SOURCE: MainSource Financial Group

MainSource Financial Group

April 22, 2009 16:30 ET

MainSource Financial Group -- NASDAQ, MSFG -- Announces Earnings for the First Quarter 2009

GREENSBURG, IN--(Marketwire - April 22, 2009) - (NASDAQ: MSFG) Archie M. Brown, Jr., President & Chief Executive Officer of MainSource Financial Group, announced today the unaudited financial results for the first quarter ended March 31, 2009. The Company reported net income of $1.2 million for the first quarter and earnings per common share of $0.03 compared to the $0.34 per common share reported in the first quarter of 2008. During the first quarter of 2009, the Company increased its loan loss provision expense by approximately $9.2 million over the amount of expense during the first quarter of 2008. The additional provision expense was primarily attributable to the continued deterioration of the Company's residential construction and land development loan portfolios as well as the overall weakness in economic conditions. The provision expense of $11.4 million increased the Company's allowance for loan losses to total loans to 2.19% from 1.73% at December 31, 2008.

Mr. Brown stated, "During the first quarter of 2009 we continued to experience the effects of the current economic recession, including deterioration in our loan portfolio, primarily in the residential construction and land development portfolio. This portfolio accounted for 53% of the total increase in non-performing loans while dealer wholesale loans accounted for an additional 28%. Other areas of our loan portfolio such as commercial and industrial, consumer, hotel and agriculture continued to perform well during the quarter. While we are disappointed in our level of earnings, the areas in which we have experienced significant declines in credit quality are in portfolios in which we have limited concentrations. Our residential construction and development portfolio makes up less than 9% of total loans and dealer wholesale loans are less than 2% of total loans. Additionally, we have initiated several key measures that we believe will help us respond to the current economic conditions and improve our credit quality in the future, including the addition of a Chief Credit Officer and the recent formation of a dedicated loan workout team."

Mr. Brown continued, "Despite the difficult economic environment, I am very encouraged by several aspects of the Company's business, as our operating performance, excluding the impact of credit quality issues, showed improvements. I am pleased with the stability of our net interest margin for the quarter. Despite the rise in non-performing loans, our margin was only slightly below our fourth quarter level. I am also excited about the acceleration in new checking accounts during the quarter. We have seen a 60% increase in new checking account openings from December 31, 2008. Our growth in checking relationships has increased from negative 2% in 2008 to an annualized rate of more than 4% for the first three months of the year. Demand deposits increased 19% over the same period one year ago and 17% annualized from year-end. We will continue to increase our focus on growing new checking relationships and low cost deposits as they are keys to expanding household relationships and driving increased profitability. The decline in mortgage rates over the last few months led MainSource to achieve record mortgage loan volume. For the three month period ending on March 31, we produced $152 million in mortgage loans compared to $54 million for the same period one year ago. This increased volume led to record mortgage income for the Company and demonstrates our commitment to lend in our communities. Finally, I am proud of our new initiative to encourage our employees to volunteer in their communities. All full time employees have been granted eight hours, paid by MainSource, to provide community service and part time employees are granted four hours. This commitment is part of our belief in making our communities better places to live and work."


Net interest income was $23.4 million for the first quarter of 2009, which was an 18.8% increase over the first quarter of 2008. Earning assets increased by approximately $367 million with approximately $275 million coming from the August 2008 acquisition of 1st Independence Financial Group and $92 million of organic growth. Net interest margin, on a fully-taxable equivalent basis, was 3.74% for the first quarter of 2009 versus 3.64% for the first quarter of 2008. On a linked quarter basis, the Company's net interest margin decreased by eleven basis points due primarily to the increase in the level of non-performing loans and a reduction in FHLB dividend income in the first quarter of 2009.


The Company's non-interest income increased to $9.2 million for the first quarter of 2009 compared to $7.8 million for the same period in 2008. As a result of historically low mortgage interest rates, mortgage banking income increased $1.7 million in the first quarter of 2009 compared to the first quarter of 2008. The decrease in other income was primarily related to losses incurred on sales of OREO properties.


The Company's non-interest expense was $20.5 million for the first quarter of 2009 compared to $17.8 million for the same period in 2008, an increase of 15.0%. The primary drivers of the increase were the impact of the acquisition of 1st Independence and an increase in FDIC insurance expense. The Company's efficiency ratio was 61.5%, a slight improvement compared to 63.8% for the same period a year ago.


Total assets were $2.9 billion as of March 31, 2009, an increase of approximately $345 million compared to March 31, 2008. The increase in assets was primarily attributable to the acquisition of 1st Independence which added approximately $325 million in assets. Total loans were $2.0 billion as of March 31, 2009, an increase of $290 million compared to March 31, 2008. Total deposits grew by 8.7% year-over-year and were $2.1 billion as of March 31, 2009. While the Company's regulatory capital ratios were already above well-capitalized levels, these ratios increased significantly during the first quarter as a result of the Company's participation in the Capital Purchase Program. On January 16, 2009, the Company issued $57 million in preferred stock to the U.S. Treasury as part of this program. As of March 31, 2009, the Company's regulatory capital ratios were as follows: leverage ratio of 9.2%, tier one capital to risk-weighted assets of 12.8%, and total capital to risk-weighted assets of 14.1%.


Non-performing assets were $91.4 million as of March 31, 2009 compared to $23.3 million as of March 31, 2008 and represented 3.18% of total assets at March 31, 2009 compared to 0.92% at March 31, 2008. On a linked-quarter basis, non-performing assets increased by approximately $26.1 million. The increase was primarily attributable to continued deterioration in the residential construction and commercial real estate loan portfolios. Two large credits totaling $15.8 million were transferred to non-accrual status during the quarter. Net charge-offs for the first quarter of 2009 equaled 0.55% of average outstanding loans compared to 0.26% for the first quarter of 2008. The Company's allowance for loan losses was $43.2 million and represented 2.19% of total outstanding loans. This compares to $15.4 million as of March 31, 2008, or 0.92% as a percent of loans and $34.6 million as of December 31, 2008, or 1.73% of total loans.

Income Statement Summary                      Three months ended March 31
                                                  2009           2008
                                              -------------  -------------
  Interest Income                             $      35,223  $      36,055
  Interest Expense                                   11,849         16,380
                                              -------------  -------------
  Net Interest Income                                23,374         19,675
  Provision for Loan Losses                          11,400          2,196
  Noninterest Income:
    Insurance commissions                               481            512
    Trust and investment product fees                   306            417
    Mortgage banking                                  2,622            967
    Service charges on deposit accounts               3,348          3,241
    Gain on sales of securities                          38            342
    Interchange income                                  984            810
    Other                                             1,382          1,554
                                              -------------  -------------
      Total Noninterest Income                        9,161          7,843
  Noninterest Expense:
    Employee                                         11,538         10,672
    Occupancy                                         1,818          1,503
    Equipment                                         1,684          1,481
    Intangible amortization                             532            635
    Telecommunications                                  483            431
    Stationary, printing, and supplies                  359            310
    Other                                             4,064          2,779
                                              -------------  -------------
      Total Noninterest Expense                      20,478         17,811
  Earnings Before Income Taxes                          657          7,511
  Provision for Income Taxes                           (521)         1,260
                                              -------------  -------------
  Net Income                                  $       1,178  $       6,251
                                              =============  =============
  Preferred Dividends and Accretion                    (628)            --
                                              =============  =============
  Net Income Available to Common Shareholders $         550  $       6,251
                                              =============  =============

                                               Three months ended March 31
Average Balance Sheet Data                         2009           2008
                                              -------------  -------------
  Gross Loans                                 $   2,013,888  $   1,694,154
  Earning Assets                                  2,583,311      2,216,640
  Total Assets                                    2,886,598      2,515,109
  Noninterest Bearing Deposits                      228,444        191,114
  Interest Bearing Deposits                       1,812,393      1,677,269
  Total Interest Bearing Liabilities              2,282,540      2,031,382
  Shareholders' Equity                              351,164        269,062

                                               Three months ended March 31
Per Share Data                                     2009           2008
                                              -------------  -------------
  Diluted Earnings Per Common Share           $        0.03  $        0.34
  Cash Dividends Per Common Share                     0.145          0.140
  Market Value - High                                 15.16          16.51
  Market Value - Low                                   4.85          12.15
  Average Outstanding Shares (diluted)           20,150,019     18,573,123

                                               Three months ended March 31
Key Ratios                                         2009           2008
                                              -------------  -------------
  Return on Average Assets                             0.16%          1.00%
  Return on Average Equity                             1.34%          9.35%
  Net Interest Margin                                  3.74%          3.64%
  Efficiency Ratio                                    61.52%         63.83%
  Net Overhead to Average Assets                       1.59%          1.61%

Balance Sheet Highlights
As of March 31                                     2009           2008
                                              -------------  -------------
  Total Loans (Excluding Loans Held for Sale) $   1,971,714  $   1,681,920
  Allowance for Loan Losses                          43,235         15,423
  Total Securities                                  535,902        506,930
  Goodwill and Intangible Assets                    149,817        134,689
  Total Assets                                    2,873,051      2,528,343
  Noninterest Bearing Deposits                      235,847        201,711
  Interest Bearing Deposits                       1,833,665      1,702,445
  Other Borrowings                                  380,715        295,118
  Shareholders' Equity                              358,632        273,757

Other Balance Sheet Data
As of March 31                                     2009           2008
                                              -------------  -------------
  Book Value Per Common Share                 $       15.04  $       14.74
  Loan Loss Reserve to Loans                           2.19%          0.92%
  Loan Loss Reserve to Non-Performing Loans           51.05%         78.55%
  Nonperforming Assets to Total Assets                 3.18%          0.92%
  Outstanding Shares                             20,136,362     18,570,071

Asset Quality
As of March 31                                     2009           2008
                                              -------------  -------------
  Loans Past Due 90 Days or More and Still
   Accruing                                   $       3,022  $       1,046
  Non-accrual Loans                                  81,668         19,150
  Other Real Estate Owned                             6,722          3,055
                                              -------------  -------------
  Total Nonperforming Assets                  $      91,412  $      23,251

  Net Charge-offs - YTD                       $       2,748  $       1,104
  Net Charge-offs as a % of average loans              0.55%          0.26%

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 $2.9 billion. The Company operates 85 banking offices through its three banking subsidiaries, MainSource Bank, Greensburg, Indiana, MainSource Bank of Illinois, Kankakee, Illinois, and MainSource Bank - Ohio, Troy, Ohio. Through its non-banking subsidiaries, MainSource Insurance LLC, and MainSource Title LLC, the Company and its banking subsidiaries provide various related financial services.

Forward-Looking Statements

Except for historical information contained herein, the discussion in this press release may include certain forward-looking statements based upon management expectations, goals and projections, which are subject to numerous assumptions, risks and uncertainties. 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,, and on the Company's website,

Contact Information

    Archie M. Brown, Jr.
    President and CEO
    MainSource Financial Group, Inc.