MidSouth Bancorp, Inc. Reports Fourth Quarter 2011 Results
- Reported EPS of $.09 per diluted share; operating EPS of $0.17 per diluted share
- Significant items impacting 4th quarter results: merger related charges of $0.08 per share
- First Louisiana and Tyler acquisitions closed and systems conversions complete
- Total assets stand at $1.4 billion after completion of acquisitions
- Nonperforming assets down 32% YOY and down 8% from linked-quarter
LAFAYETTE, La., Jan. 31, 2012 /PRNewswire/ -- MidSouth Bancorp, Inc. ("MidSouth") (NYSE Amex: MSL) today reported net earnings available to common shareholders of $879,000 for the fourth quarter of 2011, compared to net earnings available to common shareholders of $1.6 million reported for the fourth quarter of 2010 and $296,000 in net earnings available to common shareholders for the third quarter of 2011. Diluted earnings for the fourth quarter of 2011 were $0.09 per common share, down from the $0.16 per common share for the fourth quarter of 2010 and up from the $.03 per common share reported for the third quarter of 2011.
C.R. "Rusty" Cloutier, President and Chief Executive Officer, commenting on fourth quarter results, remarked "In December, we completed the acquisition and systems conversion of the Beacon Federal branch in Tyler, Texas ("Tyler") and First Louisiana National Bank in Breaux Bridge, Louisiana ("FLNB"). As a result, the fourth quarter included $0.08 per share of merger related expenses. Excluding these non-operating expenses, we had strong operating earnings per share in the quarter of $0.17 versus $0.14 in the third quarter. We are very excited to expand our market presence in Texas and Louisiana and look forward to the positive impact of these acquisitions on our franchise and to future earnings."
Dividends paid on the Series B Preferred Stock totaled $400,000 for the fourth quarter of 2011 based on a dividend rate of 5%. In August 2011, the Company issued $32.0 million in Series B Preferred Stock to the Treasury in connection with the Small Business Lending Fund ("SBLF"). The dividend rate on the Series B Preferred Stock going forward will be between 1% and 5% based on our level of qualified small business loans. Linked-quarter net earnings available to common shareholders were impacted by the repayment of $20.0 million in Series A Preferred Stock issued to the Treasury under the Capital Purchase Plan ("CPP") with funds from the U.S. Treasury that were authorized by Congress under the Small Business Jobs Act of 2010. Repayment of the Series A Preferred Stock under the CPP resulted in accelerated accretion of discount on the preferred stock of approximately $444,000 in the third quarter of 2011, or approximately $0.05 per share.
For the year ended December 31, 2011, net income available to common shareholders totaled $2.7 million compared to $4.6 million for the year ended December 31, 2010. Operating earnings per share were $0.48 for 2011, compared to $0.47 for 2010.
Total consolidated assets at December 31, 2011 were $1.4 billion, compared to $1.0 billion at December 31, 2010. Deposits totaled $1.2 billion at year-end 2011, compared to $800.8 million at year-end 2010. Total loans were $746.3 million at December 31, 2011 compared to $580.8 million at December 31, 2010.
The Company's subsidiary, MidSouth Bank, N.A. ("the Bank") completed the acquisition of $48.0 million in loans and $104.0 million in deposits from FLNB on December 1, 2011. A second acquisition closed on December 2, 2011 and included the purchase of $22.2 million in loans and the assumption of $79.8 million in deposits with the Tyler branch. The Bank also completed the acquisition of five Jefferson Bank branches in the Dallas-Fort Worth market from First Bank and Trust Company of Lubbock, Texas on July 29, 2011. The Bank acquired $68.9 million in performing loans, including $59.8 million of Jefferson Bank loans and $9.1 million of participation loans from First Bank and Trust. Jefferson Bank deposits assumed with the purchase totaled $164.3 million.
MidSouth's leverage capital ratio was 11.14% at December 31, 2011 compared to 14.00% at December 31, 2010. Tier 1 risk-based capital and total risk-based capital ratios were 16.10% and 16.97% at December 31, 2011, compared to 21.11% and 22.36% at December 31, 2010, respectively. The Tier 1 common equity leverage ratio at December 31, 2011 was 7.61% and tangible book value was $9.34 per common share for the same period. Tangible common equity totaled $97.7 million at December 31, 2011, compared to $107.9 million at December 31, 2010. Tangible common equity declined as a result of goodwill and intangibles added with the three acquisitions closed in the second half of 2011.
Nonperforming assets declined 32.3% in year-over-year comparison and 7.6% in linked-quarter comparison as the Company continued to successfully work problem assets off the balance sheet. Total nonperforming assets were reduced from $20.9 million at December 31, 2010 to $14.2 million at December 31, 2011, a $6.7 million reduction that included the charge-off of $2.8 million in specific reserves related to two commercial credits in the first quarter of 2011. The two credits were transferred into Other Real Estate ("ORE") during the second and third quarters of 2011. Additionally, a $1.6 million credit was sold in the first quarter of 2011 and a $2.7 million national participation credit was sold in the third quarter of 2011 to further reduce nonperforming assets.
Allowance coverage for nonperforming loans increased to 112.63% at December 31, 2011, compared to 44.81% at December 31, 2010, due to a $13.2 million reduction in nonperforming loans. The ALL/total loans ratio decreased to 0.97% for the year ended December 31, 2011, compared to 1.52% at December 31, 2010, primarily due to the $139.1 million in loans added through the three acquisitions completed in the third and fourth quarters of 2011. The $139.1 million in acquired loans had the impact of reducing the December 31, 2011 ALL/total loans ratio by approximately 23 basis points as compared to the June 30, 2011 ALL/total loans ratio prior to the acquisitions. The ratio of net charge-offs to total loans was 0.73% for year-end 2011 compared to 0.72% for year-end 2010.
Loans past due 90 days or more and still accruing totaled $231,000 at December 31, 2011, an increase of $165,000 from December 31, 2010. Total nonperforming assets to total loans plus ORE and other assets repossessed were 1.88% at December 31, 2011, compared to 3.59% at December 31, 2010. Loans classified as troubled debt restructurings totaled $456,000 at December 31, 2011. Classified assets, including ORE, decreased $5.1 million, or 16.1% during the fourth quarter of 2011, from $31.8 million at September 30, 2011 to $26.7 million at December 31, 2011. The decrease in classified assets resulted primarily from the payout of two commercial loans totaling $3.2 million and a credit quality upgrade on a $1.8 million commercial loan.
Mr. Cloutier, commenting on MidSouth's asset quality, remarked, "We are pleased with the progress we made reducing classified assets during 2011. The fourth quarter payout of two loans and a credit quality upgrade on a third loan contributed to a 30% reduction in classified assets year-over-year. Earlier in the year, two of the three largest non-performing assets going into 2011 were liquidated and the third is in ORE producing positive cash flow from net rental income on a monthly basis."
Fourth Quarter 2011 vs. Fourth Quarter 2010 Earnings Comparison
Fourth quarter 2011 net earnings before dividends on preferred stock totaled $1.3 million compared to $1.9 million for the fourth quarter of 2010. Net earnings decreased as a $2.6 million increase in net interest income and a $95,000 decrease in the provision for loan losses were offset by a $3.4 million increase in non-interest expense and a $36,000 decline in non-interest income. Of the $2.6 million increase in net interest income, a total of $1.4 million was earned from the branches acquired in the third and fourth quarters. The $1.4 million included the impact of purchase accounting adjustments and excluded interest income on excess funds available for investment as a result of the acquisitions. Interest income on investments and other interest-bearing accounts increased $753,000 in quarterly comparison and included interest earned on excess cash invested from the acquisitions. A $333,000 decrease in service charges on deposit accounts, primarily as a result of fewer insufficient funds ("NSF") transactions processed, was mostly offset by a $134,000 increase in ATM/debit card income and by $174,000 in other non-interest income recorded on ORE. Non-interest expense increased $3.4 million in prior year quarterly comparison and included $1.3 million in merger and conversion expenses related to the acquisitions. Operating expenses recorded for the acquired branches during the fourth quarter 2011 totaled $1.1 million, including amortization costs of core deposit intangibles resulting from the acquisitions. Other increases in non-interest expenses (exclusive of merger, conversion, and acquired operating costs) included $306,000 in salaries and benefits costs, $291,000 in data processing expenses, $208,000 in marketing costs, and $172,000 in legal and professional fees.
Fourth Quarter 2011 vs. Third Quarter 2011 Earnings Comparison
In linked-quarter comparison, net earnings before dividends on preferred stock increased $179,000 as a $1.4 million increase in net interest income offset a $125,000 increase in provision for loan loss and a $1.0 million increase in non-interest expenses. Increases in noninterest expenses (including merger, conversion, and acquired operating costs) consisted primarily of approximately $705,000 in data processing expense and $287,000 in marketing costs. Linked-quarter decreases in legal and professional fees ($265,000) and expenses on ORE ($270,000) offset minimal increases in several other non-interest expense categories.
Year-Over-Year Earnings Comparison
In year-over-year comparison, net earnings before dividends on preferred stock decreased $1.3 million primarily as a result of a $5.5 million increase in non-interest expense and a $1.8 million reduction in non-interest income which offset a $4.5 million improvement in net interest income and a $1.1 million decrease in provision for loan loss. The $1.8 million decrease in non-interest income was driven by a $2.7 million reduction in NSF fee income due to a lower volume of NSF transactions processed. Regulatory changes governing our ability to collect NSF fees implemented in the second half of 2010, combined with proactive steps taken during the first quarter of 2011 in response to guidance issued by the FDIC, have significantly lowered our NSF fee income. Additional regulatory changes regarding electronic transactions could further reduce our non-interest income earned in future periods. Other increases in non-interest expense (exclusive of merger, conversion, and acquired operating costs) included primarily $749,000 in salary and benefits costs, $713,000 in expenses on ORE and repossessed assets, and $309,000 in marketing costs. The increased non-interest expenses were partially offset by a $423,000 reduction in internet banking processing costs.
Net Interest Income Analysis
Fully taxable-equivalent ("FTE") net interest income totaled $13.4 million and $10.9 million for the quarters ended December 31, 2011 and 2010, respectively. The FTE net interest income increased $2.5 million in prior year comparison primarily due to a $234.9 million increase in the volume of average earning assets as a result of the three acquisitions. The average volume of loans increased $115.6 million in quarterly comparison and the average yield on loans fell 19 basis points, from 6.88% to 6.69%. Discount accretion on acquired loans added 16 basis points to the average yield on loans for the fourth quarter of 2011. Net of the impact of discount accretion, average loan yields declined 35 basis points in prior year quarterly comparison to 6.53%. Loan yields have declined primarily due to lower repricing rates as a result of a competitive environment and lower market interest rates.
The average volume of investment securities increased $130.1 million in quarterly comparison as a portion of excess cash flow from the acquisition was placed primarily in agency mortgage-backed securities. The average tax equivalent yield on investment securities decreased 39 basis points, from 3.39% to 3.00% primarily due to lower reinvestment rates. The average volume of overnight interest bearing deposits earning 0.26% decreased $16.7 million due to the purchase of investment securities. The average yield on all earning assets decreased 28 basis points in prior year quarterly comparison, from 5.40% for the fourth quarter of 2010 to 5.12% for the fourth quarter of 2011. Net of the impact of discount accretion, the average yield on total earning assets declined 39 basis points, from 5.40% to 5.01% for the three month periods ended December 31, 2010 and 2011, respectively.
Interest expense decreased due to a 30 basis point reduction in the average rate paid on interest bearing liabilities, from 0.98% at December 31, 2010 to 0.68% at December 31, 2011. The average volume of interest-bearing deposits increased $214.0 million in prior year quarterly comparison primarily due to deposits assumed with the three acquisitions. Net of premium amortization on acquired certificates of deposit, the average rate paid on interest bearing liabilities was 0.83% for the fourth quarter of 2011 compared to 0.98% for the fourth quarter of 2010. The average rate paid on interest bearing liabilities has decreased as offering rates on interest bearing deposits and repurchase agreements with bank customers have been adjusted closer to market rates over the past 12 months.
As a result of these changes in volume and yield on earning assets and interest bearing liabilities, the FTE net interest margin decreased 10 basis points, from 4.70% for the fourth quarter of 2010 to 4.60% for the fourth quarter of 2011. Net of a 21 basis point effect of purchase accounting adjustments on loans and deposits, the FTE margin decreased 31 basis points, from 4.70% for the fourth quarter of 2010 to 4.39% for the fourth quarter of 2011.
In year-to-date comparison, FTE net interest income increased $4.2 million primarily due to a $2.6 million increase in interest income and a $1.6 million reduction in interest expense. Interest income on average earning assets increased $2.6 million in year-to-date comparison, as a $121.4 million increase in the average volume of earning assets offset a 41 basis point reduction in the average yield on earning assets, from 5.55% at December 31, 2010 to 5.14% at December 31, 2011. Net of a 5 basis point effect of discount accretion on acquired loans, the average yield on earning assets was 5.10% at December 31, 2011.
Interest expense decreased in year-over-year comparison primarily due to a 35 basis point reduction in the average rate paid on interest-bearing liabilities, from 1.13% at December 31, 2010 to 0.78% at December 31, 2011, driven by a decrease in the average rate paid on interest-bearing deposits and repurchase agreements. Net of a 7 basis point effect of premium amortization on acquired certificates of deposit, the average rate paid on interest-bearing liabilities was 0.85% at December 31, 2011 The FTE net interest margin declined 14 basis points, from 4.72% for the year ended December 31, 2010 to 4.58% for the year ended December 31, 2011. Net of purchase accounting adjustments, the FTE net interest margin declined 24 basis points, from 4.72% to 4.48% for the year ended December 31, 2010 and 2011, respectively.
In linked-quarter comparison, FTE net interest income increased $1.4 million, primarily due to a $113.5 million increase in the average volume of earning assets as a result of the Tyler and FLNB branch acquisitions. Average loan volume increased $61.0 million and the average yield on loans, net of discount accretion on acquired loans, decreased 7 basis points from 6.60% at September 30, 2011 to 6.53% at December 31, 2011. The average volume of interest bearing liabilities increased $105.7 million in linked-quarter comparison, and the average rate paid decreased 4 basis points, net of premium amortization on acquired certificates of deposit, from 0.87% at September 30, 2011 to 0.83% at December 31, 2011. Accordingly, the FTE margin decreased 5 basis points, net of purchase accounting adjustments, from 4.44% for the third quarter of 2011 to 4.39% for the fourth quarter of 2011.
About MidSouth Bancorp, Inc.
MidSouth Bancorp, Inc. is a bank holding company headquartered in Lafayette, Louisiana, with assets of $1.4 billion as of December 31, 2011. 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 has 40 locations in Louisiana and Texas and is connected to a worldwide ATM network that provides customers with access to more than 43,000 surcharge-free ATMs. Additional corporate information is available at www.midsouthbank.com.