SOURCE: MainSource Financial Group

April 25, 2007 16:30 ET

MainSource Financial Group Announces Earnings for the First Quarter 2007

GREENSBURG, IN -- (MARKET WIRE) -- April 25, 2007 -- James L. Saner, Sr., President & Chief Executive Officer of MainSource Financial Group (NASDAQ: MSFG), announced today the unaudited results for the quarter ended March 31, 2007. Net income was $5.4 million in the first quarter of 2007, which equates to $0.29 per share, compared to $4.8 million for the same period a year ago. Key measures of the financial performance of the Company are return on average shareholders' equity and return on average assets. Return on average shareholders' equity was 8.66% for the first quarter of 2007 while return on average assets was 0.92% for the same period.

Mr. Saner stated, "MainSource is off to a good start in 2007 with our earnings per share being within $0.01 of our expectations. We were also pleased to see that our net interest margin remained unchanged compared to the last quarter of 2006. In addition, after factoring out the short-term spike in year-end deposits related to public fund tax deposits, our core deposits have grown during the first quarter at an annualized rate of 9.5%. Commercial loans also grew at an annualized rate of 6.5% during the first quarter and our pipeline has increased significantly. Unfortunately our mortgage loan portfolio decreased which has caused a small overall decrease in total loans."

Mr. Saner continued, "While our efficiency ratio increased during the first quarter compared to the prior year, we hope to improve in this area throughout 2007 as a result of two core systems' conversions scheduled for May and September of 2007. In addition, we are focused on reducing our non-performing assets and were successful in decreasing the non-performing assets to assets ratio by more than 18% during the first quarter to 0.76% of total assets. We are also hopeful this trend will continue throughout 2007. We continue to focus on our strategic initiatives for 2007 including organic loan and deposit growth, improved efficiencies and developing customer relationships."


Net interest income was $18.6 million for the first quarter of 2007, which represents an increase of 31.0% versus the first quarter of 2006. The increase was due primarily to the acquisition activity in 2006, which occurred primarily in the second quarter of 2006. Net interest margin, on a fully-taxable equivalent basis, was 3.70% for the first quarter of 2007 and remained flat on a linked quarter basis.


The Company's non-interest income increased to $6.1 million for the first quarter of 2007 compared to $4.9 million for the same period in 2006. Service charges on deposit accounts increased $0.8 million due to the increase in the number of deposit accounts from the 2006 acquisition activity.


The Company's non-interest expense was $16.9 million for the first quarter of 2007 compared to $12.4 million for the same period in 2006, an increase of 36.3%. Increases in employee costs, occupancy expenses, equipment expenses, and intangibles amortization were primarily attributable to the acquisitions in 2006. The Company's efficiency ratio was 63.9% for the first quarter of 2007 compared to 60.8% for the same period a year ago. It is anticipated that the Company's efficiency ratio will improve throughout 2007 as the Company integrates the core operating systems of the new acquisitions. The Company also plans to collapse the banking charters of MainSource Bank - Hobart and MainSource Bank - Crawfordsville into the charter of its lead bank, MainSource Bank, which is headquartered in Greensburg, Indiana. These charter consolidations are planned for May 2007 for MainSource Bank - Hobart and September 2007 for MainSource Bank - Crawfordsville, pending receipt of approval by federal and state regulatory authorities and other conditions customary for transactions of this nature.


Credit quality improved significantly during the quarter. Non-performing assets were $18.4 million as of March 31, 2007, which was a decrease of $2.6 million from the $21.0 million of non-performing assets as of December 31, 2006. Non-performing assets represented 0.76% of total assets as of March 31, 2007 compared to 0.87% as of December 31, 2006 and 0.93% as of March 31, 2006. Annualized net charge-offs for the first quarter of 2007 equaled 0.10% of average outstanding loans compared to 0.16% for the first quarter of 2006 and 0.25% for the full year 2006. The Company's allowance for loan losses as a percent of total outstanding loans was 0.84% as of March 31, 2007 compared to 0.81% as of December 31, 2006.

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

Income Statement Summary                      Three months ended March 31
                                                   2007           2006
                                              -------------  -------------
    Interest Income                           $      35,100  $      22,655
    Interest Expense                                 16,493          8,421
                                              -------------  -------------
    Net Interest Income                              18,607         14,234
    Provision for Loan Losses                           696            360
    Noninterest Income:
        Insurance commissions                           419            420
        Trust and investment product fees               368            293
        Mortgage banking                                615            580
        Service charges on deposit accounts           2,670          1,851
        Gain on sales of securities                      39             61
        Interchange income                              741            497
        Other                                         1,239          1,197
                                              -------------  -------------
               Total Noninterest Income               6,091          4,899
    Noninterest Expense:
        Employee                                      9,689          7,405
        Occupancy                                     1,426          1,058
        Equipment                                     1,458          1,134
        Intangible amortization                         666            421
        Telecommunications                              492            447
        Stationary, printing, and supplies              383            235
        Other                                         2,756          1,701
                                              -------------  -------------
               Total Noninterest Expense             16,870         12,401
    Earnings Before Income Taxes                      7,132          6,372
    Provision for Income Taxes                        1,717          1,586
                                              -------------  -------------
    Net Income                                $       5,415  $       4,786
                                              =============  =============

                                              Three months ended March 31
Average Balance Sheet Data                         2007           2006
                                              -------------  -------------
    Gross Loans                               $   1,569,694  $     990,602
    Earning Assets                                2,093,755      1,484,692
    Total Assets                                  2,389,542      1,654,013
    Noninterest Bearing Deposits                    183,025        153,493
    Interest Bearing Deposits                     1,627,333      1,174,357
    Total Interest Bearing Liabilities            1,929,304      1,324,059
    Shareholders' Equity                            253,583        164,046

                                              Three months ended March 31
Per Share Data                                     2007           2006
                                              -------------  -------------
    Diluted Earnings Per Share                $        0.29  $        0.33
    Cash Dividends Per Share                          0.135          0.129
    Market Value - High                               17.53          18.52
    Market Value - Low                                15.42          17.05
    Average Outstanding Shares (diluted)         18,767,360     14,415,420

                                              Three months ended March 31
Key Ratios                                         2007           2006
                                              -------------  -------------
    Return on Average Assets                           0.92%          1.17%
    Return on Average Equity                           8.66%         11.83%
    Net Interest Margin                                3.70%          4.04%
    Efficiency Ratio                                  63.92%         60.83%
    Net Overhead to Average Assets                     1.81%          1.84%

Balance Sheet Highlights
As of March 31                                     2007           2006
                                              -------------  -------------
    Total Loans (Excluding Loans Held
     for Sale)                                $   1,566,305  $   1,169,961
    Allowance for Loan Losses                        13,119         11,804
    Total Securities                                489,690        464,016
    Goodwill and Intangible Assets                  136,971         85,583
    Total Assets                                  2,410,081      1,878,259
    Noninterest Bearing Deposits                    192,131        159,542
    Interest Bearing Deposits                     1,632,989      1,305,201
    Other Borrowings                                302,516        206,950
    Shareholders' Equity                            256,283        191,684

Other Balance Sheet Data
As of March 31                                     2007           2006
                                              -------------  -------------
    Book Value Per Share                      $       13.69  $       12.13
    Loan Loss Reserve to Loans                         0.84%          1.01%
    Nonperforming Assets to Total Assets               0.76%          0.93%
    Outstanding Shares                           18,726,532     15,802,330

Asset Quality
As of March 31                                     2007           2006
                                              -------------  -------------
    Loans Past Due 90 Days or More and
     Still Accruing                           $       1,081  $       1,226
    Non-accrual Loans                                15,685         11,851
    Other Real Estate Owned                           1,585          4,356
                                              -------------  -------------
    Total Nonperforming Assets                $      18,351  $      17,433

    Net Charge-offs - YTD                     $         369  $         407
    Net Charge-offs as a % of average loans            0.10%          0.16%

MainSource Financial Group, Inc., headquartered in Greensburg, Indiana, is listed on the NASDAQ National Market (under the symbol: "MSFG") and is a community-focused, financial holding company with assets of approximately $2.4 billion. The Company operates 68 offices in 30 Indiana counties, six offices in three Illinois counties, and six offices in two Ohio counties through its five banking subsidiaries, MainSource Bank, Greensburg, Indiana, MainSource Bank of Illinois, Kankakee, Illinois, MainSource Bank - Crawfordsville, Crawfordsville, Indiana, MainSource Bank - Hobart, Hobart, Indiana, and MainSource Bank - Ohio, Troy, Ohio. Through its non-banking subsidiaries, MainSource Insurance LLC, MainSource Title LLC, and MainSource Mortgage 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. Actual results and experience could differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. Factors which could cause future results to differ from these expectations include 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

    James L. Saner, Sr.
    President and CEO
    MainSource Financial Group, Inc.

    MainSource Financial Group, Inc.
    201 N. Broadway, P.O. Box 87
    Greensburg, IN 47240