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8-K - 8-K - MAINSOURCE FINANCIAL GROUPa12-3549_18k.htm

Exhibit 99.1

 

 

DATE:

January 26, 2012 4:00 p.m. E.S.T.

CONTACT:

Archie M. Brown, Jr. President and CEO

 

MainSource Financial Group, Inc. 812-663-6734

 

MAINSOURCE FINANCIAL GROUP—NASDAQ, MSFG —
Announces Fourth Quarter and Full Year

2011 Operating Results

 

·                  Fourth quarter earnings of $6.0 million, $0.26 per common share

·                  Efficiency project completed resulting in $6.9 million of cost savings

·                  Non-interest expense lower by 7.9% from fourth quarter of 2010 (excluding expense related to the efficiency project)

·                  Non-performing assets lower by $2.8 million from the third quarter of 2011

 

Greensburg, Indiana, 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, 2011.  For the three months ended December 31, 2011, the Company recorded net income of $6.0 million, or $0.26 per common share, compared to net income of $4.8 million, or $0.20 per common share, in the fourth quarter of 2010.  The primary driver of the increase in net income was a decrease in the Company’s loan loss provision expense to $3.2 million in the fourth quarter of 2011 compared to $6.0 million in the same period a year ago.  During the fourth quarter of 2011, the Company realized $6.4 million of gains on the sale of investment securities.  These gains were offset by consulting and severance expense totaling $6.4 million related to an efficiency improvement project that began in the second quarter of 2011.

 

For the twelve months ended December 31, 2011, the Company reported net income of $23.8 million, or $1.03 per common share, compared to net income in 2010 of $14.8 million, or $0.58 per common share.  Similar to the fourth quarter results, the primary driver of the increase in net income in 2011 compared to 2010 was a decrease in loan loss provision expense to $17.8 million for the full year 2011 from $35.3 million in 2010.

 

Mr. Brown stated, “I am pleased with the quarter and year.  Core earnings remained strong for the quarter relative to the same quarter last year and the linked quarter.  Excluding the gains on securities and the expenses related to the efficiency project, earnings for the year were 80% higher than 2010 driven by lower provision expense as loan quality continued to improve from

 



 

the impact of the recession.  For the quarter, our net interest margin continued to be strong and stable, and core fee trends and non-interest expense both reflect improvement from one year ago.

 

Mr. Brown continued, “I am encouraged that nonperforming assets (NPAs) declined further during the 4th quarter.  NPAs declined by 21.6% for the year and declined on an annualized basis by 13.4% from the linked quarter.  The inflow of new non-performing loans slowed significantly from the previous two quarters, which aided the progress made during the quarter. One area that continues to be a concern is the further decline of loan balances.  For the quarter, we continue to experience lower commercial line utilization and higher business checking balances per account indicating that many businesses in our markets continue to maintain a conservative approach to business expansion.  However, at the end of the fourth quarter, we did experience a meaningful increase in our business loan pipeline for the first time since 2008 and are hopeful that it will mean the beginning of growth in our loan portfolio as we enter 2012.”

 

Mr. Brown concluded, “I am proud of our employees and their ability to remain focused on providing quality service and driving sales while going through our extensive efficiency project.  Their efforts have helped position the company very favorably to compete in the challenging banking industry.  We have made a meaningful improvement in our cost structure and are hopeful for incremental revenue gains as well.”

 

4TH QUARTER RESULTS

 

EFFICIENCY PROJECT

 

During the fourth quarter of 2011 the Company completed its efficiency project with the aid of a third party consulting firm.  The project began in April 2011.  Approximately 90% of the Company’s departments and corresponding headcount were reviewed, as well as the entire organizational structure of the Company.  In addition, the Company’s processes and procedures were evaluated and “best practices” were implemented.  As a result of the project, approximately 150 full-time equivalent positions were targeted for elimination (approximately 16% of the company’s FTE count as of March 31, 2011) equating to annualized savings of approximately $6.9 million.  The Company negotiated a one-time payment with the consulting firm of $6.1 million.  A portion of these savings were realized in 2011 as the Company held positions open and achieved a portion of the targeted reductions through normal attrition.  The employee cost savings in 2012 are estimated to be approximately $4.5 million when compared to 2011.  The Company’s products and fee structures were also reviewed with a significant number of recommendations implemented.  The Company expects to realize some incremental improvement in fee related areas, although it is less certain of the full impact of these measures.

 

NET INTEREST INCOME

 

Net interest income was $24.4 million for the fourth quarter of 2011.  Net interest margin, on a fully-taxable equivalent basis, was 4.15% for the fourth quarter of 2011 which was fourteen basis points above the fourth quarter of 2010 and ten basis points lower than the third quarter of 2011.  The Company’s net interest margin decreased on a linked-quarter basis due to the seasonal

 



 

inflow of public fund deposits related to Indiana property tax receipts.  In addition, the Company had higher than average cash balances in the fourth quarter due to the investment security sales and the subsequent delay in reinvesting the funds.

 

NON-INTEREST INCOME

 

The Company’s non-interest income was $14.2 million for the fourth quarter of 2011 compared to $10.7 million in the same period in 2010.  During the fourth quarter of 2011, the Company realized gains on the sale of investment securities of $6.4 million.  Partially offsetting these gains were losses/write-downs on OREO properties of $1.5 million and a $0.4 million write-down related to a lot the Company purchased in 2008 for potential future expansion.  Approximately $1.0 million of the OREO losses related to the write-down of one problem asset.  The write-down was a result of a new appraisal obtained on this property.  Mortgage banking income, which was $1.6 million for the fourth quarter of 2011, decreased from the same period a year ago due to the record volume levels achieved during that prior period.  While rates have remained low, mortgage refinancing levels have declined and represent more normal activity.  During the fourth quarter of 2010 the Company sold the property and casualty business lines of its insurance division and recognized a gain of $1.0 million.  This gain in the prior year was the primary reason for the decrease in the Company’s other income for the current quarter.

 

NON-INTEREST EXPENSE

 

The Company’s non-interest expense was $28.7 million for the fourth quarter of 2011 compared to $24.2 million for the same period in 2010.  The aforementioned consulting expenses of $6.1 million were the primary reason for the increase in non-interest expenses.  Offsetting the consulting expenses were decreases in virtually all expense categories as efficiencies from the project were achieved.

 

FULL YEAR RESULTS

 

NET INTEREST INCOME

 

Net interest income was $99.8 million for the full year 2011, which represents a decrease of $1.4 million or 1.4% when compared to the twelve months ended December 31, 2010.  While net interest margin, on a fully-taxable equivalent basis, increased to 4.24% in 2011 compared to 4.08% for 2010, the Company’s net interest income decreased due to the decrease in the earning asset base.  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 $45.3 million for the full year 2011 compared to $41.3 million for 2010. Increases in realized gains on the sales of investment securities of $8.4 million, service charge income of $0.7 million, and brokerage income of $0.9 million were offset by a decrease in mortgage banking income of $2.1 million and revenue related to the Company’s

 



 

insurance agency of $2.7 million (this includes insurance commissions of $1.7 million and the $1.0 million gain on the sale of the business in the fourth quarter of 2010).

 

NON-INTEREST EXPENSE

 

The Company’s non-interest expense was $99.8 million for the full year 2011 compared to $92.3 million for 2010.  The increase of $7.5 million was primarily attributable to the consulting fees related to the aforementioned efficiency project completed in 2011. In addition, the Company incurred additional costs in 2011 for credit and collection expenses related to problem assets.

 

ASSET QUALITY

 

Non-performing assets (NPA’s) were $80.7 million as of December 31, 2011, a decrease of approximately $2.8 million on a linked-quarter basis.  NPA’s represented 2.93% of total assets as of December 31, 2011 compared to 3.03% as of September 30, 2011 and 3.72% as of December 31, 2010.  Included in the $80.7 million of NPA’s was $3.3 million of loans past due 90 days or more and still accruing.  Subsequent to year-end, one loan totaling $2.7 million that was included in this category is now current.  NPA’s also include $20.4 million of loans classified as troubled debt restructurings (TDR’s).  Subsequent to year-end, two loans totaling $6.5 million were transferred out of TDR status and are now classified as performing.  These credits were previously re-written using an A/B note structure.  As of January 1, 2012, the “A” notes related to these credits have performed as to the terms of the agreement for at least six months and had a market rate of interest.  Therefore, the Company moved them out of TDR status.

 

Net charge-offs were $4.7 million for the fourth quarter of 2011 and represented 1.21% of average loans on an annualized basis.  Total loan loss provision expense was $3.2 million in the fourth quarter of 2010.  The Company had identified losses and specifically provided for $2.2 million in previous quarters for the two largest charge-offs taken during the fourth quarter totaling approximately $2.5 million.  For the full year 2011, net charge-offs were $20.5 million or 1.27% of average loans.  The Company’s allowance for loan losses as a percent of total outstanding loans was 2.60% as of December 31, 2011 compared to 2.53% as of December 31, 2010.

 



 

MAINSOURCE FINANCIAL GROUP

(unaudited)

(Dollars in thousands except per share data)

 

 

 

Three months ended December 31

 

Twelve months ended December 31

 

 

 

2011

 

2010

 

2011

 

2010

 

Income Statement Summary

 

 

 

 

 

 

 

 

 

Interest Income

 

$

28,967

 

$

32,244

 

$

121,611

 

$

134,571

 

Interest Expense

 

4,529

 

7,381

 

21,763

 

33,319

 

Net Interest Income

 

24,438

 

24,863

 

99,848

 

101,252

 

Provision for Loan Losses

 

3,200

 

6,000

 

17,800

 

35,250

 

Noninterest Income:

 

 

 

 

 

 

 

 

 

Insurance commissions

 

 

32

 

 

1,711

 

Trust and investment product fees

 

757

 

673

 

3,250

 

2,363

 

Mortgage banking

 

1,608

 

2,514

 

5,551

 

7,642

 

Service charges on deposit accounts

 

4,860

 

4,581

 

18,147

 

17,462

 

Gain on sales of securities

 

6,440

 

1

 

11,357

 

2,979

 

Interchange income

 

1,603

 

1,398

 

6,225

 

5,487

 

OREO gains/(losses)

 

(1,532

)

(469

)

(2,744

)

(1,080

)

Gain on sale of insurance business line

 

 

988

 

 

988

 

Other

 

455

 

976

 

3,522

 

3,739

 

Total Noninterest Income

 

14,191

 

10,694

 

45,308

 

41,291

 

Noninterest Expense:

 

 

 

 

 

 

 

 

 

Employee

 

11,824

 

12,549

 

49,950

 

50,138

 

Occupancy and equipment

 

3,589

 

3,741

 

14,508

 

14,509

 

Intangible amortization

 

462

 

516

 

1,939

 

2,066

 

Marketing

 

765

 

1,123

 

4,057

 

3,412

 

Collection expenses

 

1,120

 

1,502

 

4,334

 

3,579

 

FDIC assessment

 

908

 

1,293

 

3,974

 

4,940

 

Consulting fees

 

6,111

 

 

6,547

 

 

Other

 

3,918

 

3,460

 

14,496

 

13,608

 

Total Noninterest Expense

 

28,697

 

24,184

 

99,805

 

92,252

 

Earnings Before Income Taxes

 

6,732

 

5,373

 

27,551

 

15,041

 

Provision (benefit) for Income Taxes

 

706

 

585

 

3,738

 

239

 

Net Income

 

$

6,026

 

$

4,788

 

$

23,813

 

$

14,802

 

Preferred Dividends & Accretion

 

$

(764

)

$

(764

)

$

(3,054

)

$

(3,054

)

Net Income Available to Common Shareholders

 

$

5,262

 

$

4,024

 

$

20,759

 

$

11,748

 

 

 

 

Three months ended December 31

 

Twelve months ended December 31

 

 

 

2011

 

2010

 

2011

 

2010

 

Average Balance Sheet Data

 

 

 

 

 

 

 

 

 

Gross Loans

 

$

1,562,053

 

$

1,715,634

 

$

1,616,465

 

$

1,780,184

 

Earning Assets

 

2,515,375

 

2,596,173

 

2,525,879

 

2,607,721

 

Total Assets

 

2,796,356

 

2,872,920

 

2,790,899

 

2,878,372

 

Noninterest Bearing Deposits

 

305,930

 

275,060

 

288,908

 

259,607

 

Interest Bearing Deposits

 

1,894,577

 

2,001,322

 

1,925,543

 

1,999,615

 

Total Interest Bearing Liabilities

 

2,123,575

 

2,257,164

 

2,156,303

 

2,286,704

 

Shareholders’ Equity

 

335,054

 

311,895

 

319,953

 

304,852

 

 

 

 

Three months ended December 31

 

Twelve months ended December 31

 

 

 

2011

 

2010

 

2011

 

2010

 

Per Share Data

 

 

 

 

 

 

 

 

 

Diluted Earnings Per CommonShare

 

$

0.26

 

$

0.20

 

$

1.03

 

$

0.58

 

Cash Dividends Per Common Share

 

0.01

 

0.01

 

0.04

 

0.04

 

Market Value - High

 

9.89

 

10.76

 

10.60

 

10.76

 

Market Value - Low

 

7.66

 

7.68

 

6.98

 

4.40

 

Average Outstanding Shares (diluted)

 

20,244,602

 

20,181,228

 

20,221,127

 

20,154,384

 

 

 

 

Three months ended December 31

 

Twelve months ended December 31

 

 

 

2011

 

2010

 

2011

 

2010

 

Key Ratios (annualized)

 

 

 

 

 

 

 

 

 

Return on Average Assets

 

0.85

%

0.66

%

0.85

%

0.51

%

Return on Average Equity

 

7.14

%

6.09

%

7.44

%

4.86

%

Net Interest Margin

 

4.15

%

4.01

%

4.24

%

4.08

%

Efficiency Ratio

 

70.91

%

65.50

%

65.52

%

62.51

%

Net Overhead to Average Assets

 

2.06

%

1.86

%

1.95

%

1.77

%

 



 

 

 

December 31

 

September 30

 

June 30

 

December 31

 

 

 

2011

 

2011

 

2011

 

2010

 

Balance Sheet Highlights

 

 

 

 

 

 

 

 

 

Total Loans (Excluding Loans Held for Sale)

 

$

1,534,379

 

$

1,562,292

 

$

1,615,504

 

$

1,680,971

 

Allowance for Loan Losses

 

39,889

 

41,433

 

41,462

 

42,605

 

Total Securities

 

876,090

 

867,272

 

831,887

 

806,071

 

Goodwill and Intangible Assets

 

69,082

 

69,544

 

70,037

 

71,021

 

Total Assets

 

2,754,180

 

2,757,549

 

2,819,944

 

2,769,312

 

Noninterest Bearing Deposits

 

334,345

 

321,529

 

304,995

 

268,390

 

Interest Bearing Deposits

 

1,825,555

 

1,846,218

 

1,938,651

 

1,943,174

 

Other Borrowings

 

201,694

 

201,727

 

191,884

 

202,182

 

Shareholders’ Equity

 

336,553

 

334,105

 

318,950

 

302,570

 

 

 

 

December 31

 

September 30

 

June 30

 

December 31

 

 

 

2011

 

2011

 

2011

 

2010

 

Other Balance Sheet Data

 

 

 

 

 

 

 

 

 

Tangible Book Value Per Common Share

 

$

10.45

 

$

10.31

 

$

9.54

 

$

8.71

 

Loan Loss Reserve to Loans

 

2.60

%

2.65

%

2.57

%

2.53

%

Loan Loss Reserve to Non-performing Loans

 

89.05

%

95.73

%

97.16

%

61.51

%

Nonperforming Assets to Total Assets

 

2.19

%

2.23

%

2.02

%

2.92

%

NPA’s (w/ TDR’s) to Total Assets

 

2.93

%

3.03

%

2.60

%

3.72

%

Tangible Common Equity Ratio

 

7.86

%

7.75

%

7.00

%

6.50

%

Outstanding Shares

 

20,206,214

 

20,197,084

 

20,189,182

 

20,136,362

 

 

 

 

December 31

 

September 30

 

June 30

 

December 31

 

 

 

2011

 

2011

 

2011

 

2010

 

Asset Quality

 

 

 

 

 

 

 

 

 

Loans Past Due 90 Days or More and Still Accruing

 

$

3,266

 

$

993

 

$

104

 

$

990

 

Non-accrual Loans

 

41,529

 

42,288

 

42,572

 

68,279

 

Other Real Estate Owned

 

15,535

 

18,308

 

14,324

 

11,479

 

Total Nonperforming Assets (NPA’s)

 

$

60,330

 

$

61,589

 

$

57,000

 

$

80,748

 

Troubled Debt Restructurings (TDR’s)

 

20,402

 

21,950

 

16,243

 

22,250

 

Total NPA’s with Troubled Debt Restructurings

 

$

80,732

 

$

83,539

 

$

73,243

 

$

102,998

 

 

 

 

 

 

 

 

 

 

 

Net Charge-offs - YTD

 

$

20,516

 

$

15,772

 

$

10,743

 

$

39,293

 

Net Charge-offs as a % of average loans (annualized)

 

1.27

%

1.29

%

1.31

%

2.21

%

 

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.

 



 

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 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, www.sec.gov, and on the Company’s website, www.mainsourcefinancial.com.