured deposit.
An
investment in the Company’s common stock is not a bank deposit and is not
insured or guaranteed by the FDIC or any other government agency. A
shareholder’s investment will be subject to investment risk and the shareholder
must be capable of affording the loss of the entire investment.
Item
1B – Unresolved Staff Comments
None.
Item
2 - Properties
The
Company leases its principal executive and administrative offices and principal
facility in Lafayette, Louisiana under a lease expiring March 31,
2017. The Company is granted two 5-year renewal options
thereafter. Eight other branches are located in Lafayette, Louisiana,
three in New Iberia, Louisiana, three in Baton Rouge, Louisiana, two in Lake
Charles, Louisiana, and one banking office in each of the following Louisiana
cities: Breaux Bridge, Cecilia, Larose, Jeanerette, Opelousas, Morgan City,
Jennings, Sulphur, Thibodaux, and Houma. Seventeen of these offices
are owned and nine are leased.
In the
Company’s Texas region, three full service branches are located in Beaumont,
Texas, two of which are owned and one leased. Additional full service
branches are located in Vidor, College Station, Houston, and
Conroe. The Company also operates a loan production office located in
Conroe. Of these offices, three are owned and two are
leased.
Item
3 - 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
4 - Submission of Matters to a Vote of Security Holders
No
matters were submitted to a vote of the Company's security holders in the fourth
quarter of 2008.
Item
4A - Executive Officers of the Registrant
C. R. Cloutier, 61 –
President, Chief Executive Officer and Director of the Company and the Bank
since 1984.
J. Eustis Corrigan, Jr., 44
–Senior Executive Vice President and Chief Financial Officer for the Company and
the Bank since 2006. Mr. Corrigan announced his resignation
effective January 15, 2009 in an 8-K filed by the Company on December 4,
2008.
Karen L. Hail, 55 – Senior
Executive Vice President and Chief Operations Officer of the Bank since
2002; Secretary and Treasurer of the Company since 1984; and Director of
the Bank since 1988.
Donald R. Landry, 52 – Senior
Executive Vice President and Chief Lending Officer of the Bank since 1995 and
Executive Vice President since 2002.
Dwight Utz, 55 – Executive
Vice President and Chief Retail Officer since 2001.
Teri S. Stelly, 49 – Senior
Vice President and Controller of the Company since 1998; Interim Chief Financial
Officer and Principal Accounting Officer since January 15, 2009.
All
executive officers of the Company are appointed for one year terms expiring at
the first meeting of the Board of Directors after the annual shareholders
meeting next succeeding his or her election and until his or her successor is
elected and qualified.
PART
II
Item
5 - Market for Registrant's Common Equity, Related Shareholder Matters, and
Issuer Purchases of Equity Securities
As of
February 27, 2009, there were 864 common shareholders of record. The
Company’s common stock trades on the NYSE Alternext under the symbol
“MSL.” The high and low sales price for the past eight quarters has
been provided in the Selected Quarterly Financial Data tables that are included
with this filing under Item 8 and is incorporated herein by
reference.
Cash
dividends totaling $2.1 million were declared to common shareholders during
2008. The regular quarterly dividend of $0.07 per share was paid for
each quarter of 2008. A special dividend of $0.04 per share was
declared in addition to the $0.07 per share for the fourth quarter of
2008. Cash dividends paid in 2008 totaled $0.32 per
share. It is the intention of the Board of Directors of the Company
to continue paying quarterly dividends on the common stock at a rate of $0.07
per share. Cash dividends totaling $1.9 million were declared to
common shareholders during 2007. A quarterly dividend of $0.06 per
share was paid for the first two quarters of 2007 and $0.07 per share was paid
for the last two quarters of 2007. A special dividend of $0.04 per share was
declared in addition to the $0.07 per share for the fourth quarter of
2007. As adjusted for a 5% stock dividend in 2007, cash dividends
paid in 2007 totaled $0.29 per share. Restrictions on the Company's
ability to pay dividends are described in Item 7 below under the heading
“Liquidity - Dividends” and in Note 15 to the Company's consolidated financial
statements.
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 fourth quarter
ended December 31, 2008. The CPP contains limitations on the payment
of dividends on the common stock, including cash dividends in excess of $0.32
per share and on the Company’s ability to repurchase its common
stock.
|
|
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
|
|
October
2008
|
|
|
197 |
|
|
$ |
16.02 |
|
|
|
197 |
|
|
|
168,941 |
|
November
2008
|
|
|
142 |
|
|
$ |
16.30 |
|
|
|
142 |
|
|
|
168,799 |
|
December
2008
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
168,799 |
|
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.
Securities
Authorized for Issuance under Equity Compensation
Plans
|
As of
December 31, 2008, the Company had outstanding stock options granted under the
2007 Omnibus Incentive Compensation Plan, which was approved by the Company’s
shareholders. Provided below is information regarding the Company’s
equity compensation plans under which the Company’s equity securities are
authorized for issuance as of December 31, 2008.
|
|
Number
of securities to be issued upon exercise of outstanding options, warrants,
and rights
(a)
|
|
|
Weighted-average
exercise price of outstanding options
(b)
|
|
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
(c)
|
|
Equity
compensation plans approved by security holders
|
|
|
83,996 |
|
|
$ |
14.93 |
|
|
|
445,462 |
|
Equity
compensation plans not approved by security holders
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
|
|
|
83,996 |
|
|
$ |
14.93 |
|
|
|
445,462 |
|
The
following graph, which was prepared by SNL Securities, LC (“SNL”), compares the
cumulative total return on the Company’s common stock over a period beginning
December 31, 2003 with (1) the cumulative total return on the stocks included in
the Russell 3000 and (2) the cumulative total return on the stocks included in
the SNL $250M - $500M and the SNL $500M - $1B Bank Index. All of
these cumulative returns are computed assuming the quarterly reinvestment of
dividends paid during the applicable period.
|
|
Period
Ending |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MidSouth
Bancorp, Inc.
|
|
|
100.00 |
|
|
|
108.16 |
|
|
|
120.26 |
|
|
|
175.17 |
|
|
|
139.20 |
|
|
|
77.68 |
|
Russell
3000
|
|
|
100.00 |
|
|
|
111.95 |
|
|
|
118.80 |
|
|
|
137.47 |
|
|
|
144.54 |
|
|
|
90.61 |
|
SNL
Bank $250M-$500M
|
|
|
100.00 |
|
|
|
113.50 |
|
|
|
120.50 |
|
|
|
125.91 |
|
|
|
102.33 |
|
|
|
58.44 |
|
SNL
Bank $500M-$1B
|
|
|
100.00 |
|
|
|
113.32 |
|
|
|
118.18 |
|
|
|
134.41 |
|
|
|
107.71 |
|
|
|
69.02 |
|
The stock
price information shown above is not necessarily indicative of future price
performance. Information used was obtained from SNL from sources
believed to be reliable. The Company assumes no responsibility for
any errors or omissions in such information.
Item 6 – Five Year Summary of Selected Financial
Data
|
|
At
and For the Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars
in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
$ |
55,472 |
|
|
$ |
57,139 |
|
|
$ |
50,235 |
|
|
$ |
38,556 |
|
|
$ |
27,745 |
|
Interest
expense
|
|
|
(16,085 |
) |
|
|
(20,534 |
) |
|
|
(17,692 |
) |
|
|
(10,824 |
) |
|
|
(5,718 |
) |
Net
interest income
|
|
|
39,387 |
|
|
|
36,605 |
|
|
|
32,543 |
|
|
|
27,732 |
|
|
|
22,027 |
|
Provision
for loan losses
|
|
|
(4,555 |
) |
|
|
(1,175 |
) |
|
|
(850 |
) |
|
|
(980 |
) |
|
|
(991 |
) |
Noninterest
income
|
|
|
15,128 |
|
|
|
14,259 |
|
|
|
12,379 |
|
|
|
12,286 |
|
|
|
9,246 |
|
Noninterest
expenses
|
|
|
(43,974 |
) |
|
|
(38,634 |
) |
|
|
(33,124 |
) |
|
|
(29,326 |
) |
|
|
(20,861 |
) |
Earnings
before income taxes
|
|
|
5,986 |
|
|
|
11,055 |
|
|
|
10,948 |
|
|
|
9,712 |
|
|
|
9,421 |
|
Income
tax expense
|
|
|
(449 |
) |
|
|
(2,279 |
) |
|
|
(2,728 |
) |
|
|
(2,438 |
) |
|
|
(2,442 |
) |
Net
income
|
|
$ |
5,537 |
|
|
$ |
8,776 |
|
|
$ |
8,220 |
|
|
$ |
7,274 |
|
|
$ |
6,979 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share1
|
|
$ |
0.84 |
|
|
$ |
1.34 |
|
|
$ |
1.26 |
|
|
$ |
1.13 |
|
|
$ |
1.18 |
|
Diluted
earnings per share1
|
|
$ |
0.83 |
|
|
$ |
1.32 |
|
|
$ |
1.24 |
|
|
$ |
1.10 |
|
|
$ |
1.12 |
|
Dividends
per share1
|
|
$ |
0.32 |
|
|
$ |
0.29 |
|
|
$ |
0.22 |
|
|
$ |
0.22 |
|
|
$ |
0.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
loans
|
|
$ |
608,955 |
|
|
$ |
569,505 |
|
|
$ |
499,046 |
|
|
$ |
442,794 |
|
|
$ |
386,471 |
|
Total
assets
|
|
|
936,815 |
|
|
|
854,056 |
|
|
|
805,022 |
|
|
|
698,814 |
|
|
|
610,088 |
|
Total
deposits
|
|
|
766,704 |
|
|
|
733,517 |
|
|
|
716,180 |
|
|
|
624,938 |
|
|
|
530,383 |
|
Cash
dividends on common stock
|
|
|
2,120 |
|
|
|
1,920 |
|
|
|
1,463 |
|
|
|
1,425 |
|
|
|
1,112 |
|
Long-term
obligations2
|
|
|
15,465 |
|
|
|
15,465 |
|
|
|
15,465 |
|
|
|
15,465 |
|
|
|
15,465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
to assets
|
|
|
65.00 |
% |
|
|
66.68 |
% |
|
|
61.99 |
% |
|
|
63.36 |
% |
|
|
63.35 |
% |
Loans
to deposits
|
|
|
79.43 |
% |
|
|
77.64 |
% |
|
|
69.68 |
% |
|
|
70.85 |
% |
|
|
72.87 |
% |
Deposits
to assets
|
|
|
81.84 |
% |
|
|
85.89 |
% |
|
|
88.96 |
% |
|
|
89.43 |
% |
|
|
86.94 |
% |
Return
on average assets
|
|
|
0.60 |
% |
|
|
1.06 |
% |
|
|
1.08 |
% |
|
|
1.13 |
% |
|
|
1.39 |
% |
Return
on average common equity3
|
|
|
7.79 |
% |
|
|
13.83 |
% |
|
|
14.68 |
% |
|
|
14.24 |
% |
|
|
18.73 |
% |
1 On
October 23, 2007, the Company paid a 5% stock dividend to shareholders of record
on September 21, 2007. On October 23, 2006, the Company paid a 25%
stock dividend on its common stock to holders of record on September 29,
2006. On August 19, 2005, a 10% stock dividend was paid to holders of
record on July 29, 2005. On November 30, 2004, a 25% stock dividend
was paid to holders of record on October 29, 2004. Per common share
data has been adjusted accordingly.
2On
September 20, 2004, the Company issued $8,248,000 of junior subordinated
debentures to partially fund the acquisition of Lamar Bancshares, Inc. (MidSouth
TX) on October 1, 2004. On February 21, 2001, the Company completed
the issuance of $7,217,000 of junior subordinated debentures. For
regulatory purposes, these funds qualify as Tier 1 Capital. For
financial reporting purposes, these funds are included as a liability under
generally accepted accounting principles.
3 In
2004, the return on average common equity ratio reflected the impact of
approximately $9 million in goodwill added as a result of the Lamar Bancshares,
Inc. acquisition.
Item 7 – Management’s Discussion and Analysis of Financial
Condition and Results of Operations
MidSouth
Bancorp, Inc. (the “Company”) is a single-bank holding company that conducts
substantially all of its business through its wholly-owned subsidiary bank,
MidSouth Bank, N. A. (the “Bank”), headquartered in Lafayette,
Louisiana. The Company merged its two wholly-owned banking
subsidiaries, MidSouth Bank, N.A. (Louisiana) and MidSouth Bank Texas, N.A. into
MidSouth Bank, N.A., at the end of the first quarter of 2008. The
purpose of this discussion and analysis is to focus on significant changes in
the financial condition of the Company and on its results of operations during
2008, 2007, and 2006. This discussion and analysis is intended to
highlight and supplement information presented elsewhere in this annual report
on Form 10-K, particularly the consolidated financial statements and related
notes appearing in Item 8.
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, and 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 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 this report. 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 – Allowance for Loan
Losses.
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 is 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.
Compliance
with accounting for stock-based compensation requires that management make
assumptions including stock price volatility and employee turnover that are
utilized to measure compensation expense. The fair value of 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.
Given the
current instability of the economic environment, it is reasonably possible that
the methodology of the assessment of potential loan losses, goodwill impairment,
and other fair value measurements could change in the near-term or could result
in impairment going forward.
The
Company’s growth strategy is focused on three principal components: internal
growth through strategic de novo branching, technological upgrades, and
continual staff development. The Company focuses on internal growth
and identification of de novo branch opportunities that enhance franchise
value. Each retail region operates with a regional president
accountable for the Company’s performance in their market. The
Company will also continue its focus on attracting key new hires and on ongoing
development of existing staff.
On
January 2, 2009, the Company paid its regular quarterly dividend of $0.07 per
share and an additional $0.04 special dividend to its common shareholders of
record as of December 14, 2008.
On
January 9, 2009, the Company’s participation in the CPP of the Treasury offered
under the EESA added $20.0 million in liquidity and capital for the purpose of
funding loans.
The
Company’s net income for the year ended December 31, 2008 totaled $5.5 million
compared to $8.8 million for the year ended December 31, 2007, a decrease of
$3.3 million, or 36.9%. Basic earnings per share were $0.84 and $1.34
for the years ended December 31, 2008 and 2007, respectively. Diluted
earnings per share were $0.83 for the year ended December 31, 2008 compared to
$1.32 per share earned for the year ended December 31, 2007. Total
provision for loan loss increased $3.4 million in year-to-date
comparison. The increase in provision expense was primarily driven by
an increase of $1.9 million in net charge-offs, credit downgrades identified in
the loan portfolio during the year, and an increase in average loan volume of
$39.6 million (see Asset
Quality). Net interest income increased $2.8 million, or 7.6%,
in 2008, primarily attributable to the lower cost of interest-bearing
liabilities. Interest expense decreased $4.4 million for the year
ended December 31, 2008, as compared to the same period ended December 31, 2007,
as the Company adjusted deposit rates in response to the 400 basis point drop in
interest rates by the Federal Open Market Committee (“FOMC”) during
2008. Total interest income decreased $1.7 million, despite an $83.8
million increase in average earning assets, primarily due to a 104 basis points
decrease in the average loan yield.
Other
noninterest income increased $869,000, or 6.1%, primarily due to increases of
$384,000 in service charges on deposit accounts, $635,000 in debit card and ATM
transaction fee income, and a $131,000 one-time payment recorded in other
noninterest income in the first quarter of 2008 related to VISA’s mandatory
redemption of a portion of its Class B shares outstanding in connection with an
initial public offering. These increases were partially offset by a
decrease of $205,000 in mortgage processing fee income. Noninterest
expense increased $5,340,000 due to increases in salaries and benefits costs
($1,005,000), occupancy expenses ($1,810,000), professional fees ($410,000),
marketing expenses ($414,000), FDIC insurance premiums ($349,000), data
processing expenses ($287,000), ATM and debit card processing fees ($268,000),
corporate development expenses ($283,000), and losses on other assets
repossessed ($299,000).
The
results for the year ended December 31, 2008 were positively impacted by a lower
effective tax rate of 7.50% for 2008 as compared to 20.62% in 2007 that reduced
income tax expense by $1.8 million. The lower effective tax rate
resulted from decreased pretax earnings due to the $3.4 million increase in the
provision for loan losses combined with sustained interest income from tax
exempt municipal securities within the investment
portfolio. Additionally, the Work Opportunity Tax Credit was applied
to the tax expense for the years ended December 31, 2008 and 2007, which reduced
the expense by $149,000 and $99,000, respectively.
The
Company’s total consolidated assets increased $82.8 million, or 9.7%, from
$854.0 million at December 31, 2007, to $936.8 million at December 31,
2008. Total loans grew $39.5 million, or 6.9%, from $569.5 million at
December 31, 2007 to $609.0 million at December 31, 2008, primarily in
commercial credits and real estate mortgage loans. Total deposits
grew $33.2 million, or 4.5%, from $733.5 million at December 31, 2007, to $766.7
million at December 31, 2008. The Company maintained a strong
noninterest-bearing deposit portfolio of $199.9 million, or 26.1% of total
deposits, and grew interest-bearing deposits primarily in consumer Platinum
checking and business checking accounts.
Nonperforming
assets, including loans 90 days or more past due and still accruing (“loans past
due”), totaled $11.0 million at December 31, 2008 compared to $3.0 million at
December 31, 2007. Nonaccrual loans increased $7.8 million from 2007
to 2008, primarily attributable to one loan relationship totaling $7.4 million
in the Baton Rouge market secured by commercial real estate. Loans
past due increased $25,000 in annual comparison, from $980,000 at December 31,
2007 to $1,005,000 at December 31, 2008. As a percentage of total
assets, nonperforming assets increased from 0.35% at December of 2007 to 1.17%
at December of 2008.
Net loan
charge-offs for 2008 were $2.4 million, or 0.40% of average loans, compared to
$540,000, or 0.10% of average loans, recorded a year earlier. The
Company provided $4.6 million for loan losses in 2008 compared to $1.2 million
in 2007 to bring the ALL as a percentage of total loans to 1.25% at year-end
2008 compared to 0.99% at year-end 2007. The increase in provision
expense was primarily driven by an increase of $1.9 million in net charge-offs,
credit downgrades identified in the loan portfolio, and an increase in average
loan volume of $39.6 million during the year ending December 31,
2008.
The
Company’s leverage ratio was 8.38% at December 31, 2008, compared to 8.67% at
December 31, 2007. Return on average common equity was 7.79% for 2008
compared to 13.83% for 2007. Return on average assets was 0.60%
compared to 1.06% for the same periods, respectively.
|
|
Table
1
|
|
Summary
of Return on Equity and Assets
|
|
|
|
|
|
|
|
|
|
|
|
Return
on average assets
|
|
|
0.60 |
% |
|
|
1.06 |
% |
|
|
1.08 |
% |
Return
on average common equity
|
|
|
7.79 |
% |
|
|
13.83 |
% |
|
|
14.68 |
% |
Dividend
payout ratio on common stock
|
|
|
38.14 |
% |
|
|
19.97 |
% |
|
|
18.14 |
% |
Average
equity to average assets
|
|
|
7.75 |
% |
|
|
7.69 |
% |
|
|
7.35 |
% |
Net
Interest Income
The
primary source of earnings for the Company is net interest income, which is the
difference between interest earned on loans and investments and interest paid on
deposits and other interest-bearing liabilities. Changes in the
volume and mix of earning assets and interest-bearing liabilities combined with
changes in market rates of interest greatly affect net interest
income. The Company’s net interest margin on a taxable equivalent
basis, which is net interest income as a percentage of average earning assets,
was 4.93%, 5.10%, and 4.90% for the years ended December 31, 2008, 2007, and
2006, respectively. Tables 2 and 3 analyze the changes in net
interest income for each of the three year periods ended December 31, 2008,
2007, and 2006.
Table
2
|
|
Consolidated
Average Balances, Interest, and Rates
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
$ |
97,363 |
|
|
$ |
4,381 |
|
|
|
4.50 |
% |
|
$ |
85,999 |
|
|
$ |
4,089 |
|
|
|
4.75 |
% |
|
$ |
98,173 |
|
|
$ |
4,459 |
|
|
|
4.54 |
% |
Tax-exempt2
|
|
|
112,801 |
|
|
|
6,100 |
|
|
|
5.41 |
% |
|
|
110,256 |
|
|
|
5,846 |
|
|
|
5.30 |
% |
|
|
93,918 |
|
|
|
4,803 |
|
|
|
5.11 |
% |
Other
investments
|
|
|
4,172 |
|
|
|
136 |
|
|
|
3.26 |
% |
|
|
3,533 |
|
|
|
156 |
|
|
|
4.42 |
% |
|
|
2,377 |
|
|
|
80 |
|
|
|
3.37 |
% |
Total
investments
|
|
|
214,336 |
|
|
|
10,617 |
|
|
|
4.95 |
% |
|
|
199,788 |
|
|
|
10,091 |
|
|
|
5.05 |
% |
|
|
194,468 |
|
|
|
9,342 |
|
|
|
4.80 |
% |
Federal
funds sold
|
|
|
29,406 |
|
|
|
669 |
|
|
|
2.24 |
% |
|
|
15,554 |
|
|
|
788 |
|
|
|
5.00 |
% |
|
|
23,528 |
|
|
|
1,134 |
|
|
|
4.75 |
% |
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
and real estate
|
|
|
461,382 |
|
|
|
35,404 |
|
|
|
7.67 |
% |
|
|
426,038 |
|
|
|
38,314 |
|
|
|
8.99 |
% |
|
|
376,827 |
|
|
|
32,894 |
|
|
|
8.73 |
% |
Installment
|
|
|
113,973 |
|
|
|
10,128 |
|
|
|
8.89 |
% |
|
|
109,688 |
|
|
|
9,651 |
|
|
|
8.80 |
% |
|
|
97,693 |
|
|
|
8,251 |
|
|
|
8.45 |
% |
Total
loans3
|
|
|
575,355 |
|
|
|
45,532 |
|
|
|
7.91 |
% |
|
|
535,726 |
|
|
|
47,965 |
|
|
|
8.95 |
% |
|
|
474,520 |
|
|
|
41,145 |
|
|
|
8.67 |
% |
Other earning
assets |
|
|
15,892 |
|
|
|
447 |
|
|
|
2.81 |
% |
|
|
118 |
|
|
|
7 |
|
|
|
5.93 |
% |
|
|
205 |
|
|
|
12 |
|
|
|
5.85 |
% |
Total
earning assets
|
|
|
834,989 |
|
|
|
57,265 |
|
|
|
6.86 |
% |
|
|
751,186 |
|
|
|
58,851 |
|
|
|
7.83 |
% |
|
|
692,721 |
|
|
|
51,633 |
|
|
|
7.45 |
% |
Allowance
for loan losses
|
|
|
(5,910 |
) |
|
|
|
|
|
|
|
|
|
|
(5,079 |
) |
|
|
|
|
|
|
|
|
|
|
(4,686 |
) |
|
|
|
|
|
|
|
|
Nonearning
assets
|
|
|
88,808 |
|
|
|
|
|
|
|
|
|
|
|
79,327 |
|
|
|
|
|
|
|
|
|
|
|
73,568 |
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
917,887 |
|
|
|
|
|
|
|
|
|
|
$ |
825,434 |
|
|
|
|
|
|
|
|
|
|
$ |
761,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and shareholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW,
money market, and savings
|
|
$ |
453,531 |
|
|
$ |
7,958 |
|
|
|
1.75 |
% |
|
$ |
419,983 |
|
|
$ |
13,017 |
|
|
|
3.10 |
% |
|
$ |
388,880 |
|
|
$ |
12,084 |
|
|
|
3.11 |
% |
Time
deposits
|
|
|
146,272 |
|
|
|
5,952 |
|
|
|
4.07 |
% |
|
|
121,238 |
|
|
|
5,089 |
|
|
|
4.20 |
% |
|
|
117,149 |
|
|
|
4,053 |
|
|
|
3.46 |
% |
Total
interest-bearing deposits
|
|
|
599,803 |
|
|
|
13,910 |
|
|
|
2.32 |
% |
|
|
541,221 |
|
|
|
18,106 |
|
|
|
3.35 |
% |
|
|
506,029 |
|
|
|
16,137 |
|
|
|
3.19 |
% |
Borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold under agreements to repurchase and federal funds
purchased
|
|
|
35,999 |
|
|
|
875 |
|
|
|
2.39 |
% |
|
|
13,880 |
|
|
|
531 |
|
|
|
3.77 |
% |
|
|
4,014 |
|
|
|
184 |
|
|
|
4.52 |
% |
FHLB advances
|
|
|
452 |
|
|
|
16 |
|
|
|
3.48 |
% |
|
|
8,309 |
|
|
|
500 |
|
|
|
5.94 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
FRB
Discount Window
|
|
|
4,491 |
|
|
|
65 |
|
|
|
1.45 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total borrowings
|
|
|
40,942 |
|
|
|
956 |
|
|
|
2.30 |
% |
|
|
22,189 |
|
|
|
1,031 |
|
|
|
4.58 |
% |
|
|
4,014 |
|
|
|
184 |
|
|
|
4.52 |
% |
Junior subordinated debentures
|
|
|
15,465 |
|
|
|
1,219 |
|
|
|
7.75 |
% |
|
|
15,465 |
|
|
|
1,397 |
|
|
|
8.91 |
% |
|
|
15,465 |
|
|
|
1,371 |
|
|
|
8.74 |
% |
Total interest-bearing liabilities
|
|
|
656,210 |
|
|
|
16,085 |
|
|
|
2.45 |
% |
|
|
578,875 |
|
|
|
20,534 |
|
|
|
3.55 |
% |
|
|
525,508 |
|
|
|
17,692 |
|
|
|
3.37 |
% |
Demand
deposits
|
|
|
185,113 |
|
|
|
|
|
|
|
|
|
|
|
178,933 |
|
|
|
|
|
|
|
|
|
|
|
176,353 |
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
5,466 |
|
|
|
|
|
|
|
|
|
|
|
4,158 |
|
|
|
|
|
|
|
|
|
|
|
3,733 |
|
|
|
|
|
|
|
|
|
Shareholders’
equity
|
|
|
71,098 |
|
|
|
|
|
|
|
|
|
|
|
63,468 |
|
|
|
|
|
|
|
|
|
|
|
56,009 |
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders’ equity
|
|
$ |
917,887 |
|
|
|
|
|
|
|
|
|
|
$ |
825,434 |
|
|
|
|
|
|
|
|
|
|
$ |
761,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income and net interest spread
|
|
|
|
|
|
$ |
41,180 |
|
|
|
4.41 |
% |
|
|
|
|
|
$ |
38,317 |
|
|
|
4.28 |
% |
|
|
|
|
|
$ |
33,941 |
|
|
|
4.08 |
% |
Net
yield on interest earning
assets
|
|
|
|
|
|
|
|
|
|
|
4.93 |
% |
|
|
|
|
|
|
|
|
|
|
5.10 |
% |
|
|
|
|
|
|
|
|
|
|
4.90 |
% |
1Securities classified as
available-for-sale are included in average balances and interest income figures
and reflect interest earned on such securities.
2 Interest income of $1,792,000 for 2008,
$1,712,000 for 2007, and $1,398,000 for 2006 is added to interest earned on
tax-exempt obligations to reflect tax equivalent yields using a 34% tax
rate.
3Interest income includes loan fees of
$3,801,000 for 2008, $3,352,000 for 2007, and $3,400,000 for
2006. Nonaccrual loans are included in average balances and income on
such loans is recognized on a cash basis.
|
|
Table
3
|
|
Changes
in Taxable-Equivalent Net Interest Income
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable-equivalent
earned on:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities and interest-bearing deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
$ |
292 |
|
|
$ |
519 |
|
|
$ |
(227 |
) |
|
$ |
(370 |
) |
|
$ |
(571 |
) |
|
$ |
201 |
|
Tax-exempt
|
|
|
254 |
|
|
|
137 |
|
|
|
117 |
|
|
|
1,043 |
|
|
|
861 |
|
|
|
182 |
|
Other
investments
|
|
|
(20 |
) |
|
|
25 |
|
|
|
(45 |
) |
|
|
76 |
|
|
|
46 |
|
|
|
30 |
|
Federal
funds sold
|
|
|
(119 |
) |
|
|
468 |
|
|
|
(587 |
) |
|
|
(346 |
) |
|
|
(372 |
) |
|
|
26 |
|
Loans,
including fees
|
|
|
(2,433 |
) |
|
|
3,387 |
|
|
|
(5,820 |
) |
|
|
6,820 |
|
|
|
5,445 |
|
|
|
1,375 |
|
Other
earning assets
|
|
|
440 |
|
|
|
444 |
|
|
|
(4 |
) |
|
|
(5 |
) |
|
|
(5 |
) |
|
|
- |
|
Total
|
|
|
(1,586 |
) |
|
|
4,980 |
|
|
|
(6,566 |
) |
|
|
7,218 |
|
|
|
5,404 |
|
|
|
1,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid on:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
deposits
|
|
|
(4,196 |
) |
|
|
1,804 |
|
|
|
(6,000 |
) |
|
|
1,969 |
|
|
|
1,155 |
|
|
|
814 |
|
Securities
sold under agreements to repurchase and federal funds
purchased
|
|
|
344 |
|
|
|
657 |
|
|
|
(313 |
) |
|
|
347 |
|
|
|
355 |
|
|
|
(8 |
) |
FHLB
Advances
|
|
|
(484 |
) |
|
|
(366 |
) |
|
|
(118 |
) |
|
|
500 |
|
|
|
500 |
|
|
|
- |
|
FRB
Discount Window
|
|
|
65 |
|
|
|
33 |
|
|
|
32 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Junior
subordinated debentures
|
|
|
(178 |
) |
|
|
- |
|
|
|
(178 |
) |
|
|
26 |
|
|
|
- |
|
|
|
26 |
|
Total
|
|
|
(4,449 |
) |
|
|
2,128 |
|
|
|
(6,577 |
) |
|
|
2,842 |
|
|
|
2,010 |
|
|
|
832 |
|
Taxable-equivalent
net interest income
|
|
$ |
2,863 |
|
|
$ |
2,852 |
|
|
$ |
11 |
|
|
$ |
4,376 |
|
|
$ |
3,394 |
|
|
$ |
982 |
|
NOTE: Changes
due to both volume and rate have generally been allocated to volume and rate
changes in proportion to the relationship of the absolute dollar amounts to the
changes in each.
Net
interest income on a taxable-equivalent basis increased $2.9 million for 2008
over 2007 and $4.4 million for 2007 over 2006. Average earning assets
increased $83.8 million, or 11.2%, from $751.2 million at December 31, 2007, to
$835.0 million at December 31, 2008. The yield on average earning
assets decreased 97 basis points, from 7.83% to 6.86% in annual
comparison. Average loan yields decreased 104 basis points, from
8.95% at December 31, 2007, to 7.91% at December 31, 2008, primarily due to the
Company’s variable rate loans that adjusted with Prime. The Prime
rate decreased 400 basis points during the course of the year, from 7.25% to
3.25% at year end. An increase in loan volume of $39.6 million, or
7.4%, partially offset the decrease in rates and resulted in a $2.4 million
decrease in interest earned on loans for 2008. Rate decreases on
earning assets offset volume increases and resulted in a decrease of $1.6
million in taxable-equivalent interest income. The $1.6 million
decrease was offset by a $4.4 million decrease in interest paid on
interest-bearing liabilities. Interest paid on average
interest-bearing deposits decreased $4.2 million due to a 103 basis point
decrease in the average rate from 3.35% at December 31, 2007 to 2.32% at
December 31, 2008. The decrease in average cost of deposits was
partially offset by a $58.6 million increase in average interest-bearing deposit
volume. The cost of total interest-bearing liabilities decreased 110
basis points from 3.55% at December 31, 2007 to 2.45% at December 31,
2008.
In 2007,
a 12.9% increase in the average volume of loans combined with 28 basis points of
improvement in average loan yields contributed greatly to the $4.4 million
increase in taxable-equivalent net interest income. The average yield
on the loan portfolio increased from 8.67% in 2006 to 8.95% in
2007. Loan yields improved as the Company’s variable-rate loans
remained stable with a flat Prime rate for most of the year. Prime
increased 100 basis points to 8.25% by mid-year 2006 and held steady until
mid-September 2007, when it began its descent to 7.25% at year-end. A
$7.2 million improvement in taxable-equivalent interest income was partially
offset by a $2.8 million increase in interest expense resulting primarily from a
7.0% increase in the average volume of interest-bearing deposits and an increase
of 16 basis points in the average rate paid on interest-bearing deposits in
2007.
In the
investment portfolio, the Company reinvested cash flows from the portfolio into
quality tax-exempt municipal bonds and agency-backed Collateralized Mortgage
Obligations (“CMOs”) in 2008. The average volume of investment
securities increased $14.5 million in 2008, from $199.8 million in 2007 to
$214.3 million. Average taxable-equivalent yields on investment
securities decreased 10 basis points, from 5.05% in 2007 to 4.95% in
2008. Accordingly, the taxable-equivalent interest income on
investment securities increased $526,000 in 2008 as compared to
2007. In 2007, the average volume of investment securities increased
$5.3 million, from $194.5 million in 2006 to $199.8 million in 2007, while
federal funds sold volume decreased $8.0 million. Average
taxable-equivalent yields on investment securities increased to 5.05% in 2007,
up 25 basis points from 4.80% in 2006. Improvement in investment
volume and yields increased taxable-equivalent interest income on investment
securities $749,000 for 2007.
From 2007
to 2008, the average volume of federal funds sold and other earning assets
increased $13.9 million and $15.8 million, respectively. In comparing
average volume of assets and liabilities, the $64.8 million increase in deposits
exceeded the $39.6 million increase in loans resulting in $25.2 million of
excess funds. These funds were invested in federal funds overnight
and other interest-earning assets, the majority of which were time deposits held
with other banks. The increase in average volume of federal funds
sold was offset by a 276 basis points decrease in the average yield from 5.00%
to 2.24%, which reduced interest earned by $119,000 in yearly
comparison. Interest earned on other interest-earning assets
increased $440,000 as the volume increase was partially offset by a 312 basis
points reduction in average yield.
The
Company maintained its strong core noninterest-bearing deposit base with 23.6%
of average total deposits in 2008 compared to 24.8% in 2007 and 25.8% in
2006. The interest-bearing deposit mix consisted of 57.8% in NOW,
money market, and savings deposits, and 18.6% in time deposits, primarily due to
growth in the Company’s Platinum checking accounts. The Platinum
accounts offer competitive market rates to the Company’s
depositors. The average rate paid on NOW, money market, and savings
dollars decreased 135 basis points to 1.75% in 2008, down from 3.10% in
2007. Of total average deposits in 2007, the mix of average total
interest-bearing deposits was 58.4% NOW, money market and savings deposits, and
16.8% certificates of deposit. These two categories of
interest-bearing deposits were 57.0% and 17.2% of average total deposits,
respectively, in 2006. The Company typically offers certificates of
deposit at mid-to-low market rates, but a special promotional rate of 5.13% on a
13 month certificate of deposit was offered in the fourth quarter of 2006 in all
markets. The promotional rate was continued in selected Louisiana
markets and the Texas market for part of 2007 and contributed to a 74 basis
points increase in the average yield on certificates of deposit in 2007, from
3.46% in 2006 to 4.20%.
Interest
expense on the Company’s junior subordinated debentures decreased 116 basis
points, from 8.91% in 2007 to 7.75% in 2008 due to decreases in the variable
rate paid on the $8.2 million in debentures. The $8.2 million in debentures,
issued on September 20, 2004, carry a floating rate equal to the 3-month LIBOR
plus 2.50%, adjustable and payable quarterly. The rate on these
debentures at December 31, 2008 was 4.03%. In 2007, the yield on the
junior subordinated debentures increased 17 basis points, from 8.74% at December
31, 2006 to 8.91% at December 31, 2007. The $8.2 million in
debentures mature on September 20, 2034 and, under certain
circumstances, are subject to repayment on September 20, 2009 or
thereafter. On February 22, 2001, the Company issued the $7.2 million
of junior subordinated debentures. The $7.2 million in debentures
carry a fixed interest rate of 10.20% and mature on February 22, 2031 and, under
certain circumstances, are subject to repayment on February 22, 2011, or
thereafter.
NonInterest
Income
Service
charges and fees on deposit accounts represent the primary source of noninterest
income for the Company. Income from service charges and fees on
deposit accounts, including insufficient funds fees (“NSF” fees), increased
$384,000 in 2008 compared to a $1.1 million increase in 2007. Income
on ATM and debit card transactions increased $635,000 in 2008 and $414,000 in
2007 as the result of an increase in transactions processed. Other
noninterest income decreased $150,000 in 2008 and increased $335,000 in
2007. The decrease in 2008 was the result of a reduction in mortgage
processing fee income of $205,000, which was partially offset by a $131,000
one-time payment recorded in other noninterest income in the first quarter of
2008 related to VISA’s mandatory redemption of a portion of its Class B shares
outstanding in connection with an initial public offering.
Noninterest
Expense
Total
noninterest expense increased 13.8%, or $5.3 million, from 2007 to 2008, and
16.6%, or $5.5 million, from 2006 to 2007. The Company's growth and
expansion over the past three years resulted in increased salaries and employee
benefits costs, occupancy expenses, marketing expenses, and education and travel
expenses. These increases reflect the Company’s long-term investment in staff
development, system upgrades, and market development.
Salaries
and employee benefits increased $1.0 million, or 5.0% in 2008 and the Company
ended the year with 419 full-time equivalent (“FTE”) employees, an increase of 9
employees over 2007. Salary and benefit costs increased in 2008
primarily due to the addition of staff for new branches, annual salary
adjustments and higher group health insurance costs. Salaries and
employee benefits increased $3.6 million, or 22.2%, in 2007 and the Company
ended the year with 410 full-time equivalent (“FTE”) employees, an increase of
39 employees over 2006. Recruitment of talented leaders to support
growth initiatives contributed to the increased salary and benefits costs in
2007.
Occupancy
expenses increased $1,810,000 in 2008 and $889,000 in 2007 and included the cost
of a new facility and renovations of the Company’s headquarters in
2008. Four new facilities and three replacement facilities were
completed during the year in 2007, which resulted in an increase over
2006. Occupancy expense in 2008 captured a full year of depreciation
on those seven facilities. Premises and equipment additions and
leasehold improvements totaled approximately $4.8 million, $11.3 million, and
$9.7 million for the years 2008, 2007, and 2006, respectively.
Total
other noninterest expense increased $2.5 million in 2008 and $1.0 million in
2007. Data processing expenses increased $287,000, primarily due to
the merger of the two banks in the first quarter of 2008. ATM and
debit card processing fees experienced a higher volume of electronic
transactions processed, which increased fees by
$268,000. Professional fees increased $410,000 and resulted primarily
from consulting fees related to external assistance with the formulation and
execution of corporate strategic initiatives and certain finance and operations
related projects. Additionally, marketing and corporate development
expenses increased $697,000 in 2008 to promote franchise growth.
FDIC
insurance premiums increased $349,000 in 2008 and $77,000 in 2007. In
2007, the Company qualified for a one-time credit totaling approximately
$240,000, which offset the new FDIC assessment through the third quarter of
2007. On October 3, 2008, the President of the United States signed
the EESA into law. The EESA included a provision for an increase in the amount
of deposits insured by the FDIC from $100,000 to $250,000 until December
2009. In addition, the FDIC announced the TLGP on October 14,
2008. Unlimited deposit insurance was provided on funds in
noninterest-bearing transaction deposit accounts. Coverage under the
program is available for a limited period of time without charge and,
thereafter, at a cost of 10 basis points per annum for noninterest-bearing
transaction accounts with balances above $250,000. FDIC assessments
for 2009, based on increased premiums and current deposit growth projections,
will total approximately $306,000 per quarter, or $1,224,000 for the year. On
February 27, 2009, the FDIC approved an interim rule that would raise second
quarter 2009 deposit insurance premiums for Risk Category I and impose a 10 to
20 basis points special assessment as of June 30, 2009, payable on September 30,
2009. If the interim rule is adopted as final, the Company’s FDIC
premiums would increase significantly in 2009.
The
increase in noninterest expenses for 2007 resulted primarily from increases in
professional fees of $339,000, education and training expenses of $235,000, ATM
and debit card processing fees of $186,000, and data processing expenses of
$160,000, primarily related to data communication lines. The increase
in education and training expenses in 2007 reflected the Company’s commitment to
employee development.
Income
Taxes
The
Company's tax expense decreased by $1,830,000 in 2008 and $449,000 in 2007 and
approximated 8% and 21% of income before taxes in 2008 and 2007,
respectively. For 2008, the lower effective tax rate was due to the
lower pretax income which resulted in a larger impact by the nontaxable
municipal interest on the statutory tax rate than in 2007. Additionally, the
lower tax rates for 2008 and 2007 resulted from the Company’s recognition of the
Work Opportunity Tax Credit under the Katrina Emergency Tax Relief Act of 2005,
which reduced income tax expense by $149,000 in 2008 and $99,000 in
2007. Interest income on nontaxable municipal securities also
lowered the effective tax rate for 2006 to approximately 25%. The
notes to the consolidated financial statements provide additional information
regarding the Company's income tax considerations.
Investment
Securities
Total
investment securities increased $40.2 million in 2008, from $192.2 million in
2007 to $232.4 million at December 31, 2008. The increase resulted
primarily from deposit growth outpacing loan growth during
2008. Average duration of the portfolio was 3.92 years as of December
31, 2008 and the average taxable-equivalent yield was 4.95%. For the
year ended December 31, 2007, average duration of the portfolio was 3.57 years
and the average taxable-equivalent yield was 5.05%. Unrealized net
gains before tax effect in the securities available-for-sale portfolio were $2.6
million at December 31, 2008, compared to unrealized net gain before tax effect
of $1.2 million at December 31, 2007. These amounts result from
interest rate fluctuations.
At
December 31, 2008, approximately $67.5 million, or 29.9%, of the Company's
securities available-for-sale portfolio represented mortgage-backed securities
and CMOs. All of the mortgage-backed securities and CMOs are
government agency sponsored with the exception of two privately issued CMOs with
a current market value of $262,000. The Company monitors the risks due to
changes in interest rates on mortgage-backed pools by monthly reviews of
prepayment speeds, duration, and purchase yields as compared to current market
yields on each security. CMOs totaled $47.8 million and represented
pools that each had a book value of less than 10% of shareholders' equity at
December 31, 2008. All CMOs held in the portfolio are bank-qualified
and not considered “high-risk” securities under the Federal Financial
Institutions Examination Council (“FFIEC”) tests. The Company does
not own any “high-risk” securities as defined by the FFIEC. An
additional 17.6% of the available-for-sale portfolio consisted of U. S. Agency
securities, while municipal and other securities represented 52.4% and 0.1% of
the portfolio, respectively. A detailed credit analysis on each
municipal offering is reviewed prior to purchase by an investment advisory firm.
In addition, the Company limits the amount of securities of any one municipality
purchased and the amount purchased within specific geographic regions to reduce
the risk of loss within the nontaxable municipal securities
portfolio. The held-to-maturity portfolio consisted of $6.0 million
in nontaxable and $0.5 million in taxable municipal securities. The
Company utilizes a qualified investment advisory firm that manages the
securities portfolio and monitors the assigned ratings and credit quality of
bonds.
|
|
Table
4
Composition
of Investment Securities
December
31
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.
S. Treasuries
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,986 |
|
|
$ |
1,966 |
|
|
$ |
2,000 |
|
U.
S. Agencies
|
|
|
39,747 |
|
|
|
45,229 |
|
|
|
51,280 |
|
|
|
38,499 |
|
|
|
35,804 |
|
Obligations
of state and political subdivisions
|
|
|
118,613 |
|
|
|
100,966 |
|
|
|
95,676 |
|
|
|
61,534 |
|
|
|
56,468 |
|
Mortgage-backed
securities
|
|
|
19,661 |
|
|
|
24,250 |
|
|
|
29,888 |
|
|
|
33,715 |
|
|
|
30,962 |
|
Collateralized
mortgage obligations
|
|
|
47,829 |
|
|
|
10,797 |
|
|
|
854 |
|
|
|
1,086 |
|
|
|
1,861 |
|
Corporate
securities
|
|
|
- |
|
|
|
- |
|
|
|
990 |
|
|
|
2,629 |
|
|
|
7,089 |
|
Equity
securities with readily determinable fair values
|
|
|
94 |
|
|
|
210 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Mutual
funds
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
9,077 |
|
Total
available-for-sale securities
|
|
$ |
225,944 |
|
|
$ |
181,452 |
|
|
$ |
180,674 |
|
|
$ |
139,429 |
|
|
$ |
143,261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations
of state and political subdivisions
|
|
$ |
6,490 |
|
|
$ |
10,746 |
|
|
$ |
15,901 |
|
|
$ |
19,611 |
|
|
$ |
22,852 |
|
Total
held-to-maturity securities
|
|
$ |
6,490 |
|
|
$ |
10,746 |
|
|
$ |
15,901 |
|
|
$ |
19,611 |
|
|
$ |
22,852 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
investment securities
|
|
$ |
232,434 |
|
|
$ |
192,198 |
|
|
$ |
196,575 |
|
|
$ |
159,040 |
|
|
$ |
166,113 |
|
|
|
Table
5
Investment
Securities Portfolio
Maturities
and Average Taxable-Equivalent Yields
For
the Year Ended December 31, 2008
(dollars
in thousands)
|
|
|
|
|
|
|
After
1 but
Within
5 Years
|
|
|
After
5 but
Within
10 Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury and U.S. Agency securities
|
|
$ |
18,145 |
|
|
|
2.72 |
% |
|
$ |
21,602 |
|
|
|
4.20 |
% |
|
$ |
- |
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
$ |
39,747 |
|
Obligations
of state and political subdivisions
|
|
|
11,541 |
|
|
|
4.95 |
% |
|
|
32,278 |
|
|
|
5.57 |
% |
|
|
53,330 |
|
|
|
5.53 |
% |
|
|
21,464 |
|
|
|
5.69 |
% |
|
|
118,613 |
|
Mortgage-backs
and CMOs
|
|
|
19,433 |
|
|
|
5.27 |
% |
|
|
34,818 |
|
|
|
4.67 |
% |
|
|
12,670 |
|
|
|
5.72 |
% |
|
|
569 |
|
|
|
4.70 |
% |
|
|
67,490 |
|
Equity
securities with readily determinable fair values
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
94 |
|
|
|
- |
|
|
|
94 |
|
Total
fair value
|
|
$ |
49,119 |
|
|
|
|
|
|
$ |
88,698 |
|
|
|
|
|
|
$ |
66,000 |
|
|
|
|
|
|
$ |
22,127 |
|
|
|
|
|
|
$ |
225,944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After
1 but
Within
5 Years
|
|
|
After
5 but
Within
10 Year
|
|
|
|
|
|
|
|
|
Held-to-Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations
of state and political subdivisions
|
|
$ |
2,204 |
|
|
|
7.37 |
% |
|
$ |
3,938 |
|
|
|
7.07 |
% |
|
$ |
348 |
|
|
|
7.64 |
% |
|
$ |
- |
|
|
|
- |
|
|
$ |
6,490 |
|
Loan
Portfolio
The
Company’s loan portfolio totaled $609.0 million at December 31, 2008, up 6.9%,
or $39.5 million, from $569.5 million at December 31, 2007. In 2007,
loans grew 14.1%, or $70.5 million. Of the $39.5 million growth in
2008, $18.3 million was in real estate loans secured by
mortgages. The real estate loan growth consisted primarily of
commercial credits that have ten to fifteen year amortization terms with rates
fixed primarily for three and up to five years. The short-term structure of the
real estate mortgage credits allows management greater flexibility in
controlling interest rate risk. The commercial portfolio, including
agricultural, financial, and lease loans, increased $19.1
million. The Company’s installment loan portfolio increased $2.1
million, or 8.6%, in 2008, primarily in the indirect auto financing and credit
card portfolios.
The
Company’s combined loan portfolio at December 31, 2008 consisted of
approximately 52% in fixed rate loans, with the majority maturing within five
years. Approximately 48% of the portfolio earns a variable rate of
interest, the greater majority of which adjusts to changes in the Prime rate and
a smaller portion that adjusts on a scheduled repricing date. The mix
of variable and fixed rate loans provides some protection from changes in market
rates of interest.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table
6
Composition
of Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial,
financial, and agricultural
|
|
$ |
210,058 |
|
|
$ |
190,946 |
|
|
$ |
155,098 |
|
|
$ |
153,737 |
|
|
$ |
123,835 |
|
Lease
financing receivable
|
|
|
8,058 |
|
|
|
8,089 |
|
|
|
7,902 |
|
|
|
6,108 |
|
|
|
4,048 |
|
Real
estate - mortgage
|
|
|
234,588 |
|
|
|
216,305 |
|
|
|
192,583 |
|
|
|
170,895 |
|
|
|
150,898 |
|
Real
estate - construction
|
|
|
65,327 |
|
|
|
65,448 |
|
|
|
64,126 |
|
|
|
39,202 |
|
|
|
41,464 |
|
Installment
loans to individuals
|
|
|
89,901 |
|
|
|
87,775 |
|
|
|
78,613 |
|
|
|
72,230 |
|
|
|
65,493 |
|
Other
|
|
|
1,023 |
|
|
|
942 |
|
|
|
724 |
|
|
|
622 |
|
|
|
733 |
|
Total
loans
|
|
$ |
608,955 |
|
|
$ |
569,505 |
|
|
$ |
499,046 |
|
|
$ |
442,794 |
|
|
$ |
386,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE: The
December 31, 2007 loan composition reflects a reclassification in real estate –
construction, real estate – mortgage, and commercial, financial, and
agricultural loans.
|
|
Table
7
|
|
Loan
Maturities and Sensitivity to Interest Rates
For
the Year Ended December 31, 2008
(in
thousands)
|
|
|
|
Fixed
and Variable Rate Loans at Stated Maturities
|
|
|
Amounts
Over One Year With
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial,
financial, and agricultural
|
|
$ |
96,789 |
|
|
$ |
92,012 |
|
|
$ |
21,257 |
|
|
$ |
210,058 |
|
|
$ |
74,234 |
|
|
$ |
39,035 |
|
|
$ |
113,269 |
|
Lease
financing receivables
|
|
|
242 |
|
|
|
7,493 |
|
|
|
323 |
|
|
|
8,058 |
|
|
|
7,816 |
|
|
|
- |
|
|
|
7,816 |
|
Real
estate – mortgage
|
|
|
27,741 |
|
|
|
68,265 |
|
|
|
138,582 |
|
|
|
234,588 |
|
|
|
87,448 |
|
|
|
119,399 |
|
|
|
206,847 |
|
Real
estate – construction
|
|
|
47,166 |
|
|
|
11,336 |
|
|
|
6,825 |
|
|
|
65,327 |
|
|
|
6,074 |
|
|
|
12,087 |
|
|
|
18,161 |
|
Installment
loans to individuals
|
|
|
17,869 |
|
|
|
70,239 |
|
|
|
1,793 |
|
|
|
89,901 |
|
|
|
68,755 |
|
|
|
3,277 |
|
|
|
72,032 |
|
Other
|
|
|
1,023 |
|
|
|
- |
|
|
|
- |
|
|
|
1,023 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
|
|
$ |
190,830 |
|
|
$ |
249,345 |
|
|
$ |
168,780 |
|
|
$ |
608,955 |
|
|
$ |
244,327 |
|
|
$ |
173,798 |
|
|
$ |
418,125 |
|
The Bank
has maintained its credit policy and underwriting procedures and has not relaxed
these procedures to stimulate loan growth. Completed loan
applications, credit bureau reports, financial statements, and a committee
approval process remain a part of credit decisions. Documentation of
the loan decision process is required on each credit application, whether
approved or denied, to insure thorough and consistent procedures.
Asset
Quality
Credit Risk
Management
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 independent reviews performed
by the loan review officer and other validations performed by the internal audit
department. The results of the reviews are reported directly to the
Audit Committee of the Board of Directors. Additionally, bank
concentrations are monitored and reported quarterly whereby individual customer
and aggregate industry leverage, profitability, risk rating distributions, and
liquidity are evaluated for each major standard industry classification
segment. At December 31, 2008, the Company identified one industry
segment concentration that aggregates more than 10% of its consolidated loan
portfolio. The commercial real estate segment of the loan portfolio,
the majority of which is owner-occupied real estate, represented approximately
$85.4 million, or 14.0%, of the total loan portfolio.
Nonperforming
Assets
Table 8
contains information about the Company's nonperforming assets, including loans
past due.
|
|
Table
8
Asset
Quality Information
December
31
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
on nonaccrual
|
|
$ |
9,355 |
|
|
$ |
1,602 |
|
|
$ |
1,793 |
|
|
$ |
660 |
|
|
$ |
472 |
|
Loans
past due
|
|
|
1,005 |
|
|
|
980 |
|
|
|
98 |
|
|
|
2,510 |
|
|
|
488 |
|
Total
nonperforming loans
|
|
|
10,360 |
|
|
|
2,582 |
|
|
|
1,891 |
|
|
|
3,170 |
|
|
|
960 |
|
Other
real estate owned, net
|
|
|
329 |
|
|
|
143 |
|
|
|
368 |
|
|
|
98 |
|
|
|
445 |
|
Other
assets repossessed
|
|
|
306 |
|
|
|
280 |
|
|
|
55 |
|
|
|
176 |
|
|
|
283 |
|
Total
nonperforming assets
|
|
$ |
10,995 |
|
|
$ |
3,005 |
|
|
$ |
2,314 |
|
|
$ |
3,444 |
|
|
$ |
1,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming
loans to total
loans
|
|
|
1.70 |
% |
|
|
0.45 |
% |
|
|
0.38 |
% |
|
|
0.72 |
% |
|
|
0.25 |
% |
Nonperforming
assets to total assets
|
|
|
1.17 |
% |
|
|
0.35 |
% |
|
|
0.29 |
% |
|
|
0.49 |
% |
|
|
0.28 |
% |
Allowance
as a percentage of nonperforming
loans
|
|
|
73 |
% |
|
|
217 |
% |
|
|
263 |
% |
|
|
137 |
% |
|
|
401 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming
assets, including loans past due, totaled $11.0 million at December 31, 2008,
$3.0 million at December 31, 2007, $2.3 million at December 31,
2006. The increase in nonperforming assets in 2008 compared to 2007
resulted primarily from an increase of $7.8 million in nonaccrual
loans. The majority of the increase in nonaccrual loans represents
one large credit in the Baton Rouge market secured by real
estate. Net charge-offs were 0.40% of total loans at December 31,
2008, compared to 0.10 % at December 31, 2007. The increase resulted
from charge-offs totaling approximately $550,000 in indirect auto loans due to
fraudulent activity; $707,000 in consumer loans; $775,000 in commercial,
industrial and agricultural loans; and $592,000 in real estate and construction
loans. The increased charge-off activity in the loan portfolio is
reflective of the current economic environment.
Consumer
and commercial loans are placed on nonaccrual when principal or interest is 90
days past due, sooner if the full collectibility of principal or interest is
doubtful, except if the underlying collateral fully supports both the principal
and accrued interest and the loan is in the process of
collection. Policies provide that retail (consumer) loans that become
120 days delinquent be routinely charged off. Loans classified for
regulatory purposes but not included in Table 8 do not represent material
amounts that management has serious doubts as to the ability of the borrower to
comply with loan repayment terms.
Allowance for Loan
Losses
Provisions
totaling $4,555,000, $1,175,000, and $850,000, for the years 2008, 2007, and
2006, respectively, were considered necessary by management to bring the
allowance to a level sufficient to cover probable losses in the loan
portfolio. Table 9 analyzes activity in the allowance for 2008, 2007,
2006, 2005, and 2004.
|
|
Table
9
|
|
Summary
of Loan Loss Experience
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
$ |
5,612 |
|
|
$ |
4,977 |
|
|
$ |
4,355 |
|
|
$ |
3,851 |
|
|
$ |
2,790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial,
financial, and agricultural
|
|
|
775 |
|
|
|
150 |
|
|
|
148 |
|
|
|
108 |
|
|
|
508 |
|
Real
estate – construction
|
|
|
428 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Real
estate – mortgage
|
|
|
164 |
|
|
|
1 |
|
|
|
- |
|
|
|
22 |
|
|
|
59 |
|
Installment
loans to individuals
|
|
|
1,257 |
|
|
|
474 |
|
|
|
393 |
|
|
|
491 |
|
|
|
435 |
|
Lease
financing receivables
|
|
|
- |
|
|
|
1 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
|
|
|
- |
|
|
|
- |
|
|
|
1 |
|
|
|
81 |
|
|
|
65 |
|
Total
charge-offs
|
|
|
2,624 |
|
|
|
626 |
|
|
|
542 |
|
|
|
702 |
|
|
|
1,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial,
financial, and agricultural
|
|
|
35 |
|
|
|
18 |
|
|
|
85 |
|
|
|
102 |
|
|
|
87 |
|
Real-estate
– mortgage
|
|
|
- |
|
|
|
6 |
|
|
|
63 |
|
|
|
11 |
|
|
|
4 |
|
Installment
loans to individuals
|
|
|
157 |
|
|
|
55 |
|
|
|
162 |
|
|
|
97 |
|
|
|
87 |
|
Lease
financing receivables
|
|
|
- |
|
|
|
6 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
|
|
|
- |
|
|
|
1 |
|
|
|
4 |
|
|
|
16 |
|
|
|
4 |
|
Total
recoveries
|
|
|
192 |
|
|
|
86 |
|
|
|
314 |
|
|
|
226 |
|
|
|
182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
charge-offs
|
|
|
2,432 |
|
|
|
540 |
|
|
|
228 |
|
|
|
476 |
|
|
|
885 |
|
Additions
to allowance charged to operating expenses
|
|
|
4,555 |
|
|
|
1,175 |
|
|
|
850 |
|
|
|
980 |
|
|
|
991 |
|
Reclassification1
|
|
|
(149 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Acquisition
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at end of year
|
|
$ |
7,586 |
|
|
$ |
5,612 |
|
|
$ |
4,977 |
|
|
$ |
4,355 |
|
|
$ |
3,851 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
charge-offs to average loans
|
|
|
0.40 |
% |
|
|
0.10 |
% |
|
|
0.05 |
% |
|
|
0.12 |
% |
|
|
0.30 |
% |
Year-end
allowance to year-end loans
|
|
|
1.25 |
% |
|
|
0.99 |
% |
|
|
1.00 |
% |
|
|
0.98 |
% |
|
|
1.00 |
% |
1In the second quarter of 2008,
approximately $149,000 of the allowance for loan loss was identified as a
reserve for unfunded loan commitments. The reserve was classified as
a liability in accordance with SFAS No. 5, Accounting for
Contingencies, in the same
period.
|
|
Table
10
Allocation
of Loan Loss by Category
(dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
of loans to total loans
|
|
|
|
|
|
%
of loans to total loans
|
|
|
|
|
|
%
of loans to total loans
|
|
|
|
|
|
%
of loans to total loans
|
|
|
|
|
|
%
of loans to total loans
|
|
Commercial,
financial, and real estate
|
|
$ |
1,586 |
|
|
|
34.5 |
|
|
$ |
2,111 |
|
|
|
34.0 |
|
|
$ |
1,543 |
|
|
|
31.0 |
|
|
$ |
1,545 |
|
|
|
35.0 |
|
|
$ |
1,996 |
|
|
|
32.0 |
|
Real
estate - construction
|
|
|
2,911 |
|
|
|
10.7 |
|
|
|
659 |
|
|
|
11.0 |
|
|
|
647 |
|
|
|
13.0 |
|
|
|
367 |
|
|
|
9.0 |
|
|
|
382 |
|
|
|
11.0 |
|
Real
estate – mortgage
|
|
|
1,999 |
|
|
|
38.5 |
|
|
|
1,893 |
|
|
|
39.0 |
|
|
|
1,891 |
|
|
|
38.0 |
|
|
|
1,698 |
|
|
|
39.0 |
|
|
|
613 |
|
|
|
39.0 |
|
Installment
loans to individuals
|
|
|
1,058 |
|
|
|
14.8 |
|
|
|
805 |
|
|
|
15.0 |
|
|
|
796 |
|
|
|
16.0 |
|
|
|
645 |
|
|
|
16.0 |
|
|
|
789 |
|
|
|
17.0 |
|
Lease
financing receivables
|
|
|
32 |
|
|
|
1.3 |
|
|
|
80 |
|
|
|
1.0 |
|
|
|
50 |
|
|
|
0.2 |
|
|
|
63 |
|
|
|
1.0 |
|
|
|
31 |
|
|
|
1.0 |
|
Other
|
|
|
- |
|
|
|
- |
|
|
|
64 |
|
|
|
- |
|
|
|
50 |
|
|
|
- |
|
|
|
37 |
|
|
|
|
|
|
|
40 |
|
|
|
- |
|
|
|
$ |
7,586 |
|
|
|
100.0 |
|
|
$ |
5,612 |
|
|
|
100.0 |
|
|
$ |
4,977 |
|
|
|
100.0 |
|
|
$ |
4,355 |
|
|
|
100.0 |
|
|
$ |
3,851 |
|
|
|
100.0 |
|
Quarterly
evaluations of the allowance are performed in accordance with GAAP and
regulatory guidelines. The allowance is comprised of specific
reserves assigned to each impaired loan for which probable loss has been
identified as well as general reserves to maintain the allowance at an
acceptable level for other loans in the portfolio where historical loss
experience is available that indicates certain probable losses may
exist. Factors considered in determining provisions include estimated
losses in significant credits; known deterioration in concentrations of credit;
historical loss experience; trends in nonperforming assets; volume, maturity and
composition of the loan portfolio; off-balance sheet credit risk; lending
policies and control systems; national and local economic conditions; the
experience, ability and depth of lending management; and the results of
examinations of the loan portfolio by regulatory agencies and
others. The processes by which 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.
Funding
Sources
Deposits
As of
December 31, 2008, total deposits increased $33.2 million, up 4.5%, to $766.7
million following an increase of $17.3 million in 2007 to $733.5
million. Deposit growth in 2008 was impacted by fluctuations in large
commercial deposit balances and tough competition for deposit dollars within the
Company’s markets. Noninterest-bearing deposits increased $17.3
million to $199.9 million and represented 26.1% of total deposits at December
31, 2008, compared to 24.9% at December 31, 2007 and 25.8% at December 31,
2006. Interest-bearing deposits in money market and savings accounts
decreased $24.0 million, primarily in the Company’s commercial Platinum money
market deposits. NOW account deposits increased $20.3 million,
primarily in consumer Platinum checking accounts. Time deposits,
which are comprised mostly of certificates of deposits, increased $19.7 million
in 2008. The increase was primarily driven by a short-term
promotional offering in the fourth quarter of 2008. Core deposits,
defined as all deposits other than time deposits of $100,000 or more, remained
strong at 89.1% of total deposits in 2008 compared to 90.1% at year-end 2007,
and 92% at year-end 2006. Strategically, to manage the margin and
core deposit balances, the Company typically offers low- to mid-market rates on
CDs and has no brokered deposits. Additional information on the
Company's deposits appears in the notes to the Company's consolidated financial
statements.
|
|
Table
11
|
|
Summary
of Average Deposits
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing
demand deposits
|
|
$ |
185,113 |
|
|
|
- |
|
|
$ |
178,933 |
|
|
|
- |
|
|
$ |
176,353 |
|
|
|
- |
|
Interest-bearing
deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings,
NOW, and money market
|
|
|
453,531 |
|
|
|
1.75 |
% |
|
|
419,983 |
|
|
|
3.10 |
% |
|
|
388,880 |
|
|
|
3.11 |
% |
Time
deposits
|
|
|
146,272 |
|
|
|
4.07 |
% |
|
|
121,238 |
|
|
|
4.20 |
% |
|
|
117,149 |
|
|
|
3.46 |
% |
Total
|
|
$ |
784,916 |
|
|
|
1.77 |
% |
|
$ |
720,154 |
|
|
|
2.51 |
% |
|
$ |
682,382 |
|
|
|
2.37 |
% |
|
|
Table
12
Maturity
Schedule Time Deposits of $100,000 or More
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
3
months or less
|
|
$ |
33,941 |
|
|
$ |
25,026 |
|
|
$ |
16,836 |
|
3
months through 6 months
|
|
|
24,988 |
|
|
|
10,162 |
|
|
|
8,330 |
|
7
months through 12 months
|
|
|
15,775 |
|
|
|
19,881 |
|
|
|
18,388 |
|
Over
12 months
|
|
|
7,818 |
|
|
|
16,486 |
|
|
|
14,215 |
|
Total
|
|
$ |
82,522 |
|
|
$ |
71,555 |
|
|
$ |
57,769 |
|
Borrowed
Funds
As of
December 31, 2008, the Company had securities sold under repurchase agreements
totaling $25.0 million, $36.0 million in short-term Federal Reserve Discount
Window borrowings, and $14.9 million in federal funds purchased. At
December 31, 2007, the Company had $26.3 million in securities sold under
repurchase agreements and $4.4 million in short-term advances with the Federal
Home Loan Bank. The increase in borrowings resulted from the need to
fund loan growth, which accelerated in the fourth quarter of 2008.
On
September 20, 2004, the Company completed a second issuance of unsecured junior
subordinated debentures in the amount of $8,248,000. The $8.2 million
in debentures carry a floating rate equal to the 3-month LIBOR plus 2.50%,
adjustable and payable quarterly. The rate at December 31, 2008 was
4.03%. The debentures mature on September 20, 2034 and, under certain
circumstances, are subject to repayment on September 20, 2009 or
thereafter.
On
February 22, 2001, the Company issued $7,217,000 of unsecured junior
subordinated debentures. The $7.2 million in debentures carry a fixed
interest rate of 10.20% and mature on February 22, 2031 and, under certain
circumstances, are subject to repayment on February 22, 2011 or
thereafter. These debentures qualify as Tier 1 capital and are
presented in the Consolidated Statements of Condition as Junior subordinated
debentures. Additional information regarding long-term debt is
provided in the notes to the Company’s consolidated financial
statements.
In July
of 2007, the Company entered into a $12.5 million reverse repurchase agreement
with Citigroup Markets, Inc. (“CGMI”). The reverse repurchase
agreement provided low cost funding to meet liquidity demands. Under
the terms of the agreement, interest is payable quarterly based on a floating
rate equal to the 3-month LIBOR for the first 12 months of the agreement and a
fixed rate of 4.57% for the remainder of the term. The rate at
December 31, 2008 was 4.57%. The repurchase date is scheduled for
August 9, 2017; however, the agreement is subject to call by CGMI quarterly
effective August 9, 2008.
The ESOP
note held by the Bank totaled $18,000 at December 31, 2008. The ESOP
obligation constitutes a reduction of the Company's shareholders' equity because
the primary source of loan repayment is contributions by the Bank to the ESOP;
however, the loan is not guaranteed by the Company. ESOP borrowings
are eliminated from total loans and long-term debt as an intercompany balance in
the Company's December 31, 2008 and 2007 consolidated financial
statements.
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 December 31, 2008, the Company and the Bank were in
compliance with statutory minimum capital requirements. Minimum
capital requirements include a total risk-based capital ratio of 8.0%, with Tier
1 capital not less than 4.0%, and a leverage ratio (Tier 1 to total average
adjusted assets) of 4.0% based upon the regulators latest composite rating of
the institution. As of December 31, 2008, the Company’s Tier 1
capital to average adjusted assets (the “leverage ratio”) was 8.38% as compared
to 8.67% at December 31, 2007. Tier 1 capital to risk weighted assets
was 11.04% and 11.21% for 2008 and 2007, respectively. Total capital
to risk weighted assets was 12.16% and 12.08%, respectively, for the same
periods. For regulatory purposes, Tier 1 Capital includes $15,500,000
of junior subordinated debentures issued by the Company. For
financial reporting purposes, these funds are included as a liability under
GAAP. The Bank’s leverage ratio was 8.27% at December 31,
2008. At December 31, 2007, leverage ratios for MidSouth Bank, N.A.
and MidSouth Bank Texas, N.A. were 8.59% and 8.65%, respectively. The
two banks were merged under MidSouth Bank, N.A. in the first quarter of
2008.
On
January 9, 2009, the Company’s participation in the CPP of the Treasury offered
under the EESA added $20.0 million in liquidity and capital for the purpose of
funding loans. Projected leverage capital ratios reflecting the
impact of the additional capital were 10.34% and 9.86% for the Company and the
Bank, respectively, at December 31, 2008.
The FDIC
Improvement Act of 1991 established a capital-based supervisory system for all
insured depository institutions that imposes increasing restrictions on the
institution as its capital deteriorates. The Bank was classified as
“well capitalized” as of December 31, 2008. No significant
restrictions are placed on the Bank as a result of this
classification.
As
discussed under the heading Balance Sheet Analysis -
Securities, $2,571,000 in unrealized gains on securities
available-for-sale, less a deferred tax liability of $874,000, was recorded as
an addition to shareholders’ equity as of December 31, 2008. As of
December 31, 2007, $1,232,000 in unrealized gains on securities
available-for-sale, less a deferred tax liability of $419,000, was recorded as
an addition to shareholders' equity. While the net unrealized loss or
gain on securities available-for-sale is required to be reported as a separate
component of shareholders' equity, it does not affect operating results or
regulatory capital ratios. The net unrealized gains and losses
reported for December 31, 2008 and 2007, however, did affect the Company's
equity-to-assets ratio for financial reporting purposes. The ratio of
equity-to-assets was 7.80% at December 31, 2008 and 8.02% at December 31,
2007.
Interest Rate
Sensitivity
Interest
rate sensitivity is the sensitivity of net interest income and economic value of
equity to changes in market rates of interest. During 2008, the
Company utilized a qualified third party’s model of asset and liability
management. The third party utilizes its own proprietary software to
model the Company’s assets and liabilities, combined with another qualified
third party’s system to analyze the investment portfolio. The model captures
data from the Company’s internal operating systems and additional information
regarding rates and prepayment characteristics to construct an analysis that
presents differences in the repricing and maturity characteristics of earning
assets and interest-bearing liabilities for selected time periods. The analysis
also factors in repricing characteristics and cash flows from payments received
on loans and investments. A consolidated gap analysis is presented in
Table 13. The cumulative one year gap position was approximately,
$35.2 million or 3.76% of total assets, at December 31, 2008.
|
|
Table
13
|
|
Interest
Rate Sensitivity and Gap Analysis Table
December
31, 2008
(in
thousands at book value)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest -bearing
deposits |
|
$ |
33 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
33 |
|
Federal funds
sold |
|
|
- |
|
|
|
8,000 |
|
|
|
1,023 |
|
|
|
- |
|
|
|
- |
|
|
|
9,023 |
|
Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities
|
|
|
31,109 |
|
|
|
28,417 |
|
|
|
51,886 |
|
|
|
58,187 |
|
|
|
- |
|
|
|
169,599 |
|
Mortgage-backed
securities
|
|
|
17,944 |
|
|
|
27,282 |
|
|
|
18,844 |
|
|
|
3,074 |
|
|
|
- |
|
|
|
67,144 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
rate
|
|
|
45,043 |
|
|
|
99,002 |
|
|
|
156,856 |
|
|
|
6,239 |
|
|
|
- |
|
|
|
307,140 |
|
Variable/adjustable
rate
|
|
|
180,770 |
|
|
|
19,910 |
|
|
|
89,101 |
|
|
|
12,034 |
|
|
|
- |
|
|
|
301,815 |
|
Other
Assets |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
89,647 |
|
|
|
89,647 |
|
Allowance
for loan losses
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(7,586 |
) |
|
|
(7,586 |
) |
Total
assets
|
|
$ |
274,899 |
|
|
$ |
182,611 |
|
|
$ |
317,710 |
|
|
$ |
79,534 |
|
|
$ |
82,061 |
|
|
$ |
936,815 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
164,589 |
|
|
$ |
- |
|
|
$ |
164,589 |
|
Savings
and money market
|
|
|
219,772 |
|
|
|
- |
|
|
|
- |
|
|
|
30,025 |
|
|
|
- |
|
|
|
249,797 |
|
Time
deposits
|
|
|
52,572 |
|
|
|
78,326 |
|
|
|
21,361 |
|
|
|
160 |
|
|
|
- |
|
|
|
152,419 |
|
Demand
deposits
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
199,899 |
|
|
|
199,899 |
|
Other
liabilities
|
|
|
71,624 |
|
|
|
- |
|
|
|
- |
|
|
|
19,717 |
|
|
|
5,726 |
|
|
|
97,067 |
|
Shareholders’
equity
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
73,044 |
|
|
|
73,044 |
|
Total
liabilities and shareholders equity
|
|
$ |
343,968 |
|
|
$ |
78,326 |
|
|
$ |
21,361 |
|
|
$ |
214,491 |
|
|
$ |
278,669 |
|
|
$ |
936,815 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repricing/maturity
gap
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
$ |
(69,069 |
) |
|
$ |
104,285 |
|
|
$ |
296,349 |
|
|
$ |
(134,957 |
) |
|
$ |
(196,608 |
) |
|
|
|
|
Cumulative
|
|
$ |
(69,069 |
) |
|
$ |
35,216 |
|
|
$ |
331,565 |
|
|
$ |
196,608 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
Gap/Total Assets
|
|
|
(7.37 |
)% |
|
|
3.76 |
% |
|
|
35.39 |
% |
|
|
20.99 |
% |
|
|
|
|
|
|
|
|
|
Net
Interest Income at Risk
|
|
|
Changes
in Interest Rates
|
|
Estimated
Increase /Decrease
in
NII at December 31, 2008
|
|
|
Up 200 basis
points
|
|
(.75)%
|
|
|
Down 100 basis
points
|
|
1.56%
|
|
The model
also uses the gap analysis data in Table 5 and additional information regarding
rates and payment characteristics to perform simulation tests. The
tests use market data to perform simulations that measure the impact of changes
in interest rates, the yield curve, and interest rate forecasts on net interest
income and economic value of equity. Results of the simulations at
December 31, 2008 were within policy guidelines. Table 13 includes a
schedule of the estimated percentage changes in net interest income due to
changes in interest rates of –100 and +200 basis points as determined through
the rate shock analysis. The results of the simulations are reviewed
quarterly and discussed at Funds Management committee meetings of the Company’s
Board of Directors.
The
Company does not invest in derivatives and has none in its securities
portfolio.
Liquidity
Bank
Liquidity
Liquidity
is the availability of funds to meet maturing contractual obligations and to
fund operations. The Bank’s primary liquidity needs involve its
ability to accommodate customers’ demands for deposit withdrawals as well as
customers’ requests for credit. Liquidity is deemed adequate when
sufficient cash to meet these needs can be promptly raised at a reasonable cost
to the Bank.
Liquidity
is provided primarily by three sources: a stable base of funding sources, an
adequate level of assets that can be readily converted into cash, and borrowing
lines with correspondent banks. The Company's core deposits are its
most stable and important source of funding. Cash deposits at other
banks, federal funds sold, and principal payments received on loans and
mortgage-backed securities provide additional primary sources of liquidity for
the Bank. A minimum of $48.3 million in projected cash flows from
securities repayments during 2009 provides an additional source of
liquidity.
The Bank
also has significant borrowing capacity through secured borrowing lines with the
Federal Reserve Bank of Atlanta (“FRB”) and with the FHLB of Dallas, Texas
(“FHLB–Dallas”). As of December 31, 2008, the Company had
approximately $36.0 million borrowed against securities pledged to the Discount
Window at the FRB. The Company has the ability to post additional
collateral for the Discount Window of approximately $87.0 million if necessary
to meet liquidity needs. Under existing agreements with the
FHLB-Dallas, the Company’s borrowing capacity totaled $130.9 million at December
31, 2008. With concerns about the stability of the FHLB system in the
current economic environment, the Company has begun the process of transferring
loan collateral from the FHLB-Dallas for pledging under a Borrower-in-Custody
(“BIC”) line with the FRB. Additional unsecured borrowing lines
totaling $31.0 million are available to the Company through other correspondent
banks. These unsecured lines have been tested recently to ensure
availability and the Company monitors the stability of its correspondent
banks. The Company utilizes these contingency funding alternatives to
meet deposit volatility, which is more likely in the current environment, given
unusual competitive offerings within the Company’s markets.
Company
Liquidity
On
January 9, 2009, the Company’s participation in the CPP of the Treasury offered
under the EESA of 2008 added $20.0 million in liquidity and capital. The Company
distributed the majority of the proceeds to the Bank for the purpose of funding
loans. Some of the proceeds were retained at the Company to meet the
5% dividend requirement on the Series A Preferred Stock issued to the Treasury
under the CPP.
At the
company level, cash is needed primarily to meet interest payments on the junior
subordinated debentures, dividend payments on the Series A Preferred Stock, and
dividends on the common stock. The Company issued $8,248,000 in
unsecured junior subordinated debentures in September 2004 and $7,217,000 in
February 2001, the terms of which are described in the notes to the Company’s
consolidated financial statements. Dividends from the Bank totaling
$4,000,000 and $3,500,000 provided additional liquidity for the Company in 2008
and 2007, respectively. As of January 1, 2009, the Bank had the ability to pay
dividends to the Company of approximately $16.1 million without prior approval
from its primary regulator. As a publicly traded company, the Company
also has the ability to issue additional trust preferred and other securities
instruments to provide funds as needed for operations and future growth of the
Company.
Dividends
The
primary source of cash dividends on the Company's common stock is dividends from
the Bank. The Bank has the ability to declare dividends to the Company without
prior approval of primary regulators. However, the Bank’s ability to
pay dividends would be prohibited if the result would cause the Bank’s
regulatory capital to fall below minimum requirements. The CPP
contains limitations on the payment of dividends on the common stock, including
cash dividends in excess of $0.32 per share and on the Company’s ability to
repurchase its common stock.
Cash
dividends totaling $2,120,000 and $1,920,000 were declared to common
shareholders during 2008 and 2007, respectively. It is the intention
of the Board of Directors of the Company to continue to pay quarterly dividends
on the common stock at the rate of $0.07 per share. A special
dividend of $0.04 per share was paid in addition to the regular $0.07 per share
dividend for the fourth quarter of 2008 to shareholders of record on December
14, 2008.
Contractual
Obligations
In the
normal course of business the Company uses various financial instruments with
off-balance sheet risk to meet the financing needs of its customers and to
reduce its own exposure to fluctuations in interest rates. These
financial instruments include commitments to extend credit and standby letters
of credit. Those instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amounts recognized in the
financial statements. Additional information regarding contractual
obligations appears in the notes to the Company’s consolidated financial
statements. The following table presents the Company’s significant
contractual obligations as of December 31, 2008.
|
|
Table
14
|
|
Contractual
Obligations
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
Less
than
|
|
|
|
1-3 |
|
|
|
3-5 |
|
|
More
than
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time
deposits
|
|
$ |
152,419 |
|
|
$ |
130,842 |
|
|
$ |
19,390 |
|
|
$ |
2,124 |
|
|
$ |
63 |
|
Federal
funds purchased
|
|
|
14,900 |
|
|
|
14,900 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
FRB
Discount Window
|
|
|
36,000 |
|
|
|
36,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Long-term
debt obligations
|
|
|
15,465 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
15,465 |
|
Repurchase
investment
|
|
|
24,976 |
|
|
|
12,476 |
|
|
|
- |
|
|
|
- |
|
|
|
12,500 |
|
Operating
lease obligations
|
|
|
19,453 |
|
|
|
1,637 |
|
|
|
2,915 |
|
|
|
2,526 |
|
|
|
12,375 |
|
Total
|
|
$ |
263,213 |
|
|
$ |
195,855 |
|
|
$ |
22,305 |
|
|
$ |
4,650 |
|
|
$ |
40,403 |
|
Impact
of Inflation and Changing
Prices
|
The
consolidated financial statements of the Company and notes thereto, presented
herein, have been prepared in accordance with GAAP, 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.
Item
7A – Quantitative and Qualitative Disclosures about Market Risk
Information
regarding market risk appears under the heading Interest Rate Sensitivity under
Item 7 – Management’s Discussion and Analysis of Financial Position and Results
of Operations included in this filing.
Item 8 – Financial Statements and Supplementary Data
|
|
Consolidated
Balance Sheets
|
|
December
31, 2008 and 2007
|
|
(dollars
in thousands)
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Cash
and due from banks, including required reserves of $2,749 and $4,186,
respectively
|
|
$ |
24,753 |
|
|
$ |
25,419 |
|
Interest-bearing
deposits in banks
|
|
|
33 |
|
|
|
54 |
|
Federal
funds sold
|
|
|
- |
|
|
|
5,400 |
|
Time
deposits held in banks
|
|
|
9,023 |
|
|
|
- |
|
Securities
available-for-sale, at fair value (cost of $223,372 at December 31, 2008
and $180,220 at December 31, 2007)
|
|
|
225,944 |
|
|
|
181,452 |
|
Securities
held-to-maturity (estimated fair value of $6,648 at December 31, 2008 and
$10,974 at December 31, 2007)
|
|
|
6,490 |
|
|
|
10,746 |
|
Other
investments
|
|
|
4,309 |
|
|
|
4,021 |
|
Loans
|
|
|
608,955 |
|
|
|
569,505 |
|
Allowance
for loan losses
|
|
|
(7,586 |
) |
|
|
(5,612 |
) |
Loans,
net
|
|
|
601,369 |
|
|
|
563,893 |
|
Bank
premises and equipment, net
|
|
|
40,580 |
|
|
|
39,229 |
|
Accrued
interest receivable
|
|
|
5,356 |
|
|
|
5,749 |
|
Goodwill
and intangibles
|
|
|
9,605 |
|
|
|
9,759 |
|
Cash
surrender value of life insurance
|
|
|
4,378 |
|
|
|
4,219 |
|
Other
assets
|
|
|
4,975 |
|
|
|
4,115 |
|
Total
assets
|
|
$ |
936,815 |
|
|
$ |
854,056 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Noninterest-bearing
|
|
$ |
199,899 |
|
|
$ |
182,588 |
|
Interest-bearing
|
|
|
566,805 |
|
|
|
550,929 |
|
Total
deposits
|
|
|
766,704 |
|
|
|
733,517 |
|
Borrowings
|
|
|
75,876 |
|
|
|
30,717 |
|
Accrued
interest payable
|
|
|
1,227 |
|
|
|
1,314 |
|
Junior
subordinated debentures
|
|
|
15,465 |
|
|
|
15,465 |
|
Other
liabilities
|
|
|
4,499 |
|
|
|
4,574 |
|
Total
liabilities
|
|
|
863,771 |
|
|
|
785,587 |
|
|
|
|
|
|
|
|
|
|
Shareholders’
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, 6,788,885 and
6,722,993 issued and 6,618,220 and 6,576,165 outstanding at December 31,
2008 and December 31, 2007, respectively
|
|
|
679 |
|
|
|
672 |
|
Additional
paid-in capital
|
|
|
52,097 |
|
|
|
51,327 |
|
Unearned
ESOP shares
|
|
|
(18 |
) |
|
|
(133 |
) |
Accumulated
other comprehensive income
|
|
|
1,697 |
|
|
|
813 |
|
Treasury
stock- 170,665 shares at December 31, 2008 and 146,828 shares at December
31, 2007, at cost
|
|
|
(3,544 |
) |
|
|
(3,040 |
) |
Retained
earnings
|
|
|
22,133 |
|
|
|
18,830 |
|
Total
shareholders’ equity
|
|
|
73,044 |
|
|
|
68,469 |
|
Total liabilities and shareholders’ equity
|
|
$ |
936,815 |
|
|
$ |
854,056 |
|
|
|
|
|
|
|
|
|
|
See
notes to consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Earnings
|
December
31, 2008, 2007 and 2006
|
(in
thousands, except per share data)
|
|
|
Twelve
Months Ended December 31,
|
|
|
|
2008
|
|
|
|
|
|
|
|
Interest
income:
|
|
|
|
|
|
|
|
Loans,
including fees
|
|
$ |
45,532 |
|
|
|
$ |
47,966 |
|
|
$ |
41,144 |
|
Investment
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
4,827 |
|
|
|
|
4,251 |
|
|
|
4,552 |
|
Nontaxable
|
|
|
4,308 |
|
|
|
|
4,134 |
|
|
|
3,405 |
|
Other
interest income
|
|
|
805 |
|
|
|
|
788 |
|
|
|
1,134 |
|
Total
interest income
|
|
|
55,472 |
|
|
|
|
57,139 |
|
|
|
50,235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
13,910 |
|
|
|
|
18,106 |
|
|
|
16,137 |
|
Borrowings
|
|
|
956 |
|
|
|
|
1,031 |
|
|
|
184 |
|
Junior subordinated debentures
|
|
|
1,219 |
|
|
|
|
1,397 |
|
|
|
1,371 |
|
Total
interest expense
|
|
|
16,085 |
|
|
|
|
20,534 |
|
|
|
17,692 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
39,387 |
|
|
|
|
36,605 |
|
|
|
32,543 |
|
Provision
for loan losses
|
|
|
4,555 |
|
|
|
|
1,175 |
|
|
|
850 |
|
Net
interest income after provision for loan losses
|
|
|
34,832 |
|
|
|
|
35,430 |
|
|
|
31,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
charges on deposit accounts
|
|
|
10,265 |
|
|
|
|
9,881 |
|
|
|
8,758 |
|
Losses
on sale of investment securities, net
|
|
|
- |
|
|
|
|
- |
|
|
|
(8 |
) |
ATM
and debit card income
|
|
|
2,739 |
|
|
|
|
2,104 |
|
|
|
1,690 |
|
Other charges and fees
|
|
|
2,124 |
|
|
|
|
2,274 |
|
|
|
1,939 |
|
Total
noninterest income
|
|
|
15,128 |
|
|
|
|
14,259 |
|
|
|
12,379 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
20,951 |
|
|
|
|
19,946 |
|
|
|
16,329 |
|
Occupancy expense
|
|
|
8,687 |
|
|
|
|
6,877 |
|
|
|
5,988 |
|
ATM and debit card expense
|
|
|
1,351 |
|
|
|
|
1,083 |
|
|
|
897 |
|
Other
|
|
|
12,985 |
|
|
|
|
10,728 |
|
|
|
9,910 |
|
Total
noninterest expense
|
|
|
43,974 |
|
|
|
|
38,634 |
|
|
|
33,124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
before income taxes
|
|
|
5,986 |
|
|
|
|
11,055 |
|
|
|
10,948 |
|
Income
tax expense
|
|
|
449 |
|
|
|
|
2,279 |
|
|
|
2,728 |
|
Net earnings
|
|
$ |
5,537 |
|
|
|
$ |
8,776 |
|
|
$ |
8,220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.84 |
|
|
|
$ |
1.34 |
|
|
$ |
1.26 |
|
Diluted
|
|
$ |
0.83 |
|
|
|
$ |
1.32 |
|
|
$ |
1.24 |
|
|
|
|
|
|
|
|
|
|
See
notes to consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Comprehensive Income
|
|
December
31, 2008, 2007 and 2006
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$ |
5,537 |
|
|
$ |
8,776 |
|
|
$ |
8,220 |
|
Other
comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains on securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains arising during the year net of income tax expense
of $456, $861 and $87, respectively
|
|
|
884 |
|
|
|
1,671 |
|
|
|
170 |
|
Reclassification
adjustment for losses included in net earnings, net of income tax benefit
of $3 for the year ended December 31, 2006
|
|
|
- |
|
|
|
- |
|
|
|
5 |
|
Total other comprehensive income
|
|
|
884 |
|
|
|
1,671 |
|
|
|
175 |
|
Total comprehensive income
|
|
$ |
6,421 |
|
|
$ |
10,447 |
|
|
$ |
8,395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes to consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Stockholders’ Equity
|
|
December
31, 2008, 2007 and 2006
|
|
(in
thousands, except share and per share data)
|
|
|
|
|
|
|
Additional
Paid-in
Capital
|
|
|
|
|
|
Accumulated
Other Comprehensive
(Loss) Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
December 31, 2005
|
|
|
6,257,621 |
|
|
$ |
626 |
|
|
$ |
41,785 |
|
|
$ |
(47 |
) |
|
$ |
(1,033 |
) |
|
$ |
(1,229 |
) |
|
$ |
13,084 |
|
|
$ |
53,186 |
|
Dividends
on common stock - $0.22 per share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,463 |
) |
|
|
(1,463 |
) |
Stock
dividend of 25% per common share,
including cash paid for fractional shares
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(13 |
) |
|
|
(13 |
) |
Exercise
of stock options
|
|
|
98,325 |
|
|
|
10 |
|
|
|
341 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
351 |
|
Tax
benefit resulting from exercise of
stock options
|
|
|
- |
|
|
|
- |
|
|
|
615 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
615 |
|
Purchase
of treasury stock, 50,517 shares
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,289 |
) |
|
|
- |
|
|
|
(1,289 |
) |
Net
earnings
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
8,220 |
|
|
|
8,220 |
|
ESOP
compensation expense
|
|
|
- |
|
|
|
- |
|
|
|
89 |
|
|
|
(205 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(116 |
) |
Stock
option expense
|
|
|
- |
|
|
|
- |
|
|
|
77 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
77 |
|
Change
in accumulated other comprehensive income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
175 |
|
|
|
- |
|
|
|
- |
|
|
|
175 |
|
Balance
December 31, 2006
|
|
|
6,355,946 |
|
|
|
636 |
|
|
|
42,907 |
|
|
|
(252 |
) |
|
|
(858 |
) |
|
|
(2,518 |
) |
|
|
19,828 |
|
|
|
59,743 |
|
Dividends
on common stock - $0.29 per share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,920 |
) |
|
|
(1,920 |
) |
Stock
dividend of 5% per common share,
including, cash paid for fractional shares
|
|
|
317,266 |
|
|
|
32 |
|
|
|
7,810 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(7,854 |
) |
|
|
(12 |
) |
Exercise
of stock options
|
|
|
49,781 |
|
|
|
4 |
|
|
|
266 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
270 |
|
Tax
benefit resulting from exercise of
stock options
|
|
|
- |
|
|
|
- |
|
|
|
138 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
138 |
|
Purchase
of treasury stock, 27,871 shares
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(522 |
) |
|
|
- |
|
|
|
(522 |
) |
Net
earnings
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
8,776 |
|
|
|
8,776 |
|
ESOP
compensation expense
|
|
|
- |
|
|
|
- |
|
|
|
110 |
|
|
|
119 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
229 |
|
Stock
option expense
|
|
|
- |
|
|
|
- |
|
|
|
96 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
96 |
|
Change
in accumulated other comprehensive income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,671 |
|
|
|
- |
|
|
|
- |
|
|
|
1,671 |
|
Balance
December 31, 2007
|
|
|
6,722,993 |
|
|
|
672 |
|
|
|
51,327 |
|
|
|
(133 |
) |
|
|
813 |
|
|
|
(3,040 |
) |
|
|
18,830 |
|
|
|
68,469 |
|
Cumulative
effect adjustment for the adoption of EITF 06-4
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(115 |
) |
|
|
(115 |
) |
Dividends
on common stock - $0.32 per share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,120 |
) |
|
|
(2,120 |
) |
Exercise
of stock options
|
|
|
65,892 |
|
|
|
7 |
|
|
|
469 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
476 |
|
Tax
benefit resulting from exercise of
stock options
|
|
|
- |
|
|
|
- |
|
|
|
205 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
205 |
|
Purchase
of treasury stock, 23,837 shares
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(504 |
) |
|
|
- |
|
|
|
(504 |
) |
Net
earnings
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,537 |
|
|
|
5,537 |
|
ESOP
compensation expense
|
|
|
- |
|
|
|
- |
|
|
|
28 |
|
|
|
115 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
143 |
|
Stock
option expense
|
|
|
- |
|
|
|
- |
|
|
|
69 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
69 |
|
Change
in accumulated other comprehensive income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
884 |
|
|
|
- |
|
|
|
- |
|
|
|
884 |
|
Balance
December 31, 2008
|
|
|
6,788,885 |
|
|
$ |
679 |
|
|
$ |
52,097 |
|
|
$ |
(18 |
) |
|
$ |
1,697 |
|
|
$ |
(3,544 |
) |
|
$ |
22,133 |
|
|
$ |
73,044 |
|
|
|
See
notes to consolidated financial statements.
|
|
|
|
Consolidated
Statements of Cash Flows
|
|
December
31, 2008, 2007, and 2006
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$ |
5,537 |
|
|
$ |
8,776 |
|
|
$ |
8,220 |
|
Adjustments
to reconcile net earnings to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
3,381 |
|
|
|
2,808 |
|
|
|
2,713 |
|
Provision
for loan losses
|
|
|
4,555 |
|
|
|
1,175 |
|
|
|
850 |
|
Deferred
income taxes
|
|
|
30 |
|
|
|
1,232 |
|
|
|
(152 |
) |
Amortization
of premiums on securities, net
|
|
|
380 |
|
|
|
555 |
|
|
|
711 |
|
Loss
on sales of investment securities
|
|
|
- |
|
|
|
- |
|
|
|
8 |
|
Net
loss on sale of other real estate owned
|
|
|
- |
|
|
|
28 |
|
|
|
14 |
|
Impairment
on premises and equipment
|
|
|
- |
|
|
|
- |
|
|
|
248 |
|
Loss
on sale of equipment
|
|
|
188 |
|
|
|
26 |
|
|
|
- |
|
Stock
option compensation expense
|
|
|
69 |
|
|
|
96 |
|
|
|
77 |
|
Change
in accrued interest receivable
|
|
|
393 |
|
|
|
(257 |
) |
|
|
(572 |
) |
Change
in accrued interest payable
|
|
|
(87 |
) |
|
|
117 |
|
|
|
260 |
|
Change
in other assets and liabilities, net
|
|
|
(1,442 |
) |
|
|
(32 |
) |
|
|
(105 |
) |
Net
cash provided by operating activities
|
|
|
13,004 |
|
|
|
14,524 |
|
|
|
12,272 |
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in interest earning time deposits
|
|
|
(9,023 |
) |
|
|
- |
|
|
|
- |
|
Proceeds
from sales of investment securities available-for-sale
|
|
|
- |
|
|
|
- |
|
|
|
2,989 |
|
Proceeds
from maturities and calls of investment securities
available-for-sale
|
|
|
52,593 |
|
|
|
28,978 |
|
|
|
46,082 |
|
Proceeds
from maturities of investment securities held-to-maturity
|
|
|
4,269 |
|
|
|
5,166 |
|
|
|
3,720 |
|
Purchases
of investment securities available-for-sale
|
|
|
(96,134 |
) |
|
|
(27,793 |
) |
|
|
(90,779 |
) |
Proceeds
from redemption of other investments
|
|
|
1,468 |
|
|
|
1,169 |
|
|
|
598 |
|
Purchases
of other investments
|
|
|
(1,762 |
) |
|
|
(2,685 |
) |
|
|
(1,088 |
) |
Net
change in loans
|
|
|
(42,430 |
) |
|
|
(71,134 |
) |
|
|
(57,128 |
) |
Purchases
of premises and equipment
|
|
|
(4,777 |
) |
|
|
(11,325 |
) |
|
|
(9,665 |
) |
Proceeds
from sale of premises and equipment
|
|
|
12 |
|
|
|
69 |
|
|
|
- |
|
Proceeds
from sales of other real estate owned
|
|
|
282 |
|
|
|
449 |
|
|
|
159 |
|
Net
cash used in investing activities
|
|
|
(95,502 |
) |
|
|
(77,106 |
) |
|
|
(105,112 |
) |
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in deposits
|
|
|
33,187 |
|
|
|
17,337 |
|
|
|
91,241 |
|
Change
in repurchase agreements
|
|
|
(1,341 |
) |
|
|
21,842 |
|
|
|
2,743 |
|
Change
in federal funds purchased
|
|
|
14,900 |
|
|
|
- |
|
|
|
- |
|
Proceeds
from FHLB advances
|
|
|
19,100 |
|
|
|
412,869 |
|
|
|
31,450 |
|
Repayments
of FHLB advances
|
|
|
(23,500 |
) |
|
|
(414,119 |
) |
|
|
(25,800 |
) |
Federal
Reserve Discount Window borrowing
|
|
|
36,000 |
|
|
|
- |
|
|
|
- |
|
Purchase
of treasury stock
|
|
|
(504 |
) |
|
|
(522 |
) |
|
|
(1,289 |
) |
Proceeds
from exercise of stock options
|
|
|
476 |
|
|
|
271 |
|
|
|
615 |
|
Tax
benefit due to exercise of stock options
|
|
|
205 |
|
|
|
138 |
|
|
|
351 |
|
Payment
of dividends on common stock
|
|
|
(2,112 |
) |
|
|
(1,753 |
) |
|
|
(1,491 |
) |
Cash
paid for fractional shares
|
|
|
- |
|
|
|
(12 |
) |
|
|
(13 |
) |
Net
cash provided by financing activities
|
|
|
76,411 |
|
|
|
36,051 |
|
|
|
97,807 |
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(6,087 |
) |
|
|
(26,531 |
) |
|
|
4,967 |
|
Cash
and cash equivalents, beginning of year
|
|
|
30,873 |
|
|
|
57,404 |
|
|
|
52,437 |
|
Cash
and cash equivalents, end of year
|
|
$ |
24,786 |
|
|
$ |
30,873 |
|
|
$ |
57,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$ |
16,172 |
|
|
$ |
20,417 |
|
|
$ |
17,432 |
|
Income
taxes paid
|
|
$ |
552 |
|
|
$ |
850 |
|
|
$ |
2,463 |
|
Noncash
investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in unrealized gains/losses on securities available-for-sale, net of
tax
|
|
$ |
884 |
|
|
$ |
1,671 |
|
|
$ |
170 |
|
Transfer
of loans to other real estate
|
|
$ |
514 |
|
|
$ |
251 |
|
|
$ |
444 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes to consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes to Consolidated Financial Statements
December
31, 2008, 2007 and 2006
|
1. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Basis of Presentation—The consolidated
financial statements include the accounts of MidSouth Bancorp, Inc. (the
“Company”) and its wholly-owned subsidiaries MidSouth Bank, N.A. (the “Bank”)
and Financial Services of the South, Inc. (the “Finance Company”), which has
liquidated its loan portfolio. The Company merged its two wholly-owned banking
subsidiaries, MidSouth Bank, N.A. (Louisiana) and MidSouth Bank Texas, N.A. into
MidSouth Bank, N.A., at the end of the first quarter of 2008. All
significant intercompany accounts and transactions have been eliminated in
consolidation. The Company is subject to regulation under the Bank
Holding Company Act of 1956. The Bank is primarily regulated by the
Office of the Comptroller of the Currency (“OCC”) and the Federal Deposit
Insurance Corporation (“FDIC”).
The
Company is a bank holding company headquartered in Lafayette, Louisiana
operating principally in the community banking business by providing banking
services to commercial and retail customers through the Bank. The Bank is
community oriented and focuses primarily on offering competitive commercial and
consumer loan and deposit services to individuals and small to middle market
businesses in south Louisiana and southeast Texas.
The
accounting principles followed by the Company and its subsidiaries, and the
methods of applying these principles, conform with accounting principles
generally accepted in the United States of America (“GAAP”) and with general
practices within the banking industry. In preparing the financial
statements in conformity with GAAP, management is required to make estimates and
assumptions that affect the reported amounts in the financial
statements. Actual results could differ significantly from those
estimates. Material estimates common to the banking industry that are
particularly susceptible to significant change in the near term include, but are
not limited to, the determination of the allowance for loan losses, the
valuation of real estate acquired in connection with or in lieu of foreclosure
on loans, the assessment of goodwill for impairment, and valuation allowances
associated with the realization of deferred tax assets related to goodwill and
other intangibles which are based on future and taxable income. Given
the current instability of the economic environment, it is reasonably possible
that the methodology of the assessment of potential loan losses, losses on other
real estate owned, goodwill impairment, and other fair value measurements could
change in the near term or could result in impairment going
forward.
A
summary of significant accounting policies follows:
Cash and cash
equivalents-- Cash
and cash equivalents include cash on hand, amounts due from banks, federal funds
sold, and interest bearing deposits in other banks with original maturities of
less than 90 days.
Investment Securities--Management determines
the appropriate classification of debt securities at the time of purchase and
reassesses this classification periodically. Trading account securities are held
for resale in anticipation of short-term market movements. Debt securities are
classified as held-to-maturity when the Company has the positive intent and
ability to hold the securities to maturity. Securities not classified as
held-to-maturity or trading are classified as available-for-sale. The Company
had no trading account securities during the three years ended December 31,
2008. Held-to-maturity securities are stated at amortized cost.
Available-for-sale securities are stated at fair value, with unrealized gains
and losses, net of deferred taxes, reported as a separate component of
shareholders’ equity.
The
amortized cost of debt securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and accretion of
discounts to maturity or, in the case of mortgage-backed securities, over the
estimated life of the security. Amortization, accretion, and accrued interest
are included in interest income on
securities. Realized gains and losses, and declines in value judged to be other
than temporary, are included in earnings. Gains and losses on the sale of
securities available-for-sale are determined using the specific-identification
method.
Other Investments—Other
investments include Federal Reserve Bank and Federal Home Loan Bank stock, as
well as other correspondent bank stocks which have no readily determined market
value and are carried at cost. Due to the redemption provisions of
the investments, the fair value equals cost and no impairment
exists.
Loans—Loans that management
has the intent and ability to hold for the foreseeable future or until maturity
are reported at the principal amount outstanding, net of the allowance for loan
losses and any deferred fees or costs on originated loans. Interest income on
commercial and real estate mortgage loans is calculated by using the simple
interest method on the daily balance of the principal amount outstanding.
Unearned income on installment loans is credited to operations based on a method
which approximates the interest method. Where doubt exists as to the
collectibility of a loan, the accrual of interest is discontinued and subsequent
payments received are applied first to principal. Upon such discontinuances, all
unpaid accrued interest is reversed. Interest income is recorded after principal
has been satisfied and as payments are received.
The
Company considers a loan to be impaired when, based upon current information and
events, it believes it is probable that the Company will be unable to collect
all amounts due according to the contractual terms of the loan agreement. The
Company’s impaired loans include troubled debt restructurings and performing and
nonperforming major loans in which full payment of principal or interest is not
expected. Non-major homogenous loans, which are evaluated on an overall basis,
generally include all loans under $250,000. The Company calculates the allowance
required for impaired loans based on the present value of expected future cash
flows discounted at the loan’s effective interest rate, or at the loan’s
observable market price or the fair value of the collateral if the loan is
collateral dependent.
Generally,
loans of all types which become 90 days delinquent are either in the process of
collection through repossession or foreclosure or, alternatively, are deemed
currently uncollectible. Loans deemed currently uncollectible are charged-off
against the allowance account. As a matter of policy, loans are placed on
non-accrual status where doubt exists as to collectibility. Some
loans may continue accruing after 90 days if the loan is in the process of
renewing or being paid off.
Allowance for Loan Losses—The
allowance for loan losses is a valuation account available to absorb probable
losses on loans. All losses are charged to the allowance for loan losses when
the loss actually occurs or when a determination is made that a loss is likely
to occur. Recoveries are credited to the allowance for loan losses at the time
of recovery. Periodically during the year, management estimates the probable
level of losses in the existing portfolio through consideration of such factors
including, but not limited to, past loan loss experience, known inherent risks
in the portfolio, adverse situations that may affect the borrower’s ability to
repay, the estimated value of any underlying collateral and current economic
conditions. Based on these estimates, the allowance for loan losses is increased
by charges to earnings and decreased by charge-offs (net of
recoveries).
The
allowance is composed of general reserves and specific
reserves. General reserves, established under the provisions of SFAS
No. 5, Accounting for Contingencies
("SFAS No. 5") are determined by applying loss percentages to segments of the
portfolio. The loss percentages are based on each segment’s
historical loss experience and adjustment factors derived from conditions in the
Bank’s internal and external environment. All loans considered to be
impaired are evaluated on an individual basis to determine specific reserve
allocations in accordance with SFAS No. 114, Accounting by Creditors for Impairment of a
Loan. Loans for which specific reserves are provided
are excluded from the calculation of general reserves.
Premises and
Equipment—Premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are computed using
the straight-line method over the estimated useful lives of the
assets. The estimated useful lives used to compute depreciation
are:
|
Buildings
and improvements
|
10
- 40 years
|
|
|
Furniture,
fixtures, and equipment
|
3 -
10 years
|
|
|
Automobiles
|
5
years
|
|
Leasehold
improvements are amortized over the estimated useful lives of the improvements
or the term of the lease, whichever is shorter.
Other Real Estate Owned—Real
estate properties acquired through, or in lieu of, loan foreclosures are
initially recorded at the lower of carrying value or fair value less estimated
costs to sell. After foreclosure, valuations are periodically performed by
management and the real estate is carried at the lower of carrying amount or
fair value less cost to sell. Revenues and expenses from operations and changes
in the valuation allowance are charged to earnings.
Goodwill and Other Intangible
Assets—Goodwill represents the excess of the purchase price over the fair
value of the net identifiable assets acquired in a business
combination. Goodwill and other intangible assets deemed to have an
indefinite useful life are not amortized but instead are subject to annual
review for impairment. Also, in connection with business combinations
involving banks and branch locations, the Company generally records core deposit
intangibles representing the value of the acquired core deposit
base. Core deposit intangibles are amortized over the estimated
useful life of the deposit base, generally on either a straight-line basis not
exceeding 15 years or an accelerated basis over 10 years. The
remaining useful lives of core deposit intangibles are evaluated periodically to
determine whether events and circumstances warrant revision of the remaining
period of amortization.
Cash Surrender Value of Life
Insurance—Life insurance contracts represent single premium life
insurance contracts on the lives of certain officers of the Company. The Company
is the beneficiary of these policies. These contracts are reported at their cash
surrender value and changes in the cash surrender value are included in other
non-interest income.
Repurchase
Agreements—Securities sold under agreements to repurchase are secured
borrowings treated as financing activities and are carried at the amounts at
which the securities will be subsequently reacquired as specified in the
respective agreements.
Deferred Compensation—The
Company records the expense of deferred compensation agreements over the service
periods of the persons covered under these agreements.
Income Taxes—Deferred tax
assets and liabilities are recorded for future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax basis. Future tax benefits,
such as net operating loss carry forwards, are recognized to the extent that
realization of such benefits is more likely than not. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which the assets and liabilities are expected to
be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income tax expense in the
period that includes the enactment date.
In the
event the future tax consequences of differences between the financial reporting
bases and the tax bases of the Company’s assets and liabilities results in
deferred tax assets, an evaluation of the probability of being able to realize
the future benefits indicated by such assets is required. A valuation
allowance is provided when it is more likely than not that a portion or the full
amount of the deferred tax asset will not be realized. In assessing
the ability to realize the deferred tax assets, management considers the
scheduled reversals of deferred tax liabilities, projected future taxable
income, and tax planning strategies. A deferred tax liability is not
recognized for portions of the allowance for loan losses for income tax purposes
in excess of the financial statement balance. Such a deferred tax
liability will only be recognized when it becomes apparent that those temporary
differences will reverse in the foreseeable future.
In June
2006, the FASB issued FASB Interpretation (“FIN”) No. 48, Accounting for Uncertainty in Income
Taxes (“FIN 48”). FIN 48 clarifies when tax benefits should be
recorded in financial statements, requires certain disclosures of uncertain tax
matters and indicates how any tax reserves should be classified in the balance
sheet. On January 1, 2007, the Company adopted FIN 48. The Company has
determined that the adoption of
FIN 48 did not have any impact on its financial condition or results of
operations. It is the Company's policy to recognize interest and penalties
related to unrecognized tax liabilities within income tax expense in the
consolidated statements of earnings.
Stock-Based Compensation—The
Company accounts for stock-based compensation in accordance with SFAS
No. 123R, Share-based
Payment (Revised December 2004). SFAS No. 123R requires that
such transactions be recognized as compensation cost in the income statement
based on their fair values on the date of the grant.
Basic and Diluted Earnings Per Common
Share—Basic earnings per common share (EPS) excludes dilution and is
computed by dividing net earnings by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the Company. Diluted EPS is computed
by dividing net earnings by the total of the weighted-average number of shares
outstanding plus the effect of outstanding options. The Company
declared a 5% stock dividend in 2007 and a 25% stock dividend in
2006. All share and per share information has been adjusted to give
retroactive effect to the stock dividends. The amounts of common stock and
additional paid-in capital have been adjusted to give retroactive effect to the
large stock dividends. Small stock dividends, or dividends less than
25% of issued shares at the declaration date, are reflected as an increase in
common stock and additional paid-in capital and a decrease in retained earnings
for the market value of the shares on the date the dividend is
declared.
Comprehensive Income—GAAP
generally requires that recognized revenues, expenses, gains and losses be
included in net earnings. Although certain changes in assets and
liabilities, such as unrealized gains and losses on available-for-sale
securities, are reported as a separate component of the equity section of the
consolidated balance sheets, such items, along with net earnings, are components
of comprehensive income. The Company presents comprehensive income in
a separate consolidated statement of comprehensive income.
Statements of Cash Flows—For
purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks, federal funds sold, and interest-bearing deposits
in other banks with original maturities of less than 90 days. Generally, federal
funds are sold for one-day periods.
Recent Accounting
Pronouncements— In
February 2008, the FASB issued FSP FAS No. 157-1 Application of FASB Statement
No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That
Address Fair Value Measurements for Purposes of Lease Classification or
Measurement under Statement 13. This FSP amends SFAS No. 157, Fair Value
Measurements, to exclude SFAS No. 13, Accounting for Leases and other accounting
pronouncements that address fair value measurements for purposes of lease
classification or measurement under SFAS No. 13. This FSP is not expected to
have any effect on the Company’s financial position, results of operations, or
cash flows.
In
February 2008, the FASB issued FSP FAS No. 157-2, Effective Date of FASB Statement No.
157. This FSP delays the effective date of SFAS No. 157, Fair Value Measurements, for
nonfinancial assets and nonfinancial liabilities, except for items that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). This FSP is not expected to have any effect on the
Company’s financial position, results of operations, or cash flows.
In
October 2008, the FASB issued FSP FAS No. 157-3, Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active. This FSP
clarifies the application of SFAS No. 157, Fair Value Measurements, in a
market that is not active. This FSP is not expected to have any effect on the
Company’s financial position, results of operations, or cash flows.
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 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 net income or
shareholders equity.
The
portfolio of securities consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government Agencies and SBA loans
|
|
$ |
39,163 |
|
|
$ |
584 |
|
|
$ |
- |
|
|
$ |
39,747 |
|
Obligations
of state and political subdivisions
|
|
|
116,811 |
|
|
|
2,350 |
|
|
|
548 |
|
|
|
118,613 |
|
Mortgage-backed
securities
|
|
|
19,433 |
|
|
|
234 |
|
|
|
6 |
|
|
|
19,661 |
|
Collateralized
mortgage obligations
|
|
|
47,715 |
|
|
|
258 |
|
|
|
144 |
|
|
|
47,829 |
|
Equity
securities with readily determinable fair values
|
|
|
250 |
|
|
|
- |
|
|
|
156 |
|
|
|
94 |
|
|
|
$ |
223,372 |
|
|
$ |
3,426 |
|
|
$ |
854 |
|
|
$ |
225,944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government Agencies and SBA loans
|
|
$ |
44,915 |
|
|
$ |
339 |
|
|
$ |
25 |
|
|
$ |
45,229 |
|
Obligations
of state and political subdivisions
|
|
|
99,842 |
|
|
|
1,219 |
|
|
|
95 |
|
|
|
100,966 |
|
Mortgage-backed
securities
|
|
|
24,375 |
|
|
|
73 |
|
|
|
198 |
|
|
|
24,250 |
|
Collateralized mortgage obligations
|
|
|
10,838 |
|
|
|
25 |
|
|
|
66 |
|
|
|
10,797 |
|
Equitable securities
with readily determinable fair values
|
|
|
250 |
|
|
|
- |
|
|
|
40 |
|
|
|
210 |
|
|
|
$ |
180,220 |
|
|
$ |
1,656 |
|
|
$ |
424 |
|
|
$ |
181,452 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations
of state and political subdivisions
|
|
$ |
6,490 |
|
|
$ |
158 |
|
|
$ |
- |
|
|
$ |
6,648 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations
of state and political subdivisions
|
|
$ |
10,746 |
|
|
$ |
228 |
|
|
$ |
- |
|
|
$ |
10,974 |
|
The
amortized cost and fair value of debt securities at December 31, 2008 by
contractual maturity are shown below (in thousands). Except for
mortgage-backed securities, expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
Due
in one year or less
|
|
$ |
29,455 |
|
|
$ |
29,686 |
|
Due
after one year through five years
|
|
|
52,452 |
|
|
|
53,880 |
|
Due
after five years through ten years
|
|
|
52,153 |
|
|
|
53,330 |
|
Due
after ten years
|
|
|
21,914 |
|
|
|
21,464 |
|
Mortgage-backed
securities and collateralized mortgage obligations
|
|
|
67,148 |
|
|
|
67,490 |
|
|
|
$ |
223,122 |
|
|
$ |
225,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
Due
in one year or less
|
|
$ |
2,204 |
|
|
$ |
2,227 |
|
Due
after one year through five years
|
|
|
3,938 |
|
|
|
4,045 |
|
Due
after five years through ten years
|
|
|
348 |
|
|
|
376 |
|
|
|
$ |
6,490 |
|
|
$ |
6,648 |
|
|
|
|
|
|
|
|
|
|
Details
concerning investment securities with unrealized losses as of December 31, 2008
are as follows (in thousands):
|
|
Securities
with losses
under
12 months
|
|
|
Securities
with losses
over
12 months
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations
of state and
political
subdivisions
|
|
$ |
19,769 |
|
|
$ |
452 |
|
|
$ |
609 |
|
|
$ |
96 |
|
|
$ |
20,378 |
|
|
$ |
548 |
|
Mortgage-backed
securities
|
|
|
1,231 |
|
|
|
4 |
|
|
|
131 |
|
|
|
2 |
|
|
|
1,362 |
|
|
|
6 |
|
Collateralized
mortgage obligations
|
|
|
18,050 |
|
|
|
91 |
|
|
|
508 |
|
|
|
53 |
|
|
|
18,558 |
|
|
|
144 |
|
Equity
securities with readily determinable fair values
|
|
|
- |
|
|
|
- |
|
|
|
94 |
|
|
|
156 |
|
|
|
94 |
|
|
|
156 |
|
|
|
$ |
39,050 |
|
|
$ |
547 |
|
|
$ |
1,342 |
|
|
$ |
307 |
|
|
$ |
40,392 |
|
|
$ |
854 |
|
Details
concerning investment securities with unrealized losses as of December 31,
2007 are as follows (in thousands):
|
|
Securities
with losses
under
12 months
|
|
|
Securities
with losses
over
12 months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government Agencies and SBA loans
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
16,974 |
|
|
$ |
26 |
|
|
$ |
16,974 |
|
|
$ |
26 |
|
Obligations
of state and political subdivisions
|
|
|
1,599 |
|
|
|
12 |
|
|
|
11,417 |
|
|
|
82 |
|
|
|
13,016 |
|
|
|
94 |
|
Mortgage-backed
securities
|
|
|
6,698 |
|
|
|
17 |
|
|
|
10,910 |
|
|
|
181 |
|
|
|
17,608 |
|
|
|
198 |
|
Collateralized
mortgage obligations
|
|
|
5,732 |
|
|
|
34 |
|
|
|
351 |
|
|
|
32 |
|
|
|
6,083 |
|
|
|
66 |
|
Equity securities
with readily determinable fair values
|
|
|
210 |
|
|
|
40 |
|
|
|
- |
|
|
|
- |
|
|
|
210 |
|
|
|
40 |
|
|
|
$ |
14,239 |
|
|
$ |
103 |
|
|
$ |
39,652 |
|
|
$ |
321 |
|
|
$ |
53,891 |
|
|
$ |
424 |
|
Management
evaluates whether unrealized losses on securities represent impairment that is
other than temporary. If such impairment is identified, the carrying amount of
the security is reduced with a charge to operations. In making this evaluation,
management considers changes in market rates relative to those available when
the security was acquired, changes in market expectations about the timing of
cash flows from securities that can be prepaid, and changes in the market’s
perception of the issuer’s financial health and the security’s credit quality.
Management then assesses the likelihood of a recovery in fair value and the
length of time over which a recovery would occur, which could extend the holding
period. Finally, management determines whether there is both the ability and
intent to hold the impaired security until an anticipated recovery, in which
case the impairment would be considered temporary.
The
unrealized losses at December 31, 2008 and 2007 resulted from changing market
interest rates over the yields available at the time the underlying securities
were purchased. Management identified no impairment related to credit quality.
At December 31, 2008 and 2007, management had both the intent and ability to
hold impaired securities and no impairment was evaluated as other than
temporary. No impairment losses were recognized during the years ended December
31, 2008, 2007, or 2006.
Of the
securities issued by U.S. Government agencies and SBA held by the Company at
December 31, 2008, none of the 11 securities contained unrealized losses, while
33 out of 241 securities issued by state and political subdivisions contained
unrealized losses. Of the mortgage-backed securities, 7 out of 52
contained unrealized losses. Of the collateralized mortgage
obligations, 7 out of 19 contained unrealized losses. The only equity
security held by the Company at December 31, 2008 and with a readily
determinable market value contained an unrealized loss.
Of the
securities issued by U.S. Government agencies and SBA held by the Company at
December 31, 2007, 7 out of 20 securities contained unrealized losses, while 30
out of 242 securities issued by state and political subdivisions contained
unrealized losses. Of the mortgage-backed securities, 24 out of 56
contained unrealized losses. Of the collateralized mortgage
obligations, 4 out of 7 contained unrealized losses. The only equity
security held by the Company at December 31, 2007 and with a readily
determinable market value contained an unrealized loss.
During
the years ended December 31, 2008 and 2007, the Company did not sell any
securities. Proceeds from sales of securities available-for-sale
during 2006 was $2,989,000. Gross losses of $8,000 were recognized on
sales in 2006.
Securities
with an aggregate carrying value of approximately $111,781,000 and $63,286,000
at December 31, 2008 and 2007, respectively, were pledged to secure public funds
on deposit and for other purposes required or permitted by law.
The loan
portfolio consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Commercial,
financial and agricultural
|
|
$ |
210,058 |
|
|
$ |
190,946 |
|
Lease
financing receivable
|
|
|
8,058 |
|
|
|
8,089 |
|
Real
estate – mortgage
|
|
|
234,588 |
|
|
|
216,305 |
|
Real
estate – construction
|
|
|
65,327 |
|
|
|
65,448 |
|
Installment
loans to individuals
|
|
|
89,901 |
|
|
|
87,775 |
|
Other
|
|
|
1,023 |
|
|
|
942 |
|
|
|
|
608,955 |
|
|
|
569,505 |
|
Less
allowance for loan losses
|
|
|
(7,586 |
) |
|
|
(5,612 |
) |
|
|
$ |
601,369 |
|
|
$ |
563,893 |
|
The
amounts reported in other loans at December 31, 2008 and 2007 represented the
total DDA overdraft deposits reported for each period. The December
31, 2007 loan composition reflects a reclassification in real estate –
construction, real estate – mortgage, and commercial, financial, and
agricultural loans.
An
analysis of the activity in the allowance for loan losses is as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
beginning of year
|
|
$ |
5,612 |
|
|
$ |
4,977 |
|
|
$ |
4,355 |
|
Provision
for loan losses
|
|
|
4,555 |
|
|
|
1,175 |
|
|
|
850 |
|
Recoveries
|
|
|
192 |
|
|
|
86 |
|
|
|
314 |
|
Loans
charged-off
|
|
|
(2,624 |
) |
|
|
(626 |
) |
|
|
(542 |
) |
Reclassifications
|
|
|
(149 |
) |
|
|
- |
|
|
|
- |
|
Balance,
end of year
|
|
$ |
7,586 |
|
|
$ |
5,612 |
|
|
$ |
4,977 |
|
In the
second quarter of 2008, approximately $149,000 of the allowance for loan loss
was identified as a reserve for unfunded loan commitments. The
reserve was classified as a liability in accordance with SFAS No. 5 in the same
period.
Charge-offs
for the year ended December 31, 2008 were comprised of $550,000 in indirect
auto loans due to fraudulent activity, $707,000 in consumer loans, $776,000 in
commercial, industrial and agricultural loans, and $591,000 in real estate and
construction loans. The increased charge-off activity in the loan
portfolio is reflective of the current economic environment.
During
the years ended December 31, 2008, 2007, and 2006, there were approximately
$514,000, $251,000, and $444,000, respectively, of net transfers from loans to
other real estate owned.
As of
December 31, 2008 and 2007, loans outstanding to directors, executive officers,
and their affiliates were $2,640,000 and $4,359,000, respectively. In the
opinion of management, all transactions entered into between the Company and
such related parties have been and are made in the ordinary course of business,
on substantially the same terms and conditions, including interest rates and
collateral, as similar transactions with unaffiliated persons and do not involve
more than the normal risk of collection.
An
analysis of the 2008 activity with respect to these related party loans is as
follows (in thousands):
|
Balance,
beginning of year
|
|
$ |
4,359 |
|
|
|
New
loans
|
|
|
730 |
|
|
|
Repayments
|
|
|
(2,449 |
) |
|
|
Balance,
end of year
|
|
$ |
2,640 |
|
|
Nonaccrual
loans amounted to approximately $9,355,000 and $1,602,000 at December 31, 2008
and 2007, respectively. Loans past due ninety days or more and still
accruing interest totaled $1,005,000 and $980,000 at December 31, 2008 and 2007,
respectively. The Company’s other individually evaluated impaired loans were
approximately $19,522,000 at December 31, 2008 and $460,000 at December 31,
2007. Specific reserves established for impaired loans totaled
$2,272,000 at December 31, 2008 and $236,000 at December 31, 2007. The
average investment in impaired loans was $5,417,000 and $408,000 for the years
ended 2008 and 2007, respectively. The amount of interest that would
have been recorded on nonaccrual loans had the loans not been classified as
nonaccrual was not significant to the financial statements for the years ended
December 31, 2008, 2007, and 2006.
|
4. PREMISES
AND EQUIPMENT
|
Premises
and equipment consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
$ |
7,958 |
|
|
$ |
7,893 |
|
|
|
Buildings
and improvements
|
|
|
22,473 |
|
|
|
18,849 |
|
|
|
Furniture,
fixtures, and equipment
|
|
|
16,797 |
|
|
|
16,121 |
|
|
|
Automobiles
|
|
|
461 |
|
|
|
436 |
|
|
|
Leasehold
improvements
|
|
|
9,264 |
|
|
|
3,623 |
|
|
|
Construction-in-process
|
|
|
580 |
|
|
|
7,805 |
|
|
|
Reserve
for impairment
|
|
|
- |
|
|
|
(222 |
) |
|
|
|
|
|
57,533 |
|
|
|
54,505 |
|
|
|
Less
accumulated depreciation and amortization
|
|
|
(16,953 |
) |
|
|
(15,276 |
) |
|
|
|
|
$ |
40,580 |
|
|
$ |
39,229 |
|
|
Depreciation
expense totaled approximately $3,233,000, $2,610,000, and $2,417,000 for the
years ended December 31, 2008, 2007, and 2006, respectively.
|
5. GOODWILL
AND OTHER INTANGIBLE ASSETS
|
The
carrying amount of goodwill for the years ended December 31, 2008 and 2007
was approximately $9,271,000. Goodwill is recorded on the acquisition
date of each entity. The Company may record subsequent adjustments to
goodwill for amounts undeterminable at acquisition date. No
adjustments were made to the carrying value during the years 2008 or
2007.
A summary
of core deposit intangible assets as of December 31, 2008 and 2007 are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Gross
carrying amount
|
|
$ |
1,750 |
|
|
|
$ |
1,750 |
|
|
|
Less
accumulated amortization
|
|
|
(1,416 |
) |
|
|
|
(1,262 |
) |
|
|
Net
carrying amount
|
|
$ |
334 |
|
|
|
$ |
488 |
|
|
Amortization
expense on the core deposit intangible assets totaled approximately $154,000 in
2008, $198,000 in 2007, and $299,000 in 2006. Amortization of the
core deposit intangible assets is estimated to be approximately $122,000 in
2009, $97,000 in 2010, $78,000 in 2011, and the remainder of $37,000 in
2012.
Deposits
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing
|
|
$ |
199,899 |
|
|
|
$ |
182,588 |
|
|
|
Savings
and money market
|
|
|
249,797 |
|
|
|
|
273,887 |
|
|
|
NOW
accounts
|
|
|
164,589 |
|
|
|
|
144,335 |
|
|
|
Time
deposits $100 and under
|
|
|
69,897 |
|
|
|
|
61,151 |
|
|
|
Time
deposits over $100
|
|
|
82,522 |
|
|
|
|
71,556 |
|
|
|
|
|
$ |
766,704 |
|
|
|
$ |
733,517 |
|
|
Time
deposits held by the Company consist primarily of certificates of
deposits. The maturities for these deposits at December 31, 2008 are
as follows (in thousands):
|
2009
|
|
$ |
130,841 |
|
|
|
2010
|
|
|
14,145 |
|
|
|
2011
|
|
|
1,939 |
|
|
|
2012
|
|
|
3,306 |
|
|
|
2013
and thereafter
|
|
|
2,188 |
|
|
|
|
|
$ |
152,419 |
|
|
Deposits
from related parties totaled approximately $16,985,000 and $17,304,000 at
December 31, 2008 and 2007, respectively.
Short
term borrowings consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
sold under agreements to repurchase
|
|
$ |
24,976 |
|
|
$ |
26,317 |
|
|
|
Federal
funds purchased
|
|
|
14,900 |
|
|
|
- |
|
|
|
Federal
Reserve Bank Discount Window
|
|
|
36,000 |
|
|
|
- |
|
|
|
Federal
Home Loan Bank Advances
|
|
|
- |
|
|
|
4,400 |
|
|
|
|
|
$ |
75,876 |
|
|
$ |
30,717 |
|
|
At
December 31, 2008, securities sold under agreements to repurchase totaled
$12,476,000. These agreements to repurchase are secured short-term
borrowings from customers, which may be drawn on demand. The
agreements bear interest at a rate determined by the Company. The
average rate of the outstanding agreements at December 31, 2008 was
1.19%. The Company has pledged securities with an approximate
market value of $30,373,000 as collateral.
The
Company entered into a $12,500,000 repurchase agreement with CitiGroup Global
Markets, Inc. (“CGMI”) effective August 9, 2007. Under the terms of
the repurchase agreement, interest is payable quarterly based on a floating rate
equal to the 3-month LIBOR for the first 12 months of the agreement and a fixed
rate of 4.57% for the remainder of the term. The rate at December 31,
2008 was 4.57%. The repurchase date is scheduled for August 9, 2017;
however, the agreement may be called by CGMI quarterly after August 9,
2008. The Company has pledged securities with a market value
$13,410,000 as collateral.
The
Company had short term borrowings through federal funds purchased and the
Federal Reserve Discount Window at December 31, 2008. Federal funds
purchased overnight totaled $14,900,000 at December 31, 2008 bearing interest at
0.88%. The Federal Reserve Discount Window totaled $36,000,000 at
December 31, 2008 and matures on January 14, 2009. These borrowings
bear interest at a rate equal to the Federal Open Market Committee’s target
federal funds rate plus 25 basis points. The rate of interest on this
borrowing was 0.50% at December 31, 2008. The Company has pledged
securities with an approximate market value of $39,293,000 as collateral on the
Federal Reserve Discount Window.
|
8. JUNIOR
SUBORDINATED DEBENTURES
|
On
September 20, 2004, the Company issued, through a wholly-owned statutory
business trust, $8,248,000 of unsecured junior subordinated debentures bearing
interest at a floating rate equal to the 3-month LIBOR plus 2.50%, adjustable
and payable quarterly. The rate at December 31, 2008 was 4.03%. The
debentures mature on September 20, 2034 and, under certain circumstances,
are subject to repayment on September 20, 2009 or thereafter.
On
February 22, 2001, the Company issued, through a wholly-owned statutory
business trust, $7,217,000 of unsecured junior subordinated debentures. These
junior subordinated debentures bear interest at a fixed rate of 10.20% with
interest paid semi-annually in arrears and mature on February 22, 2031.
Under certain circumstances, these debentures are subject to repayment on
February 22, 2011 or thereafter.
In
accordance with FASB Interpretation No. 46R, the Trusts are not consolidated
with the Company. Accordingly, the Company does not report the
securities issued by the Trusts as liabilities, and instead reports as
liabilities the junior subordinated debentures issued by the Company and held by
the Trusts, as these are not eliminated in the consolidation. The
Trust Preferred Securities are recorded as junior subordinated debentures on the
balance sheets, but subject to certain limitations qualify for Tier 1 capital
for regulatory capital purposes.
|
9. COMMITMENTS
AND CONTINGENCIES
|
At
December 31, 2008, future annual minimum rental payments due under
noncancellable operating leases are as follows (in thousands):
|
2009
|
|
$ |
1,637 |
|
|
|
2010
|
|
|
1,561 |
|
|
|
2011
|
|
|
1,354 |
|
|
|
2012
|
|
|
1,273 |
|
|
|
2013
|
|
|
1,253 |
|
|
|
Thereafter
|
|
|
12,375 |
|
|
|
|
|
$ |
19,453 |
|
|
Rental
expense under operating leases for 2008, 2007, and 2006 was approximately
$1,692,000, $1,322,000, and $996,000, respectively.
The
Company and its subsidiaries are parties to various legal proceedings arising in
the ordinary course of business. In the opinion of management, the ultimate
resolution of these legal proceedings will not have a material adverse effect on
the Company’s financial position, results of operations, or cash
flows.
At
December 31, 2008, the Company had borrowing lines available through the Bank
with the FHLB of Dallas and other correspondent banks. The Bank had
approximately $130.9 million available, subject to available collateral,
under a secured line of credit with the FHLB of Dallas. Additional
federal funds lines of credit were available through a primary correspondent
bank with approximately $21.0 million available for overnight borrowing and
through another correspondent bank with approximately $10.0 million available at
December 31, 2008. There were purchases against these lines in the
amount of $14.9 million at December 31, 2008. The Bank also had a
credit line available through the Federal Reserve Discount Window of $37.3
million. Borrowings against this line were $36.0 million at December
31, 2008.
|
10. 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 for any of its
financial instruments.
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 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
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):
|
|
|
|
|
|
|
|
|
|
|
|
Total
Carrying Amount in Statement of Condition at December 31,
2008
|
|
|
Assets
/ Liabilities
Measured
at Fair Value at December 31, 2008
|
|
|
Fair
Value Measurements at
December
31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities
|
|
$ |
225,944 |
|
|
$ |
225,944 |
|
|
$ |
94 |
|
|
$ |
225,850 |
|
|
$ |
- |
|
Certain
assets and liabilities are measured at fair value on a nonrecurring basis and
therefore are not included in the table above. Impaired loans are level 2 assets
measured using appraisals from external parties of the collateral less any prior
liens. As of December 31, 2008, the fair value of impaired loans was $19.5
million. Other real estate owned are also level 2 assets measured
using appraisals from external parties, which had a fair value of approximately
$329,000 as of December 31, 2008.
Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Significant components of the
Company’s deferred tax assets and liabilities as of December 31, 2008 and 2007
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
|
Allowance
for loan losses
|
|
$ |
2,579 |
|
|
$ |
1,778 |
|
|
|
Tax
credits
|
|
|
575 |
|
|
|
- |
|
|
|
Other
|
|
|
368 |
|
|
|
314 |
|
|
|
Total
deferred tax assets
|
|
|
3,522 |
|
|
|
2,092 |
|
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
Premises
and equipment
|
|
|
4,430 |
|
|
|
3,041 |
|
|
|
FHLB
stock
|
|
|
20 |
|
|
|
42 |
|
|
|
Unrealized
gains on securities
|
|
|
874 |
|
|
|
419 |
|
|
|
Other
|
|
|
309 |
|
|
|
216 |
|
|
|
Total
deferred tax liabilities
|
|
|
5,633 |
|
|
|
3,718 |
|
|
|
Net
deferred tax liability
|
|
$ |
2,111 |
|
|
$ |
1,626 |
|
|
Based
upon the level of historical taxable income and projections for future taxable
income over the periods in which the deferred tax assets are deductible,
management believes that it is more likely than not that the Company will
realize the benefits of these deductible differences existing at December 31,
2008. Therefore, no valuation allowance is necessary at this time.
Components
of income tax expense are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$ |
419 |
|
|
$ |
1,047 |
|
|
$ |
2,879 |
|
|
|
Deferred
expense (benefit)
|
|
|
30 |
|
|
|
1,232 |
|
|
|
(152 |
) |
|
|
Total
income tax expense
|
|
$ |
449 |
|
|
$ |
2,279 |
|
|
$ |
2,727 |
|
|
The
provision for federal income taxes differs from the amount computed by applying
the U.S. Federal income tax statutory rate of 34% on income as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes
calculated at statutory rate
|
|
$ |
2,036 |
|
|
$ |
3,758 |
|
|
$ |
3,722 |
|
|
|
Increase
(decrease) resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-exempt
interest, net
|
|
|
(1,342 |
) |
|
|
(1,237 |
) |
|
|
(1,020 |
) |
|
|
Tax
credits
|
|
|
(225 |
) |
|
|
(315 |
) |
|
|
- |
|
|
|
Other
|
|
|
(20 |
) |
|
|
72 |
|
|
|
25 |
|
|
|
|
|
$ |
449 |
|
|
$ |
2,278 |
|
|
$ |
2,727 |
|
|
The
deferred income tax expense relating to unrealized holding gains on securities
available-for-sale included in other comprehensive income amounted to
approximately $456,000 in 2008, $861,000 in 2007, and $87,000 in
2006. There was no income tax expense or benefit relating to sales of
securities in 2008 or 2007 since no securities were sold during those
years. Income tax benefit relating to gains or losses on sales of
securities amounted to $3,000 in 2006.
On
January 1, 2007, the Company adopted the provisions of FIN
48. FIN 48 clarifies the accounting for uncertainty in income
taxes by establishing minimum standards for the recognition and measurement of
tax positions
taken or expected to be taken in a tax return. Under the requirements of
FIN 48, the Company must review all of its tax positions and make a
determination as to whether its position is more-likely-than-not to be sustained
upon examination by regulatory authorities. If a tax position meets the
more-likely-than-not standard, then the related tax benefit is measured based on
a cumulative probability analysis of the amount that is more-likely-than-not to
be realized upon ultimate settlement or disposition of the underlying
issue. The initial adoption of this Interpretation had no impact on
the Company’s financial statements.
The total
amount of unrecognized tax benefits that, if recognized, would affect the tax
provision and the effective income tax rate is negligible.
The
Company’s policy is to report interest and penalties, if any, related to tax
liabilities in income tax expense in the Consolidated Statements of
Earnings.
The
Company’s federal income tax returns are open and subject to examination from
the 2005 tax return year and forward. The Company’s various state income and
franchise tax returns are generally open from the 2005 and later tax return
years based on individual state statutes of limitation. The Company is not
currently under examination by federal or state tax authorities.
The
Company sponsors a leveraged employee stock ownership plan (ESOP) that covers
all employees who meet minimum age and service requirements. The Company makes
annual contributions to the ESOP in amounts as determined by the Board of
Directors. These contributions are used to pay debt service and purchase
additional shares. Certain ESOP shares are pledged as collateral for this debt.
As the debt is repaid, shares are released from collateral and allocated to
active employees, based on the proportion of debt service paid in the
year. On February 3, 2006, the ESOP borrowed $300,000 under a second
note payable to MidSouth Bank, N.A. for the purpose of purchasing additional
shares of MidSouth Bancorp, Inc.’s common stock. The note payable
matures February 15, 2009 and has an interest rate of 6.50%. A total
of 13,710 shares at $21.88 per share were purchased with loan proceeds on
February 3, 2006. The balances of the notes receivable from the ESOP
were $18,000 and $133,000 at December 31, 2008 and 2007,
respectively. Because the source of the loan payments are
contributions received by the ESOP from the Company, the related notes
receivable is shown as a reduction of shareholders’ equity. In
accordance with the American Institute of Certified Public Accountants’
Statement of Position 93-6, compensation costs relating to shares purchased are
based on the fair value of shares committed to be released. The
unreleased shares are not considered outstanding in the computation of earnings
per common share. Dividends received on ESOP shares are allocated
based on shares held for the benefit of each participant and used to purchase
additional shares of stock for each participant. ESOP compensation
expense for 2008, 2007, and 2006 was approximately $490,000,
$527,000, and $480,000, respectively. The cost basis of the shares
released was $16.12 per share for 2008, $12.77 per share for 2007, and $11.95
per share for 2006. ESOP shares as of December 31, 2008 and 2007 were
as follows:
|
|
|
|
|
|
|
|
|
|
Allocated
shares
|
|
|
505,108 |
|
|
|
507,090 |
|
|
|
Shares
released for allocation
|
|
|
7,062 |
|
|
|
9,250 |
|
|
|
Unreleased
shares
|
|
|
879 |
|
|
|
7,941 |
|
|
|
Total
ESOP shares
|
|
|
513,049 |
|
|
|
524,281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of unreleased shares at December 31
|
|
$ |
11,000 |
|
|
$ |
185,000 |
|
|
The
Company has deferred compensation arrangements with certain officers, which will
provide them with a fixed benefit after retirement. The Company recorded a
liability of approximately $532,000 at December 31, 2008 and $519,000 at
December 31, 2007 in connection with these agreements. Deferred
compensation expense recognized in 2008, 2007, and 2006 was approximately
$68,000, $67,000, and $80,000, respectively.
The
Company has a 401(k) retirement plan covering substantially all employees who
have been employed with the Company for 90 days and meet certain other
requirements. Under this plan, employees can contribute a
portion
of their salary within the limits provided by the Internal Revenue Code into the
plan. The Company's contributions to this plan were $50,000 in 2008
and 2007, and $40,000 in 2006.
In May of
2007, the shareholders of the Company approved the 2007 Omnibus Incentive
Compensation Plan to provide incentives and awards for directors, officers, and
employees of the Company and its subsidiaries. “Awards” as defined in the Plan
includes, with limitations, stock options (including restricted stock options),
stock appreciation rights, performance shares, stock awards and cash awards, all
on a stand-alone, combination, or tandem basis. Options constitute both
incentive stock options and non-qualified stock options. A total of 8% of the
Company’s common shares outstanding can be granted under the Plan. All of the
options granted under the plan have a term of ten years and vest 20% each year
on the anniversary date of the grant. The 2007 Omnibus Incentive
Compensation Plan replaces the 1997 Stock Incentive Plan, which expired February
of 2007.
The
following tables summarize activity relating to the Plan:
|
|
|
|
|
Weighted
Average Exercise Price
|
|
|
Weighted
Average Remaining Contractual Term
|
|
|
Aggregate
Intrinsic Value
|
|
Outstanding
at December 31, 2007
|
|
|
150,433 |
|
|
$ |
11.57 |
|
|
|
|
|
|
|
Exercised
|
|
|
(65,892 |
) |
|
|
7.22 |
|
|
|
|
|
|
|
Forfeited
|
|
|
(545 |
) |
|
|
19.68 |
|
|
|
|
|
|
|
Outstanding
at December 31, 2008
|
|
|
83,996 |
|
|
$ |
14.93 |
|
|
|
5.28 |
|
|
$ |
- |
|
Exercisable
at December 31, 2008
|
|
|
64,436 |
|
|
$ |
12.89 |
|
|
|
4.75 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary
of changes in unvested options for the period ended December 31, 2008 is as
follows:
|
|
|
|
|
|
|
|
|
Weighted
Average
Grant
Date
Fair
Value
|
|
Unvested
options outstanding, beginning of year
|
|
|
34,676 |
|
|
$ |
5.42 |
|
Granted
|
|
|
- |
|
|
|
- |
|
Vested
|
|
|
(14,901 |
) |
|
|
4.62 |
|
Forfeited
|
|
|
(216 |
) |
|
|
5.48 |
|
Unvested
options outstanding, end of year
|
|
|
19,559 |
|
|
$ |
6.03 |
|
|
|
|
|
|
|
|
|
|
As of
December 31, 2008 there was a total of $118,000 in unrecognized compensation
cost related to non-vested share-based compensation arrangements. The
total value of shares vested during the years ended December 31, 2008 and 2007
was $69,000 and $96,000, respectively.
The fair
value of each option granted is estimated on the grant date using the
Black-Scholes Option Pricing Model. This model requires management to
make certain assumptions, including the expected life of the option,
the risk free rate of interest, the expected volatility, and the expected
dividend yield. The risk free rate of interest is based on the yield
of a U.S. Treasury security with a similar term. The expected
volatility is based on the Company’s historic volatility over a term similar to
the expected life of the options. The dividend yield is base on the
current yield at the date of grant. The following assumptions were
made in estimating 2006 fair values:
|
Dividend
Yield
|
|
|
1.5 |
% |
|
|
Expected
Volatility
|
|
|
21.0 |
% |
|
|
Risk
Free Interest Rates
|
|
|
4.0 |
% |
|
|
Expected
Life in Years
|
|
|
8 |
|
|
The total
intrinsic value of the options exercised for the years ended December 31, 2008,
2007, and 2006 were approximately $370,000, $889,000, and $1,947,000,
respectively.
|
14. 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 Life 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 $115,000.
The
payment of dividends by the Bank to the Company is restricted by various
regulatory and statutory limitations. At December 31, 2008, the Bank has
approximately $16.1 million available to pay dividends to the Parent Company
without regulatory approval.
On
January 9, 2009 the Company issued 20,000 shares of Series A
preferred stock associated with the Company’s participation in the Treasury's
CPP under the Troubled Asset Relief Program. The proceeds from this sale of
$20,000,000 were allocated to preferred stock. The CPP, created by the Treasury,
is a voluntary program in which selected, healthy financial institutions are
encouraged to participate. Approved use of the funds includes providing credit
to qualified borrowers, either as companies or individuals, among other things.
Such participation is intended to support the economic development of the
community and thereby restore the health of the local and national
economy.
The
Series A preferred stock qualifies as Tier I capital and will pay cumulative
dividends at a rate of 5% per annum for the first five years and 9% per annum
thereafter. The Series A preferred stock may be redeemed after
February 15, 2012 at the stated amount of $1,000 per share plus any accrued and
unpaid dividends. Prior to February 15, 2012, the Series A preferred stock may
be redeemed only with prior regulatory approval. The Series A
preferred stock is non-voting except for class voting rights on matters that
would adversely affect the rights of the holders of the Series A preferred
stock.
The
Company also issued the Treasury a 10-year warrant for the purchase of 208,768
shares of its common stock, par value $.10 per share. The warrant is exercisable
as of February 20, 2009 at a price of $14.37 per share.
|
16. NET
INCOME PER COMMON SHARE
|
Following
is a summary of the information used in the computation of earnings per common
share (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Earnings
|
|
$ |
5,537 |
|
|
$ |
8,776 |
|
|
$ |
8,220 |
|
Weighted
average number of common shares outstanding used in
computation
of basic earnings per common share
|
|
|
6,607 |
|
|
|
6,570 |
|
|
|
6,521 |
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options
|
|
|
23 |
|
|
|
71 |
|
|
|
115 |
|
Weighted
average number of common shares outstanding plus
effect
of dilutive securities – used in computation of diluted
earnings
per common share
|
|
|
6,630 |
|
|
|
6,641 |
|
|
|
6,636 |
|
Options
on 46,365 shares of common stock were not included in computing diluted earnings
per share for the year ended December 31, 2008 because the effect of these
shares was anti-dilutive. The options did not have an anti-dilutive
effect on diluted earnings per share for the years ended December 31, 2007 and
2006.
|
17. FINANCIAL
INSTRUMENTS WITH OFF-BALANCE SHEET
RISK
|
The Bank
is party to various financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of their customers and to
reduce their own exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit and standby letters of credit.
Those instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amounts recognized in the statements of financial
condition. The contract or notional amounts of those instruments reflect the
extent of the involvement the Bank has in particular classes of financial
instruments.
The
Bank’s exposure to loan loss in the event of nonperformance by the other party
to the financial instrument for commitments to extend credit, standby letters of
credit, and financial guarantees is represented by the contractual amount of
those instruments. The Bank uses the same credit policies, including
considerations of collateral requirements, in making these commitments and
conditional obligations as it does for on-balance sheet
instruments.
|
|
|
Contract
or Notional Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
instruments whose contract amounts represent credit risk (in
thousands):
|
|
|
|
|
|
|
|
|
Commitments
to extend credit
|
|
$ |
140,602 |
|
|
$ |
163,392 |
|
|
|
Commercial
letters of credit
|
|
|
11,945 |
|
|
|
17,470 |
|
|
Commitments
to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected
to expire without being fully drawn upon, the total commitment amounts disclosed
above do not necessarily represent future cash
requirements. Substantially all of these commitments are at variable
rates.
Commercial
letters of credit and financial guarantees are conditional commitments issued by
the Bank to guarantee the performance of a customer to a third
party. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to its
customers. Approximately 20% of these letters of credit were secured
by marketable securities, cash on deposit, or other assets at December 31, 2008
and 2007.
The
Company and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the financial statements. Under capital adequacy
guidelines, the Company and the Bank must meet specific capital guidelines
that involve quantitative measures of assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting
practices. The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.
Quantitative
measures established by regulation to ensure capital adequacy require the
Company and the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined) and to average assets (as
defined).
As of
December 31, 2008, the most recent notifications from the Federal Deposit
Insurance Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage capital ratios as set forth in the table
(in thousands). There are no conditions or events since those notifications that
management believes have changed the Bank’s category.
The
Company’s and the Banks' actual capital amounts and ratios are presented in the
table below (in thousands):
|
|
|
|
|
Required
for
Minimum
Capital
Adequacy
Purposes
|
|
|
To
be Well
Capitalized
Under
Prompt
Corrective
Action
Provisions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
capital to risk weighted assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
$ |
84,388 |
|
|
|
12.16 |
% |
|
$ |
55,518 |
|
|
|
8.00 |
% |
|
|
N/A |
|
|
|
N/A |
|
Bank
|
|
$ |
83,307 |
|
|
|
12.01 |
% |
|
$ |
55,477 |
|
|
|
8.00 |
% |
|
$ |
69,346 |
|
|
|
10.00 |
% |
Tier
I capital to risk weighted assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
$ |
76,640 |
|
|
|
11.04 |
% |
|
$ |
27,759 |
|
|
|
4.00 |
% |
|
|
N/A |
|
|
|
N/A |
|
Bank
|
|
$ |
75,559 |
|
|
|
10.90 |
% |
|
$ |
27,738 |
|
|
|
4.00 |
% |
|
$ |
41,607 |
|
|
|
6.00 |
% |
Tier
I capital to average assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
$ |
76,640 |
|
|
|
8.38 |
% |
|
$ |
36,575 |
|
|
|
4.00 |
% |
|
|
N/A |
|
|
|
N/A |
|
Bank
|
|
$ |
75,559 |
|
|
|
8.27 |
% |
|
$ |
36,539 |
|
|
|
4.00 |
% |
|
$ |
54,809 |
|
|
|
6.00 |
% |
|
|
|
|
|
Required
for
Minimum
Capital
Adequacy
Purposes
|
|
|
To
be Well
Capitalized
Under
Prompt
Corrective
Action
Provisions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
capital to risk weighted assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
$ |
78,483 |
|
|
|
12.08 |
% |
|
$ |
51,983 |
|
|
|
8.00 |
% |
|
|
N/A |
|
|
|
N/A |
|
MidSouth
LA
|
|
$ |
62,643 |
|
|
|
12.34 |
% |
|
$ |
40,604 |
|
|
|
8.00 |
% |
|
$ |
50,756 |
|
|
|
10.00 |
% |
MidSouth
TX
|
|
$ |
15,475 |
|
|
|
10.84 |
% |
|
$ |
11,425 |
|
|
|
8.00 |
% |
|
$ |
14,281 |
|
|
|
10.00 |
% |
Tier
I capital to risk weighted assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
$ |
72,871 |
|
|
|
11.21 |
% |
|
$ |
25,992 |
|
|
|
4.00 |
% |
|
|
N/A |
|
|
|
N/A |
|
MidSouth
LA
|
|
$ |
58,539 |
|
|
|
11.53 |
% |
|
$ |
20,302 |
|
|
|
4.00 |
% |
|
$ |
30,453 |
|
|
|
6.00 |
% |
MidSouth
TX
|
|
$ |
13,967 |
|
|
|
9.78 |
% |
|
$ |
5,712 |
|
|
|
4.00 |
% |
|
$ |
8,569 |
|
|
|
6.00 |
% |
Tier
I capital to average assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
$ |
72,871 |
|
|
|
8.67 |
% |
|
$ |
33,603 |
|
|
|
4.00 |
% |
|
|
N/A |
|
|
|
N/A |
|
MidSouth
LA
|
|
$ |
58,539 |
|
|
|
8.59 |
% |
|
$ |
27,245 |
|
|
|
4.00 |
% |
|
$ |
40,867 |
|
|
|
6.00 |
% |
MidSouth
TX
|
|
$ |
13,967 |
|
|
|
8.65 |
% |
|
$ |
6,461 |
|
|
|
4.00 |
% |
|
$ |
9,692 |
|
|
|
6.00 |
% |
|
19. DISCLOSURES
ABOUT FAIR VALUE OF FINANCIAL
INSTRUMENTS
|
SFAS No.
107, Disclosure about Fair
Value of Financial Instruments, requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that value. In
cases where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques.
The
following methods and assumptions were used to estimate the fair value of each
class of financial instruments for which it is practicable to estimate that
value:
Cash and
Cash Equivalents—For cash on hand, amounts due from banks, federal funds sold,
and interest bearing deposits with original maturities less than 90 days the
carrying amount is a reasonable estimate of fair value.
Time
Deposits Held in Banks – For certificates of deposit maturing within eighteen
months, the carrying amount is a reasonable estimate of fair value.
Investment
Securities—For securities, fair value equals quoted market price, if available.
If a quoted market price is not available, fair value is estimated using one of
three pricing levels in accordance with SFAS No. 157. Refer to Note
10 Fair Value Measurements for more detail on these fair value
measurements.
Other
Investments— Other investments include Federal Reserve Bank and Federal Home
Loan Bank stock and other correspondent bank stocks which have no readily
determined market value and are carried at cost.
Loans,
net—For variable-rate loans that reprice frequently and with no significant
change in credit risk, fair values are based on carrying values. The
fair values for all other loans and leases are estimated based upon a discounted
cash flow analysis, using interest rates currently being offered for loans and
leases with similar terms to borrowers of similar credit quality.
Cash
Surrender Value of Life Insurance Policies—Fair value for life insurance cash
surrender value is based on cash surrender values indicated by the insurance
companies.
Deposits—The
fair value of demand deposits, savings accounts, and certain money market
deposits is the amount payable on demand at the reporting date. Fair
values for fixed-rate time deposits are estimated using a discounted
cash flow analysis that applies interest rates currently being offered on
deposits of similar terms of maturity.
Borrowings—The
fair value approximates the carrying value of repurchase agreements, federal
funds purchased, Federal Home Loan Bank advances, and Federal Reserve Discount
Window borrowings due to their short-term nature.
Junior
Subordinated Debentures—For junior subordinated debentures that bear interest on
a floating basis, the carrying amount approximates fair value. For
junior subordinated debentures that bear interest on a fixed rate basis, the
fair value is estimated using a discounted cash flow analysis that applies
interest rates currently being offered on similar types of
borrowings.
Commitments
to Extend Credit, Commercial Letters of Credit—Off-balance sheet instruments
(commitments to extend credit and commercial letters of credit) are generally
short-term and at variable interest rates. Therefore, both the
carrying value and estimated fair value associated with these instruments are
immaterial.
Limitations—Fair
value estimates are made at a specific point in time, based on relevant market
information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Company’s entire holdings of a particular financial
instrument. Because no market exists for a significant portion of the
Company’s financial instruments, fair value estimates are based on many
judgments. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could significantly
affect the estimates.
Fair
value estimates are based on existing on and off-balance sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. Significant assets and liabilities that are
not considered financial instruments include deferred income taxes and premises
and equipment. In addition, the tax ramifications related to the
realization of the unrealized gains and losses can have a significant effect on
fair value estimates and have not been considered in the estimates.
The
estimated fair values of the Company’s financial instruments are as follows at
December 31, 2008 and 2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
24,786 |
|
|
$ |
24,786 |
|
|
$ |
30,873 |
|
|
$ |
30,873 |
|
|
|
Time
deposits held in banks
|
|
|
9,023 |
|
|
|
9,023 |
|
|
|
- |
|
|
|
- |
|
|
|
Securities
available-for-sale
|
|
|
225,944 |
|
|
|
225,944 |
|
|
|
181,452 |
|
|
|
181,452 |
|
|
|
Securities
held-to-maturity
|
|
|
6,490 |
|
|
|
6,648 |
|
|
|
10,746 |
|
|
|
10,974 |
|
|
|
Loans,
net
|
|
|
601,369 |
|
|
|
604,829 |
|
|
|
563,893 |
|
|
|
566,013 |
|
|
|
Other
investments
|
|
|
4,309 |
|
|
|
4,309 |
|
|
|
4,021 |
|
|
|
4,021 |
|
|
|
Cash
surrender value of life insurance policies
|
|
|
4,378 |
|
|
|
4,378 |
|
|
|
4,219 |
|
|
|
4,219 |
|
|
|
Financial
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing
deposits
|
|
|
199,899 |
|
|
|
199,899 |
|
|
|
182,588 |
|
|
|
182,588 |
|
|
|
Interest-bearing
deposits
|
|
|
566,805 |
|
|
|
568,306 |
|
|
|
550,929 |
|
|
|
551,405 |
|
|
|
Repurchase
agreements
|
|
|
24,976 |
|
|
|
24,976 |
|
|
|
26,317 |
|
|
|
26,317 |
|
|
|
Federal
funds purchased
|
|
|
14,900 |
|
|
|
14,900 |
|
|
|
- |
|
|
|
- |
|
|
|
Federal
Reserve Bank Discount Window
|
|
|
36,000 |
|
|
|
36,000 |
|
|
|
- |
|
|
|
- |
|
|
|
Federal
Home Loan Bank Advances
|
|
|
- |
|
|
|
- |
|
|
|
4,400 |
|
|
|
4,400 |
|
|
|
Junior
subordinated debentures
|
|
|
15,465 |
|
|
|
15,395 |
|
|
|
15,465 |
|
|
|
15,868 |
|
|
|
20. OTHER
NONINTEREST INCOME AND EXPENSE
|
For the
years ended December 31, 2008, 2007, and 2006, none of the components of
non-interest income were greater than 1% of interest income and noninterest
income.
Components
of other non-interest expense greater than 1% of interest income and
non-interest income consisted of the following for the years ended December 31,
2008, 2007, and 2006, (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional
fees
|
|
$ |
1,838 |
|
|
$ |
1,428 |
|
|
$ |
1,088 |
|
|
|
Marketing
expenses
|
|
|
2,173 |
|
|
|
1,759 |
|
|
|
1,924 |
|
|
|
Corporate
development expense
|
|
|
772 |
|
|
|
489 |
|
|
|
505 |
|
|
|
Data
processing
|
|
|
884 |
|
|
|
597 |
|
|
|
436 |
|
|
|
Printing
and supplies
|
|
|
703 |
|
|
|
766 |
|
|
|
697 |
|
|
21. CONDENSED
FINANCIAL INFORMATION OF PARENT COMPANY
Summarized
financial information for MidSouth Bancorp, Inc. (parent company only)
follows:
|
|
Balance
Sheets
|
|
December
31, 2008 and 2007
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Cash
and interest-bearing deposits in banks
|
|
$ |
1,368 |
|
|
$ |
854 |
|
Equity
securities with readily determinable fair value (cost of $250,000 at
December 31, 2008 and 2007)
|
|
|
94 |
|
|
|
210 |
|
Other
assets
|
|
|
498 |
|
|
|
297 |
|
Investment
in and advances to subsidiaries
|
|
|
87,593 |
|
|
|
83,734 |
|
Total
assets
|
|
$ |
89,553 |
|
|
$ |
85,095 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Dividends
payable
|
|
$ |
747 |
|
|
$ |
739 |
|
Junior
subordinated debentures
|
|
|
15,465 |
|
|
|
15,465 |
|
ESOP
obligation
|
|
|
18 |
|
|
|
133 |
|
Other
|
|
|
279 |
|
|
|
289 |
|
Total
liabilities
|
|
|
16,509 |
|
|
|
16,626 |
|
Shareholders’
equity
|
|
|
73,044 |
|
|
|
68,469 |
|
Total
liabilities and shareholders’ equity
|
|
$ |
89,553 |
|
|
$ |
85,095 |
|
|
|
Statements
of Earnings
|
|
For
the Years Ended December 31, 2008, 2007, and 2006
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
Dividends
from Bank and non-bank subsidiary
|
|
$ |
4,000 |
|
|
$ |
3,500 |
|
|
$ |
2,500 |
|
Rental
and other income
|
|
|
72 |
|
|
|
61 |
|
|
|
63 |
|
|
|
|
4,072 |
|
|
|
3,561 |
|
|
|
2,563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
on short- and long-term debt
|
|
|
1,219 |
|
|
|
1,396 |
|
|
|
1,371 |
|
Professional
fees
|
|
|
161 |
|
|
|
189 |
|
|
|
253 |
|
Other
expenses
|
|
|
235 |
|
|
|
230 |
|
|
|
226 |
|
|
|
|
1,615 |
|
|
|
1,815 |
|
|
|
1,850 |
|
Earnings
before equity in undistributed earnings of subsidiaries
|
|
|
2,457 |
|
|
|
1,746 |
|
|
|
713 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in undistributed earnings of subsidiaries
|
|
|
2,772 |
|
|
|
6,443 |
|
|
|
6,912 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax benefit
|
|
|
308 |
|
|
|
587 |
|
|
|
595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$ |
5,537 |
|
|
$ |
8,776 |
|
|
$ |
8,220 |
|
|
|
Statements
of Cash Flows
|
|
For
the Years Ended December 31, 2008, 2007, and 2006
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$ |
5,537 |
|
|
$ |
8,776 |
|
|
$ |
8,220 |
|
Adjustments to reconcile net earnings to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed earnings of subsidiaries |
|
|
(2,772 |
) |
|
|
(6,443 |
) |
|
|
(6,912 |
) |
Other, net |
|
|
(111 |
) |
|
|
(93 |
) |
|
|
(565 |
) |
Net
cash provided by operating activities
|
|
|
2,654 |
|
|
|
2,240 |
|
|
|
743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of equity securities
|
|
|
- |
|
|
|
(250 |
) |
|
|
- |
|
Net
cash used in investing activities
|
|
|
- |
|
|
|
(250 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from exercise of stock options
|
|
|
476 |
|
|
|
408 |
|
|
|
965 |
|
Purchase
of treasury stock
|
|
|
(504 |
) |
|
|
(522 |
) |
|
|
(1,289 |
) |
Payment
of dividends
|
|
|
(2,112 |
) |
|
|
(1,753 |
) |
|
|
(1,491 |
) |
Cash
for fractional shares
|
|
|
- |
|
|
|
(12 |
) |
|
|
(12 |
) |
Net
cash used in financing activities
|
|
|
(2,140 |
) |
|
|
(1,879 |
) |
|
|
(1,827 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
change in cash and cash equivalents
|
|
|
514 |
|
|
|
111 |
|
|
|
(1,084 |
) |
Cash
and cash equivalents at beginning of year
|
|
|
854 |
|
|
|
743 |
|
|
|
1,827 |
|
Cash
and cash equivalents at end of year
|
|
$ |
1,368 |
|
|
$ |
854 |
|
|
$ |
743 |
|
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders
and Board of Directors
MidSouth
Bancorp, Inc. and Subsidiaries
Lafayette,
Louisiana
We have
audited the accompanying consolidated balance sheets of MidSouth Bancorp, Inc.
(the “Company”) and subsidiaries as of December 31, 2008 and 2007, and the
related consolidated statements of earnings, comprehensive income, shareholders’
equity, and cash flows for each of the three years in the period ended December
31, 2008. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of MidSouth Bancorp, Inc. and
subsidiaries as of December 31, 2008 and 2007 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2008, in conformity with accounting principles generally accepted
in the United States of America.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of MidSouth Bancorp, Inc. and
subsidiaries internal control over financial reporting as of December 31, 2008,
based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated March 11, 2009 expressed an unqualified
opinion on the effectiveness of MidSouth Bancorp, Inc.’s internal
control over financial reporting.
/s/ PORTER KEADLE
MOORE, LLP
Atlanta,
Georgia
March 11,
2009
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and Board of Directors
MidSouth Bancorp, Inc. and Subsidiaries
Lafayette, Louisiana
We have audited MidSouth Bancorp, Inc. and subsidiaries’ internal control
over financial reporting as of December 31, 2008, based on criteria established
in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). MidSouth Bancorp,
Inc.’s management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an
opinion on the Company's internal control over financial reporting based on our
audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in
all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audit also included
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis
for our opinion.
A company's internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, MidSouth Bancorp, Inc. and subsidiaries maintained
effective internal control over financial reporting as of December 31, 2008,
based on criteria established in Internal Control-Integrated Framework issued by
COSO.
We have also audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated balance
sheets of MidSouth Bancorp, Inc. and subsidiaries as of December 31, 2008
and 2007, and the related consolidated statements of earnings, comprehensive
income, shareholders’ equity and cash flows for each of the three years in the
period ended December 31, 2008, and our report dated March 11, 2009
expressed an unqualified opinion.
/s/ PORTER KEADLE
MOORE, LLP
Atlanta,
Georgia
March 11,
2009
|
Selected
Quarterly Financial Data (unaudited)
|
(Dollars
in thousands, except per share data)
|
|
|
2008 |
|
|
|
IV
|
|
|
|
III |
|
|
|
II |
|
|
|
I |
|
Interest
income
|
|
$ |
13,699 |
|
|
$ |
13,635 |
|
|
$ |
13,827 |
|
|
$ |
14,312 |
|
Interest
expense
|
|
|
3,480 |
|
|
|
3,579 |
|
|
|
3,988 |
|
|
|
5,038 |
|
Net
interest income
|
|
|
10,219 |
|
|
|
10,056 |
|
|
|
9,839 |
|
|
|
9,274 |
|
Provision
for loan losses
|
|
|
2,000 |
|
|
|
500 |
|
|
|
855 |
|
|
|
1,200 |
|
Net
interest income after provision for loan losses
|
|
|
8,219 |
|
|
|
9,556 |
|
|
|
8,984 |
|
|
|
8,074 |
|
Noninterest
income, excluding securities gains
|
|
|
3,755 |
|
|
|
3,981 |
|
|
|
3,804 |
|
|
|
3,587 |
|
Net
securities gains
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Noninterest
expense
|
|
|
11,352 |
|
|
|
11,235 |
|
|
|
11,093 |
|
|
|
10,293 |
|
Income
before income tax expense
|
|
|
662 |
|
|
|
2,302 |
|
|
|
1,695 |
|
|
|
1,368 |
|
Income
tax expense
|
|
|
(442 |
) |
|
|
445 |
|
|
|
277 |
|
|
|
169 |
|
Net
income
|
|
$ |
1,064 |
|
|
$ |
1,857 |
|
|
$ |
1,418 |
|
|
$ |
1,199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.16 |
|
|
$ |
0.28 |
|
|
$ |
0.22 |
|
|
$ |
0.18 |
|
Diluted
|
|
$ |
0.16 |
|
|
$ |
0.28 |
|
|
$ |
0.21 |
|
|
$ |
0.18 |
|
Market
price of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$ |
19.12 |
|
|
$ |
19.82 |
|
|
$ |
22.01 |
|
|
$ |
23.28 |
|
Low
|
|
$ |
12.01 |
|
|
$ |
15.11 |
|
|
$ |
16.35 |
|
|
$ |
16.73 |
|
Close
|
|
$ |
12.75 |
|
|
$ |
16.26 |
|
|
$ |
16.35 |
|
|
$ |
18.40 |
|
Average
shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
6,614,263 |
|
|
|
6,614,054 |
|
|
|
6,606,882 |
|
|
|
6,585,747 |
|
Diluted
|
|
|
6,633,143 |
|
|
|
6,635,969 |
|
|
|
6,660,123 |
|
|
|
6,621,917 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
IV |
|
|
|
III |
|
|
|
II |
|
|
|
I |
|
Interest
income
|
|
$ |
14,744 |
|
|
$ |
14,651 |
|
|
$ |
14,302 |
|
|
$ |
13,442 |
|
Interest
expense
|
|
|
5,131 |
|
|
|
5,234 |
|
|
|
5,065 |
|
|
|
5,104 |
|
Net
interest income
|
|
|
9,613 |
|
|
|
9,417 |
|
|
|
9,237 |
|
|
|
8,338 |
|
Provision
for loan losses
|
|
|
525 |
|
|
|
300 |
|
|
|
350 |
|
|
|
- |
|
Net
interest income after provision for loan losses
|
|
|
9,088 |
|
|
|
9,117 |
|
|
|
8,887 |
|
|
|
8,338 |
|
Noninterest
income, excluding securities gains
|
|
|
3,732 |
|
|
|
3,574 |
|
|
|
3,690 |
|
|
|
3,263 |
|
Net
securities gains
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Noninterest
expense
|
|
|
10,569 |
|
|
|
9,742 |
|
|
|
9,245 |
|
|
|
9,079 |
|
Income
before income tax expense
|
|
|
2,251 |
|
|
|
2,949 |
|
|
|
3,332 |
|
|
|
2,522 |
|
Income
tax expense
|
|
|
357 |
|
|
|
508 |
|
|
|
837 |
|
|
|
576 |
|
Net
income
|
|
$ |
1,894 |
|
|
$ |
2,441 |
|
|
$ |
2,495 |
|
|
$ |
1,946 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.29 |
|
|
$ |
0.37 |
|
|
$ |
0.38 |
|
|
$ |
0.30 |
|
Diluted
|
|
$ |
0.28 |
|
|
$ |
0.37 |
|
|
$ |
0.38 |
|
|
$ |
0.29 |
|
Market
price of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$ |
25.53 |
|
|
$ |
24.77 |
|
|
$ |
25.70 |
|
|
$ |
28.23 |
|
Low
|
|
$ |
21.06 |
|
|
$ |
20.04 |
|
|
$ |
22.25 |
|
|
$ |
25.38 |
|
Close
|
|
$ |
23.30 |
|
|
$ |
22.80 |
|
|
$ |
22.54 |
|
|
$ |
25.48 |
|
Average
shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
6,570,644 |
|
|
|
6,572,740 |
|
|
|
6,570,975 |
|
|
|
6,552,272 |
|
Diluted
|
|
|
6,638,199 |
|
|
|
6,637,362 |
|
|
|
6,647,155 |
|
|
|
6,646,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 9 – Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not
applicable.
Item 9A – Controls and Procedures
The
Company’s Chief Executive Officer and Chief Financial Officer have evaluated the
effectiveness of the disclosure controls and procedures (as such term is defined
in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). As of the end of the period covered by
this Annual Report on Form 10-K, the chief executive officer and chief financial
officer have concluded that such disclosure controls and procedures are
effective to ensure that information required to be disclosed by the Company in
reports that it submits under the Exchange Act is recorded, processed,
summarized, and reported within the time periods specified in the Securities and
Exchange Commission rules and forms.
During
the fourth quarter of 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 control over financial
reporting.
Management’s
Report on Internal Control Over Financial Reporting
The
management of MidSouth Bancorp, Inc. is responsible for establishing and
maintaining adequate internal control over financial reporting. The
Company’s internal control over financial reporting is a process designed under
the supervision of the Company’s Chief Executive Officer and the Chief Financial
Officer to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of the Company’s financial statements for external
purposes in accordance with the accounting principles generally accepted in the
United States of America. Internal control over financial reporting
is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Securities
Exchange Act of 1934, as amended.
The
Company’s internal control systems are designed to ensure that transactions are
properly authorized and recorded in the financial records and to safeguard
assets from material loss or misuse. Such assurance cannot be absolute because
of inherent limitations in any internal control system.
Management
assessed the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2008 based on the criteria for effective internal
control established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on the assessment, management determined
that the Company maintained effective internal control over financial reporting
as of December 31, 2008.
/s/
C. R. Cloutier
C.R.
Cloutier
President
and Principal Executive Officer
|
/s/
Teri S. Stelly
Teri
S. Stelly
Controller
and Interim Principal Financial and Accounting
Officer
|
Item 9B – Other Information
Not
applicable.
PART
III
Item 10 - Directors, Executive Officers, and Corporate
Governance
The
information contained in registrant's definitive proxy statement for its 2009
annual meeting of shareholders, is incorporated herein by reference in response
to this Item. Information concerning executive officers is under Item
4A of this filing.
Item 11 - Executive Compensation
The
information contained in registrant's definitive proxy statement for its 2009
annual meeting of shareholders is incorporated herein by reference in response
to this Item.
Item 12 - Security Ownership of Certain Beneficial Owners and
Management and Related Shareholder Matters
The
information contained in registrant's definitive proxy statement for its 2009
annual meeting of shareholders is incorporated herein by reference in response
to this Item.
Item 13 - Certain Relationships and Related Transactions and
Director Independence
The
information contained in registrant's definitive proxy statement for its 2009
annual meeting of shareholders is incorporated herein by reference in response
to this Item.
Item 14 – Principal Accounting Fees and Services
The
information contained in registrant's definitive proxy statement for its 2009
annual meeting of shareholders is incorporated herein by reference in response
to this Item.
Item 15 - Exhibits and Financial Statement
Schedules
The
following documents are filed as a part of this report:
(a)(1)
The following consolidated financial statements and supplementary data of the
Company are included in Part II of this Form 10-K:
Selected
Quarterly Financial Data
|
Report
of Independent Registered Public Accounting Firm
|
Consolidated
Balance Sheets – December 31, 2008 and 2007
|
Consolidated
Statements of Earnings – Years ended December 31, 2008, 2007, and
2006
|
Consolidated
Statements of Changes in Shareholders’ Equity – Years ended December 31,
2008, 2007, and 2006
|
Consolidated
Statements of Cash Flows – Years ended December 31, 2008, 2007, and
2006
|
Notes
to Consolidated Financial
Statements
|
(a)(2)
All schedules have been outlined because the information required is included in
the financial statements or notes or have been omitted because they are not
applicable or not required.
Exhibits
Exhibit
No.
|
|
Description
|
|
|
|
|
3.1
|
|
Amended
and Restated Articles of Incorporation of MidSouth Bancorp, Inc. (filed as
Exhibit 3.1 to MidSouth's Annual Report on Form 10-K for the Year Ended
December 31, 1993, and incorporated herein by
reference).
|
|
|
|
|
|
3.2 |
|
Articles
of Amendment to Amended and Restated Articles of Incorporation dated
January 2, 2009 (filed as Exhibit 3.1 to Form 8-K filed January 14, 2009
and incorporated herein by reference).
|
|
|
|
|
|
3.3 |
|
Amended
and Restated By-laws of MidSouth Bancorp, Inc. dated December 19,
2007*
|
|
|
|
|
|
3.4 |
|
Warrant
to Purchase Shares of Common Stock of MidSouth Bancorp, Inc. (filed as
Exhibit 3.2 to Form 8-K filed January 14, 2009 and incorporated herein by
reference).
|
|
|
|
|
|
3.5 |
|
Letter
Agreement, dated January 9, 2009, including the Securities Purchase
Agreement – Standard Terms incorporated by reference therein, between the
Company and the United States Department of the Treasury (filed as Exhibit
10.1 to Form 8-K filed January 14, 2009 and incorporated herein by
reference).
|
|
|
|
|
|
3.6 |
|
Form
of Letter Agreement, executed by each of Messrs. C.R. Cloutier, J. Eustis
Corrigan, Jr., Donald R. Landry and A. Dwight Utz, and Ms. Karen L. Hail
with the Company (filed as Exhibit 10.3 to Form 8-K filed January 14, 2009
and incorporated herein by reference).
|
|
|
|
|
|
10.1 |
|
MidSouth
National Bank Lease Agreement with Southwest Bank Building Limited
Partnership (filed as Exhibit 10.7 to the Company's annual report on Form
10-K for the Year Ended December 31, 1992, and incorporated herein by
reference).
|
|
|
|
|
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10.2 |
|
First
Amendment to Lease between MBL Life Assurance Corporation, successor in
interest to Southwest Bank Building Limited Partnership in Commendam, and
MidSouth National Bank (filed as Exhibit 10.1 to the Company's annual
report on Form 10-KSB for the year ended December 31, 1994, and
incorporated herein by reference).
|
|
|
|
|
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10.3 |
+ |
Amended
and Restated Deferred Compensation Plan and Trust effective dated December
17, 2008*
|
|
|
|
|
|
10.5 |
+ |
Employment
Agreements with C. R. Cloutier and Karen L. Hail (filed as Exhibit 5 to
MidSouth’s Form 1-A and incorporated herein by
reference).
|
|
|
|
|
|
10.7 |
+ |
The
MidSouth Bancorp, Inc. Dividend Reinvestment and Stock Purchase Plan
(filed as Exhibit 4.6 to MidSouth Bancorp, Inc.’s Form S-3D filed on July
25, 1997 and incorporated herein by reference).
|
|
|
|
|
|
10.9 |
+ |
The
MidSouth Bancorp, Inc. 2007 Omnibus Incentive Plan (filed as an appendix
to MidSouth’s definitive proxy statement filed April 23, 2007 and
incorporated herein by reference).
|
|
|
|
|
|
21 |
|
Subsidiaries
of the Registrant*
|
|
|
|
|
|
23.1 |
|
Consent
of Porter, Keadle, Moore LLP*
|
|
|
|
|
|
31.1 |
|
Certification
of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a)
of the Securities Exchange Act, as amended *
|
|
|
|
|
|
31.2 |
|
Certification
of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule
15d-14(a) of the Securities Exchange Act, as amended *
|
|
|
|
|
|
32.1 |
|
Certification
by the Company’s Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002*
|
|
|
|
|
|
32.2 |
|
Certification
by the Company’s Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002*
|
+ Management
contract or compensatory plan or arrangement
* Included
herewith
Agreements
with respect to certain of the Company’s long-term debt are not filed as
Exhibits hereto inasmuch as the debt authorized under any such agreement does
not exceed 10% of the Company’s total assets. The Company agrees to
furnish a copy of each such agreement to the Securities & Exchange
Commission upon request.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
|
|
MIDSOUTH
BANCORP, INC.
|
|
|
|
Registrant
|
By:
|
/s/
C. R. Cloutier
|
|
|
|
|
C.
R. Cloutier
|
|
|
|
|
President
and CEO
|
|
|
|
|
|
|
|
|
Date:
|
March
16,
2009
|
|
|
|
|
|
|
|
|
Signatures
|
Title
|
Date
|
|
|
|
/s/
C.R. Cloutier
C.R.
Cloutier
|
President,
Principal Executive Officer, and Director
|
March
16, 2009
|
|
|
|
/s/
Karen L. Hail
Karen
L. Hail
|
Chief
Operations Officer, Senior Executive Vice President, Secretary/Treasurer,
and Director
|
March
16, 2009
|
|
|
|
/s/
Teri S. Stelly
Teri
S. Stelly
|
Controller
and Interim Principal Financial and Accounting Officer
|
March
16, 2009
|
|
|
|
/s/
J.B. Hargroder, M.D.
J.B.
Hargroder, M.D.
|
Director
|
March
16, 2009
|
|
|
|
/s/
William M. Simmons
William
M. Simmons
|
Director
|
March
16, 2009
|
|
|
|
/s/
Will G. Charbonnet, Sr.
Will
G. Charbonnet, Sr.
|
Director
|
March
16, 2009
|
|
|
|
/s/
Clayton Paul Hillard
Clayton
Paul Hillard
|
Director
|
March
16, 2009
|
|
|
|
/s/
James R. Davis, Jr.
James
R. Davis, Jr.
|
Director
|
March
16, 2009
|
|
|
|
/s/
Timothy J. Lemoine
Timothy
J. Lemoine
|
Director
|
March
16, 2009
|
|
|
|
/s/
Joseph V. Tortorice, Jr.
Joseph
V. Tortorice, Jr.
|
Director
|
March
16, 2009
|
|
|
|
/s/
Milton B. Kidd, III
Milton
B. Kidd, III
|
Director
|
March
16, 2009
|
|
|
|
/s/
Glenn Pumpelly
Glenn
Pumpelly
|
Director
|
March
16, 2009
|