SOURCE: MainSource Financial Group, Inc.

MainSource Financial Group, Inc.

October 20, 2010 16:45 ET

MainSource Financial Group -- NASDAQ, MSFG -- Announces Earnings for the Third Quarter 2010

GREENSBURG, IN--(Marketwire - October 20, 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.

Contact Information

  • CONTACT:
    Archie M. Brown, Jr.
    President and CEO
    MainSource Financial Group, Inc.
    812-663-6734