MainSource Financial Group Announces Third Quarter 2012 Operating Results

  MainSource Financial Group Announces Third Quarter 2012 Operating Results

  *Net income of $7.0 million
  *Earnings per share of $0.32
  *Return on Assets of 1.02%
  *Increase in Non-interest Income of 13%
  *Decrease in NPA’s and Substandard Loans

Business Wire

GREENSBURG, Ind. -- October 24, 2012

Archie M. Brown,Jr., Presidentand Chief Executive Officer of MainSource
Financial Group,Inc. (NASDAQ: MSFG), announced today the unaudited financial
results for the third quarter of 2012. For the three months ended
September30, 2012, the Company recorded net income of $7.0 million, or $0.32
per common share, compared to net income of $5.6 million, or $0.24 per common
share, in the third quarter of 2011. A $1.7 million decrease in net interest
income was more than offset by a decrease of $3.0 million in loan loss
provision expense and a $1.3 million increase in non-interest income. While
non-interest expenses increased by $500 thousand compared to the prior year,
the increase was attributable to a $1.3 million prepayment penalty on the
early extinguishment of an FHLB advance.

CEO Comments

Mr.Brown commented on the third quarter, “I am very pleased with the
continued growth in operating earnings. Our core earnings were at their
highest point in the history of the company. The increase in fee income
combined with lower provision and non-interest expense accounted for the
improvement in income. I am also pleased with our net interest margin. While
it was down from the same period one year ago, it remained flat with the
second quarter of this year despite the challenging interest rate environment.
Provision expense for the quarter was at its lowest level since the first
quarter of 2008 and reflects continued improvement in our overall loan
quality.”

Mr.Brown continued, “Loan growth for the quarter remained a challenge. I
expect loan balances to remain relatively flat for the remainder of the year.
While loan trends are much better than the previous two years, we are not
satisfied with our current progress. Loan pipelines are building and we are
hopeful that recent investments in higher growth markets will lead to loan
growth within the next year.”

Mr.Brown concluded his comments by discussing several new growth initiatives,
“I am excited about several new initiatives that were begun during the
quarter, including our purchase of brokerage agencies in Seymour,Indiana and
Indianapolis. The additional revenue from the two agencies is expected to
increase our brokerage revenue by approximately 50%. In September, we opened a
new branch facility in Seymour,Indiana. The decision to enter Seymour at this
time was due to disruption in the local market from recent bank acquisitions.
We opened in a temporary office until we can construct a new building which is
anticipated to be completed in the third quarter of 2013. Our new downtown
Indianapolis office opened on October15. We have a team of very talented
bankers on board offering a full suite of products and services. During the
quarter, we also announced an agreement with American Founders Bank of
Lexington, Kentucky, to purchase their Shelbyville, Kentucky branch. This
purchase includes approximately $37 million in deposits and loans and provides
us an entry point into the eastern side of the Louisville, Kentucky market
area. The purchase remains subject to standard closing conditions and is
anticipated to be completed in the fourth quarter of 2012. All of these
initiatives are part of our strategy to strengthen our existing footprint and
provide new sources of revenue growth. We will continue to be opportunistic in
our effort to improve the operating results of the company.”

Second Quarter Results

NET INTEREST INCOME

Net interest income was $23.3 million for the third quarter of 2012 compared
to $25.1 million a year ago. The decrease in net interest income was primarily
due to declining reinvestment rates on loans and securities as well as a $200
million repositioning in investment securities in December2011. In addition,
earning assets declined by approximately $53 million year over year. Net
interest margin, on a fully taxable equivalent basis, was 4.05% for the third
quarter of 2012, which was a decline of twenty basis points from the third
quarter of 2011 but flat when compared to the second quarter of 2012.

NON-INTEREST INCOME

The Company’s non-interest income was $11.6 million for the third quarter of
2012 compared to $10.3 million for the same period in 2011, an increase of
13%. Excluding securities gains, which are non-recurring in nature, the
Company’s non-interest income was $10.7 million for the third quarter of 2012
and $9.0 million for the same period in 2011, an increase of 19%. Mortgage
banking income and service charges on deposit accounts were the primary
drivers of this increase. With interest rates at historic lows and an increase
in the number of mortgage loan originators throughout the Company’s footprint,
the Company experienced a significant increase in mortgage banking income over
the same period a year ago. In addition, the Company incurred net OREO losses
of $651 thousand in the third quarter of 2011 versus $172 thousand in the same
period this year.

NON-INTEREST EXPENSE

The Company’s non-interest expense was $24.4 million for the third quarter of
2012 compared to $23.9 million in the same period in 2011. During the third
quarter of 2012 the Company prepaid a $10 million FHLB advance and incurred a
$1.3 million penalty. Excluding the prepayment penalty, the Company’s
non-interest expenses would have been $23.1 million for the third quarter of
2012, which represents a decrease of $800 thousand (or 3%) compared to the
same period a year ago. The primary driver of the decrease was a reduction in
employee-related costs of $562 thousand as the Company reduced headcount
through its efficiency improvement project in the second half of 2011. The
recent closing of six small branch offices also contributed to the lower
salary expense. Increases in occupancy and equipment expenses were incurred
due to the Company’s recent investments in Columbus and Indianapolis but these
were offset by a decrease in FDIC insurance expense.

BALANCE SHEET AND CAPITAL

Total assets were $2.76 billion at September30, 2012, which was basically
flat compared to the same period a year ago. Loans decreased $30 million year
over year and were offset by a $35 million increase in investment securities.
On a linked-quarter basis loan balances were down $15 million, or 1%. On a YTD
basis, loan balances were basically flat. The Company’s regulatory capital
ratios remain strong and as of September30, 2012 were as follows: leverage
ratio of 10.9%, tier one capital to risk-weighted assets of 17.5%, and total
capital to risk-weighted assets of 18.8%. In addition, as of September30,
2012, the Company’s tangible common equity ratio was 8.8%.

ASSET QUALITY

Non-performing assets (NPA’s) were $60.4 million as of September30, 2012, a
decrease of approximately $4.3 million on a linked-quarter basis. The decrease
in NPA’s was primarily due to a decrease in non-accrual loans of $2.2 million
and a decrease in accruing troubled debt restructurings (TDR’s) of $2.4
million. NPA’s represented 2.19% of total assets as of September30, 2012
compared to 2.34% as of June30, 2012 and 3.03% as of September30, 2011. In
addition to the decrease in NPA’s, loans classified as substandard also
decreased by 46% on a linked-quarter basis and are at their lowest level since
June2009. Several credits were upgraded during the third quarter of 2012
including one large relationship totaling $18 million. Net charge-offs were
$5.0 million for the third quarter of 2012 and represented 1.31% of average
loans on an annualized basis. During the third quarter of 2012, the Company
executed the sale of approximately $5.2 million of problem loans in the
secondary market. This transaction resulted in charge-offs of $3.0 million.
The Company had identified and specifically provided for these losses in
previous quarters. The Company’s allowance for loan losses as a percent of
total outstanding loans was 2.30% as of September30, 2012 compared to 2.48%
as of June30, 2012 and 2.65% as of September30, 2011.



MAINSOURCE FINANCIAL GROUP

(unaudited)

(Dollars in thousands except per share data)
                                                  
                       Three months ended                Nine months ended September
                       September 30                      30
Income
Statement              2012           2011              2012           2011
Summary
Interest               $ 26,832        $ 30,345          $ 82,419        $ 92,644
Income
Interest               3,501           5,275             11,560          17,234
Expense
Net Interest           23,331          25,070            70,859          75,410
Income
Provision for          2,000           5,000             7,600           14,600
Loan Losses
Noninterest
Income:
Trust and
investment             819             740               2,555           2,493
product fees
Mortgage               2,114           1,428             6,328           3,943
banking
Service
charges on             5,282           4,872             14,568          13,287
deposit
accounts
Gain on sales          832             1,263             1,367           4,917
of securities
Interchange            1,582           1,642             4,964           4,622
income
OREO                   (172        )   (651        )     (385        )   (1,212      )
gains/(losses)
Other                  1,120           984               2,745           3,067
Total
Noninterest            11,577          10,278            32,142          31,117
Income
Noninterest
Expense:
Employee               12,151          12,713            36,942          38,126
Occupancy &            3,899           3,586             11,488          10,919
equipment
Intangible             445             493               1,345           1,477
amortization
Marketing              1,139           1,085             3,081           3,292
Collection             821             1,298             2,838           3,214
expenses
FDIC                   542             898               1,962           3,066
assessment
FHLB advance
prepayment             1,313           —                 1,313           —
penalty
Other                  4,093           3,832             12,157          11,014
Total
Noninterest            24,403          23,905            71,126          71,108
Expense
Earnings
Before Income          8,505           6,443             24,275          20,819
Taxes
Provision
(benefit) for          1,519           828               4,296           3,032
Income Taxes
Net Income             $ 6,986         $ 5,615           $ 19,979        $ 17,787
Preferred
Dividends &            $ (458      )   $ (763      )     $ (1,694    )   $ (2,290    )
Accretion
Net Income
Available to           $ 6,528         $ 4,852           $ 18,285        $ 15,497
Common
Shareholders
                                                                                     
                       Three months ended                Nine months ended September
                       September 30                      30
Average
Balance Sheet          2012            2011              2012            2011
Data
Gross Loans            $ 1,549,307     $ 1,598,290       $ 1,552,972     $ 1,634,602
Earning Assets         2,458,138       2,511,553         2,484,750       2,529,381
Total Assets           2,735,365       2,776,543         2,760,986       2,789,080
Noninterest
Bearing                352,915         293,064           340,648         283,234
Deposits
Interest
Bearing                1,778,818       1,901,442         1,821,951       1,935,865
Deposits
Total Interest
Bearing                2,014,569       2,135,926         2,053,488       2,167,272
Liabilities
Shareholders’          334,682         326,147           334,005         314,919
Equity
                                                                                     
                       Three months ended                Nine months ended September
                       September 30                      30
Per Share Data         2012            2011              2012            2011
Diluted
Earnings Per           $ 0.32          $ 0.24            $ 0.96          $ 0.77
Common Share
Cash Dividends
Per Common             0.03            0.01              0.05            0.03
Share
Market Value -         13.00           9.24              13.00           10.60
High
Market Value -         11.27           7.46              8.84            6.98
Low
Average
Outstanding            20,347,598      20,231,095        20,312,960      20,211,742
Shares
(diluted)
                                                                                     
                       Three months ended                Nine months ended September
                       September 30                      30
Key Ratios             2012            2011              2012            2011
(annualized)
Return on              1.02        %   0.80        %     0.97        %   0.85        %
Average Assets
Return on              8.30        %   6.83        %     7.99        %   7.55        %
Average Equity
Net Interest           4.05        %   4.25        %     4.09        %   4.27        %
Margin
Efficiency             66.63       %   64.34       %     65.72       %   63.57       %
Ratio
Net Overhead
to Average             1.87        %   1.95        %     1.89        %   1.92        %
Assets
                                                                                     
                       September       June 30           December 31     September
                       30                                                30
Balance Sheet          2012            2012              2011            2011
Highlights
Total Loans
(Excluding             $ 1,531,525     $ 1,546,510       $ 1,534,379     $ 1,562,292
Loans Held for
Sale)
Allowance for          35,246          38,289            39,889          41,433
Loan Losses
Total                  902,178         896,037           876,090         867,272
Securities
Goodwill and
Intangible             69,337          68,182            69,082          69,544
Assets
Total Assets           2,755,006       2,766,633         2,754,180       2,757,549
Noninterest
Bearing                350,790         364,030           334,345         321,529
Deposits
Interest
Bearing                1,732,228       1,821,066         1,825,555       1,846,218
Deposits
Other                  251,499         196,492           201,694         201,727
Borrowings
Shareholders’          338,524         329,858           336,553         334,105
Equity
                                                                                     
                       September       June 30           December 31     September
                       30                                                30
Other Balance          2012            2012              2011            2011
Sheet Data
Tangible Book
Value Per              $ 11.59         $ 11.23           $ 10.45         $ 10.31
Common Share
Loan Loss
Reserve to             2.30        %   2.48        %     2.60        %   2.65        %
Loans
Loan Loss
Reserve to             78.08       %   81.48       %     89.05       %   95.73       %
Non-performing
Loans
Nonperforming
Assets to              1.99        %   2.05        %     2.19        %   2.23        %
Total Assets
NPA’s (w/
TDR’s) to              2.19        %   2.34        %     2.93        %   3.03        %
Total Assets
Tangible
Common Equity          8.76        %   8.44        %     7.86        %   7.75        %
Ratio
Outstanding            20,297,325      20,280,225        20,206,214      20,197,084
Shares
                                                                                     
                       September       June 30           December 31     September
                       30                                                30
Asset Quality          2012            2012              2011            2011
Special                $ 89,289        $ 76,118          $ 136,099       $ 153,078
Mention Loans
Substandard
Loans                  33,255          61,991            63,379          56,487
(Accruing)
                                                                                     
Loans Past Due
90 Days or             $ 379           $ 34              $ 3,266         $ 993
More and Still
Accruing
Non-accrual            44,763          46,959            41,529          42,288
Loans
Other Real             9,677           9,737             15,535          18,308
Estate Owned
Total
Nonperforming          $ 54,819        $ 56,730          $ 60,330        $ 61,589
Assets (NPA’s)
Troubled Debt
Restructurings         5,556           7,951             20,402          21,950
(Accruing)
Total NPA’s
with Troubled          $ 60,375        $ 64,681          $ 80,732        $ 83,539
Debt
Restructurings
                                                                                     
Net
Charge-offs -          $ 5,043         $ 2,752           $ 4,744         $ 5,029
QTD
Net
Charge-offs as
a % of average         1.31        %   0.71        %     1.21        %   1.26        %
loans
(annualized)
                                                                                     

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 76 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 Section27A of the Securities Act of 1933, as amended, and Section21E 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 Form10-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:

MainSource Financial Group,Inc.
Archie M. Brown,Jr., President and CEO, 812-663-6734
 
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