MainSource Financial Group - NASDAQ, MSFG - Announces Second Quarter 2017 Operating Results
- Completed Acquisition of FCB Bancorp, Inc.
- Earnings Per Share of $0.38
- Net Interest Margin of 3.77%
- Non-performing Assets of 0.53% of Total Assets
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 |
% |
||||||
SOURCE MainSource Financial Group, Inc.
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