-----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, QLNdseQI2M4Up1QYetnTc1VUnh2GNNwlAI3/P6TWeW3yi0qCQlxnS8qdjYXc6Jw9 GFTAaFqlDCU+F95W5logdA== 0000948688-99-000002.txt : 19990402 0000948688-99-000002.hdr.sgml : 19990402 ACCESSION NUMBER: 0000948688-99-000002 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MIDSOUTH BANCORP INC CENTRAL INDEX KEY: 0000745981 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 721020809 STATE OF INCORPORATION: LA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 001-11826 FILM NUMBER: 99580891 BUSINESS ADDRESS: STREET 1: 102 VERSAILLES BLVD STREET 2: VERSAILLES CENTRE CITY: LAFAYETTE STATE: LA ZIP: 70501 BUSINESS PHONE: 3182378343 MAIL ADDRESS: STREET 1: 102 VERSAILLES BLVD CITY: LAFAYETTE STATE: LA ZIP: 70501 10KSB 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-KSB x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 OR x TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 2-91000-FW MIDSOUTH BANCORP, INC. (Exact name of registrant as specified in its charter) Louisiana 72-1020809 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 102 Versailles Blvd., Lafayette, LA 70501 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (318) 237-8343 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, $.10 par value American Stock Exchange, Inc. Preferred Stock, no par value, $14.25 American Stock Exchange, Inc. stated value Securities registered pursuant to Section 12(g) of the Act: none Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB __X__ As of February 28, 1999, 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 $16,048,783. As of February 28, 1999 there were outstanding 2,442,276 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 12, 1999 - (Part III) PART I ITEM 1 - Business. The Company MidSouth Bancorp, Inc. ("MidSouth") is a Louisiana corporation registered as a bank holding company under the Bank Holding Company Act of 1956. Its operations are conducted through, and its primary asset is, MidSouth National Bank (the "Bank"), a wholly-owned subsidiary. In the third quarter of 1996, MidSouth formed Financial Services of the South, Inc. (the "Finance Company") to provide quality consumer finance throughout its market area. MidSouth, the Bank and the Finance Company are referred to collectively herein as "the Company." On July 31, 1995, MidSouth consummated the acquisition of Sugarland Bancshares, Inc. which resulted in Sugarland's subsidiary and sole asset, Sugarland Bank, being merged into the Bank. Completion of the acquisition added $17.2 million to MidSouth's total assets. The Bank The Bank is a national banking association domiciled in Lafayette, Louisiana. The Bank provides a complete range of commercial and retail banking services primarily to professional, commercial and industrial customers in its market area. These services include, but are not limited to, interest bearing and non-interest bearing checking accounts, investment accounts, credit card services and issuance of cashier's checks, United States Savings Bonds and travelers checks. The Bank is a U.S. government depository. The Bank is also a member of the Electronic Data Services ("EDS") network through Comerica Bank, Dallas, Texas which provides its customers with automatic teller machine services through the GulfNet, Cirrus and Plus networks. The Bank serves most types of lending demands including short term business loans, other commercial, industrial and agricultural loans, real estate construction and mortgage loans and installment loans. The Bank operates at the fifteen locations described below under "Item 2 - Properties." Employees As of December 31, 1998, the Bank employed 152 full-time equivalent employees and the Finance Company employed 5 full-time equivalent employees. MidSouth has no employees who are not also employees of the Bank. Through the Bank and the Finance Company, employees receive employee benefits which include an employee stock ownership plan, a 401-K plan and life, health and disability insurance plans. MidSouth considers the relationships of the Bank and the Finance Company with their employees to be very good. Competition The Bank faces keen competition in its market area not only with other commercial banks, but also with savings and loan associations, credit unions, finance companies, mortgage companies, leasing companies, insurance companies, money market mutual funds and brokerage houses. In the Lafayette Parish area there are fifteen state chartered or national banks and three savings banks. Several of the banks in Lafayette are subsidiaries of holding companies or branches of banks having far greater resources than the Company. Louisiana state banks may establish branch offices statewide, and national banks domiciled in Louisiana have the power to establish branches to the full extent that Louisiana banks may establish branches. Since 1989, Louisiana has allowed bank holding companies domiciled in any state of the United States to acquire Louisiana banks and bank holding companies, if the state in which the bank holding company is domiciled allows Louisiana banks and bank holding companies the same opportunities. In 1994, the Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Act") was enacted. Among other things, the Interstate Act (i) allows bank holding companies to acquire a bank located in any state, subject to certain limitations that may be imposed by the state, (ii) allows banks to merge across state lines, and (iii) permits banks to establish branches outside their state of domicile if expressly permitted by the law of the state in which the branch is to be located. In 1995, the Louisiana legislature enacted legislation permitting out of state bank holding companies after June 1, 1997 to convert any banks owned in Louisiana into branches of out of state banks owned by such holding companies, subject to certain limitations. Supervision and Regulation - Bank Holding Companies GENERAL. As a bank holding company, MidSouth is subject to the Bank Holding Company Act of 1956 (the "Act") and is supervised by the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"). The Act requires MidSouth to file periodic reports with the Federal Reserve Board and subjects MidSouth to examination by the Federal Reserve Board. The Act also requires MidSouth to obtain the prior approval of the Federal Reserve Board for acquisitions of substantially all of the assets of any bank or bank holding company or more than 5% of the voting shares of any bank or bank holding company. The Act prohibits MidSouth from engaging in any business other than banking or bank-related activities specifically allowed by the Federal Reserve Board and from engaging in certain tie-in arrangements in connection with any extension of credit or provision of any property or services. CAPITAL ADEQUACY REQUIREMENTS. The Federal Reserve Board monitors the capital adequacy of bank holding companies through the use of a combination of risk-based capital guidelines and leverage ratios. Risk-based capital requirements are intended to make regulatory capital more sensitive to the risk profile of a company's assets. Certain off-balance sheet items, such as letters of credit and unused lines of credit, are also assigned risk-weights and included in the risk-based capital calculations. The guidelines require a minimum ratio of total qualifying capital to total risk-weighted assets of 8.0%, of which 4.0% must be in the form of Tier 1 capital. At December 31, 1998, the Company's ratios of Tier 1 and total capital to risk- weighted assets were 9.13% and 10.25%, respectively. MidSouth's leverage ratio (Tier 1 capital to total average adjusted assets) was 6.06% at December 31, 1998. All three regulatory capital ratios for the Company exceeded regulatory minimums at December 31, 1998. Supervision and Regulation - National Banks GENERAL. As a national banking association, the Bank is supervised and regulated by the U. S. Comptroller of the Currency (its primary regulatory authority), the Federal Reserve Board and the Federal Insurance Deposit Corporation. Under Section 23A of the Federal Reserve Act, the Bank is restricted in extending credit to or making investments in MidSouth and other affiliates defined in that act. National banks are required by the National Bank Act to adhere to branch banking laws applicable to state banks in the states in which they are located and are limited as to powers, locations and other matters of applicable federal law. CAPITAL ADEQUACY REQUIREMENTS. A national bank is subject to regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly discretionary, actions by regulators that, if undertaken, could have a direct material effect on a bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, a bank must meet specific capital guidelines that involve quantitative measures of the bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. As of December 31, 1998, 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, 1998. Governmental Policies The operations of financial institutions may be affected by legislative changes and by the policies of various regulatory authorities. In particular, bank holding companies and their subsidiaries are affected by the credit policies of the Federal Reserve Board. An important function of the Federal Reserve Board is to regulate the national supply of bank credit. Among the instruments of monetary policy used by the Federal Reserve Board to implement its objectives are open market operations in United States Government securities, changes in the discount rate on bank borrowings and changes in reserve requirements on bank deposits. These policies have significant effects on the overall growth and profitability of the loan, investment and deposit portfolios. The general effects of such policies upon future operations cannot be accurately predicted. ITEM 2 - Properties. The Bank leases its principal executive and administrative offices and principal banking facility in Lafayette, Louisiana under a ten year lease expiring November 30, 2004. The Bank has six other banking offices in Lafayette, Louisiana, two in New Iberia and one banking office in each of Breaux Bridge, Cecilia, Jeanerette, Opelousas, Morgan City, Jennings and Lake Charles, Louisiana. Ten of these offices are owned and five are leased. A full service branch facility is currently under construction in Lafayette, convenient to the Scott community. In addition, the Bank purchased, through bid process, a former Bank One facility in Sulphur, Louisiana. Management expects the Sulphur office to be operational in 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 1998. Executive Officers of the Registrant C. R. Cloutier, 51 - President, Chief Executive Officer and Director of MidSouth and the Bank Karen L. Hail, 45 - Executive Vice President of the Bank and Chief Financial Officer, and Secretary and Treasurer of MidSouth and the Bank Donald R. Landry, 42 - Senior Vice President and Senior Loan Officer of the Bank Jennifer S. Fontenot, 44 - Senior Vice President of the Bank William R. Snyder, 58 - Senior Vice President of the Bank since 1996; prior to his employment at the Bank, Mr. Snyder was Senior Vice President for First National Bank of Ohio for 1 year and Senior Vice President for Banc One, Cleveland, Ohio for 5 years. Teri S. Stelly, 39 - Senior Vice President and Controller of MidSouth and the Bank since 1997; Vice President and Controller of MidSouth and the Bank since 1992. David L. Majkowski, 49 - Vice President and Loan review officer of the Bank since 1997; Loan review officer of the Bank since 1995; prior to his employment at the Bank, Mr. Majkowski was Compliance Officer for St. Martin Bank and Trust, St. Martinville, Louisiana for 15 years. All executive officers of the Company are appointed for one year terms expiring at the first meeting of the Board of Directors after the annual shareholders meeting next succeeding his or her election and until his or her successor is elected and qualified. PART II ITEM 5 - Market for Registrant's Common Stock and Related Stockholder Matters. On April 19, 1993 MidSouth's common stock was accepted for listing on the American Stock Exchange, Inc./Emerging Company Marketplace. Effective August 1, 1995, the Company's common stock and its preferred stock has been listed on the regular American Stock Exchange, Inc. ("AMEX") under the symbols MSL and MSL.pr, respectively. As of February 28, 1999, there were 489 common shareholders of record and 175 preferred shareholders of record. The high and low sales prices for the past eight quarters are provided in the Selected Quarterly Financial Data tables included with this filing under Item 7 and is incorporated herein by reference. MidSouth's first common stock dividend was paid at a rate of $.06 per share on October 2, 1995 to shareholders of record on September 18, 1995, and quarterly cash dividends of $.06 per common share were paid through the second quarter of 1998. Following a three for two stock split paid on August 31, 1998, MidSouth began paying quarterly cash dividends of $.05 per common share. 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. Cash dividends on the common stock are subject to payment of dividends on the preferred stock. The Company's ability to pay dividends is described in Item 7 below under the heading "Liquidity - Dividends" and and in Note 12 to the Company's consolidated financial statements. On August 31, 1998, MidSouth effected a three for two stock split by way of a stock dividend to its common shareholders of record on July 31, 1998. The stock split increased the common shares outstanding at the time from 1,611,377 to 2,417,195. The conversion rate of the preferred stock was adjusted to 2.998 due to the stock split. On August 6, 1997, MidSouth declared a 12 1/2% stock dividend payable to shareholders of record on August 27, 1997. The conversion rate on the Preferred Stock was adjusted to 1.999 shares of MidSouth Common Stock for each share of Preferred Stock converted. On August 19, 1996, MidSouth effected a four for three stock split by way of a stock dividend to its common shareholders of record on July 31, 1996. Accordingly, the conversion rate on the preferred stock was adjusted to 1.777 shares of MidSouth Common Stock for each share of MidSouth Preferred Stock converted. On September 15, 1995, MidSouth effected a four for three stock split by way of a stock dividend to its common shareholders of record as of September 7, 1995.
FIVE-YEAR SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA Year Ended December 31, __________________________________________________________________________________ 1998 1997 1996 1995 1994 ___________ ___________ ___________ __________ __________ Gross interest income $18,755,764 $15,776,416 $12,572,417 $9,727,584 $7,388,478 Interest expense (6,931,556) (5,894,193) (4,541,727) (3,225,326) (1,976,101) Net interest income 11,824,208 9,882,223 8,030,690 6,502,258 5,412,377 Provision for loan losses (999,950) (854,400) (674,500) (225,000) (210,000) Other operating income 3,486,937 2,899,461 2,138,285 1,583,026 1,422,894 Other expenses (11,023,245) (9,585,788) (7,840,691) (6,072,129) (4,882,130) Net income 3,287,950 2,341,496 1,653,784 1,788,155 1,743,141 Provision for income taxes (842,167) (586,804) (417,286) (546,545) (601,500) Net Income $2,445,783 $1,754,692 $1,236,498 $1,241,610 $1,141,641 Preferred stock dividend requirement ($148,971) ($154,475) ($155,421) ($38,142) - Income applicable to common shareholders $2,296,812 $1,600,217 $1,081,077 $1,203,468 $1,141,641 Basic earnings per share $0.95 $0.69 $0.48 $0.55 $0.53 Diluted earnings per share $0.83 $0.61 $0.40 $0.51 $0.53 Total loans $155,477,263 $130,888,144 $93,740,719 $77,826,707 $60,432,275 Total assets 249,818,268 217,112,415 185,228,252 151,183,241 103,965,960 Total deposits 229,924,302 200,067,751 171,616,508 139,029,563 96,490,355 Cash dividends on common stock 434,334 354,336 280,461 115,750 - Long-term obligations 3,503,668 3,198,794 1,521,435 972,617 1,195,917 Selected ratios: Loans to assets 62.24% 60.29% 50.61% 51.48% 58.13% Loans to deposits 67.62% 65.42% 54.62% 55.98% 62.63% Deposits to assets 92.04% 92.15% 92.65% 91.96% 92.81% Return on average assets 1.04% 0.78% 0.65% 0.98% 1.12% Return on average common equity 19.16% 16.44% 13.09% 17.22% 20.98% Earnings per share have been adjusted to reflect a stock dividend of 5% paid by the Company on February 18, 1994 to shareholders of record on February 4, 1994, a four for three stock split paid on September 15, 1995 to shareholders of record on September 7, 1995, a four for three stock split paid on August 19, 1996 to shareholders of record on July 31, 1996 and a 12 1/2% common stock dividend paid on August 27, 1997 to shareholders of record on August 6, 1997, and a three for two stock split paid on August 31, 1998 to shareholders of record on July 31, 1998. Long-term obligations include FHLB borrowings and the ESOP borrowing in 1994. In 1995, 1996, 1997 and 1998, the ESOP borrowing is eliminated as an intercompany balance.
ITEM 6 - Management's Discussion and Analysis or Plan of Operation. MidSouth Bancorp, Inc. ("MidSouth") is a one-bank holding company that conducts substantially all of its business through its wholly-owned subsidiaries, MidSouth National Bank (the "Bank") and Financial Services of the South, Inc. (the "Finance Company"). Following is management's discussion of factors that management believes are among those necessary for an understanding of MidSouth's financial statements. The discussion should be read in conjunction with MidSouth's consolidated financial statements and the notes thereto presented herein. OVERVIEW MidSouth's net income totaled $2,445,783 for the year ended December 31, 1998 compared to $1,754,692 for 1997. Net income available to common shareholders for 1998 was $2,296,812 compared to $1,600,217 in 1997. Basic earnings per common share were $.95 for 1998 and $.69 for 1997. Diluted earnings per share were $.83 for 1998 and $.61 for 1997. The increase in earnings resulted primarily from growth in loans over the past twelve months. As a result, net interest income increased 20%, or $1,941,985 in annual comparison. Non-interest income, exclusive of net gains on sales of investment securities, increased $682,389 in annual comparison. Increases in service charges and insufficient funds fees on deposit accounts contributed most of the increase in non-interest income due to an increased number of accounts and volume of transactions processed. Total consolidated assets grew $32.7 million, from $217.1 million at December 31, 1997 to $249.8 million at December 31, 1998. Total loans, net of allowance for loan losses ("ALL"), increased $24.1 million or 19%, from $129.5 million at year-end 1997 to $153.6 million at year- end 1998 due to a strong economy and loan demand. The loan growth consisted primarily of commercial and real estate loans funded in the Lafayette and Morgan City markets. An increase was also recorded in commercial leases. Deposits increased $29.9 million, from $200.0 million at year-end 1997 to $229.9 million at year-end 1998. The new Lake Charles and Morgan City offices contributed $14.5 million to the growth in deposits for 1998. Provisions for loan losses increased $145,550 in annual comparison due primarily to another year of substantial loan growth. The ALL totaled $1,860,490 or 1.20% of total loans at December 31, 1998 compared to $1,414,826 or 1.08% of total loans at December 31, 1997. Nonperforming loans totaled $533,107 or .34% of total loans as of December 31, 1998, up from $319,209 or .20% of total loans as of December 31, 1997. The increase is due primarily to the addition of one large commercial credit totaling $220,802 which management expects will be resolved with no loss in the first quarter of 1999. The ALL represented 349% of nonperforming loans as of December 31, 1998 compared to 542% as of December 31, 1997. MidSouth's leverage ratio was 6.06% at December 31, 1998, up from 6.00% at December 31, 1997. Return on average common equity was 16.90% and return on average assets was .94% for the year 1998. 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, 1998. Net interest income increased $1,941,985 for 1998 over 1997 and $1,851,533 for 1997 over 1996. The increase in net interest income for both 1998 and 1997 resulted primarily from growth in MidSouth's loan portfolio. Average loans as a percentage of average earnings assets increased from 57% in 1996 to 61% in 1997 and rose significantly to 67% in 1998. Interest income from loans, including loan fees, increased $3,177,276 from 1997 to 1998 and $2,822,322 from 1996 to 1997. The increased interest income resulted from increases in average loan volume of $32.3 million or 29% in 1998 and $26.7 million or 31% in 1997. Average yield on total loans decreased 11 basis points from 10.36% in 1997 to 10.25% in 1998.
Table 1 Consolidated Average Balances, Interest and Rates Taxable-equivalent basis (2) (in thousands) 1998 1997 1996 _________________________________________________________________________________________________ Average Average Average Average Average Average Volume Interest Yield/Rate Volume Interest Yield/Rate Volume Interest Yield/ Rate _________________________________________________________________________________________________ ASSETS Interest Bearing Deposits $37 $2 5.41% $76 $5 6.58% $166 $8 4.82% Investment Securities Taxable 41,455 2,458 5.93% 48,784 2,881 5.91% 45,689 2,728 5.97% Tax Exempt 17,740 1,334 7.52% 15,151 1,146 7.56% 7,575 584 7.71% _______________ _______________ _______________ Total Investments 59,232 3,794 6.41% 64,011 4,032 6.30% 53,430 3,320 6.21% Federal Funds Sold and Securities Purchased Under Agreements to Resell 10,885 568 5.22% 8,758 470 5.37% 11,902 629 5.28% Loans Commercial and Real Estate 106,584 10,570 9.92% 77,039 7,891 10.24% 56,012 5,876 10.49% Installment 37,872 4,233 11.18% 35,152 3,735 10.63% 29,505 2,927 9.92% _______________ _______________ _______________ Total Loans 144,456 14,803 10.25% 112,191 11,626 10.36% 85,517 8,803 10.29% Total Earning Assets 214,573 19,165 8.93% 184,960 16,128 8.72% 150,849 12,752 8.45% Allowance for Loan Losses (1,572) (1,415) (1,015) Nonearning Assets 22,766 21,182 16,920 ________ ________ ________ Total Assets $235,767 $204,727 $166,754 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY NOW, Money Market, and Savings $83,598 $2,555 3.06% $73,844 $2,202 2.98% $58,362 $1,599 2.74% Certificates of Deposits 78,907 4,108 5.21% 65,492 3,415 5.21% 54,944 2,854 5.19% _______________ _______________ _______________ Total Interest Bearing Deposits 162,505 6,663 4.10% 139,336 5,617 4.03% 113,306 4,453 3.93% Federal Funds Purchased and Securities Sold Under Agreements to Repurchase 64 3 4.69% 632 39 6.17% 102 4 3.92% Notes Payable 3,381 265 7.84% 3,301 238 7.21% 1,158 84 7.25% _______________ _______________ _______________ Total Interest Bearing Liabilities 165,950 6,931 4.18% 143,269 5,894 4.11% 114,566 4,541 3.96% Demand Deposits 54,601 48,480 40,633 Other Liabilities 969 844 720 Stockholders' Equity 14,247 12,134 10,835 Total Liabilites and ________ ________ ________ Stockholders' Equity $235,767 $204,727 $166,754 ======== ======== ======== NET INTEREST INCOME AND NET INTEREST SPREAD $12,234 4.75% $10,234 4.61% $8,211 4.49% ======== ======== ======== NET YIELD ON EARNING ASSETS 5.70% 5.53% 5.44% Securities classified as available-for-sale are included in average balances and interest income figures reflect interest earned on such securities. Interest income of $409,372 for 1998, $351,456 for 1997, and $179 ,991 for 1996 is added to interest earned on tax-exempt obligations to reflect tax equivalent yields using a 34% tax rate. Interest income includes loan fees of $1,062,040 for 1998, $901,688 for 1997, and $674,443 for 1996. Nonaccrual loans are included in average balances and income on such loans is recognized on a cash basis.
Average yields fell 32 basis points, from 10.24% to 9.92%, in the higher volume commercial portfolio primarily due to loan pricing competition from national and regional banks in MidSouth's market. In addition, New York's prime lending rate fell 50 basis points during the fourth quarter of 1998. MidSouth followed with a 50 basis point drop in its internal prime lending rate in November 1998. Average yields in the consumer portfolio rose 55 basis points, from 10.63% to 11.18%. The consumer portfolio yield benefited from the Finance Company's loans, which averaged $1.8 million and yielded an average rate of 27%. Credit card loans averaging $1.0 million with an average yield of 17% within the consumer portfolio also contributed to the increased average yield. The Finance Company and credit card portfolios also increased average consumer loan yields for 1997. Consumer loan yields increased 71 basis points in 1997 to 10.63% compared to 9.92% in 1996, while commercial loan yields declined 25 basis points, from 10.49% in 1996 to 10.24% in 1997. Average yields on total loans increased 7 basis points, from 10.29% in 1996 to 10.36% in 1997. The average volume of investment securities decreased $4.8 million in 1998, primarily due to increased loan funding. The average volume of taxable securities declined $7.3 million, partially offset by an increase of $2.5 million in the average volume of tax-exempt securities. The net decrease in the average volume resulted in a decrease to interest income of $295,403. Changes in the yields on investment securities had very little impact on interest income in 1998. The average volume of securities increased in 1997 by $10.6 million, primarily due to purchases of tax-exempt municipal securities. The increased volume of securities resulted in a $540,068 increase to interest income in 1997. During 1998, MidSouth's deposit mix shifted slightly with non-interest bearing deposits representing 25% of average total deposits as compared to 26% in 1997 and 1996. As of December 31, 1998, 39% of average total deposits were NOW, money market and savings deposits and 36% were certificates of deposit. For year-end 1997, NOW, money market and savings deposits represented 39% of average total deposits, while 35% consisted of certificates of deposit. For the year ended December 31, 1996, 38% of average total deposits represented NOW, money market and savings deposits and certificates of deposit amounted to 36%. Volume increases in interest-bearing deposits for the years ended December 31, 1998 and 1997 resulted in increased interest expense of $1,010,911 in 1998 and $1,198,214 in 1997. Average interest-bearing deposits increased $23.2 million in 1998 and $26.0 million in 1997. The average rate paid on these deposits rose 17 basis points over the past three years, from 3.93% in 1996 to 4.03% in 1997 and to 4.10% in 1998. The average volume of notes payable increased slightly in 1998, resulting in increased interest expense of $26,452. A significant volume increase in notes payable in 1997 of $2.1 million resulted in a $154,252 increase in interest expense for that year. The average rate paid on the notes was 7.84% at December 31, 1998, up from 7.21% in 1997 and 7.25% in 1996. The average rate increased in 1998 due to the refinancing of the Finance Company line of credit in May of 1998 at an initial rate of 8.75%. The volume changes in MidSouth's earning assets and interest-bearing liabilities combined with changes in interest rates resulted in net taxable-equivalent yields on average earning assets of 5.70% in 1998 as compared to 5.53% for 1997 and 5.44% for 1996. Non-Interest Income EXCLUDING SECURITIES TRANSACTIONS. Service charges and fees on deposit accounts represent the primary source of non-interest income for MidSouth. Income from service charges and fees on deposit accounts (including ATM fees) and insufficient funds fees increased $504,947 in 1998 and $612,745 in 1997 primarily due to an increase in the number of transaction accounts and ATM machines serviced and the volume of insufficient funds checks processed by MidSouth. The total number of transaction accounts (excluding savings accounts) increased from 17,139 in 1996 to 19,001 in 1997 and to 22,640 in1998. Income earned through ATM fees totaled $134,457 in 1998; however, expenses incurred in providing ATM services totaled $192,805. Non-interest income resulting from other charges and fees increased $234,815 in 1998 as compared to $103,015 in 1997. Of the $234,815 increase in 1998, $194,792 is related to fee income from MidSouth's Visa debit cards and merchant programs. However, this increase is partially offset by a $108,956 increase in expenses on these Visa programs. An increase of $33,918 in 1998 and $31,783 in 1997 in lease income from a third party investment service contributed to the increases in other non-interest income over the past two years. Increased fee income from the Finance Company added $56,913 to the other non-interest income recorded in 1997. Fees earned through the sale of credit life insurance continued to decline. SECURTIES TRANSACTIONS. No income was realized through the sale of securities in 1998. In June 1997, $7.5 million in adjustable rate mortgage securities in the available-for-sale portfolio were sold as part of a repositioning of the securities portfolio at a net gain of $127,934. At the same time, management liquidated a $1.0 million investment in a mutual fund at a loss of $42,578. Net gains on sales of securities totaled $1,176 for 1996 as $2.0 million in U. S. Treasury securities were liquidated and reinvested to improve yield.
Table 2 Changes in Taxable-Equivalent Net Interest Income (in thousands) 1998 Compared to 1997 1997 Compared to 1996 ________________________________________ _________________________________________ Total Total Increase Change Attributable To Increase Change Attributable To (Decrease) Volume Rates (Decrease) Volume Rates ________________________________________ _________________________________________ Taxable-equivalent interest earned on: Interest Bearing Deposits ($3) ($2) ($1) ($3) ($12) $9 Investment Securities Taxable (423) (435) 12 153 183 (30) Tax Exempt 188 195 (7) 562 572 (10) Federal Funds Sold and Securities Purchased Under Agreement to Resell 98 111 (13) (159) (169) 10 Loans, including fees 3,177 3,304 (127) 2,823 2,763 60 ________________________________________ _________________________________________ TOTAL 3,037 3,173 (136) 3,376 3,337 39 ________________________________________ _________________________________________ Interest Paid On: Interest Bearing Deposits 1,046 948 98 1,164 1,046 118 Federal Funds Purchased and Securities Sold Under Agreement to Repurchase (36) (28) (8) 35 32 3 Notes Payable 27 6 21 154 154 - ________________________________________ _________________________________________ TOTAL 1,037 926 111 1,353 1,232 121 ________________________________________ _________________________________________ Taxable-equivalent net interest income $2,000 $2,247 ($247) $2,023 $2,105 ($82) ======================================== ========================================= NOTE: Change due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts to the changes in each.
Non-interest Expense Total non-interest expense increased 15% from 1997 to 1998 and 22% from 1996 to 1997. MidSouth's expansion over the past three years resulted in significant increases in salaries and employee benefits, occupancy expenses, marketing expenses, data processing expenses, and the cost of printing and supplies. Throughout 1996 and 1997, MidSouth opened an Opelousas office, a second Super 1 Foods in-store banking office, a Morgan City office and two Finance Company offices. In May 1998, the new Lake Charles office was opened to provide full service banking in Calcasieu Parish. The new Ambassador Caffery office building was completed and opened in September of 1998. Accordingly, salaries and employee benefits increased 17% from 1997 to 1998 and 23% from 1996 to 1997. The number of full-time equivalent ("FTE") employees increased from 139 in 1997 to 152 in 1998. New hires in 1998 included 5 employees to staff the Lake Charles Office, two commercial lenders under contract agreements, an internal auditor, a seniors program marketing coordinator and various part-time positions. MidSouth increased its FTE employees by 6 in 1997, from 133 in 1996 to 139. The Morgan City office, opened in March of 1997, employed 4 FTE's and the computer information services department employed 2 additional FTE's. Salary increases and incentive pay granted during 1997 added significantly to the increase in 1997. Occupancy expenses increased $196,809 or 9% from 1997 to 1998 and $409,546 or 23% from 1996 to 1997 as a result of increases in building lease expense, depreciation and maintenance expenses associated with buildings, automobiles and furniture and equipment, and ad valorem taxes. Fixed asset purchases in 1998 totaled $3,063,110 and included the Lake Charles and Ambassador Caffery offices, ATM cash machines, renovations at the Moss Street and Cecilia offices, and computer hardware and software purchases. During 1997, MidSouth added fixed assets totaling $1,282,082, not including land purchases. The additions included the Morgan City building, computer hardware and software, ATM cash machines and renovation costs at the Versailles and Breaux Bridge offices. Ad valorem taxes increased $11,504 in 1998 and $45,736 in 1997 due to higher assessment values and additional properties. Fixed asset additions totaling $2.3 million planned for 1999 include the completion of a new banking office in Lafayette convenient to the Scott community, refurbishing existing branch buildings and computer hardware and software purchases. Additional increases were recorded in 1998 in marketing expense, professional fees, education and travel expenses, printing and supplies and telephone services. Of these increases, marketing expense recorded the most significant increase with additional costs of $157,800. In 1998, MidSouth launched a promotional campaign designed to appeal to customers impacted by the bank merger activity in the market. Production costs associated with the campaign, combined with grand opening promotions for the Lake Charles and Ambassador Caffery offices, resulted in increased marketing expenses. Income Taxes MidSouth's tax expense increased in 1998 by $255,363 and approximated 26% of income before income taxes. Interest income on non-taxable municipal securities reduced the 1998 taxes from the expected statutory rate of 34%. Interest income on non-taxable municipal securities also lowered the effective tax rate for 1997 to approximately 25%. 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 $9.6 million, from $53.6 million in 1997 to $63.2 million in 1998. Cash flows from maturing securities and deposit growth were used to purchase $23.2 million in U.S. Treasury and Agency securities, corporate bonds and tax-exempt municipal securities. An increase of $302,184 in the market value of securities available-for-sale is included in the net change in 1998. Unrealized gains in the securities available-for-sale portfolio, net of unrealized losses and tax effect, were $276,700 at December 31, 1998, compared to $81,966 at December 31, 1997. 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, 1998, approximately 17% of MidSouth's securities available-for-sale portfolio represented mortgage- backed securities and 15% 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. None of the CMO's held by MidSouth had a book value in excess of 10% of stockholders' equity at December 31, 1998. 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 55% of the available-for-sale portfolio consisted of U. S. Treasury and agency securities, while municipal and other securities represented 13% of the portfolio In the held-to-maturity portfolio, MidSouth purchased $1.9 million in non-taxable municipal securities in 1998. 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. Federal funds sold totaled $6.6 million, and $8.1 million as of December 31, 1998 and 1997, respectively. Loan funding demands in 1998 combined with deposit fluctuations resulted in a decrease in the volume of federal funds sold at year-end 1998. Loan Portfolio In 1998, MidSouth experienced another year of substantial loan growth. Total loans grew 19%, from $130,888,144 at year-end 1997 to $155,477,263 at year-end 1998. Of the $24.6 million increase during 1998, $17.1 million resulted from an increase in real estate mortgage and construction loans. These loans were funded primarily in the Lafayette and Morgan City market with the efforts of two new commercial lenders hired on contract in January 1998. The lenders are experienced bankers and very familiar with MidSouth's markets. The real estate loan growth consisted of both commercial and consumer credits that carry ten to fifteen year amortizations with rates fixed for three to five years. The short term fixed rate structure of these credits allow management greater flexibility in controlling interest rate risk. The commercial loan portfolio grew $7.6 million during 1998 and lease financing receivables increased $.9 million within MidSouth's direct leasing program. Installment loans to individuals decreased $1.0 million during 1998 due to a combination of high credit quality requirements and a restructuring of the retail delivery system which included central loan underwriting. Implementation of central underwriting required training staff in loan application and sales process. Higher levels of performance in both installment loan production and credit life insurance sales are expected as the central underwriting program develops. As a quality control tool, the program is expected to maintain the quality and consistency of the installment loan portfolio as the economy softens. MidSouth's newest offices in Morgan City and Lake Charles contributed significantly to the increase recorded in the loan portfolio in 1997. Morgan City added approximately $7.7 million, primarily in commercial credits and Lake Charles funded approximately $9.5 million in loans, primarily in the real estate portfolio. 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 $607,740 at December 31, 1998, $319,209 at December 31, 1997 compared to $714,140 at December 31, 1996. The increase in nonperforming assets in 1998 resulted from the addition of
TABLE 3 Nonperforming Assets and Loans Past Due 90 Days ========================================================================== December 31, ___________________________________________ 1998 1997 1996 ========================================================================== Nonperforming loans Nonaccrual loans $533,107 $260,875 $523,020 Restructured loans - - 835 ________ ________ ________ Total nonperforming loans 533,107 260,875 523,855 Other real estate owned, net 48,100 45,100 180,270 Other assets repossessed 26,533 13,234 10,015 ________ ________ ________ Total nonperforming assets $607,740 $319,209 $714,140 ======== ======== ======== Loans past due 90 days or more and still accruing $329,116 $245,232 $338,294 Nonperforming loans as a % of total loans 0.34% 0.20% 0.55% Nonperforming assets as a % of total loans, other real estate owned and other assets repossessed 0.39% 0.24% 0.75% Allowance for loan losses as a % of nonperforming loan 348.99% 542.30% 207.65% ==========================================================================
one large commercial credit to nonaccrual loans. Management expects the credit to be resolved with no loss within the first quarter of 1999. Nonaccrual loans decreased from 1996 to 1997 as approximately $145,000 in nonaccrual loans were charged off, $52,000 renewed and $65,000 paid out during 1997. Loans past due 90 days and still accruing totaled $329,116 at December 31, 1998 compared to $245,232 at December 31, 1997 and $338,294 at December 31, 1996. 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.
TABLE 4 - Summary of Loan Loss Experience (in thousands) 1998 1997 ====== ====== BALANCE AT BEGINNING OF YEAR $1,415 $1,088 CHARGE-OFFS Commercial, Financial and Agricultural 201 189 Real Estate - Construction - - Real Estate - Mortgage - - Installment Loans to Individuals 368 352 Lease Financing Receivables 84 192 Other 49 - ______ ______ Total Charge-offs 702 733 ______ ______ RECOVERIES Commercial, Financial and Agricultural 32 32 Real Estate - Construction - - Real Estate - Mortgage 4 2 Installment Loans to Individuals 79 86 Lease Financing Receivables 27 86 Other 6 - ______ ______ Total Recoveries 148 206 ______ ______ Net Charge-offs 554 527 Additions to allowance charged to operating expenses 1,000 854 ______ ______ BALANCE AT END OF YEAR $1,861 $1,415 ====== ====== Net charge-offs to average loans 0.38% 0.47% Year-end allowance to year-end loans 1.20% 1.08%
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 1998 to total 1997 to total loans ____________________________________________________________________ Commercial, Financial an 60 31.87% 80 32.03% Real Estate - Construction 2.73% 1.63% Real Estate - Mortgage 43.71% 40.47% Installment Loans to Individuals 17.94% 22.11% Lease Financing Receivables 3.67% 3.65% Other 0.08% 0.11% Unallocated 1,801 1,335 __________________________________________ $1,861 100.00% $1,415 100.00% ==========================================
ALLOWANCE FOR LOAN LOSSES. Provisions totaling $999,950, $854,400, and $674,500 for the years 1998, 1997 and 1996, respectively, were necessary to bring the allowance to a level considered by management to be sufficient to cover probable losses in the loan portfolio. Additional provisions were made in 1998 due primarily to growth experienced in loans during the year. Loan growth combined with installment loan charge-offs resulted in increased provisions for 1997. Losses within the lease financing receivables portfolio resulted in increased provisions for 1996. Table 4 analyzes activity in the allowance for 1998 and 1997. 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 Section 217 of the OCC's manual and Banking Circular 201. Factors considered in determining provisions include estimated future losses in significant credits; known deterioration in concentrations of credit; historical loss experience; trends in nonperforming assets; volume, maturity and composition of the loan portfolio; off balance sheet credit risk; lending policies and control systems; national and local economic conditions; the experience, ability and depth of lending management and the results of examinations of the loan portfolio by regulatory agencies and others. The process by which management determines the appropriate level of the allowance, and the corresponding provision for possible credit losses, involves considerable judgment; therefore, no assurance can be given that future losses will not vary from current estimates. Sources of Funds DEPOSITS. Continuing with its focus on the execution of a sales culture in both deposit and lending relationships, MidSouth strengthened existing client relationships and developed new ones in 1998. This sales focus, combined with big bank mergers creating an uncertain banking environment in MidSouth's markets, provided the opportunity for MidSouth to significantly increase its deposit base for the second consecutive year. MidSouth's deposits grew $29.9 million, from $200.0 million in 1997 to $229.9 million in 1998. A total of $14.8 million of the $29.8 million increase was realized in the Lafayette market as a direct result of marketing efforts directed to customers effected by merger activity. The Morgan City office grew $9.7 million in its first year of operation, while MidSouth's newest office in Lake Charles contributed $4.8 million to the increase in deposits. In 1997, MidSouth's deposits grew $28.5 million, from $171.6 million at December 31, 1996 to $200.0 million at December 31, 1997. The introduction and development of a sales culture contributed to the deposit growth by offering incentives to sales associates for the development of new and existing customer relationships. Non-interest bearing deposits represented 26% of total deposits at December 31, 1998, down from 29% at December 31, 1997 and 1996. Core deposits, defined as all deposits other than certificates of deposit ("CD's") of $100,000 or more, represented 83% of total deposits at December 31, 1998 compared to 84% of total deposits at December 31, 1997. CD's of $100,000 or more totaled $38.7 million at year-end 1998, an increase of $6.0 million from the $32.7 million reported at year-end 1997. Additional CD's of $100,000 or more were deposited in response to specific market promotions that offered premium rates for a limited time on new deposits. The promotions were designed to ensure relationship banking with MidSouth by requiring the opening of a checking account to qualify for the preferred rate. MidSouth's deposit rates are competitive within its market and MidSouth has no brokered deposits. Although time deposits of $100,000 can exhibit greater volatility due to changes in interest rates and other factors than do core deposits, management believes that any volatility experienced could be adequately met with current levels of asset liquidity or access to alternate funding sources. Additional information on MidSouth's deposits appears in Note 6 to MidSouth's Consolidated Financial Statements. BORROWED FUNDS. Long term borrowings increased $304,874 from December 31, 1997 to December 31, 1998. MidSouth borrowed $325,000 under its line of credit for
Table 5 Interest Rate Sensitivity and Gap Analysis Table December 31, 1998 (in thousands) Non-interest 0-3 MOS 4-6 MOS 7-12 MOS 1-5 YRS > 5YRS Bearing Total _____________________________________________________________ ASSETS Interest Bearing Deposits $16 $ - $ - $ - $ - $ - $16 Fed Funds Sold 6,600 6,600 Investments Mutual Funds 968 968 Investment Securities 3,929 1,981 4,802 17,622 19,801 48,135 Mortgage-backed Securitie 2,175 944 1,358 6,089 3,517 14,083 Loans Fixed Rate 26,111 12,319 20,654 53,151 1,438 113,673 Variable Rate 41,804 41,804 Other Assets 26,399 26,399 Allowance for Loan Losses (1,860) (1,860) _____________________________________________________________ Total Assets $81,603 $15,244 $26,814 $76,862 $24,756 $24,539 $249,818 ============================================================= LIABILITIES NOW $5,066 $4,260 $6,594 $14,925 $995 $ - $31,840 MMDA 6,184 5,200 8,049 18,219 1,214 38,866 Savings 1,910 1,606 2,486 5,627 375 12,004 CD'S 30,117 14,782 23,390 18,564 86,853 Demand Deposits 60,361 60,361 Other Liabilities 110 1,330 1,169 895 704 4,208 Stockholders' Equity 15,686 15,686 _____________________________________________________________ Total Liabilities $43,387 $27,178 $40,519 $58,504 $3,479 $76,751 $249,818 ============================================================= Repricing/maturity gap: Period $38,216 ($11,934)($13,705) $18,358 $21,277 ($52,212) Cumulative $38,216 $26,282 $12,577 $30,935 $52,212 - ===================================================== Cumualtive Gap/Total Assets 15.30% 10.52% 5.03% 12.38% 20.90% ____________________________________________
operating expenses during 1998. The Finance Company borrowed an additional $135,000 under its line of credit , $93,000 of which was paid out prior to year-end 1998. On June 23, 1997, MidSouth refinanced its $2.5 million line of credit with another financial institution, paying out existing borrowings of $883,355 and receiving advances of $1,385,024 under the new line of credit. The additional $500,000 advanced under the new line was injected into the capital of the Bank. Throughout the remainder of 1997, MidSouth borrowed an additional $300,000 for operational expenses. At any time prior to June 23, 1999, MidSouth may request advances up to but not exceeding an aggregrate principal amount of $2,500,000 at any one time outstanding. Advances under the line of credit bear interest at a variable rate equal to the prime commercial rate of interest quoted in the "Money Rates" section of the Wall Street Journal minus fifty basis points (.50%). The current rate is 7.25%. Interest under the note is due and payable quarterly in arrears on the last day of each quarter. Beginning June 30, 1999, principal payments in the amount of 11.11% of the amount of the loan balance on June 30, 1999 are due and payable in eight consecutive annual installments on June 30 of each succeeding calendar year. The remaining balance of the loan is due and payable in a ninth and final installment on June 30, 2007. The Finance Company renewed its line $1,200,000 line of credit on May 1, 1998. Advances under the line of credit bear interest at a variable rate equal to the commercial prime rate as quoted in the "Money Rates" section of the Wall Street Journal plus 25 basis points (0.25%). The current rate is 8.00%. Interest on the line is payable monthly, with principal due at maturity on April 30, 1999. Additional information regarding the notes payable is provided in Note 7 to MidSouth's Consolidated Financial Statements. The ESOP note held by the Bank was refinanced in the amount of $150,000 on March 11, 1997 at a fixed rate of 7.00% payable in monthly installments of $2,264 with payment in full due on March 10, 2004. Loan proceeds totaling $125,269 were added to the $24,731 remaining on the maturing note. The ESOP purchased 11,135 shares of MidSouth common stock at the current market value of $11.25 per share with the additional proceeds. The ESOP obligation constitutes a reduction of MidSouth's stockholders' equity because the primary source of loan repayment is contributions by the Bank to the ESOP; however, the loan is not guaranteed by either MidSouth Bank or MidSouth. The ESOP note was eliminated from total loans and long-term debt as an intercompany balance in MidSouth's December 31, 1997 and 1998 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, 1998, 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, 1998, MidSouth's Tier 1 capital to average adjusted assets (the "leverage ratio") was 6.06% as compared to 6.00% at December 31, 1997. Tier 1 capital to risk weighted assets was 9.13% and 9.19% for 1998 and 1997, respectively. Total capital to risk weighted assets was 10.25% and 10.22%, respectively, for the same periods. The Bank's leverage ratio was 6.67% at December 31, 1998 compared to 6.77% at December 31, 1997. The Federal Deposit Insurance Corporation Improvement Act of 1991 established a capital-based supervisory system for all insured depository institutions that imposes increasing restrictions on the institution as its capital deteriorates. The Bank continued to be classified as "well capitalized" throughout 1996, 1997 and 1998 and also improved its supervisory subgroup rating. No significant restrictions are placed on the Bank as a result of this classification. As discussed under the heading "Balance Sheet Analysis - Securities," $276,700 in unrealized gains on securities available-for-sale, net of a deferred tax liability of $142,500 were recorded as additional stockholders' equity as of December 31, 1998. As of December 31, 1997, $81,966 in unrealized gains on securities available-for-sale, net of a deferred tax liability of $51,550 were 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 and losses reported for December 31, 1998 and 1997 did, however, effect MidSouth's equity to assets ratio for financial reporting purposes. The ratio of equity to assets was 6.28% for year-end 1998 and 5.96% for year-end 1997. 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 1998, MidSouth utilized the Sendero model of asset and liability management. The Sendero model uses basic gap data and additional information regarding rates and prepayment characteristics to construct a gap analysis that factors in repricing characteristics and cash flows from payments received on loans and mortgage-backed securities. The resulting Sendero gap analysis is presented in Table 5. With the exception of NOW, money market and savings deposits, the table presents interest-bearing liabilities on a contractual basis. While NOW, money market and savings deposits are contractually due on demand, historically, MidSouth has experienced stability in these deposits despite changes in market rates. Presentation of these deposits in the table, therefore, reflects delayed repricing throughout the time horizon. The resulting cumulative gap at one year is approximately $12,577,000 at December 31, 1998. The positive gap indicates MidSouth's total earning assets and interest- bearing liabilities maturing within one year are mismatched. However, the ratio of the one year cumulative gap to total assets of 5.03% is within internal policy guidelines. MidSouth's internal policy targets a one-year cumulative gap position of a positive or negative 15% of total assets. The Sendero model also uses the gap analysis data in Table 5 and additional information regarding rates and payment characteristics to perform three simulation tests. The tests use market data to perform rate shock, rate cycle and rate forecast simulations to measure the impact of changes in interest rates, the yield curve and interest rate forecasts on MidSouth's net interest income and economic value of equity. Results of the simulations at December 31, 1998 were within policy guidelines. The results of the simulations are reviewed quarterly and discussed at MidSouth's Funds Management committee meetings. MidSouth does not invest in derivatives and has none in its securities portfolio. Liquidity BANK LIQUIDITY. Liquidity is the availability of funds to meet contractual obligations as they become due and to fund operations. The Bank's primary liquidity needs involve its ability to accommodate customers demands for deposit withdrawals as well as their requests for credit. Liquidity is deemed adequate when sufficient cash to meet these needs can be promptly raised at a reasonable cost to the Bank. Liquidity is provided primarily by two sources: a stable base of funding sources and an adequate level of assets that can be readily converted into cash. MidSouth's core deposits are its most stable and important source of funding. Further, the low variability of the core deposit base lessens the need for liquidity. Cash deposits at other banks, federal funds sold and principal payments received on loans and mortgage-backed securities provide the primary sources of asset liquidity for the Bank. In addition to these primary sources, the Bank has certain other sources available to meet the demand for funds if necessary. Approximately $8.0 million in securities maturing within twelve months provides an additional source of liquidity. These securities could be liquidated if necessary prior to maturity. MidSouth also has borrowing capabilities with three correspondent banks. PARENT COMPANY LIQUITITY. At the parent company level, cash is needed primarily to service outstanding debt and pay dividends on preferred and common stock. The parent company has a note payable to a financial institution, the terms of which are described in Note 7 to MidSouth's Consolidated Financial Statements. Funds to meet payments on notes in the past several years have come primarily from the sale of MidSouth's common stock to the Directors' Deferred Compensation Trust and to the ESOP and from funds received from the Bank under a tax sharing agreement with the parent company. Funds received from these sources are not expected to be sufficient to meet debt service obligations throughout 1999. Sales of MidSouth common stock through a dividend reinvestment and direct stock purchase plan (the "DRIP") introduced in 1998 contributed approximately $538,000 to the cash flow of the parent company. Sales of common stock through the DRIP combined with dividends from the Bank, if necessary, will provide additional liquidity for the parent company in 1999. As of January 1, 1999, the Bank had the ability to pay dividends to the parent company of approximately $4.1 million without prior approval from its primary regulator. In addition, MidSouth has the ability to borrow against its $2.5 million line of credit with a financial institution. The unused portion of the line totaled approximately $489,977 at year-end 1998. As a publicly traded company, MidSouth also has the ability to issue trust preferred and other securities instruments to provide additional funds as needed for operations and future growth of the company. DIVIDENDS. The primary source of cash dividends on MidSouth's preferred and common stock is distributions from the Bank and common stock purchases through the DRIP. As stated above under "Parent Company Liquidity", earnings recorded for 1994 eliminated an accumulated retained earnings deficit, thereby giving the Bank 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 $354,336 and $434,334 were paid to common stockholders during 1997 and 1998, 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. Cash dividends on the common stock are subject to payment of dividends on the Cumulative Convertible Preferred Stock, Series A ("Preferred Stock") issued in conjunction with the acquisition of Sugarland Bank, as well as other considerations. Additional information regarding MidSouth's Preferred Stock is included in Note 12 to MidSouth's Consolidated Financial Statements. On August 31, 1998, MidSouth effected a three for two stock split by way of a stock dividend to its common shareholders of record as of July 31, 1998. The stock split increased the common shares outstanding at the time from 1,611,377 to 2,417,195. The conversion rate on the preferred stock was adjusted to 2.998 due to the stock split. On August 6, 1997, MidSouth declared a 12 1/2% stock dividend payable to shareholders of record on August 27, 1997. The dividend increased the common shares outstanding by 174,496. The conversion rate on the preferred stock was adjusted to 1.999 due to the stock dividend. On August 19, 1996, MidSouth effected a four for three stock split by way of a stock dividend to its common stockholders of record as of July 31, 1996. The stock split increased the common shares outstanding at the time from 994,627 to 1,326,025. Accordingly, the conversion rate on the Preferred Stock was adjusted to 1.777 shares of MidSouth Common Stock for each share of Preferred Stock converted. A total of $148,971 in dividends were paid on MidSouth's Preferred Stock in 1998. Assuming no conversion of preferred stock in 1999, the aggregate amount of dividends on the preferred stock in 1999 is expected to be $134,173. The Year 2000 Issue The Year 2000 issue arises from the storage of data within computer systems using a two digit field rather than a four digit field to define the year. Consequently, computer programs may recognize a date using "00" as the year 1900 instead of 2000. All companies and organizations that use computer systems are affected by this issue. To maintain safe and sound banking practices, institutions are required to take appropriate measures to insure efficient operations of computer systems beyond the year 2000. MidSouth's Board of Directors established a Year 2000 compliance committee in June of 1997. The committee inventoried MidSouth's hardware and software programs, identified mission critical systems and forwarded letters to the providers regarding year 2000 compliance. Testing and updating has been performed on approximately 90% of MidSouth's mission critical systems, including the core data processing hardware and software. Testing on the core processing system was completed in early February 1999. In addition, MidSouth has received a warranty from the core software provider as to completion of internal testing and readiness of their software programs. The remaining mission critical system scheduled for testing is MidSouth's internal Novell Network system. To further reduce the risks associated with the year 2000, MidSouth held seminars for commercial customers and community businesses during the first week of May 1998. MidSouth provided seminar participants with software designed to help them identify year 2000 issues within their organizations. The software guides the user through the vendor identification and tracking process and provides assistance in other year 2000 issues such as contingency planning. As part of its own contingency plan, MidSouth has agreements with two vendors to provide short-term and long-term processing capabilities. In compliance with year 2000 disclosure requirements, the committee has analyzed the impact that compliance with the year 2000 may have on earnings. Costs totaling approximately $60,000 have been identified for testing and other expenses associated with the year 2000. Additional costs are expected, but it is management's opinion that the costs will not be material to MidSouth's earnings. Impact of New Accounting Standards In June 1998, The Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. Further information regarding this new standard in included in Note 19 to MidSouth's Consolidated Financial Statements. MidSouth expects to adopt this accounting standard on January 1, 2000. MIDSOUTH BANCORP, INC. LOAN PORTFOLIO LOAN MATURITIES AND SENSITIVITY TO INTEREST RATES for the Year Ended December 31, 1998 (dollars in thousands) Fixed and Variable Rate Loans at Stated Maturities Amounts Over One Year With ____________________________________________ _______________________________ 1 Year 1 Year - Over PredetermineFloating or Less 5 Years 5 Years Total Rates Rates Total ____________________________________________ _______________________________ Commercial, Financial Industrial, Commercial Real Estate Mortgage and Commercial Real Estate - Construction $28,438 $66,624 $18,080 $113,142 $58,199 $26,505 $84,704 Installment Loans to Individuals and Real Estate Mortgage 9,721 26,061 727 $36,509 26,673 115 $26,788 Lease Financing Receivables 490 5,216 - $5,706 5,216 - $5,216 Other 120 - - $120 - - - _____________________________________________ ________________________________ TOTAL $38,769 $97,901 $18,807 $155,477 $90,088 $26,620 $116,708 ============================================= ================================
MIDSOUTH BANCORP, INC. SECURITIES PORTFOLIO MATURITIES AND AVERAGE YIELDS for the Year Ended December 31, 1998 (dollars in thousands) After 1 but After 5 but Within 1 Year Within 5 Years Within 10 Year After 10 Years SECURITIES AVAILABLE FOR SALE Amount Yield Amount Yield Amount Yield Amount Yield Total ________________________________________________________________________ U.S. Treasury and U.S. Government Agency securities $7,928 5.59% $16,159 5.85% - - $24,087 Obligations of State and Political Subdivisions 55 7.16% 89 7.24% 814 6.22% 1,321 4.47% 2,279 Mortgage Backs and CMOs - 513 5.60% 2,440 6.44% 11,128 7.05% 14,081 Corporates and other securities - 1,420 5.39% - 1,104 6.00% 2,524 Mutual funds 968 5.52% - - - 968 ________________________________________________________________________ Total Fair Value $8,951 $18,181 $3,254 $13,553 $43,939 After 1 but After 5 but Within 1 Year Within 5 Years Within 10 Year After 10 Years HELD TO MATURITY Amount Yield Amount Yield Amount Yield Amount Yield Total ________________________________________________________________________ Obligations of State and Political Subdivisions $50 5.24% $135 5.56% $8,846 5.20% $10,216 5.22% $19,247 ________________________________________________________________________ Total Amortized Cost $50 $135 $8,846 $10,216 $19,247 ========================================================================
MIDSOUTH BANCORP, INC. SUMMARY OF AVERAGE DEPOSITS (in thousands) 1998 1997 AVERAGE AVERAGE AVERAGE AVERAGE AMOUNT YIELD AMOUNT YIELD _______ ________ _______ ________ Non-interest bearing $54,601 0.00% $48,480 0.00% Demand Deposits Interest bearing Deposits Savings, NOW, MMKT 83,598 3.06% 73,844 2.98% Time Deposits 78,907 5.21% 65,492 5.21% _______ _______ Total $217,106 3.07% $187,816 2.95% ======= =======
MATURITY SCHEDULE TIME DEPOSITS OF $100,000 OR MORE (in thousands) 1998 1997 _______ _______ 3 months or less $19,234 $17,733 3 months through 6 months 4,391 4,780 7 months through 12 months 9,333 7,283 over 12 months 5,746 2,904 _______ _______ Total $38,704 $32,700 ======= ======= SUMMARY OF RETURN ON EQUITY AND ASSETS 1998 1997 _______ _______ Return on Average Assets 1.04% 0.78% Return on Average Common Equity 19.16% 16.44% Dividend Payout Ratio on Common Stock 18.91% 22.14% Average Equity to Average Assets 6.04% 5.93%
ITEM 7 - Financial Statements
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CONDITION DECEMBER 31, 1998 AND 1997 ____________________________________________________________________________________________ ASSETS 1998 1997 Cash and due from banks $ 14,003,536 $ 15,774,024 Federal funds sold 6,600,000 8,060,000 _______________ ______________ Total cash and cash equivalents 20,603,536 23,834,024 Interest-bearing deposits in banks 16,125 48,928 Securities available-for-sale at fair value (amortized cost of $43,503,268 in 1998 and $36,750,950 in 1997) 43,938,965 36,884,465 Securities held-to-maturity (estimated fair value of $20,421,920 in 1998 and $17,459,865 in 1997) 19,246,559 16,732,827 Loans, net of allowance for loan losses of $1,860,490 in 1998 and $1,414,826 in 1997 153,616,773 129,473,318 Accrued interest receivable 1,740,514 1,638,931 Premises and equipment, net 9,054,201 6,973,150 Other real estate owned, net 48,100 45,100 Goodwill, net 207,281 241,902 Other assets 1,346,214 1,239,770 _______________ ______________ $ 249,818,268 $ 217,112,415 =============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Non-interest bearing $ 60,361,205 $ 58,464,087 Interest bearing 169,563,097 141,603,664 _______________ ______________ Total deposits 229,924,302 200,067,751 Securities sold under repurchase agreements - 69,443 Accrued interest payable 565,896 543,936 Notes payable 3,503,668 3,198,794 Other liabilities 138,280 301,181 _______________ ______________ Total liabilities 234,132,146 204,181,105 _______________ ______________ Commitments and Contingencies - - Stockholders' equity: Convertible preferred stock, $14.25 par value, 5,000,000 shares authorized, 156,927 and 160,756 issued and outstanding at December 31, 1998 and 1997, respectively 2,236,210 2,290,773 Common stock, $.10 par value, 5,000,000 shares authorized; 2,432,016 and 1,581,053 issued and outstanding at December 31, 1998 and 1997, respectively 243,201 158,106 Additional paid in capital 10,521,020 9,862,700 Unearned ESOP shares (119,051) (137,243) Unrealized gains on securities available-for-sale, net of deferred taxes of $159,000 in 1998 and $51,550 in 1997 276,700 81,966 Retained earnings 2,528,042 675,008 _______________ ______________ Total stockholders' equity 15,686,122 12,931,310 _______________ ______________ $ 249,818,268 $ 217,112,415 =============== ============== See notes to consolidated financial statements.
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 ________________________________________________________________________________________________ 1998 1997 1996 INTEREST INCOME: Loans, including fees $ 14,803,065 $ 11,625,789 $ 8,803,467 Securities: Taxable 2,460,266 2,886,273 2,736,086 Nontaxable 924,669 794,065 404,184 Federal funds sold 567,764 470,289 628,680 ____________ ____________ ____________ Total interest income 18,755,764 15,776,416 12,572,417 ____________ ____________ ____________ INTEREST EXPENSE: Deposits 6,666,681 5,655,770 4,457,556 Other - principally on long-term debt 264,875 238,423 84,171 ____________ ____________ ____________ Total interest expense 6,931,556 5,894,193 4,541,727 ____________ ____________ ____________ NET INTEREST INCOME 11,824,208 9,882,223 8,030,690 PROVISION FOR LOAN LOSSES 999,950 854,400 674,500 ____________ ____________ ____________ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 10,824,258 9,027,823 7,356,190 ____________ ____________ ____________ NONINTEREST INCOME: Service charges on deposit accounts 2,606,903 2,101,956 1,489,211 Gains on sale of securities, net - 94,913 1,176 Credit life insurance 133,217 190,590 238,911 Other charges and fees 746,817 512,002 408,987 ____________ ____________ ____________ 3,486,937 2,899,461 2,138,285 ____________ ____________ ____________ NONINTEREST EXPENSES: Salaries and employee benefits 5,274,992 4,509,683 3,668,824 Occupancy expense 2,360,665 2,163,855 1,754,309 Other 3,387,588 2,912,250 2,417,558 ____________ ____________ ____________ 11,023,245 9,585,788 7,840,691 ____________ ____________ ____________ INCOME BEFORE INCOME TAXES 3,287,950 2,341,496 1,653,784 PROVISION FOR INCOME TAXES 842,167 586,804 417,286 ____________ ____________ ____________ NET INCOME 2,445,783 1,754,692 1,236,498 PREFERRED DIVIDEND REQUIREMENT 148,971 154,475 155,421 ____________ ____________ ____________ NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 2,296,812 $ 1,600,217 $ 1,081,077 ============ ============ ============ EARNINGS PER COMMON SHARE: BASIC $.95 $.69 $.48 ==== ==== ==== DILUTED $.83 $.61 $.40 ==== ==== ==== See notes to consolidated financial statements.
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 _______________________________________________________________________________________ 1998 1997 1996 Net income $ 2,445,783 $ 1,754,692 $ 1,236,498 Other comprehensive income (loss): Unrealized gain (loss) on securities available-for-sale, net: Unrealized holding gains (losses) arising during the year 194,734 259,139 (212,704) Less reclassification adjustment for gains included in net income - (62,643) (776) ____________ ____________ ____________ Total other comprehensive income (loss) 194,734 196,496 (213,480) ____________ ____________ ____________ TOTAL COMPREHENSIVE INCOME $ 2,640,517 $ 1,951,188 $ 1,023,018 ============ ============ ============ See notes to consolidated financial statements.
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 _________________________________________________________________________________________________________________________________ Unrealized Gains (Losses)on Additional Securities Preferred Stock Common Stock Paid in ESOP Available Retained ___________________ _________________ Capital Obligation for Sale Earnings Total Shares Amount Shares Amount BALANCE, JANUARY 1, 1996 187,286 $2,668,826 967,940 $ 96,794 $ 6,164,443 $ (54,157) $ 98,950 $1,380,634 $10,355,490 Issuance of common stock 13,001 1,300 164,797 166,097 Dividends paid on common stock - $.24 per share (280,461) (280,461) Dividends paid on preferred stock (155,421) (155,421) Stock options exercised 28,666 2,867 226,780 229,647 Preferred stock conversion (15,330) (218,453) 23,898 2,390 216,063 Stock split on common stock effected in the form of a 33-1/3% dividend 331,398 33,140 (33,140) (1,520) (1,520) Net income 1,236,498 1,236,498 ESOP obligation repayments 23,321 23,321 Net change in unrealized gains (losses) on securities available-for-sale, net of tax (213,480) (213,480) _______ _________ _________ _______ _________ _______ ________ _________ __________ BALANCE, DECEMBER 31, 1996 171,956 2,450,373 1,364,903 136,491 6,738,943 (30,836) (114,530) 2,179,730 11,360,171 Issuance of common stock 21,598 2,159 258,870 261,029 Dividends paid on common stock - $.24 per share (354,336) (354,336) Dividends paid on preferred stock (154,474) (154,474) Preferred stock conversion (11,200) (159,600) 20,056 2,006 157,594 (47) (47) Stock split on common stock effected in the form of a 12.5% dividend 174,496 17,450 2,730,862 (2,750,557) (2,245) Registration and related costs associated with dividend reinvestment plan (23,569) (23,569) Net income 1,754,692 1,754,692 ESOP obligation repayments (106,407) (106,407) Net change in unrealized gains (losses) on securities available-for-sale, net of tax 196,496 196,496 _______ _________ _________ _______ _________ _______ ________ _________ __________ BALANCE, DECEMBER 31, 1997 160,756 2,290,773 1,581,053 158,106 9,862,700 (137,243) 81,966 675,008 12,931,310 Issuance of common stock 36,140 3,612 691,399 695,011 Dividends paid on common stock - $.23 per share (434,334) (434,334) Dividends paid on preferred stock (148,971) (148,971) Preferred stock conversion (3,829) (54,563) 8,517 852 53,711 (70) (70) Stock split on common stock effected in the form of 50% dividend 806,306 80,631 (72,945) (9,374) (1,688) Registration and related costs associated with dividend reinvestment plan (13,845) (13,845) Net income 2,445,783 2,445,783 ESOP obligation repayments 18,192 18,192 Net change in unrealized gains (losses) on securities available-for-sale, net of tax 194,734 194,734 _______ _________ _________ _______ _________ _______ ________ _________ __________ BALANCE, DECEMBER 31, 1998 156,927 $2,236,210 2,432,016 $243,201 $10,521,020 $(119,051) $276,700 $2,528,042 $15,686,122 ======= ========= ========= ======= ========== ======= ======== ========== ========== See notes to consolidated financial statements.
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 ____________________________________________________________________________________________________ 1998 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES: Net income 2,445,783 1,754,692 1,236,498 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 975,889 850,426 650,673 Provision for loan losses 999,950 854,400 674,500 Provision for losses on other real estate owned - 33,718 - Deferred income taxes (55,023) (163,196) (134,275) (Discount accretion) premium amortization, net (39,702) (150,203) 168,342 Gain on sales of securities - (94,913) (1,176) Loss (gain) on sales of other real estate owned 3,037 8,052 (163) Loss (gain) on sales of premises and equipment 10,428 - (21,755) Change in accrued interest receivable (101,583) (252,335) (278,776) Change in accrued interest payable 21,960 146,677 74,368 Other, net (321,772) 137,288 (702,267) ___________ ___________ ____________ Net cash provided by operating activities 3,938,967 3,124,606 1,665,969 ___________ ___________ ____________ CASH FLOWS FROM INVESTING ACTIVITIES: Net decrease (increase) in interest-bearing deposits in banks 32,803 357,870 (380,449) Proceeds from sales of securities available-for-sale - 12,990,400 1,993,633 Proceeds from maturities and calls of securities available-for-sale 14,675,141 23,579,688 6,773,366 Proceeds from maturities of securities held-to-maturity 25,000 229,322 - Purchases of securities available-for-sale (21,387,038) (25,694,503) (20,429,811) Purchases of securities held-to-maturity (2,539,451) (7,407,947) (5,026,109) Loan originations, net of repayments (25,148,249) (36,693,406) (16,615,170) Purchases of premises and equipment (3,063,110) (1,980,003) (2,024,561) Proceeds from sale of premises and equipment 30,363 - 154,130 Proceeds from sales of other real estate owned 17,000 93,400 3,500 ___________ ___________ ____________ Net cash used in investing activit (37,357,541) (34,525,179) (35,551,471) ___________ ___________ ____________ (Concluded)
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 _____________________________________________________________________________________________ 1998 1997 1996 CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in deposits 29,856,551 28,451,243 32,586,945 Net decrease in repurchase agreements (69,443) (34,971) (71,490) Issuance of notes payable 460,000 3,254,210 1,369,293 Repayments of notes payable (155,126) (1,576,852) (820,476) Proceeds from issuance of common stock 695,011 261,029 166,097 Payment of dividends on common and preferred stock (583,305) (508,810) (256,641) Payment of fractional shares resulting from stock dividend (1,757) (2,245) (1,520) Proceeds from exercise of stock options and warrants - - 229,647 Cost associated with dividend reinvestment plan (13,845) (23,569) - __________ __________ __________ Net cash provided by financing activities 30,188,086 29,820,035 33,201,855 __________ __________ __________ NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (3,230,488) (1,580,538) (683,647) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 23,834,024 25,414,562 26,098,209 __________ __________ __________ CASH AND CASH EQUIVALENTS AT END OF YEAR $ 20,603,536 $ 23,834,024 $ 25,414,562 ========== ========== ========== SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid $ 6,975,476 $ 5,747,516 $ 4,467,359 ========== ========== ========== Income taxes paid $ 970,153 $ 716,467 $ 500,570 ========== ========== ========== See notes to consolidated financial statements. (Concluded)
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements of MidSouth Bancorp, Inc. (the Company) and its wholly owned subsidiaries MidSouth National Bank (the Bank) and Financial Services of the South, Inc. (the Finance Company), have been prepared in accordance with generally accepted accounting principles and conform with general practices within the banking industry. A summary of significant accounting policies follows: DESCRIPTION OF BUSINESS - The Company is a bank holding company headquartered in Lafayette, Louisiana 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 business. The Company also provides consumer loan services to individuals through the Finance Company. COMPREHENSIVE INCOME - The Company adopted Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income" (SFAS No. 130) effective January 1, 1998 and has provided the required information for all periods presented. SFAS No. 130 establishes standards for reporting and display of comprehensive income and its major components. 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. Significant intercompany transactions and balances have been eliminated. USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities at the date of the financial statement and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. SECURITIES - Securities are being accounted for in accordance with Statement of Financial Accounting Standards (SFAS) No. 115 "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires the classification of securities into one of three categories: trading, available-for-sale, or held-to-maturity. Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates this classification periodically. Trading account securities are held for resale in anticipation of short-term market movements. Debt securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Securities not classified as held-to-maturity or trading are classified as available-for-sale. The Company had no trading account securities during the three years ended December 31, 1998. Held-to-maturity securities are stated at amortized cost. Available-for-sale securities are stated at fair value, with unrealized gains and losses, net of deferred taxes, reported as a separate component of stockholders' equity until realized. The amortized cost of debt securities classified as held-to-maturity or available-for-sale is adjusted for amortization of premiums and accretion of discounts to maturity or, in the case of mortgage-backed securities, over the estimated life of the security. Amortization, accretion and accrued interest are included in interest income on securities. Realized gains and losses, and declines in value judged to be other than temporary, are included in net securities gains. Gains and losses on the sale of securities available-for-sale are determined using the specific-identification method. LOANS - Loan origination fees and certain direct origination costs are capitalized and recognized as an adjustment to yield over the life of the related loan. Interest on commercial and real estate mortgage loans is recorded as income based upon the principal amount outstanding. Unearned income on installment loans is credited to operations based on a method which approximates the interest method. Where doubt exists as to collectibility of a loan, the accrual of interest is discontinued and subsequent payments received are applied first to principal. Upon such discontinuances all unpaid accrued interest is reversed. Interest income is recorded after principal has been satisfied and as payments are received. The Company considers a loan to be impaired when, based upon current information and events, it believes it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. The Company's impaired loans include troubled debt restructurings, and performing and non-performing major loans in which full payment of principal or interest is not expected. The Company calculates a reserve required for impaired loans based on the present value of expected future cash flows discounted at the loan's effective interest rate, or at the loan's observable market price or the fair value of its collateral. Generally, loans of all types which become 90 days delinquent are 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 - Goodwill represents the excess of the cost over the fair value of net assets purchased and is being amortized over 15 years. STOCK-BASED COMPENSATION - The Company applies APB Opinion No. 25 and related interpretations in accounting for its stock options. Accordingly, no compensation cost has been recognized. The pro forma disclosures required by SFAS 123 are included in Note 11. 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 purchased or sold for one-day periods. 2. CASH AND DUE FROM BANKS The Company is required to maintain average reserve balances with the Federal Reserve Bank. "Cash and due from banks" in the consolidated statements of condition included amounts so restricted of $4,380,000 and $4,150,000 at December 31, 1998 and 1997, respectively. 3. INVESTMENT SECURITIES The portfolio of securities consisted of the following:
December 31, 1998 ___________________________________________________ Gross Gross Amortized Unrealized Unrealized Available-for-Sale Cost Gains Losses Fair Value U.S. Treasury securities $ 19,360,196 $ 307,187 $ 263 $ 19,667,120 U.S. Government agencies 4,385,381 33,877 - 4,419,258 Obligations of states and political subdivisions 2,266,469 26,110 13,655 2,278,924 Mortgage-backed securities 7,578,135 116,796 8,534 7,686,397 Collateralized mortgage obligations 6,381,355 24,261 10,980 6,394,636 Corporate securities 1,427,482 - 7,102 1,420,380 Mutual funds 1,000,000 - 32,000 968,000 Other 1,104,250 - - 1,104,250 _____________ __________ __________ _____________ $ 43,503,268 $ 508,231 $ 72,534 $ 43,938,965 ============= ========== ========== =============
December 31, 1997 _____________________________________________________ Gross Gross Amortized Unrealized Unrealized Available-for-Sale Cost Gains Losses Fair Value U.S. Treasury securities $ 20,393,458 $ 145,351 $ 41,897 $ 20,496,912 U.S. Government agencies 751,487 1,853 2,478 750,862 Obligations of states and political subdivisions 1,415,952 4,171 13,920 1,406,203 Mortgage-backed securities 8,335,813 102,520 17,030 8,421,303 Collateralized mortgage obligations 3,863,690 221 27,175 3,836,736 Mutual funds 1,000,000 - 18,101 981,899 Other 990,550 - - 990,550 _____________ __________ __________ _____________ $ 36,750,950 $ 254,116 $ 120,601 $ 36,884,465 ============= ========== ========== =============
December 31, 1998 _____________________________________________________ Gross Gross Amortized Unrealized Unrealized Held-to-Maturity Cost Gains Losses Fair Value Nontaxable obligations of states and political subdivisions $ 19,246,559 $ 1,185,447 $ 10,086 $ 20,421,920 ============= ============ ========= =============
December 31, 1997 __________________________________________________ Gross Gross Amortized Unrealized Unrealized Held-to-Maturity Cost Gains Losses Fair Value Nontaxable obligations of states and political subdivisions $ 16,732,827 $ 733,821 $ 6,783 $ 17,459,865 ============= ========== ======== =============
The amortized cost and fair value of securities at December 31, 1998 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 $ 7,957,490 $ 7,983,094 Due after one year through five years 17,352,431 17,667,689 Due after five years through ten years 790,828 813,564 Due after ten years 1,338,779 1,321,334 Mortgage-backed securities 13,959,490 14,081,034 Other securities 1,104,250 1,104,250 Mutual funds 1,000,000 968,000 _____________ _____________ $ 43,503,268 $ 43,938,965 ============= =============
Amortized Held-to-Maturity Cost Fair Value Due in one year or less $ 50,000 $ 50,427 Due after one year through five years 135,000 138,220 Due after five years through ten years 8,845,776 9,458,356 Due after ten years 10,215,783 10,774,917 __________ __________ $19,246,559 $20,421,920 ========== ==========
There were no sales of securities available-for-sale during 1998. Proceeds from sales of securities available-for-sale during 1997 and 1996 were $12,990,400 and $1,993,633, respectively. A gross gain of $146,616 was recognized on sales in 1997. A gross loss of $61,437 was recognized on sales in 1997. A gross gain of $1,176 was recognized on sales in 1996. There were no gross losses realized on sales during 1996. Securities with an aggregate carrying value of approximately $30,800,000 and $26,800,000 at December 31, 1998 and 1997 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 of (1) four Fixed Rate FNMA Remic securities, two with a collateral pass-thru pay structure, one with a planned amortization class pay structure, and one with a targeted amortization class pay structure, (2) One Floater Other Agency Remic (SLMA) security with a floating pay structure, (3) and three AAA Fixed Rate Private Remic securities, one subordinated with a call option and two with sequential pay structures. All are classified as available-for-sale and seven have estimated average lives of one to four years with one having an estimated average life of more then ten years. 4. LOANS The loan portfolio consisted of the following:
December 31, _______________________________ 1998 1997 Commercial, financial and agricultural $ 49,543,647 $ 41,920,105 Lease financing receivable 5,706,060 4,774,818 Real estate - mortgage 67,961,708 52,969,893 Real estate - construction 4,245,718 2,129,631 Installment loans to individuals 27,899,592 28,941,500 Other 120,538 152,197 ______________ ____________ 155,477,263 130,888,144 Less allowance for loan losses (1,860,490) (1,414,826) ______________ ____________ $ 153,616,773 $ 129,473,318 ============== ============
Loans are stated net of unearned income and loan origination fees in the above table. The amount of such items is not significant. The Company generally makes loans in its market areas of Lafayette, Jefferson Davis, Iberia, St. Landry, St. Mary, Calcasieu, and St. Martin Parishes. Loans on which the accrual of interest has been discontinued amounted to $480,758 and $260,875 at December 31, 1998 and 1997, respectively. If interest on these types of loans had been accrued, the income that would have been recognized would have approximated $69,000, $89,000 and $79,000 for the years ended December 31, 1998, 1997 and 1996. Interest income recognized on those loans, which is recorded only when received, amounted to $72,000, $3,500 and $34,000 for 1998, 1997 and 1996, respectively. An analysis of the activity in the allowance for loan losses is as follows:
Year Ended December 31, ________________________________________ 1998 1997 1996 Balance at beginning of year $ 1,414,826 $ 1,087,790 $ 1,051,898 Provision for loan losses 999,950 854,400 674,500 Recoveries 147,817 205,409 257,051 Loans charged off (702,103) (732,773) (895,659) ___________ ___________ ___________ Balance at end of year $ 1,860,490 $ 1,414,826 $ 1,087,790 =========== =========== ===========
During the year ended December 31, 1998, approximately $14,000 of loans were transferred to other real estate owned. No loans were transferred to other real estate owned during the year ended December 31, 1997. During the years ended December 31, 1996, approximately $3,000 of loans were transferred to other real estate owned, respectively. As of December 31, 1998 and 1997, loans outstanding to directors, executives officers, and their affiliates were $941,947 and $1,069,529, respectively. In the opinion of management, all transactions entered into between the Bank and such related parties have been and are made in the ordinary course of business, on 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 1998 activity with respect to these related party loans is as follows:
Balance, January 1, 1998 $ 1,069,529 New loans 200,662 Repayments (328,244) ____________ Balance, December 31, 1998 $ 941,947 ============
At December 31, 1998 and 1997, the recorded investment in loans that are considered to be impaired was $80,232 and $185,388, respectively, substantially all of which had related reserves recorded. The related reserves for these loans were $60,000 and $80,000 at December 31, 1998 and 1997, respectively. Interest income on these types of loans would have approximated $42,000, $37,000 and $41,000 for 1998, 1997 and 1996, respectively, if interest had been accrued. Interest income actually recognized on those loans amounted to $23,000, $3,500 and $33,000 for 1998, 1997 and 1996, respectively. 5. BANK PREMISES AND EQUIPMENT Premises and equipment consisted of the following:
December 31, ___________________________ 1998 1997 Buildings and improvements $ 5,385,629 $ 4,471,531 Furniture, fixtures, and equipment 5,404,800 4,494,780 Automobiles 261,804 290,542 Leasehold improvements 668,176 653,885 Construction-in-process 1,501,938 409,798 ____________ ____________ 13,222,347 10,320,536 Less accumulated depreciation and amortization (4,168,146) (3,347,386) ____________ ____________ $ 9,054,201 $ 6,973,150 ============ ============
6. DEPOSITS Deposits consisted of the following:
December 31, 1998 1997 Non-interest bearing $ 60,361,205 $ 58,464,087 Savings and money market 50,870,448 40,709,245 NOW accounts 31,839,882 25,834,206 Time deposits under $100,000 48,149,035 42,360,075 Time deposits over $100,000 38,703,732 32,700,138 ______________ ______________ $ 229,924,302 $ 200,067,751 ============== ==============
Approximately $68,289,000 of time deposits mature in 1999 and the balance of $18,564,000 principally in 2000. 7. NOTES PAYABLE Notes payable consisted of the following:
December 31, 1998 1997 Note payables to financial institutions $ 3,117,023 $ 2,768,313 FHLB borrowings 386,645 430,481 ____________ ____________ $ 3,503,668 $ 3,198,794 ============ ============
The note payables to financial institutions consist of advances against Lines of Credit established by the Company and the Finance Company. The Line of Credit for the Company is in the amount of $2,500,000 and is dated June 23, 1997. At any time prior to June 23, 1999, the Company may request advances up to but not exceeding an aggregate principal amount of $2,500,000 at any one time outstanding. Advances under the Line of Credit bear interest at a variable rate equal to the prime commercial rate of interest as quoted in the "Money Rates" section of the Wall Street Journal minus fifty basis points (0.50%). At December 31, 1998 and 1997, the effective rate was 7.25% and 8.00% , respectively. Interest under the note is due and payable quarterly in arrears on the last day of each quarter. Beginning June 30, 1999, principal payments in the amount of 11.11% of the amount of the loan balance on June 30, 1999 are due and payable in eight consecutive annual installments on June 30 of each succeeding calendar year. The remaining balance of the loan is due and payable in a ninth and final installment on June 30, 2007. The Company has pledged all of the Bank's stock as collateral on this note. The loan agreement has certain covenants which, among other things, require the maintenance of certain levels of stockholders' equity and net income and sets a limit on the maximum amount of nonperforming assets. The Company was in compliance with these covenants at December 31, 1998 and 1997. The principal balance on this note at December 31, 1998 and 1997 was $2,010,023 and $1,685,023, respectively. The Line of Credit for the Finance Company is in the amount of $1,200,000 and is dated May 1, 1998. At any time prior to April 30, 1999, the Finance Company may request advances up to but not exceeding an aggregate principal amount of $1,200,000 at any one time outstanding. Advances under the Line of Credit bear interest at a variable rate equal to the commercial prime rate as quoted in the "Money Rates" section of the Wall Street Journal plus twenty-five basis points (0.25%). At December 31, 1998, the effective rate was 8.00%. Interest on this note is payable monthly, with principal due at maturity on April 30, 1999. Advances under this note totaled $1,107,000 at December 31, 1998. The Finance Company has pledged (1) all its promissory notes, credit sales agreements, installment sales contracts, chattel paper, negotiable paper or other written evidence of indebtedness to the Finance Company; (2) all of its accounts receivable; and (3) all of its common stock as collateral on this note. The Finance Company had outstanding borrowing of $1,083,290 bearing interest at 8.75% on a similar line of credit at December 31, 1997. At December 31, 1998, the Bank had four FHLB borrowings outstanding. These borrowings bear interest at rates between 5.49% and 7.28%, and have maturities from February 1999 to June 1, 2001. Monthly principal and interest payments range from approximately $354 on the smallest borrowing to approximately $4,732 on the largest borrowing, with balloon payments due at maturity. The borrowings are collaterized by a blanket floating lien on certain of the Bank's mortgage loans. Aggregate annual maturities on notes payable are as follows:
1999 $ 1,492,887 2000 271,420 2001 399,279 2002 223,314 2003 223,314 Thereafter 893,454 ____________ $ 3,503,668 ============
8. COMMITMENTS AND CONTINGENCIES At December 31, 1998, future annual minimum rental payments due under noncancellable operating leases, primarily for land, are as follows:
1999 $ 388,476 2000 387,615 2001 393,138 2002 396,340 2003 400,906 Thereafter through 2058 5,165,646 _____________ $ 7,132,121 =============
Rental expense under operating leases for 1998, 1997 and 1996 was $422,662, $399,961, and $370,275, respectively. Sublease income for 1998, 1997 and 1996 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. 9. INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities as of December 31, 1998 and 1997 are as follows:
1998 1997 Deferred tax assets: Allowance for loan losses $ 470,000 $ 320,000 Other 88,000 76,000 ____________ __________ Total deferred tax assets 558,000 396,000 ____________ __________ Deferred tax liabilities: FHLB stock dividends (41,000) (28,000) Depreciation (140,000) (157,000) Unrealized gain on securities (159,000) (51,505) Other (190,000) (79,023) ____________ __________ Total deferred tax liabilities (530,000) (315,528) ____________ __________ Net deferred tax asset $ 28,000 $ 80,472 ============ ==========
Components of income tax expense are as follows:
1998 1997 1996 Current $ 897,190 $ 750,000 $ 551,561 Deferred (55,023) (163,196) (134,275) ____________ ____________ ____________ $ 842,167 $ 586,804 $ 417,286 ============ ============ ============
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, _______________________________________ 1998 1997 1996 Taxes calculated at statutory rate $ 1,117,903 $ 796,109 $ 562,287 Increase (decrease) resulting from: Tax-exempt interest (280,412) (242,420) (124,532) Other 4,676 33,115 (20,469) ____________ ___________ ____________ $ 842,167 $ 586,804 $ 417,286 ============ =========== ============
The deferred income tax expense (credit) relating to unrealized gains (losses) on securities available-for-sale included in other comprehensive income amounted to $107,495 in 1998, $101,225 in 1997 and ($109,974) in 1996. Income taxes relating to gains on sale of securities amounted to $32,270 in 1997 and $400 in 1996. 10. EMPLOYEE BENEFITS The Company sponsors a leveraged employee stock ownership plan (ESOP) that covers all employees who meet minimum age and service requirements. The Company makes annual contributions to the ESOP in amounts as determined by the Board of Directors. These contributions are used to pay debt service and purchase additional shares. Certain ESOP shares are pledged as collateral for this debt. As the debt is repaid, shares are released from collateral and allocated to active employees, based on the proportion of debt service paid in the year. 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 $119,051 at December 31, 1998. In accordance with the American Institute of Certified Public Accountants' Statement of Position 93-6 (SOP), compensation costs relating to shares purchased subsequent to December 31, 1992 are based on the market price of the shares on the date released for allocation and the related unreleased shares are not considered outstanding in the computation of income per common share. The Company has elected to not apply the provisions of the SOP to shares purchased on or before December 31, 1992 and therefore compensation costs relating to those shares was based upon cost and those shares were considered as outstanding in the computation of income per common share. Substantially all of the unrealized shares at December 31, 1998 were purchased after December 31, 1992. ESOP compensation expense was $102,000, $90,000 and $84,000 for the years ended December 31, 1998, 1997 and 1996, respectively. The ESOP shares as of December 31, 1998 and 1997 were as follows:
1998 1997 Allocated shares 223,187 220,005 Shares released for allocation 2,767 3,665 Unreleased shares 19,254 22,021 _________ _________ Total ESOP shares 245,208 245,691 ========= ========= Fair value of unreleased shares at December 31, $ 214,201 $ 311,971 ========= =========
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 1998, 1997 and 1996 no contributions were required. 11. EMPLOYEE STOCK PLANS Prior to 1995, the Company had granted options to certain key employees to purchase shares of the Company's common stock. At December 31, 1996, all options had been exercised. The Company is applying APB Opinion No. 25 and related interpretations in accounting for stock options. All options exercised in 1996 were granted before 1994 and were at or above the estimated fair market value at the date of grant. Accordingly, no compensation expense has been recognized and no disclosures regarding the fair value of those options has been made. In May 1997 the stockholders of the Company approved the 1997 Stock Incentive Plan to provide incentives and awards for employees of the Company and its subsidiaries. "Awards" as defined in the Plan includes, with limitations, stock options (including restricted stock options), stock appreciation rights, performance shares, stock awards and cash awards, all on a stand-alone, combination or tandem basis. A total of 8% of the Company's common shares outstanding can be granted under the Plan. The exercise price of options is equal to the market price on the date of grant. During 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. Below is a summary of the transactions:
Exercise Price Number of Average Options Price Outstanding Per Share Balance, January 1, 1996 54,000 3.17 Exercised (54,000) 3.17 ________ ______ Balance, December 31, 1996 - - Granted 139,223 6.67 ________ ______ Balance, December 31, 1997 139,223 6.67 Granted 23,155 15.42 ________ ______ Balance, December 31, 1998 162,378 7.92 ======== ======
Options on 27,845 shares at $6.67 per share were exercisable at December 31, 1998. The weighted average remaining contractual life of options outstanding at December 31, 1998 was 8.3 years. The Company has adopted the disclosure-only option under SFAS No. 123, "Accounting for Stock Based Compensation." The fair value of options granted during 1998 was $4.63 and during 1997 was $2.17. 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 ____________________________ 1998 1997 Net income available to common stockholders: As reported $ 2,296,812 $ 1,600,217 Pro forma 2,169,732 1,485,217 Basic income per common share: As reported $ .95 $ .69 Pro forma .90 .64 Diluted income per common share: As reported $ .83 $ .61 Pro forma .79 .57
The fair value of the options granted under the Company's stock option plans during the years ended December 31, 1998 and 1997 was estimated using the Black-Scholes Pricing Model with the following assumptions used: dividend yield of 1.5% for 1998 and 1997, expected volatility of 20% for 1998 and 1997, risk free interest rate of 4.9% for 1998 and 5.8% for 1997, and expected lives of 8 years for 1998 and 1997. 12. STOCKHOLDERS' EQUITY On July 31, 1995, the Company issued 187,286 shares of Series A Cumulative Convertible Preferred Shares with a stated value of $14.25. The Convertible Preferred Shares are convertible at any time at the option of the holder into common stock, at the rate of 2.998 shares of Common Stock for each Convertible Preferred Share. On or after July 31, 2000, the Convertible Preferred Shares are redeemable, in whole or in part, at the option of the Company at the stated value of $14.25. The liquidation value of the Convertible Preferred Stock is $14.25 plus accrued dividends. Dividends on the Convertible Preferred Shares are determined each year on an annual rate, fixed on December 31 of each year for the ensuing calendar year and was 6.62% at December 31, 1998. The dividends are cumulative and payable quarterly in arrears. Holders of Convertible Preferred Shares are not entitled to normal voting rights unless certain conditions exist. The payment of dividends by the Bank to the Company is restricted by various regulatory and statutory limitations. At December 31, 1998, the Bank has approximately $4,100,000 available to pay dividends to the Parent Company without regulatory approval. 13. 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, ______________________________________ 1998 1997 1996 Net income - used in computation of diluted earnings per common share $2,445,783 $1,754,692 $1,236,498 Preferred dividend requirement 148,971 154,475 155,421 _________ _________ _________ Net income available to common stockholders - used in computation of basic earnings per common share $2,296,812 $1,600,217 $1,081,077 ========= ========= ========= Weighted average number of common shares outstanding - used in computation of basic earnings per common share 2,410,926 2,332,452 2,250,078 Effect of dilutive securities: Stock options 72,317 24,737 - Convertible preferred stock 475,138 498,819 515,610 _________ _________ _________ Weighted average number of common shares outstanding plus effect of dilutive securities - used in computation of diluted earnings per common share 2,958,381 2,856,008 2,765,668 ========= ========= =========
14. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK The Bank is a party to various financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the statements of financial condition. The contract or notional amounts of those instruments reflect the extent of the involvement the Bank has in particular classes of financial instruments. The Bank's exposure to loan loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, standby letters of credit and financial guarantees is represented by the contractual amount of those instruments. The Bank uses the same credit policies, including considerations of collateral requirements, in making these commitments and conditional obligations as it does for on-balance sheet instruments.
Contract or Notional Amount ____________________________ 1998 1997 Financial instruments whose contract amounts represent credit risk: Commitments to extend credit $ 29,400,000 $ 19,300,000 Standby letters of credit 800,000 1,590,000
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. Standby letters of credit and financial guarantees are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to its customers. Approximately all of these letters of credit were secured by marketable securities, cash on deposits or other assets at December 31, 1998. 15. REGULATORY MATTERS The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory-and possibly additional discretionary-actions by regulators that, if undertaken, could have a direct material effect on the financial statements. Under capital adequacy guidelines, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). As of December 31, 1998 and 1997, the most recent notifications from the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain minimum total risk-based, Tier I risk-based, Tier I leverage ratios as set forth in the table. There are no conditions or events since those notifications that management believes have changed the Bank's category. The Company's and the Bank's actual capital amounts and ratios are presented in the table.
To Be Well Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions Amount Ratio Amount Ratio Amount Ratio _____________________ ______________________ ___________________ As of December 31, 1998: Total capital to risk weighted assets: Company $ 17,030,631 10.25 % $ 13,292,134 8 % N/A N/A Bank 18,372,000 11.17 % 13,160,778 8 % 16,450,973 10 % Tier I capital to risk weighted assets: Company 15,170,141 9.13 % 6,646,067 4 % N/A N/A Bank 16,578,963 10.08 % 6,580,389 4 % 9,870,584 6 % Tier I capital to average assets: Company 15,170,141 6.06 % 10,012,901 4 % N/A N/A Bank 16,578,963 6.67 % 9,947,224 4 % 12,434,030 5 %
To Be Well Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions Amount Ratio Amount Ratio Amount Ratio ______________________ _______________________ ____________________ As of December 31, 1997: Total capital to risk weighted assets: Company $ 14,004,168 10.22 % $ 10,960,633 8.00 % N/A N/A Bank 15,493,149 11.41 % 10,865,639 8.00 % 13,582,049 10.00 % Tier I capital to risk weighted assets: Company 12,589,342 9.19 % 5,480,317 4.00 % N/A N/A Bank 14,124,400 10.40 % 5,432,820 4.00 % 8,149,229 6.00 % Tier I capital to average assets: Company 12,589,342 6.00 % 8,735,025 4.00 % N/A N/A Bank 14,124,400 6.77 % 8,686,439 4.00 % 10,434,004 5.00 %
16. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: CASH, DUE FROM BANKS AND FEDERAL FUNDS SOLD - For those short-term instruments, the carrying amount is a reasonable estimate of fair value. SECURITIES - For securities, fair value equals quoted market price, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. LOANS, NET - The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. DEPOSITS - The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities. NOTES PAYABLE - Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate fair value of existing debt. COMMITMENTS - The fair value of commitments to extend credit was not significant. The estimated fair values of the Company's financial instruments are as follows at December 31, 1998 and 1997 (in thousands):
1998 1997 _______________________ ______________________ Carrying Fair Carrying Fair Amount Value Amount Value Financial assets: Cash, due from banks and federal fund sold $ 20,604 $ 20,604 $ 23,883 $ 23,883 Securities available-for-sale 43,939 43,939 36,884 36,884 Securities held-to-maturity 19,247 20,422 16,733 17,460 Loans, net 153,617 153,700 129,473 129,400 Financial liabilities: Non-interest bearing deposits 60,361 60,361 58,464 58,464 Interest bearing deposits 169,563 169,792 141,604 141,676 Notes payable 3,504 3,504 3,199 3,199
17. OTHER NON-INTEREST EXPENSE Other non-interest expense consisted of the following for the years ended December 31, 1998, 1997 and 1996:
1998 1997 1996 Professional fees $ 397,880 $ 337,824 $ 348,543 FDIC assessments 23,540 21,267 2,000 Marketing expenses 672,896 515,097 411,206 Data processing 163,839 162,016 143,964 Postage 211,179 224,761 154,802 Education and travel 168,038 124,287 159,500 Printing and supplies 319,713 279,806 236,681 Telephone 241,455 202,999 177,563 Other 1,189,048 1,044,193 783,299 ____________ ____________ ____________ $ 3,387,588 $ 2,912,250 $ 2,417,558 ============ ============ ============
18. CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY Summarized financial information for MidSouth Bancorp, Inc. (parent company only) follows:
STATEMENTS OF CONDITION December 31, _________________________ ASSETS 1998 1997 Cash and interest-bearing deposits in banks $ 18,901* $ 20,841* Other assets 118,127 114,670 Investment in and advances to subsidiaries 17,692,418* 14,618,066* ___________ ____________ $17,829,446 $ 14,753,577 =========== ============ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Notes payable to financial institutions $ 2,010,023 $ 1,685,023 Note payable to Bank 133,301* 137,244* ___________ ____________ Total liabilities 2,143,324 1,822,267 ___________ ____________ Total stockholders' equity 15,686,122 12,931,310 ___________ ____________ $17,829,446 $ 14,753,577 =========== ============
STATEMENTS OF INCOME Years Ended December 31, ____________________________________ 1998 1997 1996 Revenue: Equity in income of subsidiaries $2,614,618* $1,895,208* $1,337,342* Rental and other income 44,553 32,827 32,827 __________ __________ __________ 2,659,171 1,928,035 1,370,169 __________ __________ __________ Expenses: Interest on notes payable 146,831 100,109 50,249 Professional fees 83,304 87,548 64,737 Other expense 66,544 58,086 75,299 __________ __________ __________ 296,679 245,743 190,285 __________ __________ __________ Income before income taxes and cumulative effect of accounting change 2,362,492 1,682,292 1,179,884 Income tax benefit 83,291 72,400 56,614 __________ __________ __________ Net income $ 2,445,783 $ 1,754,692 $ 1,236,498 ========== ========== ==========
STATEMENTS OF CASH FLOWS Years Ended December 31, __________________________________________ 1998 1997 1996 Cash flows from operating activities: Distributions from bank $ 85,000* $ - $ 208,197* Change in other assets and liabilities, 10,792 751 (40,320) Other operating (168,836) (140,516) (100,844) __________ _________ ___________ Net cash provided by (used in) operating activities (73,044) (139,765) 67,033 __________ _________ ___________ Cash flows from investing activities: Investment in and advances to subsidiar (350,000)* (500,000)* (300,000)* __________ _________ ___________ Net cash used in investing activit (350,000) (500,000) (300,000) __________ _________ ___________ Cash flows from financing activities: Capital stock transactions 679,409 235,168 336,027 Payment of dividends (583,305) (508,810) (435,882) Proceeds of notes payable, net 325,000 881,943 294,892 __________ _________ ___________ Net cash provided by financing act 421,104 608,301 195,037 __________ _________ ___________ Net increase (decrease) in cash (1,940) (31,464) (37,930) Cash, beginning of year 20,841 52,305 90,235 __________ _________ ___________ Cash, end of year $ 18,901 $ 20,841 $ 52,305 ========== ========= =========== *Eliminated in consolidation
19. IMPACT OF NEW ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. Under this Statement, a company that elects to apply hedge accounting is required to establish at the inception of the hedge the method it will use for assessing the effectiveness of the hedging derivative and the measurement approach for determining the ineffective aspect of the hedge. At the date of initial application, a company may transfer any held-to-maturity security into the available-for-sale category or the trading category. A company will then be able in the future to designate a security transferred into the available-for-sale category as the hedged item. The unrealized holding gain or loss on a held-to-maturity security transferred to another category at the date of the initial application will be reported in net income or accumulated other comprehensive income consistent with the requirements of SFAS No. 115. Such transfers from the held-to-maturity category at the date of initial adoption will not call into question a company's intent to hold other debt securities to maturity in the future. SFAS No. 133 applies to all entities and is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. Earlier adoption of this Statement is permitted. The Company expects to adopt this accounting standard on January 1, 2000. * * * * * * 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, 1998 and 1997, 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, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of MidSouth Bancorp, Inc. and subsidiaries at December 31, 1998 and 1997 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP New Orleans, Louisiana February 12, 1999
Selected Quarterly Financial Data (unaudited) 1998 (Dollars in thousands, except per share IV III II I Interest income $4,908 $4,902 $4,636 $4,310 Interest expense 1,824 1,795 1,694 1,619 ______ ______ ______ ______ Net interest income 3,084 3,107 2,942 2,691 Provision for possible credit losses 244 260 238 258 ______ ______ ______ ______ Net interest income after provision for possible credit losses 2,840 2,847 2,704 2,433 Noninterest income, excluding securities gains 929 907 872 779 Net securities gains - - - - Noninterest expense 2,999 2,888 2,629 2,507 ______ ______ ______ ______ Income before income tax expense 770 866 947 705 Income tax expense 179 242 268 153 ______ ______ ______ ______ Net income 591 624 679 552 Preferred stock dividend requirement (37) (37) (38) (37) ______ ______ ______ ______ Income applicable to common shareholders $554 $587 $641 $515 ====== ====== ====== ====== Earnings per common share Basic $0.23 $0.24 $0.27 $0.21 Diluted $0.20 $0.21 $0.23 $0.19 Market price of common stock High $13.50 $14.50 $15.25 $15.67 Low $10.88 $13.25 $14.46 $14.08 Close $11.13 $13.25 $14.54 $14.50 Average shares outstanding Basic 2,429,107 2,417,457 2,396,051 2,381,511 Diluted 2,960,165 2,963,618 2,949,486 2,935,610
1997 (Dollars in thousands, except per share IV III II I Interest income $4,217 $4,112 $3,893 $3,554 Interest expense 1,521 1,595 1,462 1,316 ______ ______ ______ ______ Net interest income 2,696 2,517 2,431 2,238 Provision for possible credit losses 250 242 209 153 ______ ______ ______ ______ Net interest income after provision for possible credit losses 2,446 2,275 2,222 2,085 Noninterest income, excluding securities gains 743 735 729 596 Net securities gains 10 - 85 - Noninterest expense 2,560 2,474 2,369 2,183 ______ ______ ______ ______ Income before income tax expense 639 536 667 498 Income tax expense 158 127 185 116 ______ ______ ______ ______ Net income 481 409 482 382 Preferred stock dividend requirement (37) (37) (40) (40) ______ ______ ______ ______ Income applicable to common shareholders $444 $372 $442 $342 ====== ====== ====== ====== Earnings per common share Basic $0.19 $0.16 $0.19 $0.15 Diluted $0.17 $0.14 $0.17 $0.13 Market price of common stock High $14.37 $11.83 $8.59 $6.81 Low $10.75 $8.67 $6.67 $6.29 Close $14.17 $10.83 $8.59 $6.59 Average shares outstanding Basic 2,355,441 2,358,705 2,333,510 2,315,597 Diluted 2,901,432 2,896,377 2,805,690 2,772,888 Earnings per share and other market data have been adjusted for a 5% stock dividend paid by the Company on February 18, 1994, a four for three stock split paid on September 15, 1995, a four for three stock split paid on August 19,1996, a 12 1/2% stock dividend paid on August 27, 1997 and a three for two stock split paid on August 31, 1998.
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 1999 annual meeting of shareholders, is incorporated herein by reference in response to this Item. Information concerning executive officers is provided under Item 4. ITEM 10 - Executive Compensation The information contained in Registrant's definitive proxy statement for its 1999 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 1999 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 1999 annual meeting of shareholders is incorporated herein by reference in response to this Item. ITEM 13 - Exhibits and Reports on Form 8-K. Exhibits Exhibit No. Description 3.1 Amended and Restated Articles of Incorporation of MidSouth Bancorp, Inc. are included as Exhibit 3.1 to MidSouth's Annual Report on Form 10-K for the Year Ended December 31, 1993, and is incorporated herein by reference. 3.2 Articles of Amendment to Amended and Restated Articles of Incorporation dated July 19,1995 are included as Exhibit 4.2 to MidSouth's Registration Statement on Form S-8 filed September 20, 1995 and is incorporated herein by reference. 3.3 Amended and Restated By-laws of MidSouth are included as Exhibit 3.2 to Amendment No. 1 to MidSouth's Registration Statement on Form S-4 (Reg. No. 33-58499) filed on June 1, 1995, and is incorporated herein by reference. 4.1 MidSouth agrees to furnish to the Commission on request a copy of the instruments defining the rights of the holder of its long-term debt, which debt does not exceed 10% of the total consolidated assets of MidSouth. 10.1 MidSouth National Bank Lease Agreement with Southwest Bank Building Limited Partnership is included as Exhibit 10.7 to the Company's annual report on Form 10-K for the Year Ended December 31, 1992, and is incorporated herein by reference. 10.2 First Amendment to Lease between MBL Life Assurance Corporation, successor in interest to Southwest Bank Building Limited Partnership in Commendam, and MidSouth National Bank is included as Exhibit 10.1 to the Company's annual report on Form 10-KSB for the year ended December 31, 1994, and is incorporated herein by reference. 10.3 Amended and Restated Deferred Compensation Plan and Trust is included as Exhibit 10.3 to MidSouth's Annual Report on Form 10-K for the year ended December 31, 1992 and is incorporated herein by reference. 10.5 Employment Agreements with C. R. Cloutier and Karen L. Hail are included as Exhibit 5c to MidSouth's Form 1-A and are incorporated herein by reference. 10.6 The MidSouth Bancorp, Inc. 1997 Stock Incentive Plan is included as a form of option agreement in Exhibit 4.5 to MidSouth's definitive proxy statement filed April 11, 1997 and is incorporated herein by reference. 10.7 The MidSouth Bancorp, Inc. Dividend Reinvestment and Stock Purchase Plan is included as Exhibit 4.6 to MidSouth Bancorp, Inc.'s Form S-3D filed on July 25, 1997 and is incorporated herein by reference. 10.8 Loan Agreements and Master Notes for lines of credit established for MidSouth Bancorp, Inc. and Financial Services of the South, Inc. are included as Exhibit 10.7 to MidSouth Bancorp, Inc.'s Form 10-QSB filed on August 14, 1997 and is incorporated herein by reference. 21 Subsidiaries of the Registrant 23 Independent Auditors' Consent 27 Financial Data Schedule Reports on Form 8-K None SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MIDSOUTH BANCORP, INC. By: __________________________ C. R. Cloutier President and Chief Executive Officer Dated: March 29, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signatures Title Date /s/ C. R. Cloutier President, Chief Executive March 29, 1999 C. R. Cloutier Officer and Director /s/ Karen L. Hail Chief Financial Officer, March 29, 1999 Karen L. Hail Executive Vice President, Secretary/Treasurer and Director /s/ Teri S. Stelly Chief Accounting Officer March 29, 1999 Teri S. Stelly /s/ J. B. Hargroder, M.D. Director March 29, 1999 J. B. Hargroder, M.D. /s/ William M. Simmons Director March 29, 1999 William M. Simmons /s/ Will G. Charbonnet, Sr. Director March 29, 1999 Will G. Charbonnet, Sr. /s/ Clayton Paul Hilliard Director March 29, 1999 Clayton Paul Hilliard /s/ James R. Davis Director March 29, 1999 James R. Davis, Jr. /s/ Milton B. Kidd, III Director March 29, 1999 Milton B. Kidd, III., O.D.
EX-21 2 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT MidSouth National Bank Financial Services of the South, Inc. EX-23 3 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 333-32107 of MidSouth Bancorp, Inc. on Form S-3D of our report dated February 12, 1999, appearing in this Annual Report on Form 10-KSB of MidSouth Bancorp, Inc. for the year ended December 31, 1998. DELOITTE & TOUCHE, LLP New Orleans, Louisiana March 29, 1999 EX-27 4
9 YEAR DEC-31-1998 DEC-31-1998 14,003,536 16,125 6,600,000 0 43,938,965 19,246,559 20,421,920 155,477,263 1,860,490 249,818,268 229,924,302 0 704,176 3,503,668 0 2,236,210 243,201 13,206,711 249,818,268 14,803,065 3,384,935 567,764 18,755,764 6,666,681 6,931,556 11,824,208 999,950 0 11,023,245 3,287,950 2,445,783 0 0 2,445,783 .95 .83 5.25 533,107 329,116 0 0 1,414,826 702,103 147,817 1,860,490 60,000 0 1,800,490
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