MidSouth Bancorp, Inc. Reports Second Quarter 2019 Results

MidSouth Bancorp, Inc. (“MidSouth”) (NYSE:MSL) today reported a quarterly net loss available to common shareholders of $3.7 million for the second quarter of 2019 compared to net loss available to common shareholders of $1.5 million for the second quarter of 2018 and $6.6 million in net loss available to common shareholders for the first quarter of 2019. The second quarter loss is primarily due to the $3.8 million impairment charge for a shared national healthcare credit with 91% of the loan being fully reserved for and $1.1 million of expense related to the anticipated merger with Hancock Whitney Corporation. MidSouth has two additional pass rated shared national credits with a balance of $12.2 million and $22.0 million committed. The second quarter of 2018 included an after-tax charge of $4.2 million resulting from regulatory remediation costs. Excluding non-operating expenses, a loss of $0.17 per diluted share was reported for the second quarter of 2019 compared to loss per diluted share of $0.40 for the first quarter of 2019 and earnings per diluted share of $0.17 for the second quarter of 2018.

Balance Sheet

Consolidated assets decreased $143.8 million to $1.7 billion at June 30, 2019 from $1.9 billion at June 30, 2018 and essentially unchanged from March 31, 2019. Our stable core deposit base, which excludes time deposits, totaled $1.2 billion at June 30, 2019 and March 31, 2019 and accounted for 87.8% and 87.65% of deposits at June 30, 2019 and March 31, 2019, respectively. Net loans totaled $851.9 million at June 30, 2019, compared to $868.9 million at March 31, 2019 and $1.0 billion at June 30, 2018. Loans held for sale of $10.3 million at June 30, 2019 increased from $1.5 million at March 31, 2019, with an anticipated loan sale of some or all these loans set to close in the 3rd quarter of 2019.

MidSouth’s Tier 1 leverage capital ratio was 11.53% at June 30, 2019, compared to 11.60% at March 31, 2019. Tier 1 risk-based capital and total risk-based capital ratios were 18.23% and 19.50% at June 30, 2019, respectively, essentially unchanged from March 31, 2019. Tier 1 common equity to total risk-weighted assets at June 30, 2019 was 12.37%, compared to 12.48% at March 31, 2019. Tangible common equity totaled $136.0 million at June 30, 2019, unchanged from March 31, 2019. Tangible book value per share at June 30, 2019 remained constant versus the first quarter at $8.13.

Asset Quality

Nonperforming assets totaled $23.7 million at June 30, 2019, a decrease of $239,000 compared to $23.9 million reported at March 31, 2019. Allowance coverage for nonperforming loans increased to 120.79% at June 30, 2019 compared to 106.85% at March 31, 2019. The ALLL/total loans ratio was 3.20% at June 30, 2019 compared to 2.77% at March 31, 2019. The ratio of annualized net charge-offs to total loans increased to 0.64% for the three months ended June 30, 2019 compared to 0.11% at March 31, 2019, which was primarily the result of two commercial loan charge-offs in the second quarter totaling $906,000.

Total nonperforming assets to total loans plus ORE and other assets repossessed were 2.69% at June 30, 2019 compared to 2.68% at March 31, 2019. Loans classified as troubled debt restructurings, totaled $593,000 at June 30, 2019 compared to $713,000 at March 31, 2019. Total classified assets, including ORE, were $55.7 million at June 30, 2019 compared to $44.4 million at March 31, 2019, as downgrades outpaced upgrades, pay downs/pay offs, and scheduled principal amortization during the quarter. The two largest downgrades were in the commercial real estate portfolio totaling $6.5 million or approximately 59% of the total classified downgrades. As a result, the classified assets to capital ratio at MidSouth Bank was 32% at June 30, 2019 versus 25% at March 31, 2019.

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

Second Quarter 2019 vs. First Quarter 2019 Earnings Comparison

MidSouth reported a net loss available to common shareholders of $3.7 million for the three months ended June 30, 2019, compared to net loss available to common shareholders of $6.6 million for the three months ended March 31, 2019. Revenues from consolidated operations decreased $982,000 from $23.7 million in the first quarter of 2019 to $22.7 million in the second quarter of 2019, primarily as a result of the first quarter gain on sale of loans of $1.3 million in the first quarter.

The second quarter of 2019 included merger related expenses of $1.1 million. The first quarter of 2019 did not include any merger related expenses. Excluding these non-operating expenses, compared with the first quarter of 2019 noninterest expense decreased $2.2 million in the second quarter of 2019. Between the first and quarters of 2019, salaries and employee benefits expense decreased $761,000, occupancy expenses declined $345,000 and ongoing legal and professional fees declined $719,000, primarily as a result of the completion of remediation efforts.

The provision for loan losses decreased $2.8 million from the first quarter 2019 compared to the second quarter 2019. Excluding the impact of provisioning for the previously mentioned shared national healthcare credit, the provision for loan losses was essentially unchanged on a sequential quarterly basis at $1.0 million.

Dividends on the Series B Preferred Stock issued to the U.S. Treasury as a result of our participation in the Small Business Lending Fund totaled $720,000 for the second quarter of 2019 and the first quarter of 2019 based on a dividend rate of 9%. Dividends on the Series C Preferred Stock totaled $90,000 for the three months ended June 30, 2019 and March 31, 2019.

Fully taxable-equivalent (“FTE”) net interest income increased $509,000 from the first quarter 2019 to the second quarter 2019, primarily due to an increase in interest income on other investments and interest bearing deposits with other banks of $314,000 and $220,000, respectively, offset by a decline in tax exempt securities interest income of $120,000 due to recent selling of municipal bonds. Loan yields increased 11 basis points from first quarter levels which were depressed by the reversal of income for a significant shared national healthcare credit. The average yield on investment securities decreased 8 basis points, from 2.86% to 2.78%, due to a continued repositioning of the bond portfolio through the sale of higher yielding municipal and corporate bonds and the timing impact of the sales and reinvestments on average balances. The average yield on total earning assets increased 10 bps for the same period, from 4.41% to 4.51%, respectively. The FTE net interest margin increased 11 bps from 3.89% for the first quarter 2019 to 4.00% for the second quarter of 2019.

Second Quarter 2019 vs. Second Quarter 2018 Earnings Comparison

MidSouth reported a net loss available to common shareholders of $3.7 million for the three months ended June 30, 2019 compared to net loss available to common shareholders of $1.5 million for the three months ended June 30, 2018. Net interest income decreased $1.0 million in quarterly comparison, resulting from a $793,000 decrease in interest income primarily driven by lower loan levels, in addition to a higher interest expense of $216,000 reflecting the impact of higher interest rates. Operating noninterest income decreased $295,000, which excludes $202,000 gains on sales of investments.

Excluding remediation expenses of $5.3 million for the second quarter of 2018 and merger-related expenses of $1.1 million for the second quarter of 2019, noninterest expenses increased $750,000 in quarterly comparison and consisted primarily of a $1.0 million increase in salary and employee benefits costs from the additional staffing necessary in connection with regulatory remediation efforts. The provision for loan losses increased $4.3 million in quarterly comparison, from $440,000 for the three months ended June 30, 2018 to $4.8 million for the three months ended June 30, 2019 resulting primarily from the impairment of the above-mentioned shared healthcare credit. We recorded an income tax benefit of $237,000 for the second quarter of 2018 versus no benefit for the second quarter of 2019.

Interest income on loans decreased $2.3 million between the second quarter 2018 compared with the same quarter 2019 primarily due to a $219.2 million decline in average loans given ongoing efforts to reduce problem loans and slower loan originations due to an internal focus on improving loan portfolio management and loan operations.

Investment securities totaled $458.9 million, or 26.8% of total assets at June 30, 2019, versus $376.7 million, or 20.3% of total assets at June 30, 2018. The investment portfolio had an effective duration of 2.13 years, as measured on a 100 basis point parallel shock in interest rates, and a net unrealized gain of $4.2 million at June 30, 2019. FTE interest income on investments increased $859,000 in prior year quarterly comparison. The average volume of investment securities increased $90.8 million in prior year quarterly comparison, and the average tax equivalent yield on investment securities increased 24 basis points, from 2.54% to 2.78%.

The average yield on all earning assets increased 12 basis points in prior year quarterly comparison, from 4.39% for the second quarter of 2018 to 4.51% for the second quarter of 2019, due to higher yields in the loan and investment portfolios offsetting the change of mix of interest earning assets on a year-over-year basis.

Interest expense increased $216,000 in prior year quarterly comparison primarily due to a $256,000 increase in interest expense on deposits and a $23,000 increase in interest expense on junior subordinated debt, which were partially offset by a $63,000 decrease in interest expense on repurchase agreements and FHLB borrowings.

As a result of these changes in volume and yield on earning assets and interest-bearing liabilities, the FTE net interest margin decreased 12 basis points, from 4.12% for the second quarter of 2018 to 4.00% for the second quarter of 2019.

Six Months Ended June 30, 2019 vs Six Months Ended June 30, 2018

MidSouth reported a net loss available to common shareholders of $10.4 million for the six months ended June 30, 2019 compared to net loss available to common shareholders of $1.9 million for six months ended June 30, 2018. Revenues from consolidated operations decreased $993,000 in quarterly comparison, from $47.4 million for the six months ended June 30, 2018 to $46.5 million for the six months ended June 30, 2019.

Excluding remediation expenses of $9.2 million for the first six months of 2018 and merger-related expenses of $1.1 million for the first six months of 2019, noninterest expenses increased $2.7 million in semiannual comparison and consisted primarily of a $3.0 million increase in salary and employee benefits costs from the additional staffing necessary in connection with regulatory remediation efforts. The provision for loan losses increased $11.9 million in prior year comparison, from $440,000 for the six months ended June 30, 2018 to $12.4 million for the six months ended June 30, 2019 due primarily to impairment of the shared healthcare credit. We recorded an income tax benefit of $271,000 for the first six months of 2018 versus no benefit for the first six months of 2019.

Dividends on preferred stock totaled $1.6 million for the six months ended June 30, 2019 and 2018. Dividends on the Series B Preferred Stock were $1.4 million for the six months ended June 30, 2019 and 2018. Dividends on the Series C Preferred Stock totaled $180,000 for the six months ended June 30, 2019 and 2018.

Interest income on loans decreased $5.3 million primarily due to a $238.6 million decline in average loans given ongoing efforts to reduce problem loans and slower loan originations due to an internal focus on improving loan portfolio management and loan operations.

The average volume of investment securities increased $47.5 million in prior year comparison, and the average tax equivalent yield on investment securities increased 37 basis points, from 2.55% to 2.92% at June 30, 2019 .

The average yield on all earning assets increased 12 basis points in prior year comparison, from 4.56% for 2019 to 4.44% for 2019, due to a less favorable mix of earning assets given the decline in loans on a year-over-year basis.

Interest expense increased $652,000 in prior year comparison primarily due to a $698,000 increase in interest expense on deposits and a $91,000 increase in interest expense on junior subordinated debt, which were partially offset by a $137,000 decrease in interest expense on repurchase agreements and FHLB borrowings.

As a result of these changes in volume and yield on earning assets and interest-bearing liabilities, the FTE net interest margin decreased 2 basis points, from 4.04% for the six months of 2018 to 4.02% for the six months of 2019.

About MidSouth Bancorp, Inc.

MidSouth Bancorp, Inc. is a bank holding company headquartered in Lafayette, Louisiana, with assets of $1.7 billion as of June 30, 2019. 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 42 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.

Non-GAAP Financial Measures

This press release, including the accompanying financial statement tables, contains financial information determined by methods other than in accordance with generally accepted accounting principles, or GAAP. This financial information includes certain operating performance measures, which exclude charges that are not considered part of recurring operations. Non-GAAP measures in this press release include, but are not limited to, descriptions such as “operating noninterest income,” “operating (loss) earnings per share,” “tangible common equity”, “tangible book value per share,” “operating return on average common equity,” “operating return on average assets,” and “operating efficiency ratio.” In addition, this press release, consistent with SEC Industry Guide 3, presents total revenue, net interest income, net interest margin, "non-operating expenses" and efficiency ratios on a fully taxable equivalent (“FTE”) basis, and ratios on an annualized basis. The FTE basis adjusts for the tax-favored status of net interest income from certain loans and investments using a federal tax rate of 21% for all periods beginning on or after January 1, 2018, as well as state income taxes, where applicable, to increase tax-exempt interest income to a taxable-equivalent basis. MidSouth believes this measure to be the preferred industry measurement of net interest income and it enhances comparability of net interest income arising from taxable and tax-exempt sources.

We use non-GAAP measures because we believe they are useful for evaluating our financial condition and performance over periods of time, as well as in managing and evaluating our business and in discussions about our performance. We also believe these non-GAAP financial measures provide users of our financial information with a meaningful measure for assessing our financial condition as well as comparison to financial results for prior periods. These measures should be viewed in addition to, and not as an alternative to or substitute for, measures determined in accordance with GAAP, and are not necessarily comparable to non-GAAP measures that may be presented by other companies. To the extent applicable, reconciliations of these non-GAAP measures to the most directly comparable measures as reported in accordance with GAAP are included with the accompanying financial statement tables.

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, statements regarding expected future performance and shareholder value. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “will,” “would,” “could,” “should,” “guidance,” “potential,” “continue,” “project,” “forecast,” “confident,” and similar expressions are typically used to identify forward-looking statements.

These statements are based on assumptions and assessments made by management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate. Any forward-looking statements are not guarantees of our future performance and are subject to risks and uncertainties and may be affected by various factors that may cause actual results, developments and business decisions to differ materially from those in the 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 in the markets we serve, 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; increases in competitive pressure in the banking and financial services industries; increased competition for deposits and loans which could affect compositions, rates and terms; changes in the levels of prepayments received on loans and investment securities that adversely affect the yield and value of the earning assets; our ability to successfully implement and manage our strategic initiatives; costs and expenses associated with our strategic initiatives and regulatory remediation efforts and possible changes in the size and components of the expected costs and charges associated with our strategic initiatives and regulatory remediation efforts; our ability to realize the anticipated benefits and cost savings from our strategic initiatives within the anticipated time frame, if at all; the ability of the Company to comply with the terms of the formal agreement and the consent order with the Office of the Comptroller of the Currency; risk of noncompliance with and further enforcement actions regarding the Bank Secrecy Act and other anti-money laundering statues and regulations; credit losses due to loan concentration, particularly our energy lending and commercial real estate portfolios; a deviation in actual experience from the underlying assumptions used to determine and establish our allowance for loan and lease losses (“ALLL”), which could result in greater than expected loan losses; the adequacy of the level of our ALLL and the amount of loan loss provisions required in future periods including the impact of implementation of the new CECL (current expected credit loss) methodology; future examinations by our regulatory authorities, including the possibility that the regulatory authorities may, among other things, impose additional enforcement actions or conditions on our operations, require additional regulatory remediation efforts or require us to increase our allowance for loan losses or write-down assets; changes in the availability of funds resulting from reduced liquidity or increased costs; the timing and impact of future acquisitions or divestitures, the success or failure of integrating acquired operations, and the ability to capitalize on growth opportunities upon entering new markets; the ability to acquire, operate, and maintain effective and efficient operating systems; the identified material weaknesses in our internal control over financial reporting; increased asset levels and changes in the composition of assets that would impact capital levels and regulatory capital ratios; loss of critical personnel and the challenge of hiring qualified personnel at reasonable compensation levels; legislative and regulatory changes, including the impact of regulations under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and other 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; regulations and restrictions resulting from our participation in government-sponsored programs such as the U.S. Treasury’s Small Business Lending Fund, including potential retroactive changes in such programs; changes in accounting principles, policies, and guidelines applicable to financial holding companies and banking; increases in cybersecurity risk, including potential business disruptions or financial losses; acts of war, terrorism, cyber intrusion, weather, or other catastrophic events beyond our control; the effect of divestitures that may be required by regulatory authorities due to the proposed merger in certain markets in which MidSouth competes; the outcome of pending or threatened litigation, or of matters before regulatory agencies, whether currently existing or commencing in the future, including litigation related to the merger; changes in the monetary and fiscal policies of the U.S. government, including policies of the U.S. Department of the Treasury and the Federal Reserve Board; and other factors discussed under the heading “Risk Factors” in MidSouth’s Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on March 18, 2019 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.

MIDSOUTH BANCORP, INC. and SUBSIDIARIES
Condensed Consolidated Financial Information (unaudited)
(in thousands except per share data)
		Quarter				Quarter				Quarter				Quarter				Quarter
		Ended				Ended				Ended				Ended				Ended
		June 30				March 31				December 31				September 30				June 30
EARNINGS DATA		2019				2019				2018				2018				2018
Total interest income		$	17,946			$	17,445			$	19,340			$	18,436			$	18,739
Total interest expense		2,031				2,062				2,097				1,970				1,814
Net interest income		15,915				15,383				17,243				16,466				16,925
Provision for loan losses		4,759				7,600				12,000				4,300				440
Non-interest income		4,790				6,273				4,702				5,090				4,882
Non-interest expense		18,849				19,886				24,644				23,527				22,273
(Loss) earnings before income taxes		(2,903		)		(5,830		)		(14,699		)		(6,271		)		(906		)
Income tax (benefit) expense		—				—				7,610				(1,373		)		(237		)
Net (loss) earnings		(2,903		)		(5,830		)		(22,309		)		(4,898		)		(669		)
Dividends on preferred stock		810				810				809				810				810
Net loss available to common shareholders		$	(3,713	)		$	(6,640	)		$	(23,118	)		$	(5,708	)		$	(1,479	)
PER COMMON SHARE DATA
Basic loss per share		(0.22		)		(0.40		)		(1.39		)		(0.34		)		(0.09		)
Diluted loss per share		(0.22		)		(0.40		)		(1.39		)		(0.34		)		(0.09		)
Diluted (loss) earnings per share, operating (Non-GAAP)(*)		(0.17		)		(0.40		)		(0.66		)		(0.08		)		0.17
Quarterly dividends per share		0.01				0.01				0.01				0.01				0.01
Book value per share at end of period		10.76				10.78				10.88				12.05				12.50
Tangible book value per share at period end (Non-GAAP)(*)		8.13				8.13				8.20				9.35				9.78
Market price per share at end of period		11.85				11.41				10.60				15.40				13.25
Shares outstanding at period end		16,733,569				16,715,671				16,641,017				16,641,105				16,619,894
Weighted average shares outstanding:
Basic		16,724,143				16,673,818				16,640,174				16,557,664				16,525,571
Diluted		16,724,143				16,673,818				16,640,174				16,557,664				16,525,571
AVERAGE BALANCE SHEET DATA
Total assets		$	1,728,634			$	1,742,686			$	1,791,990			$	1,830,834			$	1,860,906
Loans and leases		890,214				904,293				944,545				1,020,834				1,109,371
Total deposits		1,433,935				1,440,961				1,476,211				1,503,528				1,514,321
Total common equity		181,418				182,231				202,796				209,010				210,291
Total tangible common equity(*)		137,258				137,793				158,083				164,020				165,024
Total equity		222,390				223,203				243,768				249,997				251,278
SELECTED RATIOS
Return on average assets, operating(*)(**)		(0.86		)%		(1.52		)%		(2.70		)%		(0.30		)%		0.59		%
Return on average common equity, operating(*)(**)		(6.09		)%		(14.57		)%		(23.83		)%		(2.60		)%		5.22		%
Return on average tangible common equity, operating(*)(**)		(8.02		)%		(19.28		)%		(30.57		)%		(3.31		)%		6.65		%
Efficiency ratio, operating(*)		91.04		%		99.12		%		89.37		%		83.36		%		77.38		%
Average loans to average deposits		62.08		%		62.76		%		63.98		%		67.90		%		73.26		%
Tier 1 leverage capital ratio		11.53		%		11.60		%		11.45		%		12.53		%		12.71		%
CREDIT QUALITY
Allowance for loan and lease losses (ALLL) as a % of total loans		3.20		%		2.77		%		1.94		%		2.54		%		2.22		%
Nonperforming assets to tangible equity + ALLL		14.43		%		14.89		%		6.44		%		23.75		%		32.99		%
Nonperforming assets to total loans		2.69		%		2.68		%		3.39		%		5.45		%		7.08		%
QTD net charge-offs to total loans (**)		0.64		%		0.11		%		8.45		%		1.40		%		0.87		%
(**) Annualized
(*) See reconciliation of Non-GAAP financial measures on pages 23-25.

MIDSOUTH BANCORP, INC. and SUBSIDIARIES
Consolidated Balance Sheets (unaudited)
(in thousands)
		June 30,				March 31,				December 31,				September 30,				June 30,
		2019				2019				2018				2018				2018
Assets
Cash and cash equivalents		$	232,452			$	243,430			$	205,371			$	302,888			$	278,776
Securities available-for-sale		425,638				434,679				437,754				352,606				308,937
Securities held-to-maturity		33,219				35,107				37,759				64,893				67,777
Total investment securities		458,857				469,786				475,513				417,499				376,714
Other investments		18,261				17,083				16,614				16,508				14,927
Loans held for sale		10,304				1,511				23,876				—				—
Total loans		880,037				893,650				899,785				962,743				1,057,963
Allowance for loan losses		(28,129		)		(24,779		)		(17,430		)		(24,450		)		(23,514		)
Loans, net		851,908				868,871				882,355				938,293				1,034,449
Premises and equipment		54,221				55,097				55,382				56,006				56,834
Lease right of use asset		7,865				8,263				—				—				—
Goodwill and other intangibles		44,026				44,303				44,580				44,856				45,133
Deferred Tax Asset		10,932				11,207				11,373				8,452				6,659
Deferred Tax Asset Valuation Allowance		(10,932		)		(11,207		)		(11,373		)		—				—
Other assets		37,212				36,991				39,707				41,752				45,425
Total assets		$	1,715,106			$	1,745,335			$	1,743,398			$	1,826,254			$	1,858,917
Liabilities and Shareholders' Equity
Non-interest bearing deposits		$	399,619			$	418,321			$	383,167			$	425,696			$	419,517
Interest-bearing deposits		1,023,770				1,027,314				1,068,904				1,083,433				1,103,503
Total deposits		1,423,389				1,445,635				1,452,071				1,509,129				1,523,020
Securities sold under agreements to repurchase		5,456				11,968				11,220				13,676				14,886
Lease liability		7,816				8,203				—				—				—
FHLB advances		27,500				27,500				27,500				27,506				37,511
Junior subordinated debentures		22,167				22,167				22,167				22,167				22,167
Other liabilities		7,786				8,696				8,450				12,325				12,661
Total liabilities		1,494,114				1,524,169				1,521,408				1,584,803				1,610,245
Total shareholders' equity		220,992				221,166				221,990				241,451				248,672
Total liabilities and shareholders' equity		$	1,715,106			$	1,745,335			$	1,743,398			$	1,826,254			$	1,858,917

MIDSOUTH BANCORP, INC. and SUBSIDIARIES
Consolidated Statements of Operation (unaudited)
(in thousands except per share data)
		Three Months Ended												Six Months
		6/30/2019				3/31/2019				6/30/2018				6/30/2019				6/30/2018
Interest income:
Loans, including fees		$	13,023			$	12,987			$	15,344			$	26,010			$	31,359
Investment securities		3,260				3,326				2,370				6,586				4,733
Other interest income		1,663				1,132				1,025				2,795				1,644
Total interest income		17,946				17,445				18,739				35,391				37,736
Interest expense:
Deposits		1,665				1,680				1,410				3,345				2,647
Securities sold under agreement to repurchase		9				14				25				23				66
FHLB borrowings		74				81				120				155				249
Other borrowings		283				287				259				570				479
Total interest expense		2,031				2,062				1,814				4,093				3,441
Net interest income		15,915				15,383				16,925				31,298				34,295
Provision for loan losses		4,759				7,600				440				12,359				440
Net interest income after provision for loan losses		11,156				7,783				16,485				18,939				33,855
Noninterest income:
Service charges on deposit accounts		1,854				1,793				2,065				3,647				4,271
Gain (loss) on securities, net		202				373				—				575				(51		)
Gain on sale of loans, net		—				1,274				—				1,274				—
ATM and debit card income		2,044				1,925				1,877				3,969				3,661
Other charges and fees		690				908				940				1,598				1,830
Total noninterest income		4,790				6,273				4,882				11,063				9,711
Noninterest expense:
Salaries and employee benefits		8,940				9,700				7,916				18,638				15,635
Occupancy expense		2,962				3,307				3,193				6,269				6,238
ATM and debit card		682				624				648				1,306				1,223
Legal and professional fees		1,163				1,883				1,100				3,046				2,789
Remediation expense		—				—				5,323				—				9,249
Merger-related expense		1,149				—				—				1,149				—
Other non-interest expense		3,953				4,372				4,093				8,327				9,011
Total noninterest expense		18,849				19,886				22,273				38,735				44,145
Loss before income taxes		(2,903		)		(5,830		)		(906		)		(8,733		)		(579		)
Income tax (benefit)/expense		—				—				(237		)		—				(271		)
Net loss		(2,903		)		(5,830		)		(669		)		(8,733		)		(308		)
Dividends on preferred stock		810				810				810				1,620				1,620
Net loss available to common shareholders		$	(3,713	)		$	(6,640	)		$	(1,479	)		$	(10,353	)		$	(1,928	)
Loss per common share, diluted		$	(0.22	)		$	(0.40	)		$	(0.09	)		$	(0.62	)		$	(0.12	)
Operating (loss) income per common share, diluted on pages 18-20 (Non-GAAP)(*)		$	(0.17	)		$	(0.40	)		$	0.17			$	(0.62	)		$	(0.12	)
(*) See reconciliation of Non-GAAP financial measures.

MIDSOUTH BANCORP, INC. and SUBSIDIARIES
Loans, Deposits and Asset Quality (unaudited)
(in thousands)
COMPOSITION OF LOANS		June 30, 2019				March 31, 2019				December 31, 2018				September 30, 2018				June 30, 2018
Commercial, financial, and agricultural		$	226,871			$	255,410			$	267,340			$	294,971			$	354,944
Real estate - construction		77,482				89,723				89,621				90,444				98,108
Real estate - commercial		409,694				376,523				368,449				394,416				414,526
Real estate - residential		126,043				130,700				130,320				136,151				141,104
Consumer and other		39,476				40,784				43,506				46,169				48,649
Lease financing receivable		471				510				549				592				632
Total loans		$	880,037			$	893,650			$	899,785			$	962,743			$	1,057,963
COMPOSITION OF DEPOSITS		June 30, 2019				March 31, 2019				December 31, 2018				September 30, 2018				June 30, 2018
Noninterest bearing		399,619				$	418,321			$	383,167			$	425,696			$	419,517
NOW & other		403,026				410,792				400,625				442,487				461,726
Money market/savings		446,795				436,317				488,181				454,867				466,711
Time deposits of less than $100,000		121,399				121,460				121,703				125,363				111,758
Time deposits of $100,000 or more		52,550				58,745				58,395				60,716				63,308
Total deposits		$	1,423,389			$	1,445,635			$	1,452,071			$	1,509,129			$	1,523,020
ASSET QUALITY DATA		June 30, 2019				March 31, 2019				December 31, 2018				September 30, 2018				June 30, 2018
Nonaccrual loans		$	23,287			$	23,191			$	8,920			$	51,476			$	73,538
Loans past due 90 days and over and accruing		—				—				—				7				3
Total nonperforming loans		23,287				23,191				8,920				51,483				73,541
Nonperforming loans held for sale		—				—				20,441				—				—
Other real estate		387				664				1,067				1,022				1,365
Other repossessed assets		8				66				55				—				—
Total nonperforming assets		$	23,682			$	23,921			$	30,483			$	52,505			$	74,906
Troubled debt restructurings, accruing		$	593			$	713			$	1,334			$	896			$	1,010
Nonperforming assets to total assets		1.38		%		1.37		%		1.75		%		2.88		%		4.03		%
Nonperforming assets to total loans		2.69		%		2.68		%		3.39		%		5.45		%		7.08		%
ALLL to nonperforming loans		120.79		%		106.85		%		195.4		%		47.49		%		31.97		%
ALLL to total loans		3.20		%		2.77		%		1.94		%		2.54		%		2.22		%
Quarter-to-date charge-offs		1,558				384				19,277				4,339				2,801
Quarter-to-date recoveries		150				133				258				974				505
Quarter-to-date net charge-offs		1,408				251				19,019				3,365				2,296
Annualized QTD net charge-offs to total loans		0.64		%		0.11		%		8.45		%		1.40		%		0.87		%

MIDSOUTH BANCORP, INC. and SUBSIDIARIES
Tangible Common Equity to Tangible Assets and Regulatory Ratios (unaudited)
(in thousands)
COMPUTATION OF TANGIBLE COMMON EQUITY TO TANGIBLE ASSETS		June 30, 2019				December 31, 2018
Total equity		$	220,992			$	221,990
Less preferred equity		40,972				40,972
Total common equity		180,020				181,018
Less goodwill		42,171				42,171
Less intangibles		1,855				2,409
Tangible common equity		$	135,994			$	136,438
Total assets		$	1,715,106			$	1,743,398
Less goodwill		42,171				42,171
Less intangibles		1,855				2,409
Tangible assets		$	1,671,080			$	1,698,818
Tangible common equity to tangible assets		8.14		%		8.03		%
REGULATORY CAPITAL
Common equity tier 1 capital		$	132,053			$	137,991
Tier 1 capital		194,524				201,130
Total capital		208,053				215,310
Regulatory capital ratios:
Common equity tier 1 capital ratio		12.37		%		12.20		%
Tier 1 risk-based capital ratio		18.23		%		17.79		%
Total risk-based capital ratio		19.50		%		19.04		%
Tier 1 leverage ratio		11.53		%		11.45		%

MIDSOUTH BANCORP, INC. and SUBSIDIARIES
Quarterly Yield Analysis (unaudited)
(in thousands)
		Three Months Ended											Three Months Ended											Three Months Ended											Three Months Ended											Three Months Ended
YIELD ANALYSIS		June 30, 2019											March 31, 2019											December 31, 2018											September 30, 2018											June 30, 2018
							Tax											Tax											Tax											Tax											Tax
			Average				Equivalent			Yield/				Average				Equivalent			Yield/				Average				Equivalent			Yield/				Average				Equivalent			Yield/				Average				Equivalent			Yield/
			Balance				Interest			Rate				Balance				Interest			Rate				Balance				Interest			Rate				Balance				Interest			Rate				Balance				Interest			Rate
Investment securities (1)
Taxable		$	452,396			$	3,100			2.74	%		$	436,549			$	3,071			2.81	%		$	375,467			$	2,950			3.14	%		$	347,205			$	2,156			2.48	%		$	340,080			$	2,093			2.46	%
Tax-exempt (2)		22,368				203				3.63	%		38,424				323				3.36	%		43,010				355				3.30	%		43,151				345				3.20	%		43,858				351				3.20	%
Total investment securities		474,764				3,303				2.78	%		474,973				3,394				2.86	%		418,477				3,305				3.16	%		390,356				2,501				2.56	%		383,938				2,444				2.54	%
Federal funds sold		4,370				30				2.75	%		5,493				32				2.33	%		5,878				33				2.25	%		7,250				32				1.77	%		5,008				21				1.63	%
Interest bearing deposits in other banks		209,254				1,224				2.34	%		185,418				1,004				2.17	%		208,001				1,364				2.62	%		250,349				1,279				2.04	%		201,281				912				1.79	%
Other investments		17,629				409				9.28	%		16,936				95				2.24	%		16,573				177				4.27	%		15,640				106				2.71	%		14,924				91				2.45	%
Loans		890,214				13,023				5.85	%		904,293				12,987				5.74	%		944,546				14,536				6.16	%		1,020,834				14,590				5.72	%		1,109,371				15,344				5.55	%
Total interest earning assets		1,596,231				17,989				4.51	%		1,587,113				17,512				4.41	%		1,593,475				19,415				4.87	%		1,684,429				18,508				4.40	%		1,714,522				18,812				4.39	%
Non-interest earning assets		132,403											155,573											198,515											146,405											146,384
Total assets		$	1,728,634										$	1,742,686										$	1,791,990										$	1,830,834										$	1,860,906
Interest-bearing liabilities:
Deposits		$	1,032,778			$	1,665			0.64	%		$	1,042,918			$	1,680			0.64	%		$	1,066,322			$	1,670			0.63	%		$	1,083,404			$	1,602			0.59	%		$	1,087,746			$	1,409			0.52	%
Repurchase agreements		7,356				8				0.44	%		12,069				14				0.46	%		13,031				17				0.52	%		14,641				16				0.44	%		26,230				25				0.39	%
FHLB advances		27,500				74				1.08	%		27,500				81				1.18	%		27,500				135				1.96	%		29,139				81				1.11	%		37,514				120				1.28	%
Junior subordinated debentures		22,167				283				5.11	%		22,167				287				5.18	%		22,167				275				4.96	%		22,167				271				4.89	%		22,167				260				4.63	%
Total interest bearing liabilities		1,089,801				2,030				0.75	%		1,104,654				2,062				0.75	%		1,129,020				2,097				0.74	%		1,149,351				1,970				0.69	%		1,173,657				1,814				0.62	%
Non-interest bearing liabilities		416,443											414,829											419,202											431,486											435,971
Shareholders' equity		222,390											223,203											243,768											249,997											251,278
Total liabilities and  shareholders' equity		$	1,728,634										$	1,742,686										$	1,791,990										$	1,830,834										$	1,860,906
Net interest income (TE) and spread						$	15,959			3.76	%						$	15,450			3.66	%						$	17,318			4.13	%						$	16,538			3.71	%						$	16,998			3.77	%
Net interest margin										4.00	%										3.89	%										3.93	%										3.97	%										4.12	%
(1) Securities classified as available-for-sale are included in average balances. Interest income figures reflect interest earned on such securities. (2)Reflects taxable-equivalent adjustments using the federal statutory rate of 21% in adjusting interest on tax-exempt securities to a fully taxable basis. The taxable equivalent adjustments included above are $43,000 for 2Q19, $68,000 for 1Q19, $75,000 for 4Q18, $72,000 for 3Q18, and $74,000 for 2Q18 for the quarter ended. (3) Interest income includes loan fees of $588,000 for 2Q19, $632,000 for 1Q19, $832,000 for 4Q18, $686,000 for 3Q18, and $1.1 million for 2Q18 for the quarter ended. Nonaccrual loans are included in average balances and income on such loans is recognized on a cash basis

MIDSOUTH BANCORP, INC. and SUBSIDIARIES
Yearly Yield Analysis (unaudited)
(in thousands)
YIELD ANALYSIS		Six Months Ended
		June 30, 2019											June 30, 2018
						Tax											Tax
		Average				Equivalent				Yield/			Average				Equivalent				Yield/
		Balance				Interest				Rate			Balance				Interest				Rate
Investment securities (1)
Taxable		$	409,653			$	5,755			2.81	%		$	336,221			$	4,140			2.46	%
Tax-exempt (2)		21,240				526				4.95	%		47,186				746				3.16	%
Total investment securities		430,893				6,281				2.92	%		383,407				4,886				2.55	%
Federal funds sold		4,928				61				2.48	%		4,993				39				1.56	%
Time and interest bearing deposits in other banks		191,497				2,229				2.33	%		167,299				1,426				1.70	%
Other investments		17,284				505				5.84	%		14,853				179				2.41	%
Loans (3)		895,806				26,010				5.81	%		1,134,382				31,359				5.53	%
Total interest earning assets		1,540,408				35,086				4.56	%		1,704,934				37,889				4.44	%
Non-interest earning assets		193,947											155,556
Total assets		$	1,734,355										$	1,860,490
Interest-bearing liabilities:
Deposits		$	1,037,056			$	3,345			0.65	%		$	1,079,660			$	2,647			0.49	%
Repurchase agreements		9,699				23				0.47	%		33,134				66				0.40	%
FHLB advances		27,500				155				1.13	%		38,124				249				1.31	%
Junior subordinated debentures		22,167				570				5.14	%		22,167				479				4.32	%
Total interest bearing liabilities		1,096,422				4,093				0.75	%		1,173,085				3,441				0.59	%
Non-interest bearing liabilities		415,997											434,192
Shareholders' equity		221,936											253,213
Total liabilities and shareholders' equity		$	1,734,355										$	1,860,490
Net interest income (TE) and spread						$	30,993			3.81	%						$	34,448			3.85	%
Net interest margin										4.02	%										4.04	%
(1) Securities classified as available-for-sale are included in average balances. Interest income figures reflect interest earned on such securities. (2)Reflects taxable-equivalent adjustments using the federal statutory rate of 21% in adjusting interest on tax-exempt securities to a fully taxable basis. The taxable equivalent adjustments included above are $110,000 for 2019 and $152,000 for 2018. (3) Interest income includes loan fees of $1.1 million for 2019 and $2,073,000 for 2018. Nonaccrual loans are included in average balances and income on such loans is recognized on a cash basis.

MIDSOUTH BANCORP, INC. and SUBSIDIARIES
Reconciliation of Non-GAAP Financial Measures (unaudited)
(in thousands except per share data)
		Three Months Ended
		June 30, 2019				March 31, 2019				December 31, 2018				September 30, 2018				June 30, 2018
Tangible common equity and tangible book value per share
Total shareholders' equity		$	220,992			$	221,166			$	221,990			$	241,451			$	248,672
Less:
Preferred common shareholders' equity		40,972				40,972				40,972				40,972				40,987
Total common equity		180,020				180,194				181,018				200,479				207,685
Less:
Goodwill		$	42,171			$	42,171			$	42,171			$	42,171			$	42,171
Other intangible assets		$	1,855			$	2,132			$	2,409			$	2,685			$	2,962
Total tangible common equity		$	135,994			$	135,891			$	136,438			$	155,623			$	162,552
Period end number of shares		$	16,733,569			$	16,715,671			$	16,641,017			$	16,641,105			$	16,619,894
Book value per share (period end)		$	10.76			$	10.78			$	10.88			$	12.05			$	12.5
Tangible book value per share (period end)		$	8.13			$	8.13			$	8.20			$	9.35			$	9.78

MIDSOUTH BANCORP, INC. and SUBSIDIARIES
Reconciliation of Non-GAAP Financial Measures (unaudited) (continued)
(in thousands except per share data)
Operating (loss) earnings per share		June 30, 2019				March 31, 2019				December 31, 2018				September 30, 2018				June 30, 2018
Net loss available to common shareholders'		$	(3,713	)		$	(6,640	)		$	(23,118	)		$	(5,708	)		$	(1,479	)
Adjustment items:
Merger-related expenses		1,149				—				—				—				—
Regulatory remediation costs		—				—				4,970				5,502				5,323
Loans held for sale expense		—				—				—				4				20
Discount accretion acceleration		—				—				(726		)		—				—
Tax effect of adjustments		(241		)		—				(891		)		(1,156		)		(1,122		)
After tax adjustment items		908				—				3,353				4,350				4,221
Tax expense adjustment item:
Attributable to valuation allowance on deferred tax		—				—				7,685				—				—
Adjusted net (loss) income		$	(2,805	)		$	(6,640	)		$	(12,080	)		$	(1,358	)		$	2,742
Weighted average number of shares - diluted		16,724,143				16,673,818				16,640,174				16,557,664				16,525,571
Net loss per diluted share		$	(0.22	)		$	(0.40	)		$	(1.39	)		$	(0.34	)		$	(0.09	)
Operating net (loss) earnings per diluted share		$	(0.17	)		$	(0.40	)		$	(0.73	)		$	(0.08	)		$	0.17
Operating ratios
Return on average assets		(0.86		)%		(1.52		)%		(5.16		)%		(1.25		)%		(0.32		)%
Effect of adjustment items		0.21		%		—		%		2.46		%		0.95		%		0.91		%
Operating return on average assets		(0.65		)%		(1.52		)%		(2.70		)%		(0.30		)%		0.59		%
Return on average common equity		(8.07		)%		(14.57		)%		(45.60		)%		(10.92		)%		(2.81		)%
Effect of adjustment items		1.97		%		—		%		21.77		%		8.32		%		8.03		%
Operating return on average common equity		(6.09		)%		(14.57		)%		(23.83		)%		(2.60		)%		5.22		%
Return on average tangible common equity		(10.61		)%		(19.28		)%		(58.50		)%		(13.92		)%		(3.58		)%
Effect of adjustment items		2.60		%		—		%		27.93		%		10.61		%		10.23		%
Operating return on average tangible common equity		(8.02		)%		(19.28		)%		(30.57		)%		(3.31		)%		6.65		%

MIDSOUTH BANCORP, INC. and SUBSIDIARIES
Reconciliation of Non-GAAP Financial Measures (unaudited) (continued)
(in thousands except per share data)
						Three Months Ended
OPERATING EFFICIENCY RATIO (TE)		June 30, 2019				March 31, 2019				December 31, 2018				September 30, 2018				June 30, 2018
Operating noninterest expense
Total Noninterest Expense		$	18,849			$	19,886			$	24,644			$	23,527			$	22,273
Adjustment items:
Merger-related expenses		(1,149		)		—				$	—			$	—			$	—
Regulatory remediation costs		—				$	—			$	(4,970	)		$	(5,502	)		$	(5,323	)
Loans held for sale expense		—				—				—				4				(20		)
Operating noninterest expense		$	17,700			$	19,886			$	19,674			$	18,029			$	16,930
Operating efficiency ratio
Net interest income (TE)		15,959				15,436				17,318				16,538				16,998
Noninterest income		4,790				6,273				4,702				5,090				4,882
Total Revenue (TE)		20,749				21,709				22,020				21,628				21,880
Adjustment items
Gain on sale of securities		202				373				—				—				—
Gain on sale of loans		—				1,274				—				—				—
Adjusted total revenue (TE)		20,547				20,062				22,020				21,628				21,880
Efficiency ratio		91.04		%		91.83		%		112.30		%		109.14		%		102.14		%
Operating efficiency ratio		86.14		%		99.12		%		89.35		%		83.36		%		77.38		%

 

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