SOURCE: MainSource Financial Group

January 24, 2007 16:30 ET

MainSource Financial Group Announces Earnings for the Fourth Quarter and Full Year 2006

GREENSBURG, IN -- (MARKET WIRE) -- January 24, 2007 -- James L. Saner, Sr., President & Chief Executive Officer of MainSource Financial Group (NASDAQ: MSFG), announced today the unaudited financial results for the fourth quarter and twelve months ended December 31, 2006. The Company reported net income of $6.0 million for the fourth quarter and earnings per share of $0.32, which represents a 28.0% increase compared to the $0.25 per share reported in the fourth quarter of 2005. For the twelve months ended December 31, 2006, the Company reported net income of $22.2 million and earnings per share of $1.29 compared to $1.23 for 2005, which represents a 4.9% increase.

Mr. Saner stated, "2006 was a year of tremendous growth for our Company. We expanded through three whole-bank acquisitions in Northwest Indiana, Crawfordsville and Lafayette, Indiana, and the State of Ohio. In addition, MainSource purchased four additional branches which increased our market share in several Indiana counties where we already had a presence. In total, the Company's overall assets grew 48% during the year. In spite of all the acquisitions and expenses associated with them, we were able to increase our earnings per share by $0.06 or 4.9%. This increase was especially pleasing given the very difficult rate environment and the pressure on our net interest margin which impacted us throughout 2006. We were pleased to see a small amount of organic growth both in deposits and loans year over year and the Company continued to drive its efficiency ratio down as the new acquisitions were partially assimilated into MainSource."

Mr. Saner continued, "While we expect 2007 to be another challenging year for earnings growth, we are committed to focus on additional loan and deposit generation and hope to position the Company for greater shareholder returns in the future. I am very optimistic about our future. We now have the ability to expand our products and services into the new communities the recent acquisitions have opened up to us. 2007 will also allow us the opportunity to complete our consolidation of back-room functions and drive our efficiency ratio lower. Our asset quality remains strong with our 2006 net charge-off ratio considerably less than 2005 while our non-performing loan ratio has remained relatively flat, year over year."

4TH QUARTER RESULTS

NET INTEREST INCOME

Net interest income was $18.8 million for the fourth quarter of 2006, which represents an increase of 33.3% versus the fourth quarter of 2005. The increase was due primarily to acquisition-related activity. Net interest margin, on a fully-taxable equivalent basis, was 3.70% for the fourth quarter of 2006 versus 4.00% for the fourth quarter of 2005. On a linked quarter basis, the Company's net interest margin fell by four basis points. Net interest margin was impacted by the increase in fixed-rate residential mortgage loans obtained in the 2006 acquisitions.

NON-INTEREST INCOME

The Company's non-interest income was $5.8 million for the fourth quarter of 2006 compared to $3.0 million for the same period in 2005. In the fourth quarter of 2005, the Company restructured its investment security portfolio and incurred a loss of $2.4 million.

NON-INTEREST EXPENSE

The Company's non-interest expense was $15.9 million for the fourth quarter of 2006 compared to $12.5 million for the same period in 2005, an increase of 27.2%. The primary driver of the increase across all areas of non-interest expense was the acquisitions that were consummated in 2006. The Company's efficiency ratio was 63.1% compared to 71.2% for the same period a year ago.

FULL YEAR RESULTS

BALANCE SHEET

Total assets were $2.4 billion as of December 31, 2006, an increase of approximately $784 million compared to year-end 2005. Acquisitions closed in 2006 were the primary driver of this increase. Total loans were $1.6 billion as of December 31, 2006 compared to $1.0 billion as of year-end 2005. Excluding acquisitions, loans grew organically at a rate of 1.9% in 2006. Total deposits were $1.9 billion as of December 31, 2006 compared to $1.4 billion as of year-end 2005. Excluding acquisitions, deposits grew organically at a rate of 2.0% in 2006.

NET INTEREST INCOME

Net interest income was $68.3 million for the full year 2006, which represents an increase of 27.4% versus 2005. Net interest margin, on a fully-taxable equivalent basis, was 3.83% for 2006 compared to 3.99% for the same period a year ago. The acquisitions of the thrift institutions in the first and second quarters of 2006 and their corresponding lower net interest margins were the primary cause for the decrease in the Company's net interest margin. In addition, the Company has seen a shift in its existing deposit mix as many customers have moved their balances from lower-cost transactional accounts to higher-yielding time and money market accounts.

NON-INTEREST INCOME

Non-interest income was $23.0 million for 2006 compared to $17.3 million for the same period in 2005. The acquisitions closed in 2006 were the primary driver of this increase. As mentioned for the quarter, the Company reported a $2.4 million loss on sale of securities in the fourth quarter of 2006 as it restructured a portion of its securities portfolio. Non-interest income as a percent of non-interest expense was 38.6% for 2006 compared to 35.7% for 2005.

NON-INTEREST EXPENSE

Non-interest expense was $59.6 million compared to $48.6 million in 2005. This increase was due primarily to the acquisitions closed in 2006. Excluding acquisition activity, the Company's non-interest expense would have been $50.1 million for 2006, which represents an increase of 3.1% over 2005. The Company's efficiency ratio was 63.6% for 2006 compared to 66.6% for the same period a year ago.

ASSET QUALITY

Non-performing assets were $21.0 million as of December 31, 2006 compared to $12.9 million as of December 31, 2005 and represented 0.87% of total assets at December 31, 2006 compared to 0.78% at year-end 2005. The 2006 acquisitions added approximately $8.1 million of non-performing assets. Net charge-offs for 2006 equaled 0.26% of average outstanding loans compared to 0.35% for 2005. The Company's allowance for loan losses as a percent of total outstanding loans was 0.85% as of December 31, 2006 compared to 1.09% as of December 31, 2005. The Company anticipated this decrease with the acquisitions of the three thrift institutions in 2006. The acquired institutions had a large portion of residential real estate loans and thus a lower allowance as a percent of their total loan balances, as these loans tend to have lower loss rates than other loan types.

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


Income Statement Summary
                          Three months ended         Twelve months ended
                               Dec. 31                     Dec. 31
                        ------------------------  ------------------------
                            2006         2005         2006         2005
                        -----------  -----------  -----------  -----------
   Interest Income      $    35,063  $    21,651  $   120,731  $    80,475
   Interest Expense          16,262        7,522       52,463       26,827
                        -----------  -----------  -----------  -----------
   Net Interest Income       18,801       14,129       68,268       53,648
   Provision for Loan
    Losses                      526          100        1,819        1,040
   Noninterest Income:
     Insurance
      commissions               425          446        1,821        1,991
     Trust and
      investment
      product fees              286          273        1,187        1,119
     Mortgage banking           558          663        2,279        2,693
     Service charges on
      deposit accounts        2,543        2,075        9,429        7,510
     Gain/(losses) on
      sales of
      securities                 94       (2,421)         145       (2,179)
     Interchange income         734          457        2,617        1,926
     Other                    1,163        1,476        5,561        4,272
                        -----------  -----------  -----------  -----------
        Total
         Noninterest
         Income               5,803        2,969       23,039       17,332
   Noninterest Expense:
     Employee                 8,186        6,524       33,073       27,121
     Occupancy                1,275          949        4,755        3,542
     Equipment                1,613        1,156        5,361        4,123
     Intangible
      amortization              682          421        2,236        1,306
     Telecommunications         501          431        1,916        1,664
     Stationary,
      printing, and
      supplies                  416          299        1,408          984
     Other                    3,260        2,766       10,893        9,836
                        -----------  -----------  -----------  -----------
        Total
         Noninterest
         Expense             15,933       12,546       59,642       48,576
   Earnings Before
    Income Taxes              8,145        4,452       29,846       21,364
   Provision for Income
    Taxes                     2,106          908        7,605        5,172
                        -----------  -----------  -----------  -----------
   Net Income           $     6,039  $     3,544  $    22,241  $    16,192
                        ===========  ===========  ===========  ===========


                           Three months ended        Twelve months ended
                                Dec. 31                   Dec. 31
                        ------------------------  ------------------------
Average Balance Sheet       2006         2005         2006         2005
Data                    -----------  -----------  -----------  -----------
   Gross Loans          $ 1,574,915  $   966,404  $ 1,353,653  $   935,474
   Earning Assets         2,097,493    1,455,223    1,862,638    1,406,139
   Total Assets           2,389,634    1,636,232    2,103,051    1,564,020
   Noninterest Bearing
    Deposits                191,441      157,449      174,218      144,647
   Interest Bearing
    Deposits              1,625,402    1,182,951    1,442,714    1,099,855
   Total Interest
    Bearing Liabilities   1,926,632    1,303,216    1,697,221    1,263,998
   Shareholders' Equity     250,588      162,801      213,989      143,636


                          Three months ended       Twelve months ended
                                Dec. 31                    Dec. 31
                        ------------------------  ------------------------
Per Share Data              2006         2005         2006         2005
                        -----------  -----------  -----------  -----------
   Diluted Earnings Per
    Share               $      0.32  $      0.25  $      1.29  $      1.23
   Cash Dividends Per
    Share                     0.133        0.124        0.529        0.495
   Market Value - High        17.88        17.92        18.52        22.82
   Market Value - Low         16.05        16.33        15.30        16.33
   Average Outstanding
    Shares (diluted)     18,836,789   14,156,293   17,191,278   13,177,462


                            Three months ended    Twelve months ended
                                  Dec. 31                  Dec. 31
                        ------------------------  ------------------------
Performance Ratios         2006         2005         2006         2005
                        -----------  -----------  -----------  -----------
   Return on Average
    Assets                     1.00%        0.86%        1.06%        1.04%
   Return on Average
    Equity                     9.56%        8.64%       10.39%       11.27%
   Net Interest Margin         3.70%        4.00%        3.83%        3.99%
   Efficiency Ratio           63.07%       71.15%       63.57%       66.64%
   Net Overhead to
    Average Assets             1.68%        2.32%        1.74%        2.00%


Balance Sheet Highlights
As of December 31            2006         2005
                        -----------  -----------
   Total Loans
    (Excluding Loans
    Held for Sale)      $ 1,575,236  $   957,995
   Allowance for Loan
    Losses                   13,373       10,441
   Total Securities         485,259      450,814
   Goodwill and
    Intangible Assets       136,314       60,575
   Total Assets           2,429,773    1,645,605
   Noninterest Bearing
    Deposits                193,513      161,568
   Interest Bearing
    Deposits              1,666,176    1,191,129
   Other Borrowings         291,988       97,961
   Shareholders' Equity     253,247      161,069


Other Balance Sheet Data
As of December 31            2006         2005
                        -----------  -----------
   Book Value Per Share $     13.50  $     11.39
   Loan Loss Reserve to
    Loans                      0.85%        1.09%
   Nonperforming Assets
    to Total Assets            0.87%        0.78%
   Outstanding Shares    18,752,583   14,146,247


Asset Quality
As of December 31            2006         2005
                        -----------  -----------
   Loans Past Due 90
    Days or More and
    Still Accruing      $     1,460  $       233
   Non-accrual Loans         16,021        9,984
   Other Real Estate
    Owned                     3,567        2,639
                        -----------  -----------
   Total Nonperforming
    Assets              $    21,048  $    12,856

   Net Charge-offs -
    YTD                 $     3,484  $     3,299
   Net Charge-offs as a
    % of average loans         0.26%        0.35%



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 - 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, goals and projections, which are subject to numerous assumptions, risks and uncertainties. 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.

Contact Information

  • CONTACT:
    James L. Saner, Sr.
    President and CEO
    MainSource Financial Group, Inc.
    812-663-0157