MidSouth Bank Report

March 24, 2015

MIDSOUTH BANCORP INC. MSL/NYSE

Continuing Coverage: Oil Industry on the Rocks Lacks Southern Comfort

Investment Rating: Market Outperform

PRICE: $ 14.49 S&P 500: 2,091.5 DJIA: 18,011.14 RUSSELL 2000: 1,263.46

Oil Industry is the main driver of MidSouth’s success or failure

Regional economic dependency impacts growth prospects

Cautious approach towards lending keeps asset portfolio resilient

Loan growth to see minor decline from impressive 2014

Our 12‐month target price is $20.00.

Valuation 2014 A 2015 E 2016 E

EPS $ 1.58 $ 1.50 $ 1.84

P/E 9.2x 9.7x 7.9x

TBVPS $ 13.44 $ 14.66 $ 16.25

P/TBVPS 1.1x 1.0x 0.9x * Net interest income per share

Market Capitalization Stock Data

Equity Market Cap (MM): $ 163.7 52‐Week Range: $ 6.67

Enterprise Value (MM): N/A 12‐Month Stock Performance: ‐14.08%

Shares Outstanding (MM): 11.30 Dividend Yield: 2.45%

Estimated Float (MM): 7.70 Book Value Per Share: $ 18.50

6‐Mo. Avg. Daily Volume: 27,747 Beta: 0.94

Company Quick View:

Description: MidSouth Bancorp Inc., the holding company for MidSouth Bank NA, has branches located throughout Louisiana and eastern Texas. The bank provides commercial and consumer lending, while also offering interest and non‐interest bearing checking accounts, investment accounts, cashier’s checks, U.S. Saving Bonds, credit card services, and traveler’s checks. MidSouth specializes in energy lending, which makes up approximately one‐fifth of its portfolio. Website: www.midsouthbank.com

Analysts: Investment Research Manager: Aaron Sacks Nikunj Bajaj Yeri Shin Jared Tromer John Vigil Joe Wilkinson

The BURKENROAD REPORTS are produced solely as a part of an educational program of Tulane University's Freeman School of Business. The reports are not investment advice and you should not and may not rely on them in making any investment decision. You should consult an investment professional and/or conduct your own primary research regarding any potential investment.

Wall Street's Farm Team

BURK

ENRO

AD R

EPO

RTS

4/1/13 4:47 PM

MidSouth Bancorp Inc. (MSL) BURKENROAD REPORTS (www.burkenroad.org) March 24, 2015

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Figure 1: Five‐year Stock Price Performance

Source: Yahoo! Finance

INVESTMENT SUMMARY

We rate MidSouth Bancorp, Inc., as Market Outperform with a 12‐month target price of $20.00 based on taking the average target prices from the discounted cash flow (DCF), peer group P/E multiple, historical P/E multiple, and price‐to‐tangible book value (P/TBV) methods

of valuation. Headquartered in Lafayette Louisiana, MidSouth is a regional commercial bank with 58 locations throughout Louisiana and East Texas. The Company focuses its lending on small to medium sized businesses, with approximately one‐fifth of its loans being distributed to companies in the energy industry which, due to the recent decline in oil prices, has created significant challenges for MidSouth’s share price. MidSouth currently holds about $1.9 billion in assets and has a market value of $169.33 million.

MidSouth’s large loan investment in the oil industry poses as a risk for the Company due to the oil industry’s overall volatility. Recently, oil prices have dropped significantly leaving the oil industry in a worrisome state. MidSouth has not yet experienced any losses due to this drop, however the Company’s stock price has preemptively declined as investors grow concerned about the potential for higher defaults and losses resulting from MidSouth’s large energy loan exposure.

Because MidSouth is a small regional bank, its own success is dependent on the current state of the regional economy where it operates. Some areas that MidSouth operates in have shown signs of growth, while other have seen declines. For instance, Lake Charles, an area that currently holds around 9% of MidSouth’s loans, has an economy experiencing drastic declines primarily due to postponed oil operations. Houston and Dallas, on the other hand, are both projected to increase in size and in average household income. Overall, MidSouth’s geographic reach in oil‐dependent areas causes the bank to be particularly volatile to the price of the resource. If the price of oil stays low, MidSouth’s reach may exacerbate the drop in prices and cause the bank significant harm. On the other hand, if prices begin to rebound, MidSouth could benefit tremendously due to its extended reach in these areas.


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The loan to deposit ratio (LTD) often describes a bank’s attitude towards lending. MidSouth has a LTD ratio of 81.02%, which is the lowest among MidSouth’s peers, largely because of the company’s high exposure to the energy industry. This cautiousness allows MidSouth to remain strong even when oil prices wane.

Although oil prices are currently low, MidSouth continues to distribute loans to companies that meet the bank’s lending criteria. The bank does not expect its non‐performing assets (NPAs) to increase substantially and the Company continues to operate with the expectation that oil prices will increase soon. MidSouth’s loans have grown 12.8% since the fourth quarter of 2013. In 2013, MidSouth concentrated on efficiency by cutting costs. The capital saved by this initiative was used to finance the increase in loans.

MidSouth’s future prospects will be largely determined by the price of oil going forward. The bank has made substantial growth in the past few years and has a very comfortable LTD ratio. However, the bank’s geographical reach and loan portfolio both heavily rely on the oil industry.

If oil prices stay at the current level, the bank could begin to suffer with a lower deposit base and an increase in NPAs from its energy loans. If oil prices increase, the bank should continue to grow and will possibly expand its loan growth at a rate similar to that of 2014. Regardless of the price of oil, we expect MidSouth to do well due to its steady growth, expertise, and solid metrics (including its low LTD). We also expect oil prices to rebound in the coming year, which will certainly increase the price of MidSouth’s stock.

Table 1: Historical Burkenroad Ratings and Prices

Date Rating Price*

03/25/14 Market Perform $17.67




03/16/10 Market Underperform $15.19

04/01/09 Market Outperform $15.04






03/26/03 Buy $8.65


*Price at time of report date


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INVESTMENT THESIS

Oil Industry is the main driver of MidSouth’s success or failure

The steep drop in oil prices is certainly the most important issue that faces MidSouth in the foreseeable future. MidSouth is unique in that about one‐fifth of all of its loans are oil‐related. This large percentage of oil lending exposes the bank to the risks of the volatile oil industry more than most other banks, and this customer base has caused the price of the bank’s market capitalization to drop dramatically as investors worry about the potential increase in nonperforming assets.

In response, MidSouth has begun making preparations in the event that oil companies are unable to meet loan payments. Specifically, the bank recently made a $600,000 allowance for losses from energy loans. Although oil prices have been dropping since the summer, MidSouth has not experienced any losses to date. The bank has expressed optimism on its loan portfolio, but the fact of the matter is that the bank is greatly dependent on the price of oil. While the bank has been able to survive up to this point, oil prices will need to rebound for the bank to remain in good shape and avoid losses. Figure 2 illustrates MidSouth’s nonperforming assets to total assets.

Source: Company 10‐Ks

0.25%

0.30%

0.35%

0.40%

0.45%

0.50%

0.55%

0.60%

0.65%

0.70%

0.75%

SouthwestBancorp

GuarantyBancorp

IndependentBank Group

Texas CapitalBank

Legacy TexasFinancial Group

Inc

Green BancorpInc

MidSouth Bank

Figure 2: Nonperforming Assets/ Total Assets


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Regional economic dependency impacts growth prospects

MidSouth, like most small banks, is dependent on the regions in which it operates (see Figure 3). For example, MidSouth currently has about 9% of its total loans in the Lake Charles area. This region was booming when oil prices were high during the summer, but now has about $46.6 billion in oil‐related projects on hold while oil prices are low. In particular, the South African company SASOL was planning to build a $22 billion complex in the region, but has delayed action due to the current economy. Regions such as this that are so reliant on oil prices can see a “ripple effect” as the low price of oil may cause increased unemployment and lower wages which will lead to other industries in the area struggling as consumers will have less purchasing power.

Figure 3: MidSouth Branch Locations

Source: MidSouth Website

While areas such as Lake Charles have fallen on hard times, the cities of Dallas and Houston are poised for economic expansion, offering MidSouth some potential for future loan growth. Both of these cities are expected to increase in size and in average household income. Overall, the growth potential for the different regions of MidSouth’s operations are mixed, but the bank would be wise to concentrate its future operations in the more promising locations, as outlined in Table 2.

TEXAS

LOUISIANA


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Table 2: MidSouth’s Areas of Operations

State City Projected Population Change 2014‐2019 (%)

Median HH Income ($)

Projected HH Income Change 2014‐2019 (%)

Beaumont 0.1 44,122 4.36

Dallas‐Fort Worth

7.2 56,739 2.69

Texas Houston 7.3 56,545 4.18

Texarkana 0.4 44,436 9.99

Tyler 3.9 43,519 (1.06)

Alexandria 0.4 36,303 (3.07)

Baton Rouge

2.7 50,972 8.49

Houma‐Thibodaux

0.5 45,739 0.89

Louisiana Lafayette 2.7 46,125 7.42

Lake Charles

1.2 44,063 4.16

Shreveport‐Bossier City

2.6 45,383 14.4

National Avg.

2.7 51,579 4.58

Source: MidSouth Investor Presentation

Cautious approach towards lending keeps asset portfolio resilient

A critical consideration for any bank currently involved in energy lending is its loan to deposit ratio (LTD). If a bank has too high a LTD ratio, and the possibility of a major increase in nonperforming assets (NPAs), investors may fear that the bank would be unable to cover the decrease in revenue with its cash on hand. The bank would then have to rely on other sources of funding, which is not a promising position to be in.

MidSouth’s LTD ratio is currently 81.02%. This percentage is the lowest in the peer class and is well below the average of 94.36% (see Figure 4). A low LTD ratio is nothing new for MidSouth, as the bank has always maintained a conservative lending approach in relation to its deposits. While the argument can be made that MidSouth is losing out on possible revenue with such a low LTD ratio, the bank compensates for being risk averse in this aspect by the riskiness of it loans in the energy sector. So, while MidSouth is in a good position in terms of its LTD ratio, its strategy of fewer loans with higher yields means that an increase in loan defaults will have a larger negative effect on the Company’s net interest income than that of its peers.


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Source: Company 10‐ks

The competition for energy lending is not as high as in other industries as these loans are considered more risky. Energy lending also requires much more involvement as the bank must continually finance much of the client’s operations. Due to the riskiness and high involvement, MidSouth is able to command a higher interest rate on these loans and generate a decent net interest income while keeping its LTD ratio low. In fact, the bank’s yield on its loans is over 1% higher than the average yield of its peers and is the highest by far of its peer class. The bank’s net interest margin also leads its peer class by almost 1%. Therefore, the low LTD ratio is a promising sign for investors, as it indicates that the bank is prepared for an increase in NPAs if oil companies begin to default on loans (see Figure 5).


50.00%

60.00%

70.00%

80.00%

90.00%

100.00%

110.00%

120.00%

MidSouthBank

SouthwestBancorp

GuarantyBancorp


Texas CapitalBancshares

LegacyTexasFinancialGroup Inc.

GreenBancorp Inc.

Figure 4: Loan to Deposit Ratio (LTD)

3.00%

3.50%

4.00%

4.50%

5.00%

5.50%

6.00%

6.50%

NIM average loan yield

Figure 5: Interest Percentages

MidSouth

PeerAverage


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Loan growth to see minor decline from impressive 2014

MidSouth’s concentration in energy lending puts the Company in a high‐risk, high‐reward position. In the current economic climate, banks with high percentages of energy lending are negatively impacted by the expected increase in NPAs. However, MidSouth has still been able to grow its loans by 5.4% since the first quarter of 2014 while only increasing its percentage of oil loans to the total in its portfolio from 20.2% in the first quarter of 2014 to 20.6% in the fourth quarter of 2014. These statistics show that MidSouth has focused its loan growth in areas other than oil during this difficult period.

To date, MidSouth has yet to experience any losses from the oil price decline, and the Company has continued to make loans with the expectation that energy prices will increase. As such, loan growth for MidSouth in 2014 was generated by a variety of factors. First, the bank’s efficiency initiative, in which it focused on cutting costs, allowed the bank to obtain additional capital to finance loans. Second, the bank also benefitted from an increase in deposits by 4.37% since the fourth quarter of 2013 which also helped increase loan growth. Finally, MidSouth was able to benefit from the maturity of its securities in order to finance loans. The amount invested into securities has fallen by 15.89% since the fourth quarter of 2013, as a result of the loan growth (see Figure 6). Therefore, investors should expect MidSouth to continue to grow its loans as it has done so every quarter since the fourth quarter of 2013. However, the growth in loans will not be as high as in 2014, as the bank cannot benefit from its efficiency initiative or sale of securities. Finally, the growth in loans will certainly be affected by the oil industry and will depend on when oil prices will rise from historic lows.


1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

5.00%

First Quarter Second Quarter Third Quarter Fourth Quarter

Figure 6: Loan Growth Per Quarter in 2014


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VALUATION

We estimated our 12‐month target price of $20.00 for MidSouth Bancorp, Inc. by taking the average of the discounted cash flow (DCF) valuation, the peer group P/E multiple valuation, the historical P/E multiple valuation, and the price to tangible book value (P/TBV) valuation. We gave each valuation method an equal weight of 25% when determining the target price.

Discounted Cash Flow: Net Income

Because banks use cash differently from companies in other industries, we used a DCF model discounting net income instead of free cash flows. With a risk‐free rate of 2.31% from the 20‐Year Treasury Rate, a market risk premium of 5.7%, and an unlevered beta of 0.94, we calculated the cost of equity or in a banks case, the weighted average of cost of capital (WACC). After applying a tax rate of 36.5%, after tax WACC becomes 7.67%. To calculate the discount rate for MidSouth, we adjusted liquidity risk premium to 7%, because the market capitalization of Midsouth is small compared to its peer group. Therefore, our estimated share price for 2015 is $13.63, and our one‐year target price from today is $15.62.

Relative Multiple Method: P/E

We used a relative multiple method of P/E, as it is a common method of valuation for financial institutions. MidSouth’s peer average P/E multiple is approximately 19.38x. By multiplying the average P/E by MidSouth’s estimated earnings per share of $1.35, we arrived at a target price of $26.17.

Relative Multiple Method: P/TBV

We also used a relative multiple method of P/TBV, which is another common method of valuation for financial institutions. MidSouth’s peer average P/TBV multiple is approximately 165.54%. By multiplying the average P/TBV by MidSouth’s current tangible book value per share of $10.46, we arrived at a target price of $17.32.

Historical Multiple Method: P/E

Because of the wide range in target prices between the valuation methods used, we applied a historical P/E multiple. By multiplying MidSouth’s current trading multiple of 9.2 by estimating its earnings per share of $2.23, we arrived at a target price of $20.50. Figure 7 illustrates these financial ratios.


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INDUSTRY ANALYSIS

Banking companies like MidSouth Bancorp, Inc. provide payment services, credit services, and loan and deposit services to individuals or businesses. Banks use numerous avenues to generate revenue, such as through interest, transaction fees, and financial services. The most common expense that banks incur is interest expenses as a result of borrowing from other banks. Other expenses include loan and lease loss provisions and employee wages.

The financial services industry is the largest industry within the U.S., with a current market capitalization of $6.99 trillion. Commercial banks possess 44% of the financial services market with a current market capitalization of $3.08 trillion. Also, as of June 30, 2014 the commercial banking industry held $13.4 trillion in assets.

There are four different divisions of the banking industry, distinguished by size and location. These divisions include big banks, regional banks, community banks, and direct/internet banks. The commercial banking industry has four large firms that dominate the industry: Bank of America, Wells Fargo, JPMorgan Chase, and Citigroup. These four firms combined held $6.27 trillion in assets, taking up 46.8% of the commercial banking industry. Regional banks, like MidSouth, hold anywhere between $1 billion and $100 billion in assets. Accordingly, community banks hold less than $1 billion in assets and focus on lending to families and businesses within the immediate communities. Finally, direct/internet banks only operate online.

Although the banking industry is now strong, it lost approximately $165 billion in revenue during the recession in 2008. This loss displays that the banking industry is cyclical, meaning that the industry moves parallel to the economy. During times of economic uncertainty, banks try to increase lending, while sustaining asset growth.

Figure 7:Valuation Methods


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MidSouth in the Banking Industry

MidSouth operates 58 branches in the Louisiana and Texas region. As of September 30, 2014, the bank held $1.9 billion in assets. As of December 31, 2014, net deposits and net loans each totaled $1.3 billion. Both of these figures are significant because MidSouth specializes in loan and deposit services. In MidSouth’s respective region it only held a .19% market share of all deposits, as of June 30, 2014. In comparison, JPMorgan Chase, the leading market shareholder within the region, held 22.15% of all deposits.

Regional Banking Industry

Because the banking industry is cyclical, regional banking success depends on the regional economy. Thus, regional banks rely on the businesses that produce the highest incomes in the respective regions. MidSouth depends upon energy and oil, medicine, technology, research, and agriculture as the main industries in its region. If those industries are thriving within the region, MidSouth benefits.

Regulations in the Banking Industry

Several agencies, such as the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board, and the Office of the Comptroller of the Currency, constantly regulate banks. Along with these federal regulatory agencies, there are also state regulators that supervise state‐chartered banks. Bank regulators work to eliminate privacy issues, money laundering, fraud, and terrorism. These regulating agencies have access to bank records, which allows agencies to keep banks in order. There are also statutes in place, such as the Dodd Frank Act, designed to promote transparency in the financial service industry.

Threat of Entry

The banking industry has many barriers to entry, which works in MidSouth’s favor. In order to open a bank, a large amount of capital is required. Banks also need regulatory approval, which can be difficult and costly to attain. Finally, Banks also rely on repeat customers, and developing relationships with customers takes time and money.

Bargaining Power of Suppliers

Suppliers have high bargaining power. Most banks offer the exact same services at fairly similar rates and prices. Thus, little differentiation exists, because services are so standardized. Therefore, suppliers can move deposits to another bank for the exact same services.

Bargaining Power of Buyers

A recent development in the banking industry is the relatively high bargaining power of buyers. Buyers once chose banks based on word of mouth and trust. It was also fairly difficult to switch banks. Now, the banking industry has consolidated and most banks are largely the same. It is now easy to switch banks and depositors have the power of the Internet to research alternatives.


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However, the bargaining power of buyers is lower in certain situations. When banks have specific industry experience and expertise, businesses in those industries have lower bargaining power.

Availabilities of Substitutes

The banking industry has a large availability of substitutes. Traditional, FDIC insured banks are the main players in the banking industry. However, other non‐banking options can potentially provide higher returns than bank deposits. These other options include fixed income and equity securities, pension funds, mutual funds, insurance companies, and credit unions. Still, only traditional banks provide the FDIC insurance guarantee, which means these options are not necessarily equal substitutes.

Competitive Rivalry

As stated earlier, banks have very little differentiation among competitors, which makes the banking industry extremely competitive. Many bank customers can be lured away by other banks in several ways, including special promotions and lower interest rates on loans. In the areas that MidSouth serves, large players such as JP Morgan Chase and Capital One are the leading banks in the industry. Smaller regional banks such as IBERIABANK and Hancock/Whitney Bank supplement this competition. Since there is so much competition from larger banks, the smaller banks, such as MidSouth must compete for a small pool of customers.

ABOUT MIDSOUTH

On February 7, 1985, C.R. “Rusty” Cloutier, founded MidSouth Bancorp, Inc., a holding company for MidSouth Bank N.A. headquartered in Lafayette, Louisiana. This regional bank provides commercial and retail community banking services to markets in Louisiana and East Texas. Currently, MidSouth has 58 branches across Louisiana and Texas and has accumulated approximately $1.9 billion in assets.

Company History

MidSouth began operations with $4 million in assets in the mid‐1980s, when the region’s unemployment rate touched 22% in Louisiana. Even though the economy was severely hurt by the oil and gas industry crash, MidSouth managed to persevere through this difficult period. Two years after MidSouth was founded, the bank expanded with the purchase of the Breaux Bridge Bank & Trust Co. In 1989, MidSouth started to lose money, yet positioned itself to expand. Later that year, MidSouth bought Commerce and Energy Bank, which included Lafayette branches. MidSouth soon decided to move its headquarters to downtown Lafayette.

In April 1993, although considered one of the smallest banks in the country, CEO Rusty Cloutier managed to take the Company public. Between 1995 and 2005, MidSouth expanded its market across Louisiana, opening locations in Opelousas, Morgan City, Thibodaux, Houma, Baton Rouge, and New Iberia.


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In 2004, MidSouth acquired Lamar Bank of Texas, allowing MidSouth to expand its market into East Texas. MidSouth then took part in its largest transaction to date when it merged with Peoples State Bank of Many, Louisiana in 2012, adding 15 new branches.

Product and Services

As a community oriented bank, MidSouth provides commercial and consumer loan and deposit services to both business firms and individuals through its network of 58 branches. MidSouth operates exclusively in Louisiana and Texas, and makes it a priority to build and maintain strong customer relationships within those markets. As shown in Figure 8, loans provided by MidSouth include commercial and industrial loans, commercial real estate loans, loans secured by real estate, and consumer loans. Among these, the combination of commercial, financial, and agricultural loans constitute the largest portion of total loans at approximately 36%. Specifically, real estate‐commercial loans represent approximately 34.5% of MidSouth’s total loans.

Figure 8: Composition of Loans (Sep, 2014)

Source: MidSouth 8‐K

As shown by Figure 9, deposits provided by MidSouth cover diverse products and services, including checking accounts, investment accounts, cash management services, and electronic banking services. Electronic banking services include deposit capturing services, internet banking, and debit or credit cards. Customers also have access to an in‐house call center and to more than 55,000 surcharge‐free ATMs.

Commercial, financial, and

agricultural, 36.21%

Lease Financing Receivable , 0.42%

Real estate ‐Construction, 6.91%

Real esate ‐commercial, 34.52%

Real estate ‐residential, 12.33%

Installment loans to individuals, 9.32%

Other, 0.28%


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Source: MidSouth 8‐K

Strategies

MidSouth Bancorp, Inc. has four major strategies: to focus on the oil and gas industry, to focus on small businesses, to maintain conservative practices, and to accelerate earnings improvement.

Focus on the Oil and Gas Industry

As of December 31, 2014, MidSouth had approximately $265 million in loans to the oil and gas industry, representing approximately 20.6% of total loans. The oil and gas industry is extremely volatile, and when the industry suffers it is likely that MidSouth will suffer as well. The “oil bust” of the 1980s severely impacted the economy in MidSouth’s region, and the current downturn in oil and gas prices is starting to have a similar effect. MidSouth’s stock price has experienced a 23% decrease since November, however it has started to slowly rise. Providing a significant portion of total loans to the oil and gas industry is risky, but when the oil market is strong MidSouth thrives.

Focus on Small Business

MidSouth’s total assets have increased by 45.8% since 2010, and much of this growth can be attributed to its focus on small to medium sized businesses. MidSouth is a part of the Small Business Lending Fund (SBLF), a program of the U.S. Treasury. The SBLF program allows MidSouth to lend to businesses at a lower interest rate, if the business meets certain requirements. While some competitors did not take advantage of the program, decreasing small businesses loans by 20%, the program allowed MidSouth to grow its small business loans by 10% in 2013.

Time Deposits of $100,000 or more

, 7.61%

Time Deposits of less than

$100,000, 6.67%

Money Market/Savings,

30.25%NOW & Other, 29.42%

Noninterest bearing , 26.06%

Figure 9: Composition of Deposits (Sep, 2014)


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Conservative Attitude

MidSouth commenced operations in the midst of an economic downturn, and the bank prides itself on a conservative approach towards lending as an operating principle. The approach affects funding and credit decisions to the point where MidSouth underwrites loans based on the cash flows of the buyer. MidSouth focuses its lending on companies with seasoned experience in the oil industry to reduce risk when the oil market ebbs and flows. Also, the Company identifies and manages risk through a risk management group that reports directly to the Chairman of its Audit Committee. This group is involved in audit, collections, compliance, in‐house legal counsel, loan review, and security functions.

Accelerate Earnings Improvement

MidSouth has carefully analyzed its operations to increase revenue. Namely, the Company engaged FIS Consulting Services to identify key areas for increasing operating efficiencies and revenue. In particular, MidSouth completely reassessed its branch network and decided to increase the amount of automated and interactive teller machines, which were more in line with consumer demands. Then, in late 2013 through 2014, MidSouth expanded the customer call center and decided to slow the pace of brick‐and‐mortar growth to focus on its current locations.

Recent Developments

MidSouth Bancorp’s stock price has decreased by 28.7% from its 52 week high of $20.34 on July 23, 2014 to its current price of $14.51. The drop in oil prices by over 55% since June 2014 has been the main catalyst for the bank’s plummeting stock price. The oil price decline represents a significant issue regarding MidSouth’s success, as the bank has a large stake in the price of oil. As of December 31, 2014, the bank has loaned $265 million to clients in the oil and gas industry. This figure makes up roughly 20.6% of all loans provided by the bank.

Fourth Quarter earnings did not offer reasons for significant near‐term optimism. Earnings per share (EPS) were reported at $.31. This price is a seven‐cent decrease and an 18.4% drop from the third quarter price of $.38. Additionally, net income available to common shareholders dropped by $808,000 from the third quarter to the fourth quarter of 2014. Some of the drop in revenue can be attributed to a real estate loan that was placed on nonaccrual status during the period. A nonaccrual loan is a loan in which no payments have been made in 90 days. This status change caused the company to record an impairment of $575,000. Additionally, the Company also decided to implement an allowance of $650,000 for losses on energy loans. This allowance serves as an acknowledgment by the Company of the increasing risk of default on energy loans and should be seen as a possible sign of uncertainty by MidSouth.

MidSouth also reported an increase in nonperforming assets in the fourth quarter of 2014. A nonperforming asset is similar to a nonaccrual loan in that it is essentially a credit instrument that has not received payments for a period of time. The increase in nonperforming assets from the third quarter to the fourth quarter of 2014 was $2.6 million, or 20.8%.


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MidSouth made it clear in the fourth quarter report that most of this increase was due to a real estate loan and not related to energy. Regardless of which loan(s) underperformed, a 20.8% increase in nonperforming assets is not a positive sign.

Other data from MidSouth’s fourth‐quarter 2014 report was more optimistic. Loans and deposits both increased in the quarter by 2.58% and 2.48%, respectively. The increase in both categories is important as the bank kept its loan to deposit ratio (LTD) constant at 81%. Keeping the LTD at a safe level is important so that the bank has enough cash in order to protect itself from any possible downturns, such as companies defaulting on loans.

The main problem for the bank in the fourth quarter of 2014 was the expectation and preparation for future loan default. If the energy companies that MidSouth has loaned to are able to fulfill debt obligations, MidSouth should be able to rebound from this negative quarter. If, however, these companies are unable to pay debt and these loans become nonaccrual, MidSouth’s nonperforming assets will increase, which could lead to trouble for the bank.

PEER ANALYSIS

Three main factors were taken into account when choosing MidSouth’s peers: the products and services each bank offers, the region each bank operates in, and the clients each bank serves. MidSouth’s main source of revenue comes from commercial and consumer loan and deposit services. The branches of the bank are located mainly throughout East Texas and Louisiana. The bank lends primarily to small and medium sized companies with a focus on energy companies. The peer group consists of six main competitors: Southwest Bancorp Inc. (OKSB), Guaranty Bancorp (GBNK), Independent Bank Group, Inc. (IBTX), Texas Capital BancShares Inc. (TCBI), LegacyTexas Financial Group Inc. (LTXB), and Green Bancorp, Inc. (GNBC), (see Table 3).


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Table 3: Peer Analysis Table

Company Name

Ticker Symbol

Market Cap

P/E P/BV NPAs/ Assets

Div. Yield

ROE ROA NIM LTD

RATIO

Southwest Bancorp

OKSB $335.9M 16.49x 1.28x 0.65% 1% 7.94% 1.07% 3.45% 91.26%

Guaranty Bancorp

GBNK $352.23M 26.14x 1.7x 0.70% 1.5% 6.82% 0.67% 3.66% 97.38%

Independent Bank Group

IBTX $682.53M 21.55x 1.3x 0.36% .7% 7.48% .92% 4.19% 98.64%

Texas Capital Bank

TCBI $2,230M 16.9x 1.66x 0.28% N/A 10.57% .99% 3.78% 95.66%

Legacy Texas Financial Group Inc.

LTXB $801.2M 27.99x 1.44x 0.58% 2.2% 5.62% .81% 3.6% 128.7%

Green Bancorp Inc.

GNBC $299.98M 17.91x 1.03x 0.58% N/A 2.83% 0.38% 3.78% 99.09%

MidSouth Bancorp

MSL $169.33M 9.45x 1.01x 0.78% 2.4% 9.56% 1.01% 4.63% 82.08%

Peer Average

$783.64M 21.16x 1.40x .525% 1.35% 6.88% 7.08% 3.74% 101.79%

*Millions ‐ Source: Company 10‐Qs and Yahoo Finance

Compared to this group of peers, MidSouth Bank has the lowest market capitalization. What stands out for the bank is its impressive 4.64% net interest margin (see Figure 10). NIM represents a bank’s net interest income divided by its total average earning assets. In essence, the statistic represents the yield a bank makes on interest earning assets (most commonly loans). In addition to its impressive NIM, MidSouth has the lowest loan to deposit (LTD) ratio and total earning assets (see Figure 11) of the entire group. This combination of metrics for MidSouth is very impressive as the bank is receiving the highest yield on its earning assets while giving out the least percentage of loans compared to deposits. Part of the reason why MidSouth is able to achieve this feat is because the bank charges by far the highest interest rate in the peer group at 5.96%. This percentage is over one percent higher than the peer average (see Figure 12). By charging such a high interest rate, MidSouth is able to keep its LTD low, while still receiving net income that is very competitive with its peers.


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0

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100,000,000

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MidSouthBank

SouthwestBancorp

GuarantyBancorp



Green BancorpInc.

Figure 10: Net Interest Income

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

MidSouthBank

SouthwestBancorp

GuarantyBancorp




GreenBancorp Inc.

Figure 11: Average Loan Yield


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Southwest Bancorp, Inc. (OKSB/NASDAQ)

Southwest Bancorp Inc. is a bank holding company for the Stillwater National Bank. Like MidSouth, Southwest offers commercial and consumer banking services to small and midsized businesses. Southwest is based in Oklahoma but also operates in Kansas and Texas.

Guaranty Bancorp, (GBNK/NASDAQ)

Guaranty Bancorp is a $2.1 billion financial services company that operates as the bank holding company for Guaranty Bank and Trust Company. Guaranty Bancorp is similar to MidSouth in its goal to serve small to medium sized businesses, while also offering banking services to individuals. As of December 31, 2014, Guaranty Bancorp had 26 branches and one advisory firm located in the Denver metropolitan area. The company was formerly known as Centennial Bank Holdings, Inc. and changed its name to Guaranty Bancorp in May 2008. Both MidSouth and Guaranty Bancorp have experience with energy lending.

Independent Bank Group, (IBTX/NASDAQ)

Independent Bank Group, headquartered in McKinney, Texas, operates as a financial holding company for Independent Bank. Independent Bank currently operates 30 branches mainly throughout the Dallas‐Fort Worth, Austin, and Houston areas. Although Independent Bank is over three‐times larger in terms of market capitalization, the locational proximity of the banks put Independent Bank Group in direct competition with MidSouth. Independent Bank offers many of the same services as MidSouth, including energy lending.

0

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1000000

1500000

2000000

2500000

3000000

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4000000

MidSouth Bank SouthwestBancorp

GuarantyBancorp


LegacyTexasFinancial Group

Inc.

Green BancorpInc.

Figure 12: Total Earning Assets


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Texas Capital Bancshares, Inc. (TCBI/NASDAQ)

Texas Capital Bancshares, Inc., headquartered in Dallas, Texas, is the holding company for Texas Capital Bank. Texas Capital Bank currently operates 12 branches located in Dallas Fort Worth, Houston, and San Antonio. Much like MidSouth, Texas Capital Bancshares offers a variety of banking services, including loans to oil and gas companies. However, unlike MidSouth Bank, loans to energy companies only comprise a small portion of the Texas Capital Bank’s portfolio. Therefore, Texas Capital Bank is much less reliant on oil prices than MidSouth is.

LegacyTexas Financial Group, Inc (LTXB/NASDAQ)

LegacyTexas Financial Group, Inc, originally ViewPoint Financial Group, is a bank holding company for LegacyTexas Bank based in Plano, Texas. LegacyTexas Bank constitutes the largest market share among Texas based banks. It operates 51 banking offices in 19 cities in North Texas, including 48 branches in the Dallas‐Fort Worth Metroplex. Like MidSouth, it offers banking products and services including commercial loans, consumer deposits, and lending products to small sized companies. Energy loans, reported as industrial and commercial loans on LegacyTexas’ balance sheet, totaled $359.6 million in December 2014, which increased by a total of $193.1 million from the previous year.

Green Bancorp, Inc. (GNBC/NASDAQ)

Green Bancorp, Inc. is a bank holding company for Green Bank. Green Bank offers banking products and services to customers in Houston, Dallas, and Austin through its 15 branches. As one of the energy lenders, it provides reserve‐based energy loans to regional companies, oil and gas producers, and other businesses. According to the third quarter 2014 earnings report, reserve‐based lending constitutes 11% of total loans, with oil comprising 75% of lending, natural gas making‐up 22% of lending, and natural gas liquids totaling 3% of lending. In addition, oil and gas companies constitute 8% of Green Bancorp’s total loan portfolio.

MANAGEMENT PERFORMANCE AND BACKGROUND

MidSouth’s management team has built an extensive track record of strong returns. Rusty Cloutier, who has served as Chief Executive Officer (CEO) since 1984, has built a management team that has achieved consistent growth through both organic and inorganic means.

Return on Invested Capital and Return on Assets

Return on invested capital (ROIC) is a metric commonly used to measure management effectiveness. The metric measures a firm’s return relative to its capital investment. Essentially, ROIC is designed to indicate management’s effectiveness in generating profit relative to its amount of total capital. Similarly, return on assets (ROA) is another ratio that measures a firm’s profit relative to its amount of assets.


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MidSouth performs above average in both ROIC and ROA. The bank especially performs well in ROIC as its metric is over twice the peer average. This prowess by the bank can be partially explained, once again, by its ability to achieve competitive net interest income relative to its peers, despite being at a much lower market capitalization. This achievement allows its net income to be high, while its total capital to be low, generating a large ROIC. A partial explanation for MidSouth’s high net interest income is its energy loans, which offer a higher return but also much more risk than other loans.

Table 4: Peer ROIC and ROA

Bank ROIC ROA

Southwest Bancorp 8.70% 1.07%

Guaranty Bancorp 6.40% 0.67%

Independent Bank Group 6.90% 0.92%

Texas Capital Bank 7.20% 0.99%

Legacy Texas Financial Group Inc. 3.70% 0.81%

Green Bancorp Inc. 10.90% 0.38%

Peer Average 7.30% 1.01%

MSL 18.00% 7.08%

Source: Thompson One

C.R Rustry Cloutier Chief Executive Officer (67)

Last year marked Rusty Cloutier’s 30th year as CEO of MidSouth Bank. Previously, Mr.Cloutier served as Chairman of the National Advisory Committee of Fannie Mae in Washington, D.C. He has also served on the Securities and Exchange Commission Advisory Committee on Smaller Public Companies, and as Director of the New Orleans Branch of the Federal Reserve Branch of Atlanta. He received a Bachelor of Science in Finance and Economics from Nicholls State University. Mr.Cloutier has also been recognized on multiple occasions for his work in the community receiving the 2004 Civic Cup Award, given to Lafayette, Louisiana’s best citizen, the Most Distinguished Citizen Award in 2006 from the Evangeline Area Council Boy Scouts of America, and the NAACP Meritorious Award for Community Service.

James R. McLemore Chief Financial Officer and Senior Executive Vice President (55)

James R. McLemore Jr. currently serves as Chief Financial Officer and Senior Executive for MidSouth. He has also served as Chief Financial Officer and Executive Vice President for Security Bank Corp., The Independent Bankers Bank, and IBERIABANK. Mr. McLemore received his degree from the University of Florida and is a Certified Public Accountant as well as a Chartered Financial Analyst.


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Troy M. Cloutier Chief Banking Officer and Senior Executive Vice President (41)

Troy M. Cloutier, son of CEO Rusty Cloutier, currently serves as MidSouth’s Chief Banking Officer and Senior Executive Vice President. He has held these positions since February 2012. However, Mr.Cloutier has been with the bank for 18 years and has held various positions, including Regional President of the South and East regions, Chairman of the Regional Loan Committee, Bank Board Director, Credit Analyst, head of the collection apartment, Insurance Clerk, Loan Administrator, and Teller.

Jeffery L. Blum Senior Executive Vice President and Chief Credit Officer (46)

Jeffery Blum, an undergraduate alumnus of Tulane University, became Senior Executive Vice President and Chief Credit Officer at MidSouth in July 2014. For 21 years, Mr.Blum served as President at Whitney Bank in Morgan City. Blum was an active member of the Morgan City community before relocating to Lafayette. He served in the St. Mary Industrial Group and as a board member of the Atchafalaya Petroleum Institute and the Petroleum Club. He was also a member of the Holy Cross Church Finance Committee and the Central Catholic Finance Committee & Advisory Council. At MidSouth, Mr. Blum develops loan policies, oversees loan underwriting, identifies credit risk, and provides business lending guidance.

Carolyn B. Lay Senior Vice President and Chief Retail Officer (55)

In July 2010, Carolyn Lay became Senior Vice President and Chief Retail Officer at MidSouth. She is responsible for directing and supervising retail sales and services at all of MidSouth’s branches. Six years prior to her promotion, Ms. Lay served as Vice President and Regional Retail Manager at MidSouth, overseeing only a few bank locations. She has worked for MidSouth for 16 years.

Lorraine D. Miller Senior Vice President, Director of Mergers and Acquisitions, and Treasurer (51)

Lorraine Miller has worked for MidSouth since November 2009, originally serving as a consultant. In November 2010, Miller officially joined the bank’s staff as Senior Vice President and Director of Mergers and Acquisitions. Ms. Miller was responsible for finances during acquisition processes, and in this role she helped the Company double its total assets. In fact, Ms. Miller directed MidSouth to its largest transaction to date, the $40 million merger with Peoples State Bank of Many, Louisiana. In February 2013, Ms. Miller took on the role of Treasurer, responsible for the management of MidSouth’s investment portfolio and its asset/liability management function. Before working at MidSouth, she was the Senior Vice President and Director of Investor Relations for West Point Home and Security Bank Corp.


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Compensation and Incentives

MidSouth’s Compensation Committee, which operates under the Board of Directors, is responsible for determining the compensation levels of the Company’s executive officers. On a yearly basis, the committee evaluates and approves compensation goals and objectives for the CEO, and assesses whether those goals and objectives were met. After the Board approves the recommended compensation level for the CEO, the committee works with the CEO to determine compensation levels for all other executive officers. The Board has final say on all compensation and incentive decisions.

MidSouth uses different elements to compensate its executive officers. These elements include a base salary, annual incentives, equity‐based rewards, discretionary bonus rewards, retirement benefits, and other forms of compensation, such as split dollar life insurance. Base salary and annual incentives make‐up the largest percentage of total compensation payable to executive officers.

When determining the recommendation for an executive’s base salary, the committee considers the executive’s abilities, qualifications, accomplishments, and prior work experience. In 2013, the committee increased the base salaries of MidSouth’s Named Executive Officers (NEOs). This increase moved salaries within 5% of the midpoint range of NEOs at comparable companies.

Succession Plans

All senior executives, including the CEO, are required to create a succession plan for their area of oversight. The executives must review their responsibilities and compile and evaluate this plan before presenting it to the CEO. The CEO then provides input on every succession plan before reviewing the plans with the Board of Directors. After the initial plans have been created, MidSouth’s Corporate Governance and Nominating Committee must periodically report the succession plans for all executive officers to the Board of Directors.

Board of Directors

MidSouth currently has ten individuals who serve on its Board of Directors. All ten members have a wide range of experience and expertise. Will Charbonnet, Sr., Chairman of the Board, is the Treasurer and Managing Director of Crossroads Catholic Bookstore, and he is also the Controller of Philadelphia Fresh Foods, L.L.C. The only MidSouth employee to serve on the Board is Rusty Cloutier, President and CEO of the Company. The other Board members are: Milton B. Kidd III, R. Glen Pumpelly, William M. Simmons, James R. Davis Jr., Clayton Paul Hilliard, Timothy J. Lemoine, Leonard Q. Abington, and Joseph V. Tortorice Jr.

SHAREHOLDER ANALYSIS

As of March 25, 2015, MidSouth had 11.349,081 shares outstanding. The largest shareholder, MidSouth Bancorp Employee Stock Ownership Plan(ESOP), owned 5.13%, or 581,513 shares. Among the ten‐largest investors, seven are institutions and three are insiders.


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The seven institutional investors together control 27.14% of MidSouth’s common equity, while the remaining three insiders owned 11.7%.

Institutional Investors

Table 5 lists the ten largest investors, as of February 9, 2015. The ESOP is on top of the list with 581,513 shares, 5.17% of the total number of shares outstanding. Compared to 2014, the top‐ten shareholders remained fairly stable, except for Jacobs Asset Management LLC with a position change of (32,154) or a reduction of about 181,000 shares. Jacob Asset Management LLC has sold about 31% of its shares since the first quarter of 2014 and, thus, fell from the second position (early 2014) to the eighth position so far this year. On the other hand, Dimensional Fund Advisors LP purchased about 20,000 shares between the third quarter of 2014 and February 9, 2015.

Table 5: Top‐Ten Largest Shareholders

Ranking Holder Name Type of Investor

Position (Shares)

% Owned

Filing Source

Position Change

1 MidSouth Bancorp ESOP

N/A 581,513 5.13 Proxy 17,085

2 Heartland Advisors Incorporated

Institutional 550,000 4.85 13F 0

3 Wasatch Advisors Incorporated

Institutional 490,042 4.32 13F 92,739

4 Abington, Leonard Q.

Individual 468,109 4.13 Form 4 (1,000)

5 Hargroder, J.B. Individual 452,968 4.00 Form 4 6,000

6 Cloutier, C.R. Individual 405,282 3.57 Form 4 3,720

7 BlackRock Fund Advisors

Institutional 393,990 3.47 ULT‐AGG

32,146

8 Jacobs Asset Management LLC

Institutional 390,116 3.44 13F (32,154)

9

MidSouth Bancorp Directors Deferred Comp.

N/A 386,994 3.41 Proxy 0

10 Dimensional Fund Advisors LP

Institutional 286,056 2.52 13F 18,899

Source: Bloomberg


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Insider Shareholders

Table 6 shows the top‐ten insider shareholders of MidSouth, with the exceptions of ESOP and Directors Deferred Compensation Plan, which account for 23.23% ownership of the Company. MidSouth Bancorp had 17 significant insiders as of February 9, 2015. The top‐nine insider holders are current board members. The last time an insider from this list sold a share was in November of 2013, and the number of shares held by these shareholders keeps growing with more share acquisitions.

Table 6: Top ten insider shareholders

Ranking Holder Name Position (Shares)

% Owned Filing Source

Position Change

1 Abington Leonard Q. 468,109 4.13 Form 4 (1,000)

2 Hargroder, J.B. 452,968 4.00 Form 4 6,000

3 Cloutier, C.R. 405,282 3.57 Form 4 3,720

4 Kidd, Milton B. III 249,057 2.20 Form 4 2,592

5 Simmons, William M. 235,707 2.08 Form 4 500

6 Charbonnet, Will Sr. 182, 103 1.61 Form 4 3,000

7 Hilliard Clayton Paul 173,482 1.53 Form 5 (80,000)

8 Tortorice, Joseph V. Jr. 126,052 1.11 Form 4 1,675

9 Davis, James R. Jr. 81,347 0.72 Form 4 870

10 Reaux, Gerald Jr. 76,000 0.67 Form 4 1,000

Source: Bloomberg

RISK ANALYSIS AND INVESTMENT CAVEATS

All banks, including MidSouth Bancorp, Inc., are subject to risk. The three main categories of risk for banks are financial risk, operational risk, and regulatory risk. In each of these major categories of risk there are subcategories of risk. Subcategories of risk vary depending on the size, location, and management of the bank.


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Operational Risks

Regional Economic Risk

Because MidSouth is a regional bank, the regional economy drives its success. The economy in both Louisiana and East Texas is largely dominated by the oil and gas industry. The manufacturing, transportation, and technological industries are also tied to the oil and gas industry. If the oil and gas industry starts to suffer, the other industries involved will suffer as well. As of December 31, 2014, roughly 20.6% of MidSouth’s total loans outstanding belonged to companies operating within the oil and gas industry. Since June 2014, the oil and gas industry has suffered due to an excess supply of oil. Oil and gas prices have decreased significantly, which in turn has caused MidSouth’s stock price to decrease. On February 2, 2015, MidSouth’s stock price dropped to $13.67, a new 52 week low. When the oil and gas industry suffers, so does MidSouth.

Of MidSouth’s total loans, 55.1% were issued to the real estate industry. The real estate industry is another industry with many factors that drive its success. Factors such as the interest rate on mortgages, tax credits, and unemployment rates can impact demand for real estate. With a large percentage of loans issued to the industry, a change in real estate demand will have a meaningful impact on MidSouth’s interest income.

Environmental Risk

MidSouth operates in Louisiana and East Texas, where natural disasters periodically occur. When a hurricane, tornado, or flood, occurs it is possible that it will have an effect on MidSouth’s physical and technological infrastructure. Damage to the bank’s branch offices and the hindrance of the bank’s online operations are two potential infrastructural issues. Another potential issue is that MidSouth’s clients may also struggle, which could result in defaulted loans. For instance, segments of the economy, such as real estate and construction, could weaken, resulting in a lower demand for future loans. A natural disaster would alter MidSouth’s short‐term outlook and, depending on the severity of the disaster, it could hurt the bank for a long period of time.

Customer Credit Risk

Banks generate revenue largely by issuing loans to clients. A major risk involved with issuing loans is credit risk, or the risk that a client will default on a loan. Commercial and industrial loans, which carry more risk than standard residential loans due to the size of the loan and the volatility of the markets, make up approximately 35.5% of MidSouth’s total loans. The principle amount of these loans are largely dependent on the cash flow of the borrower, rather than the value of the collateral provided. MidSouth focuses lending on small and medium sized businesses. A smaller business has less capital, and thus, less borrowing capacity. Such a business is also more likely to default on its loans if the regional economy is in flux.


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A regional economic downturn could affect the financial status of MidSouth’s borrowers, which, in turn, could make it difficult for MidSouth to collect repayment on its loans. Loans that are not repaid, or defaulted loans, are non‐performing assets, or NPAs. As of December 31, 2014, MidSouth’s non‐performing assets to total assets ratio is 0.78%, which is largely above the NPA ratio of its peers (see Figure 13). In just one year, MidSouth’s NPA ratio increased by 0.13%. Although this is concerning, the increase is mainly due to a large real estate loan which was identified as a nonaccrual loan in the fourth quarter 2014. A nonaccrual loan is one that has not made payments in ninety days. Thus, while some investors may believe that an increase in NPAs is due to the Company’s large lending to energy companies, the increase in the fourth quarter 2014 was not accredited to loans in the energy sector.


Legislative and Regulatory Risk

Legislative and regulatory risk refers to the current standards banks must meet according to law. The banking industry is one of the most regulated sectors in the country and the industry has undergone even more regulation since the recent financial crisis. One of the most impactful rules set since the crisis is the Basel Capital requirements that force banks to exercise more caution in issuing assets.

Basel III Capital Rules

The Basel III legislation is a system of capital requirements that banks must uphold by law. These rules are designed to avoid another banking crisis and have just begun to fully take effect. The rules establish a minimum percentage for various ratios, including total capital to risk‐weighted assets (8%), tier 1 capital to risk‐weighted assets (4%), and tier 1 capital to average assets (4%). Tier 1 capital consists of, but is not limited to, common stock, retained earnings, and preferred stock.

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Texas CapitalBank

Legacy TexasFinancialGroup Inc

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MidSouthBancorp

Figure 13: Nonperforming Assets/Total Assets


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The goal of tier 1 capital is to measure the financial strength of a bank. For example, a bank is considered well capitalized if total capital to risk‐weighted assets are 10%, tier 1 capital to risk weighted assets are 6%, and tier 1 capital to average assets are 5%.

MidSouth’s total capital to risk‐weighted assets, tier 1 capital to risk‐weighted assets, and tier 1 capital to average assets are 13.63%, 12.93%, and 9.56%, respectively. Although these ratios are all below the peer average, MidSouth is still above the benchmark for being well‐capitalized and is in no immediate danger of falling below the required ratios. Therefore, investors should not be overly concerned with the performance of the bank as these ratios are designed as a measure of solvency rather than performance (see Figure 14).


Financial Risks

Interest Rate Risk

During the recent economic recession, the Federal Reserve implemented a monetary policy known as Quantitative Easing (QE) to help the economy recover. In the program, the government purchased bonds in to inject money into the economy with the goal of increasing spending. The increase in the availability of money also decreased interest rates to extremely low levels, as the demand for loanable funds was reduced. However, as the recession seems to be a thing of the past, the Federal Reserve has announced its intention to end the QE program, which might increase interest rates gradually over time.

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Figure 14: Basel III Capital Requirements

Total Cap toR‐W Assets

Tier 1 Capitalto R‐W Assets

Tier 1 Capitalto Avg Assets


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The effect of an increase in interest rates is huge for any bank. One important metric that is employed to analyze a bank’s effectiveness relative to interest rates is its net interest margin (NIM). NIM is a bank’s net interest income divided by its total earning assets. Currently, MidSouth performs at the top of its class in NIM (see Figure 15). The bank performs well in this category because it charges higher interest rates than its peers on a lower amount of loans. The key to success for the bank moving forward will be how well it adjusts its lending strategy if interest rates begin to rise.


Liquidity Risk

An important factor for MidSouth is the liquidity of the bank relative to its peers. This consideration is important because if the bank is not liquid enough to finance its day‐to‐day operations, it has to loan funds from the repurchase agreement (REPO) market. The problem with this approach is that if an unexpected event were to occur, a bank that is not very liquid will be reliant on the REPO market for funding, and if the bank is unable to receive the funds, the bank could be in serious trouble. Having cash on hand is especially important for a small, energy‐lending bank like MidSouth because of the current status of oil prices. If the bank stops receiving payments from energy companies that become insolvent, the bank will lose a large source of revenue. It is important, therefore, to have additional cash so that the bank does not have to rely on such a risky asset to finance its operations.

MidSouth Bank has maintained conservative practices and has remained very liquid, with the lowest loan to deposit ratio (LTD) among its peer group of about 81.02%. While some of the other banks loan out more than they receive in deposits, MidSouth has been conservative in its approach by maintaining 20% of its deposits in the bank. This conservative approach should enable the bank to remain very liquid and finance its day‐to‐day operations as well as cover the costs of any unexpected events (see Figure 16).

2.00%

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4.00%

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MidSouthBank

SouthwestBancorp

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GreenBancorp Inc.

Figure 15: Net Interest Margin (NIM)


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FINANCIAL PERFORMANCE AND PROJECTIONS

To determine the financial performance for MidSouth Bancorp, Inc. we relied on a few main factors for a regional bank: economic position, loan growth, and investing and financing decisions.

Economic Position

Over the last few years, the U.S. economy has steadily improved, with much help coming from low interest rates issued by the Federal Reserve. Although there is no certainty that the Federal Reserve will raise interest rates in the near future, many experts predict that interest rates will rise at the end of 2015. In our growth rate revenue model, we predicted that rates would remain the same throughout 2015, and that in the following years the rate would show slight and steady growth. The oil industry is extremely profitable, so for years many companies started developing new ways of drilling and started drilling more frequently. These developments have led to a dramatic increase in the supply of oil, which has led to a large drop in the price of oil. A large portion of MidSouth’s lending is to companies in the oil industry and companies affected by the oil industry. Although these circumstances seem like they could affect MidSouth poorly, the Company won’t see any adverse effects unless the oil industry continues to struggle for the next year to 18 months. Therefore, we did not account for the oil price decline in our revenue model as we expect the price of oil to return to a more stable level going forward.

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90.00%

100.00%

110.00%

120.00%

MidSouthBank

SouthwestBancorp

GuarantyBancorp




GreenBancorp Inc.

Figure 16: Loan to Deposit Ratio (LTD)


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Operating Decisions

Like any bank, MidSouth garners most of its revenue through its loans. The bank has made significant progress in its loan growth as its total loans have grown by 12.78% since the end of 2013. In order to forecast loan growth, we considered the growth rates of each type of loan that MidSouth offers over the past eight, three, and two years. We then calculated a projection for the growth rate of each type of loan by weighting each of these rates. We weighted the past eight year growth rate as 20 per cent of out projection, the past three year rate as 35 per cent of our projection, and the past two year rate as 45 per cent of our projection. The reasoning behind these weights was to give the most recent growth more importance over the earlier rates. We used these computed projections for 2015 and 2016 loan growth. We then applied the historical loan growth annual average of eight percent as a terminal growth rate until 2026. Then, we took the historical average of the bank’s loan yield per quarter and applied this percentage to the loan projection to obtain net interest income.

MidSouth maintains a conservative approach in terms of its loan to deposit ratio. At our visit to the bank’s headquarters, MidSouth’s executives informed us that the bank would maintain a loan to deposit ratio of about 82% for the foreseeable future. Therefore, we forecasted our deposits by taking 82% of our loan projection for each quarter.

For non‐interest income, we forecasted service charges on deposit accounts, ATM and debit card income, and other charges and fees. For service charges and ATM and debit card income, we took historical averages compared to non‐interest bearing deposits and forecasted out based on our deposit projection. For other charges and fees, we took the historical average compared to deposit interest expense and forecasted out into the future. Deposit interest expense was calculated by using its historical average compared to total deposits, which has been fairly constant over time.

Investing and Financing Decisions

We had to make a few assumptions when predicting investing activities for MidSouth. First, we made the assumption that the bank will not increase the number of branches in the future during this difficult period for the oil industry. Likewise, we do not believe that the bank will be merging or acquiring another bank, as the bank’s primary focus at this time will be preserving the loans that it currently has keeping its NPAs at a reasonable level.

Finally, MidSouth is currently fully self‐sufficient and we do not see the bank raising capital through any means in the future. MidSouth’s dividend has been historically constant at around $.08 and $.09. We predicted the dividends to remain at $.09. Additionally, the bank has issued $6,155, $14,177, and $10,240 in the past three years in stock options. We took the average of these three of $8,653 and added it on an annual basis to increase the total amount of equity per year for the bank.


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SITE VISIT

On February 20, 2015, our analyst team travelled to the headquarters of MidSouth Bancorp, Inc. in Lafayette, Louisiana. Shortly after arriving our team met Troy Cloutier, MidSouth’s Chief Banking Officer, who showed us around the office and offered us coffee and soft drinks. He then introduced us to his father, and President and Chief Executive Officer of MidSouth, C.R. “Rusty” Cloutier. Before Troy Cloutier introduced the investor relations presentation, James McLemore, Chief Financial Officer, and Jefferey Blum, Chief Credit Officer, both took their seats.

Troy Cloutier conducted an investor relations presentation, allowing us to ask questions to all available executives. The presentation displayed MidSouth’s basic information, essential statistics, and growth projections. The presentation focused mainly on ways to increase revenue organically, because governmental regulations make it extremely hard for banks to grow inorganically.

Throughout the presentation, management consistently professed its optimism about its current situation and the team does not believe the current oil crisis will have as large an impact on the Company that many investors may predict. This optimism and confidence is reinforced by insider ownership of the Company’s stock of about 20%. These insiders believe that the bank’s stock is currently undervalued, mainly due to investor concerns over oil prices. This belief is evidenced by MidSouth’s price to earnings ratio of 10.3x, which is much smaller than its peers.

In addition, the executives also informed us that earlier in the week they brought in management members of energy companies that they lend to, in order to explain future strategies in the current oil price environment. The executives came away from these meetings confident, believing that the oil companies will be able to make future payments. However, Troy Cloutier did warn us that the bank would be able to withstand low oil prices for about 36 months, at which point the bank could begin to see serious negative effects. While it may take over a year for the bank to see major issues, the bank’s non‐performing assets could see an increase as early as the third quarter in 2015. This increase in non‐performing assets would negatively impact the bank’s net interest income in the future.

In addition to oil companies adjusting to the current oil price environment, MidSouth is also preparing for possible setbacks. Specifically, the bank made a $600,000 allowance for energy‐related losses as a safety net for any losses received on energy loans. Although the bank realizes the negative situation of the current economy, they also stressed that they are not simply sitting back and waiting for oil prices to rise.

Troy Cloutier made sure to point out that the bank will not turn down an oil company simply because of the current situation. The bank has not changed its lending strategy during this period and will still lend to any company that meets its criteria. Supporting this claim is the bank’s loan to deposit ratio (LTD).


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While very conservative relative to its peers, MidSouth’s LTD is about as high as it has ever been at 82%. The bank usually operates within the 70‐75% range. The executives agreed that while they are satisfied with the bank’s current LTD, 82% is about as high as the bank will go.

MidSouth’s executives also included a summary of its branch locations, and they expect economic growth in all of these areas. The executives agreed that growth in big cities like Dallas and Houston is extremely exciting. Texas as a whole is the more promising state compared to Louisiana when it comes to growth prospects. Although excited about Texas, the executives were not worried about growth in Louisiana, and made a point to focus on Lake Charles in the presentation. While many investors are worried due to the suspension of $50 billion in oil‐related projects, MidSouth once again expressed optimism about the situation in Lake Charles. Troy Cloutier noted that the region still has billions of dollars in projects, and that the current level of production is sufficient for the region. Still, this area is particularly volatile due to its reliance on oil and will be an important area for Midsouth to monitor going forward.

Finally, the executives walked us through their expectations for the coming year. Troy Cloutier made it clear that a main objective in 2014 was cutting costs and growing loans. However, growing loans in 2015 will not be easy and the bank will probably not experience the same level of growth this year as it did in previous years. Nevertheless, the executives believe that MidSouth will continue to churn out impressive earnings numbers, and that the bank will continue to strive to be more efficient throughout all of its operations. Cloutier added that an area of focus might be noninterest income, as the bank will try to capitalize on its increase in deposits.

After the presentation and our Q&A session with MidSouth’s executives we all ate lunch. Rusty and Troy Cloutier continued to talk about the banking industry, stating that it is extremely hard for banks to grow due to governmental regulation. Rusty doesn’t fear for his own bank’s safety longevity, however, he does fear that the banking industry will see a decline in overall growth. After Rusty provided these words of caution, our team and the rest of the executives discussed Tulane’s sports, Mardi Gras, and the history of this state. As our team left the conference room we stopped to take a photo at the MidSouth logo.


34

Site Visit Photo

INDEPENDENT OUTSIDE RESEARCH

In order to create a reliable report, our team of analysts utilized a variety of outside sources to develop our viewpoint on MidSouth's financial future. Our main sources for general financial data were ThomsonOne, Bloomberg, and Yahoo! Finance. We also found impactful information on the Federal Deposit Insurance Corporation website, as well as on the Federal Reserve’s website. Additionally, we used competitor websites and SEC filings to complete the peer analysis section of our report. Much of our historical information on MidSouth was derived from annual and quarterly SEC filings, presentations, and press releases accessed through the Company’s website.

In addition we gathered some of our best information from our site visit at MidSouth's headquarters in Lafayette, Louisiana, where we met with the management team. Executives answered many of the questions we came across in prior research and provided us with very valuable insight that we would not have been able to find elsewhere. Speaking with top management of the Company enriched our perspective on MidSouth and of the banking industry in the Louisiana and Texas regions.


35

ANOTHER WAY TO LOOK AT IT

ALTMAN Z‐SCORE

The Altman Z‐score is a measure of insolvency developed by Edward Altman in 1968. While the score has been fairly accurate in predicting insolvency for many companies, it is not applicable for banks and cannot be used as a reliable indicator of insolvency for MidSouth Bank.

PETER LYNCH EARNINGS MULTIPLE VALUATION

In his book One Up On Wall Street, Peter Lynch introduces a charting tool that simplifies investment decisions. The “Peter Lynch Chart” graphs a company’s current stock price versus its earnings line. This earnings line is a theoretical price equal to 15 times the company’s earnings per share.

In order to tell if a stock is overpriced, Lynch would look at the stock price line versus its earnings line. If the stock price falls below the earnings line, then Lynch would buy the stock. If the stock price line rose above the earnings line, then Lynch would sell the stock.

Figure 17 demonstrates the “Peter Lynch Chart” for our Company over the past five years to March 24, 2015. It shows our Company’s stock price line in relation to the Company’s earnings line.

MidSouth has a current price of $14.92 per share and has a trailing 12‐month earnings per share at $21.937. Because the stock price is below its earnings, Peter Lynch would purchase the company at this time.

0

5

10

15

20

25

4/8/10 4/8/11 4/8/12 4/8/13 4/8/14

Share Price

Date

Figure 17: Peter Lynch Analysis

Last Price

Trailing 12MEarnings Per Share


36

WWBD? What Would Ben (Graham) Do? Ben Graham, the “father of value investing,” was the mentor of Warren Buffett and a professor at Columbia Business School. The Ben Graham Analysis is one of many tools we used to analyze MidSouth. This analysis allows investors to assess the value of a prospective investment and to measure its potential growth. The Ben Graham Analysis considers companies attractive if they meet four of the eight criteria or “hurdles” established by Ben Graham. The first six hurdles of the analysis help investors determine if a company is undervalued in the marketplace. The last two hurdles evaluate a company’s growth potential by examining both its growth over the past five years and its ability to continue growing in the future.

MidSouth passed five out of the eight hurdles in the Ben Graham Analysis, meaning Ben Graham would probably invest in MidSouth. Three out of the first six hurdles were passed, meaning that there is a chance that the Company is undervalued. MidSouth passed the last two hurdles, which means that there is probably future growth potential within the Company. While investors should not expect MidSouth to grow at the same pace organically as it has inorganically throughout the past few years, the positive growth year after year is certainly a positive sign for MidSouth’s future prospects (see Figure 18).

Figure 18: Ben Graham Analysis


37

Earnings per share (ttm) 1.60$ Price: 14.59$

Earnings to Price Yield 10.99%

10 Year Treasury (2X) 3.96%

P/E ratio as of 12/31/10 32.68

P/E ratio as of 12/31/11 48.54

P/E ratio as of 12/31/12 21.26

P/E ratio as of 12/31/13 16.05

P/E ratio as of 12/31/14 10.97

Current P/E Ratio 9.1

Dividends per share (ttm) 0.35$ Price: 14.59$

Dividend Yield 2.40%

1/2 Yield on 10 Year Treasury 0.99%

Stock Price 14.59$

Book Value per share as ofuarter 4 2014 14.78

150% of book Value per share as ofuarter 4 2014 22.17$

Interest‐bearing debt as of uarter 4 2014 27,649$

Book value as ofuarter 4 2014 209.01$

Current assets as ofuarter 4 2014 1,892,079$

Current liabilities as of uarter 4 2014 1,892,079$

Current ratio as ofuarter 4 2014 10.97

EPS for year ended 12/31/14 1.43$





EPS for year ended 12/31/14 1.43$ 25.44%



EPS for year ended 12/31/11 0.43$ ‐8.51%


Stock price data as of M arch 24, 2015

Yes

MIDSOUTH BANCORP INC. (MSL)

Ben Graham Analysis

Hurdle # 1: An Earnings to Price Yield of 2X the Yield on 10 Year Treasury

Yes

Hurdle # 2: A P/E Ratio Down to 1/2 of the Stocks Highest in 5 Yrs

Yes

Hurdle # 3: A Dividend Yield of 1/2 the Yield on 10 Year Treasury

No

Hurdle # 4: A Stock Price less than 1.5 BV

Yes

Hurdle # 5: Total Debt less than Book Value

No

Hurdle # 6: Current Ratio of Two or More

N/A

Hurdle # 7: Earnings Growth of 7% or Higher over past 5 years

Yes

Hurdle # 8: Stability in Growth of Earnings

MidSouth Ban

corp In

c. (MSL)

BURKEN

ROAD REP

ORTS (www.burken

road

.org)

March 24, 2015

38

MIDSOUTH BANCORP INC. (M

SL)

Annual and Quarterly Earnings

In thousands

2012 A

2013 A

2014 A

31‐M

ar E

30‐Jun E

30‐Sep E

31‐Dec E

2015 E

30‐M

ar E

29‐Jun E

29‐Sep E

30‐Dec E

2016 E

Interest income:

Loans, including fees

49,776

$

71,016

$

72,327

$

21,786

$

22,458

$

21,613

$

21,924

$

87,781

$

25,382

$

26,401

$

24,700

$

26,366

$

102,850

$

Investm

ent securities:

0.00%

Taxable

8,083

8,609

8,100

1,788

1,788

1,788

1,788

7,151

1,788

1,788

1,788

1,788

7,151

Nontaxable

2,880

3,184

2,637

596

596

596

596

2,384

596

596

596

596

2,384

Federal funds sold

6

Tim

e and interest bearing deposits in other banks

70

Other interest income

283

394

423

Total interest income

61,022

83,203

83,487

24,170

24,842

23,997

24,307

97,315

27,766

28,785

27,084

28,750

112,384

Interest expense:

Deposits

4,100

3,961

3,515

1,185

1,200

1,225

1,118

4,727

1,270

1,276

1,297

1,274

5,117

Borrowings

756

1,232

1,218

230

230

230

230

919

230

230

230

230

919

Junior subordinated debentures

984

1,346

1,074

248

248

248

248

993

248

248

248

248

993

Total interest expense

5,840

6,539

5,807

1,663

1,678

1,703

1,596

6,640

1,748

1,754

1,775

1,752

7,030

Net interest income

55,182

76,664

77,680

22,506

23,164

22,294

22,711

90,676

26,018

27,031

25,309

26,997

105,355

Provision for loan losses

2,050

3,050

5,625

1,591

1,637

1,663

1,663

6,554

1,871

1,924

1,908

2,073

7,776

Net interest income after provision for loan losses

53,132

73,614

72,055

20,915

21,527

20,631

21,049

84,122

24,147

25,108

23,400

24,925

97,579

Noninterest income:

Service charges on deposit accounts

7,430

9,225

9,780

2,626

2,729

2,722

2,921

10,997

3,059

3,208

3,110

3,512

12,891

Gain on Securities, net

204

234

128

ATM and debit card income

4,605

6,400

7,209

1,846

1,919

1,914

2,054

7,733

2,151

2,256

2,187

2,470

9,064

Other charges and fees

2,705

3,460

4,305

1,600

1,620

1,654

1,509

6,382

1,715

1,722

1,752

1,720

6,909

Total noninterest income

14,944

19,319

24,422

6,072

6,268

6,289

6,483

25,112

6,925

7,186

7,049

7,702

28,863

Noninterest expenses:

Salaries and employee benefits

24,713

34,182

33,847

9,978

10,255

9,907

10,035

40,175

11,462

11,883

11,181

11,869

46,396

Occupancy expense

11,320

15,112

15,064

4,492

4,450

4,378

4,244

17,563

5,160

5,156

4,941

5,020

20,277

ATM and debit card expense

1,559

2,399

2,889

2,399

2,399

2,399

2,399

FDIC insurance

250

250

250

250

1,000

250

250

250

250

1,000

Other

17,063

20,913

18,209

5,000

5,000

5,000

5,000

20,000

5,000

5,000

5,000

5,000

20,000

Total noninterest expense

54,655

72,606

70,009

19,720

19,955

19,534

21,928

81,137

21,872

22,289

21,372

24,537

90,072

Earnings before income taxes

13,421

20,327

26,468

7,268

7,840

7,386

5,604

28,097

9,199

10,005

9,077

8,090

36,370

Income tax expense (Benefit)

3,779

6,151

7,358

2,180

2,352

2,216

1,681

8,429

2,760

3,001

2,723

2,427

10,911

Net earnings

9,642

$

14,176

$

19,110

$

5,087

$

5,488

$

5,170

$

3,923

$

19,668

$

6,439

$

7,003

$

6,354

$

5,663

$

25,459

$

Preferred dividends and other

1,547

1,332

698

420

420

420

420

1,680

820

820

820

820

3,280

Net income available to common stockholders

8,095

$

12,844

$

18,412

$

4,667

$

5,068

$

4,750

$

3,503

$

17,988

$

5,619

$

6,183

$

5,534

$

4,843

$

22,179

$

Earnings per share ‐ basic

0.77

$

1.14

$

1.63

$

0.45

$

0.48

$

0.46

$

0.35

$

1.73

$

0.57

$

0.61

$

0.56

$

0.50

$

2.23

$

Earnings per share ‐ diluted

0.77

$

1.12

$

1.58

$

0.39

$

0.42

$

0.40

$

0.29

$

1.50

$

0.47

$

0.51

$

0.46

$

0.40

$

1.84

$

Weighted average shares ‐ basic

10,482

11,247

11,314

11,328

11,341

11,355

11,369

11,369

11,383

11,396

11,410

11,424

11,424

Weighted average shares ‐ diluted

10,524

11,861

11,901

11,949

11,962

11,976

11,990

11,990

12,004

12,017

12,031

12,045

12,045

Dividends declared

0.28

$

0.31

$

0.35

$

0.09

$

0.09

$

0.09

$

0.09

$

0. 36

$

0.09

$

0.09

$

0.09

$

0.09

$

0.36

$

2016 E

2015 E

MidSouth Ban

corp In

c. (MSL)

BURKEN

ROAD REP

ORTS (www.burken

road

.org)

March 24, 2015

39


SL)

Annual and Quarterly Earnings

2012 A

2013 A

2014 A

31‐M

ar E

30‐Jun E

30‐Sep E

31‐Dec E

2015 E

30‐M

ar E

29‐Jun E

29‐Sep E

30‐Dec E

2016 E

SELECTED COMMON‐SIZE AMOUNTS


81.57%

85.35%

86.63%

90.14%

90.40%

90.07%

90.19%

90.20%

91.42%

91.72%

91.20%

91.71%

91.52%

Taxable

13.25%

10.35%

9.70%

7.40%

7.20%

7.45%

7.35%

7.35%

6.44%

6.21%

6.60%

6.22%

6.36%

Nontaxable

4.72%

3.83%

3.16%

2.47%

2.40%

2.48%

2.45%

2.45%

2.15%

2.07%

2.20%

2.07%

2.12%

Other interest income

0.46%

0.47%

0.51%

0.00%

0.00%

0.00%

0.00%

0.00%

0.00%

0.00%

0.00%

0.00%

0.00%

Deposits (% of loans)

8.24%

4.76%

4.21%

5.44%

5.34%

5.67%

5.10%

4.86%

5.00%

4.83%

5.25%

4.83%

4.55%

Borrowings

1.24%

1.48%

1.46%

0.95%

0.92%

0.96%

0.95%

0.94%

0.83%

0.80%

0.85%

0.80%

0.82%


1.61%

1.62%

1.29%

1.03%

1.00%

1.03%

1.02%

1.02%

0.89%

0.86%

0.92%

0.86%

0.88%


9.57%

7.86%

6.96%

6.88%

6.75%

7.10%

6.56%

6.82%

6.30%

6.09%

6.56%

6.10%

6.25%

Net interest income

90.43%

92.14%

93.04%

93.12%

93.25%

92.90%

93.44%

93.18%

93.70%

93.91%

93.44%

93.90%

93.75%


3.36%

3.67%

6.74%

6.58%

6.59%

6.93%

6.84%

6.73%

6.74%

6.68%

7.05%

7.21%

6.92%


87.07%

88.48%

86.31%

86.53%

86.66%

85.97%

86.59%

86.44%

86.97%

87.22%

86.40%

86.70%

86.83%


24.49%

23.22%

29.25%

25.12%

25.23%

26.21%

26.67%

25.80%

24.94%

24.97%

26.03%

26.79%

25.68%


40.50%

41.08%

40.54%

41.28%

41.28%

41.28%

41.28%

41.28%

41.28%

41.28%

41.28%

41.28%

41.28%

Occupancy expense

18.55%

18.16%

18.04%

18.58%

17.91%

18.24%

17.46%

18.05%

18.58%

17.91%

18.24%

17.46%

18.04%

Other

27.96%

25.13%

21.81%

20.69%

20.13%

20.84%

20.57%

20.55%

18.01%

17.37%

18.46%

17.39%

17.80%


21.99%

24.43%

31.70%

30.07%

31.56%

30.78%

23.05%

28.87%

33.13%

34.76%

33.51%

28.14%

32.36%

Net earnings

15.80%

17.04%

22.89%

21.05%

22.09%

21.54%

16.14%

20.21%

23.19%

24.33%

23.46%

19.70%

22.65%

SELECTED YEAR‐TO‐YEAR CHANGES

Interest income:


18.83%

42.67%

1.85%

24.61%

26.39%

18.28%

16.60%

21.37%

16.51%

17.56%

14.28%

20.26%

17.17%

Taxable

50.75%

819.76%

93.83%

‐16.30%

‐13.38%

‐9.02%

‐7.61%

93.32%

0.00%

0.00%

0.00%

0.00%

33.36%

Nontaxable

‐15.12%

10.56%

‐17.18%

‐14.01%

‐9.85%

‐8.60%

‐5.56%

‐9.61%

0.00%

0.00%

0.00%

0.00%

0.00%

Total interest income

19.63%

36.35%

0.34%

18.48%

20.62%

14.18%

13.18%

16.56%

14.88%

15.87%

12.87%

18.28%

15.48%

Deposits

1.89%

‐3. 39%

‐11.26%

36.08%

39.82%

42.60%

20.57%

34.49%

7.15%

6.34%

5.92%

14.01%

8.25%

Borrowings

‐6.32%

62.96%

‐1.14%

116.76%

118.82%

112.74%

‐74.44%

‐24.54%

0.00%

0.00%

0.00%

0.00%

0.00%


1.34%

36.79%

‐20.21%

‐28.45%

‐22.42%

‐24.08%

210.34%

‐7.53%

0.00%

0.00%

0.00%

0.00%

0.00%


0.65%

11.97%

‐11.19%

10.59%

13.21%

13.23%

21.16%

14.34%

5.10%

4.53%

4.26%

9.81%

5.87%

Net interest income

22.07%

38.93%

1.33%

19.11%

21.20%

14.26%

12.66%

16.73%

15.60%

16.69%

13.52%

18.87%

16.19%


‐47.77%

48.78%

84.43%

189.35%

36.39%

41.52%

‐38.41%

16.51%

17.57%

17.53%

14.77%

24.65%

18.65%


28.71%

38.55%

‐2.12%

14.01%

20.18%

12.51%

20.55%

16.75%

15.45%

16.63%

13.42%

18.41%

16.00%


14.42%

29.28%

26.41%

‐23.30%

19.13%

1.53%

28.38%

2.83%

14.04%

14.66%

12.08%

18.81%

14.94%


13.56%

38.32%

‐0.98%

13.22%

20.82%

19.54%

21.50%

18.69%

14.88%

15.87%

12.87%

18.28%

15.48%

Occupancy expense

21.97%

33.50%

‐0.32%

18.48%

20.62%

14.18%

13.18%

16.59%

14.88%

15.87%

12.87%

18.28%

15.45%

Other

0.35%

22.56%

‐12.93%

3.39%

6.50%

‐8.54%

55.71%

9.84%

0.00%

0.00%

0.00%

0.00%

0.00%

Total noninterest expense

10.85%

32.84%

‐3.58%

11.40%

16.54%

9.39%

26.55%

15.90%

10.92%

11.70%

9.41%

11.90%

11.01%


166.45%

51.46%

30.21%

‐15.10%

29.56%

10.66%

8.12%

6.15%

26.58%

27.61%

22.90%

44.36%

29.45%

Net earnings

115.56%

47.02%

34.81%

‐25.82%

33.33%

15.61%

7.06%

2.92%

26.58%

27.61%

22.90%

44.36%

29.45%

2016 E

2015 E

MidSouth Ban

corp In

c. (MSL)

BURKEN

ROAD REP

ORTS (www.burken

road

.org)

March 24, 2015

40


SL)

Annual and Quarterly Balance Sheets

In thousands

Period ended

31‐Dec‐12 A

31‐Dec‐13 A

31‐Dec‐14 A

31‐M

ar E

30‐Jun E

30‐Sep E

31‐Dec E

31‐Dec‐15 E

30‐M

ar E

29‐Jun E

29‐Sep E

30‐Dec E

31‐Dec‐16 E

Assets

Cash and due from banks

46,297

$

43,488

$

45,142

$

71,577

$

90,048

$

93,774

$

122,551

$

122,551

$

144,737

$

170,064

$

163,267

$

218,882

$

218,882

$

Interest‐bearing deposits in banks

20,276

13,993

39,031

39,031

39,031

39,031

39,031

39,031

39,031

39,031

39,031

39,031

39,031

Federal funds sold

7,000

2,250

2,699

2,699

2,699

2,699

2,699

2,699

2,699

2,699

2,699

2,699

2,699

Tim

e deposits held in banks

881

Securities available‐for‐sale at fair value

424,617

341,665

276,984

276,984

276,984

276,984

276,984

276,984

276,984

276,984

276,984

276,984

276,984

Securities held‐to‐m

aturity

153,524

155,523

141,201

141,201

141,201

141,201

141,201

141,201

141,201

141,201

141,201

141,201

141,201

Other investm

ents

8,310

11,526

9,990

9,990

9,990

9,990

9,990

9,990

9,990

9,990

9,990

9,990

9,990

Loans, net of allowance

for loan losses

1,039,570

1,128,775

1,273,205

1,342,143

1,394,901

1,391,089

1,492,813

1,492,813

1,563,682

1,639,821

1,589,799

1,795,301

1,795,301

Bank premises and equipment, net

63,461

72,343

69,958

69,961

69,961

69,961

69,961

69,961

69,961

69,961

69,961

69,961

69,961

Accrued interest receivable

6,691

6,692

6,635

8,322

8,059

8,080

8,184

8,184

9,282

9,119

8,889

9,435

9,435

Other real estate owned, net

7,496

6,687

4,234

3,734

3,234

2,734

2,234

2,234

1,734

1,234

734

234

234

Goodwill and intangibles

51,828

50,112

49,005

48,729

48,452

48,176

47,899

47,899

47,623

47,346

47,070

46,793

46,793

Cash surrender value of life insurance

13,183

13,450

13,659

13,659

13,659

13,659

13,659

13,659

13,659

13,659

13,659

13,659

13,659

Other assets

8,594

4,656

4,997

4,997

4,997

4,997

4,997

4,997

4,997

4,997

4,997

4,997

4,997

Total assets

1,851,728

$

1,851,160

$

1,936,740

$

2,033,028

$

2,103,217

$

2,102,375

$

2,232,203

$

2,232,203

$

2,325,580

$

2,426,106

$

2,368,280

$

2,629,167

$

2,629,167

$

Liabilities and stockholders' equity

Deposits

Noninterest‐bearing

380,557

$

383,257

$

390,863

$

410,296

$

426,424

$

425,259

$

456,356

$

456,356

$

478,021

$

501,296

$

486,004

$

548,827

$

548,827

$

Interest‐bearing

1,171,347

1,135,546

1,194,371

1,267,384

1,317,203

1,313,603

1,409,660

1,409,660

1,476,582

1,548,480

1,501,244

1,695,299

1,695,299

Total deposits

1,551,904

1,518,803

1,585,234

1,677,679

1,743,627

1,738,861

1,866,016

1,866,016

1,954,603

2,049,777

1,987,248

2,244,126

2,244,126

Securites sold under agreements to repurchase

41,447

53,916

62,098

62,098

62,098

62,098

62,098

62,098

62,098

62,098

62,098

62,098

62,098

FHLB

advances

25,000

25,000

25,000

25,000

25,000

25,000

25,000

25,000

25,000

25,000

25,000

25,000


29,384

29,384

22,167

22,167

22,167

22,167

22,167

22,167

22,167

22,167

22,167

22,167

22,167

Notes payable

29,128

27,703

26,277

26,277

26,277

26,277

26,277

26,277

26,277

26,277

26,277

26,277

26,277

Other liabilities

10,624

5,605

6,952

6,952

6,952

6,952

6,952

6,952

6,952

6,952

6,952

6,952

6,952

Total liabilities

1,662,487

1,660,411

1,727,728

1,820,173

1,886,121

1,881,355

2,008,510

2,008,510

2,097,097

2,192,271

2,129,742

2,386,620

2,386,620

Stockholders' equity:

Series A Preferred stock, no par

Series B Preferred stock, no par

32,000

32,000

32,000

32,000

32,000

32,000

32,000

32,000

32,000

32,000

32,000

32,000

32,000

Series C Preferred stock, no par

9,997

9,997

9,368

9,368

9,368

9,368

9,368

9,368

9,368

9,368

9,368

9,368

9,368

Common stock, $.10 par value

1,139

1,141

1,149

1,133

1,134

1,136

1,137

1,137

1,138

1,140

1,141

1,142

1,142

Additional paid‐in capital

110,603

111,017

112,744

112,955

113,148

113,342

113,535

113,535

113,729

113,922

114,116

114,309

114,309

Unearned ESOP shares

(250)

(250)

(250)

(250)

(250)

(250)

(250)

(250)

(250)

(250)

(250)

Accumulated other comprehensive income (loss)

8,159

(106)

2,857

2,857

2,857

2,857

2,857

2,857

2,857

2,857

2,857

2,857

2,857

Treasury stock

(3,286)

(3,286)

(3,295)

(3,295)

(3,295)

(3,295)

(3,295)

(3,295)

(3,295)

(3,295)

(3,295)

(3,295)

(3,295)

Retained earnings

30,629

39,986

54,439

58,087

62,134

65,862

68,341

68,341

72,936

78,094

82,601

86,416

86,416

Total shareholders’ equity

189,241

190,749

209,012

212,855

217,097

221,019

223,694

223,694

228,483

233,836

238,538

242,547

242,547

Total liabilities and shareholders’ equity

1,851,728

$

1,851,160

$

1,936,740

$

2,033,028

$

2,103,217

$

2,102,375

$

2,232,203

$

2,232,203

$

2,325,580

$

2,426,106

$

2,368,280

$

2,629,167

$

2,629,167

$

2016 E

2015 E

MidSouth Ban

corp In

c. (MSL)

BURKEN

ROAD REP

ORTS (www.burken

road

.org)

March 24, 2015

41


SL)

Annual and Quarterly Balance Sheets

SELECTED COMMON‐SIZE AMOUNTS (as a %

of total assets)

31‐Dec‐12 A

31‐Dec‐13 E

31‐Dec‐14 E

31‐M

ar E

30‐Jun E

30‐Sep E

31‐Dec E

31‐Dec‐15 E

30‐M

ar E

29‐Jun E

29‐Sep E

30‐Dec E

31‐Dec‐16 E

Cash and due from banks

2.50%

2.35%

2.33%

3.52%

4.28%

4.46%

5.49%

5.49%

6.22%

7.01%

6.89%

8.33%

8.33%

Interest‐bearing deposits in banks

1.09%

0.76%

2.02%

1.92%

1.86%

1.86%

1.75%

1.75%

1.68%

1.61%

1.65%

1.48%

1.48%


22.93%

18.46%

14.30%

13.62%

13.17%

13.17%

12.41%

12.41%

11.91%

11.42%

11.70%

10.54%

10.54%


aturity

8.29%

8.40%

7.29%

6.95%

6.71%

6.72%

6.33%

6.33%

6.07%

5.82%

5.96%

5.37%

5.37%


for loan losses

56.14%

60.98%

65.74%

66.02%

66.32%

66.17%

66.88%

66.88%

67.24%

67.59%

67.13%

68.28%

68.28%


3.43%

3.91%

3.61%

3.44%

3.33%

3.33%

3.13%

3.13%

3.01%

2.88%

2.95%

2.66%

2.66%

Noninterest‐bearing deposits

0.00%

20.70%

20.18%

20.18%

20.27%

20.23%

20.44%

20.44%

20.55%

20.66%

20.52%

20.87%

20.87%

Interest‐bearing deposits

63.26%

61.34%

61.67%

62.34%

62.63%

62.48%

63.15%

63.15%

63.49%

63.83%

63.39%

64.48%

64.48%

Total deposits

83.81%

82.05%

81.85%

82.52%

82.90%

82.71%

83.60%

83.60%

84.05%

84.49%

83.91%

85.36%

85.36%


2.24%

2.91%

3.21%

3.05%

2.95%

2.95%

2.78%

2.78%

2.67%

2.56%

2.62%

2.36%

2.36%

Total liabilities

89.78%

89.70%

89.21%

89.53%

89.68%

89.49%

89.98%

89.98%

90.18%

90.36%

89.93%

90.77%

90.77%

Total common stockholders' equity

10.22%

10.30%

10.79%

10.47%

10.32%

10.51%

10.02%

10.02%

9.82%

9.64%

10.07%

9.23%

9.23%

SELECTED QUARTER‐TO‐QUARTER CHANGES


15.62%

‐19.54%

‐18.93%

0.00%

0.00%

0.00%

0.00%

0.00%

0.00%

0.00%

0.00%

0.00%

0.00%


aturity

52.80%

1.30%

‐9.21%

0.00%

0.00%

0.00%

0.00%

0.00%

0.00%

0.00%

0.00%

0.00%

0.00%


for loan losses

40.67%

8.58%

12.80%

5.41%

3.93%

‐0.27%

7.31%

17.25%

4.75%

4.87%

‐3.05%

12.93%

20.26%

Accrued interest receivable

19.33%

0.01%

‐0.85%

25.43%

‐3.16%

0.25%

1.29%

23.35%

13.41%

‐1.76%

‐2.52%

6.15%

15.29%

Noninterest‐bearing deposits

49.38%

0.71%

1.98%

4.97%

3.93%

‐0.27%

7.31%

16.76%

4.75%

4.87%

‐3.05%

12.93%

20.26%

Interest‐bearing deposits

28.71%

‐3.06%

5.18%

6.11%

3.93%

‐0.27%

7.31%

18.03%

4.75%

4.87%

‐3.05%

12.93%

20.26%

Total deposits

33.23%

‐2.13%

4.37%

5.83%

3.93%

‐0.27%

7.31%

17.71%

4.75%

4.87%

‐3.05%

12.93%

20.26%

SELECTED YEAR‐TO‐YEAR CHANGES


15.62%

51.22%

1.90%

‐16.44%

‐7.99%

‐3.96%

0.00%

4.99%

0.00%

0.00%

0.00%

0.00%

‐24.58%


aturity

52.80%

2296.35%

4540.19%

‐7.20%

‐5.19%

‐2.64%

0.00%

8791.75%

0.00%

0.00%

0.00%

0.00%

40.54%


for loan losses

40.67%

87.70%

120.64%

14.18%

14.80%

12.28%

17.25%

160.98%

16.51%

17.56%

14.28%

20.26%

142.93%


42.30%

78.27%

80.60%

‐3.50%

‐2.54%

‐1.62%

0.00%

91.19%

0.00%

0.00%

0.00%

0.00%

56.87%

Total deposits

33.23%

98.10%

105.00%

8.38%

14.30%

14.34%

17.71%

133.03%

16.51%

17.56%

14.28%

20.26%

92.66%


‐10.05%

‐28.94%

27.36%

19.43%

‐8.10%

‐12.49%

0.00%

41.69%

0.00%

0.00%

0.00%

0.00%

34.77%

Total shareholders’ equity

16.93%

161.14%

61.68%

7.16%

7.25%

7.28%

7.02%

63.69%

7.34%

7.71%

7.93%

8.43%

49.87%

2016 E

2015 E

MidSouth Ban

corp In

c. (MSL)

BURKEN

ROAD REP

ORTS (www.burken

road

.org)

March 24, 2015

42


SL)

Annual and Quarterly Statements of Cash Flows

In thousands

2012 A

2013 A

2014 A

31‐M

ar E

30‐Jun E

30‐Sep E

31‐Dec E

2015 E

30‐M

ar E

29‐Jun E

29‐Sep E

30‐Dec E

2016 E

Cash Flows From Operating Activities:

Net earnings

9,642

$

14,176

$

19,110

$

5,087

$

5,488

$

5,170

$

3,923

$

19,668

$

6,439

$

7,003

$

6,354

$

5,663

$

25,459

$

Adjustm

ents:

Depreciation

1,732

5, 568

6,062

1,541

1,541

1,541

1,541

6,163

1,541

1,541

1,541

1,541

6,163

Accretion of purchase accounting adjustm

ents

(5,869)

(2,540)


2,050

3,050

5,625

1,591

1,637

1,663

1,663

6,554

1,871

1,924

1,908

2,073

7,776

Deferred income taxes

1,651

2,828

(1,489)

Amortization of premiums on securities, net

1,878

4,473

3,047

277

277

277

277

1,106

277

277

277

277

1,106

Loss (gain) on sale of investm

ent securities

(234)

(128)

Amortization of Other Investm

ents

15

13

3

Net loss on sale of other real estate owned

163

190

(1,061)

Net gain on sale of investm

ent securities

(204)

457

91

Net Loss on sale of premises and equipment

6

96

182

Stock option compensation expense

150

308

442

Restricted Stock expense

57

21

15

15

15

15

60

15

15

15

15

60

Change in accrued interest receivable

745

(1)

57

(1,687)

263

(20)

(104)

(1,549)

(1,098)

163

230

(547)

(1,251)

Change in accrued interest payable

(181)

(201)

(234)

Write down of other real estate owned

718

Change in other assets and liabilities, net

(475)

1,009

591

Net cash provided by operating activities

17,947

25,884

29,758

6,824

9,220

8,645

7,313

32,001

9,045

10,922

10,325

9,021

39,313

Cash Flows From Investing Activities:

Net decrease in tim

e deposits in other banks

1881

Net purchases of available for sale securities

52,193

60,564

69,367

Net purchases of held‐to‐m

aturity securities

(13,820)

( 3,436)

13,240

Net purchases of other investm

ents

311

(3,220)

(580)

Proceeds from redemptions of other investm

ents

1,600

150

Redemption of Capital Securities related to M

idSouth Statutory Trust I

217

Net change in loans

(41,335)

(82,340)

(147,642)

(70,530)

(54,395)

2,149

(103,386)

(226,161)

(72,741)

(78,063)

48,114

(207,575)

(310,264)

Purchases of premises and equipment

(10,245)

(14,264)

(5,588)

(1,544)

( 1,541)

(1,541)

(1,541)

(6,166)

(1,541)

(1,541)

(1,541)

(1,541)

(6,163)

Proceeds from sales of premises and equipment

69

1,729

Proceeds from sale of other real estate owned

555

1,215

3,794

500

500

500

500

2,000

500

500

500

500

2,000

Net cash associated with acquisitions

7,044

Net cash (used in) provided by investing activities

(5,296)

(38,931)

(65,313)

(71,574)

(55,435)

1,109

(104,427)

(230,327)

(73,781)

(79,103)

47,074

(208,616)

(314,427)

Cash Flows From Financing Activities:

Change in deposits

(12,432)

(32,455)

66,679

92,445

65,947

(4,765)

127,154

280,782

88,587

95,174

(62,528)

256,878

378,110

Change in repurchase agreements

(5,539)

12,469

8,182

Change in federal funds purchased

24,943

(61)

Redemption of MidSouth Statutory Trust 1

(7,217)

Repaym

ents of notes payable

(1,000)

(1

,00

0)

Proceeds from exercise of stock options

100

69

643

180

180

180

180

719

180

180

180

180

719

Tax benefit due to exercise of stock options

14

21

Tax benefit from vested restricted stock

14

Paym

ent of dividends on preferred stock

(1,579)

(1,519)

(704)

(420)

(420)

(420)

(420)

(1,680)

(820)

(820)

(820)

(820)

(3,280)

Paym

ent of dividends on common stock

(2,932)

(3,320)

(3,838)

(1,019)

(1,021)

(1,022)

(1,023)

(4,085)

(1,024)

(1,026)

(1,027)

(1,028)

(4,105)

Net cash (used in) provided by financing activities

(22,381)

(795)

62,696

91,186

64,686

(6,027)

125,891

275,736

86,922

93,508

(64,196)

255,210

371,445

Net (decrease) increase in cash and cash equivalents

(9,730)

(13,842)

27,141

26,435

18,471

3,726

28,777

77,409

22,186

25,327

(6,797)

55,615

96,330

Cash and cash equivalents ‐ beginning

83,303

73,573

59,731

86,872

113,307

131,778

135,504

86,872

164,281

186,467

211,794

204,997

164,281

Cash and cash equivalents ‐ending

73,573

59,731

86,872

113,307

131,778

135,504

164,281

164,281

186,467

211,794

204,997

260,612

260,612

Supplemental cash flow inform

ation

Interest paid

5,840

$

6,539

$

5,807

$

1,663

$

1,678

$

1,703

$

1,596

$

6,640

$

1, 748

$

1,754

$

1,775

$

1,752

$

7,030

$

Income taxes paid

2,128

$

6,151

$

7,358

$

2,180

$

2,352

$

2,216

$

1,681

$

8,429

$

2,760

$

3,001

$

2,723

$

2,427

$

10,911

$

Revenue (net interest income) per share

5.05

$

6.21

$

6.05

$

1.75

$

1.80

$

1.72

$

1.76

$

7.02

$

2.01

$

2.09

$

1.95

$

2.07

$

8.10

$

2016 E

2015 E

MidSouth Ban

corp In

c. (MSL)

BURKEN

ROAD REP

ORTS (www.burken

road

.org)

March 24, 2015

43


SL)

Ratios

2012 A

2013 A

2014 A

31‐M

ar E

30‐Jun E

30‐Sep E

31‐Dec E

2015 E

30‐M

ar E

29‐Jun E

29‐Sep E

30‐Dec E

2016 E

Perform

ance

Measurements

Gross interest as a %

of interest‐bearing assets

4.60%

5.03%

4.92%

1.36%

1.35%

1.29%

1.27%

5.25%

1.39%

1.39%

1.30%

1.33%

5.32%

Net interest as a %

of interest bearing assets

4.15%

4.64%

4.57%

1.27%

1.26%

1.20%

1.19%

4.89%

1.30%

1.30%

1.21%

1.25%

4.98%

Loan interest rate

6.27%

6.55%

6.02%

1.67%

1.64%

1.55%

1.52%

6.35%

1.66%

1.65%

1.53%

1.56%

6.26%

Securities interest rate

2.79%

2.19%

2.35%

0.57%

0.57%

0.57%

0.57%

2.28%

0.57%

0.57%

0.57%

0.57%

2.28%

Interest expense on deposits as a %

of deposits

0.44%

0.34%

0.30%

0.10%

0.09%

0.09%

0.08%

0.36%

0.09%

0.08%

0.09%

0.08%

0.34%


5.72%

4.48%

4.48%

1.12%

1.12%

1.12%

1.12%

5.00%

1.12%

1.12%

1.12%

1.12%

6.00%

Efficiency Ratio

77.94%

75.64%

68.57%

69.00%

67.80%

68.34%

75.11%

70.07%

66.40%

65.14%

66.05%

70.71%

67.11%

Provision for loan losses ratio

0.26%

0.28%

0.47%

0.12%

0.12%

0.12%

0.12%

0.47%

0.12%

0.12%

0.12%

0.12%

0.47%

Loans to Deposits ratio

66.99%

74.32%

80.32%

80.00%

80.00%

80.00%

80.00%

80.00%

80.00%

80.00%

80.00%

80.00%

80.00%

Non‐interest expense to deposits

3.73%

3.92%

3.70%

0.99%

0.96%

0.93%

1.01%

3.89%

0.96%

0.94%

0.89%

0.98%

3.71%

Equity to Assets Ratio

11.48%

10.26%

10.55%

10.63%

10.39%

10.42%

10.26%

10.38%

9.92%

9.73%

9.85%

9.63%

9.59%

Financial Risk (Leverage) Ratios

Total debt/equity ratio

8.79

8.70

8.27

8.55

8.69

8.51

8.98

8.98

9.18

9.38

8.93

9.84

9.84

Total debt ratio

0.90

0.90

0.89

0.90

0.90

0.89

0.90

0.90

0.90

0.90

0.90

0.91

0.91

Profitability/Valuation M

easures

Gross profit margin

90.43%

92.14%

93.04%

93.12%

93.25%

92.90%

93.44%

93.18%

93.70%

93.91%

93.44%

93.90%

93.75%

Earnings per share (diluted)

0.77

$

1.12

$

1.58

$

0.39

$

0.42

$

0.40

$

0.29

$

1.50

$

0.47

$

0.51

$

0.46

$

0.40

$

1.84

$

Return on assets

0.66%

0.77%

1.01%

0.26%

0.27%

0.25%

0.18%

0.94%

0.28%

0.29%

0.27%

0.23%

1.05%

Return on equity

5.73%

7.46%

9.56%

2.41%

2.55%

2.36%

1.76%

9.09%

2.85%

3.03%

2.69%

2.35%

10.92%

Dividend payout ratio

16.38%

10.72%

3.68%

8.26%

7.65%

8.12%

10.71%

8.54%

12.73%

11.71%

12.91%

14.48%

12.88%

Dividend as a share of stockholders equity

0.83%

0.80%

0.34%

0.20%

0.19%

0.19%

0.19%

0.75%

0.36%

0.35%

0.34%

0.34%

1.35%

2016 E

2015 E

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BURKENROAD REPORTS RATING SYSTEM

MARKET OUTPERFORM: This rating indicates that we believe forces are in place that would enable this company's stock to produce returns in excess of the stock market averages over the next 12 months.

MARKET PERFORM: This rating indicates that we believe the investment returns from this company's stock will be in line with those produced by the stock market averages over the next 12 months.

MARKET UNDERPERFORM: This rating indicates that while this investment may have positive attributes, we believe an investment in this company will produce subpar returns over the next 12 months. BURKENROAD REPORTS CALCULATIONS

CPFS is calculated using operating cash flows excluding working capital changes.

All amounts are as of the date of the report as reported by Bloomberg or Yahoo Finance unless otherwise noted. Betas are collected from Bloomberg.

Enterprise value is based on the equity market cap as of the report date, adjusted for long‐term debt, cash, & short‐term investments reported on the most recent quarterly report date.

12‐month Stock Performance is calculated using an ending price as of the report date. The stock performance includes the 12‐month dividend yield.

2014‐2015 COVERAGE UNIVERSE Amerisafe Inc. (AMSF) Bristow Group Inc. (BRS) The First Bancshares (FBMS) CalIon Petroleum Company (CPE) Cal‐Maine Foods Inc. (CALM) Carbo Ceramics Inc. (CRR) Cash America International Inc. (CSH) Conn's Inc. (CONN) Crown Crafts Inc. (CRWS) Cyberonics Incorporated (CYBX) Denbury Resources Inc. (DNR) EastGroup Properties Inc. (EGP) Era Group Inc. (ERA) Evolution Petroleum Corp. (EPM) Globalstar (GSAT) Gulf Island Fabrication Inc. (GIFI) Hibbett Sports (HIBB) Hornbeck Offshore Services Inc. (HOS) IBERIABANK Corp. (IBKC) ION Geophysical Corp. (IO)

Key Energy Services (KEG) Marine Products Corp. (MPX) MidSouth Bancorp Inc. (MSL) Newpark Resources Inc. (NR) PetroQuest Energy Inc. (PQ) Popeyes Louisiana Kitchen (PLKI) Pool Corporation (POOL) Powell Industries Inc. (POWL) Rollins Incorporated (ROL) RPC Incorporated (RES) Ruth’s Hospitality Group Inc. (RUTH) Sanderson Farms Inc. (SAFM) SEACOR Holdings Inc. (CKH) Sharps Compliance Inc. (SMED) Stone Energy Corp. (SGY) Sunoco LP (SUN) Superior Energy Services Inc. (SPN) Team Incorporated (TISI) Vaalco Energy Inc. (EGY) Willbros Group Inc. (WG)

PETER RICCHIUTI Director of Research Founder of Burkenroad Reports [email protected] ANTHONY WOOD Senior Director of Accounting [email protected]

JERRY DICOLO DAVID DOWTY ELLIOTT EDWARDS Associate Directors of Research

BURKENROAD REPORTS Tulane University New Orleans, LA 70118‐5669 (504) 862‐8489 (504) 865‐5430 Fax

To receive complete reports on any of the companies we follow, contact:Peter Ricchiuti, Founder & Director of Research

Tulane UniversityFreeman School of BusinessBURKENROAD REPORTS

Phone: (504) 862-8489Fax: (504) 865-5430

E-mail: [email protected] visit our web site at www.BURKENROAD.org

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Named in honor of William B. Burkenroad Jr., an alumnus and a longtime supporter of Tulane’s business school, and funded through contributions from his family and friends, BURKENROAD REPORTS is a nationally recognized program, publishing objective, investment research reports on public companies in our region. Students at Tulane University’s Freeman School of Business prepare these reports.Alumni of the BURKENROAD REPORTS program are employed at a number of highly respected financial institutions including:ABN AMRO Bank · Aegis Value Fund · Invesco/AIM Capital Management · Alpha Omega Capital Partners · American General Investment Management · Ameriprise Financial · Atlas Capital · Banc of America Securities · Bank of Montreal · Bancomer · Barclays Capital · Barings PLC · Bearing Point · Bessemer Trust · Black Gold Capital· Bloomberg · Brookfield Asset Management · Brown Brothers Harriman Capital · Blackrock Financial Management · Boston Consulting Group · Buckingham Research · California Board of Regents · Cambridge Associates· Canaccord Genuity · Cantor Fitzgerald · Chaffe & Associates · Citadel Investment Group · Citibank · Citigroup Private Bank · City National Bank · Cornerstone Resources · Credit Suisse · D. A. Davidson & Co. · Deutsche Banc · Duquesne Capital Management · Equitas Capital Advisors· Factset Research · Financial Models · First Albany · Fiduciary Trust · Fitch Investors Services · Forex Trading · Franklin Templeton · Friedman Billings Ramsay · Fulcrum Global Partners · Gintel Asset Management · Global Hunter Securities · Goldman Sachs · Grosever Funds · Gruntal & Co. · Guggenheim Securities , LLC · Hancock Investment Services · Healthcare Markets Group · Capital One Southcoast · Howard Weil Labouisse Friedrichs · IBERIABANK Capital Markets · J.P. Morgan Securities · Janney Montgomery Scott · Jefferies & Co. · Johnson Rice & Co. · KBC Financial · KDI Capital Partners · Key Investments · Keystone Investments · Legacy Capital · Liberty Mutual · Lowenhaupt Global Advisors · Mackay Shields · Manulife/John Hancock Investments · Marsh & McLennan · Mercer Partners · Merrill Lynch · Miramar Asset Management · Moodys Investor Services · Morgan Keegan · Morgan Stanley · New York Stock Exchange · Perkins Wolf McDonnell · Piper Jaffray & Co. · Professional Advisory Services · Quarterdeck Investment Services · RBC · Raymond James · Restoration Capital · Rice Voelker, LLC · Royal Bank of Scotland· Sandler O'Neill & Partners · Sanford Bernstein & Co. · Scotia Capital · Scottrade · Second City Trading LLC · Sequent Energy · Sidoti & Co · Simmons & Co. · Southwest Securities · Stephens & Co. · Sterne Agee · Stewart Capital LLC · Stifel Nicolaus · Sun-Trust Capital Markets · Susquehanna Investment Group · Thomas Weisel Partners · TD Waterhouse Securities · Texas Employee Retirement System · Texas Teachers Retirement System · ThirtyNorth Investments · Thornburg Investment Management · Tivoli Partners · Tudor Pickering & Co. · Tulane University Endowment Fund · Turner Investment Partners · UBS · Value Line Investments · Vaughan Nelson Investment Management · Wells Fargo Capital Management · Whitney National Bank · William Blair & Co. · Zephyr Management

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