MAINSOURCE FINANCIAL GROUP INC. GREENSBURG, Ind., April 26, 2017 /PRNewswire/ -- Archie M. Brown, Jr., President and Chief Executive Officer of MainSource Financial Group, Inc. (NASDAQ: MSFG), announced today the unaudited financial results for the first quarter of 2017. For the three months ended March 31, 2017, the Company recorded net income of $12.1 million, or $0.49 per common share, compared to net income of $8.8 million, or $0.40 per common share, in the first quarter of 2016. During the first quarter of 2017 the Company recorded $274 thousand in reduced income tax expense related to the adoption of ASU 2016-09 which covers the accounting treatment for stock based compensation.
CEO Comments
Mr. Brown commented on the Company's first quarter performance, "I am very pleased with our operating results for the first quarter. Earnings per common share increased by 23% from a year ago as we continued to benefit from the Cheviot acquisition that closed in May 2016 and the organic loan growth from 2016. Strength in our net interest margin and non-interest income were also contributors to our strong earnings performance."
Mr. Brown continued, "We were disappointed in the decline in loan balances for the quarter. Seasonal reductions in revolving lines of credit and reductions in criticized assets placed pressure on loan balances. During the quarter, we also experienced a higher than normal level of mortgage payoffs. Commercial loan originations were similar to the first quarter of last year, but were softer than we expected. We are optimistic that origination activity will pick up in the second quarter and that we will return to growth in balances."
Mr. Brown continued, "We continue to be pleased overall with our credit quality. We did experience a slight increase in non-performing assets during the quarter. One medium-sized commercial real estate loan acquired in our most recent bank purchase led to the increase. This loan was identified as a potential problem during our pre-merger loan due diligence and was appropriately marked when the merger was completed."
Mr. Brown concluded, "During the quarter we were pleased to complete the acquisition of the assets of First Service Capital Management, Inc., a Raymond James brokerage agency with approximately $160 million in assets under management, located in Elizabethtown, Kentucky. We also recently received regulatory approval for our pending merger with FCB Bancorp of Louisville, Kentucky. Subject to FCB Bancorp shareholder approval and customary closing conditions, we expect to complete the merger in the second quarter."
NET INTEREST INCOME
Net interest income was $32.3 million for the first quarter of 2017 compared to $26.4 million a year ago. The increase in net interest income was primarily due to an increase in average earning assets as well as an increase in acquisition accounting adjustments. Average earning assets increased year over year by $597 million with $430 million coming from the Cheviot acquisition and $167 million from organic growth. Net interest margin, on a fully-taxable equivalent basis, was 3.76% for the first quarter of 2017, which was a ten basis point increase from the first quarter of 2016 and an increase of seven basis points compared to the fourth quarter of 2016. The increase in the net interest margin on a linked-quarter basis was primarily attributable to an increase in the yield on investment securities and an increase in the accretion of purchase accounting marks. Overall, the accretion of acquisition accounting marks added ten basis points to the net interest margin for the first quarter of 2017.
NON-INTEREST INCOME
The Company's non-interest income was $13.0 million for the first quarter of 2017 compared to $11.6 million for the same period in 2016. Increases in mortgage banking income ($0.6 million) and interchange income ($0.4 million) were the primary drivers of the increase.
NON-INTEREST EXPENSE
The Company's non-interest expense was $29.4 million for the first quarter of 2017 compared to $26.2 million for the same period in 2016. The year over year increase in total expenses were primarily in the employee, occupancy and equipment expense categories and were primarily related to the acquisition of Cheviot in May 2016.
BALANCE SHEET AND CAPITAL
Total assets were $4.0 billion at March 31, 2017, which represents a $628 million increase from a year ago. The increase in assets was primarily related to the acquisition of Cheviot ($535 million) and organic loan growth over the past twelve months. Loan balances (including loans that are classified as held for sale) decreased $45 million on a linked quarter basis which represents a 7% decrease on an annualized basis. Higher than normal payoffs and weaker than expected loan demand were the primary drivers of the decrease. The Company's regulatory capital ratios remain strong and as of March 31, 2017 were as follows: leverage ratio of 9.9%, tier one capital to risk-weighted assets of 14.3%, common equity tier one capital ratio of 12.8%, and total capital to risk-weighted assets of 15.1%. In addition, as of March 31, 2017, the Company's tangible common equity ratio was 8.9% compared to 8.6% as of December 31, 2016.
ASSET QUALITY
Non-performing assets (NPAs) were $25.2 million as of March 31, 2017, an increase of $2.1 million on a linked-quarter basis. The increase in NPAs was primarily related to one $3.0 million credit that moved to non-performing status during the quarter. NPAs represented 0.62% of total assets as of March 31, 2017 compared to 0.57% as of December 31, 2016 and 0.48% as of March 31, 2016. The Company incurred net charge-offs of $130 thousand and recorded no loan loss provision expense for the first quarter of 2017. This level of provision expense was a result of the decrease in loan balances during the current quarter. The Company's allowance for loan losses as a percent of total outstanding loans was 0.85% as of March 31, 2017 compared to 0.84% as of December 31, 2016 and 0.97% as of March 31, 2016. The decrease in this metric year over year was primarily driven by the increase in acquired loans that were marked to fair value at the acquisition date and not included in the loan loss reserve analysis.
FORWARD LOOKING STATEMENTS
Except for historical information contained herein, the discussion in this press release includes certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are covered by the safe harbor provisions of such sections. These statements are based upon management expectations, goals and projections, which are subject to numerous assumptions, risks and uncertainties (many of which are beyond management's control). Factors which could cause future results to differ materially from these expectations include, but are not limited to, the following: general economic conditions; legislative and regulatory initiatives; monetary and fiscal policies of the federal government; deposit flows; the costs of funds; general market rates of interest; interest rates on competing investments; demand for loan products; demand for financial services; changes in accounting policies or guidelines; changes in the quality or composition of the Company's loan and investment portfolios; the Company's ability to integrate acquisitions; and other factors, including various "risk factors" as set forth in our most recent Annual Report on Form 10-K and in other reports we file from time to time with the Securities and Exchange Commission. These reports are available publicly on the SEC website, www.sec.gov, and on the Company's website, www.mainsourcefinancial.com.
Three months ended March 31
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2017 2016
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Income Statement Summary
Interest Income $35,206 $28,746
Interest Expense 2,919 2,374
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Net Interest Income 32,287 26,372
Provision for Loan Losses - 500
Noninterest Income:
Trust and investment product fees 1,197 1,210
Mortgage banking 2,392 1,790
Service charges on deposit accounts 4,791 4,682
Securities gains/(losses) 13 17
Interchange income 3,054 2,635
Other 1,549 1,255
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Total Noninterest Income 12,996 11,589
Noninterest Expense:
Employee 17,717 14,860
Occupancy & equipment 5,813 5,324
Intangible amortization 304 328
Marketing 765 654
Interchange expense 797 813
Collection expenses 231 252
FDIC assessment 324 420
Other 3,478 3,506
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Total Noninterest Expense 29,429 26,157
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Earnings Before Income Taxes 15,854 11,304
Provision for Income Taxes 3,781 2,538
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Net Income Available to Common Shareholders $12,073 $8,766
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Three months ended March 31
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2017 2016
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Average Balance Sheet Data
Gross Loans $2,638,684 $2,149,184
Earning Assets 3,693,212 3,096,634
Total Assets 4,053,417 3,398,105
Noninterest Bearing Deposits 754,746 639,404
Interest Bearing Deposits 2,341,177 1,999,445
Total Interest Bearing Liabilities 2,822,362 2,350,590
Shareholders' Equity 453,971 389,204
Three months ended March 31
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2017 2016
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Per Share Data
Diluted Earnings Per Common Share $0.49 $0.40
Cash Dividends Per Common Share 0.16 0.15
Market Value - High 35.21 22.18
Market Value - Low 31.57 19.95
Average Outstanding Shares (diluted) 24,521,161 21,873,038
Three months ended March 31
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2017 2016
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Key Ratios (annualized)
Return on Average Assets 1.21% 1.04%
Return on Average Equity 10.79% 9.06%
Net Interest Margin 3.76% 3.66%
Efficiency Ratio 62.32% 65.73%
Net Overhead to Average Assets 1.64% 1.72%
March 31 December 31 September 30 June 30 March 31
2017 2016 2016 2016 2016
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Balance Sheet Highlights
Total Loans (Including Loans Held for Sale) $2,618,980 $2,664,152 $2,591,884 $2,561,765 $2,165,511
Allowance for Loan Losses 22,369 22,499 21,828 21,468 21,079
Total Securities 1,022,208 1,007,540 1,025,048 1,032,380 937,719
Goodwill and Intangible Assets 110,180 108,734 108,651 108,477 80,287
Total Assets 4,042,475 4,080,257 4,013,943 3,995,541 3,414,276
Noninterest Bearing Deposits 812,301 767,159 705,428 677,654 647,187
Interest Bearing Deposits 2,342,836 2,343,712 2,418,600 2,421,705 1,997,657
Other Borrowings 270,976 290,897 300,877 291,047 326,796
Shareholders' Equity 459,779 449,494 459,608 453,782 394,204
March 31 December 31 September 30 June 30 March 31
2017 2016 2016 2016 2016
---- ---- ---- ---- ----
Other Balance Sheet Data
Tangible Book Value Per Common Share (1) $14.48 $14.16 $14.60 $14.38 $14.51
Loan Loss Reserve to Loans 0.85% 0.84% 0.84% 0.84% 0.97%
Loan Loss Reserve to Non-performing Loans 110.84% 125.39% 146.07% 131.54% 186.05%
Nonperforming Assets to Total Assets 0.54% 0.49% 0.43% 0.49% 0.39%
NPA's (w/ TDR's) to Total Assets 0.62% 0.57% 0.51% 0.58% 0.48%
Tangible Common Equity/Tangible Assets (1) 8.89% 8.58% 8.99% 8.88% 9.42%
Outstanding Shares 24,148,132 24,067,364 24,033,381 24,005,307 21,627,452
March 31 December 31 September 30 June 30 March 31
2017 2016 2016 2016 2016
---- ---- ---- ---- ----
Asset Quality
Special Mention Loans $12,987 $20,526 $20,050 $18,088 $11,796
Substandard Loans (Accruing) 15,531 18,626 19,805 22,239 15,116
New Non-accrual Loans (for the 3 months ended) 9,051 3,416 3,073 3,668 1,627
Loans Past Due 90 Days or More and Still
Accruing $ - $2,135 $ - $126 $ -
Non-accrual Loans 20,181 15,808 14,944 16,195 11,330
Other Real Estate Owned 1,783 1,875 2,242 3,180 1,911
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Total Nonperforming Assets (NPA's) $21,964 $19,818 $17,186 $19,501 $13,241
Troubled Debt Restructurings (Accruing) 3,227 3,270 3,333 3,508 3,098
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Total NPA's with Troubled Debt Restructurings $25,191 $23,088 $20,519 $23,009 $16,339
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Net Charge-offs - QTD $130 $179 $(210) $(184) $1,441
Net Charge-offs as a % of average loans
(annualized) 0.02% 0.03% (0.03)% (0.03)% 0.27%
(1) Use Of Non-GAAP Financial Measures
These financial statements include financial measures prepared other than in accordance with generally accepted accounting principles in the United States ("GAAP"). These non-GAAP financial measures should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. We believe this information is helpful in understanding the Company's results of operations separate and apart from items that may, or could, have a disproportionate positive or negative impact in any given period, such as acquisition accounting impacts, one-time costs of acquisitions or other non-core items.
Tangible common equity, tangible assets and tangible book value per share are non-GAAP financial measures calculated using GAAP amounts. Tangible common equity is calculated by excluding the balance of preferred stock, goodwill and other intangible assets from the calculation of stockholders' equity. Tangible assets are calculated by excluding the balance of goodwill and other intangible assets from the calculation of total assets. Tangible book value per share is calculated by dividing tangible common equity by the number of shares outstanding. Because not all companies use the same calculation of tangible common equity and tangible assets, this presentation may not be comparable to other similarly titled measures calculated by other companies. A reconciliation of these non-GAAP financial measures is provided below (dollars in thousands, except per share data).
March 31 December 31 September 30 June 30 March 31
2017 2016 2016 2016 2016
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Shareholders' Equity $459,779 $449,494 $459,608 $453,782 394,204
Less: Intangible Assets 110,180 108,734 108,651 108,477 80,287
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Tangible Common Equity 349,599 340,760 350,957 345,305 313,917
Total Assets 4,042,475 4,080,257 4,013,943 3,995,541 3,414,276
Less: Intangible Assets 110,180 108,734 108,651 108,477 80,287
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Tangible Assets 3,932,295 3,971,523 3,905,292 3,887,064 3,333,989
Ending Shares Outstanding 24,148,132 24,067,364 24,033,381 24,005,307 21,627,452
Tangible Book Value Per Common Share $14.48 $14.16 $14.60 $14.38 $14.51
Tangible Common Equity/Tangible Assets 8.89% 8.58% 8.99% 8.88% 9.42%
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SOURCE MainSource Financial Group, Inc.
