MidSouth Bancorp officials said a recent $55 million stock sale is part of an effort to address concerns by federal bank regulators who recently found the institution is in "troubled condition" because of sustained low oil prices.
Along with the stock sale, President and CEO Jim McLemore said MidSouth will close or sell an undetermined number of low-performing branches, cut dividends from 9 cents per share to a penny, reduce its exposure in the oil and gas sector and improve credit quality.
In a filing to the Securities and Exchange Commission submitted on June 8, the parent company of Lafayette-based MidSouth Bank said the Office of the Comptroller of the Currency found in its latest examination that the bank had deficiencies in asset quality, credit administration and strategic planning.
That determination means that MidSouth is subject to restrictions such as needing approval from the OCC before adding or replacing members to its board of directors or promoting officers and not make any severance payments or payments to directors, officers, employees or controlling shareholders.
MidSouth, which has branches across south Louisiana and in Texas, noted that it was categorized as “well-capitalized” under current regulations. But it expects the OCC will take some action based on concerns about the bank’s level of classified assets, allowance for loan and lease losses and strategic planning. Those actions could include financial penalties, enforcement actions or regulatory sanctions.
MidSouth officials referred to a statement sent out last week after the bank completed a $55 million stock offering that was launched on June 7. McLemore said the stock sale and its other measures are part of a plan to strengthen the bank and address regulators' concerns.
“While we are well aware of the challenges ahead of us, and we will address them head-on with this $55 million capital raise, we will move forward and into a new era of stronger relationship banking,” he said in a statement.
McLemore took over as head of the bank in May, after being tapped as interim CEO in late April when MidSouth Bancorp fired its high profile founder, C.R. “Rusty” Cloutier. Cloutier’s son, Troy, was fired as president and CEO of MidSouth Bank. McLemore had been with the bank for eight years, serving as chief financial officer.
C.R. "Rusty" Cloutier founded MidSouth Bank during the gloomiest days of the mid-80's oilfie…
MidSouth Bancorp share prices have suffered since oil prices plummeted more than two years ago. Investors were put off by a loan portfolio where energy loans accounted for more than 20 percent of the total. Peter Ricchiuti, a finance professor at Tulane University who tracks regional companies across the South through the university's Burkenroad Reports, said many of those loans are to businesses in the offshore service industry. Those are companies that can’t necessarily sell their goods in sectors that have recovered, such as onshore shale plays.
Not only have sustained low oil prices hurt former giants like Tidewater Marine, the New Orleans company that filed for bankruptcy protection in May, but it has rippled through the economy to affect businesses that depended on offshore service company activity, like MidSouth.
MidSouth shares fell from a peak of more than $20 in 2014 to less than $7 in early 2016. The stock closed Thursday at $11.25, down 20 cents.
Ricchiuti said the comments from the OCC were “a shot across the bow” at MidSouth. “It’s just a question of how much they want to tighten things up,” he said. “The collateral that they have is not worth close to what it was three years ago, and that’s all tied to the offshore business.”