At year-end, capital levels for the Bancorp and the Bank were essentially the same. Actual capital levels (in millions), minimum required levels and levels needed to be classified as well capitalized for the Bancorp are summarized below: Minimum Required To Be Well Capitalized Minimum Required  Under Prompt for Capital Corrective Actual Adequacy Purposes Action Regulations _______________ _______________ _____________ (Dollars in millions) Amount Ratio Amount Ratio Amount Ratio _______ ______ ______ _____ ______ _____ 2010 Total capital to  risk-weighted assets............... $61.5 12.9% $38.0 8.0% $47.6 10.0% Tier 1 capital to  risk-weighted assets............... $55.5 11.7% $19.0 4.0% $28.5 6.0% Tier 1 capital to  adjusted average assets........... $55.5 8.5% $19.5 3.0% $32.6 5.0% 2009 Total capital to  risk-weighted assets............... $58.7 11.5% $40.8 8.0% $51.0 10.0% Tier 1 capital to  risk-weighted assets............... $52.6 10.3% $20.4 4.0% $30.6 6.0% Tier 1 capital to  adjusted average assets........... $52.6 7.8% $20.1 3.0% $33.5 5.0% The Bancorp’s ability to pay dividends is entirely dependent upon the Bank’s ability to pay dividends to the Bancorp. The FDIC and the Federal Reserve Board may prohibit the payment of dividends if it determines that the payment of dividends would constitute an unsafe or unsound practice in light of the financial condition of the Bank. During the second quarter of 2010, the Federal Reserve Bank of Chicago (the Reserve Bank) notified the Bancorp’s management that future shareholder dividend payments would require Reserve Bank permission in accor- dance with Supervisory Letter 09-4. The Reserve Bank’s requirement to approve future dividend payments was a result of the Bancorp’s $1,400,000 net loss recorded during the third quarter of 2009. During the third quarter of 2010, the FDIC notified the Bancorp’s management that dividend payments from the Bank to the Bancorp would require prior approval from the FDIC. The FDIC’s requirement to approve future dividend payments from the Bank to the Bancorp was a result of the Bank’s elevated level of substan- dard assets. Moreover, pursuant to a resolution adopted by the Bank’s Board of Directors adopted at the direction of  the Indiana Department of Financial Institutions (DFI)  and the FDIC, the Bank must obtain the consent of the  DFI and FDIC prior to any declaration of dividends. A similar resolution requiring prior written approval by the Federal Reserve Bank of Chicago of Bancorp dividends was adopted by the Bancorp’s Board of Directors on January 28, 2011. On December 17, 2010, the Bancorp announced that the Board of Directors of the Bancorp declared a fourth quarter dividend of $0.15 per share. The Bancorp’s fourth quarter dividend was paid to shareholders on January 4, 2011. During December 2010, the Reserve Bank, the  DFI, and the FDIC approved the fourth quarter dividend payments. The current dividend policy is reflective of the Bancorp Board’s commitment that the shareholder’s long term interests are best served through the preservation of capital in the current stressed economic environment.  36 Under Indiana law, the Bank may pay dividends of  so much of its undivided profits (generally, earnings less losses, bad debts, taxes and other operating expenses) as is considered expedient by the Bank’s Board of Directors. However, the Bank must obtain the approval of the DFI  for the payment of a dividend if the total of all dividends declared by the Bank during the current year, including  the proposed dividend, would exceed the sum of retained net income for the year-to-date plus its retained net income for the previous two years. For this purpose, “retained net income” means net income as calculated for call report purposes, less all dividends declared for the applicable period. Moreover, the FDIC and the Reserve Bank may prohibit the payment of dividends if it determines that  the payment of dividends would constitute an unsafe or unsound practice because of the financial condition of the Bancorp. The maximum aggregate amount of dividends, subject to regulatory approval, which may be declared by the Bank in 2011 approximates $3,657,000 plus current 2011 net profits.  NOTE 12 - Stock Based Compensation The Bancorp’s 2004 Stock Option Plan (the Plan), which is stockholder-approved, permits the grant of share options to its employees for up to 250,000 shares of common stock. Awards granted under the Plan may be in the form of incentive stock options, non-incentive stock options, or restricted stock. The purposes of the Plan are to attract and retain the best available personnel, to provide additional incentives for all employees and to encourage their continued employment by facilitating employees’ purchases of an equity interest in the Bancorp. Option awards are generally granted with an exercise price equal to the market price of the Bancorp’s common stock at the date of grant; those option awards have five year vesting periods and have 10-year contractual terms. Total compensation cost that has been charged against income for incentive stock options was $1,000 for 2010 and 2009.  The fair value of each incentive stock option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model. Expected volatilities are based on historical volatilities of the Company’s common stock. No incentive stock options were granted during 2010 or 2009. The Company uses historical data to estimate option exercise and post-vesting termination behavior. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.