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 Bank and 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.
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MAINSOURCE FINANCIAL GROUP |
| (unaudited) |
| (Dollars in thousands except per share data) |
| Three months ended June 30 | Six months ended June 30 | ||||||||||||||||||
| Income Statement Summary | 2014 | 2013 | 2014 | 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 Data | 2014 | 2013 | 2014 | 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 Data | 2014 | 2013 | 2014 | 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 | 2013 | 2014 | 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 Highlights | 2014 | 2014 | 2013 | 2013 | 2013 | |||||||||||||||||
| 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 Data | 2014 | 2014 | 2013 | 2013 | 2013 | ||||||||||||||||||
| 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 Quality | 2014 | 2014 | 2013 | 2013 | 2013 | ||||||||||||||||||
| 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 30 | March 31 | December 31 | September 30 | June 30 | |||||||||||||||||||
| 2014 | 2014 | 2013 | 2013 | 2013 | |||||||||||||||||||
| 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.
