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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, 2007
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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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American Stock Exchange,
Inc.
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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 _X_
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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 _X_
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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
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
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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 __X__
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Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated
filer. Large accelerated filer
___ Accelerated filer _X__ Non-accelerated filer
__ Small 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 _X_
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The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant as of the last business day of the
registrant’s most recently completed second fiscal quarter was
approximately $89,084,578. As of February 29, 2008, there were
6,603,844 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 2008 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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2007
Annual Report on Form 10-K
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TABLE
OF CONTENTS
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Item
1 - Business
Item
1A – Risk Factors
Item
1B – Unresolved Staff Comments
Item
2 - Properties
Item
3 - Legal Proceedings
Item
4 - Submission of Matters to a Vote of Security Holders
Item
4A - Executive Officers of the Registrant
Item
5 - Market for Registrant's Common Stock, Related Stockholder Matters, and
Issuer Purchases of Equity Securities
Item
6 – Five Year Summary of Selected Consolidated Financial Data
Item
7 – Management’s Discussion and Analysis of Financial Position and Results of
Operations
Item
7A – Quantitative and Qualitative Disclosures about Market
Risk
Item
8 – Financial Statements and Supplementary Data
Notes
to Consolidated Financial Statements
Item
9 – Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Item
9A – Controls and Procedures
Item
9B – Other Information
Item
10 - Directors, Executive Officers, Promoters, and Control Persons; Compliance
with Section 16(a) of the Exchange Act
Item
11 - Executive Compensation
Item
12 - Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Item
13 - Certain Relationships and Related Transactions
Item
14 – Principal Accountant Fees and Services
Item
15 - Exhibits and Financial Statement Schedules
Part
I
Item
1 - Business
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The
Company
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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 two wholly owned bank subsidiaries
(the “Banks”), MidSouth Bank, N.A. (“MidSouth LA”), chartered in February 1985,
and MidSouth Bank-Texas, N.A. (“MidSouth TX”), acquired in October
2004. The Company plans to combine the two banks late in the first
quarter of 2008.
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The
Banks
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MidSouth
LA is a national banking association domiciled in Lafayette,
Louisiana. MidSouth TX is domiciled in Beaumont, Texas and converted
to a national charter in September 2007. The Banks provide 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 non-interest bearing checking accounts, investment accounts, cash
management services, electronic banking services, credit cards, and secured and
unsecured loan products. The Banks are U.S. government depositories
and are members 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 MidSouth LA and MidSouth TX with access to all ATMs operated by the
Banks with no surcharge. The MidSouth Franchise operates locations throughout
south Louisiana and southeast Texas described below under Item 2 -
Properties.
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Employees
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As of
December 31, 2007, the Banks employed approximately 410 full-time equivalent
employees. The Company has no employees who are not also employees of
the Banks. Through the Banks, 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 relationships of the Banks with
their employees to be excellent.
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Competition
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The Banks
face strong competition in their market areas from both traditional and
non-traditional 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 and customer loyalty 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 four new branches and three replacement branches in 2007,
continuing its primary focus of growing in existing markets with new branches.
In 2008, the Company plans to continue its expansion into southeastern Louisiana
as well as 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.
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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 banks 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 Banks.
-3-
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Bank
Holding Companies
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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.
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 Banks and to commit resources to support the Banks
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.
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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. Additionally,
independent auditors are required to attest to and report on management’s
evaluation of internal controls over financial reporting.
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 Banks 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 require that
the Company and the Banks meet certain minimum ratios of capital to assets in
order to conduct their 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 Banks are generally 8% for Total Capital, 4% for
Tier 1 Capital and 4% for leverage.
At
December 31, 2007, the Company's ratios of Tier 1 and total capital to
risk-weighted assets were 11.21% and 12.08%, respectively. The
Company's leverage ratio (Tier 1 capital to total average adjusted assets) was
8.67% at
December 31, 2007. All three regulatory capital ratios for the
Company and the Banks exceeded regulatory minimums at December 31,
2007.
-5-
To be
eligible to be classified as “well-capitalized,” the Banks 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 more. 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 (FDIC), and 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, 2007, the most recent notification from the FDIC placed MidSouth LA
and MidSouth TX in the “well capitalized” category under the regulatory
framework for prompt corrective action. All three regulatory capital
ratios for the Banks exceeded these minimums at December 31, 2007.
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National
Banks
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General
As
national banking associations, MidSouth LA and MidSouth TX are supervised and
regulated by the Office of the Comptroller of the Currency (“OCC”) (its primary
regulatory authority), the Federal Reserve Board, and the FDIC. Under
Section 23A of the Federal Reserve Act, the Banks are restricted in their
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 their 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
Banks’ deposits are insured by the FDIC up to the amount permitted by
law. The Banks are 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 has not been required to pay FDIC insurance premiums,
but has been required to pay FICO (the Financing Corporation) 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 non-callable thrift
bonds issued between 1987 and 1989, which expire with the bonds in
2019. In 2007, the FDIC resumed deposit insurance assessments and
also issued one-time credits against the assessments to qualifying
institutions. The Company qualified for a one-time credit totaling
approximately $240,000, which offset the new FDIC assessment through the third
quarter of 2007. In the fourth quarter of 2007, the Company recorded
approximately $74,000 in FDIC assessments, in addition to the $21,000 in FICO
assessments.
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Annual
premium rates on deposit insurance ranges from five to seven basis points per
$100 of assessable deposits for institutions that are judged to pose the least
risk to the insurance fund and up to 43 basis points per $100 of assessable
deposits for the most risky institutions. Based on current deposit
growth projections, FDIC and FICO assessments for 2008 will average
approximately $127,000 per quarter, or $508,000 for the year.
Financial
Institutions Reform, Recovery and Enforcement Act
The Banks
are 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 Banks
are subject to the provisions of the Community Reinvestment Act of 1977, as
amended (“CRA”), 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
their 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 Banks received a satisfactory rating following their most
recent CRA examination.
Consumer
Regulation
Activities
of the Banks 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 Banks’ disclosures of credit terms to consumer
borrowers;
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limit
the interest and other charges collected or contracted for by the
Banks;
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require
the Banks 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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prohibit
the Banks from discriminating on the basis of race, creed, or other
prohibited factors when it makes decisions to extend
credit;
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require
that the Banks 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;
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govern
the manner in which the Banks may collect consumer
debts.
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The
deposit operations of the Banks are also subject to laws and regulations
that:
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require
the Banks to adequately disclose the interest rates and other terms of
consumer deposit accounts;
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impose
a duty on the Banks to maintain the confidentiality of consumer financial
records and prescribe procedures for complying with administrative
subpoenas of financial records; and
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govern
automatic deposits to and withdrawals from deposit accounts with the Banks
and the rights and liabilities of customers who use automated teller
machines and other electronic banking
services.
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Governmental
Policies
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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
their 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.
-7-
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Available
Information
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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 five
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.
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Risks
Relating to the Company’s Business
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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 loan losses inherent in the loan portfolio. During
2007, recorded provisions for loan losses totaled $1.2 million based on an
overall evaluation of this risk. As of December 31, 2007, the
allowance was $5.6 million, which is about 0.99% 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 concentration of exposure to a number of individual
borrowers. The largest exposure to one borrowing relationship as of
December 31, 2007, was approximately $11.0 million, which is 21.1% of
combined capital and surplus. In addition,
as of December 31, 2007, the aggregate exposure to the 10 largest borrowing
relationships was approximately $83.0 million, which was 161.5% of capital and
surplus.
The
Company has a high concentration of loans secured by real estate, and a 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, 2007, 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, the growth of those customers' businesses, and the ability to increase
the deposit base. 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.
-8-
An
economic downturn or 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 the
credit exposure is in those states; thus, the Company is at risk from adverse
economic or business developments, including a downturn in real estate values
and agricultural activities, and 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 adverse
developments or 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 our interest income on interest-earning assets,
such as loans and investment securities, and interest expense on interest
bearing liabilities, such as deposits and borrowings. When interest
bearing liabilities mature or reprice more quickly than interest-earning assets
in a given period, a significant increase in market rates of interest could
adversely affect net interest income. Conversely, when
interest-earning assets mature or reprice more quickly than interest bearing
liabilities, falling interest rates could result in a decrease in net interest
income.
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 executives could have an adverse
effect on the Company. While the Company has employment agreements with Mr.
Cloutier and other 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.
-9-
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, 2007. 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;
|
|
·
|
employment
rates; and
|
|
·
|
population
trends.
|
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 an interest margin sufficient to result 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 banks, as well as
other financial institutions, have 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.
-10-
|
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, 2007, there
were 150,433 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
stockholders. 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.
The
holders of the Company’s trust preferred securities have rights that are senior
to those of shareholders.
At
December 31, 2007, 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 stockholders during that time.
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
2,647,600 shares, or 40.3%, 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
our Board with staggered three year terms, preventing a change in a
majority of the Board at any annual
meeting;
|
|
·
|
require
advance notice of proposed nominations for election to the Board and
business to be conducted at a shareholder meeting;
and
|
|
·
|
require
supermajority shareholder voting to approve business combinations not
approved by the Board.
|
-11-
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 stockholder 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 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 is subject to
restrictions.
Since the
Company is a holding company with no significant assets other than the Banks,
the Company has no material source of income other than dividends received from
these Banks. Therefore, the ability to pay dividends to the
shareholders will depend on the Banks’ 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 if it
has deferred payments of the interest on, or an event of default has occurred
with respect to, its trust preferred securities.
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
MidSouth LA facility in Lafayette, Louisiana under a lease expiring March 31,
2017. The Company is granted two 5-year renewal options
thereafter. MidSouth LA has eight other branches in Lafayette,
Louisiana, three in New Iberia, Louisiana, two in Baton Rouge, Louisiana, two in
Lake Charles Louisiana, and one banking office in each of the following
Louisiana cities: Breaux Bridge, Cecilia, Cut Off, Jeanerette, Opelousas, Morgan
City, Jennings, Sulphur, Thibodaux, and Houma. Seventeen of these
offices are owned and six are leased. MidSouth TX operates three full
service branches in Beaumont, Texas, including its headquarters located at 555
N. Dowlen Road in
Beaumont, two of which are owned and one leased. Additional full
service branches are located in Vidor, College Station, and
Conroe.
-12-
Item
3 - Legal Proceedings
The Banks
have been named as a defendant in various legal actions arising from normal
business activities in which damages of various amounts are
claimed. While the amount, if any, of ultimate liability with respect
to such matters cannot be currently determined, management believes, after
consulting with legal counsel, that any such liability will not have a material
adverse effect on the Company's consolidated financial position, results of
operations, or cash flows.
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 2007.
Item
4A - Executive Officers of the Registrant
C. R. Cloutier, 60 –
President, Chief Executive Officer and Director of the Company and MidSouth LA
since 1984.
Karen L. Hail, 54 – Senior
Executive Vice President and Chief Operations Officer of MidSouth LA since 2002,
and Secretary and Treasurer of the Company since 1984.
Donald R. Landry, 51 – Senior
Vice President and Senior Loan Officer of MidSouth LA since 1995 and Executive
Vice President since 2002.
Dwight Utz, 54 -
Senior Vice President of Retail Banking since 2001.
Teri S. Stelly, 48 - Senior
Vice President and Controller of the Company since 1998.
Christopher J. Levanti, 41 –
Joined MidSouth LA as Senior Vice President of Credit Administration in
2002.
J. Eustis Corrigan, Jr., 43 –
Joined the Company in 2006 as Executive Vice President and Chief Financial
Officer for the Company and the Banks; prior to his employment with the Company,
Mr. Corrigan was a partner at KPMG, LLP from 1998 to 2006. Mr.
Corrigan began his employment with KPMG in 1991.
Alexander Calicchia, 44 –
Joined the Company in 2007 as Senior Vice President and Chief Marketing Officer
for the Company and the Banks after 23 years in advertising and marketing,
primarily within the banking field. Prior to employment with the
Company, Mr. Calicchia served as Vice President, Brand and Product Manager for
Capital One Financial Corporation.
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.
-13-
PART
II
Item
5 - Market for Registrant's Common Stock, Related Stockholder Matters, and
Issuer Purchases of Equity Securities
As of
February 29, 2008, there were 838 common shareholders of record. The
Company’s common stock trades on the American Stock Exchange 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 $1,920,161 were declared to common stockholders during
2007. The regular quarterly dividend of $0.06 per share was paid for
the first two quarters of 2007. On July 18, 2007, the Company
declared a 5% stock dividend and increased the quarterly dividend from $0.06 to
$0.07 effective for the third and fourth 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. 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 $1,463,373 were declared to common stockholders during
2006. A quarterly dividend of $0.06 per share was paid for the first,
second, and third quarters of 2006. As adjusted for a 25% stock dividend paid on
October 23, 2006, cash dividends for the first three quarters of 2006 totaled
$0.13 per share. A special dividend of $0.03 per share was declared
in addition to the $0.06 per share for the fourth quarter of 2006, bringing the
total cash dividends declared in 2006 to $0.22 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 12 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, 2007. In addition to the repurchases detailed
below, a total of 6,667 shares were added to Treasury Stock through a 5% stock
dividend paid on October 23, 2007.
|
Total
Number
of
Shares Purchased
|
Average
Price Paid per Share
|
Total
Number of Shares Purchased as Part of a Publicly Announced Plan1
|
Maximum
Number of Shares That May Yet be Purchased Under the Plan1
|
|||||||||||||
|
October
2007
|
88 | $ | 25.65 | 88 | 187,819 | |||||||||||
|
November
2007
|
5,787 | $ | 23.74 | 5,787 | 182,032 | |||||||||||
|
December
2007
|
52 | $ | 23.20 | 52 | 181,980 | |||||||||||
|
Securities
Authorized for Issuance under Equity Compensation
Plans
|
As of
December 31, 2007, 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, 2007.
|
Plan
Category
|
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
|
150,433 | $ | 11.57 | 375,660 | ||||||||
|
Equity
compensation plans not approved by security holders
|
- | - | - | |||||||||
|
Total
|
150,433 | $ | 11.57 | 375,660 | ||||||||
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.
-14-
Item
6 – Five Year Summary of Selected Consolidated Financial Data
|
Year
Ended December 31,
|
||||||||||||||||||||
|
2007
|
2006
|
2005
|
2004
|
2003
|
||||||||||||||||
|
Interest
income
|
$ | 57,139,108 | $ | 50,235,104 | $ | 38,555,576 | $ | 27,745,570 | $ | 24,230,450 | ||||||||||
|
Interest
expense
|
(20,533,885 | ) | (17,692,273 | ) | (10,823,660 | ) | (5,718,271 | ) | (4,701,819 | ) | ||||||||||
|
Net
interest income
|
36,605,223 | 32,542,831 | 27,731,916 | 22,027,299 | 19,528,631 | |||||||||||||||
|
Provision
for loan losses
|
(1,175,000 | ) | (850,000 | ) | (979,737 | ) | (991,480 | ) | (550,000 | ) | ||||||||||
|
Non-interest
income
|
14,259,407 | 12,378,881 | 12,286,126 | 9,245,802 | 7,619,914 | |||||||||||||||
|
Non-interest
expenses
|
(38,635,238 | ) | (33,124,139 | ) | (29,326,273 | ) | (20,859,859 | ) | (17,970,856 | ) | ||||||||||
|
Earnings
before income taxes
|
11,054,392 | 10,947,573 | 9,712,032 | 9,421,762 | 8,627,689 | |||||||||||||||
|
Income
tax expense
|
(2,278,751 | ) | (2,727,523 | ) | (2,438,165 | ) | (2,442,331 | ) | (2,294,376 | ) | ||||||||||
|
Net
income
|
$ | 8,775,641 | $ | 8,220,050 | $ | 7,273,867 | $ | 6,979,431 | $ | 6,333,313 | ||||||||||
|
Basic
earnings per share1
|
$ | 1.34 | $ | 1.26 | $ | 1.13 | $ | 1.18 | $ | 1.10 | ||||||||||
|
Diluted
earnings per share1
|
$ | 1.32 | $ | 1.24 | $ | 1.10 | $ | 1.12 | $ | 1.06 | ||||||||||
|
Dividends
per share1
|
$ | 0.29 | $ | 0.22 | $ | 0.22 | $ | 0.18 | $ | 0.18 | ||||||||||
|
Total
loans
|
$ | 569,505,238 | $ | 499,045,702 | $ | 442,793,749 | $ | 386,471,421 | $ | 261,872,776 | ||||||||||
|
Total
assets
|
854,056,054 | 805,021,686 | 698,814,421 | 610,087,872 | 432,914,305 | |||||||||||||||
|
Total
deposits
|
733,516,997 | 716,179,541 | 624,938,100 | 530,382,792 | 374,388,482 | |||||||||||||||
|
Cash
dividends on common stock
|
1,920,161 | 1,463,373 | 1,425,326 | 1,112,360 | 992,648 | |||||||||||||||
|
Long-term
obligations2
|
15,465,000 | 15,465,000 | 15,465,000 | 15,465,000 | 7,217,000 | |||||||||||||||
|
|
||||||||||||||||||||
|
Selected
ratios:
|
||||||||||||||||||||
|
Loans
to assets
|
66.68 | % | 61.99 | % | 63.36 | % | 63.35 | % | 60.49 | % | ||||||||||
|
Loans
to deposits
|
77.64 | % | 69.68 | % | 70.85 | % | 72.87 | % | 69.95 | % | ||||||||||
|
Deposits
to assets
|
85.89 | % | 88.96 | % | 89.43 | % | 86.94 | % | 86.48 | % | ||||||||||
|
Return
on average assets
|
1.06 | % | 1.08 | % | 1.13 | % | 1.39 | % | 1.56 | % | ||||||||||
|
Return
on average common equity3
|
13.83 | % | 14.68 | % | 14.24 | % | 18.73 | % | 20.90 | % | ||||||||||
1On
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. On August 29,
2003, a 10% stock dividend was paid to holders of record on July 31,
2003. Per common share data has been adjusted
accordingly.
2 On
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.
-15-
Item
7 – Management’s Discussion and Analysis of Financial Position and Results of
Operations
MidSouth
Bancorp, Inc. (the “Company”) is a multi-bank holding company that conducts
substantially all of its business through its wholly-owned subsidiary banks (the
“Banks”), MidSouth Bank, N. A., headquartered in Lafayette, Louisiana (“MidSouth
LA”) and MidSouth Bank-Texas, N.A., headquartered in Beaumont, Texas (“MidSouth
TX”). The Company plans to combine the two banks late in the first
quarter of 2008. Following is management's discussion of
factors that management believes are among those necessary for an understanding
of the Company's financial statements. The discussion should be read
in conjunction with the Company's consolidated financial statements and the
notes thereto presented herein.
|
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 its 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.
-16-
The
Company adopted the provisions of SFAS No. 123R, Share-Based Payment (Revised
2004), on January 1, 2006 on a modified prospective basis. The
Company had previously adopted SFAS No. 123 on January 1, 2005. Among
other things, SFAS No. 123R eliminates the ability to account for
stock-based compensation using the intrinsic value based method of accounting
and requires that such transactions be recognized as compensation expense in the
income statement based on its fair values on the date of the grant. SFAS
No. 123R 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.
|
Overview
|
The
Company’s growth strategy is focused on three principal components: internal
growth and 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 and is compensated
accordingly. The Company invested significantly in the infrastructure
required to enhance voice and data communications by completing the installation
of a new system late in the fourth quarter of 2007. Management
believes that this infrastructure can accommodate substantial growth while
enabling the Company to minimize operational costs through certain economies of
scale. The Company will also continue their focus on attracting new
hires key to de novo projects and on on-going development of existing
staff.
|
Recent
Transactions
|
On
January 2, 2008, the Company paid its regular quarterly dividend of $0.07 per
share and an additional $0.04 special dividend to their common stockholders of
record as of December 14, 2007. On October 23, 2007, the Company paid
a five percent (5%) stock dividend on their common stock to holders of record on
September 21, 2007.
|
Results
of Operations
|
The
Company’s net income for the year ended December 31, 2007 totaled $8.8 million
compared to $8.2 million for the year ended December 31, 2006 an increase of
$556,000, or 6.8%. Basic earnings per share were $1.34 and $1.26 for
the years ended December 31, 2007 and 2006, respectively. Diluted
earnings per share were $1.32 for the year ended December 2007 compared to $1.24
per share earned for the year ended December 2006. Total interest
income increased $6.9 million, or 13.7%, in 2007, driven by a 12.9% increase in
the average volume of loans combined with a 28 basis point improvement in
average loan yields. The improvement in interest income was partially
offset by a $2.8 million increase in interest expense, which resulted primarily
from a 10.2% increase in the average volume of interest bearing liabilities and
a 19 basis point increase in the average rate paid on interest bearing
liabilities in 2007. Non-interest income increased $1.9 million, or
15.2%, in annual comparison due primarily to a $1.1 million increase in service
charges on deposit accounts driven by a higher volume of insufficient funds
(“NSF”) transactions processed. The resulting $5.9 million increase
in total net interest and non-interest income was invested in franchise growth
through market development, staff development, and system upgrades, which
resulted in increased non-interest expenses of $5.5 million for
2007.
The
Company’s total consolidated assets increased $49.0 million, or 6.1%, from
$805.0 million at December 31, 2006, to $854.0 million at December 31,
2007. Total loans grew $70.5 million, or 14.1%, from $499.0 million
at December 31, 2006 to $569.5 million at December 31, 2007, primarily in
commercial credits and construction loans. Total deposits grew $17.3
million, or 2.4%, from $716.2 million at December 31, 2006, to $733.5 million at
December 31, 2007. The Company maintained a strong non-interest
bearing deposit portfolio of $182.6 million, or 24.9% of total deposits, and
grew interest bearing deposits primarily in consumer Platinum checking and
Platinum money market accounts.
-17-
Nonperforming
assets, including loans 90 days or more past due and still accruing (“loans past
due”), totaled $3.0 million at December 31, 2007 compared to $2.3 million at
December 31, 2006. The increase resulted from an $882,000 increase in
loans past due, primarily attributable to four commercial loans. Of
the $980,000 in loans past due at December 31, 2007, two commercial loans
totaling $355,000 were paid off in January 2008. Nonaccrual
loans decreased $191,000 in annual comparison, from $1,793,000 at December 31,
2006 to $1,602,000 at December 31, 2007. As a percentage of total
assets, nonperforming assets increased from 0.29% at December of 2006 to 0.35%
at December of 2007.
Net loan
charge-offs for 2007 were $540,000, or 0.10% of average loans, compared to
$228,000, or 0.05% of average loans, recorded a year earlier. The
Company provided $1,175,000 for loan losses in 2007 compared to $850,000 in 2006
to bring the ALL as a percentage of total loans to 0.99% at year-end 2007
compared to 1.00% at year-end 2006. The increase in provision expense
resulted primarily from probable losses identified in the Company’s indirect
auto financing portfolio as a result of fraudulent activity by one auto
dealership in Texas. Provisions totaling $525,000 were expensed in
the fourth quarter of 2007, $300,000 of which was necessary to cover probable
losses in the indirect auto financing portfolio. The remaining
$225,000 of the $525,000 fourth quarter provision expense was primarily related
to the overall risk assessed in the Company’s residential real estate
development credits based on current economic conditions.
The
Company’s leverage ratio was 8.67% at December 31, 2007, compared to 8.34% at
December 31, 2006. Return on average common equity was 13.83% for
2007 compared to 14.68% for 2006. Return on average assets was 1.06%
compared to 1.08% for the same periods, respectively.
|
Table
1
|
||||||||||||
|
Summary
of Return on Equity and Assets
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Return
on average assets
|
1.06 | % | 1.08 | % | 1.13 | % | ||||||
|
Return
on average common equity
|
13.83 | % | 14.68 | % | 14.24 | % | ||||||
|
Dividend
payout ratio on common stock
|
19.97 | % | 18.14 | % | 18.75 | % | ||||||
|
Average
equity to average assets
|
7.69 | % | 7.35 | % | 7.94 | % | ||||||
|
Earnings
Analysis
|
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 5.10%, 4.90%, and 4.95% for the years ended December 31, 2007, 2006, and
2005, respectively. Tables 2 and 3 analyze the changes in net
interest income for each of the three year periods ended December 31, 2007,
2006, and 2005.
-18-
|
Table
2
|
||||||||||||||||||||||||||||||||||||
|
Consolidated
Average Balances, Interest, and Rates
(in
thousands)
|
||||||||||||||||||||||||||||||||||||
|
Year
Ended December 31,
|
||||||||||||||||||||||||||||||||||||
|
2007
|
2006
|
2005
|
||||||||||||||||||||||||||||||||||
|
Average
Volume
|
Interest
|
Average
Yield/
Rate
|
Average
Volume
|
Interest
|
Average
Yield/
Rate
|
Average
Volume
|
Interest
|
Average
Yield/
Rate
|
||||||||||||||||||||||||||||
|
Assets
|
||||||||||||||||||||||||||||||||||||
|
Investment
securities and interest bearing deposits1:
|
||||||||||||||||||||||||||||||||||||
|
Taxable
|
$ | 86,117 | $ | 4,096 | 4.76 | % | $ | 98,378 | $ | 4,471 | 4.54 | % | $ | 78,909 | $ | 3,098 | 3.93 | % | ||||||||||||||||||
|
Tax
exempt2
|
110,256 | 5,846 | 5.30 | % | 93,918 | 4,803 | 5.11 | % | 77,134 | 3,809 | 4.94 | % | ||||||||||||||||||||||||
|
Other
investments
|
3,533 | 156 | 4.42 | % | 2,377 | 80 | 3.37 | % | 2,615 | 75 | 2.87 | % | ||||||||||||||||||||||||
|
Total
investments
|
199,906 | 10,098 | 5.05 | % | 194,673 | 9,354 | 4.80 | % | 158,658 | 6,982 | 4.40 | % | ||||||||||||||||||||||||
|
Federal
funds sold and securities purchased under agreements to
resell
|
15,554 | 788 | 5.00 | % | 23,528 | 1,134 | 4.75 | % | 10,254 | 344 | 3.31 | % | ||||||||||||||||||||||||
|
Loans
|
||||||||||||||||||||||||||||||||||||
|
Commercial
and real estate
|
426,038 | 38,314 | 8.99 | % | 376,827 | 32,894 | 8.73 | % | 322,974 | 24,996 | 7.74 | % | ||||||||||||||||||||||||
|
Installment
|
109,688 | 9,651 | 8.80 | % | 97,693 | 8,251 | 8.45 | % | 90,251 | 7,336 | 8.13 | % | ||||||||||||||||||||||||
|
Total
loans3
|
535,726 | 47,965 | 8.95 | % | 474,520 | 41,145 | 8.67 | % | 413,225 | 32,332 | 7.82 | % | ||||||||||||||||||||||||
|
Total
earning assets
|
751,186 | 58,851 | 7.83 | % | 692,721 | 51,633 | 7.45 | % | 582,137 | 39,658 | 6.81 | % | ||||||||||||||||||||||||
|
Allowance
for loan losses
|
(5,079 | ) | (4,686 | ) | (4,026 | ) | ||||||||||||||||||||||||||||||
|
Nonearning
assets
|
79,327 | 73,568 | 65,168 | |||||||||||||||||||||||||||||||||
|
Total
assets
|
$ | 825,434 | $ | 761,603 | $ | 643,279 | ||||||||||||||||||||||||||||||
|
Liabilities
and stockholders’ equity
|
||||||||||||||||||||||||||||||||||||
|
NOW,
money market, and savings
|
$ | 419,983 | $ | 13,017 | 3.10 | % | $ | 388,880 | $ | 12,085 | 3.11 | % | $ | 309,364 | $ | 6,398 | 2.07 | % | ||||||||||||||||||
|
Time
deposits
|
121,238 | 5,089 | 4.20 | % | 117,149 | 4,053 | 3.46 | % | 117,635 | 3,060 | 2.60 | % | ||||||||||||||||||||||||
|
Total
interest bearing deposits
|
541,221 | 18,106 | 3.35 | % | 506,029 | 16,138 | 3.19 | % | 426,999 | 9,458 | 2.21 | % | ||||||||||||||||||||||||
|
Federal
funds purchased and securities sold under agreements to
repurchase
|
13,880 | 610 | 4.33 | % | 3,365 | 151 | 4.43 | % | 4,307 | 118 | 2.70 | % | ||||||||||||||||||||||||
|
FHLB
advances
|
8,309 | 421 | 5.00 | % | 649 | 33 | 5.02 | % | 980 | 28 | 2.82 | % | ||||||||||||||||||||||||
|
Junior
subordinated debentures
|
15,465 | 1,397 | 8.91 | % | 15,465 | 1,371 | 8.74 | % | 15,465 | 1,220 | 7.78 | % | ||||||||||||||||||||||||
|
Total
interest bearing liabilities
|
578,875 | 20,534 | 3.55 | % | 525,508 | 17,693 | 3.37 | % | 447,751 | 10,824 | 2.42 | % | ||||||||||||||||||||||||
|
Demand
deposits
|
178,933 | 176,353 | 139,946 | |||||||||||||||||||||||||||||||||
|
Other
liabilities
|
4,158 | 3,733 | 4,511 | |||||||||||||||||||||||||||||||||
|
Stockholders’
equity
|
63,468 | 56,009 | 51,071 | |||||||||||||||||||||||||||||||||
|
Total
liabilities and stockholders’ equity
|
$ | 825,434 | $ | 761,603 | $ | 643,279 | ||||||||||||||||||||||||||||||
|
Net
interest income and net interest spread
|
$ | 38,317 | 4.28 | % | $ | 33,940 | 4.08 | % | $ | 28,834 | 4.39 | % | ||||||||||||||||||||||||
|
Net
yield on interest earning assets
|
5.10 | % | 4.90 | % | 4.95 | % | ||||||||||||||||||||||||||||||
1 Securities classified as
available-for-sale are included in average balances and interest income figures
and reflect interest earned on such securities.
2Interest income of $1,712,000 for 2007,
$1,398,000 for 2006, and $1,102,000 for 2005 is added to interest earned on
tax-exempt obligations to reflect tax equivalent yields using a 34% tax
rate.
3 Interest income includes loan fees of
$3,352,000 for 2007, $3,400,000 for 2006, and $3,054,000 for
2005. Nonaccrual loans are included in average balances and income on
such loans is recognized on a cash basis.
-19-
|
Table
3
|
||||||||||||||||||||||||
|
Changes
in Taxable-Equivalent Net Interest Income
(in
thousands)
|
||||||||||||||||||||||||
|
2007
Compared to 2006
|
2006
Compared to 2005
|
|||||||||||||||||||||||
|
Total
Increase
|
Change
Attributable
To
|
Total
Increase
|
Change
Attributable
To
|
|||||||||||||||||||||
|
(Decrease)
|
Volume
|
Rates
|
(Decrease)
|
Volume
|
Rates
|
|||||||||||||||||||
|
Taxable-equivalent
earned on:
|
||||||||||||||||||||||||
|
Investment
securities and interest bearing deposits:
|
||||||||||||||||||||||||
|
Taxable
|
$ | (375 | ) | $ | (576 | ) | $ | 201 | $ | 1,373 | $ | 838 | $ | 535 | ||||||||||
|
Tax
exempt
|
1,043 | 861 | 182 | 994 | 854 | 140 | ||||||||||||||||||
|
Other
investments
|
76 | 46 | 30 | 5 | (7 | ) | 12 | |||||||||||||||||
|
Federal
funds sold and securities purchased under agreement to
resell
|
(346 | ) | (372 | ) | 26 | 790 | 600 | 190 | ||||||||||||||||
|
Loans,
including fees
|
6,820 | 5,445 | 1,375 | 8,813 | 5,097 | 3,716 | ||||||||||||||||||
|
Total
|
7,218 | 5,404 | 1,814 | 11,975 | 7,382 | 4,593 | ||||||||||||||||||
|
Interest
paid on:
|
||||||||||||||||||||||||
|
Interest
bearing deposits
|
1,968 | 1,154 | 814 | 6,680 | 1,982 | 4,698 | ||||||||||||||||||
|
Federal
funds purchased and securities sold under agreement to
repurchase
|
459 | 466 | (7 | ) | 33 | (28 | ) | 61 | ||||||||||||||||
|
FHLB
advances
|
388 | 389 | (1 | ) | 5 | (11 | ) | 16 | ||||||||||||||||
|
Junior
subordinated debentures
|
26 | - | 26 | 151 | - | 151 | ||||||||||||||||||
|
Total
|
2,841 | 2,009 | 832 | 6,869 | 1,943 | 4,926 | ||||||||||||||||||
|
Taxable-equivalent
net interest income
|
$ | 4,377 | $ | 3,395 | $ | 982 | $ | 5,106 | $ | 5,439 | $ | (333 | ) | |||||||||||
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 $4.4 million for 2007
over 2006 and $5.1 million for 2006 over 2005. Average earning assets
increased $58.5 million, or 8.4%, from $692.7 million at December 31, 2006 to
$751.2 million at December 31, 2007. The yield on average earning
assets increased 38 basis points, from 7.45% to 7.83% in annual
comparison. Loan yields improved 28 basis points, from 8.67% at
December 31, 2006 to 8.95% at December 31, 2007, primarily due to a rate
environment with Prime at 8.25% through late-September 2007. Prime
was lowered 50 basis points late in September 2007 and another 50 basis points
in the fourth quarter of 2007, to end the year at 7.25%. Average loan
volume increased $61.2 million, or 12.9%. These volume and rate
increases on earning assets resulted in an increase of $7.2 million in
taxable-equivalent interest income. The $7.2 million increase was
partially offset by a $2.8 million increase in interest paid on interest bearing
liabilities. Competitive pressures and a relatively flat yield curve
throughout 2007 resulted in an 18 basis point increase in the cost of interest
bearing liabilities, from 3.37% at December 31, 2006 to 3.55% at December 31,
2007.
In 2006,
a 14.8% increase in the average volume of loans combined with an 85 basis point
improvement in average loan yields contributed greatly to the $5.1 million
increase in taxable-equivalent net interest income. The average yield
on the loan portfolio increased from 7.82% in 2005 to 8.67% in
2006. Loan yields improved as the Company’s variable rate loans
adjusted to increases in Prime throughout the year. Prime increased
100 basis points to 8.25% by mid-year 2006. A $12.0 million
improvement in taxable-equivalent interest
income was partially offset by a $6.9 million increase in interest expense
resulting primarily from an 18.5% increase in the average volume of interest
bearing deposits and a 98 basis point increase in the average rate paid on
interest bearing deposits in 2006.
-20-
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 2007. The average volume of investment
securities increased $5.2 million in 2007, from $194.7 million in 2006 to $199.9
million. Average taxable-equivalent yields on investment securities
increased 25 basis points, from 4.80% in 2006 to 5.05% in
2007. Additionally, the average volume of federal funds sold
decreased $8.0 million and the average yield on federal funds sold improved 25
basis points to 5.00% in 2007 compared to 4.75% in 2006. Accordingly,
the taxable-equivalent interest income on investment securities increased
$744,000 in 2007 as compared to 2006. In 2006, the average volume of
investment securities increased $36.0 million, from $158.7 million in 2005 to
$194.7 million in 2006, while federal funds sold volume increased $13.3
million. Average taxable-equivalent yields on investment securities
increased to 4.80% in 2006, up 40 basis points from 4.40% in
2005. Improvement in investment volume and yields, including federal
funds sold, increased taxable-equivalent interest income on investment
securities $3.2 million for 2006.
The
Company maintained its strong core non-interest bearing deposit base with 24.8%
of average total deposits in 2007 compared to 25.8% in 2006 and 24.7% in
2005. The interest bearing deposit mix consisted of 58.3% in NOW,
money market, and savings deposits, and 16.8% in time deposits, primarily due to
growth in the Company’s Platinum money market and 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 1 basis point to 3.10% in 2007, down from 3.11% in
2006. In 2006, the mix of average total interest bearing deposits was
57.0% NOW, money market and savings deposits, and 17.2% certificates of
deposit. These two categories of interest bearing deposits were 54.6%
and 20.7% of average total deposits, respectively, in 2005. The shift
from time deposits, which are mainly certificates of deposits, to interest
bearing transaction accounts reflects the Company’s retail strategy of
developing a long-term banking relationship with depositors. 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. The 13 month promotional CD
was offered in all markets during the fourth quarter of 2006 and was continued
in selected Louisiana markets and the Texas market for part of
2007. The promotional rate contributed to a 74 basis point increase
in the average yield on certificates of deposit in 2007, from 3.46% in 2006 to
4.20%. The Company also offered a special promotional rate in 2005 of
4.00% on a 20 month certificate of deposit in conjunction with the Company’s
celebration of MidSouth LA’s 20 year anniversary. The promotional rate
contributed to the 86 basis point increase in the average yield on time deposits
to 3.46% in 2006, up from 2.60% in 2005.
Interest
expense on the Company’s junior subordinated debentures increased 17 basis
points, from 8.74% in 2006 to 8.91% in 2007 due to increases 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, 2007 was 7.43%. In 2006, the yield on the
junior subordinated debentures increased 96 basis points, from 7.78% at December
31, 2005 to 8.74% at December 31, 2006. 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.
Non-Interest
Income
Excluding Securities
Transactions
Service
charges and fees on deposit accounts represent the primary source of
non-interest income for the Company. Income from service charges and
fees on deposit accounts, including insufficient funds fees (“NSF” fees),
increased $1.1 million in 2007 compared to a $474,000 increase in
2006. The increase resulted primarily from a higher volume of NSF
transactions processed combined with a $1.00 increase in the NSF
fee.
-21-
The fee
was increased on July 1, 2006 from $23.47 to $24.47 per NSF item, still well
below competitors’ NSF charges in the Company’s markets.
Non-interest
income resulting from other charges and fees increased $748,000 in 2007 and
decreased $374,000 in 2006. The increase in 2007 resulted primarily
from a $414,000 increase in income on ATM and debit card
transactions. Additionally, mortgage processing fees increased
$152,000 annual comparison. The decrease in 2006 resulted primarily
from a $631,000 pre-tax special distribution received from Pulse EFT Association
in connection with its merger with a subsidiary of Discover Financial Services,
Inc. Net of the $631,000 distribution, other charges and fees
increased approximately $250,000 in 2006.
Securities
Transactions
The
Company reported no gains or losses on securities transactions in
2007. In 2006, MidSouth LA purchased two agency securities from the
investment portfolio of MidSouth TX to provide additional liquidity and to
maintain intercompany borrowings within regulatory limits. A minimal
net loss of $7,553 was recorded on the transaction in 2006. Net gains
on sales of securities totaled $385 in 2005. The Company liquidated
two mutual funds held by the Banks in the first quarter of 2005, with a gain on
one fund offsetting the loss on the second fund.
Non-interest
Expense
Total
non-interest expense increased 16.6%, or $5.5 million, from 2006 to 2007, and
13.0%, or $3.8 million, from 2005 to 2006. The Company's growth and
expansion over the past three years resulted in increases primarily in salaries
and employee benefits, 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 $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. Salaries and employee benefits increased $2.5 million, or
18.1%, in 2006, due to an increase in FTE employees from 337 in 2005 to 371 in
2006. Salary expense increases in 2006 resulted primarily from the
addition of staff for new branches.
Occupancy
expenses increased $889,000 in 2007 and $913,000 in 2006 and included the cost
of seven new facilities added in 2007, three of which replaced existing
facilities, and two branches added in 2006. Impairment charges of
$14,000 in 2007 and $248,000 in 2006 were incurred in connection with the
replacement and upgrade of the Company’s communications network and included in
occupancy expenses. Premises and equipment additions and leasehold
improvements totaled approximately $11.3 million, $9.7 million, and $6.6 million
for the years 2007, 2006, and 2005, respectively.
Total
other non-interest expense increased $1.0 million in 2007 and $379,000 in
2006. The increase in 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. ATM and debit card processing fees increased
due to a higher volume of electronic transactions processed.
The
increase in professional fees 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. Additional legal and accounting fees included in
professional fees increased $60,000 and $56,000 for the years 2007 and 2006,
respectively.
FDIC fees
also increased $77,000 in annual comparison due to deposit insurance assessments
resumed in January 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. FDIC assessments for 2008, based on
current deposit growth projections, will average approximately $127,000 per
quarter, or $508,000 for the year.
-22-
The
increase in 2006 other non-interest expense resulted primarily from increases of
$238,000 in ATM and debit card processing expenses due to a higher volume of
items processed, $165,000 in accounting and professional fees, $121,000 in
marketing costs, and $140,000 in recruiting and applicant
expenses. These increases were partially offset by a $164,000
decrease in expenses on other real estate owned and decreases in other
miscellaneous non-interest income expenses.
Income
Taxes
The
Company's tax expense decreased by $449,000 in 2007 and increased by $289,000 in
2006 and approximated 21% and 25% of income before taxes in 2007 and 2006,
respectively. The lower tax rate for 2007 resulted from the Company’s
recognition of the Work Opportunity Tax Credit under the Katrina Emergency Tax
Relief Act of 2005. Additionally, interest income on non-taxable
municipal securities lowered income tax expense in 2007 and 2006 and reduced
taxes from the expected statutory rate of 34%. Interest income on
non-taxable municipal securities also lowered the effective tax rate for 2005 to
approximately 25%. The Notes to the Consolidated Financial Statements
provide additional information regarding the Company's income tax
considerations.
|
Balance
Sheet Analysis
|
Investment
Securities
Total
investment securities decreased $4.4 million in 2007, from $196.6 million in
2006 to $192.2 million at December 31, 2007. The decrease resulted
primarily from utilizing some cash flows from investments to fund loans during
2007. Average duration of the portfolio was 3.57 years as of December
31, 2007 and the average taxable-equivalent yield was 5.05%. For the
year ended December 31, 2006, average duration of the portfolio was 3.36 years
and the average taxable-equivalent yield was 4.80%. Unrealized net
gains before tax effect in the securities available-for-sale portfolio were $1.2
million at December 31, 2007, compared to unrealized net losses before tax
effect of $1,300,202 at December 31, 2006. These amounts result from
interest rate fluctuations.
At
December 31, 2007, approximately $35.0 million, or 19.3%, 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 one privately issued CMO with
a current market value of $350,913. 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 $10.8 million and represented
pools which each had a book value of less than 10% of stockholders' equity at
December 31, 2007. All CMOs held in the portfolio are AAA rated 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 24.9%
of the available-for-sale portfolio consisted of U. S. Agency securities, while
municipal and other securities represented 55.6% 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 non-taxable municipal securities portfolio. The
held-to-maturity portfolio consisted of $10.1 million in non-taxable and $0.6
million in taxable municipal securities.
-23-
|
Table
4
Composition
of Investment Securities
December
31
(in
thousands)
|
||||||||||||||||||||
|
2007
|
2006
|
2005
|
2004
|
2003
|
||||||||||||||||
|
Available-for-sale
securities:
|
||||||||||||||||||||
|
U.
S. Treasuries
|
$ | - | $ | 1,986 | $ | 1,966 | $ | 2,000 | $ | - | ||||||||||
|
U.
S. Agencies
|
45,229 | 51,280 | 38,499 | 35,804 | 47,158 | |||||||||||||||
|
Obligations
of states and political subdivisions
|
100,966 | 95,676 | 61,534 | 56,468 | 38,114 | |||||||||||||||
|
Mortgage-backed
securities
|
24,250 | 29,888 | 33,715 | 30,962 | 24,325 | |||||||||||||||
|
Collateralized
mortgage obligations
|
10,797 | 854 | 1,086 | 1,861 | 4,471 | |||||||||||||||
|
Corporate
securities
|
- | 990 | 2,629 | 7,089 | 1,028 | |||||||||||||||
|
Equity
securities with readily determinable fair values
|
210 | - | - | - | - | |||||||||||||||
|
Mutual
funds
|
- | - | - | 9,077 | 967 | |||||||||||||||
|
Total
available-for-sale securities
|
$ | 181,452 | $ | 180,674 | $ | 139,429 | $ | 143,261 | $ | 116,063 | ||||||||||
|
Held-to-maturity
securities:
|
||||||||||||||||||||
|
Obligations
of state and political subdivisions
|
$ | 10,746 | $ | 15,901 | $ | 19,611 | $ | 22,852 | $ | 23,367 | ||||||||||
|
Total
held-to-maturity securities
|
$ | 10,746 | $ | 15,901 | $ | 19,611 | $ | 22,852 | $ | 23,367 | ||||||||||
|
Total
investment securities
|
$ | 192,198 | $ | 196,575 | $ | 159,040 | $ | 166,113 | $ | 139,430 | ||||||||||
|
Table
5
Investment
Securities Portfolio
Maturities
and Average Taxable-Equivalent Yields
For
the Year Ended December 31, 2007
(dollars
in thousands)
|
||||||||||||||||||||||||||||||||||||
|
Within
1 Year
|
After
1 but
Within
5 Years
|
After
5 but
Within
10 Year
|
After
10 Years
|
|||||||||||||||||||||||||||||||||
|
Amount
|
Yield
|
Amount
|
Yield
|
Amount
|
Yield
|
Amount
|
Yield
|
Total
|
||||||||||||||||||||||||||||
|
Securities
available-for-sale:
|
||||||||||||||||||||||||||||||||||||
|
U.S.
Treasury and U.S. government agency securities
|
$ | 20,937 | 3.78 | % | $ | 20,282 | 5.05 | % | $ | 4,010 | 5.56 | % | $ | - | - | $ | 45,229 | |||||||||||||||||||
|
Obligations
of state and political subdivisions
|
4,151 | 5.70 | % | 33,575 | 5.56 | % | 42,332 | 5.68 | % | 20,908 | 5.80 | % | 100,966 | |||||||||||||||||||||||
|
Mortgage
backs and CMOs
|
801 | 4.54 | % | 25,779 | 5.37 | % | 4,307 | 5.46 | % | 4,160 | 5.67 | % | 35,047 | |||||||||||||||||||||||
|
Equity
securities with readily determinable fair values
|
- | - | - | - | - | - | 210 | - | 210 | |||||||||||||||||||||||||||
|
Total
fair value
|
$ | 25,889 | $ | 79,636 | $ | 50,649 | $ | 25,278 | $ | 181,452 | ||||||||||||||||||||||||||
|
Within
1 Year
|
After
1 but
Within
5 Years
|
After
5 but
Within
10 Year
|
After
10 Years
|
|||||||||||||||||||||||||||||||||
|
Held-to-Maturity:
|
Amount
|
Yield
|
Amount
|
Yield
|
Amount
|
Yield
|
Amount
|
Yield
|
Total
|
|||||||||||||||||||||||||||
|
Obligations
of state and political subdivisions
|
$ | 2,620 | 5.60 | % | $ | 6,985 | 5.57 | % | $ | 1,141 | 5.68 | % | $ | - | - | $ | 10,746 | |||||||||||||||||||
-24-
Loan
Portfolio
The
Company’s loan portfolio totaled $569.5 million at December 31, 2007, up 14.1%,
or $70.5 million, from $499.0 million at December 31, 2006. In 2006,
loans grew 12.7%, or $56.2 million. For the past six years, the
Company’s loan officers have achieved double-digit percentage loan
growth. Successful recruiting of new lending officers, including two
former bank presidents in the Company’s Baton Rouge market in 2005, an effective
business development program, and an increase in loan participation activity in
new markets contributed to the growth. Of the $70.5 million growth in
2007, $16.7 million was in real estate construction loans. The
construction growth consisted of short-term credits, generally with a six to
twelve month maturity and earning a variable rate of interest tied to the Prime
rate. The real estate mortgage portfolio grew $11.7
million. The real estate loan growth consisted of both commercial and
consumer 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
construction and real estate mortgage credits allows management greater
flexibility in controlling interest rate risk. The commercial
portfolio, including agricultural, financial, and lease loans, increased $32.9
million. The Company’s installment loan portfolio increased $9.2
million, or 11.7%, in 2007, primarily in the indirect auto financing and
insurance premium financing portfolios.
The
Company’s combined loan portfolio at December 31, 2007 consisted of
approximately 55% in fixed rate loans, with the majority maturing within five
years. Approximately 45% of the portfolio earns a variable rate of
interest, with 35% adjusting to changes in the Prime rate and another 10%
adjusting 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)
|
||||||||||||||||||||
|
2007
|
2006
|
2005
|
2004
|
2003
|
||||||||||||||||
|
Commercial,
financial, and agricultural
|
$ | 187,544 | $ | 155,098 | $ | 153,737 | $ | 123,835 | $ | 86,961 | ||||||||||
|
Lease
financing receivable
|
8,089 | 7,902 | 6,108 | 4,048 | 4,067 | |||||||||||||||
|
Real
estate - mortgage
|
204,291 | 192,583 | 170,895 | 150,898 | 127,431 | |||||||||||||||
|
Real
estate - construction
|
80,864 | 64,126 | 39,202 | 41,464 | 12,103 | |||||||||||||||
|
Installment
loans to individuals
|
87,775 | 78,613 | 72,230 | 65,493 | 30,852 | |||||||||||||||
|
Other
|
942 | 724 | 622 | 733 | 459 | |||||||||||||||
|
Total
loans
|
$ | 569,505 | $ | 499,046 | $ | 442,794 | $ | 386,471 | $ | 261,873 | ||||||||||
-25-
|
Table
7
|
||||||||||||||||||||||||||||
|
Loan
Maturities and Sensitivity to Interest Rates
For
the Year Ended December 31, 2007
(in
thousands)
|
||||||||||||||||||||||||||||
|
Fixed
and Variable Rate Loans at Stated Maturities
|
Amounts
Over One Year With
|
|||||||||||||||||||||||||||
|
1
Year or Less
|
1
Year – 5 Years
|
Over
5 years
|
Total
|
Predetermined
Rates
|
Floating
Rates
|
Total
|
||||||||||||||||||||||
|
Commercial,
financial, industrial, commercial real estate – mortgage, and commercial
real estate - construction
|
$ | 161,311 | $ | 146,080 | $ | 121,064 | $ | 428,455 | $ | 113,858 | $ | 153,285 | $ | 267,143 | ||||||||||||||
|
Installment
loans to individuals and real estate mortgage
|
22,228 | 68,283 | 41,508 | 132,019 | 102,402 | 7,390 | 109,792 | |||||||||||||||||||||
|
Lease
financing receivables
|
609 | 7,332 | 148 | 8,089 | 7,480 | - | 7,480 | |||||||||||||||||||||
|
Other
|
942 | - | - | 942 | - | - | - | |||||||||||||||||||||
|
Total
|
$ | 185,090 | $ | 221,695 | $ | 162,720 | $ | 569,505 | $ | 223,740 | $ | 160,675 | $ | 384,415 | ||||||||||||||
MidSouth
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
which 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, external loan review services 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, 2007, 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 $80.5 million, or 14%, of the total loan
portfolio. A related industry segment, the construction industry,
represented approximately $46.6 million, or 8%, of the total loan
portfolio.
-26-
Nonperforming
Assets
Table 8
contains information about the Company's nonperforming assets, including loans
past due 90 days or more and still accruing.
|
Table
8
Asset
Quality Information
December
31 (in thousands)
|
||||||||||||||||||||
|
2007
|
2006
|
2005
|
2004
|
2003
|
||||||||||||||||
|
Loans
on nonaccrual
|
$ | 1,602 | $ | 1,793 | $ | 660 | $ | 472 | $ | 829 | ||||||||||
|
Loans
past due 90 days or more and accruing
|
980 | 98 | 2,510 | 488 | 503 | |||||||||||||||
|
Total
nonperforming loans
|
2,582 | 1,891 | 3,170 | 960 | 1,332 | |||||||||||||||
|
Other
real estate owned, net
|
143 | 368 | 98 | 445 | 218 | |||||||||||||||
|
Other
assets repossessed
|
280 | 55 | 176 | 283 | - | |||||||||||||||
|
Total
nonperforming assets
|
$ | 3,005 | $ | 2,314 | $ | 3,444 | $ | 1,688 | $ | 1,550 | ||||||||||
|
Nonperforming
loans to total loans
|
0.45 | % | 0.38 | % | 0.72 | % | 0.25 | % | 0.51 | % | ||||||||||
|
Nonperforming
assets to total assets
|
0.35 | % | 0.29 | % | 0.49 | % | 0.28 | % | 0.36 | % | ||||||||||
|
Allowance
as a percentage of nonperforming loans
|
217 | % | 263 | % | 137 | % | 401 | % | 209 | % | ||||||||||
Nonperforming
assets, including loans past due 90 days or more and still accruing, totaled
$3,005,000 at December 31, 2007, $2,314,000 at December 31, 2006, $3,444,000 at
December 31, 2005. The increase in nonperforming assets in 2007
compared to 2006 resulted primarily from an increase of $882,000 in loans past
due 90 days or more. Four commercial loans contributed to the
increase in loans past due 90 days or more in 2007, two of which totaled
$355,000 and were paid off in January 2008. The increase in past due
loans 90 days or more was partially offset by a decrease of $191,000 in
nonaccrual loans, from $1,793,000 at December 31, 2006 to $1,602,000 at December
31, 2007. The decrease in nonperforming assets in 2006 compared to 2005 resulted
primarily from a $2.4 million decrease in loans past due 90 days or more, which
included approximately $1.2 million in payoffs received on government-guaranteed
loans in the fourth quarter of 2006. Nonaccrual loans increased $1.1
million in 2006 as compared to 2005, primarily due to the addition of one
agricultural loan totaling $684,000 related to sugar cane production and one
construction credit totaling $457,000.
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 $1,175,000, $850,000, and $979,737, for the years 2007, 2006, and 2005,
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 2007, 2006,
2005, 2004, and 2003.
-27-
|
Table
9
|
||||||||||||||||||||
|
Summary
of Loan Loss Experience
(in
thousands)
|
||||||||||||||||||||
|
2007
|
2006
|
2005
|
2004
|
2003
|
||||||||||||||||
|
Balance
at beginning of year
|
$ | 4,977 | $ | 4,355 | $ | 3,851 | $ | 2,790 | $ | 2,891 | ||||||||||
|
Charge-offs:
|
||||||||||||||||||||
|
Commercial,
financial, and agricultural
|
150 | 148 | 108 | 508 | 387 | |||||||||||||||
|
Real
estate – mortgage
|
1 | - | 22 | 59 | 38 | |||||||||||||||
|
Installment
loans to individuals
|
474 | 393 | 491 | 435 | 473 | |||||||||||||||
|
Lease
financing receivables
|
1 | - | - | - | 7 | |||||||||||||||
|
Other
|
- | 1 | 81 | 65 | - | |||||||||||||||
|
Total
charge-offs
|
626 | 542 | 702 | 1,067 | 905 | |||||||||||||||
|
Recoveries:
|
||||||||||||||||||||
|
Commercial,
financial, and agricultural
|
18 | 85 | 102 | 87 | 97 | |||||||||||||||
|
Real-estate
– mortgage
|
6 | 63 | 11 | 4 | 28 | |||||||||||||||
|
Installment
loans to individuals
|
55 | 162 | 97 | 87 | 123 | |||||||||||||||
|
Lease
financing receivables
|
6 | - | - | - | 6 | |||||||||||||||
|
Other
|
1 | 4 | 16 | 4 | - | |||||||||||||||
|
Total
recoveries
|
86 | 314 | 226 | 182 | 254 | |||||||||||||||
|
Net
charge-offs
|
540 | 228 | 476 | 885 | 651 | |||||||||||||||
|
Additions
to allowance charged to operating expenses
|
1,175 | 850 | 980 | 991 | 550 | |||||||||||||||
|
Acquisition
|
- | - | - | 955 | - | |||||||||||||||
|
Balance
at end of year
|
$ | 5,612 | $ | 4,977 | $ | 4,355 | $ | 3,851 | $ | 2,790 | ||||||||||
|
Net
charge-offs to average loans
|
0.10 | % | 0.05 | % | 0.12 | % | 0.30 | % | 0.27 | % | ||||||||||
|
Year-end
allowance to year-end loans
|
0.99 | % | 1.00 | % | 0.98 | % | 1.00 | % | 1.07 | % | ||||||||||
-28-
|
Table
10
Allocation
of Loan Loss by Category
(dollars
in thousands)
|
||||||||||||||||||||||||||||||||||||||||
|
2007
|
2006
|
2005
|
2004
|
2003
|
||||||||||||||||||||||||||||||||||||
|
Amount
|
%
of loans to total loans
|
Amount
|
%
of loans to total loans
|
Amount
|
%
of loans to total loans
|
Amount
|
%
of loans to total loans
|
Amount
|
%
of loans to total loans
|
|||||||||||||||||||||||||||||||
|
Commercial,
financial, and real estate
|
$ | 2,111 | 32.9 | $ | 1,543 | 31.1 | $ | 1,545 | 34.7 | $ | 1,996 | 32.0 | $ | 1,619 | 33.2 | |||||||||||||||||||||||||
|
Real
estate - construction
|
659 | 1.4 | 647 | 1.6 | 367 | 1.4 | 382 | 1.0 | 58 | 1.6 | ||||||||||||||||||||||||||||||
|
Real
estate – mortgage
|
1,893 | 35.9 | 1,891 | 38.6 | 1,698 | 38.6 | 613 | 39.2 | 312 | 48.6 | ||||||||||||||||||||||||||||||
|
Installment
loans to individuals
|
805 | 14.2 | 796 | 12.8 | 645 | 8.9 | 789 | 10.7 | 309 | 4.6 | ||||||||||||||||||||||||||||||
|
Lease
financing receivables
|
80 | 15.4 | 50 | 15.8 | 63 | 16.3 | 31 | 16.9 | 17 | 11.8 | ||||||||||||||||||||||||||||||
|
Other
|
64 | 0.2 | 50 | 0.1 | 37 | 0.1 | 40 | 0.2 | 106 | 0.2 | ||||||||||||||||||||||||||||||
|
Unallocated
|
- | - | - | - | - | - | - | - | 369 | - | ||||||||||||||||||||||||||||||
| $ | 5,612 | 100.0 | $ | 4,977 | 100.0 | $ | 4,355 | 100.0 | $ | 3,851 | 100.0 | $ | 2,790 | 100.0 | ||||||||||||||||||||||||||
Quarterly
evaluations of the allowance are performed in accordance with generally accepted
accounting principles 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, 2007, total deposits increased $17.3 million, up 2.4%, to $733.5
million following an increase of $91.2 million in 2006 to $716.2
million. Deposit growth in 2007 was impacted by fluctuations in large
commercial deposit balances and tough competition for deposit dollars within the
Company’s markets. Non-interest bearing deposits remained constant at
$182.6 million and represented 25% of total deposits at December 31, 2007 and
2006, as compared to 28% of total deposits at December 31,
2005. Interest bearing deposits in money market and savings accounts
decreased $7.9 million, primarily in the Company’s commercial Platinum money
market deposits. NOW account deposits increased $14.9 million,
primarily in consumer Platinum checking accounts. Time deposits,
which are comprised primarily of certificates of deposits, increased $10.4
million in 2007 due to promotional offers primarily in the Texas
markets. Core deposits, defined as all deposits other than time
deposits of $100,000 or more, remained strong at 90% of total deposits in 2007,
compared to 92% at year-end 2006 and 92% at year-end
2005. Strategically, to manage the margin
and core deposit balances, the Company typically offers low to mid-market rates
of CDs and has no brokered deposits. Additional information on the
Company's deposits appears in the Notes to the Company's Consolidated Financial
Statements.
-29-
|
Table
11
|
||||||||||||||||||||||||
|
Summary
of Average Deposits
(in
thousands)
|
||||||||||||||||||||||||
|
2007
|
2006
|
2005
|
||||||||||||||||||||||
|
Average
Amount
|
Average
Yield
|
Average
Amount
|
Average
Yield
|
Average
Amount
|
Average
Yield
|
|||||||||||||||||||
|
Non-interest
bearing demand deposits
|
$ | 178,933 | 0.00 | % | $ | 176,353 | 0.00 | % | $ | 139,946 | 0.00 | % | ||||||||||||
|
Interest
bearing deposits:
|
||||||||||||||||||||||||
|
Savings,
NOW, and money market
|
419,983 | 3.10 | % | 388,880 | 3.11 | % | 309,364 | 2.07 | % | |||||||||||||||
|
Time
deposits
|
121,238 | 4.20 | % | 117,149 | 3.46 | % | 117,635 | 2.60 | % | |||||||||||||||
|
Total
|
$ | 720,154 | 2.51 | % | $ | 682,382 | 2.37 | % | $ | 566,945 | 2.21 | % | ||||||||||||
|
Table
12
Maturity
Schedule Time Deposits of $100,000 or More
(in
thousands)
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
3
months or less
|
$ | 25,026 | $ | 16,836 | $ | 14,658 | ||||||
|
3
months through 6 months
|
10,162 | 8,330 | 6,567 | |||||||||
|
7
months through 12 months
|
19,881 | 18,388 | 8,499 | |||||||||
|
Over
12 months
|
16,486 | 14,215 | 21,093 | |||||||||
|
Total
|
$ | 71,555 | $ | 57,769 | $ | 50,817 | ||||||
Borrowed
Funds
As of
December 31, 2007, the Company had securities sold under repurchase agreements
totaling $26.3 million and $4.4 million in short-term Federal Home Loan Bank
advances. At December 31, 2006, the Company had $4.5
million in securities sold under repurchase agreements and $5.7 million
in short-term advances with the Federal Home Loan Bank. The increase
in securities sold under repurchase agreements resulted from sales efforts to
address cash management needs for the Company’s small business and commercial
customers.
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, 2007 was
7.43%. 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.
-30-
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, 2007 was 3.90%. The repurchase date is scheduled for
August 9, 2017; however, the agreement may be called by CGMI on August 9, 2008,
or quarterly thereafter.
The ESOP
notes held by MidSouth LA totaled $132,708 at December 31, 2007. The
ESOP obligations constitute a reduction of the Company's stockholders' equity
because the primary source of loan repayment is contributions by the Bank to the
ESOP; however, the loans are not guaranteed by the Company. The ESOP
notes are eliminated from total loans and long-term debt as an intercompany
balance in the Company's December 31, 2007 and 2006 consolidated financial
statements.
Capital
The
Company and the Banks are required to maintain certain minimum capital
levels. Risk-based capital requirements are intended to make
regulatory capital more sensitive to the risk profile of an institution's
assets. At December 31, 2007, the Company and the Banks 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, 2007, the Company's Tier 1
capital to average adjusted assets (the “leverage ratio”) was 8.67% as compared
to 8.34% at December 31, 2006. Tier 1 capital to risk weighted assets
was 11.21% and 11.11% for 2007 and 2006, respectively. Total capital
to risk weighted assets was 12.08% and 11.96%, respectively, for the same
periods. For regulatory purposes, Tier 1 Capital includes $15,000,000
of junior subordinated debentures issued by the Company. For
financial reporting purposes, these funds are included as a liability under
generally accepted accounting principles. MidSouth LA's leverage
ratio was 8.59% at December 31, 2007 compared to 7.96% at December 31, 2006.
MidSouth TX’s leverage ratio at December 31, 2007 was 8.65% compared to 9.72% at
December 31, 2006.
The
Federal Deposit Insurance Corporation 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 Banks are both classified as “well capitalized” as
of December 31, 2007. No significant restrictions are placed on the
Banks as a result of this classification.
As
discussed under the heading Balance Sheet Analysis -
Securities, $1,231,728 in unrealized gains on securities
available-for-sale less a deferred tax liability of $418,787 was recorded as an
addition to stockholders' equity as of December 31, 2007. As of
December 31, 2006, $1,300,202 in unrealized losses on securities
available-for-sale, less a deferred tax asset of $442,069, was recorded as a
reduction to stockholders' equity. While the net unrealized loss or
gain on securities available-for-sale is required to be reported as a separate
component of stockholders' equity, it does not affect operating results or
regulatory capital ratios. The net unrealized gains and losses
reported for December 31, 2007 and 2006, however, did affect the Company's
equity-to-assets ratio for financial reporting purposes. The ratio of
equity-to-assets was 8.02% at December 31, 2007 and 7.42% at December 31,
2006.
Interest Rate
Sensitivity
Interest
rate sensitivity is the sensitivity of net interest income and economic value of
equity to changes in market rates of interest. The initial step in
the process of monitoring the Company’s interest rate sensitivity involves the
preparation of a basic gap analysis of earning assets and interest bearing
liabilities. The analysis presents differences in the repricing and maturity
characteristics of earning assets and interest bearing liabilities for selected
time periods. During 2007, the Company utilized the IPS-Sendero model
of asset and liability management. The IPS-Sendero model uses basic
gap data and additional information regarding rates and prepayment
characteristics to construct an analysis that factors in repricing
characteristics and cash flows from payments received on loans and
mortgage-backed securities. A consolidated gap analysis is presented
in Table 13. The cumulative one year gap position was approximately
negative $7.8 million, or 0.92% of total assets, at December 31,
2007.
-31-
|
Table
13
|
||||||||||||||||||||||||
|
Interest
Rate Sensitivity and Gap Analysis Table
December
31, 2007
(in
thousands at book value)
|
||||||||||||||||||||||||
|
0-3
MOS
|
4-12
MO
|
1-5
YRS
|
>5YRS
|
Non-interest
Bearing
|
Total
|
|||||||||||||||||||
|
Assets:
|
||||||||||||||||||||||||
|
Interest
bearing deposits
|
$ | 53 | $ | - | $ | - | $ | - | $ | - | $ | 53 | ||||||||||||
|
Federal
funds sold
|
5,400 | - | - | - | - | 5,400 | ||||||||||||||||||
|
Investments
|
||||||||||||||||||||||||
|
Investment
securities
|
26,367 | 16,342 | 57,224 | 59,841 | - | 159,774 | ||||||||||||||||||
|
Mortgage-backed
securities
|
6,000 | 10,477 | 18,019 | 717 | - | 35,213 | ||||||||||||||||||
|
Loans:
|
||||||||||||||||||||||||
|
Home
equity
|
3,897 | - | - | - | - | 3,897 | ||||||||||||||||||
|
Fixed
rate
|
58,329 | 113,622 | 180,256 | 15,048 | - | 367,255 | ||||||||||||||||||
|
Variable
rate
|
198,353 | - | - | - | - | 198,353 | ||||||||||||||||||
|
Other
assets
|
- | - | - | - | 88,491 | 88,491 | ||||||||||||||||||
|
Net
unrealized gains on securities available for sale
|
- | - | - | - | 1,232 | 1,232 | ||||||||||||||||||
|
Allowance
for loan losses
|
- | - | - | - | (5,612 | ) | (5,612 | ) | ||||||||||||||||
|
Total
assets
|
$ | 298,399 | $ | 140,441 | $ | 255,499 | $ | 75,606 | $ | 84,111 | $ | 854,056 | ||||||||||||
|
Liabilities:
|
||||||||||||||||||||||||
|
NOW
|
$ | 13,750 | $ | 33,880 | $ | 77,218 | $ | 19,487 | $ | - | $ | 144,335 | ||||||||||||
|
Savings
and money market
|
255,195 | 4,850 | 11,052 | 2,790 | - | 273,887 | ||||||||||||||||||
|
Time
deposits
|
38,790 | 61,256 | 32,591 | 70 | - | 132,707 | ||||||||||||||||||
|
Demand
deposits
|
- | - | - | - | $ | 182,588 | 182,588 | |||||||||||||||||
|
Other
liabilities
|
38,965 | - | - | 7,217 | 5,888 | 52,070 | ||||||||||||||||||
|
Stockholders’
equity
|
- | - | - | - | 68,469 | 68,469 | ||||||||||||||||||
|
Total
liabilities and stockholders equity
|
$ | 346,700 | $ | 99,986 | $ | 120,861 | $ | 29,564 | $ | 256,945 | $ | 854,056 | ||||||||||||
|
Repricing/maturity
gap:
|
||||||||||||||||||||||||
|
Period
|
$ | (48,301 | ) | $ | 40,455 | $ | 134,638 | $ | 46,042 | $ | (172,834 | ) | ||||||||||||
|
Cumulative
|
$ | (48,301 | ) | $ | (7,846 | ) | $ | 126,792 | $ | 172,834 | $ | - | ||||||||||||
|
Cumulative
Gap/Total Assets
|
(5.66 | )% | (0.92 | )% | 14.85 | % | 20.24 | % | ||||||||||||||||
|
Net
Interest Income At Risk
|
||||
|
Changes
in Interest Rates
|
Estimated
Increase/Decrease in NII
at
December 31, 2007
|
|||
|
Up 300 basis
points
|
12.44 | % | ||
|
Up 200 basis
points
|
8.29 | % | ||
|
Up 100 basis
points
|
4.15 | % | ||
|
Down 100 basis
points
|
(4.40 | )% | ||
|
Down 200 basis
points
|
(8.89 | )% | ||
|
Down 300 basis
points
|
(13.95 | )% | ||
-32-
With the
exception of NOW, money market, and savings deposits, the table presents
interest bearing liabilities on a contractual basis. While NOW, money
market, and savings deposits are contractually due on demand,
historically, the Company has experienced stability in these deposits despite
changes in market rates. Presentation of these deposits in the table,
therefore, reflects delayed repricing, or decay rates, throughout the time
horizon. Due to the weekly repricing of a majority of the money
market accounts, the decay rate was changed in 2006. The change
resulted in placement of these money market dollars in the 0-3 months maturity
timeframe.
The
Sendero model also uses the gap analysis data in Table 5 and additional
information regarding rates and payment characteristics to perform three
simulation tests. The tests use market data to perform rate shock,
rate cycle, and rate forecast simulations to 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, 2007 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, +100, -200, +200, -300 and +300 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 contractual obligations as they become due
and to fund operations. The Banks’ primary liquidity needs involve
their 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 Banks.
Liquidity
is provided primarily by three sources: a stable base of funding sources, an
adequate level of assets that can be readily converted into cash, and borrowing
lines with correspondent banks. The Company's core deposits are its
most stable and important source of funding. Further, the low
variability of the core deposit base lessens the need for
liquidity. Cash deposits at other banks, federal funds sold, and
principal payments received on loans and mortgage-backed securities provide
additional primary sources of liquidity for the Banks. A minimum of
$41.4 million in projected cash flows from securities during 2008 provides an
additional source of liquidity. The Banks also have significant
borrowing capacity with the FHLB of Dallas, Texas and borrowing lines with other
correspondent banks.
Parent Company
Liquidity
At the
parent company level, cash is needed primarily to meet interest payments on the
junior subordinated debentures and to pay dividends on common
stock. The parent 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 MidSouth LA totaling $3,500,000
and $2,500,000 provided additional liquidity for the parent company in 2007 and
2006, respectively. As of January 1, 2007, the Banks had the ability to pay
dividends to the parent company of approximately $19 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 Banks. The Banks have the ability to declare dividends to the parent company
without prior approval of primary regulators. However, the Banks’
ability to pay dividends would be prohibited if the result would cause the
Banks’ regulatory capital to fall below minimum requirements.
Cash
dividends totaling $1,920,161 and $1,463,373 were declared to common
stockholders during 2007 and 2006, 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 2007 to shareholders of record on December
14, 2007.
-33-
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, 2007.
|
Table
14
|
||||||||||||||||||||
|
Contractual
Obligations
(in
thousands)
|
||||||||||||||||||||
|
Payment
due by period
|
||||||||||||||||||||
|
Less
than
|
1-3
|
3-5
|
More
than
|
|||||||||||||||||
|
Total
|
1
year
|
years
|
years
|
5
years
|
||||||||||||||||
|
Time
deposits
|
$ | 132,707 | $ | 99,724 | $ | 28,390 | $ | 4,523 | $ | 70 | ||||||||||
|
Federal
Home Loan Bank advances
|
4,400 | 4,400 | - | - | - | |||||||||||||||
|
Long-term
debt obligations
|
15,465 | - | - | - | 15,465 | |||||||||||||||
|
Repurchase
investment
|
26,317 | 13,817 | - | - | 12,500 | |||||||||||||||
|
Operating
lease obligations
|
17,237 | 1,417 | 2,703 | 2,083 | 11,034 | |||||||||||||||
|
Total
|
$ | 196,126 | $ | 119,358 | $ | 31,093 | $ | 6,606 | $ | 39,069 | ||||||||||
|
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.
-34-
Item
8 – Financial Statements and Supplementary Data
|
|
||||||||
| Consolidated Balance Sheets | ||||||||
| December 31, 2007 and 2006 | ||||||||
|
2007
|
2006
|
|||||||
|
Assets
|
||||||||
|
Cash
and due from banks, including required reserves of $4,186,000 and
$4,002,000, respectively
|
$ | 25,419,029 | $ | 30,564,604 | ||||
|
Interest
bearing deposits in banks
|
53,499 | 39,737 | ||||||
|
Federal
funds sold
|
5,400,000 | 26,800,000 | ||||||
|
Securities
available-for-sale, at fair value (cost of $180,220,461 at December 31,
2007 and $181,973,949 at December 31, 2006)
|
181,452,189 | 180,673,747 | ||||||
|
Securities
held-to-maturity (estimated fair value of $10,974,266 at December 31, 2007
and $16,166,937 at December 31, 2006)
|
10,745,947 | 15,900,611 | ||||||
|
Loans,
net of allowance for loan losses of $5,611,582 at December 31, 2007 and
$4,976,857 at December 31, 2006
|
563,893,656 | 494,068,845 | ||||||
|
Other
investments
|
4,020,537 | 2,501,150 | ||||||
|
Bank
premises and equipment, net
|
39,229,018 | 30,609,332 | ||||||
|
Accrued
interest receivable
|
5,748,784 | 5,491,730 | ||||||
|
Goodwill
|
9,271,432 | 9,271,432 | ||||||
|
Intangibles
|
487,863 | 685,932 | ||||||
|
Cash
surrender value of life insurance
|
4,219,117 | 4,068,116 | ||||||
|
Other
assets
|
4,114,983 | 4,346,450 | ||||||
|
Total
assets
|
$ | 854,056,054 | $ | 805,021,686 | ||||
|
Liabilities
and Stockholders’ Equity
|
||||||||
|
Liabilities:
|
||||||||
|
Deposits:
|
||||||||
|
Non-interest
bearing
|
$ | 182,588,179 | $ | 182,595,931 | ||||
|
Interest
bearing
|
550,928,818 | 533,583,610 | ||||||
|
Total
deposits
|
733,516,997 | 716,179,541 | ||||||
|
Securities
sold under repurchase agreements
|
26,316,572 | 4,474,786 | ||||||
|
Accrued
interest payable
|
1,314,110 | 1,196,822 | ||||||
|
Federal
Home Loan Bank advances
|
4,400,000 | 5,650,000 | ||||||
|
Junior
subordinated debentures
|
15,465,000 | 15,465,000 | ||||||
|
Other
liabilities
|
4,574,495 | 2,312,061 | ||||||
|
Total
liabilities
|
785,587,174 | 745,278,210 | ||||||
|
Stockholders’
equity:
|
||||||||
|
Preferred
stock, no par value; 5,000,000 shares authorized, none issued or
outstanding
|
- | - | ||||||
|
Common
stock, $0.10 par value; 10,000,000 shares authorized, 6,722,993 and
6,355,946 issued and 6,576,165 and 6,236,989 outstanding at December 31,
2007 and December 31, 2006, respectively
|
672,299 | 635,595 | ||||||
|
Additional
paid-in capital
|
51,326,349 | 42,907,597 | ||||||
|
Unearned
ESOP shares
|
(132,708 | ) | (251,259 | ) | ||||
|
Accumulated
other comprehensive income (loss)
|
812,941 | (858,133 | ) | |||||
|
Treasury
stock- 146,828 at December 31, 2007 and 118,957 at December 31, 2006, at
cost
|
(3,040,489 | ) | (2,518,411 | ) | ||||
|
Retained
earnings
|
18,830,488 | 19,828,087 | ||||||
|
Total
stockholders’ equity
|
68,468,880 | 59,743,476 | ||||||
|
Total
liabilities and stockholders’ equity
|
$ | 854,056,054 | $ | 805,021,686 | ||||
|
See
notes to consolidated financial statements.
|
||||||||
-35-
|
|
||||||||||||
| Consolidated Statement of Earnings | ||||||||||||
| December 31, 2007, 2006 and 2005 | ||||||||||||
|
Twelve
Months Ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Interest
income:
|
||||||||||||
|
Loans,
including fees
|
$ | 47,965,520 | $ | 41,144,637 | $ | 32,332,415 | ||||||
|
Investment
securities:
|
||||||||||||
|
Taxable
|
4,251,320 | 4,551,581 | 3,172,544 | |||||||||
|
Nontaxable
|
4,134,052 | 3,405,140 | 2,706,775 | |||||||||
|
Federal
funds sold
|
788,216 | 1,133,746 | 343,842 | |||||||||
|
Total
interest income
|
57,139,108 | 50,235,104 | 38,555,576 | |||||||||
|
Interest
expense:
|
||||||||||||
|
Deposits
|
18,105,922 | 16,137,839 | 9,457,858 | |||||||||
|
Securities
sold under repurchase agreements, federal funds purchased and
advances
|
1,031,103 | 183,663 | 145,811 | |||||||||
|
Junior
subordinated debentures
|
1,396,860 | 1,370,771 | 1,219,991 | |||||||||
|
Total
interest expense
|
20,533,885 | 17,692,273 | 10,823,660 | |||||||||
|
Net
interest income
|
36,605,223 | 32,542,831 | 27,731,916 | |||||||||
|
Provision
for loan losses
|
1,175,000 | 850,000 | 979,737 | |||||||||
|
Net
interest income after provision for loan losses
|
35,430,223 | 31,692,831 | 26,752,179 | |||||||||
|
Non-interest
income:
|
||||||||||||
|
Service
charges on deposit accounts
|
9,881,422 | 8,756,937 | 8,282,666 | |||||||||
|
(Losses)
gains on sale of investment securities, net
|
- | (7,553 | ) | 385 | ||||||||
|
Other
charges and fees
|
4,377,985 | 3,629,497 | 4,003,075 | |||||||||
|
Total
non-interest income
|
14,259,407 | 12,378,881 | 12,286,126 | |||||||||
|
Non-interest
expenses:
|
||||||||||||
|
Salaries
and employee benefits
|
19,947,081 | 16,329,257 | 13,823,367 | |||||||||
|
Occupancy
expense
|
6,876,788 | 5,987,574 | 5,074,639 | |||||||||
|
Other
|
11,811,369 | 10,807,308 | 10,428,267 | |||||||||
|
Total
non-interest expense
|
38,635,238 | 33,124,139 | 29,326,273 | |||||||||
|
Earnings
before income taxes
|
11,054,392 | 10,947,573 | 9,712,032 | |||||||||
|
Income
tax expense
|
2,278,751 | 2,727,523 | 2,438,165 | |||||||||
|
Net
earnings
|
$ | 8,775,641 | $ | 8,220,050 | $ | 7,273,867 | ||||||
|
Earnings
per common share:
|
||||||||||||
|
Basic
|
$ | 1.34 | $ | 1.26 | $ | 1.13 | ||||||
|
Diluted
|
$ | 1.32 | $ | 1.24 | $ | 1.10 | ||||||
|
See
notes to consolidated financial statements.
|
||||||||||||
-36-
|
Consolidated
Statements of Comprehensive Income
|
||||||||||||
|
December
31, 2007, 2006 and 2005
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Net
earnings
|
$ | 8,775,641 | $ | 8,220,050 | $ | 7,273,867 | ||||||
|
Other
comprehensive income (loss), net of tax:
|
||||||||||||
|
Unrealized
gains (losses) on securities available-for-sale:
|
||||||||||||
|
Unrealized
holding gains (losses) arising during the year net of income tax expense
(benefit) of $860,856, $87,357, and ($723,706),
respectively
|
1,671,074 | 169,576 | (1,404,842 | ) | ||||||||
|
Reclassification
adjustment for losses (gains) included in net earnings, net of income tax
expense (benefit) of $0, ($2,568), and $131, respectively
|
- | 4,985 | (254 | ) | ||||||||
|
Total
other comprehensive income (loss)
|
1,671,074 | 174,561 | (1,405,096 | ) | ||||||||
|
Total
comprehensive income
|
$ | 10,446,715 | $ | 8,394,611 | $ | 5,868,771 | ||||||
|
See
notes to consolidated financial statements.
|
||||||||||||
-37-
|
Consolidated
Statements of Stockholders’ Equity
|
||||||||||||||||||||||||||||||||
|
December
31, 2007, 2006 and 2005
|
||||||||||||||||||||||||||||||||
|
Common
Stock
|
Additional
Paid-in
Capital
|
ESOP
Obligation
|
Unrealized
Gains
(Losses) On Securities
Available-
For-Sale
|
Treasury
Stock
|
Retained
Earnings
|
Total
|
||||||||||||||||||||||||||
|
Shares
|
Amount
|
|||||||||||||||||||||||||||||||
|
Balance
December 31, 2004
|
5,608,451 | $ | 560,845 | $ | 30,135,010 | $ | (65,314 | ) | $ | 372,402 | $ | (759,987 | ) | $ | 18,329,945 | $ | 48,572,901 | |||||||||||||||
|
Dividends
on common stock - $0.22 per share
|
- | - | - | - | - | - | (1,425,326 | ) | (1,425,326 | ) | ||||||||||||||||||||||
|
Exercise
of stock options
|
88,803 | 8,880 | 379,239 | - | - | - | - | 388,119 | ||||||||||||||||||||||||
|
Stock
dividend of 10% per common share, including cash paid for fractional
shares
|
560,367 | 56,037 | 11,027,909 | - | - | - | (11,094,586 | ) | (10,640 | ) | ||||||||||||||||||||||
|
Tax
benefit resulting from exercise of stock options
|
- | - | 265,849 | - | - | - | - | 265,849 | ||||||||||||||||||||||||
|
Purchase
of treasury stock, 27,341 shares
|
- | - | - | - | - | (469,226 | ) | - | (469,226 | ) | ||||||||||||||||||||||
|
Net
earnings
|
- | - | - | - | - | - | 7,273,867 | 7,273,867 | ||||||||||||||||||||||||
|
ESOP
obligation, repayments
|
- | - | (23,000 | ) | 18,120 | - | - | - | (4,880 | ) | ||||||||||||||||||||||
|
Change
in accumulated other comprehensive income
|
- | - | - | - | (1,405,096 | ) | - | - | (1,405,096 | ) | ||||||||||||||||||||||
|
Balance
December 31, 2005
|
6,257,621 | 625,762 | 41,785,007 | (47,194 | ) | (1,032,694 | ) | (1,229,213 | ) | 13,083,900 | 53,185,568 | |||||||||||||||||||||
|
Dividends
on common stock - $0.22 per share
|
- | - | - | - | - | - | (1,463,373 | ) | (1,463,373 | ) | ||||||||||||||||||||||
|
Stock
dividend of 25% per common share, including, cash paid for fractional
shares
|
- | - | - | - | - | - | (12,490 | ) | (12,490 | ) | ||||||||||||||||||||||
|
Exercise
of stock options
|
98,325 | 9,833 | 340,803 | - | - | - | - | 350,636 | ||||||||||||||||||||||||
|
Tax
benefit resulting from exercise of stock options
|
- | - | 614,823 | - | - | - | - | 614,823 | ||||||||||||||||||||||||
|
Purchase
of treasury stock, 50,517 shares
|
- | - | - | - | - | (1,289,198 | ) | - | (1,289,198 | ) | ||||||||||||||||||||||
|
Net
earnings
|
- | - | - | - | - | - | 8,220,050 | 8,220,050 | ||||||||||||||||||||||||
|
Increase
in ESOP obligation, net of repayments
|
- | - | - | (204,065 | ) | - | - | - | (204,065 | ) | ||||||||||||||||||||||
|
Excess
of market value over book value of ESOP shares released, net
adjustment
|
- | - | 90,000 | - | - | - | - | 90,000 | ||||||||||||||||||||||||
|
Stock
option expense
|
- | - | 76,964 | - | - | - | - | 76,964 | ||||||||||||||||||||||||
|
Change
in accumulated other comprehensive income
|
- | - | - | - | 174,561 | - | - | 174,561 | ||||||||||||||||||||||||
|
Balance
December 31, 2006
|
6,355,946 | 635,595 | 42,907,597 | (251,259 | ) | (858,133 | ) | (2,518,411 | ) | 19,828,087 | 59,743,476 | |||||||||||||||||||||
|
Dividends
on common stock- $0.29 per share
|
- | - | - | - | - | - | (1,920,161 | ) | (1,920,161 | ) | ||||||||||||||||||||||
|
Stock
dividend of 5% per common share, including cash paid for fractional
shares
|
317,266 | 31,726 | 7,808,982 | - | - | - | (7,853,079 | ) | (12,371 | ) | ||||||||||||||||||||||
|
Exercise
of stock options
|
49,781 | 4,978 | 265,764 | - | - | - | - | 270,742 | ||||||||||||||||||||||||
|
Tax
benefit resulting from exercise of stock options
|
- | - | 137,717 | - | - | - | - | 137,717 | ||||||||||||||||||||||||
|
Purchase
of treasury stock, 27,871 shares
|
- | - | - | - | - | (522,078 | ) | - | (522,078 | ) | ||||||||||||||||||||||
|
Net
earnings
|
- | - | - | - | - | - | 8,775,641 | 8,775,641 | ||||||||||||||||||||||||
|
ESOP
obligation, repayments
|
- | - | - | 118,551 | - | - | - | 118,551 | ||||||||||||||||||||||||
|
Excess
of market value over book value of ESOP shares released, net
adjustment
|
- | - | 110,000 | - | - | - | - | 110,000 | ||||||||||||||||||||||||
|
Stock
option expense
|
- | - | 96,289 | - | - | - | - | 96,289 | ||||||||||||||||||||||||
|
Change
in accumulated other comprehensive income
|
- | - | - | - | 1,671,074 | - | - | 1,671,074 | ||||||||||||||||||||||||
|
Balance
December 31, 2007
|
6,722,993 | $ | 672,299 | $ | 51,326,349 | $ | (132,708 | ) | $ | 812,941 | $ | (3,040,489 | ) | $ | 18,830,488 | $ | 68,468,880 | |||||||||||||||
|
See
notes to consolidated financial statements.
|
||||||||||||||||||||||||||||||||
-38-
|
Consolidated
Statements of Cash Flows
|
||||||||||||
|
December
31, 2007, 2006 and 2005
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Cash
flows from operating activities:
|
||||||||||||
|
Net
earnings
|
$ | 8,775,641 | $ | 8,220,050 | $ | 7,273,867 | ||||||
|
Adjustments
to reconcile net earnings to net cash provided by operating
activities:
|
||||||||||||
|
Depreciation
and amortization
|
2,808,401 | 2,713,395 | 2,293,405 | |||||||||
|
Provision
for loan losses
|
1,175,000 | 850,000 | 979,737 | |||||||||
|
Deferred
income taxes
|
1,231,800 | (152,200 | ) | (418,201 | ) | |||||||
|
Amortization
of premiums on securities, net
|
554,695 | 710,906 | 845,189 | |||||||||
|
Loss
(gain) on sales of investment securities
|
- | 7,553 | (385 | ) | ||||||||
|
Net
loss on sale of OREO
|
27,533 | 14,185 | - | |||||||||
|
Impairment
on premises and equipment
|
- | 247,678 | - | |||||||||
|
Loss
on sale of equipment
|
26,432 | 416 | 104,954 | |||||||||
|
Stock
option compensation expense
|
96,289 | 76,964 | - | |||||||||
|
Change
in accrued interest receivable
|
(257,054 | ) | (572,436 | ) | (1,038,819 | ) | ||||||
|
Change
in accrued interest payable
|
117,288 | 260,238 | 185,472 | |||||||||
|
Change
in other assets and liabilities, net
|
(32,426 | ) | (105,059 | ) | 510,755 | |||||||
|
Net
cash provided by operating activities
|
14,523,599 | 12,271,690 | 10,735,974 | |||||||||
|
Cash
flows from investing activities, net of effect of
acquisitions:
|
||||||||||||
|
Proceeds
from sales of investment securities available-for-sale
|
- | 2,988,590 | 9,099,585 | |||||||||
|
Proceeds
from maturities and calls of investment securities
available-for-sale
|
28,978,616 | 46,081,987 | 36,786,316 | |||||||||
|
Proceeds
from maturities of investment securities held-to-maturity
|
5,165,500 | 3,719,900 | 2,452,643 | |||||||||
|
Purchases
of investment securities available-for-sale
|
(27,792,720 | ) | (90,778,722 | ) | (44,253,594 | ) | ||||||
|
Proceeds
from redemption of other investments
|
1,167,900 | 598,000 | 1,162,000 | |||||||||
|
Purchases
of other investments
|
(2,685,226 | ) | (1,088,200 | ) | (621,350 | ) | ||||||
|
Net
change in loans
|
(71,132,138 | ) | (57,127,208 | ) | (56,968,279 | ) | ||||||
|
Purchases
of premises and equipment
|
(11,325,023 | ) | (9,665,034 | ) | (6,550,258 | ) | ||||||
|
Proceeds
from sale of premises and equipment
|
68,573 | - | 39,300 | |||||||||
|
Proceeds
from sales of other real estate owned
|
448,522 | 158,950 | 472,835 | |||||||||
|
Net
cash used in investing activities
|
(77,105,996 | ) | (105,111,737 | ) | (58,380,802 | ) | ||||||
|
Cash
flows from financing activities, net of effect of
acquisitions:
|
||||||||||||
|
Change
in deposits
|
17,337,456 | 91,241,441 | 94,555,308 | |||||||||
|
Change
in repurchase agreements
|
21,841,786 | 2,742,989 | (2,180,427 | ) | ||||||||
|
Change
in federal funds purchased
|
- | - | (8,500,000 | ) | ||||||||
|
Proceeds
from FHLB advances
|
412,868,500 | 31,450,000 | - | |||||||||
|
Repayments
of FHLB advances
|
(414,118,500 | ) | (25,800,000 | ) | - | |||||||
|
Purchase
of treasury stock
|
(522,078 | ) | (1,289,198 | ) | (469,226 | ) | ||||||
|
Proceeds
from exercise of stock options
|
270,742 | 614,823 | 265,849 | |||||||||
|
Tax
benefit due to exercise of stock options
|
137,717 | 350,636 | 388,119 | |||||||||
|
Payment
of dividends on common stock
|
(1,752,668 | ) | (1,490,815 | ) | (1,364,003 | ) | ||||||
|
Cash
paid for fractional shares
|
(12,371 | ) | (12,490 | ) | (10,640 | ) | ||||||
|
Net
cash provided by financing activities
|
36,050,584 | 97,807,386 | 82,684,980 | |||||||||
|
Net
(decrease) increase in cash and cash equivalents
|
(26,531,813 | ) | 4,967,339 | 35,040,152 | ||||||||
|
Cash
and cash equivalents, beginning of year
|
57,404,341 | 52,437,002 | 17,396,850 | |||||||||
|
Cash
and cash equivalents, end of year
|
$ | 30,872,528 | $ | 57,404,341 | $ | 52,437,002 | ||||||
|
Supplemental
cash flow information:
|
||||||||||||
|
Interest
paid
|
$ | 20,416,597 | $ | 17,432,035 | $ | 10,638,188 | ||||||
|
Income
taxes paid
|
$ | 850,000 | $ | 2,463,000 | $ | 2,495,000 | ||||||
|
Noncash
investing and financing activities:
|
||||||||||||
|
Change
in unrealized gains/losses on securities available-for-sale, net of
tax
|
$ | 1,671,074 | $ | 169,576 | $ | (1,404,842 | ) | |||||
|
Transfer
of loans to other real estate
|
$ | 251,000 | $ | 444,000 | $ | 188,000 | ||||||
|
See
notes to consolidated financial statements.
|
||||||||||||
-39-
Notes
to Consolidated Financial Statements
December
31, 2007, 2006 and 2005
|
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. (“MidSouth LA”), and MidSouth Bank-Texas, N.A. (“MidSouth TX”) (the
“Banks”), and Financial Services of the South, Inc. (the “Finance Company”),
which has liquidated its loan portfolio. All significant intercompany accounts
and transactions have been eliminated in consolidation. The Company
is subject to regulation under the Bank Holding Company Act of
1956. MidSouth LA and MidSouth TX are primarily regulated by the
Office of the Comptroller of the Currency (“OCC”) and the Federal Deposit
Insurance Corporation (“FDIC”). MidSouth TX was previously subject to
regulation by the Texas Department of Banking and the FDIC until it became
nationally chartered on September 17, 2007.
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 Banks. The Banks are
community oriented and focus 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, 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. A summary of significant accounting policies
follows:
Cash and
cash equivalents—Cash and cash equivalents include cash on hand, amounts due
from banks, interest bearing deposits, and federal funds sold.
Investment
Securities—Securities are accounted for in accordance with the Financial
Accounting Standards Board (“FASB”) issued Statement of Financial Accounting
Standards (“SFAS”) No. 115 Accounting for Certain Investments
in Debt and Equity Securities (“SFAS No. 115”). SFAS No. 115
requires the classification of securities into one of three categories: trading,
available-for-sale, or held-to-maturity.
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, 2007. Held-to-maturity securities are stated at amortized cost.
Available-for-sale securities are stated at fair value, with unrealized gains
and losses, net of deferred taxes, reported as a separate component of
stockholders’ equity.
The
amortized cost of debt securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and accretion of
discounts to maturity or, in the case of mortgage-backed securities, over the
estimated life of the security. Amortization, accretion, and accrued interest
are included in interest income on securities. Realized gains and losses, 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.
-40-
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
non-performing 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).
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.
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.
The
Company recognized impairment on the network and telephone system during 2006 as
the result of a decision to upgrade the system in the subsequent fiscal year.
The equipment is considered held for sale by the Company at December 31,
2007. An impairment charge was recorded in 2006 for $247,678 with no
remaining net book value.
-41-
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.
-42-
Stock-Based
Compensation—The Company adopted SFAS No. 123R, Share-based Payment (Revised
December 2004) in the fiscal year ended December 31,
2006. SFAS No. 123R eliminates the ability toaccount for stock-based
compensation using Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to
Employees, and requires that such transactions be recognized as
compensation cost in the income statement based on their fair values on the date
of the grant. The provisions of this Statement were applied on a
modified prospective basis in the fiscal year ended December 31, 2006 for all
equity awards granted and unvested as of January 1, 2006.
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, a 25% stock dividend in 2006, and
a 10% stock dividend in 2005. 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, interest-bearing deposits, and
federal funds sold. Generally, federal funds are sold for one-day
periods.
Recent
Accounting Pronouncements—In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements
(“SFAS No. 157”). SFAS No. 157 establishes a framework for measuring
fair value and expands disclosures about fair value measurements. The
changes to current practice resulting from the application of this statement
relate to the definition of fair value, the methods used to measure fair value,
and the expanded disclosures about fair value measurements. SFAS No.
157 is effective for the fiscal years beginning after November 15, 2007 and
interim periods within those fiscal years. The Company does not
anticipate the adoption of this new accounting principle to have a material
effect on its financial position, results of operations, or cash
flows.
In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities – Including an Amendment of FASB Statement No.
115 (“SFAS No. 159”). SFAS No. 159 permits an entity to choose
to measure certain financial instruments and certain other items at fair value,
on an instrument-by-instrument basis. Once an entity has elected to
record eligible items at fair value, the decision is irrevocable and the entity
should report unrealized gains and losses on items for which the fair value
option has been elected in earnings. This statement is effective for
fiscal years beginning after November 15, 2007. At the effective
date, an entity may elect the fair value option for eligible items that exist at
the date with the effect of the first remeasurement to fair value reported as a
cumulative-effect adjustment to the opening balance of retained
earnings. The Company is currently in the process of evaluating the
impact of adopting this Statement on the Company’s financial position, results
of operation, and cash flows.
In
September 2006, the FASB’s Emerging Issues Task Force (“EITF”) reached a
consensus on the issue No. 06-4 Accounting for Deferred Compensation
and Postretirement Benefit Aspects of Endorsement Split-Dollar Lift Insurance
Arrangements (“EITF 06-4”). The issue was ratified by FASB on
March 28, 2007. Entities affected by this issue purchase life
insurance on “key” employees, which extend into the individual’s retirement
period. The issue requires affected entities to recognize a liability
for future benefits based on the substantive agreement with the
employee. EITF 06-4 is effective for all financial statements issued
for fiscal years
beginning after December 15, 2007. This issue will be applied through
a cumulative-effect adjustment to retained earnings as of beginning of the year
adoption. The Company expects the adoption of this EITF issue to
decrease retained earnings by $114,954 and will have no material effect on the
results of operations or cash flows.
-43-
In
December 2007, FASB revised Statement No. 141R, Business Combinations (“SFAS
No. 141R”). Under SFAS No. 141, organizations utilized the
announcement date as the measurement date for the purchase price of the acquired
entity. SFAS No. 141R requires measurement at the date the acquirer obtains
control of the acquiree, generally referred to as the acquisition date. SFAS No.
141R will have a significant impact on the accounting for transaction and
restructuring costs, as well as the initial recognition of contingent assets and
liabilities assumed during a business combination. Under SFAS No.
141R, adjustments to the acquired entity’s deferred tax assets and uncertain tax
position balances occurring outside the measurement period are recorded as a
component of the income tax expense, rather than goodwill. SFAS No.
141R is effective for business combinations for which the acquisition date is on
or after the beginning of the first annual reporting period beginning on or
after December 15, 2008. As the provisions of SFAS No. 141R are
applied prospectively, the impact to the Company cannot be determined until a
transaction occurs.
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements (“SFAS No. 160”), which will require
noncontrolling interests (previously referred to as minority interests) to be
treated as a separate component of equity, not as a liability or other item
outside of permanent equity. SFAS No. 160 applies to the accounting for
noncontrolling interests and transactions with noncontrolling interest holders
in consolidated financial statements. SFAS No. 160 is effective for periods
beginning on or after December 15, 2008. Earlier application is prohibited.
SFAS No. 160 will be applied prospectively to all noncontrolling interests,
including any that arose before the effective date except that comparative
period information must be recast to classify noncontrolling interests in
equity, attribute net income and other comprehensive income to noncontrolling
interests, and provide other disclosures required by SFAS No. 160. The
Company does not expect the adoption of SFAS No. 160 to have any impact on
its financial position, results of operation, and cash flows.
Reclassifications—Certain
reclassifications have been made to the prior years’ financial statements in
order to conform to the classifications adopted for reporting in
2007.
-44-
|
2. INVESTMENT
SECURITIES
|
The
portfolio of securities consisted of the following:
|
December
31, 2007
|
||||||||||||||||
|
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Fair
Value
|
|||||||||||||
|
Available-for-sale:
|
||||||||||||||||
|
U.S.
Government agencies and SBA loans
|
$ | 44,914,952 | $ | 339,192 | $ | 25,253 | $ | 45,228,891 | ||||||||
|
Obligations
of states and political subdivisions
|
99,842,135 | 1,218,917 | 94,558 | 100,966,494 | ||||||||||||
|
Mortgage-backed
securities
|
24,375,076 | 73,335 | 198,451 | 24,249,960 | ||||||||||||
|
Collateralized
mortgage obligations
|
10,838,298 | 24,501 | 66,205 | 10,796,594 | ||||||||||||
|
Equity
securities with readily determinable fair values
|
250,000 | - | 39,750 | 210,250 | ||||||||||||
| $ | 180,220,461 | $ | 1,655,945 | $ | 424,217 | $ | 181,452,189 | |||||||||
|
December
31, 2006
|
||||||||||||||||
|
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Fair
Value
|
|||||||||||||
|
Available-for-sale:
|
||||||||||||||||
|
U.S.
Treasury Securities
|
$ | 1,999,658 | $ | - | $ | 14,038 | $ | 1,985,620 | ||||||||
|
U.S.
Government agencies and SBA loans
|
51,687,596 | 24,158 | 431,553 | 51,280,201 | ||||||||||||
|
Obligations
of states and political subdivisions
|
96,246,384 | 313,280 | 884,158 | 95,675,506 | ||||||||||||
|
Mortgage-backed
securities
|
30,171,288 | 64,773 | 347,694 | 29,888,367 | ||||||||||||
|
Collateralized
mortgage obligations
|
867,994 | - | 13,711 | 854,283 | ||||||||||||
|
Corporate
securities
|
1,001,029 | - | 11,259 | 989,770 | ||||||||||||
| $ | 181,973,949 | $ | 402,211 | $ | 1,702,413 | $ | 180,673,747 | |||||||||
|
December
31, 2007
|
||||||||||||||||
|
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Fair
Value
|
|||||||||||||
|
Held-to-maturity:
|
||||||||||||||||
|
Obligations
of states and political subdivisions
|
$ | 10,745,947 | $ | 228,319 | $ | - | $ | 10,974,266 | ||||||||
|
December
31, 2006
|
||||||||||||||||
|
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Fair
Value
|
|||||||||||||
|
Held-to-maturity:
|
||||||||||||||||
|
Obligations
of states and political subdivisions
|
$ | 15,900,611 | $ | 266,326 | $ | - | $ | 16,166,937 | ||||||||
The
amortized cost and fair value of debt securities at December 31, 2007 by
contractual maturity are shown below. 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.
-45-
|
Amortized
Cost
|
Fair
Value
|
|||||||
|
Available-for-sale:
|
||||||||
|
Due
in one year or less
|
$ | 25,106,594 | $ | 25,088,751 | ||||
|
Due
after one year through five years
|
53,250,569 | 53,856,575 | ||||||
|
Due
after five years through ten years
|
45,639,736 | 46,341,975 | ||||||
|
Due
after ten years
|
20,760,188 | 20,908,084 | ||||||
|
Mortgage-backed
securities and collateralized mortgage obligations
|
35,213,374 | 35,046,554 | ||||||
| $ | 179,970,461 | $ | 181,241,939 | |||||
|
Amortized
Cost
|
Fair
Value
|
|||||||
|
Held-to-maturity:
|
||||||||
|
Due
in one year or less
|
$ | 2,619,501 | $ | 2,642,895 | ||||
|
Due
after one year through five years
|
6,985,326 | 7,144,912 | ||||||
|
Due
after five years through ten years
|
1,141,120 | 1,186,459 | ||||||
| $ | 10,745,947 | $ | 10,974,266 | |||||
Details
concerning investment securities with unrealized losses as of December 31, 2007
are as follows:
|
Securities
with losses under 12 months
|
Securities
with losses over 12 months
|
Total
|
||||||||||||||||||||||
|
|
Fair
Value
|
Gross
Unrealized Loss
|
Fair
Value
|
Gross
Unrealized Loss
|
Fair
Value
|
Gross
Unrealized Loss
|
||||||||||||||||||
| Available-for-sale: | ||||||||||||||||||||||||
|
U.S.
Government agencies and SBA loans
|
$ | - | $ | - | $ | 16,974,050 | $ | 25,253 | $ | 16,974,050 | $ | 25,253 | ||||||||||||
|
Obligations
of states and political subdivisions
|
1,598,966 | 12,348 | 11,416,524 | 82,210 | 13,015,490 | 94,558 | ||||||||||||||||||
|
Mortgage-backed
securities
|
6,698,358 | 17,256 | 10,910,430 | 181,195 | 17,608,788 | 198,451 | ||||||||||||||||||
|
Collateralized
mortgage obligations
|
5,731,826 | 34,034 | 350,913 | 32,171 | 6,082,739 | 66,205 | ||||||||||||||||||
|
Equity
securities with readily determinable fair values
|
210,250 | 39,750 | - | - | 210,250 | 39,750 | ||||||||||||||||||
| $ | 14,239,400 | $ | 103,388 | $ | 39,651,917 | $ | 320,829 | $ | 53,891,317 | $ | 424,217 | |||||||||||||
Details
concerning investment securities with unrealized losses as of December 31,
2006 are as follows:
|
Securities
with losses under 12 months
|
Securities
with losses over 12 months
|
Total
|
||||||||||||||||||||||
|
|
Fair
Value
|
Gross
Unrealized Loss
|
Fair
Value
|
Gross
Unrealized Loss
|
Fair
Value
|
Gross
Unrealized Loss
|
||||||||||||||||||
| Available-for-sale: | ||||||||||||||||||||||||
|
U.S.
Treasury securities
|
$ | - | $ | - | $ | 1,985,620 | $ | 14,038 | $ | 1,985,620 | $ | 14,038 | ||||||||||||
|
U.S.
Government agencies and SBA loans
|
12,932,160 | 56,927 | 29,347,211 | 374,626 | 42,279,371 | 431,553 | ||||||||||||||||||
|
Obligations
of states and political subdivisions
|
25,862,996 | 308,244 | 41,189,137 | 575,914 | 67,052,133 | 884,158 | ||||||||||||||||||
|
Mortgage-backed
securities
|
4,318,678 | 26,913 | 18,291,817 | 320,781 | 22,610,495 | 347,694 | ||||||||||||||||||
|
Collateralized
mortgage obligations
|
1,215 | 1 | 483,747 | 13,710 | 484,962 | 13,711 | ||||||||||||||||||
|
Corporate
Securities
|
- | - | 989,770 | 11,259 | 989,770 | 11,259 | ||||||||||||||||||
| $ | 43,115,049 | $ | 392,085 | $ | 92,287,302 | $ | 1,310,328 | $ | 135,402,351 | $ | 1,702,413 | |||||||||||||
-46-
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, 2007 and 2006 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, 2007 and 2006, 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, 2007, 2006, or 2005.
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.
At
December 31, 2006, the one U.S. Treasury security held by the Company had an
unrealized loss. Of the securities issued by U.S. Government agencies
and SBA, 18 out of 23 securities contained unrealized losses, while 138 out of
266 securities issued by state and political subdivisions contained unrealized
losses. Of the mortgage-backed securities, 27 out of 59 contained
unrealized losses. In the collateralized mortgage obligations, 2 out
of 3 contained unrealized losses and the one corporate security contained
unrealized losses at December 31, 2006.
During
the year ended December 31, 2007, the Company did not sell any
securities. Proceeds from sales of securities available-for-sale
during 2006 and 2005 were $2,988,590 and $9,099,585, respectively. Gross gains
of $38,691 were recognized on sales in 2005. No gains were recognized
on sales in 2006. Gross losses of $7,553 and $38,306 were recognized
on sales in 2006 and 2005, respectively.
Securities
with an aggregate carrying value of approximately $63,286,000 and $52,552,000 at
December 31, 2007 and 2006, respectively, were pledged to secure public funds on
deposit and for other purposes required or permitted by law.
|
3. LOANS
|
The loan
portfolio consisted of the following:
|
December
31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Commercial,
financial and agricultural
|
$ | 187,543,611 | $ | 155,097,757 | ||||
|
Lease
financing receivable
|
8,089,209 | 7,902,340 | ||||||
|
Real
estate – mortgage
|
204,291,055 | 192,583,037 | ||||||
|
Real
estate – construction
|
80,863,986 | 64,126,404 | ||||||
|
Installment
loans to individuals
|
87,775,296 | 78,612,660 | ||||||
|
Other
|
942,081 | 723,504 | ||||||
| 569,505,238 | 499,045,702 | |||||||
|
Less
allowance for loan losses
|
(5,611,582 | ) | (4,976,857 | ) | ||||
| $ | 563,893,656 | $ | 494,068,845 | |||||
-47-
The
amounts reported in other loans at December 31, 2007 and 2006 represented the
total DDA overdraft deposits reported for each period.
An
analysis of the activity in the allowance for loan losses is as
follows:
|
December
31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Balance,
beginning of year
|
$ | 4,976,857 | $ | 4,354,530 | $ | 3,850,636 | ||||||
|
Provision
for loan losses
|
1,175,000 | 850,000 | 979,737 | |||||||||
|
Recoveries
|
86,049 | 314,140 | 226,280 | |||||||||
|
Loans
charged-off
|
(626,324 | ) | (541,813 | ) | (702,123 | ) | ||||||
|
Balance,
end of year
|
$ | 5,611,582 | $ | 4,976,857 | $ | 4,354,530 | ||||||
During
the years ended December 31, 2007, 2006, and 2005, there were approximately
$251,000, $444,000, and $188,000, respectively, of net transfers from loans to
other real estate owned.
The
Company discovered fraudulent activity in its indirect auto financing loan
portfolio in the fourth quarter of 2007. Probable losses were
identified in the portfolio, which resulted in an increase in loan loss
provisions totaling $300,000 in the fourth quarter 2007. An
additional $225,000 in provision expense was recorded in the same quarter
related to the overall risk assessed in the Company’s residential real estate
development credits based on current economic conditions.
As of
December 31, 2007 and 2006, loans outstanding to directors, executive officers,
and their affiliates were $4,359,485 and $4,989,752, 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 2007 activity with respect to these related party loans is as
follows:
|
Balance,
beginning of year
|
$ | 4,989,752 | ||
|
New
loans
|
388,646 | |||
|
Repayments
|
(1,018,913 | ) | ||
|
Balance,
end of year
|
$ | 4,359,485 |
Non-accrual
loans amounted to approximately $1,602,000 and $1,793,000 at December 31, 2007
and 2006, respectively. Loans past due ninety days or more and still
accruing interest totaled $980,000 and $98,000 at December 31, 2007 and 2006,
respectively. The Company’s other individually evaluated impaired loans were not
significant at December 31, 2007 and 2006.
-48-
|
4. PREMISES
AND EQUIPMENT
|
Premises
and equipment consisted of the following:
|
December
31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Land
|
$ | 7,893,243 | $ | 7,714,257 | ||||
|
Buildings
and improvements
|
18,848,504 | 16,931,022 | ||||||
|
Furniture,
fixtures, and equipment
|
16,120,784 | 13,260,191 | ||||||
|
Automobiles
|
435,871 | 520,937 | ||||||
|
Leasehold
improvements
|
3,623,451 | 2,275,840 | ||||||
|
Construction-in-process
|
7,805,407 | 3,134,586 | ||||||
|
Reserve
for impairment
|
(222,153 | ) | (247,678 | ) | ||||
| 54,505,107 | 43,589,155 | |||||||
|
Less
accumulated depreciation and amortization
|
(15,276,089 | ) | (12,979,823 | ) | ||||
| $ | 39,229,018 | $ | 30,609,332 | |||||
Depreciation
expense totaled approximately $2,610,000, $2,417,000, and $1,898,000 for the
years ended December 31, 2007, 2006, and 2005, respectively.
During
the year ended December 31, 2006, the Company and its Board of Directors
approved the purchase and installation of a network and telephone
system. Upon complete installation of the new system, the existing
equipment became obsolete to the Company’s operations and was
retired. Under the provisions of SFAS No. 144 Accounting for the Impairment or
Disposal of Long-Lived Assets, the Company anticipates an impairment loss
on the sale of the asset. A provision for impairment in the amount of
$247,678 was recorded during 2006 to reflect the fair value of the equipment
held for sale. During 2007, certain related equipment was disposed
of, which created a reduction in the related asset and impairment
reserve. The asset has no remaining net book value. The
Company is actively marketing the existing equipment in its current
condition.
|
5. GOODWILL
AND OTHER INTANGIBLE ASSETS
|
The
carrying amount of goodwill for the years ended of December 31, 2007 and 2006
was $9,271,432. 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 2007 or 2006.
A summary
of core deposit intangible assets as of December 31, 2007 and 2006 are as
follows:
|
2007
|
2006
|
|||||||
|
Gross
carrying amount
|
$ | 1,749,749 | $ | 1,749,749 | ||||
|
Less
accumulated amortization
|
(1,261,886 | ) | (1,063,817 | ) | ||||
|
Net
carrying amount
|
$ | 487,863 | $ | 685,932 | ||||
Amortization
expense on the core deposit intangible assets totaled $198,069 in 2007, $299,332
in 2006, and $483,106 in 2005. Amortization of the core deposit
intangible assets is estimated to be approximately $155,000 in 2008, $122,000 in
2009, $97,000 in 2010, $78,000 in 2011, and the remainder of $36,000 in
2012.
-49-
|
6. DEPOSITS
|
Deposits
consisted of the following:
|
December
31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Non-interest
bearing
|
$ | 182,588,179 | $ | 182,595,931 | ||||
|
Savings
and money market
|
273,887,033 | 281,821,588 | ||||||
|
NOW
accounts
|
144,334,692 | 129,422,863 | ||||||
|
Time
deposits under $100,000
|
61,151,430 | 64,570,462 | ||||||
|
Time
deposits over $100,000
|
71,555,663 | 57,768,697 | ||||||
| $ | 733,516,997 | $ | 716,179,541 | |||||
Time
deposits held by the Company consist primarily of certificates of
deposits. The maturities for these deposits at December 31, 2007 are
as follows:
|
2008
|
$ | 99,723,613 | ||
|
2009
|
25,066,731 | |||
|
2010
|
3,323,502 | |||
|
2011
|
778,808 | |||
|
2012
and thereafter
|
3,814,439 | |||
| $ | 132,707,093 |
Deposits
from related parties totaled approximately $17,304,000 at December 31,
2007.
|
7. FHLB
ADVANCES, JUNIOR SUBORDINATED DEBENTURES, AND REPURCHASE
AGREEMENTS
|
FHLB
advances, junior subordinated debentures, and repurchase agreements consisted of
the following:
|
December
31,
|
||||||||
|
2007
|
2006
|
|||||||
|
FHLB
advances
|
$ | 4,400,000 | $ | 5,650,000 | ||||
|
Junior
subordinated debentures
|
15,465,000 | 15,465,000 | ||||||
|
Repurchase
agreements
|
26,316,572 | 4,474,786 | ||||||
| $ | 46,181,572 | $ | 25,589,786 | |||||
The FHLB
advances totaled $4,400,000 at December 31, 2007 and included one 7-day advance
which matures on January 4, 2008. The average rate paid on the
advances was 5.00%. The advances were used for liquidity
purposes.
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, 2007 was 7.426%. 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.
-50-
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.
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,
2007 was 3.90%. The repurchase date is scheduled for August 9, 2017;
however, the agreement may be called by CGMI on August 9, 2008, or every
quarterly period thereafter.
At
December 31, 2007, securities sold under agreements to repurchase totaled
$13,816,572. 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, 2007 was
3.80%.
|
8. COMMITMENTS
AND CONTINGENCIES
|
At
December 31, 2007, future annual minimum rental payments due under
noncancellable operating leases are as follows:
|
2008
|
$ | 1,417,290 | ||
|
2009
|
1,383,422 | |||
|
2010
|
1,319,219 | |||
|
2011
|
1,097,235 | |||
|
2012
|
985,740 | |||
|
Thereafter
|
11,034,053 | |||
| $ | 17,236,959 |
Rental
expense under operating leases for 2007, 2006, and 2005 was approximately
$1,322,000, $996,000, and $830,000, respectively. Sublease income for 2007,
2006, and 2005 was approximately $3,600, $2,400, and $2,000,
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, 2007, the Company had borrowing lines available through the Banks
with the FHLB of Dallas and other correspondent banks. MidSouth LA
had approximately $117,062,000 available, subject to available collateral, under
a secured line of credit with the FHLB of Dallas. Advance commitments
of approximately $7,870,000 were also available with the FHLB of
Dallas. An additional federal funds line of credit available through
a primary correspondent bank for overnight borrowing was approximately
$20,600,000 at December 31, 2007. There were no purchases of Federal
funds against these lines as of December 31, 2007. At December 31,
2007, MidSouth TX had a $29,450,000 secured line of credit, subject to available
collateral, with the FHLB of Dallas. Advances against this line
totaled $4,400,000 at December 31, 2007.
In 2007,
the Company engaged a general contractor to construct a new branch on leased
property in Baton Rouge, Louisiana. The total commitment was for
approximately $2,190,000; the Company paid approximately $1,185,000 on the
contract through December 31, 2007. Estimated completion is predicted
to be in late March of 2008.
The
Company purchased land in 2006 for a future branch location in Lake Charles,
Louisiana for approximately $528,000. In 2006, the Company entered
into a contract for building construction for approximately
$1,669,000. Costs incurred on the contract totaled approximately
$1,554,000 at December 31, 2007. The branch opened in December 2007;
however, the project was not completed until February 2008.
-51-
Land was
purchased in Conroe, Texas for another future branch location for approximately
$773,000 in 2006. The Company engaged a general contractor for
construction of the building. The commitment was for approximately
$1,375,000. The Company has incurred approximately $1,148,000 of
costs through December 31, 2007 on this project. Completion of the
construction is estimated to be in March 2008. The branch was
operational in November 2007 even though the contract was not
completed.
|
9. INCOME
TAXES
|
Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Significant components of the
Company’s deferred tax assets and liabilities as of December 31, 2007 and 2006
are as follows:
|
2007
|
2006
|
|||||||
|
Deferred
tax assets:
|
||||||||
|
Allowance
for loan losses
|
$ | 1,778,115 | $ | 1,503,935 | ||||
|
Unrealized
losses on securities
|
- | 442,069 | ||||||
|
Other
|
313,961 | 250,719 | ||||||
|
Total
deferred tax assets
|
2,092,076 | 2,196,723 | ||||||
|
Deferred
tax liabilities:
|
||||||||
|
Premises
and equipment
|
3,040,746 | 1,600,159 | ||||||
|
FHLB
stock dividends
|
42,285 | 45,916 | ||||||
|
Unrealized
gains on securities
|
418,787 | - | ||||||
|
Other
|
216,410 | 98,574 | ||||||
|
Total
deferred tax liabilities
|
3,718,228 | 1,744,649 | ||||||
|
Net
deferred tax (liability) asset
|
$ | (1,626,152 | ) | $ | 452,074 | |||
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,
2007. Therefore, no valuation allowance is necessary at this time.
Components
of income tax expense are as follows:
|
2007
|
2006
|
2005
|
||||||||||
|
Current
|
$ | 1,046,951 | $ | 2,879,723 | $ | 2,856,366 | ||||||
|
Deferred
expense (benefit)
|
1,231,800 | (152,200 | ) | (418,201 | ) | |||||||
| $ | 2,278,751 | $ | 2,727,523 | $ | 2,438,165 | |||||||
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:
|
December
31
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Taxes
calculated at statutory rate
|
$ | 3,758,097 | $ | 3,722,174 | $ | 3,294,637 | ||||||
|
Increase
(decrease) resulting from:
|
||||||||||||
|
Tax-exempt
interest, net
|
(1,237,207 | ) | (1,020,780 | ) | (835,546 | ) | ||||||
|
Tax
credits
|
(315,043 | ) | - | - | ||||||||
|
Other
|
72,904 | 26,129 | (20,926 | ) | ||||||||
| $ | 2,278,751 | $ | 2,727,523 | $ | 2,438,165 | |||||||
-52-
The
deferred income tax expense (benefit) relating to unrealized holding gains
(losses) on securities available-for-sale included in other comprehensive income
amounted to $860,856 in 2007, $87,357 in 2006, and ($723,706) in
2005. There was no income tax expense or benefit relating to sales of
securities in 2007 since no securities were sold during the
year. Income tax expense (benefit) relating to gains or losses on
sales of securities amounted to ($2,568) in 2006, and $131 in 2005
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 2004 tax return year and forward. The Company’s various state income and
franchise tax returns are generally open from the 2004 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.
|
10. EMPLOYEE
BENEFITS
|
The
Company sponsors a leveraged employee stock ownership plan (ESOP) that covers
all employees who meet minimum age and service requirements. The Company makes
annual contributions to the ESOP in amounts as determined by the Board of
Directors. These contributions are used to pay debt service and purchase
additional shares. 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 $132,708 and $251,259 at December 31, 2007 and 2006,
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 stockholders’ 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 2007 and 2006 was $527,000 and $480,000,
respectively. The cost basis of the shares released was $12.77 per
share for 2007, $11.95 per share for 2006, and $4.36 per share for
2005. ESOP shares as of December 31, 2007 and 2006 were as
follows:
|
2007
|
2006
|
|||||||
|
Allocated
shares
|
507,090 | 508,709 | ||||||
|
Shares
released for allocation
|
9,250 | 8,027 | ||||||
|
Unreleased
shares
|
7,941 | 17,192 | ||||||
|
Total
ESOP shares
|
524,281 | 533,928 | ||||||
|
Fair
value of unreleased shares at December 31
|
$ | 185,025 | $ | 510,183 | ||||
-53-
The
Company has deferred compensation arrangements with certain officers, which will
provide them with a fixed benefit after retirement. The Company had recorded a
liability of approximately $519,000 at December 31, 2007 and $501,000 at
December 31, 2006 in connection with these agreements. Deferred
compensation expense recognized in 2007, 2006, and 2005 was $66,816, $79,817,
and $89,853, 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 $49,500 in 2007,
$40,000 in 2006, and $-0- in 2005.
|
11. EMPLOYEE
STOCK PLANS
|
In May
1997, the stockholders of the Company approved the 1997 Stock Incentive 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. The options have a term of ten years and vest 20% each year on
the anniversary date of the grant.
In May of
2007, the stockholders 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. The 2007 Omnibus Incentive Compensation Plan replaces the 1997
Stock Incentive Plan, which expired in February of 2007.
The
following tables summarize activity relating to the Plan:
|
Options
|
Weighted
Average Exercise Price
|
Weighted
Average Remaining Contractual Term
|
Aggregate
Intrinsic Value
|
|||||||||||||
|
Outstanding
at December 31, 2006
|
201,662 | $ | 10.65 | |||||||||||||
|
Exercised
|
(49,781 | ) | 5.44 | |||||||||||||
|
Forfeited
|
(1,448 | ) | 17.51 | |||||||||||||
|
Outstanding
at December 31, 2007
|
150,433 | $ | 11.57 | 4.76 | $ | 1,764,430 | ||||||||||
|
Exercisable
at December 31, 2007
|
115,757 | $ | 9.21 | 3.96 | $ | 1,630,790 | ||||||||||
A summary
of changes in unvested options for the periods ended December 31, 2007 and 2006
is as follows:
|
2007
|
2006
|
|||||||||||||||
|
Number
of
Options
|
Weighted
Average
Grant
Date
Fair
Value
|
Number
of
Options
|
Weighted
Average
Grant
Date
Fair
Value
|
|||||||||||||
|
Unvested
options outstanding, beginning of year
|
63,044 | $ | 4.58 | 68,585 | $ | 3.48 | ||||||||||
|
Granted
|
- | - | 19,688 | 6.26 | ||||||||||||
|
Vested
|
(26,920 | ) | 3.47 | (25,229 | ) | 2.92 | ||||||||||
|
Forfeited
|
(1,448 | ) | 4.89 | - | - | |||||||||||
|
Unvested
options outstanding, end of year
|
34,676 | $ | 5.42 | 63,044 | $ | 3.70 | ||||||||||
-54-
As of
December 31, 2007, there was a total of $187,945 in unrecognized compensation
cost related to non-vested share-based compensation arrangements. The
total value of shares vested during the years ended December 31, 2007 and 2006
was $96,289 and $76,964, 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
information for 2005 was disclosed with reported and pro forma figures for net
income and earnings per share, in accordance with the original SFAS No.
123. The information previously disclosed is set out
below:
|
2005
|
||||
|
Net
income available to stockholders:
|
||||
|
As
reported
|
$ | 7,273,867 | ||
|
Pro
forma
|
$ | 7,198,572 | ||
|
Basic
income per common share:
|
||||
|
As
reported
|
$ | 1.13 | ||
|
Pro
forma
|
$ | 1.11 | ||
|
Diluted
income per common share:
|
||||
|
As
reported
|
$ | 1.10 | ||
|
Pro
forma
|
$ | 1.09 | ||
The total
intrinsic value of the options exercised for the years ended December 31, 2007,
2006, and 2005 were approximately $889,000, $1,947,000, and $1,457,000,
respectively.
As a
result of adopting SFAS No. 123R, pre-tax earnings and net earnings for the
years ended December 31, 2007 and 2006 is approximately $96,289 and $76,964,
respectively, lower than accounting for options under the intrinsic value
method.
|
12. STOCKHOLDERS’
EQUITY
|
The
payment of dividends by the Banks to the Company is restricted by various
regulatory and statutory limitations. At December 31, 2007, the Banks have
approximately $19 million available to pay dividends to the Parent Company
without regulatory approval.
-55-
|
13. NET
INCOME PER COMMON SHARE
|
Following
is a summary of the information used in the computation of earnings per common
share:
|
December
31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Net
Earnings
|
$ | 8,775,641 | $ | 8,220,050 | $ | 7,273,867 | ||||||
|
Weighted
average number of common shares outstanding used in computation of basic
earnings per common share
|
6,570,073 | 6,520,747 | 6,439,830 | |||||||||
|
Effect
of dilutive securities
|
||||||||||||
|
Stock
options
|
71,322 | 114,551 | 186,669 | |||||||||
|
Weighted
average number of common shares outstanding plus effect of dilutive
securities – used in computation of diluted earnings per common
share
|
6,641,395 | 6,635,298 | 6,626,499 | |||||||||
|
14. FINANCIAL
INSTRUMENTS WITH OFF-BALANCE SHEET
RISK
|
The Banks
are parties 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 Banks have in particular classes of financial
instruments.
The
Banks’ 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 Banks use 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
|
||||||||
|
2007
|
2006
|
|||||||
|
Financial
instruments whose contract amounts represent credit risk
|
||||||||
|
Commitments
to extend credit
|
$ | 163,392,000 | $ | 206,340,000 | ||||
|
Commercial
letters of credit
|
17,470,000 | 24,433,000 | ||||||
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 Banks 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 deposits, or other assets at December 31, 2007
and 2006.
|
15. REGULATORY
MATTERS
|
The
Company and the Banks 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 Banks 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.
-56-
Quantitative
measures established by regulation to ensure capital adequacy require the
Company and the Banks 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, 2007, the most recent notifications from the Federal Deposit
Insurance Corporation categorized the Banks as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized the Banks 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 Banks’ category.
The
Company’s and both of the Banks’ actual capital amounts and ratios are presented
in the table below (in thousands):
|
Actual
|
Required
for Minimum Capital Adequacy Purposes
|
To
be Well Capitalized Under Prompt Corrective Action
Provisions
|
||||||||||||||||||||||
|
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
|||||||||||||||||||
|
As
of December 31, 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 | % | ||||||||||||
|
Actual
|
Required
for Minimum Capital Adequacy Purposes
|
To
be Well Capitalized Under Prompt Corrective Action
Provisions
|
||||||||||||||||||||||
|
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
|||||||||||||||||||
|
As
of December 31, 2006:
|
||||||||||||||||||||||||
|
Total
capital to risk weighted assets:
|
||||||||||||||||||||||||
|
Company
|
$ | 70,621 | 11.96 | % | $ | 47,249 | 8.00 | % | N/A | N/A | ||||||||||||||
|
MidSouth
LA
|
$ | 55,478 | 11.95 | % | $ | 37,145 | 8.00 | % | $ | 46,431 | 10.00 | % | ||||||||||||
|
MidSouth
TX
|
$ | 15,054 | 11.81 | % | $ | 10,201 | 8.00 | % | $ | 12,751 | 10.00 | % | ||||||||||||
|
Tier
I capital to risk weighted assets:
|
||||||||||||||||||||||||
|
Company
|
$ | 65,644 | 11.11 | % | $ | 23,625 | 4.00 | % | N/A | N/A | ||||||||||||||
|
MidSouth
LA
|
$ | 51,419 | 11.07 | % | $ | 18,573 | 4.00 | % | $ | 27,859 | 6.00 | % | ||||||||||||
|
MidSouth
TX
|
$ | 14,136 | 11.09 | % | $ | 5,100 | 4.00 | % | $ | 7,651 | 6.00 | % | ||||||||||||
|
Tier
I capital to average assets:
|
||||||||||||||||||||||||
|
Company
|
$ | 65,644 | 8.34 | % | $ | 31,495 | 4.00 | % | N/A | N/A | ||||||||||||||
|
MidSouth
LA
|
$ | 51,419 | 7.96 | % | $ | 25,937 | 4.00 | % | $ | 38,755 | 6.00 | % | ||||||||||||
|
MidSouth
TX
|
$ | 14,136 | 9.72 | % | $ | 5,818 | 4.00 | % | $ | 8,728 | 6.00 | % | ||||||||||||
-57-
|
16. 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, interest bearing
deposits, and federal funds sold 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 quoted
market prices for similar securities.
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.
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.
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.
Repurchase
Agreements—The fair value approximates the carrying value of such liabilities
due to their short-term nature.
Federal
Home Loan Bank Advances— Federal Home Loan Bank advances have short-term
maturities with fixed rates as determined by Federal Home Loan Bank at the date
of issuance and the carrying amount is a reasonable estimate of the fair
value.
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 the 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.
-58-
The
estimated fair values of the Company’s financial instruments are as follows at
December 31, 2007 and 2006 (in thousands):
|
2007
|
2006
|
|||||||||||||||
|
Carrying
Amount
|
Fair
Value
|
Carrying
Amount
|
Fair
Value
|
|||||||||||||
|
Financial
assets:
|
||||||||||||||||
|
Cash
and cash equivalents
|
$ | 30,872 | $ | 30,872 | $ | 57,404 | $ | 57,404 | ||||||||
|
Securities
available-for-sale
|
181,452 | 181,452 | 180,674 | 180,674 | ||||||||||||
|
Securities
held-to-maturity
|
10,746 | 10,974 | 15,901 | 16,167 | ||||||||||||
|
Loans,
net
|
563,894 | 563,089 | 494,069 | 494,031 | ||||||||||||
|
Other
investments
|
4,021 | 4,021 | 2,501 | 2,501 | ||||||||||||
|
Cash
surrender value of life insurance policies
|
4,219 | 4,219 | 4,068 | 4,068 | ||||||||||||
|
Financial
liabilities:
|
||||||||||||||||
|
Non-interest
bearing deposits
|
182,588 | 182,588 | 182,596 | 182,596 | ||||||||||||
|
Interest
bearing deposits
|
550,929 | 551,405 | 533,584 | 534,607 | ||||||||||||
|
Repurchase
agreements
|
26,317 | 26,317 | 4,475 | 4,475 | ||||||||||||
|
Federal
Home Loan Bank Advances
|
4,400 | 4,400 | 5,650 | 5,650 | ||||||||||||
|
Junior
subordinated debentures
|
15,465 | 15,868 | 15,465 | 15,651 | ||||||||||||
|
17. OTHER
NON-INTEREST INCOME AND EXPENSE
|
Components
of other charges and fees that are greater than 1% of interest income and
non-interest income consisted of the following for the years ended December 31,
2007, 2006, and 2005:
|
2007
|
2006
|
2005
|
||||||||||
|
ATM
and debit card income
|
$ | 2,103,976 | $ | 1,690,300 | $ | 1,266,096 | ||||||
|
Mortgage
and processing fees
|
591,817 | 440,151 | 620,707 | |||||||||
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,
2007, 2006, and 2005:
|
2007
|
2006
|
2005
|
||||||||||
|
Professional
fees
|
$ | 1,427,830 | $ | 1,088,334 | $ | 923,484 | ||||||
|
Marketing
expenses
|
1,998,480 | 2,134,140 | 2,013,123 | |||||||||
|
Data
processing
|
596,555 | 436,121 | 520,005 | |||||||||
|
Postage
|
552,729 | 527,284 | 546,291 | |||||||||
|
ATM
and debit card expense
|
1,083,382 | 897,325 | 659,205 | |||||||||
|
Printing
and supplies
|
765,901 | 696,700 | 648,818 | |||||||||
-59-
|
18. CONDENSED
FINANCIAL INFORMATION OF PARENT
COMPANY
|
Summarized
financial information for MidSouth Bancorp, Inc. (parent company only)
follows:
|
Balance
Sheets
|
||||||||
|
December
31, 2007 and 2006
|
||||||||
|
2007
|
2006
|
|||||||
|
Assets
|
||||||||
|
Cash
and interest bearing deposits in banks
|
$ | 853,555 | $ | 742,214 | ||||
|
Equity
securities with readily determinable fair value (cost of $250,000 at
December 31, 2007)
|
210,250 | - | ||||||
|
Other
assets
|
296,953 | 295,931 | ||||||
|
Investment
in and advances to subsidiaries
|
83,734,111 | 75,283,467 | ||||||
|
Total
assets
|
$ | 85,094,869 | $ | 76,321,612 | ||||
|
Liabilities
and Stockholders’ Equity
|
||||||||
|
Liabilities
|
||||||||
|
Dividends
payable
|
$ | 739,529 | $ | 572,035 | ||||
|
Junior
subordinated debentures
|
15,465,000 | 15,465,000 | ||||||
|
ESOP
obligation
|
132,708 | 251,259 | ||||||
|
Other
|
288,752 | 289,842 | ||||||
|
Total
liabilities
|
16,625,989 | 16,578,136 | ||||||
|
Stockholders’
equity
|
68,468,880 | 59,743,476 | ||||||
| $ | 85,094,869 | $ | 76,321,612 | |||||
|
Statements
of Earnings
|
||||||||||||
|
For
the Years Ended December 31, 2007, 2006 and 2005
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Revenue:
|
||||||||||||
|
Dividends
from Banks and non-bank subsidiary
|
$ | 3,500,000 | $ | 2,500,000 | $ | 2,500,000 | ||||||
|
Rental
and other income
|
61,414 | 63,238 | 65,016 | |||||||||
| 3,561,414 | 2,563,238 | 2,565,016 | ||||||||||
|
Expenses:
|
||||||||||||
|
Interest
on short and long-term debt
|
1,396,860 | 1,370,771 | 1,219,991 | |||||||||
|
Professional
fees
|
188,852 | 252,973 | 180,723 | |||||||||
|
Other
expenses
|
230,300 | 225,985 | 223,365 | |||||||||
| 1,816,012 | 1,849,729 | 1,624,079 | ||||||||||
|
Earnings
before equity in undistributed earnings of subsidiaries
|
1,745,402 | 713,509 | 940,937 | |||||||||
|
Equity
in undistributed earnings of subsidiaries
|
6,443,226 | 6,911,625 | 5,808,348 | |||||||||
|
Income
tax benefit
|
587,013 | 594,916 | 524,582 | |||||||||
|
Net
earnings
|
$ | 8,775,641 | $ | 8,220,050 | $ | 7,273,867 | ||||||
-60-
|
Statements
of Cash Flows
|
||||||||||||
|
For
the Years Ended December 31, 2007, 2006 and 2005
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Cash
flows from operating activities
|
||||||||||||
|
Net
earnings
|
$ | 8,775,641 | $ | 8,220,050 | $ | 7,273,867 | ||||||
|
Adjustments
to reconcile net earnings to net cash provided by operating
activities
|
||||||||||||
|
Undistributed
earnings of subsidiaries
|
(6,443,226 | ) | (6,911,625 | ) | (5,808,348 | ) | ||||||
|
Other,
net
|
(92,416 | ) | (565,831 | ) | 107,957 | |||||||
|
Net
cash provided by operating activities
|
2,239,999 | 742,594 | 1,573,476 | |||||||||
|
Cash
flows from investing activities
|
||||||||||||
|
Investment
in and advances to subsidiaries
|
- | - | (5,019 | ) | ||||||||
|
Purchase
of equity securities
|
(250,000 | ) | - | - | ||||||||
|
Net
cash used in investing activities
|
(250,000 | ) | - | (5,019 | ) | |||||||
|
Cash
flows from financing activities
|
||||||||||||
|
Proceeds
from exercise of stock options
|
408,459 | 965,459 | 653,968 | |||||||||
|
Purchase
of treasury stock
|
(522,078 | ) | (1,289,198 | ) | (469,226 | ) | ||||||
|
Payment
of dividends
|
(1,752,668 | ) | (1,490,815 | ) | (1,364,003 | ) | ||||||
|
Cash
for fractional shares
|
(12,371 | ) | (12,490 | ) | (10,640 | ) | ||||||
|
Net
cash used in financing activities
|
(1,878,658 | ) | (1,827,044 | ) | (1,189,901 | ) | ||||||
|
Net
change in cash and cash equivalents
|
111,341 | (1,084,450 | ) | 378,556 | ||||||||
|
Cash
and cash equivalents at beginning of year
|
742,214 | 1,826,664 | 1,448,108 | |||||||||
|
Cash
and cash equivalents at end of year
|
$ | 853,555 | $ | 742,214 | $ | 1,826,664 | ||||||
-61-
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Stockholders
and Board of Directors
MidSouth
Bancorp, Inc. and Subsidiaries
Lafayette,
Louisiana
We have
audited the accompanying consolidated balance sheets of MidSouth Bancorp, Inc.
and subsidiaries as of December 31, 2007 and 2006, and the related consolidated
statements of earnings, comprehensive income, stockholders’ equity, and cash
flows for each of the three years ended December 31, 2007. 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, 2007 and 2006 and the results of their
operations and their cash flows for each of the three years ended December 31,
2007, 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), MidSouth Bancorp, Inc. and subsidiaries’
internal control over financial reporting as of December 31, 2007, 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 10, 2008, expressed an
unqualified opinion on the effectiveness of MidSouth Bancorp, Inc.’s internal
control over financial reporting.
/s/
Porter Keadle Moore, L.L.P.
Atlanta, Georgia
March 10,
2008
-62-
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Stockholders
and Board of Directors
MidSouth
Bancorp, Inc. and Subsidiaries
Lafayette,
Louisiana
We have
audited MidSouth Bancorp Inc. and subsidiaries’ internal control over financial
reporting as of December 31, 2007, 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 included in the accompanying Management’s Report on Internal Controls
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, 2007, 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 the MidSouth
Bancorp, Inc. and subsidiaries as of December 31, 2007 and 2006, and the related
consolidated statements of earnings, comprehensive income, stockholders’ equity,
and cash flows for each of the three years ended December 31, 2007, and our
report dated March 10, 2008, expressed an unqualified opinion.
/s/
Porter Keadle Moore, L.L.P.
Atlanta, Georgia
March 10,
2008
-63-
|
Selected
Quarterly Financial Data (unaudited)
|
||||||||||||||||
|
(Dollars
in thousands, except per share data)
|
||||||||||||||||
|
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 | ||||||||||||
|
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 | ||||||||||||
|
2006
|
||||||||||||||||
|
IV
|
III
|
II
|
I | |||||||||||||
|
Interest
income
|
$ | 13,405 | $ | 13,104 | $ | 12,691 | $ | 11,035 | ||||||||
|
Interest
expense
|
4,960 | 4,678 | 4,401 | 3,653 | ||||||||||||
|
Net
interest income
|
8,445 | 8,426 | 8,290 | 7,382 | ||||||||||||
|
Provision
for loan losses
|
180 | 50 | 300 | 320 | ||||||||||||
|
Net
interest income after provision for loan losses
|
8,265 | 8,376 | 7,990 | 7,062 | ||||||||||||
|
Noninterest
income, excluding securities gains
|
3,015 | 3,438 | 3,076 | 2,858 | ||||||||||||
|
Net
securities gains
|
- | (8 | ) | - | - | |||||||||||
|
Noninterest
expense
|
9,070 | 8,489 | 8,069 | 7,496 | ||||||||||||
|
Income
before income tax expense
|
2,210 | 3,317 | 2,997 | 2,424 | ||||||||||||
|
Income
tax expense
|
461 | 900 | 762 | 605 | ||||||||||||
|
Net
income
|
$ | 1,749 | $ | 2,417 | $ | 2,235 | $ | 1,819 | ||||||||
|
Earnings
per common share
|
||||||||||||||||
|
Basic
|
$ | 0.27 | $ | 0.37 | $ | 0.34 | $ | 0.28 | ||||||||
|
Diluted
|
$ | 0.27 | $ | 0.36 | $ | 0.34 | $ | 0.27 | ||||||||
|
Market
price of common stock
|
||||||||||||||||
|
High
|
$ | 30.34 | $ | 25.33 | $ | 23.69 | $ | 21.41 | ||||||||
|
Low
|
$ | 23.57 | $ | 21.05 | $ | 20.94 | $ | 19.84 | ||||||||
|
Close
|
$ | 29.32 | $ | 25.13 | $ | 22.62 | $ | 21.41 | ||||||||
|
Average
shares outstanding
|
||||||||||||||||
|
Basic
|
6,541,830 | 6,547,794 | 6,508,437 | 6,485,444 | ||||||||||||
|
Diluted
|
6,668,768 | 6,663,584 | 6,635,395 | 6,667,184 | ||||||||||||
-64-
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 principal executive officer and principal
financial officer have concluded that such disclosure controls and procedures
are effective to ensure that information required to be disclosed by the Company
in reports that it submits under the Exchange Act is recorded, processed,
summarized, and reported within the time periods specified in the Securities and
Exchange Commission rules and forms.
During
the fourth quarter of 2007, there were no significant changes in the Company’s
internal controls over financial reporting that has materially affected, or is
reasonably likely to affect, the Company’s internal 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 principals 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, 2007 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, 2007.
|
/s/
C. R. Cloutier
C.R.
Cloutier
President
and Chief Executive Officer
|
/s/
J. Eustis Corrigan, Jr.
J.
Eustis Corrigan, Jr.
Executive
Vice President and Chief Financial Officer
|
Item
9B – Other Information
Not
applicable.
-65-
PART
III
Item
10 - Directors, Executive Officers, Promoters, and Control Persons; Compliance
with Section 16(a) of the Exchange Act
The
information contained in registrant's definitive proxy statement for its 2008
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 2008
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
Stockholder Matters
The
information contained in registrant's definitive proxy statement for its 2008
annual meeting of shareholders is incorporated herein by reference in response
to this Item.
Item
13 - Certain Relationships and Related Transactions
The
information contained in registrant's definitive proxy statement for its 2008
annual meeting of shareholders is incorporated herein by reference in response
to this Item.
Item
14 – Principal Accountant Fees and Services
The
information contained in registrant's definitive proxy statement for its 2008
annual meeting of shareholders is incorporated herein by reference in response
to this Item.
PART
IV
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
|
|
| Consoldiated Balance Sheets – December 31, 2007 and 2006 | |
|
Consolidated
Statements of Income – Years ended December 31, 2007, 2006 and
2005
|
|
|
Consolidated
Statements of Changes in Shareholders’ Equity – Years ended December 31,
2007, 2006 and 2005
|
|
|
Consolidated
Statements of Cash Flows – Years ended December 31, 2007, 2006 and
2005
|
|
|
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.
-66-
|
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 July
19, 1995 (filed as Exhibit 4.2 to MidSouth's Registration Statement on
Form S-8 filed September 20, 1995 and incorporated herein by
reference).
|
|
|
3.3
|
Amended
and Restated By-laws of MidSouth (filed as Exhibit 3.2 to Amendment No. 1
to MidSouth's Registration Statement No. 33-58499) on Form S-4 filed on
June 1, 1995, and incorporated herein by reference).
|
|
|
10.1
|
MidSouth
National Bank Lease Agreement with Southwest Bank Building Limited
Partnership (filed as Exhibit 10.7 to the Company's annual report on Form
10-K for the Year Ended December 31, 1992, and incorporated herein by
reference).
|
|
|
10.2
|
First
Amendment to Lease between MBL Life Assurance Corporation, successor in
interest to Southwest Bank Building Limited Partnership in Commendam, and
MidSouth National Bank (filed as Exhibit 10.1 to the Company's annual
report on Form 10-KSB for the year ended December 31, 1994, and
incorporated herein by reference).
|
|
|
10.3+
|
Amended
and Restated Deferred Compensation Plan and Trust effective October 9,
2002 (filed as Exhibit 10.3.1 to MidSouth's Annual Report on Form 10-KSB
for the year ended December 31, 2002 and incorporated herein by
reference).
|
|
|
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).
|
|
|
10.6+
|
The
MidSouth Bancorp, Inc. 1997 Stock Incentive Plan (filed as an appendix to
MidSouth’s definitive proxy statement filed April 11, 1997 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).
|
|
|
10.8+
|
The
MidSouth Bancorp Incentive Plan (filed as Exhibit 10.8 to MidSouth
Bancorp, Inc.’s Form 10-K filed on March
30, 2006 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
|
Independent
Auditors’ Consent*
|
|
|
31.1
|
Certificate
pursuant to Exchange Act Rules 13(a) – 14(a)*
|
|
|
31.2
|
Certificate
pursuant to Exchange Act Rules 13(a) – 14(a)*
|
|
|
32.1
32.2
|
Certification
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
Certification
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
14, 2008
|
|||
|
Signatures
|
Title
|
Date
|
|
/s/
C.R. Cloutier
C.R.
Cloutier
|
President,
Chief Executive Officer, and Director
|
March
14, 2008
|
|
/s/
Karen L. Hail
Karen
L. Hail
|
Chief
Operations Officer, Executive Vice President, Secretary/Treasurer, and
Director
|
March
14, 2008
|
|
/s/
J. Eustis Corrigan, Jr.
J.
Eustis Corrigan, Jr.
|
Chief
Financial Officer and Executive Vice President
|
March
14, 2008
|
|
/s/
Teri S. Stelly
Teri
S. Stelly
|
Controller
|
March
14, 2008
|
|
/s/
J.B. Hargroder, M.D.
J.B.
Hargroder, M.D.
|
Director
|
March
14, 2008
|
|
/s/
William M. Simmons
William
M. Simmons
|
Director
|
March
14, 2008
|
|
/s/
Will G. Charbonnet, Sr.
Will
G. Charbonnet, Sr.
|
Director
|
March
14, 2008
|
|
/s/
Clayton Paul Hillard
Clayton
Paul Hillard
|
Director
|
March
14, 2008
|
|
/s/
James R. Davis, Jr.
James
R. Davis, Jr.
|
Director
|
March
14, 2008
|
|
/s/
Joseph V. Tortorice, Jr.
Joseph
V. Tortorice, Jr.
|
Director
|
March
14, 2008
|
|
/s/
Milton B. Kidd, III
Milton
B. Kidd, III
|
Director
|
March
14, 2008
|
|
/s/
Ron D. Reed
Ron
D. Reed
|
Director
|
March
14, 2008
|
-67-