Midsouth Bancorp (MSL) 10-Q 2005 Q2 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2005

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

COMMISSION FILE NUMBER 1-11826

MIDSOUTH BANCORP, INC.

(Exact name of registrant as specified in its charter)

Louisiana
(State of other jurisdiction of incorporation or organization) 72 -1020809
(I.R.S. Employer Identification No.)

102 Versailles Boulevard, Lafayette, Louisiana 70501
(Address of principal executive offices, including zip code)

(337) 237-8343
(Registrant’s telephone number, including area code)

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YESþ NOo

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YESo NOþ

As of July 31, 2005, there were approximately 4,912,931 shares of the registrant’s Common Stock, par value $.10 per share, outstanding, as adjusted for a 10% stock dividend payable August 19, 2005 to shareholders of record on July 29, 2005.

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INDEX TO FORM 10-Q REPORT

	Page
PART 1 - FINANCIAL INFORMATION
Item 1. Interim Financial Statements (Unaudited)
Consolidated Statements of Condition as of June 30, 2005 and December 31, 2004		3
Consolidated Statements of Income for the Three and Six Months Ended June 30, 2005 and 2004		4
Consolidated Statement of Stockholders’ Equity for the Six Months Ended June 30, 2005		6
Statements of Cash Flows for the Six Months Ended June 30, 2005 and 2004		7
Notes to Consolidated Financial Statements		8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		10
Item 3. Quantitative and Qualitative Disclosures about Market Risk		22
Item 4. Controls and Procedures		22
PART II — OTHER INFORMATION
Item 1. Legal Proceedings		22
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		23
Item 3. Defaults upon Senior Securities		23
Item 4. Submission of Matters to a Vote of Security Holders		23
Item 5. Other Information		23
Item 6. Exhibits and Reports on Form 8-K		24
Signatures		25
Computation of earnings per share
Certification pursuant to Exchange Act Rules 13(a)-14(a)
Certification pursuant to Exchange Act Rules 13(a)-14(a)
Certification pursuant to Section 906
Certification pursuant to Section 906

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MIDSOUTH BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED)

	June 30,			December 31,
	2005			2004
ASSETS
Cash and due from banks	$	19,634,501		$	17,394,278
Federal funds sold		5,900,000
Total cash and cash equivalents		25,534,501			17,394,278
Interest bearing deposits in banks		77,356			2,572
Securities available-for-sale, at fair value (cost of $133,341,288 at June 30, 2005 and $142,682,304 at December 31, 2004)		133,259,190			143,261,605
Securities held-to-maturity (estimated fair value of $22,089,591 at June 30, 2005 and $24,170,815 at December 31, 2004)		21,180,155			22,851,772
Loans, net of allowance for loan losses of $4,039,642 at June 30, 2005 and $3,850,636 at December 31, 2004		405,990,708			382,620,785
Bank premises and equipment, net		21,035,696			19,338,275
Other real estate owned, net		97,846			444,527
Accrued interest receivable		4,180,099			3,880,475
Goodwill		9,269,506			9,175,488
Other assets		11,268,088			11,118,095
Total assets	$	631,893,145		$	610,087,872
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Non-interest bearing	$	130,525,117		$	124,659,052
Interest bearing		428,197,280			405,723,740
Total deposits		558,722,397			530,382,792
Securities sold under repurchase agreements and federal funds purchased		2,353,945			12,412,224
Accrued interest payable		790,936			751,112
Junior subordinated debenture		15,465,000			15,465,000
Other liabilities		3,038,250			2,503,843
Total liabilities		580,370,528			561,514,971
Commitments and contingencies		—			—
Stockholders’ Equity:
Common stock, $.10 par value- 10,000,000 shares authorized, 4,509,867 and 4,487,135 issued and 4,466,301 and 4,454,256 outstanding at June 30, 2005 and December 31, 2004, respectively		450,987			448,713
Surplus		30,463,184			30,247,142
Unearned ESOP shares		(56,336	)		(65,314	)
Unrealized (losses)gains on securities available-for-sale, net of deferred taxes (benefit) of ($27,913) at June 30, 2005 and of $206,900 at December 31, 2004		(54,185	)		372,402
Treasury stock - 43,566 and 32,879 shares, at cost		(1,040,809	)		(759,987	)
Retained earnings		21,759,776			18,329,945
Total stockholders’ equity		51,522,617			48,572,901
Total liabilities and stockholders’ equity	$	631,893,145		$	610,087,872

See notes to unaudited consolidated financial statements.

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MIDSOUTH BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2005		2004		2005		2004
INTEREST INCOME:
Loans, including fees	$	7,822,002	$	5,067,144	$	14,989,363	$	10,011,076
Securities
Taxable		798,944		668,780		1,546,971		1,284,703
Nontaxable		651,690		572,860		1,308,171		1,111,367
Federal funds sold		41,383		31,326		92,783		51,584
Other Interest Income		18,507		9,550		32,887		21,171
TOTAL		9,332,526		6,349,660		17,970,175		12,479,901
INTEREST EXPENSE:
Deposits		2,137,430		1,077,513		4,014,668		1,972,712
Securities sold under repurchase agreements, federal funds purchased and advances		40,880		14,131		101,531		42,767
Long term debt		297,224		184,033		571,717		357,000
TOTAL		2,475,534		1,275,677		4,687,916		2,372,479
NET INTEREST INCOME		6,856,992		5,073,983		13,282,259		10,107,422
PROVISION FOR LOAN LOSSES		65,737		190,000		379,737		420,000
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		6,791,255		4,883,983		12,902,522		9,687,422
OTHER OPERATING INCOME:
Service charges on deposits		2,198,366		1,523,232		4,326,080		2,926,218
Gains on securities, net				2,350		385		2,350
Credit life insurance		40,417		24,248		80,966		44,421
Other charges and fees		931,558		503,931		2,185,452		942,144
TOTAL OTHER INCOME		3,170,341		2,053,761		6,592,883		3,915,133
OTHER EXPENSES:
Salaries and employee benefits		3,304,873		2,258,612		6,507,625		4,409,912
Occupancy expense		1,329,118		990,987		2,584,610		1,971,580
Other		2,552,806		1,319,603		5,047,845		2,585,290

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	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2005		2004		2005		2004
TOTAL OTHER EXPENSES		7,186,797		4,569,202		14,140,080		8,966,782
INCOME BEFORE INCOME TAXES		2,774,799		2,368,542		5,355,325		4,635,773
PROVISION FOR INCOME TAXES		734,546		623,175		1,391,649		1,229,458
NET INCOME	$	2,040,253	$	1,745,367	$	3,963,676	$	3,406,315
EARNINGS PER SHARE
Basic	$	0.42	$	0.40	$	0.81	$	0.77
Diluted	$	0.40	$	0.38	$	0.78	$	0.74

See notes to unaudited consolidated financial statements.

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MIDSOUTH BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED)

											UNREALIZED
											GAINS (LOSSES)
	COMMON STOCK							ESOP			ON SECURITIES			TREASURY			RETAINED
	SHARES		AMOUNT		SURPLUS			OBLIGATION			AFS, NET			STOCK			EARNINGS			TOTAL
Balance — January 1, 2005		4,487,135	$	448,713	$	30,247,142		($	65,314	)	$	372,402		($	759,987	)	$	18,329,945		$	48,572,901
Dividends on common stock, $.06 per share																		(533,845	)		(533,845	)
Issuance of common stock		22,732		2,274		107,978															110,252
Tax benefit resulting from exercise of stock options						140,564															140,564
Purchase of treasury stock															(280,822	)					(280,822	)
Net income																		3,963,676			3,963,676
Excess of market value over book value of ESOP shares released, net adjustment						(32,500	)														(32,500	)
ESOP obligation repayments									8,978												8,978
Net change in unrealized gain/loss on securities available-for-sale, net of income taxes												(426,587	)								(426,587	)
Balance — June 30, 2005		4,509,867	$	450,987	$	30,463,184		($	56,336	)	($	54,185	)	($	1,040,809	)	$	21,759,776		$	51,522,617

See notes to unaudited consolidated financial statements.

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MIDSOUTH BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004

	June 30,			June 30,
	2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	3,963,676		$	3,406,315
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,089,562			754,153
Provision for loan losses		379,737			420,000
Deferred income taxes		137,868			57,899
Amortization of premiums on securities, net		489,389			510,966
Change in accrued interest receivable		(299,624	)		(281,845	)
Change in accrued interest payable		39,824			45,942
Other, net		785,096			(214,344	)
NET CASH PROVIDED BY OPERATING ACTIVITIES		6,585,528			4,699,086
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in interest-bearing deposits in banks		(74,784	)		4,346
Proceeds from sales of securities available-for-sale		9,099,585
Proceeds from maturities and calls of securities held-to-maturity		920,000
Proceeds from maturities and calls of securities available-for-sale		18,284,749			14,532,891
Purchases of securities available-for-sale		(17,780,705	)		(31,391,606	)
Loan originations, net of repayments		(23,915,940	)		(17,817,065	)
Purchases of premises and equipment		(2,743,467	)		(775,778	)
Proceeds from sales of other real estate owned		455,726			160,000
NET CASH USED IN INVESTING ACTIVITIES		(15,754,836	)		(35,287,212	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits		28,339,605			56,791,901
Net decrease in securities sold under repurchase agreements, federal funds purchased, and FHLB borrowings		(10,058,279	)		(13,408,833	)
Purchase/transfer of treasury stock		(280,822	)		(335,726	)
Payment of dividends		(801,225	)		(702,399	)
Issuance of common stock		110,252			104,599
NET CASH PROVIDED BY FINANCING ACTIVITIES		17,309,531			42,449,542
NET INCREASE IN CASH & CASH EQUIVALENTS		8,140,223			11,861,416
CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD		17,394,278			13,833,857
CASH & CASH EQUIVALENTS AT END OF PERIOD	$	25,534,501		$	25,695,273

See notes to unaudited consolidated financial statements.

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MIDSOUTH BANCORP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.	STATEMENT BY MANAGEMENT CONCERNING UNAUDITED FINANCIAL INFORMATION
	The accompanying unaudited consolidated financial statements and notes thereto contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly, in accordance with accounting principles generally accepted in the United States of America, the financial position of MidSouth Bancorp, Inc. (“MidSouth”) and its subsidiaries as of June 30, 2005 and the results of their operations and their cash flows for the periods presented. These consolidated financial statements should be read in conjunction with the annual consolidated financial statements and the notes thereto included in MidSouth’s 2004 annual report and Form 10K.
	The results of operations for the three and six month periods ended June 30, 2005 are not necessarily indicative of the results to be expected for the entire year.
	MidSouth applies Accounting Practices Board (APB) Opinion No. 25 and related interpretations in accounting for its stock options. Accordingly, no compensation cost has been recognized. MidSouth has adopted the disclosure-only option under SFAS No. 123. Had compensation costs for MidSouth’s stock options been determined based on the fair value at the grant date, consistent with the method under SFAS No. 123, MidSouth’s net income and earnings per share would have been as indicated below:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(in thousands):	2005			2004			2005			2004
Net earnings available to common stockholders (in thousands):
As reported	$	2,040		$	1,745		$	3,964		$	3,406
Deduct total stock based compensation determined under fair value method		(15	)		(20	)		(30	)		(33	)
Pro forma	$	2,025		$	1,725		$	3,934		$	3,373
Basic earnings per share:
As reported	$	0.42		$	0.40		$	0.81		$	0.77
Pro forma	$	0.41		$	0.39		$	0.80		$	0.77
Diluted earnings per share:
As reported	$	0.40		$	0.38		$	0.78		$	0.74
Pro forma	$	0.40		$	0.38		$	0.77		$	0.73

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2.	ALLOWANCE FOR LOAN AND LOSSES
	An analysis of the activity in the allowance for loan losses is as follows:

	Six Months Ended
	June 30,
(in thousands)	2005			2004
Balance at beginning of period	$	3,851		$	2,790
Provision for loan losses		380			420
Recoveries		119			100
Loans charged off		(310	)		(336	)
Balance at end of period	$	4,040		$	2,974

3.	COMPREHENSIVE INCOME
	Comprehensive income includes net income and other comprehensive income (losses) which, in the case of MidSouth, only includes unrealized gains and losses on securities available-for-sale. Following is a summary of MidSouth’s comprehensive income for the three and six month periods ended June 30, 2005 and 2004.

	Three Months Ended					Six Months Ended
	June 30,					June 30,
(in thousands)	2005		2004			2005			2004
Net income	$	2,040	$	1,745		$	3,964		$	3,406
Other comprehensive income (loss)
Unrealized gains (losses) on securities available-for-sale, net:
Unrealized holding gains (losses) arising during the period		638		(1,580	)		(427	)		(1,230	)
Less reclassification adjustment for gains (losses) included in net income				1						1
Total other comprehensive gain (loss) income		638		(1,581	)		(427	)		(1,231	)
Total comprehensive income	$	2,678	$	164		$	3,537		$	2,175

In December 2004, the FASB issued Statement 123R, Share-Based Payment, an Amendment of FASB Statement No. 123, which will require all companies to measure compensation cost for all share-based payments (including employee stock options) at fair value, and will be effective for public companies for annual periods beginning after June 15, 2005. This Statement will eliminate the ability to account for stock-based compensation transactions using APB 25 and, generally, will require instead that such transactions be accounted for using a fair-value based method. Had MidSouth adopted SFAS No. 123R in prior periods, the impact of the standard would have approximated the impact of SFAS No. 123 as described in the disclosure of pro-forma net income and earnings per share as set forth above. MidSouth will be required to begin expensing stock options in the first quarter of the year ended December 31, 2006.

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Part 1. Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS

MidSouth Bancorp, Inc. (“MidSouth”) is a multi-bank holding company that conducts substantially all of its business through its wholly-owned subsidiary banks (the “Banks”), MidSouth Bank, N. A., headquartered in Lafayette, Louisiana and Lamar Bank, headquartered in Beaumont, Texas. The Banks provide a broad line of financial products and services to small and medium-sized businesses and consumers. MidSouth Bank operates 20 full-service banking offices throughout south Louisiana and construction is underway on three additional full service locations. Lamar Bank operates five full-service banking offices in southeast Texas and is converting its Conroe, Texas loan production office into a full service office that will open in September 2005.

Following is management’s discussion of factors that management believes are among those necessary for an understanding of MidSouth’s financial statements. The discussion should be read in conjunction with MidSouth’s consolidated financial statements and the notes thereto presented herein and with the financial statements, the notes thereto and related Management’s Discussion & Analysis in MidSouth’s 10-K for the year ended December 31, 2004.

Forward Looking Statements

The Private Securities Litigation Act of 1995 provides a safe harbor for disclosure of information about a company’s anticipated future financial performance. This act protects a company from unwarranted litigation if actual results differ from management expectations. This management’s discussion and analysis reflects management’s current views and estimates of future economic circumstances, industry conditions, MidSouth’s performance and financial results based on assumptions considered reasonable. A number of factors and uncertainties could cause actual results to differ materially from the anticipated results and expectations expressed in the discussion. These factors and uncertainties include, but are not limited to:

• changes in interest rates and market prices that could affect the net interest margin, asset valuation, and expense levels;

• changes in local economic and business conditions that could adversely affect customers and their ability to repay borrowings under agreed upon terms and/or adversely affect the value of the underlying collateral related to the borrowings;

• increased competition for deposits and loans which could affect rates and terms;

• changes in the levels of prepayments received on loans and investment securities that adversely affect the yield and value of the earning assets;

• a deviation in actual experience from the underlying assumptions used to determine and establish the Allowance for Loan Losses (“ALL”);

• changes in the availability of funds resulting from reduced liquidity or increased costs;

• the timing and impact of future acquisitions, the success or failure of integrating

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operations, and the ability to capitalize on growth opportunities upon entering new markets;

• the ability to acquire, operate and maintain effective and efficient operating systems;

• increased asset levels and changes in the composition of assets which would impact capital levels and regulatory capital ratios;

• loss of critical personnel and the challenge of hiring qualified personnel at reasonable compensation levels;

• changes in government regulations applicable to financial holding companies and banking;

• and acts of terrorism, weather, or other events beyond MidSouth’s control.

Critical Accounting Policies

Certain critical accounting policies affect the more significant judgments and estimates used in the preparation of the consolidated financial statements. MidSouth’s most critical accounting policy relates to its allowance for loan losses, which reflects the estimated losses resulting from the inability of its borrowers to make loan payments. If the financial condition of its borrowers were to deteriorate, resulting in an impairment of their ability to make payments, MidSouth’s estimates would be updated and additional provisions for loan losses may be required. See “ - Asset Quality — Nonperforming Assets and Loans Past Due 90 Days and Over.” Another of MidSouth’s critical accounting policies relates to its goodwill and intangible assets. Goodwill represents the excess of the purchase price over the fair value of net assets acquired. In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” goodwill is not amortized, but is evaluated for impairment annually. If the fair value of an asset exceeds the carrying amount of the asset, no charge to goodwill is made. If the carrying amount exceeds the fair value of the asset, goodwill will be adjusted through a charge to earnings.

Results of Operations

Consolidated net income was $2,040,253 for the second quarter of 2005, a 16.9% increase over the $1,745,367 for the second quarter of 2004. Diluted earnings per share were $.40 for the quarter ended June 30, 2005, compared to $.38 per share for the quarter ended June 30, 2004. MidSouth posted returns on average equity of 16.26% and 19.78% and returns on average assets of 1.31% and 1.50%, for the quarters ended June 30, 2005 and 2004, respectively. The returns on average equity and assets for 2005 were affected by MidSouth’s acquisition of Lamar Bancshares, Inc., the parent company of Lamar Bank on October 1, 2004. The leverage capital ratio was 9.15% at June 30, 2005 compared to 8.65% at June 30, 2004.

Year-to-date earnings as of June 30, 2005 totaled $3,963,676 or a 16.4% increase over the $3,406,315 reported for the six months ended June 30, 2004. Diluted earnings per share were $.78 and $.74, respectively.

Earnings per share data have been adjusted to reflect a 10% stock dividend on common stock to holders of record on July 29, 2005 and payable on August 19, 2005.

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Earnings Analysis
Net Interest Income

The primary source of earnings for MidSouth is the difference between interest earned on loans and investments (earning assets) and interest paid on deposits and other liabilities (interest-bearing liabilities), which are used to fund the earning assets. Changes in the volume and mix of earning assets and interest-bearing liabilities combined with changes in market rates of interest greatly affect net interest income. MidSouth’s net interest margin (“NIM”) on a taxable-equivalent basis, which is net income as a percentage of average earning assets, was 5.04% for the quarter ended June 30, 2005, up 14 basis points from 4.90% for the quarter ended June 30, 2004. The NIM improved in quarterly comparison primarily because of increased loan volume and a 175 basis point increase in the New York Prime rate (“Prime”) over the past twelve months. The increase in the Prime rate resulted in increased yields in the loan portfolio. In six-month comparison, the net interest margin decreased 7 basis points, from 5.03% at June 30, 2004 to 4.96% at June 30, 2005. The NIM declined in six-month comparison primarily due to the increased volume and cost of interest-bearing deposits. The tables following this discussion reflect the changes in taxable-equivalent net interest income for the quarters ended and six months ended June 30, 2005 and 2004.

Net interest income, on a taxable-equivalent basis, increased $1.8 million in quarterly comparison, from $5.3 million at June 30, 2004 to $7.1 million at June 30, 2005. During the same period, average earning assets increased $130.6 million or 30%, from $435.9 million in 2004 to $566.5 million in 2005, primarily due to earning assets acquired from Lamar. The average yield on earning assets improved 73 basis points, from 6.07% at June 30, 2004 to 6.80% at June 30, 2005. The mix of average earning assets improved significantly, as loans represented 71% of average earning assets in the second quarter of 2005 compared to 62% in the second quarter of 2004. Average loan yields improved 32 basis points, from 7.49% at June 30, 2004 to 7.81% at June 30, 2005. The impact of the increase in yield combined with the increase in the average volume of loans resulted in a $2.8 million increase in interest income on loans in quarterly comparison.

Average investment securities increased $9.8 million in quarterly comparison, from $149.4 million at June 30, 2004 to $159.2 million at June 30, 2005, primarily due to the addition of Lamar’s investment portfolio, net of an $8.3 million GNMA Mutual Fund investment liquidated in the first quarter of 2005. The average taxable-equivalent yield on the investment portfolio increased 37 basis points, from 4.00% at June 30, 2004 to 4.37% at June 30, 2005. An average of approximately $6 million in corporate securities yielding 5.50% in Lamar’s portfolio contributed to the 68 basis point increase in the yield on taxable securities in comparing second quarter 2005 to second quarter 2004. The volume and rate increases in the investment portfolio added $249,000 to taxable-equivalent interest income in quarterly comparison.

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The addition of Lamar’s deposit portfolio complimented MidSouth’s core deposit mix, with average non-interest bearing deposits comprising 24.2% of average total deposits at June 30, 2005, an increase from the 23.1% at June 30, 2004 in quarterly comparison. Interest bearing deposits comprised 75.8% of total deposits at June 30, 2005 compared to 76.9% at June 30, 2004. Most of MidSouth’s deposit growth, net of the Lamar deposits, was in the Platinum Money Market accounts, which offer consumer and commercial customers a competitive yield that adjusts weekly to market rates. The competitive yield on the Platinum accounts contributed greatly to the 94 basis point increase in the average yield on NOW, money market and savings deposits in quarterly comparison. The average yield on all interest-bearing deposits increased 72 basis points, from 1.35% at June 30, 2004 to 2.07% at June 30, 2005.

The average volume of junior subordinated debentures and related trust preferred securities increased $8.2 million from second quarter 2004 to second quarter 2005. MidSouth issued $8.2 million of junior subordinated debentures and related trust preferred securities in the third quarter of 2004 to partially fund the Lamar acquisition. The $ 8.2 million in debentures carry a floating rate equal to the 3-month LIBOR plus 2.50%, adjustable and payable quarterly. The rate at June 30, 2005 was 5.93%. The debentures mature on September 20, 2034 and, under certain circumstances, are subject to repayment on September 20, 2009 or thereafter. Previously, in February 2001, MidSouth issued $7,217,000 of junior subordinated debentures and related trust preferred securities. The $7.2 million in debentures carry a fixed interest rate of 10.20% and mature on February 22, 2031.

Net interest income, on a taxable-equivalent basis, increased $3.25 million for the six-month period ended June 30, 2005, from $10.6 million at June 30, 2004 to $13.8 million at June 30, 2005. During the same period, average earning assets increased $139.8 million or 33%, from $422.1 million in 2004 to $561.9 million in 2005, primarily due to earning assets acquired from Lamar. The average yield on earning assets improved 48 basis points in six-month comparison, from 6.16% at June 30, 2004 to 6.64% at June 30, 2005. The volume of total interest-bearing liabilities increased $113.0 million or 35%, from $323.0 million for the six months ended June 30, 2004 to $436.0 million for the six months ended June 30, 2005. The average yield on total interest-bearing liabilities increased 69 basis points in the same period, from 1.48% to 2.17%.

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Consolidated Average Balances, Interest and Rates
Taxable-equivalent basis (2)
(in thousands)

			Three Months Ended								Three Months Ended
			June 30, 2005								June 30, 2004
			Average					Average			Average					Average
			Volume			Interest		Yield/Rate			Volume			Interest		Yield/Rate
ASSETS
Investment Securities	(1	)
Taxable			$	81,813		$	798		3.92	%	$	83,048		$	668		3.24	%
Tax Exempt	(2	)		74,786			917		4.90	%		64,629			807		5.01	%
Equity Securities				2,592			19		2.86	%		1,717			10		2.24	%
Total Investments				159,191			1,734		4.37	%		149,394			1,485		4.00	%
Federal Funds Sold and Securities Purchased Under Agreements to Resell				5,733			41		2.90	%		14,277			31		0.88	%
Loans	(3	)
Commercial and Real Estate				313,102			6,009		7.70	%		228,548			3,990		7.02	%
Installment				88,479			1,813		8.22	%		43,718			1,078		10.03	%
Total Loans				401,581			7,822		7.81	%		272,266			5,068		7.49	%
Total Earning Assets				566,505			9,597		6.80	%		435,937			6,584		6.07	%
Allowance for Loan Losses				(4,042	)							(2,839	)
Nonearning Assets				60,632								34,502
Total Assets			$	623,095							$	467,600
LIABILITIES AND STOCKHOLDERS’ EQUITY
NOW, Money Market, and Savings			$	302,249		$	1,464		1.94	%	$	214,162		$	535		1.00	%
Certificates of Deposits				112,785			673		2.39	%		107,846			543		2.03	%
Total Interest Bearing Deposits				415,034			2,137		2.07	%		322,008			1,078		1.35	%
Federal Funds Purchased, Securities Sold Under Agreements to Repurchase				5,040			34		2.73	%		4,937			14		1.15	%
Junior Subordinated Debentures				15,465			297		7.71	%		7,217			184		10.23	%
Federal Home Loan Bank Advances				915			7		2.87	%		0			0		0.00	%
Total Interest Bearing Liabilities				436,454			2,475		2.28	%		334,162			1,276		1.53	%
Demand Deposits				132,313								96,727
Other Liabilities				4,014								1,226
Stockholders’ Equity				50,314								35,485
Total Liabilities and Stockholders’ Equity			$	623,095							$	467,600
NET TAXABLE-EQUIVALENT
INTEREST INCOME AND SPREAD						$	7,122		4.52	%				$	5,308		4.54	%
NET TAXABLE-EQUIVALENT YIELD ON EARNING ASSETS									5.04	%							4.90	%

(1)	Securities classified as available-for-sale are included in average balances and interest income figures reflect interest earned on such securities.
(2)	Interest income of $264,925 for 2005 and $234,242 for 2004 is added to interest earned on tax-exempt obligations to reflect tax equivalent yields using a 34% tax rate.
(3)	Interest income includes loan fees of $900,210 for 2005 and $478,905 for 2004. Nonaccrual loans are included in average balances and income on such loans is recognized on a cash basis.

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Changes in Taxable-Equivalent Net Interest Income
(in thousands)

	Three Months Ended
	June 30, 2005 compared to June 30, 2004
	Total		Change
	Increase		Attributable to
	(Decrease)		Volume			Rates
Taxable-equivalent interest earned on:
Investment Securities Taxable	$	130		($10	)	$	140
Tax Exempt		110		127			(17	)
Equity Securities		9		6			3
Federal Funds Sold and Securities Purchased Under Agreement to Resell		10		(4	)		14
Loans, including fees		2,754		2,457			297
TOTAL		3,013		2,576			437
Interest Paid On:
Interest Bearing Deposits		1,059		370			689
Federal Funds Purchased and Securities Sold Under Agreement to Repurchase		20					20
Federal Home Loan Bank Advances		7		7
Junior Subordinated Debentures		113		144			(31	)
TOTAL		1,199		521			678
Taxable-equivalent net interest income	$	1,814	$	2,055			($241	)

NOTE: Changes due to both volume and rate has generally been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts to the changes in each.

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Consolidated Average Balances, Interest and Rates
Taxable-equivalent basis (2)
(in thousands)

			Six Months Ended								Six Months Ended
			June 30, 2005								June 30, 2004
			Average					Average			Average					Average
			Volume			Interest		Yield/Rate			Volume			Interest		Yield/Rate
ASSETS
Investment Securities	(1	)
Taxable			$	80,990		$	1,547		3.85	%	$	80,388		$	1,284		3.21	%
Tax Exempt	(2	)		75,165			1,840		4.90	%		61,522			1,568		5.13	%
Equity Securities				2,603			33		2.55	%		1,917			21		2.22	%
Total Investments				158,758			3,420		4.34	%		143,827			2,873		4.02	%
Federal Funds Sold and Securities Purchased Under Agreements to Resell				7,235			93		2.59	%		11,821			52		0.88	%
Loans	(3	)
Commercial and Real Estate				310,605			11,539		7.49	%		223,019			7,868		7.09	%
Installment				85,267			3,450		8.16	%		43,396			2,143		9.93	%
Total Loans				395,872			14,989		7.64	%		266,415			10,011		7.56	%
Total Earning Assets				561,865			18,502		6.64	%		422,063			12,936		6.16	%
Allowance for Loan Losses				(3,931	)							(2,802	)
Nonearning Assets				61,527								34,701
Total Assets			$	619,461							$	453,962
LIABILITIES AND STOCKHOLDERS’ EQUITY
NOW, Money Market, and Savings			$	295,267		$	2,692		1.84	%	$	202,965		$	916		0.91	%
Certificates of Deposits				117,311			1,323		2.27	%		105,071			1,057		2.02	%
Total Interest Bearing Deposits				412,578			4,015		1.96	%		308,036			1,973		1.29	%
Federal Funds Purchased, Securities Sold Under Agreements to Repurchase				6,105			76		2.51	%		5,755			32		1.12	%
Federal Home Loan Bank Advances				1,869			26		2.76	%		1,978			10		1.09	%
Notes Payable Junior Subordinated Debentures				15,465			571		7.45	%		7,217			357		9.95	%
Total Interest Bearing Liabilities				436,017			4,688		2.17	%		322,986			2,372		1.48	%
Demand Deposits				129,498								95,254
Other Liabilities				4,077								1,184
Stockholders’ Equity				49,869								34,538
Total Liabilities and Stockholders’ Equity			$	619,461							$	453,962
NET TAXABLE-EQUIVALENT
INTEREST INCOME AND SPREAD						$	13,814		4.47	%				$	10,564		4.68	%
NET TAXABLE-EQUIVALENT YIELD ON EARNING ASSETS									4.96	%							5.03	%

(1)	Securities classified as available-for-sale are included in average balances and interest income figures reflect interest earned on such securities.
(2)	Interest income of $531,574 for 2005 and $456,641 for 2004 is added to interest earned on tax-exempt obligations to reflect tax equivalent yields using a 34% tax rate.
(3)	Interest income includes loan fees of $1,518,180 for 2005 and $931,314 for 2004. Nonaccrual loans are included in average balances and income on such loans is recognized on a cash basis.

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Changes in Taxable-Equivalent Net Interest Income
(in thousands)

	Six Months Ended
	June 30, 2005 compared to June 30, 2004
	Total		Change
	Increase		Attributable to
	(Decrease)		Volume			Rates
Taxable-equivalent interest earned on:
Investment Securities
Taxable	$	263	$	10		$	253
Tax Exempt		272		344			(72	)
Equity Securities		12		9			3
Federal Funds Sold and Securities Purchased Under Agreement to Resell		41		(10	)		51
Loans, including fees		4,978		4,895			83
TOTAL		5,566		5,248			318
Interest Paid On:
Interest Bearing Deposits		2,042		808			1,234
Federal Funds Purchased and Securities Sold Under Agreement to Repurchase		44		2			42
Federal Home Loan Bank Advances		16		(1	)		17
Notes Payable Junior Subordinated Debentures		214		275			(61	)
TOTAL		2,316		1,084			1,232
Taxable-equivalent net interest income	$	3,250	$	4,164			($914	)

NOTE: Changes due to both volume and rate has generally been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts to the changes in each.

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Non-interest Income
Excluding Securities Transactions

MidSouth’s primary source of non-interest income is services charges and fees on deposit accounts, which include insufficient funds (“NSF”) fees. Income from service charges on deposit accounts totaled $2.2 million for the second quarter of 2005 compared to $1.5 million for the second quarter of 2004, an increase of $700,000 or 44%. For the six months ended June 30, 2005, service charges on deposit accounts totaled $4.3 million compared to $2.9 million for the six months ended June 30, 2004, an increase of $1.4 million or 48%. The increases during both periods resulted primarily from the addition of approximately 9,700 in deposit accounts acquired from Lamar in October 2004.

Income from other charges and fees, including fees earned on the sale of credit life insurance, increased $443,796 for the three months ended June 30, 2005 and $1.3 million for the six months ended June 30, 2005 as compared to the same periods in 2004. The increase for the six months ended June 30, 2005 included $631,000 received on the PULSE distribution.

Non-interest Expense

Non-interest expense increased $2.6 million in quarterly comparison and $5.2 million in six-month comparison from June 30, 2004 to June 30, 2005, primarily due to the addition of Lamar’s expenses. Lamar contributed $1.8 million to the quarterly increase and $3.4 million to the increase reported for the six months ended June 30, 2005. The increases for both periods are due primarily to the additional salaries and benefit costs for Lamar’s 59 full-time equivalent (“FTE”) employees. Salaries and employee benefit expenses increased $1.0 million for the quarter ended June 30, 2005, a 46% increase over the $2.3 million for the quarter ended June 30, 2004. For the six months ended June 30, 2005, salaries and benefit expenses totaled $6.5 million, up $2.1 million or 48% over the $4.4 million for the six months ended June 30, 2004. The total number of FTE associates employed by MidSouth increased from 233 at June 30, 2004 to 305 at June 30, 2005.

Total occupancy expenses increased $338,131 in quarterly comparison and $613,030 in six month comparison from June 30, 2004 to June 30, 2005 due to the addition of Lamar’s banking locations.

Other non-interest expenses increased $1.2 million, from $1.3 million for the quarter ended June 30, 2004 to $2.5 million for the quarter ended June 30, 2005. For the six months ended June 30, 2005, other non-interest expenses totaled $5.0 million, up $2.4 million over the $2.6 million reported for the six months ended June 30, 2004. The increases for both periods resulted primarily from the addition of Lamar’s expenses that included approximately $128,000 in conversion costs and approximately $155,000 in related amortization of core deposit intangibles, net of taxes. Additionally, MidSouth Bank incurred increases in quarterly and year-to-date comparison of marketing expenses, education and travel expenses, and accounting fees associated with a Sarbanes-Oxley internal controls review performed

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during the second quarter of 2005. Management expects the impact of accounting fees to decrease during the second half of 2005 due to a deferment of the requirement to certify its internal controls, delaying much of the testing phase until 2006.

Analysis of Statement of Condition

Consolidated assets totaled $631.9 million at June 30, 2005, up $21.8 million from $610.1 million at December 31, 2004. The increase resulted primarily from a 5% growth in deposits of $28.3 million of which $5.9 million was non-interest bearing balances. The growth resulted primarily in MidSouth’s Platinum Money Market accounts, which offer a competitive yield that adjusts weekly to market rates. Cash flows from the increase in deposits funded a 6% or $23.6 million increase in loans over the first half of 2005. Loan growth for the first six months of 2005 was primarily in commercial, real estate and agricultural credits.

Liquidity

Liquidity is the availability of funds to meet contractual obligations as they become due and to fund operations. The Banks’ primary liquidity needs involve their ability to accommodate customers’ demands for deposit withdrawals as well as their requests for credit. Liquidity is deemed adequate when sufficient cash to meet these needs can be promptly raised at a reasonable cost to the Banks. Liquidity is provided primarily by three sources: a stable base of funding sources, an adequate level of assets that can be readily converted into cash, and borrowing lines with correspondent banks. The Banks’ core deposits are their most stable and important source of funding. Further, the low variability of the core deposit base lessens the need for liquidity. Cash deposits at other banks, federal funds sold, principal payments received on loans and mortgage-backed securities, and maturities of investment securities provide additional primary sources of asset liquidity for the Banks. The Banks also have significant borrowing capacity with the FHLB of Dallas, Texas and borrowing lines with other correspondent banks.

At the parent company level, cash is needed primarily to meet interest payments on the junior subordinated debentures and pay dividends on common stock. An $8.2 million issuance of junior subordinated debentures and related trust preferred securities was completed on September 20, 2004, the proceeds of which were partially used to fund the Lamar Bancshares merger. The parent company previously issued $7.2 million in junior subordinated debentures and related trust preferred securities in February 2001. Dividends from MidSouth Bank primarily provide liquidity for the parent company. As a publicly traded company, the parent company also has the ability to issue additional trust preferred and other securities instruments to provide funds as needed for operations and future growth.

Capital

MidSouth and the Banks are required to maintain certain minimum capital levels. Risk-

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based capital requirements are intended to make regulatory capital more sensitive to the risk profile of an institution’s assets. At June 30, 2005, MidSouth and the Banks were in compliance with statutory minimum capital requirements. Minimum capital requirements include a total risk-based capital ratio of 8.0%, with Tier 1 capital not less than 4.0%, and a leverage ratio (Tier 1 to total average adjusted assets) of 4.0% based upon the regulators latest composite rating of the institution. MidSouth’s leverage ratio was 9.15%, Tier 1 capital to risk-weighted assets was 12.12% and total capital to risk-weighted assets was 12.99% at the end of the second quarter of 2005. Both MidSouth Bank and Lamar’s risk-based capital ratios were above the levels required for designation as “well capitalized” by the FDIC. MidSouth Bank had a leverage ratio of 8.42%, a Tier 1 capital to risk-weighted assets ratio of 11.53% and a 12.43% total capital to risk weighted assets ratio at June 30, 2005. Lamar had a leverage ratio of 11.59%, a Tier 1 capital to risk-weighted assets ratio of 13.45% and a 14.20%total capital to risk weighted assets ratio at June 30, 2005.

Asset Quality
Credit Risk Management

MidSouth manages its credit risk by observing written, board approved policies which govern all underwriting activities. The risk management program requires that each individual loan officer review his or her portfolio on a quarterly basis and assign recommended credit ratings on each loan. These efforts are supplemented by independent reviews performed by the loan review officer and other validations performed by the internal audit department. Bank concentrations are monitored and reported to the Board of Directors quarterly whereby individual customer and aggregate industry leverage, profitability, risk rating distributions, and liquidity are evaluated for each major standard industry classification segment.

Nonperforming Assets and Loans Past Due 90 Days and Over

The following table summarizes MidSouth’s nonperforming assets and loans past due 90 days and over for the quarters ending June 30, 2005 and 2004 and for the year-ended December 31, 2004.

	Period Ended				Year Ended
	Jun. 30,		Jun. 30,		Dec. 31,
	2005		2004		2004
Nonaccrual loans	$	1,892	$	1,003	$	472
Loans past due 90 days and over		128		662		488
Total nonperforming loans		2,020		1,665		960
Other real estate owned		98		77		445
Other foreclosed assets		156				283
Total nonperforming assets	$	2,274	$	1,742	$	1,688

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	Period Ended						Year Ended
	Jun. 30,			Jun. 30,			Dec. 31,
	2005			2004			2004
Nonperforming assets to total assets		0.36	%		0.36	%		0.28	%
Nonperforming assets to total loans + OREO + other foreclosed assets		0.55	%		0.62	%		0.44	%
ALL to nonperforming assets		177.62	%		170.72	%		228.08	%
ALL to nonperforming loans		199.95	%		178.62	%		401.04	%
ALL to total loans		.99	%		1.06	%		1.00	%
Year-to-date charge-offs	$	310		$	336		$	1,067
Year-to-date recoveries		119			100			182
Year-to-date net charge-offs	$	191		$	236		$	885
Net YTD charge-offs to total loans		0.05	%		0.08	%		0.23	%

Nonaccrual loans increased $889,000 from June of 2004 and $1.4 million from December of 2004 due to the placement of a single oil and gas service relationship aggregating $1.3 million on nonaccrual status during the second quarter of 2005. The relationship is well secured and there is currently no expectation of loss should the loan relationship be liquidated.

Specific reserves have been established in the ALL to cover probable losses on nonperforming assets. The ALL is analyzed quarterly and additional reserves, if needed, are allocated at that time. Factors considered in determining provisions include estimated losses in significant credits; known deterioration in concentrations of credit; historical loss experience; trends in nonperforming assets; volume, maturity and composition of the loan portfolio; off balance sheet credit risk; lending policies and control systems; national and local economic conditions; the experience, ability and depth of lending management and the results of examinations of the loan portfolio by regulatory agencies and others. The processes by which management determines the appropriate level of the allowance, and the corresponding provision for probable credit losses, involves considerable judgment; therefore, no assurance can be given that future losses will not vary from current estimates. Management believes the $4,039,642 in the allowance as of June 30, 2005 is sufficient to cover probable losses in nonperforming assets and in the loan portfolio.

Impact of Inflation and Changing Prices

The consolidated financial statements of MidSouth and notes thereto, presented herein, have been prepared in accordance with generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time and due to inflation. The impact of inflation is reflected in the increased cost of MidSouth’s operations.

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Unlike most industrial companies, nearly all the assets and liabilities of MidSouth are financial. As a result, interest rates have a greater impact on MidSouth’s performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

Part I. Item 3. Qualitative and Quantitative Disclosures About Market Risk

In the normal course of conducting business, MidSouth is exposed to market risk, principally interest rate risk, through operation of its subsidiaries. Interest rate risk arises from market fluctuations in interest rates that affect cash flows, income, expense and values of financial instruments. The Asset/Liability Management Committee (“ALCO”) is responsible for managing MidSouth’s interest rate risk position in compliance with policy approved by the Board of Directors.

There have been no significant changes from the information regarding market risk disclosed under the heading “Interest Rate Sensitivity” in MidSouth’s Annual Report for the year ended December 31, 2004.

Part I. Item 4. Controls and Procedures

MidSouth’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the disclosure controls and procedures (as such term is defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”), the principal executive officer and principal financial officer have concluded that such disclosure controls and procedures are effective to ensure that information required to be disclosed by MidSouth in reports that it submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission rules and forms.

During the second quarter of 2005, there were no significant changes in MidSouth’s internal controls over financial reporting that has materially affected, or is reasonably likely to affect, MidSouth’s internal control over financial reporting.

Part II. Other Information

Item 1. Legal Proceedings

The Banks have been named as a defendant in various legal actions arising from normal business activities in which damages of various amounts are claimed. While the amount, if any, of ultimate liability with respect to such matters cannot be currently determined,

22

management believes, after consulting with legal counsel, that any such liability will not have a material adverse effect on MidSouth’s consolidated financial position, results of operations, or cash flows.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information with respect to purchases made by or on behalf of MidSouth or any “affiliated purchaser,” as defined in Securities Exchange Act Rule 10b-8(a)(3), of equity securities during the second quarter ended June 30, 2005.

					Total Number of		Maximum Number
	Total Number				Shares Purchased		of Shares That May
	of Shares		Average Price Paid		as Part of a Publicly		Yet be Purchased
	Purchased		per Share		Announced Plan1		Under the Plan1
April 2005		3,341	$	22.64		3,341		194,384
May 2005		3,718	$	23.08		3,718		190,666
June 2005		275	$	22.45		275		190,391

1 — Under a share repurchase program approved by MidSouth’s Board of Directors on November 13, 2002, MidSouth can repurchase up to 5% of its common stock outstanding through open market or privately negotiated transactions. The repurchase program does not have an expiration date.

Item 3. Defaults Upon Senior Securities

          None

Item 4. Submission of Matters to a Vote of Security Holders

          On May 26, 2005, MidSouth held its Annual Meeting of Shareholders to consider and act upon the election of Class III Directors James R. Davis, Jr., Karen L. Hail, and Milton B. Kidd, III. A total of 3,299,793 shares were voted in favor of the election of both James R. Davis, Jr. and Milton B. Kidd, III, with 58,309 shares withheld from voting. A total of 3,299,704 shares were voted in favor of the election of Karen L. Hail, with 58,398 shares withheld from voting.

Item 5. Other Information

          None

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Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

Exhibit Number	Document Description
3.1	Amended and Restated Articles of Incorporation of MidSouth Bancorp, Inc. is included as Exhibit 3.1 to MidSouth’s Report on Form 10-K for the year ended December 31, 1993 and is incorporated herein by reference.
3.2	Articles of Amendment to Amended and Restated Articles of Incorporation dated July 19, 1995 are included as Exhibit 4.2 to MidSouth’s Registration Statement on Form S-8 filed September 20, 1995 and are incorporated herein by reference.
3.3	Amended and Restated By-laws adopted by the Board of Directors on April 12, 1995 are included as Exhibit 3.2 to Amendment No. 1 to MidSouth’s Registration Statement on Form S-4/A (Reg. No. 33-58499) filed on June 1, 1995.
11	Computation of earnings per share
31.1	Certification pursuant to Exchange Act Rules 13(a) — 14(a)
31.2	Certification pursuant to Exchange Act Rules 13(a) — 14(a)
32.1	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(b) Reports Filed on Form 8-K

     A press release regarding MidSouth’s earnings for the quarter ended March 31, 2005 was attached as Exhibit 99.1 to the Form 8-K filed on April 21, 2005.

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Signatures

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	MidSouth Bancorp, Inc.
	(Registrant)
Date:August 15, 2005	/s/   Teri S. Stelly
	Teri S. Stelly, SVP/Chief Accounting Officer

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