MAINSOURCE FINANCIAL GROUP INC. GREENSBURG, Ind., July 25, 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 second quarter of 2017. For the three months ended June 30, 2017, the Company recorded net income of $9.7 million, or $0.38 per common share, compared to net income of $6.1 million, or $0.27 per common share, in the second quarter of 2016. During the second quarter of 2017 the Company recorded $5.6 million of expenses related to the FCB Bancorp, Inc. acquisition. In addition, the Company also recorded $214 thousand of expenses related to the prepayment of a Federal Home Loan Bank borrowing. These two items reduced earnings per share by $0.15 (see reconciliation of Actual to Operating Earnings on page 3 of this release). During the second quarter of 2016, the Company recorded $6.4 million of expenses related to the Cheviot Financial acquisition which reduced earnings per share by $0.18.
CEO Comments
Mr. Brown commented on the Company's second quarter performance, "We had a very good quarter on an operating basis. Excluding the non-operating items mentioned above and the effect of gains in the securities portfolio, earnings per share were $0.53, an 18% increase from $0.45 a year ago. The addition of FCB Bancorp in late April, organic loan growth over the past twelve months and a very strong net interest margin were key drivers of our strong earnings performance."
Mr. Brown continued, "Loan balances were virtually flat on a linked quarter basis as loan activity was softer than expected. We are disappointed that we did not achieve the growth we anticipated. Our loan pipelines indicate stronger performance in the second half of 2017 and we are optimistic that we will achieve loan growth during the remainder of the year similar to our historic norm of mid to high single digits on an annualized basis. We were very pleased with our loan quality trends for the quarter as non-performing loans slightly declined and net charge-offs remained at historic lows."
Mr. Brown concluded, "We completed our acquisition of FCB Bancorp on April 30 and converted systems in late June. The transition has gone very well and we are very excited to have a meaningful presence in Louisville. We look forward to making a positive impact in the Louisville community and bringing additional financial solutions to our new customer base."
NET INTEREST INCOME
Net interest income was $35.5 million for the second quarter of 2017 compared to $28.2 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 purchase accounting adjustments. Average earning assets increased year over year by $661 million with approximately $178 million coming from the Cheviot acquisition, $319 coming from the FCB Bancorp acquisition and $164 million coming from organic growth. Net interest margin, on a fully-taxable equivalent basis, was 3.77% for the second quarter of 2017, an increase of one basis point on a linked quarter basis. Overall, the accretion of purchase accounting marks added thirteen basis points to the net interest margin for the second quarter of 2017 compared to eleven basis points in the first quarter of 2017.
NON-INTEREST INCOME
The Company's non-interest income was $13.5 million for the second quarter of 2017 compared to $13.7 for the same period a year ago. An increase in interchange income was more than offset by a decrease in other income (primarily interest rate swap fees in the commercial banking division).
NON-INTEREST EXPENSE
The Company's non-interest expense was $36.4 million for the second quarter of 2017 compared to $34.1 million for the same period in 2016. As previously mentioned, the Company incurred $5.6 million of expenses related to the FCB Bancorp acquisition and recorded a $214 thousand charge related to the prepayment of a Federal Home Loan Bank borrowing during the second quarter of 2017. During the second quarter of 2016, the Company recorded $6.4 million of expenses related to the Cheviot Financial acquisition. Excluding these items, expenses would have been $30.6 million in the second quarter of 2017 compared to $27.7 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 FCB in April 2017.
BALANCE SHEET AND CAPITAL
Total assets were $4.6 billion at June 30, 2017, which represents a $594 million increase from a year ago. The increase in assets was primarily related to the acquisition of FCB ($530 million) and organic loan growth over the past twelve months. Excluding the $428 million of loan balances that were acquired in the FCB acquisition, loan balances decreased by $10 million organically on a linked quarter basis. The decrease in loan balances was primarily driven by weaker than anticipated loan demand in the first half of 2017. The Company's regulatory capital ratios remain strong and as of June 30, 2017 were as follows: leverage ratio of 9.7%, tier one capital to risk-weighted assets of 12.6%, common equity tier one capital ratio of 11.2%, and total capital to risk-weighted assets of 13.3%. In addition, as of June 30, 2017, the Company's tangible common equity ratio was 8.3% compared to 8.9% as of March 31, 2017.
ASSET QUALITY
Non-performing assets (NPAs) were $24.6 million as of June 30, 2017, a decrease of $0.6 million on a linked-quarter basis. NPAs represented 0.54% of total assets as of June 30, 2017 compared to 0.62% as of March 31, 2017 and 0.58% as of June 30, 2016. The Company incurred net charge-offs of $163 thousand and recorded $100 thousand of loan loss provision expense for the second quarter of 2017. The low level of provision expense was based on the decrease in loan balances during the current quarter and the overall improvement in credit quality. The Company's allowance for loan losses as a percent of total outstanding loans was 0.73% as of June 30, 2017 compared to 0.85% as of March 31, 2017 and 0.84% as of June 30, 2016. The decrease in this metric 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.
USE OF NON-GAAP FINANCIAL MEASURES
This press release includes financial measures prepared other than in accordance with generally accepted accounting principles in the United States ("GAAP"). Specifically, we have included non-GAAP financial measures of the Company's earnings per share excluding the impact of costs associated with the acquisitions of FCB Bancorp, Inc. and Cheviot Financial Corp. and the impact of a pre-payment penalty associated with the repayment of a Federal Home Loan Bank borrowing, and non-interest expense excluding the impact of costs associated with the acquisitions. 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 purchase accounting impacts, one-time costs of acquisitions or other non-core items. A reconciliation of the non-GAAP measures to the most comparable GAAP equivalent is included in the text or in the attached financial tables under the heading "Reconciliation of Non-GAAP Financial Measures".
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 June 30 Six months ended June 30
-------------------------- ------------------------
2017 2016 2017 2016
---- ---- ---- ----
Income Statement Summary
Interest Income $39,202 $30,870 $74,408 $59,616
Interest Expense 3,691 2,672 6,610 5,046
----- ----- ----- -----
Net Interest Income 35,511 28,198 67,798 54,570
Provision for Loan Losses 100 205 100 705
Noninterest Income:
Trust and investment product fees 1,299 1,253 2,496 2,463
Mortgage banking 2,688 2,743 5,080 4,533
Service charges on deposit accounts 5,180 5,219 9,971 9,901
Securities gains/(losses) 9 104 22 121
Interchange income 3,034 2,805 6,088 5,440
Other 1,321 1,614 2,870 2,869
----- ----- ----- -----
Total Noninterest Income 13,531 13,738 26,527 25,327
Noninterest Expense:
Employee 17,621 15,884 35,338 30,744
Occupancy & equipment 6,068 5,319 11,881 10,643
Intangible amortization 496 369 800 697
Marketing 980 1,089 1,745 1,743
Interchange expense 910 915 1,707 1,728
Collection expenses 364 170 595 422
FDIC assessment 365 435 689 855
FHLB advance prepayment penalty 214 - 214 -
Merger-related expenses 5,576 6,363 5,576 6,363
Other 3,841 3,553 7,319 7,059
----- ----- ----- -----
Total Noninterest Expense 36,435 34,097 65,864 60,254
------ ------ ------ ------
Earnings Before Income Taxes 12,507 7,634 28,361 18,938
Provision for Income Taxes 2,853 1,517 6,634 4,055
----- ----- ----- -----
Net Income Available to Common Shareholders $9,654 $6,117 $21,727 $14,883
====== ====== ======= =======
Reconciliation of Actual to Operating Earnings - non GAAP
Net Income as Reported $9,654 $6,117 $21,727 $14,883
Add: Merger-related expenses, net of tax 3,765 4,341 3,765 4,341
FHLB Prepayment Penalty, net of tax 139 - 139 -
Less: Securities gains, net of tax (6) (68) (14) (79)
--- --- --- ---
Operating earnings (1) $13,552 $10,390 $25,617 $19,145
======= ======= ======= =======
Operating earnings per share (1) $0.53 $0.45 $1.02 $0.85
Three months ended June 30 Six months ended June 30
-------------------------- ------------------------
2017 2016 2017 2016
---- ---- ---- ----
Average Balance Sheet Data
Gross Loans $2,896,776 $2,327,951 $2,767,730 $2,238,568
Earning Assets 3,991,134 3,330,493 3,841,576 3,213,564
Total Assets 4,398,126 3,665,861 4,225,772 3,531,983
Noninterest Bearing Deposits 818,637 654,661 786,691 647,033
Interest Bearing Deposits 2,584,307 2,237,171 2,462,742 2,118,308
Total Interest Bearing Liabilities 2,959,416 2,554,467 2,802,775 2,438,859
Shareholders' Equity 499,987 414,686 476,979 401,945
Three months ended June 30 Six months ended June 30
-------------------------- ------------------------
2017 2016 2017 2016
---- ---- ---- ----
Per Share Data
Diluted Earnings Per Common Share $0.38 $0.27 $0.87 $0.66
Cash Dividends Per Common Share 0.17 0.15 0.33 0.30
Market Value - High 35.31 23.25 35.31 23.25
Market Value - Low 31.55 20.30 31.55 19.95
Average Outstanding Shares (diluted) 25,533,033 23,007,792 25,031,865 22,441,142
Three months ended June 30 Six months ended June 30
-------------------------- ------------------------
2017 2016 2017 2016
---- ---- ---- ----
Key Ratios (annualized)
Return on Average Assets 0.88% 0.67% 1.04% 0.85%
Return on Average Equity 7.74% 5.93% 9.19% 7.45%
Net Interest Margin 3.77% 3.63% 3.77% 3.64%
Efficiency Ratio 71.39% 77.89% 67.03% 72.10%
Net Overhead to Average Assets 2.09% 2.23% 1.88% 1.99%
June 30 March 31 December 31 September 30 June 30
2017 2017 2016 2016 2016
---- ---- ---- ---- ----
Balance Sheet Highlights
Total Loans (Including Loans Held for Sale) $3,035,466 $2,618,980 $2,664,152 $2,591,884 $2,561,765
Allowance for Loan Losses 22,306 22,369 22,499 21,828 21,468
Total Securities 1,079,555 1,022,208 1,007,540 1,025,048 1,032,380
Goodwill and Intangible Assets 149,766 110,180 108,734 108,651 108,477
Total Assets 4,589,556 4,042,475 4,080,257 4,013,943 3,995,541
Noninterest Bearing Deposits 849,470 812,301 767,159 705,428 677,654
Interest Bearing Deposits 2,672,873 2,342,836 2,343,712 2,418,600 2,421,705
Other Borrowings 343,378 287,643 309,230 320,877 321,047
Shareholders' Equity 516,424 459,779 449,494 459,608 453,782
June 30 March 31 December 31 September 30 June 30
2017 2017 2016 2016 2016
---- ---- ---- ---- ----
Other Balance Sheet Data
Tangible Book Value Per Common Share (1) $14.34 $14.48 $14.16 $14.60 $14.38
Loan Loss Reserve to Loans 0.73% 0.85% 0.84% 0.84% 0.84%
Loan Loss Reserve to Non-performing Loans 114.77% 110.84% 125.39% 146.07% 131.54%
Nonperforming Assets to Total Assets 0.47% 0.54% 0.49% 0.43% 0.49%
NPA's (w/ TDR's) to Total Assets 0.54% 0.62% 0.57% 0.51% 0.58%
Tangible Common Equity/Tangible Assets (1) 8.26% 8.89% 8.58% 8.99% 8.88%
Outstanding Shares 25,575,804 24,148,132 24,067,364 24,033,381 24,005,307
June 30 March 31 December 31 September 30 June 30
2017 2017 2016 2016 2016
---- ---- ---- ---- ----
Asset Quality
Special Mention Loans $51,938 $12,987 $20,526 $20,050 $18,088
Substandard Loans (Accruing) 21,138 15,531 18,626 19,805 22,239
New Non-accrual Loans (for the 3 months ended) 1,128 9,051 3,416 3,073 3,668
Loans Past Due 90 Days or More and Still Accruing $ - $ - $2,135 $ - $126
Non-accrual Loans 19,436 20,181 15,808 14,944 16,195
Other Real Estate Owned 2,072 1,783 1,875 2,242 3,180
----- ----- ----- ----- -----
Total Nonperforming Assets (NPA's) $21,508 $21,964 $19,818 $17,186 $19,501
Troubled Debt Restructurings (Accruing) 3,062 3,227 3,270 3,333 3,508
----- ----- ----- ----- -----
Total NPA's with Troubled Debt Restructurings $24,570 $25,191 $23,088 $20,519 $23,009
======= ======= ======= ======= =======
Net Charge-offs - QTD $163 $130 $179 $(210) $(184)
Net Charge-offs as a % of average loans (annualized) 0.02% 0.02% 0.03% (0.03)% (0.03)%
(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).
June 30 March 31 December 31 September 30 June 30
2017 2017 2016 2016 2016
---- ---- ---- ---- ----
Shareholders' Equity $516,424 $459,779 $449,494 $459,608 $453,782
Less: Intangible Assets 149,766 110,180 108,734 108,651 108,477
------- ------- ------- ------- -------
Tangible Common Equity 366,658 349,599 340,760 350,957 345,305
Total Assets 4,589,556 4,042,475 4,080,257 4,013,943 3,995,541
Less: Intangible Assets 149,766 110,180 108,734 108,651 108,477
------- ------- ------- ------- -------
Tangible Assets 4,439,790 3,932,295 3,971,523 3,905,292 3,887,064
Ending Shares Outstanding 25,575,804 24,148,132 24,067,364 24,033,381 24,005,307
Tangible Book Value Per Common Share $14.34 $14.48 $14.16 $14.60 $14.38
Tangible Common Equity/Tangible Assets 8.26% 8.89% 8.58% 8.99% 8.88%
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SOURCE MainSource Financial Group, Inc.
