REGULATORY CAPITAL

6 Months Ended

Jun. 30, 2016

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. Additionally, in order to avoid limitations on capital distributions, the Company will be required to maintain a capital conservation buffer above the adequately capitalized regulatory capital ratios. The capital conservation buffer is being phased in from 0.00% in 2015 to 2.50% in 2019. At June 30, 2016, the capital conservation buffer is 0.625%. At June 30, 2016, the capital levels for the Company and its subsidiary bank remained well in excess of the minimum amounts needed for capital adequacy purposes. 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				To Be
	Actual				Adequate Capital				Well Capitalized
June 30, 2016	Amount		Ratio		Amount		Ratio		Amount		Ratio
MainSource Financial Group
Total capital (to risk-weighted assets)	$	389,211	14.5	%	$	214,229	8.0	%		N/A	N/A
Tier 1 capital (to risk-weighted assets)		367,727	13.7			160,672	6.0			N/A	N/A
Common equity Tier 1 capital (to risk-weighted assets)		326,853	12.2			120,504	4.5			N/A	N/A
Tier 1 capital (to average assets)		367,727	10.3			142,744	4.0			N/A	N/A
MainSource Bank
Total capital (to risk-weighted assets)		390,722	14.6	%		214,228	8.0	%		267,784	10.0	%
Tier 1 capital (to risk-weighted assets)		369,238	13.8			160,671	6.0			214,228	8.0
Common equity Tier 1 capital (to risk-weighted assets)		369,238	13.8			120,503	4.5			174,060	6.5
Tier 1 capital (to average assets)		369,238	10.4			142,454	4.0			178,067	5.0

					Required for				To Be
	Actual				Adequate Capital				Well Capitalized
December 31, 2015	Amount		Ratio		Amount		Ratio		Amount		Ratio
MainSource Financial Group
Total capital (to risk-weighted assets)	$	356,210	15.5	%	$	184,170	8.0	%		N/A	N/A
Tier 1 capital (to risk-weighted assets)		334,190	14.5			138,127	6.0			N/A	N/A
Common equity Tier 1 capital (to risk-weighted assets)		293,316	12.7			103,595	4.5			N/A	N/A
Tier 1 capital (to average assets)		334,190	10.2			130,845	4.0			N/A	N/A
MainSource Bank
Total capital (to risk-weighted assets)	$	334,266	14.5	%		184,168	8.0	%		230,211	10.0	%
Tier 1 capital (to risk-weighted assets)		312,246	13.6			138,126	6.0			184,168	8.0
Common equity Tier 1 capital (to risk-weighted assets)		312,246	13.6			103,595	4.5			149,637	6.5
Tier 1 capital (to average assets)		312,246	9.6			130,555	4.0			163,194	5.0

Management believes as of June 30, 2016, the Company and the Bank 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 $21,000 in cash and its ability to downstream additional capital to the Bank.