STOCKHOLDERS' EQUITY

6 Months Ended

Jun. 30, 2011

STOCKHOLDERS' EQUITY

11.  STOCKHOLDERS’ EQUITY

Regulatory Capital Requirements – The Corporation and the Bank are subject to regulatory capital requirements administered by federal banking agencies.  Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices.  Capital amounts and classifications are also subject to qualitative judgments by regulators.  Failure to meet capital requirements can initiate regulatory action.

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.

Quantitative measures established by regulation to ensure capital adequacy require the Corporation and the 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).

As of June 30, 2011, the regulatory capital levels of the Corporation and the Bank exceeded “well-capitalized” standards. However, as a result of the Consent Order the Bank entered into with the FDIC and KDFI described in greater detail in Note 2, the Bank is categorized as a "troubled institution" by bank regulators, which by definition does not permit the Bank to be considered "well-capitalized" despite its current capital levels.

Our actual and required capital amounts and ratios are presented below.

(Dollars in thousands)						For Capital
	Actual					Adequacy Purposes
As of June 30, 2011:	Amount		Ratio			Amount		Ratio
Total risk-based capital (to risk-weighted assets)
Consolidated	$	89,849		10.30	%	$	69,779		8.00	%
Bank		91,426		10.48			69,784		8.00
Tier I capital (to risk-weighted assets)
Consolidated		78,862		9.04			34,890		4.00
Bank		80,438		9.22			34,892		4.00
Tier I capital (to average assets)
Consolidated		78,862		6.20			50,858		4.00
Bank		80,438		6.31			51,012		4.00

											To Be Considered
											Well Capitalized
											Under Prompt
(Dollars in thousands)						For Capital					Correction
	Actual					Adequacy Purposes					Action Provisions
As of December 31, 2010:	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total risk-based capital (to risk-weighted assets)
Consolidated	$	104,717		11.34	%	$	73,890		8.00	%		N/A		N/A
Bank		105,116		11.38			73,880		8.00			92,350		10.00
Tier I capital (to risk-weighted assets)
Consolidated		93,034		10.07			36,945		4.00			N/A		N/A
Bank		93,423		10.12			36,940		4.00			55,410		6.00
Tier I capital (to average assets)
Consolidated		93,034		7.16			52,003		4.00			N/A		N/A
Bank		93,423		7.18			52,082		4.00			65,103		5.00

In the Consent Order, a formal agreement with the FDIC and KDFI, the Bank agreed to achieve and maintain the capital ratios set forth in the following table: At March 31, 2011, and June 30, 2011, we were not in compliance with the Tier 1 and total risk-based capital requirements.

				Ratio Required			Ratio Required
	Actual as of			by the Order			by the Order
	6/30/2011			at 3/31/2011			at 6/30/2011
Total capital to risk-weighted assets		10.48	%		11.50	%		12.00	%
Tier 1 capital to average total assets		6.31	%		8.50	%		9.00	%