Greensburg-based MainSource Financial Group Inc. (Nasdaq: MSFG) is reporting first quarter net income of $7.7 million, compared to $6.2 million one year ago. Chief Executive Officer Archie Brown Jr. says the “significantly higher” results were boosted by the acquisition of MBT Bancorp in West Harrison and “steady” organic loan growth. April 24, 2015

News Release

GREENSBURG, Ind. – Archie M. Brown, Jr., President and Chief Executive Officer of MainSource Financial Group, Inc. (NASDAQ: MSFG), announced today the unaudited financial results for the first quarter of 2015. For the three months ended March 31, 2015, the Company recorded net income of $7.7 million, or $0.35 per common share, compared to net income of $6.2 million, or $0.30 per common share, in the first quarter of 2014. During the first quarter of 2015 the Company incurred a $2.4 million charge related to the prepayment of Federal Home Loan Bank (FHLB) advances and realized $252 thousand of gains from the sale of investment securities. The sum of these items reduced earnings per share by $0.06.

CEO Comments Mr. Brown stated, “I am very pleased with our first quarter results as our net income and earnings per share were both significantly higher than a year ago. The acquisition of MBT Bancorp led to an 8% increase in net interest income while our expense base only increased modestly. We also experienced steady organic loan growth for the quarter as loans grew by 5% on an annualized basis. Our lending teams in newer markets continue to expand their loan portfolios on a consistent basis. Additionally, fee income was strong compared to the prior year and was primarily driven by increases in mortgage revenue and interchange income.”

Mr. Brown continued, “During the quarter, we continued to realize significant improvements in asset quality as non-performing assets declined by 37% on a linked quarter basis. Immediately after the quarter, we recorded two large recoveries related to the sale of two formerly classified hotel loans and the payoff of another formerly classified hotel loan. The continued improvement in loan quality was also reflected in our provision for loan loss expense as we recorded zero expense for the quarter.”

Mr. Brown concluded, “Our Board of Directors was pleased to increase the quarterly common dividend in March by 18%, from $.11 per common share to $.13. The Board’s decision to increase the dividend by this amount was based upon our strong operating performance and its general positive outlook about the future of the Company. Based upon today’s stock price, our annualized dividend yield is approximately 2.6%.”

NET INTEREST INCOME

Net interest income was $25.0 million for the first quarter of 2015 compared to $23.2 million a year ago. The increase in net interest income was primarily due to an increase in earning assets. Net interest margin, on a fully-taxable equivalent basis, was 3.80% for the first quarter of 2015, which was nine basis points below the first quarter of 2014 and an increase of six basis points compared to the fourth quarter of 2014.

NON-INTEREST INCOME

The Company’s non-interest income (excluding investment securities gains) was $11.2 million for the first quarter of 2015 compared to $9.3 million for the same period in 2014. Mortgage banking income increased by $539 thousand primarily due to the low interest rate environment and the addition of mortgage loan originators in the Company’s footprint. The Company also realized a $297 thousand gain in the first quarter of 2015 from death benefits related to bank-owned life insurance. During the first quarter of 2014, the Company announced plans to close three banking offices. As a result of these closings, we incurred $550 thousand of fixed asset write-downs.

NON-INTEREST EXPENSE

The Company’s non-interest expense was $27.0 million for the first quarter of 2015 compared to $24.2 million for the same period in 2014. During the first quarter of 2015, the Company incurred $2.4 million in expenses related to the prepayment of FHLB advances. Excluding these penalties, the Company’s non-interest expense would have been $24.7 million for the first quarter of 2015. The year over year increase in total expenses were in the employee, occupancy and equipment expense categories and were primarily related to the acquisition of MBT Bancorp in the fourth quarter of 2014.

BALANCE SHEET AND CAPITAL

Total assets were $3.15 billion at March 31, 2015, which represents a $280 million increase from a year ago. The increase in the balance sheet was primarily related to the acquisition of MBT Bancorp in the fourth quarter of 2014 in addition to organic loan growth. Loan balances (including loans that are classified as held for sale) grew $24 million on a linked-quarter basis. The Company’s regulatory capital ratios remain strong and as of March 31, 2015 were as follows: leverage ratio of 10.2%, tier one capital to risk-weighted assets of 14.9%, and total capital to risk-weighted assets of 16.0%. In addition, as of March 31, 2015, the Company’s tangible common equity ratio was 9.5%.

ASSET QUALITY

Non-performing assets (NPA’s) were $19.8 million as of March 31, 2015, a decrease of $11.7 million on a linked-quarter basis. NPA’s represented 0.63% of total assets as of March 31, 2015 compared to 1.01% as of December 31, 2014 and 0.97% as of March 31, 2014. Net charge-offs were $612 thousand for the first quarter of 2015 and represented 0.13% of average loans on an annualized basis. The Company recorded no loan loss provision expense for the first quarter of 2015. This was primarily due to the low level of charge-offs for the quarter and the reduction of non-performing loans. In addition, during the first week of April the Company realized $1.2 million in recoveries related to the sale of an $11.4 million credit and the payoff of a $4.4 million credit. While these items will be recorded as second quarter activity, the Company considered these recoveries when evaluating the required loan loss reserve balance as of March 31, 2015. The Company’s allowance for loan losses as a percent of total outstanding loans was 1.14% as of March 31, 2015 compared to 1.18% as of December 31, 2014 and 1.61% as of March 31, 2014.

Source: MainSource Financial Group Inc.

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