Published: October 20, 2010
MainSource Financial Group -- NASDAQ, MSFG -- Announces Earnings for the Third Quarter 2010
Archie M. Brown, Jr., President & Chief
Executive Officer of MainSource Financial Group (NASDAQ: MSFG), announced
today the unaudited financial results for the third quarter ended September
30, 2010. The Company reported net income of $4.6 million for the third
quarter of 2010 and earnings per common share of $0.19 compared to $1.4
million in net income and $0.03 earnings per common share reported in the
third quarter of 2009.
Mr. Brown stated, "Credit related expenses, specifically provision expense,
declined significantly for the first time in two years, reflecting
improvement in our overall loan quality. The lower provision expense led
to a substantial increase in our overall profitability. We continue to be
encouraged that the number and dollar amount of new non-performing loans
has slowed significantly. While I believe credit quality has begun to
mend, we remain diligent in our focus on returning our loan quality to
acceptable levels."
Mr. Brown continued, "Revenue remained stable for the third quarter due to
a strong net interest margin, which was aided by the payoff of a large
non-performing loan and healthy mortgage and service charge revenue. The
implementation of Regulation E in August appears to have had a minimal
impact on our service charge revenue. For the past couple of years our
revenue has been positively impacted by the significant decline in deposit
costs resulting from lower interest rates. Over this period, deposit and
borrowing costs have declined quicker than income from loans and
securities, even while loan balances have decreased at a moderate pace. We
are beginning to experience a flattening in our deposit costs, yet the
continued decline in interest rates and in loan balances is beginning to
have an impact on our overall revenue. We believe this trend will continue
for the foreseeable future and, as a result, we are placing additional
emphasis on growing core checking balances, particularly from small and
medium-sized businesses, and providing credit to those businesses.
However, to date loan demand from this segment has not returned on an
industry-wide basis; we will continue to prioritize this strategy over the
next few years as we believe there is a significant opportunity in our
markets."
Mr. Brown concluded, "On October 1, 2010, we announced the sale of our
property, casualty and health insurance lines of business from our
insurance subsidiary, MainSource Insurance, to Encore Insurance, LLC. We
will continue to sell annuity and life insurance products as they are more
aligned with other core products we offer. The sale was made to the former
management team of MainSource Insurance and we wish Encore and its
employees much success."
NET INTEREST INCOME
Net interest income was $25.8 million for the third quarter of 2010, which
was an $861 thousand increase over the third quarter of 2009, representing
an increase of 3.5%. During the quarter, the Company received a payoff of
a $6.0 million non-performing loan. As a result of this payoff, the
Company recovered $1.2 million in interest income. The Company's net
interest margin, on a fully-taxable equivalent basis, was 4.14% for the
third quarter of 2010 versus 3.83% for the third quarter of 2009. The
increase in the net interest margin was primarily related to the
aforementioned interest recovery. In addition the Company's cost of funds
decreased significantly due to the current interest rate environment and a
slight shift in the funding mix.
NON-INTEREST INCOME
The Company's non-interest income was $9.4 million for the third quarter of
2010 compared to $9.8 million for the same period in 2009. The decrease
was primarily due to the swing in gains/losses on OREO properties. In the
third quarter of 2010, the Company recorded $595 thousand of losses on OREO
properties compared to $323 thousand of OREO gains in the same period a
year ago. The majority of the loss in the third quarter of 2010 was
related to one property that has been in OREO for slightly over a year. An
updated appraisal on this property triggered the write-down.
NON-INTEREST EXPENSE
The Company's non-interest expense was $23.0 million for the third quarter
of 2010 compared to $21.7 million for the same period in 2009, an increase
of $1.3 million. The increase was primarily related to an increase in
employee expenses as a result of the de novo office in Columbus, Indiana
and an increase in FDIC insurance expense.
BALANCE SHEET AND CAPITAL
Total assets were $2.85 billion as of September 30, 2010 compared to $2.93
billion a year ago. Total loans were $1.7 billion as of September 30,
2010, a decrease of $218 million compared to September 30, 2009.
Charge-offs of non-performing loans and overall weak loan demand continue
to drive loan balances down. In addition, as mortgage rates have hit
all-time lows, a portion of the Company's on-balance sheet, fixed-rate
mortgage loans refinanced and were sold to the secondary market. On the
liability side of the balance sheet, deposit balances remain at
historically high levels. Total deposits were $2.3 billion as of September
30, 2010. The Company's regulatory capital ratios remain strong and as of
September 30, 2010 were as follows: leverage ratio of 9.5%, tier one
capital to
risk-weighted assets of 15.1%, and total capital to risk-weighted assets of
16.3%. In addition, as of September 30, 2010 the Company's tangible common
equity ratio was 6.6%.
ASSET QUALITY
Non-performing assets were $89.3 million as of September 30, 2010 compared
to $99.3 million as of September 30, 2009, and represented 3.13% of total
assets at September 30, 2010 compared to 3.38% at September 30, 2009. On a
linked-quarter basis, non-performing assets decreased by approximately $4.0
million. Net charge-offs for the third quarter of 2010 were $6.0 million.
Through the nine months ended September 30, 2010 net charge-offs were $33.4
million and represented 2.48% of average loans. The Company's allowance
for loan losses was $42.5 million and represented 2.46% of total
outstanding loans at September 30, 2010. This compares to $54.9 million as
of September 30, 2009, or 2.83% as a percent of loans and $41.4 million as
of June 30, 2010, or 2.36% of total loans.
MAINSOURCE FINANCIAL GROUP
(unaudited)
(Dollars in thousands except per share data)
Income Statement Three months ended Nine months ended
Summary September 30 September 30
--------------------- ---------------------
2010 2009 2010 2009
---------- ---------- ---------- ----------
Interest Income $ 34,017 $ 36,307 $ 102,327 $ 107,634
Interest Expense 8,223 11,374 25,938 34,889
---------- ---------- ---------- ----------
Net Interest Income 25,794 24,933 76,389 72,745
Provision for Loan
Losses 7,000 13,515 29,250 35,310
Noninterest Income:
Insurance
commissions 562 520 1,679 1,556
Trust and investment
product fees 508 425 1,690 1,066
Mortgage banking 1,917 1,706 5,128 7,297
Service charges on
deposit accounts 4,634 4,542 12,881 11,944
Gain on sales of
securities - (24) 2,978 185
Interchange income 1,415 1,380 4,089 3,486
Other 370 1,247 2,152 3,769
---------- ---------- ---------- ----------
Total Noninterest
Income 9,406 9,796 30,597 29,303
Noninterest Expense:
Employee 12,713 11,895 37,589 35,076
Occupancy 1,620 1,627 5,006 5,056
Equipment 1,874 1,882 5,762 5,452
Intangible
amortization 517 552 1,550 1,647
Telecommunications 474 519 1,420 1,567
Stationary,
printing,
and supplies 388 423 1,107 1,213
Goodwill impairment - - - 45,076
FDIC assessment 1,289 724 3,647 3,546
Other 4,131 4,049 11,987 11,377
---------- ---------- ---------- ----------
Total Noninterest
Expense 23,006 21,671 68,068 110,010
---------- ---------- ---------- ----------
Earnings (Loss)
Before Income Taxes 5,194 (457) 9,668 (43,272)
Provision (benefit)
for Income Taxes 594 (1,845) (346) (7,769)
---------- ---------- ---------- ----------
Net Income (Loss) $ 4,600 $ 1,388 $ 10,014 $ (35,503)
Preferred Dividends
& Accretion $ (763)$ (763)$ (2,290)$ (2,155)
---------- ---------- ---------- ----------
Net Income (Loss)
Available to Common
Shareholders $ 3,837 $ 625 $ 7,724 $ (37,658)
========== ========== ========== ==========
Average Balance Three months ended Nine months ended
Sheet Data September 30 September 30
--------------------- ---------------------
2010 2009 2010 2009
---------- ---------- ---------- ----------
Gross Loans $1,743,061 $1,974,496 $1,801,700 $1,996,874
Earning Assets 2,593,086 2,684,644 2,611,571 2,626,038
Total Assets 2,871,961 2,943,079 2,880,190 2,910,883
Noninterest Bearing
Deposits 267,501 238,336 254,456 235,105
Interest Bearing
Deposits 1,993,964 2,030,515 1,999,046 1,924,060
Total Interest
Bearing Liabilities 2,265,158 2,358,384 2,296,551 2,306,591
Shareholders' Equity 309,238 320,058 302,505 343,805
Per Share Data Three months ended Nine months ended
September 30 September 30
--------------------- ---------------------
2010 2009 2010 2009
---------- ---------- ---------- ----------
Diluted Earnings Per
Common Share $ 0.19 $ 0.03 $ 0.38 $ (1.87)
Cash Dividends Per
Common Share 0.01 0.05 0.03 0.245
Market Value - High 7.67 7.74 9.00 15.16
Market Value - Low 5.43 5.64 4.40 4.85
Average Outstanding
Shares (diluted) 20,149,906 20,148,462 20,149,742 20,136,362
Key Ratios Three months ended Nine months ended
September 30 September 30
--------------------- ---------------------
2010 2009 2010 2009
---------- ---------- ---------- ----------
Return on Average
Assets 0.64% 0.19% 0.46% -1.63%
Return on Average
Equity 5.90% 1.72% 4.43% -13.81%
Net Interest Margin 4.14% 3.83% 4.07% 3.81%
Efficiency Ratio (1) 63.08% 60.70% 61.51% 62.08%
Net Overhead to
Average Assets (1) 1.88% 1.60% 1.74% 1.64%
Balance Sheet September June March December September
Highlights 30, 2010 30, 2010 31, 2010 31, 2009 30, 2009
---------- ---------- ---------- ---------- ----------
Total Loans
(Excluding Loans
Held for Sale) $1,725,241 $1,755,201 $1,824,824 $1,885,447 $1,943,797
Allowance for Loan
Losses 42,460 41,436 43,025 46,648 54,941
Total Securities 812,160 741,351 727,279 714,607 678,486
Goodwill and
Intangible Assets 72,527 73,044 73,561 74,077 109,863
Total Assets 2,853,541 2,851,700 2,861,257 2,906,530 2,934,326
Noninterest Bearing
Deposits 270,212 270,682 256,099 250,438 245,697
Interest Bearing
Deposits 1,982,417 1,973,643 1,963,264 2,020,212 1,990,007
Other Borrowings 230,251 240,496 269,003 272,231 281,704
Shareholders' Equity 311,996 303,592 297,787 294,462 326,441
Other Balance September June March December September
Sheet Data 30, 2010 30, 2010 31, 2010 31, 2009 30, 2009
---------- ---------- ---------- ---------- ----------
Book Value Per
Common Share $ 12.71 $ 12.29 $ 12.01 $ 11.84 $ 13.43
Loan Loss Reserve to
Loans 2.46% 2.36% 2.36% 2.47% 2.83%
Loan Loss Reserve to
Non-performing Loans 52.86% 48.28% 47.25% 58.05% 61.43%
Nonperforming Assets
to Total Assets 3.13% 3.27% 3.54% 3.12% 3.38%
Tangible Common
Equity Ratio 6.59% 6.28% 6.03% 5.80% 5.69%
Outstanding Shares 20,136,362 20,136,362 20,136,362 20,136,362 20,136,362
Asset Quality September June March December September
30, 2010 30, 2010 31, 2010 31, 2009 30, 2009
---------- ---------- ---------- ---------- ----------
Loans Past Due 90
Days or More and
Still Accruing $ 624 $ 421 $ 1,055 $ 3,279 $ 3,130
Non-accrual Loans 79,705 85,399 89,999 77,074 86,314
Other Real Estate
Owned 9,020 7,50 10,107 10,386 9,874
---------- ---------- ---------- ---------- ----------
Total Nonperforming
Assets $ 89,349 $ 93,321 $ 101,161 $ 90,739 $ 99,318
Net Charge-offs
- YTD $ 33,439 $ 27,462 $ 13,123 $ 34,245 $ 14,952
Net Charge-offs as a
% of average loans 2.48% 3.02% 2.85% 1.73% 1.00%
(1) 2009 ratios exclude a goodwill impairment charge of $45.1 million.
MainSource Financial Group is listed on the NASDAQ Global Select Market
(under the symbol: "MSFG") and is a community-focused, financial holding
company with assets of approximately $2.9 billion. The Company operates 68
offices in 32 Indiana counties, 6 offices in 3 Illinois counties, 4 offices
in 3 Kentucky counties, and 6 offices in 2 Ohio counties through its
banking subsidiary, MainSource Bank, Greensburg, Indiana. Through its
non-banking subsidiaries, MainSource Insurance LLC, and 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 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.mainsourcebank.com.
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