-----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, UOT/Bqlg1SVEuRwTD/Trb8O8J12WQxa8/YeCO9NGa+O26JHTxPcuQZhVId/h1RNp h0gWiyUZPyR4WNmzI1QWMQ== 0000948688-00-000002.txt : 20000331 0000948688-00-000002.hdr.sgml : 20000331 ACCESSION NUMBER: 0000948688-00-000002 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 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: 586477 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, 1999 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 2-91000-FW MIDSOUTH BANCORP, INC. (Exact name of registrant as specified in its charter) Louisiana 72-1020809 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 102 Versailles Blvd., Lafayette, LA 70501 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (318) 237-8343 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, $.10 par value American Stock Exchange, Inc. Preferred Stock, no par value, American Stock Exchange, Inc. $14.25 stated value Securities registered pursuant to Section 12(g) of the Act: none Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB __X__ Total revenues for the year ended December 31, 1999 were $25,053,229. As of February 29, 2000, 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 $11,641,893. As of February 29, 2000 there were outstanding 2,481,843 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 10, 2000 - (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. Membership in the Community Cash Network provides MidSouth's customers with additional access throughout the Greater New Orleans area with no surcharge. 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 seventeen locations described below under "Item 2 - Properties." Employees As of December 31, 1999, the Bank employed 176 full-time equivalent employees and the Finance Company employed 6 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. 2 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. In addition, the Company expects increased competition as a result of the Gramm-Leach-Bliley Act signed into law on November 12, 1999. As discussed below, under "Recent Legislation - Gramm-Leach- Bliley Act," banks will be able to offer their customers a wider range of financial products and services. The legislation provides the ability to banks, securities firms, insurance companies, and financial technology companies to more readily combine. 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. Recent Legislation - Gramm-Leach-Bliley Act. This financial services reform legislation proves for three basic changes: 1) repeal of certain provisions of the Glass Steagall Act to permit commercial banks to affiliate with investment banks, 2) modification of the Bank Holding Company Act of 1956 to permit companies that own commercial banks to engage in any type of financial activity, and 3) allows subsidiaries of banks to engage in a broad range of financial activities beyond those permitted for banks themselves. As a result, banks, securities firms, and insurance companies will be able to combine much more readily. The legislation also includes important provisions regarding privacy of customer information; increased access to the Federal Home Loan Bank System by community banks; and significant changes to the requirements of the Community Reinvestment Act. Under provisions of the legislation, two new types of regulated entities are authorized to engage in a broad range of financial activities much more extensive that those of standard holding companies. A "financial holding company" can engage in all newly-authorized activities and is simply a bank holding company whose depository institutions are well-capitalized, well- managed, and has a CRA rating of "satisfactory" or better. A "financial subsidiary" is a direct subsidiary of a bank that satisfies the same conditions as a `financial holding company" plus several more. The "financial subsidiary" can engage in most of the newly-authorized activities, which are defined as securities, insurance, merchant banking/equity investment, "financial in nature," and "complementary" activities. The legislation also defines the concept of "functional supervision", meaning similar activities should be regulated by the same regulator, with the Federal Reserve Board serving as an "umbrella" supervisory authority over bank and financial holding companies. This legislation creates new opportunities for the Company to offer expanded services to its customer base in the future, however the Company has not yet determined the nature of the expanded services or when the services will be offered. Capital Adequacy Requirements. The Federal Reserve Board monitors the capital adequacy of bank holding companies through the use of a combination of risk-based capital guidelines and leverage ratios. Risk-based capital requirements are intended to make regulatory capital more sensitive to the risk profile of a company's assets. Certain off-balance sheet items, such as letters of credit and unused lines of credit, are also assigned risk-weights and included in the risk-based capital calculations. The guidelines require a minimum ratio of total qualifying capital to total risk-weighted assets of 8.0%, of which 4.0% must be in the form of Tier 1 capital. At December 31, 1999, the Company's ratios of Tier 1 and total capital to risk- weighted assets were 9.47% and 10.55%, respectively. 3 MidSouth's leverage ratio (Tier 1 capital to total average adjusted assets) was 6.23% at December 31, 1999. All three regulatory capital ratios for the Company exceeded regulatory minimums at December 31, 1999. 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, 1999, 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, 1999. 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. 4 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, Lake Charles, and Sulphur Louisiana. Twelve of these offices are owned and five are leased. MidSouth also leases space for a loan production office opened in Thibodaux, Louisiana during the fourth quarter of 1999. A third full service branch facility is currently under renovation in New Iberia and is expected to open in the second quarter of 2000. 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 1999. Executive Officers of the Registrant C. R. Cloutier, 52 - President, Chief Executive Officer and Director of MidSouth and the Bank Karen L. Hail, 46 - Executive Vice President of the Bank and Chief Financial Officer, and Secretary and Treasurer of MidSouth and the Bank Donald R. Landry, 43 - Senior Vice President and Senior Loan Officer of the Bank Jennifer S. Fontenot, 45 - Senior Vice President of the Bank William R. Snyder, 59 - 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, 40 - 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, 50 - 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. 5 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 March 21, 2000, there were 506 common shareholders of record and 171 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 in Note 12 of notes 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. 6
FIVE-YEAR SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA Year Ended December 31, _________________________________________________________________________________ 1999 1998 1997 1996 1995 ___________ ___________ ___________ ___________ __________ Gross interest income $21,072,733 $18,755,764 $15,776,416 $12,572,417 $9,727,584 Interest expense (7,888,351) (6,931,556) (5,894,193) (4,541,727) (3,225,326) ___________ ___________ ___________ ___________ __________ Net interest income 13,184,382 11,824,208 9,882,223 8,030,690 6,502,258 Provision for loan losses (906,950) (999,950) (854,400) (674,500) (225,000) Other operating income 3,980,496 3,486,937 2,899,461 2,138,285 1,583,026 Other expenses (12,740,307) (11,023,245) (9,585,788) (7,840,691) (6,072,129) ___________ ___________ ___________ ___________ __________ Net income 3,517,621 3,287,950 2,341,496 1,653,784 1,788,155 Provision for income taxes (867,417) (842,167) (586,804) (417,286) (546,545) ___________ ___________ ___________ ___________ __________ Net Income $2,650,204 $2,445,783 $1,754,692 $1,236,498 $1,241,610 Preferred stock dividend requirement ($131,582) ($148,971) ($154,475) ($155,421) ($38,142) ___________ ___________ ___________ ___________ __________ Net income available to common shareholders $2,518,622 $2,296,812 $1,600,217 $1,081,077 $1,203,468 =========== =========== =========== =========== ========== Basic earnings per share $1.03 $0.95 $0.69 $0.48 $0.55 Diluted earnings per $0.90 $0.83 $0.61 $0.40 $0.51 Total loans $170,468,733 $155,477,263 $130,888,144 $93,740,719 $77,826,707 Total assets 276,723,841 249,818,268 217,112,415 185,228,252 151,183,241 Total deposits 251,690,206 229,924,302 200,067,751 171,616,508 139,029,563 Cash dividends on common stock 492,415 434,334 354,336 280,461 115,750 Long-term obligations 3,459,097 3,503,668 3,198,794 1,521,435 972,617 Selected ratios: Loans to assets 61.60% 62.24% 60.29% 50.61% 51.48% Loans to deposits 67.73% 67.62% 65.42% 54.62% 55.98% Deposits to assets 90.95% 92.04% 92.15% 92.65% 91.96% Return on average assets 0.97% 1.04% 0.78% 0.65% 0.98% Return on average common equity 17.45% 19.16% 16.44% 13.09% 17.22% Earnings per share have been adjusted to reflect 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, 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.
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 Net income for the year ended December 31, 1999 totaled $2,650,204 compared to $2,445,783 for the year ended December 31, 1998. Basic earnings per common share were $1.03 and $.95 for the two twelve-month periods, respectively. Annual diluted earnings per share were $.90 for December 31, 1999 and $.83 for December 31, 1998. Earnings improved primarily due to increased net interest income and non-interest income. System upgrades, staff development and market development campaigns increased operating expenses in annual comparisons, but resulted in an 11% growth in assets over the past twelve months. Consolidated assets totaled $276.7 million at December 31, 1999, up $26.9 million over the $249.8 million at December 31, 1998. Net interest income improved in annual comparison due to a higher volume of earning assets. Non-interest income increased 14% primarily due to increases in service charges on deposit accounts and insufficient funds fees. The increased net interest income and non-interest income was substantially offset by increases in non-interest expense for the twelve months ended December 31, 1999 as compared to December 31, 1998. Increased expenses were recorded primarily in salaries and benefits and occupancy expenses. Increases recorded in other expenses such as ATM processing and VISA program expenses were partially offset by increased income from these products. The increased expenses reflect MidSouth's investment to strengthen its infrastructure in order to support recent and anticipated growth. MidSouth recorded a 9% increase in deposits during the past twelve months. Deposits totaled $251.7 million at December 31, 1999, up $21.8 million from $229.9 million at December 31, 1998. The majority of the growth over the past twelve months resulted from two deposit promotions designed to increase MidSouth's market share. The first promotion resulted in additional deposits totaling $27.5 million as of the end of the promotion on May 31, 1999. Cash flows from the increase in deposits were used to fund loans and securities purchases. A total of $12 million in additional deposits resulted from the second deposit promotion held during the fourth quarter of 1999. The increased cash flows from the second deposit promotion were used to reduce short-term borrowings. Loans, net of Allowance for Loan Losses ("ALL"), increased $14.9 million or 10%, from $153.6 million at December 31, 1998 to $168.5 million at December 31, 1999. The majority of the loan growth occurred in the commercial and real estate portfolios. Provisions for loan losses totaled $906,950 for the year ended December 31, 1999 compared to $999,950 for the year ended December 31, 1998. 8 Nonperforming loans as a percentage of total loans decreased from .34% in December of 1998 to .14% in December of 1999 primarily due to the transfer of commercial real estate credits to other real estate owned. The transfer of these credits increased nonperforming assets by $228,940 in annual comparison, from $607,740 at December 31, 1998 to $836,680 at December 31, 1999. The ALL represented 235% of nonperforming assets as of December 31, 1999, as compared to 306% as of December 31, 1998. MidSouth's leverage ratio was 6.23% for the year ended December 31, 1999, compared to 6.06% for the year ended December 31, 1998. Return on average common equity was 17.45% compared to 19.16% for the same periods, respectively. Annualized return on average assets was .97% for 1999 compared to 1.04% for 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, 1999. Net interest income increased $1,360,174 for 1999 over 1998 and $1,941,985 for 1998 over 1997. The increase in net interest income for 1999 resulted primarily from growth in MidSouth's loan and investment portfolios. Loan growth was the primary factor resulting in increased net interest income for 1998. Average loans as a percentage of average earnings assets increased from 61% in 1997 to 67% in 1998 and decreased slightly to 65% in 1999. Interest income from loans, including loan fees, increased $1,479,858 from 1998 to 1999 and $3,177,276 from 1997 to 1998. The increased interest income resulted from increases in average loan volume of $17.4 million or 12% in 1999 and $32.3 million or 29% in 1998. Average yield on total loans decreased 19 basis points, from 10.25% in 1998 to 10.06% in 1999. A decrease of 11 basis points was recorded in 1998, from 10.36% in 1997 to 10.25%. For the higher volume commercial loan portfolio, average yields fell from 10.24% in 1997 to 9.92% in 1998, and to 9.58% in 1999, primarily due to 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. New York prime increased 75 basis points in 1999, however MidSouth increased its prime only 50 basis points late in the fourth quarter of 1999. Average yields in the installment portfolio rose from 10.63% in 1997 to 11.18% in 1998 and to 11.60% in 1999. The installment portfolio yield benefited from the Finance Company's loans, which averaged $1.6 million and yielded an 9 average rate of 24% in 1999. Credit card loans averaging $1.2 million with an average yield of 18% within the installment portfolio also contributed to the increased average yield. In addition, insurance premium financing loans acquired with the purchase of TMC Financial Services, Inc. ("TMC") in May 1999, boosted the installment yield with an average rate of 26% earned on an average portfolio of $1.7 million. The Finance Company and credit card portfolios also increased average consumer loan yields for 1998. During the second quarter of 1999, excess funds from a deposit promotion were invested in the securities portfolio, increasing the average volume for the year by $17.6 million, from $59.2 million in 1998 to $76.8 million in 1999. The increased volume was primarily responsible for the $998,004 increase in interest income from securities in 1999. 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 in 1998, partially offset by an increase of $2.6 million in the average volume of tax-exempt securities. The net decrease in the average volume was primarily responsible for a decrease in interest income of $295,403 in 1998. Changes in the yields on investment securities had very little impact on interest income in 1999 and 1998. During 1999, MidSouth's deposit mix continue to shift slightly with non-interest bearing deposits representing 24% of average total deposits as compared to 25% in 1998 and 26% in 1997. As of December 31, 1999, 37% of average total deposits were NOW, money market and savings deposits and 39% were certificates of deposit (CD's). For year-ended December 31, 1998, NOW, money market and savings deposits represented 39% of average total deposits, while 36% consisted of CD's. The shift to a higher percentage of CD's in 1999 resulted primarily from a deposit promotion in the fourth quarter of 1999. The promotion resulted in the addition of approximately $12 million in CD's with an APY of 6% for six months with the option to renew for an additional six months at maturity. For the year ended December 31, 1997, 39% of average total deposits represented NOW, money market and savings deposits and certificates of deposit amounted to 35%. Volume increases in interest-bearing deposits for the years ended December 31, 1999 and 1998 resulted in increased interest expense of $739,263 in 1999 and $1,010,911 in 1998. Average interest-bearing deposits increased $24.2 million in 1999 and $23.2 million in 1998. The average rate paid on these deposits fell 15 basis points to 3.95% in 1999 from 4.10% in 1998, after increasing 7 basis points from 4.03% in 1997. The rate decrease in 1999 resulted from the loss of approximately $18.2 million in higher cost public funds during the third quarter. Withdrawal of the public fund money necessitated borrowing from the Federal Home Loan Bank ("FHLB") during 1999. FHLB advances averaged $4.0 million for the year at a rate of 5.45%. Together with securities sold under repurchase agreements and federal funds purchased, the advances added $219,119 in interest expense for 1999. The average volume of notes payable increased slightly in 1999, however a decrease in rates resulted in a minimal decrease in interest expense on long-term debt for that year. An increase in the average rate on long-term debt resulted in increased interest expense of $26,452 in 1998. 10
Table 1 Consolidated Average Balances, Interest and Rates Taxable-equivalent basis (2) (in thousands) 1999 1998 1997 _______________________________________________________________________________ Average Average Average Average Yield/ Average Yield/ Average Yield/ Volume Interest Rate Volume Interest Rate Volume Interest Rate _______________________________________________________________________________ ASSETS Interest Bearing Deposits $104 $1 0.96% $37 $2 5.41% $76 $5 6.58% Investment Securities Taxable 54,894 3,277 5.97% 41,455 2,458 5.93% 48,784 2,881 5.91% Tax Exempt 21,850 1,593 7.29% 17,740 1,334 7.52% 15,151 1,146 7.56% _________________ ________________ _______________ Total Investments 76,848 4,871 6.34% 59,232 3,794 6.41% 64,011 4,032 6.30% Federal Funds Sold and Securities Purchased Under Agreements to Resell 8,797 406 4.62% 10,885 568 5.22% 8,758 470 5.37% Loans Commercial and Real Estate 123,836 11,868 9.58% 106,584 10,570 9.92% 77,039 7,891 10.24% Installment 38,058 4,415 11.60% 37,872 4,233 11.18% 35,152 3,735 10.63% _________________ ________________ _______________ Total Loans 161,894 16,283 10.06% 144,456 14,803 10.25% 112,191 11,626 10.36% Total Earning Assets 247,539 21,560 8.71% 214,573 19,165 8.93% 184,960 16,128 8.72% Allowance for Loan Losses (1,857) (1,572) (1,415) Nonearning Assets 27,035 22,766 21,182 ________ ________ ________ Total Assets $272,717 $235,767 $204,727 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY NOW, Money Market, and Savings $91,559 $2,632 2.87% $83,598 $2,555 3.06% $73,844 $2,202 2.98% Certificates of Deposits 95,109 4,739 4.98% 78,907 4,108 5.21% 65,492 3,415 5.21% _________________ ________________ _______________ Total Interest Bearing Deposits 186,668 7,371 3.95% 162,505 6,663 4.10% 139,336 5,617 4.03% Federal Funds Purchased and Securities Sold Under Agreements to Repurchase 683 35 5.12% 64 3 4.69% 632 39 6.17% FHLB Advances 4,021 219 5.45% - - - - Notes Payable 3,393 263 7.75% 3,381 265 7.84% 3,301 238 7.21% _________________ ________________ _______________ Total Interest Bearing Liabilities 194,765 7,888 4.05% 165,950 6,931 4.18% 143,269 5,894 4.11% Demand Deposits 60,192 54,601 48,480 Other Liabilities 1,127 969 844 Stockholders' Equity 16,633 14,247 12,134 ________ ________ ________ Total Liabilites and Stockholders' Equity $272,717 $235,767 $204,727 ======== ======== ======== NET INTEREST INCOME AND NET INTEREST SPREAD $13,672 4.66% $12,234 4.75% $10,234 4.61% ======= ======= ======= NET YIELD ON EARNING ASSETS 5.52% 5.70% 5.53% Securities classified as available-for-sale are included in average balances and interest income figures reflect interest earned on such securities. Interest income of $488,000 for 1999, $410,000 for 1998, and $352,000 for 1997 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 $1,144,000 for 1999, $1,062,000 for 1998, and $902,000 for 1997. Nonaccrual loans are included in average balances and income on such loans is recognized on a cash basis.
Table 2 Changes in Taxable-Equivalent Net Interest Income (in thousands) 1999 Compared to 1998 1998 Compared to 1997 _____________________________________ ___________________________________________ Total Total Increase Change Attributable To Increase Change Attributable To (Decrease) Volume Rates (Decrease) Volume Rates _____________________________________ ___________________________________________ Taxable-equivalent interest earned on: Interest Bearing Deposits ($1) $1 ($2) ($3) ($2) ($1) Investment Securities Taxable 819 802 17 (423) (435) 12 Tax Exempt 259 298 (39) 188 195 (7) Federal Funds Sold and Securities Purchased Under Agreement to Resell (162) (101) (61) 98 111 (13) Loans, including fees 1,480 1,748 (268) 3,177 3,304 (127) _______ _____________________ ___________________________________________ TOTAL 2,395 2,748 (353) 3,037 3,173 (136) _______ _____________________ ___________________________________________ Interest Paid On: Interest Bearing Deposits 708 942 (234) 1,046 948 98 Federal Funds Purchased and Securities Sold Under Agreement to Repurchase 32 32 - (36) (28) (8) FHLB Advances 219 219 - - - - Notes Payable (2) 1 (3) 27 6 21 _______ _____________________ ___________________________________________ TOTAL 957 1,194 (237) 1,037 926 111 _______ _____________________ ___________________________________________ Taxable-equivalent net interest income $1,438 $1,554 ($116) $2,000 $2,247 ($247) ======= ===================== =========================================== NOTE: Changes due to both volume and rate have been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts to the changes in each.
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 5.52% in 1999 as compared to 5.70% for 1998 and 5.53% for 1997. 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 $365,121 in 1999 and $504,947 in 1998 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 19,001 in 1997, to 22,640 in 1998 and to 24,655 in 1999. Income earned through ATM fees totaled $156,050 in 1999; however, expenses incurred in providing ATM services totaled $229,763. Non-interest income resulting from other charges and fees increased $102,641 in 1999 as compared to $234,815 in 1998. Of the $102,641 increase in 1999, $70,889 is related to fee income from MidSouth's Visa debit cards and merchant programs. However, this increase is offset by a $76,735 increase in expenses on the Visa programs. An increase of $48,485 in income from a third party mortgage program contributed to the increase in other non-interest income for 1999. Fees earned through the sale of credit life insurance increased $25,797 in 1999 after experiencing a decrease of $57,373 in 1998. Securities Transactions. No income was realized through the sale of securities in 1999 and 1998. In June 1997, $7.5 million in adjustable rate mortgage securities in the available-for-sale portfolio were sold to reposition 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. Non-interest Expense Total non-interest expense increased 16% from 1998 to 1999 and 15% from 1997 to 1998. 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. These increases reflect MidSouth's long term investment in staff development, system upgrades, and market penetration. During 1997, MidSouth opened 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. A new Ambassador Caffery office building was completed and opened in September of 1998. In the third quarter of 1999, a seventh Lafayette office was opened on Ambassador Caffery at Dulles, providing banking convenience to the Scott community. Late in the fourth quarter of 1999, renovations were completed on an office in Sulphur, Louisiana, expanding MidSouth's presence in Calcasieu Parish. The Finance Company also added to MidSouth's coverage of the Calcasieu Parish market by opening its third location in Lake Charles during the fourth quarter of 1999. 13 Accordingly, salaries and employee benefits increased 14% from 1998 to 1999 and 17% from 1997 to 1998. The number of full-time equivalent ("FTE") employees increased from 152 in 1998 to 176 in 1999. New hires in 1999 included twelve employees to staff the Dulles and Sulphur offices, a card services coordinator, a retail manager for the Lafayette market, a marketing analyst, and two Finance Company employees. In addition, five employees manage the insurance premium financing portfolio acquired with TMC in May of 1999. MidSouth increased its FTE employees by 13 in 1998, from 139 in 1997 to 152. Occupancy expenses increased $489,763 or 21% from 1998 to 1999 and $196,810 or 9% from 1997 to 1998 as a result of increases in building, furniture and equipment depreciation and maintenance expenses, ad valorem taxes, janitorial services and utilities. During 1999, premises and equipment totaling $3,488,024 were purchased, including the new Lafayette Dulles office and Sulphur office properties, buildings, and furniture and equipment, and an office building in New Iberia. The Sulphur office opened in January 2000 to expand MidSouth's presence in Calcasieu Parish. The third New Iberia office will be opened in the second quarter of 2000. Premises and equipment 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. Additional increases were recorded in 1999 in marketing expense, data processing expenses, postage costs and telephone services. Of these increases, marketing expense recorded the most significant increase with additional costs of $116,770. The majority of the increase resulted from deposit incentives paid during a deposit campaign held during the first and second quarters of 1999. Income Taxes MidSouth's tax expense increased in 1999 by $25,250 and approximated 25% of income before income taxes. Interest income on non-taxable municipal securities reduced the 1999 taxes from the expected statutory rate of 34%. Interest income on non-taxable municipal securities also lowered the effective tax rate for 1998 to approximately 26%. Notes 1 and 9 to MidSouth's Consolidated Financial Statements provide additional information regarding MidSouth's income tax considerations. BALANCE SHEET ANALYSIS Securities Total investment securities increased $13.8 million, from $63.2 million in 1998 to $77.0 million in 1999. Cash flows from maturing securities and deposit growth were used to purchase $29.3 million in U.S. Treasury and Agency securities, corporate bonds and tax-exempt municipal securities. A decrease of $1,852,627 in the market value of securities available-for-sale is included in the net change in 1999. Unrealized losses in the securities available-for-sale portfolio, net of unrealized gains and tax effect, were $948,430 at December 31, 1999, compared to unrealized net gains of $276,700 at December 31, 1998. 14 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, 1999, approximately 34% of MidSouth's securities available-for-sale portfolio represented mortgage- backed securities and 17% represented collateralized mortgage obligations ("CMO's"). MidSouth monitors the risks due to changes in interest rates on mortgage-backed pools by monthly reviews of prepayment speeds, duration, and purchase yields as compared to current market yields on each security. The majority of the CMO's represent FNMA and FHLMC REMIC pools. Three of the FHLMC pools each had a book value of approximately 12% of stockholders' equity at December 31, 1999. 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 37% of the available-for- sale portfolio consisted of U. S. Treasury and agency securities, while municipal and other securities represented 12% of the portfolio. In the held-to-maturity portfolio, MidSouth purchased $2.0 million in non-taxable municipal securities in 1999 and $2.5 million 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. Loan Portfolio MidSouth's loan portfolio grew $15.0 million during 1999, from $155.5 million at December 31, 1998 to $170.5 million at December 31, 1999. The majority of the loan growth occurred in the second and third quarters of 1999 as business activity increased in MidSouth's markets. The commercial loan and real estate portfolios each added approximately $7.0 million in loans during 1999. 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 allows management greater flexibility in controlling interest rate risk. In addition, the Bank purchased an insurance premium financing company in May 1999, which added approximately $3.0 million to the loan portfolio. Decreases were noted in lease financing, construction, and installment loans. Total loans grew 19% in 1998, 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. 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. As a quality 15 control tool, the program is expected to maintain the quality and consistency of the installment loan portfolio as the economy softens. 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 $836,680 at December 31, 1999, $607,740 at December 31, 1998 compared to $319,209 at December 31, 1997. The increase in nonperforming assets in 1999 resulted from the addition of two commercial credits and one consumer credit that were transferred to Other Real Estate Owned. Of the $234,962 in nonaccrual loans for year end 1999, $47,874 are nonaccrual loans held by the Finance Company. Loans past due 90 days and still accruing totaled $793,823 at December 31, 1999 compared to $329,116 at December 31, 1998 and $245,232 at December 31, 1997. Of the $793,823 in past dues for year end 1999, $116,651 are past dues reported by the Finance Company. Loans to commercial borrowers are placed on nonaccrual when principal or interest is 90 days past due, or sooner if the full collectability of principal or interest is doubtful, except if the underlying collateral supports both the principal and accrued interest and the loan is in the process of collection. Retail loans that are not placed on nonaccrual but that become 120 days past due are routinely charged off. Loans classified for regulatory purposes but not included in Table 3 do not represent material credits about which management has serious doubts as to the ability of the borrower to comply with the loan repayment terms. 16
TABLE 3 Nonperforming Assets and Loans Past Due 90 Days ========================================================================== December 31, ___________________________________________ 1999 1998 1997 ========================================================================== Nonperforming loans $234,962 $533,107 $260,875 Other real estate owned, net 569,963 48,100 45,100 Other assets repossessed 31,755 26,533 13,234 ________ ________ ________ Total nonperforming assets $836,680 $607,740 $319,209 ======== ======== ======== Loans past due 90 days or more and still accruing $793,823 $329,116 $245,232 Nonperforming loans as a % of total loans 0.14% 0.34% 0.20% Nonperforming assets as a % of total loans, other real estate owned and other assets repossessed 0.49% 0.39% 0.24% Allowance for loan losses as a % of nonperforming asse 235.13% 306.13% 340.78% ==========================================================================
17 Allowance for Loan Losses. Provisions totaling $906,950, $999,950, and $854,400 for the years 1999, 1998 and 1997, 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 1999 due primarily to loan growth and charge-off experience in loans during the year. Provisions made in 1998 were primarily due to growth in the portfolio. Loan growth combined with installment loan charge-offs resulted in increased provisions for 1997. Table 4 analyzes activity in the allowance for 1999 and 1998. 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. 18
TABLE 4 - Summary of Loan Loss Experience (in thousands) 1999 1998 ______ ______ BALANCE AT BEGINNING OF YEAR $1,860 $1,415 CHARGE-OFFS Commercial, Financial and Agricultural 282 201 Real Estate - Construction - - Real Estate - Mortgage - - Installment Loans to Individuals 599 368 Lease Financing Receivables 33 84 Other 27 49 ______ ______ Total Charge-offs 941 702 ______ ______ RECOVERIES Commercial, Financial and Agricultural 11 32 Real Estate - Construction - - Real Estate - Mortgage 2 4 Installment Loans to Individuals 122 79 Lease Financing Receivables 1 27 Other 5 6 ______ ______ Total Recoveries 141 148 ______ ______ Net Charge-offs 800 554 Additions to allowance charged to operating expenses 907 1,000 ______ ______ BALANCE AT END OF YEAR $1,967 $1,861 ====== ====== Net charge-offs to average loans 0.49% 0.38% Year-end allowance to year-end loans 1.15% 1.20%
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 % of category category to total Allowance for Loan Losses 1999 to total 1998 loans _______________________________________________________________________________ Commercial, Financial and Agricultural 72 33.20% 60 31.87% Real Estate - Construction 1.93% 2.73% Real Estate - Mortgage 43.80% 43.71% Installment Loans to Individuals 17.52% 17.94% Lease Financing Receivables 3.00% 3.67% Other 0.55% 0.08% Unallocated 1,895 1,801 ____________________________________ $1,967 100.00% $1,861 100.00% ====================================
Sources of Funds Deposits. In 1999, MidSouth focused on increasing market share by strengthening existing client relationships and attracting new relationships. Total deposits increased $21.8 million, from $229.9 million at December 31, 1998 compared to $251.7 million at December 31, 1999. In March of 1999, MidSouth introduced a deposit promotion that provided incentives to employees for new deposit and loan relationships. The promotion resulted in additional deposits of $27.5 million as of the end of the campaign on May 31, 1999. The $27.5 million increase was partially offset in the third quarter of 1999 by the withdrawal of approximately $18.2 million in deposits held under a public fund contract. MidSouth bid on renewal of the contract, but was not awarded the bid and the contract expired on June 30, 1999. During the fourth quarter of 1999, MidSouth offered a CD promotion in selected markets that offered a 6.0% APY on a six month CD with the option to renew for a second six month period at maturity. A total of $12.0 million in CD's were added to MidSouth's deposit base through this promotion. During 1998, MidSouth continued to focus on the execution of a sales culture introduced in 1997. 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 1998. 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 19 $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. Non-interest bearing deposits represented 25% of total deposits at December 31, 1999 and 26% at December 31, 1998. 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, 1999 and 1998. CD's of $100,000 or more totaled $41.7 million at year-end 1999, an increase of $3.0 million from the $38.7 million reported at year-end 1998. 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. 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 decreased $44,571 from December 31, 1998 to December 31, 1999. The decrease resulted primarily from a decrease in long-term FHLB advances of $162,572. MidSouth borrowed $75,000 under its line of credit for operating expenses during 1999. The Finance Company borrowed an additional $115,000 under its line of credit , $72,000 of which was paid out prior to year-end 1999. Advances under the line of credit bear interest at a variable rate equal to the prime commercial rate of interest quoted in the "Money Rates" section of the Wall Street Journal minus fifty basis points (.50%). The current rate is 8.00%. Interest under the note is due and payable quarterly. Beginning June 30, 2000, principal payments in the amount of 12.50% of the amount of the loan balance on June 30, 2000 are due and payable in seven consecutive annual installments with an eighth and final installment on June 30, 2007. The Finance Company renewed its line $1,200,000 line of credit on May 3, 1999. 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 8.75%. Interest on the line is payable monthly, with principal due at maturity on May 1, 2000. Additional information regarding long-term debt 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. The ESOP obligation constitutes a reduction of MidSouth's stockholders' equity because the primary source of loan repayment is contributions by the Bank 20 to the ESOP; however, the loan is not guaranteed by MidSouth Bank or MidSouth. The ESOP note is eliminated from total loans and long-term debt as an intercompany balance in MidSouth's December 31, 1998 and 1999 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, 1999, 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, 1999, MidSouth's Tier 1 capital to average adjusted assets (the "leverage ratio") was 6.23% as compared to 6.06% at December 31, 1998. Tier 1 capital to risk weighted assets was 9.49% and 9.13% for 1999 and 1998, respectively. Total capital to risk weighted assets was 10.57% and 10.25%, respectively, for the same periods. The Bank's leverage ratio was 6.79% at December 31, 1999 compared to 6.67% at December 31, 1998. 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 1997, 1998 and 1999 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," $948,430 in unrealized losses on securities available-for-sale, net of a deferred tax asset of $468,500, was recorded as a reduction to stockholders' equity as of December 31, 1999. As of December 31, 1998, $276,700 in unrealized gains on securities available-for-sale, net of a deferred tax liability of $159,000, was recorded as an addition to stockholders' equity. While the net unrealized gain or loss on securities available for sale is required to be reported as a separate component of stockholders' equity, it does not affect operating results or regulatory capital ratios. The net unrealized gains and losses reported for December 31, 1999 and 1998 did, however, effect MidSouth's equity to assets ratio for financial reporting purposes. The ratio of equity to assets was 6.12% at year-end 1999 and 6.28% at year-end 1998. 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 1999, 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 21 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 ($2,377,000) at December 31, 1999. The minimal negative gap indicates MidSouth's total earning assets and interest-bearing liabilities maturing within one year are closely matched and the ratio of the one-year cumulative gap to total assets of (.86)% 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, 1999 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. 22
Table 5 Interest Rate Sensitivity and Gap Analysis Table December 31, 1999 (in thousands) Non-interest 0-3 MOS 4-6 MOS 7-12 MOS 1-5 YRS > 5YRS Bearing Total ___________________________________________________________________________ ASSETS Interest Bearing Deposits $356 $ - $ - $ - $ - $ - $356 Fed Funds Sold 900 900 Investments Mutual Funds 961 961 Investment Securities 1,170 3,263 4,993 14,324 22,541 46,291 Mortgage-backed Securities 1,781 1,424 2,802 16,711 7,007 29,725 Loans Fixed Rate 29,911 14,884 24,610 55,840 1,417 126,662 Variable Rate 43,807 43,807 Other Assets 29,989 29,989 Allowance for Loan Losses (1,967) (1,967) ___________________________________________________________________________ Total Assets $78,886 $19,571 $32,405 $86,875 $30,965 $28,022 $276,724 =========================================================================== LIABILITIES NOW $2,351 $2,462 $4,242 $15,280 $3,855 $28,190 MMDA 7,224 6,017 9,314 21,081 1,406 45,042 Savings 1,122 1,019 1,757 6,326 1,597 11,821 CD'S 30,662 39,150 22,901 10,256 102,969 Demand Deposits 63,669 63,669 Other Liabilities 3,607 1,411 1,266 782 1,042 8,108 Stockholders' Equity 16,925 16,925 ___________________________________________________________________________ Total Liabilities $44,966 $50,059 $38,214 $54,209 $7,640 $81,636 $276,724 =========================================================================== Repricing/maturity gap: Period $33,920 ($30,488) ($5,809) $32,666 $23,325 ($53,614) Cumulative $33,920 $3,432 ($2,377) $30,289 $53,614 $ - =========================================================================== Cumualtive Gap/Total Assets 12.26% 1.24% -0.86% 10.95% 19.37% ______________________________________________________
23 Liquidity Bank Liquidity. Liquidity is the availability of funds to meet contractual obligations as they become due and to fund operations. The Bank's primary liquidity needs involve its ability to accommodate customers demands for deposit withdrawals as well as their requests for credit. Liquidity is deemed adequate when sufficient cash to meet these needs can be promptly raised at a reasonable cost to the Bank. Liquidity is provided primarily by three sources: a stable base of funding sources, an adequate level of assets that can be readily converted into cash, and borrowing lines with correspondent banks. MidSouth's core deposits are its most stable and important source of funding. Further, the low variability of the core deposit base lessens the need for liquidity. Cash deposits at other banks, federal funds sold and principal payments received on loans and mortgage-backed securities provide primary sources of asset liquidity for the Bank. Approximately $9.0 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 lines with three correspondent banks, including significant borrowing capacity with the FHLB of Dallas, Texas. The Bank borrowed an average of $4.0 million from FHLB under short-term advances during 1999 at an average rate of 5.45%. Parent Company Liquidity. At the parent company level, cash is needed primarily to service outstanding debt and pay dividends on preferred and common stock. The parent company has a note payable to a financial institution, the terms of which are described in Note 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. In addition, sales of MidSouth common stock through a dividend reinvestment and direct stock purchase plan (the "DRIP") introduced in 1998 contributed approximately $206,000 and $538,000 to the cash flow of the parent company 1999 and 1998, respectively. Funds received from these sources are not expected to be sufficient to meet debt service obligations throughout 2000. Common stock required for the DRIP, for the Directors' Deferred Compensation Trust, and for the ESOP will be purchased in the market during 2000 instead of through new issuances from the Company. Dividends from the Bank will provide additional liquidity for the parent company in 2000. As of January 1, 2000, the Bank had the ability to pay dividends to the parent company of approximately $2.5 million without prior approval from its primary regulator. 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. The Bank has the ability to declare dividends to the parent company without prior approval of its primary regulator. However, the Bank's ability to pay dividends would be prohibited if the result would cause the Bank's regulatory capital to fall below minimum requirements. The Bank paid dividends totaling $375,000 to the Company in 1999. Cash dividends totaling $434,334 and $492,415 were declared to common stockholders during 1998 and 1999, 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 2,417,683. The conversion rate on the preferred stock was 24 adjusted to 2.998 due to the stock split. A total of $131,582 in dividends were declared on MidSouth's Preferred Stock in 1999. Assuming no conversion of preferred stock in 2000, the aggregate amount of dividends on the preferred stock in 2000 is expected to be $156,927. Year 2000 To maintain safe and sound banking practices, MidSouth took appropriate measures to insure efficient operations of computer systems beyond the year 2000. Beginning in June of 1997, MidSouth's Board of Directors established a Year 2000 compliance committee. The committee identified mission critical systems and completed testing and updating of these systems in 1999. To further reduce the risks associated with the century change, MidSouth requested and received assurances of Year 2000 readiness from all material third party providers and customers. Contingency plans to provide short-term and long-term processing capabilities were developed and tested in 1999. In addition, contingency plans for liquidity needs due to potentially significant deposit withdrawals during the fourth quarter of 1999 were completed. As of January 31, 2000, MidSouth has not experienced any processing errors other than those typically encountered and corrected daily by banks. Management is not aware of any significant issues related to the Year 2000 that had an adverse affect on MidSouth's third party providers or customers. MidSouth plans to continue to monitor processing systems for possible remaining uncertainties. The costs incurred with testing and preparation for the Year 2000 were not significant to MidSouth's earnings. 25
MIDSOUTH BANCORP, INC. LOAN PORTFOLIO LOAN MATURITIES AND SENSITIVITY TO INTEREST RATES for the Year Ended December 31, 1999 (dollars in thousands) Fixed and Variable Rate Loans at Stated Maturities Amounts Over One Year With _______________________________________________________ ______________________________________ 1 Year 1 Year - Over Predetermined Floating or Less 5 Years 5 Years Total Rates Rates Total _______________________________________________________ ______________________________________ Commercial, Financial Industrial, Commercial Real Estate Mortgage and Commercial Real Estate - Constr $58,990 $46,188 $16,926 $122,104 $35,595 $27,519 $63,114 Installment Loans to Individuals and Real Estate Mortgage 22,917 20,015 158 43,090 17,317 2,856 20,173 Lease Financing Receivables 560 4,560 - 5,120 4,560 - 4,560 Other 155 - - 155 - - - _______________________________________________________ _____________________________________ TOTAL $82,622 $70,763 $17,084 170,469 $57,472 $30,375 87,847 ======================================================= =====================================
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MIDSOUTH BANCORP, INC. SECURITIES PORTFOLIO MATURITIES AND AVERAGE YIELDS for the Year Ended December 31, 1999 (dollars in thousands) After 1 but After 5 but Within 1 Year Within 5 Years Within 10 Years After 10 Years SECURITIES AVAILABLE FOR SALE Amount Yield Amount Yield Amount Yield Amount Yield Total ____________________________________________________________________________________________ U.S. Treasury and U.S. Government Agency securities $7,982 5.53% $9,555 6.17% $2,672 6.52% $166 8.03% $20,375 Obligations of State and Political Subdivisions 60 7.16% 555 7.28% 1,191 6.54% 459 6.44% 2,265 Mortgage Backs and CMOs 301 5.60% 885 7.12% 2,612 6.22% 24,853 6.27% 28,651 Corporates and other securities 898 5.39% 994 5.36% - 1,546 5.40% 3,438 Mutual funds 961 5.25% - - - 961 ____________________________________________________________________________________________ Total Fair Value $10,202 $11,989 $6,475 $27,024 $55,690 ============================================================================================ After 1 but After 5 but Within 1 Year Within 5 Years Within 10 Years After 10 Years HELD TO MATURITY Amount Yield Amount Yield Amount Yield Amount Yield Total ____________________________________________________________________________________________ Obligations of State and Political Subdivisions $50 5.24% $601 5.74% $13,918 5.22% $6,719 4.97% $21,288 ____________________________________________________________________________________________ Total Amortized Cost $50 $601 $13,918 $6,719 $21,288 ============================================================================================
27
MIDSOUTH BANCORP, INC. SUMMARY OF AVERAGE DEPOSITS (in thousands) 1999 1998 AVERAGE AVERAGE AVERAGE AVERAGE AMOUNT YIELD AMOUNT YIELD _______ ________ _______ ________ Non-interest bearing $60,192 0.00% $54,601 0.00% Demand Deposits Interest bearing Deposits Savings, NOW, MMKT 91,559 2.87% 83,598 3.06% Time Deposits 95,109 4.98% 78,907 5.21% ________ ________ Total $246,860 2.99% $217,106 3.07% ======== ========
MATURITY SCHEDULE TIME DEPOSITS OF $100,000 OR MORE (in thousands) 1999 1998 _______ _______ 3 months or less $15,237 $19,234 3 months through 6 months 14,238 4,391 7 months through 12 months 10,114 9,333 over 12 months 2,154 5,746 _______ _______ Total $41,743 $38,704 ======= ======= SUMMARY OF RETURN ON EQUITY AND ASSETS 1999 1998 _______ _______ Return on Average Assets 0.97% 1.04% Return on Average Common Equity 17.45% 19.16% Dividend Payout Ratio on Common Stock 19.55% 18.91% Average Equity to Average Assets 6.10% 6.04%
28 MIDSOUTH BANCORP, INC. AND SUBSIDIARIES Consolidated Financial Statements for the Years Ended December 31, 1999, 1998 and 1997 and Independent Auditors' Report INDEPENDENT AUDITORS' REPORT To the Stockholders and Board of Directors of MidSouth Bancorp, Inc. Lafayette, Louisiana We have audited the accompanying consolidated statements of condition of MidSouth Bancorp, Inc. and its subsidiaries as of December 31, 1999 and 1998, 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, 1999. 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, 1999 and 1998 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP New Orleans, Louisiana February 4, 2000
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CONDITION DECEMBER 31, 1999 AND 1998 ________________________________________________________________________________________________ ASSETS 1999 1998 Cash and due from banks $ 13,587,690 $ 14,003,536 Federal funds sold 900,000 6,600,000 ___________ ___________ Total cash and cash equivalents 14,487,690 20,603,536 Interest-bearing deposits in banks 356,124 16,125 Securities available-for-sale at fair value (amortized cost of $57,106,793 in 1999 and $43,503,268 in 1998) 55,689,863 43,938,965 Securities held-to-maturity (estimated fair value of $20,776,767 in 1999 and $20,421,920 in 1998) 21,287,597 19,246,559 Loans, net of allowance for loan losses of $1,967,326 in 1999 and $1,860,490 in 1998 168,501,407 153,616,773 Accrued interest receivable 1,919,182 1,740,514 Premises and equipment, net 11,367,815 9,054,201 Other real estate owned, net 569,963 48,100 Goodwill, net 554,153 207,281 Other assets 1,990,047 1,346,214 ___________ ___________ $ 276,723,841 $ 249,818,268 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Non-interest bearing $ 63,668,676 $ 60,361,205 Interest bearing 188,021,530 169,563,097 ___________ ___________ Total deposits 251,690,206 229,924,302 Securities sold under repurchase agreements 606,601 - FHLB advances 3,000,000 - Accrued interest payable 715,171 565,896 Long-term notes payable 3,459.097 3,503,668 Other liabilities 327,605 138,280 ___________ ___________ Total liabilities 259,798,680 234,132,146 ___________ ___________ Commitments and Contingencies - - Stockholders' equity: Convertible preferred stock, $14.25 par value, 5,000,000 shares authorized, 152,736 and 156,927 issued and outstanding at December 31, 1999 and 1998, respectively 2,176,488 2,236,210 Common stock, $.10 par value, 5,000,000 shares authorized; 2,481,843 and 2,432,016 issued and outstanding at December 31, 1999 and 1998, respectively 248,184 243,201 Additional paid in capital 10,983,714 10,521,020 Unearned ESOP shares (89,044) (119,051) Unrealized gains (losses) on securities available-for-sale, net of deferred taxes (948,430) 276,700 Retained earnings 4,554,249 2,528,042 ___________ ___________ Total stockholders' equity 16,925,161 15,686,122 ___________ ___________ $ 276,723,841 $ 249,818,268 =========== =========== See notes to consolidated financial statements.
[CAPTION] MIDSOUTH BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 ______________________________________________________________________________________________________________________ 1999 1998 1997 INTEREST INCOME: Loans, including fees $ 16,282,923 $ 14,803,065 $ 11,625,789 Securities: Taxable 3,277,619 2,460,266 2,886,273 Nontaxable 1,105,320 924,669 794,065 Federal funds sold 406,871 567,764 470,289 __________ __________ __________ Total interest income 21,072,733 18,755,764 15,776,416 __________ __________ __________ INTEREST EXPENSE: Deposits 7,371,194 6,663,372 5,655,770 Securities sold under repurchase agreements, federal funds purchased and advances 253,869 3,310 76,552 Long-term debt 263,288 264,874 161,871 __________ __________ __________ Total interest expense 7,888,351 6,931,556 5,894,193 __________ __________ __________ NET INTEREST INCOME 13,184,382 11,824,208 9,882,223 PROVISION FOR LOAN LOSSES 906,950 999,950 854,400 __________ __________ __________ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 12,277,432 10,824,258 9,027,823 __________ __________ __________ NONINTEREST INCOME: Service charges on deposit accounts 2,972,024 2,606,903 2,101,956 Gains on sale of securities, net - - 94,913 Credit life insurance 159,014 133,217 190,590 Other charges and fees 849,458 746,817 512,002 __________ __________ __________ 3,980,496 3,486,937 2,899,461 __________ __________ __________ NONINTEREST EXPENSES: Salaries and employee benefits 6,037,935 5,274,992 4,509,683 Occupancy expense 2,850,428 2,360,665 2,163,855 Other 3,851,944 3,387,588 2,912,250 __________ __________ __________ 12,740,307 11,023,245 9,585,788 __________ __________ __________ INCOME BEFORE INCOME TAXES 3,517,621 3,287,950 2,341,496 PROVISION FOR INCOME TAXES 867,417 842,167 586,804 __________ __________ __________ NET INCOME 2,650,204 2,445,783 1,754,692 PREFERRED DIVIDEND REQUIREMENT 131,582 148,971 154,475 __________ __________ __________ NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 2,518,622 $ 2,296,812 $ 1,600,217 ========== ========== ========== EARNINGS PER COMMON SHARE: BASIC $1.03 $.95 $.69 ===== ==== ==== DILUTED $. 90 $.83 $.61 ===== ==== ==== See notes to consolidated financial statements.
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 ____________________________________________________________________________________________________________________ 1999 1998 1997 Net income $ 2,650,204 $ 2,445,783 $ 1,754,692 Other comprehensive income (loss): Unrealized gain (loss) on securities available-for-sale, net: Unrealized holding gains (losses) arising during the year (1,225,130) 194,734 259,139 Less reclassification adjustment for gains included in net income - - (62,643) ____________ ____________ ___________ Total other comprehensive income (loss) (1,225,130) 194,734 196,496 ____________ ____________ ___________ TOTAL COMPREHENSIVE INCOME $ 1,425,074 $ 2,640,517 $ 1,951,188 ============ ============ ============ See notes to consolidated financial statements.
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 ___________________________________________________________________________________________________________________________________ Unrealized Gains (Losses) Additional on Securities Preferred Stock Common Stock Paid in ESOP Available Retained Shares Amount Shares Amount Capital Obligation for Sale Earnings Total BALANCE, JANUARY 1, 1997 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 on common stock - $.24 per share (354,336) (354,336) Dividends 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 on common stock - $.23 per share (434,334) (434,334) Dividends 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 Issuance of common stock 37,267 3,727 386,728 390,455 Dividends on common stock - $.20 per share (492,415) (492,415) Dividends on preferred stock (131,582) (131,582) Preferred stock conversion (4,191) (59,722) 12,560 1,256 58,466 - Excess of market value over book value of ESOP shares released 17,500 17,500 Net income 2,650,204 2,650,204 ESOP obligation repayments 30,007 30,007 Net change in unrealized gains (losses) on securities available-for -sale, net of tax (1,225,130) (1,225,130) ________ __________ _________ ________ ___________ ________ __________ __________ ___________ BALANCE, DECEMBER 31, 1999 152,736 $2,176,488 2,481,843 $248,184 $10,983,714 $(89,044) (948,430) $4,554,249 $16,925,161 ======== ========== ========= ======== =========== ======== ========== ========== =========== See notes to consolidated financial statements.
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 ____________________________________________________________________________________________________________________ 1999 1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 2,650,204 $ 2,445,783 $ 1,754,692 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,199,447 975,889 850,426 Provision for loan losses 906,950 999,950 854,400 Provision for losses on other real estate owned - - 33,718 Deferred income taxes 20,500 (55,023) (163,196) (Discount accretion) premium amortization, net 62,577 (39,702) (150,203) Gain on sales of securities - - (94,913) Loss on sales of other real estate owned 5,100 3,037 8,052 (Gain) loss on sales of premises and equipment (2,756) 10,428 - Change in accrued interest receivable (178,668) (101,583) (252,335) Change in accrued interest payable 149,275 21,960 146,677 Other, net (72,512) (321,772) 137,288 __________ __________ __________ Net cash provided by operating activities 4,740,117 3,938,967 3,124,606 __________ __________ __________ CASH FLOWS FROM INVESTING ACTIVITIES: Net decrease (increase) in interest- bearing deposits in banks (339,999) 32,803 357,870 Proceeds from sales of securities available-for-sale - - 12,990,400 Proceeds from maturities and calls of securities available-for-sale 13,596,064 14,675,141 23,579,688 Proceeds from maturities of securities held-to-maturity 50,000 25,000 229,322 Purchases of securities available-for-sale (27,260,358) (21,387,038) (25,694,503) Purchases of securities held-to-maturity (2,030,269) (2,539,451) (7,407,947) Loan originations, net of repayments (13,207,947) (25,148,249) (36,693,406) Purchases of premises and equipment (3,488,024) (3,063,110) (1,980,003) Proceeds from sales of premises and equipment 25,636 30,363 - Proceeds from sales of other real estate owned 51,374 17,000 93,400 Purchase of insurance premium financing company (3,503,497) - - __________ __________ __________ Net cash used in investing activities (36,107,020) (37,357,541) (34,525,179) __________ __________ __________ (Continued)
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 _______________________________________________________________________________________________________________ 1999 1998 1997 CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in deposits 21,765,904 29,856,551 28,451,243 Net (increase) in repurchase agreements 606,601 (69,443) (34,971) Proceeds from FHLB advances, net 3,000,000 - - Issuance of long-term debt 190,000 460,000 3,254,210 Repayments of long-term debt (234,571) (155,126) (1,576,852) Proceeds from issuance of common stock 390,455 695,011 261,029 Payment of dividends on common and preferred stock (467,332) (583,305) (508,810) Payment of fractional shares resulting from stock dividend - (1,757) (2,245) Costs associated with dividend reinvestment plan (13,845) (23,569) ___________ ___________ ___________ Net cash provided by financing activities 25,251,057 30,188,086 29,820,035 ___________ ___________ ___________ NET DECREASE IN CASH AND CASH EQUIVALENTS (6,115,846) (3,230,488) (1,580,538) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 20,603,536 23,834,024 25,414,562 ___________ ___________ ___________ CASH AND CASH EQUIVALENTS AT END OF YEAR $ 14,487,690 $ 20,603,536 $ 23,834,024 =========== =========== =========== SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid $ 7,739,076 $ 6,975,476 $ 5,747,516 =========== =========== =========== Income taxes paid $ 845,488 $ 970,153 $ 716,467 =========== =========== =========== See notes to consolidated financial statements. (Concluded)
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 __________________________________________________ 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 - 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, 1999. 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. During 1999, the Company acquired a small company involved in the financing of insurance premiums. An intangible asset of approximately $400,000 resulted from this acquisition which was accounted for using the purchase method. Stock-Based Compensation - The Company applies APB Opinion No. 25 and related interpretations in accounting for its stock options. Since all options are exercisable at the estimated fair value at the date of grant, no compensation cost has been recognized. The pro forma disclosures required by SFAS 123 are included in Note 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. Reclassifications - Certain reclassifications have been made to the 1997 and 1998 consolidated financial statements in order to conform to the classifications adopted for reporting in 1999. 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 $4,898,000 and $4,380,000 at December 31, 1999 and 1998, respectively. 3. INVESTMENT SECURITIES The portfolio of securities consisted of the following:
December 31, 1999 _________________________________________________________ Gross Gross Amortized Unrealized Unrealized Available-for-Sale Cost Gains Losses Fair Value U.S. Treasury securities $ 11,632,385 $ 16,262 $ 22,951 $ 11,625,696 U.S. Government agencies 8,871,214 - 121,932 8,749,282 Obligations of states and political subdivisions 2,408,808 495 144,280 2,265,023 Mortgage-backed securities 19,940,622 5,027 883,289 19,062,360 Collateralized mortgage obligations 9,785,272 - 196,043 9,589,229 Corporate securities 1,922,792 - 31,219 1,891,573 Mutual funds 1,000,000 - 39,000 961,000 Other 1,545,700 - - 1,545,700 ____________ ________ ___________ ____________ $ 57,106,793 $ 21,784 $ 1,438,714 $ 55,689,863 ============ ======== =========== ============
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, 1999 _____________________________________________________________ Gross Gross Amortized Unrealized Unrealized Held-to-Maturity Cost Gains Losses Fair Value Obligations of states and political subdivisions $21,287,597 $ 67,787 $ 578,617 $ 20,776,767 =========== ========== ========= =============
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 =========== ========== ========= =============
The amortized cost and fair value of securities at December 31, 1999 by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Amortized Available-for-Sale Cost Fair Value Due in one year or less $ 8,974,913 $ 8,939,070 Due after one year through five years 11,168,902 11,104,585 Due after five years through ten years 4,016,091 3,862,311 Due after ten years 675,293 625,608 Mortgage-backed securities 29,725,894 28,651,589 Other securities 1,545,700 1,545,700 Mutual funds 1,000,000 961,000 ______________ ______________ $ 57,106,793 $ 55,689,863 ============== ==============
Amortized Held-to-Maturity Cost Fair Value Due in one year or less $ 50,000 $ 50,194 Due after one year through five years 600,515 606,462 Due after five years through ten years 13,918,426 13,802,504 Due after ten years 6,718,656 6,317,607 ______________ ______________ $ 21,287,597 $ 20,776,767 ============== ==============
There were no sales of securities available-for-sale during 1998 or 1999. Proceeds from sales of securities available-for-sale during 1997 were $12,990,400. A gross gain of $146,616 was recognized on sales in 1997. A gross loss of $61,437 was recognized on sales in 1997. Securities with an aggregate carrying value of approximately $18,000,000 and $31,000,000 at December 31, 1999 and 1998 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) three fixed rate FHLMC Remic securities, one with a sequential pay structure and two with a planned amortization class 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, ___________________________________ 1999 1998 Commercial, financial and agricultural $ 56,598,730 $ 49,543,647 Lease financing receivable 5,119,795 5,706,060 Real estate - mortgage 74,665,579 67,961,708 Real estate - construction 3,297,150 4,245,718 Installment loans to individuals 30,632,469 27,899,592 Other 155,010 120,538 ___________ ___________ 170,468,733 155,477,263 Less allowance for loan losses (1,967,326) (1,860,490) ___________ ___________ $ 168,501,407 $ 153,616,773 =========== ===========
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 $234,962 and $533,107 at December 31, 1999 and 1998, respectively. If interest on these types of loans had been accrued, the income that would have been recognized would have approximated $65,000, $69,000 and $89,000 for the years ended December 31, 1999, 1998 and 1997. Interest income recognized on those loans, which is recorded only when received, amounted to $20,000, $72,000 and $3,500 for 1999, 1998 and 1997, respectively. An analysis of the activity in the allowance for loan losses is as follows:
Year Ended December 31, _____________________________________________ 1999 1998 1997 Balance at beginning of year $ 1,860,490 $ 1,414,826 $ 1,087,790 Provision for loan losses 906,950 999,950 854,400 Recoveries 141,299 147,817 205,409 Loans charged off (941,413) (702,103) (732,773) ____________ ____________ ____________ Balance at end of year $ 1,967,326 $ 1,860,490 $ 1,414,826 ============ ============ ============
During the years ended December 31, 1999 and 1998, approximately $581,000 and $14,000, respectively, 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. As of December 31, 1999 and 1998, loans outstanding to directors, executives officers, and their affiliates were $841,178 and $941,947, 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 1999 activity with respect to these related party loans is as follows:
Balance, January 1, 1999 $ 941,947 New loans 329,523 Repayments (430,292) __________ Balance, December 31, 1999 $ 841,178 ==========
At December 31, 1999 and 1998, the recorded investment in loans that are considered to be impaired was $120,959 and $80,232, respectively, substantially all of which had related reserves recorded. The related reserves for these loans were $72,000 and $60,000 at December 31, 1999 and 1998, respectively. Interest income on these types of loans would have approximated $1,400, $42,000 and $37,000 for 1999, 1998 and 1997, respectively, if interest had been accrued. Interest income actually recognized on those loans amounted to $-0-, $23,000 and $3,500 for 1999, 1998 and 1997, respectively. 5. BANK PREMISES AND EQUIPMENT Premises and equipment consisted of the following:
December 31, _______________________________ 1999 1998 Buildings and improvements $ 7,960,581 $ 5,385,629 Furniture, fixtures, and equipment 6,585,951 5,404,800 Automobiles 270,328 261,804 Leasehold improvements 640,410 668,176 Construction-in-process 887,943 1,501,938 _____________ ____________ 16,345,213 13,222,347 Less accumulated depreciation and amortization (4,977,398) (4,168,146) _____________ ____________ $ 11,367,815 $ 9,054,201 ============= ============
6. DEPOSITS Deposits consisted of the following:
December 31, ___________________________________ 1999 1998 Non-interest bearing $ 63,668,676 $ 60,361,205 Savings and money market 56,862,506 50,870,448 NOW accounts 28,190,168 31,839,882 Time deposits under $100,000 61,225,647 48,149,035 Time deposits over $100,000 41,743,209 38,703,732 _______________ ______________ $ 251,690,206 $ 229,924,302 =============== ==============
Approximately $92,713,000 of time deposits mature in 2000 and the balance of $10,256,000 principally in 2001. 7. FHLB ADVANCES AND LONG-TERM DEBT At December 31, 1999, the Company has a $3,000,000 short-term advance outstanding with the Federal Home Loan Bank. This advance bears interest at 6.02% and is due January 21, 2000. Long-term debt consisted of the following:
December 31, __________________________________ 1999 1998 Notes payable to financial institutions $ 3,235,024 $ 3,117,023 FHLB advances - long term 224,073 386,645 ___________ ___________ $ 3,459,097 $ 3,503,668 =========== ===========
The notes payable 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. 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, 1999 and 1998, the effective rate was 8.00% and 7.25%, respectively. Interest under the note is due and payable quarterly. Principal payments in the amount of 12.50% of the amount of the loan balance on June 30, 2000 are due and payable in seven consecutive annual installments. The remaining balance of the loan is due and payable in a eighth 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, 1999. The principal balance on this note at December 31, 1999 and 1998 was $2,085,024 and $2,010,023, respectively. The Line of Credit for Financial Services of the South is in the amount of $1,200,000 and was last renewed May 3, 1999. 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, 1999 and 1998, the effective rate was 8.75% and 8.00%, respectively. Interest on this note is payable monthly, with principal due at maturity on May 1, 2000. Advances under this note totaled $1,150,000 at December 31, 1999 and $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; (2) all of its accounts receivable; and (3) all of its common stock as collateral on this note. At December 31, 1999, the Bank had two long-term FHLB borrowings outstanding. These borrowings bear interest at rates of 6.17% and 7.28%, and have maturities from April 2001 to June 1, 2004. 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 FHLB short-term and long-term advances are collaterized by a blanket floating lien on certain of the Bank's mortgage loans.
Aggregate annual maturities on long-term debt are payable as follows: 2000 $ 1,410,628 2001 484,701 2002 260,628 2003 260,628 2004 260,628 Thereafter 781,886 ___________ $ 3,459,097 ===========
8. COMMITMENTS AND CONTINGENCIES At December 31, 1999, future annual minimum rental payments due under noncancellable operating leases, primarily for land, are as follows:
2000 $ 411,927 2001 407,051 2002 392,097 2003 389,856 2004 348,562 Thereafter through 2058 772,983 _________ $2,722,476 =========
Minimum rental payments have not been reduced by minimum sublease rentals of approximately $60,000 due in the future under noncancellable subleases. Rental expense under operating leases for 1999, 1998 and 1997 was $447,409, $422,662, and $399,961, respectively. Sublease income for 1999, 1998 and 1997 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, 1999 and 1998 are as follows:
1999 1998 Deferred tax assets: Unrealized loss on securities $ 468,500 $ - Allowance for loan losses 469,000 470,000 Other 16,000 88,000 _________ ________ Total deferred tax assets 953,500 558,000 _________ ________ Deferred tax liabilities: FHLB stock dividends (56,000) (41,000) Depreciation (178,000) (140,000) Unrealized gain on securities - (159,000) Other (84,500) (190,000) _________ ________ Total deferred tax liabilities (318,500) (530,000) _________ ________ Net deferred tax asset $ 635,000 $ 28,000 ========= ========
Components of income tax expense are as follows:
1999 1998 1997 Current $ 846,917 $ 897,190 $ 750,000 Deferred 20,500 (55,023) (163,196) _________ ________ ________ $ 867,417 $ 842,167 $ 586,804 ========= ======== ========
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, ________________________________________ 1999 1998 1997 Taxes calculated at statutory rate $1,195,991 $1,117,903 $ 796,109 Increase (decrease) resulting from: Tax-exempt interest (334,386) (280,412) (242,420) Other 5,812 4,676 33,115 _________ _________ ________ $ 867,417 $ 842,167 $ 586,804 ========= ========= ========
The deferred income tax expense (credit) relating to unrealized gains (losses) on securities available-for-sale included in other comprehensive income amounted to $(627,500) in 1999, $107,495 in 1998 and $101,225 in 1997. Income taxes relating to gains on sale of securities amounted to $32,270 in 1997. 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 $89,044 and $119,051 at December 31, 1999 and 1998, respectively. 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. All of the unrealized shares at December 31, 1999 and 1998 were purchased after December 31, 1992. ESOP compensation expense was $145,500, $102,000 and $90,000 for the years ended December 31, 1999, 1998 and 1997, respectively. The ESOP shares as of December 31, 1999 and 1998 were as follows:
1999 1998 Allocated shares 228,990 223,187 Shares released for allocation 5,002 3,558 Unreleased shares 13,462 18,463 _________ _________ Total ESOP shares 247,454 245,208 ========= ========= Fair value of unreleased shares at December 31, $ 132,741 $ 214,201 ========= =========
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 1999, 1998 and 1997 no contributions were required. 11. EMPLOYEE STOCK PLANS In May 1997 the stockholders of the Company approved the 1997 Stock Incentive Plan to provide incentives and awards for employees of the Company and its subsidiaries. "Awards" as defined in the Plan includes, with limitations, stock options (including restricted stock options), stock appreciation rights, performance shares, stock awards and cash awards, all on a stand-alone, combination or tandem basis. A total of 8% of the Company's common shares outstanding can be granted under the Plan. The exercise price of options is equal to the market price on the date of grant. The Company is applying APB Opinion No. 25 and related interpretations in accounting for stock options. Since all options are exercisable at the estimated fair market value at the date of grant, no compensation expense has been recognized. During 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, 1997 - - 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 Granted - - _______ ______ Balance, December 31, 1999 162,378 7.92 ======= ======
Options on 55,690 shares at $6.67 per share and on 4,631 shares at $15.42 per share were exercisable at December 31, 1999. 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, 1999 was 7.3 years. The Company has adopted the disclosure-only option under SFAS No. 123, "Accounting for Stock Based Compensation." The fair value of options granted were $4.63 and $2.17 in 1999 and 1998, respectively. 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 ___________________________________________________ 1999 1998 1997 Net income available to common stockholders: As reported $ 2,518,622 $ 2,296,812 $ 1,600,217 Pro forma 2,434,668 2,169,732 1,485,217 Basic income per common share: As reported $ 1.03 $ .95 $ .69 Pro forma 1.00 .90 .64 Diluted income per common share: As reported $ .90 $ .83 $ .61 Pro forma .87 .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 7.03% at December 31, 1999. 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, 1999, the Bank has approximately $2,500,000 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, ___________________________________________________ 1999 1998 1997 Net income - used in computation of diluted earnings per common share $ 2,650,204 $ 2,445,783 $ 1,754,692 Preferred dividend requirement 131,582 148,971 154,475 ____________ ______________ ______________ Net income available to common stockholders - used in computation of basic earnings per common share $ 2,518,622 $ 2,296,812 $ 1,600,217 ============ ============== ============== Weighted average number of common shares outstanding - used in computation of basic earnings per common share 2,441,461 2,410,926 2,332,452 Effect of dilutive securities: Stock options 51,616 72,317 24,737 Convertible preferred stock 463,185 475,138 498,819 ____________ ______________ ______________ Weighted average number of common shares outstanding plus effect of dilutive securities - used in computation of diluted earnings per common share 2,956,262 2,958,381 2,856,008 ============ ============== ==============
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 _________________________________________ 1999 1998 Financial instruments whose contract amounts represent credit risk: Commitments to extend credit $32,900,000 $29,400,000 Standby letters of credit 800,000 800,000
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 95% of these letters of credit were secured by marketable securities, cash on deposits or other assets at December 31, 1999 and 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, 1999 and 1998, 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, 1999: Total capital to risk weighted assets: Company $ 19,247,764 10.55 % $ 14,600,062 8.00 % N/A N/A Bank 20,628,906 11.41 % 14,465,478 8.00 % 18,081,848 10.00 % Tier I capital to risk weighted assets: Company 17,280,438 9.47 % 7,300,031 4.00 % N/A N/A Bank 18,729,581 10.36 % 7,232,739 4.00 % 10,849,107 6.00 % Tier I capital to average assets: Company 17,280,438 6.23 % 11,093,925 4.00 % N/A N/A Bank 18,729,581 6.79 % 11,035,784 4.00 % 13,794,731 5.00 %
To Be Well Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions _______________________ ______________________ _______________________ Amount Ratio Amount Ratio Amount Ratio As of December 31, 1998: Total capital to risk weighted assets: Company $ 17,030,631 10.25 % $ 13,292,134 8.00 % N/A N/A Bank 18,372,000 11.17 % 13,160,778 8.00 % 16,450,973 10.00 % Tier I capital to risk weighted assets: Company 15,170,141 9.13 % 6,646,067 4.00 % N/A N/A Bank 16,578,963 10.08 % 6,580,389 4.00 % 9,870,584 6.00 % Tier I capital to average assets: Company 15,170,141 6.06 % 10,012,901 4.00 % N/A N/A Bank 16,578,963 6.67 % 9,947,224 4.00 % 12,434,030 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, 1999 and 1998 (in thousands):
1999 1998 _________________________________________________ Carrying Fair Carrying Fair Amount Value Amount Value Financial assets: Cash, due from banks and federal fund sold $ 14,488 $ 14,488 $ 20,604 $ 20,604 Securities available-for-sale 55,690 55,690 43,939 43,939 Securities held-to-maturity 21,288 20,777 19,247 20,422 Loans, net 168,501 168,793 153,617 153,700 Financial liabilities: Non-interest bearing deposits 63,669 63,669 60,361 60,361 Interest bearing deposits 188,022 188,135 169,563 169,792 FHLB advances 3,000 3,000 - Long-term notes payable 3,459 3,459 3,504 3,504
17. OTHER NON-INTEREST EXPENSE Other non-interest expense consisted of the following for the years ended December 31, 1999, 1998 and 1997:
1999 1998 1997 Professional fees $ 369,672 $ 397,880 $ 337,824 FDIC assessments 27,470 23,540 21,267 Marketing expenses 789,666 672,896 515,097 Data processing 192,360 163,839 162,016 Postage 249,836 211,179 224,761 Education and travel 172,559 168,038 124,287 Printing and supplies 341,452 319,713 279,806 Telephone 267,325 241,455 202,999 Other 1,441,604 1,189,048 1,044,193 _________ _________ _________ $3,851,944 $3,387,588 $2,912,250 ========= ========= =========
18. CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY Summarized financial information for MidSouth Bancorp, Inc. (parent company only) follows:
STATEMENTS OF CONDITION December 31, __________________________________ ASSETS 1999 1998 Cash and interest-bearing deposits in banks $ 202,782* $ 18,901* Other assets 102,444 118,127 Investment in and advances to subsidiaries 18,954,629* 17,692,418* _____________ _____________ $ 19,259,855 $ 17,829,446 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Dividends payable $ 156,664 $ - Notes payable to financial institutions 2,087,486 2,010,023 Note payable to Bank 90,544* 133,301* _____________ _____________ Total liabilities 2,334,694 2,143,324 _____________ _____________ Total stockholders' equity 16,925,161 15,686,122 _____________ _____________ $ 19,259,855 $ 17,829,446 ============= =============
STATEMENTS OF INCOME Years Ended December 31, ________________________________________________ 1999 1998 1997 Revenue: Equity in income of subsidiaries $2,844,841* $2,614,618* $1,895,208* Rental and other income 42,988 44,553 32,827 __________ __________ __________ 2,887,829 2,659,171 1,928,035 __________ __________ __________ Expenses: Interest on notes payable 157,000 146,831 100,109 Professional fees 99,741 83,304 87,548 Other expense 79,636 66,544 58,086 __________ __________ __________ 336,377 296,679 245,743 __________ __________ __________ Income before income taxes 2,551,452 2,362,492 1,682,292 Income tax benefit 98,752 83,291 72,400 __________ __________ __________ Net income $2,650,204 $2,445,783 $1,754,692 ========== ========== ==========
STATEMENTS OF CASH FLOWS Years Ended December 31, _________________________________________________ 1999 1998 1997 Cash flows from operating activities: Distributions from bank $ 375,000* $ 85,000* $ - Change in other assets and liabilities, 15,683 10,792 751 Other operating (147,131) (168,836) (140,516) ___________ ____________ ____________ Net cash provided by (used in) operating activities 243,552 (73,044) (139,765) ___________ ____________ ____________ Cash flows from investing activities: Investment in and advances to subsidiaries - (350,000)* (500,000)* ___________ ____________ ____________ Net cash used in investing activities - (350,000) (500,000) ___________ ____________ ____________ Cash flows from financing activities: Capital stock transactions 372,955 679,409 235,168 Payment of dividends (467,332) (583,305) (508,810) Proceeds of notes payable, net 34,706 325,000 881,943 ___________ ____________ ____________ Net cash provided by financing activities (59,671) 421,104 608,301 ___________ ____________ ____________ Net increase (decrease) in cash 183,881 (1,940) (31,464) Cash, beginning of year 18,901 20,841 52,305 ___________ ____________ ____________ Cash, end of year $ 202,782 $ 18,901 $ 20,841 =========== ============ ============ *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, 2000. Earlier adoption of this Statement is permitted. The Company expects to adopt this accounting standard on January 1, 2001 * * * * * *
Selected Quarterly Financial Data (unaudited) 1999 _________________________________________________________ (Dollars in thousands, except per share IV III II I ______ ______ ______ ______ Interest income $5,494 $5,393 $5,324 $4,862 Interest expense 2,090 1,932 2,027 1,840 ______ ______ ______ ______ Net interest income 3,404 3,461 3,297 3,022 Provision for possible credit losses 229 173 238 267 ______ ______ ______ ______ Net interest income after provision for possible credit losses 3,175 3,288 3,059 2,755 Noninterest income, excluding securities gains 1,044 1,048 979 909 Net securities gains - - - - Noninterest expense 3,352 3,360 3,125 2,903 ______ ______ ______ ______ Income before income tax expense 867 976 913 761 Income tax expense 194 263 245 164 ______ ______ ______ ______ Net income 673 713 668 597 Preferred stock dividend requirement (33) (33) (33) (33) ______ ______ ______ ______ Income applicable to common shareholders $640 $680 $635 $564 ====== ====== ====== ====== Earnings per common share (1) Basic $0.26 $0.28 $0.26 $0.23 Diluted $0.23 $0.24 $0.23 $0.20 Market price of common stock High $10.13 $11.00 $11.69 $11.63 Low $9.00 $9.63 $10.50 $10.75 Close $9.00 $9.69 $10.88 $11.06 Average shares outstanding Basic 2,460,413 2,448,731 2,450,164 2,439,256 Diluted 2,961,008 2,957,899 2,967,157 2,965,203 ck totals 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 ______ ______ ______ ______ 0 Net interest income 3,084 3,107 2,942 2,691 Provision for possible credit losses 244 260 238 258 ______ ______ ______ ______ 0 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 ______ ______ ______ ______ 0 Income before income tax expense 770 866 947 705 Income tax expense 179 242 268 153 ______ ______ ______ ______ 0 Net income 591 624 679 552 Preferred stock dividend requirement (37) (37) (38) (37) ______ ______ ______ ______ 0 Income applicable to common shareholders $554 $587 $641 $515 ====== ====== ====== ====== Earnings per common share (1) 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
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 2000 annual meeting of shareholders, is incorporated herein by reference in response to this Item. Information concerning executive officers is provided following Item 4. ITEM 10 - Executive Compensation The information contained in Registrant's definitive proxy statement for its 2000 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 2000 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 2000 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. 10.9 Modification Agreement to the Loan Agreement and Master Note for the Line of Credit established for MidSouth Bancorp, Inc. is included as Exhibit 10.9 to MidSouth Bancorp, Inc.'s Form 10-QSB filed on August 13, 1999 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: /s/ C. R. Cloutier C. R. Cloutier President and Chief Executive Officer Dated: March 30, 2000 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 30, 2000 C. R. Cloutier Officer and Director /s/ Karen L. Hail Chief Financial Officer, March 30, 2000 Karen L. Hail Executive Vice President, Secretary/Treasurer and Director /s/ Teri S. Stelly Chief Accounting Officer March 30, 2000 Teri S. Stelly /s/ J. B. Hargroder, M.D. Director March 30, 2000 J. B. Hargroder, M.D. /s/ William M. Simmons Director March 30, 2000 William M. Simmons /s/ Will G. Charbonnet, Sr. Director March 30, 2000 Will G. Charbonnet, Sr. /s/ Clayton Paul Hilliard Director March 30, 2000 Clayton Paul Hilliard /s/ James R. Davis Director March 30, 2000 James R. Davis, Jr. /s/ Milton B. Kidd, III Director March 30, 2000 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 4, 2000, appearing in this Annual Report on Form 10-KSB of MidSouth Bancorp, Inc. for the year ended December 31, 1999. DELOITTE & TOUCHE, LLP New Orleans, Louisiana March 30, 2000 EX-27 4
9 YEAR DEC-31-1999 DEC-31-1999 13,587,690 356,124 900,000 0 55,689,863 21,287,597 20,776,767 170,468,733 1,967,326 276,723,841 251,690,206 606,601 4,042,776 3,459,097 0 2,176,488 248,184 14,500,489 276,723,841 16,282,923 4,382,939 406,871 21,072,733 7,371,194 7,888,351 13,184,382 906,950 0 12,740,307 3,517,621 2,650,204 0 0 2,650,204 1.03 .90 5.30 234,962 793,823 0 0 1,860,490 941,413 141,299 1,967,326 72,000 0 1,895,326
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