REGULATORY CAPITAL

9 Months Ended

Sep. 30, 2015

REGULATORY CAPITAL

REGULATORY CAPITAL

NOTE 9 — REGULATORY CAPITAL

Banks and bank holding companies are subject to various regulatory capital requirements administered by the federal banking agencies and are assigned to a capital category. The assigned capital category is largely determined by four ratios that are calculated according to the regulations. The ratios are intended to measure capital relative to assets and credit risk associated with those assets and off-balance sheet exposures. The capital category assigned to an entity can also be affected by qualitative judgments made by regulatory agencies about the risk inherent in the entity’s activities that are not part of the calculated ratios.

On July 2, 2013, the Federal Reserve approved a final rule that establishes an integrated regulatory capital framework. The rule implements the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-Frank Act. In general, under the new rules, minimum requirements have increased for both the quantity and quality of capital held by banking organizations. Consistent with the international Basel framework, the new rules include a new minimum ratio of common equity Tier 1 capital to risk-weighted assets of 4.5% and a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets that applies to all supervised financial institutions. The rule also raises the minimum ratio of Tier 1 capital to risk-weighted assets from 4% to 6% and includes a minimum leverage ratio of 4% for all banking organizations. The new rules also change the methodology for calculating risk-weighted assets to enhance risk sensitivity and became effective on January 1, 2015.

Actual and required capital amounts and ratios are presented below:

					Required for
	Actual				Adequate Capital				To Be Well Capitalized
September 30, 2015	Amount		Ratio		Amount		Ratio		Amount		Ratio
MainSource Financial Group
Total capital (to risk-weighted assets)	$	344,309	15.6	%	$	176,782	8.0	%	N/A		N/A
Tier 1 capital (to risk-weighted assets)	322,286		14.6		132,587		6.0		N/A		N/A
Common equity Tier 1 capital (to risk-weighted assets	281,286		12.7		99,440		4.5		N/A		N/A
Tier 1 capital (to average assets)	322,286		10.0		128,302		4.0		N/A		N/A
MainSource Bank
Total capital (to risk-weighted assets)	329,420		14.9	%	177,083		8.0	%	$	231,354	10.0	%
Tier 1 capital (to risk-weighted assets)	307,397		13.9		132,812		6.0		177,083		8.0
Common equity Tier 1 capital (to risk-weighted assets	307,397		13.9		99,609		4.5		143,880		6.5
Tier 1 capital (to average assets)	307,397		9.7		127,153		4.0		158,942		5.0

					Required for				To Comply with
	Actual				Adequate Capital				Regulatory Agreement
December 31, 2014	Amount		Ratio		Amount		Ratio		Amount		Ratio
MainSource Financial Group
Total capital (to risk-weighted assets)	$	332,726	16.0	%	$	165,975	8.0	%	N/A		N/A
Tier 1 capital (to risk-weighted assets)	309,476		14.9		82,988		4.0		N/A		N/A
Tier 1 capital (to average assets)	309,476		10.2		121,014		4.0		N/A		N/A
MainSource Bank
Total capital (to risk-weighted assets)	321,005		15.6	%	164,648		8.0	%	$	205,810	10.0	%
Tier 1 capital (to risk-weighted assets)	297,755		14.5		82,324		4.0		123,486		6.0
Tier 1 capital (to average assets)	297,755		9.9		119,880		4.0		149,850		5.0

Management believes as of September 30, 2015, the Company and the Bank (as defined in Item 2 below) met all capital adequacy requirements to which they are subject to be considered well-capitalized. The Company is a source of additional financial strength to the Bank with its $8,500 in cash and its ability to downstream additional capital to the Bank.