Note

: Regulatory and Operational Matters

November 2018,

the Bank entered into a formal written agreement (the “Agreement”) with the Office of the Comptroller of the Currency (the “OCC”). Under the terms of the Agreement, the Bank has appointed a Compliance Committee of

three

independent outside directors and

one

member of management responsible for monitoring adherence to the Agreement and has appointed a Lead Independent Director.

The Agreement states that by

December 31, 2018

the Board and Bank would develop, implement and revise written documents and policies related to executive compensation, conflict of interest, internal audit, liquidity and asset/liability management, commercial loan administration, leveraged lending, practices relating to the allowance for loan and lease losses, and assumptions used in the Bank’s interest rate risk model. Under the Agreement the Bank also agreed to provide a revised written

-year strategic and capital plan for the Bank by

December 31, 2018.

To date, the Bank has addressed each of the items in accordance with the Agreement and continues to respond to any further enhancement requested by the OCC. Further details pertaining to the Agreement are provided in Part II Item

9B:

Other information included on the Annual Report on Form

-K for the year ended

December 31, 2018.

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

Capital, Common Equity Tier

(

“CET1”

) Capital, and a Tier

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

Capital ratio of at least

8.0%,

CET1

Capital ratio at least

6.5%,

and a Tier

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

March

31,

2019

and

December 31, 2018

are summarized as follows:

(In thousands)	Patriot National Bancorp, Inc.								Patriot Bank, N.A.
	March 31, 2019				December 31, 2018				March 31, 2019				December 31, 2018
	Amount ($)		Ratio (%)		Amount ($)		Ratio (%)		Amount ($)		Ratio (%)		Amount ($)		Ratio (%)
Total Capital (to risk weighted assets):
Actual		91,489		10.332		90,722		10.452		101,239		11.908		99,341		11.500
To be Well Capitalized (1)		-		-		-		-		85,016		10.000		86,384		10.000
For capital adequacy with Capital Buffer (2)		-		-		-		-		89,267		10.500		85,304		9.875
For capital adequacy		70,836		8.000		69,441		8.000		68,013		8.000		69,107		8.000

Tier 1 Capital (to risk weighted assets):
Actual		73,654		8.318		73,101		8.422		93,404		10.987		91,720		10.618
To be Well Capitalized (1)		-		-		-		-		68,013		8.000		69,107		8.000
For capital adequacy with Capital Buffer (2)		-		-		-		-		72,264		8.500		68,027		7.875
For capital adequacy		53,127		6.000		52,081		6.000		51,010		6.000		51,830		6.000

Common Equity Tier 1 Capital (to risk weighted assets):
Actual		65,654		7.415		65,101		7.500		93,404		10.987		91,720		10.618
To be Well Capitalized (1)		-		-		-		-		55,260		6.500		56,149		6.500
For capital adequacy with Capital Buffer (2)		-		-		-		-		59,511		7.000		55,069		6.375
For capital adequacy		39,845		4.500		39,061		4.500		38,257		4.500		38,873		4.500

Tier 1 Leverage Capital (to average assets):
Actual		73,654		7.721		73,101		7.842		93,404		9.789		91,720		9.838
To be Well Capitalized (1)		-		-		-		-		47,707		5.000		46,617		5.000
For capital adequacy		38,160		4.000		37,288		4.000		38,166		4.000		37,294		4.000

(

)

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.

(

)

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

1.875%

capital conversation buffer for

2018

has been included in the minimum capital adequacy ratios in the

2018

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

2.5%

for

2019,

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

2019

column above.

The capital buffer requirement effectively raises the minimum required Total Capital ratio to

10.5%,

the Tier

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

2019.

Management believes that, as of

March

31,

2019,

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.