MidSouth Bancorp, Inc. Reports Second Quarter 2013 Results

LAFAYETTE, La., July 29, 2013 /PRNewswire/ -- MidSouth Bancorp, Inc. ("MidSouth") (NYSE MKT:MSL) today reported record quarterly net earnings available to common shareholders of $3.3 million for the second quarter of 2013, compared to net earnings available to common shareholders of $2.1 million reported for the second quarter of 2012 and $3.1 million in net earnings available to common shareholders for the first quarter of 2013.  Diluted earnings for the second quarter of 2013 were $0.29 per common share, compared to $0.20 per common share reported for the second quarter of 2012 and $0.27 per common share reported for the first quarter of 2013. 

(Logo: http://photos.prnewswire.com/prnh/20100125/MIDSOUTHLOGO)

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 $292,000 for the second quarter of 2013 based on a dividend rate of 3.65%.  Although the dividend rate for the third quarter of 2013 is estimated to be 4.60%, we anticipate the the fourth quarter rate to drop to 1.0% due to attaining the target 10% growth rate in qualified small business loans during the second quarter.  The Series C Preferred Stock issued with the December 28, 2012 acquisition of PSB Financial Corporation ("PSB") paid dividends totaling $100,000 for the three months ended June 30, 2013. 

Balance Sheet

Total consolidated assets at June 30, 2013 were $1.9 billion, compared to $1.4 billion at June 30, 2012 and $1.9 billion at March 31, 2013.  Deposits totaled $1.5 billion at June 30, 2013, compared to $1.2 billion at June 30, 2012 and $1.6 billion at March 31, 2013.  Total deposits declined $24.3 million during the quarter primarily due to the run-off of higher cost time deposits from acquired branches.  Our strong core deposit base continued to yield a low cost of interest-bearing deposits, which declined 4 basis points, from 0.39% compared to 0.35%, over the three months ended June 30, 2013. 

Loans totaled $1.1 billion at June 30, 2013, compared to $751.5 million at June 30, 2012 and $1.0 billion at March 31, 2013.  Total loans increased $80.7 million in the second quarter of 2013 primarily due to $54.1 million in commercial loans funded as a result of a small business lending campaign held during the quarter.  Additional commercial loans funded during the quarter resulted in a total increase of $75.8 million, or 24.0%, in commercial loans during the second quarter of 2013.

MidSouth's Tier 1 leverage capital ratio was 9.14% at June 30, 2013 compared to 8.98% at March 31, 2013.  Tier 1 risk-based capital and total risk-based capital ratios were 13.24% and 13.95% at June 30, 2013, compared to 13.75% and 14.41% at March 31, 2013, respectively.  The Tier 1 common equity to total risk-weighted assets at June 30, 2013 was 7.53%.  Tangible common equity totaled $94.5 million at June 30, 2013, compared to $97.4 million at March 31, 2013.  Tangible book value per share at June 30, 2013 was $8.39 versus $8.67 at March 31, 2013 primarily due to a $5.7 million decline in the net unrealized gain on securities available-for-sale during the second quarter. 

"We held a very successful SBLF loan campaign this quarter across all of our markets with a focus on small commercial customers," said MidSouth Vice Chairman and Chief Operating Officer Jerry Reaux.  "The campaign expanded our customer base throughout our footprint and resulted in $54.1 million in loans funded, a reinvestment of well over 100% of our $32.0 million in SBLF funds into the communities we serve." 

Rusty Cloutier, President & CEO added, "Our markets in Louisiana and Texas are benefitting from a return to a stronger energy outlook and continue to outperform the rest of the country.  In a recent address to community bankers, well-known energy specialist and economist Dr. Loren Scott (www.lorencscottassociates.com) noted that Louisiana has been allotted $1.2 billion of the $4.5 billion under the RESTORE Act, which directs 80% of BP federal fine money, to restore Louisiana's Gulf coast.  Other positive news for our markets includes significant employment opportunities with $90 billion in expansion projects slated for several companies in various industries."

Asset Quality

Nonperforming assets declined 4.3% in year-over-year comparison and 9.6% in sequential-quarter comparison as asset quality continued to improve.  Total nonperforming assets were reduced from $18.5 million at December 31, 2012 to $15.3 million at March 31, 2013 and to $13.8 million at June 30, 2013, primarily due to a $4.0 million reduction in nonperforming loans, including loans past due 90 days and over, during the first six months of 2013.    

Allowance coverage for nonperforming loans increased to 123.84% at June 30, 2013 compared to 96.98% at March 31, 2013 due to a $1.3 million charge to the provision for loan losses during the second quarter of 2013.  The provision for loan losses increased $0.7 million in sequential-quarter comparison primarily due to the $80.7 million in loan growth during the second quarter of 2013.  The ALL/total loans ratio increased slightly to 0.76% from the 0.72% reported for the first quarter of 2013.  The ratio of annualized net charge-offs to total loans was 0.06% for the three months ended June 30, 2013 compared to 0.18% for the three months ended March 31, 2013.

Total nonperforming assets to total loans plus ORE and other assets repossessed decreased to 1.23% at June 30, 2013 from 1.46% at March 31, 2013.  Loans classified as troubled debt restructurings ("TDRs") totaled $535,000 at June 30, 2013 compared to $5.0 million at March 31, 2013.  The $4.5 million decrease resulted primarily from payoffs related to two commercial credits previously classified as TDRs.  Classified assets, including ORE, increased to $36.1 million compared to $29.2 million at March 31, 2013 due primarily to approximately $8.2 million in five commercial loans downgraded to substandard rating during the second quarter following review of borrowers' year-end financials.  Despite the downgrades, these five commercial loans are well collateralized with no loss expected on the credits.

Second Quarter 2013 vs. Second Quarter 2012 Earnings Comparison

Second quarter 2013 net earnings available to common shareholders totaled $3.3 million compared to $2.1 million for the second quarter of 2012.  Revenues from consolidated operations increased $7.0 million in quarterly comparison and included $2.1 million in purchase accounting adjustments on the 2012 and 2011 acquisitions.  Noninterest income increased $1.0 million in quarterly comparison, from $4.0 million for the three months ended June 30, 2012 to $5.0 million for the three months ended June 30, 2013.  Increases in noninterest income consisted primarily of $403,000 in service charges on deposit accounts and $489,000 in ATM/debit card income. 

Noninterest expenses increased $4.5 million for the second quarter 2013 compared to second quarter 2012 and included approximately $1.8 million in operating expenses for the Timber Region and approximately $410,000 in operating costs for four new branches opened in late 2012 and early 2013.  The increased operating costs consisted primarily of $2.2 million in salaries and benefits costs, $942,000 in occupancy expense, $169,000 in ATM/debit card expense, $153,000 in the cost of printing and supplies, $141,000 in loss on disposal of fixed assets and $172,000 in legal and professional fees.  Expenses on ORE and other assets repossessed decreased $209,000 in prior year quarterly comparison.  The provision for loan losses increased $675,000 primarily as a result of the loan growth experienced during the second quarter of 2013.  Income tax expense increased $635,000 in quarterly comparison.

Fully taxable-equivalent ("FTE") net interest income totaled $20.1 million and $14.1 million for the quarters ended June 30, 2013 and 2012, respectively.  The FTE net interest income increased $6.0 million in prior year quarterly comparison primarily due to a $395.4 million increase in the volume of average earning assets primarily as a result of the PSB acquisition.  The average volume of loans increased $331.4 million in quarterly comparison and the average yield on loans increased 12 basis points, from 6.64% to 6.76%.  Purchase accounting adjustments on acquired loans added 75 basis points to the average yield on loans for the second quarter of 2013 and 30 basis points to the average yield on loans for the second quarter of 2012.  Net of the impact of the purchase accounting adjustments, average loan yields declined 33 basis points in prior year quarterly comparison, from 6.34% to 6.01%.  Loan yields have declined primarily as the result of a sustained low market interest rate environment.

Investment securities totaled $530.9 million, or 28.5% of total assets at June 30, 2013, versus $493.3 million, or 35.4% of total assets at June 30, 2012.  The investment portfolio had an effective duration of 4.19 years and an unrealized gain of $2.2 million at June 30, 2013.  The average volume of investment securities increased $68.0 million in quarterly comparison primarily due to $152.7 million in securities acquired with the PSB acquisition at year end December 2012, of which $28.8 million were sold early in the first quarter of 2013.  The average tax equivalent yield on investment securities decreased 18 basis points, from 2.70% to 2.52% primarily due to lower reinvestment rates.  The average yield on all earning assets increased 28 basis points in prior year quarterly comparison, from 4.98% for the second quarter of 2012 to 5.26% for the second quarter of 2013.   Net of the impact of purchase accounting adjustments, the average yield on total earning assets declined 3 basis points, from 4.81% to 4.78% for the three month periods ended June 30, 2012 and 2013, respectively.

The impact to interest expense of a $308.1 million increase in the average volume of interest bearing liabilities was partially offset by a 12 basis point decrease in the average rate paid on interest bearing liabilities, from 0.63% at June 30, 2012 to 0.51% at June 30, 2013.  Net of purchase accounting adjustments on acquired certificates of deposit and FHLB borrowings, the average rate paid on interest bearing liabilities was 0.74% for the second quarter of 2012 compared to 0.60% for the second quarter of 2013.

As a result of these changes in volume and yield on earning assets and interest bearing liabilities, the FTE net interest margin increased 36 basis points, from 4.51% for the second quarter of 2012 to 4.87% for the second quarter of 2013.  Net of purchase accounting adjustments on loans, deposits and FHLB borrowings, the FTE margin increased 8 basis points, from 4.25% for the second quarter of 2012 to 4.33% for the second quarter of 2013.

Second Quarter 2013 vs. First Quarter 2013 Earnings Comparison

In sequential-quarter comparison, net earnings available to common shareholders increased $135,000 as a $1.3 million increase in net interest income and a $573,000 increase in non-interest income were offset by an $836,000 increase in noninterest expenses, a $700,000 increase in provision for loan losses and a $132,000 increase in income tax expense.  The improvement in noninterest income resulted primarily from $117,000 in safe deposit box income and increases of $282,000 in ATM/debit card income and $100,000 in service charges on deposit accounts, which were partially offset by a decrease of $204,000 in gain on sale of securities.  

Noninterest expenses increased $836,000 and consisted primarily of increases of $311,000 in expenses on ORE and repossessed assets, $189,000 in legal and professional fees, $163,000 in ATM/debit card expense, $128,000 in occupancy expenses, and $95,000 in corporate development expenses.  The increases in noninterest expenses were partially due to non-recurring items, including a $300,000 write-down on a commercial real estate property in ORE and a $148,000 loss on disposal of assets acquired from PSB that were no longer in use.  The $163,000 increase in ATM/debit card expense resulted primarily from an increase in the volume of transactions processed, which was offset by increased ATM/debit card income for the quarter.  Excluding the effect of these items, noninterest expenses increased $225,000, or 1.3%, in sequential-quarter comparison.

FTE net interest income increased $1.3 million in sequential-quarter comparison, which resulted primarily from a shift in the mix of earnings assets.  An average decrease of $34.5 million in interest bearing deposits in other banks funded a $36.5 million increase in the average volume of loans.  The average yield on loans increased 11 basis points, from 6.65% for the first quarter of 2013 to 6.76% for the second quarter of 2013.  An increase of $355,000 in commercial loan fee income resulting from the $75.8 million in commercial loan growth during the second quarter contributed to the improvement in the loan yield.  The average yield on total earning assets increased 23 basis points for the same period, from 5.03% to 5.26%, respectively.  Interest expense decreased $103,000 in sequential-quarter comparison, despite a $19.0 million increase in the average volume of interest bearing liabilities for the same period.  The decrease in interest expense was a result of a decrease in the average yield on interest bearing liabilities, from 0.56% for the first quarter of 2013 to 0.51% for the second quarter of 2013.  As a result of these changes in volume and yield on earning assets and interest bearing liabilities, the FTE net interest margin increased 26 basis points, from 4.61% to 4.87%.  Net of purchase accounting adjustments, the FTE net interest margin increased 30 basis points, from 4.03% for the quarter ended March 31, 2013 to 4.33% for the quarter ended June 30, 2013.

Year-Over-Year Earnings Comparison

In year-over-year comparison, net earnings available to common shareholders increased $1.8 million primarily as a result of a $10.5 million improvement in net interest income and a $1.9 million increase in noninterest income which offset a $9.2 million increase in noninterest expense, a $550,000 increase in provision for loan loss and a $966,000 increase in income tax expense.  The $10.5 million increase in net interest income included approximately $6.6 million earned from the Timber Region.  An increase in purchase accounting adjustments of $2.6 million in year-to-date comparison also contributed to the increase in net interest income.  

Increases in noninterest income consisted primarily of $750,000 in service charges on deposit accounts and $719,000 in ATM and debit card income.  Noninterest expenses increased $9.2 million in year-to-date comparison and included approximately $3.4 million in operating expenses for the Timber region and approximately $782,000 in operating expenses for the four new branches opened in late 2012 and early 2013.  Increases in noninterest expense, excluding operating expenses on the Timber Region and the new branches, included primarily $2.5 million in salary and benefits costs, $910,000 in occupancy expense, $163,000 in data processing expense, and $314,000 in corporate development expense. 

In year-to-date comparison, FTE net interest income increased $10.6 million primarily due to a $10.9 million increase in interest income.  The increase resulted primarily from a $391.8 million increase in the average volume of earning assets.  The average yield on earning assets increased in year-to-date comparison, from 4.97% at June 30, 2012 to 5.14% at June 30, 2013.  Net of a 48 basis point effect of discount accretion on acquired loans, the average yield on earning assets was 4.66% at June 30, 2013.

Interest expense increased in year-over-year comparison primarily due to a $293.1 million increase in the average volume of interest-bearing liabilities, from $955.5 million at June 30, 2012 to $1.2 billion at June 30, 2013.   The average rate paid on interest-bearing liabilities decreased 9 basis points, from 0.63% at June 30, 2012 to 0.54% at June 30, 2013.  Net of a 9 basis point effect of premium amortization on acquired certificates of deposit and FHLB advances, the average rate paid on interest bearing liabilities was 0.63% at June 30, 2013.  The FTE net interest margin increased 25 basis points, from 4.49% for the six months ended June 30, 2012 to 4.74% for the six months ended June 30, 2013.  Net of purchase accounting adjustments, the FTE net interest margin declined 3 basis points, from 4.21% to 4.18% for the six months ended June 30, 2012 and 2013, respectively.

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, 2013. 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 banking centers in Louisiana and Texas and is connected to a worldwide ATM network that provides customers with access to more than 50,000 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 the recently completed PSB acquisition, 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, the ability of MidSouth to integrate the PSB operations and capitalize on new market opportunities resulting from the acquisition; the effect of the PSB acquisition on relations with customers and employees; 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, 2012 filed with the SEC on March 18, 2013 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.