-----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, TQqjvUtFwCsdrFCQRXz0gaxjrC219WfDKys52voMjsTTCxCPPVfGsqkIaVFJhA4+ 3jjyY2r+DmYepl8Yhoa0ZA== 0000948688-03-000001.txt : 20030331 0000948688-03-000001.hdr.sgml : 20030331 20030331112118 ACCESSION NUMBER: 0000948688-03-000001 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030331 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: 1934 Act SEC FILE NUMBER: 002-91000-FW FILM NUMBER: 03627946 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 ten10.txt MIDSOUTH BANCORP, INC. FORM 10-KSB 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, 2002 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 (337) 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. 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__ Total revenues for the year ended December 31, 2002 were $24,337,946. As of February 28, 2003, 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 $28,440,044. As of February 28, 2003 there were outstanding 2,901,142 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 27, 2003 - (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 Bank, N.A. (the "Bank"), a wholly-owned subsidiary. MidSouth is currently liquidating a second subsidiary, Financial Services of the South, Inc. (the "Finance Company"). MidSouth, the Bank and the Finance Company are referred to collectively herein as "the Company." The Bank The Bank is a national banking association domiciled in Lafayette, Louisiana. The Bank provides a broad 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 loan products. The Bank is an U.S. government depository and is also a member of the Pulse network which provides its customers with automatic teller machine services through the GulfNet, Cirrus and Plus networks. Membership in the Community Cash Network provides MidSouth's customers with additional access throughout the Greater New Orleans area with no surcharge. The Bank operates at the nineteen locations described below under "Item 2 - Properties." Employees As of December 31, 2002, the Bank employed 212 full-time equivalent employees and the Finance Company had no employees. MidSouth has no employees who are not also employees of the Bank. Through the Bank, employees receive employee benefits, which include an employee stock ownership plan, a 401-K plan and life, health and disability insurance plans. MidSouth considers the relationships of the Bank 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. Several of the banks in the Lafayette area 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. 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 regulation and 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. Sarbanes-Oxley Act of 2002. Signed into law on July 30, 2002, the Sarbanes-Oxley Act of 2002 (the "Act") addresses many aspects of corporate governance and financial accounting and disclosure. Primarily, it provides a framework for the oversight of public company auditing and for insuring the independence of auditors and audit committees. Under the Act, audit committees are responsible for the appointment, compensation and oversight of the work of external and internal auditors. The Act also provides for enhanced and accelerated financial disclosures and establishes certification requirements for a company's chief executive and chief financial officers and imposes new restrictions on and accelerated reporting of certain insider trading activities. Significant penalties for fraud and other violations are included in the Act. Gramm-Leach-Bliley Act. This financial services reform legislation proves for three basic changes: 1) repeal of certain provisions of the Glass Steagall Act to permit commercial banks to affiliate with investment banks, 2) modification of the Bank Holding Company Act of 1956 to permit companies that own commercial banks to engage in any type of financial activity, and 3) allows subsidiaries of banks to engage in a broad range of financial activities beyond those permitted for banks themselves. As a result, banks, securities firms, and insurance companies will be able to combine much more readily. The legislation also includes important provisions regarding privacy of customer information; increased access to the Federal Home Loan Bank System by community banks; and significant changes to the requirements of the Community Reinvestment Act. Under provisions of the legislation, two new types of regulated entities are authorized to engage in a broad range of financial activities much more extensive that those of standard holding companies. A "financial holding company" can engage in all newly-authorized activities and is simply a bank holding company whose depository institutions are well-capitalized, well-managed, and has a CRA rating of "satisfactory" or better. A "financial subsidiary" is a direct subsidiary of a bank that satisfies the same conditions as a `financial holding company"plus several more. The "financial subsidiary" can engage in most of the newly- authorized activities, which are defined as securities, insurance, merchant banking/equity investment, "financial in nature," and "complementary" activities. The legislation also defines the concept of "functional supervision", meaning similar activities should be regulated by the same regulator, with the Federal Reserve Board serving as an "umbrella" supervisory authority over bank and financial holding companies. While this legislation created new opportunities for the Company to offer expanded services to its customer base in the future, the Company has not yet determined the nature of the expanded services or when the services will be offered. 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, 2002, the Company's ratios of Tier 1 and total capital to risk-weighted assets were 12.57% and 13.71%, respectively. MidSouth's leverage ratio (Tier 1 capital to total average adjusted assets) was 8.45% at December 31, 2002. All three regulatory capital ratios for the Company exceeded regulatory minimums at December 31, 2002. Supervision and Regulation - National Banks General. As a national banking association, the Bank is supervised and regulated by the Office of the 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, 2002, 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, 2002. 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 twenty-year lease expiring December 31, 2011. The Bank has six other banking offices in Lafayette, Louisiana, three in New Iberia and one banking office in each of Breaux Bridge, Cecilia, Jeanerette, Opelousas, Morgan City, Jennings, Lake Charles, and Sulphur Louisiana. Thirteen of these offices are owned and five are leased. MidSouth also leases space for a banking office opened in Thibodaux, Louisiana during the fourth quarter of 1999. 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, results of operation, or cash flows. 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 2002. Executive Officers of the Registrant C. R. Cloutier, 55 - President, Chief Executive Officer and Director of MidSouth and the Bank for more that the past five years. Karen L. Hail, 49 - Senior Executive Vice President and Chief Operations Officer and Director of the Bank, and Chief Financial Officer and Secretary and Treasurer and Director of MidSouth for more than the past five years. Donald R. Landry, 46 - Senior Vice President and Senior Loan Officer of the Bank for more than the past five years and named Executive Vice President in 2002. Jennifer S. Fontenot, 48 - Senior Vice President for more than the past five years and named Chief Information Officer of the Bank in 2002. Dwight Utz, 49 - Senior Vice President of Retail Banking since 2001; prior to his employment at the Bank, Mr. Utz was a Corporate Vice President for PNC Bank Corporation in Pittsburgh, Pennsylvania. Teri S. Stelly, 43 - Senior Vice President and Controller of MidSouth for more than the past five years and named Chief Financial Officer of the Bank in 2002. Christopher J. Levanti, 36 - Joined MidSouth as Senior Vice President of Credit Administration in 2002; prior to his employment at the Bank, Mr. Levanti was Senior Credit Manager at First Data Merchant Services in Melville, New York. David L. Majkowski, 52 - Vice President and Loan review officer of the Bank since 1997; Loan review officer of the Bank since 1995. 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. As of December 31, 2002, there were 631 common shareholders of record. MidSouth's Common Stock is listed on the American Stock Exchange under the symbol "MSL." 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 has paid quarterly cash dividends of $.05 per common share since 1998. It is the intention of the Board of Directors of MidSouth to continue paying quarterly dividends on the common stock at a rate of $.05 per share. A Special Dividend of $.05 per common share was paid in addition to the regular $.05 dividend for the fourth quarter of 2002. Restrictions on the Company's ability to pay dividends is described in Item 7 below under the heading "Liquidity - Dividends" and in Note 13 of notes to the Company's consolidated financial statements. Details regarding the Company's stock option plans are included in Note 12 of notes to the Company's consolidated financial statements.
FIVE-YEAR SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA Year Ended December 31, _______________________________________________________________________ 2002 2001 2000 1999 1998 ___________ ___________ ___________ ___________ ___________ Gross interest income $24,125,789 $26,424,027 $24,449,115 $21,072,733 $18,755,764 Interest expense (6,709,231) (10,408,926) (9,787,165) (7,888,351) (6,931,556) ___________ ___________ ___________ ___________ ___________ Net interest income 17,416,558 16,015,101 14,661,950 13,184,382 11,824,208 Provision for loan losses (1,398,250) (2,176,224) (897,038) (906,950) (999,950) Other operating income 6,921,388 5,432,859 4,582,995 3,980,496 3,486,937 Other expenses (17,082,360) (15,462,472) (14,501,566) (12,740,307) (11,023,245) ___________ ___________ ___________ ___________ ___________ Income before income taxes 5,857,336 3,809,264 3,846,341 3,517,621 3,287,950 Provision for income taxes (1,428,253) (866,105) (951,204) (867,417) (842,167) ___________ ___________ ___________ ___________ ___________ Net Income 4,429,083 2,943,159 2,895,137 2,650,204 2,445,783 Preferred stock dividend requirement - (52,751) (246,024) (131,582) (148,971) ___________ ___________ ___________ ___________ ___________ Net income available to common shareholders $4,429,083 $2,890,408 $2,649,113 $2,518,622 $2,296,812 =========== =========== =========== =========== =========== Basic earnings per share $1.53 $1.08 $1.07 $1.03 $0.95 Diluted earnings per share $1.50 $1.00 $0.95 $0.90 $0.83 Total loans $227,052,226 $214,390,121 $204,584,860 $170,468,733 $155,477,263 Total assets 382,686,993 363,779,863 346,373,433 276,723,841 249,818,268 Total deposits 343,474,846 330,577,458 319,547,205 251,690,206 229,924,302 Cash dividends on common stock 725,286 547,966 501,443 492,415 434,334 Long-term obligations 7,568,030 8,431,000 4,650,968 3,459,097 3,503,668 Selected ratios: Loans to assets 59.33% 58.93% 59.06% 61.60% 62.24% Loans to deposits 66.10% 64.85% 64.02% 67.73% 67.62% Deposits to assets 89.75% 90.87% 92.26% 90.95% 92.04% Return on average assets 1.20% 0.85% 0.98% 0.97% 1.04% Return on average common equity 17.59% 14.04% 17.70% 17.45% 19.16% A $107,250 charge resulting from the retirement of 11,000 shares of MidSouth Bancorp, Inc. Series A Preferred Stock is included in the amount recorded as preferred dividends for the year ended December 31, 2000. On August 1, 2001, MidSouth completed the redemption of its Series A Preferred Stock. Only 3,527 shares had not been converted to MidSouth Common Stock as of July 26, 2001, the final day for converting. The remaining 3,527 Preferred Shares were redeemed at a Redemption Price of $14.33 per share. On February 21, 2001, MidSouth completed the issuance of $7,000,000 of junior subordinated debentures. For regulatory puposes, these funds qualify as Tier 1 Capital. For financial reporting purposes, these funds are included as a liability under generally accepted accounting principles. Return on average common equity is calculated before the effect of the $107,250 charge related to the retirement of 11,000 shares of preferred stock for the year ended December 31, 2000.
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 subsidiary, MidSouth Bank, N. A. (the "Bank"). A second subsidiary, Financial Services of the South, Inc. (the "Finance Company") is in the process of liquidating its loan portfolio by accepting payments on existing loans with no new loans being made. 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 Net income for the year ended December 31, 2002 was $4,429,083 compared to $2,943,159 for the year ended December 31, 2001. Basic earnings per share were $1.53 and $1.08 for the years ended December 31, 2002 and 2001, respectively. Diluted earnings per share were $1.50 for the year ended December 2002 compared to $1.00 for the year ended December 2001. In year-to-date comparison, an increase of $1,401,457 or 9% in net interest income and $1,488,529 or 27% in non-interest income for the year 2002 were partially offset by a $1,619,888 or 10% increase in non- interest expenses, primarily salaries and employee benefits, occupancy, marketing, professional fees and data processing expenses. In addition, a decrease in the loan loss provision of $777,974 helped boost earnings for 2002. The decrease in the provision for loan losses resulted primarily from a decrease in net charge-offs for 2002 compared to 2001, which included a $700,000 default and charge-off of one commercial loan in the second quarter. MidSouth's total consolidated assets increased $18.9 million or 5% from $363,779,863 at December 31, 2001 to $382,686,993 at December 31, 2002. Total deposits increased $12.9 million, from $330,577,458 at December 31, 2001 to $343,474,846 at December 31, 2002. Most of the growth is attributed to the purchase of a second Morgan City banking office in June of 2002. Loans, net of Allowance for Loan Losses ("ALL"), increased $12.5 million or 6%, from $211.7 million at December 31, 2001 to $224.2 million at December 31, 2002. Competition for loans remained a challenge throughout 2002, with the low interest rate environment prompting customer payouts and refinancing. Nonperforming loans as a percentage of total loans decreased from .36% or $768,753 at December of 2001 to ..31% or $710,546 at December of 2002. Loans past due 90 days and over also decreased slightly from $999,538 at December 31, 2001 to $818,727 at December 31, 2002. MidSouth's leverage ratio was 8.45% at December 31, 2002, compared to 8.02% at December 31, 2001. Return on average common equity was 17.59% for 2002 compared to 14.04% for 2001. Return on average assets was 1.20% compared to .85% for the same periods, respectively. 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, 2002. Net interest income increased $1,401,457 for 2002 over 2001 and $1,353,151 for 2001 over 2000. Net interest income improved for 2002 primarily due to a decline in interest expense combined with increased volumes in the loan and investment portfolios. The increase in net interest income for 2001 resulted primarily from comparable volume increases in both the loan and investment portfolios. The effect of the increased volume of earning assets on total interest income in 2001 was substantially offset by declining yields on loans and investments. Average loans as a percentage of average earnings assets decreased from 69% in 2000 to 66% in both 2001 and 2002. Interest income from loans, including loan fees, increased $1,098,157 from 2000 to 2001 and decreased $1,393,493 from 2001 to 2002. The decreased interest income in 2002 resulted from a 128 basis point decline in the average yield on loans, from 9.84% in 2001 to 8.56% in 2002. The effect of declining yields was partially offset by an increase in average loan volume of $14.9 million or 7% in 2002 and $24.5 million or 13% in 2001. Average yield on total loans decreased 71 basis points in 2001. For the higher volume commercial loan portfolio, average yields decreased from 9.97% in 2000 to 8.87% in 2001 and 8.21% in 2002. Average yields in the installment loan portfolio rose from 12.45% in 2000 to 13.53% in 2001 before falling to 9.97% in 2002. Changes in the New York prime lending rate combined with market competition and a slowing economy impacted MidSouth's loan yields over the past three years. After increasing 100 basis points in 2000, the New York prime fell 475 basis points to 4.75% at December 31, 2001 and an additional 50 basis points to 4.25% at December 31, 2002. In 2002, businesses and consumers continued to exercise caution with the slow economy, which translated into soft loan demand in MidSouth's markets. Subsequently, MidSouth faced the challenge of investing excess funds in investment securities that yielded reasonable returns without taking on too much risk. The average volume of investment securities increased $9 million to $105 million in 2002 compared to $96 million in 2001. Average taxable equivalent yields on investment securities decreased 91 basis points, from 6.24% in 2001 to 5.33% in 2002. The decrease in yield during 2002 offset the increase in volume and resulted in decreased interest income from investment securities of $478,773 for the year. The volume of federal funds sold decreased $4.9 million and the average yield dropped 258 basis points to 1.50% for 2002, resulting in a decrease in interest income from federal funds sold of $425,972 for the year. MidSouth's deposit mix improved during 2002, strengthening its core deposit base with non-interest bearing deposits increasing to 25% of average total deposits. Additionally, the mix of average total interest-bearing deposits shifted to increase the volume of NOW, money market and savings deposits (41% of average total deposits) compared to certificates of deposit (34% of average total deposits). These two categories of interest-bearing deposits were 39% and 37% of average total deposits, respectively, in 2001 and evenly matched at 38% of average total deposits as of December 31, 2000. Volume increases in interest-bearing deposits were offset by significant rate decreases for the year ended December 31, 2002 and resulted in decreased interest expense of $3,650,709 in 2002 compared to an increase of $349,744 in 2001. Average interest-bearing deposits increased $8.8 million in 2002, $35.6 million in 2001 and $17.5 million in 2000. The average rate paid on these deposits fell 161 basis points to 2.37% in 2002 from 3.98% in 2001 after rising 55 basis points to 4.50% in 2000. In 2002, MidSouth had no borrowings with the FHLB, except for overnight funds, while in 2001 advances averaged $172,000 at an average rate of 5.23%, down from $2.9 million at an average rate of 6.72% during 2000. In 2002, MidSouth's notes payable decreased to an average of $.9 million from an average of $1.9 million at December 31, 2001 as the Finance Company continued to pay down its borrowing with payments received on existing credits. In February 2001, MidSouth issued $7,000,000 of junior subordinated debentures. The debentures carry a fixed interest rate of 10.20% and mature on February 22, 2031. MidSouth paid off its line of credit with proceeds from the issuance of the debentures. Accordingly, the average volume of notes payable decreased from $3.9 million at December 31, 2000 to $1.9 million at December 31, 2001. The volume increases in MidSouth's earning assets combined with significant rate decreases on interest-bearing liabilities resulted in net taxable-equivalent net yields on average earning assets of 5.38% in 2002 as compared to 5.24% for 2001 and 5.66% for 2000. 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 insufficient funds fees) increased $1,173,355 in 2002 and $299,159 in 2001 primarily due to an increase in the number of transaction accounts and the volume of insufficient funds checks processed by MidSouth. Non-interest income resulting from other charges and fees increased $323,107 in 2002 as compared to $403,777 in 2001. An increase of $160,188 and $192,025 in income from a third party mortgage program contributed to the increase in other non-interest income for 2002 and 2001, respectively. An increase in income on Visa debit cards and merchant programs is included in the increase in other charges and fees, however increased expenses on these programs partially offset the benefit. Securities Transactions. MidSouth had net gains on sales of securities totaling $156,259 in 2002. Sales of $3.3 million in U. S. Agency securities allowed MidSouth to improve the overall yield on these securities as they neared maturity. In 2001, net gains on the sales of securities totaled $188,883, resulting from sales of $8.6 million in U.S. Treasury and Agency securities and a Ford Motor Credit corporate bond that was sold due to credit quality concerns. Non-interest Expense Total non-interest expense increased 11% from 2001 to 2002 and 7% from 2000 to 2001. MidSouth's growth and expansion over the past three years resulted in increases primarily in salaries and employee benefits, occupancy expenses, marketing expenses, and data processing expenses. These increases reflect MidSouth's long-term investment in staff development, system upgrades, and market development. In 2002, MidSouth focused on improving work-flow processes and continued to strengthen risk management. Salaries and employee benefits increased $893,120 or 11% as full-time equivalent employees increased from 205 in 2001 to 212 in 2002. New hires for 2002 included the following management level positions: a compliance officer, credit administrator, marketing coordinator, and an information services analyst. Benefit costs increased primarily due to the cost of group health insurance, which increased $201,458 or 40% in 2002. In 2001, two internal staff auditors, a loan documentation officer and an electronic banking associate were added to strengthen MidSouth's operations and risk management functions. These new positions contributed to the $470,188, or 7%, increase in salaries and employee benefits for 2001. Occupancy expenses increased $285,410 or 8% from 2001 to 2002 and $162,565 or 5% from 2000 to 2001 as a result of increases in lease expense, property taxes, depreciation, and maintenance expenses. Premises and equipment totaling approximately $1,745,000 and $1,500,000 were added in 2002 and 2001, respectively. Additions in 2002 included primarily leasehold improvements of new and existing leased space at MidSouth's main office and Pinhook facility, and improvements to the Breaux Bridge facility. Additions in 2001 included the new Jennings facility and renovations on the Cecilia office. Total other non-interest expense increased $531,358 or 11%, from 2001 to 2002 and $328,153 or 7% from 2000 to 2001. Non-interest expense increased in 2002 primarily due to increased professional fees, which included $179,000 on consulting fees for a processes and work-flow review and $50,000 in recruiting expenses for higher management level positions. In addition, marketing expenses were higher in 2002 due to an increase in advertisement and specific market promotions. Other increases were realized in printing and supplies, postage and telephone expenses. Included in the increase for 2001 is an $80,728 increase in professional fees, which include consulting costs, and $60,154 in the VISA debit and credit card programs and ATM processing. Additional increases were realized in agent commission expense (associated with the insurance premium financing loan program), directors fees, travel expenses and postage. Income Taxes MidSouth's tax expense increased by $562,148 and approximated 24% of income before income taxes. Increased interest income on non-taxable municipal securities further reduced 2002 taxes from the expected statutory rate of 34%. Interest income on non-taxable municipal securities also lowered the effective tax rate for 2001 to approximately 23%. Notes 1 and 9 to MidSouth's Consolidated Financial Statements provide additional information regarding MidSouth's income tax considerations. BALANCE SHEET ANALYSIS Securities Total investment securities increased $13.6 million, from $99.4 million in 2001 to $113.0 million in 2002. Average duration of the portfolio was 2.75 years as of December 31, 2002 and the average taxable-equivalent yield was 5.33%. Cash flows from maturities and paydowns within the portfolio were reinvested primarily in government agency securities and municipal securities. Slow demand for loans necessitated placement of excess funds in securities and federal funds sold. A favorable increase in the market value of securities available-for-sale is included in the net change in 2002. Unrealized net gains in the securities available-for-sale portfolio were $1,820,250 at December 31, 2002, compared to unrealized net gains of $727,462 at December 31, 2001. 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, 2002, approximately 31% of MidSouth's securities available-for-sale portfolio represented mortgage- backed securities and 19% 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. The majority of the CMO's represent FNMA and FHLMC REMIC pools which each had a book value of less than 10% of stockholders' equity at December 31, 2002. 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. An additional 18% of the available-for-sale portfolio consisted of U. S. Agency securities, while municipal and other securities represented 32% of the portfolio. A detailed credit analysis was performed on each municipal offering by 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. The held-to-maturity portfolio remained constant with $22.4 million in non-taxable and $1.0 million in taxable municipal securities. Municipals purchased during 2002 were placed in the available-for-sale portfolio. Loan Portfolio Loan growth continued to be challenging in 2002 after slowing in 2001, with $12.7 million added to the portfolio compared to $9.8 million added during 2001. MidSouth's loan portfolio totaled $227.1 million at December 31, 2002 compared to $214.4 million at December 31, 2001. Of the $12.7 million increase in loans in 2002, $5.4 million were acquired through the purchase of a second Morgan City banking office in June 2002. Weak loan demand from a soft economy compounded by a competitive rate environment and payouts caused MidSouth to fall short of budgeted loan growth in both 2002 and 2001. The majority of the $12.7 million growth in 2002 continued to be in the real estate portfolio, with a slight increase in commercial loans and a slight decline in the installment portfolio. In 2001, the majority of the $9.8 million growth in was also in the real estate portfolio, while the commercial portfolio decreased slightly and the installment portfolio remained constant. The real estate loan growth in 2002 and 2001 consisted of both commercial and consumer credits that call for ten to fifteen year amortization terms with rates fixed for three to five years. The short-term structure of these credits allows management greater flexibility in controlling 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. 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 $930,408 at December 31, 2002, $1,128,089 at December 31, 2001 compared to $605,772 at December 31, 2000. The decrease in nonperforming assets in 2002 resulted primarily from the sale of other real estate owned. The increase in 2001 was primarily due to the addition of three large commercial credits. Specific allocations had been made within the ALL for possible losses on these credits. Loans past due 90 days and still accruing totaled $818,727 at December 31, 2002 compared to $999,538 at December 31, 2001 and $967,721 at December 31, 2000. The percentage of these past due loans to total loans was .36% at year-end 2002, compared to .47% for both year- end 2001 and year-end 2000. Of the $818,727 in 90 days past due loans still accruing for December 31, 2002, $177,700 was reported past due by the Finance Company. 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 totaling $1,398,250, $2,176,224, and $897,038 for the years 2002, 2001 and 2000, respectively, were necessary to bring the allowance to a level considered by management to be sufficient to cover probable losses in the loan portfolio. Table 4 analyzes activity in the allowance for 2002 and 2001. The allowance is comprised of specific reserves (assigned to each loan that is impaired or for which probable loss has been identified) and an unallocated reserve. 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. Factors contributing to the assignment of specific reserves include the financial condition of the borrower, changes in the value of collateral and economic conditions. 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 accounting principles generally accepted in the Unites States of America and Section 217 of the OCC's manual. Factors considered in determining provisions include estimated losses in significant credits; known deterioration in concentrations of credit; historical loss experience; trends in nonperforming assets; volume, maturity and composition of the loan portfolio; off balance sheet credit risk; lending policies and control systems; national and local economic conditions; the experience, ability and depth of lending management and the results of examinations of the loan portfolio by regulatory agencies and others. The 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. As of December 31, 2002, total deposits increased $12.9 million to $343.5 million, up from $330.6 million at December 31, 2001. Contributing to the change in total deposits for 2002 is the addition of $12.1 million in deposits from the purchase of a second banking office in Morgan City in June 2002. MidSouth's focus in 2002 was to deepen existing deposit relationships with an emphasis on core deposits. Core deposits, defined as all deposits other than certificates of deposit ("CD's") of $100,000 or more increased to 87% at year-end 2002 as compared to 86% of total deposits at year- end 2001. Non-interest bearing deposits also increased in 2002 to 27% versus 26% of total deposits at December 31, 2001. CD's of $100,000 or more totaled $45.1 million at December 31, 2002, a decrease of $.9 million from the $46.0 million reported at year-end 2001. 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. At December 31, 2002, a note payable of $568,030 to a financial institution represented the balance of a loan established by Financial Services of the South, Inc. in the amount of $700,030 dated December 12, 2002. Proceeds from the note were used to payout the balance of a $1,099,000 loan issued April 30, 2002. The loan bears a variable rate equal to the commercial prime rate as quoted in the "Money Rates" section of the Wall Street Journal plus twenty-five basis points (0.25%). At December 31, 2002, the effective rate was 4.50%. Interest on this note is payable monthly, with principal due at maturity on December 12, 2003. Advances under the original Line of Credit totaled $1,431,000 at December 31, 2001 and the effective rate was 5.00%. On February 22, 2001, MidSouth issued $7,000,000 in junior subordinated debentures. These debentures qualify as Tier 1 capital and are presented in the Consolidated Statements of Condition as "Junior Subordinated Debentures." These debentures bear interest at a rate of 10.20% and mature on February 22, 2031. Additional information regarding long-term debt 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. A second note was financed on May 11, 2000 in the amount of $130,656 at a fixed rate of 8.00% payable in monthly installments of $1,701 with payment in full due on May 10, 2009. 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 MidSouth Bank or MidSouth. The ESOP note is eliminated from total loans and long-term debt as an intercompany balance in MidSouth's December 31, 2002 and 2001 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, 2002, 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, 2002, MidSouth's Tier 1 capital to average adjusted assets (the "leverage ratio") was 8.45% as compared to 8.02% at December 31, 2001. Tier 1 capital to risk weighted assets was 12.57% and 12.06% for 2002 and 2001, respectively. Total capital to risk weighted assets was 13.71% and 13.20%, respectively, for the same periods. The increased capital ratios resulted primarily from the issuance of $7,000,000 of junior subordinated debentures by MidSouth in February 2001. For regulatory purposes, these funds qualify as Tier 1 Capital. For financial reporting purposes, these funds are included as a liability under generally accepted accounting principles. The Bank's leverage ratio was 7.87% at December 31, 2002 compared to 7.41% at December 31, 2001. 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 the three years ended December 31, 2002. No significant restrictions are placed on the Bank as a result of this classification. As discussed under the heading "Balance Sheet Analysis - Securities," $1,820,250 in unrealized gains on securities available-for-sale less a deferred tax liability of $628,750 was recorded as an addition to stockholders' equity as of December 31, 2002. As of December 31, 2001, $727,462 in unrealized gains on securities available-for-sale, less a deferred tax liability of $257,500, was recorded as an addition to stockholders' equity. 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 reported for December 31, 2002 and 2001 did, however, effect MidSouth's equity to assets ratio for financial reporting purposes. The ratio of equity to assets was 7.09% at December 31, 2002 and 6.22% at December 31, 2001. Interest Rate Sensitivity. Interest rate sensitivity is the sensitivity of net interest income and economic value of equity to changes in market rates of interest. The initial step in the process of monitoring 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 2002, 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. The cumulative gap at one year is approximately $77,853,000, or 20.34% of total assets at December 31, 2002. Although the 20.34% ratio is above internal policy guidelines of + or - 15% of total assets, management feels the degree of asset sensitivity does not present undue risk to earnings given the current rate environment. With the exception of NOW, money market and savings deposits, the table presents interest-bearing liabilities on a contractual basis. While NOW, money market and savings deposits are contractually due on demand, historically, 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 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 economic value of equity. Results of the simulations at December 31, 2002 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 three sources: a stable base of funding sources, an adequate level of assets that can be readily converted into cash, and borrowing lines with correspondent banks. 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 additional primary sources of asset liquidity for the Bank. Approximately $18.7 million in projected cash flows from securities during 2003 provides an additional source of liquidity. MidSouth also has borrowing lines with three correspondent banks, including significant borrowing capacity with the FHLB of Dallas, Texas. Parent Company Liquidity. At the parent company level, cash is needed primarily to meet interest payments on the junior subordinated debentures and pay dividends on common stock. The parent company issued $7,000,000 in junior subordinated debentures in February 2001, the terms of which are described in Note 8 to MidSouth's Consolidated Financial Statements. As of December 31, 2002, MidSouth had $2.4 million in interest-bearing balances remaining of proceeds from the issuance of the debentures. Dividends from the Bank totaling $1,200,000 and $200,000 provided additional liquidity for the parent company in 2002 and 2001, respectively. As of January 1, 2003, the Bank had the ability to pay dividends to the parent company of approximately $7 million without prior approval from its primary regulator. As a publicly traded company, MidSouth also has the ability to issue additional trust preferred and other securities instruments to provide funds as needed for operations and future growth of the company. Dividends. The primary source of cash dividends on MidSouth's common stock is cash on hand remaining from the issuance of junior subordinated debentures and dividends from the Bank. 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 $725,286 and $547,966 were declared to common stockholders during 2002 and 2001, 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 $.05 per share. A Special Dividend of $.05 per share was paid in addition to the regular $.05 per share dividend for the fourth quarter of 2002 to shareholders of record on December 12, 2002. On August 1, 2001, MidSouth completed the redemption of its Series A Preferred Stock. Only 3,527 shares had not been converted to MidSouth Common Stock as of the final day for converting. The remaining 3,527 Preferred Shares were redeemed at a Redemption Price of $14.33 per share. Additional information regarding MidSouth's Preferred Stock is included in Note 13 to MidSouth's Consolidated Financial Statements. Forward Looking Statements The Private Securities Litigation Act of 1995 provides a safe harbor for disclosure of information about a company's anticipated future financial performance. This act protects a company from unwarranted litigation if actual results differ from management expectations. This management's discussion and analysis reflects management's current views and estimates of future economic circumstances, industry conditions, MidSouth's performance and financial results. A number of factors and uncertainties could cause actual results to differ from the anticipated results and expectations expressed in the discussion.
Table 1 Consolidated Average Balances, Interest and Rates Taxable-equivalent basis (2) Year Ended December 31, (in thousands) 2002 2001 2000 ___________________________________________________________________________________________ Average Average Average Average Average Average Volume Interest Yield/Rate Volume Interest Yield/Rate Volume Interest Yield/Rate ___________________________________________________________________________________________ ASSETS Interest Bearing Deposits $115 $3 2.61% $217 $13 5.99% $258 $20 7.75% Investment Securities Taxable 65,479 3,090 4.72% 65,481 3,795 5.80% 54,295 3,426 6.31% Tax Exempt 39,379 2,505 6.36% 30,259 2,179 7.20% 24,295 1,766 7.27% _________________ _________________ _________________ Total Investments 104,973 5,598 5.33% 95,957 5,987 6.24% 78,848 5,212 6.61% Federal Funds Sold and Securities Purchased Under Agreements to Resell 8,974 135 1.50% 13,845 565 4.08% 5,352 331 6.18% Loans Commercial and Real Estate 179,499 14,739 8.21% 165,420 14,668 8.87% 141,340 14,092 9.97% Installment 44,205 4,407 9.97% 43,378 5,871 13.53% 42,961 5,349 12.45% _________________ _________________ _________________ Total Loans 223,704 19,146 8.56% 208,798 20,539 9.84% 184,301 19,441 10.55% Total Earning Assets 337,651 24,879 7.37% 318,600 27,091 8.50% 268,501 24,984 9.30% Allowance for Loan Losses (2,714) (2,404) (2,022) Nonearning Assets 32,055 31,618 28,315 ________ ________ ________ Total Assets $366,992 $347,814 $294,794 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY NOW, Money Market, and Savings $134,502 $1,706 1.27% $122,562 $2,992 2.44% $102,709 $3,510 3.42% Certificates of Deposits 114,002 4,174 3.66% 117,163 6,539 5.58% 101,446 5,671 5.59% _________________ _________________ _________________ Total Interest Bearing Deposits 248,504 5,880 2.37% 239,725 9,531 3.98% 204,155 9,181 4.50% Federal Funds Purchased and Securities Sold Under Agreements to Repurchase 3,469 56 1.61% 1,601 71 4.43% 1,155 63 5.45% FHLB Advances - - 172 9 5.23% 2,915 196 6.72% Notes Payable 946 59 6.24% 1,860 177 9.52% 3,898 347 8.90% Junior Subordinated Debentures 7,000 714 10.20% 6,073 621 10.20% - - _________________ _________________ _________________ Total Interest Bearing Liabilities 259,919 6,709 2.58% 249,431 10,409 4.17% 212,123 9,787 4.61% Demand Deposits 81,625 74,733 63,713 Other Liabilities 1,513 1,983 1,369 Stockholders' Equity 23,935 21,667 17,589 ________ ________ ________ Total Liabilites and Stockholders' Equity $366,992 $347,814 $294,794 ======== ======== ======== NET INTEREST INCOME AND NET INTEREST SPREAD $18,170 4.79% $16,682 4.33% $15,197 4.69% ======= ======= ======= NET YIELD ON EARNING ASSETS 5.38% 5.24% 5.66% Securities classified as available-for-sale are included in average Interest income includes loan fees of and interest income figures reflect interest earned on such $1,486,000 for 2002, $1,406,000 for 2001, securities. and $1,276,000 for 2000. Nonaccrual loans are included in average balances Interest income of $754,000 for 2002, $667,000 for 2001, and and income on such loans is recognized on $535,000 for 2000 is added to interest earned on tax-exempt a cash basis. is added to interest earned on tax-exempt obligations to reflect tax equivalent yields using a 34% tax rate.
Table 2 Changes in Taxable-Equivalent Net Interest Income (in thousands) 2002 Compared to 2001 2001 Compared to 2000 ________________________________________ ________________________________________ Total Total Increase Change Attributable To Increase Change Attributable To (Decrease) Volume Rates (Decrease) Volume Rates ________________________________________ ________________________________________ Taxable-equivalent interest earned on: Interest Bearing Deposits ($10) ($5) ($5) ($7) ($3) ($4) Investment Securities Taxable (705) - (705) 369 611 (242) Tax Exempt 326 532 (206) 413 429 (16) Federal Funds Sold and Securities Purchased Under Agreement to Resell (430) (154) (276) 234 298 (64) Loans, including fees (1,393) 1,699 (3,092) 1,098 2,230 (1,132) _______ ________ ______ _______ _________ ______ TOTAL (2,212) 2,072 (4,284) 2,107 3,565 (1,458) _______ ________ ______ _______ _________ ______ Interest Paid On: Interest Bearing Deposits (3,651) 363 (4,014) 350 1,046 (696) Federal Funds Purchased and Securities Sold Under Agreement to Repurchase (15) 93 (108) 8 16 (8) FHLB Advances (9) (9) - (187) (151) (36) Notes Payable (118) (69) (49) (170) (196) 26 Junior Subordinated Debentures 93 93 - 621 621 - _______ ________ ______ _______ _________ ______ TOTAL (3,700) 471 (4,171) 622 1,336 (714) _______ ________ ______ _______ _________ ______ Taxable-equivalent net interest income $1,488 $1,601 ($113) $1,485 $2,229 ($744) ======= ======== ====== ======= ========= ====== NOTE: Changes due to both volume and rate has generally been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts to the changes in each.
TABLE 3 Nonperforming Assets and Loans Past Due 90 Days ___________________________________________________________________________ December 31, December 31, December 31, 2002 2001 2000 ___________________________________________________________________________ Nonperforming loans $710,546 $768,753 $159,726 Other real estate owned, net 174,800 359,336 446,046 Other assets repossessed 45,062 - - _________ __________ _________ Total nonperforming assets $930,408 $1,128,089 $605,772 ========= ========== ========= Loans past due 90 days or more and still accruing $818,727 $999,538 $967,721 Nonperforming loans as a % of total loans 0.31% 0.36% 0.08% Nonperforming assets as a % of total loans, other real estate owned and other assets repossessed 0.41% 0.53% 0.30% Allowance for loan losses as a % of nonperforming asse 310.76% 239.79% 375.75% __________________________________________________________________________
TABLE 4 - Summary of Loan Loss Experience (in thousands) 2002 2001 ______ ______ BALANCE AT BEGINNING OF YEAR $2,705 $2,276 CHARGE-OFFS Commercial, Financial and Agricultural 632 1,032 Real Estate - Construction - - Real Estate - Mortgage 30 62 Installment Loans to Individuals 628 760 Lease Financing Receivables 74 6 Other - 53 ______ ______ Total Charge-offs 1,364 1,913 ______ ______ RECOVERIES Commercial, Financial and Agricultural 37 19 Real Estate - Construction - - Real Estate - Mortgage - - Installment Loans to Individuals 115 143 Lease Financing Receivables - - Other - 4 ______ ______ Total Recoveries 152 166 ______ ______ Net Charge-offs 1,212 1,747 Additions to allowance charged to operating expenses 1,398 2,176 ______ ______ BALANCE AT END OF YEAR $2,891 $2,705 ====== ====== Net charge-offs to average loans 0.54% 0.84% Year-end allowance to year-end loans 1.27% 1.26%
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 2002 to total loans 2001 to total loans ________________________________________________________________________________________________ Commercial, Financial and Agricultural 209 33.42% 385 33.93% Real Estate - Construction 3.70% 3.31% Real Estate - Mortgage 48.22% 185 45.55% Installment Loans to Individuals 18 13.11% 15 14.87% Lease Financing Receivables 1.50% 2.20% Other 0.05% 0.14% Unallocated 2,664 2,120 _________________________________________________ $2,891 100.00% $2,705 100.00% =================================================
Table 5 Interest Rate Sensitivity and Gap Analysis Table December 31, 2002 (in thousands) Non-interest 0-3 MOS 4-6 MOS 7-12 MOS 1-5 YRS > 5YRS Bearig Total ______________________________________________________________ ASSETS Interest Bearing Deposits $2 $ - $ - $ - $ - $ - $2 Fed Funds Sold 9,400 9,400 Investments Mutual Funds 971 971 Investment Securities 5,749 2,105 5,961 40,988 13,968 68,771 Mortgage-backed Securitie 12,375 8,339 10,647 11,693 178 43,232 Loans Fixed Rate 55,434 24,125 34,962 57,215 1,308 173,044 Variable Rate 54,008 54,008 Other Assets 36,150 36,150 Allowance for Loan Losses (2,891) (2,891) ______________________________________________________________ Total Assets $137,939 $34,569 $51,570 $109,896 $15,454 $33,259 $382,687 ============================================================== LIABILITIES NOW $4,602 $4,164 $7,176 $25,844 $6,523 $48,309 MMDA 9,436 9,980 15,449 34,966 2,331 72,162 Savings 1,750 1,689 2,911 10,484 2,647 19,481 CD'S 35,378 27,794 22,349 23,549 109,070 Demand Deposits 94,452 94,452 Other Liabilities 2,979 568 7,000 1,547 12,094 Stockholders' Equity 27,119 27,119 ______________________________________________________________ Total Liabilities $54,145 $43,627 $48,453 $94,843 $18,501 $123,118 $382,687 ============================================================== Repricing/maturity gap: Period $83,794 ($9,058) $3,117 $15,053 ($3,047)($89,859) Cumulative $83,794 $74,736 $77,853 $92,906 $89,859 ===================================================== Cumualtive Gap/Total Assets 21.90% 19.53% 20.34% 24.28% 23.48% ____________________________________________
MIDSOUTH BANCORP, INC. LOAN PORTFOLIO LOAN MATURITIES AND SENSITIVITY TO INTEREST RATES for the Year Ended December 31, 2002 (dollars in thousands) Fixed and Variable Rate 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, Commercial Real Estate Mortgage and Commercial Real Estate - Construction $65,493 $79,168 $31,063 $175,724 $77,706 $32,525 $110,231 Installment Loans to Individuals and Real Estate Mortgage 12,599 33,383 1,844 $47,826 32,126 3,101 $35,227 Lease Financing Receivables 373 3,026 - $3,399 3,026 - $3,026 Other 103 - - $103 - - - _____________________________________________ ________________________________ TOTAL $78,568 $115,577 $32,907 $227,052 $112,858 $35,626 $148,484 ============================================= ================================
MIDSOUTH BANCORP, INC. SECURITIES PORTFOLIO MATURITIES AND AVERAGE YIELDS for the Year Ended December 31, 2002 (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 - - $13,844 3.35% $2,109 1.95% - - $15,953 Obligations of State and Political Subdivisions 5,963 1.98% 7,589 2.76% 6,633 4.07% 2,833 5.10% 23,018 Mortgage Backs and CMOs - 0.00% 851 4.37% 20,561 4.38% 22,569 5.28% 43,981 Corporates and other securities 2,056 5.38% 2,118 3.59% - - 1,479 3.84% 5,653 Mutual funds 971 3.03% - - - - - - 971 ________________________________________________________________________________________ Total Fair Value $8,990 $24,402 $29,303 $26,881 $89,576 ======================================================================================== 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 $30 5.74% $6,349 5.25% $14,144 5.06% $2,875 5.26% $23,398 ________________________________________________________________________________________ Total Amortized Cost $30 $6,349 $14,144 $2,875 $23,398 ========================================================================================
MIDSOUTH BANCORP, INC. SUMMARY OF AVERAGE DEPOSITS (in thousands) 2002 2001 AVERAGE AVERAGE AVERAGE AVERAGE AMOUNT YIELD AMOUNT YIELD _______ _______ _______ _______ Non-interest bearing $81,625 0.00% $74,732 0.00% Demand Deposits Interest bearing Deposits Savings, NOW, MMKT 134,502 1.27% 122,562 2.44% Time Deposits 114,002 3.66% 117,163 5.58% ________ ________ Total $330,129 1.78% $314,457 3.03% ======== ========
MATURITY SCHEDULE TIME DEPOSITS OF $100,000 OR MORE (in thousands) 2002 2001 _______ ______ 3 months or less $15,291 $18,083 3 months through 6 months 11,122 9,140 7 months through 12 months 9,048 14,872 over 12 months 9,656 3,983 _______ _______ Total $45,117 $46,078 ======= =======
SUMMARY OF RETURN ON EQUITY AND ASSETS 2002 2001 ________ _______ Return on Average Assets 1.20% 0.85% Return on Average Common Equity 17.59% 14.04% Dividend Payout Ratio on Common Stock 16.38% 18.96% Average Equity to Average Assets 6.52% 6.23%
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES Consolidated Financial Statements for the Years Ended December 31, 2002, 2001 and 2000 and Independent Auditors' Report 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, 2002 and 2001, and the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2002. 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 auditing standards generally accepted in the United States of America. 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, 2002 and 2001 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP New Orleans, Louisiana February 7, 2003
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CONDITION DECEMBER 31, 2002 AND 2001 ______________________________________________________________________________________________________ ASSETS 2002 2001 Cash and due from banks $ 18,066,035 $ 18,547,278 Federal funds sold 9,400,000 17,300,000 ______________ ______________ Total cash and cash equivalents 27,466,035 35,847,278 Interest-bearing deposits in banks 1,694 109,206 Securities available-for-sale at fair value (amortized cost of $87,755,455 in 2002 and $75,052,953 in 2001) 89,575,706 75,780,414 Securities held-to-maturity (estimated fair value of $25,660,511 in 2002 and $24,735,122 in 2001) 23,398,282 23,584,850 Loans, net of allowance for loan losses of $2,891,380 in 2002 and $2,705,058 in 2001 224,160,846 211,685,063 Accrued interest receivable 2,502,684 2,197,794 Premises and equipment, net 12,321,510 11,950,701 Other real estate owned, net 174,800 359,336 Goodwill, net 431,987 431,987 Other assets 2,653,449 1,833,234 ______________ ______________ $ 382,686,993 $ 363,779,863 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Non-interest bearing $ 94,452,378 $ 91,145,842 Interest bearing 249,022,468 239,431,616 ______________ ______________ Total deposits 343,474,846 330,577,458 Securities sold under repurchase agreements 2,978,860 663,079 Accrued interest payable 705,106 1,057,065 Notes payable 568,030 1,431,000 Junior subordinated debentures 7,000,000 7,000,000 Other liabilities 841,592 423,700 ______________ ______________ Total liabilities 355,568,434 341,152,302 ______________ ______________ Commitments and Contingencies - - Stockholders' equity: Common stock, $.10 par value, 5,000,000 shares authorized; 2,901,142 issued and outstanding at December 31, 2002 and 2001 290,114 290,114 Additional paid in capital 12,997,762 12,972,762 Unearned ESOP shares (108,975) (149,638) Unrealized gains on securities available-for-sale, net of deferred taxes 1,191,500 469,962 Retained earnings 12,748,158 9,044,361 ______________ ______________ Total stockholders' equity 27,118,559 22,627,561 ______________ ______________ $ 382,686,993 $ 363,779,863 ============== ============== See notes to consolidated financial statements.
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 _____________________________________________________________________________________________________________________ 2002 2001 2000 INTEREST INCOME: Loans, including fees $ 19,145,655 $ 20,539,148 $ 19,440,991 Securities: Taxable 3,090,212 3,807,820 3,445,594 Nontaxable 1,750,885 1,512,050 1,231,074 Federal funds sold 139,037 565,009 331,456 _______________ _____________ _______________ Total interest income 24,125,789 26,424,027 24,449,115 _______________ _____________ _______________ INTEREST EXPENSE: Deposits 5,880,034 9,530,743 9,180,999 Securities sold under repurchase agreements, federal funds purchased and advances 62,270 73,703 259,399 Long-term debt 766,927 804,480 346,767 _______________ _____________ _______________ Total interest expense 6,709,231 10,408,926 9,787,165 _______________ _____________ _______________ NET INTEREST INCOME 17,416,558 16,015,101 14,661,950 PROVISION FOR LOAN LOSSES 1,398,250 2,176,224 897,038 _______________ _____________ _______________ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 16,018,308 13,838,877 13,764,912 _______________ _____________ _______________ NONINTEREST INCOME: Service charges on deposit accounts 4,707,468 3,534,113 3,234,954 Gains on sale of securities, net 156,259 188,883 16,126 Credit life insurance 270,737 246,046 271,875 Other charges and fees 1,786,924 1,463,817 1,060,040 _______________ _____________ _______________ 6,921,388 5,432,859 4,582,995 _______________ _____________ _______________ NONINTEREST EXPENSES: Salaries and employee benefits 8,103,370 7,300,250 6,830,062 Occupancy expense 3,708,995 3,423,585 3,261,020 Other 5,269,995 4,738,637 4,410,484 _______________ _____________ _______________ 17,082,360 15,462,472 14,501,566 _______________ _____________ _______________ INCOME BEFORE INCOME TAXES 5,857,336 3,809,264 3,846,341 PROVISION FOR INCOME TAXES 1,428,253 866,105 951,204 _______________ _____________ _______________ NET INCOME 4,429,083 2,943,159 2,895,137 PREFERRED DIVIDENDS AND OTHER - 52,751 246,024 _______________ _____________ _______________ NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 4,429,083 $ 2,890,408 $ 2,649,113 =============== ============= =============== EARNINGS PER COMMON SHARE: BASIC $1.53 $1.08 $1.07 ===== ===== ===== DILUTED $1.50 $1.00 $ .95 ===== ===== ===== See notes to consolidated financial statements.
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 _____________________________________________________________________________________________________________ 2002 2001 2000 Net income $ 4,429,083 $ 2,943,159 $ 2,895,137 Other comprehensive income: Unrealized gain on securities available-for-sale, net: Unrealized holding gains arising during the year 824,669 509,425 1,044,273 Less reclassification adjustment for gains included in net income (103,131) (124,663) (10,643) ____________ ______________ ______________ Total other comprehensive income 721,538 384,762 1,033,630 ____________ ______________ ______________ TOTAL COMPREHENSIVE INCOME $ 5,150,621 $ 3,327,921 $ 3,928,767 ============ ============== ============== See notes to consolidated financial statements.
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES Consolidated Statements Of Stockholders' Equity Years Ended December 31, 2002, 2001 and 2000 __________________________________________________________________________________________________________________________________ Unrealized Gains (Losses) Preferred Stock Common Stock Additional on Securities ___________________ ___________________ Paid in ESOP Available Retained Shares Amount Shares Amount Capital Obligation for Sale Earnings Total BALANCE, JANUARY 1, 2000 152,736 $2,176,488 2,481,843 $248,184 $10,983,714 ($89,044) ($948,430) $4,554,249 $16,925,161 Dividends on common stock - $.20 per share - - - - - - - (501,443) (501,443) Dividends on preferred stock - - - - - - - (138,774) (138,774) Preferred stock conversion (11,116) (158,403) 33,323 3,333 155,070 - - - - Redemption of preferred stock (11,000) (156,750) - - - - - (107,250) (264,000) Excess of market value over book value of ESOP shares released - - - - 8,750 - - - 8,750 Net income - - - - - - - 2,895,137 2,895,137 ESOP new obligations, net - - - - - (96,083) - - (96,083) Net change in unrealized gains (losses) on securities available-for-sale, net of tax - - - - - - 1,033,630 - 1,033,630 _______ ________ ________ _______ __________ _______ _________ _________ _________ BALANCE, DECEMBER 31, 2000 130,620 1,861,335 2,515,166 251,517 11,147,534 (185,127) 85,200 6,701,919 19,862,378 Issuance of common stock - - 5,062 506 33,258 - - - 33,764 Dividends on common stock - $.20 per share - - - - - - - (547,966) (547,966) Dividends on preferred stock - - - - - - - (52,751) (52,751) Preferred stock conversion (127,092) (1,811,061) 380,914 38,091 1,772,970 - - - - Redemption of preferred stock (3,528) (50,274) - - - - - - (50,274) Excess of market value over book value of ESOP shares released - - - - 19,000 - - - 19,000 Net income - - - - - - - 2,943,159 2,943,159 ESOP obligation, repayments - - - - - 35,489 - - 35,489 Net change in unrealized gains (losses) on securities available-for-sale, net of tax - - - - - - 384,762 - 384,762 _______ ________ ________ _______ __________ ________ _________ _________ _________ BALANCE, DECEMBER 31, 2001 - - 2,901,142 290,114 12,972,762 (149,638) 469,962 9,044,361 22,627,561 Dividends on common stock - $.25 per share - - - - - - - (725,286) (725,286) Excess of market value over book value of ESOP shares released - - - - 25,000 - - - 25,000 Net income - - - - - - - 4,429,083 4,429,083 ESOP obligation, repayments - - - - - 40,663 - - 40,663 Net change in unrealized gains (losses) on securities available-for-sale, net of tax - - - - - - 721,538 - 721,538 _______ ________ ________ _______ __________ ________ __________ ___________ __________ BALANCE, DECEMBER 31, 2002 - $ - 2,901,142 $290,114 $12,997,762 ($108,975) $1,191,500 $12,748,158 $27,118,559 ======= ======== ========= ======== =========== ======== ========== =========== ========== See notes to consolidated financial statements.
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 ________________________________________________________________________________________________________ 2002 2001 2000 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 4,429,083 $ 2,943,159 $ 2,895,137 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,365,708 1,310,180 1,371,272 Provision for loan losses 1,398,250 2,176,224 897,038 Provision for and losses on other real estate owned 8,302 92,687 104,226 Deferred income taxes (benefit) 14,000 (70,000) (17,000) Amortization of premiums on securities, net 517,083 204,538 80,327 Gain on sales of securities (156,259) (188,883) (16,126) Change in accrued interest receivable (304,890) 167,556 (446,168) Change in accrued interest payable (351,959) 49,763 292,131 Other, net (222,446) 61,530 (205,911) ___________ ____________ __________ Net cash provided by operating activities 6,696,872 6,746,754 4,954,926 ___________ ____________ __________ CASH FLOWS FROM INVESTING ACTIVITIES: Net decrease (increase) in interest- bearing deposits in banks 107,512 (40,524) 287,442 Proceeds from sales of securities available-for-sale 3,356,378 9,794,538 2,064,519 Proceeds from maturities and calls of securities available-for-sale 40,838,882 28,736,270 14,949,666 Proceeds from maturities of securities held-to-maturity 185,000 25,000 50,000 Purchases of securities available-for-sale (57,257,019) (59,776,682) (13,790,321) Purchases of securities held-to-maturity - - (2,376,258) Loan originations, net of repayments (8,460,365) (11,675,897) (34,881,779) Purchases of premises and equipment (1,744,910) (1,506,020) (1,681,950) Proceeds from sales of other real estate owned 417,000 117,306 197,186 Net cash received from acquisition 5,882,448 - - Other, net 1,509 8,533 - ___________ ____________ __________ Net cash used in investing activities (16,673,565) (34,317,476) (35,181,495) ___________ ____________ __________ (Continued)
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 ____________________________________________________________________________________________________ 2002 2001 2000 CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in deposits 722,867 11,030,253 67,856,999 Net increase (decrease) in repurchase agreement 2,315,781 (334,537) 391,015 Repayments of FHLB advances, net - (175,968) (3,000,000) Issuance of notes payable 700,030 20,000 1,525,000 Proceeds from junior subordinated debentures, net - 6,774,297 - Repayments of notes payable (1,563,000) (3,064,000) (333,129) Proceeds from issuance of common stock - 33,764 - Payment of dividends on common and preferred stock (580,228) (614,073) (638,468) Redemption of preferred stock - (50,274) (264,000) __________ __________ ___________ Net cash provided by financing activities 1,595,450 13,619,462 65,537,417 __________ __________ ___________ NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (8,381,243) (13,951,260) 35,310,848 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 35,847,278 49,798,538 14,487,690 __________ __________ ___________ CASH AND CASH EQUIVALENTS AT END OF YEAR $ 27,466,035 $ 35,847,278 $49,798,538 ========== ========== =========== SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid $ 7,061,190 $ 10,359,163 $ 9,495,034 ========== ========== =========== Income taxes paid $ 1,550,000 $ 800,155 $ 985,408 ========== ========== =========== See notes to consolidated financial statements. (Concluded)
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 _________________________________________________________ 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements of MidSouth Bancorp, Inc. (the Company) and its wholly owned subsidiaries MidSouth Bank, N.A. (the Bank) and Financial Services of the South, Inc. (the Finance Company), have been prepared in accordance with accounting principles generally accepted in the United States of America 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 operating principally in the community banking business segment by providing banking services to commercial and retail customers through its wholly owned subsidiary, the Bank. The Bank is community oriented and focuses primarily on offering competitive commercial and consumer loan and deposit services to individuals and small to middle market businesses. The Company also provides consumer loan services to individuals through the Finance Company. Comprehensive Income - Comprehensive income includes net income and other comprehensive income which, in the case of the Company, includes only unrealized gains and losses on securities available-for-sale. Consolidation - The consolidated financial statements of the Company include the accounts of the Company, the Bank and the Finance Company. All significant intercompany transactions and balances have been eliminated. Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Securities - Securities are 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, 2002. 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. Derivative Instruments - The Company recognizes all derivatives as either assets or liabilities in the Company's balance sheet and measures those instruments at fair value. If certain conditions are met, a derivative may be specially designated as a hedge. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. The Company is not currently engaged in any significant activities with derivatives. 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. Non-major homogenous loans, which are evaluated on an overall basis, generally include all loans under $50,000. The Company calculates the allowance required for impaired loans based on the present value of expected future cash flows discounted at the loan's effective interest rate, or at the loan's observable market price or the fair value of its collateral. Generally, loans of all types which become 90 days delinquent are either in the process of collection through repossession or foreclosure or alternatively, are deemed currently uncollectible. Loans deemed currently uncollectible are charged-off against the allowance account. As a matter of policy, loans are placed on 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 allowance 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 temporary 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 - Prior to 2002, Goodwill was amortized on the straight-line basis over a fifteen year period. Amortization expense amounted to approximately $-0- in 2002, $60,584 in 2001 and $60,584 in 2000. Accumulated amortization at December 31, 2002 and 2001 was $421,705. In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141 "Business Combinations" and No. 142 "Goodwill and Other Intangibles." These Statements provide that, among other things, (1) all business combinations on or after July 1, 2001 be accounted for as purchases, (2) any related goodwill on those acquisitions does not require amortization, but is subject to a periodic impairment test and that (3) goodwill on any of the Company's acquisitions prior to July 1, 2001 not be amortized after January 1, 2002, but is subject to a periodic impairment test. The Company performed fair value based impairment tests on its goodwill and determined that the fair value exceeded the recorded value at December 31, 2002 and 2001. No impairment loss, therefore, was recorded. Stock-Based Compensation - The Company applies APB Opinion No. 25 and related interpretations in accounting for its stock options. Since all options are exercisable at the estimated fair value at the date of grant, no compensation cost has been recognized. The pro forma disclosures required by SFAS 123 are included in Note 12. Basic and Diluted Earnings Per Common 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. 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 sold for one-day periods. 2. ACQUISITION OF BANK During 2002, the Company purchased the Morgan City, Louisiana branch of another bank. The Company acquired loans of approximately $5,400,000, property of approximately $200,000 and assumed deposit liabilities of approximately $12,200,000. The Company received cash of approximately $5,900,000 after payment of a premium of approximately $500,000 and certain other costs. An intangible asset of approximately $650,000 resulted from this acquisition. This intangible asset has been classified as a core deposit intangible and is being amortized on an accelerated basis over 10 years. The amortized balance of the core deposit intangible was $623,359 at December 31, 2002 and is included in other assets. The Company does not have sufficient information regarding the operating results of this branch prior to the date of acquisition and, accordingly, pro forma operating results are not being provided. 3. CASH AND DUE FROM BANKS The Company is required to maintain average balances relating to its deposit liabilities. This requirement is ordinarily satisfied by cash on hand. 4. INVESTMENT SECURITIES The portfolio of securities consisted of the following:
December 31, 2002 ______________________________________________________________ Gross Gross Amortized Unrealized Unrealized Available-for-Sale Cost Gains Losses Fair Value U.S. Government agencies $ 15,664,856 $ 288,400 $ - $ 15,953,256 Obligations of states and political subdivisions 22,281,823 746,971 11,495 23,017,299 Mortgage-backed securities 26,766,342 844,831 36,972 27,574,201 Collateralized mortgage obligations 16,465,627 18,081 76,454 16,407,254 Corporate securities 4,097,807 75,889 - 4,173,696 Mutual funds 1,000,000 - 29,000 971,000 Other 1,479,000 - - 1,479,000 ______________ _____________ ___________ _____________ $ 87,755,455 $ 1,974,172 $ 153,921 $ 89,575,706 ============== ============= =========== =============
December 31, 2001 __________________________________________________________________ Gross Gross Amortized Unrealized Unrealized Available-for-Sale Cost Gains Losses Fair Value U.S. Government agencies $ 14,710,956 $ 185,389 $ 42,379 $ 14,853,966 Obligations of states and political subdivisions 13,477,575 192,205 22,214 13,647,566 Mortgage-backed securities 20,775,671 383,355 61,746 21,097,280 Collateralized mortgage obligations 20,184,344 73,305 32,177 20,225,472 Corporate securities 3,569,507 82,423 700 3,651,230 Mutual funds 1,000,000 - 30,000 970,000 Other 1,334,900 - - 1,334,900 _________________ ______________ ___________ ____________ $ 75,052,953 $ 916,677 $ 189,216 $ 75,780,414 ================= ============== =========== ============
December 31, 2002 ____________________________________________________________ Gross Gross Amortized Unrealized Unrealized Held-to-Maturity Cost Gains Losses Fair Value Obligations of states and political subdivisions $ 23,398,282 $ 2,262,229 $ - $ 25,660,511 ============= ============= =========== =============
December 31, 2001 _____________________________________________________________ Gross Gross Amortized Unrealized Unrealized Held-to-Maturity Cost Gains Losses Fair Value Obligations of states and political subdivisions $ 23,584,850 $ 1,183,889 $ 33,617 $ 24,735,122 ============= ============= ========= =============
The amortized cost and fair value of securities at December 31, 2002 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 $ 7,958,471 $ 8,019,132 Due after one year through five years 23,137,224 23,550,823 Due after five years through ten years 8,385,391 8,741,445 Due after ten years 2,563,400 2,832,851 Mortgage-backed securities and collaterized mortgage obligations 43,231,969 43,981,455 Mutual funds 1,000,000 971,000 Other securities 1,479,000 1,479,000 _________________ ________________ $ 87,755,455 $ 89,575,706 ================= ================
Amortized Held-to-Maturity Cost Fair Value Due in one year or less $ 30,000 $ 30,096 Due after one year through five years 6,348,549 6,939,007 Due after five years through ten years 14,144,308 15,476,551 Due after ten years 2,875,425 3,214,857 __________________ _______________ $ 23,398,282 $ 25,660,511 ================== ===============
Proceeds from sales of securities available-for-sale during 2002, 2001 and 2000 were $3,356,378, $9,794,538 and $2,064,519, respectively. Gross gains of $156,259, $188,883 and $16,126 were recognized on sales in 2002, 2001 and 2000, respectively. Securities with an aggregate carrying value of approximately $27,792,000 and $33,000,000 at December 31, 2002 and 2001 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) consist primarily of first and second tranche sequential pay and/or planned amortization class (PAC) instruments. 5. LOANS The loan portfolio consisted of the following:
December 31, ______________________________________ 2002 2001 Commercial, financial and agricultural $ 75,890,502 $ 68,710,853 Lease financing receivable 3,399,240 4,729,558 Real estate - mortgage 109,489,813 97,647,501 Real estate - construction 8,396,166 7,090,105 Installment loans to individuals 29,773,158 31,070,473 Other 103,347 5,141,631 _________________ ________________ 227,052,226 214,390,121 Less allowance for loan losses (2,891,380) (2,705,058) _________________ ________________ $ 224,160,846 $ 211,685,063 ================= ================
Loans are stated net of unearned income and loan origination fees in the above table. The amount of such items is not significant. An analysis of the activity in the allowance for loan losses is as follows:
Year Ended December 31, _____________________________________________ 2002 2001 2000 Balance at beginning of year $ 2,705,058 $ 2,276,187 $ 1,967,326 Provision for loan losses 1,398,250 2,176,224 897,038 Recoveries 152,207 165,980 120,250 Loans charged off (1,364,135) (1,913,333) (708,427) __________ __________ ___________ Balance at end of year $ 2,891,380 $ 2,705,058 $ 2,276,187 ========== ========== ===========
During the years ended December 31, 2002, 2001 and 2000, there were approximately $66,000, $123,000 and $177,000, respectively, of net transfers from loans to other real estate owned. As of December 31, 2002 and 2001, loans outstanding to directors, executive officers, and their affiliates were $1,018,746 and $1,916,721, respectively. In the opinion of management, all transactions entered into between the Company and such related parties have been and are made in the ordinary course of business, on substantially the same terms and conditions, including interest rates and collateral, as similar transactions with unaffiliated persons and do not involve more than the normal risk of collection. An analysis of the 2002 activity with respect to these related party loans is as follows:
Balance, January 1, 2002 $ 1,916,721 $ 1,240,383 New loans 1,635,215 890,030 Repayments (2,533,190) (213,692) ___________ ___________ Balance, December 31, 2002 $ 1,018,746 $ 1,916,721 =========== ===========
Non-accrual and renegotiated loans amounted to approximately $562,000 and $769,000 at December 31, 2002 and 2001, respectively. The Company's other individually evaluated impaired loans were not significant at December 31, 2002 and 2001. The related allowance amounts on impaired loans were not significant and there was no significant change in these amounts during the years ended December 31, 2002, 2001 or 2000. The amount of interest not accrued on these loans did not have a significant effect on net income in 2002, 2001 or 2000. 6. BANK PREMISES AND EQUIPMENT Premises and equipment consisted of the following:
December 31, __________________________________________ 2002 2001 Buildings and improvements $ 10,393,314 $ 9,262,747 Furniture, fixtures, and equipment 8,159,016 7,813,027 Automobiles 259,655 259,655 Leasehold improvements 980,236 652,274 Construction-in-process 45,063 1,147,540 _______________ _________________ 19,837,284 19,135,243 Less accumulated depreciation and amortization (7,515,774) (7,184,542) _______________ _________________ $ 12,321,510 $ 11,950,701 =============== =================
7. DEPOSITS Deposits consisted of the following:
December 31, ______________________________________ 2002 2001 Non-interest bearing $ 94,452,378 $ 91,145,842 Savings and money market 91,643,637 84,174,077 NOW accounts 48,308,894 39,498,633 Time deposits under $100,000 63,952,648 69,681,325 Time deposits over $100,000 45,117,289 46,077,581 _______________ ________________ $ 343,474,846 $ 330,577,458 =============== ================
Approximately $85,521,000 of time deposits mature in 2003 and the balance principally in 2004. 8. NOTES PAYABLE AND LONG-TERM DEBT
December 31, ____________________________________ 2002 2001 Notes payable to financial institutions $ 568,030 $ 1,431,000 Junior subordinated debentures 7,000,000 7,000,000 ________________ _______________ $ 7,568,030 $ 8,431,000 ================ =============== Notes payable and long-term debt consisted of the following:
At December 31, 2002, the note payable to financial institutions consisted of the balance of a note established by Financial Services of the South, Inc. on December 12, 2002 in the amount of $700,030. Proceeds of the note were used to payout the balance of a $1,099,000 loan issued April 30, 2002. The note bears interest at a variable rate equal to the commercial prime rate as quoted in the "Money Rates" section of the Wall Street Journal plus twenty-five basis points (0.25%). At December 31, 2002 the effective rate was 4.50%. Interest on this note is payable monthly, with principal due at maturity on December 12, 2003. At December 31, 2001, the note payable balance was $1,431,000 under a line of credit of $2,000,000 issued on April 30, 2001. On February 22, 2001, the Company, issued $7,000,000 of junior subordinated debentures. The $7,000,000 qualifies as Tier 1 capital for regulatory capital purposes, but is classified as a liability under accounting principles generally accepted in the United States of America. These debentures are presented in the Consolidated Statements of Condition as "Junior Subordinated Debentures." These junior subordinated debentures carry an interest rate of 10.20% with interest paid semi-annually in arrears and mature on February 22, 2031. Under certain circumstances, these debentures are subject to repayment on February 22, 2011 or thereafter. 9. COMMITMENTS AND CONTINGENCIES At December 31, 2002, future annual minimum rental payments due under noncancellable operating leases, primarily for land, are as follows:
2003 $ 569,668 2004 558,677 2005 562,599 2006 557,388 2007 505,568 Thereafter 5,635,032 ______________ $ 8,388,932 ==============
Rental expense under operating leases for 2002, 2001 and 2000 was approximately $635,000, $540,000, and $520,000, respectively. Sublease income for 2002, 2001 and 2000 amounted to $31,800 each year. The Company and its subsidiaries are parties to various legal proceedings arising in the ordinary course of business. In the opinion of management, the ultimate resolution of these legal proceedings will not have a material adverse effect on the Company's financial position, results of operations or cash flows. 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, 2002 and 2001 are as follows:
2002 2001 Deferred tax assets: Allowance for loan losses $ 603,000 $ 620,000 Other 159,000 116,000 ___________ ________ Total deferred tax assets 762,000 736,000 ___________ ________ Deferred tax liabilities: FHLB stock dividends (96,000) (88,000) Depreciation (335,000) (276,000) Unrealized gain on securities (629,000) (258,000) Other (92,000) (119,000) ___________ ________ Total deferred tax liabilities (1,152,000) (741,000) ___________ ________ Net deferred tax liability $ (390,000) $ (5,000) =========== ========
Components of income tax expense are as follows:
2002 2001 2000 Current $ 1,414,253 $ 936,105 $ 968,204 Deferred expense (benefit) 14,000 (70,000) (17,000) ______________ ____________ ___________ $ 1,428,253 $ 866,105 $ 951,204 ============== ============ ===========
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, _______________________________________________ 2002 2001 2000 Taxes calculated at statutory rate $ 1,991,494 $ 1,295,150 $ 1,307,756 Increase (decrease) resulting from: Tax-exempt interest (550,690) (450,711) (370,894) Other (12,551) 21,666 14,342 _____________ ___________ ___________ $ 1,428,253 $ 866,105 $ 951,204 ============= =========== ===========
The deferred income tax expense relating to unrealized gains on securities available-for-sale included in other comprehensive income amounted to $424,378 in 2002, $258,820 in 2001 and, $531,500 in 2000. Income taxes relating to gains on sales of securities amounted to $53,128 in 2002, $64,220 in 2001 and, $5,483 in 2000. 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. Certain ESOP shares are pledged as collateral for this debt. As the debt is repaid, shares are released from collateral and allocated to active employees, based on the proportion of debt service paid in the year. The note is 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 $108,975 and $149,638 at December 31, 2002 and 2001, respectively. In accordance with the American Institute of Certified Public Accountants' Statement of Position 93-6 (SOP), compensation costs relating to shares purchased are based on the market price of the shares on the date released for allocation and the related unreleased shares are not considered outstanding in the computation of earnings per common share. ESOP compensation expense was $193,000, $175,000 and $156,750 for the years ended December 31, 2002, 2001 and 2000, respectively. The ESOP shares as of December 31, 2002 and 2001 were as follows:
2002 2001 Allocated shares 256,349 263,590 Shares released for allocation 5,383 5,049 Unreleased shares 12,819 18,202 __________ _________ Total ESOP shares 274,551 286,841 ========== ========= Fair value of unreleased shares at December 31, $ 221,769 $ 211,143 ========== =========
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 2002, 2001 and 2000, no contributions were required. 12. EMPLOYEE STOCK PLANS 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. The Company is applying APB Opinion No. 25 and related interpretations in accounting for stock options. Since all options are exercisable at the estimated fair market value at the date of grant, no compensation expense has been recognized. During 2002, options to purchase 30,000 shares were granted which are exercisable at $13.00 per share. During 1998, options to purchase 23,155 shares were granted which are exercisable at $15.42 per share. During 1997, options to purchase 139,223 shares were granted which are exercisable at $6.67 per share. 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. Options to purchase 5,062 shares at $6.67 per share were exercised in the year ended December 31, 2001. None of the other options have been exercised and all of them are outstanding at December 31, 2002 Options on 134,161 shares at $6.67 per share and on 18,524 shares at $15.42 per share were exercisable at December 31, 2002. Options on 106,316 shares at $6.67 per share and on 13,893 shares at $15.42 per share were exercisable at December 31, 2001. The weighted average remaining contractual life of options outstanding at December 31, 2002 was 4.9 years. The Company has adopted the disclosure-only option under SFAS No. 123, "Accounting for Stock Based Compensation." 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 net income available to common stockholders and income per common share would have been as indicated below:
Year Ended ________________________________________________ 2002 2001 2000 Net income available to common stockholders: As reported $ 4,429,083 $ 2,890,408 $ 2,649,113 Pro forma 4,399,083 2,855,539 2,601,041 Basic income per common share: As reported $ 1.53 $ 1.08 $ 1.07 Pro forma 1.52 1.07 1.05 Diluted income per common share: As reported $ 1.50 $ 1.00 $ .95 Pro forma 1.49 .99 .94
The fair value of the options granted under the Company's stock option plan during the year ended December 31, 2002 was estimated using the Black-Scholes Option Pricing Model with the following assumptions used: dividend yield of 1.5%, expected volatility of 20%, risk free interest rate of 5.0% , 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 were convertible at any time at the option of the holder into common stock, at the rate of 2.998 shares of Common Stock for each Convertible Preferred Share. During the year ended December 31, 2001, the Company called for redemption of all outstanding shares and upon that notice, substantially all of the remaining outstanding preferred stock of 130,620 shares was converted into common stock by their holders. The Convertible Preferred Shares were redeemable, in whole or in part, at the option of the Company at the stated value of $14.25. Dividends on the Convertible Preferred Shares was determined each year on an annual rate, fixed on December 31 of each year for the ensuing calendar year and was 6.51% at December 31, 2000. The dividends were cumulative and payable quarterly in arrears. Holders of Convertible Preferred Shares were not entitled to normal voting rights unless certain conditions existed. The payment of dividends by the Bank to the Company is restricted by various regulatory and statutory limitations. At December 31, 2002, the Bank has approximately $7,000,000 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, _____________________________________________ 2002 2001 2000 Net income $ 4,429,083 $ 2,943,159 $ 2,895,137 Preferred dividend requirement on shares redeemed - - 107,250 ___________ ___________ ___________ Net income, as adjusted - used in computation of diluted earnings per common share 4,429,083 2,943,159 2,787,887 Preferred dividend requirement on shares excluding shares redeemed - 52,751 138,774 ___________ ___________ ___________ Net income available to common stockholders - used in computation of basic earnings per common share $ 4,429,083 $ 2,890,408 $ 2,649,113 =========== =========== =========== Weighted average number of common shares outstanding - used in computation of basic earnings per common share 2,887,989 2,679,348 2,487,187 Effect of dilutive securities: Stock options 65,717 49,579 29,196 Convertible preferred stock - 220,617 406,428 ___________ ___________ ___________ Weighted average number of common shares outstanding plus effect of dilutive securities - used in computation of diluted earnings per common share 2,953,706 2,949,544 2,922,811 =========== =========== ===========
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 commercial 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, commercial 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 __________________________________ 2002 2001 Financial instruments whose contract amounts represent credit risk: Commitments to extend credit $ 57,157,000 $ 78,000,000 Commercial letters of credit 782,737 1,200,000
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being fully drawn upon, the total commitment amounts disclosed above do not necessarily represent future cash requirements. Substantially all of these commitments are at variable rates. Commercial letters of credit and financial guarantees are conditional commitments issued by the 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 50% of these letters of credit were secured by marketable securities, cash on deposits or other assets at December 31, 2002 and 2001. 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 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). As of December 31, 2002 and 2001, 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 1 risk-based, Tier 1 leverage ratios as set forth in the table. There are no conditions or events since those notifications that management believes have changed the Bank's category. The Company's and the Bank's actual capital amounts and ratios are presented in the table below.
To Be Well Required For Capitalized Under Minimum Capital Prompt Corrective Actual Adequacy Purposes Action Provisions ______________________________ __________________________ ______________________ Amount Ratio Amount Ratio Amount Ratio As of December 31, 2002: Total capital to risk weighted assets: Company $ 34,733,493 13.71 % $ 20,267,600 8.00 % N/A N/A Bank 32,296,129 12.79 % 20,139,920 8.00 % 25,242,400 10.00 % Tier 1 capital to risk weighted assets: Company 31,842,113 12.57 % 10,133,800 4.00 % N/A N/A Bank 29,589,040 11.72 % 10,096,960 4.00 % 15,145,440 6.00 % Tier 1 capital to average assets: Company 31,842,111 8.45 % 15,074,063 4.00 % N/A N/A Bank 29,589,040 7.87 % 15,037,953 4.00 % 18,797,441 6.00 %
To Be Well Required For Capitalized Under Minimum Capital Prompt Corrective Actual Adequacy Purposes Action Provisions Amount Ratio Amount Ratio Amount Ratio ________________________ ________________________ ____________________ As of December 31, 2001: Total capital to risk weighted assets: Company $ 31,400,670 13.20 % $ 19,035,031 8.00 % N/A N/A Bank 28,881,917 12.23 % 18,891,533 8.00 % 23,614,416 10.00 % Tier 1 capital to risk weighted assets: Company 28,695,612 12.06 % 9,517,515 4.00 % N/A N/A Bank 26,379,246 11.17 % 9,445,767 4.00 % 14,168,650 6.00 % Tier 1 capital to average assets: Company 28,695,612 8.02 % 14,314,377 4.00 % N/A N/A Bank 26,379,246 7.41 % 14,239,231 4.00 % 17,799,038 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 and Debentures - Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate the 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, 2002 and 2001 (in thousands):
2002 2001 ________________________ ________________________ Carrying Fair Carrying Fair Amount Value Amount Value Financial assets: Cash, due from banks and federal fund sold $ 27,468 $ 27,468 $ 35,956 $ 35,956 Securities available-for-sale 89,576 89,576 75,780 75,780 Securities held-to-maturity 23,398 25,661 23,585 24,735 Loans, net 224,161 224,375 211,685 212,900 Financial liabilities: Non-interest bearing deposits 94,452 94,452 91,146 91,146 Interest bearing deposits 249,023 249,751 239,432 241,000 Long-term notes payable 568 568 1,431 1,431 Junior subordinated debentures 7,000 9,000 7,000 7,300
18. OTHER NON-INTEREST EXPENSE Other non-interest expense consisted of the following for the years ended December 31, 2002, 2001 and 2000:
2002 2001 2000 Professional fees $ 661,951 $ 455,740 $ 375,012 FDIC assessments 56,277 56,367 50,612 Marketing expenses 887,475 749,808 748,261 Data processing 173,331 184,371 193,796 Postage 307,653 285,066 249,950 Education and travel 186,140 180,331 156,851 Printing and supplies 434,437 377,538 366,652 Telephone 300,941 275,277 281,890 Other 2,261,790 2,174,139 1,987,460 __________ __________ __________ $5,269,995 $4,738,637 $4,410,464 ========== ========== ==========
19. CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY Summarized financial information for MidSouth Bancorp, Inc. (parent company only) follows:
STATEMENTS OF CONDITION December 31, __________________________________ 2002 2001 ASSETS Cash and interest-bearing deposits in bank $ 2,516,961 $ 2,485,457 Other assets 273,779 505,837 Investment in and advances to subsidiaries 31,993,152 27,393,727 _____________ ______________ $ 34,783,892 $ 30,385,021 ============= ============== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Dividends payable $ 290,114 $ 145,057 Junior subordinated debentures 7,000,000 7,000,000 Note payable to Bank 108,975 149,638 Other 266,244 462,765 _____________ ______________ Total liabilities 7,665,333 7,757,460 _____________ ______________ Total stockholders' equity 27,118,559 22,627,561 _____________ ______________ $ 34,783,892 $ 30,385,201 ============= ==============
STATEMENTS OF INCOME Years Ended December 31, __________________________________________________ 2002 2001 2000 Revenue: Dividends from Bank $ 1,200,000 $ 200,000 $ 925,000 Equity in undistributed income of subsidiaries 3,685,521 3,165,996 2,169,325 Rental and other income 223,221 190,314 50,682 _____________ ______________ _______________ 5,108,742 3,556,310 3,145,007 _____________ ______________ _______________ Expenses: Interest on short and long-term debt 714,000 652,656 192,131 Professional fees 86,239 73,925 75,073 Other expenses 114,083 103,837 84,820 _____________ ______________ _______________ 914,322 830,418 352,024 _____________ ______________ _______________ Income before income taxes 4,194,420 2,725,892 2,792,983 Income tax benefit 234,663 217,267 102,154 _____________ ______________ _______________ Net income $ 4,429,083 $ 2,943,159 $ 2,895,137 ============= ============== ===============
STATEMENTS OF CASH FLOWS Years Ended December 31, __________________________________________ 2002 2001 2000 Cash flows from operating activities: Dividends from bank $ 1,200,000 $ 200,000 $ 925,000 Other, net (488,268) (85,001) (184,584) ___________ ___________ __________ Net cash provided by operating activities 711,732 114,999 740,416 ___________ ___________ __________ Cash flows from investing activities: Investment in and advances to subsidiaries (100,000) (1,500,000) (225,000) ___________ ___________ __________ Net cash used in investing activities (100,000) (1,500,000) (225,000) ___________ ___________ __________ Cash flows from financing activities: Capital stock transactions - 33,764 (96,083) Redemption of preferred stock - (50,274) (264,000) Payment of dividends (580,228) (614,073) (638,468) (Repayments) proceeds of notes payable, net - (2,500,000) 507,097 Proceeds from junior subordinated debentures, net - 6,774,297 - ___________ ___________ __________ Net cash (used in) provided by financing activities (580,228) 3,643,714 (491,454) ___________ ___________ __________ Net increase in cash 31,504 2,258,713 23,962 Cash, beginning of year 2,485,457 226,744 202,782 ___________ ___________ __________ Cash, end of year $ 2,516,961 $ 2,485,457 $ 226,744 =========== =========== ==========
Selected Quarterly Financial Data (unaudited) 2002 _________________________________________________________ (Dollars in thousands, except per share IV III II I ______ ______ ______ ______ Interest income $5,989 $6,255 $6,072 $5,810 Interest expense 1,541 1,666 1,697 1,805 ______ ______ ______ ______ Net interest income 4,448 4,589 4,375 4,005 Provision for possible credit losses 275 429 336 358 ______ ______ ______ ______ Net interest income after provision for possible credit losses 4,173 4,160 4,039 3,647 Noninterest income, excluding securities gains 1,777 1,826 1,659 1,502 Net securities gains 155 1 - - Noninterest expense 4,494 4,313 4,198 4,078 ______ ______ ______ ______ Income before income tax expense 1,611 1,674 1,500 1,071 Income tax expense 329 432 413 253 ______ ______ ______ ______ Net income $1,282 $1,242 $1,087 $818 ====== ====== ====== ====== Earnings per common share Basic $0.44 $0.43 $0.38 $0.28 Diluted $0.43 $0.42 $0.37 $0.28 Market price of common stock High $23.30 $13.55 $13.25 $11.90 Low $12.90 $12.00 $12.25 $10.95 Close $17.30 $12.90 $13.10 $11.90 Average shares outstanding Basic 2,887,989 2,883,142 2,883,142 2,883,142 Diluted 2,967,972 2,947,053 2,946,844 2,939,555 2001 _________________________________________________________ (Dollars in thousands, except per share data) IV III II I ______ ______ ______ ______ Interest income $6,138 $6,596 $6,922 $6,768 Interest expense 2,119 2,563 2,843 2,885 ______ ______ ______ ______ Net interest income 4,019 4,033 4,079 3,883 Provision for possible credit losses 380 439 1,034 323 ______ ______ ______ ______ Net interest income after provision for possible credit losses 3,639 3,594 3,045 3,560 Noninterest income, excluding securities gains 1,499 1,241 1,298 1,183 Net securities gains 142 - 68 - Noninterest expense 4,101 3,835 3,822 3,704 ______ ______ ______ ______ Income before income tax expense 1,179 1,000 589 1,039 Income tax expense 284 217 120 244 ______ ______ ______ ______ Net income 895 783 469 795 Preferred stock dividend requirement - - (22) (30) ______ ______ ______ ______ Income applicable to common shareholders $895 $783 $447 $765 ====== ====== ====== ====== Earnings per common share Basic $0.31 $0.29 $0.18 $0.31 Diluted $0.31 $0.27 $0.16 $0.27 Market price of common stock High $11.60 $11.05 $11.90 $10.40 Low $10.70 $10.27 $10.35 $9.90 Close $11.60 $10.85 $11.10 $9.99 Average shares outstanding Basic 2,877,891 2,734,556 2,514,972 2,492,196 Diluted 2,931,866 2,947,085 2,920,454 2,924,741
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 2003 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 2003 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 2003 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 2003 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. 10.2.1 Seventh Amendment to Lease between S & A Properties II, Inc., successor in interest to Southwest Bank Building Limited Partnership in Commendam, and MidSouth Bank, N.A. effective July 1, 2002 is included as part of this filing. 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. 10.3.1 Amended and Restated Deferred Compensation Plan and Trust effective October 9, 2002 is included as part of this filing. 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. 21 Subsidiaries of the Registrant 23 Independent Auditors' Consent 99.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.2 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Reports on Form 8-K None 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: /s/ C. R. Cloutier C. R. Cloutier President and Chief Executive Officer Dated: March 28, 2003 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 C. R. Cloutier Officer and Director March 28, 2003 /s/ Karen L. Hail Chief Financial Officer, Karen L. Hail Executive Vice President, March 28, 2003 Secretary/Treasurer and Director /s/ Teri S. Stelly Chief Accounting Teri S. Stelly Officer March 28, 2003 /s/ J. B. Hargroder, M.D. Director March 28, 2003 J. B. Hargroder, M.D. /s/ William M. Simmons Director March 28, 2003 William M. Simmons /s/ Will G. Charbonnet, Sr. Director March 28, 2003 Will G. Charbonnet, Sr. /s/ Clayton Paul Hilliard Director March 28, 2003 Clayton Paul Hilliard /s/ James R. Davis Director March 28, 2003 James R. Davis, Jr. /s/ Milton B. Kidd, III Director March 28, 2003 Milton B. Kidd, III., O.D. CERTIFICATION I, C. R. Cloutier, President and CEO, certify that: 1. I have reviewed this annual report on Form 10-KSB of MidSouth Bancorp, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 28, 2003 /s/C. R. Cloutier _______________________ Chief Executive Officer CERTIFICATION I, Karen L. Hail, Senior Executive Vice President & CFO, certify that: 1. I have reviewed this annual report on Form 10-KSB of MidSouth Bancorp, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 28, 2003 /s/Karen L. Hail _______________________ Chief Financial Officer EX-10 3 lease.txt MIDSOUTH BANCORP, INC. EXHIBIT 10.2.1 Seventh Amendment to Lease Agreement Dated Effective July 11, 2002, Between S & A Properties II, Inc. a Louisiana Corporation and MidSouth National Bank This Seventh Amendment to Lease Agreement (this "Seventh Amendment") is executed on the dates noted below, but is effective as of July 1, 2002, by and between S & A Properties II, Inc., as "Owner", having an address at 9151 Interline Avenue, Suite 1 B, Baton Rouge, Louisiana, and MidSouth National Bank, as "Lessee", having address at 102 Versailles Blvd., Suite 100, Lafayette, LA 70506. Recitals: Pursuant to a Lease Agreement between Lessee, as tenant, and Southwest National Bank Building Limited Partnership, as building owner, dated Decembers, 1991 (the "Original Lease"), which is recorded in the records of the Clerk of Court for Lafayette Parish, Louisiana, under File No. 91-038121, Lessee leased certain space in the building known as Versailles Center located at 102 Versailles Boulevard, Lafayette, Louisiana (the "Building"). Subsequent to execution of the Original Lease, the Building was acquired by MBL Life Assurance Corporation ("MBL") who succeeded to the position of the landlord under the Original Lease. MBL and Lessee amended the Original Lease pursuant to a First Amendment to Lease Agreement dated effective as of November 1, 1994 (the "First Amendment"). Subsequent to execution of the First Amendment, the Building was acquired by Owner, and Owner succeeded to the position of the landlord under the Original Lease, as modified by the First Amendment. Owner and Lessee have further amended the Original Lease pursuant to the Second Amendment to Lease Agreement dated effective as of June 1, 1997 (the "Second Amendment"), the Third Amendment to Lease Agreement dated effective as of June 1, 1998 (the "Third Amendment"), the Fourth Amendment to Lease Agreement dated effective as of January 1, 2000 (the "Fourth Amendment"), the Fifth Amendment to Lease Agreement dated effective as of January 1, 2002 (the "Fifth Amendment"), and the Sixth Amendment to Lease Agreement dated effective as of March 1, 2002 (the "Sixth Amendment"). The Original Agreement, as modified and supplemented by the First Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment, the Fifth Amendment and the Sixth Amendment, is hereinafter referred to as the "Lease Agreement". The First Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment, the Fifth Amendment and the Sixth Amendment, are hereinafter referred to collectively as the "Amendments". Agreement: In consideration of the mutual covenants and agreements below, Owner and Lessee agree to further amend and modify the Lease Agreement as set forth below: 1. Premises. Item 1 of the Original Lease Agreement is hereby amended to substitute 26,865 square feet of Rentable Area (in the place of 23,730 square feet of Rentable Area, which was the correct number at the time of the Sixth Amendment), effective as of July 1, 2002, plus unrestricted use of and access to all Common Areas by Lessee, its patrons, visitors, employees, servants and agents, subject only to reasonable control by Owner for the benefit of all tenants, plus unrestricted and exclusive use of the drive-through teller facilities on the outside of the Building. In addition to the areas described as included within the Premises in the Sixth Amendment, paragraph 1, the Premises now include a portion of the second floor (which is known as Suite 212) consisting of 812 square feet of Rentable Area and a portion of the eighth floor (which is known as Suite 816) consisting of 2,323 square feet of Rentable Area, which are identified on Exhibit "A" (consisting of two (2) pages) highlighted in yellow, which is attached to and made part of this Seventh Amendment. 2. Effective Date of Increase in Rent. The Rent due from Lessee for the Premises shall increase based on the additional Rentable Area added to the Premises pursuant to paragraph 1 of this Seventh Amendment, effective as of July 1, 2002, without regard for whether Lessee completes the construction of its leasehold improvements to said additional Rentable Area (i.e., Suites 212 and 816), and occupies said additional Rentable Area, before or after July 1, 2002. 3. Interpretation. Each amendment or modification to the Original Lease Agreement contained in the Amendments which is inconsistent with the provisions of this Seventh Amendment are hereby declared to be superseded by the terms and provisions of this Seventh Amendment. In the event of any conflict or inconsistency between the provisions of this Seventh Amendment and any of the provisions of the Lease Agreement, the provisions of this Seventh Amendment shall in all respects govern and control. 4. Authority to Commence Leasehold Improvements. Although the addition of the Suites 212 and 816, as described in paragraph 1 above, to the Premises leased pursuant to the Lease will not be effective until July 1, 2002, Owner does hereby authorize Lessee to begin making its leasehold improvements to the additional Rentable Area (i.e., said Suites 212 and 816) which is added to the Premises under the terms of paragraph 1 of this Seventh Amendment. 5. Nonatrornment Agreement from Owner's Lender. Owner agrees to cooperate with Lessee in an effort to,obtain a nondisturbance and attornrnent agreement from any lender of Owner holding a mortgage encumbering the Building, as collateral security for indebtedness of Owner. 6. Ratification of Lease Agreement. Except as modified herein, the Lease Agreement is hereby ratified and confirmed in full. All terms, conditions and provisions of the Lease Agreement shall remain in full force and effect, except as expressly modified by this Seventh Amendment. IN WITNESS HEREOF, the parties have executed this Amendment, under seal, as of the effective date set forth above, by and through their duly authorized representatives. <"OWNER"> <"LESSEE"> S & A PROPERTIES II, INC. MIDSOUTH NATIONAL BANK By: /s/ By: /s/ Karen L. Hail _____________________ Name: Name: Karen L. Hail Position: Position: Sr. Executive Vice President Date: July 11, 2002 Date July 10, 2002 EX-10 4 def.txt MIDSOUTH BANCORP, INC. EXHIBIT 10.3.1 AMENDED AND RESTATED DEFERRED COMPENSATION PLAN MIDSOUTH BANCORP INC. As authorized by the Board of Directors of MidSouth Bancorp, Inc. (the "Employer") effective as of 0ctober 9, 2002, the Employer hereby amends and restates the MidSouth Bancorp, Inc. Deferred Compensation Plan (the "Plan") as set forth below: ARTICLE I Participation by Subsidiaries A banking subsidiary of the Employer may elect to participate in the Plan by agreeing, in writing, to be bound by the terms and conditions of the Plan (a "Participating Subsidiary"). ARTICLE II Participation 1. Eligibility. Any member of the Board of Directors of the Employer or the Board of Directors of a Participating Subsidiary (a "Director") shall be eligible to participate in the Plan. 2. Participation. A Director may elect to participate In the Plan by executing a Deferral Authorization substantially in the form attached hereto as Exhibit A. 3. Deferral Authorizations. The terms of a Deferral Authorization shall provide that a Director agrees to defer all or a specified percentage of his fees payable for the performance of services as a member of the Board of Directors of the Employer or a Participating Subsidiary pursuant to the terms of the Plan. The following special rules shall apply to Deferral Authorizations: a. Deferral Authorization may be executed at any time but shall not become effective until at least six months after the date on which such authorization is accepted by an authorized representative of the Employer or a Participating Subsidiary. The effective date of the Deferral Authorization shall be the first day of the month following the expiration of the six month period. b. The Deferral Authorization may allow the Director to elect that the percentage of Fees deferred may not be decreased by the Director for the time period indicated on the Deferral Authorization. In the absence of, or on the expiration of, such an election, the percentage of Fees deferred pursuant to a Deferral Authorization may be Increased or decreased upon six months advance written notice In the form of a new authorization. Any such change shall become effective as of the first day of the month which is at least six months after the date of acceptance of the new authorization by an authorized representative of the Employer or a Participating Subsidiary. c. A Deferral Authorization shall remain in effect until it is modified in accordance with Subparagraph (b). ARTICLE III Funding 1. Establishment of Trust. The Employer shall establish a revocable trust (the "Trust") substantially in accordance with the terms and conditions set forth in Exhibit B. The terms of the Trust shall be incorporated in the Plan by this reference. 2. Contributions. Within 30 days following the conclusion of each calendar quarter, the Employer or Participating Subsidiary shall contribute to the Trust aggregate Fees deferred pursuant to the Deferral Authorizations in effect during such quarter. 3. Trustee. First National Bank of Commerce shall be designated as the initial Trustee of the Trust, 4. Ownership of Trust Assets. A Director has only an unsecured right to receive benefits under the Plan from the Employer or Participating Subsidiary that funded his Deferred Compensation Account, as a general creditor of the Employer or Participating Subsidiary, as the case may be. Directors and their death beneficiaries have no secured interest or special claim to the assets of the Trust, and the assets of the Trust equal to the contributions by the Employer or Participating Subsidiary, as the case may be, for its respective Directors plus earnings thereon minus distributions with respect to such Directors shall be subject to the payment of all claims of general creditors of the Employer upon the insolvency or bankruptcy of the Employer or to the payment of claims of general creditors of the Participating Subsidiary upon the insolvency or bankruptcy of the Participating Subsidiary, as the case may be. 5. Distributions. The Trustee shall distribute the assets comprising the Trust in accordance with the instructions of the Plan Administrator. 2 ARTICLE IV Plan Administration 1. Plan Administration. The Executive Committee of the Board of Directors of the Employer shall be designated to administer the Plan (the "Plan Administrator") on behalf of the Employer and each Participating Subsidiary. 2. Account. The Plan Administrator shall establish a Deferred Compensation Account for each Director. Such account shall represent an accounting entry only and shall not create an ownership interest in any specific asset or fund of the Employer or any Participating Subsidiary. 3. Credits. As of the last day of each calendar month, Fees deferred pursuant to a Director's Deferral Authorization in effect during such month shall be credited to his Deferred Compensation Account and shall be used to purchase Common Stock of Employer at a price based upon the closing sale price of such stock on the last business day of the calendar month in which the deferral occurred, or, if the Employer is not subject to Section 16 of the Securities Exchange Act of 1934, at a price established by such other method determined in good faith by the Plan Administrator. Amounts representing dividends paid on Employer Common Stock shall he credited to each Director's Deferred compensation Account and, on December 6 or the next business day thereafter of each year, shall be used to purchase Employer Common Stock based upon the value of Employer Common Stock on the purchase date. 4. Dividend and Voting Rights. The allocation of Deferred Compensation Units to a Director's Deferred Compensation Account shall not entitle such Director to any dividend or voting rights or any other rights of a shareholder of Employer Common Stock. 5. Dilution and Adjustments in Capitalization. In the event of any change iii the outstanding shares of Employer Common Stock on account of a stock dividend or stock split, recapitalization, merger, consolidation, spin-off, reorganization or similar corporate change, Employer shall appropriately adjust the number or kind of shares allocated to a Director's Deferred Compensation Account. 6. Reporting. As soon as practicable after the conclusion of the calendar year, the Plan Administrator shall furnish each Director with a statement indicating the total number of shares of Employer Common Stock allocated to his Deferred Compensation Account. 3 ARTICLE V Distributions 1. Time of Distribution. The distribution of shares of Employer Common Stock allocated pursuant to the terms of the Plan shall commence (a) 60 days after the later of (i) the date on which a Director ceases to be a member of the Board of Directors of the Employer or a Participating Subsidiary, or (ii) the date on which a Director attains age 65; or (b) within the sole discretion of the Board of Directors of the Employer or a committee of the Board which it establishes for such purpose, not earlier than one year after the reasonable conditions established by the Board or such Committee for the former director to be eligible to receive distributions are satisfied and both of the following are satisfied: (i) the director ceases to be a member of the Board of Directors of the Employer or a Participating Subsidiary, and (ii) such former Director requests payment, provided that the former Director makes a written request for payment during the period beginning three months before he ceases to be a Director and ending on the date as of which he ceases to be a Director. The Board, or any Committee of the Board which is established for such purpose, shall establish conditions whereby Directors or former Directors must satisfy certain conditions in order to be eligible to receive distributions under (b) above. It is anticipated that the Board or Committee will require that the individual Board member or former Board member not be in a conflicting position with any other similar institution within a 12-month period prior to the date of distribution, that the Board or Committee establish such procedures as it believes desirable to insure that the securities laws are satisfied, and that the Board or Committee establish such procedures as it believes desirable to insure that the tax and labor laws are satisfied. The Board or the Committee shall be entitled to take the financial condition of the Board member or former Board member into account in exercising its discretion. 2. Method of Payment. Distributions shall be made in the form of a single payment. 3. Nature of Rights. If a director dies prior to the complete distribution pursuant to the Plan, the remainder shall be distributed to such Director's designated beneficiary in the form of a single-sum payment within 60 days after the Director's death. A Director shall be entitled to designate a beneficiary on the Deferral Authorization. A Director may, at any time, modify his designation by completing the applicable portion of a new Deferral Authorization. Such modifications shall become effective upon acceptance by an authorized representative of the Employer or a Participating Subsidiary and shall constitute a revocation of all previous designations. If no designated beneficiary survives the 4 Director, distributions pursuant to the Plan shall be made to the legal representative of the Director's estate or to a successor in accordance with a Judgment of Possession. 4. Governing Law. Notwithstanding any provision of the Plan to the contrary, distributions to a Director or his beneficiary shall not commence (or distributions shall cease) in the event the Employer or a Participating Subsidiary is unable to meet its debts as they mature or is subject, as a debtor, to a proceeding under the Bankruptcy Code. In such event the assets comprising the Trust shall be distributed in accordance with an order form a court of competent jurisdiction. ARTICLE VI Miscellaneous 1. Assignment. To the extent a Director or any other person acquires a contractual right to receive payments pursuant to the Plan, such right shall not be subject to assignment, pledge (including collateral for a loan or security for the performance of an obligation), encumbrance or transfer except by will, the laws of descent and distribution or pursuant to a qualified domestic relations order. Any attempt to assign, pledge encumber of transfer such right shall not be recognized by the Employer, a Participating Subsidiary, the Trustee or the Plan Administrator. 2. Amendment and Termination. The Employer, through its Board of Directors, shall have the right to amend or terminate the Plan; provided, however, that no such amendment or termination shall affect Fees previously deferred. 3. Trust Assets. The provisions of the Plan and Trust shall not create a trust or other fiduciary relationship of any kind between the Employer, the Trustee, the Plan Administrator or a Participating Subsidiary and a Director, his beneficiary or any other person. Any asset (and the earnings thereon) comprising the Trust shall constitute a general asset of the Employer, to the extent such assets were contributed by the Employer, or of the Participating Subsidiary, to the extent such assets were contributed by the Participating Subsidiary, and no other person shall have any interest in such asset. To the extent a Director or any other person acquires a contractual right to receive payments pursuant to the Plan, such right shall be no greater than the right of any unsecured general creditor of the Employer or a Participating Subsidiary. 4. Revocation. The Plan shall be governed by the laws of the State of Louisiana. EXECUTED in multiple counterparts, each of 5 which shall be treated as an original, as set forth below: WITNESSES: MIDSOUTH BANCORP INC. ___________________________ BY:________________________ ___________________________ DATE: ____________________________ 6 RESTATED DEFERRED COMPENSATION TRUST MIDSOUTH BANCORP INC. As authorized by the Board of Directors of MidSouth Bancorp, Inc. (the "Employer"), the Employer and the First National Bank of Commerce (the "Trustee") hereby restate the MidSouth Bancorp, Inc. Deferred Compensation Trust (the `Trust") to reflect the original Trust and changes made to the Trust as set forth below: WITNESSETH: WHEREAS, the Board of Directors of the Employer authorized the adoption of the Deferred Compensation Plan of Employer (the "Plan"), effective as of June 13, 1990; WHEREAS, under the terms of the Plan the Employer is required to establish a fund for the purpose of accumulating amounts required to satisfy its obligations under the Plan; WHEREAS, the Trustee agrees to act as the fiduciary of such fund; NOW, THEREFORE, the Employer and the Trustee agree as follows: ARTICLE I GENERAL PROVISIONS 1. Name. The Trust shall be known as the Deferred Compensation Trust of MidSouth Bancorp, Inc. 2. Creation of Trust, The Employer hereby establishes, and the Trustee hereby accepts, a trust consisting of cash or other property paid or delivered to the Trustee. 3. Trust Assets. The assets comprising the Trust, whether principal or income, shall, at all times, remain the property of the Employer, to the extent such assets are attributable property contributed by the Employer, or the Participating Subsidiary, to the extent such assets are attributable property contributed by the Participating Subsidiary. No person, other than the Trustee and the Employer or Participating Subsidiary shall have any beneficial or other ownership interest in the assets comprising the Trust. 4. Revocation. The Trust shall be revocable trust, and the Employer, through its Board of Directors, may revoke, terminate, amend or modify the Trust in its discretion. 7 5. Incorporation by Reference. In the event of a conflict between the terms of the Plan and the Trust, the terms of the Plan shall govern. The terms of the Plan shall be incorporated in the Trust by this reference. 6. Statement of Intent. This Trust is Intended as a vehicle to pay benefits under the Plan without rendering the Plan a "funded plan" for purposes of Title I of the Employee Retirement Income Security Act of 1974, and without causing Directors to be taxed before they actually receive benefits. Although the purpose of the Trust is to permit the Employer or a Participating Subsidiary to accumulate amounts required to satisfy its obligations under the Plan, the Directors shall not have an interest, whether direct or indirect, in all or any portion of the assets comprising the Trust, except an interest as an unsecured general creditor of the Employer or the Participating Subsidiary. The Trust shall not be deemed to create a fiduciary relationship between either the Employer or a Participating Subsidiary or the Trustee and the Directors. ARTICLE II CONTRIBUTIONS The Trustee shall be fully accountable for all contributions actually received by it, but shall have no duty to require any such contribution or to determine whether the amount of any contribution complies with the provisions of the Plan. ARTICLE III DISTRIBUTIONS 1. Distributions. Payment shall be made from the Trust by the Trustee to such persons, at such times, in such form, and in such amounts as the Plan Administrator shall direct, in writing. The Trustee shall be fully protected in making or discontinuing payments from the Trust in accordance with the directions of the Plan Administrator. The Trustee shall have no responsibility to determine whether the directions of the Plan Administrator comply with the terms of the Plan or applicable law. 2. Withholding. The Trustee is authorized, to the extent required by applicable law, to withhold from any distribution the amount of any tax required to be withheld. 3. Employer Common Stock. If a distribution is to be made in the form of Employer Common Stock, the Trustee shall cause the Employer to issue an appropriate stock certificate, and the Trustee shall deliver such certificate. Employer Common Stock distributed by the Trustee may include such legend restrictions on transferability as Employer may reasonably require In order to ensure compliance with the terms of the Plan or applicable federal or State securities laws. 8 ARTICLE IV INVESTMENTS 1. Powers. The Trustee shall invest the assets comprising the Trust primarily or solely in Employer Common Stock. Subject to the investment policy set forth in the preceding sentence and the terms of this Trust, the Trustee shall have the power and authority conferred on trustees under the Louisiana Trust Code. Investments shall be made in accordance with the written Instructions of the Plan Administrator who shall direct the Trustee as to (a) the number of shares to be purchased, (b) the price per share to be paid, and (c) from whom such shares shall be purchased. The Trustee shall have no duty to determine whether any such acquisition complies with the provisions of the Plan or applicable federal or state securities laws. In the event the Trustee is required to acquire or dispose of Employer Common Stock under circumstances which require the registration of the Plan or of such stock under the Securities Act of 1933 or the qualification of the securities under the blue-sky laws of any state, then the Employer or a Participating Subsidiary, at its own expense, shall take such actions as may be necessary or appropriate to effect such registration or qualification. and the Trustee shall postpone the payment of any distribution until such time as such registration or qualification is effected. The Trustee shall not be liable for the acquisition, retention or disposition of Employer Common Stock in accordance with the provisions of this Article IV or for any loss or diminution in value of such stock, unless such loss or diminution is due to gross negligence or a lack of good faith. 2. Dividends. Cash dividends payable on Employer Common Stock held in the Trust shall be applied to the purchase of additional shares of such stock as soon as practicable, after the payment of any applicable Federal or state income tax. Such purchases shall be at the direction of the Plan Administrator as provided in Paragraph I of Article IV. Stock dividends, stock splits, and other distributions payable on Employer Common Stock as the result of a recapitalization or other adjustment in the capitalization of the Employer shall be treated as principal and held by the Trustee pursuant to the terms of the Trust. 3. Exercise of Voting Rights. The Trustee shall exercise the voting rights attributable to Employer Common Stock held in the Trust in accordance with the instructions of the Plan Administrator. 4. Nominee. The Trustee may register the assets comprising the Trust in the name of the Trustee or the Trustee's nominee. Further, the Trustee may 9 hold any security in bearer form. Notwithstanding the foregoing, however, the Employer, to the extent such assets were contributed by the Employer, or the Participating Subsidiary, to the extent such assets were contributed by the Participating Subsidiary shall, at all times, be the beneficial owner of such assets (and the earnings thereon). 5. Acquisition of Employer Common Stock. The Trustee shall purchase, from time to time, Employer Common Stock in accordance with the instructions of the Plan Administrator on the open market or by private purchase, including purchase from the Employer of authorized but unissued shares and shares held as treasury stock. Such purchases shall be made in accordance with the purchase price directed by the Plan Administrator. With respect to the purchase of Employer Common Stock acquired through public or private purchase, the Employer or a Participating Subsidiary shall pay the actual expenses of such transaction. ARTICLE V ACCOUNTING Within a reasonable period after the close of each calendar year, the Trustee shall furnish the Plan Administrator with a complete accounting showing the assets held in the Trust as of the last day of such year and the fair market value of such assets. The accounting shall also contain a statement of any purchases, sales, distributions, and contributions which occurred during the calendar year. For purposes of completing the accounting contemplated in the preceding sentence, the Plan Administrator shall provide the Trustee with the fair market value of Employer Common Stock held by the Trustee. The Trustee shall be entitled to rely on such valuation, and such valuation may be incorporated by reference in any report or accounting prepared by the Trustee. ARTICLE VI MISCELLANEOUS 1. Fees and Expenses. Any brokerage fee, commission or expense incurred in connection with the purchase of Employer Common Stock shall be paid directly by the Employer, to the extent such expenses relate to Directors of the Employer, and by the Participating Subsidiary, to the extent such expenses relate to the Directors of the Participating Subsidiary. Additional expenses or charges related to the administration of the Trust shall also be paid by the Employer or the Participating Subsidiary, as the case may be. Notwithstanding the foregoing, the Trustee shall pay any applicable Federal or State income tax from the assets comprising the Trust. 2. Compensation. The Trustee shall receive such compensation as may he agreed upon by the Trustee and the Plan Administrator. Such compensation shall be paid directly by the Employer 10 or the Participating Subsidiary in such proportion as the Plan Administrator shall determine. 3. Qualification. The Trustee shall not be required to qualify before, be appointed by, or in the absence of a breach of trust, account to any court or obtain the order or approval of any court in the exercise of any power given under the terms of the Trust. 4. Reliance. The Plan Administrator and the Employer shall furnish the Trustee with the names and specimen signatures of the person or persons authorized to act on its behalf. The Trustee shall be entitled to rely upon the fact that any person so named is authorized to act until such time as the Trustee receives subsequent written notice. The Trustee is entitled to rely on all directions and information provided by the person or persons designated in accordance with this Paragraph (4) and shall not be liable for any action or inaction taken pursuant thereto. 5. Resignation or Removal. The Trustee may resign at any time by giving thirty days written notice to the Plan Administrator, Upon such resignation becoming effective, the Trustee shall perform all acts necessary to transfer the assets of the Trust to a successor trustee. The Plan Administrator may remove the Trustee at any time by giving thirty days' written notice the Trust. Upon such removal becoming effective, the Trustee shall perform all acts necessary to transfer the assets of the Trust to a successor trustee. The Plan Administrator shall have the power to appoint a successor trustee. The successor trustee shall have the powers conferred upon the Trustee under the terms of the Plan and the Trust. 6. Indemnification. The Employer and the Participating Subsidiary agree to indemnify and hold harmless the Trustee from all liabilities and claims arising from the performance of its duties in accordance with the terms of the Trust, unless such liability, claim or expense results from a grossly negligent act or omission or an act or omission performed in bad faith. 7. Governing Law. The terms of the Trust shall be governed by the laws of the State of Louisiana. 8. Bankruptcy of Employer or Participating Subsidiary. For purposes of this Trust, the term "Bankruptcy or Insolvency" means that the Employer or Participating Subsidiary is subject to a pending proceeding as a debtor under the bankruptcy laws of the United States or similar laws of the State of Louisiana. 11 In the event of Employer's or Participating Subsidiary's Bankruptcy or Insolvency or In the event the Employer or Participating Subsidiary is unable to meet its debts as they mature, Its Board of Directors or Chief Executive Officer of Employer shall notify the Trustee, in writing, within five days of such event. The Trustee may independently determine that the Employer or Participating Subsidiary is Bankrupt or Insolvent based upon written notice from a creditor of Employer or Participating Subsidiary. Unless the Trustee has actual knowledge of the Employer's or Participating Subsidiary's Bankruptcy or Insolvency, the Trustee shall have no duty to inquire whether the Employer or Participating Subsidiary is Bankrupt or Insolvent, and the Trustee may rely upon such evidence as may be furnished to Trustee by the Employer. When so notified of the Employer's or Participating Subsidiary's Bankruptcy, Insolvency or inability to meet its debts as they mature, the Trustee shall suspend payments to Directors of such Bankrupt or Insolvent Employer or Participating Subsidiary and their beneficiaries, shall hold Trust assets attributable to such Employer or Participating Subsidiary for the benefit of the general creditors of such Employer or the Participating Subsidiary, as the case may be, and shall deliver the assets to satisfy creditors' claims as directed by a court of competent jurisdiction. If the Board of Directors or Chief Executive Officer of Employer notifies the Trustee that the Employer or Participating Subsidiary is no longer Bankrupt, Insolvent or unable to meet its debts as they mature, the Trustee shall resume payments to Directors and their beneficiaries out of whatever assets the Trust may then have. 9. Directors' Rights. The Directors and their beneficiaries have no vested interests in any assets of the Trust, Although it is expected that Plan Benefits will be paid in full or in part from Trust assets, the Directors and their beneficiaries have no secured right to any benefit, and upon the Bankruptcy or Insolvency of the Employer or the Participating Subsidiary, as the case may be, shall have only the same rights in Trust assets as any other unsecured creditor of the Employer or Participating Subsidiary, as the case may be, has. 10. Tax Status of the Trust. The Trust Is intended to constitute a grantor trust within the meaning of Section 671 of the Internal Revenue Code of 1986. 11. General Assets of Employer or Participating Subsidiary. Notwithstanding any provision of the Trust or the Plan to the contrary, the assets comprising the Trust shall, at all times, be assets of the Employer, to the extent such assets were contributed by the Employer, or the Participating Subsidiary, to the extent such assets were contributed by the Participating Subsidiary, available to satisfy the obligations of the Employer or the Participating Subsidiary, as the case may be, in the event of the Employer's or Participating Subsidiary's, as the case may be, Bankruptcy or Insolvency as provided in paragraph 8 of Article VI. 12 This document may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same document. WITNESSES: MIDSOUTH BANCORP INC. ___________________________ BY: _______________________ ___________________________ WITNESSES: MIDSOUTH NATIONAL BANK ___________________________ BY: _______________________ ___________________________ DATE: _________ 13 EX-21 5 ex21.txt MIDSOUTH BANCORP, INC. EXHIBIT 21 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT MidSouth Bank, N.A. Louisiana Financial Services of the South, Inc. Louisiana MidSouth Statutory Trust Connecticut EX-23 6 ex23.txt MIDSOUTH BANCORP, INC. EXHIBIT 23 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 and Registration Statement No. 33-62773 on Form S-8 of our report dated February 7, 2003, appearing in this Annual Report on Form 10-KSB of MidSouth Bancorp, Inc. for the year ended December 31, 2002. DELOITTE & TOUCHE, LLP New Orleans, Louisiana March 28, 2003 EX-99.1 CHARTER 7 ex991.txt MIDSOUTH BANCORP, INC. EXHIBIT 99.1 Exhibit 99.1 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of MidSouth Bancorp, Inc. (the "Company") on Form 10-KSB for the period ending December 31, 2002 (the "Report"), I, C.R. Cloutier, Chief Executive Officer of the Company, certify that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. ________________________ C.R. Cloutier Chief Executive Officer March 28, 2003 EX-99.2 BYLAWS 8 ex992.txt MIDSOUTH BANCORP, INC. EXHIBIT 99.2 Exhibit 99.2 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of MidSouth Bancorp, Inc. (the "Company") on Form 10-KSB for the period ending December 31, 2002 (the "Report"), I, Karen L. Hail, Chief Financial Officer of the Company, certify that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. ________________________ Karen L. Hail Chief Financial Officer March 28, 2003 -----END PRIVACY-ENHANCED MESSAGE-----