REGULATORY ACTION

3 Months Ended

Mar. 31, 2012

REGULATORY ACTION

REGULATORY ACTION

NOTE 10 — REGULATORY ACTION

The Federal Deposit Insurance Corporation (“FDIC”) and the Indiana Department of Financial Institutions (“Indiana DFI”) notified MainSource Bank (the “Bank”) that, effective March 16, 2012, it was no longer subject to the informal agreement entered into on April 22, 2010.  The informal agreement was not a “written agreement” for purposes of Section 8 of the Federal Deposit Insurance Act. Among its terms, the agreement documented an understanding among the Bank, the FDIC and the Indiana DFI that required the Bank to maintain its Tier 1 leverage ratio at a minimum of 8% and its total risk based capital ratio at a minimum of 11%. The agreement also required the Bank to obtain the approval of the FDIC and Indiana DFI prior to paying a cash dividend from the Bank to the Company.

The amount of dividends the Company can pay to its shareholders is subject to various legal and regulatory limitations. As a participant in the U.S. Treasury’s Capital Purchase Program, the Company was prohibited from increasing cash dividends on its common stock above $0.145 per share per quarter without prior government approval for a period of three years from the date of participation, which was January 16, 2009, unless the Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the “Preferred Stock”) issued to Treasury were no longer held by Treasury. As of January 16, 2012, the third anniversary of Treasury’s purchase of the Preferred Stock, this limitation lapsed.  Additionally, the terms of the Preferred Stock prohibit the Company’s payment of dividends on its common stock unless and until all accrued and unpaid dividends for all past dividend periods owed to the Treasury on the Preferred Stock are fully paid.  At all times the Company has paid all dividends on the Preferred Stock when due.