Note 8 - Regulatory and Operational Matters

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Regulatory Capital Requirements under Banking Regulations [Text Block]

Note

8

: Regulatory and Operational Matters

Federal and State regulatory authorities have adopted standards requiring financial institutions to maintain increased levels of capital. Effective

January 1, 2015,

Federal banking agencies imposed

four

minimum capital requirements on community bank

’s risk-based capital ratios consisting of Total Capital, Tier

1

Capital, Common Equity Tier

1

(

“CET1”

) Capital, and a Tier

1

Leverage Capital ratio. The risk-based capital ratios measure the adequacy of a bank's capital against the riskiness of its on- and off-balance sheet assets and activities. Failure to maintain adequate capital is a basis for "prompt corrective action" or other regulatory enforcement action. In assessing a bank's capital adequacy, regulators also consider other factors such as interest rate risk exposure, liquidity, funding and market risks, quality and level of earnings, concentrations of credit, quality of loans and investments, nontraditional activity risk, policy effectiveness, and management's overall ability to monitor and control risk.

Capital adequacy is

one

of the most important factors used to determine the safety and soundness of individual banks and the banking system. Under the instituted regulatory framework, to be considered “well capitalized”, a financial institution must generally have a Total Capital ratio of at least

10%,

a Tier

1

Capital ratio of at least

8.0%,

a

CET1

Capital ratio at least

6.5%,

and a Tier

1

Leverage Capital ratio of at least

5.0%.

However, regardless of a financial institution

’s ratios, the OCC

may

require increased capital ratios or impose dividend restrictions based on the other factors it considers in assessing a bank’s capital adequacy.

Management continuously assesses the adequacy of the Bank

’s capital in order to maintain its “well capitalized” status.

The Company

’s and the Bank’s regulatory capital amounts and ratios at

September 30, 2017

and

December 31, 2016

are summarized as follows:

(In thousands)	Patriot National Bancorp, Inc.								Patriot Bank, N.A.
	September 30, 2017				December 31, 2016				September 30, 2017				December 31, 2016
	Amount ($)		Ratio (%)		Amount ($)		Ratio (%)		Amount ($)		Ratio (%)		Amount ($)		Ratio (%)
Total Capital (to risk weighted assets):
Actual		74,470		10.222		66,254		10.603		83,558		11.554		74,303		11.928
To be Well Capitalized (1)		-		-		-		-		72,320		10.000		62,292		10.000
For capital adequacy with Capital Buffer (2)		-		-		-		-		66,896		9.250		53,727		8.625
For capital adequacy		58,280		8.000		49,989		8.000		57,856		8.000		49,834		8.000
Tier 1 Capital (to risk weighted assets):
Actual		68,240		9.367		61,571		9.854		77,328		10.692		69,620		11.176
To be Well Capitalized (1)		-		-		-		-		57,856		8.000		49,834		8.000
For capital adequacy with Capital Buffer (2)		-		-		-		-		52,432		7.250		41,269		6.625
For capital adequacy		43,710		6.000		37,491		6.000		43,392		6.000		37,375		6.000
Common Equity Tier 1 Capital (to risk weighted assets):
Actual		60,240		8.269		53,571		8.573		77,328		10.692		69,620		11.176
To be Well Capitalized (1)		-		-		-		-		47,008		6.500		40,490		6.500
For capital adequacy with Capital Buffer (2)		-		-		-		-		41,584		5.750		31,925		5.125
For capital adequacy		32,783		4.500		28,119		4.500		32,544		4.500		28,031		4.500
Tier 1 Leverage Capital (to average assets):
Actual		68,240		8.449		61,571		9.296		77,328		9.574		69,620		10.518
To be Well Capitalized (1)		-		-		-		-		40,384		5.000		33,096		5.000
For capital adequacy		32,308		4.000		26,494		4.000		32,308		4.000		26,477		4.000

( 1 ) Designation as "Well Capitalized" does not apply to bank holding companies - - the Company. Such categorization of capital adequacy only applies to insured depository institutions - - the Bank.

( 2 ) The Capital Conservation Buffer implemented by the FDIC began to be phased in beginning January 1, 2016. It was not applicable to periods prior to that date and does not apply to bank holding companies - - the Company.

Under the final capital rules that became effective on

January 1, 2015,

there

was a requirement for a common equity Tier

1

capital conservation buffer of

2.5%

of risk-weighted assets, which is in addition to the other minimum risk-based capital standards in the rule. Institutions that do

not

maintain this required capital buffer become subject to progressively more stringent limitations on the percentage of earnings that

may

be distributed to shareholders or used for stock repurchases and on the payment of discretionary bonuses to senior executive management.

The capital buffer requirement is being phased in over

three

years beginning in

2016.

The

0.625%

capital conversation buffer for

2016

has been included in the minimum capital adequacy ratios in the

2016

column in the table above. The capital conversation buffer increased to

1.25%

for

2017,

which has been included in the minimum capital adequacy ratios in the

2017

column above.

The capital buffer requirement effectively raises the minimum required

Total Capital ratio to

10.5%,

the Tier

1

capital ratio to

8.5%

and the

CET1

capital ratio to

7.0%

on a fully phased-in basis, which will be effective beginning on

January 1, 2019.

Management believes that, as of

September 30, 2017,

Patriot satisfies all capital adequacy requirements under the Basel III Capital Rules on a fully phased-in basis, as if all such requirements were currently in effect.