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....... September 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 October 31, 2003
Common stock, $.10 par value 3,190,879
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 - September 30, 2003
and December 31, 2002 3
Statements of Income - Three and Nine Months
Ended September 30, 2003 and 2002 4
Statement of Stockholders' Equity - Nine
Months Ended September 30, 2003 5
Statements of Cash Flows - Nine Months
Ended September 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 6. Exhibits and Reports on Form 8-K 16
Signatures 18
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED)
September December 31,
2003 2002*
ASSETS
___________ ___________
Cash and due from banks $17,105,433 $18,066,035
Federal funds sold 1,400,000 9,400,000
___________ ___________
Total cash and cash equivalents 18,505,433 27,466,035
Interest bearing deposits in banks 3,767 1,694
Securities available-for-sale, at fair value
(cost of $114,421,499 in September 2003 and
$87,755,456 in December 2002) 115,881,192 89,575,706
Securities held-to-maturity (estimated market
value of $25,583,542 in September 2003 and
$25,660,511 in December 2002) 23,396,984 23,398,282
Loans, net of allowance for loan losses of
$3,032,042 in September 2003 and
$2,891,380 in December 2002 243,834,761 224,160,846
Bank premises and equipment, net 12,018,097 12,321,510
Other real estate owned, net 233,099 174,800
Accrued interest receivable 2,676,651 2,502,684
Goodwill 431,987 431,987
Other assets 2,898,141 2,653,449
___________ ___________
Total assets $419,880,112 $382,686,993
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $88,922,525 $94,452,378
Interest bearing 285,161,571 249,022,468
___________ ___________
Total deposits 374,084,096 343,474,846
Securities sold under repurchase
agreements and federal funds purchased 6,332,457 2,978,860
Accrued interest payable 402,622 705,106
Notes payable 0 568,030
Junior subordinated debenture 7,000,000 7,000,000
Other liabilities 1,073,444 841,592
___________ ___________
Total liabilities 388,892,619 355,568,434
___________ ___________
Commitments and contingencies - -
Stockholders' Equity:
Common stock, $.10 par value- 5,000,000
shares authorized, 3,190,879 and
2,901,142 issued and outstanding on
September 30, 2003 and December 31, 2002 319,088 290,114
Surplus 18,575,189 12,997,762
Unearned ESOP shares (86,762) (108,975)
Unrealized gains on securities
available-for-sale, net of deferred taxes
of $507,175 in September 2003 and $628,750
in December 2002 952,517 1,191,500
Treasury stock - 5,830 shares, at cost (91,257) -
Retained earnings 11,318,718 12,748,158
___________ ___________
Total stockholders' equity 30,987,493 27,118,559
___________ ___________
Total liabilities and stockholders' equity $419,880,112 $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 Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
_________________________ ___________________________
INTEREST INCOME:
Loans, including fees $5,167,500 $5,002,166 $14,806,530 $14,359,603
Securities
Taxable 554,542 775,862 1,694,726 2,378,771
Nontaxable 519,750 444,316 1,474,874 1,295,718
Federal funds sold 27,147 32,751 58,167 102,678
__________ __________ ___________ ___________
TOTAL 6,268,939 6,255,095 18,034,297 18,136,770
__________ __________ ___________ ___________
INTEREST EXPENSE:
Deposits 963,054 1,464,055 2,998,202 4,548,184
Securities sold under repurchase
agreements, federal funds
purchased and advances 15,121 17,176 45,721 47,864
Long term debt 177,926 184,465 546,751 572,107
__________ __________ ___________ ___________
TOTAL 1,156,101 1,665,696 3,590,674 5,168,155
__________ __________ ___________ ___________
NET INTEREST INCOME 5,112,838 4,589,399 14,443,623 12,968,615
PROVISION FOR LOAN LOSSES 250,000 429,250 550,000 1,123,250
__________ __________ ___________ ___________
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 4,862,838 4,160,149 13,893,623 11,845,365
__________ __________ ___________ ___________
OTHER OPERATING INCOME:
Service charges on deposits 1,342,592 1,207,055 3,885,873 3,440,772
Gains on securities, net 10,393 712 98,025 712
Credit life insurance 33,475 62,050 134,462 207,870
Other charges and fees 603,213 557,463 1,613,562 1,339,765
__________ __________ ___________ ___________
TOTAL OTHER INCOME 1,989,673 1,827,280 5,731,922 4,989,119
__________ __________ ___________ ___________
OTHER EXPENSES:
Salaries and employee benefits 2,175,214 2,077,537 6,373,336 5,995,105
Occupancy expense 976,038 960,874 2,847,574 2,730,133
Other 1,352,516 1,274,688 4,033,186 3,863,426
__________ __________ ___________ ___________
TOTAL OTHER EXPENSES 4,503,768 4,313,099 13,254,096 12,588,664
__________ __________ ___________ ___________
INCOME BEFORE INCOME TAXES 2,348,743 1,674,330 6,371,449 4,245,820
PROVISION FOR INCOME TAXES 614,176 432,657 1,703,189 1,098,771
__________ __________ ___________ ___________
NET INCOME $1,734,567 $1,241,673 $4,668,260 $3,147,049
========== ========== =========== ===========
BASIC EARNINGS PER COMMON SHARE $0.55 $0.39 $1.47 $0.99
========== ========== =========== ===========
DILUTED EARNINGS PER COMMON SHARE $0.52 $0.38 $1.41 $0.97
========== ========== =========== ===========
See notes to unaudited consolidated financial statements.
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 (UNAUDITED)
UNREALIZED
GAINS
(LOSSES)
ON
COMMON STOCK ESOP 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 (481,177) (481,177)
Purchase of treasury
stock (91,257) (91,257)
Stock dividend 289,737 28,974 5,577,427 (5,616,523) (10,122)
Net income 4,668,260 4,668,260
ESOP obligation,
repayments 22,213 22,213
Net change in
unrealized gain/loss
on securities
available-for-sale,
net of income taxes (238,983) (238,983)
_________ ________ ___________ ________ ________ ________ ___________ ___________
BALANCE,
SEPTEMBER 30,
2003 3,190,879 $319,088 $18,575,189 ($86,762) $952,517 ($91,257)$11,318,718 $30,987,493
========= ======== =========== ======== ======== ======== =========== ===========
See notes to unaudited consolidated financial statements.
MIDSOUTH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
______________________________________________________________________________________________
September 30, 2003 September 30,2002
__________________ _________________
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $4,668,260 $3,147,049
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 1,128,049 989,748
Provision for loan losses 550,000 1,123,250
Provision for deferred taxes (84,153) (21,661)
Amortization of premiums on securities, net 877,778 342,597
Gain on sale of securities, net (98,025) (712)
(Gain)/loss on sale of premises and equipment (14,768) 40,175
(Gain)/loss on sale of OREO (6,152) 25,571
Change in accrued interest receivable (173,967) (256,089)
Change in accrued interest payable (302,484) (432,382)
Other, net 242,289 (7,102)
_____________ ____________
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,786,827 4,950,444
_____________ ____________
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (decrease) increase in interest-bearing deposits
in banks (2,073) 100,538
Proceeds from sales of securities available-for-sale 6,464,685 585,250
Proceeds from maturities and calls of securities
available-for-sale 35,179,930 26,052,802
Purchases of securities available-for-sale (69,089,114) (36,261,485)
Loan originations, net of repayments (20,297,649) (16,055,612)
Purchases of premises and equipment (800,218) (1,577,717)
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 - 5,882,448
_____________ ____________
NET CASH USED IN INVESTING ACTIVITIES (48,461,029) (21,047,963)
_____________ ____________
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 30,609,250 (130,092)
Net increase in securities sold under repurchase
agreements and federal funds purchased 3,353,597 3,061,473
Repayments of notes payable (568,030) (635,000)
Purchase of treasury stock (91,257) -
Payment of cash for fractional shares (10,122) -
Payment of dividends (579,838) (435,171)
_____________ ____________
NET CASH PROVIDED BY FINANCING ACTIVITIES 32,713,600 1,861,210
_____________ ____________
NET DECREASE IN CASH & CASH EQUIVALENTS (8,960,602) (14,236,309)
CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD 27,466,035 35,847,278
_____________ ____________
CASH & CASH EQUIVALENTS AT END OF PERIOD $18,505,433 $21,610,969
============= ============
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 September 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 nine month period ended
September 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:
Nine Months Ended
September 30,
2003 2002
__________ __________
Balance at beginning of period $2,891,380 $2,705,058
Provision for loan losses 550,000 1,123,250
Recoveries 189,861 111,064
Loans charged off (599,199) (928,978)
__________ __________
Balance at end of period $3,032,042 $3,010,394
========== ==========
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
nine months ended September 30, 2003 and 2002.
Nine Months Ended
September 30,
2003 2002
__________ __________
Net income $4,668,260 $3,147,049
Other comprehensive income
Unrealized gains (losses) on
securities available-for-sale,
net:
Unrealized holding gains (losses)
arising during the period (303,679) 934,701
Less reclassification adjustment
for (gains) losses included
in net income (64,696) (463)
__________ __________
Total other comprehensive loss (238,983) 934,238
__________ __________
Total comprehensive income $4,429,277 $4,081,287
========== ==========
4. STOCK DIVIDEND
On August 29, 2003, MidSouth paid 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.
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 Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
__________ __________ __________ __________
Net earnings available
to common stockholders
As reported $1,734,567 $1,241,673 $4,668,260 $3,147,049
Deduct total stock
based compensation
determined under
fair value method (12,000) (5,000) (42,000) (17,000)
__________ __________ __________ __________
Pro forma $1,722,567 $1,236,673 $4,626,260 $3,130,049
========== ========== ========== ==========
Basic earnings per
share:
As reported $0.55 $0.39 $1.47 $0.99
Pro forma $0.54 $0.39 $1.46 $0.99
Diluted earnings per
share:
As reported $0.52 $0.38 $1.41 $0.97
Pro forma $0.52 $0.38 $1.40 $0.97
Part 1. 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 earned net income of $1,734,567, a 40% increase
over the $1,241,673 for the third quarter of 2002 and a 7%
increase over the second quarter 2003 earnings of
$1,624,141. Basic earnings per share were $.55 for the
quarter ended September 30, 2003, a significant increase
from the $.39 per share reported for the third quarter of
2002, and up four cents ($.04) from the $.51 per share
reported for the second quarter of 2003. Diluted earnings
per share were $.52 for the third quarter of 2003 compared
to $.38 per share for the third quarter of 2002 and $.49 for
the second quarter of 2003. On August 29, 2003, MidSouth
paid a 10% stock dividend on its common stock to holders
of record on July 31, 2003. Earnings per common share
data have been adjusted accordingly.
Earnings for the nine months ended September 30, 2003
were $4,668,260, a $1,521,211 or a 48% increase over the
$3,147,049 for the nine months ended September 30, 2002.
Basic earnings per share were $1.47 for the first nine
months of 2003 compared to $.99 for the first nine months
of 2002. Diluted earnings per share were $1.41 and $.97,
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 a slight increase in the
volume of earning assets. A substantial decrease in the
provision for loan losses and an increase in non-interest
income also contributed to the improvement in earnings. In
quarterly comparison, the increase in non-interest income
had an impact to earnings comparable to the decrease in the
provision for loan losses. In year-to-date comparison, the
increase in non-interest income had a greater impact on
earnings than the decrease in the provision for loan losses.
Net interest income increased $523,439 or 11% in quarterly
comparison and $1,475,008 or 11% in year-to-date
comparison. Non-interest income, excluding net gains on
sales of securities recorded in 2003, increased $152,712 or
8% in quarterly comparison and $645,490 or 13% in year-
to-date comparison. Non-interest income increased
primarily due to increases in service charges on deposit
accounts, income from third party mortgage loan
originations and third party investment advisory services,
and VISA debit card and ATM processing fees. The
provision for loan losses decreased $179,250 for the third
quarter and $573,250 for the nine months ended September
30, 2003 from the amounts in the comparable periods of
2002.
The increases in net interest and non-interest income for the
three and nine months ended September 30, 2003 combined
with the decrease in the provision for loan losses were
partially offset by increases of $190,669 and $665,432,
respectively, in non-interest expenses, primarily salaries
and employee benefits, occupancy expense and marketing
expense.
Total consolidated assets increased $37.2 million or 10%,
from $382.7 million at December 31, 2002 to $419.9
million at September 30, 2003. Deposits grew $30.6
million or 9%, from $343.5 million at December 31, 2002
1
to $374.1 million at September 30, 2003. The increase in
deposits resulted primarily from deposits associated with a
public funds contract. The funds were deposited on July 1,
2003 and averaged $26.9 million for the third quarter of
2003.
Loans, net of Allowance for Loan Losses ("ALL"),
increased $19.7 million or 9%, from $224.1 million at
December 31, 2002 to $243.8 million at September 30,
2003. Nonperforming assets, including loans past due
ninety days and over, as a percentage of total assets
decreased from .60% at September 30, 2002, to .46% at
December 31, 2002 and to .34% at September 30, 2003.
The ALL represented 213% of nonperforming assets at
September 30, 2003 compared to 165% at December 31,
2002 and 132% at September 30, 2002. Loans past due
ninety days and over decreased significantly from
$1,275,233 at September 30, 2002 to $818,727 at
December 31, 2002 and to $489,379 at September 30,
2003.
MidSouth's leverage ratio was 8.51% at September 30,
2003 compared to 8.24% at September 30, 2002. Return on
average equity for the third quarter of 2003 was 21.90%
compared to 18.92% for the third quarter of 2002.
Earnings Analysis
Net Interest Income
Average earning assets increased 14%, or $48.6 million
from $345.3 million for the three months ended September
30, 2002 to $393.9 million for the three months ended
September 30, 2003. The mix of average earning assets
shifted in quarterly comparison, as loans represented 62%
of average earning assets in the third quarter of 2003
compared to 67% in the third quarter of 2002. The shift
resulted primarily from investing the majority of funds
received from a public funds contract in the third
quarter of 2003 into investment securities instead of
loans. Approximately $30 million in contracted funds
were deposited on July 1, 2003 and will be under contract
for a period of two years. Average loans increased
$14.0 million, from $230.9 million in the third
quarter of 2002 to $244.9 million in the third quarter
of 2003. The average yield on loans decreased 22 basis
points in quarterly comparison, from 8.59% to 8.37% at
September 30, 2003. Loan yields declined primarily due to
a 50 basis point decrease in New York prime in November
of 2002, combined with rate the adjustments on other
credits with scheduled repricing dates.
Approximately 43% of MidSouth's loan portfolio earns a
variable rate of interest, with 29% adjusting with changes in
the prime rate and another 14% adjusting on a scheduled
repricing date. Approximately 57% 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 September 30, 2003 was offset by
the $14.0 million average volume increase in the loan
portfolio, resulting in a $165,334 increase in interest
income on loans in quarterly comparison.
Average investments increased $31.2 million, from $105.2
million at September 30, 2002 to $136.4 million at
September 30, 2003 and represented 38% of average
earning assets. The increase in volume resulted primarily
from the investment of $26.9 million in average deposits
2
added in the third quarter of 2003 from the public funds
contract. The average taxable-equivalent yield on
investments decreased 170 basis points, from 5.32% in
the third quarter of 2002 to 3.62% in the third quarter
of 2003, primarily due to the low rate environment and
high prepayment speeds on mortgage-backed securities.
Additionally, federal funds sold volume increased
$3.3 million and the yield declined 56 basis points,
from 1.42% to .86%. Decreased yields offset the
volume increase in investments and resulted in a decrease
in interest income on securities and federal funds sold of
$151,490 in quarterly comparison.
A 94 basis point decrease in the average rate paid on
interest-bearing deposits, partially offset by an average
volume increase of $34.0 million, contributed to a
$501,001 decrease in interest expense for the quarter ended
September 30, 2003 compared to the quarter ended
September 30, 2002. The average rate paid on interest-
bearing deposits decreased from 2.25% at September 30,
2002 to 1.31% at September 30, 2003.
The percentage of average non-interest-bearing deposits to
average total deposits declined only 1%, from 24% to 23%
in quarterly comparison, despite the addition of $26.9
million in average interest-bearing deposits in the third
quarter of 2003 from the public fund contract. A decline in
the average volume of certificates of deposits offset the
impact of the interest-bearing public fund deposits, thereby
resulting in little change to the mix of non-interest bearing
and interest-bearing deposits. The impact of these changes
in the yields and volume of interest-bearing liabilities
significantly contributed to the $523,439 quarterly increase
in net interest income.
The impact of the changes in volume and yield of average
earning assets and interest-bearing liabilities resulted in a
decrease in the net taxable-equivalent yield on average
earning assets of 17 basis points, from 5.49% for the
quarter ended September 30, 2002 to 5.32% for the quarter
ended September 30, 2003. However, the taxable-
equivalent net interest spread reflected a 3 basis point
increase, from 4.96% at September 30, 2002 to 4.99% at
September 30, 2003.
Year-to-date comparison for the nine-month periods ended
September 30, 2002 and 2003 reflected a 69 basis point
decline in the yield on average earning assets, from 7.48%
to 6.79%, respectively. The average rate paid on interest-
bearing liabilities also declined by 97 basis points, from
2.68% at September 30, 2002 to 1.71% at September 30,
2003. The mix of average earning assets shifted only
slightly in year-to-date comparison and the deposit mix
remained constant. The net taxable-equivalent yield on
average earning assets for the nine months ended
September 30, 2003 increased 7 basis points, from 5.41% at
September 30, 2002 to 5.48% at September 30, 2003. The
taxable-equivalent net interest spread increased 28 basis
points, from 4.80% at September 30, 2002 to 5.08% at
September 30, 2003.
Non-interest Income
MidSouth's primary source of non-interest income, service
charges on deposit accounts, increased $135,537 or 11% for
the three months ended and $445,101 or 13% for the nine
months ended September 30, 2003 as compared to the same
period in 2002. The increase resulted primarily from an
3
increase in insufficient funds ("NSF") fees due to an
increase in the number of checking accounts from 28,417 at
September 30, 2002 to 30,718 at September 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 $45,750 in quarterly
comparison and $273,797 in year-to-date comparison,
primarily due to increases in lease income from a third-
party investment advisory service, 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 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.
Non-interest Expense
Non-interest expense increased $190,669 or 4% and
$665,432 or 5% for the three months and nine months
ended September 30, 2003 compared to the three and nine
months ended September 30, 2002, respectively. Increases
were recorded primarily in the categories of salaries and
employee benefits, occupancy and marketing expenses.
Salaries and benefits costs increased $97,677 in quarterly
comparison and $378,231 in year-to-date comparison
primarily due to an increase in the number of full-time
equivalent ("FTE") employees by 10, from 208 in
September 2002 to 218 in September 2003. New hires
over the past twelve months included a senior level credit
administrator, an information services analyst, and a call
center manager. In addition, group health insurance costs
increased $32,490 in quarterly comparison and $61,364 in
year-to date comparison.
Occupancy expenses increased $15,164 in quarterly
comparison and $117,441 in year-to-date comparison
primarily due to increases in leasehold depreciation
expense, ad valorem tax expense and utilities costs.
Leasehold depreciation expense increased due to $86,814 in
leasehold improvements made at MidSouth's main office
and Pinhook office over the past twelve months. The
accrual for ad valorem taxes increased due to anticipated
increases in property values and bank capital.
Marketing expenses increased $45,524 and $160,838 for
the three and nine months ended September 30, 2003
compared to the three and nine months ended September
30, 2002, respectively. The increase resulted primarily
from bank sponsorships for trade shows and a radio
advertising campaign.
4
Balance Sheet Analysis
MidSouth ended the third quarter of 2003 with consolidated
assets of $419.9 million, an increase of $37.2 million from
the $382.7 million reported for December 31, 2002.
Deposits increased $30.6 million, from $343.5 million at
December 31, 2002 to $374.1 million at September 30,
2003. The increase resulted primarily from interest-bearing
deposits received on July 1, 2003 through a two-year public
funds contract. Balances deposited as a result of the
contract averaged $26.9 million for the third quarter of
2003. Non-interest bearing deposits declined $5.5 million
or 6%, from $94.4 million at December 31, 2002 to $88.9
million at September 30, 2003. The decline resulted
primarily from fluctuations in commercial deposit balances.
Net loans increased $19.7 million from $224.1 million at
December 31, 2002 to $243.8 million at September 30,
2003. The majority of the $19.6 million growth in net
loans resulted primarily from the addition of $10.7 million
in commercial real estate loans and $8.1 million in
commercial and agricultural loans.
Securities available-for-sale increased $26.3 million in the
nine months ended September 30, 2003, as purchases of
$69.1 million in securities available-for-sale were partially
offset by maturities, calls, and paydowns totaling $35.2
million and sales of $6.5 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 $952,517 at September 30, 2003,
compared to a net unrealized gain of $1,191,500 at
December 31, 2002. The changes in 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 8.51% at September 30,
2003 compared to 8.45% at December 31, 2002. Tier 1
capital to risk-weighted assets was 12.92% and total capital
to risk-weighted assets was 14.00% at the end of the third
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 August 29, 2003, MidSouth paid
a 10% stock dividend on its common stock to holders of
record on July 31, 2003. All earnings per share information
have been adjusted to give retroactive effect to this stock
dividend.
5
Nonperforming Assets
The table below summarizes MidSouth's nonperforming assets.
September 30, % December 31,
2003 2002 Change 2002
Nonaccrual loans $704,098 $726,069 -3% $710,546
Loans past due 90
days and over 489,379 1,275,233 -62% 818,727
Total nonperforming
loans 1,193,477 2,001,302 -40% 1,529,273
Other real estate
owned 233,099 283,552 -18% 174,800
Other foreclosed
assets - - 45,062
_____________________ ____________
Total nonperforming
assets $1,426,576 $2,284,854 -38% $1,749,135
===================== ============
Nonperforming assets
to total assets 0.34% 0.60% -43% 0.46%
Nonperforming assets
to total loans +
OREO + other
foreclosed assets 0.58% 0.97% -41% 0.77%
ALL to nonperforming
assets 213% 132% 61% 165%
ALL to nonperforming
loans 254% 150% 69% 189%
ALL to total loans 1.23% 1.28% -4% 1.27%
Year-to-date
charge-offs $599,199 $928,978 -35% $1,364,135
Year-to-date
recoveries 189,861 111,064 71% 152,207
_____________________ ___________
Year-to-date net
charge-offs $409,338 817,914 -50% $1,211,928
===================== ===========
Net charge-offs
to total loans 0.17% 0.35% -51% 0.53%
Nonperforming assets, including loans past due 90 days and
over, decreased 38% over the past twelve months, from
$2,284,854 at September 30, 2002 to $1,749,135 at
December 31, 2002 and to $1,426,576 at September 30,
2003. The decrease resulted primarily from a reduction in
loans past due 90 days and over. The volume of
nonaccruals and other real estate and assets owned reflected
little change. Specific reserves have been established in the
ALL to cover probable losses on nonperforming loans.
The ALL is analyzed quarterly and additional reserves, if
needed, are allocated at that time. Management believes
the $3,032,042 in the allowance as of September 30, 2003
is sufficient to cover probable losses 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.
6
Page 15
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 6. Exhibits and Reports on Form 8-K
(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 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 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
32.1 Certification pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
32.2 Certification pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
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 September 30, 2003 was attached
as Exhibit 99.1 to the Form 8-K filed on October 26,
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: November 12, 2003
_____________________
C. R. Cloutier,
President & CEO
_____________________
Karen L. Hail,
Executive Vice President
& CFO
_____________________
Teri S. Stelly,
Senior Vice President
& Controller