Gramm-Leach-Bliley Act of 1999. The GLBA covers a broad range of issues, including a repeal of most of the restrictions on affiliations among depository institutions, securities firms and insurance companies. For example, the GLBA permits unrestricted affiliations between banks and securities firms. It also permits bank holding companies to elect to become FHCs, which can engage in a broad range of financial services as described above. In order to become a FHC, a bank holding company and all of its affiliated depository institutions must be well-capitalized, well-managed and have at least a satisfactory Community Reinvestment Act rating. On March 4, 2016 the Federal Reserve Bank of Richmond approved New Peoples’ election to become a FHC.

The GLBA also provides that the states continue to have the authority to regulate insurance activities, but prohibits the states in most instances from preventing or significantly interfering with the ability of a bank, directly or through an affiliate, to engage in insurance sales, solicitations or cross-marketing activities.

Anti-Money Laundering Legislation. New Peoples is subject to the Bank Secrecy Act and other anti-money laundering laws and regulations, including the USA Patriot Act of 2001. Among other things, these laws and regulations require New Peoples to take steps to prevent the use of New Peoples for facilitating the flow of illegal or illicit money, to report large currency transactions, and to file suspicious activity reports. The Company is also required to carry out a comprehensive anti-money laundering compliance program. Violations can result in substantial civil and criminal sanctions. In addition, provisions of the USA Patriot Act require the federal bank regulatory agencies to consider the effectiveness of a financial institution’s anti-money laundering activities when reviewing bank mergers and bank holding company acquisitions.

Privacy and Fair Credit Reporting. Financial institutions, such as the Bank, are required to disclose their privacy policies to customers and consumers and require that such customers or consumers be given a choice (through an opt-out notice) to forbid the sharing of nonpublic personal information about them with nonaffiliated third persons. The Bank also requires business partners with whom it shares such information to assure the Bank that they have adequate security safeguards and to abide by the redisclosure and reuse provisions of applicable law. In addition to adopting federal requirements regarding privacy, individual states are authorized to enact more stringent laws relating to the use of customer information. To date, Virginia has not done so. These privacy laws create compliance obligations and potential liability for the Bank.

Sarbanes-Oxley Act. The Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act) is intended to increase corporate responsibility, provide enhanced penalties for accounting and auditing improprieties by publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities law. The changes required by the Sarbanes-Oxley Act and its implementing regulations are intended to allow shareholders to monitor the performance of companies and their directors more easily and effectively.

The Sarbanes-Oxley Act generally applies to all domestic companies, such as New Peoples, that file periodic reports with the Securities and Exchange Commission (SEC) under the Securities Exchange Act of 1934, as amended. The Sarbanes-Oxley Act includes significant additional disclosure requirements and expanded corporate governance rules and the SEC has adopted extensive additional disclosures, corporate governance provisions and other related rules pursuant to it. New Peoples has expended, and will continue to expend, considerable time and money in complying with the Sarbanes-Oxley Act.

Federal Deposit Insurance Corporation. The Bank’s deposits are insured by the Deposit insurance Fund, as administered by the FDIC, to the maximum amount permitted by law, which is $250,000 per depositor. The FDIC uses a “financial ratios method” based on “CAMELS” composite ratings to determine deposit insurance assessment rates for small established institutions with less than $10 billion in assets, such as the Bank. The CAMELS rating system is a supervisory rating system designed to take into account and reflect all financial and operational risks that a bank may face, including capital adequacy, asset quality, management capability, earnings, liquidity and sensitivity to market risk (CAMELS). CAMELS composite ratings set a maximum assessment for CAMELS 1 and 2 rated banks, and set minimum assessments for lower rated institutions.

Dodd-Frank Wall Street Reform and Consumer Protection Act. The Dodd-Frank Act was signed into law on July 21, 2010. Its wide ranging provisions affect all federal financial regulatory agencies and nearly every aspect of the American financial services industry. Among the provisions of the Dodd-Frank Act that directly impact the Company is the creation of an independent Consumer Financial Protection Bureau (CFPB), which has the ability to write rules for consumer protections governing all financial institutions. All consumer protection responsibility formerly handled by other banking regulators is consolidated in the CFPB. It also oversees the enforcement of all federal laws intended to ensure fair access to credit. For smaller financial institutions such as the Company and the Bank, the CFPB coordinates its examination activities through their primary regulators.

The Dodd-Frank Act contains provisions designed to reform mortgage lending, which includes the requirement of additional disclosures for consumer mortgages. The EGRRCPA modified a number of these requirements, including, for smaller institutions (under $10 billion in total assets) that qualify, a safe harbor for compliance with the “ability to pay” requirements for consumer mortgage loans. The CFPB has implemented mortgage lending regulations to carry out its mandate. In addition, the Federal Reserve has issued rules limiting the fees charged to merchants by credit card companies for debit card transactions. The result of these rules is to limit the amount of interchange fee income available explicitly to larger banks and indirectly to us. The Dodd-Frank Act also contains provisions that affect corporate governance and executive compensation.

The Dodd-Frank Act has had, and may in the future have, a material impact on New Peoples’ operations, particularly through increased compliance costs resulting from new and possible future consumer and fair lending regulations. The future changes resulting from the Dodd-Frank Act may affect the profitability of business activities, require changes to certain business practices, impose more stringent regulatory requirements or otherwise adversely affect the business and financial condition of New Peoples and the Bank. These changes may also require New Peoples to invest significant management attention and resources to evaluate and make necessary changes to comply with new statutory and regulatory requirements.

The Economic Growth, Regulatory Reform and Consumer Protection Act of 2018. The EGRRCPA, which became effective in May 2018, amended provisions of the Dodd-Frank Act and other statutes administered by banking regulators. Among these amendments are provisions exempting insured depository institutions (and their parent companies) with less than $10 billion in consolidated assets and meeting certain other asset and liabilities trading tests from the Volker Rule, which prohibits banks from conducting certain investment activities with their own accounts. The EGRRCPA required the regulators to promulgate rules establishing the new CBLR, as described above. The Act increased the asset threshold from $1 billion to $3 billion for financial institutions to qualify for a less burdensome 18 month on site examination schedule. The EGRRCPA made numerous other changes in regulatory requirements based on the size and complexity of financial institutions, particularly benefiting smaller institutions like the Company.

Coronavirus Aid, Relief, and Economic Security Act In response to the COVID-19 pandemic, President Trump signed into law the CARES Act on March 27, 2020. Among other things, the CARES Act included the following provisions impacting financial institutions:

Other Laws. Banks and other depository institutions also are subject to numerous consumer-oriented laws and regulations. These laws, which include the Truth in Lending Act, the Truth in Savings Act, the Real Estate Settlement Procedures Act, the Electronic Funds Transfer Act, the Equal Credit Opportunity Act, the Fair and Accurate Credit Transactions Act of 2003 and the Fair Housing Act, require compliance by depository institutions with various disclosure and consumer information handling requirements. These and other similar laws result in significant costs to financial institutions and create potential liability for financial institutions, including the imposition of regulatory penalties for inadequate compliance.

Future Regulatory Uncertainty. Because federal and state regulation of financial institutions changes regularly and is the subject of constant legislative debate, New Peoples cannot forecast how regulation of financial institutions may change in the future and impact its operations. New Peoples fully expects that the financial institution industry will remain heavily regulated notwithstanding the regulatory relief that has been recently adopted.

Subsequent Events

We have considered subsequent events through the date of the financial statements in this Form 10-K. Refer to Item 8 “Financial Statements and Supplementary Data” Note 25 of the consolidated financial statements.

Item 1A. Risk Factors

Not applicable.   

Item 1B. Unresolved Staff Comments

Not applicable.

Item 2. Properties

At December 31, 2019, the Company's net investment in premises and equipment in service was $21.2 million. Construction in progress related to our Bristol, Virginia location has accumulated to $1.0 million at December 31, 2019. Our main office and operations center are located in Honaker, Virginia. This location contains a full service branch, and a separate administration and operations center.

The Bank owns 14 of its full service branches, including its headquarters office, and its one limited service branch. The locations of these branches are described in Item 1. In 2017, the Bank sold its Abingdon, Bristol, Gate City and Castlewood, Virginia properties and in connection with the sale of these four properties, the Bank entered into commercial lease agreements for the properties, which allowed the Bank to continue to service customers from these locations. During the third quarter of 2019, the Bank sold its Lebanon, Virginia property. In connection with the sale, the Bank entered into a commercial lease agreement which allows the Bank to continue to service customers from this location. For additional discussion of these leases see Item 8 “Financial Statements and Supplementary Data” Note 17, Leasing Activities, in Notes to the Consolidated Financial Statements. Aside from the retail branch offices, we own a building in Bristol, Virginia that serves as our call center and ITM network operations site. We also own a location in Bristol, Virginia that is being renovated and will open as a full service branch in 2020.

The Bank leases office space in Kingsport, Tennessee for use as a loan production office, which opened in January 2018. For additional discussion of this lease see Note 17, Leasing Activities, in Notes to the Consolidated Financial Statements.

In May 2018, a site in Princeton, West Virginia that had been used as an administrative office opened as a full service branch, as our second customer service location in this market.

During 2018, we limited activity at the Jonesborough, Tennessee loan production office and in 2019 it was closed and the ITM at this site was relocated. The property is currently being marketed for sale.

The Bank owns a location in Dungannon, Virginia that is now currently being leased, but was formerly used as a branch until its closure during 2010. A closed office in Bland, Virginia was sold in May 2018. Three other closed branches (Bluewell, West Virginia, Bristol, and Jonesville, Virginia) that are vacant may be used for future banking offices again. A fourth former branch office in Norton, Virginia was transferred to other real estate owned in 2019 and is being marketed for sale.

We believe that all of our properties are maintained in good operating condition and are suitable and adequate for our operational needs.

Item 3. Legal Proceedings

In the normal course of operations, we may become a party to legal proceedings. As disclosed in Item 8 “Financial Statements and Supplementary Data” Note 20, there are no pending or threatened legal proceedings to which the Company or any of its subsidiaries is a party or to which the property of the Company or any of its subsidiaries is subject that, in the opinion of management, may materially impact the financial condition, operations or liquidity of the Company.

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and IssuerP urchases of Equity Securities

(a)       Market Information

Computershare Investor Services is the stock transfer agent for New Peoples Bankshares, Inc. The common stock of New Peoples is quoted on the Over the Counter Bulletin Board under the symbol “NWPP”. The volume of trading of shares of common stock is very limited. Trades in our common stock occur sporadically on a local basis and typically in small volumes. Over-the-Counter market quotations reflect inter-dealer prices without retail mark up, mark down or commissions and may not necessarily represent actual transactions.

The most recent sales price of which management is aware was $1.53 per share on March 27, 2020.

(b)       Holders

On March 27, 2020, there were approximately 4,358 shareholders of record.

(c)       Dividends

In order to preserve capital we have not paid cash dividends to our shareholders. Any declaration of dividends in the future will depend on our earnings, capital requirements, growth strategies, and compliance with regulatory mandates principally at the Bank level since the Company’s primary source of income is dividends which it would receive from the Bank. We are subject to certain dividend restrictions and capital requirements imposed by the Federal Reserve Bank as well as Virginia banking statutes and regulations. We do not anticipate paying a dividend on our common stock in the foreseeable future as the Company continues to have a retained deficit. Earnings will continue to be retained to build capital and position the Company to pay a dividend to its shareholders as soon as practicable. See Notes 16 Dividend Limitation on Subsidiary Bank and Note 21 Capital in Item 8 “Financial Statements and Supplementary Data” for further discussion of dividend limitations and capital requirements.

Item 6. Selected Financial Data

Not applicable.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Caution About Forward Looking Statements

We make forward looking statements in this annual report that are subject to risks and uncertainties. These forward looking statements include statements regarding our profitability, liquidity, and allowance for loan losses, interest rate sensitivity, market risk, growth strategy, and financial and other goals. The words “believes,” “expects,” “may,” “will,” “should,” “projects,” “contemplates,” “anticipates,” “forecasts,” “intends,” or other similar words or terms are intended to identify forward looking statements. The forward-looking information is based on various factors and was derived using numerous assumptions. Important factors that may cause actual results to differ from projections include:

Because of these uncertainties, our actual future results may be materially different from the results indicated by these forward looking statements. In addition, our past results of operations do not necessarily indicate our future results. We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

General

The following commentary discusses major components of our business and presents an overview of our consolidated financial position at December 31, 2019 and 2018 as well as results of operations for the years ended December 31, 2019 and 2018. This discussion should be reviewed in conjunction with the consolidated financial statements and accompanying notes and other statistical information presented elsewhere in this Form 10-K.

New Peoples generates a significant amount of its income from the net interest income earned by the Bank. Net interest income is the difference between interest income and interest expense. Interest income depends on the volume of interest-earning assets outstanding during the period and the interest rates earned thereon. The Bank's interest expense is a function of the average amount of interest-bearing deposits and borrowed money outstanding during the period and the interest rates paid thereon. The quality of the assets further influences the amount of interest income lost on nonaccrual loans and the amount of additions to the allowance for loan losses. The Bank also generates noninterest income from service charges on deposit accounts and commissions on insurance and investment products sold.

Critical Accounting Policies

Certain critical accounting policies affect the more significant judgments and estimates used in the preparation of our financial statements. Our most critical accounting policies relate to our provision for loan losses and the calculation of our deferred tax asset and any related valuation allowance.

The provision for loan losses reflects the estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our borrowers were to further deteriorate, resulting in an impairment of their ability to make payments, our estimates would be updated, and additional provisions could be required. For further discussion of the estimates used in determining the allowance for loan losses, we refer you to the section on “Provision for Loan Losses” in this discussion.

Deferred tax assets or liabilities are computed based upon the difference between financial statement and income tax bases of assets and liabilities using the enacted marginal tax rate. In the past, the Company provided a valuation allowance on its net deferred tax assets where it was deemed more likely than not such assets would not be realized. At December 31, 2019 and 2018, the Company had no valuation allowance on its net deferred tax assets.

The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. For further discussion of the deferred tax asset and valuation allowance, we refer you to the section on “Income Taxes and Deferred Tax Assets” in this discussion.

The Company early adopted Accounting Standards Update (ASU) No. 2016-02 Leases (Topic 842). This ASU revised certain aspects of recognition, measurement, presentation, and disclosure of leasing transactions.

For further discussion of our other critical accounting policies, see Note 2, Summary of Significant Accounting Policies, to our Consolidated Financial Statements, found in Item 8 to this annual report on Form 10-K.

Cyber Security

The Company, primarily through the Bank, depends on its ability to continuously process, record and monitor a large number of customer transactions and customer, public and regulatory expectations regarding operational and information security have increased over time. Accordingly, the Company’s and its subsidiaries’ operational systems and infrastructure must continue to be safeguarded and monitored for potential failures, disruptions and breakdowns. Although the Company has business continuity plans and other safeguards in place, disruptions or failures in the physical infrastructure or operating systems that support its businesses and customers, or cyber-attacks or security breaches of the networks, systems or devices on which customers’ personal information is stored and that customers use to access the Company’s and its subsidiaries’ products and services could result in customer attrition, regulatory fines, penalties or intervention, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs, any of which could materially adversely affect the Company’s results of operations or financial condition.

Although to date the Company has not experienced any material losses relating to cyber-attacks or other information security breaches, there can be no assurance that it or its subsidiaries will not suffer such losses in the future. The Company’s risk and exposure to these matters remains heightened because of, among other things, the evolving nature of these threats, our plans to continue to implement our e-banking and mobile banking channel strategies and develop additional remote connectivity solutions to serve our customers when and how they want to be served. As a result, cyber security and the continued development and enhancement of the Company’s controls, processes and practices, designed to protect its and its subsidiaries’ systems, computers, software, data and networks from attack, damage or unauthorized access, remain a priority for the Company. As cyber threats continue to evolve, the Company may be required to expend significant additional resources to continue to modify or enhance its protective measures or to investigate and remediate any information security vulnerabilities.

Noninterest Income

For the year ended December 31, 2019, noninterest income increased to $8.6 million, or 1.22% of average assets, from $7.6 million, or 1.13% of average assets, for the same period in 2018, an increase of $1.0 million, or 13.7%. This increase was primarily due to the $803 thousand non-recurring gain recognized on the sale and leaseback of our Lebanon, Virginia office. Service charges decreased $98 thousand during 2019, primarily due to the reduced volume of overdraft activity. For 2019, card processing and interchange revenue totaled $3.0 million, an increase of $205 thousand or 7.3% compared to 2018, due to increased volume of card transactions. During the fourth quarter of 2019, we negotiated the renewal of the card servicing contact with our provider. This renewal should result in a modest increase in the interchange fee, along with a reduction in the processing costs, starting in 2020. Financial services fees for 2019 were $663 thousand, an increase of $60 thousand, or 9.9%, from the $603 thousand recognized in 2018. We continue to focus efforts on our financial services operations as we believe this segment continues to show potential for future growth. In addition, secondary market mortgage origination revenue, included in other noninterest income, increased approximately 105% to $247 thousand, based on increased volume and changes made to the program during the year. We continue to make efforts to increase the volume of loans originated for sale on the secondary market.

Noninterest Expense

Noninterest expenses decreased $1.5 million, or 4.9%, to $29.0 million in 2019. This overall decrease was due to a combination of events and efforts. These included a decrease in staffing, renegotiation of contracts for data circuit and telephone services, benefit of credits applied to deposit insurance premiums, reduced costs associated with the holding and disposal of OREO and the non-recurrence of expense items recorded in 2018.

Salaries and employee benefits decreased from $14.2 million in 2018 to $14.1 million in 2019. In 2019, we exited our legacy self-insured health benefits plan and created a new plan for our principal self-insured health care benefits. We retained a new plan administrator who assists us in monitoring claims and working with our employees in obtaining the best outcomes. We believe that over the next few years, this change will aid in improving employee care and moderating costs. Total full time equivalent employees have decreased to 229 at December 31, 2019 from 250 at December 31, 2018, a decrease of 21, or 8.4%. During the third quarter of 2019 we implemented a restructuring of our credit and loan operations functions and other administrative positions, resulting in the elimination of ten positions; with a net reduction of five employees, as some affected personnel filled other vacant positions. During 2019, we continued streamlining our processes to help us achieve greater efficiencies. We also continued our ongoing investment in training our employees as we continue to migrate to the universal banker model, where customer service personnel are trained in multiple job functions rather than specializing in a single function. We anticipate the number of full time equivalent employees to decrease through attrition in the future as a result of these improved processes and training.

Occupancy and equipment expenses decreased $642 thousand to $4.5 million for the year 2019 compared to 2018. Depreciation expense decreased $315 thousand to $2.3 million in 2019 compared to 2018, due to aging out of some equipment. With the planned branch additions in Bristol, Virginia and Kingsport, Tennessee in 2020, it is expected that depreciation expense will increase in 2020 and future periods. Equipment maintenance costs decreased $93 thousand due to the change in some service levels and elimination of some agreements. Our reliance on ITMs, cash recyclers and coin counters to improve the customer experience and create operational efficiencies carries with it the costs related to recurring maintenance and repairs. We believe that the ITMs provide additional convenience by offering teller services from 7 AM to 7 PM Monday through Saturday. Facilities repairs and maintenance decreased $93 thousand due to renegotiating certain service contracts, along with a decline in individual repairs and maintenance events compared to 2018. Lease expense of $497 thousand for 2019 increased $18,000 as compared to $476 thousand in 2018, due to the leaseback of the Lebanon VA office.

Expenses related to OREO and repossessed assets declined by $391 thousand, or 38.1%, from $1.0 million in 2018 to $635 thousand in 2019. Foreclosed properties decreased during 2019 to $3.4 million at December 31, 2019 from $5.9 million at December 31, 2018. During 2019, we recorded net OREO writedowns of $214 thousand compared to $542 thousand in 2018. These writedowns were primarily the result of price reductions that helped us in securing sales that reduced our foreclosed properties by $2.5 million during the year. During 2019, we had net losses on the sale of OREO of $123 thousand compared to $135 thousand in 2018. Based on the reduced level of other real estate owned, we expect that costs related to holding and disposing of these properties will continue to decrease in 2020 and future periods.

Other operating expenses decreased $550 thousand or 6.6% to $7.8 million for 2019 from $8.4 million in 2018. FDIC deposit insurance decreased by $158 thousand to $222 thousand in 2019, due to a $103 thousand credit received from the FDIC as a result of our ability to utilize Small Bank assessment credits. Printing and supplies decreased year-over-year by $143 thousand due to a non-recurring writedown in 2018 of obsolete or misapplied inventory items totaling $168 thousand. Data circuit and telecommunication costs decreased by $171 thousand, or 30.0%, to $399 thousand in 2019 compared to $571 thousand in 2018, due to renegotiated contacts for data circuits and telecom services that were phased in during the year. Over the next five years we anticipate annualized savings of $198 thousand per year. Other expenses decreased $464 thousand due to a non-recurring write-off in 2018 of advanced escrow and other costs determined to be unrecoverable totaling $220 thousand, and an adjustment to prepaid excise and franchise taxes of $244 thousand. Consulting expense increased $528 thousand in 2019 to $829 thousand. This increase was principally due to the retention of an outside consulting firm to review our products and procedures to identify areas where we can enhance revenue and better manage costs. During the fourth quarter of 2019, fees of $233 thousand were recorded. As this project moves forward, it is anticipated that an additional $243 thousand of fees will be incurred. Based on progress through year-end it is estimated that, when fully implemented, pre-tax annual benefits will exceed $1.5 million. In addition to the fees related to the efficiency assessment, we also recognized fees totaling $456 thousand related to the negotiation of the card services contract renewal, and facilitating the sale of nonperforming and underperforming loans.

Our efficiency ratio, a non-GAAP measure, which is defined as noninterest expense divided by the sum of net interest income plus noninterest income, improved to 86.23% in 2019 compared to 95.85% in 2018. The decrease in this ratio is a result of improvements in both noninterest income and noninterest expense discussed above. We continue to seek opportunities to operate more efficiently through the use of technology, improving processes, reducing nonperforming assets and increasing productivity, and while we are optimistic about the potential impact of the efficiency assessment project, the recent economic impact of the COVID-19 pandemic has caused us to delay implementation of some of the recommendations, especially those related to service fee changes, to later in the year. As a result, the benefits of some of the planned changes will be delayed.

Income Taxes and Deferred Tax Assets

Income taxes were $522 thousand in 2019, compared to $149 thousand in 2018. The effective tax rates were 20.2%, and 14.0% for 2019 and 2018, respectively. The effective tax rate for the periods differed from the federal statutory rate of 21.0% principally as a result of tax-exempt income from loans as well as earnings from bank owned life insurance. The lower effective tax rate in 2018 when compared to 2019 is the result of the increase in pre-tax earnings in relation to the various tax preference items.

Deferred tax assets represent the future tax benefit of future deductible differences and, if it is more likely than not that a tax asset will not be realized, a valuation allowance is required to reduce the recorded deferred tax assets to net realizable value. The Company has evaluated positive and negative evidence to assess the realizability of its deferred taxes. Based on the evidence, including taxable income projections, the Company believes it is more likely than not that its deferred tax assets will be realizable. Accordingly, the Company did not include a valuation allowance against its deferred tax assets as of December 31, 2019 or 2018.

Tax positions are evaluated in a two-step process. The Company first determines whether it is more likely than not that a position will be sustained upon examination. If a tax position meets the more likely than not recognition threshold, it is then measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being recognized. The Company classifies interest and penalties as a component of income tax expense.

As of December 31, 2019, the Company had Federal and state net operating loss carry forward amounts of approximately $16.9 million and $1.1 million, respectively. These amounts are not limited pursuant to Internal Revenue Code (IRC) Section 382. The Company is subject to examination in the United States and multiple state jurisdictions. Open tax years for examination are 2016 – 2019.

Capital Resources

Our total capital at the end of 2019 was $54.6 million compared to $51.3 million at the end of 2018. The increase was $3.4 million, or 6.5%. Book value per common share was $2.28 at December 31, 2019 compared to $2.14 at December 31, 2018.

The Company meets the eligibility criteria to be considered a small bank holding company in accordance with the Federal Reserve’s Small Bank Holding Company Policy Statement issued in February 2015, and does not report consolidated regulatory capital. The Bank continues to be subject to various capital requirements administered by banking agencies.

The Bank is characterized as "well capitalized" under the “prompt corrective action” regulations pursuant to Section 38 of the FDIA. The capital adequacy ratios for the Bank are set forth below along with the minimum ratios to be considered “well capitalized” under such regulations:

Capital Adequacy Ratios

The Bank is also subject to the rules implementing the Basel III capital framework and certain related provisions of the Dodd-Frank Act. The final rules require the Bank to comply with the following minimum capital ratios: (i) a CET1 ratio of at least 4.5%, plus a 2.5% “capital conservation buffer” (effectively resulting in a minimum CET1 ratio of 7%), (ii) a ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer (effectively resulting in a minimum Tier 1 capital ratio of 8.5%), (iii) a ratio of total capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer (effectively resulting in a minimum total capital ratio of 10.5%), and (iv) a leverage ratio of 4%, calculated as the ratio of Tier 1 capital to average assets. The phase-in of the capital conservation buffer requirement began on January 1, 2016, at 0.625% of risk-weighted assets, increasing by the same amount each year until it was fully implemented at 2.5% on January 1, 2019. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a CET1 ratio above the minimum but below the conservation buffer face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall. The CET1 ratio of the Bank was 13.72% as of December 31, 2019, exceeding the minimum requirement. The Tier 1 and total capital to risk-weighted asset ratios of the Bank were 13.72% and 14.83%, respectively, as of December 31, 2019, exceeding the minimum requirements. The leverage ratio of the Bank was 9.43% as of December 31, 2019, also exceeding the minimum requirements. As noted above, if we elect to opt into the new CBLR framework, the above capital measurements would no longer apply to us.