-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G280SeS41ij4Ona4PBwWkJwvCvijmtkwnwmWSoDcKMBw9gZMHS4wb1rfkkvp9LR6 q19TIjvSuHeV7nKy7zZSdw== 0000948688-98-000001.txt : 19980331 0000948688-98-000001.hdr.sgml : 19980331 ACCESSION NUMBER: 0000948688-98-000001 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: MIDSOUTH BANCORP INC CENTRAL INDEX KEY: 0000745981 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 721020809 STATE OF INCORPORATION: LA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 001-11826 FILM NUMBER: 98579298 BUSINESS ADDRESS: STREET 1: 102 VERSAILLES BLVD STREET 2: VERSAILLES CENTRE CITY: LAFAYETTE STATE: LA ZIP: 70501 BUSINESS PHONE: 3182378343 MAIL ADDRESS: STREET 1: 102 VERSAILLES BLVD CITY: LAFAYETTE STATE: LA ZIP: 70501 10KSB 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-KSB X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 2-91000-FW MIDSOUTH BANCORP, INC. (Exact name of registrant as specified in its charter) Louisiana 72-1020809 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 102 Versailles Blvd., Lafayette, LA 70501 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (318) 237-8343 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, $.10 par value American Stock Exchange, Inc. Preferred Stock, no par value, American Stock Exchange, Inc. $14.25 stated value Securities registered pursuant to Section 12(g) of the Act: none Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant 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-KSB or any amendment to this Form 10-KSB __X__ As of February 28, 1998, the aggregate market value of the voting stock held by non-affiliates of the Registrant, calculated by reference to the closing sale price of MidSouth's common stock on the AMEX was $20,590,060. As of February 28, 1998 there were outstanding 1,591,891 shares of MidSouth Bancorp, Inc. common stock, $.10 par value, which stock is the only class of the Registrant's common stock. DOCUMENTS INCORPORATED BY REFERENCE Proxy Statement for Annual Meeting of Shareholders to be held May 13, 1998 - (Part III) PART I ITEM 1 - Business. The Company MidSouth Bancorp, Inc. ("MidSouth") is a Louisiana corporation registered as a bank holding company under the Bank Holding Company Act of 1956. Its operations are conducted through, and its primary asset is, MidSouth National Bank (the "Bank"), a wholly-owned subsidiary. In the third quarter of 1996, MidSouth formed Financial Services of the South, Inc. (the "Finance Company") to provide quality consumer finance throughout its market area. MidSouth, the Bank and the Finance Company are referred to collectively herein as "the Company." On July 31, 1995, MidSouth consummated the acquisition of Sugarland Bancshares, Inc. which resulted in Sugarland's subsidiary and sole asset, Sugarland Bank, being merged into the Bank. Completion of the acquisition added $17.2 million to MidSouth's total assets. The Bank The Bank is a national banking association domiciled in Lafayette, Louisiana. The Bank provides a complete range of commercial and retail banking services primarily to professional, commercial and industrial customers in its market area. These services include, but are not limited to, interest bearing and non-interest bearing checking accounts, investment accounts, credit card services and issuance of cashier's checks, United States Savings Bonds and travelers checks. The Bank is a U.S. government depository. The Bank is also a member of the Electronic Data Services ("EDS") network through Comerica Bank, Dallas, Texas which provides its customers with automatic teller machine services through the GulfNet, Cirrus and Plus networks. Discount brokerage services are offered in conjunction with Union Planters Discount Brokerage Services. The Bank serves most types of lending demands including short term business loans, other commercial, industrial and agricultural loans, real estate construction and mortgage loans and installment loans. The Bank operates at the fifteen locations described below under "Item 2 - Properties." Employees As of December 31, 1997, the Bank employed 134 full-time equivalent employees and the Finance Company employed 5 full-time equivalent employees. MidSouth has no employees who are not also employees of the Bank. Through the Bank and the Finance Company, employees receive employee benefits which include an employee stock ownership plan, a 401-K plan and life, health and disability insurance plans. MidSouth considers the relationships of the Bank and the Finance Company with their employees to be very good. Competition The Bank faces keen competition in its market area not only with other commercial banks, but also with savings and loan associations, credit unions, finance companies, mortgage companies, leasing companies, insurance companies, money market mutual funds and brokerage houses. In the Lafayette Parish area there are fifteen state chartered or national banks and three savings banks. Several of the banks in Lafayette are subsidiaries of holding companies or branches of banks having far greater resources than the Company. Louisiana state banks may establish branch offices statewide, and national banks domiciled in Louisiana have the power to establish branches to the full extent that Louisiana banks may establish branches. Since 1989, Louisiana has allowed bank holding companies domiciled in any state of the United States to acquire Louisiana banks and bank holding companies, if the state in which the bank holding company is domiciled allows Louisiana banks and bank holding companies the same opportunities. In 1994, the Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Act") was enacted. Among other things, the Interstate Act (i) allows bank holding companies to acquire a bank located in any state, subject to certain limitations that may be imposed by the state, (ii) allows banks to merge across state lines, and (iii) permits banks to establish branches outside their state of domicile if expressly permitted by the law of the state in which the branch is to be located. In 1995, the Louisiana legislature enacted legislation permitting out of state bank holding companies after June 1, 1997 to convert any banks owned in Louisiana into branches of out of state banks owned by such holding companies, subject to certain limitations. Registrant is unable to predict at this time the effect of the Interstate Act and recent Louisiana legislation on competition. Supervision and Regulation - Bank Holding Companies General. As a bank holding company, MidSouth is subject to the Bank Holding Company Act of 1956 (the "Act") and is supervised by the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"). The Act requires MidSouth to file periodic reports with the Federal Reserve Board and subjects MidSouth to examination by the Federal Reserve Board. The Act also requires MidSouth 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 MidSouth from engaging in any business other than banking or bank-related activities specifically allowed by the Federal Reserve Board and from engaging in certain tie-in arrangements in connection with any extension of credit or provision of any property or services. Capital Adequacy Requirements. The Federal Reserve Board monitors the capital adequacy of bank holding companies through the use of a combination of risk-based capital guidelines and leverage ratios. Risk- based capital requirements are intended to make regulatory capital more sensitive to the risk profile of a company's assets. Certain off-balance sheet items, such as letters of credit and unused lines of credit, are also assigned risk-weights and included in the risk-based capital calculations. The guidelines require a minimum ratio of total qualifying capital to total risk-weighted assets of 8.0%, of which 4.0% must be in the form of Tier 1 capital. At December 31, 1997, the Company's ratios of Tier 1 and total capital to risk-weighted assets were 9.19% and 10.22%, respectively. MidSouth's leverage ratio (Tier 1 capital to total average adjusted assets) was 6.00% at December 31, 1997. All three regulatory capital ratios for the Company exceeded regulatory minimums at December 31, 1997. Supervision and Regulation - National Banks General. As a national banking association, the Bank is supervised and regulated by the U. S. Comptroller of the Currency (its primary regulatory authority), the Federal Reserve Board and the Federal Insurance Deposit Corporation. Under Section 23A of the Federal Reserve Act, the Bank is restricted in extending credit to or making investments in MidSouth and other affiliates 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. Capital Adequacy Requirements. A national bank is subject to regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly discretionary, actions by regulators that, if undertaken, could have a direct material effect on a bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, a bank must meet specific capital guidelines that involve quantitative measures of the bank's assets, liabilities, and certain off- balance-sheet items as calculated under regulatory accounting practices. As of December 31, 1997, the most recent notification from the FDIC categorized the Bank as "well capitalized" under the regulatory framework for prompt corrective action. To be categorized as "well capitalized," the Bank must maintain a minimum of total risk-based capital and Tier 1 capital to risk-weighted assets of 10% and 6%, respectively, and a minimum leverage ratio of 5%. All three regulatory capital ratios for the Bank exceeded these minimums at December 31, 1997. Governmental Policies The operations of financial institutions may be affected by legislative changes and 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. ITEM 2 - Properties. The Bank leases its principal executive and administrative offices and principal banking facility in Lafayette, Louisiana under a ten year lease expiring November 30, 2004. The Bank has five other banking offices in Lafayette, Louisiana, two in New Iberia and one banking office in each of Breaux Bridge, Cecilia, Jeanerette, Opelousas, Morgan City and Jennings, Louisiana. In addition, the Bank has a loan production office in Lake Charles, Louisiana. Nine of these offices are owned and six are leased. A full service branch facility is currently under construction in Lake Charles and will replace the leased facility currently used for the loan production office. ITEM 3 - Legal Proceedings. The Bank has been named as a defendant in various legal actions arising from normal business activities in which damages of various amounts are claimed. While the amount, if any, of ultimate liability with respect to such matters cannot be 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 and results of operation. ITEM 4 - Submission of Matters to a Vote of Security Holders. No matters were submitted to a vote of MidSouth's security holders in the fourth quarter of 1997. Executive Officers of the Registrant C. R. Cloutier, 50 - President, Chief Executive Officer and Director of MidSouth and the Bank Karen L. Hail, 44 - Executive Vice President of the Bank and Chief Financial Officer, and Secretary and Treasurer of MidSouth and the Bank Donald R. Landry, 41 - Senior Vice President and Senior Loan Officer of the Bank Jennifer S. Fontenot, 43 - Senior Vice President of the Bank William R. Snyder, 57 - Senior Vice President of the Bank since 1996; prior to his employment at the Bank, Mr. Snyder was Senior Vice President for First National Bank of Ohio for 1 year and Senior Vice President for Banc One, Cleveland, Ohio for 5 years. Teri S. Stelly, 38 - Senior Vice President and Controller of MidSouth and the Bank since 1997; Vice President and Controller of MidSouth and the Bank since 1992. David L. Majkowski, 48 - Vice President and Loan review officer of the Bank since 1997; Loan review officer of the Bank since 1995; prior to his employment at the Bank, Mr. Majkowski was Compliance Officer for St. Martin Bank and Trust, St. Martinville, Louisiana for 15 years. All executive officers of the Company are appointed for one year terms expiring at the first meeting of the Board of Directors after the annual shareholders meeting next succeeding his or her election and until his or her successor is elected and qualified. PART II ITEM 5 - Market for Registrant's Common Stock and Related Stockholder Matters. On April 19, 1993 MidSouth's common stock was accepted for listing on the American Stock Exchange, Inc./Emerging Company Marketplace. Effective August 1, 1995, the Company's common stock and its preferred stock has been listed on the regular American Stock Exchange, Inc. ("AMEX") under the symbols MSL and MSL.pr, respectively. As of February 28, 1998, there were 395 common shareholders of record and 190 preferred shareholders of record. The high and low sales prices for the past eight quarters are provided in the Selected Quarterly Financial Data tables included with this filing under Item 7 and is incorporated herein by reference. MidSouth's first common stock dividend was paid at a rate of $.06 per share on October 2, 1995 to shareholders of record on September 18, 1995, and quarterly cash dividends of $.06 per common share have been paid since that time. A total of $155,421 and $154,475 in dividends were paid on MidSouth's Preferred Stock in 1996 and 1997, respectively. It is the intention of the Board of Directors of MidSouth to continue paying quarterly dividends on the common stock at a rate of $.06 per share. Cash dividends on the common stock are subject to payment of dividends on the preferred stock. The Company's ability to pay dividends is described in Item 7 below under the heading "Balance Sheet Analysis - Dividends" and in Note 13 to the Company's consolidated financial statements. On August 6, 1997, MidSouth declared a 12 1/2% stock dividend payable to shareholders of record on August 27, 1997. The conversion rate on the Preferred Stock was adjusted to 1.999 shares of MidSouth Common Stock for each share of Preferred Stock converted. On August 19, 1996, MidSouth effected a four for three stock split by way of a stock dividend to its common shareholders of record on July 31, 1996. Accordingly, the conversion rate on the preferred stock was adjusted to 1.777 shares of MidSouth Common Stock for each share of MidSouth Preferred Stock converted. On September 15, 1995, MidSouth effected a four for three stock split by way of a stock dividend to its common shareholders of record as of September 7, 1995.
FIVE-YEAR SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA Year Ended December 31, _______________________________________________________________________________________________ 1997 1996 1995 1994 1993 ___________ ___________ __________ __________ __________ Gross interest income $15,776,416 $12,572,417 $9,727,584 $7,388,478 $6,369,047 Interest expense (5,894,193) (4,541,727) (3,225,326) (1,976,101) (1,803,934) Net interest income 9,882,223 8,030,690 6,502,258 5,412,377 4,565,113 Provision for loan losses (854,400) (674,500) (225,000) (210,000) (306,500) Other operating income 2,899,461 2,138,285 1,583,026 1,422,894 1,371,124 Other expenses (9,585,788) (7,840,691) (6,072,129) (4,882,130) (4,653,303) Net income before cumulative effect of accounting change 2,341,496 1,653,784 1,788,155 1,743,141 976,434 Provision for income taxes (586,804) (417,286) (546,545) (601,500) (331,500) Cumulative effect of accounting change _ _ _ _ 600,000 Net Income 1,754,692 1,236,498 1,241,610 1,141,641 1,244,934 Preferred stock dividend requirement (154,475) (155,421) (38,142) - - Income applicable to common shareholders $1,600,217 $1,081,077 $1,203,468 $1,141,641 $1,244,934 Basic earnings per share $1.03 $0.72 $0.82 $0.80 $0.93 Diluted earnings per share $0.92 $0.67 $0.76 $0.80 $0.93 Total loans $130,888,144 $93,740,719 $77,826,707 $60,432,275 $49,786,123 Total assets 217,112,415 185,228,252 151,183,241 103,965,960 97,695,512 Total deposits 200,067,751 171,616,508 139,029,563 96,490,355 90,411,946 Cash dividends on common stock 354,336 280,461 115,750 - - Long-term obligations 3,198,794 1,521,435 972,617 1,195,917 786,164 Selected ratios: Loans to assets 60.29% 50.61% 51.48% 58.13% 50.96% Loans to deposits 65.42% 54.62% 55.98% 62.63% 55.07% Deposits to assets 92.15% 92.65% 91.96% 92.81% 92.54% Return on average assets 0.78% 0.65% 0.98% 1.12% 1.13% Return on average common equity 16.44% 13.09% 17.22% 20.98% 22.88%
Earnings per share have been adjusted to reflect a stock dividend of 5% paid by the Company on February 18, 1994 to shareholders of record on February 4, 1994, a four for three stock split paid on September 15, 1995 to shareholders of record on September 7, 1995, a four for three stock split paid on August 19, 1996 to shareholders of record on July 31, 1996 and a 12 1/2 % common stock dividend paid on August 27, 1997 to shareholders of record on August 6, 1997. Earnings per share have also been restated to apply the provisions of Statement of Financial Accounting Standards No. 128 "Earnings Per Share." Long-term obligations include ESOP borrowing and, in 1994, 1995, 1996 and 1997, FHLB borrowings. In 1995, 1996, and 1997, the ESOP borrowing is eliminated as an intercompany balance. Exclusive of cumulative effect of accounting change for the year ended December 31, 1993. ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION MidSouth Bancorp, Inc. ("MidSouth") is a one-bank holding company that conducts substantially all of its business through its wholly-owned subsidiaries, MidSouth National Bank (the "Bank") and Financial Services of the South, Inc. (the "Finance Company"). Following is management's discussion of factors that management believes are among those necessary for an understanding of MidSouth's financial statements. The discussion should be read in conjunction with MidSouth's consolidated financial statements and the notes thereto presented herein. OVERVIEW MidSouth's income available to common shareholders increased 48% or $519,140 to total $1,600,217 for 1997 as compared to $1,081,077 for 1996. Net income for 1997 was $1,754,692 as compared to $1,236,498 for 1996. Basic earnings per share were $1.03 for 1997 and $.72 for 1996. Diluted earnings per share were $.92 for 1997 and $.67 for 1996. The increase in earnings resulted primarily from increased net interest income due to a 31% increase in average loan volume in 1997. Net interest income increased $1,851,533 in annual comparison. Non-interest income, exclusive of net gains on sales of investment securities, increased $667,439 in annual comparison. Increases in service charges and insufficient funds fees on deposit accounts contributed most of the increase in non-interest income due to an increased number of accounts and transactions processed. Total consolidated assets grew $31.9 million, from $185.2 million at December 31, 1996 to $217.1 million at December 31, 1997. Total loans increased $36.1 million or 38%, from $94.8 million at year-end 1996 to $130.9 million at year-end 1997 due to a strong economy and loan demand. Commercial loans funded in the new Morgan City and Lake Charles markets and in the Lafayette market accounted for 61% of the loan growth. Increases were also recorded in commercial leases, real estate and consumer loans. Deposits increased $28.5 million, from $171.6 million at year-end 1996 to $200.1 million at year-end 1997. The new Morgan City office, opened in March of 1997, contributed $10.7 million to the growth in deposits for 1997. Provisions for loan and lease losses increased $179,900 in annual comparison due primarily to substantial loan growth. The Allowance for Loan Losses totaled $1,414,826 or 1.08% of total loans at December 31, 1997 compared to $1,087,790 or 1.15% of total loans at December 31, 1996. Nonperforming loans totaled $260,875 or .20% of total loans as of December 31, 1997, down from $523,855 or .55% of total loans as of December 31, 1996. MidSouth's leverage ratio was 6.00% at December 31, 1997. Return on average common equity was 16.44% and return on average assets was .78% for the year 1997. EARNINGS ANALYSIS Net Interest Income The primary source of earnings for MidSouth is net interest income, which is the difference between interest earned on loans and investments and interest paid on deposits and other 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. Tables 1 and 2 analyze the changes in net interest income for each of the three years in the period ended December 31, 1997. Net interest income increased $1,851,533 for 1997 over 1996 and $1,528,432 for 1996 over 1995. The increase in net interest income for both 1997 and 1996 resulted primarily from growth in MidSouth's loan portfolio. Interest income from loans, including loan fees, increased $2,822,322 from 1996 to 1997 and $1,576,998 from 1995 to 1996. The increased interest income for both years resulted from increases in average loan volume of $26.7 million in 1997 and $16.1 million in 1996. Average yield on loans increased 7 basis points, from 10.29% to 10.36%, in 1997. The average yield decreased 12 basis points in 1996, from 10.41% to 10.29%, and slightly lessened the impact of the volume increase on interest income for that year. The average volume of securities increased in 1997 by $10.6 million, primarily due to purchases of tax-exempt municipal securities. The volume of federal funds sold decreased $3.1 million in 1997 due to the increase in loan fundings. The change in volume of securities and federal funds sold in 1997, offset partially by a slight decline in the average yield on taxable securities, netted a $381,677 increase to interest income. A significant volume increase of $18.8 million in securities and $4.2 million in federal funds sold contributed $1,267,835 to the increase in interest income for 1996. The average volume of securities and federal funds sold increased $23 million, from $42.3 million in 1995 to $65.3 million in 1996, as deposit growth exceeded loan originations. A slight decrease in the taxable equivalent yield on securities of 7 basis points (from 6.14% in 1995 to 6.21% in 1996) and a decrease of 45 basis points in the yield on federal funds sold (from 5.73% in 1995 to 5.28% in 1996) had little impact on the increase in interest income resulting from the change in volume. Average loans as a percentage of average earnings assets decreased from 62% in 1995 to 57% in 1996 before rising again to 61% in 1997. Substantial growth in average deposits in 1997 of $33.9 million was used primarily to fund loans, thereby increasing the average volume of loans to total earning assets. In 1996, a significant $40.9 million growth in deposits resulted in an excess of funds over the volume needed for loan originations. The excess funds were invested in securities and federal funds sold, increasing this portfolio to 43% of earning assets at year-end 1996 compared to 38% at year-end 1995. A volume increase in interest-bearing deposits resulted in an increase of $1,198,214 in interest expense on deposits in 1997. Average interest-bearing deposits increased $26.0 million in 1997, from $113.3 million in 1996 to $139.3 million. The average rate paid on these deposits rose 10 basis points, from 3.93% in 1996 to 4.03% in 1997. In 1996, similar changes occurred in the
Table 1 - Average Balance Sheets and Interest Rate Analysis (in thousands) Taxable-equivalent basis Year Ended December 31, 1997 1996 1995 _______________________ ________________________ ______________________ Average Average Average Average Yield/ Average Yield/ Average Yield/ Volume Interest Rate Volume Interest Rate Volume Interest Rate _______ ________ ______ _______ ________ _______ ______ ________ ______ ASSETS Interest Bearing Deposits $76 $5 6.58% $166 $8 4.82% $149 $9 6.04% Investment Securities Taxable 48,784 2,881 5.91% 45,689 2,728 5.97% 31,798 1,901 5.98% Tax Exempt 15,151 1,146 7.56% 7,575 584 7.71% 2,669 215 8.06% _______ ______ ______ _____ ______ ______ Total Investments 64,011 4,032 6.30% 53,430 3,320 6.21% 34,616 2,125 6.14% Federal Funds Sold and Securities Purchased Under Agreements to Resell 8,758 470 5.37% 11,902 629 5.28% 7,728 443 5.73% Loans Commercial and Real Estate 77,039 7,891 10.24% 56,012 5,876 10.49% 48,535 5,115 10.54% Installment 35,152 3,735 10.63% 29,505 2,927 9.92% 20,856 2,111 10.12% _______ ______ ______ _____ ______ ______ Total Loans 112,191 11,626 10.36% 85,517 8,803 10.29% 69,391 7,226 10.41% _______ ______ ______ _____ ______ ______ Total Earning Assets 184,960 16,128 8.72% 150,849 12,752 8.45% 111,735 9,794 8.77% Allowance for Loan and Lease Losses (1,415) (1,015) (948) Nonearning Assets 21,182 16,920 12,503 _______ ______ ______ Total Assets $204,727 $166,754 $123,290 ======= ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY NOW, Money Market, and Savings $73,844 2,202 2.98% $58,362 1,599 2.74% $40,180 1,046 2.60% Certificates of Deposits 65,492 3,415 5.21% 54,944 2,854 5.19% 41,489 2,067 4.98% _______ ______ ______ _____ ______ ______ Total Interest Bearing Deposits 139,336 5,617 4.03% 113,306 4,453 3.93% 81,669 3,113 3.81% Federal Funds Purchased and Securities Sold Under Agreements to Repurchase 632 39 6.17% 102 4 3.92% 292 13 4.45% Notes Payable 3,301 238 7.21% 1,158 84 7.25% 1,239 99 7.99% Total Interest Bearing_______ ______ ______ _____ ______ ______ Liabilities 143,269 5,894 4.11% 114,566 4,541 3.96% 83,200 3,225 3.88% Demand Deposits 48,480 40,633 31,354 Other Liabilities 844 720 628 Stockholders' Equity 12,134 10,835 8,108 Total Liabilities and _______ _______ _______ Stockholders' Equity $204,727 $166,754 $123,290 ======= ======= ======= NET INTEREST INCOME AND NET INTEREST SPREAD $10,234 4.61% $8,211 4.49% $6,569 4.89% ====== ===== ===== NET YIELD ON EARNING ASSETS 5.53% 5.44% 5.88%
Securities classified as available-for-sale are included in average balances and interest income figures reflect interest earned on such securities. Interest income of $351,456 for 1997, $179,991 for 1996 and $66,320 for 1995 is added to interest earned on tax-exempt obligations to reflect taxable-equivalent yields using a 34% tax rate. Interest income includes loan fees of $901,688 for 1997, $674,443 for 1996, and and $596,445 for 1995. Nonaccrual loans are included in average balances and income on such loans is recognized on a cash basis. interest- bearing deposit portfolio. The average volume of interest-bearing deposits increased $31.6 million, from $81.7 million in 1995 to $113.3 million, resulting in an increase to interest expense of $1,331,743. A 12 basis point increase in the average rate paid on interest-bearing liabilities, from 3.81% in 1995 to 3.93% in 1996, contributed to the increase in interest expense for 1996. Throughout 1997, MidSouth's deposit mix remained relatively unchanged after a slight increase in the volume of interest-bearing deposits in 1996, primarily due to an increase in interest-bearing public fund deposits. For the year ended December 31, 1997, MidSouth maintained a strong 26% of average total deposits in non-interest bearing demand deposits. NOW, money market and savings deposits represented 39% of average total deposits, while 35% consisted of certificates of deposit. For the year ended December 31, 1996, 38% of average total deposits represented NOW, money market and savings deposits and certificates of deposit amounted to 36%. For 1995, the deposit mix consisted of 28% non-interest bearing demand deposits, 35% NOW, money market and savings, and 37% certificates of deposit. The average volume of notes payable increased $2.1 million in 1997, resulting in a $154,252 increase in interest expense on notes payable. The average rate paid on the notes was 7.21% at December 31, 1997, down from 7.25% in 1996 and 7.99% in 1995. The volume changes in MidSouth's earning assets and interest-bearing liabilities combined with changes in interest rates resulted in net taxable-equivalent yields on average earning assets of 5.53% in 1997 as compared to 5.44% for 1996 and 5.88% for 1995. Non-Interest Income Excluding Securities Transactions. Service charges and fees on deposit accounts represent the primary source of non-interest income for MidSouth. Income from service charges and fees on deposit accounts (including ATM fees) and nonsufficient funds fees increased $612,745 in 1997 and $351,897 in 1996 primarily due to an increase in the number of transaction accounts and ATM machines serviced and the volume of nonsufficient funds checks processed by MidSouth. The total number of transaction accounts (excluding savings accounts) increased from 10,141 in 1995 to 17,139 in 1996 and to 19,001 in 1997. Non-interest income resulting from other charges and fees increased $54,694 in 1997 as compared to $202,186 in 1996. Fee income from the Finance Company increased $56,913 in 1997, combined with a $31,783 increase in lease income from a third party investment service and $16,933 in Visa debit card fees. These increases were partially offset by decreases of $48,321 in fees earned through the sale of credit life insurance. In 1996, fees earned through the sale of credit life insurance increased $63,597. In addition, increases of $35,953 in fee income from the Finance Company, $29,609 in ATM fee income and $21,755 in gains on sales of fixed assets were recorded in 1996. Other increases included check order fees, safe deposit box rental fees, and lease income from a third party offering investment services to customers in 1996. Securities Transactions. In June 1997, $7.5 million in adjustable rate mortgage securities in the available- for-sale portfolio were sold as part of a repositioning of the securities portfolio at a net gain of $127,934. At the same time, management liquidated a $1.0 million investment in a mutual fund at a loss of $42,578. Net gains on sales of securities totaled $1,176 for 1996 as $2.0 million in U. S. Treasury securities were liquidated and reinvested to improve yield. No gains or losses were recorded on sales of securities during 1995. Upon the acquisition of Sugarland Bancshares, Inc. in 1995, $2.3 million in securities available-for- sale were liquidated on the date of merger at the acquired value. Non-Interest Expense Total non-interest expense increased 22% from 1996 to 1997 and 29% from 1995 to 1996. MidSouth's expansion over the past three years resulted in significant increases in salaries and employee benefits, occupancy expenses, marketing expenses, data processing expenses, and the cost of printing and supplies. Throughout the three year period, MidSouth opened six full service Bank offices, two of which were former Sugarland banking offices, one Bank loan production office, and two Finance Company offices. In 1997, construction began on two new facilities. One will replace the current movable buildings at the Ambassador Caffery, Lafayette office and the second will replace the leased loan production office in Lake Charles, Louisiana and provide full-service banking in that market. Accordingly, salaries and employee benefits increased 23% from 1996 to 1997 and 31% from 1995 to 1996. MidSouth increased its full-time equivalent ("FTE") employees by 6 in 1997, from 133 to 139. The Morgan City office, opened in March of 1997, employed 4 FTE's and the computer information services department employed 2 FTE's. Salary increases and incentive pay granted during 1997 added significantly to the increase in 1997. In 1996, MidSouth hired 23 FTE employees to bring the total employed from 110 at year-end 1995 to 133 at year-end 1996. New hires in 1996 staffed the Super 1 - Lafayette branch, the two loan production offices and the two Finance Company locations. In addition, MidSouth hired a retail branch manager to facilitate growth in the different markets. Occupancy expenses increased $409,546 or 23% from 1996 to 1997 and $502,512 or 40% from 1995 to 1996 as a result of increases in building lease expense, depreciation and maintenance expenses associated with buildings, automobiles and furniture and equipment, and ad valorem taxes. During 1997, MidSouth added fixed assets totaling $1,282,082, not including land purchases. The additions included the Morgan City building, computer hardware and software, ATM cash machines and renovation costs at the Versailles and Breaux Bridge offices. During 1996, MidSouth invested total capital of $1,634,490 in the construction of a full service office in Opelousas and an in-store office in the Super 1 Foods store in Lafayette. Building lease expense increased $103,717 in 1996 primarily due to a full year of lease expense on the Super 1 - New Iberia branch, the addition of Super 1 - Lafayette's lease
Table 2 - Interest Differentials (in thousands) Taxable-equivalent basis __________________________________________________________________________________________________________ 1997 OVER 1996 1996 OVER 1995 ______________________________________ ___________________________________ Change Change Change Attributable Change Attributable Total Attributable to Total Attributable to Increase to Volume Increase to Volume (Decrease) Volume Rates /Rates (Decrease) Volume Rates /Rates _________ ___________________________ ________ _________________________ Interest Earning Assets: Interest Bearing Deposits $ (3) $ (4) $ 3 $ (2) $ (1) $ 1 $ (2) - Investment Securities Taxable 153 185 (30) (2) 827 830 (2) (1) Tax Exempt 562 584 (11) (11) 369 395 (10) (16) Federal Funds Sold and Securities Purchased Under Agreement to Resell (159) (166) 10 (3) 186 239 (34) (19) Loans, including fees 2,823 2,746 59 18 1,577 1,680 (83) (20) _____ _____ ____ ____ _____ _____ _____ _____ TOTAL 3,376 3,345 31 - 2,958 3,145 (131) (56) _____ _____ ____ ____ _____ _____ _____ _____ Interest Bearing Liabilities: Interest Bearing Deposits 1,164 1,023 115 26 1,340 1,206 97 37 Federal Funds Purchased and Securities Sold Under Agreement to Repurchase 35 21 2 12 (9) (8) (2) 1 Notes Payable 154 155 - (1) (15) (7) (9) 1 _____ _____ ____ ____ _____ _____ _____ _____ TOTAL 1,353 1,199 117 37 1,316 1,191 86 39 _____ _____ ____ ____ _____ _____ _____ _____ Net Interest Income Before Allocation of Volume/Rates 2,023 2,146 (86) (37) 1,642 1,954 (217) (95) Allocation of Volume/Rates - (38) 1 37 - (104) 9 95 _____ _____ ____ ____ _____ _____ _____ _____ CHANGES IN NET INTEREST INCOME $2,023 $2,108 $(85) - $1,642 $1,850 $(208) - ===== ===== ==== ==== ===== ====== ===== ===== NOTES: The changes in interest due to both volume and rate have been allocated proportionally between volume and rate. In addition, nonaccrual loans and leases are included. _____________________________________________________________________________________________________
expense, the Finance Company's lease expenses, and the loan production offices' lease expenses. Ad valorem taxes increased $41,500 in 1996 and $45,736 in 1997 due to higher assessment values and additional properties. Fixed asset additions planned for 1998 include the completion of the Ambassador Caffery and Lake Charles buildings, renovations of existing buildings, computer hardware and software purchases, and a new telephone system. Management expects to invest approximately $2.2 million in fixed asset additions in 1998. An increase of $19,267 was recorded in MidSouth's FDIC premiums in 1997 due to the Deposit Insurance Act of 1996 that required banks to pay a portion of the interest due on bonds issued by the Financing Corporation ("FICO"). The act was signed into law for the purpose of assuring the payment of FICO bond obligations resulting from the bail out of the Federal Savings and Loan Insurance Corporation ("FSLIC") in 1987. FICO assessments will continue throughout 1998. A decrease in MidSouth's rate for FDIC premiums, retroactive to June 1, 1995, resulted in nominal premiums of $2,000 for the year 1996, a decrease of $104,414 from the $106,414 recorded for 1995. The retroactive reduction in rate in 1995 resulted in a refund of $68,703 received during the third quarter of 1995. Professional fees consist of legal, accounting and regulatory fees. A 3% decrease in professional fees in 1997 resulted primarily from a decrease in legal fees partially offset by an increase in accounting fees paid for audit and tax services. Professional fees increased 33% in 1996 primarily due to an increase in legal fees associated with the collection of lease financing receivables within an indirect leasing program and accounting fees. Marketing expenses increased $103,891 from 1996 to 1997 and $82,242 from 1995 to 1996. Production costs associated with television and billboard advertisement resulted in increased marketing costs for MidSouth in 1997. In addition, newspaper advertisement designed to appeal to customers impacted by bank mergers added to marketing expenses for the same period. In 1996, expenses related to special loan and deposit product promotions and related incentives contributed to the increase in marketing expenses. Income Taxes MidSouth's tax expense increased in 1997 by $169,518 and approximated 25% of income before income taxes. Interest income on non-taxable municipal securities reduced the 1997 taxes from the expected statutory rate of 34%. Interest income on non-taxable municipal securities also lowered the effective tax rate for 1996 to approximately 25%. Notes 1 and 10 to MidSouth's Consolidated Financial Statements provide additional information regarding MidSouth's income tax considerations. BALANCE SHEET ANALYSIS Securities A repositioning of MidSouth's securities portfolio during 1997 resulted in a decrease of $10.4 million in the securities available-for-sale portfolio and an increase of $7.2 million in the held-to-maturity portfolio. Total investment securities decreased $3.2 million, from $56.8 million in 1996 to $53.6 million in 1997, as cash flows from sales, maturities, and principal payments on mortgage backed securities were partially reinvested in or reserved to fund loans. An increase of $272,222 in the market value of securities available-for-sale is included in the net change in 1997. Unrealized gains in the securities available-for- sale portfolio, net of unrealized losses and tax effect, were $81,966 at December 31, 1997, compared to unrealized losses net of unrealized gains and tax effect of $114,530 at December 31, 1996. These amounts result from interest rate fluctuations and do not represent permanent adjustments of value. Moreover, classification of securities as available-for-sale does not necessarily indicate that the securities will be sold prior to maturity. At December 31, 1997, approximately 23% of MidSouth's securities available-for-sale portfolio represented mortgage-backed securities and 10% represented collateralized mortgage obligations ("CMO's"). MidSouth 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. An additional 58% of the available-for-sale portfolio consisted of U. S. Treasury and agency securities, while municipals and other securities represented 9% of the portfolio. MidSouth held one CMO with a book value in excess of 10% of stockholders' equity at December 31, 1997: GE Capital Mortgage Services, Inc. 1993-14 A4 with a book value of $2,000,000 (market value of $1,985,429). All CMO's held by MidSouth are Aaa rated and not considered "high-risk" securities under the Federal Financial Institutions Examination Council ("FFIEC") tests. MidSouth does not own any "high-risk" securities as defined by the FFIEC. In the held-to-maturity portfolio, MidSouth purchased $7.4 million in non-taxable municipal securities in 1997. A detailed credit analysis was performed on each municipal offering by Piper Capital Management, Inc., an investment advisory firm, prior to purchase. In addition, MidSouth 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. Federal funds sold totaled $8.1 million, and $14.1 million as of December 31, 1997 and 1996, respectively. Loan funding demands in 1997 combined with public fund deposit fluctuations resulted in a decrease in the volume of federal funds sold at year-end 1997. Significant deposit growth resulted in a high volume of federal funds sold at December 31, 1996. Due to a high volume of anticipated loan fundings and the limited availability of securities fitting MidSouth's investment portfolio specifications, MidSouth placed excess cash from the deposit growth in federal funds sold during 1996. Loan Portfolio MidSouth experienced two consecutive years of substantial loan growth. Total loans grew 66% over the past twenty-four months, from $78,878,605 at year-end 1995 to $94,828,509 at year-end 1996 and to $130,888,144 at year-end 1997. Of the $36.1 million increase during 1997, $17.1 million resulted from an increase in real estate mortgage and construction loans. This category of loans is comprised of first mortgage loans structured on a fifteen year amortization basis with three to five year balloon payments to allow for repricing and second mortgage home equity financing. The strong economy in MidSouth's markets continued in 1997, extending the opportunities for home equity financing. MidSouth elected to offer its second mortgage home equity financing at a more conservative margin of 80% of appraised value as compared to 100% of appraised value. The commercial loan portfolio grew $13.8 million during 1997 primarily in term debt financing commercial real estate and commercial vehicles and equipment. Lease financing receivables increased $2.5 million during 1997 with the introduction of MidSouth's own direct leasing program and phase out of third party lease financing. Installment loans to individuals increased $2.0 million during 1997 primarily due to the focus placed by MidSouth's retail lenders on growing the banking relationship of each established customer. MidSouth's newest offices in Morgan City and Lake Charles contributed significantly to the increase recorded in the loan portfolio in 1997. Morgan City added approximately $7.7 million, primarily in commercial credits and Lake Charles funded approximately $9.5 million in loans, primarily in the real estate portfolio. Favorable economic conditions in MidSouth's market area combined with increased market awareness of MidSouth as the largest locally owned bank led to the 20% growth in loans experienced in 1996. An annual retail loan promotion held in March contributed to the growth realized in the installment loan portfolio. Real estate loan growth consisted of both commercial and consumer credits that carry ten to fifteen year amortizations with rates fixed for three to five years. The short fixed rate terms of these credits allow management greater flexibility in controlling the Bank's interest rate risk. 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. In addition, credit scoring was initiated in 1997 to strengthen current underwriting procedures and enhance consistency in lending 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. MidSouth manages its credit risk by diversifying its loan portfolio, determining that borrowers have adequate cash flows for loan repayment, obtaining and monitoring collateral and continuously reviewing outstanding loans. The risk management program requires that each individual loan officer review his or her portfolio on a quarterly basis and recommend credit gradings on each loan. The senior loan officer and loan review officer review the gradings. In addition, the loan review officer performs an independent evaluation annually of each commercial loan officer's portfolio and a random sampling of credits in MidSouth's installment loan portfolio. Nonperforming Assets. Table 3 contains information about MidSouth's nonperforming assets and loans past due 90 days or more and still accruing. Nonperforming assets totaled $319,209 at December 31, 1997 compared to $714,140 at December 31, 1996 and $570,841 at December 31, 1995. The decrease in nonperforming assets in 1997 resulted from a decrease in nonaccruals. Of the $523,855 in nonaccrual loans at year-end 1996, approximately $145,000 was charged off, $52,000 renewed and $65,000 paid out. The increase in nonperforming assets from 1995 to 1996 resulted from the placement of one commercial credit on a nonaccrual status in 1996. The credit represented a pool of automobile loans for which the initial service provider discontinued processing payments. Although a new service provider continued payment processing, payment performance on loans within the pool prompted MidSouth to charge off $115,000 of the credit in 1997. Loans past due 90 days and still accruing totaled $245,232 at December 31, 1997 compared to $338,294 at December 31, 1996 and $265,682 for the year ended December 31, 1995. Loans to commercial borrowers are placed on nonaccrual when principal or interest is 90 days past due, or sooner if the full collectability of principal or interest is doubtful, except if the underlying collateral supports both the principal and accrued interest and the loan is in the process of collection. Retail loans that are not placed on nonaccrual but that become 120 days past due are routinely charged off. Loans classified for regulatory purposes but not included in Table 3 do not represent material credits about which management has serious doubts as to the ability of the borrower to comply with the loan repayment terms. Allowance for Loan Losses. Provisions totalling $854,400, $674,500 and $225,000, for the years 1997, 1996 and 1995, respectively, were necessary to bring the allowance to a level considered by management to be sufficient to cover probable losses in the loan portfolio. Additional provisions were made in 1997 due primarily to losses in the installment loan portfolio and the growth experienced in loans during the year. Losses within the lease financing receivables portfolio resulted in increased provisions for 1996. Table 4 analyzes activity in the allowance for 1997 and 1996. Specific reserves within the allowance are allocated to loans on a nonaccrual status for which the underlying collateral value is insufficient to cover the principal remaining on the loan. A portion of the unallocated reserve is assigned to accruing loans that are classified for regulatory purposes. The remainder of the allowance represents a percentage of all other credits based on gradings assigned in the loan review process. Quarterly evaluations of the allowance are performed in accordance with Section 217 of the OCCOs manual and Banking Circular 201. Factors considered in determining
Table 3 Nonperforming Assets and Loans Past Due 90 Days December 31, ____________________________ 1997 1996 1995 ________ ________ ________ Nonperforming loans Nonaccrual loans $260,875 $523,020 $386,510 Restructured loans - 835 943 ________ ________ ________ Total nonperforming loans 260,875 523,855 387,453 Other real estate owned, net 45,100 180,270 180,270 Other assets repossessed 13,234 10,015 3,118 ________ ________ ________ Total nonperforming assets $319,209 $714,140 $570,841 ======== ======== ======== Loans past due 90 days or more and still accruing $245,232 $338,294 $265,682 Nonperforming loans as a % of total loans 0.20% 0.55% 0.49% Nonperforming assets as a % of total loans, other real estate owned and other assets repossessed 0.24% 0.75% 0.72% Allowance as a % of nonperforming loans 542.30% 207.65% 271.49% __________________________________________________________
provisions include estimated future 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 process by which management determines the appropriate level of the allowance, and the corresponding provision for possible credit losses, involves considerable judgment; therefore, no assurance can be given that future losses will not vary from current estimates. Sources of Funds Deposits. MidSouth's deposit focus in 1997 centered around the development of a sales culture designed to strengthen customer relationships. Development of the sales culture included the introduction of incentives offered to sales associates for the development of new and existing customer relationships. This sales focus, combined with big bank mergers creating an uncertain banking environment in MidSouth's markets, provided the opportunity for MidSouth to increase its deposit base. As a result, MidSouth's deposits grew $28.5 million, from $171.6 million in 1996 to $200.1 million in 1997. MidSouth's newest office in Morgan City contributed $10.7 million to the increase in deposits in 1997. In 1996, MidSouth increased its deposits by $32.6 million, ending the year at $171.6 million compared to $139.0 million at December 31, 1995. Approximately $7.7 million of the $32.6 million increase resulted from in an increase in public funds held on deposit. The
Table 4 - Summary of Loan Loss Experience (in thousands) __________________________________________________________________ 1997 1996 ______ ______ BALANCE AT BEGINNING OF YEAR $1,088 $1,052 CHARGE-OFFS Commercial, Financial and Agricultural 189 109 Real Estate - Mortgage - 1 Installment Loans to Individuals 352 269 Lease Financing Receivables 192 517 ______ ______ Total Charge-offs 733 896 ______ ______ RECOVERIES Commercial, Financial and Agricultural 32 11 Real Estate - Mortgage 2 20 Installment Loans to Individuals 86 78 Lease Financing Receivables 86 148 ______ ______ Total Recoveries 206 257 ______ ______ Net Charge-offs 527 639 Additions to allowance charged to operating expenses 854 675 ______ ______ BALANCE AT END OF YEAR $1,415 $1,088 ======= ====== Net charge-offs to average loans 0.47% 0.75% Year-end allowance to year-end loans 1.08% 1.15%
Refer to "Balance Sheet Analysis - Asset Quality - Allowance for Loan Losses" for a description of the factors which influence management's judgement in determining the amount of the provisions to the allowance. % of category % of category Allowance for Loan Losses 1997 to total loans 1996 to total loans ___________________________ __________________________ Commercial, Financial and Agricultural $ 80 32.03% $ 150 29.63% Real Estate - Construction 1.63% 1.80% Real Estate - Mortgage 40.47% 10 38.28% Installment Loans to Individuals 21.66% 13 27.81% Lease Financing Receivables 3.65% 2.35% Other 0.56% 0.13% Unallocated 1,335 915 ______ ______ ______ ______ $1,415 100.00% $1,088 100.00% ====== ====== ====== ====== _______________________________________________________________________________________
remainder of the growth resulted from development of branch markets, which included the promotion of a new deposit product, "Value Checking". In addition, a direct mail promotion of MidSouth as a locally owned bank contributed to the development of each branch market. Non-interest bearing deposits represented 29% of total deposits at December 31, 1995, 1996 and 1997. Core deposits, defined as all deposits other than certificates of deposit ("CD's") of $100,000 or more, represented 84% of total deposits at December 31, 1997, compared to 89% at December 31, 1996 and 91% at December 31, 1995. CD's of $100,000 or more totaled $32.7 million at year-end 1997, an increase of $13.6 million from the $19.1 million reported at year-end 1996. Of the $13.6 million increase, $7.8 million represents public fund CD's added in the second half of 1997 through a new contract. Additional CD's of $100,000 or more were deposited in response to specific market promotions that offered premium rates for a limited time on new deposits. The promotions were designed to ensure relationship banking with MidSouth by requiring the opening of a checking account to qualify for the preferred rate. MidSouth's deposit rates are competitive within its market and MidSouth has no brokered deposits. Although time deposits of $100,000 can exhibit greater volatility due to changes in interest rates and other factors than do core deposits, management believes that any volatility experienced could be adequately met with current levels of asset liquidity or access to alternate funding sources. Additional information on MidSouth's deposits appears in Note 7 to MidSouth's Consolidated Financial Statements. Borrowed Funds. As of December 31, 1997, MidSouth maintained one repurchase agreement totaling $69,443. Long term borrowings increased $1.7 million from December 31, 1996 to December 31, 1997. On June 23, 1997, MidSouth refinanced its $2.5 million line of credit with another financial institution, paying out existing borrowings of $883,355 and receiving advances of $1,385,024 under the new line of credit. The additional $500,000 advanced under the new line was injected into the capital of the Bank. Throughout the remainder of 1997, MidSouth borrowed an additional $300,000 for operational expenses. At any time prior to June 23, 1999, MidSouth may request advances up to but not exceeding an aggregate principal amount of $2,500,000 at any one time outstanding. Advances under the line of credit bear interest at a variable rate equal to the prime commercial rate of interest quoted in the "Money Rates" section of the Wall Street Journal minus fifty basis points (.50%). The current rate is 8.00%. Interest under the note is due and payable quarterly in arrears on the last day of each quarter beginning September 30, 1997. Beginning June 30, 1999, principal payments in the amount of 11.11% of the amount of the loan balance on June 30, 1999 are due and payable in eight consecutive annual installments on June 30 of each succeeding calendar year. The remaining balance of the loan is due and payable in a ninth and final installment on June 30, 2007. The Finance Company paid out borrowings of $600,000 against its line of credit on June 23, 1997 with $675,000 in advances against a new $1,200,000 line of credit. Advances under the line of credit bear interest at a variable rate equal to the commercial prime rate as quoted in the "Money Rates" section of the Wall Street Journal plus 25 basis points (.25%). The current rate is 8.75%. Interest on the line is payable monthly, with principal due at maturity on May 1, 1998. Advances totaling $390,000 were funded under the line during the remainder of 1997. Additional information regarding the notes payable is provided in Note 8 to MidSouth's Consolidated Financial Statements. The ESOP note held by the Bank was refinanced in the amount of $150,000 on March 11, 1997 at a fixed rate of 7.00% payable in monthly installments of $2,264 with payment in full due on March 10, 2004. Loan proceeds totaling $125,269 were added to the $24,731 remaining on the maturing note. The ESOP purchased 11,135 shares of MidSouth common stock at the current market value of $11.25 per share with the additional proceeds. The ESOP obligation constitutes a reduction of MidSouth's stockholders' equity because the primary source of loan repayment is contributions by the Bank to the ESOP; however, the loan is not guaranteed by either MidSouth Bank or MidSouth. The ESOP note was eliminated from total loans and long-term debt as an intercompany balance in MidSouth's December 31, 1996 and 1997 consolidated financial statements. Capital. MidSouth and the Bank are required to maintain certain minimum capital levels. Risk- based capital requirements are intended to make regulatory capital more sensitive to the risk profile of an institution's assets. At December 31, 1997, MidSouth and the Bank were in compliance with statutory minimum capital requirements. Minimum capital requirements include a total risk-based capital ratio of 8.0%, with Tier 1 capital not less than 4.0%, and a leverage ratio (Tier 1 to total average adjusted assets) of 4.0% based upon the regulators latest composite rating of the institution. As of December 31, 1997, MidSouth's Tier 1 capital to average adjusted assets (the "leverage ratio") was 6.00% as compared to 6.30% at December 31, 1996. Tier 1 capital to risk weighted assets was 9.19% and 10.82% for 1997 and 1996, respectively. Total capital to risk weighted assets was 10.22% and 11.87%, respectively, for the same periods. The Bank's leverage ratio was 6.77% at December 31, 1997 compared to 6.52% at December 31, 1996. The risk-based capital ratios decreased due to the significant growth experienced by the Bank in 1997. This growth in assets prompted MidSouth to inject $500,000 of capital into the Bank in 1997. 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 Bank continued to be classified as "well capitalized" throughout 1995, 1996 and 1997 and also improved its supervisory subgroup rating. No significant restrictions are placed on the Bank as a result of this classification. As discussed under the heading "Balance Sheet Analysis - - Securities," $81,966 in unrealized gains on securities available-for-sale, net of a deferred tax asset of $51,505 were recorded as additional stockholders' equity as of December 31, 1997. In contrast, $114,530 in unrealized losses on securities available-for-sale, net of a deferred tax liability of $24,180 were recorded as a reduction to stockholders' equity as of December 31, 1996. While the net unrealized gain or loss 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, 1997 and 1996 did, however, affect MidSouth's equity to assets ratio for financial reporting purposes. The ratio of equity to assets was 5.96% for year-end 1997 and 6.13% for year-end 1996. Interest Rate Sensitivity. Interest rate sensitivity is the sensitivity of net interest income to changes in market rates of interest. The initial step in the process of monitoring MidSouth'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 1997, MidSouth utilized the Sendero model of asset and liability management. The Sendero model uses basic gap data and additional information regarding rates and prepayment characteristics to construct a gap analysis that factors in repricing characteristics and cash flows from payments received on loans and mortgage- backed securities. The resulting Sendero gap analysis is presented in Table 5. With the exception of NOW, money market and savings
TABLE 5 - Interest Rate Sensitivity Table December 31, 1997 (in thousands) ______________________________________________________________________________________________ Non- interest 0-3 MOS 4-6 MOS 7-12 MOS 1-5 YRS >5 YRS Bearing Total _______ _______ _______ _______ _______ _______ ________ ASSETS Interest Bearing Deposits $49 $49 Fed Funds Sold 8,060 8,060 Investments Mutual Funds 982 982 Investment Securities 3,375 3,330 4,066 13,803 15,862 40,436 Mortgage-backed Securities 1,560 832 1,456 4,187 4,165 12,200 Loans Fixed Rate 23,157 12,115 16,937 46,276 1,910 100,395 Variable Rate 30,494 30,494 Other Assets 25,911 25,911 Allowance for Loan and Losses (1,415) (1,415) _______ _______ _______ _______ _______ _______ ________ Total Assets $67,677 $16,277 $22,459 $64,266 $21,937 $24,496 $217,112 _______ _______ _______ _______ _______ _______ ________ LIABILITIES Repurchase Agreement $69 $69 NOW 2,461 2,227 3,837 13,821 3,489 25,835 MMDA 2,924 2,645 4,558 16,418 4,143 30,688 Savings 955 864 1,488 5,361 1,353 10,021 CD'S 27,686 13,876 22,183 11,315 75,060 Demand Deposits 58,464 58,464 Other Liabilities 1,083 1,179 937 845 4,044 Stockholders' Equity 12,931 12,931 _______ _______ _______ _______ _______ _______ ________ Total Liabilities $34,095 $20,695 $32,066 $48,094 $9,922 $72,240 $217,112 _______ _______ _______ _______ _______ _______ ________ Gap $33,582 $(4,418) $(9,607) $16,172 $12,015 $(47,744) Cumulative Gap $33,582 $29,164 $19,557 $35,729 $47,744 - Cumulative Gap/ ======= ======= ======= ======= ======= ======== Total Assets 15.47% 13.43% 9.01% 16.46% 21.99% _______ _______ _______ _______ _______ ______________________________________________________________________________________________
deposits, the table presents interest-bearing liabilities on a contractual basis. While NOW, money market and savings deposits are contractually due on demand, historically, MidSouth has experienced stability in these deposits despite changes in market rates. Presentation of these deposits in the table, therefore, reflects delayed repricing throughout the time horizon. The resulting cumulative gap at one year is approximately $19,557,000 at December 31, 1997. The positive gap indicates MidSouth's total earning assets and interest-bearing liabilities maturing within one year are mismatched. However, the ratio of the one year cumulative gap to total assets of 9.01% is within internal policy guidelines. MidSouth's internal policy targets a one year cumulative gap position of a positive or negative 15% of total assets. 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 MidSouth's net interest income and market value of equity. Results of the simulations at December 31, 1997 were within policy guidelines. The results of the simulations are reviewed quarterly and discussed at MidSouth's Funds Management committee meetings. MidSouth 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 Bank's primary liquidity needs involve its ability to accommodate customers demands for deposit withdrawals as well as their requests for credit. Liquidity is deemed adequate when sufficient cash to meet these needs can be promptly raised at a reasonable cost to the Bank. Liquidity is provided primarily by two sources: a stable base of funding sources and an adequate level of assets that can be readily converted into cash. MidSouth'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 the primary sources of asset liquidity for the Bank. In addition to these primary sources, the Bank has certain other sources available to meet the demand for funds if necessary. Approximately $10.8 million in securities maturing within twelve months provides an additional source of liquidity. These securities could be liquidated if necessary prior to maturity. MidSouth also has borrowing capabilities with three correspondent banks. Anticipated loan fundings could necessitate borrowing by the Bank during 1998. Parent Company Liquidity. At the parent company level, cash is needed primarily to service outstanding debt and pay dividends on preferred and common stock. The parent company has a note payable to a financial institution, the terms of which are described in Note 8 to MidSouth's Consolidated Financial Statements. Funds to meet payments on notes in the past several years have come primarily from the sale of MidSouth's common stock to the Directors' Deferred Compensation Trust and to the ESOP and from funds received from the Bank under a tax sharing agreement with the parent company. Funds received from these sources are not expected to be sufficient to meet debt service obligations throughout 1998. Sales of MidSouth common stock through a dividend reinvestment and direct stock purchase plan combined with dividends from the Bank, if necessary, will provide additional liquidity for the parent company. As of January 1, 1998, the Bank had the ability to pay dividends to the parent company of approximately $3,700,000 without prior approval from its primary regulator. In addition, MidSouth has the ability to borrow against its $2.5 million line of credit with a financial institution. The unused portion of the line totaled approximately $800,000 at year-end 1997. Dividends. The primary source of cash dividends on MidSouth's preferred and common stock is distributions from the Bank and common stock purchases through the Dividend Reinvestment and Direct Stock Purchase Plan. As stated above under "Parent Company Liquidity", the Bank has the ability to declare dividends to the parent company without prior approval of its primary regulator. However, the Bank's ability to pay dividends would be prohibited if the result would cause the Bank's regulatory capital to fall below minimum requirements. Cash dividends totaling $280,461 and $354,336 were paid to common stockholders during 1996 and 1997, respectively. It is the intention of the Board of Directors of MidSouth to continue to pay quarterly dividends on the common stock at the rate of $.06 per share. Cash dividends on the common stock are subject to payment of dividends on the Cumulative Convertible Preferred Stock, Series A ("Preferred Stock") issued in conjunction with the acquisition of Sugarland Bank, as well as other considerations. Additional information regarding MidSouth's Preferred Stock is included in Note 13 to MidSouth's Consolidated Financial Statements. On August 6, 1997, MidSouth declared a 12 1/2% stock dividend payable to shareholders of record on August 27, 1997. The dividend increased the common shares outstanding by 174,496. The conversion rate on the preferred stock was adjusted to 1.999 due to the stock dividend. On August 19, 1996, MidSouth effected a four for three stock split by way of a stock dividend to its common stockholders of record as of July 31, 1996. The stock split increased the common shares outstanding at the time from 994,627 to 1,326,025. Accordingly, the conversion rate on the Preferred Stock was adjusted to 1.777 shares of MidSouth Common Stock for each share of Preferred Stock converted. A total of $154,474 in dividends were paid on MidSouth's Preferred Stock in 1997. Assuming no conversion of preferred stock in 1998, the aggregate amount of dividends on the preferred stock in 1998 is expected to be $151,649. The Year 2000 Issue On May 16, 1997, the Office of the Comptroller of the Currency ("OCC") issued an advisory letter addressing Year 2000 issues and their examination approach. To maintain safe and sound banking practices, institutions are required to take appropriate measures to insure efficient operations of computer systems beyond the year 2000. Programming changes for critical systems and testing of vendors and service providers should be completed by December 31, 1998. MidSouth's Board of Directors established a Year 2000 compliance committee in June of 1997. The committee has begun to assess the size and complexity of the Year 2000 issues and will report to the Board and recommend changes to hardware and software as they are identified. The committee is also responsible for conducting testing of all areas to insure efficient computer operations. In addition, the committee plans to discuss year 2000 issues and their potential impact on the business operations of MidSouth customers and suppliers. The committee is currently analyzing the impact that compliance with the Year 2000 may have on earnings, but the Company is unable at this time to state whether the cost of addressing year 2000 issues will or will not be material. Impact of New Accounting Standards In June 1997, the FASB issued Statement of Financial Standards No. 130, "Reporting Comprehensive Income" which requires that an enterprise report by major components and as a single total, the change in net assets during the period from non-owner sources and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" which establishes annual and interim reporting standards for an enterprise's operating segments and related disclosures about its products, services, geographic areas and major customers. Adoption of these statements will not impact the Company's consolidated financial position, results of operations or cash flows, and any effect will be limited to the form and content of its disclosures. Both statements are effective for fiscal years beginning after December 15, 1997. The Company is in the process of reviewing its operating segments.
CONSOLIDATED STATEMENTS OF CONDITION DECEMBER 31, 1997 AND 1996 _______________________________________________________________________________ ASSETS 1997 1996 Cash and due from banks $ 15,774,024 $ 11,314,562 Federal funds sold 8,060,000 14,100,000 ____________ ____________ Total cash and cash equivalents 23,834,024 25,414,562 Interest-bearing deposits in banks 48,928 406,798 Securities available-for-sale at fair value (amortized cost of $36,750,950 in 1997 and $47,387,766 in 1996) 36,884,465 47,249,059 Securities held-to-maturity (estimated fair value of $17,459,865 in 1997 and $9,700,307 in 1996) 16,732,827 9,547,853 Loans, net of allowance for loan losses of $1,414,826 in 1997 and $1,087,790 in 1996 129,473,318 93,740,719 Accrued interest receivable 1,638,931 1,386,596 Premises and equipment, net 6,973,150 5,808,952 Other real estate owned, net 45,100 180,270 Goodwill, net 241,902 276,523 Other assets 1,239,770 1,216,920 ____________ ____________ $217,112,415 $185,228,252 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Non-interest bearing $58,464,087 $49,943,207 Interest bearing 141,603,664 121,673,301 ____________ ____________ Total deposits 200,067,751 171,616,508 Securities sold under repurchase agreements 69,443 104,414 Accrued interest payable 543,936 397,259 Notes payable 3,198,794 1,521,435 Other liabilities 301,181 228,465 ____________ ____________ Total liabilities 204,181,105 173,868,081 ____________ ____________ Commitments and Contingencies (Note 9) - - Stockholders' equity: Convertible preferred stock, $14.25 par value, 5,000,000 shares authorized, 160,756 and 171,956 issued and outstanding at December 31, 1997 and 1996, respectively 2,290,773 2,450,373 Common stock, $.10 par value, 5,000,000 shares authorized; 1,581,053 and 1,364,903 issued and outstanding at December 31, 1997 and 1996, respectively 158,106 136,491 Additional paid in capital 9,862,700 6,738,943 Unearned ESOP shares (137,243) (30,836) Unrealized gains (losses) on securities available-for-sale, net of deferred taxes of $51,505 in 1997 and $24,177 in 1996 81,966 (114,530) Retained earnings 675,008 2,179,730 ____________ ____________ Total stockholders' equity 12,931,310 11,360,171 ____________ ____________ $217,112,415 $185,228,252 ============ ============ See notes to consolidated financial statements.
Midsouth Bancorp, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 1997, 1996 and 1995 ____________________________________________________________________________ 1997 1996 1995 INTEREST INCOME: Loans, including fees $11,625,789 $8,803,467 $7,226,469 Securities: Taxable 2,886,273 2,736,086 1,909,901 Nontaxable 794,065 404,184 148,420 Federal funds sold 470,289 628,680 442,794 ___________ __________ __________ Total interest income 15,776,416 12,572,417 9,727,584 ___________ __________ __________ INTEREST EXPENSE: Deposits 5,655,770 4,457,556 3,125,813 Other - principally on long-term debt 238,423 84,171 99,513 ___________ __________ __________ Total interest expense 5,894,193 4,541,727 3,225,326 ___________ __________ __________ NET INTEREST INCOME 9,882,223 8,030,690 6,502,258 PROVISION FOR LOAN LOSSES 854,400 674,500 225,000 ___________ __________ __________ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 9,027,823 7,356,190 6,277,258 ___________ __________ __________ NON-INTEREST INCOME: Service charges on deposit accounts 2,101,956 1,489,211 1,137,314 Gain on sale of securities, net 94,913 1,176 - Credit life insurance 190,590 238,911 175,314 Other charges and fees 512,002 408,987 270,398 ___________ __________ __________ 2,899,461 2,138,285 1,583,026 ___________ __________ __________ NON-INTEREST EXPENSES: Salaries and employee benefits 4,509,683 3,668,824 2,794,654 Occupancy expense 2,163,855 1,754,309 1,251,797 Other 2,912,250 2,417,558 2,025,678 ___________ __________ __________ 9,585,788 7,840,691 6,072,129 ___________ __________ __________ INCOME BEFORE INCOME TAXES 2,341,496 1,653,784 1,788,155 PROVISION FOR INCOME TAXES 586,804 417,286 546,545 ___________ __________ __________ NET INCOME 1,754,692 1,236,498 1,241,610 PREFERRED DIVIDEND REQUIREMENT 154,475 155,421 38,142 ___________ __________ __________ NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $1,600,217 $1,081,077 $1,203,468 =========== ========== ========== EARNINGS PER COMMON SHARE: BASIC $1.03 $.72 $.82 =========== ========== ========== DILUTED $.92 $.67 $.76 =========== ========== ========== See notes to consolidated financial statements.
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 _______________________________________________________________________________________________ Preferred Stock Common Stock ______________________ ____________________ Shares Amount Shares Amount BALANCE, JANUARY 1, 1995 - $ - 713,988 $ 71,399 Issuance of common stock 9,685 968 Issuance of convertible preferred stock 187,286 2,668,826 Registration and related costs incurred in connection with issuance of preferred stock Stock split on common stock effected in the form of a 33-1/3% dividend 240,267 24,027 Dividends declared on common stock - $.08 per share Dividends accrued on preferred stock Stock options exercised 4,000 400 Net income ESOP obligation repayments Net change in unrealized gains (losses) on securities available-for-sale, net of tax _______ _________ _______ ______ BALANCE, DECEMBER 31, 1995 187,286 2,668,826 967,940 96,794 Issuance of common stock 13,001 1,300 Dividends declared on common stock - $.19 per share Dividends paid on preferred stock Stock options exercised 28,666 2,867 Preferred stock conversion (15,330) (218,453) 23,898 2,390 Stock split on common stock effected in the form of a 33-1/3% dividend 331,398 33,140 Net income ESOP obligation repayments Net change in unrealized gains (losses) on securities available-for-sale, net of tax _______ _________ _______ ______ BALANCE, DECEMBER 31, 1996 171,956 2,450,373 1,364,903 136,491 Issuance of common stock 21,598 2,159 Dividends declared on common stock - $.23 per share Dividends paid on preferred stock Preferred stock conversion (11,200) (159,600) 20,056 2,006 Stock split on common stock effected in the form of a 12.5% dividend 174,496 17,450 Registration and related costs associated with dividend reinvestment plan Net income Net change in ESOP obligation Net change in unrealized gains (losses) on securities available-for-sale, net of tax _______ _________ _________ ________ BALANCE, DECEMBER 31, 1997 160,756 $2,290,773 1,581,053 $ 158,106 ======= ========= ========= ======== See notes to consolidated financial statements. _______________________________________________________________________________________________
(THE OTHER HALF OF THE PREVIOUS TABLE FOLLOWS:) Unrealized Gains (Losses) on Additional Securities Paid in ESOP Available Retained Capital Obligation for Sale Earnings Total ___________________________________________________________________ BALANCE, JANUARY 1, 1995 $6,144,070 $ (73,021) $(1,062,800) $ 293,698 $ 5,373,346 Issuance of common stock 123,865 124,833 Issuance of convertible preferred stock 2,668,826 Registration and related costs incurred in connection with issuance of preferred stock (120,525) (120,525) Stock split on common stock effected in the form of a 33-1/3% dividend (24,027) (782) (782) Dividends declared on common stock - $.08 per share (115,750) (115,750) Dividend accrued on preferred stock (38,142) (38,142) Stock options exercised 41,060 41,460 Net income 1,241,610 1,241,610 ESOP obligation repayments 18,864 18,864 Net change in unrealize gains (losses) on securities available-for-sale, net of tax 1,161,750 1,161,750 __________ ________ __________ __________ __________ BALANCE, DECEMBER 31, 1995 6,164,443 (54,157) 98,950 1,380,634 10,355,490 Issuance of common stock 164,797 166,097 Dividends declared on common stock - $.19 per share (280,461) (280,461) Dividends paid on preferred stock (155,421) (155,421) Stock options exercised 226,780 229,647 Preferred stock conversion 216,063 Stock split on common stock effected in the form of a 33-1/3% dividend (33,140) (1,520) (1,520) Net income 1,236,498 1,236,498 ESOP obligation repayments 23,321 23,321 Net change in unrealized gains (losses) on securities available-for-sale, net of tax (213,480) (213,480) __________ __________ __________ _________ ___________ BALANCE, DECEMBER 31, 1996 6,738,943 (30,836) (114,530) 2,179,730 11,360,171 Issuance of common stock 258,870 261,029 Dividends declared on common stock - $.23 per share (354,336) (354,336) Dividends paid on preferred stock (154,474) (154,474) Preferred stock conversion 157,594 (47) (47) Stock split on common stock effected in the form of a 12.5% dividend 2,730,862 (2,750,557) (2,245) Registration and related costs associated with dividend reinvestment plan (23,569) (23,569) Net income 1,754,692 1,754,692 Net change in ESOP obligation (106,407) (106,407) Net change in unrealized gains (losses) on securities available- for-sale, net of tax 196,496 196,496 __________ __________ __________ _________ ___________ BALANCE, DECEMBER 31, 1997 $9,862,700 $ (137,243) $ 81,966 $ 675,008 $12,931,310 ========== ========== ========== ========= =========== See notes to consolidated financial statments. ________________________________________________________________________________________________________________
Midsouth Bancorp, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOW YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 _____________________________________________________________________________________ 1997 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $1,754,692 $1,236,498 $1,241,610 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 850,426 650,673 393,418 Provision for loan losses 854,400 674,500 225,000 Provision for losses on other real estate owned 33,718 - 12,400 Provision for deferred income taxes (163,196) (134,275) 82,367 (Discount accretion) premium amortization, net (150,203) 168,342 123,283 Gain on sales of securities (94,913) (1,176) - Gain (loss) on sales of other real estate owned 8,052 (163) 735 Gain on sales of premises and equipment - (21,755) - Change in accrued interest receivable (252,335) (278,776) (185,054) Change in accrued interest payable 146,677 74,368 101,682 Other, net 137,288 (702,267) (505,859) __________ __________ _________ Net cash provided by operating activities 3,124,606 1,665,969 1,489,582 __________ __________ _________ CASH FLOWS FROM INVESTING ACTIVITIES: Net decrease (increase) in interest- bearing deposits in banks 357,870 (380,449) 22,073 Proceeds from sales of securities available-for-sale 12,990,400 1,993,633 2,288,617 Proceeds from maturities and calls of securities available-for-sale 23,579,688 6,773,366 8,674,925 Proceeds from securities held-to- maturity 229,322 - 145,946 Purchases of securities available-for- sale (25,694,503) (20,429,811) (10,178,931) Purchases of securities held-to- maturity (7,407,947) (5,026,109) (4,317,707) Loan originations, net of repayments (36,693,406) (16,615,170) (9,631,750) Purchases of premises and equipment (1,980,003) (2,024,561) (1,964,370) Proceeds from sale of premises and equipment - 154,130 - Proceeds from sales of other real estate owned 93,400 3,500 77,945 Net cash received in connection with acquisition - - 3,388,259 __________ __________ _________ Net cash used in investing activities (34,525,179) (35,551,471) (11,494,993) __________ __________ _________ (Continued)
CONSOLIDATED STATEMENTS OF CASH FLOW YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 ______________________________________________________________________________________ 1997 1996 1995 CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in deposits 28,451,243 32,586,945 27,763,324 Net decrease in repurchase agreements (34,971) (71,490) (125,826) Issuance of notes payable 3,254,210 1,369,293 1,000,000 Repayments of notes payable (1,576,852) (820,476) (1,150,279) Proceeds from issuance of common stock 261,029 166,097 124,833 Payment of dividends on common and preferred stock (508,810) (256,641) (57,675) Payment of fractional shares resulting from stock dividend (2,245) (1,520) (782) Proceeds from exercise of stock options and warrants - 229,647 28,561 Cost associated with dividend reinvestment plan (23,569) - - Costs incurred in connection with issuance of preferred stock - - (120,525) __________ __________ _________ Net cash provided by financing activities 29,820,035 33,201,855 27,461,631 __________ __________ __________ NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,580,538) (683,647) 17,456,220 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 25,414,562 26,098,209 8,641,989 __________ __________ __________ CASH AND CASH EQUIVALENTS AT END OF YEAR $23,834,024 $25,414,562 $26,098,209 ========== ========== ========== SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid $ 5,747,516 $ 4,467,359 $ 3,093,801 ========== ========== ========== Income taxes paid $ 716,467 $ 500,570 $ 466,723 ========== ========== ========== See notes to consolidated financial statements. (Concluded)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1997, 1996 and 1995 ______________________________________________________________ 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements of MidSouth Bancorp, Inc. (the Company) and its wholly owned subsidiaries MidSouth National Bank (the Bank) and Financial Services of the South, Inc. (the Finance Company), have been prepared in accordance with generally accepted accounting principles and conform with general practices within the banking industry. A summary of significant accounting policies follows: Description of Business - The Company is a bank holding company headquartered in Lafayette, Louisiana providing banking services to commercial and retail customers through its wholly owned subsidiary, the Bank. The Company also provides consumer loan services to individuals through the Finance Company. The Bank is community oriented and focuses primarily on offering competitive commercial and consumer loan and deposit services to individuals and small to middle market business. Consolidation - The consolidated financial statements of the Company include the accounts of the Company, the Bank and the Finance Company. Significant intercompany transactions and balances have been eliminated. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities at the date of the financial statement and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Securities - Securities are being accounted for in accordance with Statement of Financial Accounting Standards (SFAS) No. 115 "Accounting for Certain Investments in Debt and Equity Securities". 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 re-evaluates 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, 1997. 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 until realized. 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 net securities gains. Gains and losses on the sale of securities available- for-sale are determined using the specific-identification method. Loans - Loan origination fees and certain direct origination costs are capitalized and recognized as an adjustment to yield over the life of the related loan. Interest on commercial and real estate mortgage loans is recorded as income based upon 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 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. The Company calculates a reserve 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 its collateral. Generally, loans of all types which become 90 days delinquent are in the process of collection through repossession, foreclosure or have been deemed currently uncollectible. Loans deemed currently uncollectible are charged-off against the allowance account. As a matter of policy, loans are placed on a non-accrual status where doubt exists as to collectibility. 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 reserve for loan losses at the time of recovery. Periodically during the year, management estimates the probable level of losses in the existing portfolio based on the Company's past loan loss experience, known inherent risks in the portfolio, adverse situations that may affect the borrowers 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 income and decreased by charge-offs (net of recoveries). 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 which generally range from 3 to 30 years. Leasehold improvements are amortized over the estimated useful lives of the improvements or the term of the lease, whichever is shorter. Other Real Estate Owned - Real estate properties acquired through, or in lieu of, loan foreclosures are initially recorded at fair value at the date of foreclosure establishing a new cost basis. 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 included in loss on foreclosed real estate. Income Taxes - Deferred income taxes are provided for timing differences between items of income or expense reported in the consolidated financial statements and those reported for income tax purposes. The Company computes deferred income taxes based on the difference between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Goodwill - Goodwill represents the excess of the cost over the fair value of net assets purchased and is being amortized over 15 years. Stock-Based Compensation - The Company applies APB Opinion No. 25 and related interpretations in accounting for its stock options. Accordingly, no compensation cost has been recognized. The pro forma disclosures required by SFAS No. 123 are included in Note 12. Basic and Diluted Earnings Per Common Share - In February 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share." This Statement simplifies the standards for computing income per common share previously required under APB Opinion No. 15, "Earnings Per Share." Basic earnings per common share (EPS) excludes dilution and is computed by dividing income available to common stockholders 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 income of the Company. Diluted EPS is computed by dividing net income by the total of the weighted-average number of shares outstanding plus the effect of outstanding options and convertible preferred stock (see Note 14). SFAS No. 128 is effective for 1997 and required restatement of all prior period EPS data. Per Share Data - All per share data has been adjusted to give retroactive effect to the stock splits effected in the form of stock dividends paid in 1997, 1995 and 1994. Actual dividends paid per share were $.24 in 1997, $.24 in 1996 and $.12 in 1995. Statements of Cash Flows - For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, and federal funds sold. Generally, federal funds are purchased or sold for one-day periods. Reclassifications - Certain reclassifications have been made to the 1996 and 1995 financial statements in order to conform to the classifications adopted for reporting in 1997. 2. ACQUISITION On July 31, 1995, the Company completed the merger and acquisition of Sugarland Bancshares, Inc. The Company issued 187,286 shares of its cumulative convertible preferred stock to former shareholders of Sugarland Bancshares, Inc. The transaction was accounted for as a purchase. Had the acquisition occurred on January 1, 1995, net interest income, net income, net income available to common shareholders, basic earnings per share and diluted earnings per share would have been $6,990,396, $1,350,436, $1,129,456, $.77 and $.74 for the year ended December 31, 1995, respectively. In connection with the acquisition, liabilities were assumed as follows:
Fair value of assets, excluding cash $13,781,700 Cash acquired 3,388,259 ____________ Liabilities assumed $17,169,959 ============
The unaudited pro forma information is not necessarily indicative either of the results of operations that would have occurred had the purchase been made as of January 1, 1995 or of future results of operations of the combined companies. 3. CASH AND DUE FROM BANKS The Company is required to maintain average reserve balances with the Federal Reserve Bank. "Cash and due from banks" in the consolidated statements of condition included amounts so restricted of $4,150,000 and $3,708,000 at December 31, 1997 and 1996, respectively.
4. INVESTMENT SECURITIES The portfolio of securities consisted of the following: December 31, 1997 _______________________________________________ Gross Gross Amortized Unrealized Unrealized Available-for-Sale Cost Gains Losses Fair Value ___________ __________ __________ ___________ U.S. Treasury securities $20,393,458 $145,351 $41,897 $20,496,912 U.S. Government agencies 751,487 1,853 2,478 750,862 Obligations of states and political subdivisions 1,415,952 4,171 13,920 1,406,203 Mortgage-backed securities 8,335,813 102,520 17,030 8,421,303 Collateralized mortgage obligations 3,863,690 221 27,175 3,836,736 Mutual funds 1,000,000 - 18,101 981,899 Other 990,550 - - 990,550 ___________ __________ __________ ___________ $36,750,950 $254,116 $120,601 $36,884,465 =========== ========== ========== ===========
December 31, 1996 _______________________________________________ Gross Gross Amortized Unrealized Unrealized Available-for-Sale Cost Gains Losses Fair Value ___________ __________ __________ ___________ U.S. Treasury securities $23,733,151 $77,101 $124,391 $23,685,861 U.S. Government agencies 860,178 3,641 5,142 858,677 Obligations of states and political subdivisions 196,070 4,129 - 200,199 Mortgage-backed securities 15,431,087 126,288 88,480 15,468,895 Collateralized mortgage obligations 4,345,330 35 64,283 4,281,082 Mutual funds 2,000,000 - 67,605 1,932,395 Other 821,950 - - 821,950 ___________ ________ ________ ___________ $47,387,766 $211,194 $349,901 $47,249,059 =========== ======== ======== ===========
December 31, 1997 _______________________________________________ Gross Gross Amortized Unrealized Unrealized Held-to-Maturity Cost Gains Losses Fair Value ___________ __________ __________ ___________ Nontaxable obligations of states and political subdivisions $16,732,827 $733,821 $6,783 $17,459,865 =========== ======== ====== ===========
December 31, 1996 _______________________________________________ Gross Gross Amortized Unrealized Unrealized Held-to-Maturity Cost Gains Losses Fair Value ___________ __________ __________ ___________ Nontaxable obligations of states and political subdivisions $9,547,853 $238,774 $86,320 $9,700,307 ========== ======== ======= ==========
The amortized cost and fair value of securities at December 31, 1997 by contractual maturity, are shown below. 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.
Amortized Available-for-Sale Cost Fair Value __________ __________ Due in one year or less $8,312,164 $8,286,420 Due after one year through five years 13,917,641 14,028,690 Due after five years through ten years 510,952 512,174 Due after ten years 820,140 808,592 Mortgage-backed securities 12,199,503 12,258,039 Other securities 990,550 990,550 __________ __________ $36,750,950 $36,884,465 ========== ========== Amortized Held-to-Maturity Cost Fair Value __________ __________ Due in one year or less $25,000 $25,311 Due after one year through five years 105,000 108,420 Due after five years through ten years 5,820,205 6,117,754 Due after ten years 10,782,622 11,208,380 __________ __________ $16,732,827 $17,459,865 ========== ==========
Proceeds from sales of securities available-for-sale during 1997 were $12,990,400. A gross gain of $146,616 and a gross loss of $61,437 were recognized on those sales. Proceeds from sales of securities available-for-sale during 1996 and 1995 were $1,993,633 and $2,888,617, respectively. A gross gain of $1,176 was recognized on sales in 1996. There were no gross losses realized on sales during 1996. No gains or losses were recognized on sales in 1995. Securities with an aggregate carrying value of approximately $26,800,000 and $35,300,000 at December 31, 1997 and 1996 were pledged to secure public funds on deposit and for other purposes required or permitted by law. The Company's collateralized mortgage obligations (CMO's) have sequential pay structures and have estimated average lives of less than four years.
5. LOANS The loan portfolio consisted of the following: December 31 __________________________ 1997 1996 Commercial, financial and agricultural $41,920,105 $28,100,137 Lease financing receivable 4,774,818 2,231,843 Real estate - mortgage 52,969,893 36,302,817 Real estate - construction 2,129,631 1,705,161 Installment loans to individuals 28,350,804 26,369,119 Other 742,893 119,432 ____________ ___________ 130,888,144 94,828,509 Less allowance for loan losses (1,414,826) (1,087,790) ____________ ___________ $129,473,318 $93,740,719 ============ ===========
Loans are stated net of unearned income and loan origination fees in the above table. The amount of such items is not significant. The Company generally makes loans in its market areas of Lafayette, Jefferson Davis, Iberia, St. Landry, St. Mary, Calcasieu, and St. Martin Parishes. Loans on which the accrual of interest has been discontinued amounted to $260,875 and $523,855 at December 31, 1997 and 1996, respectively. If interest on these types of loans had been accrued, the income that would have been recognized would have approximated $89,000, $79,000 and $42,000 for the years ended December 31, 1997, 1996 and 1995. Interest income recognized on those loans, which is recorded only when received, amounted to $3,500, $34,000 and $17,000 for 1997, 1996 and 1995, respectively.
An analysis of the activity in the allowance for loan losses is as follows: Year Ended December 31, __________________________________ 1997 1996 1995 Balance at beginning of year $1,087,790 $1,051,898 $873,934 Provision for loan losses 854,400 674,500 225,000 Addition of acquired reserve - - 115,093 Recoveries 205,409 257,051 91,481 Loans charged off (732,773) (895,659) (253,610) __________ __________ __________ Balance at end of year $1,414,826 $1,087,790 $1,051,898 ========== ========== ==========
No loans were transferred to other real estate owned during the year ended December 31, 1997. During the years ended December 31, 1996 and 1995, approximately $3,000 and $18,000 of loans were transferred to other real estate owned, respectively. As of December 31, 1997 and 1996, loans outstanding to certain directors, officers, and their affiliates were $1,069,529 and $422,968, respectively. In the opinion of management, all transactions entered into between the Bank and such related parties have been and are made in the ordinary course of business, on the same terms and conditions, including interest rates and collateralization, as similar transactions with unaffiliated persons and do not involve more than the normal risk of collection. An analysis of the 1997 activity with respect to these related party loans is as follows:
Balance, January 1, 1997 $422,968 New loans 887,814 Repayments (241,253) __________ Balance, December 31, 1997 $1,069,529 ==========
At December 31, 1997 and 1996, the recorded investment in loans that are considered to be impaired was $185,388 and $418,794, respectively, substantially all of which had related reserves recorded. The related reserves for these loans were $80,000 and $134,716 at December 31, 1997 and 1996, respectively. Interest income on these types of loans would have approximated $37,000, $41,000 and $24,000 for 1997, 1996 and 1995, respectively, if interest had been accrued. Interest income actually recognized on those loans amounted to $3,500, $33,000 and $19,000 for 1997, 1996 and 1995, respectively.
6. BANK PREMISES AND EQUIPMENT Premises and equipment consisted of the following: December 31, ___________________________ 1997 1996 Buildings and improvements $4,471,531 $3,441,573 Furniture, fixtures, and equipment 4,494,780 3,884,752 Automobiles 290,542 260,008 Leasehold improvements 653,885 633,977 Construction-in-process 409,798 130,757 __________ __________ 10,320,536 8,351,067 Less accumulated depreciation and amortization (3,347,386) (2,542,115) __________ __________ $6,973,150 $5,808,952 ========== ==========
7. DEPOSITS Deposits consisted of the following: December 31, _____________________________ 1997 1996 Non-interest bearing $58,464,087 $49,943,207 Savings and money market 40,709,245 32,695,085 NOW accounts 25,834,206 33,312,529 Time deposits under $100,000 42,360,075 36,571,046 Time deposits over $100,000 32,700,138 19,094,641 ___________ ___________ $200,067,751 $171,616,508 =========== ===========
The Company has no brokered deposits and there are no major concentrations of deposits. Substantially all deposits mature within one year. 8. NOTES PAYABLE Notes payable consisted of the following: December 31, ___________________________ 1997 1996 Note payables to financial institutions $2,768,313 $1,050,097 FHLB borrowings 430,481 471,338 __________ __________ $3,198,794 $1,521,435 ========== ==========
The note payables to financial institutions consist of advances against lines of credit established by the Company and the Finance Company and an automobile loan payable by the Finance Company. On June 23, 1997, MidSouth refinanced its $2.5 million line of credit with another financial institution, paying out existing borrowings of $883,355 and receiving advances of $1,385,024 under the new line of credit. At any time prior to June 23, 1999, MidSouth may request advances up to but not exceeding an aggregate principal amount of $2,500,000 at any one time outstanding. Advances under the line of credit bear interest at a variable rate equal to the prime commercial rate of interest quoted in the "Money Rates" section of the Wall Street Journal minus fifty basis points (.50%). At December 31, 1997, the effective rate was 8%. Interest under the note is due and payable quarterly in arrears on the last day of each quarter beginning September 30, 1997. Beginning June 30, 1999, principal payments in the amount of 11.11% of the amount of the loan balance on June 30, 1999 are due and payable in eight consecutive annual installments on June 30 of each succeeding calendar year. The remaining balance of the loan is due and payable in a ninth and final installment on June 30, 2007. The Company has pledged all of the Bank's stock as collateral on this note. The loan agreement has certain covenants which, among other things, require the maintenance of certain levels of stockholders' equity and net income and sets a limit on the maximum amount of nonperforming assets. The Company was in compliance with these covenants at December 31, 1997. The principal balance on this note at December 31, 1997 was $1,685,023. The Finance Company paid out borrowings of $600,000 against its line of credit on June 23, 1997 with $675,000 in advances against a new $1,200,000 line of credit. Advances under the line of credit bear interest at a variable rate equal to the commercial prime rate as quoted in the "Money Rates" section of the Wall Street Journal plus 25 basis points (0.25%). At December 31, 1997, the effective rate was 8.75%. Interest on the line is payable monthly, with principal due at maturity on May 1, 1998. Advances totaled $1,065,000 at December 31, 1997. The Finance Company has pledged (1) all its promissory notes, credit sales agreements, installment sales contracts, chattel paper, negotiable paper or other written evidence of indebtedness to the Finance Company; (2) all of its accounts receivable; and (3) all of its common stock as collateral on this note. A note payable of the Finance Company dated June 5, 1996 bears interest at 4.80% and is due on June 5, 2000. This note payable is payable in 48 monthly installments over the term of the loan. The principal balance remaining on the note at December 31, 1997 and 1996 was $18,290 and $25,575, respectively. At December 31, 1997, the Bank had four FHLB borrowings outstanding. These borrowings bear interest at rates between 5.49% and 7.28%, and have maturities from February 1999 to June 2001. Monthly principal and interest payments ranges from approximately $350 on the smallest borrowing to approximately $4,710 on the largest borrowing, with balloon payments due at maturity. The borrowings are secured by a blanket floating lien on certain of the Bank's mortgage loans. Aggregate annual maturities on notes payable are as follows:
1998 $1,115,472 1999 356,739 2000 240,006 2001 363,171 2002 187,206 Thereafter 936,200 __________ $3,198,794 ==========
9. COMMITMENTS AND CONTINGENCIES At December 31, 1997, future annual minimum rental payments due under noncancelable operating leases, primarily for land, are as follows: 1998 $411,340 1999 388,476 2000 387,615 2001 393,138 2002 396,340 Thereafter through 2058 5,566,592 __________ $7,543,501 ==========
Minimum rental payments have not been reduced by minimum sublease rentals of approximately $60,000 due in the future under noncancelable subleases. Rental expense under operating leases for 1997, 1996 and 1995 was $399,961, $370,275, and $266,558, respectively. Sublease income amounted to $31,800 in 1997 and $31,800 in 1996. The Company and its subsidiaries are parties to various legal precedings 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 or results of operations. 10. 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, 1997 and 1996 are as follows:
December 31, ______________________ 1997 1996 Deferred tax assets: Unrealized loss on securities $ - $24,180 Writedowns of other real estate 72,000 60,152 Allowance for loan losses 320,000 166,382 Other 4,000 6,212 ________ ________ Total deferred tax assets 396,000 256,926 ________ ________ Deferred tax liabilities: FHLB stock dividends (28,000) (17,105) Depreciation (157,000) (158,449) Unrealized gain on securities (51,505) - Other (79,023) (88,411) ________ ________ Total deferred tax liabilities (315,528) (263,965) ________ ________ Net deferred tax asset (liability) $80,472 $ (7,039) ======== ========
Components of income tax expense are as follows: YEAR ENDED DECEMBER 31, ___________________________________ 1997 1996 1995 Current $750,000 $551,561 $464,178 Deferred (163,196) (134,275) 82,367 ________ ________ ________ $586,804 $417,286 $546,545 ======== ======== ========
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: Year Ended December 31, ___________________________________ 1997 1996 1995 Taxes calculated at statutory rate $796,109 $562,287 $607,973 Increase (decrease) resulting from: Tax-exempt interest (242,420) (124,532) (50,463) Other 33,115 (20,469) (10,965) ________ ________ ________ $586,804 $417,286 $546,545 ======== ======== ========
11. 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. The ESOP shares initially were pledged as collateral for its 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. Prior to 1995, the ESOP note payable was to another financial institution but is now payable to the Bank. Because the source of the loan payments are contributions received by the ESOP from the Company, the related note receivable is shown as a reduction of stockholders' equity. The balance of the note receivable from the ESOP was $137,243 at December 31, 1997. In accordance with the American Institute of Certified Public Accountants' Statement of Position 93-6 (SOP), compensation costs relating to shares purchased subsequent to December 31, 1992 are based on the market price of the shares on the date released for allocation and related unreleased shares are not considered outstanding in the computation of income per common share. The Company has elected not to apply the provisions of the SOP to shares purchased on or before December 31, 1992 and therefore compensation costs relating to those shares was based upon cost and those shares were considered as outstanding in the computation of income per common share. ESOP compensation expense was $90,000, $84,000 and $78,000 for the years ended December 31, 1997, 1996 and 1995, respectively. The ESOP shares as of December 31, 1997 and 1996 were as follows:
1997 1996 Allocated shares 146,670 139,458 Shares released for allocation 2,443 3,764 Unreleased shares 14,681 4,598 _______ _______ Total ESOP shares 163,794 147,820 ======= ======= Fair value of unreleased shares at December 31, $311,971 $44,957 ======= =======
During 1996 the Company adopted a deferred compensation plan for certain officers which qualifies as a defined contribution plan. Contributions to the plan are required only if "excess earnings", as defined, are achieved. The participants accrue benefits based only on the contributions made. During 1997 and 1996 no contributions were required. 12. EMPLOYEE STOCK PLANS Prior to 1994, the Company had granted options to certain key employees to purchase shares of the Company's common stock. At December 31, 1996, all options had been exercised. The Company is applying APB Opinion No. 25 and related interpretations in accounting for stock options. All options exercisable in 1996 and 1995 were granted before 1994 and were at or above the estimated fair market value at the date of grant. Accordingly, no compensation expense has been recognized and no disclosures regarding the fair value of those options has been made. In May 1997 the stockholders of the Company approved the 1997 Stock Incentive Plan to provide incentives and awards for 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. A total of 8% of the Company's common shares outstanding can be granted under the Plan. The exercise price of options is equal to the market price on the date of grant. During 1997, options to purchase 92,815 shares were granted which are exercisable at $10.00. These options are exercisable in 20% increments beginning one year from the date of grant. The options expire ten years after the date of grant. Below is a summary of the transactions:
Exercise Price ______________________ Number of Average Options Price Outstanding Per Share Balance, January 1, 1995 42,000 $ 4.76 Exercised (6,000) 4.76 _______ Balance, January 1, 1996 36,000 4.76 Exercised (36,000) 4.76 _______ Balance, December 31, 1996 - - Granted 92,815 10.00 _______ Balance, December 31, 1997 92,815 $10.00 ======= ======
No options were exercisable at December 31, 1997. The Company has adopted the disclosure-only option under SFAS No. 123, "Accounting for Stock Based Compensation." The fair value of options granted during 1997 was $3.25. Had compensation cost for the Company's stock options been determined based on the fair value at the grant date consistent with the method under SFAS No. 123, the Company's income available to common stockholders and income per common share would have been as indicated below:
Year Ended __________ 1997 Income available to common stockholders: As reported $1,600,217 Pro forma 1,485,217 Basic income per common share: As reported $1.03 Pro forma 0.96 Diluted income per common share: As reported $0.92 Pro forma 0.86
The fair value of the options granted under the Company's stock option plans during the year ended December 31, 1997 was estimated using the Black-Scholes Pricing Model with the following assumptions used: dividend yield of 1.5%, expected volatility of 20%, risk free interest rate of 5.8%, and expected lives of 8 years. 13. STOCKHOLDERS' EQUITY On July 31, 1995, the Company issued 187,286 shares of Series A Cumulative Convertible Preferred Shares with a stated value of $14.25. The Convertible Preferred Shares are convertible at any time at the option of the holder into common stock, at the rate of 1.999 shares of Common Stock for each Convertible Preferred Share. On or after July 31, 2000, the Convertible Preferred Shares are redeemable, in whole or in part, at the option of the Company at the stated value of $14.25. The liquidation value of the Convertible Preferred Stock is $14.25 plus accrued dividends. Dividends on the Convertible Preferred Shares are determined each year on an annual rate, fixed on December 31 of each year for the ensuing calendar year and was 6.62% at December 31, 1997. The dividends are cumulative and payable quarterly in arrears. Holders of Convertible Preferred Shares are not entitled to normal voting rights unless certain conditions exist. The payment of dividends by the Bank to the Company is restricted by various regulatory and statutory limitations. At December 31, 1997, the Bank has approximately $3,700,000 available to pay dividends to the Parent Company without regulatory approval. 14. NET INCOME PER COMMON SHARE Following is a summary of the information used in the computation of earnings per common share.
Year Ended December 31, _______________________________________ 1997 1996 1995 Net income - used in computation of diluted earnings per common share $1,754,692 $1,236,498 $1,241,610 Preferred dividend requirement 154,475 155,421 38,142 __________ __________ __________ Net income available to common stockholders - used in computation of basic earnings per common share $1,600,217 $1,081,077 $1,203,468 ========== ========== ========== Weighted average number of common shares outstanding - used in computation of basic earnings per common share 1,554,968 1,500,052 1,465,629 Effect of dilutive securities: Stock options 16,491 - 19,298 Convertible preferred stock 332,546 343,740 156,698 __________ _________ __________ Weighted average number of common shares outstanding plus effect of dilutive securities - used in computation of diluted earnings per common share 1,904,005 1,843,792 1,641,625 ========== ========= ==========
15. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK The Bank is a party to various financial instruments with off-balance sheet risk in the normal course of business 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 statements of financial condition. The contract or notional amounts of those instruments reflect the extent of the involvement the Bank has in particular classes of financial instruments. The Bank's exposure to loan loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, standby letters of credit and financial guarantees is represented by the contractual amount of those instruments. The Bank uses the same credit policies, including considerations of collateral requirements, in making these commitments and conditional obligations as it does for on-balance sheet instruments.
Contract or Notional Amount __________________________ 1997 1996 Financial instruments whose contract amounts represent credit risk: Commitments to extend credit $19,278,514 $11,694,027 Standby letters of credit 1,592,279 575,331
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. Standby letters of credit and financial guarantees are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to its customers. Approximately 98% of these letters of credit were secured by marketable securities, cash on deposits or other assets at December 31, 1997. 16. REGULATORY MATTERS The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the financial statements. Under capital adequacy guidelines, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31, 1997 that all capital adequacy requirements to which the Company is subject have been met. As of December 31, 1997 and 1996, the most recent notifications from the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain minimum total risk-based, Tier I risk-based, Tier I leverage ratios as set forth in the table. There are no conditions or events since those notifications that management believes have changed the institution's category. The Company's and the Bank's actual capital amounts and ratios are presented in the table below.
To Be Well Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions Amount Ratio Amount Ratio Amount Ratio ______________________ ____________________ _____________________ As of December 31, 1997: Total capital to risk weighted assets: Company $14,004,168 10.22% $10,960,633 8.00% $ N/A N/A Bank 15,493,149 11.41% 10,865,639 8.00% 13,582,049 10.00% Tier I capital to risk weighted assets: Company 12,589,342 9.19% 5,480,317 4.00% N/A N/A Bank 14,124,400 10.40% 5,432,820 4.00% 8,149,229 6.00% Tier I capital to average assets: Company 12,589,342 6.00% 8,735,025 4.00% N/A N/A Bank 14,124,400 6.77% 8,686,439 4.00% 10,434,004 5.00%
To Be Well Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions Amount Ratio Amount Ratio Amount Ratio ______________________ ____________________ _____________________ As of December 31, 1996: Total capital to risk weighted assets: Company $12,300,261 11.87% $8,291,529 8.00% N/A N/A Bank 12,632,795 12.25% 8,247,337 8.00% 10,309,171 10.00% Tier I capital to risk weighted assets: Company 11,212,471 10.82% 4,145,764 4.00% N/A N/A Bank 11,558,155 11.21% 4,123,668 4.00% 6,185,503 6.00% Tier I capital to average assets: Company 11,212,471 6.30% 7,119,029 4.00% N/A N/A Bank 11,558,155 6.52% 7,090,892 4.00% 8,864,453 5.00%
17. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS 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, Due From Banks and Federal Funds Sold - For those short-term instruments, the carrying amount is a reasonable estimate of fair value. 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 - The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Deposits - The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities. Notes Payable - Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate fair value of existing debt. Commitments - The fair value of commitments to extend credit was not significant. The estimated fair values of the Company's financial instruments are as follows at December 31, 1997 and 1996 (in thousands): 1997 1996 __________________ _________________ Carrying Fair Carrying Fair Amount Value Amount Value Financial assets: Cash, due from banks and federal fund sold $23,883 $23,883 $25,415 $25,415 Securities available-for-sale 36,884 36,884 47,249 47,249 Securities held-to-maturity 16,733 17,460 9,548 9,700 Loans, net 129,473 129,400 93,741 92,886 Financial liabilities: Non-interest bearing deposits 58,464 58,464 49,943 49,943 Interest bearing deposits 141,604 141,676 121,673 121,782 Notes payable 3,199 3,199 1,521 1,522
18. OTHER NON-INTEREST EXPENSE Other non-interest expense consisted of the following for the years ended December 31, 1997, 1996 and 1995: 1997 1996 1995 Professional fees $337,824 $348,543 $261,857 FDIC assessments 21,267 2,000 106,414 Marketing expenses 515,097 411,206 328,964 Data processing 162,016 143,964 63,347 Postage 224,761 154,802 130,754 Education and travel 124,287 159,500 103,563 Printing and supplies 279,806 236,681 171,376 Telephone 202,999 177,563 156,969 Other 1,044,193 783,299 702,434 __________ __________ __________ $2,912,250 $2,417,558 $2,025,678 ========== ========== ==========
19. CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY Summarized financial information for MidSouth Bancorp, Inc. (parent company only) follows: December 31, ______________________________ ASSETS 1997 1996 Cash and interest-bearing deposits in banks $ 20,841* $ 52,305* Other assets 114,670 197,315 Investment in subsidiaries 14,618,066* 12,026,362* ___________ ___________ $14,753,577 $12,275,982 =========== =========== LIABILITIES & STOCKHOLDERS' EQUITY Liabilities: Notes payable to financial institutions $1,685,023 $784,522 Note payable to Bank 137,244* 49,395* Other liabilities - 81,894 ___________ ___________ Total liabilities 1,822,267 915,811 ___________ ___________ Total stockholders' equity 12,931,310 11,360,171 ___________ ___________ $14,753,577 $12,275,982 =========== ===========
STATEMENTS OF INCOME Years Ended December 31, ___________________________________________ 1997 1996 1995 Revenue: Equity in undistributed income of subsidiaries $1,895,208* $1,337,342* $1,350,358* Rental and other income 32,827 32,827 36,880 __________ __________ __________ 1,928,035 1,370,169 1,387,238 __________ __________ __________ Expenses: Interest on notes payable 100,109 50,249 55,884 Professional fees 87,548 64,737 68,169 Other expense 58,086 75,299 89,575 __________ __________ __________ 245,743 190,285 213,628 __________ __________ __________ Income before income taxes and cumulative effect of accounting change 1,682,292 1,179,884 1,173,610 Income tax benefit 72,400 56,614 68,000 __________ __________ __________ Net income $1,754,692 $1,236,498 $1,241,610 ========== ========== ==========
STATEMENTS OF CASH FLOWS Years Ended December 31, 1997 1996 1995 Cash flows from operating activities: Distributions from bank $ - $ 208,197* $ 112,899* Change in other assets and liabilities, net 751 (40,320) 76,423 Other operating (140,516) (100,844) (108,748) __________ __________ __________ Net cash provided by (used in) operating activities (139,765) 67,033 80,574 __________ __________ __________ Cash flows from investing activities: Investment in subsidiary (500,000)* (300,000)* - Maturities of investment securities - - 120,946 __________ __________ __________ Net cash provided by (used in) investing activities (500,000) (300,000) 120,946 __________ __________ __________ Cash flows from financing activities: Capital stock transactions 235,168 336,027 152,993 Payment of dividends (508,810) (435,882) (153,891) Proceeds of (payments of) notes payable, net 881,943 294,892 (133,830) __________ __________ __________ Net cash provided by (used in) financing activities 608,301 195,037 (134,728) __________ __________ __________ Net increase (decrease) in cash (31,464) (37,930) 66,792 Cash, beginning of year 52,305 90,235 23,443 __________ __________ __________ Cash, end of year $ 20,841 $ 52,305 $ 90,235 ========== ========== ========== *Eliminated in consolidation 20. IMPACT OF NEW ACCOUNTING STANDARDS In June 1997, the FASB issued Statement of Financial Standards No. 130, "Reporting Comprehensive Income" which requires that an enterprise report by major components and as a single total, the change in net assets during the period from non-owner sources and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" which establishes annual and interim reporting standards for an enterprise's operating segments and related disclosures about its products, services, geographic areas and major customers. Adoption of these statements will not impact the Company's consolidated financial position, results of operations or cash flows, and any effect will be limited to the form and content of its disclosures. Both statements are effective for fiscal years beginning after December 15, 1997. The Company is in the process of reviewing its operating segments. INDEPENDENT AUDITORS' REPORT To the Stockholders and Board of Directors of MidSouth Bancorp, Inc. Lafayette, Louisiana We have audited the accompanying consolidated statements of condition of MidSouth Bancorp, Inc. and its subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. 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 generally accepted auditing standards. 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, such consolidated financial statements present fairly, in all material respects, the financial position of MidSouth Bancorp, Inc. and subsidiaries at December 31, 1997 and 1996 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP New Orleans, Louisiana January 30, 1998
MIDSOUTH BANCORP, INC. LOAN PORTFOLIO LOAN MATURITIES AND SENSITIVITY TO INTEREST RATES for the Year Ended December 31, 1997 (dollars in thousands) Loans at Stated Maturities Amounts Over One Year With __________________________________________________ ___________________________________ 1 Year 1 Year - Over Predetermined Floating or Less 5 Years 5 Years Total Rates Rates Total __________________________________________________ ___________________________________ Commercial, Financial Industrial, Real Estate Mortgage and Real Estate - Constr $25,461 $46,870 $15,315 $87,646 $43,685 $18,500 $62,185 Installment Loans to Individuals and Real Estate Mortgage 7,678 28,868 1,178 $37,724 29,705 341 $30,046 Lease Financing Receivables 212 4,563 - $4,775 4,563 - $4,563 Other 743 - - $743 - - - __________________________________________________ ___________________________________ TOTAL $34,094 $80,301 $16,493 $130,888 $77,953 $18,841 $96,794 ================================================== ===================================
MIDSOUTH BANCORP, INC. SECURITIES PORTFOLIO MATURITIES AND AVERAGE YIELDS for the Year Ended December 31, 1997 (dollars in thousands) After 1 but After 5 but Within 1 Year Within 5 Years Within 10 Years After 10 Years SECURITIES AVAILABLE FOR SALE Amount Yield Amount Yield Amount Yield Amount Yield Total _______________________________________________________________________________________ U.S. Treasury and U.S. Government Agency securities $7,254 5.63% $13,779 5.96% - $215 7.81% $21,248 Obligations of State and Political Subdivisions 50 6.69% 250 6.77% 500 7.00% 605 7.25% 1,405 Mortgage Backs and CMOs 2,716 6.56% 3,076 6.64% 4,107 6.81% 2,359 5.78% 12,258 Other securities - - - 991 5.19% 991 Mutual funds 982 5.91% - - - 982 _______________________________________________________________________________________ Total Fair Value $11,002 $17,105 $4,607 $4,170 $36,884 =======================================================================================
After 1 but After 5 but Within 1 Year Within 5 Years Within 10 Years After 10 Years HELD TO MATURITY Amount Yield Amount Yield Amount Yield Amount Yield Total _______________________________________________________________________________________ Obligations of State and Political Subdivisions $25 5.75% $105 6.80% $5,820 5.45% $10,783 5.30% $16,733 _______________________________________________________________________________________ Total Amortized Cost $25 $105 $5,820 $10,783 $16,733 =======================================================================================
MIDSOUTH BANCORP, INC. SUMMARY OF AVERAGE DEPOSITS (in thousands) 1997 1996 AVERAGE AVERAGE AVERAGE AVERAGE AMOUNT YIELD AMOUNT YIELD ________ ________ _______ ________ Non-interest bearing $48,480 0.00% $40,633 0.00% Demand Deposits Interest bearing Deposits Savings, NOW, MM 73,844 2.98% 58,362 2.74% Time Deposits 65,492 5.21% 54,944 5.19% ________ ________ Total $187,816 2.95% $153,939 2.89% ======== ========
MATURITY SCHEDULE TIME DEPOSITS OF $100,000 OR MORE (in thousands) 1997 1996 _______ ______ 3 months or less $17,733 $7,238 3 months through 6 months 4,780 3,292 7 months through 12 months 7,283 4,969 over 12 months 2,904 3,596 _______ _______ Total $32,700 $19,095 ======= ======= SUMMARY OF RETURN ON EQUITY AND ASSETS 1997 1996 _______ ________ Return on Average Assets 0.78% 0.65% Return on Average Common Equity 16.44% 13.09% Dividend Payout Ratio on Common Stock 22.14% 25.94% Average Equity to Average Assets 5.93% 6.50%
ITEM 8 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not applicable. PART III ITEM 9 - Directors, Executive Officers, Promotors and Control Persons; Compliance with Section 16(a) of the Exchange Act The information contained in Registrant's definitive proxy statement for its 1998 annual meeting of shareholders, is incorporated herein by reference in response to this Item. Information concerning executive officers is provided following Item 4. ITEM 10 - Executive Compensation The information contained in Registrant's definitive proxy statement for its 1998 annual meeting of shareholders is incorporated herein by reference in response to this Item. ITEM 11 - Security Ownership of Certain Beneficial Owners and Management The information contained in Registrant's definitive proxy statement for its 1998 annual meeting of shareholders is incorporated herein by reference in response to this Item. ITEM 12 - Certain Relationships and Related Transactions The information contained in Registrant's definitive proxy statement for its 1998 annual meeting of shareholders is incorporated herein by reference in response to this Item. ITEM 13 - Exhibits and Reports on Form 8-K. Exhibits Exhibit No. Description 3.1 Amended and Restated Articles of Incorporation of MidSouth Bancorp, Inc. are included as Exhibit 3.1 to MidSouth's Annual Report on Form 10-K for the Year Ended December 31, 1993, and is incorporated herein by reference. 3.2 Articles of Amendment to Amended and Restated Articles of Incorporation dated July 19,1995 are included as Exhibit 4.2 to MidSouth's Registration Statement on Form S-8 filed September 20, 1995 and is incorporated herein by reference. 3.3 Amended and Restated By-laws of MidSouth are included as Exhibit 3.2 to Amendment No. 1 to MidSouth's Registration Statement on Form S-4 (Reg. No. 33-58499) filed on June 1, 1995, and is incorporated herein by reference. 4.1 MidSouth agrees to furnish to the Commission on request a copy of the instruments defining the rights of the holder of its long-term debt, which debt does not exceed 10% of the total consolidated assets of MidSouth. 10.1 MidSouth National Bank Lease Agreement with Southwest Bank Building Limited Partnership is included as Exhibit 10.7 to the Company's annual report on Form 10-K for the Year Ended December 31, 1992, and is 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 is included as Exhibit 10.1 to the Company's annual report on Form 10-KSB for the year ended December 31, 1994, and is incorporated herein by reference. 10.3 Amended and Restated Deferred Compensation Plan and Trust is included as Exhibit 10.3 to MidSouth's Annual Report on Form 10-K for the year ended December 31, 1992 and is incorporated herein by reference. 10.5 Employment Agreements with C. R. Cloutier and Karen L. Hail are included as Exhibit 5c to MidSouth's Form 1-A and are incorporated herein by reference. 10.6 The MidSouth Bancorp, Inc. 1997 Stock Incentive Plan is included as a form of option agreement in Exhibit 4.5 to MidSouth's definitive proxy statement filed April 11, 1997 and is incorporated herein by reference. 10.7 The MidSouth Bancorp, Inc. Dividend Reinvestment and Stock Purchase Plan is included as Exhibit 4.6 to MidSouth Bancorp, Inc.'s Form S-3D filed on July 25, 1997 and is incorporated herein by reference. 10.8 Loan Agreements and Master Notes for lines of credit established for MidSouth Bancorp, Inc. and Financial Services of the South, Inc. are included as Exhibit 10.7 to MidSouth Bancorp, Inc.'s Form 10-QSB filed on August 14, 1997 and is incorporated herein by reference. 21 Subsidiaries of the Registrant 23 Independent Auditors' Consent 27 Financial Data Schedule Reports on Form 8-K None
Selected Quarterly Financial Data (unaudited) 1997 ____________________________________ (Dollars in thousands, except per share data) IV III II I ______ ______ ______ ______ Interest income $4,217 $4,112 $3,893 $3,554 Interest expense 1,521 1,595 1,462 1,316 ______ ______ ______ ______ Net interest income 2,696 2,517 2,431 2,238 Provision for possible credit losses 250 242 209 153 ______ ______ ______ ______ Net interest income after provision for possible credit losses 2,446 2,275 2,222 2,085 Noninterest income, excluding securities gains 743 735 729 596 Net securities gains 10 - 85 - Non-interest expense 2,560 2,474 2,369 2,183 ______ ______ ______ ______ Income before income tax expense 639 536 667 498 Income tax expense 158 127 185 116 ______ ______ ______ ______ Net income 481 409 482 382 Preferred stock dividend requirement (37) (37) (40) (40) ______ ______ ______ ______ Income applicable to common shareholders $444 $372 $442 $342 ====== ====== ====== ====== Earnings per common share Basic $ 0.28 $0.24 $0.29 $0.22 Diluted $ 0.25 $0.21 $0.26 $0.20 Market price of common stock High $21.56 $17.75 $12.89 $10.22 Low $16.13 $13.00 $10.00 $9.44 Close $21.25 $16.25 $12.89 $9.89 Average shares outstanding Basic 1,570,294 1,572,470 1,555,673 1,543,731 Diluted 1,934,288 1,930,918 1,870,460 1,848,592
1996 ____________________________________ IV III II I ______ ______ ______ ______ Interest income $3,366 $3,234 $3,061 $2,911 Interest expense 1,218 1,185 1,108 1,030 ______ ______ ______ ______ Net interest income 2,148 2,049 1,953 1,881 Provision for possible credit losses 140 225 190 120 ______ ______ ______ ______ Net interest income after provision for possible credit losses 2,008 1,824 1,763 1,761 Noninterest income, excluding securities gains 570 562 563 442 Net securities gains - 1 - - Non-interest expense 2,165 2,039 1,856 1,780 ______ ______ ______ ______ Income before income tax expense 413 348 470 423 Income tax expense 55 95 134 134 ______ ______ ______ ______ Net income 358 253 336 289 Preferred stock dividend requirement (37) (39) (39) (40) ______ ______ ______ ______ Income applicable to common shareholders $321 $214 $297 $249 ====== ====== ====== ====== Earnings per common share Basic $0.21 $0.14 $0.20 $0.17 Diluted $0.19 $0.13 $0.19 $0.16 Market price of common stock High $9.89 $9.56 $10.33 $10.42 Low $9.33 $9.11 $9.33 $10.00 Close $9.78 $9.45 $9.34 $10.17 Average shares outstanding Basic 1,523,463 1,509,727 1,503,295 1,489,377 Diluted 1,828,857 1,829,066 1,743,264 1,735,408
Earnings per share and other share data have been adjusted for a four for three stock split paid on August 19,1996 and a 12 1/2% stock dividend paid on August 27, 1997. Earnings per share have also been restated to apply the provisions of Statement of Financial Accounting Standards No. 128 "Earnings Per Share." 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. By: ________________________ C. R. Cloutier President and Chief Executive Officer Dated: March 20, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signatures Title Date /s/ C. R. Cloutier President, Chief Executive March 20, 1998 C. R. Cloutier Officer and Director /s/ Karen L. Hail Chief Financial Officer, March 20, 1998 Karen L. Hail Executive Vice President, Secretary/Treasurer and Director /s/ Teri S. Stelly Controller March 20, 1998 Teri S. Stelly Director /s/ J. B. Hargroder, M.D. March 20, 1998 J. B. Hargroder, M.D. /s/ William M. Simmons Director March 20, 1998 William M. Simmons /s/ Will G. Charbonnet, Sr. Director March 20, 1998 Will G. Charbonnet, Sr. /s/ Clayton Paul Hilliard Director March 20, 1998 Clayton Paul Hilliard /s/ James R. Davis Director March 20, 1998 James R. Davis, Jr. /s/ Milton B. Kidd, III Director March 20, 1998 Milton B. Kidd, III., O.D. EX-21 2 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT MidSouth National Bank Financial Services of the South, Inc. EX-23 3 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 333-32107 of MidSouth Bancorp, Inc. on Form S-3D of our report dated January 30, 1998, appearing in this Annual Report on Form 10-KSB of MidSouth Bancorp, Inc. for the year ended December 31, 1997. DELOITTE & TOUCHE, LLP New Orleans, Louisiana March 25, 1998 EX-27.1 4
9 12-MOS DEC-31-1997 DEC-31-1997 15,774,024 48,928 8,060,000 0 36,884,465 16,732,827 17,459,865 130,888,144 1,414,826 217,112,415 200,067,751 69,443 845,117 3,198,794 0 2,290,773 158,106 10,482,431 217,112,415 3,300,453 809,628 107,637 4,217,718 1,465,550 1,521,396 2,696,322 250,100 9,734 2,559,963 639,706 639,706 481,466 0 481,466 .28 .25 5.53 260,875 245,232 0 0 1,087,790 732,773 205,409 1,414,826 80,000 0 1,334,826
EX-27.2 5
9 YEAR YEAR 3-MOS 6-MOS 9-MOS DEC-31-1995 DEC-31-1996 DEC-31-1995 DEC-31-1995 DEC-31-1996 DEC-31-1995 DEC-31-1996 MAR-31-1996 JUN-30-1996 SEP-30-1996 10,298,000 11,314,000 7,473,000 8,820,000 9,275,527 26,000 407,000 108,000 294,000 203,515 15,800,000 14,100,000 12,200,000 14,600,000 7,400,000 0 0 0 0 0 36,059,000 47,249,000 46,274,000 45,643,000 49,698,403 4,546,000 9,548,000 6,224,000 7,550,000 9,568,694 4,735,000 9,700,000 6,279,000 7,476,000 9,629,243 78,879,000 94,829,000 80,383,000 85,442,000 88,164,439 1,052,000 1,088,000 1,047,000 1,063,000 1,051,846 151,183,000 185,228,000 159,030,000 169,341,000 171,781,165 139,030,000 171,617,000 146,827,000 157,448,000 159,130,877 176,000 104,000 167,000 67,000 103,329 592,000 626,000 688,000 548,000 619,389 973,000 1,521,000 932,000 891,000 1,201,346 0 0 0 0 0 2,669,000 2,450,000 2,590,000 2,562,000 2,561,523 97,000 136,000 98,000 99,000 133,604 7,648,000 8,774,000 7,728,000 7,726,000 8,031,097 151,183,000 185,228,000 159,030,000 169,341,000 10,726,224 2,043,000 2,370,000 2,038,000 2,130,000 2,266,637 630,000 860,000 676,000 782,000 821,922 176,000 136,000 197,000 149,000 145,912 2,849,000 3,366,000 2,911,000 3,061,000 3,234,471 1,001,000 1,194,000 1,011,000 1,088,000 1,165,419 1,011,000 1,218,000 1,030,000 1,108,000 1,185,382 1,838,000 2,148,000 1,881,000 1,953,000 2,049,089 75,000 140,000 120,000 190,000 224,804 0 0 0 0 1,175 1,778,000 2,165,000 1,780,000 1,856,000 2,039,381 408,000 413,000 422,000 470,000 348,288 408,000 358,000 288,000 470,000 253,008 0 0 0 0 0 0 0 0 0 0 318,000 358,000 288,000 336,000 253,008 .20 .21 .17 .20 .14 .18 .19 .16 .19 .13 5.21 5.32 5.41 5.36 5.32 387,000 523,000 368,000 362,000 691,711 266,000 338,000 366,000 448,000 318,604 1,000 1,000 1,000 1,000 1,000 0 0 0 0 0 874,000 1,052,000 1,052,000 1,052,000 1,051,898 254,000 896,000 168,000 379,000 683,195 91,000 257,000 43,000 80,000 148,339 1,052,000 1,088,000 1,047,000 1,063,000 1,051,846 140,000 173,000 140,000 140,000 155,000 0 0 0 0 0 912,000 915,000 907,000 923,000 896,846 EX-27.3 6
9 3-MOS 6-MOS 9-MOS DEC-31-1996 DEC-31-1996 DEC-31-1996 MAR-31-1997 JUN-30-1997 SEP-30-1997 13,700,000 14,081,776 12,164,721 7,000 171,236 93,046 16,200,000 0 400,000 0 0 0 52,200,000 57,936,992 43,360,187 13,518,000 17,124,015 16,953,092 13,399,000 17,535,184 17,554,695 100,453,000 114,379,507 124,386,058 1,126,000 1,331,951 1,339,904 204,131,000 212,617,670 206,518,858 189,947,000 195,081,301 181,475,290 350,000 2,297,324 3,677,516 0 686,111 5,930,245 0 2,533,240 2,981,108 0 0 0 2,446,000 2,446,098 2,300,748 138,000 138,152 157,468 8,860,000 12,019,694 9,996,483 204,131,000 212,617,670 206,518,858 2,460,000 2,756,657 3,108,931 891,000 990,571 989,118 203,000 145,355 14,382 3,554,000 3,892,583 4,112,431 1,284,000 1,418,057 1,487,968 1,316,000 43,539 1,595,479 2,238,000 2,430,987 2,516,952 153,000 209,332 241,700 0 85,355 (176) 2,183,000 2,368,565 2,474,093 498,000 667,261 536,513 498,000 482,511 536,513 0 0 0 0 0 0 381,000 482,511 409,293 .22 .29 .24 .20 .26 .21 5.24 5.24 5.39 620,000 519,000 365,595 240,000 60,000 133,755 1,000 0 0 0 0 0 1,087,000 1,087,790 1,087,000 176,000 281,002 541,000 62,000 162,563 190,000 1,126,000 1,331,951 1,340,000 130,000 176,937 82,000 0 0 0 996,000 1,155,014 1,258,000 -----END PRIVACY-ENHANCED MESSAGE-----