REGULATORY MATTERS

As required by the Economic Growth, Regulatory Relief, and Consumer Protection Act, in

August 2018,

the Federal Reserve Board issued an interim final rule that expanded applicability of the Board’s small bank holding company policy statement. The interim final rule raised the policy statement’s asset threshold from

billion to

billion in total consolidated assets for a bank holding company or savings and loan holding company that: (

) is

not

engaged in significant nonbanking activities; (

) does

not

conduct significant off-balance sheet activities; and (

) does

not

have a material amount of debt or equity securities, other than trust-preferred securities, outstanding. The interim final rule provides that, if warranted for supervisory purposes, the Federal Reserve

may

exclude a company from the threshold increase. Management believes the Corporation meets the conditions of the Federal Reserve’s small bank holding company policy statement and is therefore excluded from consolidated capital requirements at

December 31, 2019;

however, C&N Bank remains subject to regulatory capital requirements administered by the federal banking agencies.

Details concerning capital ratios at

December 31, 2019

and

December 31, 2018

are presented below. Management believes, as of

December 31, 2019,

that C&N Bank meets all capital adequacy requirements to which it is subject and maintains a capital conservation buffer (described in more detail below) that allows the Bank to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers. Further, as reflected in the table below, the Corporation’s and C&N Bank’s capital ratios at

December 31, 2019

and

December 31, 2018

exceed the Corporation’s Board policy threshold levels.

(Dollars in Thousands)																Minimum To Be Well
						Minimum					Minimum To Maintain					Capitalized Under					Minimum To Meet
						Capital					Capital Conservation					Prompt Corrective					the Corporation's
	Actual					Requirement					Buffer at Reporting Date					Action Provisions					Policy Thresholds
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
December 31, 2019:
Total capital to risk-weighted assets:
Consolidated	$	228,057		20.70	%		N/A		N/A			N/A		N/A			N/A		N/A		$	115,689	≥10.5	%
C&N Bank		205,863		18.75	%		87,817	≥8		%		115,260	≥10.5		%		109,771	≥10		%		115,260	≥10.5	%
Tier 1 capital to risk-weighted assets:
Consolidated		211,388		19.19	%		N/A		N/A			N/A		N/A			N/A		N/A			93,653	≥8.5	%
C&N Bank		195,694		17.83	%		65,863	≥6		%		93,306	≥8.5		%		87,817	≥8		%		93,306	≥8.5	%
Common equity tier 1 capital to risk-weighted assets:
Consolidated		211,388		19.19	%		N/A		N/A			N/A		N/A			N/A		N/A			77,126	≥7	%
C&N Bank		195,694		17.83	%		49,397	≥4.5		%		76,840	≥7.0		%		71,351	≥6.5		%		76,840	≥7	%
Tier 1 capital to average assets:
Consolidated		211,388		13.10	%		N/A		N/A			N/A		N/A			N/A		N/A			129,126	≥8	%
C&N Bank		195,694		12.24	%		63,940	≥4		%		N/A		N/A			79,925	≥5		%		127,879	≥8	%

December 31, 2018:
Total capital to risk-weighted assets:
Consolidated	$	199,226		24.42	%		N/A		N/A			N/A		N/A			N/A		N/A		$	85,653	≥10.5	%
C&N Bank		176,499		21.75	%		64,916	≥8		%		80,130	≥9.875		%		81,145	≥10		%		85,202	≥10.5	%
Tier 1 capital to risk-weighted assets:
Consolidated		189,589		23.24	%		N/A		N/A			N/A		N/A			N/A		N/A			69,338	≥8.5	%
C&N Bank		166,862		20.56	%		48,687	≥6		%		63,901	≥7.875		%		64,916	≥8		%		68,976	≥8.5	%
Common equity tier 1 capital to risk-weighted assets:
Consolidated		189,589		23.24	%		N/A		N/A			N/A		N/A			N/A		N/A			57,102	≥7	%
C&N Bank		166,862		20.56	%		36,515	≥4.5		%		51,730	≥6.375		%		52,744	≥6.5		%		56,801	≥7	%
Tier 1 capital to average assets:
Consolidated		189,589		14.78	%		N/A		N/A			N/A		N/A			N/A		N/A			102,634	≥8	%
C&N Bank		166,862		13.16	%		50,715	≥4		%		N/A		N/A			63,394	≥5		%		101,430	≥8	%

July 2013,

the federal regulatory authorities issued a new capital rule based, in part, on revisions developed by the Basel Committee on Banking Supervision to the Basel capital framework (Basel III). This capital rule provides that, to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, a banking organization subject to the rule must hold a capital conservation buffer composed of common equity tier

capital above its minimum risk-based capital requirements. The buffer is measured relative to risk-weighted assets. In

2019,

the minimum risk-based capital ratios, and the capital ratios including the capital conservation buffer, are as follows:

Minimum common equity tier 1 capital ratio			4.5%
Minimum common equity tier 1 capital ratio plus capital conservation buffer			7.0%
Minimum tier 1 capital ratio			6.0%
Minimum tier 1 capital ratio plus capital conservation buffer			8.5%
Minimum total capital ratio			8.0%
Minimum total capital ratio plus capital conservation buffer			10.5%

A banking organization with a buffer greater than

2.5%

over the minimum risk-based capital ratios would

not

be subject to additional limits on dividend payments or discretionary bonus payments; however, a banking organization with a buffer less than

2.5%

would be subject to increasingly stringent limitations as the buffer approaches zero. Also, a banking organization is prohibited from making dividend payments or discretionary bonus payments if its eligible retained income is negative in that quarter and its capital conservation buffer ratio was less than

2.5%

as of the beginning of that quarter. Eligible net income is defined as net income for the

four

calendar quarters preceding the current calendar quarter, net of any distributions and associated tax effects

not

already reflected in net income. A summary of payout restrictions based on the capital conservation buffer is as follows:

Capital Conservation Buffer	Maximum Payout
(as a % of risk-weighted assets)	(as a % of eligible retained income)
Greater than 2.5%	No payout limitation applies
≤2.5% and >1.875%		60%
≤1.875% and >1.25%		40%
≤1.25% and >0.625%		20%
≤0.625%		0%

December 30, 2019,

C&N Bank’s Capital Conservation Buffer, determined based on the minimum total capital ratio, was

10.75%.

Banking regulators limit the amount of dividends that

may

be paid by C&N Bank to the Corporation. Retained earnings against which dividends

may

be paid without prior approval of the banking regulators amounted to approximately

$94,628,000

December 31, 2019,

subject to the minimum capital ratio requirements noted above.

Restrictions imposed by federal law prohibit the Corporation from borrowing from C&N Bank unless the loans are secured in specific amounts. Such secured loans to the Corporation are generally limited to

10%

of C&N Bank’s tangible stockholder’s equity (excluding accumulated other comprehensive income) or

$19,543,000

December 31, 2019.