NOTE 4. - STOCKHOLDERS' EQUITY

On July 17, 2012, the OCC imposed an individualized minimum capital requirement (“IMCR”) on the Bank, increasing its minimum leverage capital ratio from 4.0% to 8.5% and its total risk-based capital ratio from 8.0% to 12.5%, because of the Bank’s condition and risk profile.  As noted below, the Bank’s capital levels at September 30, 2012, exceeded the ratios required by the IMCR.  In addition to these minimum capital requirements, the Bank is required to have the capital ratios noted below to be deemed well-capitalized under the OCC prompt corrective action regulations.  The Bank was well-capitalized at September 30, 2012.  The Bank’s regulatory capital is characterized as “well capitalized” due to the issuance of preferred stock under the U.S. Treasury Capital Purchase Program. The Company received $12,643,000 from the U.S. Treasury through the sale of 12,643 shares of preferred stock. The Company also issued to the U.S. Treasury a warrant to purchase 351,194 shares of common stock at $5.40 per share. The preferred shares pay a cumulative dividend of 5% per year for the first five years and 9% per year thereafter.  The preferred shares are redeemable at any time by the Company at 100% of the issue price, subject to the approval of the Company’s and the Bank’s federal regulators.  The following table presents the Bank’s regulatory capital ratios at September 30, 2012:

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1.  Tier 1 Capital to Total Assets of $489.5 million.

2.  Tier 1 Capital to Risk-Weighted Assets of $405.5 million.

3.  Total Capital to Risk-Weighted Assets of $405.5 million.

The Company’s primary source of funds for the payment of dividends to its common and preferred stockholders is dividends received from the Bank.  Under a written agreement between the OCC and the Bank, the Bank must receive OCC approval before paying a dividend to the Company.