UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM 10Q
__X___QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended...... March 31, 2004
______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.
Louisiana 72 -1020809
102 Versailles Boulevard, Lafayette, Louisiana
70501
(337) 237-8343
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the
past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
YES __X__ NO _____
Check whether the issuer is an accelerated filer (as defined
in Rule 12b-2 of the Exchange Act.)
YES _____ NO __X__
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date.
Outstanding as of April 30, 2004
Common stock, $.10 par value 3,207,080
1
INDEX TO FORM 10-Q REPORT
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) Page
Consolidated Statements of Condition -
March 31, 2004 and
December 31, 2003 3
Consolidated Statements of Income -
Three Months Ended March 31, 2004
and 2003 4
Consolidated Statement of
Stockholders' Equity -
Three Months Ended March 31, 2004 5
Statements of Cash Flows -
Three Months Ended
March 31, 2004 and 2003 6
Notes to Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 16
Item 4. Controls and Procedures 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities, Use of
Proceeds, and Issuer Purchases
of Equity Securities 17
Item 3. Defaults upon Senior Securities 17
Item 4. Submission of Matters to a Vote of
Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 19
2
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED)
March 31, December 31,
ASSETS 2004 2003
Cash and due from banks $12,209,321 $13,833,857
Federal funds sold 21,900,000
___________ ___________
Total cash and cash equivalents 34,109,321 13,833,857
Interest bearing deposits in banks 2,087 6,594
Securities available-for-sale, at fair
value (cost of $116,665,139 at March 31,
2004 and $116,863,702 at December 31,
2003) 118,561,783 118,226,723
Securities held-to-maturity (estimated
market value of $25,477,449
at March 31, 2004 and $25,455,609
at December 31, 2003) 23,368,473 23,366,709
Loans, net of allowance for loan losses
of $2,906,598 at March 31, 2004 and
$2,789,761 at December 31, 2003 261,286,653 259,083,015
Bank premises and equipment, net 11,790,884 11,984,276
Other real estate owned, net 246,773 218,199
Accrued interest receivable 2,610,706 2,883,376
Goodwill 431,987 431,987
Other assets 2,503,287 2,662,568
____________ ____________
Total assets $454,911,954 $432,697,305
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $95,748,454 $96,948,642
Interest bearing 311,777,990 277,439,840
____________ ____________
Total deposits 407,526,444 374,388,482
Securities sold under repurchase
agreements and federal funds purchased 4,620,553 10,067,503
Accrued interest payable 394,449 558,416
FHLB Advances 7,500,000
Junior subordinated debenture 7,000,000 7,000,000
Other liabilities 1,213,193 954,997
____________ ____________
Total liabilities 420,754,639 400,469,398
____________ ____________
Commitments and contingencies - -
Stockholders' Equity:
Common stock, $.10 par value- 10,000,000
shares authorized, 3,212,801 and
3,198,879 issued and outstanding
on March 31, 2004 and
December 31, 2003, respectively 321,280 319,888
Surplus 18,816,966 18,733,991
Unearned ESOP shares (78,434) (82,724)
Unrealized gains on securities available-
for-sale, net of deferred taxes
of $655,739 on March 31, 2004 and $471,647
on December 31, 2003 1,240,905 891,374
Treasury stock - 5,721 and 6,318 shares,
at cost (85,728) (106,922)
Retained earnings 13,942,326 12,472,300
____________ ____________
Total stockholders' equity 34,157,315 32,227,907
____________ ____________
Total liabilities and stockholders' equity $454,911,954 $432,697,305
============ ============
See notes to unaudited consolidated financial statements.
3
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended
March 31,
2004 2003
________________________
<c>
INTEREST INCOME:
Loans, including fees $4,943,932 $4,733,805
Securities
Taxable 627,543 640,595
Nontaxable 538,508 467,911
Federal funds sold 20,258 10,601
__________ __________
TOTAL 6,130,241 5,852,912
__________ __________
INTEREST EXPENSE:
Deposits 895,199 1,072,949
Securities sold under repurchase
agreements, federal funds
purchased and FHLB advances 17,900 13,370
Long term debt 183,703 179,390
__________ __________
TOTAL 1,096,802 1,265,709
__________ __________
NET INTEREST INCOME 5,033,439 4,587,203
PROVISION FOR LOAN LOSSES 230,000 200,000
__________ __________
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 4,803,439 4,387,203
__________ __________
OTHER OPERATING INCOME:
Service charges on deposits 1,402,986 1,207,553
Gains (Losses) on securities,
net (5,303)
Credit life insurance 20,173 51,462
Other charges and fees 438,213 459,387
__________ __________
TOTAL OTHER INCOME 1,861,372 1,713,099
__________ __________
OTHER EXPENSES
Salaries and employee benefits 2,151,300 2,077,728
Occupancy expense 980,593 906,345
Other 1,265,687 1,327,801
__________ __________
TOTAL OTHER EXPENSES 4,397,580 4,311,874
__________ __________
INCOME BEFORE INCOME TAXES 2,267,231 1,788,428
PROVISION FOR INCOME TAXES 606,283 478,876
__________ __________
NET INCOME $1,660,948 $1,309,552
========== ==========
BASIC EARNINGS PER COMMON SHARE $0.52 $0.41
========== ==========
DILUTED EARNINGS PER COMMON SHARE $0.50 $0.40
========== ==========
See notes to unaudited consolidated financial statements.
4
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE QUARTER ENDED MARCH 31, 2004 (UNAUDITED)
____________________________________________________________________________________________
UNREALIZED
GAINS
(LOSSES) ON
COMMON STOCK ESOP SECURITIES TREASURY RETAINED
SHARES AMOUNT SURPLUS OBLIGATION AFS, NET STOCK EARNINGS TOTAL
____________________ ___________ __________ __________ ________ __________ ___________
BALANCE,
JANUARY 1, 2004
3,198,879 $319,888 $18,733,991 ($82,724) $891,374 ($106,922) $12,472,300 $32,227,907
Dividends on
common stock,
$.06 per share (190,922) (190,922)
Issuance of common
stock 13,922 1,392 82,975 84,367
Transfer of
treasury stock
to ESOP 21,194 21,194
Net income 1,660,948 1,660,948
ESOP obligation,
repayments 4,290 4,290
Net change in
unrealized gain/loss
on securities
available-for-sale,
net of income taxes 349,531 349,531
_________ ________ ___________ ________ __________ ________ ___________ ___________
BALANCE,
MARCH 31, 2004 3,212,801 $321,280 $18,816,966 ($78,434) $1,240,905 ($85,728) $13,942,326 $34,157,315
========= ======== =========== ======== ========== ======== =========== ===========
See notes to unaudited consolidated financial statements.
5
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
March 31, 2004 March 31, 2003
______________ ______________
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,660,948 $1,309,552
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 386,126 371,335
Provision for loan losses 230,000 200,000
Provision for deferred taxes 69,828 (80,566)
Amortization of premiums on securities, net 232,271 230,838
Net loss on sale of securities 5,303
(Gain)/loss on sale of premises and equipment (12,834)
Change in accrued interest receivable 272,670 171,851
Change in accrued interest payable (163,967) (211,994)
Other, net 467,024 788,555
______________ ______________
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,154,900 2,772,040
______________ ______________
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease (increase) in interest-bearing deposits in banks 4,507 (163,642)
Proceeds from sales of securities available-for-sale 1,296,875
Proceeds from maturities and calls of securities available-
for-sale 6,734,014 8,187,235
Purchases of securities available-for-sale (6,769,484) (9,025,679)
Loan originations, net of repayments (2,457,922) (9,740,203)
Purchases of premises and equipment (176,314) (233,520)
Proceeds from sales of premises and equipment 37,610
______________ ______________
NET CASH USED IN INVESTING ACTIVITIES (2,665,199) (9,641,324)
______________ ______________
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 33,137,962 5,792,865
Net (decrease) increase in securities sold under repurchase
agreements, federal funds purchased and FHLB advances (12,946,950) 1,401,035
Repayments of notes payable (82,030)
Issuance of common stock 84,367
Transfers to ESOP (purchases) of treasury stock, net 21,194 (46,362)
Payment of dividends (510,810) (290,114)
______________ ______________
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 19,785,763 6,775,394
______________ ______________
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS 20,275,464 (93,890)
CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD 13,833,857 27,466,035
______________ ______________
CASH & CASH EQUIVALENTS AT END OF PERIOD $34,109,321 $27,372,145
============== ==============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $1,260,769 $1,477,703
============== ==============
Income taxes paid $287,470 $290,725
============== ==============
See notes to unaudited consolidated financial statements.
6
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. STATEMENT BY MANAGEMENT CONCERNING THE REVIEW OF 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 March 31, 2004 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
2003 annual report and Form 10KSB.
The results of operations for the three month period ended
March 31, 2004 are not necessarily indicative of the results
to be expected for the entire year.
MidSouth applies the 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
March 31,
2004 2003
__________ __________
Net earnings available to
common stockholders
(in thousands):
As reported $1,661 $1,310
Deduct total stock based
compensation determined
under fair value method (13) (14)
__________ __________
Pro forma $1,648 $1,296
========== ==========
Basic earnings per share:
As reported $0.52 $0.41
Pro forma $0.52 $0.41
Diluted earnings per share:
As reported $0.50 $0.40
Pro forma $0.49 $0.40
2. ALLOWANCE FOR LOAN AND LOSSES
An analysis of the activity in the allowance for loan losses
is as follows:
Three Months Ended
March 31,
2004 2003
______ ______
(in thousands)
Balance at beginning of period $2,790 $2,891
Provision for loan losses 230 200
Recoveries 59 41
Loans charged off (172) (178)
______ ______
Balance at end of period $2,907 $2,954
====== ======
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 months ended March 31, 2004 and 2003.
Three Months Ended
March 31,
(in thousands) 2004 2003
______ ______
Net income $1,661 $1,310
Other comprehensive income
Unrealized gains (losses) on
securities available-for-
sale, net:
Unrealized holding gains (losses)
arising during the period 469 (75)
Less reclassification
adjustment for losses included
in net income 3
______ ______
Total other comprehensive
gain (loss) 469 (78)
______ ______
Total comprehensive income $2,130 $1,232
====== ======
7
<PAGE
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This review should be read in conjunction with MidSouth
Bancorp Inc.'s ("MidSouth") consolidated financial
statements and accompanying notes contained herein, as
well as with MidSouth's 2003 annual consolidated financial
statements, the notes thereto and the related Management's
Discussion and Analysis contained in MidSouth's Annual
Report on Form 10KSB for the year ended December 31,
2003.
Forward Looking Statements
The Private Securities Litigation Act of 1995 provides a
safe harbor for disclosure of information about a company's
anticipated future financial performance. This act protects
a company from unwarranted litigation if actual results
differ from management expectations. This management's
discussion and analysis reflects management's current
views and estimates of future economic circumstances,
industry conditions, MidSouth's performance and financial
results. A number of factors and uncertainties could cause
actual results to differ from the anticipated results and
expectations expressed in the discussion.
MidSouth Bancorp, Inc. ("MidSouth") reported first quarter
2004 net income of $1,660,948, a 27% increase over the
$1,309,552 for the first quarter of 2003 and essentially even
with fourth quarter 2003 net income of $1,665,053. Basic
earnings per share were $.52 for the quarter ended March
31, 2004, a significant increase from the $.41 per share
reported for the first quarter of 2003, and the same as the
$.52 per share earned in the fourth quarter of 2003. Diluted
earnings per share were $.50 for the first quarter of 2004
and the fourth quarter of 2003 compared to $.40 per share
for the first quarter of 2003.
Net income increased $351,000 in first quarter comparison
primarily due to increased interest income of $277,000
combined with a $169,000 decrease in interest expense.
The increase in interest income resulted primarily from an
18% increase in average earning assets. In addition, non-
interest income increased $148,000 due to an increase in
fees and service charges resulting from a higher volume of
demand deposit accounts. Non-interest expense was held
to an $86,000 or 2% increase for the first quarter of 2004
compared to the first quarter of 2003, as increases in
salaries and employee benefits and occupancy expenses
were partially offset by decreases in other non-interest
expenses, primarily VISA Merchant Program expenses.
First quarter 2004 net income was essentially the same as
net income reported for the fourth quarter of 2003. In
comparing the two quarters, net interest income decreased
$75,000 and non-interest income decreased $5,000. The
decrease in net interest income resulted primarily from a
decrease of $112,000 in loan fee income included in total
interest income. Loan fee income was higher in the fourth
quarter of 2003 due to a larger volume of loans funded in
that quarter. A $320,000 decrease in non-interest expense
from fourth quarter 2003 was partially offset by a $230,000
increase in provision for loan losses in the first quarter of
2004. Non-interest expenses for salaries and benefits were
higher in the fourth quarter of 2003 primarily due to
additional incentive costs of $76,000 as a result of
outstanding earnings for the year and from $128,000 in
additional costs associated with group health and benefit
plans, including the Employee Stock Ownership Plan ("ESOP").
Other non-interest expense decreases in comparing fourth
quarter 2003 to first quarter 2004 were recorded primarily
in marketing and community investment expenses ($63,000)
and occupancy expenses ($54,000).
Highlights for the Quarter Ended March 31, 2004
.. Return on average equity was 20.05% for the first quarter
of 2004 compared to 18.76% for the first quarter of 2003.
The leverage capital ratio was 8.96% at March 31, 2004
8
compared to 8.78% at March 31, 2003.
.. Net interest income totaled $5,033,439 for the first
quarter of 2004, up 10% from the $4,587,203 reported for
the first quarter 2003. Net interest income increased
primarily due to an increase in the average volume of
earning assets combined with a decrease in interest
expense.
.. Total loans grew $27.6 million or 12%, from $236.6
million at March 31, 2003 to $264.2 million at March 31,
2004, primarily in commercial and real estate loans.
.. Nonperforming assets, including loans 90 days or more
past due, as a percentage of total assets decreased slightly
from .37% at March 31, 2003 to .35% at March 31, 2004.
Net charge-offs to total loans decreased from .06% to .04%
for the same periods, respectively.
.. Total consolidated assets increased $64.0 million or
16%, from $390.9 million at the end of the first quarter of
2003 to $454.9 million at the end of the first quarter of
2004.
.. Total deposits increased $58.2 million or 17%, from
$349.3 million at March 31, 2003 to $407.5 million at
March 31, 2004. The increase resulted primarily from
approximately $30 million in deposits associated with a
public fund contract added in July of 2003 and
approximately $10 million in deposits resulting from a
deposit incentive campaign introduced in March 2004.
Earnings Analysis
Net Interest Income
The primary source of earnings for MidSouth is net interest
income, which is the difference between interest earned on
loans and investments and interest paid on deposits and
other liabilities. Changes in the volume and mix of earning
assets and interest-bearing liabilities combined with
changes in market rates of interest greatly affect net interest
income. The tables provided below analyze the changes in
taxable-equivalent net interest income for the two quarters
ended March 31, 2003 and 2004.
Average earning assets increased 18%, or $61.8 million
from $346.4 million for the three months ended March 31,
2003 to $408.2 million for the three months ended March
31, 2004. The average yield on earning assets decreased 84
basis points, from 7.08% in the first quarter of 2003 to
6.24% in the first quarter of 2004. The mix of average
earning assets changed slightly, as loans represented 64%
of average earning assets in the first quarter of 2004
compared to 67% in the first quarter of 2003. The change
in mix resulted primarily from investing the majority of
funds received from a public fund contract in the third
quarter of 2003 into investments instead of loans.
Approximately $30 million in contracted funds were
deposited on July 1, 2003 and will be under contract for
two years. Average loans increased $29.3 million, from
$231.3 million in the first quarter of 2003 to $260.6 million
in the first quarter of 2004. The average yield on loans
decreased 69 basis points in quarterly comparison, from
8.30% to 7.61% at March 31, 2004. Loan yields declined
primarily due to lower rates offered on new fundings
combined with rate adjustments on other credits with
scheduled repricing dates. The impact of the decline in
yield was offset by the $29.3 million average volume
increase in the loan portfolio, resulting in a $210,127
increase in interest income on loans.
9
>
Consolidated Average Balances, Interest and Rates
Taxable-equivalent basis <FN2>
(in thousands)
Three Months Ended Three Months Ended
March 31, 2004 March 31, 2003
____________________________________________________________
Average Average Average Average
Volume Interest Yield/Rate Volume Interest Yield/Rate
____________________________________________________________
ASSETS
Investment Securiti <FN1>
Taxable $79,845 $627 3.15% $66,134 $640 3.94%
Tax Exempt <FN2> 58,414 761 5.22% 45,246 667 5.98%
_________________ _________________
Total Investments 138,259 1,388 4.03% 111,380 1,307 4.76%
Federal Funds Sold and
Securities Purchased
Under Agreements to
Resell 9,365 20 0.87% 3,797 11 1.13%
Loans <FN3>
Commercial and Real
Estate 218,258 3,933 7.23% 186,660 3,663 7.87%
Installment 42,306 1,011 9.59% 44,603 1,071 9.63%
_________________ _________________
Total Loans 260,564 4,944 7.61% 231,263 4,734 8.30%
Total Earning Assets 408,188 6,352 6.24% 346,440 6,052 7.08%
Allowance for Loan Losses (2,768) (2,850)
Nonearning Assets 31,214 34,984
________ ________
Total Assets $436,634 $378,574
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
NOW, Money Market,
and Savings $191,801 $381 0.80% $141,713 $335 0.96%
Certificates of Deposits 102,296 514 2.02% 108,601 738 2.76%
_________________ _________________
Total Interest Bearing
Deposits 294,097 895 1.22% 250,314 1,073 1.74%
Federal Funds Purchased,
Securities Sold
Under Agreements to
Repurchase and
Federal Home Loan Bank
Advances 10,530 29 1.09% 4,127 12 1.22%
Notes Payable 530 1 0.77%
Junior Subordinated
Debenture 7,000 173 10.20% 7,000 180 10.20%
_________________ _________________
Total Interest Bearing
Liabilities 311,627 1,097 1.41% 261,971 1,266 1.96%
Demand Deposits 90,572 87,139
Other Liabilities 1,117 1,157
Stockholders' Equity 33,318 28,307
Total Liabilites and
Stockholders' Equity $436,634 $378,574
======== ========
NET TAXABLE-EQUIVALENT
INTEREST INCOME AND SPREAD $5,255 4.83% $4,786 5.12%
====== ======
NET TAXABLE-EQUIVALENT YIELD ON EARNING ASSETS 5.16% 5.60%
<FN1>Securities classified as available-for-sale are included
in average balances and interest income figures reflect
interest earned on such securities.
<FN2>Interest income of $222,000 for 2004 and $169,000 for 2003
is added to interest earned on tax-exempt obligations to
reflect tax equivalent yields using a 34% tax rate.
<FN3>Interest income includes loan fees of $452,000 for 2004
and $416,000 for 2003. Nonaccrual loans are included in
average balances and income on such loans is recognized
on a cash basis.
10
Changes in Taxable-Equivalent Net Interest Income
(in thousands)
March 31, 2004 compared to March 31, 2003
_______________________________________
Total Change
Increase Attributable to
(Decrease) Volume Rates
_________________________________
Taxable-equivalent interest earned on:
Investment Securities
Taxable $(13) $120 $(133)
Tax Exempt 94 156 (62)
Federal Funds Sold and
Securities
Purchased Under Agreement
to Resell 9 11 (2)
Loans, including fees 210 490 (280)
_______ _____________
TOTAL 300 777 (477)
_______ _____________
Interest Paid On:
Interest Bearing Deposits (178) 278 (456)
Federal Funds Purchased and
Securities Sold Under
Agreement to Repurchase
and FHBL Advances 17 18 (1)
Notes Payable (1) (1)
Junior Subordinated Debenture (7) (7)
_______ _____________
TOTAL (169) 295 (464)
_______ _____________
Taxable-equivalent net interest $469 $482 ($13)
======= =============
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.
11
Average investments increased $26.9 million, from $111.4
million at March 31, 2003 to $138.3 million at March 31,
2004 primarily due to funds deposited under the public
fund contract mentioned above. The average taxable-
equivalent yield on investments decreased 73 basis points,
from 4.76% in the first quarter of 2003 to 4.03% in the first
quarter of 2004, primarily due to the low rate environment.
Additionally, federal funds sold volume increased $5.6
million and yields declined 26 basis points, from 1.13% to
..87%. The volume increases in investments and federal
funds sold offset the impact of declining yields and added
$90,665 to taxable-equivalent interest income in quarterly
comparison.
A 52 basis point decrease in the average rate paid on
interest-bearing deposits, mostly offset by an average
volume increase of $43.8 million, resulted in a $177,750
decrease in interest expense for the quarter ended March
31, 2004 compared to the quarter ended March 31, 2003.
The average rate paid on interest-bearing deposits
decreased from 1.74% at March 31, 2003 to 1.22% at
March 31, 2004. The percentage of average noninterest-
bearing deposits to average total deposits decreased slightly
from 26% to 24% in quarterly comparison due primarily to
the high volume of interest-bearing deposits added under a
public fund contract in the third quarter of 2003.
The impact of these changes in the yields and volume of
earning assets and interest-bearing liabilities contributed
$469,699 to the quarterly increase in taxable-equivalent net
interest income. The net taxable-equivalent yield on
average earning assets decreased 44 basis points, from
5.60% for the quarter ended March 31, 2003 to 5.16% for
the quarter ended March 31, 2004.
Non-interest Income
MidSouth's primary source of non-interest income, service
charges on deposit accounts, increased $195,433 or 16% for
the three months ended March 31, 2004 as compared to the
same period in 2003. The increase resulted primarily from
an increase in insufficient funds ("NSF") fees due to an
increase in the number of checking accounts from 29,862 at
March 31, 2003 to 32,568 at March 31, 2004. The service
charge structure and the NSF per item processing fee did
not change over the past twelve months and are on the
lower end of fees charged by competitors in MidSouth's
markets.
Other non-interest income categories recorded decreases in
quarterly comparison. Income from the sale of credit life
insurance decreased $31,000 in quarterly comparison.
Income from MidSouth's VISA merchant program
decreased $64,000 in quarterly comparison, but was
partially offset by a $32,000 increase in debit card
interchange income and a $12,000 increase in income from
a third party investment advisory service. In 2003,
MidSouth made the decision to outsource its VISA
merchant program. Although income from the program
decreased $64,000 in the first quarter of 2003, expenses
associated with the program also decreased $58,000,
resulting a net decrease in income from the program of only
$6,000 for the quarter.
12
Non-interest Expense
Non-interest expense increased $85,706 or 2% for the three
months ended March 31, 2004 compared to the three
months ended March 31, 2003. Increases of $74,000 in
salaries and employee benefits and $74,000 in occupancy
expenses were partially offset by the $58,000 decrease in
VISA merchant program expenses.
Salaries increased $123,000 in quarterly comparison,
however the increase was partially offset by a significant
decrease in expenses associated with group health
insurance of $83,000. The cost of other benefits, including
workers compensation premiums and taxes, increased
$34,000. The number of full-time equivalent ("FTE")
employees increased by 4 from 217 in March 2003 to 221
in March 2004.
Occupancy expenses increased $74,000 primarily due to
increased depreciation, maintenance and lease expenses on
buildings, equipment and land ($28,000) and increases in
depreciation of data processing hardware and the cost of
communication lines ($17,000), ad valorem taxes ($15,000)
and bank auto expenses ($13,000).
Analysis of Statement of Condition
MidSouth ended the first quarter of 2004 with consolidated
assets of $454.9 million, an increase of $22.2 million from
the $432.7 million reported at December 31, 2003.
Deposits increased $33.1 million, from $374.4 million at
December 31, 2003 to $407.5 million at March 31, 2004.
The increase in deposits resulted primarily from a deposit
incentive campaign introduced in March 2004 and from
additional public funds deposits.
Total loans increased $2.3 million, from $261.9 million at
December 31, 2003 to $264.2 million at March 31, 2004.
Loan demand dropped off in the first quarter of 2004,
following a strong fourth quarter of 2003 with loan growth
of $15 million. The soft loan demand combined with a lack
of attractive investment alternatives resulted in a high
volume of federal funds sold as of March 31, 2004.
Securities available-for-sale and held-to-maturity showed
little change in the first quarter of 2004 as purchases of
$6.8 million in securities available-for-sale were offset by
maturities and calls totaling $6.7 million. Unrealized gains
in the securities available-for-sale portfolio, net of
unrealized losses and tax effect, were $1,240,905 at March
31, 2004, compared to a net unrealized gain of $891,374 at
December 31, 2003. These amounts result from interest
rate fluctuations and do not represent permanent
adjustments of value. Moreover, classification of securities
as available-for-sale does not necessarily indicate that the
securities will be sold prior to maturity.
Liquidity
Liquidity is the availability of funds to meet contractual
obligations as they become due and to fund operations. The
Banks's primary liquidity needs involve its ability to
accommodate customers' demands for deposit withdrawals as well
as their requests for credit. Liquidity is deemed adequate
when sufficient cash to meet these needs can be promptly
raised at a reasonable cost to the Bank.
Liquidity is provided primarily by three sources: a stable
base of funding sources, an adequate level of assets that
can be readily converted into cash, and borrowiing lines
with correspondent banks. MidSouth's core deposits are its
most stable and important source of funding. Further, the
low variability of the core deposit base lessens the need
for liquidity. Cash deposits at other banks, federal funds
sold and principal payments received on loans and mortgage-
backed securities provide additional primary sources of asset
liquidity for the Bank. Cash flows from other investment
securities provide an additional source of liquidity. MidSouth
also has 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. The parent company issued
$7,000,000 in junior subordinated debentures in February 2001.
Interest-bearing balances remaining from the proceeds from
the issuance of the debentures and dividends from the Bank
provide liquidity for the parent company. As a publicly
traded company, MidSouth also has the ability to issue
additional trust preferred and other securities instruments
to provide funds as needed for operations and future growth of
the company.
Capital
MidSouth's leverage ratio was 8.96% at March 31, 2004
compared to 8.85% at December 31, 2003. Tier 1 capital to
risk-weighted assets was 12.96% and total capital to risk-
weighted assets was 13.93% at the end of the first quarter
of 2004. At year-end 2003, Tier 1 capital to risk-weighted
13
assets was 12.82% and total capital to risk-weighted assets
was 13.78%. MidSouth's capital ratios are well above
regulatory requirements and management is not aware of
any recommendations by any regulatory authority, which, if
implemented, would have a material impact on capital. In
November of 2002, MidSouth announced a repurchase
program in which the Board of Directors approved the
repurchase of up to 5% of the outstanding shares of
MidSouth's common stock. No shares were repurchased
during the first quarter of 2004.
Asset Quality
Credit Risk Management
MidSouth manages its credit risk by observing written,
board approved policies which govern all underwriting
activities. The risk management program requires that each
individual loan officer review his or her portfolio on a
quarterly basis and assign recommended credit ratings on
each loan. These efforts are supplemented by independent
reviews performed by the loan review officer and other
validations performed by the internal audit department.
Bank concentrations are monitored and reported to the
Board of Directors quarterly whereby individual customer
and aggregate industry leverage, profitability, risk rating
distributions, and liquidity are evaluated for each major
standard industry classification segment. At March 31,
2004, MidSouth had no industry segment concentrations
that aggregates more than 10% of the loan portfolio.
Nonperforming Assets
The following table summarizes MidSouth's nonperforming
assets for the two quarters ending March 31, 2004 and 2003
and for the year ended December 31, 2003.
Period
Asset Quality Data Period Ended % Ended
Mar. 31, Chg Dec. 31,
2004 2003 2003
____________________________________
<c>
Nonaccrual loans $860 $711 21.0% $829
Loans past due 90
days and over 487 534 -8.8% 503
Total nonperforming loans 1,347 1,245 8.2% 1,332
Other real estate owned 247 212 16.5% 218
_______________ _________
Total nonperforming assets $1,594 $1,457 9.4% $1,550
=============== =========
Nonperforming assets to
total assets 0.35% 0.37% -6.0% 0.36%
Nonperforming assets to
total loans + OREO + other
foreclosed assets 0.60% 0.62% -2.1% 0.59%
ALL to nonperforming assets 182.37% 202.75% -10.0% 180.00%
ALL to nonperforming loans 215.81% 237.27% -9.0% 209.46%
ALL to total loans 1.10% 1.25% -11.9% 1.07%
Year-to-date charge-offs $172 $178 -3.4% $904
Year-to-date recoveries 59 41 43.9% 253
Year-to-date net charge-offs 113 137 -17.5% 651
________________ _________
Net charge-offs to average
total loans 0.18%* 0.23%* -21.74% 0.27%
================ =========
* annualized
14
Nonperforming assets, including loans past due 90 days and
over, totaled $1,594,000 as of March 31, 2004, an increase
of $137,000 from the $1,457,00 reported for March 31,
2003 and an increase of $44,000 from the $1,550,000
reported for December 31, 2003. 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.
Management believes the $2,906,598 in the allowance as of
March 31, 2004 is sufficient to cover probable losses in
nonperforming assets and in the loan portfolio. Loans
classified for regulatory purposes but not included in the
table above do not represent material credits about which
management has serious doubts as to the ability of the
borrower to comply with loan repayment terms.
Impact of Inflation and Changing Prices
The consolidated financial statements of MidSouth and
notes thereto, presented herein, have been prepared in
accordance with Generally Accepted Accounting
Principles, which require the measurement of financial
position and operating results in terms of historical dollars
without considering the change in the relative purchasing
power of money over time and due to inflation. The impact
of inflation is reflected in the increased cost of MidSouth's
operations. Unlike most industrial companies, nearly all
the assets and liabilities of MidSouth are financial. As a
result, interest rates have a greater impact on MidSouth's
performance than do the effects of general levels of
inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the prices of goods and
services.
Critical Accounting Policies
Certain critical accounting policies affect the more
significant judgments and estimates used in the preparation
of the consolidated financial statements. MidSouth's single
most critical accounting policy relates to its allowance for
loan losses, which reflects the estimated losses resulting
from the inability of its borrowers to make loan payments.
If the financial condition of its borrowers were to
deteriorate, resulting in an impairment of their ability to
make payments, its estimates would be updated and
additional provisions for loan losses may be required.
15
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.
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 a date
within 90 days prior to the filing date of this quarterly
report (the "Evaluation Date"). Based on such evaluation,
such officers have concluded that, as of the Evaluation
Date, MidSouth's disclosure controls and procedures are
effective.
Since the Evaluation Date, there have not been any
significant changes in MidSouth's internal controls or in
other factors that could significantly affect such controls.
16
Part II. Other Information
Item 1. Legal Proceedings
None of a material nature.
Item 2. Changes in Securities, Use of Proceeds and Issuer
Purchases of Equity Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Part II. Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
17
Exihibit Number Document Description
3.1 Amended and Restated Articles of
Incorporation of MidSouth Bancorp,
Inc. is included as Exhibit 3.1 to the
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 is 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.
4.1 MidSouth agrees to furnish to the
Commission on request a copy of
the instruments defining the rights of
the holder of its long-term debt,
which debt does not exceed 10% of
the total consolidated assets of
MidSouth.
10.1 MidSouth National Bank Lease
Agreement with Southwest Bank Building
Limited Partnership is included as
Exhibit 10.7 to the MidSouth's annual
report on Form 10-K for the Year
Ended December 31, 1992, and is
incorporated herein by reference.
10.2 First Amendment to Lease between
MBL Life Assurance Corporation,
successor in interest to Southwest
Bank Building Limited Partnership in
Commendam, and MidSouth
National Bank is included as Exhibit
10.1 to Report on the MidSouth's annual
report on Form 10-KSB for the year
ended December 31, 1994, and is
incorporated herein by reference.
10.2.1 Seventh Amendment to Lease
between S & A Properties II, Inc.,
successor in interest to Southwest
Bank Building Limited Partnership
in Commendam, and MidSouth
Bank, N.A. effective July 1, 2002
is included as Exhibit 10.2.1 to
MidSouth's Annual Report on Form
10-KSB for the year ended
December 31, 2002 and is
incorporated herein by reference.
10.3 Amended and Restated Deferred
Compensation Plan and Trust
effective October 9, 2002 is included
as Exhibit 10.3.1 to MidSouth's Annual
Report on Form 10-KSB for the year
ended December 31, 2002 and is
incorporated herein by reference.
10.5 Employment Agreements with C. R.
Cloutier and Karen L. Hail are
included as Exhibit 5(c) to
MidSouth's Form 1-A and are
incorporated herein by reference.
10.6 MidSouth Bancorp, Inc.'s 1997 Stock
Incentive Plan is included as
Exhibit 4.5 to MidSouth's definitive
Proxy Statement filed April 11, 1997,
and is incorporated herein by
reference.
10.7 The MidSouth Bancorp, Inc.
Dividend Reinvestment and Stock
Purchase Plan is included as Exhibit
4.6 to MidSouth Bancorp, Inc.'s
Form S-3D filed on July 25, 1997
and is incorporated herein by
reference.
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 December 31, 2003 was attached
as Exhibit 99.1 to the Form 8-K filed on January 26,
2004.
18
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: May 14, 2004
____________
_______________________
C. R. Cloutier,
President / CEO
_______________________
Karen L. Hail,
Senior Executive
Vice President / CFO
_______________________
Teri S. Stelly,
Senior Vice President &
Controller
19