Note

19.

Regulatory and Operational Matters

November 2018,

the Bank entered into a formal written agreement (the “Agreement”) with the OCC. Pursuant to 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 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 agreed to provide a revised written

-year strategic and capital plan for the Bank by

December 31, 2018.

The Bank provided the documents and policies requested in the Agreement.

To date, the Bank has addressed each of the items identified in the Agreement and is currently working collaboratively with the OCC to bring all matters to full resolution. Further details pertaining to the Agreement were 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.

September 2019,

the community bank leverage ratio (CBLR) framework was jointly issued by the FDIC, 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

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.

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

9.0%.

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,

2019

and

2018

are summarized as follows:

(In thousands)	Patriot National Bancorp, Inc.								Patriot Bank, N.A.
	December 31, 2019				December 31, 2018				December 31, 2019				December 31, 2018
	Amount ($)		Ratio (%)		Amount ($)		Ratio (%)		Amount ($)		Ratio (%)		Amount ($)		Ratio (%)
Total Capital (to risk weighted assets):
Actual	$	90,083		10.510	$	90,722		10.452	$	100,953		11.826	$	99,341		11.500
To be Well Capitalized (1)		-		-		-		-		85,362		10.000		86,384		10.000
For capital adequacy with Capital Buffer (2)		-		-		-		-		89,630		10.500		85,304		9.875
For capital adequacy		68,573		8.000		69,441		8.000		68,290		8.000		69,107		8.000

Tier 1 Capital (to risk weighted assets):
Actual		69,957		8.161		73,101		8.422		90,827		10.640		91,720		10.618
To be Well Capitalized (1)		-		-		-		-		68,290		8.000		69,107		8.000
For capital adequacy with Capital Buffer (2)		-		-		-		-		72,558		8.500		68,027		7.875
For capital adequacy		51,430		6.000		52,081		6.000		51,217		6.000		51,830		6.000

Common Equity Tier 1 Capital (to risk weighted assets):
Actual		61,957		7.228		65,101		7.500		90,827		10.640		91,720		10.618
To be Well Capitalized (1)		-		-		-		-		55,485		6.500		56,149		6.500
For capital adequacy with Capital Buffer (2)		-		-		-		-		59,753		7.000		55,069		6.375
For capital adequacy		38,572		4.500		39,061		4.500		38,413		4.500		38,873		4.500

Tier 1 Leverage Capital (to average assets):
Actual		69,957		7.148		73,101		7.842		90,827		9.279		91,720		9.838
To be Well Capitalized (1)		-		-		-		-		48,944		5.000		46,617		5.000
For capital adequacy		39,148		4.000		37,288		4.000		39,155		4.000		37,294		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 was 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 was effective on

January

2019.

Patriot satisfies all capital adequacy requirements under the Basel III Capital Rules on a fully phased-in basis.