CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED EARNINGS

12 Months Ended

Dec. 31, 2011

Notes to Financial Statements [Abstract]

CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED EARNINGS

NOTE 18 - CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED EARNINGS

The Company and Bank are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly discretionary, actions by regulators that, if undertaken, could have a direct material effect on the financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines that involve quantitative measures of the assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weighting and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and Bank to maintain minimum amounts and ratios (set forth in the following table) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of years ended December 31, 2011 and 2010, that the Company and Bank met all capital adequacy requirements to which they are subject.

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NOTE 18 - CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED EARNINGS (continued)

As of December 31, 2011, the most recent notification from the federal regulators categorized the Company and Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Company and Bank must maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the table. There have been no conditions or events since that notification that management believes have changed the Company’s or Bank’s category.

											Minimum Required to
						Minimum Required					Be Well Capitalized
						For Capital					Under Prompt Corrective
	Actual					Adequacy Purposes					Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio
						(dollars in thousands)
As of December 31, 2011:
Total Capital (to Risk
Weighted Assets)
Consolidated	$	322,827		13.57	%	$	190,324		8.00	%	NA		NA
Bank	$	318,040		13.39	%	$	189,980		8.00	%	$	237,475		10.00	%
Tier I Capital (to Risk
Weighted Assets)
Consolidated	$	292,787		12.31	%	$	95,162		4.00	%	NA		NA
Bank	$	288,053		12.13	%	$	94,990		4.00	%	$	142,485		6.00	%
Tier I Capital (to Average Assets)
Consolidated	$	292,787		10.13	%	$	115,655		4.00	%	NA		NA
Bank	$	288,053		10.02	%	$	115,018		4.00	%	$	143,772		5.00	%
As of December 31, 2010:
Total Capital (to Risk
Weighted Assets)
Consolidated	$	298,690		13.26	%	$	180,260		8.00	%	NA		NA
Bank	$	294,402		13.08	%	$	180,016		8.00	%	$	225,020		10.00	%
Tier I Capital (to Risk
Weighted Assets)
Consolidated	$	270,315		12.00	%	$	90,130		4.00	%	NA		NA
Bank	$	266,065		11.82	%	$	90,008		4.00	%	$	135,012		6.00	%
Tier I Capital (to Average Assets)
Consolidated	$	270,315		9.93	%	$	108,905		4.00	%	NA		NA
Bank	$	266,065		9.81	%	$	108,519		4.00	%	$	135,649		5.00	%

The Bank is required to obtain the approval of the Indiana Department of Financial Institutions for the payment of any dividend if the total amount of all dividends declared by the Bank during the calendar year, including the proposed dividend, would exceed the sum of the retained net income for the year-to-date combined with its retained net income for the previous two years. Indiana law defines “retained net income” to mean the net income of a specified period, calculated under the consolidated report of income instructions, less the total amount of all dividends declared for the specified period. As of December 31, 2011, approximately $37.0 million was available to be paid as dividends to the Company by the Bank.

The payment of dividends by any financial institution or its holding company is affected by the requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines and regulations, and a financial institution generally is prohibited from paying any dividends if, following payment thereof, the institution would be undercapitalized. As described above, the Bank exceeded its minimum capital requirements under applicable guidelines as of December 31, 2011. Notwithstanding the availability of funds for dividends, however, the FDIC may prohibit the payment of any dividends by the Bank if the FDIC determines such payment would constitute an unsafe or unsound practice.