MainSource Financial Group (MSFG)

Loans, Credit Risk and the Allowance and Provision for Loan Losses

       Loans remain the Company's largest concentration of assets and continue to represent the greatest potential risk. The loan underwriting standards observed by the Company's subsidiaries are viewed by management as a means of controlling problem loans and the resulting charge-offs.

       The Company's conservative loan underwriting standards have historically resulted in higher loan quality and generally lower levels of net charge-offs than peer group averages. The Company also believes credit risks may be elevated if undue concentrations of loans in specific industry segments and to out-of-area borrowers are incurred. Accordingly, the Company's Board of Directors regularly monitors such concentrations to determine compliance with its loan concentration policy. The Company believes it has no undue concentrations of loans.

       Total loans (excluding those held for sale) increased by $301,923 from year-end 2007. The acquisition of 1st Independence in August 2008 accounted for $236,992 of the increase in loans. The $64,931 of organic loan growth was primarily concentrated in the commercial real estate area. Residential real estate loans continue to represent the largest portion of the total loan portfolio and were 44% of total loans at December 31, 2008 compared to 46% of total loans at the end of 2007.

       The following table details the Company's loan portfolio by type of loan.

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Table of Contents

Loans, Credit Risk and the Allowance and Provision for Loan Losses

       Loans remain the Company's largest concentration of assets and continue to represent the greatest potential risk. The loan underwriting
standards observed by the Company's subsidiaries are viewed by management as a means of controlling problem loans and the resulting charge-offs.

       The
Company's conservative loan underwriting standards have historically resulted in higher loan quality and generally lower levels of net charge-offs than peer group
averages. The Company also believes credit risks may be elevated if undue concentrations of loans in specific industry segments and to out-of-area borrowers are incurred.
Accordingly, the Company's Board of Directors regularly monitors such concentrations to determine compliance with its loan concentration policy. The Company believes it has no undue concentrations of
loans.

       Total
loans (excluding those held for sale) increased by $301,923 from year-end 2007. The acquisition of 1st Independence in August 2008 accounted for $236,992 of the
increase in loans. The $64,931 of organic loan growth was primarily concentrated in the commercial real estate area. Residential real estate loans continue to represent the largest portion of the
total loan portfolio and were 44% of total loans at December 31, 2008 compared to 46% of total loans at the end of 2007.

       The
following table details the Company's loan portfolio by type of loan.

20

HREF="#bg46801a_main_toc">Table of Contents

Loans, Credit Risk and the Allowance and Provision for Loan Losses

       Loans remain the Company's largest concentration of assets and continue to represent the greatest potential risk. The loan underwriting
standards observed by the Company's subsidiaries are viewed by management as a means of controlling problem loans and the resulting charge-offs.

       The
Company's conservative loan underwriting standards have historically resulted in higher loan quality and generally lower levels of net charge-offs than peer group
averages. The Company also believes credit risks may be elevated if undue concentrations of loans in specific industry segments and to out-of-area borrowers are incurred.
Accordingly, the Company's Board of Directors regularly monitors such concentrations to determine compliance with its loan concentration policy. The Company believes it has no undue concentrations of
loans.

       Total
loans (excluding those held for sale) increased by $301,923 from year-end 2007. The acquisition of 1st Independence in August 2008 accounted for $236,992 of the
increase in loans. The $64,931 of organic loan growth was primarily concentrated in the commercial real estate area. Residential real estate loans continue to represent the largest portion of the
total loan portfolio and were 44% of total loans at December 31, 2008 compared to 46% of total loans at the end of 2007.

       The
following table details the Company's loan portfolio by type of loan.

20

HREF="#bg46801a_main_toc">Table of Contents

Loans, Credit Risk and the Allowance and Provision for Loan Losses

       Loans remain the Company's largest concentration of assets and continue to represent the greatest potential risk. The loan underwriting standards observed by the Company's subsidiaries are viewed by management as a means of controlling problem loans and the resulting charge-offs.

       The Company's conservative loan underwriting standards have historically resulted in higher loan quality and generally lower levels of net charge-offs than peer group averages. The Company also believes credit risks may be elevated if undue concentrations of loans in specific industry segments and to out-of-area borrowers are incurred. Accordingly, the Company's Board of Directors regularly monitors such concentrations to determine compliance with its loan concentration policy. The Company believes it has no undue concentrations of loans.

       Total loans (excluding those held for sale) increased by $119 million from year-end 2006. The increase in commercial loans (including commercial real estate and construction and development loans) was the primary driver of this increase. In total, commercial loans grew by $133 million, or approximately 20%. Residential real estate loans continue to represent the largest portion of the total loan portfolio. With the acquisition of the three thrift institutions in 2006 and their corresponding large residential real estate portfolios, such loans represented 46% of total loans at December 31, 2007 compared to 50% of total loans at the end of 2006.

       The following table details the Company's loan portfolio by type of loan.

16

Loans, Credit Risk and the Allowance and Provision for Loan Losses

       Loans remain the Company's largest concentration of assets and continue to represent the greatest potential risk. The loan underwriting standards observed by the
Company's subsidiaries are viewed by management as a means of controlling problem loans and the resulting charge-offs.

       The
Company's conservative loan underwriting standards have historically resulted in higher loan quality and generally lower levels of net charge-offs than peer group averages. The
Company also believes credit risks may be elevated if undue concentrations of loans in specific industry segments and to out-of-area borrowers are incurred. Accordingly, the
Company's Board of Directors regularly monitors such concentrations to determine compliance with its loan concentration policy. The Company believes it has no undue concentrations of loans.

       Total
loans (excluding those held for sale) increased by $119 million from year-end 2006. The increase in commercial loans (including commercial real estate and construction and
development loans) was the primary driver of this increase. In total, commercial loans grew by $133 million, or approximately 20%. Residential real estate loans continue to represent the
largest portion of the total loan portfolio. With the acquisition of the three thrift institutions in 2006 and their corresponding large residential real estate portfolios, such loans represented 46%
of total loans at December 31, 2007 compared to 50% of total loans at the end of 2006.

       The
following table details the Company's loan portfolio by type of loan.

16

Loans, Credit Risk and the Allowance and Provision for Loan Losses

Loans remain the Company’s largest concentration of assets and continue to represent the greatest potential risk. The loan underwriting standards observed by the Company’s subsidiaries are viewed by management as a means of controlling problem loans and the resulting charge-offs.

The Company’s conservative loan underwriting standards have historically resulted in higher loan quality and generally lower levels of net charge-offs than peer group averages. The Company also believes credit risks may be elevated if undue concentrations of loans in specific industry segments and to out-of-area borrowers are incurred. Accordingly, the Company’s Board of Directors regularly monitors such concentrations to determine compliance with its loan concentration policy. The Company believes it has no undue concentrations of loans.

Total loans (excluding those held for sale) increased by $616,389 from year-end 2005. The increase was primarily related to the acquisitions in 2006, which added approximately $598 million in net loans. Excluding the acquisition-related activity, the Company’s total loan portfolio increased by approximately $18 million. Residential real estate loans continue to represent the largest portion of the total loan portfolio.  With the acquisition of the three thrift institutions in 2006 and their corresponding large residential real estate portfolios, such loans represented 50.2% of total loans at December 31, 2006 compared to 38.5% of total loans at the end of 2005.

The following table details the Company’s loan portfolio by type of loan.

Loans, Credit Risk and the Allowance and Provision for Loan Losses

Loans remain the Company’s largest concentration of assets and continue to represent the greatest potential risk. The loan underwriting standards observed by the Company’s subsidiaries are viewed by management as a means of controlling problem loans and the resulting charge-offs.

The Company’s conservative loan underwriting standards have historically resulted in higher loan quality and generally lower levels of net charge-offs than peer group averages. The Company also believes credit risks may be elevated if undue concentrations of loans in specific industry segments and to out-of- area borrowers are incurred. Accordingly, the Company’s Board of Directors regularly monitors such concentrations to determine compliance with its loan concentration policy. The Company believes it has no undue concentrations of loans.

Total loans (excluding those held for sale) increased by $28,990 from year-end 2004. The increase was primarily related to the acquisition of Madison, which added $54,835 in net loans. Excluding the acquisition of Madison, the Company’s total loan portfolio decreased by $25,845. This decrease was due primarily to pay offs of approximately $35,000 in the Company’s hotel loan portfolio.  Residential real estate loans continue to represent the largest portion of the total loan portfolio.  Such loans represented 38.5% and 38.1% of total loans at December 31, 2005 and 2004, respectively.

The following table details the Company’s loan portfolio by type of loan.