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, 2003
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 small business issuer 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)
Issuer's telephone number, (337) 237-8343
including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
Common Stovk, which registered
$.10 par value American Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: none
Check whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the
past 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
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-K is not contained in this form,
and no disclosure will be contained, to the best of issuer'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, 2003 were
$27,148,545.
As of February 28, 2004, 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 $66,150,029. For the purpose of this
calculation, shares held by officers, directors,
the issuer's ESOP and 10% shareholders have been excluded.
As of February 28, 2004, there were outstanding 3,198,879
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 18, 2004 - (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 twenty locations described below
under "Item 2 - Properties."
Employees
As of December 31, 2003, the Bank
employed 216 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, 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 MidSouth to offer
expanded services to its customer base in the
future, MidSouth 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,
2003, the Company's ratios of Tier 1 and
total capital to risk-weighted assets were
12.82% and 13.78%, respectively.
MidSouth's leverage ratio (Tier 1 capital to
total average adjusted assets) was 8.85% at
December 31, 2003. All three regulatory
capital ratios for the Company exceeded
regulatory minimums at December 31, 2003.
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, 2003, 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, 2003.
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 two limited service banking
offices in Thibodaux and Houma, Louisiana.
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 2003.
Item 4A - Executive Officers of the
Registrant
C. R. Cloutier, 56 - President, Chief
Executive Officer and Director of MidSouth
and the Bank for more that the past five
years.
Karen L. Hail, 50 - Senior Executive Vice
President and Chief Operations Officer and
Director of the Bank, and Secretary and
Treasurer and Director of MidSouth for
more than the past five years.
Donald R. Landry, 47 - 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, 49 - Senior Vice
President for more than the past five years
and named Chief Information Officer of the
Bank in 2002.
Dwight Utz, 50 - 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
from 1973 to 2000.
Teri S. Stelly, 44 - 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, 37 - 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
from 2000 to 2002.
Gregory King, 48 - Joined MidSouth as
Vice President and Loan Review Officer in
2003; promoted to Senior Vice President of
Risk Management in 2004; prior to his
employment with the Bank, Mr. King was
Executive Vice President and Chief
Operating Officer at LBA Savings Bank in
Lafayette, Louisiana from 1997 to 2003.
Prior to that position, Mr. King was
employed as a national bank examiner.
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, 2003, there were
654 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.
Cash dividends totaling $992,648 were
declared to common stockholders during
2003. The quarterly dividend was increased
from $.05 per share to $.06 per share
beginning in the third quarter of 2003 and a
special dividend of $.10 per share was paid
in addition to the $.06 per share for the
fourth quarter of 2003. It is the intention of
the Board of Directors of MidSouth to
continue paying quarterly dividends on the
common stock at a rate of $.06 per share.
Cash dividends totaling $725,286 were
declared to common stockholders during
2002. 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 are described in Item
7 below under the heading "Liquidity -
Dividends" and in Note 13 of notes to the
Company's consolidated financial
statements.
MidSouth had no repurchases of its
common stock during the fourth quarter of
2003.
FIVE-YEAR SUMMARY OF SELECTED
CONSOLIDATED FINANCIAL DATA
Year Ended December 31,
_______________________________________________________________________
2003 2002 2001 2000 1999
___________ ___________ ___________ ___________ ___________
Gross interest income $24,230,450 $24,125,789 $26,424,027 $24,449,115 $21,072,733
Interest expense (4,679,685) (6,709,231) (10,408,926) (9,787,165) (7,888,351)
___________ ___________ ___________ ___________ ___________
Net interest income 19,550,765 17,416,558 16,015,101 14,661,950 13,184,382
Provision for loan losses (550,000) (1,398,250) (2,176,224) (897,038) (906,950)
Other operating income 7,597,780 6,921,388 5,432,859 4,582,995 3,980,496
Other expenses (17,970,856) (17,082,360) (15,462,472) (14,501,566) (12,740,307)
___________ ___________ ___________ ___________ ___________
Income before income taxes 8,627,689 5,857,336 3,809,264 3,846,341 3,517,621
Provision for income taxes (2,294,376) (1,428,253) (866,105) (951,204) (867,417)
___________ ___________ ___________ ___________ ___________
Net Income 6,333,313 4,429,083 2,943,159 2,895,137 2,650,204
Preferred stock dividend
requirement - - (52,751) (246,024) (131,582)
___________ ___________ ___________ ___________ __________
Net income available to
common shareholders $6,333,313 $4,429,083 $2,890,408 $2,649,113 $2,518,622
=========== =========== =========== =========== ==========
Basic earnings per share $1.99 $1.39 $0.98 $0.97 $0.94
Diluted earnings per share $1.91 $1.36 $0.91 $0.86 $0.82
Total loans $261,872,776 $227,052,226 $214,390,121 $204,584,860 $170,468,733
Total assets 432,697,305 382,686,993 363,779,863 346,373,433 276,723,841
Total deposits 374,388,482 343,474,846 330,577,458 319,547,205 251,690,206
Cash dividends on common
stock 992,648 725,286 547,966 501,443 492,415
Long-term obligations 7,000,000 7,568,030 8,431,000 4,650,968 3,459,097
Selected ratios:
Loans to assets 60.52% 59.33% 58.93% 59.06% 61.60%
Loans to deposits 69.95% 66.10% 64.85% 64.02% 67.73%
Deposits to assets 86.52% 89.75% 90.87% 92.26% 90.95%
Return on average assets 1.56% 1.20% 0.85% 0.98% 0.97%
Return on average common
equity 20.90% 17.59% 14.04% 17.70% 17.45%
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 August 29, 2003, MidSouth paid a 10% stock
dividend on its common stock to holders of
record on July 31, 2003. Per common share
data has been adjusted accordingly.
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.
Item 6 - MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION.
MidSouth Bancorp, Inc. ("MidSouth") is
a one-bank holding company that
conducts substantially all of its business
through its wholly-owned 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
MidSouth's net income for the year
ended December 31, 2003 totaled $6.3
million compared to $4.4 million for the
year ended December 31, 2002. Basic
earnings per share were $1.99 and
$1.39 for the years ended December 31,
2003 and 2002, respectively. Diluted
earnings per share were $1.91 for the
year ended December 2003, which is a
40% increase over the $1.36 per share
earned for the year ended December
2002. In year-to-date comparison, net
income increased primarily due to a $2
million or 30% decrease in interest
expense combined with a $.8 million or
61% decrease in the provision for loan
losses. Non-interest income improved
$.7 million or 10% over 2002, primarily
due to increased service charge revenues
on deposit accounts, income from third
party mortgage originations and from
third party investment advisory services.
Non-interest expenses were held to a
$.9 million or 5% increase over 2002,
primarily in salaries and employee
benefits, occupancy expenses and
marketing costs.
MidSouth's total consolidated assets
increased $50 million or 13% from
$382.7 million at December 31, 2002 to
$432.7 million at December 31, 2003.
Total deposits increased $30.9 million,
from $343.5 million at December 31,
2002 to $374.4 at December 31, 2003.
Most of the deposit growth resulted
from approximately $27 million in
deposits associated with a public funds
contract. The funds were deposited on
July 1, 2003 and will be under contract
for a period of two years.
Loans, net of Allowance for Loan
Losses ("ALL"), increased $34.9 million
or 16%, from $224.2 million at
December 31, 2002 to $259.1 million at
December 31, 2003. Nonperforming
loans, including loans past due 90 days
and over, as a percentage of total loans
decreased from .67% or $1.5 million at
December of 2002 to .51% or $1.3 million
at December of 2003. Net charge-offs for
2003 were $651,000 or .27% of
average loans compared to $1.2 million
or .54% a year earlier. MidSouth
provided $550,000 for possible loan
losses in 2003 compared to $1.4 million
in 2002 to bring the ALL as a
percentage of total loans to 1.07% at
year-end 2003 compared to 1.27% at
year-end 2002.
MidSouth's leverage ratio was 8.85% at
December 31, 2003, compared to
8.45% at December 31, 2002. Return
on average common equity was 20.90%
for 2003 compared to 17.59% for 2002.
Return on average assets was 1.56%
compared to 1.20% 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.
MidSouth's net interest margin on a
taxable equivalent basis, which is net
interest income as a percentage of
average earning assets, remained stable
at 5.46%, 5.38%, and 5.24% for the
years ended December 31, 2003, 2002,
and 2001, respectively. Tables 1 and 2
analyze the changes in net interest income
for each of the three years in the period
ended December 31, 2003.
Net interest income (on a taxable-
equivalent basis) increased $2.2 million
for 2003 over 2002 and $1.5 million for
2002 over 2001. Net interest income
improved over the past two years
primarily due to a significant decline in
interest expense. Volume increases in
earning assets offset the effect of
declining rates on earning assets in 2003,
resulting in a minimal improvement in
interest income of $192,000 for 2003.
Volume increases in 2002 partially offset
the significant effect of declining rates in
2002, but resulted in a decrease in
interest income of $2.3 million for 2002.
The average yield on loans in 2003 was
8.21%, down 35 basis points from
8.56% in 2002 and down 163 basis
points from 9.84% in 2001. Although
average loans increased $17.8 million in
2003 and $14.9 million in 2002, average
loans as a percentage of average
earnings assets decreased from 66% in
both 2001 and 2002 to 65% in 2003.
Interest income from loans, including loan
fees, increased $.7 million from 2002 to
2003 and decreased $1.4 million from
2001 to 2002. Market competition, a
slowing economy, and changes in the
New York prime lending ("Prime") rate
impacted MidSouth's loan yields over
the past three years. 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. A
further 25 basis point decline occurred in
June 2003, lowering Prime to 4.00% for
the second half of 2003.
Throughout 2003, MidSouth continued
to face the challenge of investing excess
cash flows in investment securities that
yielded reasonable returns without taking
on too much risk. The average volume
of investment securities was $125.8
million in 2003, an increase of $20.8
million primarily due to the investment of
$26.9 million in average deposits added
in the third quarter of 2003 from a public
fund contract. The public fund deposits
were invested primarily in government
agency securities due to soft loan
demand during the third quarter of 2003.
The average volume of investment
securities increased $9 million in 2002 to
$105 million compared to $96 million in
2001. Average taxable equivalent yields
on investment securities decreased to
4.12% in 2003, down 121 basis points
from 5.33% in 2002 and 212 basis
points from 6.24% in 2001. The
decrease in yield during 2003 and 2002
offset the increases in volume for both
years and resulted in decreases to
interest income on investment securities
of $418,000 in 2003 and $389,000 in
2002. High prepayment speeds on
mortgage-backed securities in 2003 also
contributed to the decreased interest
income in 2003.
MidSouth maintained its core non-
interest bearing deposit base at 25% of
average total deposits in 2003. The
interest-bearing deposit mix continued to
improve in 2003, with 46% in NOW,
money market, and savings deposits and
29% in certificates of deposit. The
higher volume of transaction accounts
contributed to a lower cost of funds for
the year. Improvement in 2002 involved
strengthening its core deposit base of
non-interest bearing deposits to 25% of
average total deposits and improving the
mix of average total interest-bearing
deposits to 41% NOW, money market
and savings deposits and 34%
certificates of deposit. These two
categories of interest-bearing deposits
were 39% and 37% of average total
deposits, respectively, in 2001.
Volume increases in interest-bearing
deposits were offset by significant rate
decreases for the years ended December
31, 2003 and 2002. Interest expense
decreased $2 million in 2003 and $3.7
million in 2002. Average interest-bearing
deposits increased $23 million in 2003
and $8.8 million in 2002. The increase in
2003 resulted from the approximately
$27 million in public funds money
deposited in July of 2003. The average
rate paid on all interest-bearing deposits
fell 94 basis points to 1.43% in 2003,
after falling 161 basis points to 2.37% in
2002 from an average rate of 3.98% in
2001.
In September 2003, the note payable at
the Finance Company was paid out with
cash flows from payments received on
existing credits. The note payable
averaged $.3 million in 2003 at a rate of
5.21% compared to $.9 million in 2002
at a rate of 6.24% and $1.9 million in
2001 at a rate of 9.52%. 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.
Table 1
Consolidated Average Balances, Interest and Rates
Taxable-equivalent basis Year Ended December 31,
(in thousands)
2003 2002 2001
______________________________________________________________________________________________
Average Average Average Average Average Average
Volume Interest Yield/Rate Volume Interest Yield/Rate Volume Interest Yield/Rate
______________________________________________________________________________________________
ASSETS
Interest Bearing
Deposits $79 $1 1.27% $115 $3 2.61% $217 $13 5.99%
Investment Securities
Taxable 73,277 2,323 3.17% 65,479 3,090 4.72% 65,481 3,795 5.80%
Tax Exempt 52,407 2,856 5.45% 39,379 2,505 6.36% 30,259 2,179 7.20%
_________________ _________________ ________________
Total Investments 125,763 5,180 4.12% 104,973 5,598 5.33% 95,957 5,987 6.24%
Federal Funds Sold
and Securities
Purchased Under
Agreements to
Resell 6,509 64 0.98% 8,974 135 1.50% 13,845 565 4.08%
Loans
Commercial and
Real Estate 198,479 15,441 7.78% 179,499 14,739 8.21% 165,420 14,668 8.87%
Installment 43,044 4,386 10.19% 44,205 4,407 9.97% 43,378 5,871 13.53%
_________________ _________________ ________________
Total Loans 241,523 19,827 8.21% 223,704 19,146 8.56% 208,798 20,539 9.84%
Total Earning
Assets 373,795 25,071 6.71% 337,651 24,879 7.37% 318,600 27,091 8.50%
Allowance for Loan Losses (2,905) (2,714) (2,404)
Nonearning Assets 33,017 32,055 31,618
________ ________ ________
Total Assets $403,907 $366,992 $347,814
======== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
NOW, Money
Market,
and Savings $166,605 $1,362 0.82% $134,502 $1,706 1.27% $122,562 $2,992 2.44%
Certificates of
Deposits 104,959 2,517 2.40% 114,002 4,174 3.66% 117,163 6,539 5.58%
_________________ _________________ _________________
Total Interest Bearing
Deposits 271,564 3,879 1.43% 248,504 5,880 2.37% 239,725 9,531 3.98%
Federal Funds Purchased and
Securities
Sold Under
Agreements
to Repurchase 5,802 66 1.14% 3,469 56 1.61% 1,601 71 4.43%
FHLB Advances 308 3 0.97% - - 172 9 5.23%
Notes Payable 326 17 5.21% 946 59 6.24% 1,860 177 9.52%
Junior Subordinated Debentures 7,000 714 10.20% 7,000 714 10.20% 6,073 621 10.20%
_________________ _________________ _________________
Total Interest
Bearing
Liabilities 285,000 4,679 1.64% 259,919 6,709 2.58% 249,431 10,409 4.17%
Demand Deposits 89,117 81,625 74,733
Other Liabilities 1,286 1,513 1,983
Stockholders' Equity 28,504 23,935 21,667
________ ________ ________
Total Liabilites and
Stockholders' Equity $403,907 $366,992 $347,814
======== ======== ========
NET INTEREST INCOME AND NET
INTEREST SPREAD $20,392 5.07% $18,170 4.79% $16,682 4.33%
======= ======= =======
NET YIELD ON EARNING ASSETS 5.46% 5.38% 5.24%
Securities classified as available-for-sale Interest income includes loan fees of
are included in average balances and interest $2,005,000 for 2003, $1,486,000 for 2002,
income figures reflect interest earned on and $1,406,000 for 2001. Nonaccrual loans
such securities. are included in average balances and income
Interest income of $841,000 for 2003, and income on such loans is recognized on a
$754,000 for 2002, and $667,000 for 2001 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)
2003 Compared to 2002 2002 Compared to 2001
____________________________________ ______________________________________
Total Total
Increase Change Attributable To Increase Change Attributable To
(Decrease) Volume Rates (Decrease) Volume Rates
____________________________________ ______________________________________
Taxable-equivalent interest earned on:
Interest Bearing Deposits ($2) ($1) ($1) ($10) ($5) ($5)
Investment Securities
Taxable (767) 437 (1,204) (705) - (705)
Tax Exempt 351 619 (268) 326 532 (206)
Federal Funds Sold and Securities
Purchased Under Agreement to Resell (71) (31) (40) (430) (154) (276)
Loans, including fees 681 1,397 (716) (1,393) 1,699 (3,092)
_______ __________________ ________ _________________
TOTAL 192 2,421 (2,229) (2,212) 2,072 (4,284)
_______ __________________ ________ _________________
Interest Paid On:
Interest Bearing Deposits (2,001) 612 (2,613) (3,651) 363 (4,014)
Federal Funds Purchased and Securities
Sold Under Agreement to Repurchase 10 18 (8) (15) 93 (108)
FHLB Advances 3 2 1 (9) (9) -
Notes Payable (42) (34) (8) (118) (69) (49)
Junior Subordinated Debentures - - - 93 93 -
_______ __________________ ________ _________________
TOTAL (2,030) 598 (2,628) (3,700) 471 (4,171)
_______ __________________ ________ _________________
Taxable-equivalent net interest income $2,222 $1,823 $399 $1,488 $1,601 ($113)
======= ================== ======== =================
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.
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 $.6 million in 2003
and $1.2 million in 2002 primarily due to
an increase in the number of transaction
accounts and the volume of insufficient
funds checks processed by MidSouth.
The number of active transaction
accounts increased from 26,701 in 2001,
to 28,795 in 2002 and to 31,221 in
2003. The service charge structure on
transaction accounts and the insufficient
funds fee have not changed over the past
three years and are on the lower end of
fees charged by competitors in
MidSouth's markets. Non-interest
income resulting from other charges and
fees increased $274,761 in 2003 as
compared to $323,107 in 2002.
Refinancing activity increased income
from a third party mortgage program by
$102,145 and $160,188 in 2003 and
2002, respectively. Income from third
party investment advisory services
increased $79,886 in 2003 due primarily
to the introduction of a new investment
product and increased transaction
volume. Income from MidSouth's Visa
Debit Card and ATM services increased
$123,594 in 2003 and $74,251 in 2002
due to increased card activity and the
elimination of a third party processor.
The increase in 2002 was partially offset
by increased expenses in MidSouth's
Visa Merchant and Credit Card
programs for that year.
Securities Transactions. MidSouth
had net gains on sales of securities
totaling $98,025 in 2003 and $156,259
in 2002. Sales of $6.5 million in 2003
and $3.4 million in 2002 allowed
MidSouth to improve the overall yield on
the securities sold 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 5%
or $.9 million from 2002 to 2003 and
11% or $1.6 million from 2001 to 2002.
MidSouth's growth and expansion over
the past three years resulted in increases
primarily in salaries and employee
benefits, occupancy expenses and
marketing expenses. These increases
reflect MidSouth's long-term investment
in staff development, system upgrades,
and market development.
Salaries and employee benefits increased
$546,001 or 7% in 2003, primarily due
to increases in credit administration, risk
management salaries and incentive
compensation based on MidSouth's
outstanding earnings for the year. The
increases in credit administration resulted
from the addition of a senior level
manager position late in 2002 and
additional loan processor and collections
positions during 2003. Continuing to
strengthen its risk management program,
MidSouth upgraded the loan review
position to a senior level risk
management position in the second
quarter of 2003. Full-time equivalent
employees increased from 212 in 2002
to 216 in 2003.
In 2002, MidSouth focused on
strengthening risk management and
work-flow processes. Salaries and
employee benefits increased $803,120
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.
Occupancy expenses increased
$172,904 or 5% in 2003 and $285,410
or 8% in 2002 primarily due to increases
in leasehold depreciation and
maintenance expenses, data processing
software and hardware depreciation and
property taxes. Data processing
software and hardware depreciation
increased in 2003 due to a $.5 million
system upgrade in August 2003.
Premises and equipment additions and
leasehold improvements totaled
approximately $1.2 million, $1.7 million
and $1.5 million for the years 2003,
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. In
January 2004, MidSouth announced
plans to invest approximately $10 million
in new offices throughout its markets
over the next 24 months.
Total other non-interest expense
increased $169,591 or 3% in 2003 and
$531,358 or 11% in 2002. The increase
in 2003 resulted primarily from an
increase of $229,521 in marketing and
community reinvestment expenses. The
increase resulted primarily from
advertising and sponsorship costs
associated with several trade shows
within MidSouth's market areas and
from a radio advertising campaign.
Increases in other non-interest expense
categories in 2003 were offset by
decreases of $136,183 in professional
fees and $93,181 in printing and
supplies. The decline in professional fees
is due to higher fees in 2002 that
included $179,000 on consulting fees for
a processes and work-flow review and
$50,000 in recruiting expenses for higher
management level positions. Marketing
expenses increased $138,000 in 2002
over 2001 due to increased advertising
costs and specific market promotions.
Income Taxes
MidSouth's tax expense increased by
$866,123 in 2003 and $562,148 in
2002 and approximated 27% of income
before taxes in 2003, compared to 24%
in 2002. Increased interest income on
non-taxable municipal securities reduced
2003 and 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 10 to
MidSouth's Consolidated Financial
Statements provide additional
information regarding MidSouth's income
tax considerations.
BALANCE SHEET ANALYSIS
Securities
Total investment securities increased
$28.6 million, from $113.0 million in
2002 to $141.6 million in 2003. The
increase resulted primarily from
investment of approximately $27 million
in public funds deposited in the third
quarter of 2003. The funds, which are
under a two-year contract, were used to
purchase investment securities due to soft
loan demand during that quarter.
Average duration of the portfolio was
2.5 years as of December 31, 2003 and
the average taxable-equivalent yield was
4.12%. Cash flows from maturities and
paydowns within the portfolio were
reinvested primarily in government
agency securities and municipal
securities. A decline in the market value
of securities available-for-sale is included
in the net change in 2003. Unrealized net
gains in the securities available-for-sale
portfolio were $1,363,021 at December
31, 2003, compared to unrealized net
gains of $1,820,250 at December 31,
2002. 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, 2003, approximately
20% of MidSouth's securities available-
for-sale portfolio represented mortgage-
backed securities and 4% 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.
During 2003, prepayments were closely
monitored as MidSouth experienced
significant paydowns on mortgage-
backed securities due to the high level of
refinancings driven by low mortgage
rates. 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, 2003. 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 41% of the available-for-sale
portfolio consisted of U. S. Agency
securities, while municipal and other
securities represented 35% 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 $21.9 million in
non-taxable and $1.5 million in taxable
municipal securities.
Loan Portfolio
Loan growth improved in 2003 after a
challenging year in 2002, with $34.9
million or 16% added to the portfolio
compared to $12.7 million added during
2002. MidSouth's loan portfolio totaled
$261.9 million at December 31, 2003
compared to $227.1 million at
December 31, 2002. MidSouth's
lenders met an aggressive loan growth
goal in 2003 after weak loan demand, a
competitive rate environment and
payouts caused MidSouth to fall short of
budgeted loan growth in 2002. Of the
$34.8 million growth in 2003, $21.6
million was in the real estate portfolio,
including construction loans. The
commercial loan portfolio increased
$11.1 million, including lease loans, while
the consumer portfolio showed a slight
increase of $1 million. In 2002, the
majority of the $12.7 million growth in
was also in the real estate portfolio, while
the commercial portfolio increased
slightly and the installment portfolio
experienced a slight decrease. The real
estate loan growth in 2003 and 2002
consisted of both commercial and
consumer credits that call for ten to
fifteen year amortization terms with rates
fixed primarily for three and up to five
years. The short-term structure of these
credits allows management greater
flexibility in controlling interest rate risk.
MidSouth's fixed rate loans represent
approximately 56% of the loan portfolio,
with the majority maturing within three
years. Approximately 44% of the loan
portfolio earns a variable rate of interest,
with 29% adjusting to changes in the
Prime rate and another 15% adjusting on
a scheduled repricing date. The mix of
variable and fixed rate loans provides
some protection to changes in market
rates of interest.
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 observing
written, board approved policies which
govern all underwriting activities. The
risk management program requires that
each individual loan officer review his or
her portfolio on a quarterly basis and
assign recommended credit ratings on
each loan. These efforts are
supplemented by independent reviews
performed by the loan review officer and
other validations performed by the
internal audit department. Bank
concentrations are monitored and
reported to the Board of Directors
quarterly whereby individual customer
and aggregate industry leverage,
profitability, risk rating distributions, and
liquidity are evaluated for each major
standard industry classification segment.
At December 31, 2003, MidSouth had
no industry segment concentrations that
aggregate more than 10% of the loan
portfolio.
Nonperforming Assets. Table 3
contains information about MidSouth's
nonperforming assets, including loans
past due 90 days or more and still
accruing.
Table 3 - Nonperforming Assets and Loans
Past Due 90 Days or More
December 31,
2003 2002 2001
Loans on nonaccrual $ 828,543 $ 710,546 $ 768,753
Loans past due 90
days or more and
accruing $ 502,669 $ 818,727 $ 999,538
Total nonperforming
loans $1,331,212 $1,529,273 $1,768,291
Other real estate
owned, net $ 218,199 $ 174,800 $ 359,336
Other assets
repossessed - $ 45,062 -
Total nonperforming
assets $1,549,411 $1,749,135 $2,127,627
Nonperforming loans
to total loans 0.51% 0.67% 0.82%
Nonperforming assets
to total assets 0.36% 0.46% 0.58%
Allowance as a % of
nonperforming loans 209% 189% 153%
Nonperforming assets, including loans
past due 90 days or more and still
accruing, totaled $1,549,411 at
December 31, 2003, $1,749,135 at
December 31, 2002 and $2,127,627 at
December 31, 2001. The decrease in
nonperforming assets in 2003 resulted
primarily from reductions in the volume
of loans past due over 90 days and still
accruing and is the result of improved
administration efforts and strengthened
collection initiatives. The reduction on
nonperforming in 2002 resulted from sale
of other real estate owned and a
reduction in loans past due over 90 days
and still accruing.
Consumer and commercial loans are
placed on nonaccrual when principal or
interest is 90 days past due, or sooner if
the full collectibility of principal or interest
is doubtful except if the underlying
collateral fully supports both the principal
and accrued interest and the loan is in the
process of collection. Policies provide
that retail (consumer) loans that become
120 days delinquent be routinely charged
off. Loans classified for regulatory
purposes but not included in Table 3 do
not represent material amounts that
management has serious doubts as to the
ability of the borrower to comply with
loan repayment terms.
Allowance for Loan Losses.
Provisions totaling $550,000,
$1,398,250, and $2,176,224 for the
years 2003, 2002 and 2001,
respectively, were considered necessary
by management to bring the allowance to
a level sufficient to cover probable losses
in the loan portfolio. Table 4 analyzes
activity in the allowance for 2003 and
2002.
Table 4 - Summary of Activity in
the Allowance for Loan Losses (in
thousands)
2003 2002 2001
BALANCE AT BEGINNING OF YEAR $2,891 $2,705 $2,276
CHARGE-OFFS
Commercial, Financial and
Agricultural 387 632 1,032
Real Estate Mortgage 38 30 62
Installment Loans to Individuals 473 628 760
Lease Financing Receivables 7 74 6
Other - - 53
Total Charge-offs 905 1,364 1,913
RECOVERIES
Commercial, Financial and
Agricultural 97 37 19
Real Estate Mortgage 28 - -
Installment Loans to Individuals 123 115 143
Lease Financing Receivables 6 - -
Other - - 4
Total Recoveries 254 152 166
Net Charge-offs 651 1,212 1,747
Provision charged to expense 550 1,398 2,176
BALANCE AT END OF YEAR $2,790 $2,891 $2,705
Net charge-offs to average loans 0.27% 0.54% 0.84%
Year-end Allowance to Year-end
Loans 1.07% 1.27% 1.26%
Allocation of the Allowance for Loan Losses
% of Loans to % of Loans to
Alllowance for Loan Losses 2003 Total Loans 2002 Total Loans
Commercial, Financial and
Agricultural $ 1,619 33% $ 1,490 33%
Real Estate Construction 58 5% 47 4%
Real Estate Mortgage 312 48% 364 48%
Installment Loans to
Individuals 309 12% 423 13%
Lease Financing Receivables 17 2% 61 2%
Other 106 136
Unallocated 278 186
$ 2,699 100% $ 2,707 100%
The allowance is comprised of specific
reserves assigned to each impaired loan
for which probable loss has been
identified as well as general reserves to
maintain the allowance at an acceptable
level for other loans in the portfolio
where historical loss experience is
available that indicates certain probable
losses may exist. Factors contributing to
the assignment of specific reserves
include an evaluation of the financial
capacity of the borrower, changes in the
value of underlying collateral, local and
national economic conditions, and overall
trends in the loan portfolio and
concentrations of credit.
Quarterly evaluations of the allowance
are performed in accordance with
generally accepted accounting principles
and the guidelines contained in Banking
Circular 201 of the Office of the
Comptroller of the Currency. 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 processes 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.
Funding Sources
Deposits. As of December 31, 2003,
total deposits increased $30.9 million to
$374.4 million, up from $343.5 million at
December 31, 2002. Contributing to the
change in total deposits for 2003 was the
addition of approximately $27 million in
interest-bearing deposits associated with
a two-year public funds contract. In
addition to the public fund deposits,
MidSouth continued to build its core
deposits, defined as all deposits other
than certificates of deposit ("CD's") of
$100,000 or more. Core deposits
increased to 88% of total deposits at
year-end 2003 as compared to 87% of
total deposits at year-end 2002.
Included in core deposits, non-interest
bearing deposits represented 26% of
total deposits in 2003 versus 27% of
total deposits at December 31, 2002.
CD's of $100,000 or more totaled $43.4
million at December 31, 2003, a
decrease of $1.7 million from the $45.1
million reported at year-end 2002. Total
CD's decreased $8.9 million in 2003
due to renewal rates that were mid-to-
low in MidSouth's markets.
Strategically, to manage the net interest
margin, the decrease in certificates of
deposit was replaced with low cost
borrowings from the Federal Home Loan
Bank ("FHLB") as needed to fund loans
and meet deposit fluctuations. MidSouth
has no brokered deposits. Additional
information on MidSouth's deposits
appears in Note 7 to MidSouth's
Consolidated Financial Statements.
Borrowed Funds. In September 2003,
the Finance Company paid off the
balance of a note payable to a financial
institution. The balance of the note
payable at December 31, 2002 was
$568,030. As of December 31, 2003,
MidSouth had no notes payable, but did
have a short-term advance of $7.5
million from the FHLB. Additionally,
overnight funds in the amount of $5.6
million were borrowed through the
FHLB. The borrowings were used to
fund loan demand late in the fourth
quarter of 2003.
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 totaled
$82,724 at December 31, 2003. 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, 2003 and 2002
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, 2003, 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, 2003,
MidSouth's Tier 1 capital to average
adjusted assets (the "leverage ratio") was
8.85% as compared to 8.45% at
December 31, 2002. Tier 1 capital to
risk weighted assets was 12.82% and
12.57% for 2003 and 2002,
respectively. Total capital to risk
weighted assets was 13.78% and
13.71%, respectively, for the same
periods. For regulatory purposes, Tier 1
Capital includes $7,000,000 of junior
subordinated debentures issued by
MidSouth in February 2001. For
financial reporting purposes, these funds
are included as a liability under generally
accepted accounting principles. The
Bank's leverage ratio was 8.31% at
December 31, 2003 compared to
7.87% at December 31, 2002.
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,
2003. No significant restrictions are
placed on the Bank as a result of this
classification.
As discussed under the heading "Balance
Sheet Analysis - Securities," $1,363,021
in unrealized gains on securities available-
for-sale less a deferred tax liability of
$471,647 was recorded as an addition
to stockholders' equity as of December
31, 2003. As of December 31, 2002,
$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. 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, 2003 and 2002 did, however, affect
MidSouth's equity to assets ratio for
financial reporting purposes. The ratio of
equity to assets was 7.45% at December
31, 2003 and 7.09% at December 31,
2002.
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 2003, 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 $76.5 million, or 17.67%
of total assets at December 31, 2003.
Although the 17.67% 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, 2003 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.
Table 5
Interest Rate Sensitivity and Gap Analysis Table
December 31, 2003
(in thousands)
Non-interest
0-3 MOS 4-6 MOS 7-12 MOS 1-5 YRS > 5YRS Bearing Total
_____________________________________________________________
ASSETS
Interest Bearing Deposits $7 $ - $ - $ - $ - $ - $7
Fed Funds Sold - -
Investments
Mutual Funds 967 967
Investment Securities 8,625 4,044 21,644 64,595 13,643 112,551
Mortgage-backed Securiti 7,641 4,981 3,461 10,998 994 28,075
Loans
Fixed Rate 53,078 30,953 39,377 64,089 802 188,299
Variable Rate 73,574 73,574
Other Assets 32,014 32,014
Allowance for Loan Losses (2,790) (2,790)
______________________________________________________________
Total Assets $143,892 $39,978 $64,482 $139,682 $15,439 $29,224 $432,697
==============================================================
LIABILITIES
NOW $7,094 $6,418 $11,061 $39,837 $10,054 $74,464
MMDA 13,794 11,599 17,956 38,084 2,709 84,142
Savings 1,792 1,621 2,793 10,061 2,538 18,805
CD'S 31,253 21,314 27,620 19,842 100,029
Demand Deposits 96,948 96,948
Other Liabilities 17,567 7,000 1,514 26,081
Stockholders' Equity 32,228 32,228
______________________________________________________________
Total Liabilities $71,500 $40,952 $59,430 $107,824 $22,301 $130,690 $432,697
==============================================================
Repricing/maturity gap:
Period $72,392 ($974) $5,052 $31,858 ($6,862)($101,466)
Cumulative $72,392 $71,418 $76,470 $108,328 $101,466
======================================================
Cumualtive Gap/Total Assets 16.73% 16.51% 17.67% 25.04% 23.45%
____________________________________________
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
$32 million in projected cash flows from
securities during 2004 provides an
additional source of liquidity. MidSouth
also has significant borrowing capacity
with the FHLB of Dallas, Texas and
borrowing lines with other correspondent
banks.
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, 2003, MidSouth had
$2.6 million in interest-bearing balances
remaining from the proceeds from the
issuance of the debentures. Dividends
from the Bank totaling $1,500,000 and
$1,200,000 provided additional liquidity
for the parent company in 2003 and
2002, respectively. As of January 1,
2004, the Bank had the ability to pay
dividends to the parent company of
approximately $8.6 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 the 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 $992,648 and
$725,286 were declared to common
stockholders during 2003 and 2002,
respectively. It is the intention of the
Board of Directors of MidSouth to
continue to pay quarterly dividends on
the common stock at the rate of $.06 per
share. A Special Dividend of $.10 per
share was paid in addition to the regular
$.06 per share dividend for the fourth
quarter of 2003 to shareholders of
record on December 12, 2003. 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.
Impact of Inflation and Changing
Prices
The consolidated financial statements of
MidSouth and notes thereto, presented
herein, have been prepared in
accordance with Generally Accepted
Accounting Principles, which require the
measurement of financial position and
operating results in terms of historical
dollars without considering the change in
the relative purchasing power of money
over time and due to inflation. The
impact of inflation is reflected in the
increased cost of MidSouth's operations.
Unlike most industrial companies, nearly
all the assets and liabilities of MidSouth
are financial. As a result, interest rates
have a greater impact on MidSouth's
performance than do the effects of
general levels of inflation. Interest rates
do not necessarily move in the same
direction or to the same extent as the
prices of goods and services.
Critical Accounting Policies
Certain critical accounting policies affect
the more significant judgments and
estimates used in the preparation of the
consolidated financial statements.
MidSouth's single most critical
accounting policy relates to its allowance
for loan losses, which reflects the
estimated losses resulting from the
inability of its borrowers to make loan
payments. If the financial condition of its
borrowers were to deteriorate, resulting
in an impairment of their ability to make
payments, its estimates would be
updated and additional provisions for
loan losses may be required.
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.
MIDSOUTH BANCORP, INC.
LOAN PORTFOLIO
LOAN MATURITIES AND SENSITIVITY TO INTEREST RATES
for the Year Ended December 31, 2003
(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 $103,881 $64,097 $43,439 $211,417 $55,035 $52,501 $107,536
Installment Loans to
Individuals and Real
Estate Mortgage 24,877 20,512 541 $45,930 18,386 2,667 $21,053
Lease Financing
Receivables 237 3,830 - $4,067 3,830 - $3,830
Other 459 - - $459 - - -
_______________________________________________ _________________________________
TOTAL $129,454 $88,439 $43,980 $261,873 $77,251 $55,168 $132,419
=============================================== =================================
MIDSOUTH BANCORP, INC.
SECURITIES PORTFOLIO
MATURITIES AND AVERAGE YIELDS
for the Year Ended December 31, 2003
(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 $22,990 2.75% $24,136 2.52% - $32 2.75% $47,158
Obligations of State and
Political Subdivisions 7,601 2.04% 21,034 2.49% 9,479 3.87% - 38,114
Mortgage Backs and CMOs 8,103 3.20% 398 4.38% 8,974 4.77% 11,321 4.44% 28,796
Corporates and other securities 2,164 2.13% 1,028 4.14% - - 3,192
Mutual funds 967 1.89% - - - 967
________________________________________________________________________________________
Total Fair Value $41,825 $46,596 $18,453 $11,353 $118,227
========================================================================================
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 $1,670 5.40% $17,019 5.64% $4,678 4.95% $23,367
_____________________________________________________________________________________________
$1,670 $17,019 $4,678 $23,367
=============================================================================================
MIDSOUTH BANCORP, INC.
SUMMARY OF
AVERAGE DEPOSITS
(in thousands)
2003 2002
AVERAGE AVERAGE AVERAGE AVERAGE
AMOUNT YIELD AMOUNT YIELD
________ ________ ________ ________
Non-interest bearing $89,117 0.00% $81,625 0.00%
Demand Deposits
Interest bearing
Deposits
Savings, NOW, MMKT 166,605 0.82% 134,502 1.27%
Time Deposits 104,959 2.40% 114,002 3.66%
________ ________
Total $360,681 1.08% $330,129 1.78%
======== ========
MATURITY SCHEDULE
TIME DEPOSITS OF
$100,000 OR MORE
(in thousands)
2003 2002
_______ _______
3 months or less $15,663 $15,291
3 months through 6 months 7,322 11,122
7 months through 12 months 12,018 9,048
over 12 months 8,429 9,656
_______ _______
Total $43,432 $45,117
======= =======
SUMMARY OF RETURN
ON EQUITY AND ASSETS
2003 2002
_______ _______
Return on Average Assets 1.56% 1.20%
Return on Average Common Equity 20.90% 17.59%
Dividend Payout Ratio
on Common Stock 15.67% 16.38%
Average Equity to
Average Assets 7.47% 6.52%
Item 7 - Financial Statements.
MidSouth Bancorp, Inc.
and Subsidiaries
Consolidated Financial Statements for the
Years Ended December 31, 2003, 2002 and
2001 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, 2003 and 2002, 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, 2003. 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, 2003 and 2002 and the results of their
operations and their cash flows for each of the three
years in the period ended December 31, 2003 in
conformity with accounting principles generally
accepted in the United States of America.
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
February 27, 2004
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
DECEMBER 31, 2003 AND 2002
___________________________________________________________________________________________________
ASSETS 2003 2002
Cash and due from banks $ 13,833,857 $ 18,066,035
Federal funds sold 9,400,000
____________ _____________
Total cash and cash equivalents 13,833,857 27,466,035
Interest-bearing deposits in banks 6,594 1,694
Securities available-for-sale at fair value (amortized cost
of $116,863,703 in 2003 and $87,755,455 in 2002) 118,226,724 89,575,706
Securities held-to-maturity (estimated fair value of
$25,455,609 in 2003 and $25,660,511 in 2002) 23,366,709 23,398,282
Loans, net of allowance for loan losses of $2,789,761 in 2003
and $2,891,380 in 2002 259,083,015 224,160,846
Accrued interest receivable 2,883,376 2,502,684
Premises and equipment-net 11,984,276 12,321,510
Other real estate owned-net 218,199 174,800
Goodwill-net 431,987 431,987
Other assets 2,662,568 2,653,449
____________ _____________
432,697,305 382,686,993
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 96,948,642 $ 94,452,378
Interest bearing 277,439,840 249,022,468
____________ _____________
Total deposits 374,388,482 343,474,846
Securities sold under repurchase agreements 4,442,503 2,978,860
Federal funds purchased 5,625,000
Accrued interest payable 558,416 705,106
Notes payable and FHLB advances 7,500,000 568,030
Junior subordinated debentures 7,000,000 7,000,000
Other liabilities 954,997 841,592
____________ _____________
Total liabilities 400,469,398 355,568,434
____________ _____________
Commitments and contingencies (Note 9)
Stockholders' equity:
Common stock, $.10 par value, 10,000,000 shares authorized;
3,198,879 and 2,901,142 issued and outstanding at
December 31, 2003 and 2002, respectively 319,888 290,114
Additional paid in capital 18,733,991 12,997,762
Unearned ESOP shares (82,724) (108,975)
Unrealized gains on securities available-for-sale-
net of deferred taxes 891,374 1,191,500
Treasury Stock - 6,318 shares, at cost (106,922)
Retained earnings 12,472,300 12,748,158
____________ _____________
Total stockholders' equity 32,227,907 27,118,559
____________ _____________
$432,697,305 $ 382,686,993
============ =============
See notes to consolidated financial statements.
- 2 -
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
__________________________________________________________________________________________________
2003 2002 2001
INTEREST INCOME:
Loans-including fees $19,827,631 $19,145,655 $20,539,148
Securities:
Taxable 2,323,537 3,090,212 3,807,820
Nontaxable 2,015,323 1,750,885 1,512,050
Federal funds sold 63,959 139,037 565,009
___________ ___________ ___________
Total interest income 24,230,450 24,125,789 26,424,027
___________ ___________ ___________
INTEREST EXPENSE:
Deposits 3,879,036 5,880,034 9,530,743
Securities sold under repurchase agreements,
federal funds purchased and advances 66,382 62,270 73,703
Long-term debt 734,267 766,927 804,480
___________ ___________ ___________
Total interest expense 4,679,685 6,709,231 10,408,926
___________ ___________ ___________
NET INTEREST INCOME 19,550,765 17,416,558 16,015,101
PROVISION FOR LOAN LOSSES 550,000 1,398,250 2,176,224
___________ ___________ ___________
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 19,000,765 16,018,308 13,838,877
___________ ___________ ___________
NONINTEREST INCOME:
Service charges on deposit accounts 5,273,461 4,707,468 3,534,113
Gains on sale of securities-net 98,025 156,259 188,883
Credit life insurance 164,609 270,737 246,046
Other charges and fees 2,061,685 1,786,924 1,463,817
___________ ___________ ___________
7,597,780 6,921,388 5,432,859
___________ ___________ ___________
NONINTEREST EXPENSES:
Salaries and employee benefits 8,649,371 8,103,370 7,300,250
Occupancy expense 3,881,899 3,708,995 3,423,585
Other 5,439,586 5,269,995 4,738,637
___________ ___________ ___________
17,970,856 17,082,360 15,462,472
___________ ___________ ___________
INCOME BEFORE INCOME TAXES 8,627,689 5,857,336 3,809,264
PROVISION FOR INCOME TAXES 2,294,376 1,428,253 866,105
___________ ___________ ___________
NET INCOME 6,333,313 4,429,083 2,943,159
PREFERRED DIVIDENDS 52,751
___________ ___________ ___________
NET INCOME AVAILABLE TO COMMON
STOCKHOLDERS $ 6,333,313 $ 4,429,083 $ 2,890,408
=========== =========== ===========
EARNINGS PER COMMON SHARE:
Basic $1.99 $1.39 $0.98
===== ===== =====
Diluted $1.91 $1.36 $0.91
===== ===== =====
See notes to consolidated financial statements.
- 3 -
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
__________________________________________________________________________________________________________________
2003 2002 2001
Net income $ 6,333,313 $ 4,429,083 $ 2,943,159
Other comprehensive income (loss):
Unrealized gain (loss) on securities
available-for-sale-net:
Unrealized holding gains (losses) arising
during the year (235,429) 824,669 509,425
Less reclassification adjustment for gains
included in net income (64,697) (103,131) (124,663)
____________ ____________ ___________
Total other comprehensive income (loss) (300,126) 721,538 384,762
____________ ____________ ___________
TOTAL COMPREHENSIVE INCOME $ 6,033,187 $ 5,150,621 $ 3,327,921
============ ============ ===========
See notes to consolidated financial statements.
- 4 -
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
___________________________________________________________________________________________________________________________________
Unrealized
Gains
(Losses)
on
Additional Securities
Preferred Stock Common Stock Paid in ESOP Available Treasury Retained
Shares Amount Shares Amount Capital Obligation for Sale Stock Earnings Total
BALANCE-January 1, 2001 130,620 $1,861,335 2,515,166 $251,517 $11,147,534 $(185,127) $ 85,200 $ $6,701,919 $19,862,378
Issuance of common stock 5,062 506 33,258 33,764
Dividends on common stock
-$.18 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
-$.23 per share (725,286) (725,286)
Excess of market value over
book value of ESOP shares
released 25,000 25,000
Net income 4,429,083 4,429,083
ESOP obligation, repayments 40,663 40,663
Net change in unrealized
gains (losses) on
securities available-for
-sale-net of tax 721,538 721,538
________ __________ _________ _______ ___________ ________ _______ _________ _________ __________
BALANCE-December 31, 2002 2,901,142 290,114 12,997,762 (108,975)1,191,500 12,748,158 27,118,559
Issuance of common stock 8,000 800 47,680 48,480
Dividends on common stock
-$.32 per share (992,648) (992,648)
Tax benefit resulting from
exercise of stock options 53,122 53,122
Purchase of treasury stock (106,922) (106,922)
Stock dividend - 10% 289,737 28,974 5,577,427 (5,616,523) (10,122)
Excess of market value over
book value of ESOP shares
released 58,000 58,000
Net income 6,333,313 6,333,313
ESOP obligation, repayments 26,251 26,251
Net change in unrealized
gains (losses) on
securities available-for
-sale-net of tax (300,126) (300,126)
________ __________ _________ ________ ___________ ________ ________ _________ ___________ ___________
BALANCE-December 31, 2003 $ 3,198,879 $319,888 $18,733,991 $(82,724)$891,374 $(106,922) $12,472,300 $32,227,907
======== ========== ========= ======== =========== ======== ======== ========= =========== ===========
See notes to consolidated financial statements.
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
_____________________________________________________________________________________________________________
2003 2002 2001
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 6,333,313 $ 4,429,083 $ 2,943,159
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 1,516,696 1,365,708 1,310,180
Provision for loan losses 550,000 1,398,250 2,176,224
Provision for and losses on other real
estate owned 8,748 8,302 92,687
Deferred income taxes (benefit) 20,000 14,000 (70,000)
Amortization of premiums on securities-net 1,123,917 517,083 204,538
Gain on sales of securities (98,025) (156,259) (188,883)
Change in accrued interest receivable (380,692) (304,890) 167,556
Change in accrued interest payable (146,690) (351,959) 49,763
Other-net 64,589 (222,446) 61,530
_______________ _______________ _______________
Net cash provided by operating
activities 8,991,856 6,696,872 6,746,754
_______________ _______________ _______________
CASH FLOWS FROM INVESTING
ACTIVITIES:
Net (increase) decrease in interest-bearing
deposits in banks (4,900) 107,512 (40,524)
Proceeds from sales of securities
available-for-sale 6,464,685 3,356,378 9,794,538
Proceeds from maturities and calls of
securities available-for-sale 41,756,029 40,838,882 28,736,270
Proceeds from maturities of securities
held-to-maturity 30,000 185,000 25,000
Purchases of securities available-for-sale (78,353,280) (57,257,019) (59,776,682)
Loan originations, net of repayments (35,541,865) (8,460,365) (11,675,897)
Purchases of premises and equipment (1,188,342) (1,744,910) (1,506,020)
Proceeds from sales of other real
estate owned 43,800 417,000 117,306
Net cash received from acquisition 5,882,448
Other-net 75,095 1,509 8,533
______________ ______________ _______________
Net cash used in investing activities (66,718,778) (16,673,565) (34,317,476)
______________ ______________ _______________
(Continued)
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
_____________________________________________________________________________________________________________
2003 2002 2001
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net increase in deposits 30,913,636 722,867 11,030,253
Net increase (decrease) in repurchase agreements 1,463,643 2,315,781 (334,537)
Net increase in federal funds purchased 5,625,000
FHLB advances (repayments)-net 7,500,000 (175,968)
Issuance of notes payable 700,030 20,000
Proceeds from junior subordinated
debentures-net 6,774,297
Repayments of notes payable (568,030 (1,563,000) (3,064,000)
Purchase of treasury stock (106,922)
Proceeds from issuance of common stock 48,480 33,764
Payment of dividends on common and
preferred stock (770,941) (580,228) (614,073)
Redemption of preferred stock (50,274)
Cash for fractional shares (10,122)
___________ __________ __________
Net cash provided by financing activities 44,094,744 1,595,450 13,619,462
___________ __________ __________
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (13,632,178) (8,381,243) (13,951,260)
CASH AND CASH EQUIVALENTS-
Beginning of year 27,466,035 35,847,278 49,798,538
___________ __________ __________
CASH AND CASH EQUIVALENTS-
End of year $ 13,833,857 $ 27,466,035 $ 35,847,278
=========== ========== ==========
SUPPLEMENTAL CASH FLOW
INFORMATION:
Interest paid $ 4,826,375 $ 7,061,190 $ 10,359,163
=========== ========== ==========
Income taxes paid $ 2,410,000 $ 1,550,000 $ 800,155
=========== ========== ==========
See notes to consolidated financial statements.
(Concluded)
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
_______________________________________________________
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), which is in the process of liquidating
its loan portfolio, 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 business. The
Company also provides consumer loan services to
individuals through the Finance Company.
Comprehensive Income-Comprehensive income
includes net income and other comprehensive
income (losses) 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, 2003. 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
$60,584 in 2001. Accumulated amortization at
December 31, 2003 and 2002 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, 2003
and 2002. 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. In 2003, the Company
paid a 10% stock dividend. All share and per share
information has been adjusted to give retroactive
effect to the stock dividend.
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 core deposit
intangible and is being amortized on an accelerated
basis over 10 years. The remaining unamortized
balance of the core deposit intangible was
$558,279 at December 31, 2003 and is included in
other assets. The Company did 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, 2003
___________________________________________________________
Gross Gross
Amortized Unrealized Unrealized
Available-for-Sale Cost Gains Losses Fair Value
U.S. Government agencies $ 47,330,166 $ 210,884 $ 382,878 $ 47,158,172
Obligations of states and
political subdivisions 37,290,406 874,880 51,109 38,114,177
Mortgage-backed securities 23,582,801 764,949 22,706 24,325,044
Collateralized mortgage
obligations 4,492,858 21,877 4,470,981
Corporate securities 1,003,972 23,878 1,027,850
Mutual funds 1,000,000 33,000 967,000
Other 2,163,500 2,163,500
_______________ ____________ __________ ____________
$ 116,863,703 $ 1,874,591 $ 511,570 $118,226,724
=============== ============ ========== ============
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, 2003
_________________________________________________________________
Gross Gross
Amortized Unrealized Unrealized
Held-to-Maturity Cost Gains Losses Fair Value
Obligations of states and
political subdivisions $ 23,366,709 $ 2,088,900 $ - $ 25,455,609
============= ============= ============ =============
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
============= ============= ============ =============
The amortized cost and fair value of securities at
December 31, 2003 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 $ 30,481,025 $ 30,591,381
Due after one year through five years 46,146,868 46,198,208
Due after five years through ten years 8,964,987 9,478,946
Due after ten years 31,664 31,664
Mortgage-backed securities and collaterized
mortgage obligations 28,075,659 28,796,025
Mutual funds 1,000,000 967,000
Other securities 2,163,500 2,163,500
_____________ ____________
$ 116,863,703 $118,226,724
============= ============
Amortized
Held-to-Maturity Cost Fair Value
Due in one year or less $ 1,669,536 $ 1,712,512
Due after one year through five years 17,018,830 18,537,684
Due after five years through ten years 4,678,343 5,205,413
_____________ _____________
$ 23,366,709 $ 25,455,609
============= =============
Details concerning available-for-sale securities
with unrealized losses as of December 31, 2003 are
as follows:
Securities Securities
with losses under with losses over
12 months 12 months Total
___________________________ ______________________ __________________________
Gross Gross Gross
Fair Unrealized Fair Unrealized Fair Unrealized
Value Loss Value Loss Value Loss
U.S. Government
Agencies $ 21,940,290 $ 382,878 $ $ $ 21,940,290 $ 382,878
Obligations of states and
political subdivisions 8,859,252 50,906 302,601 203 9,161,853 51,109
Mortgage-backed
securities 4,021,291 22,706 4,021,291 22,706
CMO's 4,328,466 21,608 142,515 269 4,470,981 21,877
Mutual fund 967,000 33,000 967,000 33,000
______________ ___________ ___________ _________ _____________ ___________
$ 35,128,008 $ 455,392 $ 5,433,407 $ 56,178 $ 40,561,415 $ 511,570
============== =========== =========== ========= ============= ===========
Most of the securities with unrealized losses were
purchased during the year ended December 31,
2003. The Company has 284 investments. There
are 42 investments with unrealized losses at
December 31, 2003. These unrealized losses result
from securities which were purchased at a
premium in anticipation of a continuing stable
interest rate environment. As interest rates declined
in 2003, prepayments of certain securities
increased which resulted in the decline in the fair
value of the related securities. The Company
believes that its premium amortization policies are
appropriate and will result in a reasonable return
on these investments being recorded in the
statements of income.
Proceeds from sales of securities available-for-sale
during 2003 and 2002 were $6,464,685 and
$3,356,378, respectively. Gross gains of $103,328
and $156,259 were recognized on sales in 2003
and 2002, respectively. Gross losses of $5,303
were recognized on sales in 2003.
Securities with an aggregate carrying value of
approximately $59,058,000 and $27,792,000 at
December 31, 2003 and 2002 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,
__________________________________
2003 2002
Commercial, financial and agricultural $ 86,961,427 $ 75,890,502
Lease financing receivable 4,067,118 3,399,240
Real estate-mortgage 127,431,070 109,489,813
Real estate-construction 12,102,577 8,396,166
Installment loans to individuals 30,851,516 29,773,158
Other 459,068 103,347
_____________ _____________
261,872,776 227,052,226
Less allowance for loan losses (2,789,761) (2,891,380)
_____________ _____________
$ 259,083,015 $ 224,160,846
============= =============
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,
_________________________________________
2003 2002 2001
Balance at beginning of year $ 2,891,380 $ 2,705,058 $ 2,276,187
Provision for loan losses 550,000 1,398,250 2,176,224
Recoveries 253,378 152,207 165,980
Loans charged off (904,997) (1,364,135) (1,913,333)
___________ ___________ ___________
Balance at end of year $ 2,789,761 $ 2,891,380 $ 2,705,058
=========== =========== ===========
During the years ended December 31, 2003, 2002
and 2001, there were approximately $96,000,
$66,000 and $123,000, respectively, of net
transfers from loans to other real estate owned.
As of December 31, 2003 and 2002, loans
outstanding to directors, executives officers, and
their affiliates were $1,065,478 and $1,018,746,
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 2003 activity with respect to
these related party loans is as follows:
2003
Balance-Beginning of year $1,018,746
New loans 239,046
Repayments (192,314)
__________
Balance-End of year $1,065,478
==========
Non-accrual and renegotiated loans amounted to
approximately $829,000 and $710,000 at
December 31, 2003 and 2002, respectively. The
Company's other individually evaluated impaired
loans were not significant at December 31, 2003
and 2002. 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, 2003, 2002 or 2001.
The amount of interest not accrued on these loans
did not have a significant effect on net income in
2003, 2002 or 2001.
6. BANK PREMISES AND EQUIPMENT
Premises and equipment consisted of the
following:
December 31,
_____________________________
2003 2002
Buildings and improvements $ 10,441,864 $ 10,393,314
Furniture, fixtures, and equipment 8,750,899 8,159,016
Automobiles 312,964 259,655
Leasehold improvements 1,067,639 980,236
Construction-in-process 50,843 45,063
____________ ____________
20,624,209 19,837,284
Less accumulated depreciation and amortization (8,639,933) (7,515,774)
____________ ____________
$ 11,984,276 $ 12,321,510
============ ============
7. DEPOSITS
Deposits consisted of the following:
December 31,
_____________________________
2003 2002
Non-interest bearing $ 96,948,642 $ 94,452,378
Savings and money market 102,819,461 91,643,637
NOW accounts 74,464,134 48,308,894
Time deposits under $100,000 56,724,089 63,952,648
Time deposits over $100,000 43,432,156 45,117,289
_____________ _____________
$ 374,388,482 $ 343,474,846
============= =============
Approximately $85,521,000 of time deposits
mature in 2004 and the balance principally in 2005.
8. NOTES PAYABLE, FHLB ADVANCES AND
JUNIOR SUBORDINATED DEBENTURES
Notes payable, FHLB advances and Junior
Subordinated Debentures consisted of the
following:
December 31,
__________________________
2003 2002
Notes payable to financial institutions $ - $ 568,030
FHLB advances 7,500,000
Junior subordinated debentures 7,000,000 7,000,000
____________ ___________
$ 14,500,000 $ 7,568,030
============ ===========
The Federal Home Loan Bank advance at
December 31, 2003, was for $7,500,000. The
advance was for 21 days beginning December 17,
2003 at the rate of 1.13%, maturing on January 7,
2004. The advance was used for liquidity purposes
and was repaid in 2004.
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, 2003, future annual minimum
rental payments due under noncancellable
operating leases, primarily for land, are as follows:
2004 $ 622,275
2005 619,887
2006 615,404
2007 517,151
2008 517,883
Thereafter 5,163,480
___________
$ 8,056,080
===========
Rental expense under operating leases for 2003,
2002 and 2001 was approximately $619,000,
$635,000, and $540,000, respectively. Sublease
income for 2003, 2002 and 2001 amounted to
approximately $31,900 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, 2003 and 2002 are as follows:
2003 2002
Deferred tax assets:
Allowance for loan losses $ 673,000 $ 603,000
Other 167,000 159,000
____________ ____________
Total deferred tax assets 840,000 762,000
____________ ____________
Deferred tax liabilities:
FHLB stock dividends (102,000) (96,000)
Depreciation (331,000) (335,000)
Unrealized gains on securities (472,000) (629,000)
Other (188,000) (92,000)
____________ ____________
Total deferred tax liabilities (1,093,000) (1,152,000)
____________ ____________
Net deferred tax liability $ (253,000) $ (390,000)
============ ============
Components of income tax expense are as follows:
2003 2002 2001
Current $2,274,376 $1,414,253 $936,105
Deferred expense (benefit) 20,000 14,000 (70,000)
__________ __________ ________
$2,294,376 $1,428,253 $866,105
========== ========== ========
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,
______________________________________
2003 2002 2001
Taxes calculated at statutory rate $2,933,414 $1,991,494 $1,295,150
Increase (decrease) resulting from:
Tax-exempt interest (650,006) (550,690) (450,711)
Other 10,968 (12,551) 21,666
__________ __________ __________
$2,294,376 $1,428,253 $ 866,105
========== ========== ==========
The deferred income tax expense (benefit) relating
to unrealized gains (losses) on securities
available-for-sale included in other comprehensive
income amounted to $(123,776) in 2003, $424,380
in 2002 and, $262,431 in 2001. Income taxes
relating to gains on sales of securities amounted to
$33,328 in 2003, $53,128 in 2002 and $64,220 in
2001.
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 $82,724 and $108,975 at December 31,
2003 and 2002, 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 $242,000,
$193,000 and $175,000 for the years ended
December 31, 2003, 2002 and 2001, respectively.
The ESOP shares as of December 31, 2003 and
2002 were as follows:
2003 2002
Allocated shares 287,738 281,984
Shares released for allocation 3,588 5,921
Unreleased shares 10,513 14,101
_________ _________
Total ESOP shares 301,839 302,006
========= =========
Fair value of unreleased shares at December 31 $ 331,160 $ 221,769
========= =========
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 2003, 2002 and 2001,
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.
The following table summarizes activity relating to
the Plan:
Weighted
Options Average
Outstanding Price
Balance-January 1, 2001 178,613 7.20
Exercised (5,568) 6.06
Issued 5,500 10.09
_______ _______
Balance-December 31, 2001 178,545 7.32
Exercised (3,713) 6.06
Issued 33,000 11.82
_______ _______
Balance-December 31, 2002 207,832 8.06
Exercised (8,000) 6.06
Issued 15,923 15.55
_______ _______
Balance-December 31, 2003 215,755 8.68
======= =======
Options on 135,854 shares at $6.06 per share,
25,472 at $14.02 per share, 2,200 at $10.09 per
share, and 6,600 at $11.82 per share were
exercisable at December 31, 2003. Options on
143,854 shares at $6.06 per share, 20,378 shares at
$14.02 per share, and 1,100 shares at $10.09 per
share were exercisable at December 31, 2002. The
weighted average remaining contractual life of
options outstanding on December 31, 2003 was
4.25 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
_____________________________________
2003 2002 2001
Net income available to common stockholders:
As reported $ 6,333,313 $ 4,429,083 $ 2,890,408
Pro forma 6,281,313 4,399,083 2,855,539
Basic income per common share:
As reported $ 1.99 $ 1.39 $ .98
Pro forma 1.98 1.38 .97
Diluted income per common share:
As reported $ 1.91 $ 1.36 $ .91
Pro forma 1.90 1.35 .90
The fair value of the options granted under the
Company's stock option plan during the years
ended December 31, 2003, 2002 and 2001 were
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 4.0%, 5.0% and 5.0%,
respectively, and expected lives of 8 years for all
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 $14.33.
The payment of dividends by the Bank to the
Company is restricted by various regulatory and
statutory limitations. At December 31, 2003, the
Bank has approximately $8,600,000 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,
__________________________________________________
2003 2002 2001
Net income $ 6,333,313 $ 4,429,083 $ 2,943,159
Preferred dividend requirement on shares
excluding shares redeemed 52,751
____________ ____________ ____________
Net income available to common
stockholders-used in computation of
basic earnings per common share $ 6,333,313 $ 4,429,083 $ 2,890,408
============ ============ ============
Weighted average number of common
shares outstanding-used in computation
of basic earnings per common share 3,174,880 3,177,726 2,947,282
Effect of dilutive securities:
Stock options 133,286 72,289 54,537
Convertible preferred stock 242,679
____________ ____________ ____________
Weighted average number of common
shares outstanding plus effect of dilutive
securities-used in computation of
diluted earnings per common share 3,308,166 3,250,015 3,244,498
============ ============ ============
15. FINANCIAL INSTRUMENTS WITH OFF-
BALANCE SHEET RISK
The Bank is a party to various financial
instruments with off-balance sheet risk in the
normal course of business to meet the financing
needs of its customers and to reduce its own
exposure to fluctuations in interest rates. These
financial instruments include commitments to
extend credit and standby letters of credit. Those
instruments involve, to varying degrees, elements
of credit and interest rate risk in excess of the
amounts recognized in the statements of financial
condition. The contract or notional amounts of
those instruments reflect the extent of the
involvement the Bank has in particular classes of
financial instruments.
The Bank's exposure to loan loss in the event of
nonperformance by the other party to the financial
instrument for commitments to extend credit,
standby letters of credit and financial guarantees is
represented by the contractual amount of those
instruments. The Bank uses the same credit
policies, including considerations of collateral
requirements, in making these commitments and
conditional obligations as it does for on-balance
sheet instruments.
Contract or Notional
Amount
_______________________________
2003 2002
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $ 66,889,000 $ 57,157,000
Commercial letters of credit 1,632,699 782,737
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, 2003
and 2002.
16. REGULATORY MATTERS
The Company and the Bank are subject to various
regulatory capital requirements administered by the
federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory
and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct
material effect on the financial statements. Under
capital adequacy guidelines, the Company and the
Bank must meet specific capital guidelines that
involve quantitative measures of assets, liabilities,
and certain off-balance-sheet items as calculated
under regulatory accounting practices. The capital
amounts and classification are also subject to
qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to
ensure capital adequacy require the Company and
the Bank to maintain minimum amounts and ratios
(set forth in the table below) of total and Tier I
capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I
capital (as defined) to average assets (as defined).
As of December 31, 2003 and 2002, the most
recent notifications from the Federal Deposit
Insurance Corporation categorized the Bank as
well capitalized under the regulatory framework
for prompt corrective action. To be categorized as
well capitalized the Bank must maintain minimum
total risk-based, Tier I risk-based, Tier I leverage
ratios as set forth in the table. There are no
conditions or events since those notifications that
management believes have changed the Bank's
category.
The Company's and the Bank's actual capital amounts
and ratios are presented in the table 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, 2003:
Total capital to risk
weighted assets:
Company $ 40,104,000 13.78 % $ 23,290,000 8.00 % N/A N/A
Bank 37,663,000 12.95 % 23,263,000 8.00 % $ 29,079,000 10.00 %
Tier I capital to risk
weighted assets:
Company 37,314,000 12.82 % 11,645,000 4.00 % N/A N/A
Bank 34,994,000 12.03 % 11,631,000 4.00 % 17,447,000 6.00 %
Tier I capital to
average assets:
Company 37,314,000 8.85 % 16,863,000 4.00 % N/A N/A
Bank 34,994,000 8.31 % 16,849,000 4.00 % 25,273,000 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, 2002:
Total capital to risk
weighted assets:
Company $ 34,733,000 13.71 % $ 20,268,000 8.00 % N/A N/A
Bank 32,296,000 12.79 % 20,140,000 8.00 % 25,242,000 10.00 %
Tier I capital to risk
weighted assets:
Company 31,842,000 12.57 % 10,134,000 4.00 % N/A N/A
Bank 29,589,000 11.72 % 10,097,000 4.00 % 15,145,000 6.00 %
Tier I capital to
average assets:
Company 31,842,000 8.45 % 15,074,000 4.00 % N/A N/A
Bank 29,589,000 7.87 % 15,038,000 4.00 % 18,797,000 6.00 %
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, 2003 and 2002 (in thousands):
2003 2002
_____________________ ______________________
Carrying Fair Carrying Fair
Amount Value Amount Value
Financial assets:
Cash, due from banks and federal
fund sold $ 13,840 $ 13,840 $ 27,468 $ 27,468
Securities available-for-sale 118,227 118,227 89,576 89,576
Securities held-to-maturity 23,367 25,455 23,398 25,661
Loans-net 259,083 258,900 224,161 224,325
Financial liabilities:
Non-interest bearing deposits 96,949 96,949 94,452 94,452
Interest bearing deposits 277,440 277,200 249,023 249,751
Notes payable 7,500 7,500 568 568
Junior subordinated debentures 7,000 7,700 7,000 9,000
18. OTHER NON-INTEREST EXPENSE
Other non-interest expense consisted of the
following for the years ended December 31, 2003,
2002 and 2001:
2003 2002 2001
Professional fees $ 525,768 $ 661,951 $ 455,740
FDIC assessments 54,889 56,277 56,367
Marketing expenses 1,116,996 887,475 749,808
Data processing 188,559 173,331 184,371
Postage 345,051 307,653 285,066
Education and travel 232,553 186,140 180,331
Printing and supplies 341,256 434,437 377,538
Telephone 314,007 300,941 275,277
Other 2,320,507 2,261,790 2,174,139
__________ __________ __________
$5,439,586 $5,269,995 $4,738,637
========== ========== ==========
19. CONDENSED FINANCIAL INFORMATION
OF PARENT COMPANY
Summarized financial information for MidSouth
Bancorp, Inc. (parent company only) follows:
STATEMENTS OF CONDITION
December 31,
______________________________
ASSETS 2003 2002
Cash and interest-bearing deposits in banks $ 2,663,032 $ 2,516,961
Other assets 292,283 273,779
Investment in and advances to subsidiaries 37,133,380 31,993,152
____________ ____________
$ 40,088,695 $ 34,783,892
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Dividends payable $ 511,821 $ 290,114
Junior subordinated debentures 7,000,000 7,000,000
Note payable to Bank 82,724 108,975
Other 266,243 266,244
____________ ____________
Total liabilities 7,860,788 7,665,333
____________ ____________
Total stockholders' equity 32,227,907 27,118,559
____________ ____________
$ 40,088,695 $ 34,783,892
============ ============
STATEMENTS OF INCOME
Years Ended December 31,
_______________________________________
2003 2002 2001
Revenue:
Dividends from Bank $ 1,500,000 $ 1,200,000 $ 200,000
Equity in undistributed income of
subsidiaries 5,382,355 3,685,521 3,165,996
Rental and other income 187,178 223,221 190,314
___________ ___________ ___________
7,069,533 5,108,742 3,556,310
___________ ___________ ___________
Expenses:
Interest on short and long-term debt 714,000 714,000 652,656
Professional fees 123,260 86,239 73,925
Other expenses 180,824 114,083 103,837
___________ ___________ ___________
1,018,084 914,322 830,418
___________ ___________ ___________
Income before income taxes 6,051,449 4,194,420 2,725,892
Income tax benefit 281,864 234,663 217,267
___________ ___________ ___________
Net income $ 6,333,313 $ 4,429,083 $ 2,943,159
=========== =========== ===========
STATEMENTS OF CASH FLOWS
Years Ended December 31,
_______________________________________________
2003 2002 2001
Cash flows from operating activities:
Dividends from bank $ 1,500,000 $ 1,200,000 $ 200,000
Other-net (514,424) (488,268) (85,001)
______________ _____________ _____________
Net cash provided by operating
activities 985,576 711,732 114,999
______________ _____________ _____________
Cash flows from investing activities:
Investment in and advances to subsidiaries (100,000) (1,500,000)
______________ _____________ _____________
Net cash used in investing
activities (100,000) (1,500,000)
______________ _____________ _____________
Cash flows from financing activities:
Issuance of common stock 48,480
Capital stock transactions 33,764
Purchase of treasury stock (106,922)
Redemption of Preferred Stock (50,274)
Payment of dividends (770,941) (580,228) (614,073)
Repayment of notes payable (2,500,000)
Cash for fractional shares (10,122)
Proceeds from junior subordinated
debentures-net 6,774,297
______________ _____________ _____________
Net cash (used in) provided by
financing activities (839,505) (580,228) 3,643,714
______________ _____________ _____________
Net increase in cash 146,071 31,504 2,258,713
Cash-beginning of year 2,516,961 2,485,457 226,744
______________ _____________ _____________
Cash-end of year $ 2,663,032 $ 2,516,961 $ 2,485,457
============== ============= =============
Selected Quarterly Financial Data
(unaudited)
2003
__________________________________________
(Dollars in thousands, except per
share data) IV III II I
__________________________________________
Interest income $6,196 $6,269 $5,912 $5,853
Interest expense 1,089 1,156 1,169 1,266
__________________________________________
Net interest income 5,107 5,113 4,743 4,587
Provision for possible credit losses - 250 100 200
Net interest income after provision
for possible credit losses 5,107 4,863 4,643 4,387
Noninterest income,
excluding securities gains 1,866 1,980 1,936 1,718
Net securities gains/(losses) - 10 93 (5)
Noninterest expense 4,717 4,504 4,438 4,312
__________________________________________
Income before income tax expense 2,256 2,349 2,234 1,788
Income tax expense 591 614 610 479
__________________________________________
Net income $1,665 $1,735 $1,624 $1,309
==========================================
Earnings per common share
Basic $0.52 $0.55 $0.51 $0.41
Diluted $0.50 $0.52 $0.49 $0.40
Market price of common stock
High $32.13 $31.90 $20.87 $16.04
Low $29.80 $20.91 $15.64 $14.55
Close $31.50 $31.70 $20.77 $15.55
Average shares outstanding
Basic 3,175,226 3,173,579 3,173,956 3,178,879
Diluted 3,330,674 3,325,503 3,293,811 3,268,942
2002
___________________________________________
(Dollars in thousands, except
per share data) 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 $0.40 $0.39 $0.35 $0.25
Diluted $0.39 $0.38 $0.34 $0.25
Market price of common stock
High $21.18 $12.32 $12.05 $10.82
Low $11.73 $10.91 $11.14 $9.95
Close $15.73 $11.73 $11.91 $10.82
Average shares outstanding
Basic 3,177,726 3,171,456 3,173,256 3,172,879
Diluted 3,265,707 3,241,758 3,243,368 3,229,292
ITEM 8 - Changes in and Disagreements
with Accountants on Accounting and
Financial Disclosure.
Not applicable.
Item 8A - Controls and Procedures
MidSouth's Chief Executive Officer and
Chief Financial Officer have evaluated the
effectiveness of the disclosure controls and
procedures (as such term is defined in Rules
13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934, as amended (the
"Exchange Act"), as of a date within 90 days
prior to the filing date of this annual report
(the "Evaluation Date"). Based on such
evaluation, such officers have concluded
that, as of the Evaluation Date, MidSouth's
disclosure controls and procedures are
effective in alerting them on a timely basis
to material information relating to MidSouth
(including its consolidated subsidiaries)
required to be included in MidSouth's
periodic filings under the Exchange Act.
Since the Evaluation Date, there have not
been any significant changes in MidSouth's
internal controls or in other factors that
could significantly affect such controls.
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 2004
annual meeting of shareholders, is
incorporated herein by reference in response
to this Item. Information concerning
executive officers is provided following
Item 4A.
ITEM 10 - Executive Compensation
The information contained in Registrant's
definitive proxy statement for its 2004
annual meeting of shareholders is
incorporated herein by reference in response
to this Item.
ITEM 11 - Security Ownership of Certain
Beneficial Owners and Management and
Related Stockholder Matters
The information contained in Registrant's
definitive proxy statement for its 2004
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 2004
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 are
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 are 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 are
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 5 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 an exhibit
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
31.1 Certificate pursuant to
Exchange Act Rules
13(a) - 14(a)
31.2 Certificate pursuant to
Exchange Act Rules
13(a) - 14(a)
32.1 Certification pursuant
to Section 906 of the
Sarbanes-Oxley Act of
2002
32.2 Certification pursuant
to Section 906 of the
Sarbanes-Oxley Act of
2002
Reports on Form 8-K
Current Report filed on Form 8-K
October 27, 2003, which included a press
release regarding the Company's earnings
and financial highlights for the quarter-
ended September 30, 2003.
Current Report filed on Form 8-K
January 26, 2004, which included a press
release regarding the Company's earnings
and financial highlights for the quarter-
ended December 31, 2003.
ITEM 14 - Principal Accountant Fees
and Services.
The information contained in Registrant's
definitive proxy statement for its 2004
annual meeting of shareholders is
incorporated herein by reference in
response to this Item.
SIGNATURES
Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this
report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MIDSOUTH BANCORP, INC.
By: /s/ C. R. Cloutier
___________________
C. R. Cloutier
President and Chief
Executive Officer
Dated: March 30, 2004
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 30, 2004
/s/ Karen L. Hail Chief Financial Officer,
Karen L. Hail Executive Vice President,
Secretary/Treasurer
And Director March 30, 2004
/s/ Teri S. Stelly Chief Accounting
Teri S. Stelly Officer March 30, 2004
/s/ J. B. Hargroder, M.D. Director March 30, 2004
J. B. Hargroder, M.D.
/s/ William M. Simmons Director March 30, 2004
William M. Simmons
/s/ Will G. Charbonnet, Sr. Director March 30, 2004
Will G. Charbonnet, Sr.
/s/ Clayton Paul Hilliard Director March 30, 2004
Clayton Paul Hilliard
/s/ James R. Davis Director March 30, 2004
James R. Davis, Jr.
/s/ Milton B. Kidd, III Director March 30, 2004
Milton B. Kidd, III., O.D.