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8-K - 8-K - MAINSOURCE FINANCIAL GROUPa14-16248_58k.htm

Exhibit 99.1

 

 

DATE:

 

July 21, 2014 4:00 p.m.

CONTACT:

 

Archie M. Brown, Jr. President and CEO

 

 

MainSource Financial Group, Inc. 812-663-6734

 

MAINSOURCE FINANCIAL GROUP — NASDAQ, MSFG —
Announces Second Quarter 2014 Operating Results

 

·                  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, Indiana, 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.

 



 

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 CommonShare

 

$

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.