Exhibit 99.1
DATE: | | October 24, 2012 4:00 p.m. E.S.T. |
CONTACT: | | Archie M. Brown, Jr. President and CEO |
| | MainSource Financial Group, Inc. 812-663-6734 |
MAINSOURCE FINANCIAL GROUP—NASDAQ, MSFG —
Announces Third Quarter 2012 Operating Results
· Net income of $7.0 million
· Earnings per share of $0.32
· Return on Assets of 1.02%
· Increase in Non-interest Income of 13%
· Decrease in NPA’s and Substandard Loans
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 third quarter of 2012. For the three months ended September 30, 2012, the Company recorded net income of $7.0 million, or $0.32 per common share, compared to net income of $5.6 million, or $0.24 per common share, in the third quarter of 2011. A $1.7 million decrease in net interest income was more than offset by a decrease of $3.0 million in loan loss provision expense and a $1.3 million increase in non-interest income. While non-interest expenses increased by $500 thousand compared to the prior year, the increase was attributable to a $1.3 million prepayment penalty on the early extinguishment of an FHLB advance.
CEO Comments
Mr. Brown commented on the third quarter, “I am very pleased with the continued growth in operating earnings. Our core earnings were at their highest point in the history of the company. The increase in fee income combined with lower provision and non-interest expense accounted for the improvement in income. I am also pleased with our net interest margin. While it was down from the same period one year ago, it remained flat with the second quarter of this year despite the challenging interest rate environment. Provision expense for the quarter was at its lowest level since the first quarter of 2008 and reflects continued improvement in our overall loan quality.”
Mr. Brown continued, “Loan growth for the quarter remained a challenge. I expect loan balances to remain relatively flat for the remainder of the year. While loan trends are much better than the previous two years, we are not satisfied with our current progress. Loan pipelines are building and we are hopeful that recent investments in higher growth markets will lead to loan growth within the next year.”
Mr. Brown concluded his comments by discussing several new growth initiatives, “I am excited about several new initiatives that were begun during the quarter, including our purchase of brokerage agencies in Seymour, Indiana and Indianapolis. The additional revenue from the two agencies is expected to increase our brokerage revenue by approximately 50%. In September, we opened a new branch facility in Seymour, Indiana. The decision to enter Seymour at this time was due to disruption in the local market from recent bank acquisitions. We opened in a temporary office until we can construct a new building which is anticipated to be completed in the third quarter of 2013. Our new downtown Indianapolis office opened on October 15. We have a team of very talented bankers on board offering a full suite of products and services. During the quarter, we also announced an agreement with American Founders Bank of Lexington, Kentucky, to purchase their Shelbyville, Kentucky branch. This purchase includes approximately $37 million in deposits and loans and provides us an entry point into the eastern side of the Louisville, Kentucky market area. The purchase remains subject to standard closing conditions and is anticipated to be completed in the fourth quarter of 2012. All of these initiatives are part
of our strategy to strengthen our existing footprint and provide new sources of revenue growth. We will continue to be opportunistic in our effort to improve the operating results of the company.”
Second Quarter Results
NET INTEREST INCOME
Net interest income was $23.3 million for the third quarter of 2012 compared to $25.1 million a year ago. The decrease in net interest income was primarily due to declining reinvestment rates on loans and securities as well as a $200 million repositioning in investment securities in December 2011. In addition, earning assets declined by approximately $53 million year over year. Net interest margin, on a fully taxable equivalent basis, was 4.05% for the third quarter of 2012, which was a decline of twenty basis points from the third quarter of 2011 but flat when compared to the second quarter of 2012.
NON-INTEREST INCOME
The Company’s non-interest income was $11.6 million for the third quarter of 2012 compared to $10.3 million for the same period in 2011, an increase of 13%. Excluding securities gains, which are non-recurring in nature, the Company’s non-interest income was $10.7 million for the third quarter of 2012 and $9.0 million for the same period in 2011, an increase of 19%. Mortgage banking income and service charges on deposit accounts were the primary drivers of this increase. With interest rates at historic lows and an increase in the number of mortgage loan originators throughout the Company’s footprint, the Company experienced a significant increase in mortgage banking income over the same period a year ago. In addition, the Company incurred net OREO losses of $651 thousand in the third quarter of 2011 versus $172 thousand in the same period this year.
NON-INTEREST EXPENSE
The Company’s non-interest expense was $24.4 million for the third quarter of 2012 compared to $23.9 million in the same period in 2011. During the third quarter of 2012 the Company prepaid a $10 million FHLB advance and incurred a $1.3 million penalty. Excluding the prepayment penalty, the Company’s non-interest expenses would have been $23.1 million for the third quarter of 2012, which represents a decrease of $800 thousand (or 3%) compared to the same period a year ago. The primary driver of the decrease was a reduction in employee-related costs of $562 thousand as the Company reduced headcount through its efficiency improvement project in the second half of 2011. The recent closing of six small branch offices also contributed to the lower salary expense. Increases in occupancy and equipment expenses were incurred due to the Company’s recent investments in Columbus and Indianapolis but these were offset by a decrease in FDIC insurance expense.
BALANCE SHEET AND CAPITAL
Total assets were $2.76 billion at September 30, 2012, which was basically flat compared to the same period a year ago. Loans decreased $30 million year over year and were offset by a $35 million increase in investment securities. On a linked-quarter basis loan balances were down $15 million, or 1%. On a YTD basis, loan balances were basically flat. The Company’s regulatory capital ratios remain strong and as of September 30, 2012 were as follows: leverage ratio of 10.9%, tier one capital to risk-weighted assets of 17.5%, and total capital to risk-weighted assets of 18.8%. In addition, as of September 30, 2012, the Company’s tangible common equity ratio was 8.8%.
ASSET QUALITY
Non-performing assets (NPA’s) were $60.4 million as of September 30, 2012, a decrease of approximately $4.3 million on a linked-quarter basis. The decrease in NPA’s was primarily due to a decrease in non-accrual loans of $2.2 million and a decrease in accruing troubled debt restructurings (TDR’s) of $2.4 million. NPA’s represented 2.19% of total assets as of September 30, 2012 compared to 2.34% as of June 30, 2012 and 3.03% as of September 30, 2011. In addition to the decrease in NPA’s, loans classified as substandard also decreased by 46% on a linked-quarter basis and are at their lowest level since June 2009. Several credits were upgraded during the third quarter of 2012 including one large relationship totaling $18 million. Net charge-offs were $5.0 million for the third quarter of 2012 and represented 1.31% of average loans on an annualized basis. During the third quarter of 2012, the Company executed the sale of approximately $5.2 million of problem loans in the secondary market. This transaction resulted in charge-offs of $3.0 million. The Company had identified and specifically provided for these losses in previous quarters. The Company’s allowance for loan losses as a percent of total outstanding loans was 2.30% as of September 30, 2012 compared to 2.48% as of June 30, 2012 and 2.65% as of September 30, 2011.
MAINSOURCE FINANCIAL GROUP
(unaudited)
(Dollars in thousands except per share data)
| | Three months ended September 30 | | Nine months ended September 30 | |
Income Statement Summary | | 2012 | | 2011 | | 2012 | | 2011 | |
Interest Income | | $ | 26,832 | | $ | 30,345 | | $ | 82,419 | | $ | 92,644 | |
Interest Expense | | 3,501 | | 5,275 | | 11,560 | | 17,234 | |
Net Interest Income | | 23,331 | | 25,070 | | 70,859 | | 75,410 | |
Provision for Loan Losses | | 2,000 | | 5,000 | | 7,600 | | 14,600 | |
Noninterest Income: | | | | | | | | | |
Trust and investment product fees | | 819 | | 740 | | 2,555 | | 2,493 | |
Mortgage banking | | 2,114 | | 1,428 | | 6,328 | | 3,943 | |
Service charges on deposit accounts | | 5,282 | | 4,872 | | 14,568 | | 13,287 | |
Gain on sales of securities | | 832 | | 1,263 | | 1,367 | | 4,917 | |
Interchange income | | 1,582 | | 1,642 | | 4,964 | | 4,622 | |
OREO gains/(losses) | | (172 | ) | (651 | ) | (385 | ) | (1,212 | ) |
Other | | 1,120 | | 984 | | 2,745 | | 3,067 | |
Total Noninterest Income | | 11,577 | | 10,278 | | 32,142 | | 31,117 | |
Noninterest Expense: | | | | | | | | | |
Employee | | 12,151 | | 12,713 | | 36,942 | | 38,126 | |
Occupancy & equipment | | 3,899 | | 3,586 | | 11,488 | | 10,919 | |
Intangible amortization | | 445 | | 493 | | 1,345 | | 1,477 | |
Marketing | | 1,139 | | 1,085 | | 3,081 | | 3,292 | |
Collection expenses | | 821 | | 1,298 | | 2,838 | | 3,214 | |
FDIC assessment | | 542 | | 898 | | 1,962 | | 3,066 | |
FHLB advance prepayment penalty | | 1,313 | | — | | 1,313 | | — | |
Other | | 4,093 | | 3,832 | | 12,157 | | 11,014 | |
Total Noninterest Expense | | 24,403 | | 23,905 | | 71,126 | | 71,108 | |
Earnings Before Income Taxes | | 8,505 | | 6,443 | | 24,275 | | 20,819 | |
Provision (benefit) for Income Taxes | | 1,519 | | 828 | | 4,296 | | 3,032 | |
Net Income | | $ | 6,986 | | $ | 5,615 | | $ | 19,979 | | $ | 17,787 | |
Preferred Dividends & Accretion | | $ | (458 | ) | $ | (763 | ) | $ | (1,694 | ) | $ | (2,290 | ) |
Net Income Available to Common Shareholders | | $ | 6,528 | | $ | 4,852 | | $ | 18,285 | | $ | 15,497 | |
| | | | | | | | | |
| | Three months ended September 30 | | Nine months ended September 30 | |
Average Balance Sheet Data | | 2012 | | 2011 | | 2012 | | 2011 | |
Gross Loans | | $ | 1,549,307 | | $ | 1,598,290 | | $ | 1,552,972 | | $ | 1,634,602 | |
Earning Assets | | 2,458,138 | | 2,511,553 | | 2,484,750 | | 2,529,381 | |
Total Assets | | 2,735,365 | | 2,776,543 | | 2,760,986 | | 2,789,080 | |
Noninterest Bearing Deposits | | 352,915 | | 293,064 | | 340,648 | | 283,234 | |
Interest Bearing Deposits | | 1,778,818 | | 1,901,442 | | 1,821,951 | | 1,935,865 | |
Total Interest Bearing Liabilities | | 2,014,569 | | 2,135,926 | | 2,053,488 | | 2,167,272 | |
Shareholders’ Equity | | 334,682 | | 326,147 | | 334,005 | | 314,919 | |
| | | | | | | | | |
| | Three months ended September 30 | | Nine months ended September 30 | |
Per Share Data | | 2012 | | 2011 | | 2012 | | 2011 | |
Diluted Earnings Per CommonShare | | $ | 0.32 | | $ | 0.24 | | $ | 0.96 | | $ | 0.77 | |
Cash Dividends Per Common Share | | 0.03 | | 0.01 | | 0.05 | | 0.03 | |
Market Value - High | | 13.00 | | 9.24 | | 13.00 | | 10.60 | |
Market Value - Low | | 11.27 | | 7.46 | | 8.84 | | 6.98 | |
Average Outstanding Shares (diluted) | | 20,347,598 | | 20,231,095 | | 20,312,960 | | 20,211,742 | |
| | | | | | | | | |
| | Three months ended September 30 | | Nine months ended September 30 | |
Key Ratios (annualized) | | 2012 | | 2011 | | 2012 | | 2011 | |
Return on Average Assets | | 1.02 | % | 0.80 | % | 0.97 | % | 0.85 | % |
Return on Average Equity | | 8.30 | % | 6.83 | % | 7.99 | % | 7.55 | % |
Net Interest Margin | | 4.05 | % | 4.25 | % | 4.09 | % | 4.27 | % |
Efficiency Ratio | | 66.63 | % | 64.34 | % | 65.72 | % | 63.57 | % |
Net Overhead to Average Assets | | 1.87 | % | 1.95 | % | 1.89 | % | 1.92 | % |
| | September 30 | | June 30 | | December 31 | | September 30 | |
Balance Sheet Highlights | | 2012 | | 2012 | | 2011 | | 2011 | |
Total Loans (Excluding Loans Held for Sale) | | $ | 1,531,525 | | $ | 1,546,510 | | $ | 1,534,379 | | $ | 1,562,292 | |
Allowance for Loan Losses | | 35,246 | | 38,289 | | 39,889 | | 41,433 | |
Total Securities | | 902,178 | | 896,037 | | 876,090 | | 867,272 | |
Goodwill and Intangible Assets | | 69,337 | | 68,182 | | 69,082 | | 69,544 | |
Total Assets | | 2,755,006 | | 2,766,633 | | 2,754,180 | | 2,757,549 | |
Noninterest Bearing Deposits | | 350,790 | | 364,030 | | 334,345 | | 321,529 | |
Interest Bearing Deposits | | 1,732,228 | | 1,821,066 | | 1,825,555 | | 1,846,218 | |
Other Borrowings | | 251,499 | | 196,492 | | 201,694 | | 201,727 | |
Shareholders’ Equity | | 338,524 | | 329,858 | | 336,553 | | 334,105 | |
| | | | | | | | | |
| | September 30 | | June 30 | | December 31 | | September 30 | |
Other Balance Sheet Data | | 2012 | | 2012 | | 2011 | | 2011 | |
Tangible Book Value Per Common Share | | $ | 11.59 | | $ | 11.23 | | $ | 10.45 | | $ | 10.31 | |
Loan Loss Reserve to Loans | | 2.30 | % | 2.48 | % | 2.60 | % | 2.65 | % |
Loan Loss Reserve to Non-performing Loans | | 78.08 | % | 81.48 | % | 89.05 | % | 95.73 | % |
Nonperforming Assets to Total Assets | | 1.99 | % | 2.05 | % | 2.19 | % | 2.23 | % |
NPA’s (w/ TDR’s) to Total Assets | | 2.19 | % | 2.34 | % | 2.93 | % | 3.03 | % |
Tangible Common Equity Ratio | | 8.76 | % | 8.44 | % | 7.86 | % | 7.75 | % |
Outstanding Shares | | 20,297,325 | | 20,280,225 | | 20,206,214 | | 20,197,084 | |
| | | | | | | | | |
| | September 30 | | June 30 | | December 31 | | September 30 | |
Asset Quality | | 2012 | | 2012 | | 2011 | | 2011 | |
Special Mention Loans | | $ | 89,289 | | $ | 76,118 | | $ | 136,099 | | $ | 153,078 | |
Substandard Loans (Accruing) | | 33,255 | | 61,991 | | 63,379 | | 56,487 | |
| | | | | | | | | |
Loans Past Due 90 Days or More and Still Accruing | | $ | 379 | | $ | 34 | | $ | 3,266 | | $ | 993 | |
Non-accrual Loans | | 44,763 | | 46,959 | | 41,529 | | 42,288 | |
Other Real Estate Owned | | 9,677 | | 9,737 | | 15,535 | | 18,308 | |
Total Nonperforming Assets (NPA’s) | | $ | 54,819 | | $ | 56,730 | | $ | 60,330 | | $ | 61,589 | |
Troubled Debt Restructurings (Accruing) | | 5,556 | | 7,951 | | 20,402 | | 21,950 | |
Total NPA’s with Troubled Debt Restructurings | | $ | 60,375 | | $ | 64,681 | | $ | 80,732 | | $ | 83,539 | |
| | | | | | | | | |
Net Charge-offs - QTD | | $ | 5,043 | | $ | 2,752 | | $ | 4,744 | | $ | 5,029 | |
Net Charge-offs as a % of average loans (annualized) | | 1.31 | % | 0.71 | % | 1.21 | % | 1.26 | % |
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 $2.8 billion. The Company operates 76 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; the impact of our continuing acquisition strategy; 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.
