- --------------------------------------------------------------------------------
NEWS RELEASE
DATE: July 19, 2006 4:30 p.m. E.S.T.
CONTACT: James L. Saner, Sr., President and CEO
MainSource Financial Group, Inc. 812-663-0157
- --------------------------------------------------------------------------------
MAINSOURCE FINANCIAL GROUP-NASDAQ, MSFG -
Announces Earnings for the Second Quarter 2006
Greensburg, Indiana (NASDAQ: MSFG) James L. Saner, Sr., President & Chief
Executive Officer of MainSource Financial Group, 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 ended June 30 Six months 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
================ ================ ===================== ==================
Three months ended June 30 Six months ended June 30
-------------------------- ------------------------
Average Balance Sheet Data 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
Three months ended June 30 Six months ended June 30
-------------------------- ------------------------
Per Share Data 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
Three months ended June 30 Six months ended June 30
-------------------------- ------------------------
Key Ratios 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 $1,551,661 $913,326
Sale)
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.