UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM 10QSB
__X___QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended... June 30, 2003
______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 _____
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 July 31, 2003
Common stock, $.10 par value 3,191,256
Transitional Small Business Disclosure Format:
Yes _______ No ____X____
Page 1
Page 2
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) Page
Statements of Condition - June 30, 2003 and
December 31, 2002 3
Statements of Income - Three and Six Months
Ended June 30, 2003 and 2002 4
Statement of Stockholders' Equity - Six
Months Ended June 30, 2003 5
Statements of Cash Flows - Six Months Ended
June 30, 2003 and 2002 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis or
Plan of Operation 8
Item 3. Controls and Procedures 15
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security
Holders 15
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 18
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
June 30, December 31,
2003 2002*
ASSETS (unaudited)
___________ ___________
Cash and due from banks $20,539,097 $18,066,035
Federal funds sold 2,600,000 9,400,000
___________ ___________
Total cash and cash equivalents 23,139,097 27,466,035
Interest bearing deposits in banks 78,436 1,694
Securities available-for-sale, at fair value
(cost of $96,462,963 in June 2003 and
$87,755,456 in December 2002) 98,601,923 89,575,706
Securities held-to-maturity (estimated market
value of $25,953,992 in June 2003 and
$25,660,511 in December 2002) 23,397,517 23,398,282
Loans, net of allowance for loan losses of
$2,951,452 in June 2003 and $2,891,380
in December 2002 238,875,718 224,160,846
Bank premises and equipment, net 12,121,788 12,321,510
Other real estate owned, net 174,800 174,800
Accrued interest receivable 2,710,588 2,502,684
Goodwill 431,987 431,987
Other assets 2,708,592 2,653,449
____________ ____________
Total assets $402,240,446 $382,686,993
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $91,601,772 $94,452,378
Interest bearing 266,597,842 249,022,468
____________ ____________
Total deposits 358,199,614 343,474,846
Securities sold under repurchase
agreements and federal funds purchased 5,066,344 2,978,860
Accrued interest payable 612,013 705,106
Notes payable 421,000 568,030
Junior subordinated debenture 7,000,000 7,000,000
Other liabilities 1,041,854 841,592
____________ ____________
Total liabilities 372,340,825 355,568,434
____________ ____________
Commitments and contingencies - -
Stockholders' Equity:
Common stock, $.10 par value- 5,000,000
shares authorized, 3,191,256 and
2,901,142 issued and outstanding on
June 30, 2003 and December 31, 2002,
respectively 319,126 290,114
Surplus 18,582,456 12,997,762
Unearned ESOP shares (90,739) (108,975)
Unrealized gains on securities
available-for-sale, net of deferred taxes
of $736,766 in June 2003 and $628,750 in
December 2002 1,402,194 1,191,500
Treasury stock - 5,300 shares, at cost (91,257) -
Retained earnings 9,777,841 12,748,158
___________ ___________
Total stockholders' equity 29,899,621 27,118,559
___________ ___________
Total liabilities and stockholders' equity $402,240,446 $382,686,993
============= =============
* The consolidated statement of condition at December 31, 2002 is taken from the
audited balance sheet on that date.
See notes to unaudited consolidated financial statements.
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
==============================================================================================
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
_________________________ __________ __________
INTEREST INCOME:
Loans, including fees $4,905,225 $4,777,307 $9,639,030 $9,357,437
Securities
Taxable 499,589 847,314 1,140,184 1,602,909
Nontaxable 487,213 428,934 955,124 851,402
Federal funds sold 20,419 18,185 31,020 69,927
__________ __________ __________ __________
TOTAL 5,912,446 6,071,740 11,765,358 11,881,675
__________ __________ __________ __________
INTEREST EXPENSE:
Deposits 962,199 1,472,088 2,035,148 3,084,129
Securities sold under repurchase
agreements, federal funds
purchased and advances 17,230 27,428 30,600 30,688
Long term debt 189,435 197,495 368,825 387,642
__________ __________ __________ __________
TOTAL 1,168,864 1,697,011 2,434,573 3,502,459
__________ __________ __________ __________
NET INTEREST INCOME 4,743,582 4,374,729 9,330,785 8,379,216
PROVISION FOR LOAN LOSSES 100,000 336,000 300,000 694,000
__________ __________ __________ __________
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 4,643,582 4,038,729 9,030,785 7,685,216
__________ __________ __________ __________
OTHER OPERATING INCOME:
Service charges on deposits 1,335,728 1,158,404 2,543,281 2,233,717
Gains on securities, net 92,935 - 87,632 -
Credit life insurance 49,525 91,995 100,987 145,820
Other charges and fees 550,962 408,831 1,010,349 782,302
__________ __________ __________ __________
TOTAL OTHER INCOME 2,029,150 1,659,230 3,742,249 3,161,839
__________ __________ __________ __________
OTHER EXPENSES:
Salaries and employee benefits 2,120,394 1,982,103 4,198,122 3,917,568
Occupancy expense 965,191 922,919 1,871,536 1,769,259
Other 1,352,869 1,292,543 2,680,670 2,588,738
__________ __________ __________ __________
TOTAL OTHER EXPENSES 4,438,454 4,197,565 8,750,328 8,275,565
__________ __________ __________ __________
INCOME BEFORE INCOME TAXES 2,234,278 1,500,394 4,022,706 2,571,490
PROVISION FOR INCOME TAXES 610,137 413,149 1,089,013 666,114
__________ __________ __________ __________
NET INCOME $1,624,141 $1,087,245 $2,933,693 $1,905,376
========== ========== ========== ==========
BASIC EARNINGS PER COMMON SHARE $0.51 $0.34 $0.92 $0.60
========== ========== ========== ==========
DILUTED EARNINGS PER COMMON SHARE $0.49 $0.34 $0.89 $0.59
========== ========== ========== ==========
See notes to unaudited consolidated financial statements.
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2003 (UNAUDITED)
UNREALIZED
GAINS (LOSSES)
COMMON STOCK ESOP ON SECURITIES TREASURY RETAINED
SHARES AMOUNT SURPLUS OBLIGATION AFS, NET STOCK EARNINGS TOTAL
___________________ ___________ __________ ______________ ________ ________ __________
BALANCE,
JANUARY 1, 2003
2,901,142 $290,114 $12,997,762 ($108,975) $1,191,500 $ - $12,748,158 $27,118,559
Dividends on
common stock,
$.10 per share (290,304) (290,304)
Purchase of
treasury stock (91,257) (91,257)
Stock dividend 290,114 29,012 5,584,694 (5,613,706) -
Net income 2,933,693 2,933,693
ESOP obligation,
repayments 18,236 18,236
Net change in
unrealized
gain/loss on
securities
available-for
-sale, net of
income taxes 210,694 210,694
_________ ________ ___________ _________ __________ ________ __________ ___________
BALANCE,
JUNE 30, 2003 3,191,256 $319,126 $18,582,456 ($90,739) $1,402,194 ($91,257) $9,777,841 $29,899,621
========= ======== =========== ========= ========== ======== ========== ===========
See notes to unaudited consolidated financial statements.
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002
_________________________________________________________________________________
June 30, 2003 June 30,2002
_______________ _______________
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $2,933,693 $1,905,376
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 751,667 629,246
Provision for loan losses 300,000 694,000
Provision for deferred taxes (82,359) (16,418)
Amortization of premiums on securities, net 543,817 213,304
Gain on sale of securities, net (87,632) -
(Gain)/loss on sale of premises and equipment (14,834) 40,175
(Gain)/loss on sale of other assets repossessed/OREO (6,152) 25,571
Change in accrued interest receivable (207,904) (196,709)
Change in accrued interest payable (93,093) (104,868)
Other, net 231,365 3,845
_____________ ____________
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,268,568 3,193,522
_____________ ____________
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in interest-bearing deposits in banks (76,742) (63,500)
Proceeds from sales of securities available-for-sale 5,427,085 -
Proceeds from maturities and calls of securities
available-for-sale 20,618,435 18,542,669
Purchases of securities available-for-sale (35,208,449) (24,505,784)
Loan originations, net of repayments (15,034,283) (10,762,635)
Purchases of premises and equipment (543,881) (1,151,359)
Proceeds from sales of premises and equipment 39,610 800
Proceeds from sales of other real estate owned 43,800 225,013
Net cash received in connection with acquisition - 6,043,721
_____________ ____________
NET CASH USED IN INVESTING ACTIVITIES (24,734,425) (11,671,075)
_____________ ____________
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 14,724,768 (952,240)
Net increase in securities sold under repurchase
agreements and federal funds purchased 2,087,484 3,034,934
Repayments of notes payable (147,030) (553,000)
Purchase of treasury stock (91,257) -
Payment of dividends (435,046) (290,114)
_____________ ____________
NET CASH PROVIDED BY FINANCING ACTIVITIES 16,138,919 1,239,580
_____________ ____________
NET DECREASE IN CASH & CASH EQUIVALENTS (4,326,938) (7,237,973)
CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD 27,466,035 35,847,278
_____________ ____________
CASH & CASH EQUIVALENTS AT END OF PERIOD $23,139,097 $28,609,305
============= ============
See notes to unaudited consolidated financial statements.
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 June 30, 2003 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
2002 annual report and Form 10KSB.
The results of operations for the six month period ended
June 30, 2003 are not necessarily indicative of the
results to be expected for the entire year.
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,
2003 2002
__________ __________
Balance at beginning of period $2,891,380 $2,705,058
Provision for loan losses 300,000 694,000
Recoveries 108,516 61,488
Loans charged off (348,444) (604,702)
__________ __________
Balance at end of period $2,951,452 $2,855,844
========== ==========
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 six months ended June 30, 2003 and 2002.
Six Months Ended
June 30,
2003 2002
__________ __________
Net income $2,933,693 $1,905,376
Other comprehensive income
Unrealized gains (losses) on
securities available-for-sale,
net:
Unrealized holding gains
arising during the period 268,531 589,538
Less reclassification adjustment
for (gains) losses included
in net income 57,837 -
__________ __________
Total other comprehensive loss 210,694 589,538
__________ __________
Total comprehensive income $3,144,387 $2,494,914
========== ==========
4. STOCK DIVIDEND
On May 27, 2003, MidSouth declared a 10% stock dividend to
stockholders of record on July 31, 2003. All earnings per
share information has been adjusted to give retroactive
effect to this stock dividend.
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
5. STOCK BASED COMPENSATION
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 Six Months Ended
June 30, June 30,
2003 2002 2003 2002
___________ ___________ ____________ ___________
Net earnings available to
common stockholders
(in thousands):
As reported $1,624,141 $1,087,245 $2,933,693 $1,905,376
Deduct total stock based
compensation determined
under fair value method (12,000) (5,000) (30,000) (12,000)
____________ ____________ ____________ ____________
Pro forma $1,612,141 $1,082,245 $2,903,693 $1,893,376
Basic earnings per share: ============ ============ ============ ============
As reported $0.51 $0.34 $0.92 $0.60
Pro forma $0.51 $0.34 $0.91 $0.60
Diluted earnings per share:
As reported $0.49 $0.34 $0.89 $0.59
Pro forma $0.49 $0.33 $0.88 $0.58
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS (UNAUDITED)
Three Months Ended Six Months Ended
June 30 June 30,
EARNINGS DATA 2003 2002 2003 2002
________________________________________________________
Total interest income $5,912,446 $6,071,740 $11,765,358 $11,881,675
Total interest expense 1,168,864 1,697,011 2,434,573 3,502,459
Net interest income 4,743,582 4,374,729 9,330,785 8,379,216
Provision for loan losses 100,000 336,000 300,000 694,000
Non-interest income 2,029,150 1,659,230 3,742,249 3,161,839
Non-interest expense 4,438,454 4,197,565 8,750,328 8,275,565
Provision for income tax 610,137 413,149 1,089,013 666,114
Net income 1,624,141 1,087,245 2,933,693 1,905,376
===========================================================================================
PER COMMON SHARE DATA
Basic earnings per share $0.51 $0.34 $0.92 $0.60
Diluted earnings per share $0.49 $0.34 $0.89 $0.59
Book value at end of period $9.37 $7.79 $9.37 $7.79
Market price at end of period $20.77 $11.91 $20.77 $11.91
Weighted average shares outstanding
Basic 3,179,256 3,173,256 3,179,256 3,173,256
Diluted 3,299,111 3,243,368 3,289,580 3,236,933
===========================================================================================
AVERAGE BALANCE SHEET DATA
Total assets $393,459,700 $359,946,669 $386,060,930 $357,858,495
Earning assets 361,268,638 331,132,111 353,820,041 328,546,563
Loans and leases 238,763,121 220,395,576 234,958,882 216,785,462
Interest-bearing deposits 260,760,122 238,709,360 255,540,791 240,344,275
Total deposits 350,160,732 321,177,565 343,817,993 321,479,097
Total stockholders' equity 29,402,581 23,667,410 28,873,225 23,491,293
===========================================================================================
SELECTED RATIOS
Return on average assets
(annualize) 1.66% 1.21% 1.53% 1.07%
Return on average total equity
(annualize) 22.16% 18.43% 20.49% 16.36%
Leverage capital ratio 8.82% 8.33% 8.82% 8.33%
Tier 1 risk-based capital ratio 12.75% 11.96% 12.75% 11.96%
Total risk-based capital ratio 13.84% 13.11% 13.84% 13.11%
Allowance for loan losses as a %
of total loans 1.22% 1.24% 1.22% 1.24%
============================================================================================
PERIOD ENDING BALANCE SHEET DATA 6/30/03 6/30/02 Net Change % Change
Total assets $402,240,446 $379,991,713 $22,248,733 5.86%
Earning assets 366,505,046 348,349,503 $18,155,543 5.21%
Loans and leases, net 238,875,718 227,212,579 $11,663,139 5.13%
Interest-bearing deposits 266,597,842 263,550,361 $3,047,481 1.16%
Total deposits 358,199,614 341,799,739 $16,399,875 4.80%
Total stockholders' equity 29,899,621 24,852,271 $5,047,350 20.31%
============================================================================================
On May 27, 2003, MidSouth announced a 10% stock dividend on its common stock to holders
of record on July 31, 2003. Per common share data has been adjusted accordingly.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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 2002 annual consolidated financial statements, the
notes thereto and the related Management's Discussion and
Analysis.
MidSouth Bancorp, Inc. announced net income of $1,624,141
for the second quarter of 2003, a 24% improvement over first
quarter 2003 earnings of $1,309,552 and a 49% increase over
net income of $1,087,245 reported for the second quarter of
2002. Basic earnings per share were $.51 for the quarter
ended June 30, 2003, up significantly from the $.41 reported
for the first quarter of 2003 and $.34 for the quarter ended June
30, 2002. Diluted earnings per share were $.49 for the second
quarter of 2003, $.40 for the first quarter of 2003 and $.34 for
the second quarter of 2002. On May 27, 2003, MidSouth
declared a 10% stock dividend on its common stock to holders
of record on July 31, 2003. All earnings per share information
has been adjusted to give retroactive effect to this stock
dividend.
Earnings for the six months ended June 30, 2003 were
$2,933,693, a $1,028,317 or 54% increase over the
$1,905,376 in earnings reported for the six months ended June
30, 2002. Basic earnings per share were $.92 for the first six
months of 2003 versus $.60 for the first six months of 2002.
Diluted earnings per share were $.89 and $.59, respectively.
Earnings improved in quarterly and year-to-date comparison
primarily due to an increase in net interest income, attributed
primarily to a significant decline in interest expense combined
with an increase in the volume of earning assets. An increase in
non-interest income and a decrease in the provision for loan
losses also contributed to the improvement in earnings.
Net interest income increased $368,853 or 8% in quarterly
comparison and $951,569 or 11% in year-to-date comparison.
Non-interest income, excluding net gains on sales of securities
recorded in 2003, increased $276,985 or 17% in quarterly
comparison and $492,778 or 16% in year-to-date comparison.
Non-interest income increased primarily due to increases in
services charges on deposit accounts, fee income from third
party mortgage loan originations, and income from Visa debit
card and ATM processing fees. The provision for loan losses
decreased $236,000 for the second quarter and $394,000 for
the six months ended June 30, 2003 from the amounts in the
comparable periods of 2002.
The increases in net interest and non-interest income for the
three and six months ended June 30, 2003 combined with the
decrease in the provision for loan losses were partially offset by
increases of $240,889 and $474,763, respectively, in non-
interest expenses, primarily salaries and employee benefits,
marketing and data processing expenses.
Total consolidated assets increased $22.2 million or 6%, from
$380.0 million at June 30, 2002 to $402.2 million at June 30,
1
2003. Deposits grew $16.4 million or 5%, from $341.8 million
at June 30, 2002 to $358.2 million at June 30, 2003.
Loans, net of Allowance for Loan Losses ("ALL"), increased
$11.7 million or 5%, from $227.2 million in the second quarter
of 2002 to $238.9 million in the second quarter of 2003.
Provisions for loan and lease losses decreased to $300,000 at
June 30, 2003 compared to $694,000 at June 30, 2002.
Nonperforming loans as a percentage of total loans decreased
from .36% in June of 2002 to .35% in June of 2003. The ALL
represented 287% of nonperforming assets as of June 30,
2003 compared to 303% as of June 30, 2002. Loans past due
ninety days and over also decreased in quarterly comparison,
from $716,639 at June 30, 2002 to $477,153 at June 30,
2003.
MidSouth's leverage ratio was 8.82% at June 30, 2003
compared to 8.33% at June 30, 2002. Return on average
equity for the second quarter of 2003 was 22.16% compared
to 18.43% for the second quarter of 2002.
Earnings Analysis
Net Interest Income
Average earning assets increased 9%, or $30.1 million from
$331.1 million for the three months ended June 30, 2002 to
$361.2 million for the three months ended June 30, 2003. The
mix of average earning assets shifted slightly, as loans
represented 66% of average earning assets in the second
quarter of 2003 compared to 67% in the second quarter of
2002. Average loans increased $18.4 million, from $220.4
million in the second quarter of 2002 to $238.8 million in the
second quarter of 2003. The average yield on loans decreased
45 basis points in quarterly comparison, from 8.69% to 8.24%
at June 30, 2003. Loan yields declined primarily due to a 50
basis point decrease in New York prime in November of 2002,
combined with rate adjustments on other credits with scheduled
repricing dates.
Approximately 44% of MidSouth's loan portfolio earns a
variable rate of interest, with 31% adjusting with changes in the
prime rate and another 14% adjusting on a scheduled repricing
date. Approximately 56% of the loan portfolio earns a fixed
rate of interest, the majority of which matures within three years.
The mix of variable and fixed rate loans provides some
protection to changes in market rates of interest. However, the
average yield on loans will continue to drop as fixed rate loans
mature and reprice unless market rates begin to rise. The
impact of the decline in yield over the twelve months ended
June 30, 2003 was offset by the $18.4 million average volume
increase in the loan portfolio, resulting in a $127,918 increase in
interest income on loans in quarterly comparison.
Average investments increased $8.9 million, from $106.3
million at June 30, 2002 to $115.2 million at June 30, 2003.
The average taxable-equivalent yield on investments decreased
137 basis points, from 5.52% in the second quarter of 2002 to
4.15% in the second quarter of 2003, primarily due to the low
2
rate environment and high prepayment speeds on mortgage-
backed securities. Additionally, federal funds sold volume
increased $2.9 million and yields declined 46 basis points, from
1.56% to 1.10%. Decreased yields offset the volume increase
in investments and resulted in a decrease in taxable-equivalent
interest income on securities and federal funds sold of $267,665
in quarterly comparison
A 99 basis point decrease in the average rate paid on interest-
bearing deposits, partially offset by an average volume increase
of $22.0 million, contributed to a $528,147 decrease in interest
expense for the quarter ended June 30, 2003 compared to the
quarter ended June 30, 2002. The average rate paid on
interest-bearing deposits decreased from 2.47% at June 30,
2002 to 1.48% at June 30, 2003. The percentage of average
noninterest-bearing deposits to average total deposits remained
unchanged at 26% in quarterly comparison. The impact of
these changes in the yields and volume of interest-bearing
liabilities significantly contributed to the $368,853 quarterly
increase in net interest income. The net taxable-equivalent yield
on average earning assets decreased 3 basis points, from
5.52% for the quarter ended June 30, 2002 to 5.49% for the
quarter ended June 30, 2003.
A review of the changes in volume and yields of average earning
assets and interest-bearing liabilities between the two six month
periods ended June 30, 2002 and 2003 reflected results similar
to the quarterly comparison. The net taxable-equivalent yield
on average earning assets for the six months ended June 30,
2003 decreased 5 basis points, from 5.37% at June 30, 2002
to 5.32% at June 30, 2003.
Non-interest Income
MidSouth's primary source of non-interest income, service
charges on deposit accounts, increased $177,324 or 15% for
the three months ended and $309,564 or 14% for the six
months ended June 30, 2003 as compared to the same period
in 2002. The increase resulted primarily from an increase in
insufficient funds ("NSF") fees due to an increase in the number
of checking accounts from 18,431 at June 30, 2002 to 19,810
at June 30, 2003 and an increase in the number of accounts that
had an NSF occurrence. The average number of NSF's per
account per month remained relatively constant at an average of
2.38 per month in 2002 and an average of 2.35 per month in
2003. The NSF per item processing fee did not increase and is
on the lower end of fees charged by competitors in MidSouth's
markets.
Other non-interest income increased $142,131 in quarterly
comparison and 228,047 in year-to-date comparison, primarily
due to increased third-party mortgage processing fees and
VISA debit card and ATM processing fees. Third-party
mortgage processing fees increased primarily due to continued
refinancing activity. The improvement in ATM processing fees
resulted from the elimination of a third party processor and
establishing a direct connection to a regional switch. Bringing
the processing in-house enabled MidSouth to reduce the
processing cost per transaction and to retain a larger share of
the interchange revenue. Beginning August 1, 2003, income
from VISA debit card and ATM processing will be affected by
a reduction in interchange revenue due to a lawsuit settlement
3
between VISA and Walmart. However, the cost savings of
processing in-house is expected to exceed the reduction in
interchange revenue in the current year.
Net gains on sales of securities totaled $92,935 for the quarter
ended June 30, 2003. The gains resulted from the sale of a $3
million agency bond and $1 million corporate bond that were
scheduled to mature in 2004.
Non-interest Expense
Non-interest expense increased $240,889 and $474,763 for
the three months and six months ended June 30, 2003
compared to the three and six months ended June 30, 2002,
respectively. Increases were recorded primarily in the
categories of salaries and employee benefits, occupancy and
marketing expenses.
Salaries increased $138,291 in quarterly comparison and
$280,554 in year-to-date comparison primarily due to an
increase in the number of full-time equivalent ("FTE")
employees by 8, from 208 in June 2002 to 219 in June 2003.
Additions to staff included a senior level credit administrator
and an information services analyst. In addition, group health
insurance and other benefits costs increased $6,444 in quarterly
comparison and $49,528 in year-to date comparison.
Occupancy expenses increased $42,272 in quarterly
comparison and $102,277 in year-to-date comparison primarily
due to increases in depreciation of data processing hardware
and software and ad valorem taxes. Additional increases in
land lease and fixed asset depreciation expenses were offset by
decreases in maintenance costs associated with fixed assets and
data processing hardware.
Marketing expenses increased $42,168 and $96,421 for the
three and six months ended June 30, 2003 compared to the
three and six months ended June 30, 2002, respectively. The
increase resulted primarily from sponsorships for trade shows
and a radio advertising campaign.
Balance Sheet Analysis
MidSouth ended the second quarter of 2003 with consolidated
assets of $402.2 million, an increase of $19.5 million from the
$382.7 million reported for December 31, 2002. Deposits
increased $14.7 million, from $343.5 million at December 31,
2002 to $358.2 million at June 30, 2003. The increase in
deposits resulted primarily from increases in commercial deposit
account balances. In the first week of July 2003, MidSouth
received approximately $30 million in interest-bearing deposits
through a two-year public funds contract.
Net loans increased $14.7 million from $224.2 million at
December 31, 2002 to $238.9 at June 30, 2003. The majority
of the $14.7 million growth in net loans resulted from
commercial real estate loans and participations. Securities
available-for-sale increased $9.0 million in the six months ended
June 30, 2003, as purchases of $35.2 million in securities
available-for-sale were partially offset by maturities and calls
4
totaling $20.6 million and sales of $5.4 million. Continued
refinancing activity in mortgages resulted in increased paydowns
on mortgage-backed securities. Unrealized gains in the
securities available-for-sale portfolio, net of unrealized losses
and tax effect, were $1,402,194 at June 30, 2003, compared
to a net unrealized gain of $1,191,500 at December 31, 2002.
These amounts result from interest rate fluctuations and do not
represent permanent adjustments of value. Moreover,
classification of securities as available-for-sale does not
necessarily indicate that the securities will be sold prior to
maturity.
Capital
MidSouth's leverage ratio was 8.82% at June 30, 2003
compared to 8.45% at December 31, 2002. Tier 1 capital to
risk-weighted assets was 12.75% and total capital to risk-
weighted assets was 13.84% at the end of the second quarter
of 2003. At year-end 2002, Tier 1 capital to risk-weighted
assets was 12.57% and total capital to risk-weighted assets
was 13.71%. During the first quarter of 2003, MidSouth
repurchased 2,800 shares of its common stock at a total cost of
$46,362. An additional 2,500 shares were repurchased during
the second quarter of 2003 at a total cost of $44,895. On May
27, 2003, MidSouth declared a 10% stock dividend on its
common stock to holders of record on July 31, 2003 and
payable on August 29, 2003. All earnings per share
information has been adjusted to give retroactive effect to this
stock dividend.
5
Nonperforming Assets and Past Due Loans
Table 1 summarizes MidSouth's nonaccrual, past due and
restructured loans and
nonperforming assets.
TABLE 1
Nonperforming Assets and
Loans Past Due 90 Days
===============================================================
June December June
30, 31, 30,
2003 2002 2002
Nonperforming loans $852,175 $710,546 $832,209
Other real estate owned, net 174,800 174,800 108,752
Other assets repossessed - 45,062 -
________________________________
Total nonperforming assets $1,026,975 $930,408 $940,961
Loans past due 90 days
or more and still accruing $477,153 $818,727 $716,639
================================
Nonperforming loans as a
% of total loans 0.35% 0.31% 0.36%
Nonperforming assets as a
% of total loans, other real
estate owned and other assets
repossessed 0.42% 0.41% 0.41%
Allowance for loan losses
as a % of nonperforming
assets 287.39% 310.76% 303.50%
_________________________________
6
Nonperforming assets were $1,026,975 as of June 30, 2003,
an increase of $96,567 from the $930,408 reported for
December 31, 2002 and an increase of $86,014 from the
$940,961 reported for June 30, 2002. Loans past due 90 days
or more increased from $716,639 in June 2002 to $818,727 in
December 2002 and decreased to $477,153 as of June 30,
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 $2,951,452 in
the allowance as of June 30, 2003 is sufficient to cover
probable losses in nonperforming assets and in the loan
portfolio. Loans classified for regulatory purposes but not
included in Table 1 do not represent material credits about
which management has serious doubts as to the ability of the
borrower to comply with loan repayment terms.
7
Page 14
Part I. Item 3. 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 in alerting them
on a timely basis to material information relating to MidSouth
(including its consolidated subsidiaries) required to be included
in MidSouth's periodic filings under the Exchange Act.
Since the Evaluation Date, there have not been any significant
changes in MidSouth's internal controls or in other factors that
could significantly affect such controls.
Part II. Item 4. Submission of Matters to a Vote of Security
Holders
At the annual meeting of shareholders of MidSouth Bancorp,
Inc. held May 27, 2003 at 4:00 p.m., the Class I Directors
were elected.
The following provides information as to the votes:
Election of Class I Directors For Withheld
C. R. Cloutier 2,207,007 6,860
J. B. Hargroder, M.D. 2,207,007 6,860
William M. Simmons 2,206,707 7,160
Part II. Item 6. Exhibits and Reports on Form 8-K Page15
(a) Exhibits
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 byreference.
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.
Page 16
10.3 Amended and Restated Deferred Compensation
Plan and Trust is included as Exhibit 10.3
to the MidSouth's annual report on Form 10-K
for the year ended December 31, 1992 and is
incorporated herein by reference.
10.3.1 Amended and Restated Deferred Compensation
Plan and Trust effective October 9, 2002 is
included as 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
99.1 Certification pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
99.2 Certification pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
(b) Reports Filed on Form 8-K
A press release regarding MidSouth's earnings for the
quarter ended June 30, 2003 was attached as Exhibit
99.1 to the Form 8-K filed on July 25, 2003.
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 14, 2003
________________
/s/ C. R. Cloutier
_____________________
C. R. Cloutier, President
& CEO
/s/ Karen L. Hail
_____________________
Karen L. Hail, Executive
Vice President & CFO
/s/ Teri S. Stelly
_____________________
Teri S. Stelly, Senior
Vice President & Controller
CERTIFICATION
I, C. R. Cloutier, President and CEO, certify that:
1. I have reviewed this quarterly report on Form 10-
QSB of MidSouth Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does
not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements,
and other financial information included in this quarterly report,
fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and
for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and
15d-14) for the registrant and have:
a) designed such disclosure controls and
procedures to ensure that material
information relating to the registrant,
including its consolidated subsidiaries, is
made known to us by others within those
entities, particularly during the period in
which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a
date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date");
and
c) presented in this quarterly report our
conclusions about the effectiveness of the
disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):
a) all significant deficiencies in the design or
operation of internal controls which could
adversely affect the registrant's ability to
record, process, summarize and report
financial data and have identified for the
registrant's auditors any material weaknesses
in internal controls; and
b) any fraud, whether or not material, that
involves management or other employees
who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
Date: August 14, 2003
/s/ C. R. Cloutier
___________________
Chief Executive Officer
CERTIFICATION
I, Karen L. Hail, Senior Executive Vice President & CFO, certify
that:
1. I have reviewed this quarterly report on Form 10-
QSB of MidSouth Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does
not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements,
and other financial information included in this quarterly report,
fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and
for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and
15d-14) for the registrant and have:
a) designed such disclosure controls and
procedures to ensure that material
information relating to the registrant,
including its consolidated subsidiaries, is
made known to us by others within those
entities, particularly during the period in
which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a
date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date");
and
c) presented in this quarterly report our
conclusions about the effectiveness of the
disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):
a) all significant deficiencies in the design or
operation of internal controls which could
adversely affect the registrant's ability to
record, process, summarize and report
financial data and have identified for the
registrant's auditors any material weaknesses
in internal controls; and
b) any fraud, whether or not material, that
involves management or other employees
who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
Date: August 14, 2003
/s/ Karen L. Hail
__________________
Chief Financial Officer