##### Table of Contents



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 1934For
the quarterly period ended September 30, 2004[  ]
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For
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.  Common stock, $.10 par value
    
    Outstanding as of September
30, 20043,218,933
 1




---



INDEX TO FORM 10-Q REPORT PagePART 1 - FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)Consolidated Statements of Condition  September 30, 2004 and December 31, 2003
    
    
    3Consolidated Statements of Income  Three and Nine Months Ended September 30, 2004 and 2003
    
    
    4Consolidated Statement of Stockholders Equity  Nine Months Ended September 30, 2004
    
    
    5Consolidated Statements of Cash Flows  Nine Months Ended September 30, 2004 and 2003
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    9Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    22Item 4. Controls and Procedures
    
    
    22PART II - OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    23Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    23Item 3. Defaults upon Senior Securities
    
    
    23Item. 4. Submission of Matters to a Vote of Security Holders
    
    
    23Item. 5. Other Information
    
    
    23Item 6. Exhibits and Reports on Form 8-K
    
    
    23Signatures
    
    
    26Computation of Earnings Per ShareCertification Pursuant to Rule 13a-14(a)Certification Pursuant to Rule 13a-14(a)Certifications Pursuant to Section 906
  2




---



##### Table of Contents



MIDSOUTH BANCORP, INC. AND SUBSIDIARIES 
  September 30,
    
    December 31,2004
    
    2003ASSETSCash and due from banks
    
    $
    11,615,436
    
    
    $
    13,833,857Federal funds sold
    
    
    21,600,000Total cash and cash equivalents
    
    
    33,215,436
    
    
    
    13,833,857Interest bearing deposits in banks
    
    
    10,606
    
    
    
    6,594Securities available-for-sale, at fair value (cost of $133,901,302
at September 30, 2004 and $116,863,702 at December 31, 2003)
    
    
    135,137,090
    
    
    
    118,226,723Securities held-to-maturity, at amortized cost (estimated fair value of $24,718,604 at September 30, 2004 and $25,455,609 at
December 31, 2003
    
    
    23,133,361
    
    
    
    23,366,709Loans, net of allowance for loan losses of $2,948,504
at September 30, 2004 and $2,789,761 at December 31, 2003
    
    
    291,113,437
    
    
    
    259,083,015Bank premises and equipment, net
    
    
    12,552,928
    
    
    
    11,984,276Other real estate owned, net
    
    
    85,783
    
    
    
    218,199Accrued interest receivable
    
    
    3,224,713
    
    
    
    2,883,376Goodwill
    
    
    431,987
    
    
    
    431,987Other assets
    
    
    3,325,162
    
    
    
    2,662,568Total assets
    
    $
    502,230,504
    
    
    $
    432,697,305LIABILITIES AND STOCKHOLDERS EQUITYDeposits:Non-interest bearing
    
    $
    100,296,325
    
    
    $
    96,948,642Interest bearing
    
    
    343,453,548
    
    
    
    277,439,840Total deposits
    
    
    443,749,873
    
    
    
    374,388,482Securities sold under repurchase
agreements and federal funds purchased
    
    
    5,212,962
    
    
    
    10,067,503Accrued interest payable
    
    
    405,814
    
    
    
    558,416FHLB Advances
    
    
    
    
    
    
    7,500,000Junior subordinated debentures
    
    
    15,000,000
    
    
    
    7,000,000Other liabilities

    
    
    1,304,089
    
    
    
    954,997Total liabilities
    
    
    465,672,738
    
    
    
    400,469,398Commitments and contingencies
    
    
    
    
    
    
    Stockholders Equity:Common stock, $.10 par value- 10,000,000 shares authorized,
3,218,933 and 3,198,879 issued and 3,193,030 and 3,192,561
outstanding at September 30, 2004 and December 31, 2003, respectively
    
    
    321,893
    
    
    
    319,888Surplus
    
    
    18,991,967
    
    
    
    18,733,991Unearned ESOP shares
    
    
    (69,736
    )
    
    
    (82,724
    )Unrealized gains on securities available-for-sale, net of deferred taxes
of $432,408 at September 30, 2004 and $471,647 at December 31, 2003
    
    
    803,381
    
    
    
    891,374Treasury stock - 25,903 and 6,318 shares, at cost
    
    
    (746,712
    )
    
    
    (106,922
    )Retained earnings
    
    
    17,256,973
    
    
    
    12,472,300Total stockholders equity
    
    
    36,557,766
    
    
    
    32,227,907Total liabilities and stockholders equity
    
    $
    502,230,504
    
    
    $
    432,697,305
 See notes to unaudited consolidated financial statements. 3




---



##### Table of Contents



MIDSOUTH BANCORP, INC. AND SUBSIDIARIES 
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003INTEREST INCOME:Loans, including fees
    
    $
    5,436,767
    
    
    $
    5,167,500
    
    
    $
    15,447,843
    
    
    $
    14,806,530SecuritiesTaxable
    
    
    701,029
    
    
    
    554,542
    
    
    
    2,006,903
    
    
    
    1,694,726Nontaxable
    
    
    630,328
    
    
    
    519,750
    
    
    
    1,741,696
    
    
    
    1,474,874Federal funds sold
    
    
    47,034
    
    
    
    27,147
    
    
    
    98,618
    
    
    
    58,167TOTAL
    

    
    6,815,158
    
    
    
    6,268,939
    
    
    
    19,295,059
    
    
    
    18,034,297INTEREST EXPENSE:Deposits
    
    
    1,230,361
    
    
    
    963,054
    
    
    
    3,203,073
    
    
    
    2,998,202Securities sold under repurchase agreements,
federal funds purchased and advances
    
    
    17,015
    
    
    
    15,121
    
    
    
    59,782
    
    
    
    45,721Long term debt
    
    
    183,980
    
    
    
    177,926
    
    
    
    540,980
    
    
    
    546,751TOTAL
    
    
    1,431,356
    
    
    
    1,156,101
    
    
    
    3,803,835
    
    
    
    3,590,674NET INTEREST INCOME
    
    
    5,383,802
    
    
    
    5,112,838
    
    
    
    15,491,224
    
    
    
    14,443,623PROVISION FOR LOAN LOSSES
    
    
    250,000
    
    
    
    250,000
    
    
    
    670,000
    
    
    
    550,000NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES
    
    
    5,133,802
    
    
    
    4,862,838
    
    
    
    14,821,224
    
    
    
    13,893,623OTHER OPERATING INCOME:Service charges on deposits
    
    
    1,738,591
    
    
    
    1,342,592
    
    
    
    4,664,809
    
    
    
    3,885,873Gains on securities, net
    
    
    130,100
    
    
    
    10,393
    
    
    
    132,450
    
    
    
    98,025Credit life insurance
    
    
    34,309
    
    
    
    33,475
    
    
    
    78,730
    
    
    
    134,462Other charges and fees
    
    
    473,310
    
    
    
    603,213
    
    
    
    1,415,454
    
    
    
    1,613,562TOTAL OTHER INCOME
    
    
    2,376,310
    
    
    
    1,989,673
    
    
    
    6,291,443
    
    
    
    5,731,922OTHER EXPENSES:Salaries and employee benefits
    
    
    2,419,190
    
    
    
    2,175,214
    
    
    
    6,829,102
    
    
    
    6,373,336Occupancy expense
    
    
    1,030,877
    
    
    
    976,038
    
    
    
    3,002,457
    
    
    
    2,847,574Other
    
    
    1,483,944
    
    
    
    1,352,516
    
    
    
    4,069,234
    
    
    
    4,033,186TOTAL OTHER EXPENSES
    
    
    4,934,011
    
    
    
    4,503,768
    
    
    
    13,900,793
    
    
    
    13,254,096INCOME BEFORE INCOME TAXES
    
    
    2,576,101
    
    
    
    2,348,743
    
    
    
    7,211,874
    
    
    
    6,371,449PROVISION FOR INCOME TAXES
    
    
    621,985
    
    
    
    614,176
    
    
    
    1,851,443
    
    
    
    1,703,189NET INCOME
    
    $
    1,954,116
    
    
    $
    1,734,567
    
    
    $
    5,360,431
    
    
    $
    4,668,260BASIC EARNINGS PER COMMON SHARE
    
    $
    0.61
    
    
    $
    0.55
    
    
    $
    1.68
    
    
    $
    1.47DILUTED EARNINGS PER COMMON SHARE
    
    $
    0.59
    
    
    $
    0.52
    
    
    $
    1.61
    
    
    $
    1.41
 See notes to unaudited consolidated financial statements. 4




---



##### Table of Contents



MIDSOUTH BANCORP, INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED)
 UNREALIZEDCOMMON STOCK
    
    
    
    
    
    ESOP
    
    GAINS (LOSSES)ON SECURITIES
    
    TREASURY
    
    RETAINEDSHARES
    
    AMOUNT
    
    SURPLUS
    
    OBLIGATION
    
    AFS, NET
    
    STOCK
    
    EARNINGS
    
    TOTALBALANCE,
JANUARY 1, 2004
    
    
    3,198,879
    
    
    $
    319,888
    
    
    $
    18,733,991
    
    
    ($
    82,724
    )
    
    $
    891,374
    
    
    (
    $106,922
    )
    
    $
    12,472,300
    
    
    $
    32,227,907Dividends on
common stock, $.06 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (575,758
    )
    
    
    (575,758
    )Issuance of common stock
    
    
    20,054
    
    
    
    2,005
    
    
    
    120,774
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    122,779Tax benefit resulting from
exercise of stock options
    
    
    
    
    
    
    
    
    
    
    57,202
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57,202Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (660,984
    )
    
    
    
    
    
    
    (660,984
    )Transfer of treasury stock to
ESOP
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,194
    
    
    
    
    
    
    
    21,194Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,360,431
    
    
    
    5,360,431Excess of market value over
book value of ESOP shares
released
    
    
    
    
    
    
    
    
    
    
    80,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80,000ESOP obligation repayments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,988
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,988Net change in unrealized
gain/loss on securities
available-for-sale, net of
income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (87,993
    )
    
    
    
    
    
    
    
    
    
    
    (87,993
    )BALANCE,
SEPTEMBER 30, 2004
    
    
    3,218,933
    
    
    $
    321,893
    
    
    $
    18,991,967
    
    
    ($
    69,736
    )
    
    $
    803,381
    
    
    (
    $746,712
    )
    
    $
    17,256,973
    
    
    $
    36,557,766
 See notes to unaudited consolidated financial statements. 5




---



##### Table of Contents



MIDSOUTH BANCORP, INC. AND SUBSIDIARIES 
   September 30, 2004
    
    September 30, 2003CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    5,360,431
    
    
    $
    4,668,260Adjustments to reconcile net income
to net cash provided by operating activities:Depreciation and amortization
    
    
    1,132,575
    
    
    
    1,128,049Provision for loan losses
    
    
    670,000
    
    
    
    550,000Deferred income taxes
    
    
    55,720
    
    
    
    (84,153
    )Amortization of premiums on securities, net
    
    
    774,959
    
    
    
    877,778Gain on sale of securities, net
    
    
    (132,450
    )
    
    
    (98,025
    )Gain on sale of premises and equipment
    
    
    (2,000
    )
    
    
    (14,768
    )(Gain)/loss on sale of other assets repossessed/OREO

    
    
    (45,823
    )
    
    
    (6,152
    )Change in accrued interest receivable
    
    
    (341,337
    )
    
    
    (173,967
    )Change in accrued interest payable
    
    
    (152,602
    )
    
    
    (302,484
    )Other, net
    
    
    (60,559
    )
    
    
    242,289NET CASH PROVIDED BY OPERATING ACTIVITIES
    
    
    7,258,914
    
    
    
    6,786,827CASH FLOWS FROM INVESTING ACTIVITIES:Net increase in interest-bearing deposits in banks
    
    
    (4,012
    )
    
    
    (2,073
    )Proceeds from sales of securities available-for-sale
    
    
    403,600
    
    
    
    6,464,685Proceeds from maturities and calls of securities available-for-sale
    
    
    29,618,961
    
    
    
    35,179,930Purchases of securities available-for-sale
    
    
    (47,469,321
    )
    
    
    (69,089,114
    )Loan originations, net of repayments
    
    
    (33,160,442
    )
    
    
    (20,297,649
    )Purchases of premises and equipment
    
    
    (1,651,966
    )
    
    
    (800,218
    )Proceeds from sales of premises and equipment
    
    
    2,000
    
    
    
    39,610Proceeds from sales of other real estate owned
    
    
    651,246
    
    
    
    43,800NET CASH USED IN INVESTING ACTIVITIES
    
    
    (51,609,934
    )
    
    
    (48,461,029
    )CASH FLOWS FROM FINANCING ACTIVITIES:Net increase in deposits
    
    
    69,361,391
    
    
    
    30,609,250Net (decrease) increase in securities sold under repurchase
agreements, federal funds purchased, and FHLB borrowings
    
    
    (12,354,541
    )
    
    
    3,353,597Repayments of notes payable
    
    
    
    
    
    
    (568,030
    )Issuance of junior subordinated debentures
    
    
    8,000,000Purchase/transfer of treasury stock
    
    
    (639,790
    )
    
    
    (91,257
    )Payment of dividends
    
    
    (894,442
    )
    
    
    (579,838
    )Payment of cash for fractional shares
    
    
    
    
    
    
    (10,122
    )Issuance of common stock
    
    
    122,779Tax benefit resulting from exercise of stock options
    
    
    57,202Excess of market value over book value of ESOP shares released
    
    
    80,000NET CASH PROVIDED BY FINANCING ACTIVITIES
    
    
    63,732,599
    
    
    
    32,713,600NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS
    
    
    19,381,579
    
    
    
    (8,960,602
    )CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    13,833,857
    
    
    
    27,466,035CASH & CASH EQUIVALENTS AT END OF PERIOD
    
    $
    33,215,436
    
    
    $
    18,505,433
 See notes to unaudited consolidated financial statements. 6




---



##### Table of Contents



MIDSOUTH BANCORP, INC. AND SUBSIDIARIES 
   1.
    
    STATEMENT BY MANAGEMENT CONCERNING UNAUDITED
FINANCIAL INFORMATIONThe 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, 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 and nine month periods ended September 30, 2004 are not
necessarily indicative of the results to be expected for the entire year.MidSouth applies Accounting Practices Board (APB) Opinion No. 25 and related
interpretations in accounting for its stock options. Accordingly, no compensation cost
has been recognized. MidSouth has adopted the disclosure-only option under SFAS
No. 123. Had compensation costs for MidSouths stock options been determined
based on the fair value at the grant date, consistent with the method under SFAS No. 123,
MidSouths net income and earnings per share would have been as indicated below: Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,(in thousands)
    
    2004
    
    2003
    
    2004
    
    2003Net earnings available to
common stockholders
(in thousands):As reported
    
    $
    1,954
    
    
    $
    1,735
    
    
    $
    5,360
    
    
    $
    4,668Deduct total stock based
compensation determined
under fair value method
    
    
    20
    
    
    
    14
    
    
    
    53
    
    
    
    42Pro forma
    
    $
    1,934
    
    
    $
    1,721
    
    
    $
    5,307
    
    
    $
    4,626Basic earnings per share:As reported
    
    $
    0.61
    
    
    $
    0.55
    
    
    $
    1.68
    
    
    $
    1.47Pro forma
    
    $
    0.61
    
    
    $
    0.54
    
    
    $
    1.67
    
    
    $
    1.46Diluted earnings per share:As reported
    
    $
    0.59
    
    
    $
    0.52
    
    
    $
    1.61
    
    
    $
    1.41Pro forma
    
    $
    0.58
    
    
    $
    0.52
    
    
    $
    1.59
    
    
    $
    1.40
  2.
    
    ALLOWANCE FOR LOAN AND LOSSESAn analysis of the activity in the allowance for loan losses is as follows: Nine Months EndedSeptember 30,(in thousands)
    
    2004
    
    2003Balance at beginning of period
    
    $
    2,790
    
    
    $
    2,891Provision for loan losses
    
    
    670
    
    
    
    550Recoveries
    
    
    133
    
    
    
    190Loans charged off
    
    
    (644
    )
    
    
    (599
    )Balance at end of period
    
    $
    2,949
    
    
    $
    3,032
   7




---



##### Table of Contents



3.
    
    COMPREHENSIVE INCOMEComprehensive income includes net income and other comprehensive income (losses) which,
in the case of MidSouth, only includes unrealized gains and losses on securities available-for-sale.
Following is a summary of MidSouths comprehensive income for the three and nine month periods
ended September 30, 2004 and 2003. Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,(in thousands)
    
    2004
    
    2003
    
    2004
    
    2003Net income
    
    $
    1,954
    
    
    $
    1,735
    
    
    $
    5,360
    
    
    $
    4,668Other comprehensive income (loss)Unrealized gains (losses) on securities
available-for-sale, net of income taxes:Unrealized holding gains (losses)
arising during the period
    
    
    1,230
    
    
    
    (442
    )
    
    
    (1
    )
    
    
    (174
    )Less reclassification adjustment for
losses included in net income
    
    
    86
    
    
    
    7
    
    
    
    87
    
    
    
    65Total other comprehensive gain (loss)
income
    
    
    1,144
    
    
    
    (449
    )
    
    
    (88
    )
    
    
    (239
    )Total comprehensive income
    
    $
    3,098
    
    
    $
    1,286
    
    
    $
    5,272
    
    
    $
    4,429
  4.
    
    ACQUISITIONOn October 1, 2004, MidSouth completed a merger with, and acquired all of the outstanding common stock
of, Lamar Bancshares, Inc. in a transaction to be accounted under the purchase accounting method in accordance
with accounting principles generally accepted by the United States of America. MidSouth paid $10.8 million in
cash and issued 369,304 shares (based on a market value of MidSouth stock of $30.91 per share) of its
stock valued at $11.4 million. MidSouth also incurred approximately $171,000 in acquisition costs. In
connection with the merger, MidSouth issued $8 million of junior subordinated preferred stock on September 20,
2004 in order to fund a portion of the acquisition.The following table summarizes the estimated fair values, in thousands, of the assets acquired and liabilities
assumed on October 1, 2004:  Cash and cash equivalents
    
    $
    5,417Securities
    
    
    21,149Loans
    
    
    80,800Premises and equipment
    
    
    5,857Core deposit intangible
    
    
    2,250Goodwill
    
    
    7,945Other assets
    
    
    4,296Total assets acquired
    
    
    127,714Deposits
    
    
    96,731Other liabilities
    
    
    8,709Total liabilities assumed
    
    
    105,440Net assets acquired
    
    $
    22,274  MidSouth is in the process of obtaining third party valuations of the premises and equipment, core
deposit intangibles and certain other assets. Therefore, the purchase price and its allocation are
subject to adjustment. 8




---



##### Table of Contents



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 based on reasonable assumptions. A number of factors and
uncertainties could cause actual results to differ from the anticipated results
and expectations expressed in the discussion. These factors and uncertainties
include, but are not limited to:  changes in interest rates and market prices that could affect the net
interest margin, asset valuation, and expense levels;  changes in local economic and business conditions that could adversely
affect customers and their ability to repay borrowings under agreed upon terms
and/or adversely affect the value of the underlying collateral related to the
borrowings;  increased competition for deposits and loans which could affect rates and
terms;  changes in the levels of prepayments received on loans and investment
securities that adversely affect the yield and value of the earning assets;  a deviation in actual experience from the underlying assumptions used to
determine and establish the Allowance for Loan Losses (ALL);  changes in the availability of funds resulting from reduced liquidity or
increased costs;  the timing and impact of future acquisitions, the success or failure of
integrating operations, and the ability to capitalize on growth opportunities
upon entering new markets;  the ability to acquire, operate and maintain effective and efficient
operating systems;  increased asset levels and changes in the composition of assets which would
impact capital levels and regulatory capital ratios;  loss of critical personnel and the challenge of hiring qualified personnel
at reasonable compensation levels;  changes in government regulations applicable to financial holding companies
and banking;  and acts of terrorism , weather, or other events beyond MidSouths control. 9




---



##### Table of Contents



Recent Developments On October 1, 2004, MidSouth completed a merger with Lamar Bancshares of
Beaumont, Texas to merge the two holding companies. The Companys banks,
MidSouth Bank and Lamar Bank will continue to operate as separate subsidiaries
under MidSouth Bancorp, Inc. At closing, Lamar Bank had assets of
approximately $115 million and six banking offices serving southwest Texas.
Lafayette-based MidSouth Bank, with assets of approximately $506 million, will
continue to serve the Louisiana market. On October 14, 2004, MidSouth announced a five-for-four (25%) stock split on
its common stock to holders of record as of October 29, 2004 payable on
November 30, 2004. The Board of Directors also announced that it would
continue its quarterly dividend at $.06 per share and awarded an additional
$.06 Special Dividend to be paid on its common stock on January 4, 2005 to
holders of record as of December 15, 2004. This will result in a total of $.12
per share to be paid to shareholders on January 4, 2005. Overview Third quarter 2004 net income totaled $1,954,000, a 12.6% increase over the
$1,735,000 for the third quarter of 2003 and up 12% over second quarter 2004
net income of $1,745,000. Basic earnings per share were $.61 for the quarter
ended September 30, 2004, up from the $.55 per share for the third quarter of
2003, and the $.55 per share in the second quarter of 2004. Diluted earnings
per share were $.59 for the third quarter of 2004 compared to $.52 per share
for the third quarter of 2003 and $.52 per share for the second quarter of
2004. Earnings for the nine months ended September 30, 2004 were $5,360,000, which is
a $692,000 or 14.8% increase over the $4,668,000 in earnings for the nine
months ended September 30, 2003. Basic earnings per share were $1.68 for the
first nine months of 2004 versus $1.47 for the first nine months of 2003.
Diluted earnings per share were $1.61 and $1.41, respectively. Net income increased $219,000 in the third quarter of 2004 compared to the
third quarter of 2003, primarily due to increases in both net interest income
of $271,000 and non-interest income of $386,000, including $120,000 in gains on
sales of securities. These increases were partially offset by a $430,000
increase in non-interest expenses. The increased net interest income resulted
from a $546,000 or 9% increase in interest income, partially offset by a
$275,000 or 24% increase in interest expense on deposits. The improvement in
interest income resulted from a 15% increase in average earning assets for the
third quarter of 2004 compared to the third quarter of 2003. Interest expense
increased due to a $43.1 million or 15% increase in the average volume of
interest-bearing deposits, resulting primarily from the addition of
approximately $45 million in interest-bearing deposits added through a deposit
campaign from March 2004 through May 2004. Non-interest income, excluding
gains on sales of securities, increased primarily due to a $396,000 increase in
fees and service charges resulting from a higher volume of demand deposit
accounts. Non-interest expense increased in quarterly comparison primarily due
to a 10




---



##### Table of Contents



$244,000 increase in salaries and benefit costs. Gains on sales of securities totaled $130,000 for the third quarter of 2004, an
increase of $120,000 over the $10,000 in gains reported for the third quarter
of 2003. The increase resulted almost entirely from the sale of a
correspondent banks common stock back to the issuing bank in July of 2004.
MidSouth no longer utilized any services with the bank and therefore liquidated
its stock position. The $128,000 gain on sale of the common stock brought
year-to-date gains on sales of securities to $132,000 at September 30, 2004
compared to $98,000 at September 30, 2003. Sales of $6.5 million in
available-for-sale securities in 2003 netted MidSouth the $98,000 gain and
allowed improvement of the overall yield on the securities sold as they neared
maturity. Compared to the prior quarter ending June 30, 2004, third quarter 2004 net
income increased $209,000 or 12%. In comparing the two quarters, net interest
income increased $310,000 and non-interest income increased $323,000. The
increase in non-interest income resulted from the $128,000 gain on sale of
securities and a $215,000 increase in fees and service charges on deposit
accounts. An increase in the provision for loan losses of $60,000 partially
offset the increase in earnings over prior quarter and resulted from a
reduction in the Allowance for Loan Losses (ALL) at Financial Services of the
South (FSS), MidSouths finance company subsidiary during the second quarter
of 2004. The ALL was lowered at the finance company due to the minimal amount
of loans remaining for liquidation. Increased non-interest expenses in
salaries and benefits ($161,000), legal and professional fees ($50,000), and
marketing expenses ($63,000) partially offset the quarterly improvement in net
interest and non-interest income. For the nine months ended September 30, 2004 compared to 2003, net income
increased $692,000 or 15%. Net interest income improved $1,048,000 or 7% due
to increased interest income on a higher volume of earning assets partially
offset by an increase in interest expense on deposits. Increases of $779,000
in fees and service charges on deposit accounts and $120,000 in ATM/Debit card
income was partially offset by a $254,000 decrease in other non-interest income
categories, primarily Visa merchant income ($193,000) and mortgage loan
processing fees ($140,000). In the third quarter of 2003, MidSouth outsourced
its Visa merchant processing to First Data Corporation. The resulting
reduction in Visa merchant income is offset by a $179,000 decrease in Visa
merchant processing expenses that resulted from the processing change and is
reflected in the change in other non-interest expense in year-to-date
comparison. Salaries and employee benefits increased $456,000 and occupancy
expenses increased $155,000, offsetting the decrease in Visa merchant
processing expenses. Highlights for the Quarter Ended September 30, 2004  Return on average equity was 22.46% for the third quarter of 2004 compared
to 21.90% for the third quarter of 2003. The leverage capital ratio was 9.66%
at September 30, 2004 compared to 8.51% at September 30, 2003 due to the
issuance of $8 million in additional junior subordinated debentures in
September 2004.  Net income for 2004 is up 12.6% in quarterly comparison and 14.8% in
year-to-date comparison over 2003 net income. 11




---



##### Table of Contents



 Total loans grew $47.2 million or 19%, from $246.9 million at September 30,
2003 to $294.1 million at September 30, 2004, primarily in commercial loans.  Nonperforming assets, including loans 90 days or more past due, as a
percentage of total assets decreased from .34% at September 30, 2003 to .17% at
September 30, 2004. Year-to-date net charge-offs to total loans remained
constant at .17% for both periods.  Total consolidated assets increased $82.4 million or 19.6%, from $419.9
million at the end of the third quarter of 2003 to $502.2 million at the end of
the third quarter of 2004. Total deposits increased $69.7 million or 18.6%,
from $374.1 million at September 30, 2003 to $443.8 million at September 30,
2004. The increase resulted primarily from approximately $50 million in
deposits resulting from a deposit growth campaign that began in March 2004.
The campaign introduced MidSouths new Platinum Money Market account for both
retail and commercial customers. Of the $50 million in deposits resulting from
the campaign, approximately $34 million was deposited into the Platinum Money
Market and other savings accounts at an average rate of 2.05%.  MidSouth continued to work on expansion plans for the Louisiana market during
the third quarter of 2004, with the new facility on Moss Street completed and
property purchased to build a full service facility in Houma. Additionally,
MidSouth announced that it will also open a new location on Johnston Street in
the heart of Lafayette and will construct an office in the Town Square of the
traditional neighborhood development of River Ranch, bringing the total number
of offices in its home base to nine. In the Texas market, MidSouth plans to
build new Lamar Bank offices in Conroe and College Station, Texas, and plans to
continue expansion in the north Houston and Woodlands area. 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
following this discussion of net interest income analyze the changes in
taxable-equivalent net interest income for the two quarters and nine months
ended September 30, 2004 and 2003. Average earning assets increased 15%, or $59.8 million from $393.9 million for
the three months ended September 30, 2003 to $453.7 million for the three
months ended September 30, 2004, funded by deposits acquired through a deposit
campaign. The mix of average earning assets remained relatively constant in
quarterly comparison. Loans represented 62% of average earning assets in the
third quarter of 2003 compared to 63% in the third quarter of 2004. Average
loans increased $39.8 million, from $245.0 million in the third quarter of 2003
to $284.8 million in the third quarter of 2004. The average yield on loans
decreased 78 basis points in quarterly comparison, from 8.37% to 7.59% at
September 30, 2004. Loan yields declined due to lower offering rates and rate
adjustments on maturing loans and other credits with scheduled repricing. 12




---



##### Table of Contents



Approximately 45% of MidSouths loan portfolio earns a variable rate, with 29%
adjusting with changes in the prime rate and another 16% adjusting on a
scheduled repricing date. Approximately 55% 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. The impact of the decline in yield over the twelve
months ended September 30, 2004 was offset by the $39.8 million average volume
increase in the loan portfolio, resulting in a $269,267 increase in interest
income on loans in quarterly comparison. Average investment securities increased $18.4 million, from $136.4 million at
September 30, 2003 to $154.8 million at September 30, 2004. The investment
portfolio represented 37% of average earning assets as of September 30, 2004,
down slightly from 38% in 2003. The average taxable-equivalent yield on
investments increased 48 basis points, from 3.62% in the third quarter of 2003
to 4.10% in the third quarter of 2004. Yields were lower in the third quarter
2003 primarily due to short-term, lower yielding investment securities
purchased during the third quarter of 2003 with funds received through a public
fund deposit contract. Federal funds sold volume increased $1.6 million and
yields increased 47 basis points, from .86% to 1.33%, primarily due to a 50
basis points increase in the federal funds rate during the third quarter of
2004. Increased volume combined with higher yields resulted in an increase in
taxable-equivalent interest income on securities and federal funds sold of
$360,875 in quarterly comparison. The average volume of interest-bearing deposits increased $43.1 million and
resulted in a $267,307 increase in interest expense for the quarter ended
September 30, 2004 compared to the quarter ended September 30, 2003. The
average rate paid on all interest-bearing deposits increased 15 basis points,
from 1.31% at September 30, 2003 to 1.46% at September 30, 2004. The increase
resulted primarily from growth in the Platinum Money Market product introduced
during the deposit campaign in March 2004 with an introductory rate that
averaged 2.05%. The average yield on interest-bearing checking and money
market accounts, exclusive of certificates of deposit, increased 44 basis
points, from .78% at September 30, 2003 to 1.22% at September 30, 2004.
Average noninterest-bearing deposits as a percentage of average total deposits
remained constant at 23% for both quarters ending September 30, 2004 and 2003. The net taxable-equivalent yield on average earning assets decreased 38 basis
points, from 5.32% for the quarter ended September 30, 2003 to 4.94% for the
quarter ended September 30, 2004. A review of the changes in volume and yields
of average earning asset and interest-bearing liabilities between the two nine
month periods ended September 30, 2003 and 2004 reflected results similar to
the quarterly comparison. The net taxable-equivalent yield on average earning
assets for the nine months ended September 30, 2004 decreased 48 basis points,
from 5.48% at September 30, 2003 to 5.00% at September 30, 2004. 13




---



##### Table of Contents



Consolidated Average Balances, Interest and RatesTaxable-equivalent basis (2)(in thousands) Three Months Ended
    
    Three Months EndedSeptember 30, 2004
    
    September 30, 2003Average
    
    
    
    
    
    Average
    
    Average
    
    
    
    
    
    AverageVolume
    
    Interest
    
    Yield/Rate
    
    Volume
    
    Interest
    
    Yield/RateASSETSInvestment Securities
    
    
    (1
    )Taxable
    
    
    
    
    
    $
    82,714
    
    
    $
    701
    
    
    
    3.39
    %
    
    $
    79,957
    
    
    $
    555
    
    
    
    2.75
    %Tax Exempt
    
    
    (2
    )
    
    
    72,134
    
    
    
    886
    
    
    
    4.92
    %
    
    
    56,496
    
    
    
    692
    
    
    
    4.86
    %Total Investments
    
    
    
    
    
    
    154,848
    
    
    
    1,587
    
    
    
    4.10
    %
    
    
    136,453
    
    
    
    1,247
    
    
    
    3.62
    %Federal Funds Sold and SecuritiesPurchased Under Agreements to Resell
    
    
    
    
    
    
    14,071
    
    
    
    47
    
    
    
    1.33
    %
    
    
    12,478
    
    
    
    27
    
    
    
    0.86
    %Loans
    
    
    (3
    )Commercial and Real Estate
    
    
    
    
    
    
    239,762
    
    
    
    4,305
    
    
    
    7.14
    %
    
    
    209,629
    
    
    
    3,986
    
    
    
    7.54
    %Installment
    
    
    
    
    
    
    45,077
    
    
    
    1,132
    
    
    
    9.96
    %
    
    
    35,359
    
    
    
    1,181
    
    
    
    13.25
    %Total Loans
    
    
    
    
    
    
    284,839
    
    
    
    5,437
    
    
    
    7.59
    %
    
    
    244,988
    
    
    
    5,167
    
    
    
    8.37
    %Total Earning Assets
    
    
    
    
    
    
    453,758
    
    
    
    7,071
    
    
    
    6.20
    %
    
    
    393,919
    
    
    
    6,441
    
    
    
    6.49
    %Allowance for Loan Losses
    
    
    
    
    
    
    (2,847
    )
    
    
    
    
    
    
    
    
    
    
    (2,879
    )Nonearning Assets
    
    
    
    
    
    
    32,827
    
    
    
    
    
    
    
    
    
    
    
    34,995Total Assets
    
    
    
    
    
    $
    483,738
    
    
    
    
    
    
    
    
    
    
    $
    426,035LIABILITIES AND STOCKHOLDERS EQUITYNOW, Money Market, and Savings
    
    
    
    
    
    $
    231,593
    
    
    $
    710
    
    
    
    1.22
    %
    
    $
    187,736
    
    
    $
    369
    
    
    
    0.78
    %Certificates of Deposits
    
    
    
    
    
    
    103,494
    
    
    
    520
    
    
    
    2.00
    %
    
    
    104,200
    
    
    
    594
    
    
    
    2.26
    %Total Interest Bearing Deposits
    
    
    
    
    
    
    335,087
    
    
    
    1,230
    
    
    
    1.46
    %
    
    
    291,936
    
    
    
    963
    
    
    
    1.31
    %Federal Funds Purchased, Securities SoldUnder Agreements to Repurchase
    
    
    
    
    
    
    4,934
    
    
    
    17
    
    
    
    1.37
    %
    
    
    6,019
    
    
    
    15
    
    
    
    1.05
    %Junior Subordinated Debentures
    
    
    
    
    
    
    9,000
    
    
    
    184
    
    
    
    8.13
    %
    
    
    7,000
    
    
    
    178
    
    
    
    9.66
    %Total Interest Bearing Liabilities
    
    
    
    
    
    
    349,021
    
    
    
    1,431
    
    
    
    1.63
    %
    
    
    304,955
    
    
    
    1,156
    
    
    
    1.50
    %Demand Deposits
    
    
    
    
    
    
    98,890
    
    
    
    
    
    
    
    
    
    
    
    88,389Other Liabilities
    
    
    
    
    
    
    1,214
    
    
    
    
    
    
    
    
    
    
    
    1,260Stockholders Equity
    
    
    
    
    
    
    34,613
    
    
    
    
    
    
    
    
    
    
    
    31,431Total Liabilites and Stockholders Equity
    
    
    
    
    
    $
    483,738
    
    
    
    
    
    
    
    
    
    
    $
    426,035NET TAXABLE-EQUIVALENT
INTEREST INCOME AND SPREAD
    
    
    
    
    
    
    
    
    
    $
    5,640
    
    
    
    4.57
    %
    
    
    
    
    
    $
    5,285
    
    
    
    4.99
    %NET TAXABLE-EQUIVALENT YIELD ON EARNING ASSETS
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.94
    %
    
    
    
    
    
    
    
    
    
    
    5.32
    %
  (1)
    
    Securities classified as available-for-sale are included in average balances
and interest income figures reflect interest earned on such securities.(2)
    
    Interest income of $256,405 for 2004 and $172,482 for 2003 is added to interest
earned on tax-exempt obligations to reflect tax equivalent yields using a
34% tax rate.(3)
    
    Interest income includes loan fees of $532,840 for 2004 and $567,778
for 2003. Nonaccrual loans are included in average balances
and income on such loans is recognized on a cash basis. 14




---



##### Table of Contents



Changes in Taxable-Equivalent Net Interest Income(in thousands) Three Months EndedSept 30, 2004 compared to Sept 30, 2003ChangeTotalIncrease
    
    Attributable to(Decrease)
    
    Volume
    
    RatesTaxable-equivalent interest earned on:Investment SecuritiesTaxable
    
    $
    19
    
    
    $
    127
    
    
    $
    146Tax Exempt
    
    
    186
    
    
    
    8
    
    
    
    194Federal Funds Sold and SecuritiesPurchased Under Agreement to Resell
    
    
    4
    
    
    
    16
    
    
    
    20Loans, including fees
    
    
    630
    
    
    
    (360
    )
    
    
    270TOTAL
    
    
    839
    
    
    
    (209
    )
    
    
    630Interest Paid On:Interest Bearing Deposits
    
    
    150
    
    
    
    117
    
    
    
    267Federal Funds Purchased and SecuritiesSold Under Agreement to Repurchase
    
    
    (2
    )
    
    
    4
    
    
    
    2Junior Subordinated Debentures
    
    
    21
    
    
    
    (15
    )
    
    
    6TOTAL
    
    
    169
    
    
    
    106
    
    
    
    275Taxable-equivalent net interest income
    
    $
    670
    
    
    ($
    315
    )
    
    $
    355
 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.
 15




---



##### Table of Contents



Consolidated Average Balances, Interest and RatesTaxable-equivalent basis (2)(in thousands) Nine Months Ended
    
    Nine Months EndedSeptember 30, 2004
    
    September 30, 2003Average
    
    
    
    
    
    Average
    
    Average
    
    
    
    
    
    AverageVolume
    
    Interest
    
    Yield/Rate
    
    Volume
    
    Interest
    
    Yield/RateASSETSInvestment Securities
    
    
    (1
    )Taxable
    
    
    
    
    
    $
    82,442
    
    
    $
    2,007
    
    
    
    3.25
    %
    
    $
    70,914
    
    
    $
    1,695
    
    
    
    3.20
    %Tax Exempt
    
    
    (2
    )
    
    
    65,085
    
    
    
    2,454
    
    
    
    5.03
    %
    
    
    50,181
    
    
    
    2,092
    
    
    
    5.58
    %Total Investments
    
    
    
    
    
    
    147,527
    
    
    
    4,461
    
    
    
    4.03
    %
    
    
    121,095
    
    
    
    3,787
    
    
    
    4.18
    %Federal Funds Sold and SecuritiesPurchased Under Agreements to Resell
    
    
    
    
    
    
    12,577
    
    
    
    99
    
    
    
    1.05
    %
    
    
    7,900
    
    
    
    58
    
    
    
    0.98
    %Loans
    
    
    (3
    )Commercial and Real Estate
    
    
    
    
    
    
    228,641
    
    
    
    12,173
    
    
    
    7.11
    %
    
    
    194,782
    
    
    
    10,605
    
    
    
    7.28
    %Installment
    
    
    
    
    
    
    43,960
    
    
    
    3,275
    
    
    
    9.95
    %
    
    
    43,651
    
    
    
    4,202
    
    
    
    12.87
    %Total Loans
    
    
    
    
    
    
    272,601
    
    
    
    15,448
    
    
    
    7.57
    %
    
    
    238,433
    
    
    
    14,807
    
    
    
    8.30
    %Total Earning Assets
    
    
    
    
    
    
    432,705
    
    
    
    20,008
    
    
    
    6.18
    %
    
    
    367,428
    
    
    
    18,652
    
    
    
    6.79
    %Allowance for Loan Losses
    
    
    
    
    
    
    (2,817
    )
    
    
    
    
    
    
    
    
    
    
    (2,885
    )Nonearning Assets
    
    
    
    
    
    
    33,927
    
    
    
    
    
    
    
    
    
    
    
    34,982Total Assets
    
    
    
    
    
    $
    463,815
    
    
    
    
    
    
    
    
    
    
    $
    399,525LIABILITIES AND STOCKHOLDERS EQUITYNOW, Money Market, and Savings
    
    
    
    
    
    $
    212,472
    
    
    $
    1,626
    
    
    
    1.02
    %
    
    $
    161,650
    
    
    $
    1,015
    
    
    
    0.84
    %Certificates of Deposits
    
    
    
    
    
    
    104,542
    
    
    
    1,577
    
    
    
    2.02
    %
    
    
    106,178
    
    
    
    1,983
    
    
    
    2.50
    %Total Interest Bearing Deposits
    
    
    
    
    
    
    317,014
    
    
    
    3,203
    
    
    
    1.35
    %
    
    
    267,828
    
    
    
    2,998
    
    
    
    1.50
    %Federal Funds Purchased, Securities SoldUnder Agreements to Repurchase
    
    
    
    
    
    
    5,480
    
    
    
    49
    
    
    
    1.20
    %
    
    
    5,045
    
    
    
    46
    
    
    
    1.21
    %Federal Home Loan Bank Advances
    
    
    
    
    
    
    1,314
    
    
    
    11
    
    
    
    1.09
    %Notes Payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    423
    
    
    
    17
    
    
    
    5.37
    %Junior Subordinated Debentures
    
    
    
    
    
    
    7,800
    
    
    
    541
    
    
    
    9.26
    %
    
    
    7,000
    
    
    
    530
    
    
    
    10.20
    %Total Interest Bearing Liabilities
    
    
    
    
    
    
    331,608
    
    
    
    3,804
    
    
    
    1.53
    %
    
    
    280,296
    
    
    
    3,591
    
    
    
    1.71
    %Demand Deposits
    
    
    
    
    
    
    96,475
    
    
    
    
    
    
    
    
    
    
    
    88,310Other Liabilities
    
    
    
    
    
    
    1,181
    
    
    
    
    
    
    
    
    
    
    
    1,194Stockholders Equity
    
    
    
    
    
    
    34,551
    
    
    
    
    
    
    
    
    
    
    
    29,725Total Liabilites and Stockholders Equity
    
    
    
    
    
    $
    463,815
    
    
    
    
    
    
    
    
    
    
    $
    399,525NET TAXABLE-EQUIVALENT
INTEREST INCOME AND SPREAD
    
    
    
    
    
    
    
    
    
    $
    16,204
    
    
    
    4.64
    %
    
    
    
    
    
    $
    15,061
    
    
    
    5.08
    %NET TAXABLE-EQUIVALENT YIELD ON EARNING ASSETS
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.00
    %
    
    
    
    
    
    
    
    
    
    
    5.48
    %
  (1)
    
    Securities classified as available-for-sale are included in average balances
and interest income figures reflect interest earned on such securities.(2)
    
    Interest income of $712,336 for 2004 and $617,614 for 2003 is added to interest
earned on tax-exempt obligations to reflect tax equivalent yields using a
34% tax rate.(3)
    
    Interest income includes loan fees of $1,466,509 for 2004 and $1,444,424
for 2003. Nonaccrual loans are included in average balances
and income on such loans is recognized on a cash basis. 16




---



##### Table of Contents



Changes in Taxable-Equivalent Net Interest Income(in thousands) Nine Months EndedSept 30, 2004 compared to Sept 30, 2003ChangeTotalIncrease
    
    Attributable to(Decrease)
    
    Volume
    
    RatesTaxable-equivalent interest earned on:Investment SecuritiesTaxable
    
    $
    277
    
    
    $
    35
    
    
    $
    312Tax Exempt
    
    
    529
    
    
    
    (167
    )
    
    
    362Federal Funds Sold and SecuritiesPurchased Under Agreement to Resell
    
    
    36
    
    
    
    5
    
    
    
    41Loans, including fees
    
    
    1,567
    
    
    
    (926
    )
    
    
    641TOTAL
    
    
    2,409
    
    
    
    (1,053
    )
    
    
    1,356Interest Paid On:Interest Bearing Deposits
    
    
    421
    
    
    
    (216
    )
    
    
    205Federal Funds Purchased and SecuritiesSold Under Agreement to Repurchase
    
    
    3
    
    
    
    
    
    
    
    3Federal Home Loan Bank Advances
    
    
    11
    
    
    
    
    
    
    
    11Notes Payable
    
    
    (17
    )
    
    
    
    
    
    
    (17
    )Junior Subordinated Debentures
    
    
    38
    
    
    
    (27
    )
    
    
    11TOTAL
    
    
    456
    
    
    
    (243
    )
    
    
    213Taxable-equivalent net interest income
    
    $
    1,953
    
    
    ($
    810
    )
    
    $
    1,143
 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.
 17




---



##### Table of Contents



Non-interest Income MidSouths primary source of non-interest income, service charges on deposit
accounts, increased $395,999 or 29% for the three months ended and $778,936 or
20% for the nine months ended September 30, 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 and a
decrease in fees netted against NSF income which were paid to a software
provider. 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 from charges and fees decreased $129,903 in quarterly
comparison and $198,108 in year-to-date comparison, primarily due to decreases
of $66,024 for the quarter and $192,656 for the year in Visa merchant income.
In the third quarter of 2003, MidSouth outsourced its Visa merchant processing
to First Data Corporation. The resulting reduction in Visa merchant income was
almost entirely offset by decreases of $62,496 for the quarter and $179,357 for
the year in Visa merchant processing expenses that resulted from the processing
change. Further comparison reflected quarterly and year-to-date decreases in
fee income from third party mortgage origination fees and third party
investment advisory services that were partially offset by increases in ATM and
debit card income. Fee income from third party mortgage originations decreased
due to a lower volume of refinancings. In 2003, the third party investment
advisory service had offered a new investment product that stimulated sales and
increased income for the three and nine months ended September 30, 2003. Gains on sales of securities totaled $130,000 for the third quarter of 2004, an
increase of $120,000 over the $10,000 in gains reported for the third quarter
of 2003. The increase resulted almost entirely from the sale of a
correspondent banks common stock back to the issuing bank in July of 2004.
MidSouth no longer utilized any services with the bank and therefore liquidated
its stock position. The $128,000 gain on sale of the common stock brought
year-to-date gains on sales of securities to $132,000 at September 30, 2004
compared to $98,000 at September 30, 2003. Sales of $6.5 million in
available-for-sale securities in 2003 netted MidSouth the $98,000 gain and
allowed improvement of the overall yield on the securities sold as they neared
maturity. Non-interest Expense Non-interest expense increased $430,243 or 10% and $646,697 or 5% for the three
months and nine months ended September 30, 2004 compared to the three and nine
months ended September 30, 2003, respectively. Quarterly and year-to-date
increases occurred primarily in the categories of salaries and employee
benefits, occupancy expenses, marketing expenses and legal fees. Salaries increased primarily due to an increase in the number of full-time
equivalent (FTE) employees by 15, from 218 in September 2003 to 233 in
September 2004. New positions included additional staff in the call center and
retail operations to support MidSouths retail stores and enhance customer
service. Occupancy expenses increased primarily due to increases in lease expense, ad valorem taxes and bank auto expenses. Costs associated
with a deposit incentive contest held during the second quarter of 2004
increased marketing expenses. 18




---



##### Table of Contents



Analysis of Statement of Condition MidSouth ended the third quarter of 2004 with consolidated assets of $502.2
million, an increase of $69.5 million or 16% from the $432.7 million reported
for December 31, 2003. Deposits increased $69.3 million or 19%, from $374.4
million at December 31, 2003 to $443.7 million at September 30, 2004. During
the months of March, April and May of 2004, MidSouth held a deposit campaign
that resulted in approximately $50 million in new deposits. The campaign
introduced MidSouths new Platinum Money Market account for both retail and
commercial customers, paying an average rate of 2.05%. Significant commercial
deposits received during the third quarter of 2003 also contributed to the
increase in total deposits. Net loans increased $32.0 million from $259.1 million at December 31, 2003 to
$291.1 at September 30, 2004. The majority of the $32.0 million growth in net
loans was funded during the second and third quarters of 2004 and was primarily
commercial and real estate credits. Securities available-for-sale increased
$16.9 million in the nine months ended September 30, 2004, as purchases of
$47.5 million in securities available-for-sale were partially offset by
maturities and calls totaling $29.6 million. Net unrealized gains in the
securities available-for-sale portfolio, net of unrealized losses and tax
effect, were $803,381 at September 30, 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. MidSouth had no overnight or short-term borrowings from the Federal Home Loan
Bank (FHLB) at September 30, 2004. Overnight and short-term borrowings from
the FHLB totaling $12.5 million at December 31, 2003 were paid out during the
first quarter of 2004. Liquidity Liquidity is the availability of funds to meet contractual obligations as they
become due and to fund operations. The Bank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 borrowing 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 19




---



##### Table of Contents



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. An $8
million issuance of junior subordinated debentures was completed on September

20, 2004, the proceeds of which were partially used to fund the Lamar
Bancshares merger. The parent company previously issued $7,000,000 in junior
subordinated debentures in February 2001. Interest-bearing balances remaining
from the proceeds of 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 9.66% at September 30, 2004 compared to 8.85% at
December 31, 2003, primarily due to the additional trust preferred securities
that qualified as Tier 1 capital. Accordingly, risk-weighted capital ratios
also increased, resulting in Tier 1 capital to risk-weighted assets of 14.08%
and total capital to risk-weighted assets of 15.91% at the end of the third
quarter of 2004. At year-end 2003, Tier 1 capital to risk-weighted assets was
12.82% and total capital to risk-weighted assets was 13.78%. 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. During the nine months ended September 30, 2004, MidSouth
repurchased 20,182 shares of its common stock at a total cost of $660,984. 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 September 30, 2004, MidSouth had no
industry segment concentrations that aggregated more than 10% of the loan
portfolio. 20




---



##### Table of Contents



Nonperforming Assets The following table summarizes MidSouths nonperforming assets for the quarters
ending September 30, 2004 and 2003 and June 30, 2004 and for the year ended
December 31, 2003. Period Ended
    
    
    
    
    
    Period EndedSept. 30,
    
    %
    
    Jun. 30,
    
    Dec. 31,2004
    
    2003
    
    Chg
    
    2004
    
    2003Nonaccrual loans
    
    $
    482
    
    
    $
    704
    
    
    
    -31.5
    %
    
    $
    1,003
    
    
    $
    829Loans past due 90
days and over
    
    
    283
    
    
    
    489
    
    
    
    -42.1
    %
    
    
    662
    
    
    
    503Total nonperforming loans
    
    
    765
    
    
    
    1,193
    
    
    
    -35.9
    %
    
    
    1,665
    
    
    
    1,332Other real estate owned
    
    
    86
    
    
    
    233
    
    
    
    -63.1
    %
    
    
    77
    
    
    
    218Total nonperforming assets
    
    $
    851
    
    
    $
    1,426
    
    
    
    -40.3
    %
    
    $
    1,742
    
    
    $
    1,550Nonperforming assets to
total assets
    
    
    0.17
    %
    
    
    0.34
    %
    
    
    -50.2
    %
    
    
    0.36
    %
    
    
    0.36
    %Nonperforming assets to
total loans + OREO + other
foreclosed assets
    
    
    0.29
    %
    
    
    0.58
    %
    
    
    -50.1
    %
    
    
    0.62
    %
    
    
    0.59
    %ALL to nonperforming assets
    
    
    346.53
    %
    
    
    212.54
    %
    
    
    63.0
    %
    
    
    170.72
    %
    
    
    180.00
    %ALL to nonperforming loans
    
    
    385.49
    %
    
    
    254.05
    %
    
    
    51.7
    %
    
    
    178.62
    %
    
    
    209.46
    %ALL to total loans
    
    
    1.00
    %
    
    
    1.23
    %
    
    
    -18.5
    %
    
    
    1.06
    %
    
    
    1.07
    %Year-to-date charge-offs
    
    $
    644
    
    
    $
    599
    
    
    
    7.5
    %
    
    $
    336
    
    
    $
    904Year-to-date recoveries
    
    
    133
    
    
    
    190
    
    
    
    -30.0
    %
    
    
    100
    
    
    
    253Year-to-date net charge-offs
    
    $
    511
    
    
    $
    409
    
    
    
    24.9
    %
    
    $
    236
    
    
    $
    651Net YTD charge-offs to total loans
    
    
    0.17
    %
    
    
    0.17
    %
    
    
    2.2
    %
    
    
    0.08
    %
    
    
    0.25
    %
 Nonperforming assets, including loans past due 90 days and over, totaled
$851,000 as of September 30, 2004, a decrease of $575,000 from the $1,426,000
reported for September 30, 2003, a decrease of $891,000 from June 30, 2004, and
a decrease of $699,000 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 $2,948,504 in
the allowance as of September 30, 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. 21




---



##### Table of Contents



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. Reference is made to Managements Discussion and
Analysis or Plan of Operation included in MidSouths Annual Report on Form
10KSB for the year ended December 31, 2003 (Annual Report) for a more
detailed discussion of its policy with respect to the allowance for loan
losses. Other accounting policies integral to understanding the financial
results reported are described in detail in Note 1 to the consolidated
financial statements included in the Annual Report. 
 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 the end of the period covered by
this report. 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. 22




---



##### Table of Contents



Part II. Other Information 
 Item 1. Legal Proceedings 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 3rd Quarter 2004
Treasury Stock Purchases Shares
    
    AveragePurchased
    
    PriceJuly-04
    
    
    7,594
    
    
    $
    34.75August-04
    
    noneSeptember-04
    
    none
 Total Treasury Shares at September 30, 2004:
    
    
    25,903Total shares remaining to be purchased:
    
    
    135,043
 
 Item 3. Defaults Upon Senior Securities None 
 Item 4. Submission of Matters to a Vote of Security Holders None 
 Item 5. Other Information None 
 Item 6. Exhibits and Reports on Form 8-K  (a)
    
    Exhibits Exihibit Number
    
    Document Description2.1
    
    Definitive Agreement by and between MidSouth Bancorp, Inc. and Lamar
Bancshares, Inc. dated May 27, 2004 is included as Exhibit 2.1 to MidSouth Quarterly Report on Form 10-Q for
the quarter ended September 30, 2004 and is incorporated herein by reference.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.
 23




---



##### Table of Contents



Exihibit Number
    
    Document Description3.2
    
    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, and is incorporated herein by reference.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.10.3
    
    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.
 24




---



##### Table of Contents



Exihibit Number
    
    Document Description11
    
    Computation of earnings per share31.1
    
    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 200232.2
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  (b)
    
    Reports Filed on Form 8-KA press release regarding MidSouths earnings for the quarter ended June
30, 2004 was attached as Exhibit 99.1 to the Form 8-K filed on July 28,
2004.A press release regarding the finalization of a merger between MidSouth
and Lamar Bancshares, Inc. was attached as Exhibit 99.1 to the Form 8-K
filed on October 7, 2004. 25




---



##### Table of Contents



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, 2004/s/ C. R. CloutierC. R. Cloutier, President /CEO/s/ Karen L. HailKaren L. Hail, Senior Executive Vice President/CFO/s/ Teri S. StellyTeri S. Stelly, Senior Vice President & Controller
 26