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REGULATORY MATTERS

12 Months Ended

Dec. 31, 2020

18. REGULATORY MATTERS

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 $1 billion to $3 billion in total consolidated assets for a bank holding company or savings and loan holding company that: (1) is not engaged in significant nonbanking activities; (2) does not conduct significant off-balance sheet activities; and (3) 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, 2020; however, C&N Bank remains subject to regulatory capital requirements administered by the federal banking agencies.

Details concerning capital ratios at December 31, 2020 and December 31, 2019 are presented below. Management believes, as of December 31, 2020, 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, 2020 and December 31, 2019 exceed the Corporation’s Board policy threshold levels.


											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
(Dollars In Thousands)		Amount	Ratio		Amount	Ratio		Amount	Ratio		Amount	Ratio		Amount		Ratio
December 31, 2020:
Total capital to risk-weighted assets:
Consolidated	$	260,015	17.49	%	N/A	N/A		N/A	N/A		N/A	N/A		$	156,113	≥10.5	%
C&N Bank		236,943	15.98	%	118,602	≥8	%	155,665	≥10.5	%	148,252	≥10	%		155,665	≥10.5	%
Tier 1 capital to risk-weighted assets:
Consolidated		231,577	15.58	%	N/A	N/A		N/A	N/A		N/A	N/A			126,377	≥8.5	%
C&N Bank		225,058	15.18	%	88,951	≥6	%	126,015	≥8.5	%	118,602	≥8	%		126,015	≥8.5	%
Common equity tier 1 capital to risk-weighted assets:
Consolidated		231,577	15.58	%	N/A	N/A		N/A	N/A		N/A	N/A			104,075	≥7	%
C&N Bank		225,058	15.18	%	66,714	≥4.5	%	103,777	≥7.0	%	96,364	≥6.5	%		103,777	≥7	%
Tier 1 capital to average assets:
Consolidated		231,577	10.34	%	N/A	N/A		N/A	N/A		N/A	N/A			179,206	≥8	%
C&N Bank		225,058	10.12	%	88,959	≥4	%	N/A	N/A		111,199	≥5	%		177,919	≥8	%

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	%

Federal regulatory authorities impose a capital rule providing 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 1 capital above its minimum risk-based capital requirements. The buffer is measured relative to risk-weighted assets. At December 31, 2020, 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%

At December 31, 2020, C&N Bank’s Capital Conservation Buffer, determined based on the minimum total capital ratio, was 7.98%.

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 $76,527,000 at December 31, 2020, 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 $22,509,000 at December 31, 2020.

- Definition

The entire disclosure for regulatory capital requirement for depository and lending institutions. Institutions include, but not are not limited to, finance company, insured depository institution, bank holding company, savings and loan association holding company, bank and savings institution not federally insured, mortgage company, foreign financial institution and credit union.

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