PUBLIC DISCLOSURE COMMUNITY REINVESTMENT ACT PERFORMANCE EVALUATION

Transcription

1 PUBLIC DISCLOSURE September 29, 2014 COMMUNITY REINVESTMENT ACT PERFORMANCE EVALUATION MainSource Bank Certificate # North Broadway Greensburg, Indiana Federal Deposit Insurance Corporation Division of Depositor and Consumer Protection Chicago Regional Office 300 South Riverside Plaza, Suite 1700 Chicago, Illinois NOTE: This document is an evaluation of this institution's record of meeting the credit needs of its entire community, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of the institution. This evaluation is not, nor should it be construed as, an assessment of the financial condition of this institution. The rating assigned to this institution does not represent an analysis, conclusion or opinion of the federal financial supervisory agency concerning the safety and soundness of this financial institution.

2 TABLE OF CONTENTS I. Institution Rating a. Overall Rating...1 b. Performance Test Ratings Table...1 c. Summary of Major Factors Supporting Rating...2 II. III. IV. Institution a. Description of Institution...3 b. Scope of the Examination...4 c. Conclusions with Respect to Performance Tests Overall...10 Multistate Metropolitan Statistical Area (MSA) a. Louisville-Jefferson County, KY-IN Multistate MSA Assessment Area i. Multistate MSA Ratings...18 ii. Description of Institution s Operations...18 iii. Conclusions with Respect to Performance Tests...20 b. Cincinnati-Middletown, OH-KY-IN Assessment Area i. Multistate MSA Ratings...27 ii. Description of Institution s Operations...27 iii. Conclusions with Respect to Performance Tests...29 State of Indiana a. State Rating...36 i. Statewide Conclusions with Respect to Performance Tests...36 ii. Description of Institution s Operations in Indiana...36 b. Indiana NonMSA Assessment Area Full-Scope Evaluation i. Description of Institution s Operations...36 ii. Conclusions with Respect to Performance Tests...38 V. State of Illinois a. State Rating...45 i. Statewide Conclusions with Respect to Performance Tests...45 ii. Description of Institution s Operations in Illinois...45 b. Kankakee-Bradley, Illinois MSA Assessment Area Full-Scope Evaluation i. Description of Institution s Operations...46 ii. Conclusions with Respect to Performance Tests...47 VI. State of Ohio a. State Rating...53 i. Statewide Conclusions with Respect to Performance Tests...53 ii. Description of Institution s Operations in Ohio...53 b. Dayton, Ohio MSA Assessment Area Full-Scope Evaluation i. Description of Institution s Operations...54 ii. Conclusions with Respect to Performance Tests...55

3 VII. VIII. State of Kentucky a. State Rating...62 i. Statewide Conclusions with Respect to Performance Tests...63 ii. Description of Institution s Operations in Kentucky...63 b. Kentucky NonMSA Assessment Area Full-Scope Evaluation i. Description of Institution s Operations...63 ii. Conclusions with Respect to Performance Tests...64 Appendix A. Scope of Examination Tables...71 B. Summary of State and Multistate Metropolitan Area Ratings...73 C. Median Family Incomes...74 D. General Definitions...76 E. Investment Definitions...80 F. Standard Public Disclosure Language...82 G CRA Performance Tables...84 H CRA Performance Tables...96 I. Limited-Scope Reviews Facts and Data...109

4 INSTITUTION S CRA RATING INSTITUTION'S CRA RATING: This institution is rated Satisfactory. The following table indicates the performance level of MainSource Bank with respect to the lending, investment, and service tests. MainSource Bank PERFORMANCE LEVELS PERFORMANCE TESTS Lending Test* Investment Test Service Test Outstanding High Satisfactory Low Satisfactory X X X Needs to Improve Substantial Noncompliance * Note: The lending test is weighted more heavily than the investment and service tests when arriving at an overall rating. 1

5 MainSource Bank demonstrates adequate responsiveness to the credit and community development needs of its assessment areas. The following is a summary of the institution s performance: Lending Test Lending levels reflect good responsiveness to assessment area credit needs. A substantial majority of loans are made in the institution s assessment areas. The geographic distribution of loans reflects adequate penetration throughout the assessment areas. The distribution of borrowers reflects, given the product lines offered by the institution, adequate penetration among retail customers of different income levels and business customers of different sizes. The institution exhibits an adequate record of serving the credit needs of the most economically disadvantaged areas of its assessment areas, low-income individuals, and/or very small businesses, consistent with safe and sound banking practices. The institution has made a relatively high level of community development loans. The institution uses innovative and/or flexible lending practices in order to serve assessment area credit needs. Investment Test The institution has an adequate level of qualified community development investments and grants, although rarely in a leadership position, particularly those that are not routinely provided by private investors. The institution exhibits adequate responsiveness to credit and community economic development needs. The institution rarely uses innovative and/or complex investments to support community development initiatives. Service Test Delivery systems are reasonably accessible to essentially all portions of the institution s assessment areas. To the extent changes have been made, the institution s opening and closing of branches has not adversely affected the accessibility of its delivery systems, particularly in lowand moderate-income geographies and/or to low- and moderate-income individuals. Services (including, where appropriate, business hours) do not vary in a way that inconveniences certain portions of the assessment areas, particularly low- and moderateincome geographies and/or individuals. The institution provides an adequate level of community development services. 2

6 DESCRIPTION OF INSTITUTION MainSource Bank (MainSource) is a commercial bank based in Greensburg, Indiana. The institution is a wholly-owned subsidiary of MainSource Financial Group, Inc., also based in Greensburg, Indiana. MainSource Financial Group is a one-bank holding company. In addition, the bank holding company has several non-banking subsidiaries that provide other related financial services and products. According to the June 30, 2014, Consolidated Report of Condition and Income, the bank had total assets of $2,844,593,000. On the same date, the net loan-to-deposit ratio was approximately 74 percent, and the net loans to total assets ratio was approximately 59 percent. The bank has experienced limited asset growth from $2,729,051,000 on December 31, 2011, to $2,844,593,000 as of June 30, The business and strategic focus of the bank has not changed since the previous Community Reinvestment Act (CRA) Performance Evaluation. The bank s ability to fund the credit needs of the assessment area is not hampered by any legal impediments or by the bank s current financial condition. The bank s net operating income was $33,530,000 in 2012 and $31,251,000 in The net operating income to average assets was 1.23 percent in 2012 and 1.14 percent in Tier one leverage capital to adjusted average assets was 9.90 percent on December 31, 2012, and 9.57 percent on December 31, As of the date of this evaluation, MainSource has 77 banking centers: 62 in Indiana, 5 in Illinois, 5 in Ohio, and 5 in Kentucky. During the current evaluation period, nine offices opened and 18 offices were closed. The opening and closing of branches and the impact on the area served are described in the Service Test section for each assessment area. The bank offers a wide range of deposit and loan products for both commercial and retail customers. Various types of retail deposit products are offered and include checking, savings, money market, certificates of deposit, Individual Retirement Accounts, and health savings accounts. All types of consumer, mortgage, and commercial loans are available. Mortgage loan products include flexible loan products and a first-time home buyers program that assists individuals in purchasing a home. Commercial products include loan programs through the Small Business Administration (SBA). Customers can use products or services such as automated teller machine (ATM) cards, direct deposit, and automatic withdrawals and transfers from deposit accounts. ATMs are found at most office locations as well as 13 remote ATMs. In addition, an Internet banking web site is available. The loan portfolio composition as of June 30, 2014, is described in Table 1. 3

7 Table 1 Loan Distribution as of 06/30/2014 Loan Type Dollar Amount (000) Percent of Total Loans Construction and Land Development 51,373 3 Secured by Farmland 90, Family Residential 726, Multi-Family (5 or more) Residential 39,185 2 Commercial 525, Total Real Estate Loans 1,433, Agricultural 54,974 3 Commercial and Industrial 147,436 9 Consumer 41,382 2 Other 29,223 2 Gross Loans 1,706, Source: Consolidated Report of Condition and Income SCOPE OF EXAMINATION This CRA evaluation was prepared using the Interagency Large Bank CRA Evaluation Procedures. These same procedures were used to evaluate the bank at the previous CRA evaluation dated October 20, 2011, where a Satisfactory rating was also assigned. Loan Products Reviewed Loan products reviewed for this evaluation include home mortgage, small business, and small farm loans originated in 2012 and These categories comprised a majority of the bank s lending activity and are important to the economic vitality of the assessment areas. The bank s community development loans, investments, and services since the last evaluation to the present evaluation date were also reviewed. MainSource is subject to the Home Mortgage Disclosure Act (HMDA) data collection requirements. Therefore, this data was utilized to evaluate the bank s home mortgage lending 4

8 performance at this CRA evaluation. The universe of HMDA loans originated in 2012 and 2013 were assessed. As of June 30, 2014, residential mortgage lending was 45 percent of the loan portfolio by dollar volume. Aggregate HMDA data from all HMDA reporters in the assessment areas is included as a comparison for MainSource s performance in 2012; aggregate lending data for 2013 was not yet available. Home mortgage lending discussions in each assessment area will only address the two major HMDA products: purchase and refinance loans. Home improvement loans were only a small percentage of HMDA lending for each year (5 percent in 2012, 11 percent in 2013). The bank is also subject to the large bank CRA data collection requirements. All small business loans and small farm loans originated in 2012 and 2013 and reported in the CRA loan data were reviewed. 1 As shown in Table 1, commercial lending was 40 percent of the loan portfolio and farm lending was 8 percent. No discussion of the small farm lending will occur in the individual assessment area analyses, as agricultural lending is not a major product by loan number or dollar volume. However, it is noted that small farm lending performances in each individual assessment area was in-line with respective state and multistate MSA ratings based upon a comparison to the aggregate lending and farm population data. Home mortgage lending received the greatest weight in this evaluation due to this lending comprising the majority of volume of originations by number and dollar volume. Small business lending was second in weight based on the number and dollar volume of originations. Small farm lending received little weight as it was the smallest by number and dollar volume of originations. Total loan originations in 2012 and 2013 by loan product are as follows: home mortgage lending 7,006 loans totaling $784,503,000; small business lending 1,821 loans totaling $259,967,000; and small farm lending 657 loans totaling $81,037,000. The loan data reviewed for this evaluation is representative of the bank s lending activity over the entire time frame under review. Loan data by dollar volume was reviewed for all loan products but will not be discussed unless a performance deficiency was noted. The tables in this CRA evaluation depict information based on loan number unless otherwise specified. The 2010 U.S. Census data is the demographic data used in this evaluation. If different demographic data is used, the data source was noted. The 2012 and 2013 loan data was analyzed using the appropriate MSA and nonmsa designations which were in place at that time. Effective January 1, 2014, the Office of Management and Budget altered the MSA and nonmsa designations of some counties. Changes to demographics in 2014 were used to assess the activities in that year. 1 - Small business loans have original amounts of $1 million and less, while small farm loans have original amounts of $500,000 and less. These loan categories are defined in the CRA regulation and are based upon the instructions for the quarterly Consolidated Reports of Condition and Income (Call Reports) filed by financial institutions. 5

9 Fifteen community contacts were reviewed for this evaluation, along with nine CRA public evaluations for other banks operating in the assessment areas. Comments were noted in the separate assessment area analyses. Assessment Area Descriptions The bank has delineated 13 separate assessment areas. Two of these areas are located within multistate MSAs and received full-scope reviews. Full-scope reviews were also performed for one additional assessment area within each state. Limited-scope reviews were completed for the remaining assessment areas, which included a review of facts and data for all CRA criteria for the Lending, Service, and Investment Tests. The facts and data regarding lending performances in limited-scope reviews are provided in Appendix I. The delineation and scope of review for each of the bank s assessment areas are as follows: MULTISTATE MSAs Louisville-Jefferson County, KY-IN Multistate MSA Assessment Area This assessment area includes five counties in Indiana and Kentucky (Indiana Clark County, Floyd County, Harrison County; Kentucky Shelby County, Jefferson County), which comprises a portion of the multistate MSA. A full-scope review was completed of this assessment area and performance is addressed in this CRA Performance Evaluation. Throughout the evaluation, this assessment area will be referred to as the Louisville MSA. Cincinnati-Middletown, OH-IN-KY Multistate MSA Assessment Area This assessment area includes four counties in Indiana and Ohio (Indiana Franklin County, Dearborn County, Ohio County; Ohio Hamilton County), which comprises a portion of the multistate MSA. A full-scope review was completed of this assessment area and performance is addressed in this CRA Performance Evaluation. Throughout the evaluation, this assessment area will be referred to as the Cincinnati MSA. INDIANA Six assessment areas were present in the State of Indiana. These areas do not include any counties which were part of the multistate MSA assessment areas. State of Indiana NonMSA Assessment area This area includes 15 counties within the State of Indiana. Twenty-nine banking offices and 45 percent of deposits are within this assessment area. 2 This area is the most heavily weighted in the CRA analysis. A full-scope review was completed of this assessment area and performance is addressed in this CRA Performance Evaluation. 2 - Deposit data from FDIC.gov as of June 30,

10 The Indiana nonmsa counties were analyzed together as these counties have similar economies and demographics. All of these counties are largely rural and contain some smaller towns. Twelve of the counties are contiguous to one another in eastern Indiana. Three other counties are located in other portions of Indiana, with Crawford County in southern Indiana, and Warren County and Montgomery County in west-central Indiana. Anderson MSA Assessment Area This assessment area includes Madison County, which comprises the entire MSA. A limited-scope review was performed for this assessment area. Although the review is not discussed separately within this evaluation, the institution s performance in this area is consistent within the institution s performance in the State of Indiana. Bloomington MSA Assessment Area This assessment area includes Greene County and Monroe County, which comprise a portion of the MSA. A limited-scope review was performed for this assessment area. Although the review is not discussed separately within this evaluation, the institution s performance in this area is consistent within the institution s performance in the State of Indiana. Columbus MSA Assessment Area This assessment area includes Bartholomew County, which comprises the entire MSA. A limited-scope review was performed for this assessment area. Although the review is not discussed separately within this evaluation, the institution s performance in this area is consistent within the institution s performance in the State of Indiana. Gary Metropolitan Division (MD) Assessment Area This assessment area includes Lake County, Porter County, and Newton County, which comprise a portion of the MD. A limited-scope review was performed for this assessment area. Although the review is not discussed separately within this evaluation, the institution s performance in this area is consistent within the institution s performance in the State of Indiana. Indianapolis-Carmel MSA assessment area This assessment area includes Johnson County, Shelby County, and Marion County, which comprise a portion of the MSA. A limited-scope review was performed for this assessment area. Although the review is not discussed separately within this evaluation, the institution s performance in this area is consistent within the institution s performance in the State of Indiana. ILLINOIS Three assessment areas were present in the State of Illinois. 7

11 Kankakee-Bradley MSA Assessment Area This assessment area includes Kankakee County, which comprises the entire MSA. A full-scope review was completed of this assessment area and performance is addressed in this CRA Performance Evaluation. Throughout the evaluation, this assessment area will be referred to as the Kankakee MSA. Danville MSA Assessment Area This assessment area includes Vermilion County, which comprises the entire MSA. A limited-scope review was performed for this assessment area. Although the review is not discussed separately within this evaluation, the institution s performance in this area is consistent within the institution s performance in the State of Illinois. State of Illinois NonMSA Assessment Area This area includes Iroquois County. A limited-scope review was performed for this assessment area. Although the review is not discussed separately within this evaluation, the institution s performance in this area is consistent within the institution s performance in the State of Illinois. OHIO One assessment area was present in the State of Ohio. This area does not include any counties which were part of a multistate MSA. Dayton MSA Assessment Area This assessment area includes Miami County and Montgomery County, which comprises a portion of the MSA. A full-scope review was completed of this assessment area and performance is addressed in this CRA Performance Evaluation. KENTUCKY One assessment area was present in the State of Kentucky. This area does not include any counties which were part of a multistate MSA. Kentucky NonMSA Assessment Area This area includes Anderson County, Mercer County, and Franklin County. A full-scope review was completed of this assessment area and performance is addressed in this CRA Performance Evaluation. Each assessment area consists of whole geographies, does not arbitrarily exclude any low- or moderate-income areas, does not reflect illegal discrimination, and is consistent with the requirements of the regulation. The number of offices, total deposits, and total number of loans in each assessment area is presented in Table 2. 8

12 Assessment Area Louisville, KY-IN MSA Cincinnati, OH-KY-IN MSA Table 2 Assessment Area Banking Offices, Deposits, and Loans Number of Offices Percent of Offices Deposits 06/30/2013 ($000)* 9 Percent of Deposits Loan Number (2012 and 2013) Percent of Loan Number , , , Anderson, IN MSA , Bloomington, IN MSA , Columbus, IN MSA , Gary, IN MD , Indianapolis-Carmel, IN MSA , Indiana NonMSA , , Kankakee, IL MSA , Danville, IL MSA , Illinois NonMSA , Dayton, OH MSA , Kentucky NonMSA , Total ,203, , *FDIC Summary of Deposits The State of Indiana will receive the most weight in the overall rating because it contains roughly two-thirds of MainSource s loans and deposits. The Louisville MSA will receive the second greatest weight as it contains 12 percent of MainSource s loans and deposits. None of the other areas has more than eight percent of the bank s loans or deposits. Census tracts are classified as low-, moderate-, middle-, or upper-income, depending upon statistics gathered in the 2010 U.S. Census. Borrower income classifications are based upon Federal Financial Institutions Examination Council s (FFIEC) median family income for the

13 applicable MSA or statewide nonmsa for the year in which the loan was originated. Appendix C details the income level designations. Please refer to Appendices D, E, and F for definitions of these and other demographic-related terms used throughout this evaluation. OVERALL CONCLUSIONS WITH RESPECT TO PERFORMANCE TESTS LENDING TEST Lending Activity Lending levels reflect good responsiveness to assessment area credit needs. This performance is reasonable as shown by the average net loan-to-deposit ratio since the previous evaluation and the number and dollar volume of loan originations for the products reviewed. The average net loan-to-deposit ratio is calculated using each calendar quarter since MainSource s last performance evaluation. Table 3 details the bank s average net loan-to-deposit ratio and that of four competitor banks operating in MainSource s assessment area. MainSource s ratio is reasonable in comparison to its competitors. The bank is also active in the secondary market and sold over 4,000 residential real estate loans totaling in excess of $500 million during this evaluation period. These residential real estate loans are not reflected in the bank s loan-to-deposit ratio. This practice provides liquidity so that MainSource can continuously originate additional residential loans. Table 3 Average Net Loan-to-Deposit Ratios 12/31/2011 to 6/30/2014 Institution Average Loans to Deposits (%) MainSource 72 The National Bank of Indianapolis 72 First Savings Bank, FSB 83 Your Community Bank 83 First Bank Richmond, NA 81 Table 4 shows the bank s total home mortgage, small business, and small farm lending for 2012 and

14 Table 4 HMDA, Small Business, and Small Farm Lending Year HMDA # HMDA CRA Small CRA Small CRA Small CRA Small $ (000) Business # Business $ (000) Farm # Farm $ (000) , , , , , ,764 1, , ,479 Total 7, ,503 1, , ,037 Source: HMDA Data; CRA Small Business and Small Farm Data Assessment Area Concentration A substantial majority of loans are made in the institution s assessment areas. Table 5 details the percentages by number and dollar volume for lending within all assessment areas for the loan products reviewed. The other tables in this evaluation and the comments in this report reflect only the loans inside the assessment areas. Overall, 91 percent of loans by number and 89 percent by dollar amount were originated within the assessment areas in 2012 and 2013 combined. High percentages of the loans by number and dollar volume were originated in the assessment areas for each loan product reviewed. Table 5 Distribution of Loans Originated Inside and Outside of the Assessment Area Loan Category or Type Number of Loans Dollars in Loans (000) Inside Outside Total Inside Outside Total Home Mortgage* Subtotal Small Business** Subtotal Small Farm** Subtotal # % # % $ % $ % 3,379 3,064 6, , % 92% 92% 92% 92% 92% 84% 85% 85% % 8% 8% 8% 8% 8% 16% 15% 15% 3,672 3,334 7, ,016 1, , , ,432 89, , ,156 28,797 34,791 63,588 92% 91% 91% 88% 88% 88% 77% 80% 78% 34,528 34,543 69,071 12,502 19,309 31,811 8,761 8,688 17,449 8% 9% 9% 12% 12% 12% 23% 20% 22% 416, , , , , ,967 37,558 43,479 81,037 Totals 8,675 91% 809 9% 9,484 1,007,176 89% 118,331 11% 1,125,507 Source: * HMDA Data; ** CRA Small Business and Small Farm Data 11

15 Geographic Distribution of Loans The geographic distribution of loans reflects adequate penetration throughout the assessment areas. A complete discussion of the performance for this criterion is in the separate assessment area sections of this evaluation. Borrowers Profile The distribution of borrowers reflects, given the product lines offered by the institution, adequate penetration among retail customers of different income levels and business customers of different sizes. A complete discussion of the performance for this criterion is in the separate assessment area sections of this evaluation. Responsiveness to Credit Needs of Highly Economically Disadvantaged Geographies and Low-Income Persons and Small Businesses The institution exhibits an adequate record of serving the credit needs of the most economically disadvantaged areas of its assessment areas, low-income individuals, and/or very small businesses, consistent with safe and sound banking practices. A complete discussion of the performance for this criterion is in the separate assessment area sections of this evaluation. Community Development Lending Activities The institution has made a relatively high level of community development loans. Sixty-one qualifying community development loans totaling approximately $104,986,000 were funded in the assessment areas during the evaluation period. This is a 142 percent increase from approximately $43,419,000 at the last evaluation. The bank originated qualifying community development loans in all assessment areas. The community development loans consist of loans for affordable multi-family and single-family housing; for qualified community development services; for economic development to small businesses or small farms; and to stabilize and revitalize qualified areas. The largest dollar volume of community development loans was originated in the Indiana nonmsa assessment area, followed by the Indianapolis MSA assessment area, and finally the Louisville MSA assessment area. Table 6 depicts the overall community development loans originated from the date of the last examination to the current examination. The activity in the separate areas is discussed in the applicable sections for those assessment areas receiving a full-scope review, as well as Appendix I for those assessment areas receiving a limited-scope review. 12

16 Table 6 Community Development Loans Overall Community Development 2011* ** Total Purpose # $(000) # $(000) # $(000) # $(000) # $(000) Affordable Housing 3 3, , ,357 Community Services 1 1, , , ,864 Economic Development 2 3, , , , ,479 Revitalization or Stabilization , , , ,286 Total 6 8, , , , ,986 Source: Bank Records; *Date of last examination 10/20/2011 to year-end; ** Year-to-date as of 09/29/2014 Product Innovation The institution uses innovative and/or flexible lending practices in order to serve assessment credit needs. The bank has not utilized innovative lending products, but participates in SBA loan guarantee programs for commercial loans, Farm Services Agency for farm loans, and offers a variety of flexible home loan products. Total number and dollar volume of flexible home mortgage and small business loans originated in 2012, 2013, and year-to-date 2014 are detailed in Table 7. Table 7 Product Innovation: Flexible and Innovative Loans Overall Category * Total # $(000) # $(000) # $(000) # $(000) Small Business Loans 8 1, , , ,816 Home Mortgage Loans , , , ,704 Total , , ,260 1, ,520 Source: Bank Records; *Year-to-date as of 09/29/2014 The majority of flexible home mortgage loan originations are Federal Housing Administration, Veterans Administration, and Rural Housing Service/Farm Service Agency loans. MainSource also participates in the Indiana Housing and Community Development Authority First Home and First Home Plus programs. All small business loans were originated through the SBA loan programs. INVESTMENT TEST Investment and Grant Activity The institution has an adequate level of qualified community development investments and grants, although rarely in a leadership position, particularly those that are not routinely provided by private investors. Qualified donations and investments funded since the previous evaluation 13

17 were considered for this test, as well as qualifying investments purchased prior to this evaluation that are outstanding. The types of qualified investments held by the bank include investments in community development services, affordable housing, and small businesses. These investments directly respond to the primary needs the assessment areas according to community contacts and based on reviews of CRA performance evaluations conducted during the evaluation period and in the assessment areas. During the evaluation period, MainSource purchased approximately $16,680,000 in new, qualified investments. The bank purchased three mortgage pools totaling approximately $11,984,000 that provide affordable housing directed specifically to low- and moderate-income borrowers within the assessment areas. Each mortgage pool is included as one investment overall but spans across several of the assessment areas; specific allocations of these mortgage pools are addressed as individual investments in each respective assessment area s performance analysis. Prior period investments had an outstanding balance of $9,737,000 as of the date of this evaluation. Therefore, qualifying community development investments totaled $26,417,000. These investments represented 0.93 percent of total assets, 3.10 percent of total security investments, and 7.50 percent of total equity capital as of June 30, Table 8 details the bank s investment activity during the review period. MainSource also invested $3,058,000 in Kentucky Housing Corporation Revenue Bonds in 2012 that are targeted to low- and moderate-income individuals throughout Kentucky. As these bonds benefit the broader statewide area, including the bank s assessment areas in Kentucky, they are included in the total dollar amount of new investments previously mentioned but not within Table 8. Table 8 Community Development Investments Overall Community Development Prior Period * 2011** *** Purpose # $ (000) # $ (000) # $ (000) # $ (000) # $ (000) Affordable Housing , , ,988 Community Services 3 3, Economic Development Revitalization or Stabilization 22 4, Total 30 9, , , ,988 Source: Bank Records; *Figures for prior period investments are reflective of book value as of the evaluation date; **Date of last examination 10/20/2011 to year-end; ***Year-to-date as of 09/29/2014 Qualifying donations and grants in the assessment areas totaled approximately $1,430,000 throughout the review period and were approximately 3.14 percent of pre-tax net operating income as of December 31, This level is adequate and illustrates that the bank sought out qualifying entities that assist the community. Numerous donations were to groups promoting 14

18 community services, affordable housing, economic development, and job creation/retention to benefit low- and moderate-income persons and/or low- and moderate-income areas. Table 9 details the bank s donation activity throughout the review period. Table 9 Community Development Donations Overall Community Development 2011* ** Purpose # $ (000) # $ (000) # $ (000) # $(000) Affordable Housing Community Services Economic Development <1 Revitalization or Stabilization Total Source: Bank Records; *Date of last examination 10/20/2011 to year-end; ** Year-to-date as of 09/29/2014 Investment and grant activity is further described in each of the full-scope assessment area reviews, as well as Appendix I for those assessment areas receiving a limited-scope review. Responsiveness to Credit and Community Development Needs The institution exhibits adequate responsiveness to credit and community economic development needs. The bank has made numerous donations that support low- and moderate-income services and economic development. In addition, the bank invested in affordable housing in the assessment areas as well as different projects that promoted job creation and economic development in low- and moderate-income areas. Community Development Initiatives The institution rarely uses innovative and/or complex investments to support community development initiatives. The bank has invested in securities that help provide affordable housing for low- and moderate-income individuals as well as projects that support the redevelopment of areas targeted for economic development resulting in job creation and community stability. However, these efforts are rarely innovative or complex. SERVICE TEST MainSource provides an adequate level of community development services. Delivery systems are reasonably accessible to essentially all portions of the institution s assessment areas. The bank s opening and closing of branches has not adversely affected the accessibility of its delivery systems, particularly in low- and moderate-income geographies and/or to low- and moderateincome individuals. Services (including, where appropriate, business hours) do not vary in a way that inconveniences certain portions of the assessment areas, particularly low- and moderate-income geographies and/or individuals. 15

19 Accessibility of Delivery Systems Delivery systems are reasonably accessible to essentially all portions of the institution s assessment areas. MainSource operates 62 banking facilities in Indiana, 5 banking facilities in Kentucky, 5 banking facilities in Ohio, and 5 banking facilities in Illinois. Of the 77 total offices, 68 have Saturday lobby hours, 69 have drive-up facilities, and 69 have on-premises ATMs. The bank also has 13 off-site ATMs that are within the assessment areas. The bank s main office is located in a middle-income census tract in downtown Greensburg, Indiana. Banking facilities located within the bank s assessment areas are conveniently situated to serve low- and moderate-income census tracts within the assessment areas. Although no offices are located in low-income census tracts, 18 offices are located in moderate-income census tracts, and several other offices are in close proximity to the low- and moderate-income census tracts. The moderate-income census tracts contain 22 percent of the total population and 23 percent of the banking offices. The bank s alternate delivery systems include Internet banking and telephone banking services. In addition, full brokerage, insurance, and trust services are offered by the bank. Changes in Branch Locations To the extent changes have been made, the institution s opening and closing of branches has not adversely affected the accessibility of its delivery systems, particularly in low- and moderateincome geographies and/or to low- and moderate-income individuals. Nine branches were acquired or opened and 18 branches were closed during the current evaluation period. Overall, the locations of MainSource s offices and alternative delivery systems provide accessibility to low- and moderate-income areas within its assessment areas. Of the acquired or opened branches, two are located in moderate-income tracts, five are located in middle-income tracts, and two are in upper-income tracts. One of the closed branches was located in a moderateincome tract, one was in an upper-income tract, and the rest were located in middle-income tracts. The closed branch in a moderate-income tract was in Jeffersonville, Indiana, which is part of the Louisville MSA. Reasonableness of Business Hours and Services in Meeting Assessment Area Needs Services, (including, where appropriate, business hours), do not vary in a way that inconveniences certain portions of the assessment areas, particularly low- and moderate-income geographies and/or individuals. Operating hours and services do not vary significantly from branch-to-branch and from hours and services offered by other banks operating within the bank s assessment areas. All offices located in moderate-income census tracts and the majority of offices in middle- and upper-income census tracts offer extended hours through drive-up windows throughout the week and weekend hours on Saturday. Branch hours are considered convenient and comparable to other local financial institutions. 16

20 Community Development Services The institution provides an adequate level of community development services. Bank personnel work with organizations that provide community development services. Examples of community development services include serving on boards and providing financial expertise to many qualifying community organizations, supporting organizations and sponsoring events that promote economic development and assist small business owners, and providing banking and financial education services and counseling. Table 10 details the community development services that MainSource has engaged in since the previous evaluation in its assessment areas. Community Development Purpose Table 10 Community Development Services Overall 2011* ** Total # # # # # Affordable Housing Community Services Economic Development Revitalization or Stabilization Total Source: Bank Records; *Date of last examination 10/20/2011 to year-end; ** Year-to-date as of 09/29/2014 In addition to the community development services in Table 10, the bank offers a deposit product that is considered community development. Fresh Start Checking is designed to help customers with a poor deposit account history rebuild their financial health. After one year in good standing, the account is converted to a regular checking account. MainSource has opened 1,695 of these accounts with approximately $788,000 in total deposits during the evaluation period. A summary of the community development services that MainSource has engaged in since the previous evaluation is presented in each assessment area that received a full-scope review, as well as Appendix I for those assessment areas receiving a limited-scope review. RESPONSE TO COMPLAINTS A review of FDIC records, as well as the bank s Public CRA File, did not reveal any complaints relating to the bank s CRA performance since the prior evaluation. FAIR LENDING OR OTHER ILLEGAL CREDIT PRACTICES REVIEW No violations of the substantive provisions of the anti-discriminatory laws and regulations or other illegal credit practices were identified during the evaluation. 17

21 LOUISVILLE-JEFFERSON COUNTY, KY-IN MULTISTATE MSA CRA RATING FOR LOUISVILLE-JEFFERSON COUNTY, KY-IN MULTISTATE MSA 3 : Satisfactory The Lending Test is rated: Low Satisfactory. The Investment Test is rated: Low Satisfactory. The Service Test is rated: Low Satisfactory. The performance in this assessment area is consistent with the overall performance discussed earlier in this evaluation. Each of the CRA performance tests are described within this evaluation section. DESCRIPTION OF INSTITUTION S OPERATIONS IN THE LOUISVILLE-JEFFERSON COUNTY, KY-IN MULTISTATE MSA This assessment area includes counties in Indiana and Kentucky which are part of the Louisville MSA (Indiana Clark County, Floyd County, and Harrison County; Kentucky Shelby County and Jefferson County). Nine offices are present in this assessment area with seven in Indiana and two in Kentucky. The income category of the assessment area census tracts is as follows: low-income 34; moderate-income 52; middle-income 92; upper-income 73; and income not assigned 1. Table 11 contains additional demographic information for this assessment area from the 2010 U.S. Census. 3 This rating reflects performance within the multistate metropolitan area. The statewide evaluations are adjusted and do not reflect performance in the parts of those states contained within the multistate metropolitan area. 18

22 Table 11 Demographic & Economic Characteristics of the Louisville MSA Assessment Area Assessment Area Population 1,007,344 Percentage of Families by Income Level: Low-Income Moderate-Income Middle-Income Upper-Income Total Families with Incomes Below the Poverty Level Percentage of Total Housing Units: 1-4 Family Residential Multi-Family Mobile Home or Trailer Other Total Owner-Occupied Housing Units Rental Housing Units Vacant Housing Units Total Median Housing Characteristics: Median Age in Years Median Home Value Median Gross Rent Source: 2010 U.S. Census 22% 18% 20% 40% 100% 11% 80% 18% 2% <1% 100% 61% 30% 9% 100% 42 $163,902 $666 The 2013 D&B data indicates that 91,687 non-farm businesses are present in the assessment area. Those having revenues of $1 million and less were 71 percent of non-farm businesses. In addition, 80 percent of the businesses have fewer than 50 employees. These small entities are an important asset to the local economy by providing needed services to area residents and job opportunities. Major employment sectors in the area are manufacturing, retail trade, education and health services, government, and professional and business services. The Louisville MSA has fared better economically in recent months. The August 2014 unemployment rate was 6.0 percent, which declined from 7.5 percent in August The August 2014 unemployment rate is comparable to the 5.5 percent rate for the State of Indiana and 6.5 percent for the Commonwealth of Kentucky. Strong competition exists in this assessment area as a large number of financial institutions operate offices from within this assessment area. According to FDIC s Summary of Deposit data, in addition to MainSource, 41 FDIC-insured financial institutions with 423 offices conduct 19

23 business in the assessment area (not including credit unions). As of June 30, 2013, the bank held one percent of the deposits in the assessment area. In 2012, the bank had 0.94 percent market share (ranked 25 th ) of HMDA loan originations, with 407 entities reporting HMDA data that year. The bank also had 0.77 percent market share of CRA small business originations (ranked 22nd), with 73 entities subject to large bank CRA loan reporting in Intense competition exists for all loan products given the large number of competing financial institutions extending loans in this area. A review of a community contact interview indicated that residents of this area are in need of affordable housing. Further, the 2010 U.S. Census reported that 22 percent of assessment area families are low-income and 11 percent of families have incomes of below poverty level. The community contact also stated that job creation and retention through economic development efforts or business lending are needed to maintain the economy. CONCLUSIONS WITH RESPECT TO PERFORMANCE TESTS IN THE LOUISVILLE-JEFFERSON COUNTY, KY-IN MULTISTATE MSA LENDING TEST Lending Activity MainSource exhibits good responsiveness to the credit needs of this assessment area. Table 1(a) in Appendices G and H provide a breakdown of MainSource s lending within the assessment area by both number of loans and dollar volume during 2012 and MainSource originated 445 home mortgage loans totaling $52,145,000 in 2012 and 361 home mortgage loans totaling $47,318,000 in Small business lending comprised a smaller percentage of total loan volume, with 113 loans in 2012 totaling $19,861,000 and 132 loans in 2013 totaling $29,696,000. As previously noted, MainSource s home mortgage lending carries more weight when arriving at performance conclusions due to the larger volume of home mortgages originated during the evaluation period. In addition, MainSource s performance in home mortgage refinance lending carries the most weight in home mortgage lending performance conclusions as this was the prominent form of lending during the review period. Geographic Distribution of Loans The geographic distribution of loans reflects adequate penetration throughout the assessment area, demonstrated through adequate home mortgage lending performance and good small business lending performance. The majority of low- and moderate-income census tracts are in Jefferson County, Kentucky; only one of the 34 low-income census tracts and 16 of the 52 moderate-income census tracts are outside of Jefferson County. The bank opened an office in 20

24 Jefferson County in a middle-income census tract in August 2014, but this office was not in operation during the review period. Throughout the review period, the bank operated eight offices in this assessment area: one in Shelby County, Kentucky, and the remaining seven in Indiana. The bank faces difficulty in reaching borrowers in low- and moderate-income census tracts due to the distance of banking locations from the majority of those tracts. Home Mortgage Lending Home mortgage lending exhibited an adequate geographic distribution given the level of lending in the low- and moderate-income census tracts and the distance between office locations and these tracts. Tables 2(a) to 4(a) in Appendices G and H detail the home mortgage lending. Two percent of home purchase lending in 2012 was extended to borrowers in low-income census tracts. This performance was slightly below the five percent owner-occupied housing level, but comparable to aggregate lending performance at two percent. In 2013, no home purchase loans were extended to borrowers in low-income census tracts. One percent of home mortgage refinance loans in both 2012 and 2013 were extended to borrowers in the low-income census tracts, which was below the owner-occupied housing level for both years. However, 2012 home mortgage refinance lending was only slightly lower than the two percent aggregate lending. Home purchase lending in the moderate-income census tracts was 14 percent in 2012 which was higher than the 11 percent aggregate lending and in-line with the 14 percent owner-occupied housing level. In 2013, home purchase lending in those census tracts declined to six percent. Seven percent of home mortgage refinance loans were extended to borrowers in moderateincome census tracts in 2012, which was slightly less than aggregate lending performance at eight percent. In 2013, lending in moderate-income census tracts declined to six percent. Performance in both years trailed the owner-occupied housing level. Lending is adequate in the low- and moderate-income census tracts given the distance of office locations from those tracts and in comparison to the demographic as well as 2012 aggregate lending. Small Business Lending The geographic distribution of small business loans is good based upon a comparison to the business population by census tract income level, the aggregate data, and in view of banking office locations. Table 6(a) in Appendices G and H details the small business lending. Lending in the low-income census tracts was 4 percent in 2012, which was below the 11 percent business population and the 11 percent aggregate lending. Lending increased to five percent in 2013, but remained below the business population. Twenty-five percent of small business loans were extended to borrowers in moderate-income census tracts in 2012, significantly exceeding the 16 percent business population and the 17 percent aggregate lending performance. Lending in 2013 remained consistent at 25 percent, continuing to exceed the reported business population in moderate-income census tracts. 21

25 Borrowers Profile The distribution of borrowers reflects, given the product lines offered by the institution, adequate penetration among retail customers of different income levels and business customers of different sizes. Home Mortgage Lending The distribution of home mortgage lending among borrowers is adequate based upon a comparison to the family population by income level and aggregate lending performance. Tables 8(a) to 10(a) in Appendices G and H detail the home mortgage lending activity. Within this assessment area, 22 percent of families are low-income; however, 11 percent have incomes below poverty level. Families with income below poverty level often have difficulty qualifying for traditional mortgage obligations. Therefore, for comparison purposes, the low-income family percentage is adjusted by the 11 percent of families below poverty, resulting in an 11 percent adjusted low-income family population. Home purchase lending to low-income borrowers was 24 percent in 2012, which exceeded the adjusted percentage of low-income families at 11 percent and the 15 percent aggregate lending performance. Home purchase lending performance declined to 19 percent in 2013, but continued to exceed the adjusted demographic. Home mortgage refinance lending performance to low-income borrowers was 10 percent in 2012, which slightly trailed the adjusted low-income family population, but exceeded the eight percent aggregate lending. In 2013, home mortgage refinance lending performance declined to eight percent to further trail the adjusted percentage of low-income families. Home purchase lending to moderate-income borrowers was 26 percent in both 2012 and 2013, which was higher than the 18 percent moderate-income family population. The 2012 lending performance was comparable to the 29 percent aggregate lending performance. Home mortgage refinance lending was 16 percent in 2012, which was slightly lower than the 18 percent moderate-income family population and the 19 percent aggregate lending. The 2013 lending rose to 22 percent, exceeding the moderate-income family population. Small Business Lending The small business lending distribution was adequate among businesses of different sizes based on a comparison to the aggregate data and business population data. Table 11(a) in Appendices G and H details the small business lending. Sixty percent of the 2012 lending was to entities with gross annual revenues of $1 million and less, which is much higher than the 42 percent aggregate lending in that revenue range. The bank s 2013 lending in that revenue range was 50 percent. The D&B data indicates that 71 percent of 2013 businesses reported revenues of $1 million and less; however, this figure represents the percentage of businesses operating within this area and not solely those seeking financing. The bank s distribution of small business loans by loan amount was also reviewed as smaller businesses tend to seek out smaller dollar loans. Throughout the review period, a majority of the bank s loans (80 percent in 2012 and 69 percent 22