Dividend Restrictions and Regulatory Capital

The approval of the Office of the Comptroller of the Currency is required if the total of all dividends declared by a national bank in any calendar year exceeds the bank's retained net income, as defined, for that year combined with its retained net income for the preceding two calendar years. Under this formula, the Bank can distribute as dividends to the Company, without the approval of the Office of the Comptroller of the Currency, $16,011,000 as of December 31, 2017. Dividends paid by the Bank to the Company are the only significant source of funding for dividends paid by the Company to its shareholders.

Banks and bank holding companies are subject to various 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 certain regulatory action. The final rules implementing Basel Committee on Banking Supervision's capital guidelines for U.S. banks (Basel III rules) became effective for the Company on January 1, 2015 with full compliance with all of the requirements being phased-in over a multi-year schedule, and fully phased-in by January 1, 2019. The net unrealized gain or loss on available for sale securities and unfunded pension liability is included in computing regulatory capital. Management believes as of December 31, 2017, the Company and Bank meet all capital adequacy requirements to which they are subject.

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. At year-end 2017 and 2016, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Bank's category.

Actual and required capital amounts (in thousands) and ratios are presented below at year-end:



	Actual				Required for Capital Adequacy Purposes*				To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
December 31, 2017
Common Equity Tier 1
Company	$	166,968	11.50	%	$	83,476	>5.75	%
Bank	184,656		12.79		83,024		>5.75		$	93,854	>6.50	%

Tier 1 Capital
Company	194,794		13.42		105,253		>7.25
Bank	184,656		12.79		104,683		>7.25		115,512		>8.00

Total Capital
Company	208,973		14.39		134,288		>9.25
Bank	198,465		13.75		133,561		>9.25		144,390		>10.00

Leverage Capital
Company	194,794		10.95		71,128		>4.00
Bank	184,656		10.43		70,796		>4.00		88,495		>5.00

December 31, 2016
Common Equity Tier 1
Company	$	158,350	11.77	%	$	68,972	>5.125	%
Bank	172,927		12.92		68,580		>5.125		$	86,979	>6.50	%

Tier 1 Capital
Company	186,074		13.83		89,159		>6.625
Bank	172,927		12.92		88,652		>6.625		107,051		>8.00

Total Capital
Company	199,375		14.81		116,075		>8.625
Bank	185,931		13.89		115,415		>8.625		133,814		>10.00

Leverage Capital
Company	186,074		11.67		63,761		>4.00
Bank	172,927		10.88		63,571		>4.00		79,464		>5.00

* Except with regard to the Company's and the Bank's leverage capital ratio, includes the current phased-in portion of the Basel III Capital Rules capital conservation buffer which is added to the minimum capital requirements for capital adequacy purposes. The capital conservation buffer requirement began being phased-in effective January 1, 2016, at 0.625% of risk-weighted assets, increasing by the same amount each year until fully implemented at 2.5% on January 1, 2019. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of common equity Tier 1 to risk-weighted assets above the minimum but below the conservation buffer will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall.