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Regulatory and Operational Matters
 6 Months Ended
Jun. 30, 2024
Regulatory Capital Requirements under Banking Regulations [Abstract]  
Regulatory and Operational Matters 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 a 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.
In September 2019, the community bank leverage ratio (“CBLR”) framework was jointly issued by the Federal Deposit Insurance Corporation ("FDIC"), the Office of the Comptroller of the Currency (“OCC”) and FRB. The final rule gives qualifying community banks the option to use a simplified measure of capital adequacy instead of risk based capital, beginning with their March 31, 2020 Call Report. Under the final rule a community bank may qualify for the CBLR framework if it has a Tier 1 leverage ratio of greater than 9%, less than $10 billion in total consolidated assets, and limited amounts of off-balance sheet exposures and trading assets and liabilities. The CARES Act directed the federal banking agencies to issue an interim rule temporarily lowering the CBLR ratio to 8% which the agencies did with a transition back to 9% beginning January 1, 2022.
Capital adequacy is one of the most important factors used to determine the safety and soundness of individual banks and the banking system. A community bank which meets the leverage ratio requirement and other CBLR framework requirements will not be subject to other capital and leverage requirements and will be considered "well capitalized."
From September 2021 to September 30, 2023, the Company elected to adopt the CBLR framework. In the fourth quarter of 2023, the Company elected to use the instituted regulatory risk-based capital approach.
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%. 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. 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 conversation buffer of 2.5% has been included in the minimum capital adequacy ratios as of June 30, 2024.
The Company and Bank’s regulatory capital amounts and ratios at June 30, 2024 and December 31, 2023 are summarized as follows:
June 30, 2024December 31, 2023
Patriot National Bancorp, Inc.Patriot Bank, N.A.Patriot National Bancorp, Inc.Patriot Bank, N.A.
(Dollar amounts in thousands)AmountRatioAmountRatioAmountRatioAmountRatio
Total Capital (to risk weighted assets):
Actual$84,432 9.84 %$96,204 11.21 %$89,727 10.00 %$100,683 11.22 %
To be Well Capitalized(1)— — 85,784 10.00 %— — 89,732 10.00 %
For capital adequacy with Capital Buffer(2)— — 90,073 10.50 %— — 94,218 10.50 %
For capital adequacy68,647 8.00 %68,627 8.00 %71,788 8.00 %71,785 8.00 %
Tier 1 Capital (to risk weighted assets):
Actual65,705 7.66 %87,477 10.20 %73,282 8.17 %94,238 10.50 %
To be Well Capitalized(1)— — 68,627 8.00 %— — 71,785 8.00 %
For capital adequacy with Capital Buffer(2)— — 72,916 8.50 %— — 76,272 8.50 %
For capital adequacy51,485 6.00 %51,470 6.00 %53,841 6.00 %53,839 6.00 %
Common Equity Tier 1 Capital
(to risk weighted assets):
Actual57,705 6.72 %87,477 10.20 %65,282 7.27 %94,238 10.50 %
To be Well Capitalized(1)— — 55,760 6.50 %— — 58,325 6.50 %
For capital adequacy with Capital Buffer(2)— — 60,049 7.00 %— — 62,812 7.00 %
For capital adequacy38,614 4.50 %38,603 4.50 %40,381 4.50 %40,379 4.50 %
Tier 1 Leverage Capital (to average assets):
Actual65,705 6.44 %87,477 8.58 %73,282 6.76 %94,238 8.70 %
To be Well Capitalized(1)— — 51,001 5.00 %— — 54,170 5.00 %
For capital adequacy40,811 4.00 %40,801 4.00 %43,339 4.00 %43,336 4.00 %
(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.
On April 17, 2024, based on its supervisory profile, the Bank was notified by the OCC that it established individual minimum capital ratios (IMCR) for the Bank. Specifically, the Bank is required to maintain the following ratios: a common equity tier 1 capital ratio of 10.00%, a Tier 1 capital ratio of 10.00%, a Tier 1 leverage ratio of 9.00% and a total risk-based capital to risk-weighted assets of 11.50%.
As of June 30, 2024, the Bank did not meet all of its regulatory capital requirements. The common equity tier 1 capital was $87.5 million, or 10.20% of risk-weighted assets, exceeding the required level of 10.00%. The Tier 1 capital was $87.5 million, or 10.20% of risk-weighted assets, also above the required level of 10.00%. However, the Tier 1 leverage capital was $87.5 million, or 8.58% of average assets, falling short of the required 9.00%. The total risk-based capital was $96.2 million, or 11.21% of risk-weighted assets, below the required 11.50%. During the second quarter, the Bank significantly reduced its total and risk-based assets to work towards achieving the IMCR targets. This trend will continue into the remainder of 2024 with a goal of achieving exceeding the IMCR ratios by the end of 2024.