NOTE I.

EMPLOYEE BENEFIT PLANS

The Bank has an employee stock ownership plan which is designed to invest primarily in employer stock. All employees of the Bank with one year of service and who are at least 21 years old are covered, and are fully vested after six years of service. Employer contributions are determined annually at the discretion of the Board of Directors and are allocated among participants on the basis of their total annual compensation. Dividends on stock owned by the plan are recorded as a reduction of retained earnings. There were no Company contributions to the plan for the years 2011 or 2010. The plan owned 85,105 and 85,373 shares of Company stock, as of December 31, 2011 and 2010, respectively.

The overall cost to the plan for the years ended December 31, 2011 and 2010, was $9.48 and $9.46 per share, respectively.

Employees age 21 and older are eligible to participate in a 401(k) plan established by the Bank. Under this plan, employees may defer a percentage of their salaries, subject to limits based on federal tax laws. These deferrals are immediately vested. Employer matching and profit sharing contributions are non-mandatory and 100% vested after six years. Employer contributions to the plan are made at the discretion of the Board of Directors and aggregated $127,130 and $122,673 for the years ended December 31, 2011 and 2010, respectively.

The Company maintains a long-term incentive plan, the Britton Koontz Capital Corporation 2007 Long-Term Incentive Compensation Plan (the “2007 LTIP”), in which all employees of the Company and its subsidiaries may participate. The plan is administered by a committee of at least two non-employee directors appointed by the full Board of Directors. The 2007 LTIP was approved by the Company's shareholders on April 24, 2007. There were 86,630 shares remaining available for grant or award under the Company's prior incentive plan that have been added to the shares available for grant or award under the 2007 LTIP. The Company has granted options to purchase a total of 142,143 shares, including 98,643 from the prior plan (all of which have expired), and 43,500 from the 2007 LTIP. An aggregate of 80,500 shares remained available for grant or award at December 31, 2011, under the 2007 LTIP. The Company awarded 7,000 shares of restricted stock during 2011 and 9,000 shares in 2010, but it did not grant any stock options in 2011 or 2010. There were 4,000 shares of previously granted restricted stock forfeited during 2011. Options to acquire 14,000 shares were outstanding and exercisable as of December 31, 2011.

The summary of stock option activity is shown below:

				Weighted
				Average
	Options			Exercise
	Outstanding			Price
December 31, 2009		32,120		$	16.35
Options granted		-			-
Options expired		(5,000	)		18.00
Options forfeited		-			-
December 31, 2010		27,120		$	16.04
Options granted		-			-
Options expired		(8,120	)		14.50
Options forfeited		(5,000	)		19.02
December 31, 2011		14,000		$	15.87

The following table summarizes information about stock options outstanding at December 31, 2011:

	Exercise Price	Options Outstanding		Remaining Contractual Life
$	19.02		9,000	.1 years
	10.20		5,000	1.4 years

The fair value of each option is estimated on the grant date using the Black-Scholes option pricing model. The following assumptions were made in estimating fair values in 2011 and 2010.

Assumption	2011	2010
Dividend yield	6.40%	6.34%
Risk free rate	.98%	1.40%
Expected life	2.5 years	2.5 years
Expected volatility	45.87%	57.85%

Share-based transactions are measured at the fair value of the equity instrument issued. Net income for 2011 and 2010 was reduced by $65,000 and $66,000, respectively, due to valuing stock options.

The Bank maintains a Salary Continuation Agreement with its chief executive officer. The agreement provides equal annual benefits for a period of 15 years following the later of (1) his attainment of age 65, or (2) his retirement. The maximum annual benefit that he may receive under the plan is $40,000, in which the chief executive is fully vested. If the chief executive dies while he is employed, his beneficiaries will be paid an annual benefit equal to $40,000 during the 15-year period following his date of death. If he dies after his installment payments have commenced, his beneficiaries will receive the remaining payments. The benefit under the Salary Continuation Agreement is subject to forfeiture if the chief executive is terminated for cause. The agreement also contains a non-competition covenant during the three-year period after his employment ceases for any reason. If he breaches this covenant, the Bank may cease all further payments. Finally, while the Formal Agreement between the Bank and the Office of the Comptroller of the Currency (described in Note M below) remains in place, the Bank is not permitted to make payments to the chief executive officer pursuant to this Salary Continuation Agreement without the prior approval of the Federal Deposit Insurance Corporation.

The Bank is also currently paying benefits to a retired executive officer pursuant to a salary continuation agreement. The financial statements for the years ended December 31, 2011 and 2010, include salary continuation expenses of $40,897 and $38,912, respectively.