MainSource Financial Group Announces Earnings for the First Quarter 2011

4/22/2011

  • Net Income Up 40% to $4.5 million
  • Net Interest Margin of 4.30%
  • Tangible Common Equity Ratio of 6.8%
  • Return on Average Assets of 0.67%
  • 20% Decrease in Non-accrual Loans
  • 11% Decrease in Non-performing Assets (including Troubled Debt Restructuring)

Greensburg, Indiana (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, 2011.  The Company reported net income of $4.5 million for the first quarter and earnings per common share of $0.19 compared to $3.2 million of net income and $0.12 per common share reported in the first quarter of 2010.  The primary driver of the increase in net income was a decrease in the Company’s loan loss provision expense to $5.6 million in the first quarter of 2011 compared to $9.5 million in the same period a year ago.

Mr. Brown commented, “I am pleased with our continued improvement in loan quality.  Total nonperforming assets (including troubled debt restructurings) declined 18% from the same quarter one year ago and 11% from the previous quarter.  Total loan delinquency (loans past due 30 days and greater) was 3.62% as of March 31.  This compares to 5.58% one year ago and was the lowest level of delinquency since the third quarter of 2008.  As a result, our loan loss provision expense at $5.6 million was also at its lowest level since the third quarter of 2008 when it totaled $5.0 million.”

Mr. Brown continued, “Our net revenue remained relatively flat with the first quarter of 2010.  Net revenue totaled $34.3 million compared to $34.5 million one year ago after adjusting for insurance commissions (the company sold the property and casualty insurance lines during the fourth quarter of 2010).  Factors that led to the stable revenue were our strong net interest margin, which improved to 4.30% from 4.09% one year ago, higher trust and investment product fees and increased interchange income, which offset lower mortgage banking income and net OREO losses primarily related to the write-down of two properties.”

Mr. Brown concluded, “I am pleased with our overall progress.  Improvement in loan quality continues to be our top priority.  Going forward, we expect revenue will be under increased pressure as loan demand remains relatively weak and total loans outstanding continue to decline.  We are working diligently to identify prudent avenues for additional loan growth.”

 


 

NET INTEREST INCOME

Net interest income was $25.0 million for the first quarter of 2011, which was a $0.3 million decrease compared to the first quarter of 2010.  The Company’s net interest margin, on a fully-taxable equivalent basis, was 4.30% for the first quarter of 2011 versus 4.09% for the first quarter of 2010.  However, this increase in the net interest margin was offset by a decrease in average earning assets of $106 million.  On a linked quarter basis, the Company’s net interest margin increased by 29 basis points due primarily to the decrease in the cost of funds and interest recoveries.

NON-INTEREST INCOME

The Company’s non-interest income decreased to $9.3 million for the first quarter of 2011 compared to $9.8 million for the same period in 2010.  An increase in trust and investment product fees was offset by a decrease in insurance commissions.  The Company sold its property and casualty book of business in the fourth quarter of 2010.  In addition, the Company also incurred net losses of $365 thousand on sales and/or write-downs of other real estate owned (OREO) in the first quarter of 2011 compared to a slight gain in this category in the same period a year ago.

NON-INTEREST EXPENSE

The Company’s non-interest expense was $23.8 million for the first quarter of 2011 compared to $22.5 million for the same period in 2010, an increase of $1.3 million or 5.9%.  The two areas driving the increase in non-interest expenses were marketing and collection-related expenses.  Marketing expenses increased by $488 thousand year over year as the Company has made investments in a checking account acquisition program and a customer/employee engagement survey and improvement program.  Collection expense increased by $439 thousand year over year as the Company is aggressively working through its non-performing loans and problem assets.

BALANCE SHEET AND CAPITAL

Total assets were $2.8 billion as of March 31, 2011, a decrease of $93 million from the same period a year ago.  The decrease was primarily related to a decrease in loan balances.  Loans decreased $182 million year over year and were partially offset by a $90 million increase in investment securities.  Charge-offs of non-performing loans and overall weak loan demand continue to drive loan balances down.  The Company’s regulatory capital ratios remain strong and as of March 31, 2011 were as follows: leverage ratio of 10.2%, tier one capital to risk-weighted assets of 16.2%, and total capital to risk-weighted assets of 17.4%.  In addition, as of March 31, 2011 the Company’s tangible common equity ratio was 6.8%.

ASSET QUALITY

Non-performing assets (excluding accruing troubled debt restructurings) were $80.4 million as of March 31, 2011 compared to $101.2 million as of March 31, 2010, and represented 2.90% of total assets at March 31, 2011 compared to 3.54% at March 31, 2010.  On a linked-quarter basis, non-performing assets remained relatively flat.  However, the mix of NPA’s shifted significantly.  Non-accrual loans decreased by $13.7 million while OREO increased by $9.1 million.  Two non-performing loans totaling $6.4 million were transferred to OREO during the quarter accounting for much of the increase in OREO.  The Company obtains updated appraisals at the time assets are transferred into OREO and records its investment in these assets at 75% of this updated appraised value to account for selling costs and a probable bank-owned discount based on the Company’s experience in marketing OREO properties.  Net charge-offs for the first quarter of 2011 were $5.0 million and represented 1.20% of average loans.  The Company’s allowance for loan losses was $43.3 million and represented 2.63% of total outstanding loans at March 31, 2011.  This compares to $43.0 million as of March 31, 2010, or 2.36% as a percent of loans and $42.6 million as of December 31, 2010, or 2.53% of total loans.

 


 

 

Three months ended March 31

 

 

 

2011

 

2010

 

Income Statement Summary  

 

 

 

 
Interest Income   $

31,177

  $

34,271

 
Interest Expense  

6,227

 

9,040

 
Net Interest Income  

24,950

 

25,231

 
Provision for Loan Losses  

5,600

 

9,500

 
Noninterest Income:  

 

 

 

 
Insurance commissions  

 

518

 
Trust and investment product fees  

940

 

565

 
Mortgage banking  

1,318

 

1,524

 
Service charges on deposit accounts  

3,898

 

3,869

 
Gain on sales of securities  

1,133

 

1,053

 
Interchange income  

1,416

 

1,264

 
OREO gains/(losses)  

(365

)

23

 
Other  

979

 

1,015

 
Total Noninterest Income  

9,319

 

9,831

 
Noninterest Expense:  

 

 

 

 
Employee  

12,833

 

12,445

 
Occupancy  

1,767

 

1,855

 
Equipment  

1,980

 

1,898

 
Intangible amortization  

492

 

516

 
Marketing  

1,081

 

593

 
Collection expenses  

1,014

 

575

 
FDIC assessment  

1,261

 

1,263

 
Other  

3,392

 

3,340

 
Total Noninterest Expense  

23,820

 

22,485

 
Earnings Before Income Taxes  

4,849

 

3,077

 
Provision (Benefit) for Income Taxes  

303

 

(172

)
Net Income   $

4,546

  $

3,249

 
Preferred Dividends & Accretion   $

(763

) $

(763

)
Net Income Available to Common Shareholders   $

3,783

  $

2,486

 

 

 

 

Three months ended March 31

 

 

 

2011

 

2010

 

Average Balance Sheet Data  

 

 

 

 
Gross Loans   $

1,670,740

  $

1,864,743

 
Earning Assets  

2,514,467

 

2,620,314

 
Total Assets  

2,765,834

 

2,877,272

 
Noninterest Bearing Deposits  

272,872

 

241,037

 
Interest Bearing Deposits  

1,932,988

 

1,992,279

 
Total Interest Bearing Liabilities  

2,167,045

 

2,314,195

 
Shareholders’ Equity  

304,888

 

298,172

 

 

 

 

Three months ended March 31

 

 

 

2011

 

2010

 

Per Share Data  

 

 

 

 
Diluted Earnings Per Share   $

0.19

  $

0.12

 
Cash Dividends Per Share  

0.010

 

0.010

 
Market Value - High  

10.60

 

7.40

 
Market Value - Low  

8.74

 

4.40

 
Average Outstanding Shares (diluted)  

20,183,480

 

20,137,865

 

 

 

 

Three months ended March 31

 

 

 

2011

 

2010

 

Key Ratios  

 

 

 

 
Return on Average Assets  

0.67

%

0.46

%
Return on Average Equity  

6.05

%

4.42

%
Net Interest Margin  

4.30

%

4.09

%
Efficiency Ratio  

66.16

%

62.04

%
Net Overhead to Average Assets  

2.13

%

1.78

%

 

 

 

March 31

 

December 31

 

March 31

 

 

 

2011

 

2010

 

2010

 

Balance Sheet Highlights  

 

 

 

 

 

 
Total Loans (Excluding Loans Held for Sale)   $

1,642,700

  $

1,680,971

  $

1,824,824

 
Allowance for Loan Losses  

43,255

 

42,605

 

43,025

 
Total Securities  

817,235

 

806,071

 

727,279

 
Goodwill and Intangible Assets  

70,529

 

71,021

 

73,561

 
Total Assets  

2,767,985

 

2,769,312

 

2,861,257

 
Noninterest Bearing Deposits  

293,648

 

268,390

 

256,099

 
Interest Bearing Deposits  

1,915,713

 

1,943,174

 

1,963,264

 
Other Borrowings  

196,136

 

202,182

 

269,003

 
Shareholders’ Equity  

309,058

 

302,570

 

297,787

 

 

 

 

March 31

 

December 31

 

March 31

 

 

 

2011

 

2010

 

2010

 

Other Balance Sheet Data  

 

 

 

 

 

 
Book Value Per Common Share   $

12.56

  $

12.25

  $

12.01

 
Loan Loss Reserve to Loans  

2.63

%

2.53

%

2.36

%
Loan Loss Reserve to Non-performing Loans  

72.36

%

61.51

%

47.25

%
Nonperforming Assets to Total Assets  

2.90

%

2.92

%

3.54

%
Tangible Common Equity Ratio  

6.76

%

6.51

%

6.03

%
Outstanding Shares  

20,136,188

 

20,136,362

 

20,136,362

 

 

 

 

March 31

 

December 31

 

March 31

 

 

 

2011

 

2010

 

2010

 

Asset Quality  

 

 

 

 

 

 
Loans Past Due 90 Days or More and Still Accruing   $

5,237

  $

990

  $

1,055

 
Non-accrual Loans  

54,537

 

68,279

 

89,999

 
Other Real Estate Owned  

20,586

 

11,479

 

10,107

 
Total Nonperforming Assets (NPA’s)   $

80,360

  $

80,748

  $

101,161

 
Troubled Debt Restructurings  

11,503

 

22,250

 

11,500

 
Total NPA’s with Troubled Debt Restructurings   $

91,863

  $

102,998

  $

112,661

 
   

 

 

 

 

 

 
Net Charge-offs - YTD   $

4,950

  $

39,293

  $

13,123

 
Net Charge-offs as a % of average loans  

1.20

%

2.21

%

2.85

%


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 80 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.

 

[back to list]