News Column

MainSource Financial Group — NASDAQ, MSFG — Announces Second Quarter 2014 Operating Results

July 21, 2014

  • Net Income of $7.8 million, or $0.38 per common share
  • Common stock dividend will increase to $0.11 per share in the third quarter
  • ROA of 1.08%
  • Tangible Common Equity Ratio of 9.2%

    GREENSBURG, Ind.--(BUSINESS WIRE)-- 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 2014. For the three months ended June 30, 2014, the Company recorded net income of $7.8 million, or $0.38 per common share, compared to net income of $7.3 million, or $0.35 per common share, in the second quarter of 2013. The Company also announced that the Board of Directors had approved a payment of a common dividend of $0.11 per share, payable on September 15, 2014 to common shareholders of record as of September 5, 2014. This dividend represents an increase of $0.01 per share.

    CEO Comments

    Mr. Brown stated, “We are pleased with our second quarter results. Our earnings per share of $.38 increased by 9% from the same period one year ago and by 27% when compared to the first quarter of this year. Total revenue increased by 1% from the second quarter of last year to $34.3 million. A 7% increase in loans, a 3% increase in total assets and lower provision expense led to the improvement from last year. Our growth in loans has slowed compared to our forecast, yet we continue to have good activity and full pipelines.”

    Mr. Brown continued, “We continue to be encouraged by our control of non-interest expenses. Our non-interest expense was flat when compared to the second quarter of last year as higher employee expense (primarily related to our de novo investment in Louisville, Kentucky) was offset by lower marketing expense, lower collection expense and small declines in most other expense categories. Total non-interest expense for the second quarter was 2% lower than the linked quarter as a result of lower occupancy expense (related to the extreme bad winter conditions during the first quarter of this year).”

    Mr. Brown concluded, “We are very pleased with the progression of The Merchants Bankand Trust Company (MBT) merger process. As of this time, we have received all regulatory approvals required for closing the merger. We await the approval of the MBT shareholders and satisfaction of other customary closing conditions. Subject to completion of these conditions, we anticipate the merger to close in the fourth quarter of this year. We are also pleased to report our Board has approved a 10% increase in the quarterly common dividend to $.11 per share payable in the third quarter of 2014. The increase reflects our continued improvement in earnings and general positive outlook.”

    Second Quarter Results

    NET INTEREST INCOME

    Net interest income was $23.1 million for the second quarter of 2014 compared to $22.5 million a year ago. The increase in net interest income was primarily due to an increase in the earning asset base. Net interest margin, on a fully-taxable equivalent basis, was 3.83% for the second quarter of 2014, which was eight basis points below the second quarter of 2013 and six points lower than the first quarter of 2014.

    NON-INTEREST INCOME

    The Company’s non-interest income was $11.2 million for the second quarter of 2014 compared to $11.4 million for the same period in 2013 and $9.3 million in the first quarter of 2014. Comparing to the same period a year ago a decrease in mortgage banking income was partially offset by an increase in service charge income. All other categories were relatively flat year over year. On a linked quarter basis, seasonal fluctuations in mortgage banking income, service charges and interchange income were the primary drivers of the increase. In addition, other income increased in the second quarter of 2014 compared to the first quarter of 2014 as the Company recorded a write-down of $500 thousand related to the closing of three branch offices in the first quarter.

    NON-INTEREST EXPENSE

    The Company’s non-interest expense was $23.8 million for the second quarter of 2014 compared to $23.9 million for the same period in 2013. An increase in employee costs related to the Company’s recent investments in new markets was offset by decreases in marketing and collections expenses. On a linked-quarter basis, non-interest expense decreased by approximately $400 thousand. A slight increase in employee costs was more than offset by a decrease in occupancy expenses. Occupancy expenses were abnormally high in the first quarter of 2014 due to the harsh winter.

    BALANCE SHEET AND CAPITAL

    Total assets were $2.86 billion at June 30, 2014, an increase of $90 million from a year ago. The increase was primarily due to an increase in loan balances of $118 million. On a linked-quarter basis the balance sheet was relatively flat. Loan balances grew by $13 million during the second quarter of 2014. The Company’s regulatory capital ratios remain strong and as of June 30, 2014 were as follows: leverage ratio of 10.2%, tier one capital to risk-weighted assets of 15.5%, and total capital to risk-weighted assets of 16.8%. In addition, as of June 30, 2014, the Company’s tangible common equity ratio was 9.2%.

    ASSET QUALITY

    Non-performing assets (NPAs) were $37.0 million as of June 30, 2014, an increase of approximately $9.0 million on a linked-quarter basis. During the second quarter the Company restructured a large problem credit using an A/B note structure. The B note related to this credit was charged off ($3.8 million) while the A note is now classified as a troubled debt restructuring (TDR). The Company had allocated for the charge off of the B note in its loan loss reserve in previous quarters. NPAs represented 1.29% of total assets as of June 30, 2014 compared to 0.97% as of March 31, 2014 and 1.45% as of June 30, 2013. During the second quarter of 2014 approximately $1.6 million of loans were transferred to non-accrual status representing the lowest quarter of inflows since the beginning of 2009. Net charge-offs were $4.1 million for the second quarter of 2014 and represented 0.98% of average loans on an annualized basis. As discussed above, $3.8 million of the charge-offs during the quarter were related to one credit. The Company’s allowance for loan losses as a percent of total outstanding loans was 1.40% as of June 30, 2014 compared to 1.61% as of March 31, 2014 and 1.77% as of June 30, 2013.

     
     

    MAINSOURCE FINANCIAL GROUP

    (unaudited)
    (Dollars in thousands except per share data)
     
            Three months ended June 30   Six months ended June 30
    Income Statement Summary2014   20132014   2013
    Interest Income $ 25,247 $ 25,036 $ 50,687 $ 50,352
    Interest Expense 2,103 2,501 4,322 5,219
    Net Interest Income 23,144 22,535 46,365 45,133
    Provision for Loan Losses 750 1,000 1,500 2,734
    Noninterest Income:
    Trust and investment product fees 1,146 1,269 2,416 2,304
    Mortgage banking 1,662 1,914 2,978 3,943
    Service charges on deposit accounts 5,307 5,124 9,892 9,610
    Securities gains/(losses) (4 ) (11 ) (4 ) 833
    Interchange income 2,024 1,902 3,759 3,513
    OREO gains/(losses) 39 (22 ) (38 ) (318 )
    Other 1,031 1,185 1,475 1,741
    Total Noninterest Income 11,205 11,361 20,478 21,626
    Noninterest Expense:
    Employee 13,699 12,799 27,272 26,317
    Occupancy & equipment 4,164 4,158 8,811 8,373
    Intangible amortization 432 478 864 958
    Marketing 760 964 1,358 2,009
    Collection expenses 394 859 831 1,809
    FDIC assessment 365 467 800 904
    FHLB advance prepayment penalty 2,239
    Consultant expenses 350 375 700 750
    Other 3,630 3,755 7,372 7,624
    Total Noninterest Expense 23,794 23,855 48,008 50,983
    Earnings Before Income Taxes 9,805 9,041 17,335 13,042
    Provision for Income Taxes 2,051 1,717 3,356 1,727
    Net Income $ 7,754 $ 7,324 $ 13,979 $ 11,315
    Preferred Dividends & Accretion (203 ) (405 )
    Net Income Available to Common Shareholders $ 7,754 $ 7,121 $ 13,979 $ 10,910
     
            Three months ended June 30     Six months ended June 30
    Average Balance Sheet Data2014     20132014     2013
    Gross Loans $ 1,698,761 $ 1,576,275 $ 1,691,545 $ 1,570,354
    Earning Assets 2,600,795 2,490,313 2,599,497 2,478,255
    Total Assets 2,870,357 2,783,649 2,866,822 2,771,977
    Noninterest Bearing Deposits 447,674 411,794 446,925 408,585
    Interest Bearing Deposits 1,812,009 1,806,116 1,790,094 1,791,748
    Total Interest Bearing Liabilities 2,075,966 2,017,196 2,078,325 2,006,658
    Shareholders’ Equity 322,033 323,963 317,344 324,081
     
            Three months ended June 30     Six months ended June 30
    Per Share Data2014     20132014     2013

    Diluted Earnings Per Common Share

    $ 0.38 $ 0.35 $ 0.68 $ 0.53
    Cash Dividends Per Common Share 0.10 0.06 0.20 0.12
    Market Value - High 17.89 14.12 18.03 15.10
    Market Value - Low 16.12 12.02 15.78 12.02
    Average Outstanding Shares (diluted) 20,578,282 20,428,118 20,571,614 20,403,469
     
            Three months ended June 30   Six months ended June 30
    Key Ratios (annualized)2014   20132014   2013
    Return on Average Assets 1.08 % 1.06 % 0.98 % 0.82 %
    Return on Average Equity 9.66 % 9.07 % 8.88 % 7.04 %
    Net Interest Margin 3.83 % 3.91 % 3.86 % 3.95 %
    Efficiency Ratio 66.04 % 66.94 % 68.34 % 72.59 %
    Net Overhead to Average Assets 1.76 % 1.80 % 1.94 % 2.14 %
     
            June 30     March 31     December 31     September 30     June 30
    Balance Sheet Highlights20142014201320132013
    Total Loans (Excluding Loans Held for Sale) $ 1,700,798 $ 1,687,551 $ 1,671,926 $ 1,610,990 $ 1,583,281
    Allowance for Loan Losses 23,867 27,247 27,609 27,849 28,002
    Total Securities 852,374 881,104 891,106 893,187 886,908
    Goodwill and Intangible Assets 69,161 69,593 70,025 69,959 70,414
    Total Assets 2,861,017 2,872,379 2,859,864 2,824,347 2,771,055
    Noninterest Bearing Deposits 455,496 459,541 436,550 415,572 421,950
    Interest Bearing Deposits 1,800,849 1,766,284 1,764,078 1,752,702 1,761,767
    Other Borrowings 220,663 265,663 294,252 297,809 216,858
    Shareholders’ Equity 327,381 315,559 305,526 304,471 314,566
     
            June 30   March 31   December 31   September 30   June 30
    Other Balance Sheet Data20142014201320132013
    Tangible Book Value Per Common Share $ 12.62 $ 12.03 $ 11.53 $ 11.49 $ 11.24
    Loan Loss Reserve to Loans 1.40 % 1.61 % 1.65 % 1.73 % 1.77 %
    Loan Loss Reserve to Non-performing Loans 141.86 % 135.75 % 123.50 % 99.56 % 90.68 %
    Nonperforming Assets to Total Assets 0.72 % 0.83 % 0.93 % 1.16 % 1.30 %
    NPA’s (w/ TDR’s) to Total Assets 1.29 % 0.97 % 1.07 % 1.31 % 1.45 %
    Tangible Common Equity Ratio 9.25 % 8.78 % 8.44 % 8.51 % 8.49 %
    Outstanding Shares 20,458,763 20,445,951 20,417,224 20,403,933 20,391,433
     
            June 30   March 31   December 31   September 30   June 30
    Asset Quality20142014201320132013
    Special Mention Loans $ 37,917 $ 53,019 $ 56,960 $ 79,059 $ 85,763
    Substandard Loans (Accruing) 24,344 29,429 27,277 12,138 15,235
    New Non-accrual Loans (for the 3 months ended) 1,626 2,963 2,312 2,761 2,687
     
    Loans Past Due 90 Days or More and Still Accruing $ $ $ 14 $ $ 372
    Non-accrual Loans 16,824 20,071 22,341 27,972 30,508
    Other Real Estate Owned 3,723 3,841 4,120 4,784 5,182
    Total Nonperforming Assets (NPA’s) $ 20,547 $ 23,912 $ 26,475 $ 32,756 $ 36,062
    Troubled Debt Restructurings (Accruing) 16,408 4,041 4,188 4,162 4,207
    Total NPA’s with Troubled Debt Restructurings $ 36,955 $ 27,953 $ 30,663 $ 36,918 $ 40,269
     
    Net Charge-offs - QTD $ 4,130 $ 1,112 $ 1,040 $ 1,153 $ 4,726
    Net Charge-offs as a % of average loans (annualized) 0.98 % 0.27 % 0.25 % 0.29 % 1.20 %
     


    (1) 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. The Company believes that these non-GAAP financial measures provide information to investors that is useful in understanding its financial condition. 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 30March 31December 31September 30June 30
    20142014201320132013
    Shareholders’ Equity $ 327,381 $ 315,559 $ 305,526 $ 304,471 $ 314,566
    Less: Intangible Assets 69,161 69,593 70,025 69,959 70,414
    Preferred Stock 14,945
    Tangible Common Equity 258,220 245,966 235,501 234,512 229,207
     
    Total Assets 2,861,017 2,872,379 2,859,864 2,824,347 2,771,055
    Less: Intangible Assets 69,161 69,593 70,025 69,959 70,414
    Tangible Assets 2,791,856 2,802,786 2,789,839 2,754,388 2,700,641
     
    Ending Shares Outstanding 20,458,763 20,445,951 20,417,224 20,403,933 20,391,433
     
    Tangible Book Value Per Share $ 12.62 $ 12.03 $ 11.53 $ 11.49 $ 11.24
    Tangible Common Equity/Tangible Assets 9.25 % 8.78 % 8.44 % 8.51 % 8.49 %
     


    MainSource Financial Group is listed on the NASDAQ National Market (under the symbol: “MSFG”) and is a community-focused, financial holding company with assets of approximately $2.9 billion. The Company operates 74 full-service offices throughout Indiana, Illinois, Kentucky and Ohio through its banking subsidiary, MainSource Bank, headquartered in Greensburg, Indiana. Through its non-banking subsidiary, MainSource Title LLC, the Company provides various related financial services.

    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.

    Additional Information for Investors and Shareholders

    Communications in this press release do not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. In connection with its proposed merger with MBT, MainSource will file with the Securities and Exchange Commission (“SEC”) a Registration Statement on Form S-4 that will include a Proxy Statement of MBT Bancorp (“MBT”) and a Prospectus of MainSource, as well as other relevant documents concerning the proposed transaction. Shareholders are urged to read the Registration Statement and the Proxy Statement/Prospectus regarding the merger when it becomes available and any other relevant documents filed with the SEC, as well as any amendments or supplements to those documents, because they will contain important information. A free copy of the Proxy Statement/Prospectus, as well as other filings containing information about MainSource, may be obtained at the SEC’s Internet site (http://www.sec.gov). You will also be able to obtain these documents, free of charge, from MainSource at www.mainsourcebank.com under the tab “Investor Relations”.

    MainSource and MBT and certain of their directors and executive officers may be deemed to be participants in the solicitation of proxies from the shareholders of MBT in connection with the proposed merger. Information about the directors and executive officers of MainSource is set forth in the proxy statement for MainSource’s 2014 annual meeting of shareholders, as filed with the SEC on a Schedule 14A on March 21, 2014. Additional information regarding the interests of those participants and other persons who may be deemed participants in the transaction may be obtained by reading the Proxy Statement/Prospectus regarding the proposed merger when it becomes available. Free copies of this document may be obtained as described in the preceding paragraph.



    MainSource Financial Group, Inc.

    Archie M. Brown, Jr., President and CEO, 812-663-6734

    Source: MainSource Financial Group, Inc.


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