Note

20.

Regulatory Restrictions

Dividends

The Company’s dividend payments are generally made from dividends received from the Bank. Under applicable federal law, the Comptroller of the Currency restricts national bank total dividend payments in any calendar year to net profits of that year, as defined, combined with retained net profits for the

two

preceding years. The Comptroller also has authority under the Financial Institutions Supervisory Act to prohibit a national bank from engaging in an unsafe or unsound practice in conducting its business. It is possible, under certain circumstances, the Comptroller could assert that dividends or other payments would be an unsafe or unsound practice.

Intercompany Transactions

The Bank’s legal lending limit on loans to the Company is governed by Federal Reserve Act

23A,

and differs from legal lending limits on loans to external customers. Generally, a bank

may

lend up to

percent of its capital and surplus to its Parent, if the loan is secured. If collateral is in the form of stocks, bonds, debentures or similar obligations, it must have a market value when the loan is made of at least

percent more than the amount of the loan, and if obligations of a state or political subdivision or agency thereof, it must have a market value of at least

percent more than the amount of the loan. If such loans are secured by obligations of the United States or agencies thereof, or by notes, drafts, bills of exchange or bankers’ acceptances eligible for rediscount or purchase by a Federal Reserve Bank, requirements for collateral in excess of the loan amount do

not

apply. Under this definition, the legal lending limit for the Bank on loans to the Company was approximately

$7.9

million at

December 31, 2019.

23A

transactions were deemed to exist between the Company and the Bank at

December 31, 2019.

Capital Requirements

The Bank is subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory - and possibly additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Effective

January 1, 2015,

the federal banking regulators adopted rules to implement the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. The final rules required the Bank to comply with the following minimum capital ratios: (i) a common equity Tier

capital ratio of

4.5%

of risk-weighted assets; (ii) a Tier

capital ratio of

of risk-weighted assets; (iii) a total capital ratio of

of risk-weighted assets; and (iv) a leverage ratio of

of total assets. As fully phased in on

January 1, 2019,

the rules require the Bank to maintain (i) a minimum ratio of common equity Tier

to risk-weighted assets of at least

4.5%,

plus a

2.5%

“capital conservation buffer” (which is added to the

4.5%

common equity Tier

ratio, effectively resulting in a minimum ratio of common equity Tier

to risk-weighted assets of at least

upon full implementation), (ii) a minimum ratio of Tier

capital to risk-weighted assets of at least

6.0%,

plus the

2.5%

capital conservation buffer (which is added to the

6.0%

Tier

capital ratio, effectively resulting in a minimum Tier

capital ratio of

8.5%

upon full implementation), (iii) a minimum ratio of total capital to risk-weighted assets of at least

8.0%,

plus the

2.5%

capital conservation buffer (which is added to the

8.0%

total capital ratio, effectively resulting in a minimum total capital ratio of

10.5%

upon full implementation), and (iv) a minimum leverage ratio of

4%,

calculated as the ratio of Tier

capital to average assets.

Under Basel III Capital requirements, a capital conservation buffer of

0.625%

became effective beginning on

January 1, 2016.

The capital conservation buffer was gradually increased through

January 1, 2019

2.50%.

The capital conservation buffer is designed to absorb losses during periods of economic stress. Banks are now required to maintain levels that meet the required minimum plus the capital conservation buffer in order to make distributions, such as dividends, or discretionary bonus payments. The Banks’s capital conservation buffer is

5.53%

as of

December 31, 2019.

The rules also revised the prompt corrective action framework, which is designed to place restrictions on insured depository institutions if their capital levels begin to show signs of weakness. Under the prompt corrective action requirements, which are designed to complement the capital conservation buffer, insured depository institutions are required to meet the following capital level requirements in order to qualify as “well capitalized:” a common equity Tier

capital ratio of

6.5%;

a Tier

capital ratio of

8%;

a total capital ratio of

10%;

and a Tier

leverage ratio of

5%.

The Company meets eligibility criteria of a small bank holding company in accordance with the Federal Reserve Board’s Small Bank Holding Company Policy Statement, and is

not

obligated to report consolidated regulatory capital. The Bank’s actual capital amounts and ratios are presented in the following table as of

December 31, 2019

and

2018.

These ratios comply with Federal Reserve rules to align with the Basel III Capital requirements effective

January 1, 2015.

	Actual					For Capital Adequacy Purposes					To Be Well- Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio
December 31, 2019
Total Capital (to risk weighted assets)	$	78,652		13.53	%	$	46,499		8.00	%	$	58,124		10.00	%
Tier 1 Capital (to risk weighted assets)	$	74,726		12.86	%	$	34,874		6.00	%	$	46,499		8.00	%
Common Equity Tier 1 (to risk weighted assets)	$	74,726		12.86	%	$	26,156		4.50	%	$	37,780		6.50	%
Tier 1 Capital (to average total assets)	$	74,726		10.80	%	$	27,680		4.00	%	$	34,599		5.00	%

December 31, 2018
Total Capital (to risk weighted assets)	$	71,424		13.00	%	$	43,943		8.00	%	$	54,929		10.00	%
Tier 1 Capital (to risk weighted assets)	$	67,899		12.36	%	$	32,958		6.00	%	$	43,943		8.00	%
Common Equity Tier 1 (to risk weighted assets)	$	67,899		12.36	%	$	24,718		4.50	%	$	35,704		6.50	%
Tier 1 Capital (to average total assets)	$	67,899		10.08	%	$	26,932		4.00	%	$	33,664		5.00	%

September 17, 2019

the Federal Deposit Insurance Corporation finalized a rule that introduces an optional simplified measure of capital adequacy for qualifying community banking organizations (i.e., the community bank leverage ratio (“CBLR”) framework, as required by the Economic Growth, Regulatory Relief and Consumer Protection Act. The CBLR framework is designed to reduce burden by removing the requirements for calculating and reporting risk-based capital ratios for qualifying community banking organizations that opt into the framework.

In order to qualify for the CBLR framework, a community banking organization must have a Tier

leverage ratio of greater than

9.00%,

less than

$10.0

billion in total consolidated assets, and limited amounts of off-balance sheet exposures and trading assets and liabilities. A qualifying community banking organization that opts into the CBLR framework and meets all requirements under the framework will be considered to have met the well-capitalized ratio requirements under the prompt corrective action regulations and will

not

be required to report or calculated risk-based capital.

The CBLR framework will be available for banks to use in their

March 31, 2020,

Call Report. The Company expects to be able to opt into the CBLR framework for the Bank.