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Note 16 - Regulatory and Operational Matters
 12 Months Ended
Dec. 31, 2016
Notes to Financial Statements  
Regulatory Capital Requirements under Banking Regulations [Text Block]
Note
16.
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
December
 
31,
 
2016
and
2015
are summarized as follows:
 
(In thousands)
 
As of December 31,
 
 
 
Patriot National Bancorp, Inc.
 
 
Patriot Bank, N.A.
 
 
 
2016
 
 
2015
 
 
2016
 
 
2015
 
 
 
Amount
($)
 
 
Ratio
(%)
 
 
Amount
($)
 
 
Ratio
(%)
 
 
Amount
($)
 
 
Ratio
(%)
 
 
Amount
($)
 
 
Ratio
(%)
 
Total Capital (to risk weighted assets):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Actual
    
66,254
     
10.603
     
64,845
     
12.622
     
74,303
     
11.928
     
65,207
     
12.742
 
To be Well Capitalized
(1)
    
-
     
-
     
-
     
-
     
62,296
     
10.000
     
51,177
     
10.000
 
For capital adequacy with Capital Buffer
(2)
    
-
     
-
     
-
     
-
     
53,730
     
8.625
     
-
     
-
 
For capital adequacy
    
49,989
     
8.000
     
41,101
     
8.000
     
49,836
     
8.000
     
40,941
     
8.000
 
                                                                 
Tier 1 Capital (to risk weighted assets):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Actual
    
61,571
     
9.854
     
59,595
     
11.600
     
69,620
     
11.176
     
59,958
     
11.716
 
To be Well Capitalized
(1)
    
-
     
-
     
-
     
-
     
49,836
     
8.000
     
40,941
     
8.000
 
For capital adequacy with Capital Buffer
(2)
    
-
     
-
     
-
     
-
     
41,271
     
6.625
     
-
     
-
 
For capital adequacy
    
37,491
     
6.000
     
30,826
     
6.000
     
37,377
     
6.000
     
30,706
     
6.000
 
                                                                 
Common Equity Tier 1 Capital (to risk weighted assets):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Actual
    
53,571
     
8.573
     
51,595
     
10.043
     
69,620
     
11.176
     
59,958
     
11.716
 
To be Well Capitalized
(1)
    
-
     
-
     
-
     
-
     
40,492
     
6.500
     
33,265
     
6.500
 
For capital adequacy with Capital Buffer
(2)
    
-
     
-
     
-
     
-
     
31,926
     
5.125
     
-
     
-
 
For capital adequacy
    
28,119
     
4.500
     
23,119
     
4.500
     
28,033
     
4.500
     
23,029
     
4.500
 
                                                                 
Tier 1 Leverage Capital (to average assets):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Actual
    
61,571
     
9.296
     
59,595
     
9.769
     
69,620
     
10.518
     
59,958
     
9.832
 
To be Well Capitalized
(1)
    
-
     
0.000
     
-
     
0.000
     
33,096
     
5.000
     
30,491
     
5.000
 
For capital adequacy
    
26,494
     
4.000
     
24,401
     
4.000
     
26,477
     
4.000
     
24,393
     
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 is a requirement for a
CET1
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 conservation buffer increase for
2016
has been included in the minimum capital adequacy ratios in the table 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
December
31,
2016,
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.