MAINSOURCE FINANCIAL GROUP INC. GREENSBURG, Ind., Jan. 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 fourth quarter of 2016. For the three months ended December 31, 2016, the Company recorded net income of $11.7 million, or $0.48 per common share, compared to net income of $9.1 million, or $0.42 per common share, in the fourth quarter of 2015. During the fourth quarter of 2016 the Company incurred costs of $166 thousand related to its May 2016 acquisition of Cheviot Financial Corp. and a charge of $650 thousand related to the closing of three branch offices. Excluding these charges, the Company's net income would have been $12.3 million or $0.50 per share (see Reconciliation of Actual to Operating Earnings included with this press release).
CEO Comments
Mr. Brown commented on the Company's fourth quarter performance, "I am very pleased with our fourth quarter and full year results. On an operating basis we earned $1.86 per share for 2016 which represents a 9% increase over the prior year. Our successful integration of the Cheviot acquisition and our organic loan growth were key factors to our strong performance. We are especially pleased with our loan growth for the fourth quarter of 11% on an annualized basis. Our strategy of growing into nearby metropolitan markets is paying off and we are optimistic about our ability to continue to grow loans at a moderate pace."
Mr. Brown continued, "In December we announced our agreement to acquire FCB Bancorp, Inc., a $525 million bank holding company headquartered in Louisville, KY. This acquisition strengthens our presence in the Louisville MSA by adding seven branch offices with approximately $400 million in deposits and positions us with a top ten market share. We have begun the work with FCB employees to ensure a successful merger which we anticipate will occur in the second quarter of 2017. We look forward to having the FCB employees join the MainSource team."
Mr. Brown concluded, "In January our board declared a quarterly common dividend of $0.16 per share payable on March 15, 2017 to shareholders of record on March 6, 2017. This represents a dividend yield of 2.0%. On January 18, 2017, Charles J. Thayer, Lead Director, announced his upcoming retirement from the board in May 2017. Charles has served on the board since 2011. We are very appreciative of Charles' contribution to the Company over the past six years. In order to ensure a successful transition, the Board appointed Kathleen L. Bardwell as Lead Director effective with its January 2017 meeting. Kathie has served on our board since 2011 and most recently chaired the Audit Committee. We congratulate her on this appointment."
NET INTEREST INCOME
Net interest income was $32.0 million for the fourth quarter of 2017 compared to $26.2 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 $610 million with $430 million coming from the Cheviot acquisition and $180 million from organic growth. Net interest margin, on a fully-taxable equivalent basis, was 3.69% for the fourth quarter of 2016, which was a one basis point increase from the fourth quarter of 2015 and an increase of seven basis points compared to the third quarter of 2016. The increase in the net interest margin on a linked-quarter basis was primarily attributable to an increase in the accretion of purchase accounting marks (four basis points). Also contributing to the increase in the net interest margin was an increase in loan fees and the Fed's 25 basis point increase to rates in December 2016.
NON-INTEREST INCOME
The Company's non-interest income was $13.4 million for the fourth quarter of 2016 compared to $12.7 million for the same period in 2015. An increase in mortgage banking income of $1.3 million was partially offset by a decrease of $409 thousand in service charges on deposit accounts.
NON-INTEREST EXPENSE
The Company's non-interest expense was $28.9 million for the fourth quarter of 2016 compared to $26.2 million for the same period in 2015. The year over year increase in total expenses were in the employee, occupancy and equipment expense categories and were primarily related to the acquisition of Cheviot in May 2016. The Company also made year-end accrual adjustments to incentive compensation expense based on the strong performance in the fourth quarter.
BALANCE SHEET AND CAPITAL
Total assets were $4.1 billion at December 31, 2016, which represents a $695 million increase from a year ago. The increase in assets was primarily related to the acquisition of Cheviot ($563 million) and organic loan growth. Loan balances (including loans that are classified as held for sale) grew $72 million on a linked quarter basis which represents an 11% increase on an annualized basis. The Company's regulatory capital ratios remain strong and as of December 31, 2016 were as follows: leverage ratio of 9.7%, tier one capital to risk-weighted assets of 13.8%, common equity tier one capital ratio of 12.3%, and total capital to risk-weighted assets of 14.6%. In addition, as of December 31, 2016, the Company's tangible common equity ratio was 8.6% compared to 9.0% as of September 30, 2016. The decrease in the tangible common equity ratio was related to the decrease in the market valuation of the Company's investment securities portfolio and the resulting decrease in accumulated comprehensive income portion of equity.
ASSET QUALITY
Non-performing assets (NPAs) were $23.1 million as of December 31, 2016, an increase of $2.6 million on a linked-quarter basis. The increase in NPAs was primarily related to one $2.1 million relationship that became 90+ days past due at year-end due to the maturity of the related notes, which have since been renewed and this relationship is no longer considered non-performing. NPAs represented 0.57% of total assets as of December 31, 2016 compared to 0.51% as of September 30, 2016 and 0.53% as of December 31, 2015. The Company incurred net charge-offs of $179 thousand and recorded $850 thousand of loan loss provision expense for the fourth quarter of 2016. This level of provision expense resulted from the organic loan growth realized during the period. The Company's allowance for loan losses as a percent of total outstanding loans was 0.84% as of December 31, 2016 compared to 0.84% as of September 30, 2016 and 1.02% as of December 31, 2015. The decrease in this metric year over year 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 net income excluding the impact of costs associated with the Company's acquisition of Cheviot Financial Corp. and non-interest income excluding the impact of certain gains on the sale of investment securities. 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.
Important Information for FCB Shareholders
In connection with the proposed merger of MainSource and FCB Bancorp, Inc., MainSource will file with the Securities and Exchange Commission a Registration Statement on Form S-4 that will include a Proxy Statement of FCB 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 (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." Alternatively, these documents, when available, can be obtained free of charge from MainSource upon written request to MainSource Financial Group, Inc., Attn: Corporate Secretary, 2105 North State Road 3 Bypass Greensburg, Indiana 47240 or by calling (812) 663-6734 or from FCB upon written request to FCB Bancorp, Inc., Attn: Corporate Secretary at 293 N. Hubbards Lane, Louisville, Kentucky 40207 or by calling (502) 895-5040.
MainSource and FCB and certain of their directors and executive officers may be deemed to be participants in the solicitation of proxies from the shareholders of FCB 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 2016 annual meeting of shareholders, as filed with the SEC on a Schedule 14A on March 23, 2016. 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.
Three months ended December 31 Twelve months ended December 31
------------------------------ -------------------------------
2016 2015 2016 2015
---- ---- ---- ----
Income Statement Summary
Interest Income $34,854 $28,437 $128,327 $111,110
Interest Expense 2,813 2,198 10,726 8,385
----- ----- ------ -----
Net Interest Income 32,041 26,239 117,601 102,725
Provision for Loan Losses 850 825 1,705 1,625
Noninterest Income:
Trust and investment product fees 1,240 1,283 4,866 4,947
Mortgage banking 2,909 1,621 10,044 8,355
Service charges on deposit accounts 5,409 5,818 21,006 22,039
Securities gains/(losses) 26 26 170 386
Interchange income 2,799 2,794 11,116 9,239
Other 988 1,126 5,410 5,306
--- ----- ----- -----
Total Noninterest Income 13,371 12,668 52,612 50,272
Noninterest Expense:
Employee 16,897 14,556 64,327 57,741
Occupancy & equipment 5,624 5,029 21,994 19,686
Intangible amortization 343 370 1,342 1,640
Marketing 867 780 3,390 3,193
Interchange expense 818 633 3,376 2,619
Collection expenses 314 404 910 1,173
FDIC assessment 310 410 1,560 1,655
FHLB advance prepayment penalty - - - 2,364
Merger-related expenses 166 114 7,130 731
Other 3,514 3,919 14,019 14,795
----- ----- ------ ------
Total Noninterest Expense 28,853 26,215 118,048 105,597
------ ------ ------- -------
Earnings Before Income Taxes 15,709 11,867 50,460 45,775
Provision for Income Taxes 3,965 2,759 12,137 10,233
----- ----- ------ ------
Net Income Available to Common Shareholders $11,744 $9,108 $38,323 $35,542
======= ====== ======= =======
Reconciliation of Actual to Operating Earnings
Net Income as Reported $11,744 $9,108 $38,323 $35,542
Add: Merger-related expenses, net of tax 109 74 4,910 475
FHLB Prepayment Penalty, net of tax - - - 1,537
Branch closing expenses, net of tax 423 - 423 -
Less: Securities gains, net of tax (17) (17) (111) (251)
--- --- ---- ----
Operating earnings $12,259 $9,165 $43,545 $37,303
======= ====== ======= =======
Operating earnings per share $0.50 $0.42 $1.86 $1.70
Three months ended December 31 Twelve months ended December 31
------------------------------ -------------------------------
2016 2015 2016 2015
---- ---- ---- ----
Average Balance Sheet Data
Gross Loans $2,619,707 $2,101,336 $2,416,256 $2,023,763
Earning Assets 3,660,925 3,050,472 3,422,334 2,940,092
Total Assets 4,044,123 3,346,918 3,776,145 3,244,979
Noninterest Bearing Deposits 729,378 623,868 679,879 576,341
Interest Bearing Deposits 2,451,891 2,050,084 2,271,698 2,001,078
Total Interest Bearing Liabilities 2,709,592 2,328,708 2,533,188 2,263,185
Shareholders' Equity 455,333 379,379 428,979 371,919
Three months ended December 31 Twelve months ended December 31
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2016 2015 2016 2015
---- ---- ---- ----
Per Share Data
Diluted Earnings Per Common Share $0.48 $0.42 $1.64 $1.62
Cash Dividends Per Common Share 0.16 0.14 0.61 0.54
Market Value - High 34.57 23.79 34.57 23.79
Market Value - Low 23.94 20.15 19.95 18.71
Average Outstanding Shares (diluted) 24,450,851 21,890,850 23,431,646 21,909,370
Three months ended December 31 Twelve months ended December 31
------------------------------ -------------------------------
2016 2015 2016 2015
---- ---- ---- ----
Key Ratios (annualized)
Return on Average Assets 1.16% 1.08% 1.01% 1.10%
Return on Average Equity 10.26% 9.52% 8.93% 9.56%
Net Interest Margin 3.69% 3.68% 3.65% 3.74%
Efficiency Ratio 61.00% 63.96% 66.46% 65.91%
Net Overhead to Average Assets 1.52% 1.61% 1.73% 1.70%
December 31 September 30 June 30 March 31 December 31
2016 2016 2016 2016 2015
---- ---- ---- ---- ----
Balance Sheet Highlights
Total Loans (Including Loans Held for Sale) $2,664,152 $2,591,884 $2,561,765 $2,165,511 $2,162,925
Allowance for Loan Losses 22,499 21,828 21,468 21,079 22,020
Total Securities 1,007,540 1,025,048 1,032,380 937,719 925,279
Goodwill and Intangible Assets 108,734 108,651 108,477 80,287 80,615
Total Assets 4,080,257 4,013,943 3,995,541 3,414,276 3,385,408
Noninterest Bearing Deposits 767,159 705,428 677,654 647,187 641,439
Interest Bearing Deposits 2,343,712 2,418,600 2,421,705 1,997,657 2,009,336
Other Borrowings 290,897 300,877 291,047 326,796 310,727
Shareholders' Equity 449,494 459,608 453,782 394,204 381,360
December 31 September 30 June 30 March 31 December 31
2016 2016 2016 2016 2015
---- ---- ---- ---- ----
Other Balance Sheet Data
Tangible Book Value Per Common Share (1) $14.16 $14.60 $14.38 $14.51 $13.94
Loan Loss Reserve to Loans 0.84% 0.84% 0.84% 0.97% 1.02%
Loan Loss Reserve to Non-performing Loans 125.20% 146.07% 131.54% 186.05% 171.46%
Nonperforming Assets to Total Assets 0.49% 0.43% 0.49% 0.39% 0.44%
NPA's (w/ TDR's) to Total Assets 0.57% 0.51% 0.58% 0.48% 0.53%
Tangible Common Equity/Tangible Assets (1) 8.58% 8.99% 8.88% 9.42% 9.10%
Outstanding Shares 24,065,864 24,033,381 24,005,307 21,627,452 21,579,575
December 31 September 30 June 30 March 31 December 31
2016 2016 2016 2016 2015
---- ---- ---- ---- ----
Asset Quality
Special Mention Loans $20,526 $20,050 $18,088 $11,796 $19,019
Substandard Loans (Accruing) 18,626 19,805 22,239 15,116 7,157
New Non-accrual Loans (for the 3 months ended) 3,416 3,073 3,668 1,627 2,078
Loans Past Due 90 Days or More and Still Accruing $2,135 $ - $126 $ - $ -
Non-accrual Loans 15,835 14,944 16,195 11,330 12,843
Other Real Estate Owned 1,874 2,242 3,180 1,911 1,959
----- ----- ----- ----- -----
Total Nonperforming Assets (NPA's) $19,844 $17,186 $19,501 $13,241 $14,802
Troubled Debt Restructurings (Accruing) 3,270 3,333 3,508 3,098 3,196
----- ----- ----- ----- -----
Total NPA's with Troubled Debt Restructurings $23,114 $20,519 $23,009 $16,339 $17,998
======= ======= ======= ======= =======
Net Charge-offs - QTD $179 $(210) $(184) $1,441 $828
Net Charge-offs as a % of average loans (annualized) 0.03% (0.03)% (0.03)% 0.27% 0.16%
Reconciliation of Non-GAAP Financial Measures
(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. 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.
However, management considers
these measures of the Company's
value including only earning
assets as meaningful to an
understanding fo the Company's
financial information. A
reconciliation of these non-GAAP
financial measures is provided
below (dollars in thousands,
except per share data).
December 31 September 30 June 30 March 31 December 31
2016 2016 2016 2016 2015
---- ---- ---- ---- ----
Shareholders' Equity $449,494 $459,608 $453,782 394,204 381,360
Less: Intangible Assets 108,734 108,651 108,477 80,287 80,615
------- ------- ------- ------ ------
Tangible Common Equity 340,760 350,957 345,305 313,917 300,745
Total Assets 4,080,257 4,013,943 3,995,541 3,414,276 3,385,408
Less: Intangible Assets 108,734 108,651 108,477 80,287 80,615
------- ------- ------- ------ ------
Tangible Assets 3,971,523 3,905,292 3,887,064 3,333,989 3,304,793
Ending Shares Outstanding 24,065,864 24,033,381 24,005,307 21,627,452 21,579,575
Tangible Book Value Per Common Share $14.16 $14.60 $14.38 $14.51 $13.94
Tangible Common Equity/Tangible Assets 8.58% 8.99% 8.88% 9.42% 9.10%
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SOURCE MainSource Financial Group, Inc.
