SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 2-91000-FW
MIDSOUTH BANCORP, INC.
(Exact name of registrant as specified in its charter)
Louisiana 72-1020809
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
102 Versailles Blvd., Lafayette, LA 70501
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (337) 237-8343
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $.10 par value American Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: none
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of Registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or
any amendment to this Form 10-KSB __X__
Total revenues for the year ended December 31, 2002 were
$24,337,946.
As of February 28, 2003, the aggregate market value of the
voting stock held by non-affiliates of the Registrant,
calculated by reference to the closing sale price of MidSouth's
common stock on the AMEX was $28,440,044. As of
February 28, 2003 there were outstanding 2,901,142 shares of
MidSouth Bancorp, Inc. common stock, $.10 par value, which
stock is the only class of the Registrant's common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for Annual Meeting of Shareholders to be
held May 27, 2003 - (Part III)
PART I
ITEM 1 - Business.
The Company
MidSouth Bancorp, Inc. ("MidSouth") is a
Louisiana corporation registered as a bank holding
company under the Bank Holding Company Act of
1956. Its operations are conducted through, and its
primary asset is, MidSouth Bank, N.A. (the
"Bank"), a wholly-owned subsidiary. MidSouth is
currently liquidating a second subsidiary, Financial
Services of the South, Inc. (the "Finance
Company"). MidSouth, the Bank and the Finance
Company are referred to collectively herein as "the
Company."
The Bank
The Bank is a national banking association
domiciled in Lafayette, Louisiana. The Bank
provides a broad range of commercial and retail
banking services primarily to professional,
commercial and industrial customers in its market
area. These services include, but are not limited to,
interest bearing and non-interest bearing checking
accounts, investment accounts, credit card services,
and loan products. The Bank is an U.S.
government depository and is also a member of the
Pulse network which provides its customers with
automatic teller machine services through the
GulfNet, Cirrus and Plus networks. Membership in
the Community Cash Network provides MidSouth's
customers with additional access throughout the
Greater New Orleans area with no surcharge. The
Bank operates at the nineteen locations described
below under "Item 2 - Properties."
Employees
As of December 31, 2002, the Bank employed
212 full-time equivalent
employees and the Finance Company had no
employees. MidSouth has no employees who are
not also employees of the Bank. Through the Bank,
employees receive employee benefits, which
include an employee stock ownership plan, a 401-K
plan and life, health and disability insurance plans.
MidSouth considers the relationships of the Bank
with their employees to be very good.
Competition
The Bank faces keen competition in its market
area not only with other commercial banks, but also
with savings and loan associations, credit unions,
finance companies, mortgage companies, leasing
companies, insurance companies, money market
mutual funds and brokerage houses. Several of the
banks in the Lafayette area are subsidiaries of
holding companies or branches of banks having far
greater resources than the Company.
Louisiana state banks may establish branch
offices statewide, and national banks domiciled in
Louisiana have the power to establish branches to
the full extent that Louisiana banks may establish
branches. Since 1989, Louisiana has allowed bank
holding companies domiciled in any state of the
United States to acquire Louisiana banks and bank
holding companies, if the state in which the bank
holding company is domiciled allows Louisiana
banks and bank holding companies the same
opportunities.
In 1994, the Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Act") was
enacted. Among other things, the Interstate Act (i)
allows bank holding companies to acquire a bank
located in any state, subject to certain limitations
that may be imposed by the state, (ii) allows banks
to merge across state lines, and (iii) permits banks
to establish branches outside their state of domicile
if expressly permitted by the law of the state in
which the branch is to be located. In 1995, the
Louisiana legislature enacted legislation permitting
out of state bank holding companies after June 1,
1997 to convert any banks owned in Louisiana into
branches of out of state banks owned by such
holding companies, subject to certain limitations.
Supervision and Regulation - Bank Holding Companies
General. As a bank holding company, MidSouth is
subject to the Bank Holding Company Act of 1956
(the "Act") and is supervised by the Board of
Governors of the Federal Reserve System (the
"Federal Reserve Board"). The Act requires
MidSouth to file periodic reports with the Federal
Reserve Board and subjects MidSouth to regulation
and examination by the Federal Reserve Board.
The Act also requires MidSouth to obtain the prior
approval of the Federal Reserve Board for
acquisitions of substantially all of the assets of any
bank or bank holding company or more than 5% of
the voting shares of any bank or bank holding
company. The Act prohibits MidSouth from
engaging in any business other than banking or
bank-related activities specifically allowed by the
Federal Reserve Board and from engaging in certain
tie-in arrangements in connection with any
extension of credit or provision of any property or
services.
Sarbanes-Oxley Act of 2002. Signed into law on
July 30, 2002, the Sarbanes-Oxley Act of 2002 (the
"Act") addresses many aspects of corporate
governance and financial accounting and disclosure.
Primarily, it provides a framework for the oversight
of public company auditing and for insuring the
independence of auditors and audit committees.
Under the Act, audit committees are responsible for
the appointment, compensation and oversight of the
work of external and internal auditors. The Act also
provides for enhanced and accelerated financial
disclosures and establishes certification
requirements for a company's chief executive and
chief financial officers and imposes new restrictions
on and accelerated reporting of certain insider
trading activities. Significant penalties for fraud
and other violations are included in the Act.
Gramm-Leach-Bliley Act. This financial services
reform legislation proves for three basic changes:
1) repeal of certain provisions of the Glass Steagall
Act to permit commercial banks to affiliate with
investment banks, 2) modification of the Bank
Holding Company Act of 1956 to permit companies
that own commercial banks to engage in any type of
financial activity, and 3) allows subsidiaries of
banks to engage in a broad range of financial
activities beyond those permitted for banks
themselves. As a result, banks, securities firms, and
insurance companies will be able to combine much
more readily. The legislation also includes
important provisions regarding privacy of customer
information; increased access to the Federal Home
Loan Bank System by community banks; and
significant changes to the requirements of the
Community Reinvestment Act.
Under provisions of the legislation, two new types
of regulated entities are authorized to engage in a
broad range of financial activities much more
extensive that those of standard holding companies.
A "financial holding company" can engage in all
newly-authorized activities and is simply a bank
holding company whose depository institutions are
well-capitalized, well-managed, and has a CRA
rating of "satisfactory" or better. A "financial
subsidiary" is a direct subsidiary of a bank that
satisfies the same conditions as a `financial holding
company"plus several more. The "financial
subsidiary" can engage in most of the newly-
authorized activities, which are defined as
securities, insurance, merchant banking/equity
investment, "financial in nature," and
"complementary" activities.
The legislation also defines the concept of
"functional supervision", meaning similar activities
should be regulated by the same regulator, with the
Federal Reserve Board serving as an "umbrella"
supervisory authority over bank and financial
holding companies.
While this legislation created new opportunities for
the Company to offer expanded services to its
customer base in the future, the Company has not
yet determined the nature of the expanded services
or when the services will be offered.
Capital Adequacy Requirements. The Federal
Reserve Board monitors the capital adequacy of
bank holding companies through the use of a
combination of risk-based capital guidelines and
leverage ratios. Risk-based capital requirements are
intended to make regulatory capital more sensitive
to the risk profile of a company's assets. Certain
off-balance sheet items, such as letters of credit and
unused lines of credit, are also assigned risk-
weights and included in the risk-based capital
calculations. The guidelines require a minimum
ratio of total qualifying capital to total risk-
weighted assets of 8.0%, of which 4.0% must be in
the form of Tier 1 capital. At December 31, 2002,
the Company's ratios of Tier 1 and total capital to
risk-weighted assets were 12.57% and 13.71%,
respectively. MidSouth's leverage ratio (Tier 1
capital to total average adjusted assets) was 8.45%
at December 31, 2002. All three regulatory capital
ratios for the Company exceeded regulatory
minimums at December 31, 2002.
Supervision and Regulation - National Banks
General. As a national banking association, the
Bank is supervised and regulated by the Office of
the Comptroller of the Currency (its primary
regulatory authority), the Federal Reserve Board
and the Federal Insurance Deposit Corporation.
Under Section 23A of the Federal Reserve Act, the
Bank is restricted in extending credit to or making
investments in MidSouth and other affiliates
defined in that act. National banks are required by
the National Bank Act to adhere to branch banking
laws applicable to state banks in the states in which
they are located and are limited as to powers,
locations and other matters of applicable federal
law.
Capital Adequacy Requirements. A national bank is
subject to regulatory capital requirements
administered by the federal banking agencies.
Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly
discretionary, actions by regulators that, if
undertaken, could have a direct material effect on a
bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt
corrective action, a bank must meet specific capital
guidelines that involve quantitative measures of the
bank's assets, liabilities, and certain off-balance-
sheet items as calculated under regulatory
accounting practices. As of December 31, 2002, the
most recent notification from the FDIC categorized
the Bank as "well capitalized" under the regulatory
framework for prompt corrective action. To be
categorized as "well capitalized," the Bank must
maintain a minimum of total risk-based capital and
Tier 1 capital to risk-weighted assets of 10% and
6%, respectively, and a minimum leverage ratio of
5%. All three regulatory capital ratios for the Bank
exceeded these minimums at December 31, 2002.
Governmental Policies
The operations of financial institutions may be
affected by legislative changes and by the policies
of various regulatory authorities. In particular, bank
holding companies and their subsidiaries are
affected by the credit policies of the Federal
Reserve Board. An important function of the
Federal Reserve Board is to regulate the national
supply of bank credit. Among the instruments of
monetary policy used by the Federal Reserve Board
to implement its objectives are open market
operations in United States Government securities,
changes in the discount rate on bank borrowings
and changes in reserve requirements on bank
deposits. These policies have significant effects on
the overall growth and profitability of the loan,
investment and deposit portfolios. The general
effects of such policies upon future operations
cannot be accurately predicted.
ITEM 2 - Properties.
The Bank leases its principal executive and
administrative offices and principal banking facility
in Lafayette, Louisiana under a twenty-year lease
expiring December 31, 2011. The Bank has six
other banking offices in Lafayette, Louisiana, three
in New Iberia and one banking office in each of
Breaux Bridge, Cecilia, Jeanerette, Opelousas,
Morgan City, Jennings, Lake Charles, and Sulphur
Louisiana. Thirteen of these offices are owned and
five are leased. MidSouth also leases space for a
banking office opened in Thibodaux,
Louisiana during the fourth quarter of 1999.
ITEM 3 - Legal Proceedings.
The Bank has been named as a defendant in
various legal actions arising from normal business
activities in which damages of various amounts are
claimed. While the amount, if any, of ultimate
liability with respect to such matters cannot be
determined, management believes, after consulting
with legal counsel, that any such liability will not
have a material adverse effect on the Company's
consolidated financial position, results of operation,
or cash flows.
ITEM 4 - Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of
MidSouth's security holders in the fourth quarter of
2002.
Executive Officers of the Registrant
C. R. Cloutier, 55 - President, Chief Executive
Officer and Director of MidSouth and the Bank for
more that the past five years.
Karen L. Hail, 49 - Senior Executive Vice
President and Chief Operations Officer and Director
of the Bank, and Chief Financial Officer and
Secretary and Treasurer and Director of MidSouth
for more than the past five years.
Donald R. Landry, 46 - Senior Vice President
and Senior Loan Officer of the Bank for more than
the past five years and named Executive Vice
President in 2002.
Jennifer S. Fontenot, 48 - Senior Vice President
for more than the past five years and named
Chief Information Officer of the Bank in 2002.
Dwight Utz, 49 - Senior Vice President of Retail
Banking since 2001; prior to his employment at the
Bank, Mr. Utz was a Corporate Vice President for
PNC Bank Corporation in Pittsburgh, Pennsylvania.
Teri S. Stelly, 43 - Senior Vice President and
Controller of MidSouth for more than the past five
years and named Chief Financial Officer
of the Bank in 2002.
Christopher J. Levanti, 36 - Joined MidSouth as
Senior Vice President of Credit Administration in
2002; prior to his employment at the Bank, Mr.
Levanti was Senior Credit Manager at First Data
Merchant Services in Melville, New York.
David L. Majkowski, 52 - Vice President and
Loan review officer of the Bank since 1997; Loan
review officer of the Bank since 1995.
All executive officers of the Company are
appointed for one year terms expiring at the first
meeting of the Board of Directors after the annual
shareholders meeting next succeeding his or her
election and until his or her successor is elected and
qualified.
PART II
ITEM 5 - Market for Registrant's Common Stock and
Related Stockholder Matters.
As of December 31, 2002, there were 631
common shareholders of record. MidSouth's
Common Stock is listed on the American Stock
Exchange under the symbol "MSL." The high and
low sales prices for the past eight quarters are
provided in the Selected Quarterly Financial Data
tables included with this filing under Item 7 and is
incorporated herein by reference.
MidSouth has paid quarterly cash dividends of
$.05 per common share since 1998. It is the
intention of the Board of Directors of MidSouth to
continue paying quarterly dividends on the common
stock at a rate of $.05 per share. A Special
Dividend of $.05 per common share was paid in
addition to the regular $.05 dividend for the fourth
quarter of 2002. Restrictions on the Company's
ability to pay dividends is described in Item 7 below
under the heading "Liquidity - Dividends" and in
Note 13 of notes to the Company's consolidated
financial statements.
Details regarding the Company's stock option
plans are included in Note 12 of notes to the
Company's consolidated financial statements.
FIVE-YEAR SUMMARY OF SELECTED
CONSOLIDATED FINANCIAL DATA
Year Ended December 31,
_______________________________________________________________________
2002 2001 2000 1999 1998
___________ ___________ ___________ ___________ ___________
Gross interest income $24,125,789 $26,424,027 $24,449,115 $21,072,733 $18,755,764
Interest expense (6,709,231) (10,408,926) (9,787,165) (7,888,351) (6,931,556)
___________ ___________ ___________ ___________ ___________
Net interest income 17,416,558 16,015,101 14,661,950 13,184,382 11,824,208
Provision for loan losses (1,398,250) (2,176,224) (897,038) (906,950) (999,950)
Other operating income 6,921,388 5,432,859 4,582,995 3,980,496 3,486,937
Other expenses (17,082,360) (15,462,472) (14,501,566) (12,740,307) (11,023,245)
___________ ___________ ___________ ___________ ___________
Income before income taxes 5,857,336 3,809,264 3,846,341 3,517,621 3,287,950
Provision for income taxes (1,428,253) (866,105) (951,204) (867,417) (842,167)
___________ ___________ ___________ ___________ ___________
Net Income 4,429,083 2,943,159 2,895,137 2,650,204 2,445,783
Preferred stock dividend
requirement - (52,751) (246,024) (131,582) (148,971)
___________ ___________ ___________ ___________ ___________
Net income available to
common shareholders $4,429,083 $2,890,408 $2,649,113 $2,518,622 $2,296,812
=========== =========== =========== =========== ===========
Basic earnings per share $1.53 $1.08 $1.07 $1.03 $0.95
Diluted earnings per share $1.50 $1.00 $0.95 $0.90 $0.83
Total loans $227,052,226 $214,390,121 $204,584,860 $170,468,733 $155,477,263
Total assets 382,686,993 363,779,863 346,373,433 276,723,841 249,818,268
Total deposits 343,474,846 330,577,458 319,547,205 251,690,206 229,924,302
Cash dividends on common stock 725,286 547,966 501,443 492,415 434,334
Long-term obligations 7,568,030 8,431,000 4,650,968 3,459,097 3,503,668
Selected ratios:
Loans to assets 59.33% 58.93% 59.06% 61.60% 62.24%
Loans to deposits 66.10% 64.85% 64.02% 67.73% 67.62%
Deposits to assets 89.75% 90.87% 92.26% 90.95% 92.04%
Return on average assets 1.20% 0.85% 0.98% 0.97% 1.04%
Return on average common
equity 17.59% 14.04% 17.70% 17.45% 19.16%
A $107,250 charge resulting from the retirement of 11,000 shares
of MidSouth Bancorp, Inc. Series A Preferred Stock is included
in the amount recorded as preferred dividends for the year ended
December 31, 2000. On August 1, 2001, MidSouth completed the
redemption of its Series A Preferred Stock. Only 3,527 shares
had not been converted to MidSouth Common Stock as of
July 26, 2001, the final day for converting. The remaining
3,527 Preferred Shares were redeemed at a Redemption Price of
$14.33 per share.
On February 21, 2001, MidSouth completed the issuance of
$7,000,000 of junior subordinated debentures. For regulatory
puposes, these funds qualify as Tier 1 Capital. For financial
reporting purposes, these funds are included as a liability
under generally accepted accounting principles.
Return on average common equity is calculated before the effect
of the $107,250 charge related to the retirement of 11,000
shares of preferred stock for the year ended December 31, 2000.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
MidSouth Bancorp, Inc. ("MidSouth") is a one-bank holding
company that conducts substantially all of its business through
its wholly-owned subsidiary, MidSouth Bank, N. A. (the
"Bank"). A second subsidiary, Financial Services of the South,
Inc. (the "Finance Company") is in the process of liquidating its
loan portfolio by accepting payments on existing loans with no
new loans being made. Following is management's discussion
of factors that management believes are among those necessary
for an understanding of MidSouth's financial statements. The
discussion should be read in conjunction with MidSouth's
consolidated financial statements and the notes thereto
presented herein.
OVERVIEW
Net income for the year ended December 31, 2002 was
$4,429,083 compared to $2,943,159 for the year ended
December 31, 2001. Basic earnings per share were $1.53 and
$1.08 for the years ended December 31, 2002 and 2001,
respectively. Diluted earnings per share were $1.50 for the
year ended December 2002 compared to $1.00 for the year
ended December 2001. In year-to-date comparison, an
increase of $1,401,457 or 9% in net interest income and
$1,488,529 or 27% in non-interest income for the year 2002
were partially offset by a $1,619,888 or 10% increase in non-
interest expenses, primarily salaries and employee benefits,
occupancy, marketing, professional fees and data processing
expenses. In addition, a decrease in the loan loss provision of
$777,974 helped boost earnings for 2002. The decrease in the
provision for loan losses resulted primarily from a decrease in
net charge-offs for 2002 compared to 2001, which included a
$700,000 default and charge-off of one commercial loan in the
second quarter.
MidSouth's total consolidated assets increased $18.9 million or
5% from $363,779,863 at December 31, 2001 to
$382,686,993 at December 31, 2002. Total deposits
increased $12.9 million, from $330,577,458 at December 31,
2001 to $343,474,846 at December 31, 2002. Most of the
growth is attributed to the purchase of a second Morgan City
banking office in June of 2002.
Loans, net of Allowance for Loan Losses ("ALL"), increased
$12.5 million or 6%, from $211.7 million at December 31,
2001 to $224.2 million at December 31, 2002. Competition
for loans remained a challenge throughout 2002, with the low
interest rate environment prompting customer payouts and
refinancing. Nonperforming loans as a percentage of total loans
decreased from .36% or $768,753 at December of 2001 to
..31% or $710,546 at December of 2002. Loans past due 90
days and over also decreased slightly from $999,538 at
December 31, 2001 to $818,727 at December 31, 2002.
MidSouth's leverage ratio was 8.45% at December 31, 2002,
compared to 8.02% at December 31, 2001. Return on
average common equity was 17.59% for 2002 compared to
14.04% for 2001. Return on average assets was 1.20%
compared to .85% for the same periods, respectively.
EARNINGS ANALYSIS
Net Interest Income
The primary source of earnings for MidSouth is net interest
income, which is the difference between interest earned on
loans and investments and interest paid on deposits and other
liabilities. Changes in the volume and mix of earning assets and
interest-bearing liabilities combined with changes in market rates
of interest greatly affect net interest income. Tables 1 and 2
analyze the changes in net interest income for each of the three
years in the period ended December 31, 2002.
Net interest income increased $1,401,457 for 2002 over 2001
and $1,353,151 for 2001 over 2000. Net interest income
improved for 2002 primarily due to a decline in interest expense
combined with increased volumes in the loan and investment
portfolios. The increase in net interest income for 2001 resulted
primarily from comparable volume increases in both the loan
and investment portfolios. The effect of the increased volume of
earning assets on total interest income in 2001 was substantially
offset by declining yields on loans and investments. Average
loans as a percentage of average earnings assets decreased
from 69% in 2000 to 66% in both 2001 and 2002. Interest
income from loans, including loan fees, increased $1,098,157
from 2000 to 2001 and decreased $1,393,493 from 2001 to
2002. The decreased interest income in 2002 resulted from a
128 basis point decline in the average yield on loans, from
9.84% in 2001 to 8.56% in 2002. The effect of declining
yields was partially offset by an increase in average loan volume
of $14.9 million or 7% in 2002 and $24.5 million or 13% in
2001. Average yield on total loans decreased 71 basis points
in 2001. For the higher volume commercial loan portfolio,
average yields decreased from 9.97% in 2000 to 8.87% in
2001 and 8.21% in 2002. Average yields in the installment
loan portfolio rose from 12.45% in 2000 to 13.53% in 2001
before falling to 9.97% in 2002. Changes in the New York
prime lending rate combined with market competition and a
slowing economy impacted MidSouth's loan yields over the
past three years. After increasing 100 basis points in 2000, the
New York prime fell 475 basis points to 4.75% at December
31, 2001 and an additional 50 basis points to 4.25% at
December 31, 2002.
In 2002, businesses and consumers continued to exercise
caution with the slow economy, which translated into soft loan
demand in MidSouth's markets. Subsequently, MidSouth
faced the challenge of investing excess funds in investment
securities that yielded reasonable returns without taking on too
much risk. The average volume of investment securities
increased $9 million to $105 million in 2002 compared to $96
million in 2001. Average taxable equivalent yields on
investment securities decreased 91 basis points, from 6.24% in
2001 to 5.33% in 2002. The decrease in yield during 2002
offset the increase in volume and resulted in decreased interest
income from investment securities of $478,773 for the year.
The volume of federal funds sold decreased $4.9 million and the
average yield dropped 258 basis points to 1.50% for 2002,
resulting in a decrease in interest income from federal funds sold
of $425,972 for the year.
MidSouth's deposit mix improved during 2002, strengthening its
core deposit base with non-interest bearing deposits increasing
to 25% of average total deposits. Additionally, the mix of
average total interest-bearing deposits shifted to increase the
volume of NOW, money market and savings deposits (41% of
average total deposits) compared to certificates of deposit
(34% of average total deposits). These two categories of
interest-bearing deposits were 39% and 37% of average total
deposits, respectively, in 2001 and evenly matched at 38% of
average total deposits as of December 31, 2000.
Volume increases in interest-bearing deposits were offset by
significant rate decreases for the year ended December 31,
2002 and resulted in decreased interest expense of
$3,650,709 in 2002 compared to an increase of $349,744 in
2001. Average interest-bearing deposits increased $8.8 million
in 2002, $35.6 million in 2001 and $17.5 million in 2000. The
average rate paid on these deposits fell 161 basis points to
2.37% in 2002 from 3.98% in 2001 after rising 55 basis points
to 4.50% in 2000. In 2002, MidSouth had no borrowings
with the FHLB, except for overnight funds, while in 2001
advances averaged $172,000 at an average rate of 5.23%,
down from $2.9 million at an average rate of 6.72% during
2000.
In 2002, MidSouth's notes payable decreased to an average of
$.9 million from an average of $1.9 million at December 31,
2001 as the Finance Company continued to pay down its
borrowing with payments received on existing credits. In
February 2001, MidSouth issued $7,000,000 of junior
subordinated debentures. The debentures carry a fixed interest
rate of 10.20% and mature on February 22, 2031. MidSouth
paid off its line of credit with proceeds from the issuance of the
debentures. Accordingly, the average volume of notes payable
decreased from $3.9 million at December 31, 2000 to $1.9
million at December 31, 2001.
The volume increases in MidSouth's earning assets combined
with significant rate decreases on interest-bearing liabilities
resulted in net taxable-equivalent net yields on average earning
assets of 5.38% in 2002 as compared to 5.24% for 2001 and
5.66% for 2000.
Non-Interest Income
Excluding Securities Transactions. Service charges and
fees on deposit accounts represent the primary source of non-
interest income for MidSouth. Income from service charges
and fees on deposit accounts (including insufficient funds fees)
increased $1,173,355 in 2002 and $299,159 in 2001 primarily
due to an increase in the number of transaction accounts and the
volume of insufficient funds checks processed by MidSouth.
Non-interest income resulting from other charges and fees
increased $323,107 in 2002 as compared to $403,777 in
2001. An increase of $160,188 and $192,025 in income from
a third party mortgage program contributed to the increase in
other non-interest income for 2002 and 2001, respectively. An
increase in income on Visa debit cards and merchant programs
is included in the increase in other charges and fees, however
increased expenses on these programs partially offset the
benefit.
Securities Transactions. MidSouth had net gains on sales of
securities totaling $156,259 in 2002. Sales of $3.3 million in U.
S. Agency securities allowed MidSouth to improve the overall
yield on these securities as they neared maturity. In 2001, net
gains on the sales of securities totaled $188,883, resulting from
sales of $8.6 million in U.S. Treasury and Agency securities and
a Ford Motor Credit corporate bond that was sold due to
credit quality concerns.
Non-interest Expense
Total non-interest expense increased 11% from 2001 to 2002
and 7% from 2000 to 2001. MidSouth's growth and expansion
over the past three years resulted in increases primarily in
salaries and employee benefits, occupancy expenses, marketing
expenses, and data processing expenses. These increases
reflect MidSouth's long-term investment in staff development,
system upgrades, and market development.
In 2002, MidSouth focused on improving work-flow processes
and continued to strengthen risk management. Salaries and
employee benefits increased $893,120 or 11% as full-time
equivalent employees increased from 205 in 2001 to 212 in
2002. New hires for 2002 included the following management
level positions: a compliance officer, credit administrator,
marketing coordinator, and an information services analyst.
Benefit costs increased primarily due to the cost of group health
insurance, which increased $201,458 or 40% in 2002. In
2001, two internal staff auditors, a loan documentation officer
and an electronic banking associate were added to strengthen
MidSouth's operations and risk management functions. These
new positions contributed to the $470,188, or 7%, increase in
salaries and employee benefits for 2001.
Occupancy expenses increased $285,410 or 8% from 2001 to
2002 and $162,565 or 5% from 2000 to 2001 as a result of
increases in lease expense, property taxes, depreciation, and
maintenance expenses. Premises and equipment totaling
approximately $1,745,000 and $1,500,000 were added in
2002 and 2001, respectively. Additions in 2002 included
primarily leasehold improvements of new and existing leased
space at MidSouth's main office and Pinhook facility, and
improvements to the Breaux Bridge facility. Additions in 2001
included the new Jennings facility and renovations on the Cecilia
office.
Total other non-interest expense increased $531,358 or 11%,
from 2001 to 2002 and $328,153 or 7% from 2000 to 2001.
Non-interest expense increased in 2002 primarily due to
increased professional fees, which included $179,000 on
consulting fees for a processes and work-flow review and
$50,000 in recruiting expenses for higher management level
positions. In addition, marketing expenses were higher in 2002
due to an increase in advertisement and specific market
promotions. Other increases were realized in printing and
supplies, postage and telephone expenses. Included in the
increase for 2001 is an $80,728 increase in professional fees,
which include consulting costs, and $60,154 in the VISA debit
and credit card programs and ATM processing. Additional
increases were realized in agent commission expense
(associated with the insurance premium financing loan program),
directors fees, travel expenses and postage.
Income Taxes
MidSouth's tax expense increased by $562,148 and
approximated 24% of income before income taxes. Increased
interest income on non-taxable municipal securities further
reduced 2002 taxes from the expected statutory rate of 34%.
Interest income on non-taxable municipal securities also
lowered the effective tax rate for 2001 to approximately 23%.
Notes 1 and 9 to MidSouth's Consolidated Financial
Statements provide additional information regarding MidSouth's
income tax considerations.
BALANCE SHEET ANALYSIS
Securities
Total investment securities increased $13.6 million, from $99.4
million in 2001 to $113.0 million in 2002. Average duration of
the portfolio was 2.75 years as of December 31, 2002 and the
average taxable-equivalent yield was 5.33%. Cash flows from
maturities and paydowns within the portfolio were reinvested
primarily in government agency securities and municipal
securities. Slow demand for loans necessitated placement of
excess funds in securities and federal funds sold. A favorable
increase in the market value of securities available-for-sale is
included in the net change in 2002. Unrealized net gains in the
securities available-for-sale portfolio were $1,820,250 at
December 31, 2002, compared to unrealized net gains of
$727,462 at December 31, 2001. These amounts result from
interest rate fluctuations and do not represent permanent
adjustments of value. Moreover, classification of securities as
available-for-sale does not necessarily indicate that the
securities will be sold prior to maturity.
At December 31, 2002, approximately 31% of MidSouth's
securities available-for-sale portfolio represented mortgage-
backed securities and 19% represented collateralized mortgage
obligations ("CMO's"). MidSouth monitors the risks due to
changes in interest rates on mortgage-backed pools by monthly
reviews of prepayment speeds, duration, and purchase yields as
compared to current market yields on each security. The
majority of the CMO's represent FNMA and FHLMC
REMIC pools which each had a book value of less than 10%
of stockholders' equity at December 31, 2002. All CMO's
held by MidSouth are AAA rated and not considered "high-
risk" securities under the Federal Financial Institutions
Examination Council ("FFIEC") tests. MidSouth does not own
any "high-risk" securities as defined by the FFIEC. An
additional 18% of the available-for-sale portfolio consisted of
U. S. Agency securities, while municipal and other securities
represented 32% of the portfolio. A detailed credit analysis
was performed on each municipal offering by an investment
advisory firm prior to purchase. In addition, MidSouth limits
the amount of securities of any one municipality purchased and
the amount purchased within specific geographic regions to
reduce the risk of loss within the non-taxable municipal
securities portfolio.
The held-to-maturity portfolio remained constant with $22.4
million in non-taxable and $1.0 million in taxable municipal
securities. Municipals purchased during 2002 were placed in
the available-for-sale portfolio.
Loan Portfolio
Loan growth continued to be challenging in 2002 after slowing
in 2001, with $12.7 million added to the portfolio compared to
$9.8 million added during 2001. MidSouth's loan portfolio
totaled $227.1 million at December 31, 2002 compared to
$214.4 million at December 31, 2001. Of the $12.7 million
increase in loans in 2002, $5.4 million were acquired through
the purchase of a second Morgan City banking office in June
2002. Weak loan demand from a soft economy compounded
by a competitive rate environment and payouts caused
MidSouth to fall short of budgeted loan growth in both 2002
and 2001. The majority of the $12.7 million growth in 2002
continued to be in the real estate portfolio, with a slight increase
in commercial loans and a slight decline in the installment
portfolio. In 2001, the majority of the $9.8 million growth in
was also in the real estate portfolio, while the commercial
portfolio decreased slightly and the installment portfolio
remained constant. The real estate loan growth in 2002 and
2001 consisted of both commercial and consumer credits that
call for ten to fifteen year amortization terms with rates fixed for
three to five years. The short-term structure of these credits
allows management greater flexibility in controlling interest rate
risk.
MidSouth has maintained its credit policy and underwriting
procedures and has not relaxed these procedures to stimulate
loan growth. Completed loan applications, credit bureau
reports, financial statements and a committee approval process
remain a part of credit decisions. Documentation of the loan
decision process is required on each credit application, whether
approved or denied, to insure thorough and consistent
procedures.
Asset Quality
Credit Risk Management. MidSouth manages its credit risk
by diversifying its loan portfolio, determining that borrowers
have adequate cash flows for loan repayment, obtaining and
monitoring collateral and continuously reviewing outstanding
loans. The risk management program requires that each
individual loan officer review his or her portfolio on a quarterly
basis and recommend credit gradings on each loan. The senior
loan officer and loan review officer review the gradings. In
addition, the loan review officer performs an independent
evaluation annually of each commercial loan officer's portfolio
and a random sampling of credits in MidSouth's installment loan
portfolio.
Nonperforming Assets. Table 3 contains information about
MidSouth's nonperforming assets and loans past due 90 days
or more and still accruing.
Nonperforming assets totaled $930,408 at December 31,
2002, $1,128,089 at December 31, 2001 compared to
$605,772 at December 31, 2000. The decrease in
nonperforming assets in 2002 resulted primarily from the sale of
other real estate owned. The increase in 2001 was primarily
due to the addition of three large commercial credits. Specific
allocations had been made within the ALL for possible losses
on these credits. Loans past due 90 days and still accruing
totaled $818,727 at December 31, 2002 compared to
$999,538 at December 31, 2001 and $967,721 at December
31, 2000. The percentage of these past due loans to total loans
was .36% at year-end 2002, compared to .47% for both year-
end 2001 and year-end 2000. Of the $818,727 in 90 days past
due loans still accruing for December 31, 2002, $177,700 was
reported past due by the Finance Company.
Loans to commercial borrowers are placed on nonaccrual when
principal or interest is 90 days past due, or sooner if the full
collectability of principal or interest is doubtful, except if the
underlying collateral supports both the principal and accrued
interest and the loan is in the process of collection. Retail loans
that are not placed on nonaccrual but that become 120 days
past due are routinely charged off. Loans classified for
regulatory purposes but not included in Table 3 do not
represent material credits about which management has serious
doubts as to the ability of the borrower to comply with the loan
repayment terms.
Allowance for Loan Losses. Provisions totaling $1,398,250,
$2,176,224, and $897,038 for the years 2002, 2001 and
2000, respectively, were necessary to bring the allowance to a
level considered by management to be sufficient to cover
probable losses in the loan portfolio. Table 4 analyzes activity
in the allowance for 2002 and 2001.
The allowance is comprised of specific reserves (assigned to
each loan that is impaired or for which probable loss has been
identified) and an unallocated reserve. Specific reserves within
the allowance are allocated to loans on a nonaccrual status for
which the underlying collateral value is insufficient to cover the
principal remaining on the loan. Factors contributing to the
assignment of specific reserves include the financial condition of
the borrower, changes in the value of collateral and economic
conditions. A portion of the unallocated reserve is assigned to
accruing loans that are classified for regulatory purposes. The
remainder of the allowance represents a percentage of all other
credits based on gradings assigned in the loan review process.
Quarterly evaluations of the allowance are performed in
accordance with accounting principles generally accepted in the
Unites States of America and Section 217 of the OCC's manual.
Factors considered in determining provisions
include estimated losses in significant credits; known
deterioration in concentrations of credit; historical loss
experience; trends in nonperforming assets; volume, maturity
and composition of the loan portfolio; off balance sheet credit
risk; lending policies and control systems; national and local
economic conditions; the experience, ability and depth of
lending management and the results of examinations of the loan
portfolio by regulatory agencies and others. The process by
which management determines the appropriate level of the
allowance, and the corresponding provision for possible credit
losses, involves considerable judgment; therefore, no assurance
can be given that future losses will not vary from current
estimates.
Sources of Funds
Deposits. As of December 31, 2002, total deposits increased
$12.9 million to $343.5 million, up from $330.6 million at
December 31, 2001. Contributing to the change in total
deposits for 2002 is the addition of $12.1 million in deposits
from the purchase of a second banking office in Morgan City in
June 2002. MidSouth's focus in 2002 was to deepen existing
deposit relationships with an emphasis on core deposits. Core
deposits, defined as all deposits other than certificates of
deposit ("CD's") of $100,000 or more increased to 87% at
year-end 2002 as compared to 86% of total deposits at year-
end 2001. Non-interest bearing deposits also increased in
2002 to 27% versus 26% of total deposits at December 31,
2001. CD's of $100,000 or more totaled $45.1 million at
December 31, 2002, a decrease of $.9 million from the $46.0
million reported at year-end 2001.
MidSouth's deposit rates are competitive within its market and
MidSouth has no brokered deposits. Although time deposits of
$100,000 can exhibit greater volatility due to changes in interest
rates and other factors than do core deposits, management
believes that any volatility experienced could be adequately met
with current levels of asset liquidity or access to alternate
funding sources. Additional information on MidSouth's deposits
appears in Note 7 to MidSouth's Consolidated Financial
Statements.
Borrowed Funds. At December 31, 2002, a note payable of
$568,030 to a financial institution represented the balance of a
loan established by Financial Services of the South, Inc. in the
amount of $700,030 dated December 12, 2002. Proceeds
from the note were used to payout the balance of a $1,099,000
loan issued April 30, 2002. The loan bears a variable rate equal
to the commercial prime rate as quoted in the "Money Rates"
section of the Wall Street Journal plus twenty-five basis points
(0.25%). At December 31, 2002, the effective rate was
4.50%. Interest on this note is payable monthly, with principal
due at maturity on December 12, 2003. Advances under the
original Line of Credit totaled $1,431,000 at December 31,
2001 and the effective rate was 5.00%.
On February 22, 2001, MidSouth issued $7,000,000 in junior
subordinated debentures. These debentures qualify as Tier 1
capital and are presented in the Consolidated Statements of
Condition as "Junior Subordinated Debentures." These
debentures bear interest at a rate of 10.20% and mature on
February 22, 2031. Additional information regarding long-term
debt is provided in Note 8 to MidSouth's Consolidated
Financial Statements.
The ESOP note held by the Bank was refinanced in the amount
of $150,000 on March 11, 1997 at a fixed rate of 7.00%
payable in monthly installments of $2,264 with payment in full
due on March 10, 2004. A second note was financed on May
11, 2000 in the amount of $130,656 at a fixed rate of 8.00%
payable in monthly installments of $1,701 with payment in full
due on May 10, 2009. The ESOP obligation constitutes a
reduction of MidSouth's stockholders' equity because the
primary source of loan repayment is contributions by the Bank
to the ESOP; however, the loan is not guaranteed by MidSouth
Bank or MidSouth. The ESOP note is eliminated from total
loans and long-term debt as an intercompany balance in
MidSouth's December 31, 2002 and 2001 consolidated
financial statements.
Capital. MidSouth and the Bank are required to maintain
certain minimum capital levels. Risk-based capital requirements
are intended to make regulatory capital more sensitive to the
risk profile of an institution's assets. At December 31, 2002,
MidSouth and the Bank were in compliance with statutory
minimum capital requirements. Minimum capital requirements
include a total risk-based capital ratio of 8.0%, with Tier 1
capital not less than 4.0%, and a leverage ratio (Tier 1 to total
average adjusted assets) of 4.0% based upon the regulators
latest composite rating of the institution. As of December 31,
2002, MidSouth's Tier 1 capital to average adjusted assets (the
"leverage ratio") was 8.45% as compared to 8.02% at
December 31, 2001. Tier 1 capital to risk weighted assets was
12.57% and 12.06% for 2002 and 2001, respectively. Total
capital to risk weighted assets was 13.71% and 13.20%,
respectively, for the same periods. The increased capital ratios
resulted primarily from the issuance of $7,000,000 of junior
subordinated debentures by MidSouth in February 2001. For
regulatory purposes, these funds qualify as Tier 1 Capital. For
financial reporting purposes, these funds are included as a
liability under generally accepted accounting principles. The
Bank's leverage ratio was 7.87% at December 31, 2002
compared to 7.41% at December 31, 2001.
The Federal Deposit Insurance Corporation Improvement Act
of 1991 established a capital-based supervisory system for all
insured depository institutions that imposes increasing
restrictions on the institution as its capital deteriorates. The
Bank continued to be classified as "well capitalized" throughout
the three years ended December 31, 2002. No significant
restrictions are placed on the Bank as a result of this
classification.
As discussed under the heading "Balance Sheet Analysis -
Securities," $1,820,250 in unrealized gains on securities
available-for-sale less a deferred tax liability of $628,750 was
recorded as an addition to stockholders' equity as of December
31, 2002. As of December 31, 2001, $727,462 in unrealized
gains on securities available-for-sale, less a deferred tax liability
of $257,500, was recorded as an addition to stockholders'
equity. While the net unrealized gain or loss on securities
available for sale is required to be reported as a separate
component of stockholders' equity, it does not affect operating
results or regulatory capital ratios. The net unrealized gains
reported for December 31, 2002 and 2001 did, however,
effect MidSouth's equity to assets ratio for financial reporting
purposes. The ratio of equity to assets was 7.09% at
December 31, 2002 and 6.22% at December 31, 2001.
Interest Rate Sensitivity. Interest rate sensitivity is the
sensitivity of net interest income and economic value of equity to
changes in market rates of interest. The initial step in the
process of monitoring MidSouth's interest rate sensitivity
involves the preparation of a basic gap analysis of earning assets
and interest-bearing liabilities. The analysis presents differences
in the repricing and maturity characteristics of earning assets and
interest-bearing liabilities for selected time periods.
During 2002, MidSouth utilized the Sendero model of asset and
liability management. The Sendero model uses basic gap data
and additional information regarding rates and prepayment
characteristics to construct a gap analysis that factors in
repricing characteristics and cash flows from payments received
on loans and mortgage-backed securities. The resulting
Sendero gap analysis is presented in Table 5. The cumulative
gap at one year is approximately $77,853,000, or 20.34% of
total assets at December 31, 2002. Although the 20.34% ratio
is above internal policy guidelines of + or - 15% of total assets,
management feels the degree of asset sensitivity does not
present undue risk to earnings given the current rate
environment.
With the exception of NOW, money market and savings
deposits, the table presents interest-bearing liabilities on a
contractual basis. While NOW, money market and savings
deposits are contractually due on demand, historically,
MidSouth has experienced stability in these deposits despite
changes in market rates. Presentation of these deposits in the
table, therefore, reflects delayed repricing throughout the time
horizon.
The Sendero model also uses the gap analysis data in Table 5
and additional information regarding rates and payment
characteristics to perform three simulation tests. The tests use
market data to perform rate shock, rate cycle and rate forecast
simulations to measure the impact of changes in interest rates,
the yield curve and interest rate forecasts on MidSouth's net
interest income and economic value of equity. Results of the
simulations at December 31, 2002 were within policy
guidelines. The results of the simulations are reviewed quarterly
and discussed at MidSouth's Funds Management committee
meetings.
MidSouth does not invest in derivatives and has none in its
securities portfolio.
Liquidity
Bank Liquidity. Liquidity is the availability of funds to meet
contractual obligations as they become due and to fund
operations. The Bank's primary liquidity needs involve its ability
to accommodate customers' demands for deposit withdrawals
as well as their requests for credit. Liquidity is deemed
adequate when sufficient cash to meet these needs can be
promptly raised at a reasonable cost to the Bank.
Liquidity is provided primarily by three sources: a stable base
of funding sources, an adequate level of assets that can be
readily converted into cash, and borrowing lines with
correspondent banks. MidSouth's core deposits are its most
stable and important source of funding. Further, the low
variability of the core deposit base lessens the need for liquidity.
Cash deposits at other banks, federal funds sold and principal
payments received on loans and mortgage-backed securities
provide additional primary sources of asset liquidity for the
Bank. Approximately $18.7 million in projected cash flows
from securities during 2003 provides an additional source of
liquidity. MidSouth also has borrowing lines with three
correspondent banks, including significant borrowing capacity
with the FHLB of Dallas, Texas.
Parent Company Liquidity. At the parent company level,
cash is needed primarily to meet interest payments on the junior
subordinated debentures and pay dividends on common stock.
The parent company issued $7,000,000 in junior subordinated
debentures in February 2001, the terms of which are described
in Note 8 to MidSouth's Consolidated Financial Statements.
As of December 31, 2002, MidSouth had $2.4 million in
interest-bearing balances remaining of proceeds from the
issuance of the debentures. Dividends from the Bank totaling
$1,200,000 and $200,000 provided additional liquidity for the
parent company in 2002 and 2001, respectively. As of January
1, 2003, the Bank had the ability to pay dividends to the parent
company of approximately $7 million without prior approval
from its primary regulator. As a publicly traded company,
MidSouth also has the ability to issue additional trust preferred
and other securities instruments to provide funds as needed for
operations and future growth of the company.
Dividends. The primary source of cash dividends on
MidSouth's common stock is cash on hand remaining from the
issuance of junior subordinated debentures and dividends from
the Bank. The Bank has the ability to declare dividends to the
parent company without prior approval of its primary regulator.
However, the Bank's ability to pay dividends would be
prohibited if the result would cause the Bank's regulatory capital
to fall below minimum requirements.
Cash dividends totaling $725,286 and $547,966 were declared
to common stockholders during 2002 and 2001, respectively.
It is the intention of the Board of Directors of MidSouth to
continue to pay quarterly dividends on the common stock at the
rate of $.05 per share. A Special Dividend of $.05 per share
was paid in addition to the regular $.05 per share dividend for
the fourth quarter of 2002 to shareholders of record on
December 12, 2002. On August 1, 2001, MidSouth
completed the redemption of its Series A Preferred Stock.
Only 3,527 shares had not been converted to MidSouth
Common Stock as of the final day for converting. The
remaining 3,527 Preferred Shares were redeemed at a
Redemption Price of $14.33 per share. Additional information
regarding MidSouth's Preferred Stock is included in Note 13 to
MidSouth's Consolidated Financial Statements.
Forward Looking Statements
The Private Securities Litigation Act of 1995 provides a safe
harbor for disclosure of information about a company's
anticipated future financial performance. This act protects a
company from unwarranted litigation if actual results differ from
management expectations. This management's discussion and
analysis reflects management's current views and estimates of
future economic circumstances, industry conditions, MidSouth's
performance and financial results. A number of factors and
uncertainties could cause actual results to differ from the
anticipated results and expectations expressed in the discussion.
Table 1
Consolidated Average Balances, Interest and Rates
Taxable-equivalent basis (2) Year Ended December 31,
(in thousands)
2002 2001 2000
___________________________________________________________________________________________
Average Average Average Average Average Average
Volume Interest Yield/Rate Volume Interest Yield/Rate Volume Interest Yield/Rate
___________________________________________________________________________________________
ASSETS
Interest Bearing Deposits $115 $3 2.61% $217 $13 5.99% $258 $20 7.75%
Investment Securities
Taxable 65,479 3,090 4.72% 65,481 3,795 5.80% 54,295 3,426 6.31%
Tax Exempt 39,379 2,505 6.36% 30,259 2,179 7.20% 24,295 1,766 7.27%
_________________ _________________ _________________
Total Investments 104,973 5,598 5.33% 95,957 5,987 6.24% 78,848 5,212 6.61%
Federal Funds Sold and Securities
Purchased Under
Agreements to Resell 8,974 135 1.50% 13,845 565 4.08% 5,352 331 6.18%
Loans
Commercial and Real
Estate 179,499 14,739 8.21% 165,420 14,668 8.87% 141,340 14,092 9.97%
Installment 44,205 4,407 9.97% 43,378 5,871 13.53% 42,961 5,349 12.45%
_________________ _________________ _________________
Total Loans 223,704 19,146 8.56% 208,798 20,539 9.84% 184,301 19,441 10.55%
Total Earning Assets 337,651 24,879 7.37% 318,600 27,091 8.50% 268,501 24,984 9.30%
Allowance for Loan Losses (2,714) (2,404) (2,022)
Nonearning Assets 32,055 31,618 28,315
________ ________ ________
Total Assets $366,992 $347,814 $294,794
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
NOW, Money Market,
and Savings $134,502 $1,706 1.27% $122,562 $2,992 2.44% $102,709 $3,510 3.42%
Certificates of
Deposits 114,002 4,174 3.66% 117,163 6,539 5.58% 101,446 5,671 5.59%
_________________ _________________ _________________
Total Interest Bearing Deposits 248,504 5,880 2.37% 239,725 9,531 3.98% 204,155 9,181 4.50%
Federal Funds Purchased and
Securities Sold Under Agreements
to Repurchase 3,469 56 1.61% 1,601 71 4.43% 1,155 63 5.45%
FHLB Advances - - 172 9 5.23% 2,915 196 6.72%
Notes Payable 946 59 6.24% 1,860 177 9.52% 3,898 347 8.90%
Junior Subordinated Debentures 7,000 714 10.20% 6,073 621 10.20% - -
_________________ _________________ _________________
Total Interest Bearing Liabilities 259,919 6,709 2.58% 249,431 10,409 4.17% 212,123 9,787 4.61%
Demand Deposits 81,625 74,733 63,713
Other Liabilities 1,513 1,983 1,369
Stockholders' Equity 23,935 21,667 17,589
________ ________ ________
Total Liabilites and
Stockholders' Equity $366,992 $347,814 $294,794
======== ======== ========
NET INTEREST INCOME AND NET
INTEREST SPREAD $18,170 4.79% $16,682 4.33% $15,197 4.69%
======= ======= =======
NET YIELD ON EARNING ASSETS 5.38% 5.24% 5.66%
Securities classified as available-for-sale are included in average Interest income includes loan fees of
and interest income figures reflect interest earned on such $1,486,000 for 2002, $1,406,000 for 2001,
securities. and $1,276,000 for 2000. Nonaccrual loans
are included in average balances
Interest income of $754,000 for 2002, $667,000 for 2001, and and income on such loans is recognized on
$535,000 for 2000 is added to interest earned on tax-exempt a cash basis.
is added to interest earned on tax-exempt obligations to reflect
tax equivalent yields using a 34% tax rate.
Table 2
Changes in Taxable-Equivalent Net Interest Income
(in thousands)
2002 Compared to 2001 2001 Compared to 2000
________________________________________ ________________________________________
Total Total
Increase Change Attributable To Increase Change Attributable To
(Decrease) Volume Rates (Decrease) Volume Rates
________________________________________ ________________________________________
Taxable-equivalent interest earned on:
Interest Bearing Deposits ($10) ($5) ($5) ($7) ($3) ($4)
Investment Securities
Taxable (705) - (705) 369 611 (242)
Tax Exempt 326 532 (206) 413 429 (16)
Federal Funds Sold and Securities
Purchased Under Agreement to Resell (430) (154) (276) 234 298 (64)
Loans, including fees (1,393) 1,699 (3,092) 1,098 2,230 (1,132)
_______ ________ ______ _______ _________ ______
TOTAL (2,212) 2,072 (4,284) 2,107 3,565 (1,458)
_______ ________ ______ _______ _________ ______
Interest Paid On:
Interest Bearing Deposits (3,651) 363 (4,014) 350 1,046 (696)
Federal Funds Purchased and Securities
Sold Under Agreement to Repurchase (15) 93 (108) 8 16 (8)
FHLB Advances (9) (9) - (187) (151) (36)
Notes Payable (118) (69) (49) (170) (196) 26
Junior Subordinated Debentures 93 93 - 621 621 -
_______ ________ ______ _______ _________ ______
TOTAL (3,700) 471 (4,171) 622 1,336 (714)
_______ ________ ______ _______ _________ ______
Taxable-equivalent net interest income $1,488 $1,601 ($113) $1,485 $2,229 ($744)
======= ======== ====== ======= ========= ======
NOTE: Changes due to both volume and rate has generally been allocated to volume and
rate changes in proportion to the relationship of the absolute dollar amounts
to the changes in each.
TABLE 3
Nonperforming Assets and
Loans Past Due 90 Days
___________________________________________________________________________
December 31, December 31, December 31,
2002 2001 2000
___________________________________________________________________________
Nonperforming loans $710,546 $768,753 $159,726
Other real estate owned, net 174,800 359,336 446,046
Other assets repossessed 45,062 - -
_________ __________ _________
Total nonperforming assets $930,408 $1,128,089 $605,772
========= ========== =========
Loans past due 90 days
or more and still accruing $818,727 $999,538 $967,721
Nonperforming loans as a
% of total loans 0.31% 0.36% 0.08%
Nonperforming assets as a
% of total loans, other real
estate owned and other assets
repossessed 0.41% 0.53% 0.30%
Allowance for loan losses
as a % of nonperforming asse 310.76% 239.79% 375.75%
__________________________________________________________________________
TABLE 4 - Summary of Loan Loss Experience
(in thousands)
2002 2001
______ ______
BALANCE AT BEGINNING OF YEAR $2,705 $2,276
CHARGE-OFFS
Commercial, Financial and Agricultural 632 1,032
Real Estate - Construction - -
Real Estate - Mortgage 30 62
Installment Loans to Individuals 628 760
Lease Financing Receivables 74 6
Other - 53
______ ______
Total Charge-offs 1,364 1,913
______ ______
RECOVERIES
Commercial, Financial and Agricultural 37 19
Real Estate - Construction - -
Real Estate - Mortgage - -
Installment Loans to Individuals 115 143
Lease Financing Receivables - -
Other - 4
______ ______
Total Recoveries 152 166
______ ______
Net Charge-offs 1,212 1,747
Additions to allowance charged to
operating expenses 1,398 2,176
______ ______
BALANCE AT END OF YEAR $2,891 $2,705
====== ======
Net charge-offs to average loans 0.54% 0.84%
Year-end allowance to year-end loans 1.27% 1.26%
Refer to "Balance Sheet Analysis - Asset Quality - Allowance for
Loan Losses" for a description of the factors which influence
management's judgement in determining the amount of
the provisions to the allowance.
% of category % of category
Allowance for Loan Losses 2002 to total loans 2001 to total loans
________________________________________________________________________________________________
Commercial, Financial and Agricultural 209 33.42% 385 33.93%
Real Estate - Construction 3.70% 3.31%
Real Estate - Mortgage 48.22% 185 45.55%
Installment Loans to Individuals 18 13.11% 15 14.87%
Lease Financing Receivables 1.50% 2.20%
Other 0.05% 0.14%
Unallocated 2,664 2,120
_________________________________________________
$2,891 100.00% $2,705 100.00%
=================================================
Table 5
Interest Rate Sensitivity and Gap Analysis Table
December 31, 2002
(in thousands)
Non-interest
0-3 MOS 4-6 MOS 7-12 MOS 1-5 YRS > 5YRS Bearig Total
______________________________________________________________
ASSETS
Interest Bearing Deposits $2 $ - $ - $ - $ - $ - $2
Fed Funds Sold 9,400 9,400
Investments
Mutual Funds 971 971
Investment Securities 5,749 2,105 5,961 40,988 13,968 68,771
Mortgage-backed Securitie 12,375 8,339 10,647 11,693 178 43,232
Loans
Fixed Rate 55,434 24,125 34,962 57,215 1,308 173,044
Variable Rate 54,008 54,008
Other Assets 36,150 36,150
Allowance for Loan Losses (2,891) (2,891)
______________________________________________________________
Total Assets $137,939 $34,569 $51,570 $109,896 $15,454 $33,259 $382,687
==============================================================
LIABILITIES
NOW $4,602 $4,164 $7,176 $25,844 $6,523 $48,309
MMDA 9,436 9,980 15,449 34,966 2,331 72,162
Savings 1,750 1,689 2,911 10,484 2,647 19,481
CD'S 35,378 27,794 22,349 23,549 109,070
Demand Deposits 94,452 94,452
Other Liabilities 2,979 568 7,000 1,547 12,094
Stockholders' Equity 27,119 27,119
______________________________________________________________
Total Liabilities $54,145 $43,627 $48,453 $94,843 $18,501 $123,118 $382,687
==============================================================
Repricing/maturity gap:
Period $83,794 ($9,058) $3,117 $15,053 ($3,047)($89,859)
Cumulative $83,794 $74,736 $77,853 $92,906 $89,859
=====================================================
Cumualtive Gap/Total Assets 21.90% 19.53% 20.34% 24.28% 23.48%
____________________________________________
MIDSOUTH BANCORP, INC.
LOAN PORTFOLIO
LOAN MATURITIES AND SENSITIVITY TO INTEREST RATES
for the Year Ended December 31, 2002
(dollars in thousands)
Fixed and Variable Rate
Loans at Stated Maturities Amounts Over One Year With
_____________________________________________ _______________________________
1 Year 1 Year - Over Predetermined Floating
or Less 5 Years 5 Years Total Rates Rates Total
_____________________________________________ _______________________________
Commercial, Financial
Industrial, Commercial
Real Estate Mortgage
and Commercial Real
Estate - Construction $65,493 $79,168 $31,063 $175,724 $77,706 $32,525 $110,231
Installment Loans to
Individuals and Real
Estate Mortgage 12,599 33,383 1,844 $47,826 32,126 3,101 $35,227
Lease Financing
Receivables 373 3,026 - $3,399 3,026 - $3,026
Other 103 - - $103 - - -
_____________________________________________ ________________________________
TOTAL $78,568 $115,577 $32,907 $227,052 $112,858 $35,626 $148,484
============================================= ================================
MIDSOUTH BANCORP, INC.
SECURITIES PORTFOLIO
MATURITIES AND AVERAGE YIELDS
for the Year Ended December 31, 2002
(dollars in thousands)
After 1 but After 5 but
Within 1 Year Within 5 Years Within 10 Years After 10 Years
SECURITIES AVAILABLE FOR SALE Amount Yield Amount Yield Amount Yield Amount Yield Total
________________________________________________________________________________________
U.S. Treasury and U.S.
Government Agency securities - - $13,844 3.35% $2,109 1.95% - - $15,953
Obligations of State and
Political Subdivisions 5,963 1.98% 7,589 2.76% 6,633 4.07% 2,833 5.10% 23,018
Mortgage Backs and CMOs - 0.00% 851 4.37% 20,561 4.38% 22,569 5.28% 43,981
Corporates and other securities 2,056 5.38% 2,118 3.59% - - 1,479 3.84% 5,653
Mutual funds 971 3.03% - - - - - - 971
________________________________________________________________________________________
Total Fair Value $8,990 $24,402 $29,303 $26,881 $89,576
========================================================================================
After 1 but After 5 but
Within 1 Year Within 5 Years Within 10 Years After 10 Years
HELD TO MATURITY Amount Yield Amount Yield Amount Yield Amount Yield Total
________________________________________________________________________________________
Obligations of State and
Political Subdivisions $30 5.74% $6,349 5.25% $14,144 5.06% $2,875 5.26% $23,398
________________________________________________________________________________________
Total Amortized Cost $30 $6,349 $14,144 $2,875 $23,398
========================================================================================
MIDSOUTH BANCORP, INC.
SUMMARY OF
AVERAGE DEPOSITS
(in thousands)
2002 2001
AVERAGE AVERAGE AVERAGE AVERAGE
AMOUNT YIELD AMOUNT YIELD
_______ _______ _______ _______
Non-interest bearing $81,625 0.00% $74,732 0.00%
Demand Deposits
Interest bearing Deposits
Savings, NOW, MMKT 134,502 1.27% 122,562 2.44%
Time Deposits 114,002 3.66% 117,163 5.58%
________ ________
Total $330,129 1.78% $314,457 3.03%
======== ========
MATURITY SCHEDULE
TIME DEPOSITS OF
$100,000 OR MORE
(in thousands)
2002 2001
_______ ______
3 months or less $15,291 $18,083
3 months through 6 months 11,122 9,140
7 months through 12 months 9,048 14,872
over 12 months 9,656 3,983
_______ _______
Total $45,117 $46,078
======= =======
SUMMARY OF RETURN
ON EQUITY AND ASSETS
2002 2001
________ _______
Return on Average Assets 1.20% 0.85%
Return on Average Common Equity 17.59% 14.04%
Dividend Payout Ratio
on Common Stock 16.38% 18.96%
Average Equity to
Average Assets 6.52% 6.23%
MIDSOUTH BANCORP, INC.
AND SUBSIDIARIES
Consolidated Financial Statements for the
Years Ended December 31, 2002, 2001 and
2000 and Independent Auditors' Report
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
of MidSouth Bancorp, Inc.
Lafayette, Louisiana
We have audited the accompanying consolidated statements
of condition of MidSouth Bancorp, Inc. and its subsidiaries as
of December 31, 2002 and 2001, and the related consolidated
statements of income, comprehensive income, stockholders'
equity, and cash flows for each of the three years in the period
ended December 31, 2002. These financial statements are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing
standards generally accepted in the United States of America.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
MidSouth Bancorp, Inc. and subsidiaries at December 31,
2002 and 2001 and the results of their operations and their
cash flows for each of the three years in the period ended
December 31, 2002 in conformity with accounting principles
generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
February 7, 2003
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
DECEMBER 31, 2002 AND 2001
______________________________________________________________________________________________________
ASSETS 2002 2001
Cash and due from banks $ 18,066,035 $ 18,547,278
Federal funds sold 9,400,000 17,300,000
______________ ______________
Total cash and cash equivalents 27,466,035 35,847,278
Interest-bearing deposits in banks 1,694 109,206
Securities available-for-sale at fair value (amortized cost of
$87,755,455 in 2002 and $75,052,953 in 2001) 89,575,706 75,780,414
Securities held-to-maturity (estimated fair value of $25,660,511
in 2002 and $24,735,122 in 2001) 23,398,282 23,584,850
Loans, net of allowance for loan losses of $2,891,380 in 2002
and $2,705,058 in 2001 224,160,846 211,685,063
Accrued interest receivable 2,502,684 2,197,794
Premises and equipment, net 12,321,510 11,950,701
Other real estate owned, net 174,800 359,336
Goodwill, net 431,987 431,987
Other assets 2,653,449 1,833,234
______________ ______________
$ 382,686,993 $ 363,779,863
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 94,452,378 $ 91,145,842
Interest bearing 249,022,468 239,431,616
______________ ______________
Total deposits 343,474,846 330,577,458
Securities sold under repurchase agreements 2,978,860 663,079
Accrued interest payable 705,106 1,057,065
Notes payable 568,030 1,431,000
Junior subordinated debentures 7,000,000 7,000,000
Other liabilities 841,592 423,700
______________ ______________
Total liabilities 355,568,434 341,152,302
______________ ______________
Commitments and Contingencies - -
Stockholders' equity:
Common stock, $.10 par value, 5,000,000 shares authorized;
2,901,142 issued and outstanding at December 31, 2002 and 2001 290,114 290,114
Additional paid in capital 12,997,762 12,972,762
Unearned ESOP shares (108,975) (149,638)
Unrealized gains on securities available-for-sale,
net of deferred taxes 1,191,500 469,962
Retained earnings 12,748,158 9,044,361
______________ ______________
Total stockholders' equity 27,118,559 22,627,561
______________ ______________
$ 382,686,993 $ 363,779,863
============== ==============
See notes to consolidated financial statements.
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
_____________________________________________________________________________________________________________________
2002 2001 2000
INTEREST INCOME:
Loans, including fees $ 19,145,655 $ 20,539,148 $ 19,440,991
Securities:
Taxable 3,090,212 3,807,820 3,445,594
Nontaxable 1,750,885 1,512,050 1,231,074
Federal funds sold 139,037 565,009 331,456
_______________ _____________ _______________
Total interest income 24,125,789 26,424,027 24,449,115
_______________ _____________ _______________
INTEREST EXPENSE:
Deposits 5,880,034 9,530,743 9,180,999
Securities sold under repurchase agreements,
federal funds purchased and advances 62,270 73,703 259,399
Long-term debt 766,927 804,480 346,767
_______________ _____________ _______________
Total interest expense 6,709,231 10,408,926 9,787,165
_______________ _____________ _______________
NET INTEREST INCOME 17,416,558 16,015,101 14,661,950
PROVISION FOR LOAN LOSSES 1,398,250 2,176,224 897,038
_______________ _____________ _______________
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 16,018,308 13,838,877 13,764,912
_______________ _____________ _______________
NONINTEREST INCOME:
Service charges on deposit accounts 4,707,468 3,534,113 3,234,954
Gains on sale of securities, net 156,259 188,883 16,126
Credit life insurance 270,737 246,046 271,875
Other charges and fees 1,786,924 1,463,817 1,060,040
_______________ _____________ _______________
6,921,388 5,432,859 4,582,995
_______________ _____________ _______________
NONINTEREST EXPENSES:
Salaries and employee benefits 8,103,370 7,300,250 6,830,062
Occupancy expense 3,708,995 3,423,585 3,261,020
Other 5,269,995 4,738,637 4,410,484
_______________ _____________ _______________
17,082,360 15,462,472 14,501,566
_______________ _____________ _______________
INCOME BEFORE INCOME TAXES 5,857,336 3,809,264 3,846,341
PROVISION FOR INCOME TAXES 1,428,253 866,105 951,204
_______________ _____________ _______________
NET INCOME 4,429,083 2,943,159 2,895,137
PREFERRED DIVIDENDS AND OTHER - 52,751 246,024
_______________ _____________ _______________
NET INCOME AVAILABLE TO COMMON
STOCKHOLDERS $ 4,429,083 $ 2,890,408 $ 2,649,113
=============== ============= ===============
EARNINGS PER COMMON SHARE:
BASIC $1.53 $1.08 $1.07
===== ===== =====
DILUTED $1.50 $1.00 $ .95
===== ===== =====
See notes to consolidated financial statements.
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
_____________________________________________________________________________________________________________
2002 2001 2000
Net income $ 4,429,083 $ 2,943,159 $ 2,895,137
Other comprehensive income:
Unrealized gain on securities
available-for-sale, net:
Unrealized holding gains arising
during the year 824,669 509,425 1,044,273
Less reclassification adjustment for gains
included in net income (103,131) (124,663) (10,643)
____________ ______________ ______________
Total other comprehensive income 721,538 384,762 1,033,630
____________ ______________ ______________
TOTAL COMPREHENSIVE INCOME $ 5,150,621 $ 3,327,921 $ 3,928,767
============ ============== ==============
See notes to consolidated financial statements.
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements Of Stockholders' Equity
Years Ended December 31, 2002, 2001 and 2000
__________________________________________________________________________________________________________________________________
Unrealized
Gains (Losses)
Preferred Stock Common Stock Additional on Securities
___________________ ___________________ Paid in ESOP Available Retained
Shares Amount Shares Amount Capital Obligation for Sale Earnings Total
BALANCE, JANUARY 1, 2000 152,736 $2,176,488 2,481,843 $248,184 $10,983,714 ($89,044) ($948,430) $4,554,249 $16,925,161
Dividends on common stock -
$.20 per share - - - - - - - (501,443) (501,443)
Dividends on preferred stock - - - - - - - (138,774) (138,774)
Preferred stock conversion (11,116) (158,403) 33,323 3,333 155,070 - - - -
Redemption of preferred stock (11,000) (156,750) - - - - - (107,250) (264,000)
Excess of market value over
book value of ESOP shares
released - - - - 8,750 - - - 8,750
Net income - - - - - - - 2,895,137 2,895,137
ESOP new obligations, net - - - - - (96,083) - - (96,083)
Net change in unrealized gains
(losses) on securities
available-for-sale,
net of tax - - - - - - 1,033,630 - 1,033,630
_______ ________ ________ _______ __________ _______ _________ _________ _________
BALANCE, DECEMBER 31, 2000 130,620 1,861,335 2,515,166 251,517 11,147,534 (185,127) 85,200 6,701,919 19,862,378
Issuance of common stock - - 5,062 506 33,258 - - - 33,764
Dividends on common stock -
$.20 per share - - - - - - - (547,966) (547,966)
Dividends on preferred stock - - - - - - - (52,751) (52,751)
Preferred stock conversion (127,092) (1,811,061) 380,914 38,091 1,772,970 - - - -
Redemption of preferred stock (3,528) (50,274) - - - - - - (50,274)
Excess of market value over book
value of ESOP shares released - - - - 19,000 - - - 19,000
Net income - - - - - - - 2,943,159 2,943,159
ESOP obligation, repayments - - - - - 35,489 - - 35,489
Net change in unrealized gains
(losses) on securities
available-for-sale,
net of tax - - - - - - 384,762 - 384,762
_______ ________ ________ _______ __________ ________ _________ _________ _________
BALANCE, DECEMBER 31, 2001 - - 2,901,142 290,114 12,972,762 (149,638) 469,962 9,044,361 22,627,561
Dividends on common stock -
$.25 per share - - - - - - - (725,286) (725,286)
Excess of market value over book
value of ESOP shares released - - - - 25,000 - - - 25,000
Net income - - - - - - - 4,429,083 4,429,083
ESOP obligation, repayments - - - - - 40,663 - - 40,663
Net change in unrealized gains
(losses) on securities
available-for-sale,
net of tax - - - - - - 721,538 - 721,538
_______ ________ ________ _______ __________ ________ __________ ___________ __________
BALANCE, DECEMBER 31, 2002 - $ - 2,901,142 $290,114 $12,997,762 ($108,975) $1,191,500 $12,748,158 $27,118,559
======= ======== ========= ======== =========== ======== ========== =========== ==========
See notes to consolidated financial statements.
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
________________________________________________________________________________________________________
2002 2001 2000
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 4,429,083 $ 2,943,159 $ 2,895,137
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 1,365,708 1,310,180 1,371,272
Provision for loan losses 1,398,250 2,176,224 897,038
Provision for and losses on other real
estate owned 8,302 92,687 104,226
Deferred income taxes (benefit) 14,000 (70,000) (17,000)
Amortization of premiums on securities, net 517,083 204,538 80,327
Gain on sales of securities (156,259) (188,883) (16,126)
Change in accrued interest receivable (304,890) 167,556 (446,168)
Change in accrued interest payable (351,959) 49,763 292,131
Other, net (222,446) 61,530 (205,911)
___________ ____________ __________
Net cash provided by operating
activities 6,696,872 6,746,754 4,954,926
___________ ____________ __________
CASH FLOWS FROM INVESTING
ACTIVITIES:
Net decrease (increase) in interest-
bearing deposits in banks 107,512 (40,524) 287,442
Proceeds from sales of securities
available-for-sale 3,356,378 9,794,538 2,064,519
Proceeds from maturities and calls of
securities available-for-sale 40,838,882 28,736,270 14,949,666
Proceeds from maturities of securities
held-to-maturity 185,000 25,000 50,000
Purchases of securities available-for-sale (57,257,019) (59,776,682) (13,790,321)
Purchases of securities held-to-maturity - - (2,376,258)
Loan originations, net of repayments (8,460,365) (11,675,897) (34,881,779)
Purchases of premises and equipment (1,744,910) (1,506,020) (1,681,950)
Proceeds from sales of other real
estate owned 417,000 117,306 197,186
Net cash received from acquisition 5,882,448 - -
Other, net 1,509 8,533 -
___________ ____________ __________
Net cash used in investing activities (16,673,565) (34,317,476) (35,181,495)
___________ ____________ __________
(Continued)
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
____________________________________________________________________________________________________
2002 2001 2000
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net increase in deposits 722,867 11,030,253 67,856,999
Net increase (decrease) in repurchase agreement 2,315,781 (334,537) 391,015
Repayments of FHLB advances, net - (175,968) (3,000,000)
Issuance of notes payable 700,030 20,000 1,525,000
Proceeds from junior subordinated
debentures, net - 6,774,297 -
Repayments of notes payable (1,563,000) (3,064,000) (333,129)
Proceeds from issuance of common stock - 33,764 -
Payment of dividends on common and
preferred stock (580,228) (614,073) (638,468)
Redemption of preferred stock - (50,274) (264,000)
__________ __________ ___________
Net cash provided by financing activities 1,595,450 13,619,462 65,537,417
__________ __________ ___________
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (8,381,243) (13,951,260) 35,310,848
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 35,847,278 49,798,538 14,487,690
__________ __________ ___________
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 27,466,035 $ 35,847,278 $49,798,538
========== ========== ===========
SUPPLEMENTAL CASH FLOW
INFORMATION:
Interest paid $ 7,061,190 $ 10,359,163 $ 9,495,034
========== ========== ===========
Income taxes paid $ 1,550,000 $ 800,155 $ 985,408
========== ========== ===========
See notes to consolidated financial statements.
(Concluded)
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
_________________________________________________________
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of MidSouth
Bancorp, Inc. (the Company) and its wholly owned
subsidiaries MidSouth Bank, N.A. (the Bank) and Financial
Services of the South, Inc. (the Finance Company), have
been prepared in accordance with accounting principles
generally accepted in the United States of America and
conform with general practices within the banking industry.
A summary of significant accounting policies follows:
Description of Business - The Company is a bank holding
company headquartered in Lafayette, Louisiana operating
principally in the community banking business segment by
providing banking services to commercial and retail
customers through its wholly owned subsidiary, the Bank.
The Bank is community oriented and focuses primarily on
offering competitive commercial and consumer loan and
deposit services to individuals and small to middle market
businesses. The Company also provides consumer loan
services to individuals through the Finance Company.
Comprehensive Income - Comprehensive income includes
net income and other comprehensive income which, in the
case of the Company, includes only unrealized gains and
losses on securities available-for-sale.
Consolidation - The consolidated financial statements of
the Company include the accounts of the Company, the
Bank and the Finance Company. All significant
intercompany transactions and balances have been
eliminated.
Use of Estimates - The preparation of financial statements
in conformity with accounting principles generally
accepted in the United States of America requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, and
disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Securities - Securities are accounted for in accordance with
Statement of Financial Accounting Standards (SFAS) No.
115 "Accounting for Certain Investments in Debt and
Equity Securities". SFAS No. 115 requires the
classification of securities into one of three categories:
trading, available-for-sale, or held-to-maturity.
Management determines the appropriate classification of
debt securities at the time of purchase and re-evaluates this
classification periodically. Trading account securities are
held for resale in anticipation of short-term market
movements. Debt securities are classified as
held-to-maturity when the Company has the positive intent
and ability to hold the securities to maturity. Securities not
classified as held-to-maturity or trading are classified as
available-for-sale. The Company had no trading account
securities during the three years ended December 31, 2002.
Held-to-maturity securities are stated at amortized cost.
Available-for-sale securities are stated at fair value, with
unrealized gains and losses, net of deferred taxes, reported
as a separate component of stockholders' equity until
realized.
The amortized cost of debt securities classified as
held-to-maturity or available-for-sale is adjusted for
amortization of premiums and accretion of discounts to
maturity or, in the case of mortgage-backed securities, over
the estimated life of the security. Amortization, accretion
and accrued interest are included in interest income on
securities. Realized gains and losses, and declines in value
judged to be other than temporary, are included in net
securities gains. Gains and losses on the sale of securities
available-for-sale are determined using the
specific-identification method.
Derivative Instruments - The Company recognizes all
derivatives as either assets or liabilities in the Company's
balance sheet and measures those instruments at fair value.
If certain conditions are met, a derivative may be specially
designated as a hedge. The accounting for changes in the
fair value of a derivative depends on the intended use of the
derivative and the resulting designation. The Company is
not currently engaged in any significant activities with
derivatives.
Loans - Loan origination fees and certain direct origination
costs are capitalized and recognized as an adjustment to
yield over the life of the related loan. Interest on
commercial and real estate mortgage loans is recorded as
income based upon the principal amount outstanding.
Unearned income on installment loans is credited to
operations based on a method which approximates the
interest method. Where doubt exists as to collectibility of a
loan, the accrual of interest is discontinued and subsequent
payments received are applied first to principal. Upon such
discontinuances all unpaid accrued interest is reversed.
Interest income is recorded after principal has been
satisfied and as payments are received.
The Company considers a loan to be impaired when, based
upon current information and events, it believes it is
probable that the Company will be unable to collect all
amounts due according to the contractual terms of the loan
agreement. The Company's impaired loans include
troubled debt restructurings, and performing and
non-performing major loans in which full payment of
principal or interest is not expected. Non-major
homogenous loans, which are evaluated on an overall basis,
generally include all loans under $50,000. The Company
calculates the allowance required for impaired loans based
on the present value of expected future cash flows
discounted at the loan's effective interest rate, or at the
loan's observable market price or the fair value of its
collateral.
Generally, loans of all types which become 90 days
delinquent are either in the process of collection through
repossession or foreclosure or alternatively, are deemed
currently uncollectible. Loans deemed currently
uncollectible are charged-off against the allowance
account. As a matter of policy, loans are placed on a
non-accrual status where doubt exists as to collectibility.
Allowance for Loan Losses - The allowance for loan losses
is a valuation account available to absorb probable losses
on loans. All losses are charged to the allowance for loan
losses when the loss actually occurs or when a
determination is made that a loss is likely to occur.
Recoveries are credited to the allowance for loan losses at
the time of recovery. Periodically during the year,
management estimates the probable level of losses in the
existing portfolio based on the Company's past loan loss
experience, known inherent risks in the portfolio, adverse
situations that may affect the borrowers ability to repay, the
estimated value of any underlying collateral and current
economic conditions. Based on these estimates, the
allowance for loan losses is increased by charges to income
and decreased by charge-offs (net of recoveries).
Premises and Equipment - Premises and equipment are
stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed
using the straight-line method over the estimated useful
lives of the assets which generally range from 3 to 30
years. Leasehold improvements are amortized over the
estimated useful lives of the improvements or the term of
the lease, whichever is shorter.
Other Real Estate Owned - Real estate properties acquired
through, or in lieu of, loan foreclosures are initially
recorded at fair value at the date of foreclosure establishing
a new cost basis. After foreclosure, valuations are
periodically performed by management and the real estate
is carried at the lower of carrying amount or fair value less
cost to sell. Revenues and expenses from operations and
changes in the valuation allowance are included in loss on
foreclosed real estate.
Income Taxes - Deferred income taxes are provided for
temporary differences between items of income or expense
reported in the consolidated financial statements and those
reported for income tax purposes.
The Company computes deferred income taxes based on
the difference between the financial statements and tax
basis of assets and liabilities using enacted tax rates in
effect in the years in which the differences are expected to
reverse.
Goodwill - Prior to 2002, Goodwill was amortized on the
straight-line basis over a fifteen year period. Amortization
expense amounted to approximately $-0- in 2002, $60,584
in 2001 and $60,584 in 2000. Accumulated amortization at
December 31, 2002 and 2001 was $421,705.
In June 2001, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards
No. 141 "Business Combinations" and No. 142 "Goodwill
and Other Intangibles." These Statements provide that,
among other things, (1) all business combinations on or
after July 1, 2001 be accounted for as purchases, (2) any
related goodwill on those acquisitions does not require
amortization, but is subject to a periodic impairment test
and that (3) goodwill on any of the Company's acquisitions
prior to July 1, 2001 not be amortized after January 1,
2002, but is subject to a periodic impairment test. The
Company performed fair value based impairment tests on
its goodwill and determined that the fair value exceeded the
recorded value at December 31, 2002 and 2001. No
impairment loss, therefore, was recorded.
Stock-Based Compensation - The Company applies APB
Opinion No. 25 and related interpretations in accounting
for its stock options. Since all options are exercisable at
the estimated fair value at the date of grant, no
compensation cost has been recognized. The pro forma
disclosures required by SFAS 123 are included in Note 12.
Basic and Diluted Earnings Per Common Share - Basic
earnings per common share (EPS) excludes dilution and is
computed by dividing income available to common
stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other
contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of
common stock that then shared in the income of the
Company. Diluted EPS is computed by dividing net
income by the total of the weighted-average number of
shares outstanding plus the effect of outstanding options
and convertible preferred stock.
Statements of Cash Flows - For purposes of reporting cash
flows, cash and cash equivalents include cash on hand,
amounts due from banks, and federal funds sold.
Generally, federal funds are sold for one-day periods.
2. ACQUISITION OF BANK
During 2002, the Company purchased the Morgan City,
Louisiana branch of another bank. The Company acquired
loans of approximately $5,400,000, property of
approximately $200,000 and assumed deposit liabilities of
approximately $12,200,000. The Company received cash
of approximately $5,900,000 after payment of a premium
of approximately $500,000 and certain other costs. An
intangible asset of approximately $650,000 resulted from
this acquisition. This intangible
asset has been classified as a core deposit intangible and is
being amortized on an accelerated basis over 10 years. The
amortized balance of the core deposit intangible was
$623,359 at December 31, 2002 and is included in other
assets. The Company does not have sufficient information
regarding the operating results of this branch prior to the
date of acquisition and, accordingly, pro forma operating
results are not being provided.
3. CASH AND DUE FROM BANKS
The Company is required to maintain average balances
relating to its deposit liabilities. This requirement is
ordinarily satisfied by cash on hand.
4. INVESTMENT SECURITIES
The portfolio of securities consisted of the following:
December 31, 2002
______________________________________________________________
Gross Gross
Amortized Unrealized Unrealized
Available-for-Sale Cost Gains Losses Fair Value
U.S. Government agencies $ 15,664,856 $ 288,400 $ - $ 15,953,256
Obligations of states and
political subdivisions 22,281,823 746,971 11,495 23,017,299
Mortgage-backed securities 26,766,342 844,831 36,972 27,574,201
Collateralized mortgage
obligations 16,465,627 18,081 76,454 16,407,254
Corporate securities 4,097,807 75,889 - 4,173,696
Mutual funds 1,000,000 - 29,000 971,000
Other 1,479,000 - - 1,479,000
______________ _____________ ___________ _____________
$ 87,755,455 $ 1,974,172 $ 153,921 $ 89,575,706
============== ============= =========== =============
December 31, 2001
__________________________________________________________________
Gross Gross
Amortized Unrealized Unrealized
Available-for-Sale Cost Gains Losses Fair Value
U.S. Government agencies $ 14,710,956 $ 185,389 $ 42,379 $ 14,853,966
Obligations of states and
political subdivisions 13,477,575 192,205 22,214 13,647,566
Mortgage-backed securities 20,775,671 383,355 61,746 21,097,280
Collateralized mortgage
obligations 20,184,344 73,305 32,177 20,225,472
Corporate securities 3,569,507 82,423 700 3,651,230
Mutual funds 1,000,000 - 30,000 970,000
Other 1,334,900 - - 1,334,900
_________________ ______________ ___________ ____________
$ 75,052,953 $ 916,677 $ 189,216 $ 75,780,414
================= ============== =========== ============
December 31, 2002
____________________________________________________________
Gross Gross
Amortized Unrealized Unrealized
Held-to-Maturity Cost Gains Losses Fair Value
Obligations of states and
political subdivisions $ 23,398,282 $ 2,262,229 $ - $ 25,660,511
============= ============= =========== =============
December 31, 2001
_____________________________________________________________
Gross Gross
Amortized Unrealized Unrealized
Held-to-Maturity Cost Gains Losses Fair Value
Obligations of states and
political subdivisions $ 23,584,850 $ 1,183,889 $ 33,617 $ 24,735,122
============= ============= ========= =============
The amortized cost and fair value of securities at
December 31, 2002 by contractual maturity are shown
below. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment
penalties.
Amortized
Available-for-Sale Cost Fair Value
Due in one year or less $ 7,958,471 $ 8,019,132
Due after one year through five years 23,137,224 23,550,823
Due after five years through ten years 8,385,391 8,741,445
Due after ten years 2,563,400 2,832,851
Mortgage-backed securities and collaterized
mortgage obligations 43,231,969 43,981,455
Mutual funds 1,000,000 971,000
Other securities 1,479,000 1,479,000
_________________ ________________
$ 87,755,455 $ 89,575,706
================= ================
Amortized
Held-to-Maturity Cost Fair Value
Due in one year or less $ 30,000 $ 30,096
Due after one year through five years 6,348,549 6,939,007
Due after five years through ten years 14,144,308 15,476,551
Due after ten years 2,875,425 3,214,857
__________________ _______________
$ 23,398,282 $ 25,660,511
================== ===============
Proceeds from sales of securities available-for-sale during
2002, 2001 and 2000 were $3,356,378, $9,794,538 and
$2,064,519, respectively. Gross gains of $156,259,
$188,883 and $16,126 were recognized on sales in 2002,
2001 and 2000, respectively.
Securities with an aggregate carrying value of
approximately $27,792,000 and $33,000,000 at
December 31, 2002 and 2001 were pledged to secure
public funds on deposit and for other purposes required or
permitted by law.
The Company's collateralized mortgage obligations
(CMO's) consist primarily of first and second tranche
sequential pay and/or planned amortization class (PAC)
instruments.
5. LOANS
The loan portfolio consisted of the following:
December 31,
______________________________________
2002 2001
Commercial, financial and agricultural $ 75,890,502 $ 68,710,853
Lease financing receivable 3,399,240 4,729,558
Real estate - mortgage 109,489,813 97,647,501
Real estate - construction 8,396,166 7,090,105
Installment loans to individuals 29,773,158 31,070,473
Other 103,347 5,141,631
_________________ ________________
227,052,226 214,390,121
Less allowance for loan losses (2,891,380) (2,705,058)
_________________ ________________
$ 224,160,846 $ 211,685,063
================= ================
Loans are stated net of unearned income and loan
origination fees in the above table. The amount of such
items is not significant.
An analysis of the activity in the allowance for loan losses
is as follows:
Year Ended December 31,
_____________________________________________
2002 2001 2000
Balance at beginning of year $ 2,705,058 $ 2,276,187 $ 1,967,326
Provision for loan losses 1,398,250 2,176,224 897,038
Recoveries 152,207 165,980 120,250
Loans charged off (1,364,135) (1,913,333) (708,427)
__________ __________ ___________
Balance at end of year $ 2,891,380 $ 2,705,058 $ 2,276,187
========== ========== ===========
During the years ended December 31, 2002, 2001 and
2000, there were approximately $66,000, $123,000 and
$177,000, respectively, of net transfers from loans to other
real estate owned.
As of December 31, 2002 and 2001, loans outstanding to
directors, executive officers, and their affiliates were
$1,018,746 and $1,916,721, respectively. In the opinion of
management, all transactions entered into between the
Company and such related parties have been and are made
in the ordinary course of business, on substantially the
same terms and conditions, including interest rates and
collateral, as similar transactions with unaffiliated persons
and do not involve more than the normal risk of collection.
An analysis of the 2002 activity with respect to these
related party loans is as follows:
Balance, January 1, 2002 $ 1,916,721 $ 1,240,383
New loans 1,635,215 890,030
Repayments (2,533,190) (213,692)
___________ ___________
Balance, December 31, 2002 $ 1,018,746 $ 1,916,721
=========== ===========
Non-accrual and renegotiated loans amounted to
approximately $562,000 and $769,000 at December 31,
2002 and 2001, respectively. The Company's other
individually evaluated impaired loans were not significant
at December 31, 2002 and 2001. The related allowance
amounts on impaired loans were not significant and there
was no significant change in these amounts during the
years ended December 31, 2002, 2001 or 2000. The
amount of interest not accrued on these loans did not have
a significant effect on net income in 2002, 2001 or 2000.
6. BANK PREMISES AND EQUIPMENT
Premises and equipment consisted of the following:
December 31,
__________________________________________
2002 2001
Buildings and improvements $ 10,393,314 $ 9,262,747
Furniture, fixtures, and equipment 8,159,016 7,813,027
Automobiles 259,655 259,655
Leasehold improvements 980,236 652,274
Construction-in-process 45,063 1,147,540
_______________ _________________
19,837,284 19,135,243
Less accumulated depreciation and amortization (7,515,774) (7,184,542)
_______________ _________________
$ 12,321,510 $ 11,950,701
=============== =================
7. DEPOSITS
Deposits consisted of the following:
December 31,
______________________________________
2002 2001
Non-interest bearing $ 94,452,378 $ 91,145,842
Savings and money market 91,643,637 84,174,077
NOW accounts 48,308,894 39,498,633
Time deposits under $100,000 63,952,648 69,681,325
Time deposits over $100,000 45,117,289 46,077,581
_______________ ________________
$ 343,474,846 $ 330,577,458
=============== ================
Approximately $85,521,000 of time deposits mature in
2003 and the balance principally in 2004.
8. NOTES PAYABLE AND LONG-TERM DEBT
December 31,
____________________________________
2002 2001
Notes payable to financial institutions $ 568,030 $ 1,431,000
Junior subordinated debentures 7,000,000 7,000,000
________________ _______________
$ 7,568,030 $ 8,431,000
================ ===============
Notes payable and long-term debt consisted of the
following:
At December 31, 2002, the note payable to financial
institutions consisted of the balance of a note established by
Financial Services of the South, Inc. on December 12, 2002
in the amount of $700,030. Proceeds of the note were used
to payout the balance of a $1,099,000 loan issued April 30,
2002. The note bears interest at a variable rate equal to the
commercial prime rate as quoted in the "Money Rates"
section of the Wall Street Journal plus twenty-five basis
points (0.25%). At December 31, 2002 the effective rate
was 4.50%. Interest on this note is payable monthly, with
principal due at maturity on December 12, 2003. At
December 31, 2001, the note payable balance was
$1,431,000 under a line of credit of $2,000,000 issued on
April 30, 2001.
On February 22, 2001, the Company, issued $7,000,000 of
junior subordinated debentures. The $7,000,000 qualifies
as Tier 1 capital for regulatory capital purposes, but is
classified as a liability under accounting principles
generally accepted in the United States of America. These
debentures are presented in the Consolidated Statements of
Condition as "Junior Subordinated Debentures." These
junior subordinated debentures carry an interest rate of
10.20% with interest paid semi-annually in arrears and
mature on February 22, 2031. Under certain
circumstances, these debentures are subject to repayment
on February 22, 2011 or thereafter.
9. COMMITMENTS AND CONTINGENCIES
At December 31, 2002, future annual minimum rental
payments due under noncancellable operating leases,
primarily for land, are as follows:
2003 $ 569,668
2004 558,677
2005 562,599
2006 557,388
2007 505,568
Thereafter 5,635,032
______________
$ 8,388,932
==============
Rental expense under operating leases for 2002, 2001 and
2000 was approximately $635,000, $540,000, and
$520,000, respectively. Sublease income for 2002, 2001
and 2000 amounted to $31,800 each year.
The Company and its subsidiaries are parties to various
legal proceedings arising in the ordinary course of
business. In the opinion of management, the ultimate
resolution of these legal proceedings will not have a
material adverse effect on the Company's financial
position, results of operations or cash flows.
10. INCOME TAXES
Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Significant
components of the Company's deferred tax assets and
liabilities as of December 31, 2002 and 2001 are as
follows:
2002 2001
Deferred tax assets:
Allowance for loan losses $ 603,000 $ 620,000
Other 159,000 116,000
___________ ________
Total deferred tax assets 762,000 736,000
___________ ________
Deferred tax liabilities:
FHLB stock dividends (96,000) (88,000)
Depreciation (335,000) (276,000)
Unrealized gain on securities (629,000) (258,000)
Other (92,000) (119,000)
___________ ________
Total deferred tax liabilities (1,152,000) (741,000)
___________ ________
Net deferred tax liability $ (390,000) $ (5,000)
=========== ========
Components of income tax expense are as follows:
2002 2001 2000
Current $ 1,414,253 $ 936,105 $ 968,204
Deferred expense (benefit) 14,000 (70,000) (17,000)
______________ ____________ ___________
$ 1,428,253 $ 866,105 $ 951,204
============== ============ ===========
The provision for federal income taxes differs from the
amount computed by applying the U.S. Federal income tax
statutory rate of 34% on income as follows:
Year Ended December 31,
_______________________________________________
2002 2001 2000
Taxes calculated at statutory rate $ 1,991,494 $ 1,295,150 $ 1,307,756
Increase (decrease) resulting from:
Tax-exempt interest (550,690) (450,711) (370,894)
Other (12,551) 21,666 14,342
_____________ ___________ ___________
$ 1,428,253 $ 866,105 $ 951,204
============= =========== ===========
The deferred income tax expense relating to unrealized
gains on securities available-for-sale included in other
comprehensive income amounted to $424,378 in 2002,
$258,820 in 2001 and, $531,500 in 2000. Income taxes
relating to gains on sales of securities amounted to $53,128
in 2002, $64,220 in 2001 and, $5,483 in 2000.
11. EMPLOYEE BENEFITS
The Company sponsors a leveraged employee stock
ownership plan (ESOP) that covers all employees who
meet minimum age and service requirements. The
Company makes annual contributions to the ESOP in
amounts as determined by the Board of Directors. These
contributions are used to pay debt service and purchase
additional shares. Certain ESOP shares are pledged as
collateral for this debt. As the debt is repaid, shares are
released from collateral and allocated to active employees,
based on the proportion of debt service paid in the year.
The note is payable to the Bank. Because the source of the
loan payments are contributions received by the ESOP
from the Company, the related note receivable is shown as
a reduction of stockholders' equity. The balance of the
note receivable from the ESOP was $108,975 and $149,638
at December 31, 2002 and 2001, respectively. In
accordance with the American Institute of Certified Public
Accountants' Statement of Position 93-6 (SOP),
compensation costs relating to shares purchased are based
on the market price of the shares on the date released for
allocation and the related unreleased shares are not
considered outstanding in the computation of earnings per
common share. ESOP compensation expense was
$193,000, $175,000 and $156,750 for the years ended
December 31, 2002, 2001 and 2000, respectively. The
ESOP shares as of December 31, 2002 and 2001 were as
follows:
2002 2001
Allocated shares 256,349 263,590
Shares released for allocation 5,383 5,049
Unreleased shares 12,819 18,202
__________ _________
Total ESOP shares 274,551 286,841
========== =========
Fair value of unreleased shares at
December 31, $ 221,769 $ 211,143
========== =========
During 1996 the Company adopted a deferred
compensation plan for certain officers which qualifies as a
defined contribution plan. Contributions to the plan are
required only if "excess earnings", as defined, are
achieved. The participants accrue benefits based only on
the contributions made. During 2002, 2001 and 2000, no
contributions were required.
12. EMPLOYEE STOCK PLANS
In May 1997 the stockholders of the Company approved
the 1997 Stock Incentive Plan to provide incentives and
awards for employees of the Company and its subsidiaries.
"Awards" as defined in the Plan includes, with limitations,
stock options (including restricted stock options), stock
appreciation rights, performance shares, stock awards and
cash awards, all on a stand-alone, combination or tandem
basis. A total of 8% of the Company's common shares
outstanding can be granted under the Plan. The exercise
price of options is equal to the market price on the date of
grant. The Company is applying APB Opinion No. 25 and
related interpretations in accounting for stock options.
Since all options are exercisable at the estimated fair
market value at the date of grant, no compensation expense
has been recognized.
During 2002, options to purchase 30,000 shares were
granted which are exercisable at $13.00 per share. During
1998, options to purchase 23,155 shares were granted
which are exercisable at $15.42 per share. During 1997,
options to purchase 139,223 shares were granted which are
exercisable at $6.67 per share. These options are
exercisable in 20% increments beginning one year from the
date of grant. The options expire ten years after the date of
grant. Options to purchase 5,062 shares at $6.67 per share
were exercised in the year ended December 31, 2001.
None of the other options have been exercised and all of
them are outstanding at December 31, 2002
Options on 134,161 shares at $6.67 per share and on
18,524 shares at $15.42 per share were exercisable at
December 31, 2002. Options on 106,316 shares at $6.67
per share and on 13,893 shares at $15.42 per share were
exercisable at December 31, 2001. The weighted average
remaining contractual life of options outstanding at
December 31, 2002 was 4.9 years.
The Company has adopted the disclosure-only option under
SFAS No. 123, "Accounting for Stock Based
Compensation." Had compensation cost for the
Company's stock options been determined based on the fair
value at the grant date consistent with the method under
SFAS No. 123, the Company's net income available to
common stockholders and income per common share
would have been as indicated below:
Year Ended
________________________________________________
2002 2001 2000
Net income available to common stockholders:
As reported $ 4,429,083 $ 2,890,408 $ 2,649,113
Pro forma 4,399,083 2,855,539 2,601,041
Basic income per common share:
As reported $ 1.53 $ 1.08 $ 1.07
Pro forma 1.52 1.07 1.05
Diluted income per common share:
As reported $ 1.50 $ 1.00 $ .95
Pro forma 1.49 .99 .94
The fair value of the options granted under the Company's
stock option plan during the year ended December 31, 2002
was estimated using the Black-Scholes Option Pricing
Model with the following assumptions used: dividend
yield of 1.5%, expected volatility of 20%, risk free interest
rate of 5.0% , and expected lives of 8 years.
13. STOCKHOLDERS' EQUITY
On July 31, 1995, the Company issued 187,286 shares of
Series A Cumulative Convertible Preferred Shares with a
stated value of $14.25. The Convertible Preferred Shares
were convertible at any time at the option of the holder into
common stock, at the rate of 2.998 shares of Common
Stock for each Convertible Preferred Share. During the
year ended December 31, 2001, the Company called for
redemption of all outstanding shares and upon that notice,
substantially all of the remaining outstanding preferred
stock of 130,620 shares was converted into common stock
by their holders. The Convertible Preferred Shares were
redeemable, in whole or in part, at the option of the
Company at the stated value of $14.25. Dividends on the
Convertible Preferred Shares was determined each year on
an annual rate, fixed on December 31 of each year for the
ensuing calendar year and was 6.51% at December 31,
2000. The dividends were cumulative and payable
quarterly in arrears. Holders of Convertible Preferred
Shares were not entitled to normal voting rights unless
certain conditions existed.
The payment of dividends by the Bank to the Company is
restricted by various regulatory and statutory limitations.
At December 31, 2002, the Bank has approximately
$7,000,000 available to pay dividends to the Parent
Company without regulatory approval.
14. NET INCOME PER COMMON SHARE
Following is a summary of the information used in the
computation of earnings per common share.
Year Ended December 31,
_____________________________________________
2002 2001 2000
Net income $ 4,429,083 $ 2,943,159 $ 2,895,137
Preferred dividend requirement on shares
redeemed - - 107,250
___________ ___________ ___________
Net income, as adjusted - used in
computation of diluted earnings per
common share 4,429,083 2,943,159 2,787,887
Preferred dividend requirement on shares
excluding shares redeemed - 52,751 138,774
___________ ___________ ___________
Net income available to common
stockholders - used in computation of
basic earnings per common share $ 4,429,083 $ 2,890,408 $ 2,649,113
=========== =========== ===========
Weighted average number of common
shares outstanding - used in computation
of basic earnings per common share 2,887,989 2,679,348 2,487,187
Effect of dilutive securities:
Stock options 65,717 49,579 29,196
Convertible preferred stock - 220,617 406,428
___________ ___________ ___________
Weighted average number of common
shares outstanding plus effect of dilutive
securities - used in computation of
diluted earnings per common share 2,953,706 2,949,544 2,922,811
=========== =========== ===========
15. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is a party to various financial instruments with
off-balance sheet risk in the normal course of business to
meet the financing needs of its customers and to reduce its
own exposure to fluctuations in interest rates. These
financial instruments include commitments to extend credit
and commercial letters of credit. Those instruments
involve, to varying degrees, elements of credit and interest
rate risk in excess of the amounts recognized in the
statements of financial condition. The contract or notional
amounts of those instruments reflect the extent of the
involvement the Bank has in particular classes of financial
instruments.
The Bank's exposure to loan loss in the event of
nonperformance by the other party to the financial
instrument for commitments to extend credit, commercial
letters of credit and financial guarantees is represented by
the contractual amount of those instruments. The Bank
uses the same credit policies, including considerations of
collateral requirements, in making these commitments and
conditional obligations as it does for on-balance sheet
instruments.
Contract or Notional
Amount
__________________________________
2002 2001
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $ 57,157,000 $ 78,000,000
Commercial letters of credit 782,737 1,200,000
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition
established in the contract. Commitments generally have
fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments
are expected to expire without being fully drawn upon, the
total commitment amounts disclosed above do not
necessarily represent future cash requirements.
Substantially all of these commitments are at variable rates.
Commercial letters of credit and financial guarantees are
conditional commitments issued by the Bank to guarantee
the performance of a customer to a third party. The credit
risk involved in issuing letters of credit is essentially the
same as that involved in extending loan facilities to its
customers. Approximately 50% of these letters of credit
were secured by marketable securities, cash on deposits or
other assets at December 31, 2002 and 2001.
16. REGULATORY MATTERS
The Company and the Bank are subject to various
regulatory capital requirements administered by the federal
banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the
financial statements. Under capital adequacy guidelines,
the Company and the Bank must meet specific capital
guidelines that involve quantitative measures of assets,
liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The capital amounts
and classification are also subject to qualitative judgments
by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation to ensure
capital adequacy require the Company and the Bank to
maintain minimum amounts and ratios (set forth in the
table below) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined), and of
Tier 1 capital (as defined) to average assets (as defined).
As of December 31, 2002 and 2001, the most recent
notifications from the Federal Deposit Insurance
Corporation categorized the Bank as well capitalized under
the regulatory framework for prompt corrective action. To
be categorized as well capitalized the Bank must maintain
minimum total risk-based, Tier 1 risk-based, Tier 1
leverage ratios as set forth in the table. There are no
conditions or events since those notifications that
management believes have changed the Bank's category.
The Company's and the Bank's actual capital amounts and
ratios are presented in the table below.
To Be Well
Required For Capitalized Under
Minimum Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
______________________________ __________________________ ______________________
Amount Ratio Amount Ratio Amount Ratio
As of December 31, 2002:
Total capital to risk
weighted assets:
Company $ 34,733,493 13.71 % $ 20,267,600 8.00 % N/A N/A
Bank 32,296,129 12.79 % 20,139,920 8.00 % 25,242,400 10.00 %
Tier 1 capital to risk
weighted assets:
Company 31,842,113 12.57 % 10,133,800 4.00 % N/A N/A
Bank 29,589,040 11.72 % 10,096,960 4.00 % 15,145,440 6.00 %
Tier 1 capital to
average assets:
Company 31,842,111 8.45 % 15,074,063 4.00 % N/A N/A
Bank 29,589,040 7.87 % 15,037,953 4.00 % 18,797,441 6.00 %
To Be Well
Required For Capitalized Under
Minimum Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
________________________ ________________________ ____________________
As of December 31, 2001:
Total capital to risk
weighted assets:
Company $ 31,400,670 13.20 % $ 19,035,031 8.00 % N/A N/A
Bank 28,881,917 12.23 % 18,891,533 8.00 % 23,614,416 10.00 %
Tier 1 capital to risk
weighted assets:
Company 28,695,612 12.06 % 9,517,515 4.00 % N/A N/A
Bank 26,379,246 11.17 % 9,445,767 4.00 % 14,168,650 6.00 %
Tier 1 capital to
average assets:
Company 28,695,612 8.02 % 14,314,377 4.00 % N/A N/A
Bank 26,379,246 7.41 % 14,239,231 4.00 % 17,799,038 5.00 %
17. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to
estimate the fair value of each class of financial instruments
for which it is practicable to estimate that value:
Cash, Due From Banks and Federal Funds Sold - For
those short-term instruments, the carrying amount is a
reasonable estimate of fair value.
Securities - For securities, fair value equals quoted market
price, if available. If a quoted market price is not available,
fair value is estimated using quoted market prices for
similar securities.
Loans, Net - The fair value of loans is estimated by
discounting the future cash flows using the current rates at
which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities.
Deposits - The fair value of demand deposits, savings
accounts, and certain money market deposits is the amount
payable on demand at the reporting date. The fair value of
fixed-maturity certificates of deposit is estimated using the
rates currently offered for deposits of similar remaining
maturities.
Notes Payable and Debentures - Rates currently available
to the Company for debt with similar terms and remaining
maturities are used to estimate the fair value of existing
debt.
Commitments - The fair value of commitments to extend
credit was not significant.
The estimated fair values of the Company's financial
instruments are as follows at December 31, 2002 and 2001
(in thousands):
2002 2001
________________________ ________________________
Carrying Fair Carrying Fair
Amount Value Amount Value
Financial assets:
Cash, due from banks and federal
fund sold $ 27,468 $ 27,468 $ 35,956 $ 35,956
Securities available-for-sale 89,576 89,576 75,780 75,780
Securities held-to-maturity 23,398 25,661 23,585 24,735
Loans, net 224,161 224,375 211,685 212,900
Financial liabilities:
Non-interest bearing deposits 94,452 94,452 91,146 91,146
Interest bearing deposits 249,023 249,751 239,432 241,000
Long-term notes payable 568 568 1,431 1,431
Junior subordinated debentures 7,000 9,000 7,000 7,300
18. OTHER NON-INTEREST EXPENSE
Other non-interest expense consisted of the following for
the years ended December 31, 2002, 2001 and 2000:
2002 2001 2000
Professional fees $ 661,951 $ 455,740 $ 375,012
FDIC assessments 56,277 56,367 50,612
Marketing expenses 887,475 749,808 748,261
Data processing 173,331 184,371 193,796
Postage 307,653 285,066 249,950
Education and travel 186,140 180,331 156,851
Printing and supplies 434,437 377,538 366,652
Telephone 300,941 275,277 281,890
Other 2,261,790 2,174,139 1,987,460
__________ __________ __________
$5,269,995 $4,738,637 $4,410,464
========== ========== ==========
19. CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
Summarized financial information for MidSouth Bancorp,
Inc. (parent company only) follows:
STATEMENTS OF CONDITION
December 31,
__________________________________
2002 2001
ASSETS
Cash and interest-bearing deposits in bank $ 2,516,961 $ 2,485,457
Other assets 273,779 505,837
Investment in and advances to subsidiaries 31,993,152 27,393,727
_____________ ______________
$ 34,783,892 $ 30,385,021
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Dividends payable $ 290,114 $ 145,057
Junior subordinated debentures 7,000,000 7,000,000
Note payable to Bank 108,975 149,638
Other 266,244 462,765
_____________ ______________
Total liabilities 7,665,333 7,757,460
_____________ ______________
Total stockholders' equity 27,118,559 22,627,561
_____________ ______________
$ 34,783,892 $ 30,385,201
============= ==============
STATEMENTS OF INCOME
Years Ended December 31,
__________________________________________________
2002 2001 2000
Revenue:
Dividends from Bank $ 1,200,000 $ 200,000 $ 925,000
Equity in undistributed income of subsidiaries 3,685,521 3,165,996 2,169,325
Rental and other income 223,221 190,314 50,682
_____________ ______________ _______________
5,108,742 3,556,310 3,145,007
_____________ ______________ _______________
Expenses:
Interest on short and long-term debt 714,000 652,656 192,131
Professional fees 86,239 73,925 75,073
Other expenses 114,083 103,837 84,820
_____________ ______________ _______________
914,322 830,418 352,024
_____________ ______________ _______________
Income before income taxes 4,194,420 2,725,892 2,792,983
Income tax benefit 234,663 217,267 102,154
_____________ ______________ _______________
Net income $ 4,429,083 $ 2,943,159 $ 2,895,137
============= ============== ===============
STATEMENTS OF CASH FLOWS
Years Ended December 31,
__________________________________________
2002 2001 2000
Cash flows from operating activities:
Dividends from bank $ 1,200,000 $ 200,000 $ 925,000
Other, net (488,268) (85,001) (184,584)
___________ ___________ __________
Net cash provided by
operating activities 711,732 114,999 740,416
___________ ___________ __________
Cash flows from investing activities:
Investment in and advances to subsidiaries (100,000) (1,500,000) (225,000)
___________ ___________ __________
Net cash used in investing activities (100,000) (1,500,000) (225,000)
___________ ___________ __________
Cash flows from financing activities:
Capital stock transactions - 33,764 (96,083)
Redemption of preferred stock - (50,274) (264,000)
Payment of dividends (580,228) (614,073) (638,468)
(Repayments) proceeds of notes payable, net - (2,500,000) 507,097
Proceeds from junior subordinated
debentures, net - 6,774,297 -
___________ ___________ __________
Net cash (used in) provided by
financing activities (580,228) 3,643,714 (491,454)
___________ ___________ __________
Net increase in cash 31,504 2,258,713 23,962
Cash, beginning of year 2,485,457 226,744 202,782
___________ ___________ __________
Cash, end of year $ 2,516,961 $ 2,485,457 $ 226,744
=========== =========== ==========
Selected Quarterly Financial Data
(unaudited)
2002
_________________________________________________________
(Dollars in thousands, except per share IV III II I
______ ______ ______ ______
Interest income $5,989 $6,255 $6,072 $5,810
Interest expense 1,541 1,666 1,697 1,805
______ ______ ______ ______
Net interest income 4,448 4,589 4,375 4,005
Provision for possible credit losses 275 429 336 358
______ ______ ______ ______
Net interest income after provision
for possible credit losses 4,173 4,160 4,039 3,647
Noninterest income,
excluding securities gains 1,777 1,826 1,659 1,502
Net securities gains 155 1 - -
Noninterest expense 4,494 4,313 4,198 4,078
______ ______ ______ ______
Income before income tax expense 1,611 1,674 1,500 1,071
Income tax expense 329 432 413 253
______ ______ ______ ______
Net income $1,282 $1,242 $1,087 $818
====== ====== ====== ======
Earnings per common share
Basic $0.44 $0.43 $0.38 $0.28
Diluted $0.43 $0.42 $0.37 $0.28
Market price of common stock
High $23.30 $13.55 $13.25 $11.90
Low $12.90 $12.00 $12.25 $10.95
Close $17.30 $12.90 $13.10 $11.90
Average shares outstanding
Basic 2,887,989 2,883,142 2,883,142 2,883,142
Diluted 2,967,972 2,947,053 2,946,844 2,939,555
2001
_________________________________________________________
(Dollars in thousands, except per
share data) IV III II I
______ ______ ______ ______
Interest income $6,138 $6,596 $6,922 $6,768
Interest expense 2,119 2,563 2,843 2,885
______ ______ ______ ______
Net interest income 4,019 4,033 4,079 3,883
Provision for possible credit losses 380 439 1,034 323
______ ______ ______ ______
Net interest income after provision
for possible credit losses 3,639 3,594 3,045 3,560
Noninterest income,
excluding securities gains 1,499 1,241 1,298 1,183
Net securities gains 142 - 68 -
Noninterest expense 4,101 3,835 3,822 3,704
______ ______ ______ ______
Income before income tax expense 1,179 1,000 589 1,039
Income tax expense 284 217 120 244
______ ______ ______ ______
Net income 895 783 469 795
Preferred stock dividend requirement - - (22) (30)
______ ______ ______ ______
Income applicable to common shareholders $895 $783 $447 $765
====== ====== ====== ======
Earnings per common share
Basic $0.31 $0.29 $0.18 $0.31
Diluted $0.31 $0.27 $0.16 $0.27
Market price of common stock
High $11.60 $11.05 $11.90 $10.40
Low $10.70 $10.27 $10.35 $9.90
Close $11.60 $10.85 $11.10 $9.99
Average shares outstanding
Basic 2,877,891 2,734,556 2,514,972 2,492,196
Diluted 2,931,866 2,947,085 2,920,454 2,924,741
ITEM 8 - Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.
Not applicable.
PART III
ITEM 9 - Directors, Executive Officers, Promotors
and Control Persons; Compliance with
Section 16(a) of the Exchange Act
The information contained in Registrant's definitive
proxy statement for its 2003 annual meeting of
shareholders, is incorporated herein by reference in
response to this Item. Information concerning
executive officers is provided following Item 4.
ITEM 10 - Executive Compensation
The information contained in Registrant's definitive
proxy statement for its 2003 annual meeting of
shareholders is incorporated herein by reference in
response to this Item.
ITEM 11 - Security Ownership of Certain Beneficial
Owners and Management
The information contained in Registrant's definitive
proxy statement for its 2003 annual meeting of
shareholders is incorporated herein by reference in
response to this Item.
ITEM 12 - Certain Relationships and Related
Transactions
The information contained in Registrant's definitive
proxy statement for its 2003 annual meeting of
shareholders is incorporated herein by reference in
response to this Item.
ITEM 13 - Exhibits and Reports on Form 8-K.
Exhibits
Exhibit No. Description
3.1 Amended and Restated Articles of Incorporation of MidSouth
Bancorp, Inc. are included as Exhibit 3.1 to MidSouth's
Annual Report on Form 10-K for the Year Ended
December 31, 1993, and is incorporated herein by reference.
3.2 Articles of Amendment to Amended and Restated Articles of
Incorporation dated July 19,1995 are included as
Exhibit 4.2 to MidSouth's Registration Statement on
Form S-8 filed September 20, 1995 and is incorporated
herein by reference.
3.3 Amended and Restated By-laws of MidSouth are included as
Exhibit 3.2 to Amendment No. 1 to MidSouth's Registration
Statement on Form S-4 (Reg. No. 33-58499) filed on
June 1, 1995, and is incorporated herein by reference.
4.1 MidSouth agrees to furnish to the Commission on request
a copy of the instruments defining the rights of the
holder of its long-term debt, which debt does not exceed
10% of the total consolidated assets of MidSouth.
10.1 MidSouth National Bank Lease Agreement with Southwest
Bank Building Limited Partnership is included as
Exhibit 10.7 to the Company's annual report on
Form 10-K for the Year Ended December 31, 1992,
and is incorporated herein by reference.
10.2 First Amendment to Lease between MBL Life Assurance
Corporation, successor in interest to Southwest Bank
Building Limited Partnership in Commendam, and
MidSouth National Bank is included as Exhibit 10.1
to the Company's annual report on Form 10-KSB for
the year ended December 31, 1994, and is incorporated
herein by reference.
10.2.1 Seventh Amendment to Lease between S & A Properties II,
Inc., successor in interest to Southwest Bank Building
Limited Partnership in Commendam, and MidSouth
Bank, N.A. effective July 1, 2002 is included as part
of this filing.
10.3 Amended and Restated Deferred Compensation Plan and
Trust is included as Exhibit 10.3 to MidSouth's Annual
Report on Form 10-K for the year ended December 31, 1992
and is incorporated herein by reference.
10.3.1 Amended and Restated Deferred Compensation Plan and Trust
effective October 9, 2002 is included as part of this
filing.
10.5 Employment Agreements with C. R. Cloutier and Karen L.
Hail are included as Exhibit 5c to MidSouth's Form 1-A
and are incorporated herein by reference.
10.6 The MidSouth Bancorp, Inc. 1997 Stock Incentive Plan
is included as a form of option agreement in Exhibit
4.5 to MidSouth's definitive proxy statement filed
April 11, 1997 and is incorporated herein by reference.
10.7 The MidSouth Bancorp, Inc. Dividend Reinvestment and
Stock Purchase Plan is included as Exhibit 4.6 to
MidSouth Bancorp, Inc.'s Form S-3D filed on
July 25, 1997 and is incorporated herein by reference.
21 Subsidiaries of the Registrant
23 Independent Auditors' Consent
99.1 Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
99.2 Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly
authorized.
MIDSOUTH BANCORP, INC.
By: /s/ C. R. Cloutier
C. R. Cloutier
President and Chief
Executive Officer
Dated: March 28, 2003
Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has
been signed below by the following persons on
behalf of the Registrant and in the capacities and on
the dates indicated.
Signatures Title Date
/s/ C. R. Cloutier President, Chief Executive
C. R. Cloutier Officer and Director March 28, 2003
/s/ Karen L. Hail Chief Financial Officer,
Karen L. Hail Executive Vice President, March 28, 2003
Secretary/Treasurer
and Director
/s/ Teri S. Stelly Chief Accounting
Teri S. Stelly Officer March 28, 2003
/s/ J. B. Hargroder, M.D. Director March 28, 2003
J. B. Hargroder, M.D.
/s/ William M. Simmons Director March 28, 2003
William M. Simmons
/s/ Will G. Charbonnet, Sr. Director March 28, 2003
Will G. Charbonnet, Sr.
/s/ Clayton Paul Hilliard Director March 28, 2003
Clayton Paul Hilliard
/s/ James R. Davis Director March 28, 2003
James R. Davis, Jr.
/s/ Milton B. Kidd, III Director March 28, 2003
Milton B. Kidd, III., O.D.
CERTIFICATION
I, C. R. Cloutier, President and CEO, certify that:
1. I have reviewed this annual report on Form 10-KSB
of MidSouth Bancorp, Inc.;
2. Based on my knowledge, this annual report does not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements,
and other financial information included in this annual report,
fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and
for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and
15d-14) for the registrant and have:
a) designed such disclosure controls and
procedures to ensure that material
information relating to the registrant,
including its consolidated subsidiaries, is
made known to us by others within those
entities, particularly during the period in
which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a
date within 90 days prior to the filing date of
this annual report (the "Evaluation Date");
and
c) presented in this annual report our
conclusions about the effectiveness of the
disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):
a) all significant deficiencies in the design or
operation of internal controls which could
adversely affect the registrant's ability to
record, process, summarize and report
financial data and have identified for the
registrant's auditors any material weaknesses
in internal controls; and
b) any fraud, whether or not material, that
involves management or other employees
who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have
indicated in this annual report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
Date: March 28, 2003
/s/C. R. Cloutier
_______________________
Chief Executive Officer
CERTIFICATION
I, Karen L. Hail, Senior Executive Vice President & CFO, certify
that:
1. I have reviewed this annual report on Form 10-KSB
of MidSouth Bancorp, Inc.;
2. Based on my knowledge, this annual report does not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements,
and other financial information included in this annual report,
fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and
for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and
15d-14) for the registrant and have:
a) designed such disclosure controls and
procedures to ensure that material
information relating to the registrant,
including its consolidated subsidiaries, is
made known to us by others within those
entities, particularly during the period in
which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a
date within 90 days prior to the filing date of
this annual report (the "Evaluation Date");
and
c) presented in this annual report our
conclusions about the effectiveness of the
disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):
a) all significant deficiencies in the design or
operation of internal controls which could
adversely affect the registrant's ability to
record, process, summarize and report
financial data and have identified for the
registrant's auditors any material weaknesses
in internal controls; and
b) any fraud, whether or not material, that
involves management or other employees
who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have
indicated in this annual report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
Date: March 28, 2003
/s/Karen L. Hail
_______________________
Chief Financial Officer