MidSouth Bancorp, Inc. Reports Second Quarter 2014 Results and Declares Quarterly Dividends

LAFAYETTE, La., July 28, 2014 /PRNewswire/ -- MidSouth Bancorp, Inc. ("MidSouth") (NYSE:MSL) today reported quarterly net earnings available to common shareholders of $3.9 million for the second quarter of 2014, compared to net earnings available to common shareholders of $3.3 million reported for the second quarter of 2013 and $6.7 million in net earnings available to common shareholders for the first quarter of 2014.  Diluted earnings for the second quarter of 2014 were $0.34 per common share, compared to $0.29 per common share reported for the second quarter of 2013 and $0.57 per common share reported for the first quarter of 2014.  The first quarter of 2014 included $3.0 million of executive officer life insurance proceeds recorded in noninterest income following the unexpected passing of former Vice Chairman and Chief Operating Officer Jerry Reaux and after-tax related noninterest expenses of $160,000.  The first and second quarters of 2014 also included efficiency consultant expenses of $53,000 and $107,000, respectively.  Excluding these non-operating income and expenses, operating earnings per share for the first and second quarter of 2014 was $0.33 and $0.35, respectively. 

C. R. Cloutier, President and CEO, commenting on second quarter earnings remarked, "We are pleased to report another strong quarter of loan growth and improvements in efficiency and operating earnings in our second quarter results.  I am very proud of our team and the excellent execution of our plan to improve earnings for our shareholders.  We have improved operating diluted earnings per share by 11 cents or 19% in the first six months of this year compared to last year.   This was despite of the loss of over 13 cents per diluted share of income from purchase accounting adjustments over this period and no new merger transactions to replace any of this lost income.  Having to replace this much lost income and still grow operating earnings 19% through old-fashioned organic growth and cost savings has been challenging and I am proud of what our team has accomplished.  However, our work is not done and our focus will continue to be improvement in earnings for our shareholders – every day, every week, every month."

During the second quarter, MidSouth suffered a tremendous loss with the passing of Dr. Joe B. Hargroder, a founding board member.  Dr. Hargroder served as Vice Chairman of the Board from 1990 to 2012, having relinquished the role in May 2012 due to declining health.  In recognition of his lifetime of service to Jefferson Davis Parish and the vital role he played in the founding of MidSouth, the Board of Directors established the Dr. Joe Hargroder Scholarship in 2005 through the McNeese Foundation for students from Jefferson Davis Parish.

Balance Sheet

Consolidated assets and total deposits remained constant at $1.9 billion and $1.5 billion for the quarters ended June 30, 2014 and March 31, 2014, respectively.  Our stable core deposit base, which excludes time deposits, declined $14.1 million for the quarter ended June 30, 2014 and accounted for 85.5% of deposits compared to 85.1% of deposits at March 31, 2014.  Net loans totaled $1.2 billion at June 30, 2014 and March 31, 2014, compared to $1.1 billion at December 31, 2013.  Total loans grew $40.0 million, or 3.4% for the quarter and $86.6 million for the six months ended June 30, 2014.  The majority of the loan growth was in the commercial loan portfolio, along with solid growth in the commercial real estate and consumer loan portfolios over the three and six months ended June 30, 2014.

MidSouth's Tier 1 leverage capital ratio was 9.81% at June 30, 2014 compared to 9.71% at March 31, 2014.  Tier 1 risk-based capital and total risk-based capital ratios were 13.34% and 14.03% at June 30, 2014, compared to 13.49% and 14.18% at March 31, 2014, respectively.  Tier 1 common equity to total risk-weighted assets at June 30, 2014 was 8.12%.  Tangible common equity totaled $111.4 million at June 30, 2014, compared to $107.3 million at March 31, 2014.  Tangible book value per share at June 30, 2014 was $9.86 versus $9.51 at March 31, 2014.

Asset Quality

Nonperforming assets totaled $13.5 million at June 30, 2014, an increase of $654,000 over the $12.9 million reported at March 31, 2014.  The increase resulted from an $888,000 increase in nonaccrual loans.  Allowance coverage for nonperforming loans decreased to 127.53% at June 30, 2014 compared to 139.66% at March 31, 2014.  The ALL/total loans ratio was 0.74% at June 30, 2014 and March 31, 2014.  Including valuation accounting adjustments on acquired loans, the total valuation accounting adjustment plus ALL was 1.29% of loans at June 30, 2014.  The ratio of annualized net charge-offs to total loans was 0.29% for the three months ended June 30, 2014 compared to 0.19% for the three months ended March 31, 2014. 

Total nonperforming assets to total loans plus ORE and other assets repossessed was 1.10% at June 30, 2014 compared to 1.08% at March 31, 2014.  Loans classified as troubled debt restructurings ("TDRs") totaled $417,000 at June 30, 2014, a decrease of $1.2 million from the $1.6 million reported at March 31, 2014.  The decrease in TDRs resulted from the payoff of a loan relationship totaling $1.2 million that was previously placed on TDR status during the first quarter of 2014.  Classified assets, including ORE, increased $1.6 million, or 5.1%, to $33.1 million compared to $31.5 million at March 31, 2014.

Second Quarter 2014 vs. Second Quarter 2013 Earnings Comparison

Second quarter 2014 net earnings available to common shareholders totaled $3.9 million compared to $3.3 million for the second quarter of 2013.  Revenues from consolidated operations decreased $372,000 in quarterly comparison.  Interest income decreased $761,000 in quarterly comparison, as a $1.2 million decrease in loan valuation income was partially offset by an increase in interest income earned on a higher volume of loans.  Noninterest income increased $257,000 in quarterly comparison, from $5.0 million for the three months ended June 30, 2013 to $5.3 million for the three months ended June 30, 2014.  Increases in noninterest income consisted primarily of $177,000 in service charges on deposit accounts, $128,000 in gain on sales of securities and $215,000 in ATM/debit card income, which were partially offset by decreases of $145,000 in fees earned from credit-related products and $89,000 in mortgage banking fees. 

Excluding the $107,000 of efficiency consultant expenses recorded in the second quarter of 2014, noninterest expenses decreased $1.3 million for the second quarter 2014 compared to second quarter 2013 and consisted primarily of decreases of $351,000 in expenses on ORE and other repossessed assets, $155,000 in marketing expenses, $209,000 in legal and professional fees, $122,000 in corporate development expense, $124,000 in courier expense and $155,000 in the cost of printing and supplies.  The decreased costs were partially offset by a $119,000 increase in salaries and benefits costs and a $110,000 increase in ATM/debit card expense.  The increase in salaries and benefits costs was driven by an increase in group health insurance expense of $248,000 due to a higher volume of claims.  Net of the increase in group health insurance, salary and benefit costs declined $129,000.  The provision for loan losses decreased $50,000, and income tax expense increased $369,000 in quarterly comparison.

Dividends paid on the Series B Preferred Stock issued to the Treasury as a result of our participation in the Small Business Lending Fund ("SBLF") totaled $80,000 for the second quarter of 2014 based on a dividend rate of 1.00%.  The dividend rate is set at 1.00% through February 25, 2016.  The Series C Preferred Stock issued with the December 28, 2012 acquisition of PSB Financial Corporation ("PSB") paid dividends totaling $90,000 for the three months ended June 30, 2014. 

Fully taxable-equivalent ("FTE") net interest income totaled $19.5 million and $20.1 million for the quarters ended June 30, 2014 and 2013, respectively.  The FTE net interest income decreased $620,000 in prior year quarterly comparison primarily due to a reduction in purchase accounting adjustments on acquired loans.  The average volume of loans increased $125.6 million in quarterly comparison, and the average yield on loans decreased 85 basis points, from 6.76% to 5.91%.  The purchase accounting adjustments added 23 basis points to the average yield on loans for the second quarter of 2014 and 75 basis points to the average yield on loans for the second quarter of 2013.  Net of the impact of the purchase accounting adjustments, average loan yields declined 33 basis points in prior year quarterly comparison, from 6.01% to 5.68%.  Loan yields have declined primarily as the result of a sustained low interest rate environment.

Investment securities totaled $450.0 million, or 23.7% of total assets at June 30, 2014, versus $530.9 million, or 28.5% of total assets at June 30, 2013.  The investment portfolio had an effective duration of 3.9 years and an unrealized gain of $4.2 million at June 30, 2014.  The average volume of investment securities decreased $72.4 million in prior year quarterly comparison.  The average tax equivalent yield on investment securities increased 11 basis points, from 2.52% to 2.63%.  The $72.4 million decrease in investment securities combined with a $23.7 million increase in short-term FHLB advances over the past twelve months primarily funded the increase in loans during the same period.

The average yield on all earning assets decreased 33 basis points in prior year quarterly comparison, from 5.26% for the second quarter of 2013 to 4.93% for the second quarter of 2014.  Net of the impact of purchase accounting adjustments, the average yield on total earning assets decreased 1 basis point, from 4.78% to 4.77% for the three month periods ended June 30, 2013 and 2014, respectively.

The impact to interest expense of a $43.3 million increase in the average volume of interest bearing liabilities was offset by a 5 basis point decrease in the average rate paid on interest bearing liabilities, from 0.51% at June 30, 2013 to 0.46% at June 30, 2014.  Net of purchase accounting adjustments on acquired certificates of deposit and FHLB borrowings, the average rate paid on interest bearing liabilities was 0.60% for the second quarter of 2013 and declined to 0.51% for the second quarter of 2014.

As a result of these changes in volume and yield on earning assets and interest bearing liabilities, the FTE net interest margin decreased 29 basis points, from 4.87% for the second quarter of 2013 to 4.58% for the second quarter of 2014.  Net of purchase accounting adjustments on loans, deposits and FHLB borrowings, the FTE margin increased 6 basis points, from 4.33% for the second quarter of 2013 to 4.39% for the second quarter of 2014.

Second Quarter 2014 vs. First Quarter 2014 Earnings Comparison

In sequential-quarter comparison, net earnings available to common shareholders decreased $2.7 million primarily due to the $3.0 million of life insurance proceeds recorded as noninterest income in the first quarter of 2014.  Additionally, the decrease in net earnings available to common shareholders resulted from a $650,000 increase in the provision for loan losses and a $233,000 increase in income tax expense, which were offset by an increase of $218,000 in net interest income and a decrease of $579,000 in noninterest expense.  Excluding the $3.0 million of life insurance income recorded in the first quarter of 2014, noninterest income increased $344,000 in sequential-quarter comparison.  The increase resulted primarily from a $128,000 gain on sale of securities, a $139,000 increase in ATM/debit card income and a $68,000 increase in service charge income on deposits.

Noninterest expenses in the first and second quarter of 2014 included efficiency consultant expenses of $53,000 and $107,000, respectively.  Additionally, noninterest expenses in the first quarter of 2014 included $189,000 of non-operating expenses primarily associated with incentive compensation plans for Mr. Reaux.  Excluding these non-operating expenses, noninterest expense decreased $444,000 and primarily included decreases of $186,000 in salaries and benefits costs, $102,000 in occupancy expenses and $72,000 in courier expense. 

FTE net interest income increased $198,000 in sequential-quarter comparison primarily due to an increase of $58.9 million in the average volume of loans.  The average yield on loans decreased 27 basis points, from 6.18% for the first quarter of 2014 to 5.91% for the second quarter of 2014, primarily due to a reduction in purchase accounting adjustments on acquired loans.  The average yield on total earning assets decreased 9 basis points for the same period, from 5.02% to 4.93%, respectively.  An average increase of $15.8 million in interest bearing liabilities was primarily due to an average increase of $13.9 million in overnight repurchase agreements.  As a result of these changes in volume and yield on earning assets and interest bearing liabilities, the FTE net interest margin decreased 8 basis points, from 4.66% to 4.58%.  Net of purchase accounting adjustments, the FTE net interest margin increased 6 basis points, from 4.33% for the quarter ended March 31, 2014 to 4.39% for the quarter ended June 30, 2014.

Year-Over-Year Earnings Comparison

In year-over-year comparison, net earnings available to common shareholders increased $4.2 million and included $3.0 million of executive life insurance proceeds recorded in noninterest income and related noninterest expenses of $189,000 in the first quarter of 2014.  The first quarter of 2013 included $214,000 of net merger and conversion related expenses associated with the PSB acquisition, and the first six months of 2014 included efficiency consultant expenses of $160,000.  Excluding these non-operating income and expenses, operating earnings increased $1.4 million in year-to-date comparison and included a $743,000 increase in noninterest income and a $1.0 million decrease in non-interest expense. 

Excluding the $3.0 million of life insurance income, increases in noninterest income consisted primarily of $386,000 in service charges on deposit accounts and $573,000 in ATM and debit card income.  Excluding the non-operating expenses in 2014 and 2013, decreases in noninterest expense included $321,000 in marketing expenses, $303,000 in legal and professional fees, $250,000 in the cost of printing and supplies, $159,000 in courier expense, $112,000 in fraud losses and $312,000 in expenses on ORE and repossessed assets.  The decrease was partially offset by a $401,000 increase in salaries and benefits costs (primarily increased group health insurance costs) and a $366,000 increase in ATM/debit card expense.

A reduction in the dividend rate paid on the Series B preferred stock issued in connection with SBLF resulted in a $334,000 decrease in dividends on preferred stock in year-over-year comparison. 

In year-to-date comparison, FTE net interest income decreased $132,000 primarily due to a decrease in purchase accounting adjustments that resulted in a decrease in the average yield on loans, from 6.70% at June 30, 2013 to 6.04% at June 30, 2014.  The average yield on earning assets decreased in year-to-date comparison, from 5.14% at June 30, 2013 to 4.98% at June 30, 2014.  The purchase accounting adjustments added 77 basis points to the average yield on loans for the first six months of 2013 and 32 basis points for the first six months of 2014.  Net of purchase accounting adjustments, the average yield on earning assets increased 9 basis points, from 4.66% at June 30, 2013 to 4.75% at June 30, 2014.

Interest expense decreased in year-over-year comparison primarily due to a decrease in the average rate paid on interest bearing liabilities.  The average rate paid on interest-bearing liabilities decreased 7 basis points, from 0.54% at June 30, 2013 to 0.47% at June 30, 2014.  Net of purchase accounting adjustments, the average rate paid on interest-bearing liabilities decreased 11 basis points, from 0.63% at June 30, 2013 to 0.52% at June 30, 2014.  The FTE net interest margin decreased 12 basis points, from 4.74% for the six months ended June 30, 2013 to 4.62% for the six months ended June 30, 2014.  Net of purchase accounting adjustments, the FTE net interest margin increased 18 basis points, from 4.18% to 4.36% for the six months ended June 30, 2013 and 2014, respectively.

Third Quarter Events

MidSouth is reporting today a number of earnings impacts that have occurred or are expected to occur in the third quarter of 2014.

In July 2014, MidSouth closed on the sale of commercial property held as ORE which resulted in a $1.1 million gain on sale of ORE and reduced ORE owned from the $6.3 million held at June 30, 2014 to $4.9 million, or 22.2%.  The $1.1 million gain recorded will have an estimated after tax effect on diluted earnings per share of $0.06 for the third quarter of 2014.

On August 22, 2014, MidSouth will redeem in full its $7.2 million Statutory Trust 1 and Capital Securities (TRUPS) at a redemption price of 103.57% to par.  The redemption has been approved by federal banking regulators and will result in an after tax charge to third quarter earnings of approximately $167,000, or $0.01 on diluted earnings per share.  The resulting improvement in earnings from the reduction in interest expense on the TRUPS, net of the impact of the cost of funds used to pay off the TRUPS and the reduction in dividend income earned on the Capital Securities is estimated to be approximately $113,000 per quarter after tax or $0.01.  As of June 30, 2014, proforma ratios reflecting the payoff of the Statutory Trust 1 result in a 40 basis point decrease in the Tier 1 leverage ratio, from 9.81% to 9.41%.  Proforma Tier 1 risk-based capital ratio and total risk based capital ratios decrease 52 basis points, to 12.82% and 13.51%, respectively.

Third quarter 2014 earnings will also be impacted by approximately $200,000 in FIS consulting costs associated with a process improvement initiative and $330,000 in costs associated with the demolition and rebuilding of a banking center.  The process improvement initiative began in the second quarter of 2014 and will be on-going through year-end.  The current banking center in Sulphur, Louisiana will be demolished and a new banking center constructed to service expected growth in that market from multiple oilfield related expansion projects slated in the area.  The after tax effect of the $550,000 in nonoperating costs expected in the third quarter is estimated to be $0.03 on diluted earnings per share. 

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 November 3, 2014 to shareholders of record as of the close of business on October 15, 2014.  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 October 15, 2014 to shareholders of record as of the close of business on October 1, 2014.  MidSouth's Series C Preferred Stock is quoted on the OTC Bulletin Board ("OTCBB") under the ticker symbol MSLXP.

About MidSouth Bancorp, Inc.

MidSouth Bancorp, Inc. is a financial holding company headquartered in Lafayette, Louisiana, with assets of $1.9 billion as of June 30, 2014. MidSouth Bancorp, Inc. trades on the NYSE under the symbol "MSL." MidSouth's Series C Preferred Stock is quoted on the OTC Bulletin Board ("OTCBB") under the ticker symbol MSLXP.  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 60 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 www.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 impacts of future expansion plans 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, 2013 filed with the SEC on March 14, 2014 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.

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SOURCE MidSouth Bancorp, Inc.