After trying to expand the unit, MainSource Financial Group of Greensburg, Ind., has shrunk MainSource Insurance by selling its property and casualty and health insurance books.

MainSource expects the sale of the books to Encore Insurance Group LLC to generate a pretax gain of about $900,000.

Archie M. Brown Jr., MainSource's president and chief executive, said he had tried expanding the business over the past few years, but it never reached the scale he had intended.

"We made a run at it. We tried to invest in it to see if we would get better returns and we weren't really making the type of progress we needed," Brown said in an interview Monday. "We decided that relative to our resources, our time was better spent focusing more on core banking."

Brown joined the $2.9 billion-asset MainSource in September 2008.

John Rodis, an analyst at Howe Barnes Hoefer & Arnett Inc., said that the sale, which was announced last week, was not a big surprise — several bank companies recently gotten rid of ancillary businesses during the economic downturn to harvest capital or streamline their business model.

"This continues the trend of banks unloading noncore operations," Rodis said in an interview Wednesday. "I can't say I saw this coming, but it makes sense for MainSource to focus more on their banking operations, to focus on their core competencies."

MainSource is not leaving the insurance business, however. The company will continue to offer credit life insurance and annuities. Brown said that those products are well aligned with the needs of commercial banking customers.

The $900,000 generated from the deal with Encore Insurance will provide a slight boost to the company's tangible common equity ratio, which was 6.3% at June 30. Meanwhile, the capital ratios at its bank unit exceed regulatory minimums.

Though the tangible common equity ratio is not a regulatory ratio, the market has increasingly focused on the TCE ratio as a sign of health.

At that level, MainSource is deemed healthy, though there's room for improvement.

Brown said that he would like to move that ratio above 7% as soon as possible, but that he plans to do so through retained earnings rather than by selling stock to raise capital.

"Given where stock prices have been, it would be extremely punitive in terms of dilution," the CEO said. "In our view, it is not the thing to do."

This story has been reprinted with permission from American Banker.

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