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Note 8 - Regulatory and Operational Matters
 6 Months Ended
Jun. 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
June 30, 2017
and
December 31, 2016
are summarized as follows:
 
(In thousands)
 
Patriot National Bancorp, Inc.
 
 
Patriot Bank, N.A.
 
 
 
June 30, 2017
 
 
December 31, 2016
 
 
June 30, 2017
 
 
December 31, 2016
 
 
 
Amount
($)
 
 
Ratio
(%)
 
 
Amount
($)
 
 
Ratio
(%)
 
 
Amount
($)
 
 
Ratio
(%)
 
 
Amount
($)
 
 
Ratio
(%)
 
Total Capital (to risk weighted assets):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Actual
    
71,547
     
10.309
     
66,254
     
10.603
     
80,258
     
11.594
     
74,303
     
11.928
 
To be Well Capitalized
(1)
    
-
     
-
     
-
     
-
     
69,226
     
10.000
     
62,292
     
10.000
 
For capital adequacy with Capital Buffer
(2)
    
-
     
-
     
-
     
-
     
64,034
     
9.250
     
53,727
     
8.625
 
For capital adequacy
    
55,522
     
8.000
     
49,989
     
8.000
     
55,381
     
8.000
     
49,834
     
8.000
 
                                                                 
Tier 1 Capital (to risk weighted assets):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Actual
    
65,595
     
9.451
     
61,571
     
9.854
     
74,306
     
10.734
     
69,620
     
11.176
 
To be Well Capitalized
(1)
    
-
     
-
     
-
     
-
     
55,381
     
8.000
     
49,834
     
8.000
 
For capital adequacy with Capital Buffer
(2)
    
-
     
-
     
-
     
-
     
50,189
     
7.250
     
41,269
     
6.625
 
For capital adequacy
    
41,641
     
6.000
     
37,491
     
6.000
     
41,536
     
6.000
     
37,375
     
6.000
 
                                                                 
Common Equity Tier 1 Capital
(
to risk weighted assets):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Actual
    
57,595
     
8.299
     
53,571
     
8.573
     
74,306
     
10.734
     
69,620
     
11.176
 
To be Well Capitalized
(1)
    
-
     
-
     
-
     
-
     
44,997
     
6.500
     
40,490
     
6.500
 
For capital adequacy with Capital Buffer
(2)
    
-
     
-
     
-
     
-
     
39,805
     
5.750
     
31,925
     
5.125
 
For capital adequacy
    
31,231
     
4.500
     
28,119
     
4.500
     
31,152
     
4.500
     
28,031
     
4.500
 
                                                                 
Tier 1 Leverage Capital (to average assets):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Actual
    
65,595
     
8.804
     
61,571
     
9.296
     
74,306
     
9.974
     
69,620
     
10.518
 
To be Well Capitalized
(1)
    
-
     
-
     
-
     
-
     
37,250
     
5.000
     
33,096
     
5.000
 
For capital adequacy
    
29,803
     
4.000
     
26,494
     
4.000
     
29,800
     
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
June 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.