8. MidSouth Bancorp

Shares of MidSouth Bancorp ( MSL) of Lafayette, La., closed at $12.81 Monday, returning 18% year-to-date, after declining 14% during 2011.

The shares trade for 1.3 times their reported Sept. 30 tangible book value of $10.01, and for 10.3 times the consensus 2013 EPS estimate of $1.25. Based on a quarterly payout of seven cents, the shares have a dividend yield of 1.85%.

The company on Sept. 26 announced an agreement to acquire PSB Financial -- the holding company for The People State Bank of Many, La. -- which operates 14 branches in North Louisiana and one branch in Texarkana, Texas. PSB had $493 million in total assets as of Sept. 30. MidSouth will pay roughly $39 million in cash and stock. The acquisition is expected to close during the fourth quarter.

MidSouth Bancorp had $1.4 billion in total assets as of Sept. 30. The company reported third-quarter earnings available to common shareholders of $2.2 million, or 21 cents a share, increasing from $2.1 million, or 20 cents a share, in the second quarter, and $296,000, or three cents a share, in the third quarter of 2011.

The main factor in the year-over-year earnings improvement was an 18% increase in net interest income to $13.9 million in the third quarter. This reflected an accelerated accretion of discount of $444,000 in the third quarter of 2011, when the company redeemed $20 million in TARP preferred shares. Also in the third quarter of 2011, the company issued $32 million in preferred shares to the U.S. Treasury, in order to participate in the Small Business Lending Fund (SBLF).

The SBLF is meant to encourage banks to expand their loan portfolios, by lowering the cost of the government's capital investment as banks expand their lending activity. MidSouth Bancorp CE C.R. "Rusty" Cloutier said that "we saw very strong loan growth during the quarter across our markets in both Louisiana and Texas. This strong loan growth is also helping us to reduce the dividend rate on our SBLF preferred stock from 5.0% for the third quarter down to 4.6% for the fourth quarter of 2012 and to 2.4% in the first quarter of 2013."

The company's net interest margin was a strong 4.26%, net of purchase accounting adjustments, expanding from 4.25% in the second quarter, although it narrowed from 4.52% in the third quart of 2011.

MidSouth Bancorp's third-quarter ROA was 0.75%, according to Thomson Reuters Bank Insight, and the company's return on average tangible common equity was 7.81%.

Martin rates MidSouth Bancorp "Outperform," with a price target of $18.50, saying on Nov. 2 that the PSB acquisition will boost the company's "EPS by 35% via cost saves and accretion of loan discounts. We project ROA improves to 0.90% bps by 4Q13 with a 1% level achievable in 2014," while the combined company's return on tangible common equity "is expected to increase to 13.5% by 4Q13."

Martin estimates that MidSouth Bancorp will earn $1.28 a share in 2013 and said that "Our estimate and price target may prove conservative to the extent our estimate of discount accretion is too low. A growing Texas Franchise and superior funding base support our estimate."

MSL Chart MSL data by YCharts

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