MSL Midsouth Bancorp Inc

LAFAYETTE, La., Jan. 31, 2017 /PRNewswire/ -- MidSouth Bancorp, Inc. ("MidSouth") (NYSE:MSL) today reported quarterly net earnings available to common shareholders of $1.4 million for the fourth quarter of 2016, compared to net earnings available to common shareholders of $1.7 million reported for the fourth quarter of 2015 and $1.6 million in net earnings available to common shareholders for the third quarter of 2016.  Diluted earnings for the fourth quarter of 2016 were $0.12 per common share, compared to $0.15 per common share reported for the fourth quarter of 2015 and $0.14 per common share reported for the third quarter of 2016.

Troy Cloutier, MidSouth Bank President and CEO, commenting on fourth quarter earnings remarked, "We continue to work diligently to support our energy-related customers through this cycle and at the same time look to minimize risk to our balance sheet.  Our loss content during the past two years has been modest with cycle-to-date charge-offs of 1.23% of energy loans.  More importantly, we are focused on improving performance in non-energy related lending and are very excited with new hires we have made in the latter part of 2016, especially in our Texas markets."

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.  Although this definition has resulted in a lack of comparability with some other energy-related banks, management believes it to be the prudent approach to monitoring and managing the Bank's energy exposure.

Other comments on the Bank's energy lending:

• Total energy loans, as defined above, decreased $5.9 million during 4Q16 to $237.4 million, or 18.5% of total loans, from 19.1% at September 30, 2016.
• Direct C&I energy loans were $192.1 million or 15.0% of total loans and had a weighted average maturity of 3.2 years at December 31, 2016.
• Energy-related CRE and residential real estate loans were $44.9 million or 3.5% of total loans at December 31, 2016.
• Total criticized energy-related loans increased $4.5 million, or 3.6%, during 4Q16 to $119.2 million and represented 50.2% of energy loans at December 31, 2016, versus 47.1% at September 30, 2016.
• Eleven energy loan relationships were downgraded during the quarter.
  • One loan relationship totaling $4.2 million was downgraded to Special Mention
  • Ten loan relationships totaling $21.1 million were downgraded to Substandard
• Four energy-related charge-offs totaled $549,000 and one energy-related recovery totaled $175,000 during 4Q16.  YTD energy-related net charge-offs totaled $1.6 million, or approximately 64 basis points of average energy loans.
• Cycle to date net charge-offs totaled $3.3 million, or 1.23% of December 31, 2014 energy loans, which was when the effects of declining oil prices began to surface.
• One energy-related impairment totaling $2.9 million was identified during 4Q16.  We utilized $2.0 million of the energy reserve in the allowance to offset the impairment.
• The energy reserve as a percentage of total energy loans, as defined, was 4.9% at December 31, 2016.  The reserve attributable to C&I energy loans was approximately 5.6%.  The reserve on all other energy loans was 2.3%.
• The Bank has two Shared National Credits (SNCs) totaling $14.6 million in the energy portfolio at December 31, 2016 and both were downgraded to Substandard during the third quarter of 2016.
• To date, during the month of January 2017, the Bank has had two rating related changes to its energy portfolio:
  • One credit in the amount of $670,000 was downgraded from Pass to Classified
  • One credit in the amount of $640,000 was downgraded from Special Mention to Classified

C. R. Cloutier, MidSouth Bancorp President and CEO stated, "We are encouraged with the higher pricing levels for oil and natural gas in addition to the recent Executive directives to expedite both the reopening of the Keystone pipeline and ordering permits for the Dakota access pipeline.  Furthermore, signs of regulatory relief appear to be forthcoming, all of which should be beneficial to our energy-related customers."

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

Balance Sheet

Consolidated assets totaled $1.9 billion at December 31, 2016 and 2015, compared to $2.0 billion at September 30, 2016.  Our stable core deposit base, which excludes time deposits, totaled $1.4 billion at December 31, 2016 and September 30, 2016 and accounted for 90.0% of deposits at December 31, 2016 and September 30, 2016.  Net loans totaled $1.3 billion at December 31, 2016, compared to $1.2 billion at September 30, 2016 and December 31, 2015.

MidSouth's Tier 1 leverage capital ratio was 10.11% at December 31, 2016, compared to 10.27% at September 30, 2016.  Tier 1 risk-based capital and total risk-based capital ratios were 13.02% and 14.28% at December 31, 2016, compared to 13.07% and 14.33% at September 30, 2016, respectively.  Tier 1 common equity to total risk-weighted assets at December 31, 2016 was 8.81%, compared to 8.83% at September 30, 2016.  Tangible common equity totaled $126.5 million at December 31, 2016, compared to $129.9 million at September 30, 2016.  Tangible book value per share at December 31, 2016 was $11.13 versus $11.44 at September 30, 2016 primarily due to a $4.3 million decline in other comprehensive income during the quarter.

Asset Quality

Nonperforming assets totaled $65.0 million at December 31, 2016, an increase of $949,000 compared to $64.1 million reported at September 30, 2016.  The increase is primarily attributable to a $2.1 increase in loans on nonaccrual, which was partially offset by a $700,000 decrease in loans past due ninety days and over and accruing.  Allowance coverage for nonperforming loans increased to 38.78% at December 31, 2016, compared to 37.84% at September 30, 2016.  The ALLL/total loans ratio was 1.90% at December 31, 2016 and 1.83% at September 30, 2016.  Including valuation accounting adjustments on acquired loans, the total valuation accounting adjustment plus ALLL was 2.06% of loans at December 31, 2016.  The ratio of annualized net charge-offs to total loans increased to 0.46% for the three months ended December 31, 2016 compared to 0.32% for the three months ended September 30, 2016.

Total nonperforming assets to total loans plus ORE and other assets repossessed was 5.06% at December 31, 2016 compared to 5.03% at September 30, 2016.  Loans classified as troubled debt restructurings, accruing ("TDRs, accruing") totaled $152,000 at December 31, 2016 and $153,000 at September 30, 2016.  Classified assets, including ORE, increased $15.6 million, or 13.2%, to $134.2 million at December 31, 2016 compared to $118.6 million at September 30, 2016.  The increase in classified assets during the quarter ended December 31, 2016 is primarily due to the downgrade of six energy-related credits totaling $19.8 million and the downgrade of one credit not related to energy totaling $4.3 million.  These increases to classified assets were partially offset by the payoff of $8.1 million classified relationship during the fourth quarter.

Fourth Quarter 2016 vs. Third Quarter 2016 Earnings Comparison

In sequential-quarter comparison, net earnings available to common shareholders decreased $200,000, from $1.6 million for the three months ended September 30, 2016 to $1.4 million for the three months ended December 31, 2016.  Net interest income decreased $15,000 in sequential-quarter comparison.  Noninterest income decreased $84,000 in sequential-quarter comparison.  The decrease in noninterest income consisted primarily of a $110,000 decrease in service charges on deposit accounts and a $26,000 decrease in mortgage program fee income, which were partially offset by a $62,000 increase in ATM/debit card income.

Noninterest expense increased $522,000 in sequential-quarter comparison, which was primarily due to increased costs of $362,000, or $0.02 per share, related to recruiting new talent to the organization, including new producers in Texas and a new Chief Information Officer.  The increase in noninterest expense consisted primarily of increases of $692,000 in salaries and benefits costs, a $96,000 in occupancy expense and an $89,000 increase in loss on sale of other assets repossessed, which were partially offset by a $93,000 decrease in marketing expense and a $274,000 decrease in shares tax expense.  The provision for loan losses decreased $300,000 in sequential-quarter comparison.

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 fourth quarter of 2016 based on a dividend rate of 9%.  Dividends on the Series C Preferred Stock issued with the December 28, 2012 acquisition of PSB Financial Corporation ("PSB") totaled $92,000 for the three months ended December 31, 2016.

Fully taxable-equivalent ("FTE") net interest income increased $9,000 in sequential-quarter comparison.  Interest income on loans decreased $25,000 due to a decrease in the average yield on loans of 5 basis points, from 5.45% to 5.40%.  The average balance of loans increased $9.3 million in sequential-quarter comparison.  Excluding purchase accounting adjustments, the loan yield decreased 3 basis points, from 5.31% to 5.28% during the same period.  The average yield on total earning assets decreased 7 basis points for the same period, from 4.55% to 4.48%, respectively.  As a result of these changes in volume and yield on earning assets, the FTE net interest margin decreased 9 basis points, from 4.24% to 4.15%.  Excluding purchase accounting adjustments, the FTE net interest margin decreased 7 basis points, from 4.12% for the third quarter of 2016 to 4.05% for the fourth quarter of 2016.

Fourth Quarter 2016 vs. Fourth Quarter 2015 Earnings Comparison

Fourth quarter 2016 net earnings available to common shareholders totaled $1.4 million compared to $1.7 million for the fourth quarter of 2015. Revenues from consolidated operations increased $194,000 in quarterly comparison, from $23.1 million for the three months ended December 31, 2015 to $23.3 million for the three months ended December 31, 2016.  Net interest income decreased $13,000 in quarterly comparison.  A $110,000 increase in interest expense was partially offset by a $97,000 increase in interest income.  Noninterest income increased $207,000 in quarterly comparison and consisted primarily of a $66,000 increase in ATM/debit card income, a $46,000 increase in service charges on deposits accounts and a $41,000 increase in mortgage program fee income.

Noninterest expenses increased $128,000 in quarterly comparison and consisted primarily of a $482,000 increase in salaries and employee benefits costs, a $54,000 increase in recruiting expense and a $102,000 increase in loss on sale of other assets repossessed, which was partially offset by a $123,000 decrease in FDIC premiums, a $240,000 decrease in shares tax expense, a $103,000 decrease in marketing expense and a $57,000 decrease in printing and supplies costs.  The increases in salaries and benefits expense and recruiting expense were attributable primarily to the cost of locating and hiring several new key employees.  The increase in salaries and benefits costs included $124,000 of sign-on bonuses for these employees, and we also recorded $100,000 of recruiting expenses during the three months ended December 31, 2016 related to these employees.  Also included in the increase in salaries and benefits expense is $223,000 of severance benefits.  The provision for loan losses decreased $400,000 in quarterly comparison, from $3.0 million for the three months ended December 31, 2015 to $2.6 million for the three months ended December 31, 2016.  Income tax expense increased $105,000 in quarterly comparison.

Dividends on preferred stock totaled $812,000 for the three months ended December 31, 2016 and $170,000 for the three months ended December 31, 2015.

FTE net interest income totaled $18.8 million for the quarters ended December 31, 2016 and 2015.  The FTE net interest income decreased $39,000 in prior year quarterly comparison.  Interest income on loans increased $29,000 due to a $6.4 million increase in the average balance of loans.  The average yield on loans decreased 1 basis point, from 5.41% to 5.40%.  Purchase accounting adjustments added 12 basis points to the average yield on loans for the fourth quarter of 2016 and 15 basis points to the average yield on loans for the fourth quarter of 2015.  Excluding the impact of the purchase accounting adjustments, average loan yields increased 2 basis points in prior year quarterly comparison, from 5.26% to 5.28%.

Investment securities totaled $440.1 million, or 22.6% of total assets at December 31, 2016, versus $435.0 million, or 22.6% of total assets at December 31, 2015.  The investment portfolio had an effective duration of 3.2 years and a net unrealized loss of $2.5 million at December 31, 2016.  The average volume of investment securities increased $5.6 million in prior year quarterly comparison.  The average tax equivalent yield on investment securities decreased 6 basis points, from 2.65% to 2.57%.

The average yield on all earning assets decreased 4 basis points in prior year quarterly comparison, from 4.52% for the fourth quarter of 2015 to 4.48% for the fourth quarter of 2016.  Excluding the impact of purchase accounting adjustments, the average yield on total earning assets decreased 3 basis points, from 4.42% to 4.39% for the three month periods ended December 31, 2015 and 2016, respectively.

Interest expense increased $110,000 in prior year quarterly comparison.  Increases in interest expense included a $93,000 increase in interest expense on deposits and a $35,000 increase in interest expense on junior subordinated debentures.  These increases were partially offset by a $19,000 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 0.47% for the three months ended December 31, 2016 and 0.44% for the three months ended December 31, 2015.

As a result of these changes in volume and yield on earning assets and interest-bearing liabilities, the FTE net interest margin decreased 7 basis points, from 4.22% for the fourth quarter of 2015 to 4.15% for the fourth quarter of 2016.  Excluding purchase accounting adjustments on loans, deposits and FHLB borrowings, the FTE margin decreased 4 basis points, from 4.09% for the fourth quarter of 2015 to 4.05% for the fourth quarter of 2016.

Year-To-Date Earnings Comparison

In year-to-date comparison, net earnings available to common shareholders decreased $3.7 million, from $10.3 million at December 31, 2015 to $6.6 million at December 31, 2016.  2016 net earnings included $13,000 in gain on sales of securities, net of tax.  2015 net earnings included $808,000 in gain on sales of securities, net of tax, and $160,000 of income from a death benefit on bank owned life insurance.  Excluding these non-operating revenues, net earnings available to common shareholders decreased $2.8 million in year-to-date comparison.  The $2.8 million decrease in operating earnings in year-to-date comparison resulted primarily from a $2.9 million decrease in net interest income, an increase of $1.4 million of noninterest expense and an increase of $2.2 million in dividends on preferred stock, which were partially offset by a $3.3 million decrease in the provision for loan losses and an $726,000 decrease in income tax expense.

Excluding non-operating income, noninterest income increased $70,000 and consisted primarily of $89,000 in service charges on deposit accounts and $116,000 in ATM/debit card income, which were partially offset by a $54,000 decrease in letter of credit income and a $41,000 decrease in credit card income.  Increases in noninterest expense primarily included $896,000 in salaries and benefits costs, $288,000 in ATM and debit card processing fees, $295,000 in legal and professional fees and $191,000 in recruiting expense, which were partially offset by a $422,000 decrease in occupancy expense.

In year-to-date comparison, FTE net interest income decreased $3.1 million primarily due to a $3.0 million decrease in interest income on loans.  The average volume of loans decreased $28.1 million in year-over-year comparison, and the average yield on loans decreased 11 basis points, from 5.54% to 5.43%.  The average volume of investment securities increased $861,000 in year-over-year comparison, and the average yield on investment securities decreased 8 basis points for the same period.  The average yield on earning assets decreased in year-over-year comparison, from 4.66% at December 31, 2015 to 4.52% at December 31, 2016.  The purchase accounting adjustments added 16 basis points to the average yield on loans for the year ended December 31, 2015 and 12 basis points for the year ended December 31, 2016.  Net of purchase accounting adjustments, the average yield on earning assets decreased 11 basis points, from 4.54% at December 31, 2015 to 4.43% at December 31, 2016.

Interest expense increased $109,000 in year-over-year comparison.  Increases in interest expense included a $67,000 increase in interest expense on deposits and a $91,000 increase in interest expense on junior subordinated debentures.  These increases were partially offset by a $33,000 decrease in interest expense on short-term FHLB advances and a $18,000 decrease in interest expense on securities sold under agreements to repurchase.  The average rate paid on interest-bearing liabilities was 0.43% for the year ended December 31, 2016, compared to 0.42% for the year ended December 31, 2015.  Net of purchase accounting adjustments, the average rate paid on interest-bearing liabilities increased one basis point, from 0.45% for the year ended December 31, 2015 to 0.46% for the year ended December 31, 2016.  The FTE net interest margin decreased 14 basis points, from 4.34% for the year ended December 31, 2015 to 4.20% for the year ended December 31, 2016.  Net of purchase accounting adjustments, the FTE net interest margin decreased 11 basis points, from 4.20% to 4.09% for the years ended December 31, 2015 and 2016, respectively, primarily due to a decline in the average rate earned on loans and the decreased average volume of loans.

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 April 3, 2017 to shareholders of record as of the close of business on March 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 April 17, 2017 to shareholders of record as of the close of business on April 3, 2017.

About MidSouth Bancorp, Inc.

MidSouth Bancorp, Inc. is a financial holding company headquartered in Lafayette, Louisiana, with assets of $1.9 billion as of December 31, 2016. 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 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, 2015 filed with the SEC on March 15, 2016 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.