**Exhibit 13**

** **

**MINDEN BANCORP, INC.**

 

**2002 ANNUAL REPORT**

 

**TO STOCKHOLDERS**

 

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**TABLE OF CONTENTS**

 
| President’s Letter to Stockholders                                                     | 1      |
|---------------------------------------------------------------------------------------------|--------|
|                                                                                        |   |
| Business of Minden Bancorp, Inc.                                                            | 2      |
|                                                                                        |   |
| Market Price of Minden Bancorp Common Shares and Related Stock  Matters                     | 3      |
|                                                                                        |   |
| Selected Consolidated Financial and Other  Data                                             | 4      |
|                                                                                        |   |
| Management’s Discussion and Analysis of  Financial Condition and Results of Operations | 6      |
|                                                                                        |   |
| Report of Independent Certified Public  Accountants                                         | 17     |
|                                                                                        |   |
| Consolidated Statements of Balance Sheets                                                   | 18     |
|                                                                                        |   |
| Consolidated Statements of Income                                                           | 19     |
|                                                                                        |   |
| Consolidated Statements of Equity                                                           | 20     |
|                                                                                        |   |
| Consolidated Statements of Cash Flows                                                       | 21     |
|                                                                                        |   |
| Notes to Consolidated Financial Statements                                                  | 22     |
|                                                                                        |   |
| Directors and Executive Officers                                                            | 36     |
|                                                                                        |   |
| Banking Locations and Stockholder  Information                                              | 37     |

 

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**Minden Bancorp, Inc.**

 

**PRESIDENT’S LETTER TO STOCKHOLDERS**

 

On behalf of yourboard of directors, senior management and all of the Minden Bancorp, Inc.employees, we wish to welcome you as a Minden Bancorp, Inc. shareholder and todeliver our first annual report.

 

Founded in 1910,Minden has a proud tradition of providing financial services to the residentsof the city of Minden and neighboring communities in northwesternLouisiana.  During 2002, we greatlyenhanced our ability to provide those services by completing a mutual holdingcompany reorganization and the sale of stock in a public offering to ouraccount holders and members of the general public.  The stock sale generated approximately $5.4 in net proceeds.  The new form of organization positions the Mindenorganization for future expansion through acquisition and diversification ofour business.  The capital raised in thestock offering provided funds for the immediate needs of Minden’s operations.

 

Our entry into theworld of publicly traded thrifts came at a time when corporate governance was afocal point of Congressional review and public debate.  We believe that the resulting reforms inaccounting rules, financial disclosure and fiduciary responsibility willrestore confidence in public companies.

 

The mutual holdingcompany reorganization and stock offering were part of Minden’s overall effortsto diversify its operations and to enhance the quality of its products andservices as it evolves into a full-service financial institution.  That plan of diversity and enhanced qualityis evident in Minden’s performance for 2002. Net income increased to $824,000 for fiscal 2002 as compared to $455,000for fiscal 2001.  The combination ofMinden’s more diversified loan portfolio, increased assets from continuedgrowth and the stock offering proceeds and historically low interest ratesresulted in record interest income.

 

This year ofmilestone events and continued record operating results also included thedeparture from Minden’s board of directors of a person who has beeninstrumental in Minden’s evolution to a full service financialinstitution.  On January 14, 2002, EnosC. McClendon Jr. resigned from the Minden’s board of directors after over fiftyyears of service.  During his tenure, heprovided leadership as Vice President of Minden for many of those years.  Minden is deeply appreciative of Mr.McClendon’s long and valuable service to the organization and wish him well inhis retirement.

 

Looking Forward

 

Our future is bright and is filled with greatpotential and opportunity.  Ourchallenge for the years ahead is to build upon the momentum we have alreadycreated and further position ourselves to strategically leverage Minden’sstrengths, seize new opportunities for increased profitability and build uponour growing franchise value.

 

Thank you for your continued confidence andsupport.

 

 

A. David Evans

President and

Chief Executive Officer

 

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**Minden Bancorp, Inc.**

 

**BUSINESS OF MINDEN****BANCORP, INC.**

 

MindenBancorp, Inc., a federal corporation (“Minden Bancorp” or the “Company), is aunitary savings and loan holding company which owns all of the outstandingcommon shares of Minden Building and Loan Association (“Minden” or the“Association”), a Louisiana-chartered building and loan association.

 

Foundedin 1910, Minden is a community and customer oriented stock savings bank thatconducts business out of its main office located in Minden, Louisiana.  The Association’s business consistsprincipally of attracting deposits from the general public and using thosefunds to originate loans secured by one-to-four-family residential loans,commercial business loans, non-residential real estate loans and consumerloans.  Minden’s profitability dependsprimarily on its net interest income, which is the difference between theincome it receives on loans and other assets and its cost of funds, whichconsists of the interest paid on deposits and borrowing.  At December 31, 2002, the Company had totalassets of $79.6 million, liabilities of $61.2 million, including deposits of$56.9 million and total shareholders’ equity of $17.6 million.

 

InDecember 2001, the Board of Directors of Minden adopted a Plan ofReorganization pursuant to which the Association converted to stock form andbecame a wholly owned subsidiary of the Company.  In connection with the reorganization, the Company became amajority owned (55%) subsidiary of Minden Mutual Holding Company.  The reorganization was consummated on July2, 2002.  The activities of the Companyhave been limited primarily to holding the stock of Minden.

 

TheCompany is subject to regulation, supervision and examination by the Office ofThrift Supervision of the U.S. Department of Treasury (the “OTS”).  As a Louisiana-chartered institution, Mindenis subject to the regulation, supervision and examination of the LouisianaOffice of Financial Institutions as well as to the jurisdiction of the OTS asits primary federal regulator and the Federal Deposit Insurance Corporation(“FDIC), which administers the Savings Association Insurance Fund.  The FDIC insures deposits in Minden up toapplicable limits.

 

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**Minden Bancorp, Inc.**

 

**MARKET PRICE OF MINDEN BANCORP****COMMON SHARES AND RELATED STOCKHOLDER MATTERS**

 

MindenBancorp’s common shares have been listed on the Over-the-Counter ElectronicBulletin Board since July 2, 2002, under the symbol “MDBC.”  Presented below are the high and low tradingbids for Minden Bancorp’s common shares for the period from July 2, 2002, thedate of the consummation of the mutual holding company reorganization, toDecember 31, 2002.  Such informationdoes not include retail financial markups, markdowns or commissions and may notrepresent actual transactions. Information relating to bids has been obtained from the NASDAQ.

 
| **2002**            |   | **High** |   | **Low** |   |
|---------------------|--------|----------|--------|---------|--------|
| Quarter  ended:     |   |     |   |    |   |
| September  30, 2002 |   | $        | 12.00  |    | $      | 11.30 |   |
| December  31, 2002  |   | $        | 13.00  |    | $      | 11.30 |   |

 

As ofMarch 13, 2003, Minden Bancorp had 1,454,750 common shares outstanding held ofrecord by approximately 292 stockholders. The number of stockholders does not reflect the number of persons orentities who may hold stock in nominee or “street” name through brokerage firmsor others.  The Company did not declareor pay any dividends during the period ended December 31, 2002.

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**Minden Bancorp, Inc.**

 

**SELECTEDCONSOLIDATED FINANCIAL AND OTHER DATA**

 

Selectedconsolidated financial and other data does not purport to be complete and isqualified in its entirety by reference to the more detailed financialinformation, including the Consolidated Financial Statements and related Notes,appearing elsewhere herein.

 
|                                        |   | **At December 31,**         |       |
|---------------------------------------------|--------|-----------------------------|------------|
|                                        |   | **2002**                    |       | **2001** |   |
|                                        |   | **(Dollars  in Thousands)** | ** ** |
|                                        |   | **(restated)**              | ** ** |
| **Selected Balance Sheet and  Other Data:** |   |                        |       |
|                                        |   |                        |       |   |   |
| Total assets                                |   | $                           | 79,568     |   | $ | 61,233 |   |
| Cash and cash  equivalents(1)               |   | 3,244                       |       | 1,841 |   |
| Investment  securities available for sale   |   | 18,112                      |       | 11,287 |   |
| Investment  securities held to maturity     |   | 300                         |       | 800 |   |
| Mortgage-backed  securities held tomaturity |   | 1,997                       |       | 2,937 |   |
| Loans receivable,  net                      |   | 52,337                      |       | 41,188 |   |
| Total deposits                              |   | 56,856                      |       | 46,070 |   |
| Borrowings                                  |   | 4,000                       |       | 3,000 |   |
| Total equity                                |   | 17,648                      |       | 11,297 |   |
| Number of full  service offices             |   | 1                           |       | 1 |   |
|                                             |        |                             |            |  |  |  |  |

 
|                                                |   | **Year Ended December 31,** |       |
|-----------------------------------------------------|--------|-----------------------------|------------|
|                                                |   | **2002**                    |       | **2001** |   |
|                                                |   | **(In  Thousands)**         | ** ** |
|                                                |   |                        |       |   |   |
| **Selected Operating Data:**                        |   |                        |       |   |   |
|                                                |   |                        |       |   |   |
| Total interest  income                              |   | $                           | 4,508      |   | $ | 3,826 |   |
| Total interest  expense                             |   | 1,731                       |       | 1,937 |   |
| Net interest  income                                |   | 2,777                       |       | 1,889 |   |
| Provision for  loan losses                          |   | —                      |       | — |   |
| Net interest  income afterprovision for loan losses |   | 2,777                       |       | 1,889 |   |
| Total other  operating income                       |   | 173                         |       | 157 |   |
| Total other  operating expense                      |   | 1,711                       |       | 1,364 |   |
| Income before  income tax                           |   | 1,239                       |       | 682 |   |
| Income tax  expense                                 |   | 415                         |       | 227 |   |
| Net income                                          |   | $                           | 824        |   | $ | 455 |   |

 

*(Footnotes on followingpage)*

 

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|                                                                         |   | **At or for  the Year Ended December 31,** |       |
|------------------------------------------------------------------------------|--------|--------------------------------------------|------------|
|                                                                         |   | **2002**                                   |       | **2000** |   |
|                                                                         |   |                                       | ** ** | **(restated)** | ** ** |
| **Selected Operating Ratios(2):**                                            |   |                                       |       |   |   |
|                                                                         |   |                                       |       |   |   |
| **Performance Ratios:**                                                      |   |                                       |       |   |   |
| Return on average assets                                                     |   | 1.15                                       | %          | 0.93 | % |
| Return on average equity                                                     |   | 5.69                                       |       | 4.19 |   |
| Equity to assets at end of period                                            |   | 22.18                                      |       | 21.28 |   |
| Interest rate spread(3)                                                      |   | 3.40                                       |       | 2.61 |   |
| Net interest margin(3)                                                       |   | 4.12                                       |       | 3.62 |   |
| Average interest-earning assets to average  interest-bearing liabilities     |   | 128.2                                      |       | 125.57 |   |
| Net interest income after provision for loan  losses to total other expenses |   | 162.3                                      |       | 140.45 |   |
| Total other expenses to average total assets                                 |   | 2.41                                       |       | 2.25 |   |
| **Asset Quality Ratios:**                                                    |   |                                       |       |   |   |
| Non-performing loans to total loans at end of  period(4)                     |   | 1.03                                       | %          | 1.25 | % |
| Non-performing assets to total assets at end of  period(4)                   |   | 0.74                                       |       | 0.77 |   |
| Allowance for loan losses to total loans at end of  period                   |   | 1.70                                       |       | 2.99 |   |
| Allowance for loan losses to total non-performing  loans at end of period(4) |   | 162.84                                     |       | 230.53 |   |
| **Capital Ratios:(5)**                                                       |   |                                       |       |   |   |
| Tangible capital ratio                                                       |   | 21.41                                      | %          | 20.26 | % |
| Core capital ratio                                                           |   | 21.42                                      |       | 20.26 |   |
| Total capital  ratio                                                         |   | 42.81                                      |       | 46.66 |   |

 

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(1)                                  Consists of cashand short-term interest-bearing deposits.

 

(2)                                  With the exceptionof end of period ratios, all ratios are based on average daily balances.

 

(3)                                  Interest ratespread represents the difference between the weighted average yield oninterest-earning assets and the weighted average rate on interest-bearingliabilities.  Net interest marginrepresents net interest income as a percentage of average interest-earningassets.

 

(4)                                  Non-performingloans consist of non-accrual loans and accruing loans that are contractuallypast due 90 days or more, and non-performing assets consist of non-performingloans and real estate acquired by foreclosure or deed-in-lieu thereof.

 

(5)                                  Percentages relateto Minden Building and Loan only.

 

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**Minden Bancorp, Inc.**

 

**MANAGEMENT’SDISCUSSION AND ANALYSIS OF**

**FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

**General**

 

TheCompany’s profitability depends primarily on its net interest income, which isthe difference between interest and dividend income on interest-earning assets,principally loans, investment securities and interest-earning deposits in otherinstitutions, and interest expense on interest-bearing deposits and borrowingsfrom the Federal Home Loan Bank of Dallas. Net interest income is dependentupon the level of interest rates and the extent to which such rates arechanging. The Company’s profitability also depends, to a lesser extent, onnoninterest income, provision for loan losses, noninterest expenses and federalincome taxes.  The Company had netincome of $824,000 in 2002 and $455,000 in 2001.

 

TheCompany’s primary asset is Minden Building and Loan Association.  Historically, Minden Building and Loan’sbusiness has consisted primarily of originating single-family real estate loanssecured by property in its market area. Typically, single-family loans involve a lower degree of risk and carrya lower yield than commercial real estate, construction, commercial businessand consumer loans.  Minden Building andLoan’s loans are primarily funded by certificates of deposit, which typicallyhave a higher interest rate than passbook accounts.  The combination of these factors has resulted in low interestrate spreads and returns on equity. Although Minden Building and Loan hassignificantly increased the amount of commercial real estate, consumer andcommercial business loans originated, Minden Building and Loan presentlyanticipates that its business will continue to primarily consist of originatingsingle-family real estate loans funded by deposits.

 

TheCompany’s operations and profitability are subject to changes in interestrates, applicable statutes and regulations and general economic conditions, aswell as other factors beyond its control.

 

**Forward-Looking Statements Are Subject toChange**

 

Wemake certain statements in this document as to what we expect may happen in thefuture. These statements usually contain the words “believe,” “estimate,”“project,” “expect,” “anticipate,” “intend” or similar expressions. Becausethese statements look to the future, they are based on our current expectationsand beliefs. Actual results or events may differ materially from thosereflected in the forward-looking statements. You should be aware that ourcurrent expectations and beliefs as to future events are subject to change atany time, and we can give you no assurances that the future events willactually occur.

 

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**Exposure to Changes in Interest Rates**

 

MindenBuilding and Loan’s ability to maintain net interest income depends upon itsability to earn a higher yield on assets than the rates it pays on deposits andborrowings.  Minden Building and Loan’sinterest-earning assets consist primarily of long-term residential mortgageloans which have fixed rates of interest. Consequently, Minden Building and Loan’s ability to maintain a positivespread between the interest earned on assets and the interest paid on depositsand borrowings can be adversely affected when market rates of interestrise.  In addition, Minden Building andLoan may be particularly susceptible to the risk of rising interest rates sincelong-term, fixed-rate mortgage loans make up the dominant portion of itsinterest-earning assets.

 

**QuantitativeAnalysis.**  The Office of Thrift Supervision provides aquarterly report on the potential impact of interest rate changes upon the marketvalue of portfolio equity.  Managementreviews the quarterly reports from the Office of Thrift Supervision which showthe impact of changing interest rates on net portfolio value.  Net portfolio value is the differencebetween incoming and outgoing discounted cash flows from assets, liabilities,and off-balance sheet contracts.  Aninstitution has greater than “normal” interest rate risk if it would suffer aloss of net portfolio value exceeding 2.0% of the estimated market value of itsassets in the event of a 200 basis point increase or decrease in interestrates.  A resulting change in netportfolio value of more than 2.0% of the estimated market value of aninstitution’s assets will require the institution to deduct from its risk-basedcapital 50% of that excess change, if and when a rule adopted by the Office ofThrift Supervision takes effect.  Underthe rule, an institution with greater than “normal” interest rate risk will besubject to a deduction of its interest rate risk component from total capitalfor purposes of calculating the risk-based capital requirement.  However, the Office of Thrift Supervisionhas indicated that no institution will be required to deduct capital forinterest rate risk until further notice. Because a 200 basis point increase in interest rates would have resultedin Minden Building and Loan’s net portfolio value decreasing by more than 2.0%of the estimated market value of its assets as of December 31, 2002, MindenBuilding and Loan would have been subject to a capital deduction of $908,000 asof December 31, 2002 if the regulation had been effective as of such date.  If this capital deduction had occurred,Minden Building and Loan would have continued to be well capitalized.

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Net Portfolio Value

 
| **Change in****Interest Rates****(basis points)** |       | **Estimated****Net Portfolio  Value** | ** ** | **Estimated****Net Portfolio  Value as a****Percentage****of Assets** | ** ** | **Amount****of Change** | ** ** | **Change as  a****Percentage****of Assets** | ** ** |
|---------------------------------------------------|------------|---------------------------------------|------------|-----------------------------------------------------------------------|------------|-------------------------|------------|---------------------------------------------|------------|
| **(Dollars in Thousands)**                        | ** ** |
|                                              |       |                                  |       |                                                                  |       |                    |       |                                        |       |
| 300                                               |       | $                                     | 17,608     |                                                                  | 22.26      | %                       | $          | (3,299                                      | )          | (16 | )% |
| 200                                               |       | 19,092                                |       | 23.65                                                                 |       | (1,815                  | )          | (9                                          | )          |
| 100                                               |       | 20,315                                |       | 24.74                                                                 |       | (592                    | )          | (3                                          | )          |
| —                                            |       | 20,907                                |       | 25.22                                                                 |       | —                  |       | —                                      |       |
| (100)                                             |       | 21,173                                |       | 25.40                                                                 |       | 266                     |       | 1                                           |       |
|                                                   |            |                                       |            |                                                                       |            |                         |            |                                             |            |  |  |

 

**QualitativeAnalysis.**  Our ability to maintain a positive “spread”between the interest earned on assets and the interest paid on deposits andborrowings is affected by changes in interest rates.  Minden Building and Loan’s fixed-rate loans generally areprofitable if interest rates are stable or declining since these loans haveyields that exceed its cost of funds. If interest rates increase, however, Minden Building and Loan would haveto pay more on its deposits and new borrowings, which would adversely affectits interest rate spread.  In order tocounter the potential effects of dramatic increases in market rates ofinterest, Minden Building and Loan has underwritten its mortgage loans to allowfor their sale in the secondary market, implemented a strategy to diversify itsloan portfolio by originating more commercial real estate, consumer, commercialbusiness and construction loans, invested in securities with short terms oradjustable rates and increased the amount of deposits in transaction accounts.

 

Forthe year ending December 31, 2002, Minden Building and Loan originated $3.6 millionin commercial real estate loans compared to $1.8 million for the year endingDecember 31, 2001.  Originations ofconsumer loans increased to $3.7 million in fiscal year 2002 from $3.2 millionin fiscal year 2001. Originations of commercial business loans increased to$9.2 million for the year ending December 31, 2002 compared to $1.3 million forthe year ending December 31, 2001. Originations of construction loans increasedto $2.6 million for the year ending December 31, 2002 from $1.6 million for theyear ending December 31, 2001.  MindenBuilding and Loan’s commercial real estate, consumer, commercial business andconstruction loans typically have shorter terms and higher interest rates thanits single family residential mortgage loans.

 

MindenBuilding and Loan’s adjustable-rate securities at December 31, 2002 consistedof $12.4 million of mortgage-backed securities and $4.3 million invested in amutual fund that invests in adjustable-rate mortgage-backed securities comparedto $6.6 million of mortgage-backed securities and $3.6 million invested in themutual fund at December 31, 2001.

 

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Depositsin transaction accounts were $17.2 million, or 30.3% of total deposits atDecember 31, 2002, compared to $11.0 million, or 23.7%, at December 31,2001.  Minden Building and Loan’stransaction accounts generally have lower interest rates than its certificatesof deposit and are considered a more stable source of funds than certificatesof deposit.

 

**Changes in Financial Condition**

 

Assets.  The Company’s total assets increased by$18.3 million, or 29.9%, to $79.6 million at December 31, 2002 from $61.2million at December 31, 2001 (restated). The increase was primarily due to a $11.1 million, or 27.1%, increase inthe net loan portfolio, as one- to four-family residential loans increased by$2.5 million, or 7.3%, commercial real estate loans increased by $2.5 million,or 78.0%, consumer loans increased by $308,000, or 10.5%, commercial businessloans increased by $4.7 million, or 583.4%, and construction loans increased by$1.1 million, or 102.1%, in 2002.  Inaddition, the Company’s securities available for sale portfolio increased by$6.8 million, or 60.5%, to $18.1 million at December 31, 2002.

 

Residentialloans accounted for 68.3% of Minden Building and Loan’s total loan portfolio atDecember 31, 2002.  Minden Building andLoan’s one-to-four family residential loans increased to $37.0 million atDecember 31, 2002 primarily because of increased loan volume due to thehistorically low interest rates. Although single family residential loans are Minden Building and Loan’sprimary lending product, originations of commercial real estate, commercialbusiness, consumer and construction loans increased significantly in 2002 dueto its increased emphasis on these types of loans and the favorable interestrate environment for its lending products. Commercial real estate loans increased to 10.7% of Minden Building andLoan’s total loan portfolio at December 31, 2002 from 7.7% at December 31,2001.  Commercial business loansincreased to 10.9% of Minden Building and Loan’s total loan portfolio atDecember 31, 2002 from 1.9% at December 31, 2001.  Construction loans increased to 4.1% of its total loan portfolioat December 31, 2002 compared to 2.6% at December 31, 2001.  Consumer loans decreased to 6.0% of itstotal loan portfolio at December 31, 2002 compared to 6.9% at December 31,2001.  The net loan portfolio amountedto $52.3 million, or 65.8%, of total assets at December 31, 2002, comparedto $41.2 million, or 67.3%, of total assets at December 31, 2001.  Minden Building and Loan expects continuedgrowth in its loan portfolio in 2002.

 

Non-performingassets totaled $592,000 and $480,000 at December 31, 2002 and 2001,respectively, or 0.8% of its total assets at such dates.  Minden Building and Loan’s non-performingloans totaled $557,000 and $386,000 at December 31, 2002 and 2001,respectively, or 1.0% of its total loan portfolio at each of such dates.  The $171,000 increase in non-performingloans was primarily the result of the increase from seven to fifteen loans,most of which were in bankruptcy The non-performing loans consist ofnon-accrual loans and accruing loans that are contractually past due 90 days ormore.  Minden Building and Loan owned$35,000 of real estate owned at December 31, 2002 compared to $59,000 atDecember 31, 2001.  Minden Building andLoan’s allowance for 

 

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loan losses amounted to $907,000,or 1.7% of the total loan portfolio and 162.8% of total non-performing loans atDecember 31, 2002.  The allowance forloan losses totaled $911,000, or 2.2% of Minden Building and Loan’s total loanportfolio and 216.3% of its total non-performing loans at December 31, 2001(restated).  The allowances for loanlosses for 2001 is a restatement to $911,000 from the $876,000 previouslyreported in the financial statements for that year.  The restatement was made to correct a write down of real estateowned that was incorrectly charged to the allowances for loan losses in2000.  For further information regardingthe restatements, see Note 16 to the financial statements.  See “Business of Minden Building and LoanAssociation - Asset Quality.”

 

Investmentsecurities totaled $20.4 million at December 31, 2002, an increase of $5.4million, or 35.8%, from the balance at December 31, 2001.  The increase was primarily the result of anincrease of $5.3 million in Minden Building and Loan’s available for salemortgage-backed securities portfolio as the proceeds of Minden Bancorp, Inc.’sstock offering were invested in such securities.  As a result, Minden Building and Loan’s available for salemortgage-backed securities portfolio increased from $6.6 million to $11.8 millionduring fiscal 2002.

 

Cashand cash equivalents, which include interest-earning deposits in otherinstitutions, amounted to $3.2 million, or 4.1% of total assets, at December31, 2002, compared to $1.8 million, or 3.0% of total assets, at December 31, 2001.  The increase as of December 31, 2002 wasprimarily due to temporary investment of excess liquidity in federal funds.

 

**Deposits**. Minden Building and Loan’s deposits increased by $10.8 million, or23.4%, to a total of $56.9 million at December 31, 2002.  The increase resulted primarily frommanagement’s continuing efforts to maintain growth in deposits throughmarketing and pricing strategies. Recent consolidation of other financial institutions in Minden Buildingand Loan’s market area also contributed to its increase in deposits.  Proceeds from the growth in deposits weregenerally used to fund new loan originations.

 

**Equity.** The Company’s total equity increased by $6.4million, or 56.2%, in 2002 and amounted to $17.7 million, or 22.2%, of totalassets at December 31, 2002. The increase was due primarily to netproceeds from the stock offering of $5.4 and to net income of $824,000.

 

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|                                                                    |   |                                        |       | **Year Ended December 31,** |   |
|-------------------------------------------------------------------------|--------|---------------------------------------------|------------|-----------------------------|--------|
|                                                                    |   |                                        |       | **2002**                    |   | **2001** |   |
|                                                                    |   | **Yield/Cost at********December 31,  2002** |       | **Average********Balance**  |   | **Interest** |   | **Average********Yield/Rate** |   | **Average********Balance** |   | **Interest** |   | **Average********Yield/ Rate** |   |
|                                                                    |   | **(Dollars  in Thousands)**                 | ** ** |
|                                                                    |   |                                        |       |                        |   |   |   |   |   |   |   |   |   |   |   |
| **Interest-earning assets:**                                            |   |                                        |       |                        |   |   |   |   |   |   |   |   |   |   |   |
| Loans receivable, net(1)                                                |   | 7.07                                        | %          | $                           | 47,025 |   | $ | 3,698 |   | 7.86 | % | $ | 35,141 |   | $ | 2,966 |   | 8.44 | % |
| Investment securities(2)                                                |   | 3.75                                        |       | 18,644                      |   | 785 |   | 4.20 |   | 14,423 |   | 806 |   | 5.59 |   |
| Interest-earning deposits                                               |   | 1.53                                        |       | 1,633                       |   | 25 |   | 1.53 |   | 1,560 |   | 54 |   | 3.46 |   |
| Total interest-earning assets                                           |   | 5.99                                        |       | 67,042                      |   | 4,508 |   | 6.71 |   | 51,124 |   | 3,826 |   | 7.48 |   |
| Non-interest-earning assets                                             |   |                                        |       | 3,884                       |   |   |   |   |   | 3,288 |   |   |   |   |   |
| Total assets                                                            |   |                                        |       | $                           | 71,186 |   |   |   |   |   | $ | 54,412 |   |   |   |   |   |
|                                                                    |   |                                        |       |                        |   |   |   |   |   |   |   |   |   |   |   |
| **Interest-bearing liabilities:**                                       |   |                                        |       |                        |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                                |   | 3.12                                        | %          | $                           | 48,168 |   | $ | 1,633 |   | 3.39 | % | $ | 38,729 |   | $ | 1,871 |   | 4.83 | % |
| Borrowings                                                              |   | 2.45                                        |       | 4,158                       |   | 98 |   | 2.36 |   | 1,680 |   | 66 |   | 3.93 |   |
| Total interest-bearing liabilities                                      |   | 2.84                                        |       | 52,326                      |   | 1,731 |   | 3.31 |   | 40,409 |   | 1,937 |   | 4.79 |   |
| Non-interest-bearing liabilities                                        |   |                                        |       | 4,059                       |   |   |   |   |   | 2,905 |   |   |   |   |   |
| Total liabilities                                                       |   |                                        |       | 56,385                      |   |   |   |   |   | 43,314 |   |   |   |   |   |
| Total equity(3)                                                         |   |                                        |       | 14,541                      |   |   |   |   |   | 11,098 |   |   |   |   |   |
| Total liabilities and equity                                            |   |                                        |       | $                           | 70,926 |   |   |   |   |   | $ | 54,412 |   |   |   |   |   |
|                                                                    |   |                                        |       |                        |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income; interest rate spread(4)                            |   |                                        |       |                        |   | $ | 2,777 |  % | 3.40 | % |   |   | $ | 1,889 |   | 2.69 |   |
| Net interest margin(5)                                                  |   |                                        |       |                        |   |   |   | 4.12 | % |   |   |   |   | 3.69 | % |
| Average interest-earning assets to averageinterest-bearing  liabilities |   |                                        |       | 128.12                      | %      |   |   |   |   | 126.52 |   |   |   |   |   |

 

----

(1)                                  Includesnonaccruing loans.

(2)                                  Includes dividendsfrom Federal Home Loan Mortgage Corporation and Federal Home Loan Bank stock.

(3)                                  Includes retainedearnings and accumulated other comprehensive income.

(4)                                  Interest ratespread represents the difference between the weighted-average yield oninterest-earning assets and the weighted-average rate on interest-bearingliabilities.

(5)                                  Net interest marginis net interest income divided by net average interest-earning assets.

 

**Rate/VolumeAnalysis.** The following table describes the extent towhich changes in interest rates and changes in volume of interest-relatedassets and liabilities have affected the Company’s interest income and interestexpense during the periods indicated. For each category of interest-earning assets and interest-bearingliabilities, information is provided on changes attributable to (i) changes involume (change in volume multiplied by prior year rate), (ii) changes in rate(change in rate multiplied by prior year volume), and (iii) total change inrate and volume.  The combined effect ofchanges in both rate and volume has been allocated proportionately to thechange due to rate and the change due to volume.

 

11

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|                                      |   | **Year  Ended December 31,**                 |       |
|-------------------------------------------|--------|----------------------------------------------|------------|
|                                      |   | **2002  vs. 2001**                           |       | **2001  vs. 2000** |   |
|                                      |   | **Increase********(Decrease)********Due To** |       | **Total********Increase** |   | **Increase********(Decrease)********Due To** |   | **Total********Increase** |   |
|                                      |   | **Rate**                                     |       | **Volume** |   | **(Decrease)** |   | **Rate** |   | **Volume** |   | **(Decrease)** |   |
|                                      |   | **(In  Thousands)**                          |       |
|                                      |   |                                         | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |
| **Interest-earning assets:**              |   |                                         | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |
| Loans receivable, net                     |   | $                                            | (271       | ) | $ | 1003 |   | $ | 732 |   | $ | (1 | ) | $ | 584 |   | $ | 583 |   |
| Investment securities                     |   | (242                                         | )          | 221 |   | (21 | ) | (111 | ) | (183 | ) | (294 | ) |
| Interest-earning deposits                 |   | (32                                          | )          | 3 |   | (29 | ) | (3 | ) | 42 |   | 39 |   |
| Total                                     |   | (545                                         | )          | 1227 |   | 682 |   | (115 | ) | 443 |   | 328 |   |
|                                      |   |                                         |       |   |   |   |   |   |   |   |   |   |   |
| **Interest-bearing  liabilities:**        |   |                                         |       |   |   |   |   |   |   |   |   |   |   |
| Deposits                                  |   | (694                                         | )          | 456 |   | (238 | ) | (41 | ) | 156 |   | 115 |   |
| Borrowings                                |   | (65                                          | )          | 97 |   | 32 |   | (46 | ) | 36 |   | (10 | ) |
| Total                                     |   | (759                                         | )          | 553 |   | (206 | ) | (87 | ) | 192 |   | 105 |   |
| Increase (decrease) in net interestincome |   | $                                            | 214        |   | $ | 674 |   | $ | 888 |   | $ | (28 | ) | $ | 251 |   | $ | 223 |   |

 

**Comparison of Operating Results for the YearsEnded December 31, 2002 and 2001**

 

**General.**  Net income amounted to $824,000 for the yearended December 31, 2002, an increase of $369,000, or 81.1%, from net incomerecorded for the year ended December 31, 2000 (restated).  The increase in earnings resulted primarilyfrom a $888,000 increase in net interest income and a $16,000 increase in otheroperating income, which was partially offset by a $347,000 increase in otheroperating expenses.

 

**Net Interest Income.**  Total interest and dividend income amountedto $4.5 million for the year ended December 31, 2002, an increase of $682,000,or 17.8%, over the year ended December 31, 2001.  Interest income on loans, including fees totaled $3.7 million forthe year ended December 31, 2002, an increase of $732,000, or 24.7%, over theyear ended December 31, 2001.  Thisincrease was due to a $11.9 million, or 33.8%, increase in the weighted-averagebalance of loans outstanding. Interest income on investment securitiesdecreased by $33,000, or 4.1%, as a result of a $4.0 million, or 27.5%,increase in the weighted-average balance outstanding and a 139 basis pointdecrease in the weighted-average yield year to year.  Interest-earning deposits income which consists of overnightfunds and interest-bearing demand accounts decreased by $17,000, or 31.5%, forthe year ended December 31, 2002 compared to the year ended December 31, 2001.

 

Total interest expense totaled $1.7 millionfor the year ended December 31, 2002, a decrease of $206,000, or 10.6%, fromthe amount recorded for the year ended December 31, 2001.  Interest expense on deposits decreased by$238,000, or 12.7%, due primarily to a 144 basis point decrease in the weightedaverage cost of deposits year to year which was partially offset by an increaseof

 

12

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$9.4 million, or 24.4%, in theweighted-average balance of deposits outstanding..  Interest expense on borrowings increased by $32,000, or 48.5%, asa result of a $2.5 million, or 147.5%, increase in the weighted-average balanceoutstandings year over year which was partially offset by a 157 basis pointdecrease in the weighted-average cost of borrowings year to year.

 

As a result of the foregoing changes ininterest income and interest expense, net interest income increased by$888,000, or 47.0%, to a total of $2.8 million for the year ended December 31,2002, compared to $1.9 million for the year ended December 31, 2001.  The interest rate spread increased by 71basis points to 3.40% in fiscal 2002 from 2.69% in fiscal 2001, and the netinterest margin increased to 4.12% for the year ended December 31, 2002 from3.69% for the year ended December 31, 2001.

 

**Provision for Losses on Loans.**  Minden Building and Loan records a provisionfor losses on loans to earnings to bring the total allowance for loan losses toa level considered to the best of management’s knowledge to reflect all knownand inherent losses in the loan portfolio at each reporting date.  The level of allowance for loan losses isbased on management’s periodic review of the collectibility of loans in lightof historical experience, the nature and volume of the loan portfolio adversesituations that may affect the borrower’s ability to repay, estimated value ofany underlying collateral and prevailing economic conditions.  Based on the above criteria for determiningthe collectibility of loans and on the management of Minden Building and Loan’sestimate as to the known and inherent losses in its loan portfolio that areprobable and reasonable at each reporting period, it recorded no additionalprovisions for loan losses for 2002 and 2001. There can be no assurances that the allowance for loan losses will besufficient to absorb losses on nonperforming assets or that the allowance willbe sufficient to cover losses on nonperforming assets in the future.

 

**Other Operating Income.**  Other operating income totaled $173,000 forthe year ended December 31, 2002, an increase of $16,000, or 10.2%, over the$157,000 recorded for the year ended December 31, 2001.  The increase resulted primarily from anincrease in customer service fees of $21,000, or 14.7%.  These increases were partially offset by a$9,000, or 90.0%, decrease in gains on the sale of assets.

 

**Other Operating Expenses.**  Other operating expenses totaled $1.7million for the year ended December 31, 2002, an increase of $347,000, or25.4%, over the total recorded for the year ended December 31, 2001.  The increase resulted primarily from a$220,000, or 29.0%, increase in salaries and benefits, a $53,000, or 62.4%,increase in professional and supervisory examination fees and a $108,000, or38.6%, increase in other general and administrative expenses.  The increase in employee compensation andbenefits was primarily attributable to increases in both salaries and thenumber of staff members, the increase in professional fees and supervisoryexaminations was primarily attributable to an increase in asset size andreporting responsibility as a public company and the increase in other generaland administrative expenses related primarily to an increase in

 

13

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computer expense of $15,000 or47.4%, an increase in life insurance expense of $29,000 or 295% and in increasein other legal fees of $14,500 or 108%.

 

**Income Taxes.**  Income tax expense totaled $415,000 for theyear ended December 31, 2002, an increase of $188,000, or 82.8%, over the$227,000 for the year ended December 31, 2001 (restated).  Minden Building and Loan’s effective taxrates were 33.8% and 33.3% for the years ended December 31, 2002 and 2001(restated), respectively.

 

**Liquidity and Capital Resources**

 

The Company maintains levels of liquid assetsdeemed adequate by management.  Itsliquidity ratio averaged 31.3% for the quarter ended December 31, 2002.  Minden Building and Loan adjusts itsliquidity levels to fund deposit outflows, repay its borrowings and to fund loan commitments. The Company alsoadjusts liquidity as appropriate to meet asset and liability managementobjectives.

 

Minden Building and Loan’s primary sources offunds are deposits, amortization and prepayment of loans and mortgage-backedsecurities, maturities of investment securities and other short-terminvestments, and earnings and funds provided from operations.  While scheduled principal repayments onloans and mortgage-backed securities are a relatively predictable source offunds, deposit flows and loan prepayments are greatly influenced by generalinterest rates, economic conditions and competition.  Minden Building and Loan sets the interest rates on its depositsto maintain a desired level of total deposits. In addition, Minden Building and Loan invests excess funds in short-terminterest-earning accounts and other assets, which provide liquidity to meetlending requirements.  Minden Buildingand Loan’s deposit accounts with the Federal Home Loan Bank of Dallas amountedto $1.6 and $1.0 million at December 31, 2002 and 2001, respectively.

 

A significant portion of Minden Building andLoan’s liquidity consists of securities classified as available for sale and cash and cash equivalents.  Minden Building and Loan’s primary sourcesof cash are net income, principal repayments on loans and mortgage-backedsecurities and increases in deposit accounts.  If Minden Building and Loan requires funds beyond its ability togenerate them internally, borrowing agreements exist with the Federal Home LoanBank of Dallas which provide an additional source of funds.  At December 31, 2002, Minden Building andLoan had $4.0 million in advances from the Federal Home Loan Bank of Dallas.

 

At December 31, 2002, Minden Building andLoan had outstanding loan commitments of $7.6 million to originate loans,including loans in process.  At December31, 2002, certificates of deposit scheduled to mature in less than one year,totaled $36.1 million.  Based on priorexperience, management believes that a significant portion of such depositswill remain with us, although there can be no assurance that this will be thecase. In addition, the cost of such deposits could be significantly higher uponrenewal, in a rising interest rate environment.  Minden Building and Loan

 

14

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intends to utilize its highlevels of liquidity to fund its lending activities.  If additional funds are required to fund lending activities,  Minden Building and Loan intends to sell itssecurities classified as available for sale as needed.

 

Minden Building and Loan is required tomaintain regulatory capital sufficient to meet tangible, core and risk-basedcapital ratios of at least 1.5%, 3.0% and 8.0%, respectively.  At December 31, 2002, Minden Building andLoan exceeded each of its capital requirements with ratios of 21.42%, 21.42%and 42.8%, respectively.

 

**Impact of Inflation and Changing Prices**

 

The financial statements and relatedfinancial data presented herein regarding the Company have been prepared inaccordance with generally accepted accounting principles, which generallyrequire the measurement of financial position and operating results in terms ofhistorical dollars, without considering changes in relative purchasing powerover time due to inflation. Unlike most industrial companies, virtually all ofthe Company’s assets and liabilities are monetary in nature. As a result,interest rates generally have a more significant impact on the Company’sperformance than does the effect of inflation. Interest rates do notnecessarily move in the same direction or in the same magnitude as the pricesof goods and services, since such prices are affected by inflation to a largerextent than interest rates.

 

**Recent Accounting Standards**

 

Statement of Financial Accounting StandardsNo. 133, *Accounting for Derivative  Instruments and Hedging Activities*,was issued in June 1998. This statement requires that all derivatives berecognized as either assets or liabilities in the statement of financialcondition and that those instruments be measured at fair value. The accountingfor changes in the fair value of a derivative (that is, gains and losses)depends on the intended use of the derivative and the resulting designation.This statement, as amended by Statement of Financial Accounting StandardsNo. 137, is effective for fiscal years beginning after June 15, 2000,although earlier adoption was permitted. The adoption of this statement did not have any material impact on theCompany’s financial position or results of operations.

 

In October 1998, the FinancialAccounting Standards Board issued Statement of Financial Accounting StandardsNo. 134, *Accounting for Mortgage-BackedSecurities Retained After the Securitization of Mortgage Loans Held for Sale bya Mortgage Banking Enterprise,*which amends Statement of FinancialAccounting Standards No. 65*, Accountingfor Certain Mortgage Banking Activities*. This statement conforms thesubsequent accounting for securities retained after the securitization ofmortgage loans by a mortgage banking enterprise with the accounting for suchsecurities by a non-mortgage banking enterprise. This statement was effectivefor the first quarter

 

15

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beginning afterDecember 15, 1998, and did not have any impact on the Company’s financialposition or results of operations.

 

In June 2000, the Financial AccountingStandards Board issued Statement of Financial Accounting Standards No. 138, *Accounting for Certain Derivative Instruments andCertain Hedging Activities,*effective as of January 1, 2001.  This statement provides a comprehensive andconsistent standard for the recognition and measurement of certain derivativesand certain hedging activities.  MindenBuilding and Loan does not presently participate in these activities.  The adoption of this accounting standard didnot have a material effect on the Company’s financial condition or results ofoperations.

 

In September 2000, the Financial AccountingStandards Board issued Statement of Financial Accounting Standards No. 140, *“Accounting for Transfers and Servicing of FinancialAssets and Extinguishments of Liabilities”*.  This statement replaces Statement ofFinancial Accounting Standards No. 125. This statement also is effective for the recognition andreclassification of collateral and for disclosures relating to securitizationtransactions.  This statement iseffective for fiscal years ending after December 15, 2000.  The adoption of this statement did not haveany material impact on the Company’s financial position or results ofoperations.

 

In June 2001, the Financial AccountingStandards Board issued Statement of Financial Accounting Standards No. 141, *Business Combinations*.  This statement requires that businesscombinations initiated after June 30, 2001 be accounted for using the purchasemethod.  Use of the pooling-of-interestsmethod is no longer permitted.  TheCompany does not believe the adoption of this statement will have a materialimpact on its financial statements, unless it enters into a businesscombination transaction.

 

In June 2001, the Financial AccountingStandards Board issued Statement of Financial Accounting Standards No. 142, *Goodwill and Other Intangible Assets*.  This statement addresses how intangibleassets should be accounted for at acquisition and in subsequent periods.  Pursuant to this statement, goodwill andintangible assets that have indefinite useful lives will not be amortized butrather will be tested at least annually for impairment.  Intangible assets that have finite usefullives will continue to be amortized over their useful lives.  This statement also provides specificguidance for testing goodwill for impairment and requires additionaldisclosures about goodwill and intangible assets.  This statement is effective for fiscal years beginning afterDecember 15, 2001.  It is required to beapplied to the beginning of an entity’s fiscal year and to be applied to allgoodwill and other intangible assets recognized in its financial statements atthat date.  Impairment losses forgoodwill and indefinite-lived intangible assets that arise due to the initialapplication of this statement are to be reported as resulting from a change inaccounting principle.  The Company doesnot believe the adoption of this statement will have a material impact on itsfinancial statements.

 

16

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**Minden Bancorp, Inc.**

 

**REPORT OF INDEPENDENT CERTIFIED PUBLICACCOUNTANTS**

 

 

The Board of Directors

Minden Bancorp, Inc. and Subsidiary

Minden, Louisiana

 

Independent Auditors’ Report

 

We have audited the accompanying consolidated balance sheets of MindenBancorp, Inc. and Subsidiary as of December 31, 2002 and 2001, and the relatedconsolidated statements of income, equity, and cash flows for the years thenended.  These consolidated financialstatements are the responsibility of the Company’s management.  Our responsibility is to express an opinionon these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with auditing standards generallyaccepted in the United States of America. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the consolidated financial statements arefree of material misstatement.  An auditincludes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallconsolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to abovepresent fairly, in all material respects, the financial position of MindenBancorp, Inc. and Subsidiary as of December 31, 2002 and 2001, and theconsolidated results of its operations and its cash flows for the years thenended in conformity with accounting principles generally accepted in the UnitedStates of America.

 

Heard, McElroy &Vestal LLP

Shreveport, Louisiana

January 17, 2003

 

17

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**Minden Bancorp, Inc.**

 

**CONSOLIDATED STATEMENTS OF BALANCE SHEETS**

 
|                                                                                                         |   | **2002**            |   | **2001** |   |
|--------------------------------------------------------------------------------------------------------------|--------|---------------------|--------|----------|--------|
|                                                                                                         |   | **(in thousands )** |   |
| Assets                                                                                                       |   |                |   |     |   |
|                                                                                                         |   |                |   |     |   |
| Cash and noninterest-bearing deposits                                                                        |   | $                   | 1,613  |     | $      | 802 |   |
| Interest-bearing demand deposits                                                                             |   | 256                 |   | 1,039    |   |
| Federal funds sold                                                                                           |   | 1,375               |   | —   |   |
| Total cash and cash equivalents                                                                              |   | 3,244               |   | 1,841    |   |
|                                                                                                         |   |                |   |     |   |
| Investment securities:                                                                                       |   |                |   |     |   |
| Securities held-to-maturity (estimated  market value of$2,398  in 2002 and $3,825 in 2001)                   |   | 2,297               |   | 3,737    |   |
| Securities available-for-sale, at estimated  market value                                                    |   | 18,112              |   | 11,287   |   |
|                                                                                                         |   |                |   |     |   |
| First National Banker’s Bank stock, at cost                                                             |   | 210                 |   | —   |   |
| Federal Home Loan Bank stock, at cost                                                                        |   | 472                 |   | 458      |   |
| Loans, net of allowance for loan losses of  $907 in2002 and $911  in 2001                                    |   | 52,337              |   | 41,188   |   |
| Accrued interest receivable                                                                                  |   | 271                 |   | 211      |   |
| Premises and equipment, net                                                                                  |   | 2,205               |   | 2,144    |   |
| Real estate owned-net                                                                                        |   | 35                  |   | 59       |   |
| Other assets                                                                                                 |   | 385                 |   | 308      |   |
|                                                                                                         |   |                |   |     |   |
| Total assets                                                                                                 |   | $                   | 79,568 |     | $      | 61,233 |   |
|                                                                                                         |   |                |   |     |   |
| Liabilities and Stockholder’s Equity                                                                    |   |                |   |     |   |
|                                                                                                         |   |                |   |     |   |
| Liabilities:                                                                                                 |   |                |   |     |   |
| Deposits:                                                                                                    |   |                |   |     |   |
| Noninterest-bearing                                                                                          |   | $                   | 4,500  |     | $      | 2,613 |   |
| Interest-bearing                                                                                             |   | 52,356              |   | 43,457   |   |
| Total deposits                                                                                               |   | 56,856              |   | 46,070   |   |
| Accrued dividends on savings                                                                                 |   | 212                 |   | 255      |   |
| Deferred federal income taxes                                                                                |   | 505                 |   | 497      |   |
| Federal Home Loan Bank advances                                                                              |   | 4,000               |   | 3,000    |   |
| Other liabilities                                                                                            |   | 347                 |   | 114      |   |
| Total liabilities                                                                                            |   | 61,920              |   | 49,936   |   |
|                                                                                                         |   |                |   |     |   |
| Stockholder’s equity:                                                                                   |   |                |   |     |   |
| Preferred stock-$.01 par value; authorized 4,000,000 shares; none  issued-no rights/preferences set by board |   | —              |   | —   |   |
| Common stock-$.01 par value; authorized  4,000,000 shares; issued 1,454,750 shares                           |   | 15                  |   | —   |   |
| Additional paid-in capital                                                                                   |   | 16,600              |   | —   |   |
| ESOP loan (50,291 shares unreleased)                                                                         |   | (503                | )      | —   |   |
| Retained earnings                                                                                            |   | 824                 |   | 10,587   |   |
| Accumulated other comprehensive income                                                                       |   | 712                 |   | 710      |   |
| Total stockholder’s equity                                                                              |   | 17,648              |   | 11,297   |   |
|                                                                                                         |   |                |   |     |   |
| Total liabilities and stockholder’s equity                                                              |   | $                   | 79,568 |     | $      | 61,233 |   |

 

18

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**Minden Bancorp, Inc.**

 

**CONSOLIDATED STATEMENTS OF INCOME**

 
|                                                 |   | **2002**                               |   | **2001** |   |
|------------------------------------------------------|--------|----------------------------------------|--------|----------|--------|
|                                                 |   | **(in  thousands, except share data)** |   |
| Interest and dividend income:                        |   |                                   |   |     |   |
| Loans, including fees                                |   | $                                      | 3,698  |     | $      | 2,966 |   |
| Investments-taxable:                                 |   |                                   |   |     |   |
| Securities                                           |   | 181                                    |   | 297      |   |
| Mortgage-backed securities                           |   | 564                                    |   | 477      |   |
| Dividends-FHLMC/FHLB                                 |   | 28                                     |   | 32       |   |
| Other (federal funds/interest-bearing  demand)       |   | 37                                     |   | 54       |   |
| Total interest and dividend income                   |   | 4,508                                  |   | 3,826    |   |
|                                                 |   |                                   |   |     |   |
| Interest expense:                                    |   |                                   |   |     |   |
| Interest-bearing demand deposits                     |   | 53                                     |   | 32       |   |
| Savings                                              |   | 180                                    |   | 147      |   |
| Certificates of deposit                              |   | 1,400                                  |   | 1,692    |   |
| Interest on borrowed funds                           |   | 98                                     |   | 66       |   |
| Total interest expense                               |   | 1,731                                  |   | 1,937    |   |
|                                                 |   |                                   |   |     |   |
| Net interest income                                  |   | 2,777                                  |   | 1,889    |   |
| Provision for loan losses-Note 3                     |   | —                                 |   | —   |   |
|                                                 |   |                                   |   |     |   |
| Net interest income after provision for  loan losses |   | 2,777                                  |   | 1,889    |   |
|                                                 |   |                                   |   |     |   |
| Other operating income:                              |   |                                   |   |     |   |
| Customer service fees                                |   | 164                                    |   | 143      |   |
| Rent income                                          |   | 1                                      |   | —   |   |
| Gain on sale of assets                               |   | 1                                      |   | 10       |   |
| Other income                                         |   | 7                                      |   | 4        |   |
| Total other operating income                         |   | 173                                    |   | 157      |   |
|                                                 |   |                                   |   |     |   |
| Other operating expenses:                            |   |                                   |   |     |   |
| Salaries and benefits                                |   | 979                                    |   | 759      |   |
| Office occupancy expense                             |   | 198                                    |   | 233      |   |
| Professional fees and supervisory  examinations      |   | 138                                    |   | 85       |   |
| SAIF insurance premium                               |   | 8                                      |   | 7        |   |
| Other general and administrative expenses            |   | 388                                    |   | 280      |   |
| Total other operating expenses                       |   | 1,711                                  |   | 1,364    |   |
|                                                 |   |                                   |   |     |   |
| Income before income taxes                           |   | 1,239                                  |   | 682      |   |
|                                                 |   |                                   |   |     |   |
| Income tax expense                                   |   | 415                                    |   | 227      |   |
|                                                 |   |                                   |   |     |   |
| Net income                                           |   | 824                                    |   | 455      |   |
|                                                 |   |                                   |   |     |   |
| Earnings per share                                   |   | $                                      | .59    |     | N/A    |   |
|                                                      |        |                                        |        |          |        |  |  |  |

 

The accompanying notes are an integral part of the consolidatedfinancial statements.

 

19

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**Minden Bancorp, Inc.**

 

**CONSOLIDATED STATEMENTS OF EQUITY**

 
|                                                                                                                       |   | **Common  Stock**   |   | **Additional  Paid-In  Capital** |   | **Retained  Earnings** |   | **Accumulated  Other  Comprehensive  Income** |   | **Total** |   |
|----------------------------------------------------------------------------------------------------------------------------|--------|---------------------|--------|----------------------------------|--------|------------------------|--------|-----------------------------------------------|--------|-----------|--------|
|                                                                                                                       |   | **(in  thousands)** |   |
|                                                                                                                       |   |                |   |                             |   |                   |   |                                          |   |      |   |
| Balance December 31, 2000                                                                                                  |   | $                   | — |                             | $      | —                 |   | $                                             | 10,132 |      | $      | 735 |   | $ | 10,867 |   |
|                                                                                                                       |   |                |   |                             |   |                   |   |                                          |   |      |   |
| Comprehensive income:                                                                                                      |   |                |   |                             |   |                   |   |                                          |   |      |   |
| Net income                                                                                                                 |   | —              |   | —                           |   | 455                    |   | —                                        |   | 455       |   |
| Change in net unrealized (loss)on securities available for sale, net of reclassification adjustment and tax  effect of $12 |   | —              |   | —                           |   | —                 |   | (25                                           | )      | (25       | )      |
| Total comprehensive income                                                                                                 |   |                |   |                             |   |                   |   |                                          |   | 430       |   |
|                                                                                                                       |   |                |   |                             |   |                   |   |                                          |   |      |   |
| Balance December 31, 2001                                                                                                  |   | —              |   | —                           |   | 10,587                 |   | 710                                           |   | 11,297    |   |
|                                                                                                                       |   |                |   |                             |   |                   |   |                                          |   |      |   |
| Initial sale of 654,638 shares common stock  net of issuance cost of $519 in public offering                               |   | 7                   |   | 6,021                            |   | —                 |   | —                                        |   | 6,028     |   |
|                                                                                                                       |   |                |   |                             |   |                   |   |                                          |   |      |   |
| Net income                                                                                                                 |   | —              |   | —                           |   | 824                    |   | —                                        |   | 824       |   |
|                                                                                                                       |   |                |   |                             |   |                   |   |                                          |   |      |   |
| Initial capital contributionand issuance of 800,112 shares to Minden Mutual                                                |   | 8                   |   | 92                               |   | (100                   | )      | —                                        |   | —    |   |
|                                                                                                                       |   |                |   |                             |   |                   |   |                                          |   |      |   |
| Transfer from retainedearnings at acquisition                                                                              |   | —              |   | 10,487                           |   | (10,487                | )      | —                                        |   | —    |   |
|                                                                                                                       |   |                |   |                             |   |                   |   |                                          |   |      |   |
| Change in net unrealized gain(loss) on securities available for sale, net of tax effect of $1                              |   |                |   |                             |   | 2                      |   | 2                                             |   | 2         |   |
| Total comprehensive income                                                                                                 |   |                |   |                             |   | 826                    |   |                                          |   |      |   |
|                                                                                                                       |   |                |   |                             |   |                   |   |                                          |   |      |   |
| Balance December 31, 2002                                                                                                  |   | $                   | 15     |                             | $      | 16,600                 |   | $                                             | 824    |      | $      | 712 |   | $ | 18,151 |   |

 

The accompanying notes are an integral part of the consolidatedfinancial statements.

 

20

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**Minden Bancorp, Inc.**

 

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

 
|                                                                               |   | **2002**            |   | **2001** |   |
|------------------------------------------------------------------------------------|--------|---------------------|--------|----------|--------|
|                                                                               |   | **(in  thousands)** |   |
| Cash flows from operating activities:                                              |   |                |   |     |   |
| Net income                                                                         |   | $                   | 824    |     | $      | 455 |   |
| Adjustments to reconcile net income to net  cashprovided by  operating activities: |   |                |   |     |   |
| Depreciation                                                                       |   | 91                  |   | 137      |   |
| Deferred income taxes                                                              |   | 1                   |   | (6       | )      |
| Stock dividends                                                                    |   | (134                | )      | (90      | )      |
| Net amortization of securities                                                     |   | (115                | )      | 159      |   |
| (Gain) on sale of assets                                                           |   | (1                  | )      | (10      | )      |
| (Increase) in prepaid expenses and accrued  income                                 |   | (116                | )      | (38      | )      |
| Increase in dividends payable and other  liabilities                               |   | 197                 |   | 9        |   |
| Net cash provided by operating activities                                          |   | 747                 |   | 616      |   |
|                                                                               |   |                |   |     |   |
| Cash flows from investing activities:                                              |   |                |   |     |   |
| Activity in available for sale securities:                                         |   |                |   |     |   |
| Maturities, prepayments and calls                                                  |   | 3,015               |   | 1,668    |   |
| Purchases                                                                          |   | (9,718              | )      | (8,877   | )      |
| Activity in held to maturity securities:                                           |   |                |   |     |   |
| Maturities, prepayments and calls                                                  |   | 1,436               |   | 10,714   |   |
| Purchases                                                                          |   | —              |   | (1,300   | )      |
| Purchase of First National Banker’s Bank  stock                               |   | (210                | )      | —   |   |
| Net (increase) in loans                                                            |   | (11,149             | )      | (11,794  | )      |
| Proceeds from sale of real estate owned                                            |   | 151                 |   | 50       |   |
| Purchases of premises and equipment                                                |   | (152                | )      | (65      | )      |
| Other                                                                              |   | (7                  | )      | —   |   |
| Net cash (used) by investing activities                                            |   | (16,634             | )      | (9,604   | )      |
|                                                                               |   |                |   |     |   |
| Cash flows from financing activities:                                              |   |                |   |     |   |
| Net increase in deposits                                                           |   | 10,786              |   | 10,125   |   |
| Net increase (decrease) in advances from  FHLB                                     |   | 1,000               |   | (400     | )      |
| Proceeds from sale of common stock                                                 |   | 5,504               |   | —   |   |
| Net cash provided by financing activities                                          |   | 17,290              |   | 9,725    |   |
|                                                                               |   |                |   |     |   |
| Net increase in cash and cash equivalents                                          |   | 1,403               |   | 737      |   |
|                                                                               |   |                |   |     |   |
| Cash and cash equivalents at January 1                                             |   | 1,841               |   | 1,104    |   |
|                                                                               |   |                |   |     |   |
| Cash and cash equivalents at December 31                                           |   | $                   | 3,244  |     | $      | 1,841 |   |
|                                                                               |   |                |   |     |   |
| Supplemental disclosures:                                                          |   |                |   |     |   |
| Interest paid on deposits and borrowed  funds                                      |   | $                   | 1,774  |     | $      | 1,906 |   |
| Income taxes paid                                                                  |   | 238                 |   | 182      |   |
|                                                                               |   |                |   |     |   |
| Noncash investing and financing activities:                                        |   |                |   |     |   |
| Sales of real estate owned financed by the  Association                            |   | 54                  |   | —   |   |
|                                                                               |   |                |   |     |   |
| Transfer of loans to real estate owned                                             |   | 122                 |   | 107      |   |
|                                                                               |   |                |   |     |   |
| Increase in unrealized gain on securities  available for sale                      |   | $                   | 2      |     | $      | 36 |   |

 

The accompanying notes are an integral part of the consolidatedfinancial statements.

 

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**Minden Bancorp, Inc.**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

**1.**                                      **Summary of SignificantAccounting Policies**

 

Minden Building and Loan Association is a Louisiana charted buildingand loan association.  The Associationaccepts customer demand, savings, and time deposits and provides residentialfixed-rate mortgages, consumer and business loans to consumers.  The Association is subject to theregulations of certain federal and state agencies and undergoes periodicexaminations by those regulatory authorities. Minden Bancorp, Inc.’s only significant asset and business activity isits investment in the Association.  Allintercompany transactions have been eliminated in consolidation of MindenBancorp, Inc. and Minden Building and Loan Association.

 

On December 11, 2001, the Board of Directors of Minden Building andLoan Association, a Louisiana chartered building and loan association (the“Association”), adopted a plan of reorganization pursuant to which theAssociation would convert to stock form and became a wholly-owned subsidiary ofMinden Bancorp, Inc. (the “Company”). In connection with the reorganization, the Company became a majorityowned (55%) subsidiary of Minden Mutual Holding Company.  The reorganization was consummated on July2, 2002.

 

The financial information at December 31, 2001 is that of MindenBuilding and Loan Association as they represent the consolidated comparativedata, since Minden Bancorp, Inc. was not in existence prior to 2002.  In accordance with FASB No. 141 (paragraph11 and D11-D18) the 2002 results of operations, equity and cash flows arepresented for the entire year of 2002 even though the transaction, as notedabove, occurred July 2002.

 

*Use of Estimates.*  Inpreparing financial statements in conformity with accounting principlesgenerally accepted in the United States of America, management is required tomake estimates and assumptions that affect the reported amounts of assets andliabilities as of the date of the balance sheet and reported amounts ofrevenues and expenses during the reporting period.  Actual results could differ from those estimates.  Material estimates that are particularlysusceptible to significant change in the near term relate to the determinationof the allowance for loan losses, and the valuation of foreclosed real estate,deferred tax assets and trading activities.

 

*Significant Group Concentrations of Credit Risk.*  Mostof the Association’s activities are with customers located within WebsterParish, Louisiana.  Note 2 to thefinancial statements summarizes the types of investment securities in which theAssociation makes investments, and Note 3 summarizes the types of loansincluded in the Association’s loan portfolio. The Association does not have any significant concentrations to any oneindustry or customer.

 

*Cash and Cash Equivalents.*  Forpurposes of the statements of cash flows, cash and cash equivalents includecash and balances due from banks, federal funds sold and interest-bearingdeposits at other banks, all of which mature within ninety days.

 

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*Interest-Bearing Deposits in Banks.* Interest-bearing deposits in banks mature within one year and arecarried at cost.

 

*Securities.*  Securities that management hasthe positive intent and ability to hold to maturity are classified as “held tomaturity” and recorded at amortized cost. Securities not classified as held to maturity or trading, includingequity securities with readily determinable fair values, are classified as“available for sale” and recorded at fair value, with unrealized gains and lossesexcluded from earnings and reported in other comprehensive income.

 

*Mortgage-Backed Securities.* Mortgage-backed securities represent participating interests in pools oflong-term first mortgage loans originated and serviced by issuers of the securities.  Mortgage-backed securities are carried atunpaid principal balances, adjusted for unamortized premiums and unearneddiscounts.  Premiums and discounts areamortized using the interest method over the remaining period to contractualmaturity.  Management intends and hasthe ability to hold such securities to maturity.  Cost of securities called is determined using the specificidentification method.

 

Purchase premiums and discounts are recognized in interest income usingthe interest method over the terms of the securities.  Declines in the fair value of held-to-maturity andavailable-for-sale securities below their cost that are deemed to be other thantemporary are reflected in earnings as realized losses.  Gains and losses on the sale of securities arerecorded on the trade date and are determined using the specific identificationmethod.

 

*Loans.*  The Association grantsmortgage, business and consumer loans to customers.  A substantial portion of the loan portfolio is represented bymortgage loans throughout Webster Parish, Louisiana and the surroundingparishes.  The ability of theAssociation’s debtors to honor their contracts is dependent upon the realestate and general economic conditions in this area.

 

Loans that management has the intent and ability to hold for theforeseeable future or until maturity or pay-off generally are reported at theiroutstanding unpaid principal balances adjusted for charge-offs, the allowancefor loan losses, and any deferred fees for costs on originated loans.  Interest income is accrued on the unpaidprincipal balance.  Loan originationfees, net of certain direct origination costs, are deferred and recognized asan adjustment of the related loan yield using the interest method.

 

The accrual of interest on mortgage, commercial real estate andcommercial business, and consumer loans is discontinued at the time the loan is90 days delinquent unless the credit is well-secured and in process ofcollection.  In all cases, loans are placedon nonaccrual or charged-off at an earlier date if collection of principal orinterest is considered doubtful.

 

23

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All interest accrued but not collected for loans that are placed onnonaccrual or charged off is reversed against interest income.  The interest on these loans is accounted foron the cash-basis or cost-recovery method, until qualifying for return toaccrual.  Loans are returned to accrualstatus when all the principal and interest amounts contractually due arebrought current and future payments are reasonably assured.

 

*Allowance for Loan Losses.*  Theallowance for loan losses is established as losses are estimated to haveoccurred through a provision for loan losses charged to earnings.  Loan losses are charged against the allowancewhen management believes the uncollectibility of a loan balance isconfirmed.  Subsequent recoveries, ifany, are credited to the allowance.

 

The allowance for loan losses is evaluated on a regular basis bymanagement and is based upon management’s periodic review of the collectibilityof the loans in light of historical experience, the nature and volume of theloan portfolio, adverse situations that may affect the borrower’s ability torepay, estimated value of any underlying collateral and prevailing economicconditions.  This evaluation isinherently subjective as it requires estimates that are susceptible tosignificant revision as more information become available.

 

A loan is considered impaired when, based on current information andevents, it is probable that the Association will be unable to collect thescheduled payments of principal or interest when due according to thecontractual terms of the loan agreement. Factors considered by management in determining impairment includepayment status, collateral value, and the probability of collecting scheduledprincipal and interest payments when due. Loans that experience insignificant payment delays and paymentshortfalls generally are not classified as impaired.  Management determines the significance of payment delays andpayment shortfalls on a case-by-case basis, taking into consideration all ofthe circumstances surrounding the loan and the borrower, including the lengthof the delay, the reasons for the delay, the borrower’s prior payment record,and the amount of the shortfall in relation to the principal and interestowed.  Impairment is measured on a loanby loan basis for business and construction loans by either the present valueof expected future cash flows discounted at the loan’s effective interest rate,the loan’s obtainable market price, or the fair value of the collateral if theloan is collateral dependent.

 

Large groups of smaller balance homogeneous loans are collectivelyevaluated for impairment.  Accordingly,the Association does not separately identify individual consumer andresidential loans for impairment disclosures.

 

*Credit Related Financial Instruments.*  Inthe ordinary course of business, the Association has entered into commitmentsto extend credit, including commitments under commercial letters of credit andstandby letters of credit.  Suchfinancial instruments are recorded when they are funded.

 

24

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*Foreclosed Assets.* Assets acquired through, or deeded in lieu of, loan foreclosure are heldfor sale and are initially recorded at fair value at the date of foreclosure,less estimated cost to sell or cost. Subsequent to foreclosure, valuations are periodically performed bymanagement and the assets are carried at the lower of carrying amount or fairvalue less cost to sell.  Revenue andexpenses from operations and changes in the valuation allowance are included innet expenses from foreclosed assets.

 

*Premises and Equipment.* Premises and equipment are stated at cost less accumulateddepreciation.  The Association recordsdepreciation on property and equipment using accelerated and straight-linemethods with lives ranging from 5 to 15 years on furniture, fixtures, andequipment and to 40 years on the building.

 

*Income Taxes.* Deferred income tax assets and liabilities are determined using theliability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determinedbased on the tax effects of the temporary differences between the book and taxbases of the various balance sheet assets and liabilities and give currentrecognition to changes in tax rates and laws.

 

*Advertising Costs.* Advertising costs are expensed as incurred.  Such costs (in thousands) amounted to approximately $64 and $60 for2002 and 2001, respectively, and are included in other operating expense.

 

*Reclassifications.* Certain amounts previously reported in the Association’s financialstatements have been reclassified to conform to current classifications, withno effect on previously reported net income or equity.

 

*Earnings per share (ESP).*  EPSis calculated based upon 1,402,552 average weighted shares (outstanding stockless ESOP shares not released).

 

*Comprehensive Income.* Accounting principles generally require that recognized revenue,expenses, gains and losses be included in net income.  Although certain changes in assets and liabilities, such asunrealized gains and losses on available-for-sale securities, are reported as aseparate component of the equity section of the balance sheet, such items,along with net income, are components of comprehensive income.

 

During 2002, the FASB issued the following statements:  No. 145, Recession of FASB Statements No. 4,44 and 64, Amendment of FASB NO. 13, Technical Corrections; No. 146, Accountingfor Costs Associated with Exit or Disposal Activities; No 147, Acquisitions ofCertain Financial Institutions; No. 148, Accounting for Stock-BasedCompensation-Transition and Disclosure. Also, the FASB issued interpretations No. 45, Guarantor’s Accounting andDisclosure Requirements for Guarantees, Including Indirect Guarantees ofIndebtedness of Others and No. 46, Consolidation of Variable Interest Entities.

 

These statements are not expected to have a material impact on theAssociation’s financial statements.

 

25

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**2.**                                      **Investment Securities**

 

Securities held-to-maturity consist of the following (in thousands):

 
|                                    |   | **2002**            |   |
|-----------------------------------------|--------|---------------------|--------|
|                                    |   | **Amortized  Cost** |   | **Gross********Unrealized********Gains** |   | **Gross********Unrealized********Losses** |   | **Estimated********Market********Value** |   |
|                                    |   |                |   |   |   |   |   |   |   |
| Obligations of U.S. Government Agencies |   | $                   | 300    |   | $ | 6 |   | $ | — |   | $ | 306 |   |
| GNMA                                    |   | 171                 |   | 3 |   | — |   | 174 |   |
| FNMA                                    |   | 1629                |   | 90 |   | 1 |   | 1,718 |   |
| FHLMC                                   |   | 197                 |   | 3 |   | — |   | 200 |   |
|                                    |   | $                   | 2,297  |   | $ | 102 |   | $ | 1 |   | $ | 2,398 |   |

 
|                                    |   | **2002**            |   |
|-----------------------------------------|--------|---------------------|--------|
|                                    |   | **Amortized  Cost** |   | **Gross********Unrealized********Gains** |   | **Gross********Unrealized********Losses** |   | **Estimated********Market********Value** |   |
|                                    |   |                |   |   |   |   |   |   |   |
| Obligations of U.S. Government Agencies |   | $                   | 800    |   | $ | 6 |   | $ | — |   | $ | 806 |   |
| GNMA                                    |   | 259                 |   | 5 |   | — |   | 264 |   |
| FNMA                                    |   | 2,231               |   | 73 |   | — |   | 2,304 |   |
| FHLMC                                   |   | 447                 |   | 4 |   | — |   | 451 |   |
|                                    |   | $                   | 3,737  |   | $ | 88 |   | $ | — |   | $ | 3,825 |   |

 

Securities available-for-sale consist of the following (in thousands:

 
|                |   | **2002**            |   |
|---------------------|--------|---------------------|--------|
|                |   | **Amortized  Cost** |   | **Gross********Unrealized********Gains** |   | **Gross********Unrealized********Losses** |   | **Estimated********Market********Value** |   |
|                |   |                |   |   |   |   |   |   |   |
| Shay Asset Fund-ARM |   | $                   | 4,255  |   | $ | 1 |   | $ | — |   | $ | 4,256 |   |
| FHLMC Voting Stock  |   | 16                  |   | 923 |   | — |   | 939 |   |
| Agencies            |   | 996                 |   | 44 |   | — |   | 1,040 |   |
| FNMA ARM Pools      |   | 8,384               |   | 74 |   | 5 |   | 8,453 |   |
| FHLMC ARM Pools     |   | 1,254               |   | 42 |   | 5 |   | 1,291 |   |
| GNMA ARM Pools      |   | 2,127               |   | 7 |   | 1 |   | 2,133 |   |
|                |   | $                   | 17,032 |   | $ | 1,091 |   | $ | 11 |   | $ | 18,112 |   |

 

26

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|                |   | **2001**                  |   |
|---------------------|--------|---------------------------|--------|
|                |   | **Amortized********Cost** |   | **Gross********Unrealized********Gains** |   | **Gross********Unrealized********Losses** |   | **Estimated********Market********Value** |   |
|                |   |                      |   |   |   |   |   |   |   |
| Shay Asset Fund-ARM |   | $                         | 3,634  |   | $ | — |   | $ | 3 |   | $ | 3,631 |   |
| FHLMC Voting Stock  |   | 16                        |   | 1,024 |   | — |   | 1,040 |   |
| FNMA ARM Pools      |   | 2,553                     |   | 36 |   | — |   | 2,589 |   |
| FHLMC ARM Pools     |   | 942                       |   | 28 |   | 5 |   | 965 |   |
| GNMA ARM Pools      |   | 3,065                     |   | 5 |   | 8 |   | 3,062 |   |
|                |   | $                         | 10,210 |   | $ | 1,093 |   | $ | 16 |   | $ | 11,287 |   |

 

The amortized cost and estimated market value (in thousands) ofinvestment securities at December 31, 2002, by contractual maturity, areshown below.  Expected maturities willdiffer from contractual maturities because borrowers may have the right to callor prepay obligations with or without call or prepayment penalties.

 
|                        |   | **Available for Sale**    |   | **Held to Maturity** |   |
|-----------------------------|--------|---------------------------|--------|----------------------|--------|
|                        |   | **Amortized********Cost** |   | **Fair Value**       |   | **Amortized********Cost** |   | **Fair Value** |   |
|                        |   |                      |   |                 |   |   |   |   |   |
| One year or less            |   | $                         | 4,255  |                 | $      | 4,256 |   | $ | — |   | $ | — |   |
| After 1 year thru 5 years   |   | 996                       |   | 1040                 |   | 300 |   | 306 |   |
| After 5 years thru 10 years |   | —                    |   | —               |   | — |   | — |   |
| After 10 years              |   | 11,781                    |   | 12,816               |   | — |   | — |   |
| Mortgage-backed securities  |   | —                    |   | —               |   | 1,997 |   | 2,091 |   |
|                        |   | $                         | 17,032 |                 | $      | 18,112 |   | $ | 2,297 |   | $ | 2,397 |   |

 

At December 31, 2002, investment securities (in thousands) with afinancial statement carrying amount of $506,351 were pledged to secure publicdeposits.  No gain or loss wasrecognized on investments in 2002 or 2001. Maturities and calls are detailed on the statement of cash flows.

 

27

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**3.**                                      **Loans and Allowance for LoanLosses**

 

The composition of the Association’s loan portfolio at December 31,2002 and 2001, is as follows:

 
|                                                 |   | **2002** |   | **2001** |   |
|------------------------------------------------------|--------|----------|--------|----------|--------|
| First mortgage conventional loans:                   |   |     |   |     |   |
| Secured by one-to-four-family residences             |   | $        | 36,959 |     | $      | 34,434 |   |
| Commercial real estate                               |   | 5,786    |   | 3,251    |   |
| Commercial, other than real estate                   |   | 5,917    |   | 807      |   |
| Consumer loans (including overdrafts of $6  and $14) |   | 2,317    |   | 1,847    |   |
| Consumer loans secured by deposits                   |   | 919      |   | 1,081    |   |
| Construction loans                                   |   | 2,245    |   | 1,111    |   |
| Total                                                |   | 54,143   |   | 42,531   |   |
| Less-allowance for loan losses                       |   | (907     | )      | (911     | )      |
| unfunded construction loan commitments               |   | (899     | )      | (432     | )      |
| Loans, net                                           |   | $        | 52,337 |     | $      | 41,188 |   |

 

Changes in the allowance for loan losses are summarized as follows:

 
|                                |   | **2002** |   | **2001** |   |
|-------------------------------------|--------|----------|--------|----------|--------|
|                                |   |     |   |     |   |
| Balance, January 1                  |   | $        | 911    |     | $      | 911 |   |
| Provision for loan losses           |   | —   |   | —   |   |
| Loans charged off-net of recoveries |   | (4       | )      | —   |   |
| Balance, December 31                |   | $        | 907    |     | $      | 911 |   |

 

The Association charges a flat rate for the origination or assumptionof a loan.  These fees are designed tooffset direct loan origination costs and the net amount, if material, isdeferred and amortized, as required by SFAS 91.

 

The Association’s lending activity is concentrated within WebsterParish, Louisiana.  The majority ofloans extended in this lending area are for one-to-four-family dwelling units;however, the Association is expanding its lending activities to commercial realestate, commercial business and consumer loans.  See above for detail.  TheAssociation requires collateral sufficient in value to cover the principalamount of the loan.  Such collateral isevidenced by mortgages on property held and readily accessible to theAssociation.

 

**4.**                                      **Accrued Interest Receivable**

 

Accrued interest receivable at December 31, consists of the following(in thousands):

 
|                              |   | **2002** |   | **2001** |   |
|-----------------------------------|--------|----------|--------|----------|--------|
|                              |   |     |   |     |   |
| Loans                             |   | $        | 191    |     | $      | 142 |   |
| Mortgage-backed securities        |   | 62       |   | 55       |   |
| Investment securities and other   |   | 18       |   | 14       |   |
| Total accrued interest receivable |   | $        | 271    |     | $      | 211 |   |

 

28

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**5.**                                      **Premises and Equipment**

 

Premises and equipment are summarized as follows (in thousands):

 
|                              |   | **2002** |   | **2001** |   |
|-----------------------------------|--------|----------|--------|----------|--------|
|                              |   |     |   |     |   |
| Land and buildings                |   | $        | 2,271  |     | $      | 2,140 |   |
| Furniture, fixtures and equipment |   | 387      |   | 365      |   |
| Total                             |   | 2,658    |   | 2,505    |   |
| Less-accumulated depreciation     |   | (453     | )      | (361     | )      |
| Net premises and equipment        |   | $        | 2,205  |     | $      | 2,144 |   |

 

**6.**                                      **Deposits**

 

Deposits as of December 31 are summarized as follows (in thousands):

 
|                                                                                   |   | **2002** |   | **2001** |   |
|----------------------------------------------------------------------------------------|--------|----------|--------|----------|--------|
|                                                                                   |   |     |   |     |   |
| Demand deposit accounts (including officialchecks of $1,357 in 2002 and  $347 in 2001) |   | $        | 8,233  |     | $      | 4,560 |   |
| Passbook savings                                                                       |   | 8,969    |   | 6,367    |   |
|                                                                                   |   |     |   |     |   |
| Certificates of deposit:                                                               |   |     |   |     |   |
| 2.00% – 2.99%                                                                     |   | 12,535   |   | 2,908    |   |
| 3.00% – 3.99%                                                                     |   | 20,480   |   | 5,636    |   |
| 4.00% – 4.99%                                                                     |   | 2,499    |   | 11,459   |   |
| 5.00% – 5.99%                                                                     |   | 2,931    |   | 10,312   |   |
| 6.00% – 6.99%                                                                     |   | 1,209    |   | 4,721    |   |
| 7.00% – 7.99%                                                                     |   | —   |   | 107      |   |
| Total certificates of deposit                                                          |   | 39,654   |   | 35,143   |   |
| Total deposits                                                                         |   | $        | 56,856 |     | $      | 46,070 |   |

 

Scheduled maturities of certificates of deposit at December 31, 2002are as follows (in thousands):

 
|               |   | **2003** |   | **2004** |   | **2005** |   | **Total** |   |
|--------------------|--------|----------|--------|----------|--------|----------|--------|-----------|--------|
|               |   |     |   |     |   |     |   |      |   |
| 2.00% – 2.99% |   | $        | 12,162 |     | $      | 373      |   | $         | — |   | $ | 12,535 |   |
| 3.00% – 3.99% |   | 17,542   |   | 2,882    |   | 56       |   | 20,480    |   |
| 4.00% – 4.99% |   | 2,241    |   | 258      |   | —   |   | 2,499     |   |
| 5.00% – 5.99% |   | 2,931    |   | —   |   | —   |   | 2,931     |   |
| 6.00% – 6.99% |   | 1,209    |   | —   |   | —   |   | 1,209     |   |
|               |   | $        | 36,085 |     | $      | 3,513    |   | $         | 56     |   | $ | 39,654 |   |

 

Included (in thousands) in deposits at December 31, 2002 and 2001 are$8,203 and $6,219, respectively, of certificates of deposit in denominations of$100 (in thousands) or more.

 

29

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**7.**                                      **Federal Income Taxes**

 

Federal income tax expense applicable to net income for the years endedDecember 31, 2002 and 2001 was as follows (in thousands):

 
|     |   | **2002** |   | **2001** |   |
|----------|--------|----------|--------|----------|--------|
|     |   |     |   |     |   |
| Current  |   | $        | 408    |     | $      | 221 |   |
| Deferred |   | 7        |   | 6        |   |
|     |   | $        | 415    |     | $      | 227 |   |

 

Total income tax expense differed from the amounts computed by applyingthe U.S. federal income tax rate of 34% in 2002 and 2001 to income before taxesas a result of the following:

 
|                                                                         |   | **2002** |   | **2001** |   |
|------------------------------------------------------------------------------|--------|----------|--------|----------|--------|
|                                                                         |   |     |   |     |   |
| Expected income tax expense                                                  |   | 34       | %      | 34       | %      |
| Nontaxable income-FHLB stock dividend                                        |   | (.5      | )      | (1       | )      |
| Difference between financial and tax  additions to allowance for loan losses |   | —   |   | —   |   |
| Nondeductible expenses and other                                             |   | .3       | %      | .3       | %      |
| Effective tax rates                                                          |   | 33.8     | %      | 33.3     | %      |
|                                                                         |   |     |   |     |   |
| The components of net deferred tax  liability are as follows:                |   |     |   |     |   |
|                                                                         |   |     |   |     |   |
| Deferred tax liabilities:                                                    |   |     |   |     |   |
| Net unrealized gain on available for sale  securities                        |   | $        | 367    |     | $      | 366 |   |
| Federal Home Loan Bank stock                                                 |   | 105      |   | 105      |   |
| Depreciation                                                                 |   | 33       |   | 26       |   |
| Deferred tax liability                                                       |   | $        | 505    |     | $      | 497 |   |

 

In computing federal taxes on income under provisions of the InternalRevenue Code in years past, earnings appropriated by savings and loanassociations to general reserves were deductible in arriving at taxable incomeif certain conditions were met. Retained earnings appropriated to federal insurancereserve at December 31, 2002 and 2001 (in thousands), includes appropriationsof net income of prior years of $1,296, for which no provision for federalincome taxes has been made.  If thisportion of the reserve is used for any purpose other than to absorb losses, atax liability will be imposed upon the Association at the then current federalincome tax rate.

 

**8.**                                      **Federal Home Loan BankAdvances**

 

Federal Home Loan Bank advances represent short-term fixed-rateborrowings from the Federal Home Loan Bank of Dallas.  The Association has borrowed advances for periods from overnightto four and one-half months.  Interestrates paid on the advances vary by term and are set by the Federal Home LoanBank.  Total advances outstanding atDecember 31, 2002 and 2001 (in thousands) amount to $4,000 and $3,000,respectively.  The advances bearinterest at rates from 1.809% to 3.003% as of December 31, 2002 and 1.925% to2.38% as of December 31, 2001.

 

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**9.**                                      **Pension/ESOP Plan**

 

In 2001, the Association adopted a 401(k) retirement plan anddiscontinued its “SEP” plan, covering all employees based upon a year ofservice.  The plan provides for a 2%employer contribution (based upon compensation) with a match of the employeescontribution up to 6% based upon Board approval.  Plan contributions (in thousands) for 2002 and 2001 were $31 and$39, respectively.

 

The Company established an ESOP plan and loaned (in thousands) the ESOP$524 to purchase 52,371 shares of common stock.  The Company has received payments (in thousands) of $33 of which$12 thousand was interest.  Theremaining balance due (in thousands) of $503 is payable over ten years at (inthousands) $66 per year including interest. As required by accounting standards, the unreleased shares are notincluded in the calculation of EPS and the loan receivable is shown as areduction in stockholders’ equity.

 

The Association adopted an employee stock ownership plan (ESOP) in July2002 through its parent company, Minden Bancorp,  Inc. (MBC).  TheAssociation made a contribution (in thousands) of $33 in 2002 and is includedin salaries and benefits on the income statement.  The ESOP owns 52,371 shares (3.6%) of the outstanding shares ofMBC.  The ESOP borrowed the funds fromMBC to purchase those shares.  As thenote is paid, the shares will be released and allocated to the participants ofthe plan.  As of December 31, 2002, noneof those shares had been released.  Itis anticipated that the Association will make contributions to the ESOP inamounts sufficient for the ESOP to make the required note payments to MBC.  The quarterly payments (in thousands) are$16.5 and annual are $66 (in thousands). The ESOP note (in thousands) of $524 is payable over ten years.

 

**10.**                               **Retained Earnings andRegulatory Capital**

 

The Association is subject to various regulatory capital requirementsadministered by federal banking agencies. Failure to meet minimum capital requirements can initiate certainmandatory, and possibly additional discretionary actions by regulators that, ifundertaken, could have a direct material effect on the Association’s financialstatements.  Under capital adequacyguidelines and the regulatory framework for prompt corrective action, theAssociation must meet specific capital guidelines that involve quantitativemeasures of the Association’s assets, liabilities, and certainoff-balance-sheet items as calculated under regulatory accountingpractices.  The Association’s capital amountsand classification are also subject to qualitative judgments by the regulatorsabout components, risk weightings, and other factors.

 

Quantitative measures established by regulation to ensure capitaladequacy require the Association to maintain minimum amounts and ratios (setforth in the table below) of total and Tier I capital (as defined in theregulations) to risk-weighted assets (as defined), and of Tier I capital (asdefined) to average assets (as defined). Management believes, as of December 31, 2002, that the Association meetsall capital adequacy requirements to which it is subject.

 

As of December 31, 2002, the most recent notification from the Officeof Thrift Supervision categorized the Association as well capitalized under theregulatory framework for prompt corrective action.  To be categorized as adequately capitalized the Association mustmaintain minimum total risk-based, Tier I risk-based, and Tier I leverageratios as set forth in the table.  TheAssociation’s actual capital amounts and ratios are also presented in the table.  There are no conditions or events since thatnotification that management believes have changed the institution’s category.

 

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|                                             |   | **Actual** |   | **For  Capital  Adequacy  Purposes:** |   | **To Be Well  Capitalized Under  Prompt Corrective  Action Provisions:** |   |
|--------------------------------------------------|--------|------------|--------|---------------------------------------|--------|--------------------------------------------------------------------------|--------|
|                                             |   | **Amount** |   | **Ratio**                             |   | **Amount**                                                               |   | **Ratio** |   | **Amount** |   | **Ratio** |   |
| As of December  31, 2002                         |   |       |   |                                  |   |                                                                     |   |   |   |   |   |   |   |
| Total Capital(to Risk Weighted Assets)           |   | 17,740     |   | 42.81                                 | %      | >3,315                                                                |   | >8.0 | % | >4,144 |   | >10.0 | % |
| Core (Tier I)  Capital(to Risk Weighted  Assets) |   | 16,802     |   | 40.54                                 | %      | >1,658                                                                |   | >4.0 | % | >2,487 |   | >6.0 | % |
| Core (Tier I)  Capital(to Total Assets)          |   | 16,802     |   | 21.42                                 | %      | >2,354                                                                |   | >3.0 | % | >3,923 |   | >5.0 | % |
| Tangible Capital(to Total Assets)                |   | 16,802     |   | 21.42                                 | %      | >1,177                                                                |   | >1.5 | % | N/A |   | N/A |   |

 

**11.**                               **Related Party Transactions**

 

At December 31, 2002 and 2001, certain officers, directors, orcompanies in which they have 10% or more beneficial ownership were indebted tothe Association in the approximate aggregate amounts (in thousands) of $1,851and $784, respectively.  During the yearended December 31, 2002, total principal additions (in thousands) were $1,179and total principal payments were $583. Such parties held deposits in the Association in the approximate amount(in thousands) of $1,093 and $1,407 at December 31, 2002 and 2001,respectively.

 

**12.**                               **Commitments andContingencies**

 

In the ordinary course of business, the Association has outstandingcommitments on which management does not anticipate losses.  They include, among other things,commitments to extend credit and letters of credit undertaken in the normalcourse of business.  As of December 31,2002 and 2001 (in thousands), the Association had $7,588 and $3,722,respectively of loan commitments and lines of credit outstanding, includingloans in process.

 

When entered into, these commitments represent off-balance sheet riskto the Association, with the contractual notional amount representing theAssociation’s exposure to credit loss in the event of nonperformance by theother party to the instruments.  Commitmentsto extend credit are agreements to lend to a customer as long as there is noviolation of any condition established in the contract.  They generally have fixed expiration datesand require payment of a fee.  Sincemany commitments are expected to expire without being drawn upon, the totalcommitments do not necessarily represent future cash requirements.  The Association evaluates each customer’screditworthiness on a case-by-case basis, and obtains an amount of collateralit deems sufficient.

 

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**13.**                               **Fair Value of FinancialInstruments**

 

The fair value of a financial instrument is the current amount thatwould be exchanged between willing parties, other than in a forcedliquidation.  Fair value is bestdetermined based upon quoted market prices. However, in many instances, there are no quoted market prices for theAssociation’s various financial instruments. In cases where quoted market prices are not available, fair values arebased on estimates using present value or other valuation techniques.  Those techniques are significantly affectedby the assumptions used, including the discount rate and estimates of futurecash flows.  Accordingly, the fair valueestimates may not be realized in an immediate settlement of theinstrument.  SFAS 107 excludes certainfinancial instruments and all nonfinancial instruments from its disclosurerequirements.  Accordingly, the aggregatefair value amounts presented may not necessarily represent the underlying fairvalue of the Association.

 

The following methods and assumptions were used by the Association inestimating fair value disclosures for financial instruments:

 

*Cash and cash equivalents:*  Thecarrying amounts of cash and short-term instruments approximate fair values.

 

*Interest-bearing deposits in banks:*  Thecarrying amounts of interest-bearing deposits maturing within ninety daysapproximate their fair values.

 

*Securities:*  Fair values for securities,excluding Federal Home Loan Bank stock, are based on quoted market prices.  The carrying value of Federal Home Loan Bankstock approximates fair value based on the redemption provisions of the FederalHome Loan Bank.

 

*Loans receivable:*  Forvariable-rate loans that reprice frequently and with no significant change incredit risk, fair values are based on carrying values.  Fair values for certain mortgage loans(e.g., one-to-four family residential), and other consumer loans are based onquoted market prices of similar loans sold in conjunction with securitizationtransactions, adjusted for differences in loan characteristics.  Fair values for other loans (e.g.,commercial real estate and investment property mortgage loans, commercial andindustrial loans) are estimated using discounted cash flow analyses, usinginterest rates currently being offered for loans with similar terms toborrowers of similar credit quality. Fair values for nonperforming loans are estimated using discounted cashflow analyses or underlying collateral values, where applicable.

 

*Deposit liabilities:*  Thefair values disclosed for demand deposits (e.g., interest and noninterestchecking, passbook savings, and certain types of money market accounts) are, bydefinition, equal to the amount payable on demand at the reporting date (i.e.,their carrying amounts).  The carryingamounts of variable-rate, fixed-term money market accounts and certificates ofdeposit approximate their fair values at the reporting date.  Fair values for fixed-rate certificates ofdeposit are estimated using a discounted cash flow calculation that appliesinterest rates currently being offered on certificates to a schedule ofaggregated expected monthly maturities on time deposits.

 

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*Short-term borrowings:*  Thecarrying amounts of Federal Home Loan Bank advances maturing within ninety daysapproximate their fair values.

 

*Accrued interest:*  Thecarrying amounts of accrued interest approximate fair value.

 

*Off-balance-sheet instruments:*  Fairvalues for off-balance-sheet, credit-related financial instruments are based onfees currently charged to enter into similar agreements, taking into accountthe remaining terms of the agreements and the counterparties’ creditstanding.  Fair values for off-balancesheet commitments to extend credit approximate their carrying value.

 

The estimated fair values, and related carrying or notional amounts, ofthe Association’s financial instruments are as follows:

 
|                                                      |   | **December  31,**    |   |
|-----------------------------------------------------------|--------|----------------------|--------|
|                                                      |   | **2002**             |   | **2001** |   |
|                                                      |   | **Carrying  Amount** |   | **Fair********Value** |   | **Carrying********Amount** |   | **Fair  Value** |   |
|                                                      |   | **(in  thousands)**  |   |
| Financial assets:                                         |   |                 |   |   |   |   |   |   |   |
| Cash and cash equivalents                                 |   | $                    | 3,244  |   | $ | 3,244 |   | $ | 1,841 |   | $ | 1,841 |   |
| Securities available for sale                             |   | 17,058               |   | 17,058 |   | 11,287 |   | 11,287 |   |
| Securities held to maturity                               |   | 3,293                |   | 3,437 |   | 3,737 |   | 3,825 |   |
| Federal Home Loan Bank stock                              |   | 472                  |   | 472 |   | 458 |   | 458 |   |
| Loans, net                                                |   | 52,337               |   | 54,258 |   | 41,188 |   | 42,702 |   |
| Accrued interest receivable                               |   | 271                  |   | 271 |   | 211 |   | 211 |   |
|                                                      |   |                 |   |   |   |   |   |   |   |
| Financial liabilities:                                    |   |                 |   |   |   |   |   |   |   |
| Deposits                                                  |   | 56,856               |   | 56,195 |   | 46,070 |   | 45,536 |   |
| Accrued interest payable                                  |   | 212                  |   | 212 |   | 255 |   | 255 |   |
| Federal Home Loan Bank advances                           |   | 4,000                |   | 4,000 |   | 3,000 |   | 3,000 |   |
|                                                      |   |                 |   |   |   |   |   |   |   |
| Off-balance sheet credit related tofinancial instruments: |   |                 |   |   |   |   |   |   |   |
| Commitments to extend credit                              |   | $                    | 7,588  |   | $ | 7,588 |   | $ | 3,722 |   | $ | 3,722 |   |
|                                                           |        |                      |        |  |  |  |  |  |  |  |  |  |  |  |

 

Off-balance sheet derivative financial instruments:  N/A

 

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**14.**                               **Segment Reporting**

 

The Association, due to its size (both assets and employees), has onlyone reportable segment.  The Associationreports its lending activities (mortgages, consumer and commercial) as onesegment.  It does not operate asmultiple segments nor does it manage or report as other than one segment.

 

The Association does not have a single external customer from which itderives 10% or more of its revenue. Refer to Note 3 for the one geographical area it operates in.

 

**15.**                               **Other Assets**

 

Other assets consist of the following (in thousands:

 

|                         |   | **2002** |   | **2001** |   |
|------------------------------|--------|----------|--------|----------|--------|
|                         |   |     |   |     |   |
| Cash value of life insurance |   | $        | 230    |     | $      | 228 |   |
| Prepaid expenses and other   |   | 155      |   | 80       |   |
|                         |   | $        | 385    |     | $      | 308 |   |

 

**16.**                               **Restatement**

 

Subsequent to the issuance of the Association’s financial statementsfor 2001, management became aware that a $35 (in thousands) write-down of realestate owned was incorrectly charged to the allowance for loan losses in 2000.

 

The affect (in thousands) for December 31, 2001 was to decrease netloans and total assets by $35.  Otherliabilities were decreased by $12 and retained earnings by $23.

 

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**Minden Bancorp, Inc.**

 

**DIRECTORS AND EXECUTIVE OFFICERS**

 

**Directors**

 

| A. David Evans      |   | Russell A. Adams   |
|---------------------|--------|--------------------|
| John B. Benton, Jr. |   | John P. Collins    |
| A. Loye Jones       |   | F. Dare Lott, Jr.  |
| Michael W. Wise     |   | R. E. Woodard, III |

 

**Executive Officers**

 

| A. David Evans*President and Chief Executive Officer* |                                                   | Becky T.Harrell*Chief Financial Officer and Treasurer* |
|-------------------------------------------------------|--------------------------------------------------------|--------------------------------------------------------|
|                                                  |                                                   |                                                   |
|                                                  | Michael P. Burton*Senior Vice President and Secretary* |
|                                                       |                                                        |                                                        |  |

 

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**BANKING LOCATIONS AND STOCKHOLDER INFORMATION**

 

Minden Bancorp, Inc. is a federally charteredthrift holding company conducting business through its wholly owned subsidiary,Minden Building and Loan Association. Minden Building and Loan Association is a Louisiana-chartered,SAIF-insured stock building and loan association operating through its officein Minden, Louisiana.

 

**Main Office**

 

415 Main Street

Minden, Louisiana 71055

 

**Annual Meeting**

 

The Annual Meeting of Stockholders of MindenBancorp, Inc. will be held on May 15, 2003, at 11:00 a.m., Central Time, at theMinden Community House located at Bridwell at Park Highway, Minden Louisiana.

 

**Transfer Agent/Registrar**

 

Registrar and Transfer Company

10 Commerce Drive

Cranford, New Jersey 07016

(908) 272-8511

 

**Stockholder Requests**

 

Requests for annual reports, quarterlyreports and related stockholder literature should be directed to Becky T.Harrell, Chief Financial Officer and Treasurer, Minden Bancorp, Inc., 415 MainStreet, Minden, Louisiana 71055.

 

Stockholders needing assistance with stockrecords, transfers or lost certificates, please contact Minden Bancorp’stransfer agent, Registrar and Transfer Company.

 

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