STOCKHOLDERS' EQUITY

3 Months Ended

Mar. 31, 2012

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 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".

On March 9, 2012, the Bank entered into a new Consent Order with the FDIC and KDFI. The 2012 Consent Order requires the Bank to achieve the same minimum capital ratios set forth in the January 2011 Consent Order by June 30, 2012. See Note 2 for additional information.

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

(Dollars in thousands)						For Capital
	Actual					Adequacy Purposes
As of March 31, 2012:	Amount		Ratio			Amount		Ratio
Total risk-based capital (to risk- weighted assets)
Consolidated	$	78,673		10.28	%	$	61,219		8.00	%
Bank		81,829		10.70			61,208		8.00
Tier I capital (to risk-weighted assets)
Consolidated		69,008		9.02			30,609		4.00
Bank		72,157		9.43			30,604		4.00
Tier I capital (to average assets)
Consolidated		69,008		5.71			48,381		4.00
Bank		72,157		5.90			48,883		4.00

(Dollars in thousands)						For Capital
	Actual					Adequacy Purposes
As of December 31, 2011:	Amount		Ratio			Amount		Ratio
Total risk-based capital (to risk-weighted assets)
Consolidated	$	79,593		9.87	%	$	64,493		8.00	%
Bank		82,081		10.18			64,486		8.00
Tier I capital (to risk-weighted assets)
Consolidated		69,425		8.61			32,246		4.00
Bank		71,914		8.92			32,243		4.00
Tier I capital (to average assets)
Consolidated		69,425		5.71			48,666		4.00
Bank		71,914		5.86			49,111		4.00

The 2012 Consent Order requires the Bank to achieve the minimum capital ratios presented below by June 30 2012:

	Actual as of	Ratio Required
	3/31/2012	by Consent Order
Total capital to risk-weighted assets	10.70%	12.00%
Tier 1 capital to total assets	5.99%	9.00%

We have signed a definitive agreement to sell our four Indiana banking centers to First Savings Bank, F.S.B. The transaction is expected to increase our Tier I capital ratio by approximately 88 basis points and increase our total risk-based capital ratio by approximately 114 basis points. The sale is expected to close early in the third quarter of 2012. See Note 2 for additional information.