MSFG Announces Earnings for Second Quarter 2008

7/23/2008

Greensburg, Indiana (NASDAQ: MSFG) Robert E. Hoptry, Chairman, President & Chief Executive Officer of MainSource Financial Group, Inc., announced today the unaudited results for the quarter ended June 30, 2008. Net income was $6.2 million in the second quarter of 2008, which equates to $0.33 per share, compared to $6.0 million for the same period a year ago, or $0.32 per share.

Mr. Hoptry stated, “We are pleased with the solid growth in net interest margin, commercial loan balances, and fee income in the second quarter of 2008. Net loan losses remained in check and we believe the increase in our loan loss provision expense responsibly balanced the increase in non-performing loans. Overall, our results were very positive in this challenging environment.”

NET INTEREST INCOME
Net interest income was $21.2 million for the second quarter of 2008, which represents an increase of 13.3% from the second quarter of 2007. Net interest margin, on a fully-taxable equivalent basis, was 3.92% for the second quarter of 2008, an increase of 28 basis points on a linked quarter basis. This increase was primarily due to the rate cuts that occurred during the fourth quarter of 2007 and the first quarter of 2008 which caused the Company’s cost of funds to decrease at a faster rate than the yield on earning assets.

NON-INTEREST INCOME
The Company’s non-interest income increased to $7.7 million for the second quarter of 2008 compared to $7.5 million for the same period in 2007. An increase in mortgage banking income of $466 thousand was the primary driver for this increase.

NON-INTEREST EXPENSE
The Company’s non-interest expense was $17.3 million for the second quarter of 2008 compared to $17.1 million for the same period in 2007, which represents an increase of approximately 1% over the same period a year ago. The Company’s efficiency ratio was 58.32% for the second quarter of 2008, which was a significant reduction compared to an efficiency ratio of 63.90% for the same period a year ago.

ASSET QUALITY
Non-performing assets were $29.9 million as of June 30, 2008, which was an increase of approximately $6.7 million on a linked-quarter basis. This increase was primarily due to two commercial credits that were classified as non-accrual in the second quarter of 2008. These two credits had previously been identified by the Company as problem credits and specific reserves had been allocated for the potential loss exposure. However, these credits experienced further deterioration during the second quarter and were downgraded to non-accrual status. Non-performing assets represented 1.18% of total assets as of June 30, 2008. Annualized net charge-offs for the second quarter of 2008 equaled 0.30% of average loans which is a slight increase from the first quarter’s charge-off level of 0.26% of average loans. The Company’s allowance for loan losses as a percent of total outstanding loans was 1.04% as of June 30, 2008 compared to 0.85% as of December 31, 2007 and 0.81% a year ago. Total loan loss provision expense was $3.5 million in the second quarter of 2008 compared to $899 thousand for the same period a year ago. The additional provision expense was primarily due to the increase in the level of non-performing loans, an increase in specific allocations related to certain commercial real estate loans which exhibited credit deterioration during the second quarter, and the continued weakening in the real estate markets.

MainSource Financial Group, Inc. is a community-focused, financial services holding company with assets exceeding $2.5 billion. The Company operates 77 banking offices through its three banking subsidiaries, MainSource Bank, Greensburg, Indiana, MainSource Bank of Illinois, Kankakee, Illinois, and MainSource Bank-Ohio, Troy, Ohio. The Company’s non-banking subsidiaries, MainSource Insurance, LLC and MainSource Title, LLC, provide 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, www.sec.gov, and on the Company’s website, www.mainsourcefinancial.com.

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