NOTE 18—CAPITAL REQUIREMENTS AND RESTRICTION ON RETAINED EARNINGS

The Company and Citizens are subject to regulatory capital requirements administered by the 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 classification are also subject to qualitative judgments by the regulators. Failure to meet capital requirements can initiate regulatory action.

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 2014 and 2013, the most recent regulatory notifications categorized Citizens 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 institution’s category.

The Company’s and Citizens’ actual capital levels and minimum required levels at December 31, 2014 and 2013 were as follows.


	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Purposes
	Amount		Ratio			Amount		Ratio			Amount		Ratio
2014
Total Capital to risk-weighted assets
Consolidated	$	131,581		14.7	%	$	71,609		8.0	%		n/a		n/a
Citizens		111,470		12.5			71,341		8.0		$	89,176		10.0	%
Tier I (Core) Capital to risk-weighted assets
Consolidated		120,334		13.4			35,921		4.0			n/a		n/a
Citizens		100,259		11.2			35,807		4.0			53,710		6.0
Tier I (Core) Capital to average assets
Consolidated		120,334		10.3			46,732		4.0			n/a		n/a
Citizens		100,259		8.6			46,632		4.0			58,290		5.0

2013
Total Capital to risk-weighted assets
Consolidated	$	143,628		17.1	%	$	67,194		8.0	%		n/a		n/a
Citizens		104,884		12.5			67,126		8.0		$	83,907		10.0	%
Tier I (Core) Capital to risk-weighted assets
Consolidated		133,041		15.8			33,681		4.0			n/a		n/a
Citizens		94,302		11.2			33,679		4.0			50,519		6.0
Tier I (Core) Capital to average assets
Consolidated		133,041		11.6			45,876		4.0			n/a		n/a
Citizens		94,302		8.3			45,447		4.0			56,808		5.0

The Company’s primary source of funds for paying dividends to its shareholders and for operating expense is the cash accumulated from dividends received from Citizens. Payment of dividends by Citizens to the Company is subject to restrictions by Citizens’ regulatory agencies. These restrictions generally limit dividends to the current and prior two years retained earnings as defined by the regulations. In addition, dividends may not reduce capital levels below minimum regulatory requirements.