MidSouth Bancorp, Inc. Reports Third Quarter 2014 Results and Declares Quarterly Dividends
Quarterly Highlights
| · | Diluted operating EPS $0.36 versus $0.27 for 3Q 2013 |
| · | Period end loan growth of $24.2 million or 7.9% annualized |
| · | Operating return on average tangible common equity of 14.4% |
| · | Linked quarter operating noninterest expenses flat at $17.0 million |
| · | Core FTE NIM on linked quarter basis of 4.42% versus 4.39% |
LAFAYETTE, LA., October 28, 2014/PRNewswire-FirstCall/ -- MidSouth Bancorp, Inc. ("MidSouth") (NYSE:MSL) today reported quarterly net earnings available to common shareholders of $4.3 million for the third quarter of 2014, compared to net earnings available to common shareholders of $3.1 million reported for the third quarter of 2013 and $3.9 million in net earnings available to common shareholders for the second quarter of 2014. Diluted earnings for the third quarter of 2014 were $0.37 per common share, compared to $0.27 per common share reported for the third quarter of 2013 and $0.34 per common share reported for the second quarter of 2014. Third quarter 2014 net earnings included $700,000 of an after-tax gain on the sale of a commercial property held as other real estate ("ORE"), an after-tax charge of $168,000 on the redemption of the Company's Statutory Trust 1 and Capital Securities (TRUPS), and an after-tax charge of $256,000 for losses on disposal of fixed assets incurred in the quarter. Net earnings for the third and second quarters of 2014 also included after-tax charges for efficiency consultant expenses of $130,000 and $70,000, respectively. Excluding these non-operating income and expenses, operating earnings per share for the third and second quarters of 2014 was $0.36 and $0.35, respectively.
C. R. Cloutier, President and CEO, commenting on third quarter earnings remarked, "Although there were a number of non-operating income and expense items this quarter, the underlying operating EPS of the Company continues to show significant progress, with continued growth in top line core revenues, good expense control, and stable core margins. Our focus on efficiency improvements is transitioning from our initial internally generated projects to a second phase working with experienced industry consultants to further enhance our productivity. We also paid off a high cost TRUPS during the quarter and will see a full quarter benefit from that payoff in the fourth quarter. And while industry conditions remain challenging, I am very encouraged about our team's ability to continue to improve earnings for our shareholders."
Balance Sheet
Consolidated assets remained constant at $1.9 billion for the quarters ended September 30, 2014 and June 30, 2014. Our stable core deposit base, which excludes time deposits, totaled $1.3 billion at September 30, 2014 and June 30, 2014 and accounted for 85.7% of deposits compared to 85.5% of deposits, respectively. Net loans totaled $1.2 billion at September 30, 2014 and June 30, 2014, compared to $1.1 billion at December 31, 2013. Total loans grew $24.2 million, or 2.0% for the quarter and $110.8 million for the nine months ended September 30, 2014. The majority of the loan growth during the third quarter was in the commercial real estate and consumer loan portfolios, along with solid growth in the C&I portfolio over the nine months ended September 30, 2014.
MidSouth's Tier 1 leverage capital ratio was 9.56% at September 30, 2014 compared to 9.74% at June 30, 2014. Tier 1 risk-based capital and total risk-based capital ratios were 12.93% and 13.63% at September 30, 2014, compared to 13.34% and 14.03% at June 30, 2014, respectively. Tier 1 common equity to total risk-weighted assets at September 30, 2014 was 8.30%. Tangible common equity totaled $115.3 million at September 30, 2014, compared to $111.4 million at June 30, 2014. Tangible book value per share at September 30, 2014 was $10.17 versus $9.86 at June 30, 2014.
Asset Quality
Nonperforming assets totaled $12.5 million at September 30, 2014, a decrease of $1.0 million compared to $13.5 million reported at June 30, 2014. The decrease resulted from a $1.7 million reduction in ORE, which included the sale of a $1.4 million commercial property. Allowance coverage for nonperforming loans decreased to 121.25% at September 30, 2014 compared to 127.53% at June 30, 2014 due to an $837,000 net increase in loans placed on nonaccrual status during the quarter. The ALLL/total loans ratio was 0.75% at September 30, 2014 and 0.74% at June 30, 2014. Including valuation accounting adjustments on acquired loans, the total valuation accounting adjustment plus ALLL was 1.25% of loans at September 30, 2014. The ratio of annualized net charge-offs to total loans was 0.26% for the three months ended September 30, 2014 compared to 0.29% for the three months ended June 30, 2014.
Total nonperforming assets to total loans plus ORE and other assets repossessed was 0.99% at September 30, 2014 compared to 1.10% at June 30, 2014. Loans classified as troubled debt restructurings ("TDRs") totaled $416,000 at September 30, 2014 compared to $417,000 at June 30, 2014. Classified assets, including ORE, increased $1.3 million, or 3.9%, to $34.4 million at September 30, 2014 compared to $33.1 million at June 30, 2014. The increase resulted primarily from the addition of a $3.1 million CRE loan to classified assets, which was partially offset by a $1.7 million reduction in ORE.
Third Quarter 2014 vs. Third Quarter 2013 Earnings Comparison
Third quarter 2014 net earnings available to common shareholders totaled $4.3 million compared to $3.1 million for the third quarter of 2013. Revenues from consolidated operations increased $1.6 million in quarterly comparison. Net interest income increased $441,000 in quarterly comparison, as decreases of $342,000 in loan valuation income and $339,000 in interest income on investment securities were offset primarily by a $963,000 increase in interest income earned on a higher volume of loans. Noninterest income increased $1.2 million in quarterly
comparison, from $5.0 million for the three months ended September 30, 2013 to $6.2 million for the three months ended September 30, 2014. The increase in noninterest income resulted primarily from a $1.1 million gain on the sale of a commercial property held as ORE. Additionally, increases of $204,000 in service charges on deposit accounts, $89,000 in ATM/debit card income, and $52,000 in mortgage lending fees were partially offset by decreases in other noninterest income, including a $159,000 decrease in third party investment advisory income.
Excluding non-operating expenses of $852,000, third quarter 2014 noninterest expenses decreased $1.5 million compared to third quarter 2013 and primarily consisted of decreases of $353,000 in salaries and benefits costs, $343,000 in marketing expenses, $166,000 in expenses on ORE and other repossessed assets, and $119,000 in courier expense, combined with smaller decreases in several other noninterest expense categories. The provision for loan losses increased $725,000, and income tax expense increased $614,000 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 third 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 $94,000 for the three months ended September 30, 2014.
Fully taxable-equivalent ("FTE") net interest income totaled $19.9 million and $19.5 million for the quarters ended September 30, 2014 and 2013, respectively. The FTE net interest income increased $370,000 in prior year quarterly comparison primarily due to a $621,000 increase in interest income on loans despite a $342,000 reduction in purchase accounting adjustments on acquired loans. The increased interest income on loans resulted from a $109.1 million increase in the average volume of loans in quarterly comparison. The average yield on loans decreased 36 basis points, from 6.24% to 5.88%. The purchase accounting adjustments added 22 basis points to the average yield on loans for the third quarter of 2014 and 39 basis points to the average yield on loans for the third quarter of 2013. Net of the impact of the purchase accounting adjustments, average loan yields declined 19 basis points in prior year quarterly comparison, from 5.85% to 5.66%. Loan yields have declined primarily as the result of a sustained low interest rate environment.
Investment securities totaled $433.4 million, or 22.9% of total assets at September 30, 2014, versus $517.8 million, or 27.8% of total assets at September 30, 2013. The investment portfolio had an effective duration of 2.9 years and a net unrealized gain of $3.8 million at September 30, 2014. The average volume of investment securities decreased $82.0 million in prior year quarterly comparison. The average tax equivalent yield on investment securities increased 11 basis points, from 2.59% to 2.70%. The $82.0 million decrease in the average volume of investment securities was used to fund loan growth during the same period.
The average yield on all earning assets decreased 3 basis points in prior year quarterly comparison, from 4.99% for the third quarter of 2013 to 4.96% for the third quarter of 2014. Net of the impact of purchase accounting adjustments, the average yield on total earning assets increased 6 basis points, from 4.74% to 4.80% for the three month periods ended September 30, 2013 and 2014, respectively, due to a favorable shift in earning assets from investment securities to loans.
The impact to interest expense of a $4.2 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 September 30, 2013 to 0.46% at September 30, 2014. Net of purchase accounting adjustments on acquired certificates of deposit and FHLB borrowings, the average rate paid on interest-bearing liabilities was 0.58% for the third quarter of 2013 and declined to 0.51% for the third 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 increased 1 basis point, from 4.60% for the third quarter of 2013 to 4.61% for the third quarter of 2014. Net of purchase accounting adjustments on loans, deposits and FHLB borrowings, the FTE margin increased 12 basis points, from 4.30% for the third quarter of 2013 to 4.42% for the third quarter of 2014.
Third Quarter 2014 vs. Second Quarter 2014 Earnings Comparison
In sequential-quarter comparison, net earnings available to common shareholders increased $352,000 primarily due to a $399,000 increase in net interest income driven by third quarter loan growth. Excluding the $1.1 million gain on the sale of a commercial property held as ORE, noninterest income decreased $144,000 in sequential-quarter comparison as $182,000 in annual safe deposit box rental income and a $128,000 gain on sale of securities recorded in the second quarter of 2014 were partially offset by third quarter 2014 increases of $112,000 in mortgage lending fees and $108,000 in service charges on deposit accounts.
Third quarter noninterest expenses included a charge of $258,000 on the redemption of the Company's Statutory Trust 1 and Capital Securities (TRUPS) and a charge of $394,000 for losses on disposal of fixed assets incurred in the quarter. Additionally, noninterest expenses in the third and second quarters of 2014 included efficiency consultant expenses of $200,000 and $107,000, respectively. Excluding these non-operating expenses, noninterest expense remained relatively constant and primarily included a decrease of $201,000 in salaries and benefits costs that offset increases primarily consisting of $145,000 in occupancy expenses and $86,000 in ATM and debit card processing fees.
FTE net interest income increased $397,000 in sequential-quarter comparison primarily due to an increase of $26.3 million in the average volume of loans. The average yield on loans decreased 3 basis points, from 5.91% for the second quarter of 2014 to 5.88% for the third quarter of 2014. Net of purchase accounting adjustments, the loan yield declined 2 basis points, from 5.68% to 5.66% during the same period. The average yield on total earning assets increased 3 basis points for the same period, from 4.93% to 4.96%, respectively due to the increased volume of loans. Average interest bearing liabilities declined $16.8 million, as a $24.5 million decrease in the average volume of interest bearing deposits was partially offset by an $8.3 million average increase 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 increased 3 basis points, from 4.58% to 4.61%. Net of purchase accounting adjustments, the FTE net interest margin also increased 3 basis points, from 4.39% for the second quarter of 2014 to 4.42% for the third quarter of 2014.
Year-Over-Year Earnings Comparison
In year-over-year comparison, net earnings available to common shareholders totaled $14.9 million at September 30, 2014, an increase of $5.4 million compared to $9.5 million at September 30, 2013. The $5.4 million included $3.0 million of executive life insurance proceeds and a $1.1 million gain on sale of ORE recorded in noninterest income for the nine months ended September 30, 2014. Excluding these non-operating income items and non-operating expenses of $394,000 in loss on disposal of fixed assets, a $258,000 loss on redemption of Trust Preferred Securities, $360,000 in efficiency consultant expenses, and $189,000 of expenses related to the loss of an executive officer, operating earnings totaled $12.0 million at September 30, 2014. Net of $214,000 of net merger and conversion related expenses associated with the PSB acquisition in the first quarter of 2013, operating earnings totaled $9.6 million at September 30, 2013. The net increase of $2.4 million in operating earnings in year-over-year comparison resulted primarily from a $0.9 million increase in noninterest income and a $2.5 million decrease in noninterest expense, which were partially offset by a $1.3 million increase in tax expense.
Excluding non-operating income, increases in noninterest income consisted primarily of $591,000 in service charges on deposit accounts and $662,000 in ATM and debit card income. Excluding the non-operating expenses in 2014 and 2013, decreases in noninterest expense included $678,000 in marketing expenses, $356,000 in the cost of printing and supplies, $278,000 in courier expense, $259,000 in corporate development, travel and training costs, and $159,000 in check fraud losses. The decreased expenses were partially offset by a $498,000 increase in ATM/debit card expense and an increase of $187,000 in salaries and benefit costs, primarily due to an increase in group health insurance expense.
A reduction in the dividend rate paid on the Series B preferred stock issued in connection with SBLF resulted in a $628,000 decrease in dividends on preferred stock in year-over-year comparison.
In year-to-date comparison, FTE net interest income remained relatively flat due to a $2.7 million decrease in purchase accounting adjustments. Of the $2.7 million, a $2.4 million decrease impacted interest income on loans for the nine months ended September 30, 2014 and resulted in a decrease in the average yield on loans, from 6.54% at September 30, 2013 to 5.99% at September 30, 2014. The average yield on earning assets decreased in year-to-date comparison, from 5.11% at September 30, 2013 to 4.97% at September 30, 2014. The purchase accounting adjustments added 64 basis points to the average yield on loans for the first nine months of 2013 and 29 basis points for the first nine months of 2014. Net of purchase accounting adjustments, the average yield on earning assets increased 7 basis points, from 4.70% at September 30, 2013 to 4.77% at September 30, 2014.
Interest expense decreased $474,000 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 6 basis points, from 0.53% at September 30, 2013 to 0.47% at September 30, 2014. Net of purchase accounting adjustments, the average rate paid on interest-bearing liabilities decreased 10 basis points, from 0.62% at September 30, 2013 to 0.52% at September 30, 2014. The FTE net interest margin decreased 9 basis points, from 4.71% for the nine months ended September 30, 2013 to 4.62% for the nine months ended September 30, 2014. Net of purchase accounting adjustments, the FTE net interest margin increased 14 basis points, from 4.24% to 4.38% for the nine months ended September 30, 2013 and 2014, respectively, due to a
favorable shift in earning assets from investment securities to loans.
Other Events
On October 31, 2014, MidSouth will close two banking centers, bringing the total to three centers closed during 2014. Customers will continue to have access to an ATM at the two centers scheduled to close and full service access at all other MidSouth banking centers.
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 January 2, 2015 to shareholders of record as of the close of business on December 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 January 15, 2015 to shareholders of record as of the close of business on January 2, 2015. 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 September 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 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.
