SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
x TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 2-91000-FW
MIDSOUTH BANCORP, INC.
(Exact name of registrant as specified in its charter)
Louisiana 72-1020809
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
102 Versailles Blvd., Lafayette, LA 70501
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (318) 237-8343
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $.10 par value American Stock Exchange, Inc.
Preferred Stock, no par value, $14.25 American Stock Exchange, Inc.
stated value
Securities registered pursuant to Section 12(g) of the Act: none
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB __X__
As of February 28, 1999, the aggregate market value of the voting
stock held by non-affiliates of the Registrant, calculated by reference to
the closing sale price of MidSouth's common stock on the AMEX was
$16,048,783. As of February 28, 1999 there were outstanding
2,442,276 shares of MidSouth Bancorp, Inc. common stock, $.10 par
value, which stock is the only class of the Registrant's common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for Annual Meeting of Shareholders to be held May 12, 1999 -
(Part III)
<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.
The Bank serves most types of lending demands including
short term business loans, other commercial, industrial and
agricultural loans, real estate construction and mortgage
loans and installment loans. The Bank operates at the
fifteen locations described below under "Item 2 -
Properties."
Employees
As of December 31, 1998, the Bank employed 152
full-time equivalent
employees and the Finance Company employed 5 full-time
equivalent employees. MidSouth has no employees who
are not also employees of the Bank. Through the Bank and
the Finance Company, employees receive employee
benefits which include an employee stock ownership plan,
a 401-K plan and life, health and disability insurance plans.
MidSouth considers the relationships of the Bank and the
Finance Company with their employees to be very good.
<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.
Supervision and Regulation - Bank Holding Companies
GENERAL. As a bank holding company, MidSouth is subject
to the Bank Holding Company Act of 1956 (the "Act") and
is supervised by the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board"). The Act
requires MidSouth to file periodic reports with the Federal
Reserve Board and subjects MidSouth to examination by
the Federal Reserve Board. The Act also requires
MidSouth to obtain the prior approval of the Federal
Reserve Board for acquisitions of substantially all of the
assets of any bank or bank holding company or more than
5% of the voting shares of any bank or bank holding
company. The Act prohibits MidSouth from engaging in
any business other than banking or bank-related activities
specifically allowed by the Federal Reserve Board and from
engaging in certain tie-in arrangements in connection with
any extension of credit or provision of any property or
services.
CAPITAL ADEQUACY REQUIREMENTS. The Federal Reserve
Board monitors the capital adequacy of bank holding
companies through the use of a combination of risk-based
capital guidelines and leverage ratios. Risk-based capital
requirements are intended to make regulatory capital more
sensitive to the risk profile of a company's assets. Certain
off-balance sheet items, such as letters of credit and unused
lines of credit, are also assigned risk-weights and included
in the risk-based capital calculations. The guidelines
require a minimum ratio of total qualifying capital to total
risk-weighted assets of 8.0%, of which 4.0% must be in the
form of Tier 1 capital. At December 31, 1998, the
Company's ratios of Tier 1 and total capital to risk-
<PAGE>
weighted assets were 9.13% and 10.25%, respectively.
MidSouth's leverage ratio (Tier 1 capital to total average
adjusted assets) was 6.06% at December 31, 1998. All
three regulatory capital ratios for the Company exceeded
regulatory minimums at December 31, 1998.
Supervision and Regulation - National Banks
GENERAL. As a national banking association, the Bank is
supervised and regulated by the U. S. Comptroller of the
Currency (its primary regulatory authority), the Federal
Reserve Board and the Federal Insurance Deposit
Corporation. Under Section 23A of the Federal Reserve
Act, the Bank is restricted in extending credit to or making
investments in MidSouth and other affiliates defined in that
act. National banks are required by the National Bank Act
to adhere to branch banking laws applicable to state banks
in the states in which they are located and are limited as to
powers, locations and other matters of applicable federal
law.
CAPITAL ADEQUACY REQUIREMENTS. A national bank is
subject to regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory, and
possibly discretionary, actions by regulators that, if
undertaken, could have a direct material effect on a bank's
financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action,
a bank must meet specific capital guidelines that involve
quantitative measures of the bank's assets, liabilities, and
certain off-balance-sheet items as calculated under
regulatory accounting practices. As of December 31, 1998,
the most recent notification from the FDIC categorized the
Bank as "well capitalized" under the regulatory framework
for prompt corrective action. To be categorized as "well
capitalized," the Bank must maintain a minimum of total
risk-based capital and Tier 1 capital to risk-weighted assets
of 10% and 6%, respectively, and a minimum leverage ratio
of 5%. All three regulatory capital ratios for the Bank
exceeded these minimums at December 31, 1998.
Governmental Policies
The operations of financial institutions may be
affected by legislative changes and by the policies of
various regulatory authorities. In particular, bank holding
companies and their subsidiaries are affected by the credit
policies of the Federal Reserve Board. An important
function of the Federal Reserve Board is to regulate the
national supply of bank credit. Among the instruments of
monetary policy used by the Federal Reserve Board to
implement its objectives are open market operations in
United States Government securities, changes in the
discount rate on bank borrowings and changes in reserve
requirements on bank deposits. These policies have
significant effects on the overall growth and profitability of
the loan, investment and deposit portfolios. The general
effects of such policies upon future operations cannot be
accurately predicted.
<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 six other banking
offices in Lafayette, Louisiana, two in New Iberia and one
banking office in each of Breaux Bridge, Cecilia,
Jeanerette, Opelousas, Morgan City, Jennings and Lake
Charles, Louisiana. Ten of these offices are owned and five
are leased. A full service branch facility is currently under
construction in Lafayette, convenient to the Scott
community. In addition, the Bank purchased, through bid
process, a former Bank One facility in Sulphur, Louisiana.
Management expects the Sulphur office to be operational in
the fourth quarter of 1999.
ITEM 3 - Legal Proceedings.
The Bank has been named as a defendant in various
legal actions arising from normal business activities in
which damages of various amounts are claimed. While the
amount, if any, of ultimate liability with respect to such
matters cannot be determined, management believes, after
consulting with legal counsel, that any such liability will
not have a material adverse effect on the Company's
consolidated financial position, results of operation, or cash
flows.
ITEM 4 - Submission of Matters to a Vote of Security
Holders.
No matters were submitted to a vote of MidSouth's
security holders in the fourth quarter of 1998.
Executive Officers of the Registrant
C. R. Cloutier, 51 - President, Chief Executive Officer and
Director of MidSouth and the Bank
Karen L. Hail, 45 - Executive Vice President of the Bank
and Chief Financial Officer, and Secretary and Treasurer of
MidSouth and the Bank
Donald R. Landry, 42 - Senior Vice President and Senior
Loan Officer of the Bank
Jennifer S. Fontenot, 44 - Senior Vice President of the
Bank
William R. Snyder, 58 - Senior Vice President of the
Bank since 1996; prior to his employment at the Bank, Mr.
Snyder was Senior Vice President for First National Bank
of Ohio for 1 year and Senior Vice President for Banc One,
Cleveland, Ohio for 5 years.
Teri S. Stelly, 39 - Senior Vice President and Controller of
MidSouth and the Bank since 1997; Vice President and
Controller of MidSouth and the Bank since 1992.
David L. Majkowski, 49 - Vice President and Loan
review officer of the Bank since 1997; Loan review officer
of the Bank since 1995; prior to his employment at the
Bank, Mr. Majkowski was Compliance Officer for St.
Martin Bank and Trust, St. Martinville, Louisiana for 15
years.
<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, 1999, there were 489
common shareholders of record and 175 preferred
shareholders of record. The high and low sales prices for
the past eight quarters are provided in the Selected
Quarterly Financial Data tables included with this filing
under Item 7 and is incorporated herein by reference.
MidSouth's first common stock dividend was paid at a
rate of $.06 per share on October 2, 1995 to shareholders of
record on September 18, 1995, and quarterly cash
dividends of $.06 per common share were paid through the
second quarter of 1998. Following a three for two stock
split paid on August 31, 1998, MidSouth began paying
quarterly cash dividends of $.05 per common share. It is the
intention of the Board of Directors of MidSouth to continue
paying quarterly dividends on the common stock at a rate
of $.05 per share. Cash dividends on the common stock are
subject to payment of dividends on the preferred stock.
The Company's ability to pay dividends is described in
Item 7 below under the heading "Liquidity - Dividends" and
and in Note 12 to the Company's consolidated
financial statements.
On August 31, 1998, MidSouth effected a three for two
stock split by way of a stock dividend to its common
shareholders of record on July 31, 1998. The stock split
increased the common shares outstanding at the time from
1,611,377 to 2,417,195. The conversion rate of the
preferred stock was adjusted to 2.998 due to the stock split.
On August 6, 1997, MidSouth declared a 12 1/2% stock
dividend payable to shareholders of record on August 27,
1997. The conversion rate on the Preferred Stock was
adjusted to 1.999 shares of MidSouth Common Stock for
each share of Preferred Stock converted.
On August 19, 1996, MidSouth effected a four for three
stock split by way of a stock dividend to its common
shareholders of record on July 31, 1996. Accordingly, the
conversion rate on the preferred stock was adjusted to 1.777
shares of MidSouth Common Stock for each share of
MidSouth Preferred Stock converted.
On September 15, 1995, MidSouth effected a four for three
stock split by way of a stock dividend to its common
shareholders of record as of September 7, 1995.
<PAGE>
<TABLE>
<CAPTION>
FIVE-YEAR SUMMARY OF SELECTED
CONSOLIDATED FINANCIAL DATA
Year Ended December 31,
__________________________________________________________________________________
1998 1997 1996 1995 1994
___________ ___________ ___________ __________ __________
<S> <C> <C> <C> <C> <C>
Gross interest income $18,755,764 $15,776,416 $12,572,417 $9,727,584 $7,388,478
Interest expense (6,931,556) (5,894,193) (4,541,727) (3,225,326) (1,976,101)
Net interest income 11,824,208 9,882,223 8,030,690 6,502,258 5,412,377
Provision for loan losses (999,950) (854,400) (674,500) (225,000) (210,000)
Other operating income 3,486,937 2,899,461 2,138,285 1,583,026 1,422,894
Other expenses (11,023,245) (9,585,788) (7,840,691) (6,072,129) (4,882,130)
Net income 3,287,950 2,341,496 1,653,784 1,788,155 1,743,141
Provision for income taxes (842,167) (586,804) (417,286) (546,545) (601,500)
Net Income $2,445,783 $1,754,692 $1,236,498 $1,241,610 $1,141,641
Preferred stock dividend
requirement ($148,971) ($154,475) ($155,421) ($38,142) -
Income applicable to
common shareholders $2,296,812 $1,600,217 $1,081,077 $1,203,468 $1,141,641
Basic earnings per share <FN1> $0.95 $0.69 $0.48 $0.55 $0.53
Diluted earnings per
share <FN1> $0.83 $0.61 $0.40 $0.51 $0.53
Total loans $155,477,263 $130,888,144 $93,740,719 $77,826,707 $60,432,275
Total assets 249,818,268 217,112,415 185,228,252 151,183,241 103,965,960
Total deposits 229,924,302 200,067,751 171,616,508 139,029,563 96,490,355
Cash dividends on common stock 434,334 354,336 280,461 115,750 -
Long-term obligations<FN2> 3,503,668 3,198,794 1,521,435 972,617 1,195,917
Selected ratios:
Loans to assets 62.24% 60.29% 50.61% 51.48% 58.13%
Loans to deposits 67.62% 65.42% 54.62% 55.98% 62.63%
Deposits to assets 92.04% 92.15% 92.65% 91.96% 92.81%
Return on average assets 1.04% 0.78% 0.65% 0.98% 1.12%
Return on average common
equity 19.16% 16.44% 13.09% 17.22% 20.98%
<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, and a three for two stock split
paid on August 31, 1998 to shareholders of record on
July 31, 1998.
<FN2> Long-term obligations include FHLB borrowings and the
ESOP borrowing in 1994. In 1995, 1996, 1997 and
1998, the ESOP borrowing is eliminated as an
intercompany balance.
</TABLE>
ITEM 6 - Management's Discussion and Analysis or Plan of
Operation.
MidSouth Bancorp, Inc. ("MidSouth") is a one-bank
holding company that conducts substantially all of its
business through its wholly-owned subsidiaries, MidSouth
National Bank (the "Bank") and Financial Services of the
South, Inc. (the "Finance Company"). Following is
management's discussion of factors that management
believes are among those necessary for an understanding of
MidSouth's financial statements. The discussion should be
read in conjunction with MidSouth's consolidated financial
statements and the notes thereto presented herein.
OVERVIEW
MidSouth's net income totaled $2,445,783 for the year
ended December 31, 1998 compared to $1,754,692 for
1997. Net income available to common shareholders for
1998 was $2,296,812 compared to $1,600,217 in 1997.
Basic earnings per common share were $.95 for 1998 and
$.69 for 1997. Diluted earnings per share were $.83 for
1998 and $.61 for 1997.
The increase in earnings resulted primarily from growth in
loans over the past twelve months. As a result, net interest
income increased 20%, or $1,941,985 in annual
comparison. Non-interest income, exclusive of net gains
on sales of investment securities, increased $682,389 in
annual comparison. Increases in service charges and
insufficient funds fees on deposit accounts contributed most
of the increase in non-interest income due to an increased
number of accounts and volume of transactions processed.
Total consolidated assets grew $32.7 million, from $217.1
million at December 31, 1997 to $249.8 million at
December 31, 1998. Total loans, net of allowance for loan
losses ("ALL"), increased $24.1 million or 19%, from
$129.5 million at year-end 1997 to $153.6 million at year-
end 1998 due to a strong economy and loan demand. The
loan growth consisted primarily of commercial and real
estate loans funded in the Lafayette and Morgan City
markets. An increase was also recorded in commercial
leases. Deposits increased $29.9 million, from $200.0
million at year-end 1997 to $229.9 million at year-end
1998. The new Lake Charles and Morgan City offices
contributed $14.5 million to the growth in deposits for
1998.
Provisions for loan losses increased $145,550 in annual
comparison due primarily to another year of substantial
loan growth. The ALL totaled $1,860,490 or 1.20% of
total loans at December 31, 1998 compared to $1,414,826
or 1.08% of total loans at December 31, 1997.
Nonperforming loans totaled $533,107 or .34% of total
loans as of December 31, 1998, up from $319,209 or .20%
of total loans as of December 31, 1997. The increase is due
primarily to the addition of one large commercial credit
totaling $220,802 which management expects will be
resolved with no loss in the first quarter of 1999. The ALL
represented 349% of nonperforming loans as of December
31, 1998 compared to 542% as of December 31, 1997.
MidSouth's leverage ratio was 6.06% at December 31,
1998, up from 6.00% at December 31, 1997. Return on
average common equity was 16.90% and return on average
assets was .94% for the year 1998.
<PAGE>
EARNINGS ANALYSIS
Net Interest Income
The primary source of earnings for MidSouth is net interest
income, which is the difference between interest earned on
loans and investments and interest paid on deposits and
other liabilities. Changes in the volume and mix of earning
assets and interest-bearing liabilities combined with
changes in market rates of interest greatly affect net interest
income. Tables 1 and 2 analyze the changes in net interest
income for each of the three years in the period ended
December 31, 1998.
Net interest income increased $1,941,985 for 1998 over
1997 and $1,851,533 for 1997 over 1996. The increase in
net interest income for both 1998 and 1997 resulted
primarily from growth in MidSouth's loan portfolio.
Average loans as a percentage of average earnings assets
increased from 57% in 1996 to 61% in 1997 and rose
significantly to 67% in 1998. Interest income from loans,
including loan fees, increased $3,177,276 from 1997 to
1998 and $2,822,322 from 1996 to 1997. The increased
interest income resulted from increases in average loan
volume of $32.3 million or 29% in 1998 and $26.7 million
or 31% in 1997. Average yield on total loans decreased 11
basis points from 10.36% in 1997 to 10.25% in 1998.
<PAGE>
<TABLE>
<CAPTION >
Table 1
Consolidated Average Balances, Interest and Rates
Taxable-equivalent basis (2)
(in thousands)
1998 1997 1996
_________________________________________________________________________________________________
Average Average Average Average Average Average
Volume Interest Yield/Rate Volume Interest Yield/Rate Volume Interest Yield/
Rate
_________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest Bearing Deposits $37 $2 5.41% $76 $5 6.58% $166 $8 4.82%
Investment Securities <FN1>
Taxable 41,455 2,458 5.93% 48,784 2,881 5.91% 45,689 2,728 5.97%
Tax Exempt <FN2> 17,740 1,334 7.52% 15,151 1,146 7.56% 7,575 584 7.71%
_______________ _______________ _______________
Total Investments 59,232 3,794 6.41% 64,011 4,032 6.30% 53,430 3,320 6.21%
Federal Funds Sold and
Securities
Purchased Under
Agreements to Resell 10,885 568 5.22% 8,758 470 5.37% 11,902 629 5.28%
Loans <FN3>
Commercial and
Real Estate 106,584 10,570 9.92% 77,039 7,891 10.24% 56,012 5,876 10.49%
Installment 37,872 4,233 11.18% 35,152 3,735 10.63% 29,505 2,927 9.92%
_______________ _______________ _______________
Total Loans 144,456 14,803 10.25% 112,191 11,626 10.36% 85,517 8,803 10.29%
Total Earning
Assets 214,573 19,165 8.93% 184,960 16,128 8.72% 150,849 12,752 8.45%
Allowance for Loan Losses (1,572) (1,415) (1,015)
Nonearning Assets 22,766 21,182 16,920
________ ________ ________
Total Assets $235,767 $204,727 $166,754
======== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
NOW, Money Market,
and Savings $83,598 $2,555 3.06% $73,844 $2,202 2.98% $58,362 $1,599 2.74%
Certificates of
Deposits 78,907 4,108 5.21% 65,492 3,415 5.21% 54,944 2,854 5.19%
_______________ _______________ _______________
Total Interest Bearing
Deposits 162,505 6,663 4.10% 139,336 5,617 4.03% 113,306 4,453 3.93%
Federal Funds Purchased and
Securities Sold Under
Agreements to Repurchase 64 3 4.69% 632 39 6.17% 102 4 3.92%
Notes Payable 3,381 265 7.84% 3,301 238 7.21% 1,158 84 7.25%
_______________ _______________ _______________
Total Interest
Bearing
Liabilities 165,950 6,931 4.18% 143,269 5,894 4.11% 114,566 4,541 3.96%
Demand Deposits 54,601 48,480 40,633
Other Liabilities 969 844 720
Stockholders' Equity 14,247 12,134 10,835
Total Liabilites and ________ ________ ________
Stockholders' Equity $235,767 $204,727 $166,754
======== ======== ========
NET INTEREST INCOME AND NET
INTEREST SPREAD $12,234 4.75% $10,234 4.61% $8,211 4.49%
======== ======== ========
NET YIELD ON EARNING ASSETS 5.70% 5.53% 5.44%
<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 $409,372 for 1998, $351,456 for 1997, and
$179 ,991 for 1996 is added to interest earned on tax-exempt
obligations to reflect tax equivalent yields using a 34% tax rate.
<FN3> Interest income includes loan fees of $1,062,040 for 1998,
$901,688 for 1997, and $674,443 for 1996. Nonaccrual loans
are included in average balances and income on such loans is
recognized on a cash basis.
</TABLE>
<PAGE>
Average yields fell 32 basis points, from 10.24% to 9.92%,
in the higher volume commercial portfolio primarily due to
loan pricing competition from national and regional banks
in MidSouth's market. In addition, New York's prime
lending rate fell 50 basis points during the fourth quarter of
1998. MidSouth followed with a 50 basis point drop in its
internal prime lending rate in November 1998. Average
yields in the consumer portfolio rose 55 basis points, from
10.63% to 11.18%. The consumer portfolio yield
benefited from the Finance Company's loans, which
averaged $1.8 million and yielded an average rate of 27%.
Credit card loans averaging $1.0 million with an average
yield of 17% within the consumer portfolio also contributed
to the increased average yield. The Finance Company and
credit card portfolios also increased average consumer loan
yields for 1997. Consumer loan yields increased 71 basis
points in 1997 to 10.63% compared to 9.92% in 1996,
while commercial loan yields declined 25 basis points,
from 10.49% in 1996 to 10.24% in 1997. Average yields
on total loans increased 7 basis points, from 10.29% in
1996 to 10.36% in 1997.
The average volume of investment securities decreased
$4.8 million in 1998, primarily due to increased loan
funding. The average volume of taxable securities declined
$7.3 million, partially offset by an increase of $2.5 million
in the average volume of tax-exempt securities. The net
decrease in the average volume resulted in a decrease to
interest income of $295,403. Changes in the yields on
investment securities had very little impact on interest
income in 1998. The average volume of securities
increased in 1997 by $10.6 million, primarily due to
purchases of tax-exempt municipal securities. The
increased volume of securities resulted in a $540,068
increase to interest income in 1997.
During 1998, MidSouth's deposit mix shifted slightly with
non-interest bearing deposits representing 25% of average
total deposits as compared to 26% in 1997 and 1996. As of
<PAGE>
December 31, 1998, 39% of average total deposits were
NOW, money market and savings deposits and 36% were
certificates of deposit. For year-end 1997, NOW, money
market and savings deposits represented 39% of average
total deposits, while 35% consisted of certificates of
deposit. For the year ended December 31, 1996, 38% of
average total deposits represented NOW, money market
and savings deposits and certificates of deposit amounted to
36%.
Volume increases in interest-bearing deposits for the years
ended December 31, 1998 and 1997 resulted in increased
interest expense of $1,010,911 in 1998 and $1,198,214 in
1997. Average interest-bearing deposits increased $23.2
million in 1998 and $26.0 million in 1997. The average
rate paid on these deposits rose 17 basis points over the past
three years, from 3.93% in 1996 to 4.03% in 1997 and to
4.10% in 1998.
The average volume of notes payable increased slightly in
1998, resulting in increased interest expense of $26,452. A
significant volume increase in notes payable in 1997 of
$2.1 million resulted in a $154,252 increase in interest
expense for that year. The average rate paid on the notes
was 7.84% at December 31, 1998, up from 7.21% in 1997
and 7.25% in 1996. The average rate increased in 1998 due
to the refinancing of the Finance Company line of credit in
May of 1998 at an initial rate of 8.75%.
The volume changes in MidSouth's earning assets and
interest-bearing liabilities combined with changes in
interest rates resulted in net taxable-equivalent yields on
average earning assets of 5.70% in 1998 as compared to
5.53% for 1997 and 5.44% for 1996.
Non-Interest Income
EXCLUDING SECURITIES TRANSACTIONS. Service charges and
fees on deposit accounts represent the primary source of
non-interest income for MidSouth. Income from service
charges and fees on deposit accounts (including ATM fees)
and insufficient funds fees increased $504,947 in 1998 and
$612,745 in 1997 primarily due to an increase in the
number of transaction accounts and ATM machines
serviced and the volume of insufficient funds checks
processed by MidSouth. The total number of transaction
accounts (excluding savings accounts) increased from
17,139 in 1996 to 19,001 in 1997 and to 22,640 in1998.
Income earned through ATM fees totaled $134,457 in
1998; however, expenses incurred in providing ATM
services totaled $192,805. Non-interest income resulting
from other charges and fees increased $234,815 in 1998 as
compared to $103,015 in 1997. Of the $234,815 increase
in 1998, $194,792 is related to fee income from
MidSouth's Visa debit cards and merchant programs.
However, this increase is partially offset by a $108,956
increase in expenses on these Visa programs. An increase
of $33,918 in 1998 and $31,783 in 1997 in lease income
from a third party investment service contributed to the
increases in other non-interest income over the past two
years. Increased fee income from the Finance Company
added $56,913 to the other non-interest income recorded in
1997. Fees earned through the sale of credit life insurance
continued to decline.
SECURTIES TRANSACTIONS. No income was realized through
the sale of securities in 1998. In June 1997, $7.5 million in
adjustable rate mortgage securities in the available-for-sale
portfolio were sold as part of a repositioning of the
securities portfolio at a net gain of $127,934. At the same
time, management liquidated a $1.0 million investment in a
mutual fund at a loss of $42,578. Net gains on sales of
securities totaled $1,176 for 1996 as $2.0 million in U. S.
Treasury securities were liquidated and reinvested to
improve yield.
<PAGE>
<TABLE>
<CAPTION>
Table 2
Changes in Taxable-Equivalent Net Interest Income
(in thousands)
1998 Compared to 1997 1997 Compared to 1996
________________________________________ _________________________________________
Total Total
Increase Change Attributable To Increase Change Attributable To
(Decrease) Volume Rates (Decrease) Volume Rates
________________________________________ _________________________________________
<S> <C> <C> <C. <C> <C> <C>
Taxable-equivalent interest earned on:
Interest Bearing Deposits ($3) ($2) ($1) ($3) ($12) $9
Investment Securities
Taxable (423) (435) 12 153 183 (30)
Tax Exempt 188 195 (7) 562 572 (10)
Federal Funds Sold and Securities
Purchased Under Agreement to Resell 98 111 (13) (159) (169) 10
Loans, including fees 3,177 3,304 (127) 2,823 2,763 60
________________________________________ _________________________________________
TOTAL 3,037 3,173 (136) 3,376 3,337 39
________________________________________ _________________________________________
Interest Paid On:
Interest Bearing Deposits 1,046 948 98 1,164 1,046 118
Federal Funds Purchased and Securities
Sold Under Agreement to Repurchase (36) (28) (8) 35 32 3
Notes Payable 27 6 21 154 154 -
________________________________________ _________________________________________
TOTAL 1,037 926 111 1,353 1,232 121
________________________________________ _________________________________________
Taxable-equivalent net interest income $2,000 $2,247 ($247) $2,023 $2,105 ($82)
======================================== =========================================
NOTE: Change due to both volume and rate has been allocated to volume and
rate changes in proportion to the relationship of the absolute
dollar amounts to the changes in each.
</TABLE>
Non-interest Expense
Total non-interest expense increased 15% from 1997 to
1998 and 22% from 1996 to 1997. MidSouth's expansion
over the past three years resulted in significant increases in
salaries and employee benefits, occupancy expenses,
marketing expenses, data processing expenses, and the cost
of printing and supplies. Throughout 1996 and 1997,
MidSouth opened an Opelousas office, a second Super 1
Foods in-store banking office, a Morgan City office and
two Finance Company offices. In May 1998, the new Lake
Charles office was opened to provide full service banking
in Calcasieu Parish. The new Ambassador Caffery office
building was completed and opened in September of 1998.
Accordingly, salaries and employee benefits increased 17%
from 1997 to 1998 and 23% from 1996 to 1997. The
number of full-time equivalent ("FTE") employees
increased from 139 in 1997 to 152 in 1998. New hires in
1998 included 5 employees to staff the Lake Charles
Office, two commercial lenders under contract agreements,
an internal auditor, a seniors program marketing
coordinator and various part-time positions. MidSouth
increased its FTE employees by 6 in 1997, from 133 in
1996 to 139. The Morgan City office, opened in March of
1997, employed 4 FTE's and the computer information
services department employed 2 additional FTE's. Salary
increases and incentive pay granted during 1997 added
significantly to the increase in 1997.
Occupancy expenses increased $196,809 or 9% from 1997
to 1998 and $409,546 or 23% from 1996 to 1997 as a result
of increases in building lease expense, depreciation and
maintenance expenses associated with buildings,
automobiles and furniture and equipment, and ad valorem
taxes. Fixed asset purchases in 1998 totaled $3,063,110
and included the Lake Charles and Ambassador Caffery
offices, ATM cash machines, renovations at the Moss
Street and Cecilia offices, and computer hardware and
software purchases. During 1997, MidSouth added fixed
assets totaling $1,282,082, not including land purchases.
The additions included the Morgan City building, computer
hardware and software, ATM cash machines and
renovation costs at the Versailles and Breaux Bridge
offices. Ad valorem taxes increased $11,504 in 1998 and
$45,736 in 1997 due to higher assessment values and
additional properties.
Fixed asset additions totaling $2.3 million planned for 1999
include the completion of a new banking office in Lafayette
convenient to the Scott community, refurbishing existing
branch buildings and computer hardware and software
purchases.
Additional increases were recorded in 1998 in marketing
expense, professional fees, education and travel expenses,
printing and supplies and telephone services. Of these
increases, marketing expense recorded the most significant
increase with additional costs of $157,800. In 1998,
MidSouth launched a promotional campaign designed to
appeal to customers impacted by the bank merger activity
<PAGE>
in the market. Production costs associated with the
campaign, combined with grand opening promotions for
the Lake Charles and Ambassador Caffery offices, resulted
in increased marketing expenses.
Income Taxes
MidSouth's tax expense increased in 1998 by $255,363 and
approximated 26% of income before income taxes.
Interest income on non-taxable municipal securities
reduced the 1998 taxes from the expected statutory rate of
34%. Interest income on non-taxable municipal securities
also lowered the effective tax rate for 1997 to
approximately 25%. Notes 1 and 9 to MidSouth's
Consolidated Financial Statements provide additional
information regarding MidSouth's income tax
considerations.
BALANCE SHEET ANALYSIS
Securities
Total investment securities increased $9.6 million, from
$53.6 million in 1997 to $63.2 million in 1998. Cash
flows from maturing securities and deposit growth were
used to purchase $23.2 million in U.S. Treasury and
Agency securities, corporate bonds and tax-exempt
municipal securities. An increase of $302,184 in the
market value of securities available-for-sale is included in
the net change in 1998. Unrealized gains in the securities
available-for-sale portfolio, net of unrealized losses and tax
effect, were $276,700 at December 31, 1998, compared to
$81,966 at December 31, 1997. These amounts result from
interest rate fluctuations and do not represent permanent
adjustments of value. Moreover, classification of securities
as available-for-sale does not necessarily indicate that the
securities will be sold prior to maturity.
At December 31, 1998, approximately 17% of MidSouth's
securities available-for-sale portfolio represented mortgage-
backed securities and 15% represented collateralized
mortgage obligations ("CMO's"). MidSouth monitors the
risks due to changes in interest rates on mortgage-backed
pools by monthly reviews of prepayment speeds, duration,
and purchase yields as compared to current market yields
on each security. None of the CMO's held by MidSouth
had a book value in excess of 10% of stockholders' equity
at December 31, 1998. All CMO's held by MidSouth are
Aaa rated and not considered "high-risk" securities under
the Federal Financial Institutions Examination Council
("FFIEC") tests. MidSouth does not own any "high-risk"
securities as defined by the FFIEC. An additional 55% of
the available-for-sale portfolio consisted of U. S. Treasury
and agency securities, while municipal and other securities
represented 13% of the portfolio
In the held-to-maturity portfolio, MidSouth purchased $1.9
million in non-taxable municipal securities in 1998. A
detailed credit analysis was performed on each municipal
offering by an investment advisory firm prior to purchase.
In addition, MidSouth limits the amount of securities of any
one municipality purchased and the amount purchased
within specific geographic regions to reduce the risk of loss
within the non-taxable municipal securities portfolio.
<PAGE>
Federal funds sold totaled $6.6 million, and $8.1 million as
of December 31, 1998 and 1997, respectively. Loan
funding demands in 1998 combined with deposit
fluctuations resulted in a decrease in the volume of federal
funds sold at year-end 1998.
Loan Portfolio
In 1998, MidSouth experienced another year of substantial
loan growth. Total loans grew 19%, from $130,888,144 at
year-end 1997 to $155,477,263 at year-end 1998. Of the
$24.6 million increase during 1998, $17.1 million resulted
from an increase in real estate mortgage and construction
loans. These loans were funded primarily in the Lafayette
and Morgan City market with the efforts of two new
commercial lenders hired on contract in January 1998. The
lenders are experienced bankers and very familiar with
MidSouth's markets. The real estate loan growth consisted
of both commercial and consumer credits that carry ten to
fifteen year amortizations with rates fixed for three to five
years. The short term fixed rate structure of these credits
allow management greater flexibility in controlling interest
rate risk.
The commercial loan portfolio grew $7.6 million during
1998 and lease financing receivables increased $.9 million
within MidSouth's direct leasing program. Installment
loans to individuals decreased $1.0 million during 1998 due
to a combination of high credit quality requirements and a
restructuring of the retail delivery system which included
central loan underwriting. Implementation of central
underwriting required training staff in loan application and
sales process. Higher levels of performance in both
installment loan production and credit life insurance sales
are expected as the central underwriting program develops.
As a quality control tool, the program is expected to
maintain the quality and consistency of the installment loan
portfolio as the economy softens.
MidSouth's newest offices in Morgan City and Lake
Charles contributed significantly to the increase recorded in
the loan portfolio in 1997. Morgan City added
approximately $7.7 million, primarily in commercial
credits and Lake Charles funded approximately $9.5
million in loans, primarily in the real estate portfolio.
MidSouth has maintained its credit policy and underwriting
procedures and has not relaxed these procedures to
stimulate loan growth. Completed loan applications, credit
bureau reports, financial statements and a committee
approval process remain a part of credit decisions.
Documentation of the loan decision process is required on
each credit application, whether approved or denied, to
insure thorough and consistent procedures.
Asset Quality
CREDIT RISK MANAGEMENT. MidSouth manages its credit
risk by diversifying its loan portfolio, determining that
borrowers have adequate cash flows for loan repayment,
obtaining and monitoring collateral and continuously
reviewing outstanding loans. The risk management
program requires that each individual loan officer review
his or her portfolio on a quarterly basis and recommend
credit gradings on each loan. The senior loan officer and
<PAGE>
loan review officer review the gradings. In addition, the
loan review officer performs an independent evaluation
annually of each commercial loan officer's portfolio and a
random sampling of credits in MidSouth's installment loan
portfolio.
NONPERFORMING ASSETS. Table 3 contains information
about MidSouth's nonperforming assets and loans past due
90 days or more and still accruing.
Nonperforming assets totaled $607,740 at December 31,
1998, $319,209 at December 31, 1997 compared to
$714,140 at December 31, 1996. The increase in
nonperforming assets in 1998 resulted from the addition of
<PAGE>
<TABLE>
<CAPTION>
TABLE 3
Nonperforming Assets and
Loans Past Due 90 Days
==========================================================================
December 31,
___________________________________________
1998 1997 1996
==========================================================================
<S> <C> <C> <C>
Nonperforming loans
Nonaccrual loans $533,107 $260,875 $523,020
Restructured loans - - 835
________ ________ ________
Total nonperforming loans 533,107 260,875 523,855
Other real estate owned, net 48,100 45,100 180,270
Other assets repossessed 26,533 13,234 10,015
________ ________ ________
Total nonperforming assets $607,740 $319,209 $714,140
======== ======== ========
Loans past due 90 days
or more and still accruing $329,116 $245,232 $338,294
Nonperforming loans as a
% of total loans 0.34% 0.20% 0.55%
Nonperforming assets as a
% of total loans, other real
estate owned and other assets
repossessed 0.39% 0.24% 0.75%
Allowance for loan losses
as a % of nonperforming loan 348.99% 542.30% 207.65%
==========================================================================
</TABLE>
one large commercial credit to nonaccrual loans.
Management expects the credit to be resolved with no loss
within the first quarter of 1999. Nonaccrual loans
decreased from 1996 to 1997 as approximately $145,000 in
nonaccrual loans were charged off, $52,000 renewed and
$65,000 paid out during 1997.
Loans past due 90 days and still accruing totaled $329,116
at December 31, 1998 compared to $245,232 at December
31, 1997 and $338,294 at December 31, 1996.
Loans to commercial borrowers are placed on nonaccrual
when principal or interest is 90 days past due, or sooner if
the full collectability of principal or interest is doubtful,
except if the underlying collateral supports both the
principal and accrued interest and the loan is in the process
of collection. Retail loans that are not placed on nonaccrual
but that become 120 days
past due are routinely charged off. Loans classified for
regulatory purposes but not included in Table 3 do not
represent material credits about which management has
serious doubts as to the ability of the borrower to comply
with the loan repayment terms.
<PAGE>
<TABLE>
<CAPTION>
TABLE 4 - Summary of Loan Loss Experience
(in thousands)
1998 1997
====== ======
<S> <C> <C>
BALANCE AT BEGINNING OF YEAR $1,415 $1,088
CHARGE-OFFS
Commercial, Financial and Agricultural 201 189
Real Estate - Construction - -
Real Estate - Mortgage - -
Installment Loans to Individuals 368 352
Lease Financing Receivables 84 192
Other 49 -
______ ______
Total Charge-offs 702 733
______ ______
RECOVERIES
Commercial, Financial and Agricultural 32 32
Real Estate - Construction - -
Real Estate - Mortgage 4 2
Installment Loans to Individuals 79 86
Lease Financing Receivables 27 86
Other 6 -
______ ______
Total Recoveries 148 206
______ ______
Net Charge-offs 554 527
Additions to allowance charged to
operating expenses 1,000 854
______ ______
BALANCE AT END OF YEAR $1,861 $1,415
====== ======
Net charge-offs to average loans 0.38% 0.47%
Year-end allowance to year-end loans 1.20% 1.08%
</TABLE>
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.
<TABLE>
<CAPTION>
% of category % of category
Allowance for Loan Losses 1998 to total 1997 to total loans
____________________________________________________________________
<S> <C> <C> <C> <C>
Commercial, Financial an 60 31.87% 80 32.03%
Real Estate - Construction 2.73% 1.63%
Real Estate - Mortgage 43.71% 40.47%
Installment Loans to
Individuals 17.94% 22.11%
Lease Financing
Receivables 3.67% 3.65%
Other 0.08% 0.11%
Unallocated 1,801 1,335
__________________________________________
$1,861 100.00% $1,415 100.00%
==========================================
</TABLE>
<PAGE>
ALLOWANCE FOR LOAN LOSSES. Provisions totaling
$999,950, $854,400, and $674,500 for the years 1998, 1997
and 1996, respectively, were necessary to bring the
allowance to a level considered by management to be
sufficient to cover probable losses in the loan portfolio.
Additional provisions were made in 1998 due primarily to
growth experienced in loans during the year. Loan growth
combined with installment loan charge-offs resulted in
increased provisions for 1997. Losses within the lease
financing receivables portfolio resulted in increased
provisions for 1996. Table 4 analyzes activity in the
allowance for 1998 and 1997.
The allowance is comprised of specific reserves (assigned
to each loan that is impaired or for which probable loss has
been identified) and an unallocated reserve. Specific
reserves within the allowance are allocated to loans on a
nonaccrual status for which the underlying collateral value
is insufficient to cover the principal remaining on the loan.
Factors contributing to the assignment of specific reserves
include the financial condition of the borrower, changes in
the value of collateral and economic conditions. A portion
of the unallocated reserve is assigned to accruing loans that
are classified for regulatory purposes. The remainder of the
allowance represents a percentage of all other credits based
on gradings assigned in the loan review process.
Quarterly evaluations of the allowance are performed in
accordance with Section 217 of the OCC's manual and
Banking Circular 201. Factors considered in determining
provisions include estimated future losses in significant
credits; known deterioration in concentrations of credit;
<PAGE>
historical loss experience; trends in nonperforming assets;
volume, maturity and composition of the loan portfolio; off
balance sheet credit risk; lending policies and control
systems; national and local economic conditions; the
experience, ability and depth of lending management and
the results of examinations of the loan portfolio by
regulatory agencies and others. The process by which
management determines the appropriate level of the
allowance, and the corresponding
provision for possible credit losses, involves considerable
judgment; therefore, no assurance can be given that future
losses will not vary from current estimates.
Sources of Funds
DEPOSITS. Continuing with its focus on the execution of a
sales culture in both deposit and lending relationships,
MidSouth strengthened existing client relationships and
developed new ones in 1998. This sales focus, combined
with big bank mergers creating an uncertain banking
environment in MidSouth's markets, provided the
opportunity for MidSouth to significantly increase its
deposit base for the second consecutive year. MidSouth's
deposits grew $29.9 million, from $200.0 million in 1997
to $229.9 million in 1998. A total of $14.8 million of the
$29.8 million increase was realized in the Lafayette market
as a direct result of marketing efforts directed to customers
effected by merger activity. The Morgan City office grew
$9.7 million in its first year of operation, while MidSouth's
newest office in Lake Charles contributed $4.8 million to
the increase in deposits.
In 1997, MidSouth's deposits grew $28.5 million, from
$171.6 million at December 31, 1996 to $200.0 million at
December 31, 1997. The introduction and development of
a sales culture contributed to the deposit growth by offering
incentives to sales associates for the development of new
and existing customer relationships.
Non-interest bearing deposits represented 26% of total
deposits at December 31, 1998, down from 29% at
December 31, 1997 and 1996. Core deposits, defined as all
deposits other than certificates of deposit ("CD's") of
$100,000 or more, represented 83% of total deposits at
December 31, 1998 compared to 84% of total deposits at
December 31, 1997. CD's of $100,000 or more totaled
$38.7 million at year-end 1998, an increase of $6.0 million
from the $32.7 million reported at year-end 1997.
Additional CD's of $100,000 or more were deposited in
response to specific market promotions that offered
premium rates for a limited time on new deposits. The
promotions were designed to ensure relationship banking
with MidSouth by requiring the opening of a checking
account to qualify for the preferred rate.
MidSouth's deposit rates are competitive within its market
and MidSouth has no brokered deposits. Although time
deposits of $100,000 can exhibit greater volatility due to
changes in interest rates and other factors than do core
deposits, management believes that any volatility
experienced could be adequately met with current levels of
asset liquidity or access to alternate funding sources.
Additional information on MidSouth's deposits appears in
Note 6 to MidSouth's Consolidated Financial Statements.
BORROWED FUNDS. Long term borrowings increased
$304,874 from December 31, 1997 to December 31, 1998.
MidSouth borrowed $325,000 under its line of credit for
<PAGE>
<TABLE>
<CAPTION>
Table 5
Interest Rate Sensitivity and Gap Analysis Table
December 31, 1998
(in thousands)
Non-interest
0-3 MOS 4-6 MOS 7-12 MOS 1-5 YRS > 5YRS Bearing Total
_____________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest Bearing Deposits $16 $ - $ - $ - $ - $ - $16
Fed Funds Sold 6,600 6,600
Investments
Mutual Funds 968 968
Investment Securities 3,929 1,981 4,802 17,622 19,801 48,135
Mortgage-backed Securitie 2,175 944 1,358 6,089 3,517 14,083
Loans
Fixed Rate 26,111 12,319 20,654 53,151 1,438 113,673
Variable Rate 41,804 41,804
Other Assets 26,399 26,399
Allowance for Loan Losses (1,860) (1,860)
_____________________________________________________________
Total Assets $81,603 $15,244 $26,814 $76,862 $24,756 $24,539 $249,818
=============================================================
LIABILITIES
NOW $5,066 $4,260 $6,594 $14,925 $995 $ - $31,840
MMDA 6,184 5,200 8,049 18,219 1,214 38,866
Savings 1,910 1,606 2,486 5,627 375 12,004
CD'S 30,117 14,782 23,390 18,564 86,853
Demand Deposits 60,361 60,361
Other Liabilities 110 1,330 1,169 895 704 4,208
Stockholders' Equity 15,686 15,686
_____________________________________________________________
Total Liabilities $43,387 $27,178 $40,519 $58,504 $3,479 $76,751 $249,818
=============================================================
Repricing/maturity gap:
Period $38,216 ($11,934)($13,705) $18,358 $21,277 ($52,212)
Cumulative $38,216 $26,282 $12,577 $30,935 $52,212 -
=====================================================
Cumualtive Gap/Total Assets 15.30% 10.52% 5.03% 12.38% 20.90%
____________________________________________
</TABLE>
operating expenses during 1998. The Finance Company
borrowed an additional $135,000 under its line of credit ,
$93,000 of which was paid out prior to year-end 1998. On
June 23, 1997, MidSouth refinanced its $2.5 million line of
credit with another financial institution, paying out existing
borrowings of $883,355 and receiving advances of
$1,385,024 under the new line of credit. The additional
$500,000 advanced under the new line was injected into the
capital of the Bank. Throughout the remainder of 1997,
MidSouth borrowed an additional $300,000 for operational
expenses. At any time prior to June 23, 1999, MidSouth
may request advances up to but not exceeding an
aggregrate principal amount of $2,500,000 at any one time
outstanding. Advances under the line of credit bear interest
at a variable rate equal to the prime commercial rate of
interest quoted in the "Money Rates" section of the Wall
Street Journal minus fifty basis points (.50%). The current
rate is 7.25%. Interest under the note is due and payable
quarterly in arrears on the last day of each quarter.
Beginning June 30, 1999, principal payments in the amount
of 11.11% of the amount of the loan balance on June 30,
1999 are due and payable in eight consecutive annual
installments on June 30 of each succeeding calendar year.
The remaining balance of the loan is due and payable in a
ninth and final installment on June 30, 2007.
The Finance Company renewed its line $1,200,000 line of
credit on May 1, 1998. Advances under the line of credit
bear interest at a variable rate equal to the commercial
prime rate as quoted in the "Money Rates" section of the
Wall Street Journal plus 25 basis points (0.25%). The
current rate is 8.00%. Interest on the line is payable
monthly, with principal due at maturity on April 30, 1999.
Additional information regarding the notes payable is
provided in Note 7 to MidSouth's Consolidated Financial
Statements.
The ESOP note held by the Bank was refinanced in the
amount of $150,000 on March 11, 1997 at a fixed rate of
7.00% payable in monthly installments of $2,264 with
payment in full due on March 10, 2004. Loan proceeds
totaling $125,269 were added to the $24,731 remaining on
the maturing note. The ESOP purchased 11,135 shares of
MidSouth common stock at the current market value of
$11.25 per share with the additional proceeds. The ESOP
obligation constitutes a reduction of MidSouth's
stockholders' equity because the primary source of loan
repayment is contributions by the Bank to the ESOP;
however, the loan is not guaranteed by either MidSouth
Bank or MidSouth. The ESOP note was eliminated from
total loans and long-term debt as an intercompany balance
in MidSouth's December 31, 1997 and 1998 consolidated
financial statements.
CAPITAL. MidSouth and the Bank are required to maintain
certain minimum capital levels. Risk-based capital
requirements are intended to make regulatory capital more
sensitive to the risk profile of an institution's assets. At
December 31, 1998, MidSouth and the Bank were in
compliance with statutory minimum capital requirements.
Minimum capital requirements include a total risk-based
capital ratio of 8.0%, with Tier 1 capital not less than 4.0%,
and a leverage ratio (Tier 1 to total average adjusted assets)
of 4.0% based upon the regulators latest composite rating
of the institution. As of December 31, 1998, MidSouth's
Tier 1 capital to average adjusted assets (the "leverage
ratio") was 6.06% as compared to 6.00% at December 31,
<PAGE>
1997. Tier 1 capital to risk weighted assets was 9.13% and
9.19% for 1998 and 1997, respectively. Total capital to
risk weighted assets was 10.25% and 10.22%, respectively,
for the same periods. The Bank's leverage ratio was 6.67%
at December 31, 1998 compared to 6.77% at December 31,
1997.
The Federal Deposit Insurance Corporation Improvement
Act of 1991 established a capital-based supervisory system
for all insured depository institutions that imposes
increasing restrictions on the institution as its capital
deteriorates. The Bank continued to be classified as "well
capitalized" throughout 1996, 1997 and 1998 and also
improved its supervisory subgroup rating. No significant
restrictions are placed on the Bank as a result of this
classification.
As discussed under the heading "Balance Sheet Analysis -
Securities," $276,700 in unrealized gains on securities
available-for-sale, net of a deferred tax liability of $142,500
were recorded as additional stockholders' equity as of
December 31, 1998. As of December 31, 1997, $81,966 in
unrealized gains on securities available-for-sale, net of a
deferred tax liability of $51,550 were recorded as an
addition to stockholders' equity. While the net unrealized
gain or loss on securities available for sale is required to be
reported as a separate component of stockholders' equity, it
does not affect operating results or regulatory capital ratios.
The net unrealized gains and losses reported for December
31, 1998 and 1997 did, however, effect MidSouth's equity
to assets ratio for financial reporting purposes. The ratio of
equity to assets was 6.28% for year-end 1998 and 5.96%
for year-end 1997.
INTEREST RATE SENSITIVITY. Interest rate sensitivity is the
sensitivity of net interest income and economic value of
equity to changes in market rates of interest. The initial
step in the process of monitoring MidSouth's interest rate
sensitivity involves the preparation of a basic gap analysis
of earning assets and interest-bearing liabilities. The
analysis presents differences in the repricing and maturity
characteristics of earning assets and interest-bearing
liabilities for selected time periods.
During 1998, MidSouth utilized the Sendero model of asset
and liability management. The Sendero model uses basic
gap data and additional information regarding rates and
prepayment characteristics to construct a gap analysis that
factors in repricing characteristics and cash flows from
payments received on loans and mortgage-backed
securities. The resulting Sendero gap analysis is presented
in Table 5.
With the exception of NOW, money market and savings
deposits, the table presents interest-bearing liabilities on a
contractual basis. While NOW, money market and savings
deposits are contractually due on demand, historically,
MidSouth has experienced stability in these deposits
despite changes in market rates. Presentation of these
deposits in the table, therefore, reflects delayed repricing
throughout the time horizon.
The resulting cumulative gap at one year is approximately
$12,577,000 at December 31, 1998. The positive gap
indicates MidSouth's total earning assets and interest-
bearing liabilities maturing within one year are
mismatched. However, the ratio of the one year cumulative
<PAGE>
gap to total assets of 5.03% is within internal policy
guidelines. MidSouth's internal policy targets a one-year
cumulative gap position of a positive or negative 15% of
total assets.
The Sendero model also uses the gap analysis data in Table
5 and additional information regarding rates and payment
characteristics to perform three simulation tests. The tests
use market data to perform rate shock, rate cycle and rate
forecast simulations to measure the impact of changes in
interest rates, the yield curve and interest rate forecasts on
MidSouth's net interest income and economic value of
equity. Results of the simulations at December 31, 1998
were within policy guidelines. The results of the
simulations are reviewed quarterly and discussed at
MidSouth's Funds Management committee meetings.
MidSouth does not invest in derivatives and has none in its
securities portfolio.
Liquidity
BANK LIQUIDITY. Liquidity is the availability of funds to
meet contractual obligations as they become due and to
fund operations. The Bank's primary liquidity needs
involve its ability to accommodate customers demands for
deposit withdrawals as well as their requests for credit.
Liquidity is deemed adequate when sufficient cash to meet
these needs can be promptly raised at a reasonable cost to
the Bank.
Liquidity is provided primarily by two sources: a stable
base of funding sources and an adequate level of assets that
can be readily converted into cash. MidSouth's core
deposits are its most stable and important source of
funding. Further, the low variability of the core deposit
base lessens the need for liquidity. Cash deposits at other
banks, federal funds sold and principal payments received
on loans and mortgage-backed securities provide the
primary sources of asset liquidity for the Bank.
In addition to these primary sources, the Bank has certain
other sources available to meet the demand for funds if
necessary. Approximately $8.0 million in securities
maturing within twelve months provides an additional
source of liquidity. These securities could be liquidated if
necessary prior to maturity. MidSouth also has borrowing
capabilities with three correspondent banks.
PARENT COMPANY LIQUITITY. At the parent company level,
cash is needed primarily to service outstanding debt and
pay dividends on preferred and common stock. The parent
company has a note payable to a financial institution, the
terms of which are described in Note 7 to MidSouth's
Consolidated Financial Statements. Funds to meet
payments on notes in the past several years have come
primarily from the sale of MidSouth's common stock to the
Directors' Deferred Compensation Trust and to the ESOP
and from funds received from the Bank under a tax sharing
agreement with the parent company. Funds received from
these sources are not expected to be sufficient to meet debt
service obligations throughout 1999. Sales of MidSouth
common stock through a dividend reinvestment and direct
stock purchase plan (the "DRIP") introduced in 1998
contributed approximately $538,000 to the cash flow of the
parent company. Sales of common stock through the DRIP
combined with dividends from the Bank, if necessary, will
<PAGE>
provide additional liquidity for the parent company in
1999. As of January 1, 1999, the Bank had the ability to
pay dividends to the parent company of approximately $4.1
million without prior approval from its primary regulator.
In addition, MidSouth has the ability to borrow against its
$2.5 million line of credit with a financial institution. The
unused portion of the line totaled approximately $489,977
at year-end 1998. As a publicly traded company, MidSouth
also has the ability to issue trust preferred and other
securities instruments to provide additional funds as needed
for operations and future growth of the company.
DIVIDENDS. The primary source of cash dividends on
MidSouth's preferred and common stock is distributions
from the Bank and common stock purchases through the
DRIP. As stated above under "Parent Company Liquidity",
earnings recorded for 1994 eliminated an accumulated
retained earnings deficit, thereby giving the Bank the
ability to declare dividends to the parent company without
prior approval of its primary regulator. However, the
Bank's ability to pay dividends would be prohibited if the
result would cause the Bank's regulatory capital to fall
below minimum requirements.
Cash dividends totaling $354,336 and $434,334 were paid
to common stockholders during 1997 and 1998,
respectively. It is the intention of the Board of Directors of
MidSouth to continue to pay quarterly dividends on the
common stock at the rate of $.05 per share. Cash dividends
on the common stock are subject to payment of dividends
on the Cumulative Convertible Preferred Stock, Series A
("Preferred Stock") issued in conjunction with the
acquisition of Sugarland Bank, as well as other
considerations. Additional information regarding
MidSouth's Preferred Stock is included in Note 12 to
MidSouth's Consolidated Financial Statements.
On August 31, 1998, MidSouth effected a three for two
stock split by way of a stock dividend to its common
shareholders of record as of July 31, 1998. The stock split
increased the common shares outstanding at the time from
1,611,377 to 2,417,195. The conversion rate on the
preferred stock was adjusted to 2.998 due to the stock split.
On August 6, 1997, MidSouth declared a 12 1/2% stock
dividend payable to shareholders of record on August 27,
1997. The dividend increased the common shares
outstanding by 174,496. The conversion rate on the
preferred stock was adjusted to 1.999 due to the stock
dividend.
On August 19, 1996, MidSouth effected a four for three
stock split by way of a stock dividend to its common
stockholders of record as of July 31, 1996. The stock split
increased the common shares outstanding at the time from
994,627 to 1,326,025. Accordingly, the conversion rate on
<PAGE>
the Preferred Stock was adjusted to 1.777 shares of
MidSouth Common Stock for each share of Preferred Stock
converted.
A total of $148,971 in dividends were paid on MidSouth's
Preferred Stock in 1998. Assuming no conversion of
preferred stock in 1999, the aggregate amount of dividends
on the preferred stock in 1999 is expected to be $134,173.
The Year 2000 Issue
The Year 2000 issue arises from the storage of data within
computer systems using a two digit field rather than a four
digit field to define the year. Consequently, computer
programs may recognize a date using "00" as the year 1900
instead of 2000. All companies and organizations that use
computer systems are affected by this issue. To maintain
safe and sound banking practices, institutions are required
to take appropriate measures to insure efficient operations
of computer systems beyond the year 2000. MidSouth's
Board of Directors established a Year 2000 compliance
committee in June of 1997. The committee inventoried
MidSouth's hardware and software programs, identified
mission critical systems and forwarded letters to the
providers regarding year 2000 compliance. Testing and
updating has been performed on approximately 90% of
MidSouth's mission critical systems, including the core
data processing hardware and software. Testing on the core
processing system was completed in early February 1999.
In addition, MidSouth has received a warranty from the
core software provider as to completion of internal testing
and readiness of their software programs. The remaining
mission critical system scheduled for testing is MidSouth's
internal Novell Network system.
To further reduce the risks associated with the year 2000,
MidSouth held seminars for
commercial customers and community businesses during
the first week of May 1998. MidSouth provided seminar
participants with software designed to help them identify
year 2000 issues within their organizations. The software
guides the user through the vendor identification and
tracking process and provides assistance in other year 2000
issues such as contingency planning. As part of its own
contingency plan, MidSouth has agreements with two
vendors to provide short-term and long-term processing
capabilities.
In compliance with year 2000 disclosure requirements, the
committee has analyzed the impact that compliance with
the year 2000 may have on earnings. Costs totaling
approximately $60,000 have been identified for testing and
other expenses associated with the year 2000. Additional
costs are expected, but it is management's opinion that the
costs will not be material to MidSouth's earnings.
<PAGE>
Impact of New Accounting Standards
In June 1998, The Financial Accounting Standards Board
issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which establishes
accounting and reporting standards for derivative
instruments, including certain derivative instruments
embedded in other contracts and for hedging activities.
Further information regarding this new standard in included
in Note 19 to MidSouth's Consolidated Financial
Statements. MidSouth expects to adopt this accounting
standard on January 1, 2000.
<PAGE>
<TABLE>
<CAPTIION>
MIDSOUTH BANCORP, INC.
LOAN PORTFOLIO
LOAN MATURITIES AND SENSITIVITY TO INTEREST RATES
for the Year Ended December 31, 1998
(dollars in thousands)
Fixed and Variable Rate
Loans at Stated Maturities Amounts Over One Year With
____________________________________________ _______________________________
1 Year 1 Year - Over PredetermineFloating
or Less 5 Years 5 Years Total Rates Rates Total
____________________________________________ _______________________________
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial, Financial
Industrial,
Commercial
Real Estate
Mortgage and
Commercial
Real
Estate -
Construction $28,438 $66,624 $18,080 $113,142 $58,199 $26,505 $84,704
Installment Loans
to Individuals
and Real
Estate Mortgage 9,721 26,061 727 $36,509 26,673 115 $26,788
Lease Financing
Receivables 490 5,216 - $5,706 5,216 - $5,216
Other 120 - - $120 - - -
_____________________________________________ ________________________________
TOTAL $38,769 $97,901 $18,807 $155,477 $90,088 $26,620 $116,708
============================================= ================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MIDSOUTH BANCORP, INC.
SECURITIES PORTFOLIO
MATURITIES AND AVERAGE YIELDS
for the Year Ended December 31, 1998
(dollars in thousands)
After 1 but After 5 but
Within 1 Year Within 5 Years Within 10 Year After 10 Years
SECURITIES AVAILABLE FOR SALE Amount Yield Amount Yield Amount Yield Amount Yield Total
________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and U.S.
Government Agency securities $7,928 5.59% $16,159 5.85% - - $24,087
Obligations of State and
Political Subdivisions 55 7.16% 89 7.24% 814 6.22% 1,321 4.47% 2,279
Mortgage Backs and CMOs - 513 5.60% 2,440 6.44% 11,128 7.05% 14,081
Corporates and other securities - 1,420 5.39% - 1,104 6.00% 2,524
Mutual funds 968 5.52% - - - 968
________________________________________________________________________
Total Fair Value $8,951 $18,181 $3,254 $13,553 $43,939
After 1 but After 5 but
Within 1 Year Within 5 Years Within 10 Year After 10 Years
HELD TO MATURITY Amount Yield Amount Yield Amount Yield Amount Yield Total
________________________________________________________________________
Obligations of State and
Political Subdivisions $50 5.24% $135 5.56% $8,846 5.20% $10,216 5.22% $19,247
________________________________________________________________________
Total Amortized Cost $50 $135 $8,846 $10,216 $19,247
========================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MIDSOUTH BANCORP, INC.
SUMMARY OF
AVERAGE DEPOSITS
(in thousands)
1998 1997
AVERAGE AVERAGE AVERAGE AVERAGE
AMOUNT YIELD AMOUNT YIELD
_______ ________ _______ ________
<S> <C> <C> <C> <C>
Non-interest bearing $54,601 0.00% $48,480 0.00%
Demand Deposits
Interest bearing
Deposits
Savings, NOW,
MMKT 83,598 3.06% 73,844 2.98%
Time Deposits 78,907 5.21% 65,492 5.21%
_______ _______
Total $217,106 3.07% $187,816 2.95%
======= =======
</TABLE>
<TABLE>
<CAPTION>
MATURITY SCHEDULE
TIME DEPOSITS OF
$100,000 OR MORE
(in thousands)
1998 1997
_______ _______
<S> <C> <C>
3 months or less $19,234 $17,733
3 months through 6 months 4,391 4,780
7 months through 12 months 9,333 7,283
over 12 months 5,746 2,904
_______ _______
Total $38,704 $32,700
======= =======
SUMMARY OF RETURN
ON EQUITY AND ASSETS
1998 1997
_______ _______
Return on Average Assets 1.04% 0.78%
Return on Average Common Equity 19.16% 16.44%
Dividend Payout Ratio
on Common Stock 18.91% 22.14%
Average Equity to
Average Assets 6.04% 5.93%
</TABLE>
ITEM 7 - Financial Statements
<PAGE>
<TABLE>
<CAPTION>
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
DECEMBER 31, 1998 AND 1997
____________________________________________________________________________________________
ASSETS 1998 1997
<S> <C> <C>
Cash and due from banks $ 14,003,536 $ 15,774,024
Federal funds sold 6,600,000 8,060,000
_______________ ______________
Total cash and cash equivalents 20,603,536 23,834,024
Interest-bearing deposits in banks 16,125 48,928
Securities available-for-sale at fair value
(amortized cost of $43,503,268 in 1998
and $36,750,950 in 1997) 43,938,965 36,884,465
Securities held-to-maturity (estimated fair
value of $20,421,920 in 1998 and $17,459,865 in 1997) 19,246,559 16,732,827
Loans, net of allowance for loan losses of $1,860,490
in 1998 and $1,414,826 in 1997 153,616,773 129,473,318
Accrued interest receivable 1,740,514 1,638,931
Premises and equipment, net 9,054,201 6,973,150
Other real estate owned, net 48,100 45,100
Goodwill, net 207,281 241,902
Other assets 1,346,214 1,239,770
_______________ ______________
$ 249,818,268 $ 217,112,415
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 60,361,205 $ 58,464,087
Interest bearing 169,563,097 141,603,664
_______________ ______________
Total deposits 229,924,302 200,067,751
Securities sold under repurchase agreements - 69,443
Accrued interest payable 565,896 543,936
Notes payable 3,503,668 3,198,794
Other liabilities 138,280 301,181
_______________ ______________
Total liabilities 234,132,146 204,181,105
_______________ ______________
Commitments and Contingencies - -
Stockholders' equity:
Convertible preferred stock, $14.25 par value,
5,000,000 shares authorized, 156,927 and
160,756 issued and outstanding
at December 31, 1998 and 1997, respectively 2,236,210 2,290,773
Common stock, $.10 par value, 5,000,000 shares
authorized; 2,432,016 and 1,581,053 issued
and outstanding at December 31, 1998 and 1997,
respectively 243,201 158,106
Additional paid in capital 10,521,020 9,862,700
Unearned ESOP shares (119,051) (137,243)
Unrealized gains on securities available-for-sale,
net of deferred taxes of $159,000 in 1998 and
$51,550 in 1997 276,700 81,966
Retained earnings 2,528,042 675,008
_______________ ______________
Total stockholders' equity 15,686,122 12,931,310
_______________ ______________
$ 249,818,268 $ 217,112,415
=============== ==============
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
________________________________________________________________________________________________
1998 1997 1996
<S> <C> <C> <C>
INTEREST INCOME:
Loans, including fees $ 14,803,065 $ 11,625,789 $ 8,803,467
Securities:
Taxable 2,460,266 2,886,273 2,736,086
Nontaxable 924,669 794,065 404,184
Federal funds sold 567,764 470,289 628,680
____________ ____________ ____________
Total interest income 18,755,764 15,776,416 12,572,417
____________ ____________ ____________
INTEREST EXPENSE:
Deposits 6,666,681 5,655,770 4,457,556
Other - principally on long-term debt 264,875 238,423 84,171
____________ ____________ ____________
Total interest expense 6,931,556 5,894,193 4,541,727
____________ ____________ ____________
NET INTEREST INCOME 11,824,208 9,882,223 8,030,690
PROVISION FOR LOAN LOSSES 999,950 854,400 674,500
____________ ____________ ____________
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 10,824,258 9,027,823 7,356,190
____________ ____________ ____________
NONINTEREST INCOME:
Service charges on deposit accounts 2,606,903 2,101,956 1,489,211
Gains on sale of securities, net - 94,913 1,176
Credit life insurance 133,217 190,590 238,911
Other charges and fees 746,817 512,002 408,987
____________ ____________ ____________
3,486,937 2,899,461 2,138,285
____________ ____________ ____________
NONINTEREST EXPENSES:
Salaries and employee benefits 5,274,992 4,509,683 3,668,824
Occupancy expense 2,360,665 2,163,855 1,754,309
Other 3,387,588 2,912,250 2,417,558
____________ ____________ ____________
11,023,245 9,585,788 7,840,691
____________ ____________ ____________
INCOME BEFORE INCOME TAXES 3,287,950 2,341,496 1,653,784
PROVISION FOR INCOME TAXES 842,167 586,804 417,286
____________ ____________ ____________
NET INCOME 2,445,783 1,754,692 1,236,498
PREFERRED DIVIDEND REQUIREMENT 148,971 154,475 155,421
____________ ____________ ____________
NET INCOME AVAILABLE TO COMMON
STOCKHOLDERS $ 2,296,812 $ 1,600,217 $ 1,081,077
============ ============ ============
EARNINGS PER COMMON SHARE:
BASIC $.95 $.69 $.48
==== ==== ====
DILUTED $.83 $.61 $.40
==== ==== ====
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
_______________________________________________________________________________________
1998 1997 1996
<S> <C> <C> <C>
Net income $ 2,445,783 $ 1,754,692 $ 1,236,498
Other comprehensive income (loss):
Unrealized gain (loss) on securities
available-for-sale, net:
Unrealized holding gains (losses) arising
during the year 194,734 259,139 (212,704)
Less reclassification adjustment for gains
included in net income - (62,643) (776)
____________ ____________ ____________
Total other comprehensive income (loss) 194,734 196,496 (213,480)
____________ ____________ ____________
TOTAL COMPREHENSIVE INCOME $ 2,640,517 $ 1,951,188 $ 1,023,018
============ ============ ============
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
_________________________________________________________________________________________________________________________________
Unrealized
Gains
(Losses)on
Additional Securities
Preferred Stock Common Stock Paid in ESOP Available Retained
___________________ _________________ Capital Obligation for Sale Earnings Total
Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 187,286 $2,668,826 967,940 $ 96,794 $ 6,164,443 $ (54,157) $ 98,950 $1,380,634 $10,355,490
Issuance of
common stock 13,001 1,300 164,797 166,097
Dividends paid
on common stock
- $.24 per share (280,461) (280,461)
Dividends paid on
preferred stock (155,421) (155,421)
Stock options exercised 28,666 2,867 226,780 229,647
Preferred stock conversion (15,330) (218,453) 23,898 2,390 216,063
Stock split on common
stock effected in the
form of a 33-1/3%
dividend 331,398 33,140 (33,140) (1,520) (1,520)
Net income 1,236,498 1,236,498
ESOP obligation repayments 23,321 23,321
Net change in unrealized
gains (losses) on
securities
available-for-sale,
net of tax (213,480) (213,480)
_______ _________ _________ _______ _________ _______ ________ _________ __________
BALANCE, DECEMBER 31, 1996 171,956 2,450,373 1,364,903 136,491 6,738,943 (30,836) (114,530) 2,179,730 11,360,171
Issuance of common
stock 21,598 2,159 258,870 261,029
Dividends paid on
common stock -
$.24 per share (354,336) (354,336)
Dividends paid on
preferred stock (154,474) (154,474)
Preferred stock conversion (11,200) (159,600) 20,056 2,006 157,594 (47) (47)
Stock split on common
stock effected in the
form of a 12.5% dividend 174,496 17,450 2,730,862 (2,750,557) (2,245)
Registration and related
costs associated with
dividend reinvestment plan (23,569) (23,569)
Net income 1,754,692 1,754,692
ESOP obligation repayments (106,407) (106,407)
Net change in unrealized
gains (losses) on
securities
available-for-sale,
net of tax 196,496 196,496
_______ _________ _________ _______ _________ _______ ________ _________ __________
BALANCE, DECEMBER 31, 1997 160,756 2,290,773 1,581,053 158,106 9,862,700 (137,243) 81,966 675,008 12,931,310
Issuance of common stock 36,140 3,612 691,399 695,011
Dividends paid on common
stock - $.23 per share (434,334) (434,334)
Dividends paid on
preferred stock (148,971) (148,971)
Preferred stock conversion (3,829) (54,563) 8,517 852 53,711 (70) (70)
Stock split on common stock
effected in the form of
50% dividend 806,306 80,631 (72,945) (9,374) (1,688)
Registration and related
costs associated with
dividend reinvestment plan (13,845) (13,845)
Net income 2,445,783 2,445,783
ESOP obligation repayments 18,192 18,192
Net change in unrealized
gains (losses) on
securities
available-for-sale,
net of tax 194,734 194,734
_______ _________ _________ _______ _________ _______ ________ _________ __________
BALANCE, DECEMBER 31, 1998 156,927 $2,236,210 2,432,016 $243,201 $10,521,020 $(119,051) $276,700 $2,528,042 $15,686,122
======= ========= ========= ======= ========== ======= ======== ========== ==========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
____________________________________________________________________________________________________
1998 1997 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income 2,445,783 1,754,692 1,236,498
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 975,889 850,426 650,673
Provision for loan losses 999,950 854,400 674,500
Provision for losses on other real
estate owned - 33,718 -
Deferred income taxes (55,023) (163,196) (134,275)
(Discount accretion) premium
amortization, net (39,702) (150,203) 168,342
Gain on sales of securities - (94,913) (1,176)
Loss (gain) on sales of other real estate
owned 3,037 8,052 (163)
Loss (gain) on sales of premises and
equipment 10,428 - (21,755)
Change in accrued interest receivable (101,583) (252,335) (278,776)
Change in accrued interest payable 21,960 146,677 74,368
Other, net (321,772) 137,288 (702,267)
___________ ___________ ____________
Net cash provided by operating
activities 3,938,967 3,124,606 1,665,969
___________ ___________ ____________
CASH FLOWS FROM INVESTING
ACTIVITIES:
Net decrease (increase) in interest-bearing
deposits in banks 32,803 357,870 (380,449)
Proceeds from sales of securities
available-for-sale - 12,990,400 1,993,633
Proceeds from maturities and calls of
securities available-for-sale 14,675,141 23,579,688 6,773,366
Proceeds from maturities of securities
held-to-maturity 25,000 229,322 -
Purchases of securities available-for-sale (21,387,038) (25,694,503) (20,429,811)
Purchases of securities held-to-maturity (2,539,451) (7,407,947) (5,026,109)
Loan originations, net of repayments (25,148,249) (36,693,406) (16,615,170)
Purchases of premises and equipment (3,063,110) (1,980,003) (2,024,561)
Proceeds from sale of premises and
equipment 30,363 - 154,130
Proceeds from sales of other real
estate owned 17,000 93,400 3,500
___________ ___________ ____________
Net cash used in investing activit (37,357,541) (34,525,179) (35,551,471)
___________ ___________ ____________
(Concluded)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
_____________________________________________________________________________________________
1998 1997 1996
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net increase in deposits 29,856,551 28,451,243 32,586,945
Net decrease in repurchase agreements (69,443) (34,971) (71,490)
Issuance of notes payable 460,000 3,254,210 1,369,293
Repayments of notes payable (155,126) (1,576,852) (820,476)
Proceeds from issuance of common stock 695,011 261,029 166,097
Payment of dividends on common and
preferred stock (583,305) (508,810) (256,641)
Payment of fractional shares resulting from
stock dividend (1,757) (2,245) (1,520)
Proceeds from exercise of stock options
and warrants - - 229,647
Cost associated with dividend reinvestment
plan (13,845) (23,569) -
__________ __________ __________
Net cash provided by financing activities 30,188,086 29,820,035 33,201,855
__________ __________ __________
NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS (3,230,488) (1,580,538) (683,647)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 23,834,024 25,414,562 26,098,209
__________ __________ __________
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 20,603,536 $ 23,834,024 $ 25,414,562
========== ========== ==========
SUPPLEMENTAL CASH FLOW
INFORMATION:
Interest paid $ 6,975,476 $ 5,747,516 $ 4,467,359
========== ========== ==========
Income taxes paid $ 970,153 $ 716,467 $ 500,570
========== ========== ==========
See notes to consolidated financial statements.
(Concluded)
</TABLE>
MIDSOUTH BANCORP, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of MidSouth
Bancorp, Inc. (the Company) and its wholly owned
subsidiaries MidSouth National Bank (the Bank) and
Financial Services of the South, Inc. (the Finance
Company), have been prepared in accordance with
generally accepted accounting principles and conform with
general practices within the banking industry. A summary
of significant accounting policies follows:
DESCRIPTION OF BUSINESS - The Company is a bank holding
company headquartered in Lafayette, Louisiana operating
principally in the community banking business segment by
providing banking services to commercial and retail
customers through its wholly owned subsidiary, the Bank.
The Bank is community oriented and focuses primarily on
offering competitive commercial and consumer loan and
deposit services to individuals and small to middle market
business. The Company also provides consumer loan
services to individuals through the Finance Company.
COMPREHENSIVE INCOME - The Company adopted Statement
of Financial Accounting Standards No. 130 "Reporting
Comprehensive Income" (SFAS No. 130) effective
January 1, 1998 and has provided the required information
for all periods presented. SFAS No. 130 establishes
standards for reporting and display of comprehensive
income and its major components. Comprehensive income
includes net income and other comprehensive income
which, in the case of the Company, includes only
unrealized gains and losses on securities available-for-sale.
CONSOLIDATION - The consolidated financial statements of
the Company include the accounts of the Company, the
Bank and the Finance Company. Significant intercompany
transactions and balances have been eliminated.
USE OF ESTIMATES - The preparation of financial statements
in conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities, and disclosures of contingent assets and
liabilities at the date of the financial statement and the
reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
SECURITIES - Securities are being accounted for in
accordance with Statement of Financial Accounting
Standards (SFAS) No. 115 "Accounting for Certain
Investments in Debt and Equity Securities". SFAS No. 115
requires the classification of securities into one of three
categories: trading, available-for-sale, or held-to-maturity.
Management determines the appropriate classification of
debt securities at the time of purchase and re-evaluates this
classification periodically. Trading account securities are
held for resale in anticipation of short-term market
movements. Debt securities are classified as
held-to-maturity when the Company has the positive intent
and ability to hold the securities to maturity. Securities not
classified as held-to-maturity or trading are classified as
available-for-sale. The Company had no trading account
securities during the three years ended December 31, 1998.
Held-to-maturity securities are stated at amortized cost.
Available-for-sale securities are stated at fair value, with
unrealized gains and losses, net of deferred taxes, reported
as a separate component of stockholders' equity until
realized.
<PAGE>
The amortized cost of debt securities classified as
held-to-maturity or available-for-sale is adjusted for
amortization of premiums and accretion of discounts to
maturity or, in the case of mortgage-backed securities, over
the estimated life of the security. Amortization, accretion
and accrued interest are included in interest income on
securities. Realized gains and losses, and declines in value
judged to be other than temporary, are included in net
securities gains. Gains and losses on the sale of securities
available-for-sale are determined using the
specific-identification method.
LOANS - Loan origination fees and certain direct origination
costs are capitalized and recognized as an adjustment to
yield over the life of the related loan. Interest on
commercial and real estate mortgage loans is recorded as
income based upon the principal amount outstanding.
Unearned income on installment loans is credited to
operations based on a method which approximates the
interest method. Where doubt exists as to collectibility of a
loan, the accrual of interest is discontinued and subsequent
payments received are applied first to principal. Upon such
discontinuances all unpaid accrued interest is reversed.
Interest income is recorded after principal has been
satisfied and as payments are received.
The Company considers a loan to be impaired when, based
upon current information and events, it believes it is
probable that the Company will be unable to collect all
amounts due according to the contractual terms of the loan
agreement. The Company's impaired loans include
troubled debt restructurings, and performing and
non-performing major loans in which full payment of
principal or interest is not expected. The Company
calculates a reserve required for impaired loans based on
the present value of expected future cash flows discounted
at the loan's effective interest rate, or at the loan's
observable market price or the fair value of its collateral.
Generally, loans of all types which become 90 days
delinquent are either in the process of collection through
repossession or foreclosure or alternatively, are deemed
currently uncollectible. Loans deemed currently
uncollectible are charged-off against the allowance
account. As a matter of policy, loans are placed on a
non-accrual status where doubt exists as to collectibility.
ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses
is a valuation account available to absorb probable losses
on loans. All losses are charged to the allowance for loan
losses when the loss actually occurs or when a
determination is made that a loss is likely to occur;
recoveries are credited to the allowance for loan losses at
the time of recovery. Periodically during the year,
management estimates the probable level of losses in the
existing portfolio based on the Company's past loan loss
experience, known inherent risks in the portfolio, adverse
situations that may affect the borrowers ability to repay,
the estimated value of any underlying collateral and current
economic conditions. Based on these estimates, the
allowance for loan losses is increased by charges to income
and decreased by charge-offs (net of recoveries).
PREMISES AND EQUIPMENT - Premises and equipment are
stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed
using the straight-line method over the estimated useful
lives of the assets which generally range from 3 to 30
years. Leasehold improvements are amortized over the
estimated useful lives of the improvements or the term of
the lease, whichever is shorter.
OTHER REAL ESTATE OWNED - Real estate properties acquired
through, or in lieu of, loan foreclosures are initially
recorded at fair value at the date of foreclosure establishing
a new cost basis. After foreclosure, valuations are
periodically performed by management and the real estate
is carried at the lower of carrying amount or fair value less
cost to sell. Revenues and expenses from operations and
changes in the valuation allowance are included in loss on
foreclosed real estate.
<PAGE>
INCOME TAXES - Deferred income taxes are provided for
temporary differences between items of income or expense
reported in the consolidated financial statements and those
reported for income tax purposes.
The Company computes deferred income taxes based on
the difference between the financial statements and tax
basis of assets and liabilities using enacted tax rates in
effect in the years in which the differences are expected to
reverse.
GOODWILL - Goodwill represents the excess of the cost over
the fair value of net assets purchased and is being
amortized over 15 years.
STOCK-BASED COMPENSATION - The Company applies APB
Opinion No. 25 and related interpretations in accounting
for its stock options. Accordingly, no compensation cost
has been recognized. The pro forma disclosures required
by SFAS 123 are included in Note 11.
BASIC AND DILUTED EARNINGS PER COMMON SHARE - Basic
earnings per common share (EPS) excludes dilution and is
computed by dividing income available to common
stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other
contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of
common stock that then shared in the income of the
Company. Diluted EPS is computed by dividing net
income by the total of the weighted-average number of
shares outstanding plus the effect of outstanding options
and convertible preferred stock.
STATEMENTS OF CASH FLOWS - For purposes of reporting cash
flows, cash and cash equivalents include cash on hand,
amounts due from banks, and federal funds sold.
Generally, federal funds are purchased or sold for one-day
periods.
2. CASH AND DUE FROM BANKS
The Company is required to maintain average reserve
balances with the Federal Reserve Bank. "Cash and due
from banks" in the consolidated statements of condition
included amounts so restricted of $4,380,000 and
$4,150,000 at December 31, 1998 and 1997, respectively.
<PAGE>
3. INVESTMENT SECURITIES
The portfolio of securities consisted of the following:
<TABLE>
<CAPTION>
December 31, 1998
___________________________________________________
Gross Gross
Amortized Unrealized Unrealized
Available-for-Sale Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 19,360,196 $ 307,187 $ 263 $ 19,667,120
U.S. Government agencies 4,385,381 33,877 - 4,419,258
Obligations of states and
political subdivisions 2,266,469 26,110 13,655 2,278,924
Mortgage-backed securities 7,578,135 116,796 8,534 7,686,397
Collateralized mortgage
obligations 6,381,355 24,261 10,980 6,394,636
Corporate securities 1,427,482 - 7,102 1,420,380
Mutual funds 1,000,000 - 32,000 968,000
Other 1,104,250 - - 1,104,250
_____________ __________ __________ _____________
$ 43,503,268 $ 508,231 $ 72,534 $ 43,938,965
============= ========== ========== =============
</TABLE>
<TABLE>
<CAPTION>
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, 1998
_____________________________________________________
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 $ 19,246,559 $ 1,185,447 $ 10,086 $ 20,421,920
============= ============ ========= =============
</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>
The amortized cost and fair value of securities at
December 31, 1998 by contractual maturity, are shown
below. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
Amortized
Available-for-Sale Cost Fair Value
<S> <C> <C>
Due in one year or less $ 7,957,490 $ 7,983,094
Due after one year through five years 17,352,431 17,667,689
Due after five years through ten years 790,828 813,564
Due after ten years 1,338,779 1,321,334
Mortgage-backed securities 13,959,490 14,081,034
Other securities 1,104,250 1,104,250
Mutual funds 1,000,000 968,000
_____________ _____________
$ 43,503,268 $ 43,938,965
============= =============
</TABLE>
<TABLE>
<CAPTION>
Amortized
Held-to-Maturity Cost Fair Value
<S> <C> <C>
Due in one year or less $ 50,000 $ 50,427
Due after one year through five years 135,000 138,220
Due after five years through ten years 8,845,776 9,458,356
Due after ten years 10,215,783 10,774,917
__________ __________
$19,246,559 $20,421,920
========== ==========
</TABLE>
There were no sales of securities available-for-sale during
1998. Proceeds from sales of securities available-for-sale
during 1997 and 1996 were $12,990,400 and $1,993,633,
respectively. A gross gain of $146,616 was recognized on
sales in 1997. A gross loss of $61,437 was recognized on
sales in 1997. A gross gain of $1,176 was recognized on
sales in 1996. There were no gross losses realized on sales
during 1996.
Securities with an aggregate carrying value of
approximately $30,800,000 and $26,800,000 at
December 31, 1998 and 1997 were pledged to secure
public funds on deposit and for other purposes required or
permitted by law.
The Company's collateralized mortgage obligations
(CMO's) consist of (1) four Fixed Rate FNMA Remic
securities, two with a collateral pass-thru pay structure, one
with a planned amortization class pay structure, and one
with a targeted amortization class pay structure, (2) One
Floater Other Agency Remic (SLMA) security with a
floating pay structure, (3) and three AAA Fixed Rate
Private Remic securities, one subordinated with a call
option and two with sequential pay structures. All are
classified as available-for-sale and seven have estimated
average lives of one to four years with one having an
estimated average life of more then ten years.
<PAGE>
4. LOANS
The loan portfolio consisted of the following:
<PAGE>
<TABLE>
<CAPTION>
December 31,
_______________________________
1998 1997
<S> <C> <C>
Commercial, financial and agricultural $ 49,543,647 $ 41,920,105
Lease financing receivable 5,706,060 4,774,818
Real estate - mortgage 67,961,708 52,969,893
Real estate - construction 4,245,718 2,129,631
Installment loans to individuals 27,899,592 28,941,500
Other 120,538 152,197
______________ ____________
155,477,263 130,888,144
Less allowance for loan losses (1,860,490) (1,414,826)
______________ ____________
$ 153,616,773 $ 129,473,318
============== ============
</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
$480,758 and $260,875 at December 31, 1998 and 1997,
respectively. If interest on these types of loans had been
accrued, the income that would have been recognized
would have approximated $69,000, $89,000 and $79,000
for the years ended December 31, 1998, 1997 and 1996.
Interest income recognized on those loans, which is
recorded only when received, amounted to $72,000, $3,500
and $34,000 for 1998, 1997 and 1996, respectively.
An analysis of the activity in the allowance for loan losses
is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
________________________________________
1998 1997 1996
<S> <C> <C> <C>
Balance at beginning of year $ 1,414,826 $ 1,087,790 $ 1,051,898
Provision for loan losses 999,950 854,400 674,500
Recoveries 147,817 205,409 257,051
Loans charged off (702,103) (732,773) (895,659)
___________ ___________ ___________
Balance at end of year $ 1,860,490 $ 1,414,826 $ 1,087,790
=========== =========== ===========
</TABLE>
During the year ended December 31, 1998, approximately
$14,000 of loans were transferred to other real estate
owned. No loans were transferred to other real estate
owned during the year ended December 31, 1997. During
the years ended December 31, 1996, approximately $3,000
of loans were transferred to other real estate owned,
respectively.
As of December 31, 1998 and 1997, loans outstanding to
directors, executives officers, and their affiliates were
$941,947 and $1,069,529, respectively. In the opinion of
management, all transactions entered into between the
Bank and such related parties have been and are made in
the ordinary course of business, on substantially the same
terms and conditions, including interest rates and collateral,
as similar transactions with unaffiliated persons and do not
involve more than the normal risk of collection.
<PAGE>
An analysis of the 1998 activity with respect to these
related party loans is as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance, January 1, 1998 $ 1,069,529
New loans 200,662
Repayments (328,244)
____________
Balance, December 31, 1998 $ 941,947
============
</TABLE>
At December 31, 1998 and 1997, the recorded investment
in loans that are considered to be impaired was $80,232
and $185,388, respectively, substantially all of which had
related reserves recorded. The related reserves for these
loans were $60,000 and $80,000 at December 31, 1998 and
1997, respectively. Interest income on these types of loans
would have approximated $42,000, $37,000 and $41,000
for 1998, 1997 and 1996, respectively, if interest had been
accrued. Interest income actually recognized on those
loans amounted to $23,000, $3,500 and $33,000 for 1998,
1997 and 1996, respectively.
5. BANK PREMISES AND EQUIPMENT
Premises and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31,
___________________________
1998 1997
<S> <C> <C>
Buildings and improvements $ 5,385,629 $ 4,471,531
Furniture, fixtures, and equipment 5,404,800 4,494,780
Automobiles 261,804 290,542
Leasehold improvements 668,176 653,885
Construction-in-process 1,501,938 409,798
____________ ____________
13,222,347 10,320,536
Less accumulated depreciation and amortization (4,168,146) (3,347,386)
____________ ____________
$ 9,054,201 $ 6,973,150
============ ============
</TABLE>
6. DEPOSITS
Deposits consisted of the following:
<TABLE>
<CAPTION>
December 31,
1998 1997
<S> <C> <C>
Non-interest bearing $ 60,361,205 $ 58,464,087
Savings and money market 50,870,448 40,709,245
NOW accounts 31,839,882 25,834,206
Time deposits under $100,000 48,149,035 42,360,075
Time deposits over $100,000 38,703,732 32,700,138
______________ ______________
$ 229,924,302 $ 200,067,751
============== ==============
</TABLE>
Approximately $68,289,000 of time deposits mature in
1999 and the balance of $18,564,000 principally in 2000.
<PAGE>
7. NOTES PAYABLE
Notes payable consisted of the following:
<TABLE>
<CAPTION>
December 31,
1998 1997
<S> <C> <C>
Note payables to financial institutions $ 3,117,023 $ 2,768,313
FHLB borrowings 386,645 430,481
____________ ____________
$ 3,503,668 $ 3,198,794
============ ============
</TABLE>
The note payables to financial institutions consist of
advances against Lines of Credit established by the
Company and the Finance Company.
The Line of Credit for the Company is in the amount of
$2,500,000 and is dated June 23, 1997. At any time prior
to June 23, 1999, the Company may request advances up to
but not exceeding an aggregate principal amount of
$2,500,000 at any one time outstanding. Advances under
the Line of Credit bear interest at a variable rate equal to
the prime commercial rate of interest as quoted in the
"Money Rates" section of the Wall Street Journal minus
fifty basis points (0.50%). At December 31, 1998 and
1997, the effective rate was 7.25% and 8.00% ,
respectively. Interest under the note is due and payable
quarterly in arrears on the last day of each quarter.
Beginning June 30, 1999, principal payments in the amount
of 11.11% of the amount of the loan balance on June 30,
1999 are due and payable in eight consecutive annual
installments on June 30 of each succeeding calendar year.
The remaining balance of the loan is due and payable in a
ninth and final installment on June 30, 2007. The
Company has pledged all of the Bank's stock as collateral
on this note. The loan agreement has certain covenants
which, among other things, require the maintenance of
certain levels of stockholders' equity and net income and
sets a limit on the maximum amount of nonperforming
assets. The Company was in compliance with these
covenants at December 31, 1998 and 1997. The principal
balance on this note at December 31, 1998 and 1997 was
$2,010,023 and $1,685,023, respectively.
The Line of Credit for the Finance Company is in the
amount of $1,200,000 and is dated May 1, 1998. At any
time prior to April 30, 1999, the Finance Company may
request advances up to but not exceeding an aggregate
principal amount of $1,200,000 at any one time
outstanding. Advances under the Line of Credit bear
interest at a variable rate equal to the commercial prime
rate as quoted in the "Money Rates" section of the Wall
Street Journal plus twenty-five basis points (0.25%). At
December 31, 1998, the effective rate was 8.00%. Interest
on this note is payable monthly, with principal due at
maturity on April 30, 1999. Advances under this note
totaled $1,107,000 at December 31, 1998. The Finance
Company has pledged (1) all its promissory notes, credit
sales agreements, installment sales contracts, chattel paper,
negotiable paper or other written evidence of indebtedness
to the Finance Company; (2) all of its accounts receivable;
and (3) all of its common stock as collateral on this note.
The Finance Company had outstanding borrowing of
$1,083,290 bearing interest at 8.75% on a similar line of
credit at December 31, 1997.
At December 31, 1998, the Bank had four FHLB
borrowings outstanding. These borrowings bear interest at
rates between 5.49% and 7.28%, and have maturities from
February 1999 to June 1, 2001. Monthly principal and
interest payments range from approximately $354 on the
smallest borrowing to approximately $4,732 on the largest
borrowing, with balloon payments due at maturity. The
borrowings are collaterized by a blanket floating lien on
certain of the Bank's mortgage loans.
<PAGE>
Aggregate annual maturities on notes payable are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1999 $ 1,492,887
2000 271,420
2001 399,279
2002 223,314
2003 223,314
Thereafter 893,454
____________
$ 3,503,668
============
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
At December 31, 1998, future annual minimum rental
payments due under noncancellable operating leases,
primarily for land, are as follows:
<TABLE>
<CAPTION>
<S> <C>
1999 $ 388,476
2000 387,615
2001 393,138
2002 396,340
2003 400,906
Thereafter through 2058 5,165,646
_____________
$ 7,132,121
=============
</TABLE>
Rental expense under operating leases for 1998, 1997 and
1996 was $422,662, $399,961, and $370,275, respectively.
Sublease income for 1998, 1997 and 1996 amounted to
$31,800 each year.
The Company and its subsidiaries are parties to various
legal proceedings arising in the ordinary course of
business. In the opinion of management, the ultimate
resolution of these legal proceedings will not have a
material adverse effect on the Company's financial
position, results of operations or cash flows.
<PAGE>
9. INCOME TAXES
Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Significant
components of the Company's deferred tax assets and
liabilities as of December 31, 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 470,000 $ 320,000
Other 88,000 76,000
____________ __________
Total deferred tax assets 558,000 396,000
____________ __________
Deferred tax liabilities:
FHLB stock dividends (41,000) (28,000)
Depreciation (140,000) (157,000)
Unrealized gain on securities (159,000) (51,505)
Other (190,000) (79,023)
____________ __________
Total deferred tax liabilities (530,000) (315,528)
____________ __________
Net deferred tax asset $ 28,000 $ 80,472
============ ==========
</TABLE>
Components of income tax expense are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Current $ 897,190 $ 750,000 $ 551,561
Deferred (55,023) (163,196) (134,275)
____________ ____________ ____________
$ 842,167 $ 586,804 $ 417,286
============ ============ ============
</TABLE>
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:
<TABLE>
<CAPTION>
Year Ended December 31,
_______________________________________
1998 1997 1996
<S> <C> <C> <C>
Taxes calculated at statutory rate $ 1,117,903 $ 796,109 $ 562,287
Increase (decrease) resulting from:
Tax-exempt interest (280,412) (242,420) (124,532)
Other 4,676 33,115 (20,469)
____________ ___________ ____________
$ 842,167 $ 586,804 $ 417,286
============ =========== ============
</TABLE>
The deferred income tax expense (credit) relating to
unrealized gains (losses) on securities available-for-sale
included in other comprehensive income amounted to
$107,495 in 1998, $101,225 in 1997 and ($109,974) in
1996. Income taxes relating to gains on sale of securities
amounted to $32,270 in 1997 and $400 in 1996.
<PAGE>
10. EMPLOYEE BENEFITS
The Company sponsors a leveraged employee stock
ownership plan (ESOP) that covers all employees who
meet minimum age and service requirements. The
Company makes annual contributions to the ESOP in
amounts as determined by the Board of Directors. These
contributions are used to pay debt service and purchase
additional shares. Certain ESOP shares are pledged as
collateral for this debt. As the debt is repaid, shares are
released from collateral and allocated to active employees,
based on the proportion of debt service paid in the year.
The note is payable to the Bank. Because the source of the
loan payments are contributions received by the ESOP
from the Company, the related note receivable is shown as
a reduction of stockholders' equity. The balance of the
note receivable from the ESOP was $119,051 at
December 31, 1998. In accordance with the American
Institute of Certified Public Accountants' Statement of
Position 93-6 (SOP), compensation costs relating to shares
purchased subsequent to December 31, 1992 are based on
the market price of the shares on the date released for
allocation and the related unreleased shares are not
considered outstanding in the computation of income per
common share. The Company has elected to not apply the
provisions of the SOP to shares purchased on or before
December 31, 1992 and therefore compensation costs
relating to those shares was based upon cost and those
shares were considered as outstanding in the computation
of income per common share. Substantially all of the
unrealized shares at December 31, 1998 were purchased
after December 31, 1992. ESOP compensation expense
was $102,000, $90,000 and $84,000 for the years ended
December 31, 1998, 1997 and 1996, respectively. The
ESOP shares as of December 31, 1998 and 1997 were as
follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Allocated shares 223,187 220,005
Shares released for allocation 2,767 3,665
Unreleased shares 19,254 22,021
_________ _________
Total ESOP shares 245,208 245,691
========= =========
Fair value of unreleased shares at
December 31, $ 214,201 $ 311,971
========= =========
</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 1998, 1997 and 1996 no
contributions were required.
11. EMPLOYEE STOCK PLANS
Prior to 1995, the Company had granted options to certain
key employees to purchase shares of the Company's
common stock. At December 31, 1996, all options had
been exercised. The Company is applying APB Opinion
No. 25 and related interpretations in accounting for stock
options. All options exercised in 1996 were granted before
1994 and were at or above the estimated fair market value
at the date of grant. Accordingly, no compensation
expense has been recognized and no disclosures regarding
the fair value of those options has been made.
In May 1997 the stockholders of the Company approved
the 1997 Stock Incentive Plan to provide incentives and
awards for employees of the Company and its subsidiaries.
"Awards" as defined in the Plan includes, with limitations,
stock options (including restricted stock options), stock
appreciation rights, performance shares, stock awards and
cash awards, all on a stand-alone, combination or tandem
<PAGE>
basis. A total of 8% of the Company's common shares
outstanding can be granted under the Plan. The exercise
price of options is equal to the market price on the date of
grant.
During 1998, options to purchase 23,155 shares were
granted which are exercisable at $15.42 per share. During
1997, options to purchase 139,223 shares were granted
which are exercisable at $6.67 per share. These options are
exercisable in 20% increments beginning one year from the
date of grant. The options expire ten years after the date of
grant.
Below is a summary of the transactions:
<TABLE>
<CAPTION>
Exercise Price
Number of Average
Options Price
Outstanding Per Share
<S> <C> <C>
Balance, January 1, 1996 54,000 3.17
Exercised (54,000) 3.17
________ ______
Balance, December 31, 1996 - -
Granted 139,223 6.67
________ ______
Balance, December 31, 1997 139,223 6.67
Granted 23,155 15.42
________ ______
Balance, December 31, 1998 162,378 7.92
======== ======
</TABLE>
Options on 27,845 shares at $6.67 per share were
exercisable at December 31, 1998.
The weighted average remaining contractual life of options
outstanding at December 31, 1998 was 8.3 years.
The Company has adopted the disclosure-only option under
SFAS No. 123, "Accounting for Stock Based
Compensation." The fair value of options granted during
1998 was $4.63 and during 1997 was $2.17. Had
compensation cost for the Company's stock options been
determined based on the fair value at the grant date
consistent with the method under SFAS No. 123, the
Company's net income available to common stockholders
and income per common share would have been as
indicated below:
<TABLE>
<CAPTION>
Year Ended
____________________________
1998 1997
<S> <C> <C>
Net income available to common stockholders:
As reported $ 2,296,812 $ 1,600,217
Pro forma 2,169,732 1,485,217
Basic income per common share:
As reported $ .95 $ .69
Pro forma .90 .64
Diluted income per common share:
As reported $ .83 $ .61
Pro forma .79 .57
</TABLE>
<PAGE>
The fair value of the options granted under the Company's
stock option plans during the years ended December 31,
1998 and 1997 was estimated using the Black-Scholes
Pricing Model with the following assumptions used:
dividend yield of 1.5% for 1998 and 1997, expected
volatility of 20% for 1998 and 1997, risk free interest rate
of 4.9% for 1998 and 5.8% for 1997, and expected lives of
8 years for 1998 and 1997.
12. STOCKHOLDERS' EQUITY
On July 31, 1995, the Company issued 187,286 shares of
Series A Cumulative Convertible Preferred Shares with a
stated value of $14.25. The Convertible Preferred Shares
are convertible at any time at the option of the holder into
common stock, at the rate of 2.998 shares of Common
Stock for each Convertible Preferred Share. On or after
July 31, 2000, the Convertible Preferred Shares are
redeemable, in whole or in part, at the option of the
Company at the stated value of $14.25. The liquidation
value of the Convertible Preferred Stock is $14.25 plus
accrued dividends. Dividends on the Convertible Preferred
Shares are determined each year on an annual rate, fixed on
December 31 of each year for the ensuing calendar year
and was 6.62% at December 31, 1998. The dividends are
cumulative and payable quarterly in arrears. Holders of
Convertible Preferred Shares are not entitled to normal
voting rights unless certain conditions exist.
The payment of dividends by the Bank to the Company is
restricted by various regulatory and statutory limitations.
At December 31, 1998, the Bank has approximately
$4,100,000 available to pay dividends to the Parent
Company without regulatory approval.
13. NET INCOME PER COMMON SHARE
Following is a summary of the information used in the
computation of earnings per common share.
<TABLE>
<CAPTION>
Year Ended December 31,
______________________________________
1998 1997 1996
<S> <C> <C> <C>
Net income - used in computation of
diluted earnings per common share $2,445,783 $1,754,692 $1,236,498
Preferred dividend requirement 148,971 154,475 155,421
_________ _________ _________
Net income available to common
stockholders - used in computation of
basic earnings per common share $2,296,812 $1,600,217 $1,081,077
========= ========= =========
Weighted average number of common
shares outstanding - used in computation
of basic earnings per common share 2,410,926 2,332,452 2,250,078
Effect of dilutive securities:
Stock options 72,317 24,737 -
Convertible preferred stock 475,138 498,819 515,610
_________ _________ _________
Weighted average number of common
shares outstanding plus effect of dilutive
securities - used in computation of
diluted earnings per common share 2,958,381 2,856,008 2,765,668
========= ========= =========
</TABLE>
<PAGE>
14. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is a party to various financial instruments with
off-balance sheet risk in the normal course of business to
meet the financing needs of its customers and to reduce its
own exposure to fluctuations in interest rates. These
financial instruments include commitments to extend credit
and standby letters of credit. Those instruments involve, to
varying degrees, elements of credit and interest rate risk in
excess of the amounts recognized in the statements of
financial condition. The contract or notional amounts of
those instruments reflect the extent of the involvement the
Bank has in particular classes of financial instruments.
The Bank's exposure to loan loss in the event of
nonperformance by the other party to the financial
instrument for commitments to extend credit, standby
letters of credit and financial guarantees is represented by
the contractual amount of those instruments. The Bank
uses the same credit policies, including considerations of
collateral requirements, in making these commitments and
conditional obligations as it does for on-balance sheet
instruments.
<TABLE>
<CAPTION>
Contract or Notional
Amount
____________________________
1998 1997
<S> <C> <C>
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $ 29,400,000 $ 19,300,000
Standby letters of credit 800,000 1,590,000
</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 all of these letters of credit
were secured by marketable securities, cash on deposits or
other assets at December 31, 1998.
15. REGULATORY MATTERS
The Company and the Bank are subject to various
regulatory capital requirements administered by the federal
banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory-and possibly
additional discretionary-actions by regulators that, if
undertaken, could have a direct material effect on the
financial statements. Under capital adequacy guidelines,
the Company and the Bank must meet specific capital
guidelines that involve quantitative measures of assets,
liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The capital amounts
and classification are also subject to qualitative judgments
by the regulators about components, risk weightings, and
other factors.
<PAGE>
Quantitative measures established by regulation to ensure
capital adequacy require the Company and the Bank to
maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations)
to risk-weighted assets (as defined), and of Tier I capital (as
defined) to average assets (as defined).
As of December 31, 1998 and 1997, the most recent
notifications from the Federal Deposit Insurance Corporation
categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as
well capitalized the Bank must maintain minimum total
risk-based, Tier I risk-based, Tier I leverage ratios as set forth
in the table. There are no conditions or events since those
notifications that management believes have changed the
Bank's category.
The Company's and the Bank's actual capital amounts and
ratios are presented in the table.
<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, 1998:
Total capital to risk
weighted assets:
Company $ 17,030,631 10.25 % $ 13,292,134 8 % N/A N/A
Bank 18,372,000 11.17 % 13,160,778 8 % 16,450,973 10 %
Tier I capital to risk
weighted assets:
Company 15,170,141 9.13 % 6,646,067 4 % N/A N/A
Bank 16,578,963 10.08 % 6,580,389 4 % 9,870,584 6 %
Tier I capital to
average assets:
Company 15,170,141 6.06 % 10,012,901 4 % N/A N/A
Bank 16,578,963 6.67 % 9,947,224 4 % 12,434,030 5 %
</TABLE>
<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>
16. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to
estimate the fair value of each class of financial instruments
for which it is practicable to estimate that value:
CASH, DUE FROM BANKS AND FEDERAL FUNDS SOLD - For
those short-term instruments, the carrying amount is a
reasonable estimate of fair value.
SECURITIES - For securities, fair value equals quoted market
price, if available. If a quoted market price is not available,
fair value is estimated using quoted market prices for
similar securities.
LOANS, NET - The fair value of loans is estimated by
discounting the future cash flows using the current rates at
which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities.
DEPOSITS - The fair value of demand deposits, savings
accounts, and certain money market deposits is the amount
payable on demand at the reporting date. The fair value of
fixed-maturity certificates of deposit is estimated using the
rates currently offered for deposits of similar remaining
maturities.
NOTES PAYABLE - Rates currently available to the Company
for debt with similar terms and remaining maturities are
used to estimate fair value of existing debt.
COMMITMENTS - The fair value of commitments to extend
credit was not significant.
The estimated fair values of the Company's financial
instruments are as follows at December 31, 1998 and 1997
(in thousands):
<TABLE>
<CAPTION>
1998 1997
_______________________ ______________________
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Financial assets:
Cash, due from banks and federal
fund sold $ 20,604 $ 20,604 $ 23,883 $ 23,883
Securities available-for-sale 43,939 43,939 36,884 36,884
Securities held-to-maturity 19,247 20,422 16,733 17,460
Loans, net 153,617 153,700 129,473 129,400
Financial liabilities:
Non-interest bearing deposits 60,361 60,361 58,464 58,464
Interest bearing deposits 169,563 169,792 141,604 141,676
Notes payable 3,504 3,504 3,199 3,199
</TABLE>
<PAGE>
17. OTHER NON-INTEREST EXPENSE
Other non-interest expense consisted of the following for
the years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Professional fees $ 397,880 $ 337,824 $ 348,543
FDIC assessments 23,540 21,267 2,000
Marketing expenses 672,896 515,097 411,206
Data processing 163,839 162,016 143,964
Postage 211,179 224,761 154,802
Education and travel 168,038 124,287 159,500
Printing and supplies 319,713 279,806 236,681
Telephone 241,455 202,999 177,563
Other 1,189,048 1,044,193 783,299
____________ ____________ ____________
$ 3,387,588 $ 2,912,250 $ 2,417,558
============ ============ ============
</TABLE>
18. CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
Summarized financial information for MidSouth Bancorp,
Inc. (parent company only) follows:
<TABLE>
<CAPTION>
STATEMENTS OF CONDITION
December 31,
_________________________
ASSETS 1998 1997
<S> <C> <C>
Cash and interest-bearing deposits in banks $ 18,901* $ 20,841*
Other assets 118,127 114,670
Investment in and advances to subsidiaries 17,692,418* 14,618,066*
___________ ____________
$17,829,446 $ 14,753,577
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes payable to financial institutions $ 2,010,023 $ 1,685,023
Note payable to Bank 133,301* 137,244*
___________ ____________
Total liabilities 2,143,324 1,822,267
___________ ____________
Total stockholders' equity 15,686,122 12,931,310
___________ ____________
$17,829,446 $ 14,753,577
=========== ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
Years Ended December 31,
____________________________________
1998 1997 1996
<S> <C> <C> <C>
Revenue:
Equity in income of subsidiaries $2,614,618* $1,895,208* $1,337,342*
Rental and other income 44,553 32,827 32,827
__________ __________ __________
2,659,171 1,928,035 1,370,169
__________ __________ __________
Expenses:
Interest on notes payable 146,831 100,109 50,249
Professional fees 83,304 87,548 64,737
Other expense 66,544 58,086 75,299
__________ __________ __________
296,679 245,743 190,285
__________ __________ __________
Income before income taxes and
cumulative effect of accounting change 2,362,492 1,682,292 1,179,884
Income tax benefit 83,291 72,400 56,614
__________ __________ __________
Net income $ 2,445,783 $ 1,754,692 $ 1,236,498
========== ========== ==========
</TABLE>
<TABLE>
<CAPTON>
STATEMENTS OF CASH FLOWS
Years Ended December 31,
__________________________________________
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Distributions from bank $ 85,000* $ - $ 208,197*
Change in other assets and liabilities, 10,792 751 (40,320)
Other operating (168,836) (140,516) (100,844)
__________ _________ ___________
Net cash provided by (used in)
operating activities (73,044) (139,765) 67,033
__________ _________ ___________
Cash flows from investing activities:
Investment in and advances to subsidiar (350,000)* (500,000)* (300,000)*
__________ _________ ___________
Net cash used in investing activit (350,000) (500,000) (300,000)
__________ _________ ___________
Cash flows from financing activities:
Capital stock transactions 679,409 235,168 336,027
Payment of dividends (583,305) (508,810) (435,882)
Proceeds of notes payable, net 325,000 881,943 294,892
__________ _________ ___________
Net cash provided by financing act 421,104 608,301 195,037
__________ _________ ___________
Net increase (decrease) in cash (1,940) (31,464) (37,930)
Cash, beginning of year 20,841 52,305 90,235
__________ _________ ___________
Cash, end of year $ 18,901 $ 20,841 $ 52,305
========== ========= ===========
*Eliminated in consolidation
</TABLE>
<PAGE>
19. IMPACT OF NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board
issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which establishes
accounting and reporting standards for derivative
instruments, including certain derivative instruments
embedded in other contracts and for hedging activities.
Under this Statement, a company that elects to apply hedge
accounting is required to establish at the inception of the
hedge the method it will use for assessing the effectiveness
of the hedging derivative and the measurement approach
for determining the ineffective aspect of the hedge. At the
date of initial application, a company may transfer any
held-to-maturity security into the available-for-sale
category or the trading category. A company will then be
able in the future to designate a security transferred into the
available-for-sale category as the hedged item. The
unrealized holding gain or loss on a held-to-maturity
security transferred to another category at the date of the
initial application will be reported in net income or
accumulated other comprehensive income consistent with
the requirements of SFAS No. 115. Such transfers from
the held-to-maturity category at the date of initial adoption
will not call into question a company's intent to hold other
debt securities to maturity in the future.
SFAS No. 133 applies to all entities and is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999.
Earlier adoption of this Statement is permitted. The
Company expects to adopt this accounting standard on
January 1, 2000.
* * * * * *
<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, 1998 and 1997, and the related consolidated
statements of income, comprehensive income, stockholders'
equity, and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
MidSouth Bancorp, Inc. and subsidiaries at December 31,
1998 and 1997 and the results of their operations and their
cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
February 12, 1999
<PAGE>
<TABLE>
<CAPTION>
Selected Quarterly Financial Data
(unaudited)
1998
(Dollars in thousands, except per share IV III II I
<S> <C> <C> <C> <C>
Interest income $4,908 $4,902 $4,636 $4,310
Interest expense 1,824 1,795 1,694 1,619
______ ______ ______ ______
Net interest income 3,084 3,107 2,942 2,691
Provision for possible credit losses 244 260 238 258
______ ______ ______ ______
Net interest income after provision
for possible credit losses 2,840 2,847 2,704 2,433
Noninterest income,
excluding securities gains 929 907 872 779
Net securities gains - - - -
Noninterest expense 2,999 2,888 2,629 2,507
______ ______ ______ ______
Income before income tax expense 770 866 947 705
Income tax expense 179 242 268 153
______ ______ ______ ______
Net income 591 624 679 552
Preferred stock dividend requirement (37) (37) (38) (37)
______ ______ ______ ______
Income applicable to common shareholders $554 $587 $641 $515
====== ====== ====== ======
Earnings per common share <FN1>
Basic $0.23 $0.24 $0.27 $0.21
Diluted $0.20 $0.21 $0.23 $0.19
Market price of common stock
High $13.50 $14.50 $15.25 $15.67
Low $10.88 $13.25 $14.46 $14.08
Close $11.13 $13.25 $14.54 $14.50
Average shares outstanding
Basic 2,429,107 2,417,457 2,396,051 2,381,511
Diluted 2,960,165 2,963,618 2,949,486 2,935,610
</TABLE>
<TABLE>
<CAPTION>
1997
(Dollars in thousands, except per share 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 -
Noninterest expense 2,560 2,474 2,369 2,183
______ ______ ______ ______
Income before income tax expense 639 536 667 498
Income tax expense 158 127 185 116
______ ______ ______ ______
Net income 481 409 482 382
Preferred stock dividend requirement (37) (37) (40) (40)
______ ______ ______ ______
Income applicable to common shareholders $444 $372 $442 $342
====== ====== ====== ======
Earnings per common share <FN1>
Basic $0.19 $0.16 $0.19 $0.15
Diluted $0.17 $0.14 $0.17 $0.13
Market price of common stock
High $14.37 $11.83 $8.59 $6.81
Low $10.75 $8.67 $6.67 $6.29
Close $14.17 $10.83 $8.59 $6.59
Average shares outstanding
Basic 2,355,441 2,358,705 2,333,510 2,315,597
Diluted 2,901,432 2,896,377 2,805,690 2,772,888
<FN1> Earnings per share and other market data have been adjusted
for a 5% stock dividend paid by the Company on February 18,
1994, a four for three stock split paid on September 15,
1995, a four for three stock split paid on August 19,1996,
a 12 1/2% stock dividend paid on August 27, 1997 and
a three for two stock split paid on August 31, 1998.
</TABLE>
ITEM 8 - Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure.
Not applicable.
PART III
ITEM 9 - Directors, Executive Officers, Promotors and
Control Persons; Compliance with Section 16(a) of the
Exchange Act
The information contained in Registrant's definitive proxy
statement for its 1999 annual meeting of shareholders, is
incorporated herein by reference in response to this Item.
Information concerning executive officers is provided
under Item 4.
ITEM 10 - Executive Compensation
The information contained in Registrant's definitive proxy
statement for its 1999 annual meeting of shareholders is
incorporated herein by reference in response to this Item.
ITEM 11 - Security Ownership of Certain Beneficial
Owners and Management
The information contained in Registrant's definitive proxy
statement for its 1999 annual meeting of shareholders is
incorporated herein by reference in response to this Item.
ITEM 12 - Certain Relationships and Related
Transactions
The information contained in Registrant's definitive proxy
statement for its 1999 annual meeting of shareholders is
incorporated herein by reference in response to this Item.
<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.
10.6 The MidSouth Bancorp, Inc. 1997 Stock Incentive Plan is
included as a form of option agreement in Exhibit 4.5
to MidSouth's definitive proxy statement filed April 11,
1997 and is incorporated herein by reference.
10.7 The MidSouth Bancorp, Inc. Dividend Reinvestment and
Stock Purchase Plan is included as Exhibit 4.6 to
MidSouth Bancorp, Inc.'s Form S-3D filed on July 25,
1997 and is incorporated herein by reference.
10.8 Loan Agreements and Master Notes for lines of credit
established for MidSouth Bancorp, Inc. and Financial
Services of the South, Inc. are included as Exhibit
10.7 to MidSouth Bancorp, Inc.'s Form 10-QSB filed on
August 14, 1997 and is incorporated herein
by reference.
21 Subsidiaries of the Registrant
23 Independent Auditors' Consent
27 Financial Data Schedule
Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MIDSOUTH BANCORP, INC.
By: __________________________
C. R. Cloutier
President and Chief Executive
Officer
Dated: March 29, 1999
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below
by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
<S> <C> <C>
/s/ C. R. Cloutier President, Chief Executive March 29, 1999
C. R. Cloutier Officer and Director
/s/ Karen L. Hail Chief Financial Officer, March 29, 1999
Karen L. Hail Executive Vice President,
Secretary/Treasurer
and Director
/s/ Teri S. Stelly Chief Accounting Officer March 29, 1999
Teri S. Stelly
/s/ J. B. Hargroder, M.D. Director March 29, 1999
J. B. Hargroder, M.D.
/s/ William M. Simmons Director March 29, 1999
William M. Simmons
/s/ Will G. Charbonnet, Sr. Director March 29, 1999
Will G. Charbonnet, Sr.
/s/ Clayton Paul Hilliard Director March 29, 1999
Clayton Paul Hilliard
/s/ James R. Davis Director March 29, 1999
James R. Davis, Jr.
/s/ Milton B. Kidd, III Director March 29, 1999
Milton B. Kidd, III., O.D.
</TABLE>
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 February 12, 1999, appearing in this Annual
Report on Form 10-KSB of MidSouth Bancorp, Inc. for the year
ended December 31, 1998.
DELOITTE & TOUCHE, LLP
New Orleans, Louisiana
March 29, 1999
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