SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 2-91000-FW
MIDSOUTH BANCORP, INC.
(Exact name of registrant as specified in its charter)
Louisiana 72-1020809
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
102 Versailles Blvd., Lafayette, LA 70501
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (318) 237-8343
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $.10 par value American Stock Exchange, Inc.
Preferred Stock, no par value, American Stock Exchange, Inc.
$14.25 stated value
Securities registered pursuant to Section 12(g) of the Act: none
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III
of this Form 10-KSB or any amendment to this Form 10-KSB __X__
As of February 28, 1998, the aggregate market value of the voting stock
held by non-affiliates of the Registrant, calculated by reference to the
closing sale price of MidSouth's common stock on the AMEX was $20,590,060.
As of February 28, 1998 there were outstanding 1,591,891 shares
of MidSouth Bancorp, Inc. common stock, $.10 par value, which stock is
the only class of the Registrant's common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for Annual Meeting of Shareholders to be held May 13, 1998
- (Part III)
<PAGE>
PART I
ITEM 1 - Business.
The Company
MidSouth Bancorp, Inc. ("MidSouth") is a Louisiana corporation
registered as a bank holding company under the Bank Holding Company
Act of 1956. Its operations are conducted through, and its primary asset
is, MidSouth National Bank (the "Bank"), a wholly-owned subsidiary. In
the third quarter of 1996, MidSouth formed Financial Services of the
South, Inc. (the "Finance Company") to provide quality consumer finance
throughout its market area. MidSouth, the Bank and the Finance
Company are referred to collectively herein as "the Company."
On July 31, 1995, MidSouth consummated the acquisition of
Sugarland Bancshares, Inc. which resulted in Sugarland's subsidiary and
sole asset, Sugarland Bank, being merged into the Bank. Completion of
the acquisition added $17.2 million to MidSouth's total assets.
The Bank
The Bank is a national banking association domiciled in Lafayette,
Louisiana. The Bank provides a complete range of commercial and retail
banking services primarily to professional, commercial and industrial
customers in its market area. These services include, but are not limited to,
interest bearing and non-interest bearing checking accounts, investment
accounts, credit card services and issuance of cashier's checks, United
States Savings Bonds and travelers checks. The Bank is a U.S.
government depository. The Bank is also a member of the Electronic Data
Services ("EDS") network through Comerica Bank, Dallas, Texas which
provides its customers with automatic teller machine services through the
GulfNet, Cirrus and Plus networks. Discount brokerage services are
offered in conjunction with Union Planters Discount Brokerage Services.
The Bank serves most types of lending demands including short term
business loans, other commercial, industrial and agricultural loans, real
estate construction and mortgage loans and installment loans. The Bank
operates at the fifteen locations described below under "Item 2 -
Properties."
Employees
As of December 31, 1997, the Bank employed 134 full-time
equivalent employees and the Finance Company employed 5 full-time equivalent
employees. MidSouth has no employees who are not also employees of
the Bank. Through the Bank and the Finance Company, employees
receive employee benefits which include an employee stock ownership
plan, a 401-K plan and life, health and disability insurance plans.
MidSouth considers the relationships of the Bank and the Finance
Company with their employees to be very good.
<PAGE>
Competition
The Bank faces keen competition in its market area not only with
other commercial banks, but also with savings and loan associations,
credit unions, finance companies, mortgage companies, leasing
companies, insurance companies, money market mutual funds and
brokerage houses. In the Lafayette Parish area there are fifteen state
chartered or national banks and three savings banks. Several of the banks
in Lafayette are subsidiaries of holding companies or branches of banks
having far greater resources than the Company.
Louisiana state banks may establish branch offices statewide, and
national banks domiciled in Louisiana have the power to establish
branches to the full extent that Louisiana banks may establish branches.
Since 1989, Louisiana has allowed bank holding companies domiciled in
any state of the United States to acquire Louisiana banks and bank holding
companies, if the state in which the bank holding company is domiciled
allows Louisiana banks and bank holding companies the same
opportunities.
In 1994, the Interstate Banking and Branching Efficiency Act of 1994
(the "Interstate Act") was enacted. Among other things, the Interstate Act
(i) allows bank holding companies to acquire a bank located in any state,
subject to certain limitations that may be imposed by the state, (ii) allows
banks to merge across state lines, and (iii) permits banks to establish
branches outside their state of domicile if expressly permitted by the law
of the state in which the branch is to be located. In 1995, the Louisiana
legislature enacted legislation permitting out of state bank holding
companies after June 1, 1997 to convert any banks owned in Louisiana
into branches of out of state banks owned by such holding companies,
subject to certain limitations. Registrant is unable to predict at this time
the effect of the Interstate Act and recent Louisiana legislation on
competition.
Supervision and Regulation - Bank Holding Companies
General. As a bank holding company, MidSouth is subject to the Bank
Holding Company Act of 1956 (the "Act") and is supervised by the Board
of Governors of the Federal Reserve System (the "Federal Reserve
Board"). The Act requires MidSouth to file periodic reports with the
Federal Reserve Board and subjects MidSouth to examination by the
Federal Reserve Board. The Act also requires MidSouth to obtain the
prior approval of the Federal Reserve Board for acquisitions of
substantially all of the assets of any bank or bank holding company or
more than 5% of the voting shares of any bank or bank holding company.
The Act prohibits MidSouth from engaging in any business other than
banking or bank-related activities specifically allowed by the Federal
Reserve Board and from engaging in certain tie-in arrangements in
connection with any extension of credit or provision of any property or
services.
Capital Adequacy Requirements. The Federal Reserve Board monitors the
capital adequacy of bank holding companies through the use of a
combination of risk-based capital guidelines and leverage ratios. Risk-
based capital requirements are intended to make regulatory capital more
sensitive to the risk profile of a company's assets. Certain off-balance
<PAGE>
sheet items, such as letters of credit and unused lines of credit, are also
assigned risk-weights and included in the risk-based capital calculations.
The guidelines require a minimum ratio of total qualifying capital to total
risk-weighted assets of 8.0%, of which 4.0% must be in the form of Tier 1
capital. At December 31, 1997, the Company's ratios of Tier 1 and total
capital to risk-weighted assets were 9.19% and 10.22%, respectively.
MidSouth's leverage ratio (Tier 1 capital to total average adjusted assets)
was 6.00% at December 31, 1997. All three regulatory capital ratios for
the Company exceeded regulatory minimums at December 31, 1997.
Supervision and Regulation - National Banks
General. As a national banking association, the Bank is supervised and
regulated by the U. S. Comptroller of the Currency (its primary regulatory
authority), the Federal Reserve Board and the Federal Insurance Deposit
Corporation. Under Section 23A of the Federal Reserve Act, the Bank is
restricted in extending credit to or making investments in MidSouth and
other affiliates defined in that act. National banks are required by the
National Bank Act to adhere to branch banking laws applicable to state
banks in the states in which they are located and are limited as to powers,
locations and other matters of applicable federal law.
Capital Adequacy Requirements. A national bank is subject to regulatory
capital requirements administered by the federal banking agencies. Failure
to meet minimum capital requirements can initiate certain mandatory, and
possibly discretionary, actions by regulators that, if undertaken, could
have a direct material effect on a bank's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, a bank must meet specific capital guidelines that involve
quantitative measures of the bank's assets, liabilities, and certain off-
balance-sheet items as calculated under regulatory accounting practices.
As of December 31, 1997, the most recent notification from the FDIC
categorized the Bank as "well capitalized" under the regulatory framework
for prompt corrective action. To be categorized as "well capitalized," the
Bank must maintain a minimum of total risk-based capital and Tier 1
capital to risk-weighted assets of 10% and 6%, respectively, and a
minimum leverage ratio of 5%. All three regulatory capital ratios for the
Bank exceeded these minimums at December 31, 1997.
Governmental Policies
The operations of financial institutions may be affected by legislative
changes and by the policies of various regulatory authorities. In particular,
bank holding companies and their subsidiaries are affected by the credit
policies of the Federal Reserve Board. An important function of the
Federal Reserve Board is to regulate the national supply of bank credit.
Among the instruments of monetary policy used by the Federal Reserve
Board to implement its objectives are open market operations in United
States Government securities, changes in the discount rate on bank
borrowings and changes in reserve requirements on bank deposits. These
policies have significant effects on the overall growth and profitability of
the loan, investment and deposit portfolios. The general effects of such
policies upon future operations cannot be accurately predicted.
<PAGE>
ITEM 2 - Properties.
The Bank leases its principal executive and administrative offices and
principal banking facility in Lafayette, Louisiana under a ten year lease
expiring November 30, 2004. The Bank has five other banking offices in
Lafayette, Louisiana, two in New Iberia and one banking office in each of
Breaux Bridge, Cecilia, Jeanerette, Opelousas, Morgan City and Jennings,
Louisiana. In addition, the Bank has a loan production office in Lake
Charles, Louisiana. Nine of these offices are owned and six are leased. A
full service branch facility is currently under construction in Lake Charles
and will replace the leased facility currently used for the loan production
office.
ITEM 3 - Legal Proceedings.
The Bank has been named as a defendant in various legal actions
arising from normal business activities in which damages of various
amounts are claimed. While the amount, if any, of ultimate liability with
respect to such matters cannot be determined, management believes, after
consulting with legal counsel, that any such liability will not have a
material adverse effect on the Company's consolidated financial position
and results of operation.
ITEM 4 - Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of MidSouth's security holders in
the fourth quarter of 1997.
Executive Officers of the Registrant
C. R. Cloutier, 50 - President, Chief Executive Officer and Director of
MidSouth and the Bank
Karen L. Hail, 44 - Executive Vice President of the Bank and Chief
Financial Officer, and Secretary and Treasurer of MidSouth and the Bank
Donald R. Landry, 41 - Senior Vice President and Senior Loan Officer of
the Bank
Jennifer S. Fontenot, 43 - Senior Vice President of the Bank
William R. Snyder, 57 - Senior Vice President of the Bank since 1996;
prior to his employment at the Bank, Mr. Snyder was Senior Vice
President for First National Bank of Ohio for 1 year and Senior Vice
President for Banc One, Cleveland, Ohio for 5 years.
Teri S. Stelly, 38 - Senior Vice President and Controller of MidSouth and
the Bank since 1997; Vice President and Controller of MidSouth and the
Bank since 1992.
David L. Majkowski, 48 - Vice President and Loan review officer of the
Bank since 1997; Loan review officer of the Bank since 1995; prior to his
employment at the Bank, Mr. Majkowski was Compliance Officer for St.
Martin Bank and Trust, St. Martinville, Louisiana for 15 years.
<PAGE>
All executive officers of the Company are appointed for one year
terms expiring at the first meeting of the Board of Directors after the
annual shareholders meeting next succeeding his or her election and until
his or her successor is elected and qualified.
PART II
ITEM 5 - Market for Registrant's Common Stock and Related
Stockholder Matters.
On April 19, 1993 MidSouth's common stock was accepted for listing
on the American Stock Exchange, Inc./Emerging Company Marketplace.
Effective August 1, 1995, the Company's common stock and its preferred
stock has been listed on the regular American Stock Exchange, Inc.
("AMEX") under the symbols MSL and MSL.pr, respectively. As of
February 28, 1998, there were 395 common shareholders of record and
190 preferred shareholders of record. The high and low sales prices for
the past eight quarters are provided in the Selected Quarterly Financial
Data tables included with this filing under Item 7 and is incorporated
herein by reference.
MidSouth's first common stock dividend was paid at a rate of $.06 per
share on October 2, 1995 to shareholders of record on September 18,
1995, and quarterly cash dividends of $.06 per common share have been
paid since that time. A total of $155,421 and $154,475 in dividends were
paid on MidSouth's Preferred Stock in 1996 and 1997, respectively. It is
the intention of the Board of Directors of MidSouth to continue paying
quarterly dividends on the common stock at a rate of $.06 per share. Cash
dividends on the common stock are subject to payment of dividends on the
preferred stock. The Company's ability to pay dividends is described in
Item 7 below under the heading "Balance Sheet Analysis - Dividends" and
in Note 13 to the Company's consolidated financial statements.
On August 6, 1997, MidSouth declared a 12 1/2% stock dividend payable
to shareholders of record on August 27, 1997. The conversion rate on the
Preferred Stock was adjusted to 1.999 shares of MidSouth Common Stock
for each share of Preferred Stock converted.
On August 19, 1996, MidSouth effected a four for three stock split by way
of a stock dividend to its common shareholders of record on July 31, 1996.
Accordingly, the conversion rate on the preferred stock was adjusted to
1.777 shares of MidSouth Common Stock for each share of MidSouth
Preferred Stock converted.
On September 15, 1995, MidSouth effected a four for three stock split by
way of a stock dividend to its common shareholders of record as of
September 7, 1995.
<PAGE>
<TABLE>
<CAPTION>
FIVE-YEAR SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA
Year Ended December 31,
_______________________________________________________________________________________________
1997 1996 1995 1994 1993
___________ ___________ __________ __________ __________
<S> <C> <C> <C> <C> <C>
Gross interest income $15,776,416 $12,572,417 $9,727,584 $7,388,478 $6,369,047
Interest expense (5,894,193) (4,541,727) (3,225,326) (1,976,101) (1,803,934)
Net interest income 9,882,223 8,030,690 6,502,258 5,412,377 4,565,113
Provision for loan losses (854,400) (674,500) (225,000) (210,000) (306,500)
Other operating income 2,899,461 2,138,285 1,583,026 1,422,894 1,371,124
Other expenses (9,585,788) (7,840,691) (6,072,129) (4,882,130) (4,653,303)
Net income
before cumulative
effect of accounting
change 2,341,496 1,653,784 1,788,155 1,743,141 976,434
Provision for income taxes (586,804) (417,286) (546,545) (601,500) (331,500)
Cumulative effect of
accounting change _ _ _ _ 600,000
Net Income 1,754,692 1,236,498 1,241,610 1,141,641 1,244,934
Preferred stock dividend
requirement (154,475) (155,421) (38,142) - -
Income applicable to
common shareholders $1,600,217 $1,081,077 $1,203,468 $1,141,641 $1,244,934
Basic earnings per
share <FN1> $1.03 $0.72 $0.82 $0.80 $0.93
Diluted earnings per
share <FN1> $0.92 $0.67 $0.76 $0.80 $0.93
Total loans $130,888,144 $93,740,719 $77,826,707 $60,432,275 $49,786,123
Total assets 217,112,415 185,228,252 151,183,241 103,965,960 97,695,512
Total deposits 200,067,751 171,616,508 139,029,563 96,490,355 90,411,946
Cash dividends on
common stock 354,336 280,461 115,750 - -
Long-term obligations<FN2> 3,198,794 1,521,435 972,617 1,195,917 786,164
Selected ratios:
Loans to assets 60.29% 50.61% 51.48% 58.13% 50.96%
Loans to deposits 65.42% 54.62% 55.98% 62.63% 55.07%
Deposits to assets 92.15% 92.65% 91.96% 92.81% 92.54%
Return on average
assets <FN3> 0.78% 0.65% 0.98% 1.12% 1.13%
Return on average
common equity <FN3> 16.44% 13.09% 17.22% 20.98% 22.88%
</TABLE>
<FN1>Earnings per share have been adjusted to reflect a
stock dividend of 5% paid by the
Company on February 18, 1994 to shareholders of
record on February 4, 1994, a four for
three stock split paid on September 15, 1995 to
shareholders of record on September 7, 1995,
a four for three stock split paid on August 19,
1996 to shareholders of record on July 31, 1996 and a
12 1/2 % common stock dividend paid on August 27,
1997 to shareholders of record on August 6, 1997.
Earnings per share have also been restated to
apply the provisions of Statement of Financial
Accounting Standards No. 128 "Earnings Per Share."
<FN2>Long-term obligations include ESOP borrowing and,
in 1994, 1995, 1996 and 1997, FHLB borrowings.
In 1995, 1996, and 1997, the ESOP borrowing is
eliminated as an intercompany balance.
<FN3>Exclusive of cumulative effect of accounting
change for the year ended December 31, 1993.
<PAGE>
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION
MidSouth Bancorp, Inc. ("MidSouth") is a one-bank
holding company that conducts substantially all of its
business through its wholly-owned subsidiaries,
MidSouth National Bank (the "Bank") and Financial
Services of the South, Inc. (the "Finance Company").
Following is management's discussion of factors that
management believes are among those necessary for an
understanding of MidSouth's financial statements. The
discussion should be read in conjunction with
MidSouth's consolidated financial statements and the
notes thereto presented herein.
OVERVIEW
MidSouth's income available to common shareholders
increased 48% or $519,140 to total $1,600,217 for 1997
as compared to $1,081,077 for 1996. Net income for 1997
was $1,754,692 as compared to $1,236,498 for 1996.
Basic earnings per share were $1.03 for 1997 and $.72
for 1996. Diluted earnings per share were $.92 for 1997
and $.67 for 1996.
The increase in earnings resulted primarily from
increased net interest income due to a 31% increase in
average loan volume in 1997. Net interest income
increased $1,851,533 in annual comparison. Non-interest
income, exclusive of net gains on sales of investment
securities, increased $667,439 in annual comparison.
Increases in service charges and insufficient funds
fees on deposit accounts contributed most of the
increase in non-interest income due to an increased
number of accounts and transactions processed.
Total consolidated assets grew $31.9 million, from
$185.2 million at December 31, 1996 to $217.1 million
at December 31, 1997. Total loans increased $36.1
million or 38%, from $94.8 million at year-end 1996 to
$130.9 million at year-end 1997 due to a strong economy
and loan demand. Commercial loans funded in the new
Morgan City and Lake Charles markets and in the
Lafayette market accounted for 61% of the loan growth.
Increases were also recorded in commercial leases, real
estate and consumer loans. Deposits increased $28.5
million, from $171.6 million at year-end 1996 to $200.1
million at year-end 1997. The new Morgan City office,
opened in March of 1997, contributed $10.7 million to
the growth in deposits for 1997.
Provisions for loan and lease losses increased $179,900
in annual comparison due primarily to substantial loan
growth. The Allowance for Loan Losses totaled
$1,414,826 or 1.08% of total loans at December 31, 1997
compared to $1,087,790 or 1.15% of total loans at
December 31, 1996. Nonperforming loans totaled $260,875
or .20% of total loans as of December 31, 1997, down
from $523,855 or .55% of total loans as of December 31,
1996.
MidSouth's leverage ratio was 6.00% at December 31,
1997. Return on average common equity was 16.44% and
return on average assets was .78% for the year 1997.
EARNINGS ANALYSIS
Net Interest Income
The primary source of earnings for MidSouth is net
interest income, which is the difference between
interest earned on loans and investments and interest
paid on deposits and other liabilities. Changes in the
volume and mix of earning assets and interest-bearing
liabilities combined with changes in market rates of
interest greatly affect net interest income. Tables 1
and 2 analyze the changes in net interest income for
each of the three years in the period ended December
31, 1997.
Net interest income increased $1,851,533 for 1997 over
1996 and $1,528,432 for 1996 over 1995. The increase in
net interest income for both 1997 and 1996 resulted
primarily from growth in MidSouth's loan portfolio.
Interest income from loans, including loan fees,
increased $2,822,322 from 1996 to 1997 and $1,576,998
from 1995 to 1996. The increased interest income for
both years resulted from increases in average loan
volume of $26.7 million in 1997 and $16.1 million in
1996. Average yield on loans increased 7 basis points,
from 10.29% to 10.36%, in 1997. The average yield
decreased 12 basis points in 1996, from 10.41% to
10.29%, and slightly lessened the impact of the volume
increase on interest income for that year.
The average volume of securities increased in 1997 by
$10.6 million, primarily due to purchases of tax-exempt
municipal securities. The volume of federal funds sold
decreased $3.1 million in 1997 due to the increase in
loan fundings. The change in volume of securities and
federal funds sold in 1997, offset partially by a
slight decline in the average yield on taxable
securities, netted a $381,677 increase to interest
income. A significant volume increase of $18.8 million
in securities and $4.2 million in federal funds sold
contributed $1,267,835 to the increase in interest
income for 1996. The average volume of securities and
federal funds sold increased $23 million, from $42.3
million in 1995 to $65.3 million in 1996, as deposit
growth exceeded loan originations. A slight decrease in
the taxable equivalent yield on securities of 7 basis
points (from 6.14% in 1995 to 6.21% in 1996) and a
decrease of 45 basis points in the yield on federal
funds sold (from 5.73% in 1995 to 5.28% in 1996) had
little impact on the increase in interest income
resulting from the change in volume.
Average loans as a percentage of average earnings
assets decreased from 62% in 1995 to 57% in 1996 before
rising again to 61% in 1997. Substantial growth in
average deposits in 1997 of $33.9 million was used
primarily to fund loans, thereby increasing the average
volume of loans to total earning assets. In 1996, a
significant $40.9 million growth in deposits resulted
in an excess of funds over the volume needed for loan
originations. The excess funds were invested in
securities and federal funds sold, increasing this
portfolio to 43% of earning assets at year-end 1996
compared to 38% at year-end 1995.
A volume increase in interest-bearing deposits resulted
in an increase of $1,198,214 in interest expense on
deposits in 1997. Average interest-bearing deposits
increased $26.0 million in 1997, from $113.3 million in
1996 to $139.3 million. The average rate paid on these
deposits rose 10 basis points, from 3.93% in 1996 to
4.03% in 1997. In 1996, similar changes occurred in the
<PAGE>
<TABLE>
<CAPTION>
Table 1 - Average Balance Sheets and Interest Rate Analysis (in thousands)
Taxable-equivalent basis <FN2>
Year Ended December 31,
1997 1996 1995
_______________________ ________________________ ______________________
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Volume Interest Rate Volume Interest Rate Volume Interest Rate
_______ ________ ______ _______ ________ _______ ______ ________ ______
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest Bearing Deposits $76 $5 6.58% $166 $8 4.82% $149 $9 6.04%
Investment Securities <FN1>
Taxable 48,784 2,881 5.91% 45,689 2,728 5.97% 31,798 1,901 5.98%
Tax Exempt <FN2> 15,151 1,146 7.56% 7,575 584 7.71% 2,669 215 8.06%
_______ ______ ______ _____ ______ ______
Total Investments 64,011 4,032 6.30% 53,430 3,320 6.21% 34,616 2,125 6.14%
Federal Funds Sold and
Securities Purchased
Under Agreements
to Resell 8,758 470 5.37% 11,902 629 5.28% 7,728 443 5.73%
Loans <FN3>
Commercial and Real
Estate 77,039 7,891 10.24% 56,012 5,876 10.49% 48,535 5,115 10.54%
Installment 35,152 3,735 10.63% 29,505 2,927 9.92% 20,856 2,111 10.12%
_______ ______ ______ _____ ______ ______
Total Loans 112,191 11,626 10.36% 85,517 8,803 10.29% 69,391 7,226 10.41%
_______ ______ ______ _____ ______ ______
Total Earning Assets 184,960 16,128 8.72% 150,849 12,752 8.45% 111,735 9,794 8.77%
Allowance for Loan and
Lease Losses (1,415) (1,015) (948)
Nonearning Assets 21,182 16,920 12,503
_______ ______ ______
Total Assets $204,727 $166,754 $123,290
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
NOW, Money Market,
and Savings $73,844 2,202 2.98% $58,362 1,599 2.74% $40,180 1,046 2.60%
Certificates of
Deposits 65,492 3,415 5.21% 54,944 2,854 5.19% 41,489 2,067 4.98%
_______ ______ ______ _____ ______ ______
Total Interest Bearing
Deposits 139,336 5,617 4.03% 113,306 4,453 3.93% 81,669 3,113 3.81%
Federal Funds Purchased
and Securities Sold Under
Agreements to Repurchase 632 39 6.17% 102 4 3.92% 292 13 4.45%
Notes Payable 3,301 238 7.21% 1,158 84 7.25% 1,239 99 7.99%
Total Interest Bearing_______ ______ ______ _____ ______ ______
Liabilities 143,269 5,894 4.11% 114,566 4,541 3.96% 83,200 3,225 3.88%
Demand Deposits 48,480 40,633 31,354
Other Liabilities 844 720 628
Stockholders' Equity 12,134 10,835 8,108
Total Liabilities and _______ _______ _______
Stockholders' Equity $204,727 $166,754 $123,290
======= ======= =======
NET INTEREST INCOME AND
NET INTEREST SPREAD $10,234 4.61% $8,211 4.49% $6,569 4.89%
====== ===== =====
NET YIELD ON EARNING ASSETS 5.53% 5.44% 5.88%
</TABLE>
<FN1> Securities classified as available-for-sale are included in average
balances and interest income figures reflect interest earned on
such securities.
<FN2> Interest income of $351,456 for 1997, $179,991 for 1996 and $66,320
for 1995 is added to interest earned on tax-exempt obligations to
reflect taxable-equivalent yields using a 34% tax rate.
<FN3> Interest income includes loan fees of $901,688 for 1997, $674,443
for 1996, and and $596,445 for 1995. Nonaccrual loans are
included in average balances and income on such loans is recognized
on a cash basis.
<PAGE>
interest- bearing deposit portfolio. The average volume
of interest-bearing deposits increased $31.6 million,
from $81.7 million in 1995 to $113.3 million, resulting
in an increase to interest expense of $1,331,743. A 12
basis point increase in the average rate paid on
interest-bearing liabilities, from 3.81% in 1995 to
3.93% in 1996, contributed to the increase in interest
expense for 1996.
Throughout 1997, MidSouth's deposit mix remained
relatively unchanged after a slight increase in the
volume of interest-bearing deposits in 1996, primarily
due to an increase in interest-bearing public fund
deposits. For the year ended December 31, 1997,
MidSouth maintained a strong 26% of average total
deposits in non-interest bearing demand deposits. NOW,
money market and savings deposits represented 39% of
average total deposits, while 35% consisted of
certificates of deposit. For the year ended December
31, 1996, 38% of average total deposits represented
NOW, money market and savings deposits and certificates
of deposit amounted to 36%. For 1995, the deposit mix
consisted of 28% non-interest bearing demand deposits,
35% NOW, money market and savings, and 37% certificates
of deposit.
The average volume of notes payable increased $2.1
million in 1997, resulting in a $154,252 increase in
interest expense on notes payable. The average rate
paid on the notes was 7.21% at December 31, 1997, down
from 7.25% in 1996 and 7.99% in 1995.
The volume changes in MidSouth's earning assets and
interest-bearing liabilities combined with changes in
interest rates resulted in net taxable-equivalent
yields on average earning assets of 5.53% in 1997 as
compared to 5.44% for 1996 and 5.88% for 1995.
Non-Interest Income
Excluding Securities Transactions. Service charges and
fees on deposit accounts represent the primary source
of non-interest income for MidSouth. Income from
service charges and fees on deposit accounts (including
ATM fees) and nonsufficient funds fees increased
$612,745 in 1997 and $351,897 in 1996 primarily due to
an increase in the number of transaction accounts and
ATM machines serviced and the volume of nonsufficient
funds checks processed by MidSouth. The total number of
transaction accounts (excluding savings accounts)
increased from 10,141 in 1995 to 17,139 in 1996 and to
19,001 in 1997. Non-interest income resulting from
other charges and fees increased $54,694 in 1997 as
compared to $202,186 in 1996. Fee income from the
Finance Company increased $56,913 in 1997, combined
with a $31,783 increase in lease income from a third
party investment service and $16,933 in Visa debit card
fees. These increases were partially offset by
decreases of $48,321 in fees earned through the sale of
credit life insurance. In 1996, fees earned through the
sale of credit life insurance increased $63,597. In
addition, increases of $35,953 in fee income from the
Finance Company, $29,609 in ATM fee income and $21,755
in gains on sales of fixed assets were recorded in
1996. Other increases included check order fees, safe
deposit box rental fees, and lease income from a third
party offering investment services to customers in
1996.
Securities Transactions. In June 1997, $7.5 million in
adjustable rate mortgage securities in the available-
for-sale portfolio were sold as part of a repositioning
of the securities portfolio at a net gain of $127,934.
At the same time, management liquidated a $1.0 million
investment in a mutual fund at a loss of $42,578. Net
gains on sales of securities totaled $1,176 for 1996 as
$2.0 million in U. S. Treasury securities were
liquidated and reinvested to improve yield. No gains or
losses were recorded on sales of securities during
1995. Upon the acquisition of Sugarland Bancshares,
Inc. in 1995, $2.3 million in securities available-for-
sale were liquidated on the date of merger at the
acquired value.
Non-Interest Expense
Total non-interest expense increased 22% from 1996 to
1997 and 29% from 1995 to 1996. MidSouth's expansion
over the past three years resulted in significant
increases in salaries and employee benefits, occupancy
expenses, marketing expenses, data processing expenses,
and the cost of printing and supplies. Throughout the
three year period, MidSouth opened six full service
Bank offices, two of which were former Sugarland
banking offices, one Bank loan production office, and
two Finance Company offices. In 1997, construction
began on two new facilities. One will replace the
current movable buildings at the Ambassador Caffery,
Lafayette office and the second will replace the leased
loan production office in Lake Charles, Louisiana and
provide full-service banking in that market.
Accordingly, salaries and employee benefits increased
23% from 1996 to 1997 and 31% from 1995 to 1996.
MidSouth increased its full-time equivalent ("FTE")
employees by 6 in 1997, from 133 to 139. The Morgan
City office, opened in March of 1997, employed 4 FTE's
and the computer information services department
employed 2 FTE's. Salary increases and incentive pay
granted during 1997 added significantly to the increase
in 1997. In 1996, MidSouth hired 23 FTE employees to
bring the total employed from 110 at year-end 1995 to
133 at year-end 1996. New hires in 1996 staffed the
Super 1 - Lafayette branch, the two loan production
offices and the two Finance Company locations. In
addition, MidSouth hired a retail branch manager to
facilitate growth in the different markets.
Occupancy expenses increased $409,546 or 23% from 1996
to 1997 and $502,512 or 40% from 1995 to 1996 as a
result of increases in building lease expense,
depreciation and maintenance expenses associated with
buildings, automobiles and furniture and equipment,
and ad valorem taxes. During 1997, MidSouth added fixed
assets totaling $1,282,082, not including land
purchases. The additions included the Morgan City
building, computer hardware and software, ATM cash
machines and renovation costs at the Versailles and
Breaux Bridge offices. During 1996, MidSouth invested
total capital of $1,634,490 in the construction of a
full service office in Opelousas and an in-store office
in the Super 1 Foods store in Lafayette. Building lease
expense increased $103,717 in 1996 primarily due to a
full year of lease expense on the Super 1 - New Iberia
branch, the addition of Super 1 - Lafayette's lease
<PAGE>
<TABLE>
<CAPTION>
Table 2 - Interest Differentials (in thousands)
Taxable-equivalent basis
__________________________________________________________________________________________________________
1997 OVER 1996 1996 OVER 1995
______________________________________ ___________________________________
Change Change
Change Attributable Change Attributable
Total Attributable to Total Attributable to
Increase to Volume Increase to Volume
(Decrease) Volume Rates /Rates (Decrease) Volume Rates /Rates
_________ ___________________________ ________ _________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:
Interest Bearing Deposits $ (3) $ (4) $ 3 $ (2) $ (1) $ 1 $ (2) -
Investment Securities
Taxable 153 185 (30) (2) 827 830 (2) (1)
Tax Exempt 562 584 (11) (11) 369 395 (10) (16)
Federal Funds Sold and
Securities Purchased
Under Agreement
to Resell (159) (166) 10 (3) 186 239 (34) (19)
Loans, including fees 2,823 2,746 59 18 1,577 1,680 (83) (20)
_____ _____ ____ ____ _____ _____ _____ _____
TOTAL 3,376 3,345 31 - 2,958 3,145 (131) (56)
_____ _____ ____ ____ _____ _____ _____ _____
Interest Bearing Liabilities:
Interest Bearing Deposits 1,164 1,023 115 26 1,340 1,206 97 37
Federal Funds Purchased
and Securities
Sold Under Agreement
to Repurchase 35 21 2 12 (9) (8) (2) 1
Notes Payable 154 155 - (1) (15) (7) (9) 1
_____ _____ ____ ____ _____ _____ _____ _____
TOTAL 1,353 1,199 117 37 1,316 1,191 86 39
_____ _____ ____ ____ _____ _____ _____ _____
Net Interest Income
Before Allocation of
Volume/Rates 2,023 2,146 (86) (37) 1,642 1,954 (217) (95)
Allocation of Volume/Rates - (38) 1 37 - (104) 9 95
_____ _____ ____ ____ _____ _____ _____ _____
CHANGES IN NET INTEREST
INCOME $2,023 $2,108 $(85) - $1,642 $1,850 $(208) -
===== ===== ==== ==== ===== ====== ===== =====
NOTES: The changes in interest due to both volume and rate have been
allocated proportionally between volume and rate. In addition,
nonaccrual loans and leases are included.
_____________________________________________________________________________________________________
</TABLE>
expense, the Finance Company's lease expenses, and the
loan production offices' lease expenses. Ad valorem
taxes increased $41,500 in 1996 and $45,736 in 1997 due
to higher assessment values and additional properties.
Fixed asset additions planned for 1998 include the
completion of the Ambassador Caffery and Lake Charles
buildings, renovations of existing buildings, computer
hardware and software purchases, and a new telephone
system. Management expects to invest approximately $2.2
million in fixed asset additions in 1998.
An increase of $19,267 was recorded in MidSouth's FDIC
premiums in 1997 due to the Deposit Insurance Act of
1996 that required banks to pay a portion of the
interest due on bonds issued by the Financing
Corporation ("FICO"). The act was signed into law for
the purpose of assuring the payment of FICO bond
obligations resulting from the bail out of the Federal
Savings and Loan Insurance Corporation ("FSLIC") in
1987. FICO assessments will continue throughout 1998. A
decrease in MidSouth's rate for FDIC premiums,
retroactive to June 1, 1995, resulted in nominal
premiums of $2,000 for the year 1996, a decrease of
$104,414 from the $106,414 recorded for 1995. The
retroactive reduction in rate in 1995 resulted in a
refund of $68,703 received during the third quarter of
1995.
Professional fees consist of legal, accounting and
regulatory fees. A 3% decrease in professional fees in
1997 resulted primarily from a decrease in legal fees
partially offset by an increase in accounting fees paid
for audit and tax services. Professional fees increased
33% in 1996 primarily due to an increase in legal fees
associated with the collection of lease financing
receivables within an indirect leasing program and
accounting fees.
Marketing expenses increased $103,891 from 1996 to 1997
and $82,242 from 1995 to 1996. Production costs
associated with television and billboard advertisement
resulted in increased marketing costs for MidSouth in
1997. In addition, newspaper advertisement designed to
appeal to customers impacted by bank mergers added to
marketing expenses for the same period. In 1996,
expenses related to special loan and deposit product
promotions and related incentives contributed to the
increase in marketing expenses.
Income Taxes
MidSouth's tax expense increased in 1997 by $169,518
and approximated 25% of income before income taxes.
Interest income on non-taxable municipal securities
reduced the 1997 taxes from the expected statutory rate
of 34%. Interest income on non-taxable municipal
securities also lowered the effective tax rate for 1996
to approximately 25%. Notes 1 and 10 to MidSouth's
Consolidated Financial Statements provide additional
information regarding MidSouth's income tax
considerations.
BALANCE SHEET ANALYSIS
Securities
A repositioning of MidSouth's securities portfolio
during 1997 resulted in a decrease of $10.4 million in
the securities available-for-sale portfolio and an
increase of $7.2 million in the held-to-maturity
<PAGE>
portfolio. Total investment securities decreased $3.2
million, from $56.8 million in 1996 to $53.6 million in
1997, as cash flows from sales, maturities, and
principal payments on mortgage backed securities were
partially reinvested in or reserved to fund loans. An
increase of $272,222 in the market value of securities
available-for-sale is included in the net change in
1997. Unrealized gains in the securities available-for-
sale portfolio, net of unrealized losses and tax
effect, were $81,966 at December 31, 1997, compared to
unrealized losses net of unrealized gains and tax
effect of $114,530 at December 31, 1996. These amounts
result from interest rate fluctuations and do not
represent permanent adjustments of value. Moreover,
classification of securities as available-for-sale does
not necessarily indicate that the securities will be
sold prior to maturity.
At December 31, 1997, approximately 23% of MidSouth's
securities available-for-sale portfolio represented
mortgage-backed securities and 10% represented
collateralized mortgage obligations ("CMO's"). MidSouth
monitors the risks due to changes in interest rates on
mortgage-backed pools by monthly reviews of prepayment
speeds, duration, and purchase yields as compared to
current market yields on each security.
An additional 58% of the available-for-sale portfolio
consisted of U. S. Treasury and agency securities,
while municipals and other securities represented 9% of
the portfolio. MidSouth held one CMO with a book value
in excess of 10% of stockholders' equity at December
31, 1997: GE Capital Mortgage Services, Inc. 1993-14
A4 with a book value of $2,000,000 (market value of
$1,985,429). All CMO's held by MidSouth are Aaa rated
and not considered "high-risk" securities under the
Federal Financial Institutions Examination Council
("FFIEC") tests. MidSouth does not own any "high-risk"
securities as defined by the FFIEC.
In the held-to-maturity portfolio, MidSouth purchased
$7.4 million in non-taxable municipal securities in
1997. A detailed credit analysis was performed on each
municipal offering by Piper Capital Management, Inc.,
an investment advisory firm, prior to purchase. In
addition, MidSouth limits the amount of securities of
any one municipality purchased and the amount purchased
within specific geographic regions to reduce the risk
of loss within the non-taxable municipal securities
portfolio.
Federal funds sold totaled $8.1 million, and $14.1
million as of December 31, 1997 and 1996, respectively.
Loan funding demands in 1997 combined with public fund
deposit fluctuations resulted in a decrease in the
volume of federal funds sold at year-end 1997.
Significant deposit growth resulted in a high volume
of federal funds sold at December 31, 1996. Due to a
high volume of anticipated loan fundings and the
limited availability of securities fitting MidSouth's
investment portfolio specifications, MidSouth placed
excess cash from the deposit growth in federal funds
sold during 1996.
Loan Portfolio
MidSouth experienced two consecutive years of
substantial loan growth. Total loans grew 66% over the
past twenty-four months, from $78,878,605 at year-end
1995 to $94,828,509 at year-end 1996 and to
$130,888,144 at year-end 1997. Of the $36.1 million
increase during 1997, $17.1 million resulted from an
increase in real estate mortgage and construction
loans. This category of loans is comprised of first
mortgage loans structured on a fifteen year
amortization basis with three to five year balloon
payments to allow for repricing and second mortgage
home equity financing. The strong economy in MidSouth's
markets continued in 1997, extending the opportunities
for home equity financing. MidSouth elected to offer
its second mortgage home equity financing at a more
conservative margin of 80% of appraised value as
compared to 100% of appraised value.
The commercial loan portfolio grew $13.8 million during
1997 primarily in term debt financing commercial real
estate and commercial vehicles and equipment. Lease
financing receivables increased $2.5 million during
1997 with the introduction of MidSouth's own direct
leasing program and phase out of third party lease
financing. Installment loans to individuals increased
$2.0 million during 1997 primarily due to the focus
placed by MidSouth's retail lenders on growing the
banking relationship of each established customer.
MidSouth's newest offices in Morgan City and Lake
Charles contributed significantly to the increase
recorded in the loan portfolio in 1997. Morgan City
added approximately $7.7 million, primarily in
commercial credits and Lake Charles funded
approximately $9.5 million in loans, primarily in the
real estate portfolio.
Favorable economic conditions in MidSouth's market area
combined with increased market awareness of MidSouth as
the largest locally owned bank led to the 20% growth
in loans experienced in 1996. An annual retail loan
promotion held in March contributed to the growth
realized in the installment loan portfolio. Real estate
loan growth consisted of both commercial and consumer
credits that carry ten to fifteen year amortizations
with rates fixed for three to five years. The short
fixed rate terms of these credits allow management
greater flexibility in controlling the Bank's interest
rate risk.
MidSouth has maintained its credit policy and
underwriting procedures and has not relaxed these
procedures to stimulate loan growth. Completed loan
applications, credit bureau reports, financial
statements and a committee approval process remain a
part of credit decisions. In addition, credit scoring
was initiated in 1997 to strengthen current
underwriting procedures and enhance consistency in
lending decisions. Documentation of the loan decision
process is required on each credit application, whether
approved or denied, to insure thorough and consistent
procedures.
Asset Quality
Credit Risk Management. MidSouth manages its credit
risk by diversifying its loan portfolio, determining
that borrowers have adequate cash flows for loan
repayment, obtaining and monitoring collateral and
continuously reviewing outstanding loans. The risk
management program requires that each individual loan
officer review his or her portfolio on a quarterly
basis and recommend credit gradings on each loan. The
<PAGE>
senior loan officer and loan review officer review the
gradings. In addition, the loan review officer performs
an independent evaluation annually of each commercial
loan officer's portfolio and a random sampling of
credits in MidSouth's installment loan portfolio.
Nonperforming Assets. Table 3 contains information
about MidSouth's nonperforming assets and loans past
due 90 days or more and still accruing.
Nonperforming assets totaled $319,209 at December 31,
1997 compared to $714,140 at December 31, 1996 and
$570,841 at December 31, 1995. The decrease in
nonperforming assets in 1997 resulted from a decrease
in nonaccruals. Of the $523,855 in nonaccrual loans at
year-end 1996, approximately $145,000 was charged off,
$52,000 renewed and $65,000 paid out.
The increase in nonperforming assets from 1995 to 1996
resulted from the placement of one commercial credit on
a nonaccrual status in 1996. The credit represented a
pool of automobile loans for which the initial service
provider discontinued processing payments. Although a
new service provider continued payment processing,
payment performance on loans within the pool prompted
MidSouth to charge off $115,000 of the credit in 1997.
Loans past due 90 days and still accruing totaled
$245,232 at December 31, 1997 compared to $338,294 at
December 31, 1996 and $265,682 for the year ended
December 31, 1995.
Loans to commercial borrowers are placed on nonaccrual
when principal or interest is 90 days past due, or
sooner if the full collectability of principal or
interest is doubtful, except if the underlying
collateral supports both the principal and accrued
interest and the loan is in the process of collection.
Retail loans that are not placed on nonaccrual but that
become 120 days past due are routinely charged off.
Loans classified for regulatory purposes but not
included in Table 3 do not represent material credits
about which management has serious doubts as to the
ability of the borrower to comply with the loan
repayment terms.
Allowance for Loan Losses. Provisions totalling
$854,400, $674,500 and $225,000, for the years 1997,
1996 and 1995, respectively, were necessary to bring
the allowance to a level considered by management to be
sufficient to cover probable losses in the loan
portfolio. Additional provisions were made in 1997 due
primarily to losses in the installment loan portfolio
and the growth experienced in loans during the year.
Losses within the lease financing receivables portfolio
resulted in increased provisions for 1996. Table 4
analyzes activity in the allowance for 1997 and 1996.
Specific reserves within the allowance are allocated to
loans on a nonaccrual status for which the underlying
collateral value is insufficient to cover the principal
remaining on the loan. A portion of the unallocated
reserve is assigned to accruing loans that are
classified for regulatory purposes. The remainder of
the allowance represents a percentage of all other
credits based on gradings assigned in the loan review
process.
Quarterly evaluations of the allowance are performed in
accordance with Section 217 of the OCCOs manual and
Banking Circular 201. Factors considered in determining
<TABLE>
<CAPTION>
Table 3
Nonperforming Assets and Loans Past Due 90 Days
December 31,
____________________________
1997 1996 1995
________ ________ ________
<S> <C> <C> <C>
Nonperforming loans
Nonaccrual loans $260,875 $523,020 $386,510
Restructured loans - 835 943
________ ________ ________
Total nonperforming loans 260,875 523,855 387,453
Other real estate owned, net 45,100 180,270 180,270
Other assets repossessed 13,234 10,015 3,118
________ ________ ________
Total nonperforming assets $319,209 $714,140 $570,841
======== ======== ========
Loans past due 90 days
or more and still accruing $245,232 $338,294 $265,682
Nonperforming loans as a
% of total loans 0.20% 0.55% 0.49%
Nonperforming assets as a
% of total loans, other
real estate owned and other
assets repossessed 0.24% 0.75% 0.72%
Allowance as a % of
nonperforming loans 542.30% 207.65% 271.49%
__________________________________________________________
</TABLE>
provisions include estimated future losses in
significant credits; known deterioration in
concentrations of credit; historical loss experience;
trends in nonperforming assets; volume, maturity and
composition of the loan portfolio; off balance sheet
credit risk; lending policies and control systems;
national and local economic conditions; the experience,
ability and depth of lending management and the results
of examinations of the loan portfolio by regulatory
agencies and others. The process by which management
determines the appropriate level of the allowance, and
the corresponding provision for possible credit losses,
involves considerable judgment; therefore, no assurance
can be given that future losses will not vary from
current estimates.
Sources of Funds
Deposits. MidSouth's deposit focus in 1997 centered
around the development of a sales culture designed to
strengthen customer relationships. Development of the
sales culture included the introduction of incentives
offered to sales associates for the development of new
and existing customer relationships. This sales focus,
combined with big bank mergers creating an uncertain
banking environment in MidSouth's markets, provided the
opportunity for MidSouth to increase its deposit base.
As a result, MidSouth's deposits grew $28.5 million,
from $171.6 million in 1996 to $200.1 million in 1997.
MidSouth's newest office in Morgan City contributed
$10.7 million to the increase in deposits in 1997.
In 1996, MidSouth increased its deposits by $32.6
million, ending the year at $171.6 million compared to
$139.0 million at December 31, 1995. Approximately $7.7
million of the $32.6 million increase resulted from in
an increase in public funds held on deposit. The
<PAGE>
<TABLE>
<CAPTION>
Table 4 - Summary of Loan Loss Experience (in thousands)
__________________________________________________________________
1997 1996
______ ______
<S> <C> <C>
BALANCE AT BEGINNING OF YEAR $1,088 $1,052
CHARGE-OFFS
Commercial, Financial and Agricultural 189 109
Real Estate - Mortgage - 1
Installment Loans to Individuals 352 269
Lease Financing Receivables 192 517
______ ______
Total Charge-offs 733 896
______ ______
RECOVERIES
Commercial, Financial and Agricultural 32 11
Real Estate - Mortgage 2 20
Installment Loans to Individuals 86 78
Lease Financing Receivables 86 148
______ ______
Total Recoveries 206 257
______ ______
Net Charge-offs 527 639
Additions to allowance charged to
operating expenses 854 675
______ ______
BALANCE AT END OF YEAR $1,415 $1,088
======= ======
Net charge-offs to average loans 0.47% 0.75%
Year-end allowance to year-end loans 1.08% 1.15%
</TABLE>
<TABLE>
<CAPTION>
Refer to "Balance Sheet Analysis - Asset Quality - Allowance
for Loan Losses" for a description of the factors which
influence management's judgement in determining the amount
of the provisions to the allowance.
% of category % of category
Allowance for Loan Losses 1997 to total loans 1996 to total loans
___________________________ __________________________
<S> <C> <C> <C> <C>
Commercial, Financial
and Agricultural $ 80 32.03% $ 150 29.63%
Real Estate - Construction 1.63% 1.80%
Real Estate - Mortgage 40.47% 10 38.28%
Installment Loans to
Individuals 21.66% 13 27.81%
Lease Financing Receivables 3.65% 2.35%
Other 0.56% 0.13%
Unallocated 1,335 915
______ ______ ______ ______
$1,415 100.00% $1,088 100.00%
====== ====== ====== ======
_______________________________________________________________________________________
</TABLE>
remainder of the growth resulted from development of
branch markets, which included the promotion of a new
deposit product, "Value Checking". In addition, a
direct mail promotion of MidSouth as a locally owned
bank contributed to the development of each branch
market.
Non-interest bearing deposits represented 29% of total
deposits at December 31, 1995, 1996 and 1997. Core
deposits, defined as all deposits other than
certificates of deposit ("CD's") of $100,000 or more,
represented 84% of total deposits at December 31, 1997,
compared to 89% at December 31, 1996 and 91% at
December 31, 1995. CD's of $100,000 or more totaled
$32.7 million at year-end 1997, an increase of $13.6
million from the $19.1 million reported at year-end
1996. Of the $13.6 million increase, $7.8 million
represents public fund CD's added in the second half of
1997 through a new contract. Additional CD's of
$100,000 or more were deposited in response to specific
market promotions that offered premium rates for a
limited time on new deposits. The promotions were
designed to ensure relationship banking with MidSouth
by requiring the opening of a checking account to
qualify for the preferred rate.
MidSouth's deposit rates are competitive within its
market and MidSouth has no brokered deposits. Although
time deposits of $100,000 can exhibit greater
volatility due to changes in interest rates and other
factors than do core deposits, management believes that
any volatility experienced could be adequately met with
current levels of asset liquidity or access to
alternate funding sources. Additional information on
MidSouth's deposits appears in Note 7 to MidSouth's
<PAGE>
Consolidated Financial Statements.
Borrowed Funds. As of December 31, 1997, MidSouth
maintained one repurchase agreement totaling $69,443.
Long term borrowings increased $1.7 million from
December 31, 1996 to December 31, 1997. On June 23,
1997, MidSouth refinanced its $2.5 million line of
credit with another financial institution, paying out
existing borrowings of $883,355 and receiving advances
of $1,385,024 under the new line of credit. The
additional $500,000 advanced under the new line was
injected into the capital of the Bank. Throughout the
remainder of 1997, MidSouth borrowed an additional
$300,000 for operational expenses. At any time prior to
June 23, 1999, MidSouth may request advances up to but
not exceeding an aggregate principal amount of
$2,500,000 at any one time outstanding. Advances under
the line of credit bear interest at a variable rate
equal to the prime commercial rate of interest quoted
in the "Money Rates" section of the Wall Street Journal
minus fifty basis points (.50%). The current rate is
8.00%. Interest under the note is due and payable
quarterly in arrears on the last day of each quarter
beginning September 30, 1997. Beginning June 30, 1999,
principal payments in the amount of 11.11% of the
amount of the loan balance on June 30, 1999 are due and
payable in eight consecutive annual installments on
June 30 of each succeeding calendar year. The remaining
balance of the loan is due and payable in a ninth and
final installment on June 30, 2007.
The Finance Company paid out borrowings of $600,000
against its line of credit on June 23, 1997 with
$675,000 in advances against a new $1,200,000 line of
credit. Advances under the line of credit bear interest
at a variable rate equal to the commercial prime rate
as quoted in the "Money Rates" section of the Wall
Street Journal plus 25 basis points (.25%). The current
rate is 8.75%. Interest on the line is payable monthly,
with principal due at maturity on May 1, 1998. Advances
totaling $390,000 were funded under the line during the
remainder of 1997.
Additional information regarding the notes payable is
provided in Note 8 to MidSouth's Consolidated Financial
Statements.
The ESOP note held by the Bank was refinanced in the
amount of $150,000 on March 11, 1997 at a fixed rate of
7.00% payable in monthly installments of $2,264 with
payment in full due on March 10, 2004. Loan proceeds
totaling $125,269 were added to the $24,731 remaining
on the maturing note. The ESOP purchased 11,135 shares
of MidSouth common stock at the current market value of
$11.25 per share with the additional proceeds. The ESOP
obligation constitutes a reduction of MidSouth's
stockholders' equity because the primary source of
loan repayment is contributions by the Bank to the
ESOP; however, the loan is not guaranteed by either
MidSouth Bank or MidSouth. The ESOP note was eliminated
from total loans and long-term debt as an intercompany
balance in MidSouth's December 31, 1996 and 1997
consolidated financial statements.
Capital. MidSouth and the Bank are required to maintain
certain minimum capital levels. Risk- based capital
requirements are intended to make regulatory capital
more sensitive to the risk profile of an institution's
assets. At December 31, 1997, MidSouth and the Bank
were in compliance with statutory minimum capital
requirements. Minimum capital requirements include a
total risk-based capital ratio of 8.0%, with Tier 1
capital not less than 4.0%, and a leverage ratio (Tier
1 to total average adjusted assets) of 4.0% based upon
the regulators latest composite rating of the
institution. As of December 31, 1997, MidSouth's Tier 1
capital to average adjusted assets (the "leverage
ratio") was 6.00% as compared to 6.30% at December 31,
1996. Tier 1 capital to risk weighted assets was 9.19%
and 10.82% for 1997 and 1996, respectively. Total
capital to risk weighted assets was 10.22% and 11.87%,
respectively, for the same periods. The Bank's leverage
ratio was 6.77% at December 31, 1997 compared to 6.52%
at December 31, 1996. The risk-based capital ratios
decreased due to the significant growth experienced by
the Bank in 1997. This growth in assets prompted
MidSouth to inject $500,000 of capital into the Bank in
1997.
The Federal Deposit Insurance Corporation Improvement
Act of 1991 established a capital-based supervisory
system for all insured depository institutions that
imposes increasing restrictions on the institution as
its capital deteriorates. The Bank continued to be
classified as "well capitalized" throughout 1995, 1996
and 1997 and also improved its supervisory subgroup
rating. No significant restrictions are placed on the
Bank as a result of this classification.
As discussed under the heading "Balance Sheet Analysis
- - Securities," $81,966 in unrealized gains on
securities available-for-sale, net of a deferred tax
asset of $51,505 were recorded as additional
stockholders' equity as of December 31, 1997. In
contrast, $114,530 in unrealized losses on securities
available-for-sale, net of a deferred tax liability of
$24,180 were recorded as a reduction to stockholders'
equity as of December 31, 1996. While the net
unrealized gain or loss on securities available for
sale is required to be reported as a separate component
of stockholders' equity, it does not affect operating
results or regulatory capital ratios. The net
unrealized gains and losses reported for December 31,
1997 and 1996 did, however, affect MidSouth's equity
to assets ratio for financial reporting purposes. The
ratio of equity to assets was 5.96% for year-end 1997
and 6.13% for year-end 1996.
Interest Rate Sensitivity. Interest rate sensitivity is
the sensitivity of net interest income to changes in
market rates of interest. The initial step in the
process of monitoring MidSouth's interest rate
sensitivity involves the preparation of a basic "gap"
analysis of earning assets and interest-bearing
liabilities. The analysis presents differences in the
repricing and maturity characteristics of earning
assets and interest-bearing liabilities for selected
time periods.
During 1997, MidSouth utilized the Sendero model of
asset and liability management. The Sendero model uses
basic gap data and additional information regarding
rates and prepayment characteristics to construct a gap
analysis that factors in repricing characteristics and
cash flows from payments received on loans and mortgage-
backed securities. The resulting Sendero gap analysis
is presented in Table 5.
With the exception of NOW, money market and savings
<PAGE>
<TABLE>
<CAPTION>
TABLE 5 - Interest Rate Sensitivity Table December 31, 1997 (in thousands)
______________________________________________________________________________________________
Non-
interest
0-3 MOS 4-6 MOS 7-12 MOS 1-5 YRS >5 YRS Bearing Total
_______ _______ _______ _______ _______ _______ ________
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest Bearing Deposits $49 $49
Fed Funds Sold 8,060 8,060
Investments
Mutual Funds 982 982
Investment Securities 3,375 3,330 4,066 13,803 15,862 40,436
Mortgage-backed Securities 1,560 832 1,456 4,187 4,165 12,200
Loans
Fixed Rate 23,157 12,115 16,937 46,276 1,910 100,395
Variable Rate 30,494 30,494
Other Assets 25,911 25,911
Allowance for
Loan and Losses (1,415) (1,415)
_______ _______ _______ _______ _______ _______ ________
Total Assets $67,677 $16,277 $22,459 $64,266 $21,937 $24,496 $217,112
_______ _______ _______ _______ _______ _______ ________
LIABILITIES
Repurchase Agreement $69 $69
NOW 2,461 2,227 3,837 13,821 3,489 25,835
MMDA 2,924 2,645 4,558 16,418 4,143 30,688
Savings 955 864 1,488 5,361 1,353 10,021
CD'S 27,686 13,876 22,183 11,315 75,060
Demand Deposits 58,464 58,464
Other Liabilities 1,083 1,179 937 845 4,044
Stockholders' Equity 12,931 12,931
_______ _______ _______ _______ _______ _______ ________
Total Liabilities $34,095 $20,695 $32,066 $48,094 $9,922 $72,240 $217,112
_______ _______ _______ _______ _______ _______ ________
Gap $33,582 $(4,418) $(9,607) $16,172 $12,015 $(47,744)
Cumulative Gap $33,582 $29,164 $19,557 $35,729 $47,744 -
Cumulative Gap/
======= ======= ======= ======= ======= ========
Total Assets 15.47% 13.43% 9.01% 16.46% 21.99%
_______ _______ _______ _______ _______
______________________________________________________________________________________________
</TABLE>
deposits, the table presents interest-bearing
liabilities on a contractual basis. While NOW, money
market and savings deposits are contractually due on
demand, historically, MidSouth has experienced
stability in these deposits despite changes in market
rates. Presentation of these deposits in the table,
therefore, reflects delayed repricing throughout the
time horizon.
The resulting cumulative gap at one year is
approximately $19,557,000 at December 31, 1997. The
positive gap indicates MidSouth's total earning assets
and interest-bearing liabilities maturing within one
year are mismatched. However, the ratio of the one year
cumulative gap to total assets of 9.01% is within
internal policy guidelines. MidSouth's internal policy
targets a one year cumulative gap position of a
positive or negative 15% of total assets.
The Sendero model also uses the gap analysis data in
Table 5 and additional information regarding rates and
payment characteristics to perform three simulation
tests. The tests use market data to perform rate shock,
rate cycle and rate forecast simulations to measure the
impact of changes in interest rates, the yield curve
and interest rate forecasts on MidSouth's net interest
income and market value of equity. Results of the
simulations at December 31, 1997 were within policy
guidelines. The results of the simulations are reviewed
quarterly and discussed at MidSouth's Funds Management
committee meetings.
MidSouth does not invest in derivatives and has none in
its securities portfolio.
Liquidity
Bank Liquidity. Liquidity is the availability of funds
to meet contractual obligations as they become due and
to fund operations. The Bank's primary liquidity needs
involve its ability to accommodate customers demands
for deposit withdrawals as well as their requests for
credit. Liquidity is deemed adequate when sufficient
cash to meet these needs can be promptly raised at a
reasonable cost to the Bank.
<PAGE>
Liquidity is provided primarily by two sources: a
stable base of funding sources and an adequate level of
assets that can be readily converted into cash.
MidSouth's core deposits are its most stable and
important source of funding. Further, the low
variability of the core deposit base lessens the need
for liquidity. Cash deposits at other banks, federal
funds sold and principal payments received on loans and
mortgage-backed securities provide the primary sources
of asset liquidity for the Bank.
In addition to these primary sources, the Bank has
certain other sources available to meet the demand for
funds if necessary. Approximately $10.8 million in
securities maturing within twelve months provides an
additional source of liquidity. These securities could
be liquidated if necessary prior to maturity. MidSouth
also has borrowing capabilities with three
correspondent banks. Anticipated loan fundings could
necessitate borrowing by the Bank during 1998.
Parent Company Liquidity. At the parent company level,
cash is needed primarily to service outstanding debt
and pay dividends on preferred and common stock. The
parent company has a note payable to a financial
institution, the terms of which are described in Note 8
to MidSouth's Consolidated Financial Statements. Funds
to meet payments on notes in the past several years
have come primarily from the sale of MidSouth's common
stock to the Directors' Deferred Compensation Trust and
to the ESOP and from funds received from the Bank under
a tax sharing agreement with the parent company. Funds
received from these sources are not expected to be
sufficient to meet debt service obligations throughout
1998. Sales of MidSouth common stock through a dividend
reinvestment and direct stock purchase plan combined
with dividends from the Bank, if necessary, will
provide additional liquidity for the parent company. As
of January 1, 1998, the Bank had the ability to pay
dividends to the parent company of approximately
$3,700,000 without prior approval from its primary
regulator. In addition, MidSouth has the ability to
borrow against its $2.5 million line of credit with a
financial institution. The unused portion of the line
totaled approximately $800,000 at year-end 1997.
Dividends. The primary source of cash dividends on
MidSouth's preferred and common stock is distributions
from the Bank and common stock purchases through the
Dividend Reinvestment and Direct Stock Purchase Plan.
As stated above under "Parent Company Liquidity", the
Bank has the ability to declare dividends to the
parent company without prior approval of its primary
regulator. However, the Bank's ability to pay dividends
would be prohibited if the result would cause the
Bank's regulatory capital to fall below minimum
requirements.
Cash dividends totaling $280,461 and $354,336 were paid
to common stockholders during 1996 and 1997,
respectively. It is the intention of the Board of
Directors of MidSouth to continue to pay quarterly
dividends on the common stock at the rate of $.06 per
share. Cash dividends on the common stock are subject
to payment of dividends on the Cumulative Convertible
Preferred Stock, Series A ("Preferred Stock") issued in
conjunction with the acquisition of Sugarland Bank, as
well as other considerations. Additional information
regarding MidSouth's Preferred Stock is included in
Note 13 to MidSouth's Consolidated Financial
Statements.
On August 6, 1997, MidSouth declared a 12 1/2% stock
dividend payable to shareholders of record on August
27, 1997. The dividend increased the common shares
outstanding by 174,496. The conversion rate on the
preferred stock was adjusted to 1.999 due to the stock
dividend.
On August 19, 1996, MidSouth effected a four for three
stock split by way of a stock dividend to its common
stockholders of record as of July 31, 1996. The stock
split increased the common shares outstanding at the
time from 994,627 to 1,326,025. Accordingly, the
conversion rate on the Preferred Stock was adjusted to
1.777 shares of MidSouth Common Stock for each share of
Preferred Stock converted.
A total of $154,474 in dividends were paid on
MidSouth's Preferred Stock in 1997. Assuming no
conversion of preferred stock in 1998, the aggregate
amount of dividends on the preferred stock in 1998 is
expected to be $151,649.
The Year 2000 Issue
On May 16, 1997, the Office of the Comptroller of the
Currency ("OCC") issued an advisory letter addressing
Year 2000 issues and their examination approach. To
maintain safe and sound banking practices, institutions
are required to take appropriate measures to insure
efficient operations of computer systems beyond the
year 2000. Programming changes for critical systems and
testing of vendors and service providers should be
completed by December 31, 1998. MidSouth's Board of
Directors established a Year 2000 compliance committee
in June of 1997. The committee has begun to assess the
size and complexity of the Year 2000 issues and will
report to the Board and recommend changes to hardware
and software as they are identified. The committee is
also responsible for conducting testing of all areas to
insure efficient computer operations. In addition, the
committee plans to discuss year 2000 issues and their
potential impact on the business operations of MidSouth
customers and suppliers. The committee is currently
analyzing the impact that compliance with the Year 2000
may have on earnings, but the Company is unable at this
time to state whether the cost of addressing year 2000
issues will or will not be material.
Impact of New Accounting Standards
In June 1997, the FASB issued Statement of Financial
Standards No. 130, "Reporting Comprehensive Income"
which requires that an enterprise report by major
components and as a single total, the change in net
assets during the period from non-owner sources and
SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" which establishes
annual and interim reporting standards for an
enterprise's operating segments and related disclosures
about its products, services, geographic areas and
major customers. Adoption of these statements will not
impact the Company's consolidated financial position,
results of operations or cash flows, and any effect
will be limited to the form and content of its
disclosures. Both statements are effective for fiscal
years beginning after December 15, 1997. The Company
is in the process of reviewing its operating segments.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CONDITION
DECEMBER 31, 1997 AND 1996
_______________________________________________________________________________
ASSETS 1997 1996
<S> <C> <C>
Cash and due from banks $ 15,774,024 $ 11,314,562
Federal funds sold 8,060,000 14,100,000
____________ ____________
Total cash and cash equivalents 23,834,024 25,414,562
Interest-bearing deposits in banks 48,928 406,798
Securities available-for-sale at fair
value (amortized cost of $36,750,950
in 1997 and $47,387,766 in 1996) 36,884,465 47,249,059
Securities held-to-maturity (estimated
fair value of $17,459,865 in 1997 and
$9,700,307 in 1996) 16,732,827 9,547,853
Loans, net of allowance for loan losses
of $1,414,826 in 1997 and $1,087,790
in 1996 129,473,318 93,740,719
Accrued interest receivable 1,638,931 1,386,596
Premises and equipment, net 6,973,150 5,808,952
Other real estate owned, net 45,100 180,270
Goodwill, net 241,902 276,523
Other assets 1,239,770 1,216,920
____________ ____________
$217,112,415 $185,228,252
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $58,464,087 $49,943,207
Interest bearing 141,603,664 121,673,301
____________ ____________
Total deposits 200,067,751 171,616,508
Securities sold under repurchase agreements 69,443 104,414
Accrued interest payable 543,936 397,259
Notes payable 3,198,794 1,521,435
Other liabilities 301,181 228,465
____________ ____________
Total liabilities 204,181,105 173,868,081
____________ ____________
Commitments and Contingencies (Note 9) - -
Stockholders' equity:
Convertible preferred stock, $14.25
par value, 5,000,000 shares authorized,
160,756 and 171,956 issued and
outstanding at December 31, 1997 and
1996, respectively 2,290,773 2,450,373
Common stock, $.10 par value, 5,000,000
shares authorized;
1,581,053 and 1,364,903 issued and
outstanding at December 31, 1997 and
1996, respectively 158,106 136,491
Additional paid in capital 9,862,700 6,738,943
Unearned ESOP shares (137,243) (30,836)
Unrealized gains (losses) on securities
available-for-sale, net of deferred
taxes of $51,505 in 1997 and $24,177
in 1996 81,966 (114,530)
Retained earnings 675,008 2,179,730
____________ ____________
Total stockholders' equity 12,931,310 11,360,171
____________ ____________
$217,112,415 $185,228,252
============ ============
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Midsouth Bancorp, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996 and 1995
____________________________________________________________________________
1997 1996 1995
<S> <C> <C> <C>
INTEREST INCOME:
Loans, including fees $11,625,789 $8,803,467 $7,226,469
Securities:
Taxable 2,886,273 2,736,086 1,909,901
Nontaxable 794,065 404,184 148,420
Federal funds sold 470,289 628,680 442,794
___________ __________ __________
Total interest income 15,776,416 12,572,417 9,727,584
___________ __________ __________
INTEREST EXPENSE:
Deposits 5,655,770 4,457,556 3,125,813
Other - principally on long-term debt 238,423 84,171 99,513
___________ __________ __________
Total interest expense 5,894,193 4,541,727 3,225,326
___________ __________ __________
NET INTEREST INCOME 9,882,223 8,030,690 6,502,258
PROVISION FOR LOAN LOSSES 854,400 674,500 225,000
___________ __________ __________
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 9,027,823 7,356,190 6,277,258
___________ __________ __________
NON-INTEREST INCOME:
Service charges on deposit accounts 2,101,956 1,489,211 1,137,314
Gain on sale of securities, net 94,913 1,176 -
Credit life insurance 190,590 238,911 175,314
Other charges and fees 512,002 408,987 270,398
___________ __________ __________
2,899,461 2,138,285 1,583,026
___________ __________ __________
NON-INTEREST EXPENSES:
Salaries and employee benefits 4,509,683 3,668,824 2,794,654
Occupancy expense 2,163,855 1,754,309 1,251,797
Other 2,912,250 2,417,558 2,025,678
___________ __________ __________
9,585,788 7,840,691 6,072,129
___________ __________ __________
INCOME BEFORE INCOME TAXES 2,341,496 1,653,784 1,788,155
PROVISION FOR INCOME TAXES 586,804 417,286 546,545
___________ __________ __________
NET INCOME 1,754,692 1,236,498 1,241,610
PREFERRED DIVIDEND REQUIREMENT 154,475 155,421 38,142
___________ __________ __________
NET INCOME AVAILABLE TO COMMON
STOCKHOLDERS $1,600,217 $1,081,077 $1,203,468
=========== ========== ==========
EARNINGS PER COMMON SHARE:
BASIC $1.03 $.72 $.82
=========== ========== ==========
DILUTED $.92 $.67 $.76
=========== ========== ==========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
_______________________________________________________________________________________________
Preferred Stock Common Stock
______________________ ____________________
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 - $ - 713,988 $ 71,399
Issuance of common stock 9,685 968
Issuance of convertible preferred stock 187,286 2,668,826
Registration and related costs incurred
in connection with issuance of
preferred stock
Stock split on common stock effected
in the form of a 33-1/3% dividend 240,267 24,027
Dividends declared on common stock -
$.08 per share
Dividends accrued on preferred stock
Stock options exercised 4,000 400
Net income
ESOP obligation repayments
Net change in unrealized gains (losses)
on securities available-for-sale,
net of tax
_______ _________ _______ ______
BALANCE, DECEMBER 31, 1995 187,286 2,668,826 967,940 96,794
Issuance of common stock 13,001 1,300
Dividends declared on common stock -
$.19 per share
Dividends paid on preferred stock
Stock options exercised 28,666 2,867
Preferred stock conversion (15,330) (218,453) 23,898 2,390
Stock split on common stock effected
in the form of a 33-1/3% dividend 331,398 33,140
Net income
ESOP obligation repayments
Net change in unrealized gains
(losses) on securities
available-for-sale, net of tax
_______ _________ _______ ______
BALANCE, DECEMBER 31, 1996 171,956 2,450,373 1,364,903 136,491
Issuance of common stock 21,598 2,159
Dividends declared on common
stock - $.23 per share
Dividends paid on preferred stock
Preferred stock conversion (11,200) (159,600) 20,056 2,006
Stock split on common stock effected
in the form of a 12.5% dividend 174,496 17,450
Registration and related costs
associated with dividend
reinvestment plan
Net income
Net change in ESOP obligation
Net change in unrealized gains
(losses) on securities
available-for-sale, net of tax
_______ _________ _________ ________
BALANCE, DECEMBER 31, 1997 160,756 $2,290,773 1,581,053 $ 158,106
======= ========= ========= ========
See notes to consolidated financial statements.
_______________________________________________________________________________________________
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(THE OTHER HALF OF THE PREVIOUS TABLE FOLLOWS:)
Unrealized
Gains
(Losses) on
Additional Securities
Paid in ESOP Available Retained
Capital Obligation for Sale Earnings Total
___________________________________________________________________
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 $6,144,070 $ (73,021) $(1,062,800) $ 293,698 $ 5,373,346
Issuance of common stock 123,865 124,833
Issuance of convertible preferred stock 2,668,826
Registration and related costs incurred
in connection with issuance of
preferred stock (120,525) (120,525)
Stock split on common stock effected
in the form of a 33-1/3% dividend (24,027) (782) (782)
Dividends declared on common stock -
$.08 per share (115,750) (115,750)
Dividend accrued on preferred stock (38,142) (38,142)
Stock options exercised 41,060 41,460
Net income 1,241,610 1,241,610
ESOP obligation repayments 18,864 18,864
Net change in unrealize gains (losses) on
securities available-for-sale,
net of tax 1,161,750 1,161,750
__________ ________ __________ __________ __________
BALANCE, DECEMBER 31, 1995 6,164,443 (54,157) 98,950 1,380,634 10,355,490
Issuance of common stock 164,797 166,097
Dividends declared on common stock
- $.19 per share (280,461) (280,461)
Dividends paid on preferred stock (155,421) (155,421)
Stock options exercised 226,780 229,647
Preferred stock conversion 216,063
Stock split on common stock effected
in the form of a 33-1/3% dividend (33,140) (1,520) (1,520)
Net income 1,236,498 1,236,498
ESOP obligation repayments 23,321 23,321
Net change in unrealized gains (losses)
on securities available-for-sale,
net of tax (213,480) (213,480)
__________ __________ __________ _________ ___________
BALANCE, DECEMBER 31, 1996 6,738,943 (30,836) (114,530) 2,179,730 11,360,171
Issuance of common stock 258,870 261,029
Dividends declared on common stock -
$.23 per share (354,336) (354,336)
Dividends paid on preferred stock (154,474) (154,474)
Preferred stock conversion 157,594 (47) (47)
Stock split on common stock effected
in the form of a 12.5% dividend 2,730,862 (2,750,557) (2,245)
Registration and related costs
associated with dividend
reinvestment plan (23,569) (23,569)
Net income 1,754,692 1,754,692
Net change in ESOP obligation (106,407) (106,407)
Net change in unrealized gains
(losses) on securities available-
for-sale, net of tax 196,496 196,496
__________ __________ __________ _________ ___________
BALANCE, DECEMBER 31, 1997 $9,862,700 $ (137,243) $ 81,966 $ 675,008 $12,931,310
========== ========== ========== ========= ===========
See notes to consolidated financial statments.
________________________________________________________________________________________________________________
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Midsouth Bancorp, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOW
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
_____________________________________________________________________________________
1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,754,692 $1,236,498 $1,241,610
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 850,426 650,673 393,418
Provision for loan losses 854,400 674,500 225,000
Provision for losses on other real
estate owned 33,718 - 12,400
Provision for deferred income taxes (163,196) (134,275) 82,367
(Discount accretion) premium
amortization, net (150,203) 168,342 123,283
Gain on sales of securities (94,913) (1,176) -
Gain (loss) on sales of other
real estate owned 8,052 (163) 735
Gain on sales of premises and
equipment - (21,755) -
Change in accrued interest receivable (252,335) (278,776) (185,054)
Change in accrued interest payable 146,677 74,368 101,682
Other, net 137,288 (702,267) (505,859)
__________ __________ _________
Net cash provided by operating
activities 3,124,606 1,665,969 1,489,582
__________ __________ _________
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease (increase) in interest-
bearing deposits in banks 357,870 (380,449) 22,073
Proceeds from sales of securities
available-for-sale 12,990,400 1,993,633 2,288,617
Proceeds from maturities and calls of
securities available-for-sale 23,579,688 6,773,366 8,674,925
Proceeds from securities held-to-
maturity 229,322 - 145,946
Purchases of securities available-for-
sale (25,694,503) (20,429,811) (10,178,931)
Purchases of securities held-to-
maturity (7,407,947) (5,026,109) (4,317,707)
Loan originations, net of repayments (36,693,406) (16,615,170) (9,631,750)
Purchases of premises and equipment (1,980,003) (2,024,561) (1,964,370)
Proceeds from sale of premises and
equipment - 154,130 -
Proceeds from sales of other real
estate owned 93,400 3,500 77,945
Net cash received in connection with
acquisition - - 3,388,259
__________ __________ _________
Net cash used in investing
activities (34,525,179) (35,551,471) (11,494,993)
__________ __________ _________
(Continued)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOW
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
______________________________________________________________________________________
1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 28,451,243 32,586,945 27,763,324
Net decrease in repurchase agreements (34,971) (71,490) (125,826)
Issuance of notes payable 3,254,210 1,369,293 1,000,000
Repayments of notes payable (1,576,852) (820,476) (1,150,279)
Proceeds from issuance of common stock 261,029 166,097 124,833
Payment of dividends on common and
preferred stock (508,810) (256,641) (57,675)
Payment of fractional shares resulting
from stock dividend (2,245) (1,520) (782)
Proceeds from exercise of stock options
and warrants - 229,647 28,561
Cost associated with dividend
reinvestment plan (23,569) - -
Costs incurred in connection with
issuance of preferred stock - - (120,525)
__________ __________ _________
Net cash provided by financing
activities 29,820,035 33,201,855 27,461,631
__________ __________ __________
NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS (1,580,538) (683,647) 17,456,220
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 25,414,562 26,098,209 8,641,989
__________ __________ __________
CASH AND CASH EQUIVALENTS AT
END OF YEAR $23,834,024 $25,414,562 $26,098,209
========== ========== ==========
SUPPLEMENTAL CASH FLOW
INFORMATION:
Interest paid $ 5,747,516 $ 4,467,359 $ 3,093,801
========== ========== ==========
Income taxes paid $ 716,467 $ 500,570 $ 466,723
========== ========== ==========
See notes to consolidated financial statements.
(Concluded)
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 and 1995
______________________________________________________________
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of MidSouth Bancorp,
Inc. (the Company) and its wholly owned subsidiaries
MidSouth National Bank (the Bank) and Financial Services of
the South, Inc. (the Finance Company), have been prepared in
accordance with generally accepted accounting principles and
conform with general practices within the banking industry.
A summary of significant accounting policies follows:
Description of Business - The Company is a bank holding
company headquartered in Lafayette, Louisiana providing
banking services to commercial and retail customers through
its wholly owned subsidiary, the Bank. The Company also
provides consumer loan services to individuals through the
Finance Company.
The Bank is community oriented and focuses primarily on
offering competitive commercial and consumer loan and
deposit services to individuals and small to middle market
business.
Consolidation - The consolidated financial statements of the
Company include the accounts of the Company, the Bank and
the Finance Company. Significant intercompany transactions
and balances have been eliminated.
Use of Estimates - The preparation of financial statements
in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and
disclosures of contingent assets and liabilities at the date
of the financial statement and the reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Securities - Securities are being accounted for in
accordance with Statement of Financial Accounting Standards
(SFAS) No. 115 "Accounting for Certain Investments in Debt
and Equity Securities". SFAS No. 115 requires the
classification of securities into one of three categories:
trading, available-for-sale, or held-to-maturity.
Management determines the appropriate classification of debt
securities at the time of purchase and re-evaluates this
classification periodically. Trading account securities are
held for resale in anticipation of short-term market
movements. Debt securities are classified as held-to-
maturity when the Company has the positive intent and
ability to hold the securities to maturity. Securities not
classified as held-to-maturity or trading are classified as
available-for-sale. The Company had no trading account
securities during the three years ended December 31, 1997.
Held-to-maturity securities are stated at amortized cost.
Available-for-sale securities are stated at fair value, with
unrealized gains and losses, net of deferred taxes, reported
as a separate component of stockholders' equity until
realized.
The amortized cost of debt securities classified as held-to-
maturity or available-for-sale is adjusted for amortization
of premiums and accretion of discounts to maturity or, in
the case of mortgage-backed securities, over the estimated
life of the security. Amortization, accretion and accrued
interest are included in interest income on securities.
Realized gains and losses, and declines in value judged to
be other than temporary, are included in net securities
gains. Gains and losses on the sale of securities available-
for-sale are determined using the specific-identification
method.
Loans - Loan origination fees and certain direct origination
costs are capitalized and recognized as an adjustment to
yield over the life of the related loan. Interest on
commercial and real estate mortgage loans is recorded as
income based upon the principal amount outstanding.
Unearned income on installment loans is credited to
operations based on a method which approximates the interest
method. Where doubt exists as to collectibility of a loan,
the accrual of interest is discontinued and subsequent
payments received are applied first to principal. Upon such
discontinuances all unpaid accrued interest is reversed.
Interest income is recorded after principal has been
satisfied and as payments are received.
The Company considers a loan to be impaired when, based upon
current information and events, it believes it is probable
that the Company will be unable to collect all amounts due
according to the contractual terms of the loan agreement.
The Company's impaired loans include troubled debt
restructurings, and performing and non-performing major
loans in which full payment of principal or interest is not
expected. The Company calculates a reserve required for
impaired loans based on the present value of expected future
cash flows discounted at the loan's effective interest rate,
or at the loan's observable market price or the fair value
of its collateral.
Generally, loans of all types which become 90 days
delinquent are in the process of collection through
repossession, foreclosure or have been deemed currently
uncollectible. Loans deemed currently uncollectible are
charged-off against the allowance account. As a matter of
policy, loans are placed on a non-accrual status where doubt
exists as to collectibility.
Allowance for Loan Losses - The allowance for loan losses is
a valuation account available to absorb probable losses on
loans. All losses are charged to the allowance for loan
losses when the loss actually occurs or when a determination
is made that a loss is likely to occur; recoveries are
credited to the reserve for loan losses at the time of
recovery. Periodically during the year, management
estimates the probable level of losses in the existing
portfolio based on the Company's past loan loss experience,
<PAGE>
known inherent risks in the portfolio, adverse situations
that may affect the borrowers ability to repay, the
estimated value of any underlying collateral and current
economic conditions. Based on these estimates, the
allowance for loan losses is increased by charges to income
and decreased by charge-offs (net of recoveries).
Premises and Equipment - Premises and equipment are stated
at cost less accumulated depreciation and amortization.
Depreciation and amortization are computed using the
straight-line method over the estimated useful lives of the
assets which generally range from 3 to 30 years. Leasehold
improvements are amortized over the estimated useful lives
of the improvements or the term of the lease, whichever is
shorter.
Other Real Estate Owned - Real estate properties acquired
through, or in lieu of, loan foreclosures are initially
recorded at fair value at the date of foreclosure
establishing a new cost basis. After foreclosure,
valuations are periodically performed by management and the
real estate is carried at the lower of carrying amount or
fair value less cost to sell. Revenues and expenses from
operations and changes in the valuation allowance are
included in loss on foreclosed real estate.
Income Taxes - Deferred income taxes are provided for timing
differences between items of income or expense reported in
the consolidated financial statements and those reported for
income tax purposes.
The Company computes deferred income taxes based on the
difference between the financial statements and tax basis of
assets and liabilities using enacted tax rates in effect in
the years in which the differences are expected to reverse.
Goodwill - Goodwill represents the excess of the cost over
the fair value of net assets purchased and is being
amortized over 15 years.
Stock-Based Compensation - The Company applies APB Opinion
No. 25 and related interpretations in accounting for its
stock options. Accordingly, no compensation cost has been
recognized. The pro forma disclosures required by SFAS No.
123 are included in Note 12.
Basic and Diluted Earnings Per Common Share - In February
1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128,
"Earnings Per Share." This Statement simplifies the
standards for computing income per common share previously
required under APB Opinion No. 15, "Earnings Per Share."
Basic earnings per common share (EPS) excludes dilution and
is computed by dividing income available to common
stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common
stock that then shared in the income of the Company.
Diluted EPS is computed by dividing net income by the total
of the weighted-average number of shares outstanding plus
the effect of outstanding options and convertible preferred
stock (see Note 14). SFAS No. 128 is effective for 1997 and
required restatement of all prior period EPS data.
Per Share Data - All per share data has been adjusted to
give retroactive effect to the stock splits effected in the
form of stock dividends paid in 1997, 1995 and 1994. Actual
dividends paid per share were $.24 in 1997, $.24 in 1996 and
$.12 in 1995.
Statements of Cash Flows - For purposes of reporting cash
flows, cash and cash equivalents include cash on hand,
amounts due from banks, and federal funds sold. Generally,
federal funds are purchased or sold for one-day periods.
Reclassifications - Certain reclassifications have been
made to the 1996 and 1995 financial statements in order to
conform to the classifications adopted for reporting
in 1997.
2. ACQUISITION
On July 31, 1995, the Company completed the merger and
acquisition of Sugarland Bancshares, Inc. The Company
issued 187,286 shares of its cumulative convertible
preferred stock to former shareholders of Sugarland
Bancshares, Inc. The transaction was accounted for as a
purchase. Had the acquisition occurred on January 1, 1995,
net interest income, net income, net income available to
common shareholders, basic earnings per share and diluted
earnings per share would have been $6,990,396, $1,350,436,
$1,129,456, $.77 and $.74 for the year ended December 31,
1995, respectively.
In connection with the acquisition, liabilities were assumed
as follows:
<TABLE>
<CAPTION>
<S> <C>
Fair value of assets, excluding cash $13,781,700
Cash acquired 3,388,259
____________
Liabilities assumed $17,169,959
============
</TABLE>
The unaudited pro forma information is not necessarily
indicative either of the results of operations that would
have occurred had the purchase been made as of January 1,
1995 or of future results of operations of the combined
companies.
3. CASH AND DUE FROM BANKS
The Company is required to maintain average reserve balances
with the Federal Reserve Bank. "Cash and due from banks" in
the consolidated statements of condition included amounts so
restricted of $4,150,000 and $3,708,000 at December 31, 1997
and 1996, respectively.
<PAGE>
<TABLE>
<CAPTION>
4. INVESTMENT SECURITIES
The portfolio of securities consisted of the following:
December 31, 1997
_______________________________________________
Gross Gross
Amortized Unrealized Unrealized
Available-for-Sale Cost Gains Losses Fair Value
___________ __________ __________ ___________
<S> <C> <C> <C> <C>
U.S. Treasury securities $20,393,458 $145,351 $41,897 $20,496,912
U.S. Government agencies 751,487 1,853 2,478 750,862
Obligations of states and
political subdivisions 1,415,952 4,171 13,920 1,406,203
Mortgage-backed securities 8,335,813 102,520 17,030 8,421,303
Collateralized mortgage
obligations 3,863,690 221 27,175 3,836,736
Mutual funds 1,000,000 - 18,101 981,899
Other 990,550 - - 990,550
___________ __________ __________ ___________
$36,750,950 $254,116 $120,601 $36,884,465
=========== ========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
_______________________________________________
Gross Gross
Amortized Unrealized Unrealized
Available-for-Sale Cost Gains Losses Fair Value
___________ __________ __________ ___________
<S> <C> <C> <C> <C>
U.S. Treasury securities $23,733,151 $77,101 $124,391 $23,685,861
U.S. Government agencies 860,178 3,641 5,142 858,677
Obligations of states and
political subdivisions 196,070 4,129 - 200,199
Mortgage-backed securities 15,431,087 126,288 88,480 15,468,895
Collateralized mortgage
obligations 4,345,330 35 64,283 4,281,082
Mutual funds 2,000,000 - 67,605 1,932,395
Other 821,950 - - 821,950
___________ ________ ________ ___________
$47,387,766 $211,194 $349,901 $47,249,059
=========== ======== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
_______________________________________________
Gross Gross
Amortized Unrealized Unrealized
Held-to-Maturity Cost Gains Losses Fair Value
___________ __________ __________ ___________
<S> <C> <C> <C> <C>
Nontaxable obligations of
states and political
subdivisions $16,732,827 $733,821 $6,783 $17,459,865
=========== ======== ====== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
_______________________________________________
Gross Gross
Amortized Unrealized Unrealized
Held-to-Maturity Cost Gains Losses Fair Value
___________ __________ __________ ___________
<S> <C> <C> <C> <C>
Nontaxable obligations of
states and political
subdivisions $9,547,853 $238,774 $86,320 $9,700,307
========== ======== ======= ==========
</TABLE>
<PAGE>
The amortized cost and fair value of securities at December
31, 1997 by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized
Available-for-Sale Cost Fair Value
__________ __________
<S> <C> <C>
Due in one year or less $8,312,164 $8,286,420
Due after one year through five years 13,917,641 14,028,690
Due after five years through ten years 510,952 512,174
Due after ten years 820,140 808,592
Mortgage-backed securities 12,199,503 12,258,039
Other securities 990,550 990,550
__________ __________
$36,750,950 $36,884,465
========== ==========
Amortized
Held-to-Maturity Cost Fair Value
__________ __________
Due in one year or less $25,000 $25,311
Due after one year through five years 105,000 108,420
Due after five years through ten years 5,820,205 6,117,754
Due after ten years 10,782,622 11,208,380
__________ __________
$16,732,827 $17,459,865
========== ==========
</TABLE>
Proceeds from sales of securities available-for-sale during
1997 were $12,990,400. A gross gain of $146,616 and a gross
loss of $61,437 were recognized on those sales. Proceeds
from sales of securities available-for-sale during 1996 and
1995 were $1,993,633 and $2,888,617, respectively. A gross
gain of $1,176 was recognized on sales in 1996. There were
no gross losses realized on sales during 1996. No gains or
losses were recognized on sales in 1995.
Securities with an aggregate carrying value of approximately
$26,800,000 and $35,300,000 at December 31, 1997 and 1996
were pledged to secure public funds on deposit and for other
purposes required or permitted by law.
The Company's collateralized mortgage obligations (CMO's)
have sequential pay structures and have estimated average
lives of less than four years.
<TABLE>
<CAPTION>
5. LOANS
The loan portfolio consisted of the following:
December 31
__________________________
1997 1996
<S> <C> <C>
Commercial, financial and agricultural $41,920,105 $28,100,137
Lease financing receivable 4,774,818 2,231,843
Real estate - mortgage 52,969,893 36,302,817
Real estate - construction 2,129,631 1,705,161
Installment loans to individuals 28,350,804 26,369,119
Other 742,893 119,432
____________ ___________
130,888,144 94,828,509
Less allowance for loan losses (1,414,826) (1,087,790)
____________ ___________
$129,473,318 $93,740,719
============ ===========
</TABLE>
Loans are stated net of unearned income and loan origination
fees in the above table. The amount of such items is not
significant.
The Company generally makes loans in its market areas of
Lafayette, Jefferson Davis, Iberia, St. Landry, St. Mary,
Calcasieu, and St. Martin Parishes. Loans on which the
accrual of interest has been discontinued amounted to
$260,875 and $523,855 at December 31, 1997 and 1996,
respectively. If interest on these types of loans had been
accrued, the income that would have been recognized would
have approximated $89,000, $79,000 and $42,000 for the years
ended December 31, 1997, 1996 and 1995. Interest income
recognized on those loans, which is recorded only when
received, amounted to $3,500, $34,000 and $17,000 for 1997,
1996 and 1995, respectively.
<PAGE>
<TABLE>
<CAPTION>
An analysis of the activity in the allowance for loan losses
is as follows:
Year Ended December 31,
__________________________________
1997 1996 1995
<S> <C> <C> <C>
Balance at beginning of year $1,087,790 $1,051,898 $873,934
Provision for loan losses 854,400 674,500 225,000
Addition of acquired reserve - - 115,093
Recoveries 205,409 257,051 91,481
Loans charged off (732,773) (895,659) (253,610)
__________ __________ __________
Balance at end of year $1,414,826 $1,087,790 $1,051,898
========== ========== ==========
</TABLE>
No loans were transferred to other real estate owned during
the year ended December 31, 1997. During the years ended
December 31, 1996 and 1995, approximately $3,000 and $18,000
of loans were transferred to other real estate owned,
respectively.
As of December 31, 1997 and 1996, loans outstanding to
certain directors, officers, and their affiliates were
$1,069,529 and $422,968, respectively. In the opinion of
management, all transactions entered into between the Bank
and such related parties have been and are made in the
ordinary course of business, on the same terms and
conditions, including interest rates and collateralization,
as similar transactions with unaffiliated persons and do not
involve more than the normal risk of collection.
An analysis of the 1997 activity with respect to these
related party loans is as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance, January 1, 1997 $422,968
New loans 887,814
Repayments (241,253)
__________
Balance, December 31, 1997 $1,069,529
==========
</TABLE>
At December 31, 1997 and 1996, the recorded investment in
loans that are considered to be impaired was $185,388 and
$418,794, respectively, substantially all of which had
related reserves recorded. The related reserves for these
loans were $80,000 and $134,716 at December 31, 1997 and
1996, respectively. Interest income on these types of loans
would have approximated $37,000, $41,000 and $24,000 for
1997, 1996 and 1995, respectively, if interest had been
accrued. Interest income actually recognized on those loans
amounted to $3,500, $33,000 and $19,000 for 1997, 1996 and
1995, respectively.
<TABLE>
<CAPTION>
6. BANK PREMISES AND EQUIPMENT
Premises and equipment consisted of the following:
December 31,
___________________________
1997 1996
<S> <C> <C>
Buildings and improvements $4,471,531 $3,441,573
Furniture, fixtures, and equipment 4,494,780 3,884,752
Automobiles 290,542 260,008
Leasehold improvements 653,885 633,977
Construction-in-process 409,798 130,757
__________ __________
10,320,536 8,351,067
Less accumulated depreciation
and amortization (3,347,386) (2,542,115)
__________ __________
$6,973,150 $5,808,952
========== ==========
</TABLE>
<TABLE>
<CAPTION>
7. DEPOSITS
Deposits consisted of the following:
December 31,
_____________________________
1997 1996
<S> <C> <C>
Non-interest bearing $58,464,087 $49,943,207
Savings and money market 40,709,245 32,695,085
NOW accounts 25,834,206 33,312,529
Time deposits under $100,000 42,360,075 36,571,046
Time deposits over $100,000 32,700,138 19,094,641
___________ ___________
$200,067,751 $171,616,508
=========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The Company has no brokered deposits and there are no major
concentrations of deposits. Substantially all deposits
mature within one year.
8. NOTES PAYABLE
Notes payable consisted of the following:
December 31,
___________________________
1997 1996
<S> <C> <C>
Note payables to financial
institutions $2,768,313 $1,050,097
FHLB borrowings 430,481 471,338
__________ __________
$3,198,794 $1,521,435
========== ==========
</TABLE>
The note payables to financial institutions consist of
advances against lines of credit established by the Company
and the Finance Company and an automobile loan payable by
the Finance Company.
On June 23, 1997, MidSouth refinanced its $2.5 million line
of credit with another financial institution, paying out
existing borrowings of $883,355 and receiving advances of
$1,385,024 under the new line of credit. At any time prior
to June 23, 1999, MidSouth may request advances up to but
not exceeding an aggregate principal amount of $2,500,000 at
any one time outstanding. Advances under the line of credit
bear interest at a variable rate equal to the prime
commercial rate of interest quoted in the "Money Rates"
section of the Wall Street Journal minus fifty basis points
(.50%). At December 31, 1997, the effective rate was 8%.
Interest under the note is due and payable quarterly in
arrears on the last day of each quarter beginning September
30, 1997. Beginning June 30, 1999, principal payments in
the amount of 11.11% of the amount of the loan balance on
June 30, 1999 are due and payable in eight consecutive
annual installments on June 30 of each succeeding calendar
year. The remaining balance of the loan is due and payable
in a ninth and final installment on June 30, 2007. The
Company has pledged all of the Bank's stock as collateral on
this note. The loan agreement has certain covenants which,
among other things, require the maintenance of certain
levels of stockholders' equity and net income and sets a
limit on the maximum amount of nonperforming assets. The
Company was in compliance with these covenants at December
31, 1997. The principal balance on this note at December 31,
1997 was $1,685,023.
The Finance Company paid out borrowings of $600,000 against
its line of credit on June 23, 1997 with $675,000 in
advances against a new $1,200,000 line of credit. Advances
under the line of credit bear interest at a variable rate
equal to the commercial prime rate as quoted in the "Money
Rates" section of the Wall Street Journal plus 25 basis
points (0.25%). At December 31, 1997, the effective rate
was 8.75%. Interest on the line is payable monthly, with
principal due at maturity on May 1, 1998. Advances totaled
$1,065,000 at December 31, 1997. The Finance Company has
pledged (1) all its promissory notes, credit sales
agreements, installment sales contracts, chattel paper,
negotiable paper or other written evidence of indebtedness
to the Finance Company; (2) all of its accounts receivable;
and (3) all of its common stock as collateral on this note.
A note payable of the Finance Company dated June 5, 1996
bears interest at 4.80% and is due on June 5, 2000. This
note payable is payable in 48 monthly installments over the
term of the loan. The principal balance remaining on the
note at December 31, 1997 and 1996 was $18,290 and $25,575,
respectively.
At December 31, 1997, the Bank had four FHLB borrowings
outstanding. These borrowings bear interest at rates
between 5.49% and 7.28%, and have maturities from February
1999 to June 2001. Monthly principal and interest payments
ranges from approximately $350 on the smallest borrowing to
approximately $4,710 on the largest borrowing, with balloon
payments due at maturity. The borrowings are secured by a
blanket floating lien on certain of the Bank's mortgage
loans.
Aggregate annual maturities on notes payable are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $1,115,472
1999 356,739
2000 240,006
2001 363,171
2002 187,206
Thereafter 936,200
__________
$3,198,794
==========
</TABLE>
<TABLE>
<CAPTION>
9. COMMITMENTS AND CONTINGENCIES
At December 31, 1997, future annual minimum rental payments
due under noncancelable operating leases, primarily for
land, are as follows:
<S> <C>
1998 $411,340
1999 388,476
2000 387,615
2001 393,138
2002 396,340
Thereafter through 2058 5,566,592
__________
$7,543,501
==========
</TABLE>
<PAGE>
Minimum rental payments have not been reduced by minimum
sublease rentals of approximately $60,000 due in the future
under noncancelable subleases.
Rental expense under operating leases for 1997, 1996 and
1995 was $399,961, $370,275, and $266,558, respectively.
Sublease income amounted to $31,800 in 1997 and $31,800 in
1996.
The Company and its subsidiaries are parties to various
legal precedings arising in the ordinary course of business.
In the opinion of management, the ultimate resolution of
these legal proceedings will not have a material adverse
effect on the Company's financial position or results of
operations.
10. INCOME TAXES
Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the
amounts used for income tax purposes. Significant
components of the Company's deferred tax assets and
liabilities as of December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
December 31,
______________________
1997 1996
<S> <C> <C>
Deferred tax assets:
Unrealized loss on securities $ - $24,180
Writedowns of other real estate 72,000 60,152
Allowance for loan losses 320,000 166,382
Other 4,000 6,212
________ ________
Total deferred tax assets 396,000 256,926
________ ________
Deferred tax liabilities:
FHLB stock dividends (28,000) (17,105)
Depreciation (157,000) (158,449)
Unrealized gain on securities (51,505) -
Other (79,023) (88,411)
________ ________
Total deferred tax liabilities (315,528) (263,965)
________ ________
Net deferred tax asset (liability) $80,472 $ (7,039)
======== ========
</TABLE>
<TABLE>
<CAPTION>
Components of income tax expense are as follows:
YEAR ENDED DECEMBER 31,
___________________________________
1997 1996 1995
<S> <C> <C> <C>
Current $750,000 $551,561 $464,178
Deferred (163,196) (134,275) 82,367
________ ________ ________
$586,804 $417,286 $546,545
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
The provision for federal income taxes differs from the
amount computed by applying the U.S. Federal income tax
statutory rate of 34% on income as follows:
Year Ended December 31,
___________________________________
1997 1996 1995
<S> <C> <C> <C>
Taxes calculated at
statutory rate $796,109 $562,287 $607,973
Increase (decrease)
resulting from:
Tax-exempt interest (242,420) (124,532) (50,463)
Other 33,115 (20,469) (10,965)
________ ________ ________
$586,804 $417,286 $546,545
======== ======== ========
</TABLE>
11. EMPLOYEE BENEFITS
The Company sponsors a leveraged employee stock ownership
plan (ESOP) that covers all employees who meet minimum age
and service requirements. The Company makes annual
contributions to the ESOP in amounts as determined by the
Board of Directors. These contributions are used to pay
debt service and purchase additional shares. The ESOP
shares initially were pledged as collateral for its debt.
As the debt is repaid, shares are released from collateral
and allocated to active employees, based on the proportion
of debt service paid in the year. Prior to 1995, the ESOP
note payable was to another financial institution but is now
payable to the Bank. Because the source of the loan
payments are contributions received by the ESOP from the
Company, the related note receivable is shown as a reduction
of stockholders' equity. The balance of the note receivable
from the ESOP was $137,243 at December 31, 1997. In
accordance with the American Institute of Certified Public
Accountants' Statement of Position 93-6 (SOP), compensation
costs relating to shares purchased subsequent to December
31, 1992 are based on the market price of the shares on the
<PAGE>
date released for allocation and related unreleased shares
are not considered outstanding in the computation of income
per common share. The Company has elected not to apply the
provisions of the SOP to shares purchased on or before
December 31, 1992 and therefore compensation costs relating
to those shares was based upon cost and those shares were
considered as outstanding in the computation of income per
common share. ESOP compensation expense was $90,000,
$84,000 and $78,000 for the years ended December 31, 1997,
1996 and 1995, respectively. The ESOP shares as of December
31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Allocated shares 146,670 139,458
Shares released for allocation 2,443 3,764
Unreleased shares 14,681 4,598
_______ _______
Total ESOP shares 163,794 147,820
======= =======
Fair value of unreleased shares at
December 31, $311,971 $44,957
======= =======
</TABLE>
During 1996 the Company adopted a deferred compensation plan
for certain officers which qualifies as a defined
contribution plan. Contributions to the plan are required
only if "excess earnings", as defined, are achieved. The
participants accrue benefits based only on the contributions
made. During 1997 and 1996 no contributions were required.
12. EMPLOYEE STOCK PLANS
Prior to 1994, the Company had granted options to certain
key employees to purchase shares of the Company's common
stock. At December 31, 1996, all options had been
exercised. The Company is applying APB Opinion No. 25 and
related interpretations in accounting for stock options.
All options exercisable in 1996 and 1995 were granted before
1994 and were at or above the estimated fair market value at
the date of grant. Accordingly, no compensation expense has
been recognized and no disclosures regarding the fair value
of those options has been made.
In May 1997 the stockholders of the Company approved the
1997 Stock Incentive Plan to provide incentives and awards
for employees of the Company and its subsidiaries. "Awards"
as defined in the Plan includes, with limitations, stock
options (including restricted stock options), stock
appreciation rights, performance shares, stock awards and
cash awards, all on a stand-alone, combination or tandem
basis. A total of 8% of the Company's common shares
outstanding can be granted under the Plan. The exercise
price of options is equal to the market price on the date of
grant.
During 1997, options to purchase 92,815 shares were granted
which are exercisable at $10.00. These options are
exercisable in 20% increments beginning one year from the
date of grant. The options expire ten years after the date
of grant.
Below is a summary of the transactions:
<TABLE>
<CAPTION>
Exercise Price
______________________
Number of Average
Options Price
Outstanding Per Share
<S> <C> <C>
Balance, January 1, 1995 42,000 $ 4.76
Exercised (6,000) 4.76
_______
Balance, January 1, 1996 36,000 4.76
Exercised (36,000) 4.76
_______
Balance, December 31, 1996 - -
Granted 92,815 10.00
_______
Balance, December 31, 1997 92,815 $10.00
======= ======
</TABLE>
No options were exercisable at December 31, 1997.
The Company has adopted the disclosure-only option under
SFAS No. 123, "Accounting for Stock Based Compensation."
The fair value of options granted during 1997 was $3.25.
Had compensation cost for the Company's stock options been
determined based on the fair value at the grant date
consistent with the method under SFAS No. 123, the Company's
income available to common stockholders and income per
common share would have been as indicated below:
<TABLE>
<CAPTION>
Year Ended
__________
1997
<S> <C>
Income available to common stockholders:
As reported $1,600,217
Pro forma 1,485,217
Basic income per common share:
As reported $1.03
Pro forma 0.96
Diluted income per common share:
As reported $0.92
Pro forma 0.86
</TABLE>
The fair value of the options granted under the Company's
stock option plans during the year ended December 31, 1997
was estimated using the Black-Scholes Pricing Model with the
following assumptions used: dividend yield of 1.5%,
expected volatility of 20%, risk free interest rate of 5.8%,
and expected lives of 8 years.
13. STOCKHOLDERS' EQUITY
On July 31, 1995, the Company issued 187,286 shares of
Series A Cumulative Convertible Preferred Shares with a
stated value of $14.25. The Convertible Preferred Shares
are convertible at any time at the option of the holder into
common stock, at the rate of 1.999 shares of Common Stock
for each Convertible Preferred Share. On or after July 31,
2000, the Convertible Preferred Shares are redeemable, in
whole or in part, at the option of the Company at the stated
value of $14.25. The liquidation value of the Convertible
Preferred Stock is $14.25 plus accrued dividends. Dividends
on the Convertible Preferred Shares are determined each year
on an annual rate, fixed on December 31 of each year for the
ensuing calendar year and was 6.62% at December 31, 1997.
The dividends are cumulative and payable quarterly in
arrears. Holders of Convertible Preferred Shares are not
entitled to normal voting rights unless certain conditions
exist.
The payment of dividends by the Bank to the Company is
restricted by various regulatory and statutory limitations.
At December 31, 1997, the Bank has approximately $3,700,000
available to pay dividends to the Parent Company without
regulatory approval.
14. NET INCOME PER COMMON SHARE
Following is a summary of the information used in the
computation of earnings per common share.
<TABLE>
<CAPTION>
Year Ended December 31,
_______________________________________
1997 1996 1995
<S> <C> <C> <C>
Net income - used in computation of
diluted earnings per common share $1,754,692 $1,236,498 $1,241,610
Preferred dividend requirement 154,475 155,421 38,142
__________ __________ __________
Net income available to common
stockholders - used in computation of
basic earnings per common share $1,600,217 $1,081,077 $1,203,468
========== ========== ==========
Weighted average number of common
shares outstanding - used in computation
of basic earnings per common share 1,554,968 1,500,052 1,465,629
Effect of dilutive securities:
Stock options 16,491 - 19,298
Convertible preferred stock 332,546 343,740 156,698
__________ _________ __________
Weighted average number of common
shares outstanding plus effect of dilutive
securities - used in computation of
diluted earnings per common share 1,904,005 1,843,792 1,641,625
========== ========= ==========
</TABLE>
<PAGE>
15. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is a party to various financial instruments with
off-balance sheet risk in the normal course of business to
meet the financing needs of its customers and to reduce its
own exposure to fluctuations in interest rates. These
financial instruments include commitments to extend credit
and standby letters of credit. Those instruments involve,
to varying degrees, elements of credit and interest rate
risk in excess of the amounts recognized in the statements
of financial condition. The contract or notional amounts of
those instruments reflect the extent of the involvement the
Bank has in particular classes of financial instruments.
The Bank's exposure to loan loss in the event of
nonperformance by the other party to the financial
instrument for commitments to extend credit, standby letters
of credit and financial guarantees is represented by the
contractual amount of those instruments. The Bank uses the
same credit policies, including considerations of collateral
requirements, in making these commitments and conditional
obligations as it does for on-balance sheet instruments.
<TABLE>
<CAPTION>
Contract or Notional
Amount
__________________________
1997 1996
<S> <C> <C>
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $19,278,514 $11,694,027
Standby letters of credit 1,592,279 575,331
</TABLE>
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition
established in the contract. Commitments generally have
fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are
expected to expire without being fully drawn upon, the total
commitment amounts disclosed above do not necessarily
represent future cash requirements. Substantially all of
these commitments are at variable rates.
Standby letters of credit and financial guarantees are
conditional commitments issued by the Bank to guarantee the
performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the
same as that involved in extending loan facilities to its
customers. Approximately 98% of these letters of credit
were secured by marketable securities, cash on deposits or
other assets at December 31, 1997.
16. REGULATORY MATTERS
The Company and the Bank are subject to various regulatory
capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken,
could have a direct material effect on the financial
statements. Under capital adequacy guidelines, the Company
and the Bank must meet specific capital guidelines that
involve quantitative measures of assets, liabilities, and
certain off-balance-sheet items as calculated under
regulatory accounting practices. The capital amounts and
classification are also subject to qualitative judgments by
the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure
capital adequacy require the Company and the Bank to
maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of
Tier I capital (as defined) to average assets (as defined).
Management believes, as of December 31, 1997 that all
capital adequacy requirements to which the Company is
subject have been met.
As of December 31, 1997 and 1996, the most recent
notifications from the Federal Deposit Insurance Corporation
categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be
categorized as well capitalized the Bank must maintain
minimum total risk-based, Tier I risk-based, Tier I leverage
ratios as set forth in the table. There are no conditions
or events since those notifications that management believes
have changed the institution's category.
The Company's and the Bank's actual capital amounts and
ratios are presented in the table below.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital
Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
______________________ ____________________ _____________________
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total capital to risk
weighted assets:
Company $14,004,168 10.22% $10,960,633 8.00% $ N/A N/A
Bank 15,493,149 11.41% 10,865,639 8.00% 13,582,049 10.00%
Tier I capital to risk
weighted assets:
Company 12,589,342 9.19% 5,480,317 4.00% N/A N/A
Bank 14,124,400 10.40% 5,432,820 4.00% 8,149,229 6.00%
Tier I capital to
average assets:
Company 12,589,342 6.00% 8,735,025 4.00% N/A N/A
Bank 14,124,400 6.77% 8,686,439 4.00% 10,434,004 5.00%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital
Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
______________________ ____________________ _____________________
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total capital to risk
weighted assets:
Company $12,300,261 11.87% $8,291,529 8.00% N/A N/A
Bank 12,632,795 12.25% 8,247,337 8.00% 10,309,171 10.00%
Tier I capital to risk
weighted assets:
Company 11,212,471 10.82% 4,145,764 4.00% N/A N/A
Bank 11,558,155 11.21% 4,123,668 4.00% 6,185,503 6.00%
Tier I capital to
average assets:
Company 11,212,471 6.30% 7,119,029 4.00% N/A N/A
Bank 11,558,155 6.52% 7,090,892 4.00% 8,864,453 5.00%
</TABLE>
17. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate
the fair value of each class of financial instruments for
which it is practicable to estimate that value:
Cash, Due From Banks and Federal Funds Sold - For those
short-term instruments, the carrying amount is a reasonable
estimate of fair value.
Securities - For securities, fair value equals quoted market
price, if available. If a quoted market price is not
available, fair value is estimated using quoted market
prices for similar securities.
Loans, Net - The fair value of loans is estimated by
discounting the future cash flows using the current rates at
which similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities.
Deposits - The fair value of demand deposits, savings
accounts, and certain money market deposits is the amount
payable on demand at the reporting date. The fair value of
fixed-maturity certificates of deposit is estimated using
the rates currently offered for deposits of similar
remaining maturities.
Notes Payable - Rates currently available to the Company for
debt with similar terms and remaining maturities are used to
estimate fair value of existing debt.
Commitments - The fair value of commitments to extend credit
was not significant.
The estimated fair values of the Company's financial
instruments are as follows at December 31, 1997 and 1996 (in
thousands):
<TABLE>
<CAPTON>
1997 1996
__________________ _________________
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Financial assets:
Cash, due from banks and federal
fund sold $23,883 $23,883 $25,415 $25,415
Securities available-for-sale 36,884 36,884 47,249 47,249
Securities held-to-maturity 16,733 17,460 9,548 9,700
Loans, net 129,473 129,400 93,741 92,886
Financial liabilities:
Non-interest bearing deposits 58,464 58,464 49,943 49,943
Interest bearing deposits 141,604 141,676 121,673 121,782
Notes payable 3,199 3,199 1,521 1,522
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
18. OTHER NON-INTEREST EXPENSE
Other non-interest expense consisted of the following for
the years ended December 31, 1997, 1996 and 1995:
1997 1996 1995
<S> <C> <C> <C>
Professional fees $337,824 $348,543 $261,857
FDIC assessments 21,267 2,000 106,414
Marketing expenses 515,097 411,206 328,964
Data processing 162,016 143,964 63,347
Postage 224,761 154,802 130,754
Education and travel 124,287 159,500 103,563
Printing and supplies 279,806 236,681 171,376
Telephone 202,999 177,563 156,969
Other 1,044,193 783,299 702,434
__________ __________ __________
$2,912,250 $2,417,558 $2,025,678
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
19. CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
Summarized financial information for MidSouth Bancorp, Inc.
(parent company only) follows:
December 31,
______________________________
ASSETS 1997 1996
<S> <C> <C>
Cash and interest-bearing deposits in banks $ 20,841* $ 52,305*
Other assets 114,670 197,315
Investment in subsidiaries 14,618,066* 12,026,362*
___________ ___________
$14,753,577 $12,275,982
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
Liabilities:
Notes payable to financial institutions $1,685,023 $784,522
Note payable to Bank 137,244* 49,395*
Other liabilities - 81,894
___________ ___________
Total liabilities 1,822,267 915,811
___________ ___________
Total stockholders' equity 12,931,310 11,360,171
___________ ___________
$14,753,577 $12,275,982
=========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
Years Ended December 31,
___________________________________________
1997 1996 1995
<S> <C> <C> <C>
Revenue:
Equity in undistributed income of subsidiaries $1,895,208* $1,337,342* $1,350,358*
Rental and other income 32,827 32,827 36,880
__________ __________ __________
1,928,035 1,370,169 1,387,238
__________ __________ __________
Expenses:
Interest on notes payable 100,109 50,249 55,884
Professional fees 87,548 64,737 68,169
Other expense 58,086 75,299 89,575
__________ __________ __________
245,743 190,285 213,628
__________ __________ __________
Income before income taxes and
cumulative effect of accounting change 1,682,292 1,179,884 1,173,610
Income tax benefit 72,400 56,614 68,000
__________ __________ __________
Net income $1,754,692 $1,236,498 $1,241,610
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
Years Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Distributions from bank $ - $ 208,197* $ 112,899*
Change in other assets and liabilities, net 751 (40,320) 76,423
Other operating (140,516) (100,844) (108,748)
__________ __________ __________
Net cash provided by (used in)
operating activities (139,765) 67,033 80,574
__________ __________ __________
Cash flows from investing activities:
Investment in subsidiary (500,000)* (300,000)* -
Maturities of investment securities - - 120,946
__________ __________ __________
Net cash provided by (used in)
investing activities (500,000) (300,000) 120,946
__________ __________ __________
Cash flows from financing activities:
Capital stock transactions 235,168 336,027 152,993
Payment of dividends (508,810) (435,882) (153,891)
Proceeds of (payments of) notes payable, net
881,943 294,892 (133,830)
__________ __________ __________
Net cash provided by (used in)
financing activities 608,301 195,037 (134,728)
__________ __________ __________
Net increase (decrease) in cash (31,464) (37,930) 66,792
Cash, beginning of year 52,305 90,235 23,443
__________ __________ __________
Cash, end of year $ 20,841 $ 52,305 $ 90,235
========== ========== ==========
*Eliminated in consolidation
</TABLER>
20. IMPACT OF NEW ACCOUNTING STANDARDS
In June 1997, the FASB issued Statement of Financial Standards No. 130,
"Reporting Comprehensive Income" which requires that an enterprise report
by major components and as a single total, the change in net assets during
the period from non-owner sources and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" which establishes
annual and interim reporting standards for an enterprise's operating
segments and related disclosures about its products, services, geographic
areas and major customers. Adoption of these statements will not impact
the Company's consolidated financial position, results of operations or
cash flows, and any effect will be limited to the form and content of
its disclosures. Both statements are effective for fiscal years
beginning after December 15, 1997. The Company is in the process of
reviewing its operating segments.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
of MidSouth Bancorp, Inc.
Lafayette, Louisiana
We have audited the accompanying consolidated statements of
condition of MidSouth Bancorp, Inc. and its subsidiaries as
of December 31, 1997 and 1996, and the related consolidated
statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31,
1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express
an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, such consolidated financial statements
present fairly, in all material respects, the financial
position of MidSouth Bancorp, Inc. and subsidiaries at
December 31, 1997 and 1996 and the results of their
operations and their cash flows for each of the three years
in the period ended December 31, 1997 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
January 30, 1998
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
MIDSOUTH BANCORP, INC.
LOAN PORTFOLIO
LOAN MATURITIES AND SENSITIVITY TO INTEREST RATES
for the Year Ended December 31, 1997
(dollars in thousands)
Loans at Stated Maturities Amounts Over One Year With
__________________________________________________ ___________________________________
1 Year 1 Year - Over Predetermined Floating
or Less 5 Years 5 Years Total Rates Rates Total
__________________________________________________ ___________________________________
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial, Financial
Industrial, Real Estate
Mortgage and Real
Estate - Constr $25,461 $46,870 $15,315 $87,646 $43,685 $18,500 $62,185
Installment Loans to
Individuals and Real
Estate Mortgage 7,678 28,868 1,178 $37,724 29,705 341 $30,046
Lease Financing
Receivables 212 4,563 - $4,775 4,563 - $4,563
Other 743 - - $743 - - -
__________________________________________________ ___________________________________
TOTAL $34,094 $80,301 $16,493 $130,888 $77,953 $18,841 $96,794
================================================== ===================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MIDSOUTH BANCORP, INC.
SECURITIES PORTFOLIO
MATURITIES AND AVERAGE YIELDS
for the Year Ended December 31, 1997
(dollars in thousands)
After 1 but After 5 but
Within 1 Year Within 5 Years Within 10 Years After 10 Years
SECURITIES AVAILABLE FOR SALE Amount Yield Amount Yield Amount Yield Amount Yield Total
_______________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and U.S.
Government Agency securities $7,254 5.63% $13,779 5.96% - $215 7.81% $21,248
Obligations of State and
Political Subdivisions 50 6.69% 250 6.77% 500 7.00% 605 7.25% 1,405
Mortgage Backs and CMOs 2,716 6.56% 3,076 6.64% 4,107 6.81% 2,359 5.78% 12,258
Other securities - - - 991 5.19% 991
Mutual funds 982 5.91% - - - 982
_______________________________________________________________________________________
Total Fair Value $11,002 $17,105 $4,607 $4,170 $36,884
=======================================================================================
</TABLE>
<TABLE>
<CAPTION>
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
_______________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Obligations of State and
Political Subdivisions $25 5.75% $105 6.80% $5,820 5.45% $10,783 5.30% $16,733
_______________________________________________________________________________________
Total Amortized Cost $25 $105 $5,820 $10,783 $16,733
=======================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MIDSOUTH BANCORP, INC.
SUMMARY OF
AVERAGE DEPOSITS
(in thousands)
1997 1996
AVERAGE AVERAGE AVERAGE AVERAGE
AMOUNT YIELD AMOUNT YIELD
________ ________ _______ ________
<S> <C> <C> <C> <C>
Non-interest bearing $48,480 0.00% $40,633 0.00%
Demand Deposits
Interest bearing
Deposits
Savings, NOW, MM 73,844 2.98% 58,362 2.74%
Time Deposits 65,492 5.21% 54,944 5.19%
________ ________
Total $187,816 2.95% $153,939 2.89%
======== ========
</TABLE>
<TABLE>
<CAPTION>
MATURITY SCHEDULE
TIME DEPOSITS OF
$100,000 OR MORE
(in thousands)
1997 1996
_______ ______
<S> <C> <C>
3 months or less $17,733 $7,238
3 months through 6 months 4,780 3,292
7 months through 12 months 7,283 4,969
over 12 months 2,904 3,596
_______ _______
Total $32,700 $19,095
======= =======
SUMMARY OF RETURN
ON EQUITY AND ASSETS
1997 1996
_______ ________
Return on Average Assets 0.78% 0.65%
Return on Average Common Equity 16.44% 13.09%
Dividend Payout Ratio
on Common Stock 22.14% 25.94%
Average Equity to
Average Assets 5.93% 6.50%
</TABLE>
<PAGE>
ITEM 8 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
Not applicable.
PART III
ITEM 9 - Directors, Executive Officers, Promotors and Control
Persons; Compliance with Section 16(a) of the Exchange Act
The information contained in Registrant's definitive proxy statement for its
1998 annual meeting of shareholders, is incorporated herein by reference
in response to this Item. Information concerning executive officers is
provided following Item 4.
ITEM 10 - Executive Compensation
The information contained in Registrant's definitive proxy statement for its
1998 annual meeting of shareholders is incorporated herein by reference in
response to this Item.
ITEM 11 - Security Ownership of Certain Beneficial Owners and
Management
The information contained in Registrant's definitive proxy statement for its
1998 annual meeting of shareholders is incorporated herein by reference in
response to this Item.
ITEM 12 - Certain Relationships and Related Transactions
The information contained in Registrant's definitive proxy statement for its
1998 annual meeting of shareholders is incorporated herein by reference in
response to this Item.
<PAGE>
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.
<PAGE>
10.6 The MidSouth Bancorp, Inc. 1997 Stock Incentive Plan is
included as a form of option agreement in Exhibit 4.5 to
MidSouth's definitive proxy statement filed April 11, 1997
and is incorporated herein by reference.
10.7 The MidSouth Bancorp, Inc. Dividend Reinvestment and Stock
Purchase Plan is included as Exhibit 4.6 to MidSouth Bancorp,
Inc.'s Form S-3D filed on July 25, 1997 and is incorporated
herein by reference.
10.8 Loan Agreements and Master Notes for lines of credit
established for MidSouth Bancorp, Inc. and Financial Services
of the South, Inc. are included as Exhibit 10.7 to MidSouth
Bancorp, Inc.'s Form 10-QSB filed on August 14, 1997 and is
incorporated herein by reference.
21 Subsidiaries of the Registrant
23 Independent Auditors' Consent
27 Financial Data Schedule
Reports on Form 8-K
None
<PAGE>
<TABLE>
<CAPTION>
Selected Quarterly Financial Data (unaudited) 1997
____________________________________
(Dollars in thousands, except per share
data) IV III II I
______ ______ ______ ______
<S> <C> <C> <C> <C>
Interest income $4,217 $4,112 $3,893 $3,554
Interest expense 1,521 1,595 1,462 1,316
______ ______ ______ ______
Net interest income 2,696 2,517 2,431 2,238
Provision for possible credit losses 250 242 209 153
______ ______ ______ ______
Net interest income after provision
for possible credit losses 2,446 2,275 2,222 2,085
Noninterest income,
excluding securities gains 743 735 729 596
Net securities gains 10 - 85 -
Non-interest expense 2,560 2,474 2,369 2,183
______ ______ ______ ______
Income before income tax expense 639 536 667 498
Income tax expense 158 127 185 116
______ ______ ______ ______
Net income 481 409 482 382
Preferred stock dividend requirement (37) (37) (40) (40)
______ ______ ______ ______
Income applicable to common shareholders $444 $372 $442 $342
====== ====== ====== ======
Earnings per common share <FN1>
Basic $ 0.28 $0.24 $0.29 $0.22
Diluted $ 0.25 $0.21 $0.26 $0.20
Market price of common stock <FN1>
High $21.56 $17.75 $12.89 $10.22
Low $16.13 $13.00 $10.00 $9.44
Close $21.25 $16.25 $12.89 $9.89
Average shares outstanding <FN1>
Basic 1,570,294 1,572,470 1,555,673 1,543,731
Diluted 1,934,288 1,930,918 1,870,460 1,848,592
</TABLE>
<TABLE>
<CAPTION>
1996
____________________________________
IV III II I
______ ______ ______ ______
<S> <C> <C> <C> <C>
Interest income $3,366 $3,234 $3,061 $2,911
Interest expense 1,218 1,185 1,108 1,030
______ ______ ______ ______
Net interest income 2,148 2,049 1,953 1,881
Provision for possible credit losses 140 225 190 120
______ ______ ______ ______
Net interest income after provision
for possible credit losses 2,008 1,824 1,763 1,761
Noninterest income,
excluding securities gains 570 562 563 442
Net securities gains - 1 - -
Non-interest expense 2,165 2,039 1,856 1,780
______ ______ ______ ______
Income before income tax expense 413 348 470 423
Income tax expense 55 95 134 134
______ ______ ______ ______
Net income 358 253 336 289
Preferred stock dividend requirement (37) (39) (39) (40)
______ ______ ______ ______
Income applicable to common shareholders $321 $214 $297 $249
====== ====== ====== ======
Earnings per common share <FN1>
Basic $0.21 $0.14 $0.20 $0.17
Diluted $0.19 $0.13 $0.19 $0.16
Market price of common stock <FN1>
High $9.89 $9.56 $10.33 $10.42
Low $9.33 $9.11 $9.33 $10.00
Close $9.78 $9.45 $9.34 $10.17
Average shares outstanding <FN1>
Basic 1,523,463 1,509,727 1,503,295 1,489,377
Diluted 1,828,857 1,829,066 1,743,264 1,735,408
</TABLE>
<FN1> Earnings per share and other share data have been
adjusted for a four for three stock split paid on August
19,1996 and a 12 1/2% stock dividend paid on August 27, 1997.
Earnings per share have also been restated to apply the
provisions of Statement of Financial Accounting
Standards No. 128 "Earnings Per Share."
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
MIDSOUTH BANCORP, INC.
By: ________________________
C. R. Cloutier
President and Chief
Executive Officer
Dated: March 20, 1998
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
Signatures Title Date
/s/ C. R. Cloutier President, Chief Executive March 20, 1998
C. R. Cloutier Officer and Director
/s/ Karen L. Hail Chief Financial Officer, March 20, 1998
Karen L. Hail Executive Vice President,
Secretary/Treasurer
and Director
/s/ Teri S. Stelly Controller March 20, 1998
Teri S. Stelly
Director
/s/ J. B. Hargroder, M.D. March 20, 1998
J. B. Hargroder, M.D.
/s/ William M. Simmons Director March 20, 1998
William M. Simmons
/s/ Will G. Charbonnet, Sr. Director March 20, 1998
Will G. Charbonnet, Sr.
/s/ Clayton Paul Hilliard Director March 20, 1998
Clayton Paul Hilliard
/s/ James R. Davis Director March 20, 1998
James R. Davis, Jr.
/s/ Milton B. Kidd, III Director March 20, 1998
Milton B. Kidd, III., O.D.
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
MidSouth National Bank
Financial Services of the South, Inc.
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
No. 333-32107 of MidSouth Bancorp, Inc. on Form S-3D of our report
dated January 30, 1998, appearing in this Annual Report on Form 10-KSB
of MidSouth Bancorp, Inc. for the year ended December 31, 1997.
DELOITTE & TOUCHE, LLP
New Orleans, Louisiana
March 25, 1998
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