MSL: 4Q16 Matches Street Consensus; Energy Criticized & Reserve Climb Modestly


Close $14.45 / “Market-Perform”/ $15 Price Target / HQ= Lafayette, LA/ $116 Mil. Mkt. Cap

  • MSL reported 4Q16 EPS of $0.12, $0.02 below our estimate, but in line with Consensus
  • Variance Related To Expenses & Provision: A $0.02 negative variance stemmed from higher expenses (-$.0.02) and provisioning  (-$0.01) mitigated by better spread revenue (+$0.01) and higher fees
  • Energy portfolio contract modestly but still 18.5% of Loans. Criticized energy rose to 50% of the portfolio (37% Substandard, 13% Special Mention), from 47% in 3Q. Past Dues 31% vs. 16%]
  • Price Target is $15.00, modest upside from the current price

Below are additional quarterly observations:

MSL’s Energy Reserve rose 30bps to 4.9%. Eleven downgrades of energy relationships were noted in 4Q16 totaling $25 Mil.; one $4.2 Mil. credit moved to Special Mention and ten credits for $21 Mil. moved to Substandard. Energy related NCOs were $374k or ~60 bps of Energy loans. Cycle to date NCOs total $3.3 Mil.

Loans increased $11 Mil. or 4% LQA (positive for 3rd consecutive quarter) as payoffs and reductions on lines or credit continued to mask good origination activity ($91 Mil.).

Core NIM declined 7 bps to 4.12% impacted by lower loan yields (-3bps) along with slightly greater liquidity and a 1 bps uptick in cost of interest bearing liabilities.\

Total revenues declined -0.4% LQ to $23.3 Mil. due to modest declines in both Spread and Fee Income. Spread was negatively impacted by NIM erosion while a seasonal drop in service charges led to drop in fees.

Pre-Tax Pre-Provision earnings of $5.7 Mil. covered provisioning by over 2x allowing for continued growth in earnings; however, TCE took a small step back in 4Q16 despite positive earnings given the sell-off in the bond market and its impact on AOCI.  TCE fell 14 bps to 6.7% while TBV dropped 2.7% to $11.13.

NPAs ticked up to $65 Mil. or 5.1% of Loans +OREO. Classifieds rose 13% LQ to $134 Mil. or 62% of Tier 1 Capital plus Reserves. NCOs were $1.5 Mil.. 47 bps of Avg. Loans; $374k of which were from energy book.