MainSource Profit Increases

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Greensburg-based MainSource Financial Group Inc. (Nasdaq: MSFG) is reporting third quarter net income of $8.5 million, up from $7.6 million during the same period the previous year. Chief Executive Officer Archie Brown Jr. says the company recently closed its merger with Merchants Bank and Trust, which adds six locations. October 24, 2014

News Release

GREENSBURG, Ind. -- Archie M. Brown, Jr., President and Chief Executive Officer of MainSource Financial Group, Inc. (MSFG), announced today the unaudited financial results for the third quarter of 2014. For the three months ended September 30, 2014, the Company recorded net income of $8.5 million, or $0.41 per common share, compared to net income of $7.6 million, or $0.36 per common share, in the third quarter of 2013. Two primary items drove the increase in net income year over year. The first was a decrease in loan loss provision expense. During the third quarter of 2014 the Company realized net recoveries in its allowance for loan losses account of $682 thousand. This led the Company to book $0 in loan loss provision expense for the quarter. The second item driving the increase in earnings year over year was a reduction in operating expenses. The Company also announced today that the Board of Directors had approved the payment of a common dividend of $0.11 per share, payable on December 15, 2014 to common shareholders of record as of December 5, 2014.

CEO Comments

Mr. Brown stated, "We are very pleased with our third quarter results. Our earnings per share increased 14 percent over the same period one year ago driven by continued improvement in overall loan quality and expense control. Our loan growth accelerated from the second quarter as we have begun to realize results from investments in our new Cincinnati and Louisville markets."

Mr. Brown continued, “We are very excited to have closed our merger with MBT Bancorp (Merchants Bank and Trust). The merger closed on October 17th and adds six banking offices in Dearborn County, Indiana and Hamilton County, Ohio, the county in which Cincinnati is located. The merger process went extremely well and I want to commend and thank the employees of Merchants for their dedication through this process.”

Third Quarter Results

NET INTEREST INCOME

Net interest income was $23.0 million for the third quarter of 2014 which was relatively flat compared to the same period a year ago. A decrease in the Company’s net interest margin was offset by a $68 million increase in average earning assets. Net interest margin, on a fully-taxable equivalent basis, was 3.80% for the third quarter of 2014, which was eleven basis points below the third quarter of 2013 and three points lower than the second quarter of 2014.

NON-INTEREST INCOME

The Company’s non-interest income was $11.1 million for the third quarter of 2014 compared to $11.2 million for the same period in 2013 and $11.2 million in the second quarter of 2014. Comparing to the same period a year ago slight increases in mortgage banking and interchange income were offset by decreases in service charge and brokerage income. On a linked quarter basis, all categories of non-interest income were relatively flat.

NON-INTEREST EXPENSE

The Company’s non-interest expense was $23.2 million for the third quarter of 2014 compared to $23.5 million for the same period in 2013. A decrease in collection expenses was the primary driver of the improvement. Problem assets are down significantly year over year. On a linked-quarter basis, non-interest expense decreased by approximately $600 thousand. The primary driver was a decrease in employee-related expenses (mainly benefits).

BALANCE SHEET AND CAPITAL

Total assets were $2.9 billion at September 30, 2014, an increase of $76 million from a year ago. The increase was primarily due to an increase in loan balances of $142 million partially offset by a decrease in investment securities of $53 million. On a linked-quarter basis the balance sheet grew by $39 million. Loan balances grew by $52 million during the third quarter of 2014, representing an annualized growth rate of 12%. The increase in loan balances does not include the addition of approximately $186 million in loans as a result of the Company’s purchase of MBT Bancorp as the transaction closed subsequent to September 30, 2014. The Company’s regulatory capital ratios remain strong and as of September 30, 2014 were as follows: leverage ratio of 10.5%, tier one capital to risk-weighted assets of 15.5%, and total capital to risk-weighted assets of 16.7%. In addition, as of September 30, 2014, the Company’s tangible common equity ratio was 9.3%.

ASSET QUALITY

Non-performing assets (NPAs) were $35.6 million as of September 30, 2014, a decrease of $1.3 million on a linked-quarter basis. NPAs represented 1.23% of total assets as of September 30, 2014 compared to 1.29% as of June 30, 2014 and 1.31% as of September 30, 2013. During the third quarter of 2014 approximately $4.3 million of loans were transferred to non-accrual status. One credit represents $1.9 million of this amount. While the in-flow of new non-accruals increased slightly for the quarter, the overall level of problem assets has decreased significantly over the past several quarters. Loans classified as both Special Mention and Substandard (Accruing) were $48.0 million collectively as of September 30, 2014 compared to $62.3 million at June 30, 2014 and $91.2 million a year ago. As previously mentioned, the Company realized net recoveries of $682 thousand for the third quarter of 2014. As a result the Company incurred no loan loss provision for the period. The Company’s allowance for loan losses as a percent of total outstanding loans was 1.40% as of September 30, 2014, which was flat compared to June 30, 2014 and a decrease from 1.73% as of September 30, 2013.

Source: MainSource Financial Group Inc.