REGULATORY MATTERS

12 Months Ended

Dec. 31, 2017

REGULATORY MATTERS

REGULATORY MATTERS

NOTE 19 — REGULATORY MATTERS

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 to be phased in between 0.0%  in 2015 to 2.5% by 2019.  The capital conservation buffer for 2017 is 1.25% 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.  The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital.  Actual and required capital amounts and ratios are presented below.  Management believes as of December 31, 2017, the Company and Bank met all capital adequacy requirements to which they were subject.

Prompt corrective action regulations provide five classifications:  well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition.  If adequately capitalized, regulatory approval is required to accept brokered deposits.  If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required.  At year-end 2017 and 2016, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.  There are no conditions or events since that notification that management believes have changed the Bank’s category.  The ratios below do not consider the capital conservation buffer.

					Required for				To Be
	Actual				Adequate Capital				Well Capitalized
December 31, 2017	Amount		Ratio		Amount		Ratio		Amount		Ratio
MainSource Financial Group
Total capital (to risk-weighted assets)	$	462,862	13.9	%	$	266,667	8.0	%		N/A	N/A
Tier 1 capital (to risk-weighted assets)		431,920	13.0			200,000	6.0			N/A	N/A
Common equity Tier 1 capital (to risk-weighted assets)		383,757	11.5			150,000	4.5			N/A	N/A
Tier 1 capital (to average assets)		431,920	9.7			178,488	4.0			N/A	N/A
MainSource Bank
Total capital (to risk-weighted assets)	$	452,411	13.6	%	$	266,925	8.0	%	$	333,656	10.0	%
Tier 1 capital (to risk-weighted assets)		429,868	12.9			200,194	6.0			266,925	8.0
Common equity Tier 1 capital (to risk-weighted assets)		429,868	12.9			150,145	4.5			216,877	6.5
Tier 1 capital (to average assets)		429,868	9.6			178,488	4.0			223,110	5.0

					Required for				To Be
	Actual				Adequate Capital				Well Capitalized
December 31, 2016	Amount		Ratio		Amount		Ratio		Amount		Ratio
MainSource Financial Group
Total capital (to risk-weighted assets)	$	407,802	14.7	%	$	222,095	8.0	%		N/A	N/A
Tier 1 capital (to risk-weighted assets)		385,303	13.9			166,571	6.0			N/A	N/A
Common equity Tier 1 capital (to risk-weighted assets)		344,212	12.4			124,928	4.5			N/A	N/A
Tier 1 capital (to average assets)		385,303	9.8			157,671	4.0			N/A	N/A
MainSource Bank
Total capital (to risk-weighted assets)	$	407,939	14.7	%	$	222,152	8.0	%	$	277,690	10.0	%
Tier 1 capital (to risk-weighted assets)		385,440	13.9			166,614	6.0			222,152	8.0
Common equity Tier 1 capital (to risk-weighted assets)		385,440	13.9			124,960	4.5			180,498	6.5
Tier 1 capital (to average assets)		385,440	9.8			157,390	4.0			196,737	5.0