SOURCE: MainSource Financial Group

July 19, 2006 16:42 ET

MainSource Financial Group -- NASDAQ, MSFG -- Announces Earnings for the Second Quarter 2006

GREENSBURG, IN -- (MARKET WIRE) -- July 19, 2006 -- James L. Saner, Sr., President & Chief Executive Officer of MainSource Financial Group (NASDAQ: MSFG), announced today the unaudited results for the quarter ended June 30, 2006. The Company reported diluted earnings per share of $0.35, which represents a 5.4% decrease from the $0.37 per share reported in the second quarter of 2005. Net income was $5.5 million in the second quarter of 2006 compared to $4.3 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 11.11% for the second quarter of 2006 while return on average assets was 1.10% for the same period. The Company consummated its acquisitions of HFS Bank and Peoples Ohio Financial Corporation during the quarter. The acquisitions added approximately $434 million in total assets, $365 million in loans and $258 million in deposits.

Mr. Saner stated, "We are pleased with our second quarter results given the interest rate environment and increased pressure on our margin. We were able to consummate our northeast Indiana acquisition as well as the acquisition which takes our company into Ohio. Both of these transactions are expected to be neutral to our earnings per share in 2006 and accretive to earnings in 2007. During the second quarter we announced the purchase of five small branch offices in Indiana from First Financial Bancorp, headquartered in Hamilton, Ohio. All of these offices are in our current markets and will increase our market share in each of the three counties."

Mr. Saner added, "We are especially pleased with the organic growth from our existing bank subsidiaries. Excluding the recent acquisitions, our total loan portfolio grew in the second quarter at an annualized rate of 8.4%. In addition, our deposits also grew at an annualized rate of 12.8%. We believe we will see our business loan portfolio continue to grow but deposit growth will be extremely competitive. We will complete our acquisition of the branches mentioned above and begin the process of core systems conversion of our new affiliates in the third quarter. We continue to place emphasis on organic growth, improving our efficiency ratio, and expanding commercial services in the geographic territories of our new acquisitions, all in hopes of having third and fourth quarters exceeding the operating earnings per share MainSource delivered in the first and second quarters."

NET INTEREST INCOME

Net interest income was $16.4 million for the second quarter of 2006, which represents an increase of 24.4% versus the second quarter of 2005. The increase was due primarily to acquisitions and a corresponding increase in average earning assets. Net interest margin, on a fully- taxable equivalent basis, was 3.82% for the second quarter of 2006 versus 4.04% for the first quarter of 2006 and 4.00% for the fourth quarter of 2005. 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 is operating in very competitive markets for all deposits, especially core deposits. This environment, coupled with the increase in short-term borrowing rates, has resulted in a higher than expected increase in the overall cost of funds.

NON-INTEREST INCOME

The Company's non-interest income increased to $5.9 million for the second quarter of 2006 compared to $4.8 million for the same period in 2005. The increase was primarily due to the aforementioned acquisitions. Excluding acquisition activity, the Company's non-interest income would have been $5.4 million, an increase of 12.5% compared to the same period a year ago. The Company settled its interest rate swap agreement and realized a pre- tax gain of $0.5 million.

NON-INTEREST EXPENSE

The Company's non-interest expense was $14.6 million for the second quarter of 2006 compared to $11.9 million for the same period in 2005. Increases in employee costs, occupancy expenses, equipment expenses, and intangibles amortization were primarily attributable to acquisitions closed since the third quarter of 2005 and first quarter of 2006. These increases were partially offset by a decrease in other expenses (excluding the acquisitions) due primarily to the cost savings derived from the consolidation of the Company's Indiana banking charters in 2005. The Company's efficiency ratio was 63.9% for the second quarter of 2006 compared to 64.2% in the second quarter of 2005. For the first six months of 2006, the Company's efficiency ratio was 63.4% compared to 66.2% for the same period a year ago.

ASSET QUALITY

Non-performing assets were $21.5 million as of June 30, 2006 compared to $14.3 million as of June 30, 2005 and $17.4 million as of March 31, 2006. This increase is primarily due to the acquisitions closed in the first and second quarters of 2006. In total the three recent acquisitions added $8.6 million of non-performing assets with $4.9 million being added in the second quarter of 2006. As a percent of total assets, non-performing assets have remained relatively flat over the past several quarters and were 0.90% of total assets as of June 30, 2006. Net charge-offs for the second quarter of 2006 equaled 0.22% of average outstanding loans compared to 0.25% for the second quarter of 2005. For the first six months of 2006, net charge-offs have equaled 0.20% of average outstanding loans, which was similar to the 0.19% of net charge-offs incurred for the same period in 2005.

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



Income Statement Summary      Three months               Six months
                              ended June 30             ended June 30
                        ------------------------  ------------------------
                            2006         2005         2006         2005
                        -----------  -----------  -----------  -----------
  Interest Income       $    28,582  $    19,533  $    51,237  $    38,226
  Interest Expense           12,174        6,348       20,595       12,336
                        -----------  -----------  -----------  -----------
  Net Interest Income        16,408       13,185       30,642       25,890
  Provision for Loan
   Losses                       363          340          723          460
  Noninterest Income:
    Insurance
     commissions                521          523          941        1,110
    Mortgage banking            564          679        1,144        1,225
    Service charges on
     deposit accounts         2,303        1,805        4,154        3,471
    Gain/(losses) on
     sales of
     securities                   -          213           61          224
    Other                     2,507        1,619        4,494        3,388
                        -----------  -----------  -----------  -----------
      Total Noninterest
       Income                 5,895        4,839       10,794        9,418
  Noninterest Expense:
    Employee                  8,309        6,886       15,714       13,762
    Occupancy                 1,164          824        2,222        1,723
    Equipment                 1,245          985        2,379        2,015
    Intangible
     amortization               469          295          890          590
    Other                     3,415        2,873        5,798        5,867
                        -----------  -----------  -----------  -----------
      Total Noninterest
       Expense               14,602       11,863       27,003       23,957
  Earnings Before
   Income Taxes               7,338        5,821       13,710       10,891
  Provision for Income
   Taxes                      1,856        1,495        3,442        2,775
                        -----------  -----------  -----------  -----------
  Net Income            $     5,482  $     4,326  $    10,268  $     8,116
                        ===========  ===========  ===========  ===========

Average Balance Sheet Data    Three months               Six months
                              ended June 30             ended June 30
                        ------------------------  ------------------------
                            2006         2005         2006         2005
                        -----------  -----------  -----------  -----------
  Gross Loans           $ 1,284,394  $   911,109  $ 1,137,498  $   915,978
  Earning Assets          1,779,892    1,370,550    1,637,452    1,367,062
  Total Assets            2,006,436    1,519,903    1,830,224    1,516,225
  Noninterest Bearing
   Deposits                 162,782      140,007      158,138      137,831
  Interest Bearing
   Deposits               1,404,511    1,062,596    1,289,434    1,064,552
  Total Interest
   Bearing Liabilities    1,628,947    1,241,673    1,476,503    1,241,324
  Shareholders' Equity      197,938      128,394      180,992      126,290

Per Share Data                Three months               Six months
                              ended June 30             ended June 30
                        ------------------------  ------------------------
                            2006         2005         2006         2005
                        -----------  -----------  -----------  -----------
  Diluted Earnings Per
   Share                $      0.35  $      0.37  $      0.70  $      0.70
  Cash Dividends Per
   Share                      0.140        0.130        0.275        0.260
  Market Value - High         19.04        21.62        19.45        22.92
  Market Value - Low          16.35        17.30        16.35        17.81
  Average Outstanding
   Shares (diluted)      15,772,464   11,751,831   14,750,888   11,649,538

Key Ratios                    Three months               Six months
                              ended June 30             ended June 30
                        ------------------------  ------------------------
                            2006         2005         2006         2005
                        -----------  -----------  -----------  -----------
  Return on Average
   Assets                      1.10%        1.15%        1.13%        1.08%
  Return on Average
   Equity                     11.11%       13.66%       11.44%       12.96%
  Net Interest Margin          3.82%        4.04%        3.92%        3.95%
  Efficiency Ratio            63.86%       64.20%       63.42%       66.24%
  Net Overhead to
   Average Assets              1.74%        1.87%        1.79%        1.93%

Balance Sheet Highlights
As of June 30               2006         2005
                        -----------  -----------
  Total Loans
   (Excluding Loans
   Held for Sale)       $ 1,551,661  $   913,326
  Allowance for Loan
   Losses                    14,426       11,275
  Total Securities          483,735      446,400
  Goodwill and
   Intangible Assets        121,963       45,150
  Total Assets            2,375,265    1,540,312
  Noninterest Bearing
   Deposits                 189,168      146,398
  Interest Bearing
   Deposits               1,567,387    1,104,036
  Other Borrowings          358,734      123,308
  Shareholders' Equity      239,915      154,973

Other Balance Sheet Data
As of June 30               2006         2005
                        -----------  -----------
  Book Value Per Share  $     13.36  $     11.74
  Loan Loss Reserve to
   Loans                       0.93%        1.23%
  Nonperforming Assets
   to Total Assets             0.90%        0.93%
  Outstanding Shares     17,956,624   13,210,268


Asset Quality
As of June 30               2006         2005
                        -----------  -----------
  Loans Past Due 90
   Days or More and
   Still Accruing       $       528  $       257
  Non-accrual Loans          16,332       12,894
  Other Real Estate
   Owned                      4,606        1,175
                        -----------  -----------
  Total Nonperforming
   Assets               $    21,466  $    14,326

  Net Charge-offs - YTD $     1,102  $       882
  Net Charge-offs as a
   % of average loans          0.20%        0.19%

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 66 offices in 29 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. Factors which could cause future results to differ materially 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; and the impact of our continuing acquisition strategy.

Contact Information

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