Banks and bank holding companies are subject to various 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. The minimum capital requirements associated with the Basel Committee on capital and liquidity regulation (Basel III) were phased in and fully implemented on January 1, 2019. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action by regulators that, if undertaken, could have a direct material effect on the financial statements. Management believes that as of December 31, 2020, the Company and the Bank meet all capital adequacy requirements to which they are subject.

The FDIC and other federal banking regulators revised the risk-based capital requirements applicable to financial holding companies and insured depository institutions, including the Company and the Bank, to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision (“Basel III”).

The common equity tier 1 capital, tier 1 capital and total capital ratios are calculated by dividing the respective capital amounts by risk-weighted assets. The leverage ratio is calculated by dividing tier 1 capital by adjusted average total assets.

Basel III limits capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity tier 1 capital, tier 1 capital and total capital to risk-weighted assets in addition to the amount necessary to meet minimum risk-based capital requirements. The capital conservation buffer is 2.5% for the years of 2020 and 2019. The buffer requires an additional capital amount of $52.9 million at year end 2020 and an additional $47.8 million at year end 2019. Excluding the additional buffer, Basel III requires the Company and the Bank to maintain (i) a minimum ratio of common equity tier 1 capital to risk-weighted assets of at least 4.5%, (ii) a minimum ratio of tier 1 capital to risk-weighted assets of at least 6.0%, (iii) a minimum ratio of total capital to risk-weighted assets of at least 8.0% and (iv) a minimum leverage ratio of at least 4.0%.

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 only 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 2020 and 2019, 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 institution’s category.

Dividend Restrictions: The Company’s principal source of funds for dividend payments is dividends received from the Bank, Farmers Trust and to a lesser extent the Captive. The Bank and Farmers Trust are subject to the dividend restrictions set forth by the Comptroller of the Currency and Ohio Department of Commerce – Division of Financial Institutions, respectively. The respective regulatory agency must approve declaration of any dividends in excess of the sum of profits for the current year and retained net profits for the preceding two years. At the conclusion of 2020, the Bank could, without prior approval, declare dividends of approximately $12.8 million plus any 2021 net profits retained to the date of the dividend declaration. In order to practice trust powers, Farmers Trust must maintain a minimum capital of $3 million. Farmers Trust would also be able to, without prior approval, declare dividends of $206 thousand plus any 2021 net profits retained to the date of the dividend declaration.

Actual and required capital amounts (not including the capital conservation buffer) and ratios are presented below at year-end:

	Actual					Requirement For Capital Adequacy Purposes:					To be Well Capitalized Under Prompt Corrective Action Provisions:
	Amount		Ratio			Amount		Ratio			Amount		Ratio
2020
Common equity tier 1 capital ratio
Consolidated	$	279,864		13.22	%	$	95,211		4.5	%	N/A		N/A
Bank		268,041		12.71	%		94,903		4.5	%		137,083		6.5	%
Total risk based capital ratio
Consolidated		311,413		14.72	%		169,264		8.0	%	N/A		N/A
Bank		290,185		13.76	%		168,717		8.0	%		210,897		10.0	%
Tier I risk based capital ratio
Consolidated		289,269		13.67	%		126,948		6.0	%	N/A		N/A
Bank		268,041		12.71	%		126,538		6.0	%		168,717		8.0	%
Tier I leverage ratio
Consolidated		289,269		9.77	%		118,464		4.0	%	N/A		N/A
Bank		268,041		9.10	%		117,877		4.0	%		147,346		5.0	%

2019
Common equity tier 1 capital ratio
Consolidated	$	247,395		12.94	%	$	86,039		4.5	%	N/A		N/A
Bank		213,507		11.19	%		85,854		4.5	%		124,011		6.5	%
Total risk based capital ratio
Consolidated		264,188		13.82	%		152,958		8.0	%	N/A		N/A
Bank		227,994		11.95	%		152,629		8.0	%		190,787		10.0	%
Tier I risk based capital ratio
Consolidated		249,701		13.06	%		114,719		6.0	%	N/A		N/A
Bank		213,507		11.19	%		114,472		6.0	%		152,629		8.0	%
Tier I leverage ratio
Consolidated		249,701		10.69	%		93,406		4.0	%	N/A		N/A
Bank		213,507		9.06	%		94,304		4.0	%		117,881		5.0	%