NOTE 22 — STOCK-BASED COMPENSATION

On January 16, 2007, the Company's Board of Directors adopted and approved the MainSource Financial Group, Inc. 2007 Stock Incentive Plan (the "2007 Stock Incentive Plan") effective upon the approval of the Plan by the Company's shareholders, which occurred on April 26, 2007 at the Company's annual meeting of shareholders. The 2007 Stock Incentive Plan provides for the grant of incentive stock options, nonstatutory stock options, stock bonuses and restricted stock awards. Incentive stock options may be granted only to employees. An aggregate of 650,000 shares of common stock are reserved for issuance under the 2007 Stock Incentive Plan. Shares issuable under the 2007 Stock Incentive Plan may be authorized and unissued shares of common stock or treasury shares. The 2007 Stock Incentive Plan is in addition to, and not in replacement of, a similar plan adopted in 2003 (the "2003 Plan"). However, no further awards of options will be made under the 2003 Plan. Unexercised options, which were previously issued under the 2003 Plan, were not terminated, but continued in accordance with the 2003 Plan and the agreements pursuant to which the options were issued.

The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the table below. Expected volatilities are based on historical volatilities of the Company's common stock. The Company uses historical data to estimate option exercise and post-vesting termination behavior. Employee and management options are tracked separately. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.

The fair value of options granted was determined using the following weighted average assumptions as of grant date.

	2014			2013			2012

Risk-free interest rate		2.08	%		1.35	%		1.29	%
Expected term (years)		7.00			7.00			7.00
Expected stock price volatility		28.04	%		33.93	%		40.19	%
Dividend yield		2.49	%		1.77	%		0.42	%

A summary of the activity in the 2007 Stock Incentive Plan and the 2003 Plan for 2014 follows:

Options (restated for stock dividends and splits)	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value

Outstanding, beginning of year		402,139		$	13.79
Granted		31,327			16.11
Exercised		(6,950	)		9.50
Forfeited or expired		(48,726	)		18.48

Outstanding at end of year		377,790		$	13.46		4.9	$	2,817
Exercisable at year end		288,938		$	13.24		3.8	$	2,219
Fully vested and expected to vest		370,575		$	13.44		4.8	$	2,772

Information related to the 2007 Stock Incentive Plan and the 2003 Plan during each year follows:

	2014		2013		2012

Intrinsic value of options exercised	$	55	$	265	$	124
Cash received from option exercises		66		389		120
Tax benefit realized from option exercises		—		25		12
Weighted average (per share) fair value of options granted		3.78		4.16		4.88

The intrinsic value for stock options is calculated based on the exercise price of the underlying awards and the market price of the Company's common stock as of the reporting date for those options where the exercise price is less than the market price.

The Company recorded $160, $161, and $169 in stock option compensation expense during 2014, 2013, and 2012 to salaries and employee benefits. As of December 31, 2014, there was $302 of total unrecognized compensation cost related to nonvested stock options granted under the Plan. The cost is expected to be recognized over a weighted-average period of 2.1 years.

During the second quarter of 2013, the Executive Compensation Committee of the Board of Directors of the Company granted restricted stock awards in lieu of cash awards to certain executive officers pursuant to the Company's long-term incentive plan (the "LTIP"). Compensation expense is recognized over the vesting period of the awards based on the fair value of the stock at the issue date. The value of the awards was determined by multiplying the award amount by the closing price of a share of Company common stock on the grant date, April 10, 2013 ($13.67). The restricted stock awards vest as follows — 80% on the second anniversary of the date of grant and 20% on the third anniversary of the date of grant. A total of 10,792 shares of common stock was granted in 2013.

Also in the second quarter of each of 2014 and 2013, the Executive Compensation Committee of the Board of Directors of the Company granted restricted stock awards to certain executive officers and other employees pursuant to the Company's LTIP. Compensation expense is recognized over the vesting period of the awards based on the fair value of the stock at the issue date. The value of the awards was determined by multiplying the award amount by the closing price of a share of Company common stock on the grant date. The restricted stock awards vest as follows — 100% on the third anniversary of the date of grant. A total of 34,337 shares of common stock of the Company were granted in 2014 and 37,179 shares of common stock were granted in 2013.

A summary of changes in the Company's nonvested shares for 2014 follows:

	Shares			Weighted Average Grant Date Fair Value

Nonvested at January 1, 2014		105,283		$	12.85
Granted		34,337			16.30
Vested		(47,697	)		11.43
Forfeited		—			—

Nonvested at December 31, 2014		91,923		$	14.88

As of December 31, 2014, there was $765 of total unrecognized compensation costs related to nonvested restricted stock awards granted under the 2007 Stock Incentive Plan that will be recognized over the remaining vesting period of approximately 1.20 years. The recognized compensation costs related to the 2007 Stock Incentive Plan was $487, $590, and $322 for the 2014, 2013, and 2012 respectively.

During the second quarter of 2012, members of the Board of Directors of the Company were also given the option of having their retainer paid in cash, Company stock, or a combination of cash and stock. The retainer was paid quarterly on May 1, August 1, and November 1, 2012, and February 1, 2013, for all directors serving on the Board on those dates. The value of the quarterly awards paid in stock was determined by multiplying the award amount by the average closing price of a share of Company common stock on the five trading days prior to the issuance of the stock.

In the second quarters of 2013 and 2014, members of the Board of Directors received their entire annual retainer in restricted Company stock for the following year. The awards vest quarterly for all directors who remain on the Board of Directors on the vesting date, with 25% of the award vesting on each of May 1, August 1, and November 1, and February 1, of the following year. The value of the retainer awards was determined by multiplying the award amount by the closing price of the stock on the issuance date.

For all awards, other expense is recognized over the three month period of the awards based on the fair value of the stock at the issue dates. Shares awarded by quarter were as follows:

Quarter		Shares		Price per Share

2012	1Q		8,750	$	9.29
	2Q		7,200	$	11.83
	3Q		7,200	$	11.58
	4Q		7,200	$	12.25
2013	1Q		7,200	$	13.38
	2Q		26,100	$	13.79
2014	2Q		21,780	$	16.53

A total of $359, $367, and $338 was recognized as expense in 2014, 2013, and 2012 for these grants.