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, $24,374,000 as of December 31, 2018. Dividends paid by the Bank to the Company are the only significant source of funding for dividends paid by the Company to its shareholders.

Federal bank regulators have issued substantially similar guidelines requiring banks and bank holding companies to maintain capital at certain levels. In addition, regulators may from time to time require that a banking organization maintain capital above the minimum levels because of its financial condition or actual or anticipated growth. Failure to meet minimum capital requirements can trigger certain mandatory and discretionary actions by regulators that could have a direct material effect on the Company’s financial condition and results of operations.

The Federal Reserve and Office of the Comptroller of the Currency have adopted rules to implement the Basel III capital framework as outlined by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Basel III Capital Rules"). The Basel III Capital Rules require banks and bank holding companies to comply with certain minimum capital ratios, plus a "capital conservation buffer," as set forth in the table below. The capital conservation buffer requirement was phased in beginning on January 1, 2016, at 0.625% of risk-weighted assets, and increased by the same amount each year until it was fully implemented at 2.5% on January 1, 2019. The capital conservation buffer is designed to absorb losses during periods of economic stress and is applicable to all ratios except the leverage capital ratio.

The Company meets the eligibility criteria of a small bank holding company in accordance with the Federal Reserve’s Small Bank Holding Company Policy Statement (the "SBHC Policy Statement"). Under the SBHC Policy Statement, qualifying bank holding companies, such as the Company, have additional flexibility in the amount of debt they can issue and are also exempt from the Basel III Capital Rules. However, the Company does not currently intend to issue a material amount of debt or take any other action that would cause its capital ratios to fall below the minimum ratios required by the Basel III Capital Rules. The SBHC Policy Statement does not apply to the Bank and the Bank must comply with the Basel III Capital Rules. The Bank must also comply with the capital requirements set forth in the "prompt corrective action" regulations pursuant to Section 38 of the Federal Deposit Insurance Act. The minimum capital ratios to be considered "well capitalized" are set forth in the table below.

Management believes that as of December 31, 2018, the Company and Bank meet all capital adequacy requirements to which they are subject. At year-end 2018 and 2017, 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, 2018
Common Equity Tier 1
Company	$	183,579	12.55	%	$	65,843	>4.50	%
Bank	198,991		13.68		92,740		>6.375		$	94,559	>6.50	%

Tier 1 Capital
Company	211,506		14.46		87,791		>6.00
Bank	198,991		13.68		114,561		>7.875		116,380		>8.00

Total Capital
Company	224,528		15.35		117,054		>8.00
Bank	212,013		14.57		143,656		>9.875		145,475		>10.00

Leverage Capital
Company	211,506		11.62		72,817		>4.00
Bank	198,991		10.99		72,422		>4.00		90,528		>5.00

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

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*	Except with regard to the Company's and the Bank's leverage capital ratio, includes the phased-in portion of the Basel III Capital Rule's capital conservation buffer.