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Note 9 - Regulatory and Operational Matters
 3 Months Ended
Mar. 31, 2018
Notes to Financial Statements  
Regulatory Capital Requirements under Banking Regulations [Text Block]
Note
9
: 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 Office of Comptroller of the Currency (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
March 31, 2018
and
December 
31,
 
2017
are summarized as follows:
 
(In thousands)
  
Patriot National Bancorp, Inc.
   
Patriot Bank, N.A.
  
   
March 31, 2018
    
December 31, 2017
    
March 31, 2018
    
December 31, 2017
  
   
Amount
($)
   
Ratio
(%)
    
Amount
($)
   
Ratio
(%)
    
Amount
($)
   
Ratio
(%)
    
Amount
($)
   
Ratio
(%)
  
Total Capital (to risk weighted assets):
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Actual
    
79,461
      
10.408
      
74,264
      
10.092
      
89,306
      
11.759
      
83,711
      
11.406
  
To be Well Capitalized
(1)
    
-
      
-
      
-
      
-
      
75,947
      
10.000
      
73,393
      
10.000
  
For capital adequacy with Capital Buffer
(2)
    
-
      
-
      
-
      
-
      
74,997
      
9.875
      
67,889
      
9.250
  
For capital adequacy
    
61,075
      
8.000
      
58,868
      
8.000
      
60,757
      
8.000
      
58,715
      
8.000
  
                                                                 
Tier 1 Capital (to risk weighted assets):
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Actual
    
72,968
      
9.558
      
67,959
      
9.235
      
82,813
      
10.904
      
77,407
      
10.547
  
To be Well Capitalized
(1)
    
-
      
-
      
-
      
-
      
60,757
      
8.000
      
58,715
      
8.000
  
For capital adequacy with Capital Buffer
(2)
    
-
      
-
      
-
      
-
      
59,808
      
7.875
      
53,210
      
7.250
  
For capital adequacy
    
45,806
      
6.000
      
44,151
      
6.000
      
45,568
      
6.000
      
44,036
      
6.000
  
                                                                 
Common Equity Tier 1 Capital (to risk weighted assets):
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Actual
    
64,968
      
8.510
      
59,959
      
8.148
      
82,813
      
10.904
      
77,407
      
10.547
  
To be Well Capitalized
(1)
    
-
      
-
      
-
      
-
      
49,365
      
6.500
      
47,706
      
6.500
  
For capital adequacy with Capital Buffer
(2)
    
-
      
-
      
-
      
-
      
48,416
      
6.375
      
42,201
      
5.750
  
For capital adequacy
    
34,355
      
4.500
      
33,113
      
4.500
      
34,176
      
4.500
      
33,027
      
4.500
  
                                                                 
Tier 1 Leverage Capital (to average assets):
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Actual
    
72,968
      
8.561
      
67,959
      
8.219
      
82,813
      
9.722
      
77,407
      
9.360
  
To be Well Capitalized
(1)
    
-
      
-
      
-
      
-
      
42,592
      
5.000
      
41,351
      
5.000
  
For capital adequacy
    
34,093
      
4.000
      
33,072
      
4.000
      
34,074
      
4.000
      
33,081
      
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
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
1.25%
capital conversation buffer for
2017
has been included in the minimum capital adequacy ratios in the
2017
column in the table above. The capital conversation buffer increased to
1.875%
for
2018,
which has been included in the minimum capital adequacy ratios in the
2018
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
March 31, 2018,
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.