SOURCE: MainSource Financial Group

MainSource Financial Group

February 02, 2011 16:00 ET

MainSource Financial Group -- NASDAQ, MSFG -- Announces Fourth Quarter and Full Year 2010 Operating Results

GREENSBURG, IN--(Marketwire - February 2, 2011) - Archie M. Brown, Jr., President and Chief Executive Officer of MainSource Financial Group, Inc. (NASDAQ: MSFG), announced today the unaudited financial results for the quarter and year ended December 31, 2010. For the three months ended December 31, 2010, the Company recorded net income of $4.8 million, or $0.20 per common share, compared to a net loss of $28.6 million in the fourth quarter of 2009. The loss in 2009 included a non-operating, non-cash goodwill impairment charge of $35.2 million (on a pre-tax basis) taken in accordance with accounting standards for goodwill and other intangible assets. Excluding the effect of this charge, which reduced earnings by $31.7 million on an after-tax basis, the Company earned on an operating basis a profit for the fourth quarter of 2009 of $3.0 million, or $0.11 per common share.

For the twelve months ended December 31, 2010, the Company reported net income of $14.8 million, or $0.58 per common share, compared to a net loss of $64.1 million in 2009. The loss for 2009 included goodwill impairment charges of $80.3 million on a pre-tax basis, which equated to $71.9 million on an after-tax basis. Excluding these non-operating charges in 2009, the Company's operating earnings were $7.7 million and earnings per common share were $0.24. For a reconciliation of non-GAAP Net Income Excluding Goodwill Impairment Charges to GAAP Net Income, see "Regulation G Disclosure" below.

Mr. Brown stated, "I am very pleased with the sustained improvement in credit quality. New non-accrual loans declined for the third consecutive quarter and net charge-offs were at their lowest level in six quarters. As a result, provision expense for the fourth quarter declined to $6 million, the lowest level since the third quarter of 2008. Provision expense for the quarter slightly exceeded net charge-offs. The continued improvement in credit quality led to the improvement in earnings."

Mr. Brown continued, "I am also very pleased that our net interest margin remained over 4% for the quarter. The strong net interest margin combined with robust service charge and mortgage income enabled our revenue to increase 1.5% on a sequential quarter basis and decline by less than one percent from the fourth quarter of 2009. Revenue will be a chief concern in 2011 as loan demand remains weak, mortgage originations have slowed due to the recent increases in interest rates and pending regulatory changes may impact overdraft and interchange fees."

Regarding full year 2010 performance Mr. Brown stated, "I am pleased with our stable revenue and strong net interest margin for 2010. Our net income on an operating basis rebounded from $.24 per common share in 2009 to $.58 per common share and this was directly related to the lower provision expense for the year. We continued to make improvements throughout the year in credit quality performance. I believe the trough in credit performance for MainSource was early in 2010. Since that time we have experienced slow but steady improvement as evidenced by three quarters of lower non-accrual loans and net charge-offs. Additionally new inflows of problem loans continued to diminish each quarter of the year."

Mr. Brown concluded, "While we saw earnings and credit improvement during 2010, the economy still remains in a weakened state. We remain diligent in our efforts to continue to restore our credit quality to pre recession levels and I expect significant improvement to be made during the next year. We believe that as our loan quality continues to improve and our balance sheet strengthens, we will be positioned for growth. To that end we have made and continue to make significant investments in checking account acquisition strategies, loan origination practices, employee and customer engagement, operational process improvements and updating technology."

4TH QUARTER RESULTS

NET INTEREST INCOME

Net interest income was $24.9 million for the fourth quarter of 2010. Net interest margin, on a fully-taxable equivalent basis, was 4.01% for the fourth quarter of 2010 which was sixteen basis points above the fourth quarter of 2009 and thirteen basis points lower than the third quarter of 2010. During the third quarter of 2010, 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. Excluding this interest recovery, the Company net interest margin would have been 3.96% for the third quarter of 2010.

NON-INTEREST INCOME

The Company's non-interest income was $10.7 million for the fourth quarter of 2010, which was equal to the amount realized in the same period in 2009. During the fourth quarter of 2010 the Company sold the property and casualty business lines of its insurance division and recognized a gain of $900 thousand (pre-tax). This gain was offset by the decrease in gains on the sales of investment securities and the loss of revenue of $500 thousand related to the aforementioned insurance division sale. On a linked-quarter basis, non-interest income increased by $1.3 million.

NON-INTEREST EXPENSE

The Company's non-interest expense was $24.2 million for the fourth quarter of 2010 compared to $57.5 million for the same period in 2009. The fourth quarter of 2009 included a goodwill impairment charge of $35.2 million. Excluding the effect of this charge, fourth quarter 2009 non-interest expense would have been $22.3 million. Increases in employee-related costs were the primary cause of the increase as these expenses were $12.6 million in the fourth quarter of 2010 compared to $11.3 million for the same period in 2009. Increased profit-sharing expense and commissions related to mortgage loan originators were the primary causes of the increase in employee expenses. On a linked quarter basis, employee expenses were relatively flat.

FULL YEAR RESULTS

NET INTEREST INCOME

Net interest income was $101.3 million for the full year 2010, which represents an increase of $3.3 million or 3.3% over the net interest income for the twelve months ended December 31, 2009. The slight decrease in the volume of earnings assets was more than offset by an increase in the Company's net interest margin. Net interest margin, on a fully-taxable equivalent basis, was 4.08% for the full year 2010 compared to 3.82% for the full year 2009. The increase in the Company's net interest margin was primarily due to the shift in the Company's funding mix from higher-priced borrowings and time deposits to lower-priced transaction-based deposits.

NON-INTEREST INCOME

The Company's non-interest income was $41.3 million for the full year 2010 compared to $40.0 million for 2009. An increase in realized gains on the sales of investment securities of $1.7 million, an increase in service charge income of $900 thousand, and an increase in brokerage income of $600 thousand was offset by the decrease in mortgage banking income of $1.4 million.

NON-INTEREST EXPENSE

The Company's non-interest expense was $92.3 million for the full year 2010 compared to $167.5 million for 2009. The full year 2009 included goodwill impairment charges of $80.3 million. Excluding the effect of these charges, the Company's non-interest expense would have been $87.2 million for that period. Employee costs increased by $3.7 million driven by normal merit increases, higher mortgage loan commission expense, the de novo office in Columbus, Indiana, and the full-year effect of the branch acquisitions in May 2009. In addition, the Company incurred additional costs for credit and collection costs related to its elevated level of non-performing assets.

ASSET QUALITY

Non-performing assets (excluding troubled debt restructurings) were $80.7 million as of December 31, 2010, a decrease of approximately $8.6 million on a linked-quarter basis. Net charge-offs were $5.9 million for the fourth quarter of 2010 and represented 1.38% of average loans on an annualized basis. For the full year 2010, net charge-offs were $39.3 million or 2.21% of average loans. Non-performing assets represented 2.92% of total assets as of December 31, 2010 compared to 3.13% as of September 30, 2010 and 3.12% as of December 31, 2009. The Company's allowance for loan losses as a percent of total outstanding loans was 2.53% as of December 31, 2010 compared to 2.47% as of December 31, 2009. Total loan loss provision expense was $6.0 million in the fourth quarter of 2010.

                        MAINSOURCE FINANCIAL GROUP
                                (unaudited)
               (Dollars in thousands except per share data)



                                 Three months ended   Twelve months ended
Income Statement Summary            December 31           December 31
                                --------------------  --------------------
                                  2010       2009       2010       2009
                                ---------  ---------  ---------  ---------
  Interest Income               $  32,244  $  35,607  $ 134,571  $ 143,241
  Interest Expense                  7,381     10,344     33,319     45,233
                                ---------  ---------  ---------  ---------
  Net Interest Income              24,863     25,263    101,252     98,008
  Provision for Loan Losses         6,000     11,000     35,250     46,310
  Noninterest Income:
    Insurance commissions              32        515      1,711      2,071
    Trust and investment
     product fees                     673        677      2,363      1,743
    Mortgage banking                2,514      1,731      7,642      9,028
    Service charges on
     deposit accounts               4,581      4,593     17,462     16,537
    Gain on sales of securities         1      1,078      2,979      1,263
    Interchange income              1,398      1,692      5,487      5,178
    Other                           1,495        461      3,647      4,230
                                ---------  ---------  ---------  ---------
      Total Noninterest Income     10,694     10,747     41,291     40,050
  Noninterest Expense:
    Employee                       12,549     11,266     50,138     46,342
    Occupancy                       1,648      1,604      6,654      6,660
    Equipment                       2,093      2,016      7,855      7,468
    Intangible amortization           516        552      2,066      2,199
    Telecommunications                462        448      1,882      2,015
    Stationary, printing, and
     supplies                         371        395      1,478      1,608
    Goodwill impairment                 -     35,234          -     80,310
    FDIC assessment                 1,293      1,430      4,940      4,976
    Other                           5,252      4,577     17,239     15,954
                                ---------  ---------  ---------  ---------
      Total Noninterest Expense    24,184     57,522     92,252    167,532
                                ---------  ---------  ---------  ---------
  Earnings (Loss) Before Income
   Taxes                            5,373    (32,512)    15,041    (75,784)
  Provision (benefit) for Income
   Taxes                              585     (3,876)       239    (11,645)
                                ---------  ---------  ---------  ---------
  Net Income (Loss)             $   4,788  $ (28,636) $  14,802  $ (64,139)
  Preferred Dividends &
   Accretion                    $    (764) $    (764) $  (3,054) $  (2,919)
                                ---------  ---------  ---------  ---------
  Net Income (Loss) Available
   to Common Shareholders       $   4,024  $ (29,400) $  11,748  $ (67,058)
                                =========  =========  =========  =========

                                 Three months ended   Twelve months ended
                                    December 31           December 31
                                --------------------- ---------------------
Average Balance Sheet Data        2010       2009       2010       2009
                                ---------- ---------- ---------- ----------
  Gross Loans                   $1,715,634 $1,935,646 $1,780,184 $1,981,567
  Earning Assets                 2,596,173  2,717,943  2,607,721  2,649,031
  Total Assets                   2,872,920  2,990,893  2,878,372  2,930,903
  Noninterest Bearing Deposits     275,060    248,329    259,607    238,411
  Interest Bearing Deposits      2,001,322  2,058,645  1,999,615  1,957,723
  Total Interest Bearing
   Liabilities                   2,257,164  2,388,425  2,286,704  2,327,051
  Shareholders' Equity             311,895    326,802    304,852    339,554


                           Three months ended       Twelve months ended
                              December 31               December 31
                        ------------------------- ------------------------
Per Share Data              2010         2009         2010         2009
                        ------------ -----------  ------------ -----------
  Diluted Earnings
   (Loss) Per Common
   Share                $       0.20 $     (1.46) $       0.58 $     (3.33)
  Cash Dividends Per
   Common Share                 0.01        0.01          0.04       0.255
  Market Value - High          10.76        7.04         10.76       15.16
  Market Value - Low            7.68        4.45          4.40        4.45
  Average Outstanding
   Shares (diluted)       20,181,228  20,136,362    20,154,384  20,136,362


                           Three months ended       Twelve months ended
                              December 31               December 31
                        ------------------------  ------------------------
Key Ratios                  2010         2009         2010         2009
                        -----------  -----------  -----------  -----------
  Return on Average
   Assets                      0.66%       -3.80%        0.51%       -2.19%
  Return on Average
   Equity                      6.09%      -34.76%        4.86%      -18.89%
  Net Interest Margin          4.01%        3.85%        4.08%        3.82%
  Efficiency Ratio (1)        65.50%       60.07%       62.51%       61.55%
  Net Overhead to
   Average Assets (1)          1.86%        1.53%        1.77%        1.61%


Balance Sheet
 Highlights     December 31 September 30  June 30    March 31   December 31
                   2010        2010        2010        2010        2009
                ----------- ----------- ----------- ----------- -----------
  Total Loans
   (Excluding
   Loans Held
   for Sale)    $ 1,680,971 $ 1,725,241 $ 1,755,201 $ 1,824,824 $ 1,885,447
  Allowance for
   Loan Losses       42,605      42,460      41,436      43,025      46,648
  Total
   Securities       806,071     812,160     741,351     727,279     714,607
  Goodwill and
   Intangible
   Assets            71,021      72,527      73,044      73,561      74,077
  Total
   Assets         2,769,312   2,853,541   2,851,700   2,861,257   2,906,530
  Noninterest
   Bearing
   Deposits         268,390     270,212     270,682     256,099     250,438
  Interest
   Bearing
   Deposits       1,943,174   1,982,417   1,973,643   1,963,264   2,020,212
  Other
   Borrowings       202,182     230,251     240,496     269,003     272,231
  Shareholders'
   Equity           302,570     311,996     303,592     297,787     294,462

Other Balance
 Sheet Data   December 31  September 30  June 30    March 31   December 31
                   2010        2010        2010        2010        2009
                ----------  ----------  ----------  ----------  ----------
  Book Value
   Per Common
   Share        $    12.24  $    12.71  $    12.29  $    12.01  $    11.84
  Loan Loss
   Reserve to
   Loans              2.53%       2.46%       2.36%       2.36%       2.47%
  Loan Loss
   Reserve to
   Non-performing
   Loans             61.51%      52.86%      48.28%      47.25%      58.05%
  Nonperforming
   Assets to
   Total Assets       2.92%       3.13%       3.27%       3.54%       3.12%
  Tangible
   Common
   Equity
   Ratio              6.50%       6.59%       6.28%       6.03%       5.80%
  Outstanding
   Shares       20,136,362  20,136,362  20,136,362  20,136,362  20,136,362


Asset Quality  December 31  September 30  June 30    March 31  December 31
                    2010        2010        2010        2010       2009
                 ----------  ----------  ----------  ----------  ---------
  Loans Past
   Due 90 Days
   or More and
   Still
   Accruing      $      990  $      624  $      421  $    1,055  $   3,279
  Non-accrual
   Loans             68,279      79,705      85,399      89,999     77,074
  Other Real
   Estate
   Owned             11,479       9,020       7,501      10,107     10,386
                 ----------  ----------  ----------  ----------  ---------
  Total
   Nonperforming
   Assets
   (NPA's)       $   80,748  $   89,349  $   93,321  $  101,161  $  90,739
  Troubled
   Debt
   Restructurings    22,250      10,234      12,860      11,500     11,839
                 ----------  ----------  ----------  ----------  ---------
  Total NPA's
   with
   Troubled
   Debt
   Re-
   structurings  $  102,998  $   99,583  $  106,181  $  112,661  $ 102,578
                 ==========  ==========  ==========  ==========  =========

  Net
   Charge-offs
   - YTD         $   39,293  $   33,439  $   27,462  $   13,123  $  34,245
    Net
  Charge-offs
   as a % of
   average
   loans               2.21%       2.48%       3.02%       2.85%      1.73%

(1) 2009 ratios exclude a goodwill impairment charge of $35.2 million for
    the quarter and $80.3 million for 12 months.

Regulation G Disclosure

This press release includes non-GAAP financial measures. The non-GAAP financial information should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. However, we believe that non-GAAP reporting, giving effect to the adjustments shown in the reconciliations provided below, provides meaningful information and therefore we use it to supplement our GAAP information. We have chosen to provide this supplemental information to investors, analysts and other interested parties to enable them to perform additional analyses of operating results, to illustrate the results of operations giving effect to the non-GAAP adjustments shown in the reconciliations and to provide an additional measure of performance. We believe this information is helpful in understanding the results of operations separate and apart from items that may, or could, have a disproportionate positive or negative impact in any given period.

During both the second and fourth quarters of 2009, the Company recorded non-cash goodwill impairment charges. The Company believes that excluding the after-tax effects of these charges from its discussion of the Company's core operating results will provide investors with a basis to compare the Company's operating results on a quarter by quarter basis without the material distortions caused by this non-operating charge. The following table reconciles the non-GAAP financial measure "Net Income Excluding Goodwill Impairment Charge" with Net Income calculated and presented in accordance with GAAP.

                                              Quarter Ended       EPS
                                                12/31/09         Impact
                                              -------------  -------------
Net Income as Reported                        $     (28,636) $       (1.46)
Goodwill Impairment Charge, Net of Income Tax       (31,677)         (1.57)
                                              -------------  -------------
Net Income Excluding Goodwill Impairment
 Charge                                       $       3,041  $        0.11
                                              =============  =============


                                              Twelve Months
                                                  Ended           EPS
                                                 12/31/09        Impact
                                              -------------  -------------
Net Income as Reported                        $     (64,139) $       (3.33)
Goodwill Impairment Charge, Net of Income Tax       (71,868)         (3.57)
                                              -------------  -------------
Net Income Excluding Goodwill Impairment
 Charge                                       $       7,729  $        0.24
                                              -------------  -------------

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 69 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 those 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