MidSouth Bancorp, Inc. Reports First Quarter 2017 Results and Declares Quarterly Dividends

LAFAYETTE, La., April 27, 2017 /PRNewswire/ -- MidSouth Bancorp, Inc. ("MidSouth") (NYSE:MSL) today reported quarterly net earnings available to common shareholders of $1.7 million for the first quarter of 2017, compared to net earnings available to common shareholders of $1.9 million reported for the first quarter of 2016 and $1.4 million in net earnings available to common shareholders for the fourth quarter of 2016.  Diluted earnings for the first quarter of 2017 were $0.15 per common share, compared to $0.17 per common share reported for the first quarter of 2016 and $0.12 per common share reported for the fourth quarter of 2016.

Energy Lending Update

MidSouth Bank defines an energy loan as any loan where the borrower's ability to repay is disproportionately impacted by a prolonged downturn in energy prices.  Under this definition, the Bank includes direct Commercial and Industrial (C&I) loans to energy borrowers, as well as Commercial Real Estate (CRE) loans, Residential Real Estate loans and loans to energy-related borrowers where the loan's primary collateral is cash and marketable securities.

Other comments on the Bank's energy lending:

• Total energy loans, as defined above, decreased $5.6 million during 1Q17 to $231.8 million, or 18.2% of total loans, from 18.5% at December 31, 2016.
• Direct C&I energy loans were $193.1 million or 15.2% of total loans and had a weighted average maturity of 3.2 years at March 31, 2017.
• Energy-related CRE and residential real estate loans were $38.3 million or 3.0% of total loans at March 31, 2017.
• Total criticized energy-related loans decreased $7.7 million, or 6.5%, during 1Q17 to $111.5 million and represented 48.1% of energy loans at March 31, 2017, versus 50.2% at December 31, 2016.
• Seven energy loan relationships had rating changes during the quarter.
• One loan relationship totaling $108,000 was downgraded to Special Mention
• Five loan relationships totaling $23.4 million were downgraded to Substandard
• One loan relationship totaling $438,000 was upgraded to Pass
• Three energy-related charge-offs totaled $657,000.
• Cycle to date net charge-offs totaled $4.1 million, or 1.56% of December 31, 2014 energy loans, which was when the effects of declining oil prices began to surface.
• Two energy-related impairments totaling $177,000 were identified during 1Q17 and one impairment increase of $272,000 on an impaired loan identified prior to 1Q17.
• The energy reserve as a percentage of total energy loans, as defined, was 5.5% at March 31, 2017. The reserve attributable to C&I energy loans was approximately 6.5%. The reserve on all other energy loans was 1.0%.
• The Bank has two Shared National Credits (SNCs) totaling $14.2 million in the energy portfolio at March 31, 2017 and both are rated as Substandard.

More information on our energy loan portfolio can be found on our website at MidSouthBank.com under Investor Relations/Presentations.

Balance Sheet

Consolidated assets remained constant at $1.9 billion as of March 31, 2017 and 2016 and December 31, 2016.  Our stable core deposit base, which excludes time deposits, totaled $1.4 billion at March 31, 2017 and December 31, 2016 and accounted for 90.4% and 90.0% of deposits at March 31, 2017 and December 31, 2016, respectively.  Net loans totaled $1.247 billion at March 31, 2017 and 2016, compared to $1.260 billion at December 31, 2016.

MidSouth's Tier 1 leverage capital ratio was 10.27% at March 31, 2017, compared to 10.11% at December 31, 2016.  Tier 1 risk-based capital and total risk-based capital ratios were 13.14% and 14.40% at March 31, 2017, respectively, compared to 13.02% and 14.28% at December 31, 2016, respectively.  Tier 1 common equity to total risk-weighted assets at March 31, 2017 was 8.91%, compared to 8.81% at December 31, 2016.  Tangible common equity totaled $128.4 million at March 31, 2017, compared to $126.5 million at December 31, 2016.  Tangible book value per share at March 31, 2017 was $11.28 versus $11.13 at December 31, 2016.

Asset Quality

Nonperforming assets totaled $58.9 million at March 31, 2017, a decrease of $6.1 million compared to $65.0 million reported at December 31, 2016.  The decrease is primarily attributable to the payoff of four relationships during the quarter that were on non-accrual at December 31, 2016 and totaled $9.6 million.  Allowance coverage for nonperforming loans increased to 42.96% at March 31, 2017, compared to 38.78% at December 31, 2016.  The ALLL/total loans ratio was 1.93% at March 31, 2017 and 1.90% at December 31, 2016.  Including valuation accounting adjustments on acquired loans, the total valuation accounting adjustment plus ALLL was 2.08% of loans at March 31, 2017.  The ratio of annualized net charge-offs to total loans increased to 0.83% for the three months ended March 31, 2017 compared to 0.46% for the three months ended December 31, 2016, with $1.7 million, or 67.4% of first quarter net charge-offs attributable to loans reserved for in previous quarters.

Total nonperforming assets to total loans plus ORE and other assets repossessed was 4.62% at March 31, 2017 compared to 5.06% at December 31, 2016.  Loans classified as troubled debt restructurings, accruing ("TDRs, accruing") increased to $2.0 million at March 31, 2017 compared to $152,000 at December 31, 2016.  Classified assets, including ORE, increased $14.2 million, or 10.6%, to $148.4 million at March 31, 2017 compared to $134.2 million at December 31, 2016.  The increase in classified assets during the quarter ended March 31, 2017 is primarily due to the downgrade of two energy-related credits totaling $22.2 million.  These increases to classified assets were partially offset by the payoff/paydown of $6.2 million of energy-related classified relationships during the first quarter as well as the payoff of $4.7 million of classified relationships not related to energy.

First Quarter 2017 vs. Fourth Quarter 2016 Earnings Comparison

In sequential-quarter comparison, net earnings available to common shareholders increased $293,000, from $1.4 million for the three months ended December 31, 2016 to $1.7 million for the three months ended March 31, 2017.  Net interest income decreased $169,000 in sequential-quarter comparison.  Noninterest income decreased $27,000 in sequential-quarter comparison.

Noninterest expense decreased $406,000 in sequential-quarter comparison and consisted primarily of decreases of $107,000 in occupancy expense, $108,000 in ATM and debit card expense, $135,000 in legal and professional fees and $107,000 in corporate development.  These decreased costs were partially offset by a $121,000 increase in data processing costs.  A reclass of certain hosted services subscriptions from corporate development into data processing at the beginning of 2017 caused the fluctuations in those two expense categories.  The provision for loan losses increased $200,000 in sequential-quarter comparison.  Income tax expense decreased $282,000.

Dividends on the Series B Preferred Stock issued to the Treasury as a result of our participation in the Small Business Lending Fund ("SBLF") totaled $720,000 for the first quarter of 2017 based on a dividend rate of 9%, unchanged from $720,000 for the fourth quarter of 2016.  Dividends on the Series C Preferred Stock issued with the December 28, 2012 acquisition of PSB Financial Corporation ("PSB") totaled $91,000 for the three months ended March 31, 2017 and $92,000 for the three months ended December 31, 2016.

Fully taxable-equivalent ("FTE") net interest income decreased $199,000 in sequential-quarter comparison.  Interest income on loans decreased $437,000.  The average yield on loans decreased 2 basis points, from 5.31% to 5.29%, and the average balance of loans decreased $3.3 million in sequential-quarter comparison.  Excluding purchase accounting adjustments, the loan yield increased 3 basis points, from 5.19% to 5.22% during the same period.  Interest income on investment securities increased $277,000 in sequential-quarter comparison.  The average yield on investment securities increased 9 basis points, and the average balance of investment securities increased $27.5 million.  The average yield on total earning assets increased 10 basis points for the same period, from 4.41% to 4.51%, respectively.  As a result of these changes in volume and yield on earning assets, the FTE net interest margin increased 9 basis points, from 4.09% to 4.18%.  Excluding purchase accounting adjustments, the FTE net interest margin, after reflecting a reclassification of certain credit card income to noninterest income, increased 13 basis points, from 3.98% for the fourth quarter of 2016 to 4.11% for the first quarter of 2017.

First Quarter 2017 vs. First Quarter 2016 Earnings Comparison

First quarter 2017 net earnings available to common shareholders totaled $1.7 million compared to $1.9 million for the first quarter of 2016. Revenues from consolidated operations increased $239,000 in quarterly comparison, from $22.9 million for the three months ended March 31, 2016 to $23.1 million for the three months ended March 31, 2017.  Net interest income decreased $61,000 in quarterly comparison, resulting from a $16,000 decrease in interest income and a $45,000 increase in interest expense.  Noninterest income increased $300,000 in quarterly comparison and consisted primarily of a $94,000 increase in ATM/debit card income and a $111,000 increase in service charges on deposits accounts.

Noninterest expense increased $471,000 in quarterly comparison and consisted primarily of a $699,000 increase in salaries and employee benefits costs and a $163,000 increase in data processing costs, which were partially offset by a $101,000 decrease in marketing expense.  The $699,000 increase in salaries and benefits costs included a $262,000 increase in group health costs, a $135,000 increase in incentive pay and $81,000 of sign-on bonuses.  The provision for loan losses remained unchanged at $2.8 million in quarterly comparison.  Income tax expense decreased $374,000 in quarterly comparison.

Dividends on preferred stock totaled $811,000 for the three months ended March 31, 2017 and $427,000 for the three months ended March 31, 2016.  Dividends on the Series B Preferred Stock were $720,000 for the first quarter of 2017 and totaled $336,000 for the first quarter of 2016 based on a dividend rate of 4.2%.  The dividend rate increased to 9% on February 25, 2016.  Dividends on the Series C Preferred Stock issued with the December 28, 2012 acquisition of PSB totaled $91,000 for the three months ended March 31, 2017 and March 31, 2016.

FTE net interest income, after reflecting a reclassification of certain credit card income to noninterest income, decreased $89,000 in prior year quarterly comparison.  Interest income on loans decreased $244,000 due to a decrease in the average yield on loans of 12 basis points.  The average balance of loans increased $21.5 million in prior year quarterly comparison.  Purchase accounting adjustments added 7 basis points to the average yield on loans for the first quarter of 2017 and 25 basis points to the average yield on loans for the first quarter of 2016.  Excluding the impact of the purchase accounting adjustments, average loan yields decreased 3 basis points in prior year quarterly comparison, from 5.25% to 5.22%.

Investment securities totaled $449.0 million, or 23.2% of total assets at March 31, 2017, versus $440.1 million, or 22.6% of total assets at December 31, 2016.  The investment portfolio had an effective duration of 4.1 years and a net unrealized loss of $1.2 million at March 31, 2017.  The average volume of investment securities increased $19.1 million in prior year quarterly comparison.  The average tax equivalent yield on investment securities increased 8 basis points, from 2.58% to 2.66%.

The average yield on all earning assets remained unchanged in prior year quarterly comparison at 4.51%.  Excluding the impact of purchase accounting adjustments, the average yield on total earning assets increased 8 basis points, from 4.39% to 4.47% for the three-month periods ended March 31, 2016 and 2017, respectively.

Interest expense increased $45,000 in prior year quarterly comparison.  Increases in interest expense included a $28,000 increase in interest expense on deposits and a $41,000 increase in interest expense on variable rate junior subordinated debentures.  These increases were partially offset by a $23,000 decrease in interest expense on short-term FHLB advances.  Excluding purchase accounting adjustments on acquired certificates of deposit and FHLB borrowings, the average rate paid on interest-bearing liabilities was 0.49% for the three months ended March 31, 2017 and 0.46% for the three months ended March 31, 2016.

As a result of these changes in volume and yield on earning assets and interest-bearing liabilities, the FTE net interest margin remained unchanged in prior year quarterly comparison at 4.18%.  Excluding purchase accounting adjustments on loans, deposits and FHLB borrowings, the FTE margin increased 6 basis points, from 4.05% for the first quarter of 2016 to 4.11% for the first quarter of 2017.

Dividends

MidSouth's Board of Directors announced a cash dividend was declared in the amount of $0.09 per share to be paid on its common stock on July 3, 2017 to shareholders of record as of the close of business on June 15, 2017.  Additionally, a quarterly cash dividend of 1.00% per preferred share on its 4.00% Non-Cumulative Perpetual Convertible Preferred Stock, Series C was declared payable on July 17, 2017 to shareholders of record as of the close of business on July 3, 2017.

Leadership Transition. 

MidSouth also announced today in a separate press release changes to its executive management team, including the termination of employment of C.R. "Rusty" Cloutier as MidSouth's President and CEO and Troy M. Cloutier as MidSouth Bank's President and CEO and the appointment of James R. McLemore as interim President and CEO for MidSouth and MidSouth Bank, effective immediately.

About MidSouth Bancorp, Inc.

MidSouth Bancorp, Inc. is a financial holding company headquartered in Lafayette, Louisiana, with assets of $1.9 billion as of March 31, 2017. MidSouth Bancorp, Inc. trades on the NYSE under the symbol "MSL." Through its wholly owned subsidiary, MidSouth Bank, N.A., MidSouth offers a full range of banking services to commercial and retail customers in Louisiana and Texas. MidSouth Bank currently has 57 locations in Louisiana and Texas and is connected to a worldwide ATM network that provides customers with access to more than 55,000 surcharge-free ATMs. Additional corporate information is available at MidSouthBank.com.

Forward-Looking Statements

Certain statements contained herein are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, which involve risks and uncertainties.  These statements include, among others, the expected performance of new hires, performance in non-energy related lending, expected loan loss provision and future operating results.  Actual results may differ materially from the results anticipated in these forward-looking statements.  Factors that might cause such a difference include, among other matters, 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, including, without limitation, changes related to the oil and gas industries, that could adversely affect customers and their ability to repay borrowings under agreed upon terms, adversely affect the value of the underlying collateral related to their borrowings, and reduce demand for loans; the timing and ability to reach any agreement to restructure nonaccrual loans;  increased competition for deposits and loans which could affect compositions, rates and terms; 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; loss of critical personnel and the challenge of hiring qualified personnel at reasonable compensation levels; legislative and regulatory changes, including changes in banking, securities and tax laws and regulations and their application by our regulators, changes in the scope and cost of FDIC insurance and other coverage; and other factors discussed under the heading "Risk Factors" in MidSouth's Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on March 16, 2017 and in its other filings with the SEC.  MidSouth does not undertake any obligation to publicly update or revise any of these forward-looking statements, whether to reflect new information, future events or otherwise, except as required by law.