8.	Retained Earnings and Regulatory Capital

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

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below, in thousands) 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 June 30, 2011, that the Bank met all capital adequacy requirements to which it is subject.

As of June 30, 2011, the most recent notification from the Office of Thrift Supervision categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as adequately capitalized the Bank must maintain minimum total risk-based, Tier I leverage ratios, and tangible capital ratios as set forth in the table (amounts in thousands). The Bank's actual capital amounts (in thousands) and ratios are also presented in the table. There are no conditions or events since that notification that management believes have changed the institution's category.

	Actual					For Capital Adequacy Purposes:					To be Well Capitalized Under Prompt Corrective Action Provisions:
	Amount		Ratio			Amount		Ratio			Amount		Ratio

As of June 30, 2011:
Total capital (to Risk
Weighted Assets)	$	32,510		25.73	%	$	>10,107		>8.0	%	$	>12,634		>10.0	%
Core (Tier I) Capital (to
Risk Weighted Assets)	$	31,162		24.67	%		N/A		N/A		$	>7,580		>6.0	%
Core (Tier I) Capital (to
Total Assets)	$	31,162		13.29	%	$	>9,371		>4.0	%	$	>11,744		>5.0	%
Tangible Capital
(to Total Assets)	$	31,162		13.29	%	$	>3,523		>1.5	%		N/A		N/A

As of December 31, 2010:
Total capital (to Risk
Weighted Assets)	$	24,480		20.26	%	$	>9,666		>8.0	%	$	>12,083		>10.0	%
Core (Tier I) Capital (to
Risk Weighted Assets)	$	23,143		19.15	%		N/A		N/A		$	>7,250		>6.0	%
Core (Tier I) Capital (to
Total Assets)	$	23,143		9.37	%	$	>9,875		>4.0	%	$	>12,343		>5.0	%
Tangible Capital
(to Total Assets)	$	23,143		9.37	%	$	>3,703		>1.5	%		N/A		N/A

Capital for the Company is not significantly different than the amounts reflected above for the Bank. The following is a reconciliation of the Bank's equity under GAAP to regulatory capital at the dates indicated (dollars in thousands):

	June 30, 2011			December 31, 2010

GAAP equity	$	31,410		$	23,410
Accumulated other comprehensive unrealized gains		(248	)		(267	)
Tier 1 capital		31,162			23,143
Unrealized gains on available-for-sale securities		--			51
Allowance for loan losses		1,348			1,286
Total capital	$	32,510		$	24,480