UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017

~~QUARTERLY REPORT UNDER SECTION 13~~ OR ~~15(d)~~

~~OF THE SECURITIES EXCHANGE ACT OF 1934~~

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the ~~Quarter Ended September 30, 2016~~transition period from ______ to ______

Commission file number 000-29599

PATRIOT NATIONAL BANCORP, INC.

(Exact name of registrant as specified in its charter)

Connecticut		06-1559137
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

900 Bedford Street, Stamford, Connecticut	~~06-1559137~~	06901
(~~State~~Address of ~~incorporation)~~principal executive offices)		(~~I.R.S. Employer Identification Number)~~Zip Code)

~~900 Bedford Street, Stamford, Connecticut 06901~~

~~(Address of principal executive offices)~~

(203) 324-7500

(Registrant~~(Registrant’s~~’s telephone ~~number)~~number, including area code)

~~Check~~

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the ~~past~~preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 ~~days:~~

days. Yes X ~~No_____~~☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes X ~~No_____~~☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange ~~Act:~~Act

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐ (Do not check if a smaller reporting company)	Smaller reporting company	☒
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.~~Large Accelerated Filer ____ Accelerated Filer ____ Non-Accelerated Filer~~_~~Smaller Reporting Company _~~ X_ ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

.Yes ☐ No X ☒

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

~~State~~Indicate by check mark whether the registrant has filed all documents and reports to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the ~~registrant’s~~issuer’s classes of common ~~equity,~~stock, as of the latest practicable date.

~~Common stock, $0.01 par value per share, 3,959,903~~As of November 6, 2017, there were 3,895,720 shares ~~outstanding as~~ of the ~~close of business November 11, 2016.~~registrant’s common stock outstanding.

Table of Contents

Table of Contents		2
PART I- FINANCIAL INFORMATION		3
Item 1: Consolidated Financial Statements		3
~~CONSOLIDATED BALANCE SHEETS~~Consolidated Balance Sheets (Unaudited)		3
~~CONSOLIDATED STATEMENTS OF OPERATIONS~~Consolidated Statements of Income (Unaudited)		4
~~CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME~~Consolidated Statements of Comprehensive Income (Unaudited)		5
~~CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY~~Consolidated Statements of Shareholder's Equity (Unaudited)		6
~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~Consolidated Statements of Cash Flows (Unaudited)		7
Note to Consolidated Financial Statements (Unaudited)		8
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations		36 38
Item 3: Quantitative and Qualitative Disclosures about Market Risk		47 53
Item 4: Disclosure Controls and Procedures		49 55
PART II - OTHER ~~INFORMATION~~INFORMATION		50 56
Item 1:	Legal Proceedings	5056
Item 1A:	Risk Factors	50 56
Item 6:	Exhibits	5157
SIGNATURES		52 58

PART I- FINANCIAL INFORMATION

Item 1: Consolidated Financial Statements

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

C~~CONSOLIDATED~~ONSOLIDATED BALANCE SHEETS (Unaudited)

September 30, 2016

December 31, 2015

(in thousands, except shares and per share amounts)
ASSETS
Cash and due from banks:

Noninterest bearing deposits and cash
$ 2,454 2,588
Interest bearing deposits
43,060 82,812
Total cash and cash equivalents
45,514 85,400

Securities:

Available for sale securities, at fair value (Note 2)
23,374 29,377
Other Investments
4,450 4,450
Federal Home Loan Bank and Federal Reserve Bank stock, at cost
7,818 8,645
Total securities
35,642 42,472

Loans receivable (net of allowance for loan losses: 2016: $7,328; 2015: $5,242) (Note 3)
552,822 479,127
Premises and equipment, net
30,850 29,421
Cash surrender value of life insurance
- -
Other real estate owned
851 -
Accrued interest and dividends receivable
2,308 2,010
Deferred tax asset (Note 7)
13,340 13,763
Other assets
1,759 1,338
Total assets
$ 683,086 653,531

LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities

Deposits (Note 5):

Noninterest bearing deposits
$ 77,304 85,812
Interest bearing deposits
393,881 358,868
Total deposits
471,185 444,680

Borrowings:

Federal Home Loan Bank borrowings (Note 9)
135,000 132,000
Junior subordinated debt owed to unconsolidated trust (Note 9)
8,248 8,248
Note Payable (Note 9)
1,800 1,939
Advances from borrowers for taxes and insurance
1,478 2,367
Accrued expenses and other liabilities
2,793 2,833
Total liabilities
620,504 592,067

Commitments and Contingencies (Note 10)

Shareholders' equity

Preferred stock, no par value; 1,000,000 shares authorized, no shares issued and outstanding
- -
Common stock, $.01 par value, 100,000,000 shares authorized; 3,961,591 and 3,957,377shares issued; 3,959,903 and 3,956,207 shares outstanding; at September 30, 2016 andDecember 31, 2015, respectively
40 40
Additional paid-in capital
106,694 106,568
Accumulated deficit
(43,947 ) (44,832 )
Less: Treasury stock, at cost: 1,688 and 1,170 shares held at September 30, 2016 andDecember 31, 2015, respectively
(167 ) (160 )
Accumulated other comprehensive loss
(38 ) (152 )
Total shareholders' equity
62,582 61,464
Total liabilities and shareholders' equity
$ 683,086 653,531

~~See Accompanying Notes to Consolidated Financial Statements.~~

~~PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY~~

~~CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)~~

Three Months Ended
September 30,

Nine Months Ended
September 30,

2016

2015

2016

2015

(in thousands, except per share amounts)

Interest and Dividend Income

Interest and fees on loans
$ 6,188 5,879 17,811 17,349
Interest on investment securities
131 115 405 350
Dividends on investment securities
88 85 264 202
Other interest income
25 30 94 76
Total interest and dividend income
6,432 6,109 18,574 17,977

Interest Expense

Interest on deposits
549 498 1,518 1,540
Interest on Federal Home Loan Bank borrowings
73 90 258 246
Interest on subordinated debt
85 74 250 218
Interest on other borrowings
9 3 25 3
Total interest expense
716 665 2,051 2,007
Net interest income
5,716 5,444 16,523 15,970
Provision for Loan Losses
355 - 2,314 250
Net interest income after provision for loan losses
5,361 5,444 14,209 15,720

Non-Interest Income

Loan application, inspection & processing fees
64 16 152 171
Fees and service charges
150 148 451 469
Rental Income
104 107 311 305
Other income
94 91 273 262
Total non-interest income
412 362 1,187 1,207

Non-Interest Expense

Salaries and benefits
2,169 2,245 7,334 6,984
Occupancy and equipment expense
783 814 2,313 2,678
Data processing expense
288 298 814 803
Advertising and promotional expenses
128 329 341 516
Professional and other outside services
409 322 1,182 1,282
Loan administration and processing expenses
14 8 30 37
Regulatory assessments
159 140 453 451
Insurance expense
57 79 168 243
Material and communications
106 95 314 282
Other operating expenses
328 423 992 967
Total non-interest expense
4,441 4,753 13,941 14,243
Income before income taxes
1,332 1,053 1,455 2,684
Expense for income taxes
518 420 570 1,073
Net income
$ 814 633 885 1,611

Basic income per share (1)
$ 0.21 0.16 0.22 0.42

Diluted income per share (1)
$ 0.21 0.16 0.22 0.41

~~(1) All common stock data has been restated for a 1-for-10 reverse stock split which took effect on March 4, 2015.~~

(In thousands, except share data)	September 30, 2017			December 31, 2016

ASSETS
Cash and due from banks:
Noninterest bearing deposits and cash	$	3,337			2,596
Interest bearing deposits		25,075			89,693
Total cash and cash equivalents		28,412			92,289
Investment securities:
Available-for-sale securities, at fair value		29,586			24,428
Other investments, at cost		4,450			4,450
Total investment securities		34,036			28,878

Federal Reserve Bank stock, at cost		2,460			2,109
Federal Home Loan Bank stock, at cost		6,353			5,609
Loans receivable (net of allowance for loan losses: 2017: $6,222, 2016: $4,675)		703,896			576,982
Accrued interest and dividends receivable		3,501			2,726
Premises and equipment, net		34,713			32,759
Other real estate owned		851			851
Deferred tax asset		10,686			12,632
Other assets		1,823			1,819
Total assets	$	826,731			756,654

Liabilities
Deposits:
Noninterest bearing deposits	$	76,875			76,772
Interest bearing deposits		528,539			452,552
Total deposits		605,414			529,324

Federal Home Loan Bank and correspondent bank borrowings		130,000			138,000
Senior notes, net		11,684			11,628
Junior subordinated debt owed to unconsolidated trust		8,085			8,079
Note payable		1,627			1,769
Advances from borrowers for taxes and insurance		1,799			2,676
Accrued expenses and other liabilities		1,812			2,608
Total liabilities		760,421			694,084

Commitments and Contingencies

Shareholders' equity
Preferred stock, no par value; 1,000,000 shares authorized, no shares issued and outstanding		-			-
Common stock, $.01 par value, 100,000,000 shares authorized; 2017: 3,969,461 shares issued; 3,895,720 shares outstanding. 2016: 3,965,538 shares issued; 3,891,897 shares outstanding		40			40
Additional paid-in capital		106,834			106,729
Accumulated deficit		(39,394	)		(42,902	)
Less: Treasury stock, at cost: 2017 and 2016, 73,741 and 73,641 shares, respectively		(1,179	)		(1,177	)
Accumulated other comprehensive gain (loss)		9			(120	)
Total shareholders' equity		66,310			62,570
Total liabilities and shareholders' equity	$	826,731			756,654

See Accompanying Notes to Consolidated Financial Statements.

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF ~~COMPREHENSIVE~~ INCOME (Unaudited)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2016

2015

2016

2015

(in thousands)

Net income
$ 814 633 885 1,611
Other comprehensive income :

Unrealized holding gains on securities
71 123 186 349
Income tax effect
(28 ) (49 ) (72 ) (139 )
Total other comprehensive income
43 74 114 210
Total comprehensive income
$ 857 707 999 1,821

	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands, except per share amounts)	2017		2016		2017			2016

Interest and Dividend Income
Interest and fees on loans	$	8,522		6,188		22,720			17,811
Interest on investment securities		275		131		688			405
Dividends on investment securities		105		88		280			264
Other interest income		65		25		148			94
Total interest and dividend income		8,967		6,432		23,836			18,574

Interest Expense
Interest on deposits		1,339		549		3,457			1,518
Interest on Federal Home Loan Bank borrowings		248		73		509			258
Interest on senior debt		229		-		686			-
Interest on subordinated debt		92		85		266			250
Interest on note payable		7		9		24			25
Total interest expense		1,915		716		4,942			2,051

Net interest income		7,052		5,716		18,894			16,523

Provision (Credit) for Loan Losses		545		355		(944	)		2,314

Net interest income after provision (credit) for loan losses		6,507		5,361		19,838			14,209
Non-interest Income
Loan application, inspection and processing fees		25		64		61			152
Deposit fees and service charges		149		150		444			451
Rental Income		117		104		302			311
Loss on sale of investment securities		-		-		(78	)		-
Other income		95		94		283			273
Total non-interest income		386		412		1,012			1,187

Non-interest Expense
Salaries and benefits		2,741		2,169		7,668			7,334
Occupancy and equipment expense		796		783		2,378			2,313
Data processing expense		340		288		786			814
Professional and other outside services		449		409		1,651			1,182
Advertising and promotional expense		81		128		266			341
Loan administration and processing expense		22		14		45			30
Regulatory assessments		230		159		572			453
Insurance expense		66		57		181			168
Material and communications		97		106		287			314
Other operating expense		400		328		1,096			992
Total non-interest expense		5,222		4,441		14,930			13,941

Income before income taxes		1,671		1,332		5,920			1,455

Expense for Income Taxes		658		518		2,373			570

Net income	$	1,013		814		3,547			885

Basic earnings per share	$	0.26		0.21		0.91			0.22
Diluted earnings per share	$	0.26		0.21		0.91			0.22

See Accompanying Notes to Consolidated Financial Statements.

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF ~~SHAREHOLDERS’ EQUITY~~COMPREHENSIVE INCOME (Unaudited)

(in thousands, except shares)

Number of
Shares

Common
Stock

Additional
Paid-In
Capital

Accumulated
Deficit

Treasury
Stock

Accumulated
Other
Comprehensive
Loss

Total

Balance at December 31, 2014
3,924,192 $ 39 106,108 (46,975 ) (160 ) (277 ) 58,735
Net Income
- - - 1,611 - - 1,611
Unrealized holding gain on available forsale securities, net of taxes
- - - - - 210 210
Total comprehensive income
- - - - - - 1,821
Share-based compensation expense
- - 340 - - - 340
Issuance of restricted stock
675 1 (1 ) - - - -
Balance at Septmber 30, 2015
3,924,867 $ 40 106,447 (45,364 ) (160 ) (67 ) 60,896

Balance December 31, 2015
3,956,207 $ 40 106,568 (44,832 ) (160 ) (152 ) 61,464
Net income
- - - 885 - - 885
Unrealized holding gain on available forsale securities, net of taxes
- - - - - 114 114
Total comprehensive income
- - - - - - 999
Repurchase of Common shares
(518 ) - - - (7 ) - (7 )
Share-based compensation expense,net of forfeitures
- - 126 - - - 126
Issuance of restricted stock
4,214 - - - - - -
Balance at September 30, 2016
3,959,903 $ 40 106,694 (43,947 ) (167 ) (38 ) 62,582

(In thousands)	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016

Net income	$	1,013			814			3,547			885
Other comprehensive income
Unrealized holding gains on securities		2			71			289			186
Income tax effect		(1	)		(28	)		(112	)		(72	)

Reclassification for realized losses on sale of investment securities		-			-			(78	)		-
Income tax effect		-			-			30			-

Total other comprehensive income		1			43			129			114

Comprehensive income	$	1,014			857			3,676			999

See Accompanying Notes to Consolidated Financial Statements.

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~SHAREHOLDERS’ EQUITY (Unaudited)

Nine Months Ended

September 30,

2016

2015

(in thousands)

Cash Flows from Operating Activities:

Net income
$ 885 1,611
Adjustments to reconcile net income to net cash provided by operating activities:

Amortization (accretion) of investment premiums and discounts, net
97 155
Amortization and accretion of purchase loan premiums and discounts, net
118 190
Provision for loan losses, net of recoveries
2,314 250
Depreciation and amortization
920 776
Share-based compensation
126 340
Deferred income taxes
351 888
Loss on disposal of fixed assets
- 133
Gain on acquisition of OREO
(11 ) -
Changes in assets and liabilities:

Decrease in net deferred loan costs
115 216
Increase in accrued interest and dividends receivable
(298 ) (189 )
(Increase)/Decrease in other assets
(421 ) 100
(Decrease)/Increase in accrued expenses and other liabilities
(40 ) 548
Net cash provided by operating activities
4,156 5,018

Cash Flows from Investing Activities:

Principal repayments on available for sale securities
2,092 3,151
Purchase of available for sale securities
(1,000 ) -
Proceeds from call of available for sale securities
5,000 -
Redemptions of Federal Home Loan Bank and Federal Reserve Bank, net
827 10
Increase in loans, net
(77,082 ) (19,746 )
Purchase of bank premises and equipment, net
(2,349 ) (7,745 )
Net cash used in investing activities
(72,512 ) (24,330 )

Cash Flows from Financing Activities:

Net increase in deposits
26,505 4,227
Increase in FHLB borrowings
3,000 -
Repurchase of common stock
(7 ) -
Repayment of Note Payable
(139 ) (15 )
Proceeds from Note Payable
- 2,000
Decrease in advances from borrowers for taxes and insurance
(889 ) (820 )
Net cash used in financing activities
28,470 5,392

Net decrease in cash and cash equivalents
(39,886 ) (13,920 )

Cash and Cash Equivalents:

Beginning
85,400 73,258

Ending
$ 45,514 59,338

Supplemental Disclosures of Cash Flow Information:

Interest paid
$ 2,398 1,717
Income taxes paid
$ 253 3
Transfer of loans to other real estate owned
$ 840 -

(In thousands, except shares)	Number of Shares			Common Stock		Additional Paid-in Capital		Accumulated Deficit			Treasury Stock			Accumulated Other Comprehensive Loss			Total


Balance at December 31, 2016		3,891,897		$	40		106,729		(42,902	)		(1,177	)		(120	)		62,570
Comprehensive income:
Net income		-			-		-		3,547			-			-			3,547
Other comprehensive income		-			-		-		-			-			129			129
Total comprehensive income		-			-		-		3,547			-			129			3,676
Purchase of treasury stock		(100	)									(2	)					(2	)
Common stock dividends									(39	)								(39	)
Share-based compensation expense		-			-		105		-			-			-			105
Vesting of restricted stock		3,923			-		-		-			-			-			-
Balance at September 30, 2017		3,895,720		$	40		106,834		(39,394	)		(1,179	)		9			66,310



Balance at December 31, 2015		3,956,207			40		106,568		(44,832	)		(160	)		(152	)		61,464
Comprehensive income:
Net income		-			-		-		885			-			-			885
Unrealized holding gain on available-for-sale securities, net of tax		-			-		-		-			-			114			114
Total comprehensive income		-			-		-		885			-			114			999
Purchase of treasury stock		(518	)									(7	)					(7	)
Share-based compensation expense		-			-		126		-			-			-			126
Vesting of restricted stock		4,214			-		-		-			-			-			-
Balance at September 30, 2016		3,959,903		$	40		106,694		(43,947	)		(167	)		(38	)		62,582

See Accompanying Notes to Consolidated Financial Statements.

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	Nine Months Ended September 30,
(In thousands)	2017			2016

Cash Flows from Operating Activities:
Net income	$	3,547			885
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of investment premiums, net		66			97
Amortization and accretion of purchase loan premiums and discounts, net to loans		476			118
Amortization of debt issuance costs		62			5
(Credit) provision for loan losses		(944	)		2,314
Depreciation and amortization		926			920
Loss on sales of available-for-sale securities		78			-
Share-based compensation		105			126
Deferred income taxes		1,864			351
Gain on acquisition of OREO		-			(11	)
Changes in assets and liabilities:
Increase in accrued interest and dividends receivable		(775	)		(298	)
Increase in other assets		(4	)		(426	)
Decrease in accrued expenses and other liabilities		(796	)		(40	)
Net cash provided by operating activities		4,605			4,041

Cash Flows from Investing Activities:
Proceeds from sales on available-for-sale securities		13,846			5,000
Principal repayments on available-for-sale securities		1,639			2,092
Purchases of available-for-sale securities		(20,576	)		(1,000	)
Purchases of Federal Reserve Bank stock		(351	)		-
(Purchases) redemptions of Federal Home Loan Bank stock		(744	)		827
Increase in net originations of loans receivable		(53,424	)		(57,991	)
Purchase of loan pools receivable		(73,022	)		(18,976	)
Purchase of premises and equipment		(2,880	)		(2,349	)
Net cash used in investing activities		(135,512	)		(72,397	)

Cash Flows from Financing Activities:
Increase in deposits, net		76,090			26,505
(Repayments of) increase in FHLB and correspondent bank borrowings		(8,000	)		3,000
Principal repayments of note payable		(142	)		(139	)
Decrease in advances from borrowers for taxes and insurance		(877	)		(889	)
Purchases of treasury stock		(2	)		(7	)
Dividends paid on common stock		(39	)		-
Net cash provided by financing activities		67,030			28,470

Net decrease in cash and cash equivalents		(63,877	)		(39,886	)

Cash and cash equivalents at beginning of period		92,289			85,400

Cash and cash equivalents at end of period	$	28,412			45,514


Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	$	4,467			2,398
Cash paid for income taxes	$	475			253

Supplemental Disclosures of Noncash Investing Activities:
Transfers of loans receivable to other real estate owned	$	-			840

See Accompanying Notes to Consolidated Financial Statements.

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements ~~(Unaudited)~~(unaudited)

Note 1:Basis of Financial Statement Presentation

The accompanying unaudited condensed consolidated financial statements of Patriot National Bancorp, Inc. (the “Company”) and its wholly-owned subsidiaries including Patriot Bank, N.A. (the “Bank”) (collectively, “Patriot”), have been prepared pursuant to the rules and regulations of the Securities and Exchange ~~Commission.~~Commission (“SEC”). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) have been omitted. The accompanying unaudited interim condensed consolidated financial statements ~~presented herein~~ should be read in conjunction with the ~~previously filed~~ audited consolidated financial statements ~~of the Company~~ and notes thereto included on the Form 10-K for the year ended December 31, ~~2015.~~2016.

The Consolidated Balance Sheet at December 31, ~~2015~~2016 presented herein has been derived from the audited consolidated financial statements of the Company at that date, but does not include all of the information and footnotes required by ~~accounting principles generally accepted in the United States of America~~US GAAP for complete financial statements.

The preparation of consolidated financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and to disclose contingent assets and liabilities. Actual results could differ from those estimates. Management has identified accounting for the allowance for loan losses, the analysis and valuation of its investment securities, and the valuation of deferred tax assets as certain of Patriot’s more significant accounting policies and estimates, in that they are critical to the presentation of Patriot’s financial condition and results of operations. As they concern matters that are inherently uncertain, these estimates require management to make subjective and complex judgments in the preparation of Patriot’s Consolidated Financial Statements.

Certain prior period amounts have been reclassified to conform to current year presentation.

The information furnished reflects, in the opinion of management, all normal recurring adjustments necessary for a fair presentation of the results for the interim periods presented. The results of operations for the three and nine months ended September 30, ~~2016~~2017 are not necessarily indicative of the results of operations that may be expected for the remainder of ~~2016.~~2017.

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements ~~(Unaudited)~~(unaudited)

Note 2:~~Investment~~ Available-for SaleSecurities

The amortized cost, gross unrealized gains and losses and approximate fair values of available-for-sale securities at September 30, ~~2016~~2017 and December 31, ~~2015~~2016 are as follows:

Gross

Gross

(in thousands)

Amortized

Unrealized

Unrealized

Fair

Cost

Gains

Losses

Value

September 30, 2016:

U. S. Government agency mortgage-backed securities
$ 11,436 26 (50 ) 11,412
Corporate bonds
9,000 - (63 ) 8,937
Subordinated Notes
3,000 25 - 3,025
$ 23,436 51 (113 ) 23,374

December 31, 2015:

U. S. Government agency bonds
$ 5,000 - (46 ) 4,954
U. S. Government agency mortgage-backed securities
13,625 - (212 ) 13,413
Corporate bonds
9,000 71 (61 ) 9,010
Subordinated Notes
$ 2,000 - - 2,000
29,625 71 (319 ) 29,377

(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
September 30, 2017:
U. S. Government agency mortgage-backed securities	$	8,071		34		(69	)		8,036
Corporate bonds		14,000		-		(95	)		13,905
Subordinated notes		7,500		145		-			7,645
	$	29,571		179		(164	)		29,586

December 31, 2016:
U. S. Government agency mortgage-backed securities	$	10,624		9		(192	)		10,441
Corporate bonds		9,000		-		(39	)		8,961
Subordinated notes		5,000		26		-			5,026
	$	24,624		35		(231	)		24,428

The following table presents the available-for-sale securities’ gross unrealized ~~loss~~losses and fair value, ~~of the Company’s available-for-sale securities,~~ aggregated by the length of time the individual securities have been in a continuous loss position atas of September 30, ~~2016~~2017 and December 31, ~~2015:~~2016:

Less Than 12 Months

12 Months or More

Total

(in thousands)

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

Value

Loss

Value

Loss

Value

Loss

September 30, 2016:

U. S. Government agency mortgage - backed securities
- - 3,683 (50 ) 3,683 (50 )
Corporate bonds
2,992 (8 ) 5,945 (55 ) 8,937 (63 )
Totals
$ 2,992 (8 ) 9,628 (105 ) 12,620 (113 )

December 31, 2015:

U. S. Government agency bonds
$ 4,954 (46 ) - - 4,954 (46 )
U. S. Government agency mortgage - backed securities
2,863 (42 ) 10,550 (170 ) 13,413 (212 )
Corporate bonds
- - 5,939 (61 ) 5,939 (61 )
Totals
$ 7,817 (88 ) 16,489 (231 ) 24,306 (319 )

(In thousands)	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized (Loss)			Fair Value		Unrealized (Loss)			Fair Value		Unrealized (Loss)
September 30, 2017:
U. S. Government agency mortgage-backed securities	$	626		(2	)		3,329		(67	)		3,955		(69	)
Corporate bonds		13,905		(95	)		-		-			13,905		(95	)
	$	14,531		(97	)		3,329		(67	)		17,860		(164	)

December 31, 2016:
U. S. Government agency mortgage-backed securities	$	5,969		(144	)		3,356		(48	)		9,325		(192	)
Corporate bonds		-		-			5,961		(39	)		5,961		(39	)
	$	5,969		(144	)		9,317		(87	)		15,286		(231	)

At September 30, ~~2016, five of eleven available-for-sale securities had unrealized losses with an average depreciation of 0.9% from the total amortized cost. At~~2017 and December 31, ~~2015, nine~~2016, eight of thirteen and seven out of ~~eleven~~twelve available-for-sale securities had unrealized losses with an aggregate depreciation of ~~1.3%~~0.9% and 1.5% from ~~the total~~ amortized ~~cost.~~cost, respectively.

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements ~~(Unaudited)~~(unaudited)

~~The Company performs a~~Based on its quarterly analysis of those securities that are in an unrealized loss position to determine if those losses qualify as other-than-temporary impairments. This analysis considers the following criteria in its determination: the ability of the issuer to meet its obligations, management’s plans and ability to maintain its investment in the security, the length of time and the amount by which the security has been in a loss position, the interest rate environment, the general economic environment and prospects or projections for improvement or deterioration.

~~Management~~reviews, management believes that none of the ~~unrealized~~ losses on available-for-sale securities noted above constitute an other-than-temporary impairment (“OTTI”). The noted losses are ~~other than~~considered temporary due to ~~the fact that they relate to~~ market fluctuations in available interest ~~rate changes~~rates on U.S. Government agency debt, ~~investment grade corporate debt and~~ mortgage-backed securities issued by U.S. Government ~~agencies.~~agencies, and corporate debt. Management considers the issuers of the securities to be financially sound, the corporate bonds are investment grade, and the amount by which the securities are in a loss position small. Additionally, the Company has both the intent and the ability to hold these securities until its amortized cost basis can be recovered, which may be at maturity. Accordingly, the Company expects to receivecollectability of all contractual principal and interest ~~related~~payments is reasonably expected. Since Patriot is not more-likely-than-not to ~~these~~be required to sell the investments ~~and~~before recovery of the ~~Company~~amortized cost basis and does not ~~consider them~~intend to sell the securities at a loss, none of the available-for-sale securities noted are considered to be ~~other-than-temporarily impaired at~~OTTI as of September 30, ~~2016.~~2017.

~~The amortized cost and fair value of available-for-sale debt securities at~~At September 30, 2016, by contractual maturity, are presented below. Actual maturities of mortgage-backed securities may differ from contractual maturities because the mortgages underlying the securities may be prepaid without any penalties. The actual maturities will also differ from contractual maturities because issuers of certain securities retain early call or prepayment rights.

Amortized Cost

Fair Value

Maturity:

Due from one to five years
$ 9,000 8,937
Due after five years
3,000 3,025
U.S. Government agency mortgage-backed securities
11,436 11,412
Total
$ 23,436 23,374

~~AtSeptember 30, 2016~~2017 and December 31, ~~2015,~~2016, available-for-sale securities of ~~$4.6~~$5.0 million and ~~$5.5~~$4.2 million, respectively, were pledged to the ~~Federal Reserve Bank~~FRB of New York, primarily to secure municipal deposits.

The following summarizes, by class and contractual maturity, the amortized cost and estimated fair value of available-for-sale debt securities held at September 30, 2017 and December 31, 2016. The mortgages underlying the mortgage-backed securities are not due at a single maturity date. Additionally, these mortgages often are and generally may be pre-paid without penalty, creating a degree of uncertainty that such investments can be held until maturity. For convenience, mortgage-backed securities have been included in the summary as a separate line item.

(In thousands)	Amortized Cost								Fair Value
	Due Within 5 years		Due After 5 years through 10 years		Due After 10 years		Total		Due Within 5 years		Due After 5 years through 10 years		Due After 10 years		Total
September 30, 2017:
Corporate bonds	$	-		9,000		5,000		14,000		-		8,954		4,951		13,905
Subordinated Notes		1,000		6,500		-		7,500		1,019		6,626		-		7,645
Available-for-sale securities with single maturity dates		1,000		15,500		5,000		21,500		1,019		15,580		4,951		21,550
U. S. Government agency mortgage-backed securities		-		940		7,131		8,071		-		920		7,116		8,036
	$	1,000		16,440		12,131		29,571		1,019		16,500		12,067		29,586

December 31, 2016:
Corporate bonds	$	9,000		-		-		9,000		8,961		-		-		8,961
Subordinated Notes		1,000		4,000		-		5,000		1,026		4,000		-		5,026
Available-for-sale securities with single maturity dates		10,000		4,000		-		14,000		9,987		4,000		-		13,987
U. S. Government agency mortgage-backed securities		-		2,132		8,492		10,624		-		2,106		8,335		10,441
	$	10,000		6,132		8,492		24,624		9,987		6,106		8,335		24,428

There were no$13.8 million sales and $20.6 million purchases of available-for-sale securities in 2017. No loss on the sale of available-for-sale securities was recorded during the ~~nine-month periods~~third quarter ended September 30, ~~2016 or~~2017. A loss on the sale of available-for-sale securities of $78,000 was recorded during the nine months ended September 30, ~~2015.~~2017. There were no realized gains (losses) of available-for sale securities during the three and nine months ended September 30, 2016.

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements (unaudited)

Note 3:Loans Receivable and Allowance for Loan Losses

Loans that the Company has the intent and ability to hold for the foreseeable future, or until maturity, are generally reported at their outstanding unpaid principal balances adjusted for unearned income, the allowance for loan losses, and any unamortized deferred fees or costs.

Interest income is accrued based on the unpaid principal balance. Loan application fees are non interest income while other certain direct origination costs are deferred, and amortized as a level yield adjustment over the respective termAs of ~~the loan and reported in interest income.~~

The accrual of interest on loans is discontinued at the time the loan is ninety days past due for payment unless the loan is well-secured and in process of collection. Consumer installment loans are typically charged off no later than 180 days past due. Past due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual status or charged off at an earlier date if collection of principal or interest is considered doubtful.

~~PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY~~

~~Notes to consolidated financial statements (Unaudited)~~

All interest accrued, but not collected, on loans that are placed on nonaccrual status, or are charged off, is reversed against interest income. The interest on these loans is accounted for on the cash-basis method until qualifying for return to accrual status. Upon receipt of cash, the cash received is first applied to satisfy principal and then applied to interest, unless the loan is in a cure period and Management believes there will be a loss. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

On September 30, 2016, the Company purchased $23.0 million face amount ($23.7 million fair value) of non-credit impaired student loans receivable, together with accrued interest of $107,822, from another Bank. The purchase price aggregated $23.8 million. By the terms of the agreement, the seller Bank will continue to service these loans in return for a fee. In accordance with the Company’s accounting policies, the premium paid will be amortized to interest income, in order to achieve a consistent effective yield.

~~A summary of the Company’s loan portfolio at September 30, 2016~~2017 and December 31, ~~2015 is as follows:~~2016, loans receivable, net, consists of the following:

(in thousands)	September 30,			December 31,
	2016			2015
(In thousands)
Loan portfolio segment:							September 30, 2017			December 31, 2016
Commercial Real Estate							$	296,625			271,229
Residential Real Estate								150,664			86,514
Commercial and Industrial	$	69,723			59,752			117,673			60,977
Commercial Real Estate		258,920			245,828
Consumer and Other								90,973			101,449
Construction		48,048			15,551			48,328			53,895
Construction to permanent- CRE		5,587			4,880
Residential		103,969			110,837
Consumer/Other		73,903			47,521
Total Loans		560,150			484,369
Construction to permanent - CRE								5,855			7,593
Loans receivable, gross								710,118			581,657
Allowance for loan losses		(7,328	)		(5,242	)		(6,222	)		(4,675	)
Loans receivable, net	$	552,822			479,127		$	703,896			576,982

Amounts presented at December 31, 2015 include $28.2 million of loans secured by 1-4 Family Non-owner Occupied real estate in the Residential category, reclassified from Commercial Real Estate for consistency with the September 30, 2016 presentation. Net unamortized purchase loan premiums aggregated $1.4 million and $0.9 million as of September 30, 2016 and December 31, 2015, respectively. Net deferred loan costs aggregated $0.2 million as of September 30, 2016 and $0.3 million as of December 31, 2015.

~~The Company's~~Patriot's lending activities are conducted principally in Fairfield and New Haven Counties in Connecticut and Westchester County in New York, and the five Boroughs of New York City. ~~The Company~~Patriot originates commercial real estate loans, commercial business loans, ~~and~~ a variety of consumer loans, and construction loans. ~~In addition, the Company previously had originated loans on~~All commercial and residential real ~~estate. All residential and commercial mortgage~~estate loans are collateralized primarily by first or second mortgages on real estate. The ability and willingness of borrowers to satisfy their loan obligations is dependent to some degree on the status of the regional economy as well as upon the regional real estate market. Accordingly, the ultimate collectability of a substantial portion of the loan portfolio and the recovery of a substantial portion of any resulting real estate acquired is susceptible to changes in market conditions.

~~The Company~~Patriot has established credit policies applicable to each type of lending activity in which it engages ~~by which it~~and evaluates the creditworthiness of each ~~customer and, in most cases, extends~~borrower. Unless extenuating circumstances exist, Patriot limits the extension of credit ~~of up~~on commercial real estate loans to 75% of the market value of the ~~collateral~~underlying collateral. Patriot’s loan origination policy for ~~commercial~~multi–family residential real estate ~~at the date~~is limited to 80% of the ~~credit extension depending on the Company's evaluation~~market value of the ~~borrowers' creditworthiness and type of collateral and up to 80% for multi–family real estate.~~underlying collateral. In the case of construction loans, the maximum loan-to-value is 75% of the “as completed” appraised ~~value. The~~value of the real estate project. Management monitors the appraised value of collateral ~~is monitored~~ on an ~~ongoing~~on-going basis and additional collateral is requested when warranted. Real estate is the primary form of ~~collateral. Other important~~collateral, although other forms of collateral ~~are~~do exist and may include such assets as accounts receivable, inventory, marketable securities, time deposits, and other business ~~assets, marketable securities and time deposits.~~

~~PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY~~

~~Notes to consolidated financial statements (Unaudited)~~assets.

Risk characteristics of the ~~Company’s~~Company’s portfolio classes include the following:

~~Commercial and Industrial Loans~~– The Company’s commercial and industrial loan portfolio consists primarily of commercial business loans and lines of credit to businesses and professionals. These loans are usually made to finance accounts receivable, the purchase of inventory or new or used equipment and for other short or long-term working capital purposes. These loans are generally secured by business assets, but are also occasionally offered on an unsecured basis. In granting this type of loan, the Company primarily looks to the borrower’s cash flow as the source of repayment with collateral and personal guarantees, where obtained, as a secondary source of repayment. Payments on such loans are often dependent upon the successful operation of the underlying business involved. Repayment of such loans may therefore be negatively impacted by adverse changes in economic conditions, management’s inability to effectively manage the business, claims of others against the borrower’s assets which may take priority over the Company’s claims against assets, death or disability of the borrower, or loss of markets for the borrower’s products or services.

Commercial Real Estate Loans –

In underwriting commercial real estate loans, ~~the Company~~Patriot evaluates both the prospective ~~borrower’s~~borrower’s ability to make timely payments on the loan and the value of the property securing the loans. Repayment of such loans may be negatively impacted should the borrower default, ~~or should there be a substantial decline in~~ the value of the property ~~securing~~collateralizing the loan substantially decline, or ~~decline~~there are declines in general economic conditions. Where the owner occupies the property, ~~the Company~~Patriot also evaluates the ~~business~~business’ ability to repay the loan on a timely ~~basis. In addition, the Company~~basis and may require personal guarantees, lease assignments, and/or the guarantee of the operating ~~company when the property is owner occupied.~~

~~Construction Loans~~– Construction loans are short-term loans (generally up to eighteen months) secured by land for both residential and commercial development. The loans are generally made for acquisition and improvements. Funds are disbursed as phases of construction are completed. Included in this category are loans to construct single family homes where no contract of sale exists. These loans are based upon the experience and the financial strength of the builder, the type and location of the property and other factors. Construction loans are generally personally guaranteed by the principal(s). Repayment of such loans may be negatively impacted by the builders’ inability to complete construction, a downturn in the new construction market, a significant increase in interest rates, or decline in general economic conditions.company.

~~Construction~~

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to ~~Perm~~~~anent~~~~-CRE~~– One time close of a construction facility converting to an amortizing mortgage loan typically upon an event which would include a certificate of occupancy as well as stabilization, defined as cash flow sufficient to support a pre-defined minimum debt coverage ratio, as well as other conditions and covenants particular to the loan type. The construction facility would typically carry a floating rate, then upon conversion to amortization would reset at a predetermined spread over FHLB with a minimum interest rate.consolidated financial statements (unaudited)

Residential Real Estate Loans~~– Home equity loans secured by real estate properties are offered by the Company. The Company no longer offers residential~~

In 2013, Patriot discontinued offering primary mortgages ~~having exited this business in 2013.~~on personal residences. Repayment of residential real estate loans may be negatively impacted should the borrower have financial difficulties, should there be a significant decline in the value of the property securing the loan, or should there be ~~decline~~declines in general economic conditions.

In March 2017, Patriot purchased $73 million of residential real estate loans.

Commercial and Industrial Loans

Patriot~~Consumer/~~’s commercial and industrial loan portfolio consists primarily of commercial business loans and lines of credit to businesses and professionals. These loans are generally for the financing of accounts receivable, purchases of inventory, purchases of new or used equipment, or for other short- or long-term working capital purposes. These loans are generally secured by business assets, but are also occasionally offered on an unsecured basis. In granting these types of loans, Patriot considers the borrower’s cash flow as the primary source of repayment, supported by the value of collateral, if any, and personal guarantees, as applicable. Repayment of commercial and industrial loans may be negatively impacted by adverse changes in economic conditions, ineffective management, claims on the borrower’s assets by others that are superior to Patriot’s claims, a loss of demand for the borrower’s products or services, or the death or disability of the borrower or other key management personnel.

Consumer and Other Loans~~– The Company also~~

Patriot offers individual consumers various forms of credit including installment loans, credit cards, ~~and consumer~~ overdraft protection, and reserve lines of ~~credit to individuals.~~credit. Repayments of such loans are ~~often~~generally dependent on the personal income of the borrower, which may be negatively impacted by adverse changes in economic conditions. The Company does not place a high emphasis on originating these types of loans.

~~PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY~~

~~Notes to consolidated financial statements (Unaudited)~~

The Company does not have any lending programs commonly referred to as subprime lending. Subprime lending generally targets borrowers with weakened credit histories that are typically characterized by payment delinquencies, previous charge-offs, judgments against the consumer, a history of bankruptcies, or borrowers with questionable repayment capacity as evidenced by low credit scores or high ~~debt-burden~~debt-burdened ratios.

Construction Loans

Construction loans are of a short-term nature, generally of eighteen-months or less, that are secured by land intended for commercial, residential, or mixed-use development. Loan proceeds may be used for the acquisition of or improvements to the land under development and funds are generally disbursed as phases of construction are completed.

Included in this category are loans to construct single family homes where no contract of sale exists, based upon the experience and financial strength of the builder, the type and location of the property, and other factors. Construction loans tend to be personally guaranteed by the principal(s). Repayment of such loans may be negatively impacted by an inability to complete construction, a downturn in the market for new construction, by a significant increase in interest rates, or by decline in general economic conditions.

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements (unaudited)

Construction to Permanent – CRE

One time close of a construction facility with simultaneous conversion to an amortizing mortgage loan. Construction to permanent loans combine a short term period similar to a construction loan, generally with a variable rate, and a longer term CRE loan typically 20-25 years, resetting every five years to the FHLB rate.

Close of the construction facility typically occurs when events dictate, such as receipt of a certificate of occupancy and property stabilization, which is defined as cash flow sufficient to support a pre-defined minimum debt coverage ratio and other conditions and covenants particular to the loan. Construction facilities are typically variable rate instruments that, upon conversion to an amortizing mortgage loan, reset to a fixed rate instrument that is the greater of the in-force variable rate plus a predetermined spread over a reference rate (e.g., prime) or a minimum interest rate.

Allowance for Loan Losses

The following ~~table sets forth~~tables summarize the activity in ~~our~~the allowance for loan losses, byallocated to segments of the loan ~~type,~~portfolio, for the three and nine months ended September 30, ~~2016.~~ 2017 and 2016:

(In thousands)	Commercial Real Estate			Residential Real Estate			Commercial and Industrial			Consumer and Other			Construction			Construction to Permanent [CRE]			Unallocated			Total
Three months ended September 30, 2017
Allowance for loan losses:
June 30, 2017	$	2,218			1,041			1,453			593			490			73			76			5,944
Charge-offs		-			-			(265	)		(10	)		-			-			-			(275	)
Recoveries		6			-			-			2			-			-			-			8
Provisions (credits)		(52	)		4			685			(327	)		293			(27	)		(31	)		545
September 30, 2017	$	2,172			1,045			1,873			258			783			46			45			6,222

Three months ended September 30, 2016
Allowance for loan losses:
June 30, 2016	$	2,295			647			3,400			531			169			145			22			7,209
Charge-offs		-			(186	)		(50	)		(2	)		-			-			-			(238	)
Recoveries		-			2			-			-			-			-			-			2
Provisions (credits)		(491	)		949			352			(329	)		(108	)		(18	)		-			355
September 30, 2016	$	1,804			1,412			3,702			200			61			127			22			7,328

(In thousands)	Commercial Real Estate			Residential Real Estate			Commercial and Industrial			Consumer and Other			Construction			Construction to Permanent [CRE]			Unallocated			Total
Nine months ended September 30, 2017
Allowance for loan losses:
December 31, 2016	$	1,853			534			740			641			712			69			126			4,675
Charge-offs		-			-			(265	)		(23	)		-			-			-			(288	)
Recoveries		8			-			2,769			2			-			-			-			2,779
Provisions (credits)		311			511			(1,371	)		(362	)		71			(23	)		(81	)		(944	)

September 30, 2017	$	2,172			1,045			1,873			258			783			46			45			6,222

Nine months ended September 30, 2016
Allowance for loan losses:
December 31, 2015	$	1,970			740			1,027			677			486			123			219			5,242
Charge-offs		-			(190	)		(50	)		(4	)		-			-			-			(244	)
Recoveries		-			3			12			1			-			-			-			16
Provisions (credits)		(166	)		859			2,713			(474	)		(425	)		4			(197	)		2,314

September 30, 2016	$	1,804			1,412			3,702			200			61			127			22			7,328

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements (unaudited)

The following ~~table also details~~tables summarize, by loan portfolio segment, the amount of loans receivable ~~that are~~ evaluated individually and collectively for impairment ~~and the related portion of the allowance for loan losses that is allocated to each loan portfolio segment,~~ as of September 30, ~~2016.~~

ALLOWANCE FOR LOANS LOSSES

(in thousands)

Three months ended September 30, 2016:

Commercial
and
Industrial

Commercial
Real Estate

Construction

Construction
to
Permanent

Residential

Consumer/
Other

Unallocated

Total

Allowance for loan losses:

Beginning Balance
$ 3,400 2,295 169 145 647 531 22 7,209
Charge-offs
(50 ) - - - (186 ) (2 ) - (238 )
Recoveries
- - - - 2 - - 2
Provision
352 (491 ) (108 ) (18 ) 949 (329 ) - 355
Ending Balance
$ 3,702 1,804 61 127 1,412 200 22 7,328

Nine months ended September 30, 2016:

Allowance for loan losses:

Beginning Balance
$ 1,027 1,970 486 123 740 677 219 5,242
Charge-offs
(50 ) - - - (190 ) (4 ) - (244 )
Recoveries
12 - - - 3 1 - 16
Provision
2,713 (166 ) (425 ) 4 859 (474 ) (197 ) 2,314
Ending Balance
$ 3,702 1,804 61 127 1,412 200 22 7,328

As of September 30, 2016:

Ending balance: individually evaluated for impairment
3,158 - - - - 3 - 3,161
Ending balance: collectively evaluated for impairment
544 1,804 61 127 1,412 197 22 4,167
Total allowance for loan losses
$ 3,702 1,804 61 127 1,412 200 22 7,328

Total loans ending balance
$ 69,723 258,920 48,048 5,587 103,969 73,903 - 560,150

Ending balance: individually evaluated for impairment
$ 3,158 6,713 - - 4,676 3 - 14,550

Ending balance: collectively evaluated for impairment
$ 66,565 252,207 48,048 5,587 99,293 73,900 - 545,600

~~PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY~~

~~Notes to consolidated financial statements (Unaudited)~~2017 and December 31, 2016:

The following table sets forth activity in our allowance for loan losses, by loan type, for the three and nine months ended September 30, 2015. The following table also details the amount of loans receivable that are evaluated individually and collectively for impairment, and the related portion of the allowance for loan losses that is allocated to each loan portfolio segment, as of December 31, 2015.

(In thousands)	Commercial Real Estate		Residential Real Estate		Commercial and Industrial		Consumer and Other		Construction		Construction to Permanent [CRE]		Unallocated		Total
September 30, 2017
Allowance for loan losses:

Individually evaluated for impairment	$	-		-		285		-		-		-		-		285

Collectively evaluated for impairment		2,172		1,045		1,588		258		783		46		45		5,937

Total allowance for loan losses	$	2,172		1,045		1,873		258		783		46		45		6,222

Loans receivable, gross:
Individually evaluated for impairment	$	6,081		1,904		285		715		-		-		-		8,985

Collectively evaluated for impairment		290,544		148,760		117,388		90,258		48,328		5,855		-		701,133

Total loans receivable, gross	$	296,625		150,664		117,673		90,973		48,328		5,855		-		710,118

ALLOWANCE FOR LOANS LOSSES

(in thousands)

Three months ended September 30, 2015:

Commercial
and
Industrial

Commercial
Real Estate

Construction

Construction
to
Permanent

Residential

Consumer/
Other

Unallocated

Total

Allowance for loan losses:

Beginning Balance
$ 982 2,145 275 150 832 726 98 5,208
Charge-offs
- - - - (7 ) (4 ) - (11 )
Recoveries
7 35 - - - 1 - 43
Provision
(219 ) 204 119 38 (198 ) (25 ) 81 -
Ending Balance
$ 770 2,384 394 188 627 698 179 5,240

Nine Months Ended September 30, 2015:

Allowance for loan losses:

Beginning Balance
$ 1,918 1,419 63 215 831 478 - 4,924
Charge-offs
- - - - (10 ) (11 ) - (21 )
Recoveries
37 35 - 5 - 10 - 87
Provision
(1,185 ) 930 331 (32 ) (194 ) 221 179 250
Ending Balance
$ 770 2,384 394 188 627 698 179 5,240

As of December 31, 2015:

Ending balance: individually evaluated for impairment
$ - - - - - 3 - 3
Ending balance: collectively evaluated for impairment
1,027 1,970 486 123 740 674 219 5,239
Total allowance for loan losses
$ 1,027 1,970 486 123 740 677 219 5,242

Total loans ending balance
$ 59,752 245,828 15,551 4,880 110,837 47,521 - 484,369

Ending balance: individually evaluated for impairment
- 7,745 - - 4,556 550 - 12,851

Ending balance: collectively evaluated for impairment
$ 59,752 238,083 15,551 4,880 106,281 46,971 - 471,518

(In thousands)	Commercial Real Estate		Residential Real Estate		Commercial and Industrial		Consumer and Other		Construction		Construction to Permanent [CRE]		Unallocated		Total
December 31, 2016
Allowance for loan losses:
Individually evaluated for impairment	$	-		-		231		-		-		-		-		231

Collectively evaluated for impairment		1,853		534		509		641		712		69		126		4,444

Total allowance for loan losses	$	1,853		534		740		641		712		69		126		4,675

Loans receivable, gross:
Individually evaluated for impairment	$	6,267		1,911		231		542		-		-		-		8,951

Collectively evaluated for impairment		264,962		84,603		60,746		100,907		53,895		7,593		-		572,706

Total loans receivable, gross	$	271,229		86,514		60,977		101,449		53,895		7,593		-		581,657

~~The Company~~Patriot monitors the credit quality of its loans receivable inon an ongoing ~~manner.~~basis. Credit quality is monitored by reviewing certain ~~credit quality~~ indicators, including loan to value ratios, debt service coverage ratios, and credit scores.

~~The Company has~~Patriot employs a risk rating system as part of the risk assessment of its loan portfolio. ~~The Company’s~~At origination, lending officers are required to assign a risk rating to each loan in their portfolio, ~~at origination,~~ which is ratified or modified by the Loan Committee to which the loan is submitted for approval. ~~When~~If financial developments occur on a loan in the ~~lender learns~~lending officer’s portfolio of ~~important financial developments,~~responsibility, the risk rating is reviewed ~~accordingly,~~ and adjusted, ~~if necessary. Similarly,~~as applicable. In carrying out its oversight responsibilities, the Loan Committee can adjust a risk ~~rating. The Company employs a loan officer whose responsibility is to independently review~~rating based on available information. In addition, the risk ratings ~~annually for~~on all commercial ~~credits~~loans over ~~$250,000.~~$250,000 are reviewed annually by the Credit Department.

Additionally, Patriot retains a third-party objective loan reviewing expert to perform a quarterly analysis of the results of its risk rating process. The ~~Company uses an independent third party loan reviewer who performs~~ quarterly ~~reviews of~~review is based on a randomly selected sample of loans ~~validating~~within established parameters (e.g., value, concentration), in order to assess and validate the ~~Company’s~~ risk ratings assigned to ~~such~~individual loans. Any ~~upgrades or downgrades~~changes to ~~classified loans must~~the assigned risk ratings, based on the quarterly review, are required to be approved by the ~~Management~~ Loan Committee.

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements ~~(Unaudited)~~(unaudited)

When assigning a risk rating to a loan, management utilizes the ~~Company’s~~Bank’s internal eleven-point risk rating system. An asset is considered “special mention” when it has a potential weakness based on objective evidence, but does not currently expose the ~~Company~~Bank to sufficient risk to warrant classification in one of the following categories:

●

Sub-standard: An asset is considered “substandard” if it is not adequately protected by the current net worth and paying capacity of the obligor or the collateral pledged, if any. ~~Substandard~~Sub-standard assets have ~~well-defined~~well defined weaknesses based on objective evidence, and are characterized by the ~~“distinct possibility”~~distinct possibility that the Company will sustain ~~“some loss”~~some loss, if ~~the~~noted deficiencies are not corrected.

●

Doubtful: Assets classified as “doubtful” have all of the weaknesses inherent in those classified ~~“substandard”~~“sub-standard”, with the added characteristic that the weaknesses present make ~~“collection~~collection or ~~liquidation in~~ liquidation-in–full” improbable, on the basis of currently existing facts, conditions, and ~~values, “highly questionable and improbable.”~~ values.

~~Charge–off generally commences after the loan is classified “doubtful”~~Charge–offs, to reduce the loan to its recoverable ~~balance. If~~value, generally commence after the ~~account~~loan is classified as ~~“loss”, the full balance is charged off regardless of the potential recovery from the sale of the collateral. That amount is recognized as a recovery after the collateral is sold.~~“doubtful”.

In accordance with ~~FFIEC (“~~Federal Financial Institutions Examination ~~Council”)~~Council published policies establishing uniform criteria for the classification of retail credit based on delinquency status, “Open-end” and “Closed-end” credits are charged off when 180 days and120 days delinquent, ~~and “Closed-end” credits are~~respectively.

If an account is classified as “Loss”, the full balance of the loan receivable is charged off, ~~when 120 days delinquent.~~ regardless of the potential recovery from a sale of the underlying collateral. Any amount that may be recovered on the sale of collateral underlying a loan is recognized as a “recovery” in the period in which the collateral is sold.

~~Included~~In March 2017, the Bank reached a settlement agreement with its insurance carrier for a loss recognized in loans receivable are loans for which the accrual of interest income has been discontinued due to deterioration in the financial condition of the borrowers. The unpaid principal balances of loans on nonaccrual status and considered impaired were $4.7 million at September 30, 2016, ~~and $1.6 million at December 31, 2015.~~

The $4.7 million of non-accrual loans at September 30, 2016 is comprised of 5 relationships, for which a specific reserve of $3.2 million has been established. The non-accrual increase of $3.1 million from December 31, 2015 is related to a single ~~commercial~~Commercial and Industrial loan, resulting in cash receipts of $2.8 million, net of related deductibles and ~~is not indicative of a credit quality trend~~other amounts excluded pursuant to the insurance policy.

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements (unaudited)

The following tables summarize non-performing (i.e., non-accruing) loans by aging category and status, within the ~~portfolio. Despite the Company’s decision to fully reserve for this~~applicable loan portfolio segment as of ~~June~~September 30, ~~2016, the Company has commenced recovery actions for alleged fraud across all available avenues, including insurance coverage~~2017 and claims against third parties. Potentially responsive insurance coverage, under which the Company has sought recovery, includes a Financial Institution Bond with a limit of liability of $5.0 million above a $50,000 deductible. The Company will vigorously pursue its avenues of recovery, including insurance coverage and third party claims.December 31, 2016:

(In thousands)	Non-accruing Loans
	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Non-accruing Loans
As of September 30, 2017:
Loan portfolio segment:
Residential Real Estate:
Sub-standard	$	-		-		1,590		1,590		-		1,590
Commercial and Industrial:
Sub-standard		-		-		286		286		-		286
Consumer and Other
Sub-standard		-		-		175		175		-		175
Total non-accruing loans	$	-		-		2,051		2,051		-		2,051

As of December 31, 2016:
Loan portfolio segment:
Residential Real Estate:
Sub-standard	$	-		-		1,590		1,590		-		1,590
Commercial and Industrial:
Sub-standard		-		-		231		231		-		231
Total non-accruing loans	$	-		-		1,821		1,821		-		1,821

If non-accrual loans had been performing in accordance with ~~their~~the original contractual terms, ~~the Company~~additional interest income of $27,000 and $70,000 would have ~~recorded $70,000 and $266,000 of additional~~been recognized in income during the three and nine months ended September 30, ~~2016, respectively, and $3,000 and $8,000 during~~2017, respectively. For the three and nine months ended September 30, ~~2015, respectively.~~2016, additional interest income of $70,000 and $266,000 would have been recognized in income.

Additionally, certain loans for which the borrower cannot demonstrate sufficient cash flow to continue loan payments in the future and certain troubled debt restructurings (“TDRs”) are placed on non-accrual status. During the three and nine months ended September 30, 2017 and 2016, no interest income was collected and recognized on non-accruing loans.

The accrual of interest on loans is discontinued at the time the loan is 90 days past due for payment unless the loan is well-secured and in process of collection. Consumer installment loans are typically charged off no later than 180 days past due. Past due status is based on contractual terms of the loan. In all cases, loans are placed on non-accrual status or charged-off, at an earlier date, if collection of principal or interest is considered doubtful. All interest accrued, but not collected for loans that are placed on non-accrual status or charged off, is reversed against interest income. The interest on these loans is accounted for on the cash-basis method until qualifying for return to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, future payments are reasonably assured, and there is six months of performance. Management considers all non-accrual loans and troubled debt restructurings to be impaired. In most cases, loan payments that are past due less than 90 days, based on contractual terms, are considered collection delays and not an indication of loan impairment. The Bank considers consumer installment loans to be pools of smaller homogeneous loan balances, which are collectively evaluated for impairment.

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements ~~(Unaudited)~~(unaudited)

The following ~~table sets forth the detail,~~tables summarize performing and non-performing loans receivable by portfolio segment, by aging category, by delinquency status as of ~~non-accrual loans at~~ September 30, ~~2016:~~

(in thousands)

2016:

31 - 60 Days
Past Due

61 - 90 Days
Past Due

Greater
than
90 Days

Total Past
Due

Current

Total
Non-Accrual
Loans

Commercial & Industrial
$ - - 3,158 3,158 - 3,158
Residential
- - 1,590 1,590 - 1,590
Consumer
- - 3 3 - 3
Total
$ - - 4,751 4,751 - 4,751

~~The following table sets forth the detail,~~2017 and ~~delinquency status, of non-accrual loans at~~ December 31, ~~2015:~~

(in thousands)

2015:

31 - 60 Days
Past Due

61 - 90 Days
Past Due

Greater
than
90 Days

Total Past
Due

Current

Total
Non-Accrual
Loans

Residential
$ - - 1,590 1,590 - 1,590
Consumer
- - 3 3 - 3
Total
$ - - 1,593 1,593 - 1,593

Generally, loans are placed on non-accruing status when they become 90 days or more delinquent, and remain on non-accrual status until they are brought current, have at least six months of performance under the loan terms, and factors indicating reasonable doubt about the timely collection of payments no longer exist. Therefore, loans may be current in accordance with their loan terms, or may be less than 90 days delinquent and still be on a non-accruing status.2016.

~~At September 30,2016,5loanswere onnon-accrualstatustotaling$4.7million.For these 5loans,a specificreserve of $3.2has beenestablished.~~

(In thousands)	Performing (Accruing) Loans
As of September 30, 2017:	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or Greater Past Due		Total		Current		Total Performing Loans		Non-accruing Loans		Loans Receivable Gross
Loan portfolio segment:
Commercial Real Estate:
Pass	$	1,300		-		-		1,300		277,475		278,775		-		278,775
Special Mention		652		-		-		652		12,510		13,162		-		13,162
Substandard		-		1,699		-		1,699		2,989		4,688		-		4,688
		1,952		1,699		-		3,651		292,974		296,625		-		296,625
Residential Real Estate:
Pass		556		364		1,447		2,367		145,170		147,537		-		147,537
Special Mention		-		-		-		-		1,537		1,537		-		1,537
Substandard		-		-		-		-		-		-		1,590		1,590
		556		364		1,447		2,367		146,707		149,074		1,590		150,664
Commercial and Industrial:
Pass		1,799		500		2,500		4,799		112,088		116,887		-		116,887
Substandard		-		-		500		500		-		500		286		786
		1,799		500		3,000		5,299		112,088		117,387		286		117,673
Consumer and Other:
Pass		-		125		-		125		90,673		90,798		-		90,798
Substandard		-		-		-		-		-		-		175		175
		-		125		-		125		90,673		90,798		175		90,973
Construction:
Pass		-		-		-		-		48,328		48,328		-		48,328

Construction to permanent - CRE:
Pass		-		-		-		-		5,855		5,855		-		5,855

Total	$	4,307		2,688		4,447		11,442		696,625		708,067		2,051		710,118

Loans receivable, gross:
Pass	$	3,655		989		3,947		8,591		679,589		688,180		-		688,180
Special Mention		652		-		-		652		14,047		14,699		-		14,699
Substandard		-		1,699		500		2,199		2,989		5,188		2,051		7,239
Loans receivable, gross	$	4,307		2,688		4,447		11,442		696,625		708,067		2,051		710,118

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements ~~(Unaudited)~~(unaudited)

~~The following table sets forth the detail and delinquency status of loans receivable, by performing and non-performing loans at September 30, 2016:~~

(in thousands)	Performing (Accruing) Loans
2016:	31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Performing Loans		Total Non-Accrual Loans		Total Loans
Commercial & Industrial:
Pass	$	-		571		-		571		65,990		66,561		-		66,561
Substandard		-		-		-		-		4		4		3,158		3,162
Total Commercial & Industrial		-		571		-		571		65,994		66,565		3,158		69,723

(In thousands)																	Performing (Accruing) Loans
As of December 31, 2016:																	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or Greater Past Due		Total		Current		Total Performing Loans		Non-accruing Loans		Loans Receivable Gross
Loan portfolio segment:
Commercial Real Estate:
Pass		2,522		4,000		-		6,522		246,349		252,871		-		252,871	$	-		-		-		-		265,246		265,246		-		265,246
Special Mention		-		-		-		-		5,176		5,176		-		5,176		-		-		-		-		4,531		4,531		-		4,531
Substandard		-		-		-		-		873		873		-		873		-		-		-		-		1,452		1,452		-		1,452
Total Commercial Real Estate		2,522		4,000		-		6,522		252,398		258,920		-		258,920

Construction - Pass		-		-		-		-		48,048		48,048		-		48,048

Construction to Permanent - Pass		-		-		-		-		5,587		5,587		-		5,587
																		-		-		-		-		271,229		271,229		-		271,229
Residential Real Estate:
Pass		390		-		1,458		1,848		100,531		102,379		-		102,379		131		9		1,449		1,589		83,335		84,924		-		84,924
Substandard		-		-		-		-		-		-		1,590		1,590		-		-		-		-		-		-		1,590		1,590
Total Residential Real Estate		390		-		1,458		1,848		100,531		102,379		1,590		103,969
																		131		9		1,449		1,589		83,335		84,924		1,590		86,514
Consumer/Other:
Commercial and Industrial:
Pass		112		3		11		126		73,774		73,900		-		73,900		47		4		-		51		60,692		60,743		-		60,743
Substandard		-		-		-		-		-		-		3		3		-		-		-		-		3		3		231		234
Total Consumer/Other		112		3		11		126		73,774		73,900		3		73,903
																		47		4		-		51		60,695		60,746		231		60,977
Grand Total:
Consumer and Other:
Pass																		75		-		3		78		101,371		101,449		-		101,449

Construction:
Pass																		-		-		-		-		53,895		53,895		-		53,895

Construction to permanent - CRE:
Pass																		-		-		-		-		7,593		7,593		-		7,593

Total																	$	253		13		1,452		1,718		578,118		579,836		1,821		581,657

Loans receivable, gross:
Pass		3,024		4,574		1,469		9,067		540,279		549,346		-		549,346	$	253		13		1,452		1,718		572,132		573,850		-		573,850
Special Mention		-		-		-		-		5,176		5,176		-		5,176		-		-		-		-		4,531		4,531		-		4,531
Substandard		-		-		-		-		877		877		4,751		5,628		-		-		-		-		1,455		1,455		1,821		3,276
Grand Total	$	3,024		4,574		1,469		9,067		546,332		555,399		4,751		560,150
Loans receivable, gross																	$	253		13		1,452		1,718		578,118		579,836		1,821		581,657

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements ~~(Unaudited)~~(unaudited)

~~The following table sets forth the detail and delinquency status of loans receivable, by performing and non-performing loans at December 31, 2015:~~

(in thousands)

Performing (Accruing) Loans

2015:

31-60 Days
Past Due

61-90 Days
Past Due

Greater
than
90 Days

Total
Past Due

Current

Total
Performing
Loans

Total
Non-Accrual
Loans

Total
Loans

Commercial & Industrial:

Pass
$ 43 605 520 1,168 55,600 56,768 - 56,768
Substandard
2,977 - - 2,977 7 2,984 - 2,984
Total Commercial & Industrial
3,020 605 520 �� 4,145 55,607 59,752 - 59,752

Commercial Real Estate:

Pass
- - - - 237,996 237,996 - 237,996
Special Mention
- - - - 5,322 5,322 - 5,322
Substandard
840 - - 840 1,670 2,510 - 2,510
Total Commercial Real Estate
840 - - 840 244,988 245,828 - 245,828

Construction - Pass
- - - - 15,551 15,551 - 15,551

Construction to Permanent - Pass
- - - - 4,880 4,880 - 4,880

Residential Real Estate:

Pass
154 87 1,517 1,758 107,489 109,247 - 109,247
Substandard
- - - - - - 1,590 1,590
Total Residential Real Estate
154 87 1,517 1,758 107,489 109,247 1,590 110,837

Consumer/Other:

Pass
309 2 9 320 47,198 47,518 - 47,518
Substandard
- - - - - - 3 3
Total Consumer/Other
309 2 9 320 47,198 47,518 3 47,521

Grand Total:

Pass
506 694 2,046 3,246 468,714 471,960 - 471,960
Special Mention
- - - - 5,322 5,322 - 5,322
Substandard
3,817 - - 3,817 1,677 5,494 1,593 7,087
Grand Total
$ 4,323 694 2,046 7,063 475,713 482,776 1,593 484,369

~~PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY~~

~~Notes to consolidated financial statements (Unaudited)~~

~~Impaired Loans~~

~~Impaired loans consist of non-accrual loans,~~ Troubled Debt Restructurings(“~~TDRs”~~TDR”), and loans previously classified as TDRs that have been upgraded. As of September 30, 2016, the Company’s impairment analysis resulted in identification of $14.6 million of impaired loans, for which specific reserves of $3.2 million were required at September 30, 2016, compared to $12.9 million of impaired loans at December 31, 2015, for which specific reserves of $3,000 were required. Loans that did not require specific reserves have sufficient collateral values, less costs to sell, supporting the carrying balances of the loans. In some cases, there may be no specific reserves because the Company already charged off the specific impairment. Once a borrower is in default, the Company is under no obligation to advance additional funds on unused commitments.

~~Troubled Debt Restructurings~~

On a case-by-case basis, ~~the Company~~Patriot may agree to modify the contractual terms of a borrower’s loan to assist customers who may be experiencing financial difficulty. If the borrower is experiencing financial difficulties and a concession has been made, the loan is classified as a ~~troubled debt restructured loan.~~TDR.

~~For~~There were no loans modified as TDRs and no defaults of TDRs during the three and nine months ended September 30, ~~2016~~2017 and ~~2015, there were no loans modified as a “troubled debt restructuring”.~~2016. At September 30, ~~2016~~2017 and December 31, ~~2015,~~2016, there were no commitments to advance additional funds under ~~troubled debt restructured loans.~~TDRs.

Substantially all ~~of our troubled debt restructured~~TDR loan modifications involve lowering the monthly payments on such loans through either a reduction in interest rate below ~~market~~the contract rate, an extension of the term of the loan, or a combination of adjusting these two ~~methods. These~~contractual attributes. TDR loan modifications ~~rarely~~may result in the forgiveness of principal or accrued interest. In addition, wewhen modifying commercial loans, Patriot frequently ~~obtain~~obtains additional collateral or guarantor ~~support when modifying commercial loans.~~support. If the borrower ~~had demonstrated performance~~has performed under the ~~previous~~existing contractual terms of the loan and ~~our underwriting process shows~~Patriot’s underwriters determine that the borrower has the capacity to continue to perform under the ~~restructured~~ terms of the TDR, the loan ~~will continue to accrue~~continues accruing interest. Non-accruing ~~restructured loans~~TDRs may be returned to accrual status when there has been a sustained period of ~~repayment~~ performance (generally six consecutive months of payments) and both principal and interest are ~~deemed collectible. All troubled debt restructurings are classified as~~reasonably assured of collection.

Impaired Loans

Impaired loans may consist of non-accrual loans and/or performing and non-performing TDRs. As of September 30, 2017 and December 31, 2016, based on the on-going monitoring and analysis of the loan portfolio, impaired loans of $9.0 million and $8.9 million were identified, for which $285,000 and $231,000 specific reserves were established, respectively. Loans not requiring specific reserves had sufficient collateral values, less costs to sell, supporting the carrying amount of the loans. Once a borrower is in default, Patriot is under no obligation to advance additional funds on unused commitments.

At September 30, 2017 exposure to the $9.0 million of impaired loans was related to 12 borrowers. In all cases, appraisal reports of the underlying collateral, if any, have been obtained from independent licensed appraisal firms. For non-performing loans, the independently determined appraised values were reduced by an estimate of the costs to sell the assets, in order to estimate the potential loss, if any, that may eventually be realized. Performing loans are ~~individually evaluated~~monitored to determine when, if at all, additional loan loss reserves may be required for ~~impairment.~~a loss of underlying collateral value.

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements ~~(Unaudited)~~(unaudited)

The following ~~table~~ summarizes the investment in, outstanding principal balance of, and the related allowance, if any, for impaired loans ~~by loan portfolio class~~ as of September 30, 2017 and December 31, 2016:

(in thousands)

2016:

Recorded
Investment

Unpaid Principal
Balance

Related
Allowance

With no related allowance recorded:

Commercial & Industrial
$ - - -
Commercial Real Estate
6,713 6,833 -
Construction
- - -
Construction to Permanent
- - -
Residential
4,676 5,527 -
Consumer/Other
- - -
11,389 12,360 -
With an allowance recorded:

Commercial & Industrial
3,158 3,208 3,158
Commercial Real Estate
- - -
Construction
- - -
Construction to Permanent
- - -
Residential
- - -
Consumer/Other
3 3 3
3,161 3,211 3,161
Grand Total:

Commercial & Industrial
3,158 3,208 3,158
Commercial Real Estate
6,713 6,833 -
Construction
- - -
Construction to Permanent
- - -
Residential
4,676 5,527 -
Consumer/Other
3 3 3
Grand Total
$ 14,550 15,571 3,161

(In thousands)
	September 30, 2017						December 31, 2016
	Recorded Investment		Principal Outstanding		Related Allowance		Recorded Investment		Principal Outstanding		Related Allowance
With no related allowance recorded:
Commercial Real Estate	$	6,081		6,531		-		6,267		6,721		-
Residential Real Estate		1,904		1,935		-		1,911		2,915		-
Commercial and Industrial		-		503		-		-		-		-
Consumer and Other		715		809		-		542		631		-
Construction		-		39		-		-		-		-
		8,700		9,817		-		8,720		10,267		-

With a related allowance recorded:
Commercial Real Estate		-		-		-		-		-		-
Residential Real Estate		-		-		-		-		-		-
Commercial and Industrial		285		285		285		231		231		231
Consumer and Other		-		-		-		-		-		-
Construction		-		-		-		-		-		-
		285		285		285		231		231		231

Impaired Loans, Total:
Commercial Real Estate		6,081		6,531		-		6,267		6,721		-
Residential Real Estate		1,904		1,935		-		1,911		2,915		-
Commercial and Industrial		285		788		285		231		231		231
Consumer and Other		715		809		-		542		631		-
Construction		-		39		-		-		-		-
Impaired Loans, Total	$	8,985		10,102		285		8,951		10,498		231

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements ~~(Unaudited)~~(unaudited)

The following ~~table summarizes impaired loans by loan portfolio class as of December 31, 2015:~~

(in thousands)

2015:

Recorded
Investment

Unpaid Principal
Balance

Related
Allowance

With no related allowance recorded:

Commercial & Industrial
$ - 96 -
Commercial Real Estate
7,745 8,259 -
Construction
- 287 -
Construction to Permanent
- - -
Residential
4,556 5,559 -
Consumer/Other
547 633 -
12,848 14,834 -
With an allowance recorded:

Commercial & Industrial
- - -
Commercial Real Estate
- - -
Construction
- - -
Construction to Permanent
- - -
Residential
- - -
Consumer/Other
3 3 3
3 3 3
Grand Total:

Commercial & Industrial
- 96 -
Commercial Real Estate
7,745 8,259 -
Construction
- 287 -
Construction to Permanent
- - -
Residential
4,556 5,559 -
Consumer/Other
550 636 3
Grand Total
$ 12,851 14,837 3

~~PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY~~

~~Notes to consolidated financial statements (Unaudited)~~

~~The following~~ tables summarize additional information regarding impaired loans for the three and nine months ended September 30, ~~2016~~2017 and ~~2015.~~2016.

Three Months Ended September 30,

2016

2015

(in thousands)

Average Recorded Investment

Interest Income Recognized

Average Recorded Investment

Interest Income Recognized

With no related allowance recorded:

Commercial & Industrial
$ 148 - - -
Commercial Real Estate
6,428 77 7,916 94
Residential
4,787 36 3,373 31
Consumer/ Other
272 - 549 4
11,635 113 11,838 129

With an allowance recorded:

Commercial & Industrial
3,068 - - -
Consumer/ Other
2 - 1 -
3,070 - 1 -

Grand Total:

Commercial & Industrial
3,216 - - -
Commercial Real Estate
6,428 77 7,916 94
Residential
4,787 36 3,373 31
Consumer/ Other
274 - 550 4
Grand Total
$ 14,705 113 11,839 129

(In thousands)	Three Months Ended September 30,
	2017				2016
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		��	Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate	$	6,111		10		6,428			77
Residential Real Estate		1,903		-		4,787			36
Commercial and Industrial		37		-		148			-
Consumer and Other		584		-		272			-
		8,635		10		11,635			113
With a related allowance recorded:
Commercial Real Estate		-		-		-			-
Residential Real Estate		-		-		-			-
Commercial and Industrial		245		-		3,068			-
Consumer and Other		-		-		2			-
		245		-		3,070			-
Impaired Loans, Total:
Commercial Real Estate		6,111		10		6,428			77
Residential Real Estate		1,903		-		4,787			36
Commercial and Industrial		282		-		3,216			-
Consumer and Other		584		-		274			-
Impaired Loans, Total	$	8,880		10		14,705			113

Nine Months Ended September 30,

2016

2015

(in thousands)

Average Recorded Investment

Interest Income Recognized

Average Recorded Investment

Interest Income Recognized

With no related allowance recorded:

Commercial & Industrial
$ 74 - - -
Commercial Real Estate
7,281 236 8,079 281
Residential
4,666 98 3,430 95
Consumer/ Other
409 9 551 13
Total:
12,430 343 12,060 389

With an allowance recorded:

Commercial & Industrial
2,278 - - -
Consumer/ Other
2 - 1 -
Total:
2,280 - 1 -

Grand Total:

Commercial & Industrial
2,352 - - -
Commercial Real Estate
7,281 236 8,079 281
Residential
4,666 98 3,430 95
Consumer/ Other
411 9 552 13
Grand Total
$ 14,710 343 12,061 389

(In thousands)	Nine Months Ended September 30,
	2017				2016
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate	$	6,173		159		7,281		236
Residential Real Estate		1,907		5		4,666		98
Commercial and Industrial		46		-		74		-
Consumer and Other		558		10		409		9
		8,684		174		12,430		343
With a related allowance recorded:
Commercial Real Estate		-		-		-		-
Residential Real Estate		-		-		-		-
Commercial and Industrial		237		-		2,278		-
Consumer and Other		-		-		2		-
		237		-		2,280		-
Impaired Loans, Total:
Commercial Real Estate		6,173		159		7,281		236
Residential Real Estate		1,907		5		4,666		98
Commercial and Industrial		283		-		2,352		-
Consumer and Other		558		10		411		9
Impaired Loans, Total	$	8,921		174		14,710		343

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements ~~(Unaudited)~~(unaudited)

Note 4:4~~Other Real Estate Owned~~: Deposits

~~At September 30, 2016, Other Real Estate Owned (“OREO”) consisted of a single property which consists of raw land that is zoned for multi-use construction.~~ The following table presents ~~a summary~~the balance of ~~OREO activity for the nine months ended~~deposits held, by category as of September 30, ~~2016:~~

(in thousands)

OREO

Balance at December 31, 2015
$ -
Transfers from loans
840
Gain recognized in acquisition
11
Balance at September 30, 2016
$ 851

The recognized gain represents the amount by which fair market value of the property, net of estimated liquidation costs, exceeded the remaining loan balance as of the date possession was taken of the property.

~~As of~~2017 and ~~for the nine months ended September 30, 2015, there was no OREO activity.~~

~~Note 5: Deposits~~December 31, 2016.

~~The following table is a summary of the Company’s deposits at:~~

(in thousands)

September 30,

December 31,

2016

2015

Non-interest bearing
$ 77,304 85,812
Interest bearing

NOW
24,672 27,951
Savings
130,901 106,291
Money market
17,230 19,508
Time certificates, less than $250,000
140,028 139,455
Time certificates, $250,000 or more
23,865 17,509
Brokered Deposits
57,185 48,154
Total interest bearing
393,881 358,868
Total Deposits
$ 471,185 444,680

(In thousands)	September 30, 2017		December 31, 2016

Non-interest bearing	$	76,875	$	76,772
Interest bearing:
NOW		27,420		29,912
Savings		141,256		131,429
Money market		13,477		15,593
Certificates of deposit, less than $250,000		182,960		160,609
Certificates of deposit, $250,000 or greater		69,415		51,077
Brokered deposits		94,011		63,932
Interest bearing, Total		528,539		452,552

Total Deposits	$	605,414	$	529,324

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements ~~(Unaudited)~~(unaudited)

Note 6:5:Share-Based Compensation and Employee Benefit Plan

The Company maintains the Patriot National Bancorp, Inc. 2012 Stock Plan (the “Plan”) to provide an incentive to directors and employees of the ~~Company. Grants under~~Company by the ~~Plan may take the form~~grant of ~~stock options,~~ restricted stock ~~and~~awards (“RSA”), options, or phantom stock units. UpSince 2013, the Company’s practice is to ~~three million~~grant RSAs; as of September 30, 2017 and December 31, 2016, there were no options or phantom stock units outstanding, or that have been exercised during the period then ended.

The Plan provides for the issuance of up to 3,000,000 shares of the Company’s common stock ~~and one million phantom stock units may be issued under the Plan,~~ subject to certain limitations. As of September 30, ~~2016, 2,884,716~~2017, 2,887,032 shares of ~~common~~ stock ~~and one million phantom stock units~~ are available for issuance under the Plan.

~~Restricted~~ In accordance with the terms of the Plan, the vesting of RSAs and options may be accelerated at the discretion of the Compensation Committee of the Board of Directors. The Compensation Committee sets the terms and conditions applicable to the vesting of RSAs and stock ~~grants are available~~option grants. RSAs granted to directors and employees ~~and~~ generally vest in quarterly or annual installments over a three, four or five year period from the date of grant, as determined by the Compensation Committee of the Company’s Board of Directors. Vesting may be accelerated under certain circumstances. The Company expenses the grant date fair value of all share-based compensation over the requisite vesting periods on a prorated straight-line basis.

Due to the resignation of the Company’s Chief Executive Officer from the Company and the Board of Directors and the resignation of the Chief Operating Officer, 65,000 shares of unvested restricted stock were cancelled and $227,000 of stock-based compensation expense was reversed in the third quarter. As a result, the Company recorded a net credit to stock-based compensation expense of $182,000 for the three months ended September 30, 2016, and net expense of $126,000 for the nine month period then ended.grant. During the ~~three and~~ nine months ended September 30, ~~2015,~~2017, the Company ~~recorded $112,000~~granted 5,084 RSAs to directors and ~~$340,000 of total stock-based compensation, respectively.~~

zero RSA to employees. During the nine months ended September 30, 2016, the Company ~~issued~~granted 52,200 restricted shares to employees and 5,884 restricted shares to directors, respectively. During the three and nine months ended September 30, 2017, 1,692 and 3,923 shares of restricted stock ~~to directors~~became vested, 600 and ~~52,200~~6,600 shares of restricted stock forfeited, respectively. All RSAs are non- participating grants.

The Company recognizes compensation expense for all director and employee share-based compensation awards on a straight-line basis over the requisite service period, which is equal to the vesting schedule of each award, for each vesting portion of an award equal to its grant date fair value. For the three and nine months ended September 30, 2017, the Company recognized share-based compensation expense of $37,000 and $105,000, respectively. The share-based compensation attributable to employees ~~under~~of Patriot amounted to $16,000 and $48,000, respectively.

For the ~~2012 Stock Plan.~~three months ended September 30, 2016, the Company recorded a net credit to share-based compensation expense of $182,000, and net expense of $126,000, for the nine months ended September 30, 2016. The share-based compensation attributable to employees of Patriot amounted to a net credit of $198,000 and net expense of $80,000 for the three and nine months ended September 30, 2016, respectively. The net credit was primarily due to the resignations of the Company’s Chief Executive Officer and the Chief Operating Officer in the third quarter of 2016.

Included in share-based compensation expense for the three and nine months ended September 30, 2017 were $21,000 and $57,000 attributable to Patriot’s external Directors, who received total compensation of $80,000 and $226,000 for each of those periods, respectively, which amounts are included in Other Operating Expenses in the Consolidated Statements of Income.

The share-based compensation expense for the three and nine months ended September 30, 2016 were $16,000 and $46,000 attributable to Patriot’s external Directors, who received total compensation of $75,000 and $227,000 for each of those periods, respectively, which amounts are included in Other Operating Expenses in the Consolidated Statements of Income.

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements (unaudited)

The following is a summary of the status of the ~~Company’s~~Company’s restricted shares as of September 30, 2017 and 2016 and changes therein during the periods indicated:

Three months ended September 30, 2016:

Number of Shares
Awarded

Weighted Average
Grant Date
Fair Value

Non-vested at June 30, 2016
107,199 $ 14.16
Granted
- -
Vested
(1,688 ) 16.80
Forfeited
(65,500 ) 14.87
Non-vested at September 30, 2016
40,011 $ 12.87

Three months ended September 30, 2015:

Non-vested at June 30, 2015
81,698 $ 12.92
Granted
9,760 16.85
Vested
(225 ) 17.25
Forfeited
(1,539 ) 10.40
Non-vested at September 30, 2015
89,694 $ 13.37

~~PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY~~

~~Notes to consolidated financial statements (Unaudited)~~

~~The following is a summary of~~

Three months ended September 30, 2017:	Number of Shares Awarded			Weighted Average Grant Date Fair Value
Unvested at June 30, 2017		32,117		$	12.39
Vested		(1,692	)	$	16.80
Forfeited		(600	)	$	15.50
Unvested at September 30, 2017		29,825		$	12.08

Nine months ended September 30, 2017:
Unvested at December 31, 2016		35,264		$	12.84
Granted		5,084		$	15.05
Vested		(3,923	)	$	14.66
Forfeited		(6,600	)	$	15.50
Unvested at September 30, 2017		29,825		$	12.08

Three months ended September 30, 2016:	Number of Shares Awarded			Weighted Average Grant Date Fair Value
Unvested at June 30, 2016		107,199		$	14.16
Vested		(1,688	)	$	16.80
Forfeited		(65,500	)	$	14.87
Unvested at September 30, 2016		40,011		$	12.87

Nine months ended September 30, 2016:
Unvested at December 31, 2015		55,854		$	12.83
Granted		58,084		$	15.25
Vested		(4,214	)	$	15.55
Forfeited		(69,713	)	$	14.66
Unvested at September 30, 2016		40,011		$	12.87

Compensation expense attributable to the ~~status of the Company’s~~unvested restricted shares outstanding as of September 30, ~~2015 and changes therein during the periods indicated:~~

Nine months ended September 30, 2016:

Number of Shares
Awarded

Weighted Average
Grant Date
Fair Value

Non-vested at December 31, 2015
55,854 $ 12.83
Granted
58,084 15.25
Vested
(4,214 ) 15.55
Forfeited
(69,713 ) 14.66
Non-vested at September 30, 2016
40,011 $ 12.87

Nine months ended September 30, 2015:

Non-vested at December 31, 2014
79,208 $ 12.79
Granted
12,700 16.85
Vested
(675 ) 17.25
Forfeited
(1,539 ) 10.40
Non-vested at September 30, 2015
89,694 $ 13.37

~~Expected future stock award expense related~~2017 amounts to ~~the non-vested restricted awards as of September 30, 2016, is $505,000,~~$321,000, which amount is expected to be recognized over anthe weighted average ~~period~~remaining life of ~~3.14~~the awards of 2.27 years.

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements (unaudited)

RSA Grant - Non-executive Employees

On January 4, 2016, the Company granted 100 restricted shares of common stock to each of eighty-seven full- and part-time non-executive employees as of December 31, 2015. The ~~Company had no outstanding stock options~~total number of shares granted was 8,700 at a grant date fair value of $15.50 per share. The shares granted vest on January 2, 2019 and are non-participating during the vesting period.

During the nine months ended September 30, ~~2016.~~2017, 600 granted shares were forfeited. During the nine months ended September 30, 2016, 1,800 granted shares were forfeited. The remaining 6,300 shares continue to vest and $41,000 of compensation expense is expected to be recognized through the January 2019 vesting date.

Retirement Plan

The Company offers a 401K retirement plan (the “401K”), which provides for tax-deferred salary deductions for eligible employees. Employees may choose to make voluntary contributions to the 401K, limited to an annual maximum amount as set forth periodically by the Internal Revenue Service. The Company matches 50% of such contributions, up to a maximum of six ~~percent.~~percent. During the three and nine months ended September 30, 2017, compensation expense under the 401K aggregated $37,000 and $132,000, respectively. During the three and nine months ended September 30, 2016, compensation expense under the 401K aggregated $39,000 and $120,000, respectively. ~~During~~

Dividends

On July 17, 2017, the ~~three and~~Company announced its intention to begin making quarterly cash dividend payments. The first dividend of $0.01 per share was announced for shareholders of record as of July 24, 2017 with a payment date of August 1, 2017. For the nine months ended September 30, ~~2015, compensation expense under~~2017, the ~~401K aggregated $35,000~~Company paid cash dividends of $39,000. No dividend was declared and ~~$112,000, respectively.~~

~~Note 7: Income Taxes~~

~~For~~paid for the ~~three and~~ nine months ended September 30, ~~2016, the Company recorded income tax expense~~2016. The next dividend payment is scheduled on November 10, 2017 for shareholders of ~~$0.5 million and $0.6 million, respectively. This compares to income tax expense~~record as of ~~$0.4 million and $1.1 million,respectively, for the three and nine months ended September 30, 2015.~~

Deferred tax assets decreased $0.4 million from $13.8 million at December 31, 2015 to $13.3 million at September 30, 2016. This decrease was due to deferred taxes being applied to the tax liability arising from current year taxable income.

The Company will continue to evaluate its ability to realize its net deferred tax asset. If future evidence suggests that it is more likely than not that a portion of the deferred tax asset will not be realized, the valuation allowance may be increased.November 9, 2017.

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements ~~(Unaudited)~~(unaudited)

Note ~~8: Income~~ 6:Earningsper share

The Company ~~presents~~is required to present basic ~~income~~earnings per share and diluted ~~income~~earnings per share in its ~~consolidated statements~~Consolidated Statements of ~~operations.~~Income. Basic ~~income~~earnings per share amounts are computed by dividing net income by the weighted average number of common shares outstanding. Diluted ~~income~~earnings per share reflects additional common shares that would have been outstanding if potentially dilutive common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate to outstanding ~~restricted stocks~~unvested RSAs granted to directors and ~~would be~~employees. The dilutive effect resulting from these potential shares is determined using the treasury stock method. The Company is also ~~provides~~required to provide a reconciliation of the numerator and denominator used in the computation of both basic and diluted ~~income~~earnings per share.

The ~~Company had no outstanding stock options as of September 30, 2016 or December 31, 2015. The following is information about the~~ computation of ~~income~~basic and diluted earnings per share for the three and nine months ended September 30, 2017 and 2016 ~~and 2015:~~follows.

Three months ended September 30, 2016:

Net Income

Weighted Average
Common Shares
Outstanding

Amount

Basic Income Per Share
$ 814,000 3,958,718 $ 0.21
Effect of Dilutive Securities

Non-vested Restricted Stock Grants
N/A - N/A

Diluted Income Per Share
$ 814,000 3,958,718 $ 0.21

Three months Ended September 30, 2015:

Basic Income Per Share
$ 633,000 3,872,298 $ 0.16
Effect of Dilutive Securities

Non-vested Restricted Stock Grants
N/A 34,622 N/A

Diluted Income Per Share
$ 633,000 3,906,920 $ 0.16

(Net income in thousands)	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Basic earnings per share:
Net income attributable to Common shareholders	$	1,013		814		3,547		885

Divided by:
Weighted average shares outstanding		3,894,237		3,958,718		3,893,702		3,957,343

Basic earnings per common share	$	0.26		0.21		0.91		0.22


Diluted earnings per share:
Net income attributable to Common shareholders	$	1,013		814		3,547		885

Weighted average shares outstanding		3,894,237		3,958,718		3,893,702		3,957,343

Effect of potentially dilutive restricted common shares		9,193		-		4,854		-

Divided by:
Weighted average diluted shares outstanding		3,903,430		3,958,718		3,898,556		3,957,343

Diluted earnings per common share	$	0.26		0.21		0.91		0.22

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements ~~(Unaudited)~~(unaudited)

~~The following is information about the computation of income per share for the nine months ended September 30, 2016 and 2015:~~

Nine months ended September 30, 2016:

Net Income

Weighted Average
Common Shares
Outstanding

Amount

Basic Earnings Per Share
$ 885,000 3,957,343 $ 0.22
Effect of Dilutive Securities

Non-vested Restricted Stock Grants
N/A - N/A

Diluted Income Per Share
$ 885,000 3,957,343 $ 0.22

Nine months Ended September 30, 2015:

Basic Income Per Share
$ 1,611,000 3,872,074 $ 0.42
Effect of Dilutive Securities

Non-vested Restricted Stock Grants
N/A 30,699 N/A

Diluted Income Per Share
$ 1,611,000 3,902,773 $ 0.41

No~~Note 9:~~te ~~Borrowings~~7

~~Federal Home Loan Bank borrowings~~

The Company is a member of the Federal Home Loan Bank of Boston ("FHLB"). The Company has the ability to borrow from the FHLB based on a certain percentage of the value of the Company’s qualified collateral, as defined in the FHLB Statement of Products Policy, comprised mainly of mortgage-backed securities and loans segregated as collateral for the FHLB.

At September 30, 2016 and December 31, 2015, outstanding advances from the FHLB aggregated $135.0 million and $132.0 million, respectively. The advances outstanding at September 30, 2016 had maturities ranging from three days to fifty-three months with rates ranging from 6.1 basis points to 51.0 basis points. The FHLB borrowings are collateralized by a mixture of real estate loans and securities with a book value of $146.1 million as of September 30, 2016.

~~PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY~~

~~Notes to consolidated financial statements (Unaudited)~~

~~Junior subordinated debt owed to unconsolidated trust~~

The subordinated debentures of $8.2 million are unsecured obligations of the Company and are subordinate and junior in right of payment to all present and future senior indebtedness of the Company. These obligations qualify as Tier 1 capital. The subordinated debentures bear interest at three-month LIBOR plus 3.15% (4.01% at September 30, 2016), mature on March 26, 2033. Beginning in the second quarter of 2009, the Company deferred quarterly interest payments on the subordinated debentures for twenty consecutive quarters as permitted under the terms of the debentures. The Company made a payment of approximately $1.6 million in June 2014, which brought the debt current as of that date. Interest payments since June 2014 were deferred at the Company’s option, until the third quarter of 2016 when the Company paid approximately $0.7 million representing the total amount accrued. Interest expense continues to be accrued and charged to operations. At September 30, 2016, interest owed for the subordinated debt was insignificant.

~~Note Payable~~

In September 2015, the Company executed a $2.0 million Note Payable for the purchase of its Fairfield, CT branch, which had formerly been leased by the Company. The note has a ten-year term and bears interest at a fixed rate of 1.75%. The Company makes interest and principal payments monthly. The note is secured by a first Mortgage Deed and Security Agreement on the property purchased and has an outstanding balance of $1.8 million and $1.9 million as of September 30, 2016 and December 31, 2015, respectively.

~~Note 10:~~ :Financial Instruments with Off-Balance Sheet Risk

In the normal course of business, ~~the Company~~Patriot is a party to financial instruments with off-balance-sheet risk to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit and involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the balance sheet. The contractual amounts of these instruments reflect the extent of involvement ~~the Company~~Patriot has in particular classes of financial instruments.

The contractual amount of commitments to extend credit and standby letters of credit ~~represents~~represents the ~~total~~maximum amount of potential accounting loss ~~should~~should: the ~~contracts~~contract be fully drawn ~~upon,~~upon; the ~~customers default,~~customer default; and the value of any existing collateral ~~become~~becomes worthless. ~~The Company uses the same~~Patriot applies its credit policies ~~in approving~~to entering commitments and conditional obligations and, as ~~it does for on-balance-sheet instruments and~~with its lending activates, evaluates each customer’s creditworthiness on a case-by-case basis. Management believes that ~~the Company controls~~it effectively mitigates the credit risk of these financial instruments through its credit ~~approvals,~~approval processes, establishing credit limits, monitoring ~~procedures~~the on-going creditworthiness of recipients and grantees, and the receipt of collateral as deemed necessary.

Financial instruments ~~whose contractual amounts represent~~with credit risk at September 30, ~~2016~~2017 are as follows:

Commitments to extend credit:

(in thousands)

Future loan commitments
$ 17,833
Home equity lines of credit
21,303
Unused lines of credit
14,742
Undisbursed construction loans
19,574
Financial standby letters of credit
1,313
$ 74,765

~~PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY~~

~~Notes to consolidated financial statements (Unaudited)~~

(In thousands)
	As of September 30, 2017
Commitments to extend credit:
Unused lines of credit	$	49,464
Undisbursed construction loans		10,433
Home equity lines of credit		20,177
Future loan commitments		21,938
Financial standby letters of credit		1,299
	$	103,311

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments to extend credit generally have fixed expiration dates or other termination clauses, and may require payment of a fee by the borrower. Since these commitments could expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if deemed necessary ~~by the Company~~ upon ~~extension of~~extending credit, is based on management’s credit evaluation of the customer. Collateral held varies, but may include commercial property, residential ~~and commercial~~ property, deposits and securities. ~~The Company~~Patriot has established a $5,000 reserve for credit loss as of September 30, ~~2016 for these commitments,~~2017, which ~~amount~~ is ~~minimal and~~ included in accrued expenses and other liabilities.

Standby letters of credit are written commitments issued by ~~the Company~~Patriot to guarantee the performance of a customer to a third party. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan facilities to customers. Guarantees that are not derivative contracts are recorded ~~on the Company’s consolidated balance sheet~~ at ~~their~~ fair value ~~at inception. Any instruments deemed to be derivatives would be accounted for as a fair value or cash flow hedge as appropriate.~~

~~Note 11: Regulatory~~ and ~~Operational Matters~~included in the Consolidated Balance Sheet.

~~The Company’s and the Bank’s capital and capital ratios at September 30, 2016 and December 31, 2015 are as follows:~~

Capital Requirements

Actual

Minimum

Minimum
with
Capital Buffer

Well
Capitalized

(in thousands)

Amount

Ratio

Amount

Ratio

Amount

Ratio

Amount

Ratio

September 30, 2016:

The Company

Tier 1 Leverage Capital (to Average Assets)
$ 60,794 9.72 % $ 25,009 4.00 % N/A N/A N/A N/A
Common Equity Tier 1 Capital (to Risk Weighted Assets)
52,794 8.99 % 26,435 4.50 % N/A N/A N/A N/A
Tier 1 Capital (to Risk Weighted Assets)
60,794 10.35 % 35,247 6.00 % N/A N/A N/A N/A
Total Capital (to Risk Weighted Assets)
68,130 11.60 % 46,996 8.00 % N/A N/A N/A N/A

The Bank

Tier 1 Leverage Capital (to Average Assets)
$ 60,523 9.68 % $ 24,998 4.00 % N/A N/A $ 31,248 5.00 %
Common Equity Tier 1 Capital (to Risk Weighted Assets)
60,523 10.34 % 26,337 4.50 % 29,994 5.125 % 38,042 6.50 %
Tier 1 Capital (to Risk Weighted Assets)
60,523 10.34 % 35,115 6.00 % 38,773 6.625 % 46,821 8.00 %
Total Capital (to Risk Weighted Assets)
67,839 11.59 % 46,821 8.00 % 50,478 8.625 % 58,526 10.00 %

December 31, 2015:

The Company

Total Capital (to Risk Weighted Assets)
$ 59,595 9.77 % $ 24,401 4.00 % N/A N/A N/A N/A
Common Equity Tier 1 Capital (to Risk Weighted Assets)
51,595 10.04 % 23,119 4.50 % N/A N/A N/A N/A
Tier 1 Capital (to Risk Weighted Assets)
59,595 11.60 % 30,826 6.00 % N/A N/A N/A N/A
Tier 1 Capital (to Average Assets)
64,845 12.62 % 41,101 8.00 % N/A N/A N/A N/A

The Bank

Total Capital (to Risk Weighted Assets)
$ 59,958 9.83 % $ 24,393 4.00 % N/A N/A $ 30,491 5.00 %
Common Equity Tier 1 Capital (to Risk Weighted Assets)
59,958 11.72 % 23,029 4.50 % N/A N/A 33,265 6.50 %
Tier 1 Capital (to Risk Weighted Assets)
59,958 11.72 % 30,706 6.00 % N/A N/A 40,941 8.00 %
Tier 1 Capital (to Average Assets)
65,207 12.74 % 40,941 8.00 % N/A N/A 51,177 10.00 %

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements ~~(Unaudited)~~(unaudited)

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.

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements (unaudited)

The Company’s and the Bank’s regulatory capital amounts and ratios at September 30, 2017 and December 31, 2016 are summarized as follows:

(In thousands)	Patriot National Bancorp, Inc.								Patriot Bank, N.A.
	September 30, 2017				December 31, 2016				September 30, 2017				December 31, 2016
	Amount ($)		Ratio (%)		Amount ($)		Ratio (%)		Amount ($)		Ratio (%)		Amount ($)		Ratio (%)
Total Capital (to risk weighted assets):
Actual		74,470		10.222		66,254		10.603		83,558		11.554		74,303		11.928
To be Well Capitalized⁽¹⁾		-		-		-		-		72,320		10.000		62,292		10.000
For capital adequacy with Capital Buffer⁽²⁾		-		-		-		-		66,896		9.250		53,727		8.625
For capital adequacy		58,280		8.000		49,989		8.000		57,856		8.000		49,834		8.000

Tier 1 Capital (to risk weighted assets):
Actual		68,240		9.367		61,571		9.854		77,328		10.692		69,620		11.176
To be Well Capitalized⁽¹⁾		-		-		-		-		57,856		8.000		49,834		8.000
For capital adequacy with Capital Buffer⁽²⁾		-		-		-		-		52,432		7.250		41,269		6.625
For capital adequacy		43,710		6.000		37,491		6.000		43,392		6.000		37,375		6.000

Common Equity Tier 1 Capital (to risk weighted assets):
Actual		60,240		8.269		53,571		8.573		77,328		10.692		69,620		11.176
To be Well Capitalized⁽¹⁾		-		-		-		-		47,008		6.500		40,490		6.500
For capital adequacy with Capital Buffer⁽²⁾		-		-		-		-		41,584		5.750		31,925		5.125
For capital adequacy		32,783		4.500		28,119		4.500		32,544		4.500		28,031		4.500

Tier 1 Leverage Capital (to average assets):
Actual		68,240		8.449		61,571		9.296		77,328		9.574		69,620		10.518
To be Well Capitalized⁽¹⁾		-		-		-		-		40,384		5.000		33,096		5.000
For capital adequacy		32,308		4.000		26,494		4.000		32,308		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 ~~can~~may be ~~paid out in dividends~~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. ~~We have included the~~The 0.625% ~~increase~~capital conversation buffer for 2016 has been included in ~~our~~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.

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements (unaudited)

The capital buffer requirement effectively raises the minimum required ~~common equity Tier 1 capital~~Total Capital ratio to ~~7.0%~~10.5%, the Tier 1 capital ratio to 8.5%, and the ~~total~~CET1 capital ratio to ~~10.5%~~7.0% on a fully phased-in basis, which will be ~~as of~~effective beginning on January 1, 2019. Management believes that, as of September 30, ~~2016, the Company would meet~~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.

Note ~~12:~~9:Fair Value and Interest Rate Risk

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. A fair value hierarchy has been established that prioritizes the inputs used to measure fair value, requiring entities to maximize the use of observable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs generally require significant management judgment.

The three levels ~~within~~of the fair value hierarchy ~~are as follows:~~consist of:

●Level 1

~~Level 1-~~ Unadjusted quoted market prices for identical assets or liabilities in active markets that the entity has the ability to access at the measurement date (such as active exchange-traded equity securities and certain U.S. and government agency debt securities).

●Level 2

~~Level 2-~~ Observable inputs other than quoted prices included in Level 1, such as:

■

–

~~quoted~~

Quoted prices for similar assets or liabilities in active markets (such as U.S. agency and government sponsored mortgage-backed securities)

■

–

~~quoted~~

Quoted prices for identical or similar assets or liabilities in less active markets (such as certain U.S. and government agency debt securities, and corporate and municipal debt securities that trade infrequently)

■

–

Other inputs that are observable for substantially the full term of the asset or liability (i.e. interest rates, yield curves, prepayment speeds, default rates, etc.)

●Level 3

~~Level 3-~~ Valuation techniques that require unobservable inputs that are supported by little or no market activity and are significant to the fair value measurement of the asset or liability (such as pricing and discounted cash flow models that typically reflect ~~management’s~~management’s estimates of the assumptions a market participant would use in pricing the asset or liability).

A description of the valuation methodologies used for assets and liabilities recorded at fair value, and for estimating fair value for financial and non-financial ~~instruments~~instruments not recorded at fair value, is set forth below.

Cash and due from banks, federal funds sold ~~short-term investments~~ and accrued interest receivable and ~~payable:~~payable

The carrying amount is a reasonable estimate of fair value and accordingly these are classified as Level 1. These financial instruments are not recorded at fair value on a recurring basis.

Available-for-Sale ~~Securities:~~Securities

The fair value of securities available for sale (carried at fair value) and held to maturity (carried at amortized cost) isare determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities, but rather by relying on the securities' relationship to other benchmark quoted ~~prices.~~prices, or using unobservable inputs employing various techniques and assumptions (Level 3).

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements ~~(Unaudited)~~(unaudited)

Other ~~Investments:~~Investments

The ~~Bank’s~~Bank’s investment portfolio includes the Solomon Hess SBA Loan Fund totaling $4.5 million. This investment is utilized ~~for the purposes of~~by the Bank ~~satisfying~~to satisfy its ~~CRA~~Community Reinvestment Act (“CRA”) lending requirements. As this fund operates as a private fund, shares in the Fund are not publicly traded and therefore have no readily determinable market value. The investment in the Fund is reported in the ~~financial statements~~Consolidated Financial Statements at ~~cost, as adjusted for income, losses, and cash distributions attributable to the investment.~~cost.

Federal Reserve Bank Stock and Federal Home Loan Bank Stock

Shares in the Federal Reserve Bank (“FRB”) and Federal Home Loan Bank (“FHLB”) are purchased and redeemed based upon their $100 par value. The stocks are non-marketable equity securities, and as such, are considered restricted securities that are carried at cost.

Loans~~Loans:~~

For variable rate loans, which periodically reprice ~~frequently and have~~with no ~~significant~~apparent change in credit risk, carrying ~~values are a reasonable estimate of fair~~ values, adjusted for credit losses inherent in the ~~portfolios.~~ portfolios, are a reasonable estimate of fair value.

The fair value of fixed rate loans is estimated by discounting the future cash flows using the ~~period-end~~period-end rates, estimated by using local market data, at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities, adjusted for credit losses inherent in the portfolios. ~~As estimates are dependent~~

Since individual loans do not trade on ~~management’s observations,~~an open market and transfer of individual loans are private transactions that are not publicized, the fair value of the loan portfolio is classified aswithin Level ~~3. The Company~~3 of the fair value hierarchy. Patriot does not record loans at fair value on a recurring ~~basis. However,~~basis; however, from time to time, nonrecurring fair value adjustments to collateral-dependent impaired loans are recorded to reflect ~~partial write-downs~~the net realizable value expected to be collected on default by the borrower based on ~~the~~ observable market ~~price~~inputs or current appraised value of ~~collateral.~~collateral held. Fair values estimated in this manner do not fully incorporate an exit-price approach, ~~to fair value,~~ but instead are based on a comparison to current market rates for comparable ~~loans.~~loans, adjusted by management based on the best information available.

~~OREO:~~OREO

The fair value of other OREO ~~properties~~ the ~~Company~~Bank may obtain is based on ~~the estimated~~ current appraised property ~~valuations~~value less estimated ~~selling costs.~~costs to sell. When the fair value is based on unadjusted current ~~observable~~ appraised values, OREO is classified within Level ~~2. The Company~~2 of the fair value hierarchy. Patriot classifies OREO within Level 3 of the fair value hierarchy when unobservable ~~adjustments~~inputs are ~~made~~used to determine adjustments to appraised values. Patriot does not record OREO at fair value on a recurring basis, but rather initially records OREO at fair value and then monitors property and market conditions that may indicate a change in value is warranted.

~~Deposits:~~Deposits

The fair value of demand deposits, regular savings and certain money market deposits is the amount payable on demand at the reporting date.

The fair value of certificates of deposit and other time deposits is estimated using a discounted cash flow calculation that applies interest rates currently being offered for deposits of similar remaining maturities, estimated using local market data, to a schedule of aggregated expected maturities on such deposits.

The Company does not record deposits at fair value on a recurring basis.

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements (unaudited)

Senior Notes and Junior Subordinated ~~Debt:~~Debt

The senior notes were issued in December 2016 and therefore the carrying value is considered comparable to fair value. Management does not intend to measure the senior notes at fair value on a recurring basis.

Junior subordinated debt reprices quarterly ~~and~~, as a result, the carrying amount is considered a reasonable estimate of fair value. The Company does not record junior subordinated debt at fair value on a recurring basis.

Federal Home Loan Bank ~~Borrowings:~~ ~~The~~and Correspondent Bank Borrowings

The fair value of ~~the~~FHLB advances is estimated using a discounted cash flow calculation that applies current ~~Federal Home Loan Bank~~FHLB interest rates for advances of similar maturity to a schedule of maturities of such advances. The Company does not record these borrowings at fair value on a recurring basis.

Off-balance sheet ~~instruments:~~ ~~Fair values for the Company’s off-balance-sheet~~ instruments ~~(lending commitments)~~

Off-balance sheet financial instruments are based on interest rate changes and fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The Company does not record its off-balance-sheet instruments at fair value (i.e., commitments to extend credit) on a recurring basis.

~~PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY~~

~~Notes to consolidated financial statements (Unaudited)~~

The following table ~~details~~s detail the financial assets measured at fair value on a recurring basis and the valuation techniques utilized relative to the fair value hierarchy, as of September 30, ~~2016~~2017 and December 31, ~~2015, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine fair value:~~2016:

(in thousands)

Quoted Prices
in
Active Markets
for
Identical Assets
(Level 1)

Significant
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Balance as of
September 30, 2016

September 30, 2016:

U.S. Government agency mortgage-backed securities
$ - 11,412 - 11,412
Corporate bonds
- 8,937 - 8,937
Subordinated Notes
- 3,025 - 3,025
Securities available for sale
$ - 23,374 - 23,374

Quoted Prices
in
Active Markets
for
Identical Assets
(Level 1)

Significant
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Balance as of
December 31, 2015

December 31, 2015:

U.S. Government agency bonds
$ - 4,954 - 4,954
U.S. Government agency mortgage-backed securities
- 13,413

- 13,413
Corporate bonds
- 9,010

- 9,010
Subordinated Notes
- 2,000 - 2,000
Securities available for sale
$ - 29,377 - 29,377
(In thousands)

Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

Significant Observable Inputs
(Level 2)

Significant Unobservable Inputs
(Level 3)

Total

September 30, 2017:

U. S. Government agency mortgage-backed securities
$ - 8,036 - 8,036
Corporate bonds
- 13,905 - 13,905
Subordinated notes
- 5,610 2,035 7,645

Available-for-sale securities
$ - 27,551 2,035 29,586

December 31, 2016:

U. S. Government agency mortgage-backed securities
$ - 10,441 - 10,441
Corporate bonds
- 8,961 - 8,961
Subordinated notes
- 3,026 2,000 5,026

Available-for-sale securities
$ - 22,428 2,000 24,428

The ~~Company regularly monitors significant market inputs and assumptions used in its fair value measurements and evaluates the level of~~table below presents the valuation ~~input according to the fair value hierarchy. This may result in a transfer between levels in the hierarchy from period to period.There were no transfers of~~methodology and unobservable inputs for level 3 assets between levels 1, 2 or 3 during the nine months ended September 30, 2016 or 2015. Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).

~~PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY~~
~~Notes to consolidated financial statements (Unaudited)~~
~~The following table reflects financial assets measured~~measures at fair value on a non-recurring basis as of September 30, ~~2016~~2017 and December 31, ~~2015, segregated by the level of the valuation inputs within the fair value hierarchy utilized:~~2016:

(in thousands)

Asset Description

Quoted Prices
in
Active Markets
for
Identical Assets
(Level 1)

Significant
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Balance

September 30, 2016:

Impaired loans
$ - - - -
Other real estate owned
$ - - 851 851

December 31, 2015:

Impaired loans
$ - - 363 363
(In thousands)

Fair Value

Valuation Methodology

Unobservable Inputs

Range of Inputs

September 30, 2017:

Impaired loans
$ 8,985
Real Estate Appraisals

Discount for appraisal type
0% - 8%
OREO
851
Real Estate Appraisals

Discount for appraisal type
21%

December 31, 2016:

Impaired loans
$ 8,951
Real Estate Appraisals

Discount for appraisal type
0% - 8%
OREO
851
Real Estate Appraisals

Discount for appraisal type
21%

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
(in thousands)

Quantitative Information about Level 3 Fair Value Measurements
Asset Description

Fair Value

Valuation Technique

Unobservable Input

Range/
(Weighted Average )

September 30, 2016:

Other real estate owned
$ 851
Appraised Value of Property⁽¹⁾

Liquidation Costs⁽²⁾

9.6% / (9.6%)⁽³⁾

December 31, 2015:

Impaired loans
$ 363
Appraised Value of Collateral⁽¹⁾

Liquidation Costs⁽²⁾

8% / (8%)⁽³⁾
Notes to consolidated financial statements (unaudited)
~~(1)~~
Fair value is generally determined through independent appraisals of the underlying collateral (in the case of impaired loans) or property (in the case of OREO), which include Level 3 inputs that are not identifiable.
~~(2)~~
~~Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.~~
~~(3)~~
~~The range and weighted average of qualitative factors such as economic conditions and estimated liquidation expenses are presented as a percent of the appraised value.~~

The Company discloses fair value information about financial instruments, whether or not recognized in the ~~consolidated balance sheet,~~Consolidated Balance Sheet, for which it is practicable to estimate that value. Certain financial instruments are excluded from disclosure requirements and, accordingly, the aggregate fair value amounts presented do not necessarily represent the complete underlying value of the ~~Company.~~financial instruments included in the Consolidated Financial Statements.

The estimated fair value amounts have been measured as of September 30, ~~2016~~2017 and December 31, ~~2015~~2016 and have not been reevaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair ~~value~~values of ~~these~~the financial instruments ~~subsequent to the respective reporting dates~~measured may be different than ~~amounts reported on those dates.~~

~~PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY~~
~~Notes to consolidated financial statements (Unaudited)~~if they had been subsequently valued.

The information presented should not be interpreted as an estimate of the total fair value ~~of the Company since a fair value calculation is only required for a limited portion~~ of the Company’s assets and ~~liabilities.~~liabilities, since only a portion of Patriot’s assets and liabilities are liabilities are required to be measured at fair value for financial reporting purposes. Due to the wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other bank holding companies may not be meaningful.

The following istable provides a ~~summary~~comparison of the carrying amounts and estimated fair values of ~~the Company’s~~Patriot’s financial ~~instruments not measured~~assets and ~~not reported at fair value on the consolidated balance sheets at~~liabilities as of September 30, ~~2016~~2017 and December 31, ~~2015:~~2016:

(in thousands)

September 30, 2016

December 31, 2015

(In thousands)

September 30, 2017

December 31, 2016

Fair Value

Carrying

Estimated

Carrying

Estimated

Fair Value
Hierarchy

Carrying
Amount

Estimated
Fair Value

Carrying
Amount

Estimated
Fair Value

Financial Assets:
Hierarchy
Amount

Fair Value

Amount

Fair Value

Cash and noninterest bearing balances due from banks
Level 1
$ 2,454 2,454 2,588 2,588
Level 1
$ 3,337 3,337 2,596 2,596
Interest-bearing deposits due from banks
Level 1
43,060 43,060 82,812 82,812
Level 1
25,075 25,075 89,693 89,693
Available for sale securities
Level 2
23,374 23,374 29,377 29,377
U. S. Government agency mortgage-backed securities
Level 2
8,036 8,036 10,441 10,441
Corporate bonds
Level 2
13,905 13,905 8,961 8,961
Subordinated Notes
Level 2
5,610 5,610 3,026 3,026
Subordinated Notes
Level 3
2,035 2,035 2,000 2,000
Other investments
Level 2
4,450 4,450 4,450 4,450
Level 2
4,450 4,450 4,450 4,450
Federal Home Loan Bank and Federal Reserve Bank stock
Level 2
7,818 7,818 8,645 8,645
Federal Reserve Bank stock
Level 2
2,460 2,460 2,109 2,109
Federal Home Loan Bank stock
Level 2
6,353 6,353 5,609 5,609
Loans receivable, net
Level 3
552,822 562,114 479,127 478,160
Level 3
703,896 699,764 576,982 576,757
Accrued interest receivable
Level 2
2,308 2,308 2,010 2,010
Level 2
3,501 3,501 2,726 2,726

Financial assets, total
Financial assets, total
$ 778,658 774,526 708,593 708,368

Financial Liabilities:

Demand deposits
Level 2
$ 77,304 77,304 85,812 85,812
Level 2
$ 76,875 76,875 76,772 76,772
Savings deposits
Level 2
130,901 130,901 106,291 106,291
Level 2
141,256 141,256 131,429 131,429
Money market deposits
Level 2
17,230 17,230 19,508 19,508
Level 2
13,477 13,477 15,593 15,593
NOW accounts
Level 2
24,672 24,672 27,951 27,951
Level 2
27,420 27,420 29,912 29,912
Time deposits
Level 2
163,893 221,105 156,964 156,964
Level 2
252,375 251,966 211,686 210,321
Brokered Deposits
Level 1
57,185 57,725 48,154 48,154
FHLB Borrowings
Level 2
135,000 135,497 132,000 132,000
Brokered deposits
Level 1
94,011 93,950 63,932 63,897
FHLB and correspondent bank borrowings
Level 2
130,000 130,214 138,000 138,149
Senior notes
Level 2
11,684 11,324 11,628 11,628
Subordinated debentures
Level 2
8,248 8,248 8,248 8,248
Level 2
8,085 8,085 8,079 8,079
Note Payable
Level 3
1,800 1,780 1,939 1,939
Note payable
Level 3
1,627 1,466 1,769 1,565
Accrued interest payable
Level 2
180 180 532 532
Level 2
532 532 118 118

Financial liabilities, total
Financial liabilities, total
$ 757,342 756,565 688,918 687,463

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to consolidated financial statements (unaudited)

The carrying amount of cash and noninterest bearing balances due from banks, interest-bearing deposits due from banks, and demand deposits approximates fair value, due to the short-term nature and high turnover of these balances. These amounts are included in the table above for informational purposes.
In the normal course of its operations, the Company assumes interest rate risk (the risk that general interest rate levels will change) ~~as a result of its normal operations.~~. As a result, the fair values of the Company’s financial ~~instruments will change~~assets and liabilities are affected when interest ~~rate levels~~market rates change, ~~and that~~which change may be either favorable or ~~unfavorable to the Company.~~unfavorable. Management attempts ~~to match maturities of assets and liabilities to the extent possible~~ to mitigate interest rate ~~risk.~~risk by matching the maturities of its financial assets and liabilities. However, borrowers with fixed rate obligations are less likely to prepay their obligations in a rising interest rate environment and more likely to prepay their obligations in a falling interest rate environment. Conversely, depositors ~~who are~~ receiving fixed rates are more likely to withdraw funds before maturity in a rising interest rate environment and less likely to do so in a falling interest rate environment. Management monitors market rates of interest and maturities of its financial assets and liabilities, ~~and attempts to minimize interest rate risk by~~ adjusting the terms of new loans and deposits ~~and by investing~~ in ~~securities with terms that mitigate the Company’s~~an attempt to minimize interest rate risk. Additionally, management mitigates its overall interest rate ~~risk.~~risk through its available funds investment strategy.

Off-balance sheet instruments
Loan commitments on which the committed interest rate is less than the current market rate were insignificant at September 30, ~~2016~~2017 and December 31, ~~2015.~~2016. The estimated fair value of fee income on letters of credit at September 30, ~~2016~~2017 and December 31, ~~2015~~2016 was insignificant.
Note 10:     PendingMerger and Acquisition
On August 1, 2017, a definitive merger agreement (“Merger Agreement”) was entered into by and among the Company, Patriot Bank, Prime Bank, a Connecticut bank headquartered in Orange, CT (“Prime Bank”) (PMHV:US) and a stockholder representative of Prime Bank. Pursuant to the Merger Agreement, Prime Bank will merge into Patriot Bank and existing stockholders of Prime Bank will receive aggregate cash consideration (“Merger Consideration”) equal to 115% of Prime Bank’s tangible book value as of the closing date which is anticipated to be in the fourth quarter 2017. Moreover, all outstanding stock options of Prime Bank will be settled by cash payment in an amount equal to the amount by which the per share Merger Consideration exceeds the exercise price of each stock option.
The acquisition will enable Patriot to expand its consumer and small business relationships, lending operations, and community presence, all of which will improve key operating metrics. This transaction was approved by the shareholders of Prime Bank on October 17, 2017 and is also ~~insignificant.~~ subject to customary regulatory approval. Upon closing, the acquisition will result in a new Patriot branch located in the Town of Orange, New Haven County, Connecticut.
Patriot is still evaluating the estimated fair values of the assets to be acquired and the liabilities to be assumed. Accordingly, the amount of any goodwill and other intangible assets to be recognized in the connection with this transaction, as well as acquisition costs incurred and expected to be incurred, are also yet to be determined. The Company incurred $39,000 of merger and acquisition expenses related to the Prime Bank merger for the nine months ended September 30, 2017. The Company anticipates that it will incur approximately $500,000 of additional merger and acquisition expenses.
The effect of the merger is expected to be reflected in Patriot’s results beginning with the fourth quarter of 2017.

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to consolidated financial statements ~~(Unaudited)~~(unaudited)
Note 11:     Recent Accounting Pronouncements

~~Note 13:     Recent Accounting Pronouncements~~
Recently Issued Accounting Standards Updates
ASU 2014-09
~~ASU 2014-09:~~In May 2014, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued ~~ASU~~Accounting Standards Update (“ASU”) 2014-09,Revenue from Contracts with Customers. This update will replace all current U.S. GAAP related to revenue recognition and will eliminate all industry-specific guidance.During 2016, the update was further clarified by ASU 2016-08Revenue from Contracts with Customers: Principle versus Agent Considerations; ASU2016-10, Revenue from Contracts with ~~Customers: Principle versus Agent Considerations;~~Customers ~~ASU2016-10,~~~~Revenue from Contracts with Customers:~~ : Identifying Performance Obligations and Licensingand ASU 2016-12Revenue from Contracts with ~~Customers:~~Customers: Narrow-Scope Improvements and Practical Expedients. In July 2015, the FASB affirmed its proposal to defer the effective date of this new standard. As a result, public companies will apply the new revenue standard to annual reporting periods beginning after December 15, ~~2017.~~2017, including interim periods within that reporting period. Early adoption is permitted for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The ~~Company~~core principle of the new guidance is ~~currently assessing~~that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The banking industry does not expect significant changes because major sources of revenue are from financial instruments that have been excluded from the scope of the new standard, (including loans, debt and equity securities, etc.). However, these new standards affect other fees charged by banks, such as asset management fees, credit card interchange fees, deposit account fees, etc. Adoption may be made on a full retrospective basis with practical expedients, or on a modified retrospective basis with a cumulative effect adjustment. Management continues to assess the impact that this guidance ~~will~~may have on its ~~consolidated financial statements, but does~~Consolidated Financial Statements with respect to new transactions entered into through the course of normal operations. Except for additional disclosures that are required, management has determined that ASU 2014-09 will not ~~expect~~have a material impact on its financial condition or results of ~~operations.~~operations with respect to its normal and customary operations, but continues to monitor potential impacts that may occur as it explores additional transactions and opportunities.

ASU ~~2016-01:~~2016-01
In January 2016, the FASB issued ASU 2016-01,Financial Instruments - Overall. ASU 2016-01 requires ~~cost-method~~ equity investments,excluding equity investments that are consolidated or accounted for under the equity method of accounting, to be measured at fair value with changes in fair value recognized in net income. The ASU simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, and a measurement of the investment at fair value only when an impairment is qualitatively identified to exist. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is not permitted. ~~The Company~~Management is currently assessing the potential impact ASU 2016-01 will have on its financial statements, but does not expect a material impact on its financial condition or results of operations.

ASU ~~2016-02:~~2016-02
In February 2016, the FASB issued ~~Accounting Standards Update ("ASU")~~ASU No. 2016-02, Leases. This ~~update~~ASU increases transparency and comparability among organizations by requiring the recognition of leased assets and lease liabilities on the balance sheet, and the disclosure of key information about leasing arrangements. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. ~~The Company~~Management is currently evaluating the impact of the ~~pending adoption of the~~ new ~~update~~standard on its ~~consolidated financial statements.~~Consolidated Financial Statements.

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to consolidated financial statements (unaudited)
ASU 2016-13:
In June 2016, the FASB issued ASU 2016-13,Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments.The ~~standard~~ASU changes the methodology for measuring credit losses on financial instruments measured at amortized cost to a current expected loss (“CECL”) model. Under the CECL model, entities will estimate credit losses over the entire contractual term of a financial instrument from the date of initial recognition of the instrument. The ASU also changes the existing impairment model for available-for-sale debt securities. In cases where there is neither the intent nor a more-likely-than-not requirement to sell the debt security, an entity will record credit losses as an allowance rather than a direct write-down of the amortized cost basis. Additionally, ASU 2016-13 notes that credit losses related to available-for-sale debt securities and ~~the timing of when such losses are recognized.~~purchased credit impaired loans should be recorded through an allowance for credit losses. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted for fiscal years beginning after December 15, 2018. ~~The Company~~Management is currently evaluating the impact that the standard will have on its ~~consolidated financial statements.~~Consolidated Financial Statements.

ASU ~~2016-1~~5: 2016-15
In August 2016, the FASB issued ASU 2016-15,Statement of Cash Flows:Classification of Certain Cash Receipts and Cash Payments.~~The standard~~ASU 2016-15 addresses the classification of certain specific transactions presented on the Statement of Cash ~~Flow,~~Flows, in order to improve consistency across entities. Debt prepayment or extinguishment, debt-instrument settlement, contingent consideration payments post-business combination, and beneficial interests in ~~securitiszation~~securitization transactions are specific items addressed by this ~~Accounting Standards Update~~ASU that may affect the Bank. Additionally, the ~~Standard~~ASU codifies the predominance principle for classifying separately identifiable cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. ~~The Company~~Management is currently evaluating the impact that the standard will have on its Consolidated Financial Statements.
ASU 2016-18
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows:Restricted Cash.The purpose of the standard is to improve consistency and comparability among companies with respect to the reporting of changes in restricted cash and cash equivalents on the Statement of Cash Flows. The ASU requires the Statement of Cash Flows to include all changes in total cash and cash equivalents, including restricted amounts, and to the extent restricted cash and cash equivalents are presented in separate line items on the Balance Sheet, disclosure reconciling the change in total cash and cash equivalents to the amounts shown on the Balance Sheet are required. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. As of September 30, 2017 and December 31, 2016, Patriot does not have restricted cash and cash equivalents separately disclosed on its Balance Sheet. In the future, if Patriot’s activities warrant presenting separate line items on its Balance Sheet for restricted cash and cash equivalents, management does not envision any difficulties implementing the requirements of ASU 2016-18, as applicable.

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to consolidated financial statements (unaudited)
ASU 2017-08
In March 2017, the FASB issued ASU 2017-08, Premium Amortization on Purchased Callable Debt Securities, which amends the amortization period for certain purchased callable debt securities held at a premium, shortening such period to the earliest call date. The ASU is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Earlier application is permitted for all entities, including adoption in an interim period. If an entity early adopts the ASU in an interim period, any adjustments must be reflected as of the beginning of the fiscal year that includes that interim period. The Company has not yet determined the impact the adoption of ASU 2017-08 will have on the consolidated financial statements.

ASU 2017-09
In May 2017, the FASB issued ASU 2017-09, Scope of Modification Accounting, which provide guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718 Stock compensation. The ASU is effective all entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period. Management is currently evaluating the impact that the standard will have on its Consolidated Financial Statements.

Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations

"SAFE HARBOR" STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Certain statements contained in the Company’s public statements, including this one, and in particular in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” may be forward looking and subject to a variety of risks and uncertainties. These factors include, but are not limited to: (1) changes in prevailing interest rates which would affect the interest earned on the Company’s interest earning assets and the interest paid on its interest bearing liabilities; (2) the timing of repricing of the Company’s interest earning assets and interest bearing liabilities; (3) the effect of changes in governmental monetary policy; (4) the effect of changes in regulations applicable to the Company and the Bank and the conduct of its business; (5) changes in competition among financial service companies, including possible further encroachment of non-banks on services traditionally provided by banks; (6) the ability of competitors that are larger than the Company to provide products and services which it is impracticable for the Company to provide; (7) the state of the economy and real estate values in the Company’s market areas, and the consequent effect on the quality of the Company’s loans; (8) recent governmental initiatives that are expected to have a profound effect on the financial services industry and could dramatically change the competitive environment of the Company; (9) other legislative or regulatory changes, including those related to residential mortgages, changes in accounting standards, and Federal Deposit Insurance Corporation (“FDIC”) premiums that may adversely affect the Company; (10) the application of generally accepted accounting principles, consistently applied; (11) the fact that one period of reported results may not be indicative of future periods; (12) the state of the economy in the greater New York metropolitan area and its particular effect on the Company's customers, vendors and communities and (13) other such factors, including risk factors, as may be described in the Company’s other filings with the SEC.

Although the Company believes that it offers the loan and deposit products and has the resources needed for continued success, future revenues and interest spreads and yields cannot be reliably predicted. These trends may cause the Company to adjust its operations in the future. Because of the foregoing and other factors, recent trends should not be considered reliable indicators of future financial results or stock prices.

CRITICAL ACCOUNTING POLICIES

The preparation of consolidated financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and to disclose contingent assets and liabilities. Actual results could differ from those estimates. Management has identified the accounting for the allowance for loan losses, the analysis and valuation of its investment securities and the valuation of deferred tax assets, as the Company’s most critical accounting policies and estimates in that they are important to the portrayal of the Company’s financial condition and results of operations. They require management’s most subjective and complex judgment as a result of the need to make estimates about the effect of matters that are inherently uncertain. Refer to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, ~~2016~~2017 for additional information.

Summary

The Company reported net income for the third quarter of ~~2016~~2017 of $1,013,000 ($0.26 basic and diluted earnings per share) compared to a net income of $814,000 ($0.21 basic and diluted ~~income per share) compared to net income of $633,000 ($0.16 basic and diluted income~~loss per share) for the quarter ended September 30, ~~2015, an increase of 29%.~~2016. On a pre-tax basis, the Company earned ~~$1.3~~$1.7 million for the three month period ended September 30, ~~2016,~~2017, an increase of ~~$279,000, or 26%~~$339,000 over the third quarter of ~~2015.~~2016.

For the nine months ended September 30, ~~2016,~~2017, the Company reported net income of ~~$0.9~~$3.5 million ($~~0.22~~0.91 basic and diluted ~~income~~earnings per share) compared to net income of ~~$1.6 million~~$885,000 ($~~0.42~~0.22 basic and ~~$0.41diluted income~~diluted earnings per share) for the nine months ended September 30, ~~2015; a decrease~~2016, an increase of ~~$0.7 million, or 45%. On a pre-tax basis, the Company earned $1.5 million~~$2.66 million.
The comparative results for the nine month period ended September 30, 2016 and 2017 were affected by a ~~decrease~~troubled loan that was ultimately resolved. In June 2016, the Bank recorded a significant loan loss provision of ~~$1.2~~$1.96 million ~~or 46%~~related to this loan, but aggressively worked towards a recovery, which was successfully accomplished in the first quarter of 2017.
Excluding the impact of the loan loss provision (credit) (which primarily included loan losses and recoveries related to this loan), Patriot’s net income for the nine-month period ending September 30, 2017 was 30% higher than the same period in 2016. These results are the by-product of aggressive value-enhancing strategies that have been underway over the past year.
The following table represents a reconciliation of the reported net income to the net income excluding loan loss provision for the three and nine months ended September 30, ~~2015.~~2017 and 2016. The table is reported in a format that is not in compliance with Generally Accepted Accounting Principles (non-GAAP) but is beneficial to the reader and provides enhanced comparability due to the loan loss and subsequent loan recovery associated with the troubled loan described previously. Company management finds this measure useful when assessing the period to period change in core performance of the business.
(In thousands)

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Net Income excluding Loan Loss Provision (credit)

Net income reported
$ 1,013 $ 814 $ 3,547 $ 885
Tax provision
658 518 2,373 570
Loan loss provision (credit)
545 355 (944 ) 2,314

Pre-tax income reported
$ 1,671 1,332 5,920 1,455
Pre-tax income excluding loan loss provision
2,216 1,687 4,976 3,769
Net income excluding loan loss provision (credit)
1,343 1,031 2,981 2,292

Total assets increased ~~$29.6~~$70 million or 5%9%, from ~~$653.5~~$756.7 million at December 31, ~~2015~~2016 to ~~$683.1~~$826.7 million at September 30, ~~2016.~~2017.

●
Cash and cash equivalents decreased ~~$39.9~~$63.9 million or 69%, from ~~$85.4~~$92.3 million at December 31, ~~2015~~2016 to ~~$45.5~~$28.4 million at September 30, ~~2016.~~2017, as the availability of a variety of funding strategies negated the need to maintain cash and cash equivalents on the balance sheet.

●
The net loan portfolio increased ~~$73.7~~$126.9 million or ~~15%~~22%, from ~~$479.1~~$577.0 million at December 31, ~~2015~~2016 to ~~$552.8~~$703.9 million at September 30, ~~2016.~~2017.

Total liabilities increased ~~$28.4~~$66.3 million or 10%, from ~~$592.1~~$694.1 million at December 31, ~~2015~~2016 to ~~$620.5~~$760.4 million at September 30, ~~2016.~~2017.

●
Deposits increased ~~$26.5~~$76.1 million or 14.4%, from ~~$444.7~~$529.3 million to ~~$471.2~~$605.4 million.

●
Following historical seasonal trends, non-interest bearing deposits ~~declined~~increased by ~~$8.5 million.~~$103,000 or 0.1%.

●
Interest bearing deposits increased ~~$35.0~~$75.9 million or 16.8%, mostly relating to a increases of ~~$24.6~~$40.7 million or 19.2% in ~~savings, $9.0~~Certificates of deposits, $30.1 million or 47.1% in brokered deposits, ~~and $6.9~~$9.9 million or 7.5% in ~~Time certificates,~~Savings accounts, partially offset by decreases of ~~$3.3~~$2.5 million ~~and $2.3 million~~or 8.4% in NOW and $2.1 million or 13.5% in Money Market accounts, respectively.

Equity increased ~~$1.1~~$3.7 million or 6%, from ~~$61.5~~$62.6 million at December 31, ~~2015~~2016 to ~~$62.6~~$66.3 million at September 30, ~~2016,~~2017, primarily due to ~~$0.9~~$3.5 million of year-to-date net income, ~~$0.1 million~~$105,000 of equity compensation, and ~~$0.1 million~~$129,000 of investment portfolio ~~net~~unrealized gains.

Financial Condition

~~Financial Condition~~
Cash and Cash Equivalents
●
Cash and cash equivalents decreased $39.9 million, or 47%, to $45.5 million at September 30, 2016 compared to $85.4 million at December 31, 2015. The Company funded a $77.1 million increase in loans during the period and invested $2.3 million in premises and equipment. The effect of these outlays was partially offset by a $26.5 million increase in deposits, $6.1 million of proceeds from the reduction of available for sale securities net of purchases, $4.1 million generated by operations, and $3.0 million of FHLB borrowings.
Cash and cash equivalents decreased $

63.9 million, from $92.3 million at December 31, 2016 to $28.4 million at September 30, 2017. The Company funded $73.0 million in purchases of loans, $53.4 million in net originations of loans receivable, and $20.6 million in purchases of available-for-sale securities. The effect of these outlays was partially offset by a $76.1 million increase in deposits, and $15.5 million of proceeds from sales and principal repayments on available for sale securities, and $4.6 million in net cash provided by operations during the period.
Investments

The following table is a summary of the ~~Company’s~~Company’s available-for-sale securities portfolio, at fair value, at the dates shown:

(in thousands)

September 30,
2016

December 31,
2015

Inc/(Dec)
($)

Inc/(Dec)
(%)

U.S. Government Agency bonds
$ - 4,954 (4,954 ) (100.0% )
U.S. Government Agency mortgage-backed securities
11,412 13,413 (2,001 ) (14.9 )
Corporate bonds
8,937 9,010 (73 ) (0.8 )
Subordinated Notes
3,025 2,000 1,025 51.3
Total Available-for-Sale Securities
$ 23,374 29,377 (6,003 ) (20.4% )

September 30,

December 31,

Inc/(Dec)

Inc/(Dec)

(In thousands)

2017

2016

($)
(%)
U. S. Government agency mortgage-backed securities
$ 8,036 10,441 (2,405 ) (23.03 )%
Corporate bonds
13,905 8,961 4,944 55.17 %
Subordinated notes
7,645 5,026 2,619 52.11 %
Total Available-for-Sale Securities
$ 29,586 24,428 5,158 21.12 %

Available-for-sale securities ~~decreased $6.0~~increased $5.2 million or ~~20.4%~~21.1%, from ~~$29.4~~$24.4 million at December 31, ~~2015~~2016 to ~~$23.4~~$29.6 million at September 30, ~~2016.~~2017. This ~~decrease is~~increase was primarily attributable to $5the purchase of $2.5 million ~~face amount~~subordinated notes, purchase of ~~government-sponsored~~$4.0 million Government agency ~~bonds that were called in April of 2016, $2.0 million received from payments of~~ mortgage-backed securities, and ~~the~~ purchase of ~~$1.0~~$5.0 million corporate bonds, which was offset by the sale of approximate $6.4 million of Government agency mortgage-backed securities and repayments of principal on the same securities. In addition, the Company received $9.0 million from sales of corporate ~~bonds.~~
bonds, which was offset by a purchase of a different set of $9.0 million corporate bonds with superior rates of return.
Loans

The following table is a summary of the ~~Company’s~~Company’s loan portfolio at the dates shown:

(in thousands)

September 30,

December 31,

2016

2015

Inc (Dec)

Inc/(Dec) %

(In thousands)

September 30,

December 31,

Inc/(Dec)

Inc/(Dec)

Loan portfolio segment:

2017

2016

($)

(%)

Commercial Real Estate
$ 296,625 271,229 25,396 9.36 %
Residential Real Estate
150,664 86,514 64,150 74.15 %
Commercial and Industrial
$ 69,722 59,752 9,970 16.69 % 117,673 60,977 56,696 92.98 %
Commercial Real Estate
258,920 245,828 13,092 5.33 %
Consumer and Other
90,973 101,449 (10,476 ) (10.33 )%
Construction
48,048 15,551 32,497 208.97 % 48,328 53,895 (5,567 ) (10.33 )%
Construction to permanent- CRE
5,587 4,880 707 14.49 %
Residential
103,970 110,837 (6,867 ) (6.20 )%
Consumer/Other
73,903 47,521 26,382 55.52 %
Total Loans
560,150 484,369 75,781 15.65 %
Construction to permanent - CRE
5,855 7,593 (1,738 ) (22.89 )%
Loans receivable, gross
710,118 581,657 128,461 22.09 %
Allowance for loan losses
(7,328 ) (5,242 ) (2,086 ) 39.79 % (6,222 ) (4,675 ) (1,547 ) 33.09 %
Loans receivable, net
$ 552,822 479,127 73,695 15.38 % $ 703,896 576,982 126,914 22.00 %
~~Certain amounts presented for prior periods have been reclassified for consistency with the current period.~~

The ~~Company’s net~~Company’s gross loan portfolio increased ~~$73.7~~$128.4 million, or ~~15.4%~~22.1%, from ~~$479.1~~$581.7 million at December 31, ~~2015~~2016 to ~~$552.8~~$710.1 million at September 30, ~~2016.~~2017. The increase in loans was primarily attributable to purchases of $73.0 million residential real estate loans, and $53.4 million increase in net origination of loans receivable. As of September 30, ~~2016,~~2017, the loan pipeline is strong, and management expects continued growth.

At September 30, ~~2016,~~2017, the net loan to deposit ratio was ~~117%~~116% and the net loan to total assets ratio was ~~81%~~85%. At December 31, ~~2015,~~2016, these ratios were ~~108%~~109% and ~~73%~~76%, respectively.

Allowance for Loan Losses

The allowance for loan losses increased ~~$2.1~~$1.5 million or ~~40%~~32% from ~~$5.2~~$4.7 million at December 31, ~~2015~~2016 to ~~$7.3~~$6.2 million at September 30, ~~2016.~~2017. The increase iswas primarily attributable to a ~~$2.7~~$2.8 million increase in ~~specific reserves~~recoveries within our Commercial and Industrial category ~~and a $0.7 million increase in collective reserves within our Residential category~~that was offset by ~~reductions in the collective reserves~~$(944,000) provision (credit) for all ~~other~~ loan categories.

The overall credit quality of the loan portfolio continues to be strong and stable. Based upon the overall assessment and evaluation of the loan portfolio at September 30, ~~2016,~~2017, management believes the allowance for loan losses of ~~$7.3~~$6.2 million, which represents ~~1.3%~~0.88% of gross loans outstanding, iswas adequate under prevailing economic conditions to absorb existing losses in the loan portfolio.
Non-Accrual, Past Due and Restructured Loans

The following table ~~presents~~presents non-accruing loans and loans past due 90 days or more and still accruing:

(in thousands)

(In thousands)

September 30,

December 31,

Inc/(Dec)

Inc/(Dec)

September 30,
2016

December 31,
2015

2017

2016

($)

(%)

Loans past due over 90 daysand still accruing
$ 1,469 2,046
Loans past due over 90 days and still accruing
$ 4,447 1,452 2,995 206.27 %
Non-accruing loans
4,751 1,593 2,051 1,821 230 12.63 %
Total
$ 6,220 3,639 $ 6,498 3,273 3,225 98.53 %

% of Total Loans
1.11 % 0.75 % 0.92 % 0.57 %
% of Total Assets
0.91 % 0.56 % 0.79 % 0.43 %

The ~~$4.8~~$2.1 million of non-accrual loans at September 30, ~~2016~~2017 is comprised of ~~five~~six relationships, for which a specific reserve of ~~$3.2 million~~$285,000 has been established. The non-accrual increase of $3.2 million from December 31, 2015 is related to a single commercial loan and is not indicative of a credit quality trend within the portfolio. Despite the Company’s decision to fully reserve for this loan as of June 30, 2016, the Company has commenced recovery actions for alleged fraud across all available avenues, including insurance coverage and claims against third parties. Potentially responsive insurance coverage, under which the Company has sought recovery, includes a Financial Institution Bond with a limit of liability of $5.0 million above a $50,000 deductible. The Company will vigorously pursue its avenues of recovery, including insurance coverage and third party claims.

The Company has obtained appraisal reports from independent licensed appraisal firms and discounted those values for estimated selling costs to determine estimated impairment.
The ~~$1.6~~$1.8 million of non-accrual loans at December 31, ~~2015~~2016 was comprised of three borrowers, for which a specific reserve of ~~$3,000~~$231,000 had been established.

Other Real Estate Owned

At As of September 30, 2017 and December 31, 2016, ~~other real estate owned (“OREO”)~~OREO of $851,000, isconsisting of a single undeveloped property (i.e., raw land) zoned for multi-use construction, was reported on the Balance Sheet. The carrying amount was comprised of $840,000 ~~related to~~representing the value of the loan receivable due from the mortgagor of the foreclosed property and ana gain of $11,000 ~~gain~~ recognized upon taking possession of the property in May 2016. The ~~single~~gain was the excess of the fair value of the property ~~consists~~at the date of ~~raw land that is zoned for multi-use construction. During~~possession over the ~~twelve months ended December 31, 2015, there was no OREO activity.~~
loan receivable's carrying amount, after deducting an estimate of costs to liquidate the property.
Deferred Taxes
Deferred tax assets decreased ~~$0.4~~$1.9 million~~million,~~, from ~~$13.8~~$12.6 million at December 31, ~~2015~~2016 to ~~$13.3~~$10.7 million ~~atSeptember~~at September 30, ~~2016.This~~2017. This decrease was primarily due to the utilization of net operating loss carry forwards ~~applied~~ to ~~the tax liability~~reduce income taxes otherwise payable on current year taxable income and net unrealized gains on the investment ~~portfolio.~~portfolio to the net operating loss carry forward.

~~TheCompany~~The Company will continue to evaluate its ability to realize its net deferred tax asset. If future evidence suggests that it is more likely than not that a portion of the deferred tax asset will not be realized, the valuation allowance may be increased.

Deposits

The following table is a summary of the ~~Company’s~~Company’s deposits at the dates shown:

(in thousands)

September 30,
2016

December 31,
2015

Inc/(Dec)

Inc/ (Dec) %

Non-interest bearing
$ 77,304 85,812 (8,508 ) (9.9% )
Interest bearing

NOW
24,672 27,951 (3,279 ) (11.7% )
Savings
130,901 106,291 24,610 23.2 %
Money market
17,230 19,508 (2,278 ) (11.7% )
Time certificates, less than $250,000
140,028 139,455 573 0.4 %
Time certificates, $250,000 or more
23,865 17,509 6,356 36.3 %
Brokered Deposits
57,185 48,154 9,031 18.8 %
Total interest bearing
393,881 358,868 35,013 9.8 %
Total Deposits
$ 471,185 444,680 26,505 6.0 %
(In thousands)

September 30,

December 31,

Inc/(Dec)

Inc/(Dec)

2017

2016

($)

(%)

Non-interest bearing
$ 76,875 76,772 103 0.13 %
Interest bearing:

NOW
27,420 29,912 (2,492 ) (8.33 )%
Savings
141,256 131,429 9,827 7.48 %
Money market
13,477 15,593 (2,116 ) (13.57 )%
Certificates of deposit, less than $250,000
182,960 160,609 22,351 13.92 %
Certificates of deposit, $250,000 or greater
69,415 51,077 18,338 35.90 %
Brokered deposits
94,011 63,932 30,079 47.05 %
Total Interest bearing
528,539 452,552 75,987 16.79 %

Total Deposits
$ 605,414 529,324 76,090 14.37 %

Deposits increased ~~$26.5~~$76.1 million or 14.4%, from ~~$444.7~~$529.3 million at December 31, ~~2015~~2016 to ~~$471.2~~$605.4 million at September 30, ~~2016. Decreases~~2017. The increase was substantially the result of an effort to attract new deposits and strengthen the loyalty of the existing customer base by offering attractive rates. The effort was part of a strategy to establish long-term relationships for sustained growth and profitability. The increase in ~~non-interest bearing~~ deposits, ~~were caused~~most notably in the category of time certificates, signifies the success in strengthening the Bank’s liquidity by ~~typical seasonal decline. Regarding interest-bearing deposits, decreases in NOW and Money market accounts were offset by increases in Savings, Brokered Deposits, and Time certificates.~~refocusing its operations on its customer base. The Company continues to implement deposit growth initiatives.
Borrowings

Total borrowings ~~were $145.0~~declined by $8.1 million or 5.1%, from $159.5 million at December 31, 2016 to $151.4million at September 30, ~~2016 and were comprised~~2017. Borrowings consist primarily of ~~$135.0 million in~~ Federal Home Loan Bank (“FHLB”) advances, ~~$8.2million in~~senior notes, junior subordinated debentures and a ~~$1.8million~~ note payable.

Federal Home Loan Bank borrowings
The Company is a member of the Federal Home Loan Bank of Boston ("FHLB"). Borrowings from the FHLB are limited to a percentage of the value of qualified collateral, as defined on the FHLB Statement of Products Policy. Qualified collateral, as defined, primarily consists of mortgage-backed securities and loans receivable that are required to be free and clear of liens and encumbrances, and may not be pledged for any other purposes. As of September 30, 2017, the Bank had $19.3 million of available borrowing capacity from the FHLB.
In addition, Patriot has a $2.0 million revolving line of credit with the FHLB. At September 30, 2017 and December 31, 2016, no funds had been borrowed under the line of credit.

Correspondent Bank - Line of Credit
Effective July 2016, Patriot entered into a Federal funds sweep and Federal funds line of credit facility agreement (the “Correspondent Bank Agreement”) with ZB, N.A. (“Zions Bank”). The purpose of the agreement is to provide a credit facility intended to satisfy overnight Fed account balance requirements and to provide for daily settlement of FRB, ACH, and other clearinghouse transactions.
The Correspondent Bank Agreement provides for up to $16 million in funds of which no funds was outstanding as of September 30, 2017. The Correspondent Bank Agreement is unsecured, currently requires a compensating balance of $250,000 to remain on account with Zions Bank at all times, pays interest on funds on account (e.g., Fed funds sweep, compensating balance) at variable rates depending on the total deposit, and charges interest on advances ~~had~~at Zions Bank’s daily Fed funds rate, which is variable.
Senior notes
On December 22, 2016, the Company issued $12 million of senior notes bearing interest at 7% per annum and maturing on December 22, 2021 (the “Senior notes”). Interest on the Senior notes is payable semi-annually on June 22 and December 22 of each year beginning on June 22, 2017.
In connection with the issuance of the Senior notes, the Company incurred $374,000 of costs, which are being amortized over the term of the Senior notes to recognize a ~~weighted average interest~~constant rate of ~~33.25 basis points. All had remaining maturities ranging between three days to fifty-three months.~~interest expense. At September 30, 2017 and December 31, 2016, $316,000 and $372,000 of unamortized debt issuance costs have been deducted from the face amount of the Senior notes included in the Consolidated Balance Sheet.

The ~~subordinated debentures of $8.2~~Senior Notes contain affirmative covenants that require the Company to: maintain its and its subsidiaries~~million~~’ legal entity and tax status, pay its income tax obligations on a timely basis, and comply with SEC and FDIC reporting requirements. The 7% Senior Notes are unsecured, rank equally with all other senior obligations of the Company, ~~and~~ are ~~subordinate and junior in right of payment~~not redeemable nor may they be put to ~~all present and future senior indebtedness~~the Company by the holders of the ~~Company. These obligations qualify as Tier 1 capital. The Company has entered into a guarantee, which together with its obligations under the subordinated debentures~~notes, and ~~the declaration~~require no payment of trust governing the Patriot National Statutory Trust I (an unconsolidated affiliate), provides a full and unconditional guarantee of the capital securities. These subordinated debentures, which bear interest at three-month LIBOR plus 3.15% (4.01% at September 30, 2016), mature on March 26, 2033.principal until maturity.

Junior subordinated debt owed to unconsolidated trust
In 2003, the Trust, which has no independent assets and is wholly-owned by the Company, issued $8.0 million of trust preferred securities. The ~~trust has an early redemption feature at~~proceeds, net of a $240,000 placement fee, were invested in junior subordinated debentures issued by the ~~Company’s~~Company, which invested the proceeds in the Bank. The Bank used the proceeds to fund its operations.
At its option, exercisable on a quarterly ~~basis.~~                         basis, the Company may redeem the junior subordinated debentures from the Trust, which would then redeem the trust preferred securities.

Note Payable
In ~~the third quarter of~~September 2015, the ~~Company entered into~~Bank purchased the property in which its Fairfield, Connecticut branch is located for approximately $2 million, a ~~note payable in~~property it had been leasing until that date. The purchase price was primarily satisfied by issuing the ~~amount of~~seller a $2.0 million, ~~for the purchase of its Fairfield, CT branch which was formerly leased. The~~nine-year, promissory note ~~has a ten-year term and bears~~bearing interest at a fixed rate of 1.75%. per annum. As of September 30, 2017 and December 31, 2016, the ~~principal~~note had a balance outstanding of $1.6 million and $1.8 million, respectively. The note matures in August 2024 and requires a balloon payment of approximately $234,000. The note is secured by a first Mortgage Deed and Security Agreement on ~~this note was $1.8million.~~                    the purchased property.

Equity

Equity increased ~~$1.1~~$3.7 million from ~~$61.5~~$62.6 million at December 31, ~~2015~~2016 to ~~$62.3~~$66.3 million at September 30, ~~2016,~~2017, primarily due to ~~$0.9~~$3.5 million of year-to-date net income, ~~$0.1 million~~$105,000 of equity compensation, and ~~$0.1 million~~$129,000 of investment portfolio ~~net~~unrealized gains. ~~Book and tangible book value per share aggregated $15.80 at September 30, 2016, as compared to $15.53 at December 31, 2015.~~

Off-Balance Sheet ~~Arrangements~~Commitments

The ~~Company’s~~Company’s off-balance sheet ~~arrangements,~~commitments, which primarily consist of commitments to lend, ~~decreased $11.2~~increased $4.9 million from ~~$86.2~~$98.4 million at December 31, ~~2015~~2016 to ~~$74.8~~$103.3 million at September 30, ~~2016.~~2017.

RESULTS OF OPERATIONS

Distribution of Assets, Liabilities and Shareholders~~RESULTS OF OPERATIONS~~’ Equity; Interest Rates and Interest Differential
~~Net Interest Income~~
The following ~~tables~~tables present daily average balance sheets, ~~(daily averages),~~ interest income, interest expense and the corresponding yields earned and rates paid for the three months ended September 30, 2017 and 2016:
(In thousands)

Three months ended September 30,

2017

2016

Daily
Average
Balance ($)

Interest
($)

Yield
(%)

Daily
Average
Balance ($)

Interest
($)

Yield
(%)

ASSETS

Interest Earning Assets:

Loans
$ 702,307 8,522 4.81 530,068 6,188 4.64
Cash equivalents
23,383 65 1.11 24,326 25 0.41
Investments
39,923 380 3.81 35,564 219 2.45

Total interest earning assets
765,613 8,967 4.65 589,958 6,432 4.34

Cash and due from banks
2,766 3,938
Premised and equipment, net
34,618 30,361
Allowance for loan losses
(6,120 ) (7,210 )
OREO
851 851
Other assets
16,076 17,085

Total Assets
$ 813,804 634,983

Liabilities

Interest bearing liabilities:

Deposit
$ 511,941 1,339 1.04 379,352 549 0.58
Borrowings
137,027 248 0.72 105,326 73 0.28
Senior notes
11,673 229 7.77 - - -
Subordinated debt
8,237 92 4.47 8,248 85 4.10
Note Payable
1,639 7 1.74 1,829 9 1.96

Total interest bearing liabilities
670,517 1,915 1.13 494,755 716 0.58

Demand deposits
75,081 74,594
Other liabilities
1,811 3,213

Total Liabilities
747,409 572,562

Shareholders' equity
66,395 62,421

Total Liabilities and Shareholders' Equity
$ 813,804 634,983

Net interest income
7,052 5,716
Interest margin
3.65 3.85
Interest spread
3.52 3.76

The following tables present daily average balance sheets, interest income, interest expense and the corresponding yields earned and rates paid for the nine months ended September 30, ~~2016~~2017 and ~~2015:~~2016:

(In thousands)

Nine months ended September 30,

Average Balance Sheet
Net Interest income- Rate and Volume Variance Analysis
Three months ended September 30,

2017

2016

(in thousands) 2016 2015

Average
Balance

Interest
Income/Expense

Average
Rate

Average
Balance

Interest
Income/Expense

Average
Rate

Daily
Average
Balance ($)

Interest
($)

Yield
(%)

Daily
Average
Balance ($)

Interest
($)

Yield
(%)

Interest earning assets:

ASSETS

Interest Earning Assets:

Loans
$ 530,068 6,188 4.64 % 489,164 5,879 4.77 % $ 642,742 22,720 4.73 508,033 17,811 4.68
Cash equivalents
23,365 148 0.85 36,384 94 0.35
Investments
35,564 219 2.45 % 44,249 200 1.79 % 36,871 968 3.50 38,210 669 2.33
Cash Equivalents
24,326 25 0.41 % 54,819 30 0.22 %

Total interest earning assets
589,958 6,432 4.34 % 588,232 6,109 4.12 % 702,978 23,836 4.53 582,627 18,574 4.26

Cash and due from banks
3,938 2,632 4,092 3,395
Premises and equipment, net
30,361 26,178
Premised and equipment, net
33,816 29,969
Allowance for loan losses
(7,210 ) (5,211 ) (5,547 ) (5,913 )
OREO
851 851
Other assets
17,936 17,057 16,717 16,270
Total assets
$ 634,983 628,888

Total Assets
$ 752,907 627,199

Liabilities

Interest bearing liabilities:

Deposits
$ 379,352 549 0.58 % 380,769 498 0.52 %
Deposit
$ 487,248 3,457 0.95 367,415 1,518 0.55
Borrowings
105,326 73 0.28 % 100,217 90 0.36 % 102,900 509 0.66 108,835 258 0.32
Senior notes
11,655 686 7.87 - - -
Subordinated debt
8,248 85 4.10 % 8,248 74 3.56 % 8,244 266 4.32 8,248 250 4.04
Note payable
1,829 9 1.96 % 131 3 1.75 %
Note Payable
1,689 24 1.76 1,876 25 1.75
��
Total interest bearing liabilities
494,755 716 0.58 % 489,365 665 0.54 % 611,736 4,942 1.08 486,374 2,051 0.56

Demand deposits
74,594 75,337 73,815 75,045
Accrued expenses and other liabilities
3,213 3,406
Other liabilities
2,344 3,212

Total Liabilities
687,895 564,631

Shareholders' equity
62,421 60,780 65,012 62,568
Total liabilities and equity
$ 634,983 628,888

Total Liabilities and Shareholders' Equity
$ 752,907 627,199

Net interest income
5,716 5,444 18,894 16,523
Interest margin
3.85 % 3.67 % 3.59 3.79
Interest spread
3.76 % 3.58 % 3.45 3.70

Average Balance Sheet
Net Interest income- Rate and Volume Variance Analysis
Nine months ended September 30,

(in thousands) 2016 2015

Average
Balance

Interest
Income/Expense

Average
Rate

Average
Balance

Interest
Income/Expense

Average
Rate

Interest earning assets:

Loans
$ 508,033 17,811 4.68 % 495,006 17,349 4.69 %
Investments
38,210 669 2.33 % 45,301 552 1.63 %
Cash Equivalents
36,384 94 0.35 % 48,080 76 0.21 %
Total interest earning assets
582,627 18,574 4.26 % 588,387 17,977 4.08 %

Cash and due from banks
3,395 2,611
Premises and equipment, net
29,969 24,212
Allowance for loan losses
(5,913 ) (5,116 )
Other assets
17,121 17,402
Total assets
$ 627,199 627,496

Interest bearing liabilities:

Deposits
$ 367,415 1,518 0.55 % 379,466 1,540 0.54 %
Borrowings
108,835 258 0.32 % 107,033 246 0.31 %
Subordinated debt
8,248 250 4.04 % 8,248 218 3.53 %
Note payable
1,876 25 1.75 % 44 3 1.75 %
Total interest bearing liabilities
486,374 2,051 0.56 % 494,791 2,007 0.54 %

Demand deposits
75,045 69,669
Accrued expenses and other liabilities
3,212 3,018
Shareholders' equity
62,568 60,018
Total liabilities and equity
$ 627,199 627,496

Net interest income
16,523 15,970
Interest margin
3.79 % 3.63 %
Interest spread
3.70 % 3.54 %

~~The~~The following table presents the dollar amount of changes in interest income and interest expense for the major categories of our interest-bearing assets and interest-bearing liabilities for the three and nine months ended September 30, ~~2016~~2017 and ~~2015:~~ 2016:

(in thousands)
(In thousands)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended September 30,
2016 vs 2015

NineMonths Ended September 30,
2016 vs 2015

2017 compared to 2016

2017 compared to 2016

Increase (decrease) due to change in:

Increase (decrease) due to change in:

Increase/(Decrease)

Increase/(Decrease)

Volume

Rate

Total

Volume

Rate

Total

Volume

Rate

Total

Volume

Rate

Total

Interest earning assets:

Interest Earning Assets:

Loans
$ 506 (197 ) 309 $ 496 (34 ) 462 $ 1,902 432 2,334 $ 4,492 417 4,909
Cash equivalents
(1 ) 41 40 (34 ) 88 54
Investments
(44 ) 63 19 (96 ) 213 117 25 136 161 (29 ) 328 299
Cash Equivalents
(23 ) 18 (5 ) (21 ) 39 18

Total interest earning assets
439 (116 ) 323 379 218 597 1,926 609 2,535 4,429 833 5,262

Interest bearing liabilities:

Deposits
(2 ) 53 51 (49 ) 27 (22 )
Deposit
224 566 790 581 1,358 1,939
Borrowings
4 (21 ) (17 ) 4 8 12 22 153 175 (14 ) 265 251
Senior notes
229 - 229 686 - 686
Subordinated debt
- 11 11 - 32 32 - 7 7 - 16 16
Note Payable
6 - 6 22 - 22
Note payable
(2 ) - (2 ) (1 ) - (1 )

Total interest bearing liabilities
8 43 51 (23 ) 67 44 473 726 1,199 1,252 1,639 2,891

Net interest income
$ 431 (159 ) 272 $ 402 151 553 $ 1,453 (117 ) 1,336 $ 3,177 (806 ) 2,371

For the quarter ended September 30, ~~2016,~~2017, interest income increased ~~$323,000,~~$2.5 million or ~~5%,~~39% as compared to the quarter ended September 30, ~~2015. An~~2016, as focused growth and diversification in the loan portfolio yielded an increase ~~of $40.9 million~~ in ~~average~~interest income. Average loan balances ~~been bolstered by lower loan prepayment fees as the trend of fewer loan prepayments continues. Interest expense~~ increased ~~slightly~~$172.2 million or 32% as compared to the ~~year-ago period, mostly~~quarter ended September 30, 2016. Total interest expense increased $1.2 million or 167% as compared to the quarter ended September 30, 2016, primarily driven by $790,000 increase in interest on deposits as the result of an increase in ~~borrowings since that time. Together, these changes produced an~~deposit rates, $229,000 increase in ~~net~~ interest ~~income of $272,000 during the third quarter of~~expense on senior debt that was issued in December 2016, ~~as compared~~and $175,000 increase in interest expense on FHLB borrowings, due to the ~~third quarter of 2015. The Company’s loan portfolio as of September 30, 2016 increased $75.8 million compared to December 31, 2015. The loan pipeline remains strong and continued growth is expected.~~increase in general market borrowing rates.

For the nine-month period ended September 30, ~~2016,~~2017, interest income increased ~~$597,000. Most of this increase related~~$5.3 million or 28% as compared to the ~~achievement of a higher rate of return on investments and cash equivalent~~nine-months ended September 30, 2016. Average loan balances increased $134.7 million as compared to the nine-months ended September 30, 2016, primarily driven by $73.0 million purchases of loan pools during the first quarter of 2017 and $53.4 million new loans originated in 2017.
As the loan pipeline continued to grow in 2017, so did the need to increase the Bank’s deposit base and liquidity sources. Since the second half of 2016, the Bank has adopted a certificate of deposits (CD) program to attract term deposits at competitive rates. For the nine-month period ended September 30, 2017, total interest expense increased $2.9 million or 141% as compared to the nine-months ended September 30, 2016, primarily driven by $1.9 million increase in interest on deposits as the result of an increase in deposit rates, and the $686,000 increase in interest expense associated with the issuance of senior debt in December 31, 2016.
Net interest income was $7.0 million for the quarter ended September 30, 2017, up 23% from the corresponding 2016 period, reflecting strong loan and deposit growth. Net interest income of $18.9 million for the nine months ended September 30, ~~2015, offset by reductions in average investment and cash equivalent balances of $7.1~~2017 was 14% higher than the $16.5 million ~~and $11.7 million, respectively.~~
~~Interest expense for the nine-month period increased slightly. Lower average deposit balances were offset by an increase~~ in the ~~average rate of FHLB borrowings and a note payable for the purchase of the Company’s Fairfield CT property entered into during the third quarter of 2015.~~
nine month period ended September 30, 2016. Net interest margin for the quarter ended September 30, ~~2016~~2017 was ~~3.85%~~3.65% as compared to ~~3.67%~~3.85% for the quarter ended September 30, ~~2015.~~ 2016. For the nine-months ended September 30, 2017, net interest margin was 3.59% as compared to 3.79% for the year-ago period.

Provision (Credit) for Loan Losses
Provision for loan losses increased $190,000 from $355,000 for the quarter ended September 30, 2016 to $545,000 for the quarter ended September 30, 2017. The increase is primarily attributable to a higher loan balance in 2017.
For the nine months ended September 30, 2017, provision (credit) for loan losses decreased $3.3 million from $2.3 million provision for the nine month period ended September 30, 2016 to a credit balance of provision for loan losses $(944,000). This is primarily attributable to a single recovery in its Commercial and Industrial portfolio segment. Potential loss on the loan was fully reserved during 2016 and the loan was charged off during the fourth quarter of 2016. In March 2017, the Bank received a $2.8 million insurance recovery, which was recorded as a credit to the allowance for loan losses.
Non-interest income
Non-interest income decreased $26,000 from $412,000 for the quarter ended September 30, 2016 to $386,000 for the quarter ended September 30, 2017. The decrease was primarily attributable to a decrease of $39,000 in loan application and processing fees, which was partially offset by an increase of $13,000 in rental income.
For the nine months ended September 30, ~~2016, net interest margin was 3.79%~~2017, non-interest income decreased $175,000 to $1.0 million as compared to ~~3.63% for the year-ago period. The improvement results primarily from a 0.7% increase in the average yield on investments.~~

~~Provision for Loan Losses~~
~~For the three months ended September 30, 2016, a provision for loan losses of $355,000 was recorded. No such provision was recorded in the same three month period in 2015.~~
A provision for loan losses of $2.3 million was recorded in the nine months ended September 30, 2016 compared to a provision for loan losses of $250,000 in the nine months ended September 30, 2015. The increase in the provision is primarily attributable to a single troubled loan for which the value of the underlying collateral has substantially deteriorated. Such loan is related to the alleged fraud disclosed in relation to the Loan Loss Allowance discussion. Overall, the credit quality of the loan portfolio is strong as the overall risk rating for the portfolio has improved.
~~Non-interest income~~
Non-interest income increased $50,000 from $362,000 for the quarter ended September 30, 2015 to $412,000 for the quarter ended September 30, 2016. The increase is primarily due to higher loan activity fees.
Non-interest income decreased $20,000 in the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015, primarily attributable to decrease in loan activity fees and fees and service charges offset by increases in rental and other income.
~~Non-interest expense~~
~~Non-interest expense decreased $312,000 from $4.7~~$1.2 million for the ~~quarter ended September 30, 2015 to $4.4 million for the quarter~~nine months ended September 30, 2016. The decrease is primarily attributable to ~~reversing~~$91,000 reduction of loan activity fees and a ~~$315,000 accrual related to~~$78,000 loss on sale of investment securities in the ~~stock compensation for executives that resigned in August 2016 (see discussion~~first quarter of ~~Management Changes below).~~2017.
Non-interest expense

Non-interest expense ~~decreased $302,000~~increased $781,000 from ~~$14.2~~$4.4 million for the quarter ended September 30, 2016 to $5.2 million for the quarter ended September 30, 2017. The increase is primarily attributable to $572,000 increase in salaries and benefits, $71,000 increase in regulatory assessments, and $52,000 increase in data processing expense. The increase in salaries and benefits was primarily due to new hires to support the Company’s expanding business activities.
For the nine months ended September 30, ~~2015~~2017, non-interest expense increased $989,000 to $14.9 million as compared to $13.9 million for the nine months ended September 30, ~~2016,~~2016. The increase is primarily attributable to ~~reversing a $315,000 accrual related~~$469,000 increase in professional and other outside services incurred in connection with implementation of operational improvements, $334,000 increase in salaries and benefits, and $119,000 increase in regulatory assessments due to growth in the ~~stock compensation for executives that resigned in August 2016 (see discussion of Management Changes below).~~Bank’s balance sheet.

Liquidity

The Company~~Liquidity~~’s balance sheet liquidity to total assets ratio was 6.8% at September 30, 2017 compared to 14.9% at December 31, 2016. The Company’s available total liquidity (including off balance sheet funding sources) to total assets ratio was 17.9% at September 30, 2017 compared to 19.1% at December 31, 2016.

The ~~Company’s liquidity ratio was 9.4% at September 30, 2016 compared to 16.4% at December 31, 2015. The liquidity ratio is defined as the percentage of liquid assets to total assets. The~~ following categories of assets ~~as described in the accompanying consolidated balance sheets,~~ are considered ~~liquid assets:~~balance sheet liquidity: cash and ~~cash equivalents (which includes~~due from banks, federal funds ~~sold)~~sold (if any), short-term investments (if any) and unpledged available-for-sale securities. In addition, off balance sheet funding sources include collateral based borrowing available from the FHLB, correspondent bank borrowing lines, and brokered deposits subject to internal limitations.
Liquidity is a measure of the ~~Company’s~~Company’s ability to generate adequate cash to meet its financial obligations. The principal cash requirements of a financial institution are to cover downward fluctuations in deposit ~~accounts and increases in its loan portfolio.~~accounts. Management believes the Company’s ~~short-term~~liquid assets provide sufficient ~~liquidity~~coverage to satisfy loan demand, cover potential fluctuations in deposit accounts, and to meet other anticipated ~~and unanticipated~~operational cash requirements.

~~CAPITAL~~Capital

The following table illustrates the ~~Company’s regulatory capital ratios at September 30, 2016~~Company’s and ~~December 31, 2015:~~
Patriot National Bancorp, Inc.

September 30,
2016

December 31,
2015

Tier 1 Leverage Capital
9.72 % 9.77 %
Common Equity Tier 1 Capital
8.99 % 10.04 %
Tier 1 Risk-based Capital
10.35 % 11.60 %
Total Risk-based Capital
11.60 % 12.62 %
~~The following table illustrates~~ the Bank’s regulatory capital ratios atas of September 30, ~~2016~~2017 and December 31, ~~2015:~~ 2016:

Patriot Bank, N.A

September 30,
2016

December 31,
2015

Tier 1 Leverage Capital
9.68 % 9.68 %
Common Equity Tier 1 Capital
10.34 % 10.34 %
Tier 1 Risk-based Capital
10.34 % 10.34 %
Total Risk-based Capital
11.59 % 11.59 %

Patriot National Bancorp, Inc.

Patriot Bank, N.A.

(In thousands)

September 30, 2017

December 31, 2016

September 30, 2017

December 31, 2016

Amount
($)

Ratio
(%)

Amount
($)

Ratio
(%)

Amount
($)

Ratio
(%)

Amount
($)

Ratio
(%)

Total Capital (to risk weighted assets)
74,470 10.222 66,254 10.603 83,558 11.554 74,303 11.928
Tier 1 Capital (to risk weighted assets)
68,240 9.367 61,571 9.854 77,328 10.692 69,620 11.176
Common Equity Tier 1 Capital (to risk weighted assets)
60,240 8.269 53,571 8.573 77,328 10.692 69,620 11.176
Tier 1 Leverage Capital (to average assets)
68,240 8.449 61,571 9.296 77,328 9.574 69,620 10.518

~~Implementation~~Capital adequacy is one of the ~~Basel III final framework commenced on January 1, 2015, for both~~most important factors used to determine the ~~Company~~safety and soundness of individual banks and the ~~Bank. The new regulations~~banking system. Under the regulatory framework for prompt correction action, to be considered “well capitalized,” an institution must generally have ~~changed the~~a leverage capital ratio ~~calculations, resulting in an initial decline upon adoption. Among other provisions, Basel III increased some asset risk weightings, introduced a new capital measure “Common~~of at least 5.0%, Common Equity Tier ~~1” and will increase~~1 capital ratio ~~requirements during~~at least 6.5%, a ~~phase-in period from January~~Tier 1 ~~2015~~risk-based capital ratio of at least 8.0% and a total risk-based capital ratio of at least 10%. However, the OCC has the discretion to ~~January 1, 2019.~~ require increased capital ratios.
Under the final capital rules that became effective on January 1, 2015, there is a requirement for a ~~common equity Tier 1 capital~~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 ~~will~~ become subject to progressively more stringent limitations on the percentage of earnings that ~~can~~may be ~~paid out as dividends~~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 conservation buffer for 2016 has been included in the minimum capital adequacy ratios in 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 ~~common equity Tier 1 capital~~Total Capital ratio to ~~7.0%~~10.5%, the Tier 1 ~~capital~~Capital ratio to 8.5%, and the ~~total capital~~CET1 Capital ratio to ~~10.5%~~7.0% on a fully phased-in basis, which will be effective beginning on January 1, 2019. ~~The minimum required ratios per~~Management believes that, as of September 30, 2017, Patriot satisfies all capital adequacy requirements under the Basel III ~~for 2016 and 2019 are:~~ Capital Rules on a fully phased-in basis, as if all such requirements were currently in effect.

January 01,
2016

January 01,
2019

Tier 1 Leverage Capital
4.00 % 5.00 %
Common Equity Tier 1 Capital
4.50 % 7.00 %
Tier 1 Risk-based Capital
6.00 % 8.50 %
Total Risk-based Capital
8.00 % 10.50 %

~~Both~~Management continuously assesses the ~~Company’s and~~adequacy of the ~~Bank’s current~~Bank’s capital ~~ratios exceed~~with the ~~fully phased in minimum capital ratios of Basel III. The Bank maintained its~~goal to maintain a “well capitalized” ~~regulatory status through the third quarter of 2016.~~classification.

IMPACT OF INFLATION AND CHANGING PRICES

The ~~Company’s consolidated financial statements~~Company’s Consolidated Financial Statements have been prepared in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution’s performance than the effect of general levels of inflation. Interest rates do not necessarily move in the same direction or with the same magnitude as the prices of goods and services. Notwithstanding this, inflation can directly affect the value of loan collateral, in particular, real estate. Inflation, deflation or disinflation could significantly affect the Company’s earnings in future periods.
~~MANAGEMENT CHANGES~~

Stock Repurchase Program
The following table presents share repurchases of Patriot~~Departure~~’s common stock during the three months ended September 30, 2017 and ~~Appointment of Certain Officers~~December 31, 2016.

Period Beginning

Period Ending

No. of
Shares
Purchased⁽¹⁾

Average Price
Paid per
Share

No. of Shares Purchased
as part of
Publicly Announced
Plans⁽¹⁾

Maximum No. of Shares
that may yet be
Purchased Under the
Plans⁽¹⁾

November 1, 2016

November 30, 2016
629 $ 13.73 629 498,853
December 1, 2016

December 31, 2016
71,324 $ 14.04 71,324 427,529

Three-months ended December 31, 2016
71,953 $ 14.04

August 1, 2017

August 31, 2017
100 ⁽²⁾ $ 17.10 0 ⁽²⁾ 427,529⁽²⁾

Three-months ended September 30, 2017
100 $ 17.10
On August 4, 2016, Kenneth T. Neilson provided notice of his resignation as Chief Executive Officer and President of the Company and the Bank (together, “Patriot”), effective August 19, 2016. On August 10, 2016, the Board of Directors of the Company (the “Board”) appointed Michael A. Carrazza to serve as interim Chief Executive Officer, effective as of August 19, 2016. Mr. Carrazza has been the Chairman of both Boards of Directors of Patriot, since leading its turnaround recapitalization in October 2010. Mr. Carrazza is not receiving additional compensation for his service as interim Chief Executive Officer, and has agreed to serve as interim Chief Executive Officer until the Board’s appointment of a new, permanent Chief Executive Officer.
⁽¹⁾
All shares have been repurchased in connection with the stock repurchase program (the "Program") authorized by the Company's Board of Directors on July 29, 2016. The Program authorized the Company's chairman to direct the Company to repurchase up to 500,000 shares of Patriot's common stock on the open-market or in private transactions, through July 31, 2017.
⁽²⁾
After the Program closed, one shareholder elected to sell 100 shares back to the Company. This transaction was accepted and executed on the same terms as those executed during the Program.

Also, on August 4, 2016, Susan Neilson provided notice of her resignation as Chief Operating Officer and Executive Vice President of the Bank, effective August 19, 2016. On August 10, 2016, the Board appointed Peter D. Cureau to serve as the interim Chief Operating Officer and President of the Company, effective as of August 19, 2016. Mr. Cureau has over 25 years of banking experience, culminating most recently in his role as the President and Chief Executive Officer of Capital Bank and Trust Company in Albany, New York. He has experience in all aspects of commercial banking, including operations and management.
~~For additional information, refer to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 10, 2016.~~
On January 5, 2016, Christina L. Maier resigned, for personal reasons, as Chief Financial Officer of Patriot, and as of April 30, 2016, from her position as Executive Vice President of Patriot. Also on that date, Neil M. McDonnell was appointed as Chief Financial Officer of Patriot. Mr. McDonnell had been serving as Executive Vice President, Finance of Patriot since December 9, 2015, and was a consultant to Patriot from October 5, 2015 through December 8, 2015.
~~Stock Repurchase Program~~
~~On July 26, 2016, the Company authorized a stock repurchase program under which it may repurchase up to 500,000 of its outstanding~~There were 100 shares of Patriot’s common ~~stock. The program will terminate on July 31, 2017, unless suspended, discontinued or replaced at any time without prior notice. Under~~stock repurchased during the ~~program,~~three and nine months period ended September 30, 2017. No shares of Patriot’s common stock were repurchased during the ~~Company may repurchase shares in open-market purchases or in private transactions in accordance with applicable securities laws~~three and regulations, including Rule 10b-18 of the Securities Exchange Act of 1934. The specific timing and amount of repurchases will be determined by the Company’s chairman, in his discretion, and will vary based on market conditions, securities laws limitations and other factors. The repurchases will be funded using available cash on hand.nine months period ended September 30, 2016.

Item 3: Quantitative and Qualitative Disclosures about Market Risk

Market risk is defined as the sensitivity of income to fluctuations in interest rates, foreign exchange rates, equity prices, commodity prices and other market-driven rates or prices. The Company’s market risk is primarily limited to interest rate risk.

The ~~Company’s~~Company’s goal is to maximize long term profitability while minimizing its exposure to interest rate fluctuations. The first priority is to structure and price the Company’s assets and liabilities to maintain an acceptable interest rate spread while reducing the net effect of changes in interest rates. In order to accomplish this, the focus is on maintaining a proper balance between the timing and volume of assets and liabilities ~~re-pricing.~~re-pricing within the balance sheet. One method of achieving this balance is to originate variable rate loans for the portfolio and purchase short-term investments to offset the increasing short term re-pricing of the liability side of the balance sheet. In fact, a number of the interest-bearing deposit products have no contractual maturity. Therefore, deposit balances may run off unexpectedly due to changing market conditions. Additionally, loans and investments with longer term rate adjustment frequencies can be matched against longer term deposits and borrowings to lock in a desirable spread.

The exposure to interest rate risk is monitored by the Management Asset and Liability Committee ~~(the “Committee”)~~ consisting of senior management personnel. The Committee reviews the interrelationships within the balance sheet to maximize net interest income within acceptable levels of risk. This Committee reports to the Board of Directors. In addition to the Management Asset and Liability Committee, there is a Board Asset and Liability Committee (“ALCO”), which meets ~~at least~~ quarterly. ALCO monitors the interest rate risk analyses, reviews investment transactions during the period and determines compliance with the ~~Company,~~Company’s Investment, ALCO and Liquidity policies.

Management analyzes the Company’s interest rate sensitivity position to manage the risk associated with interest rate movements through the use of interest income simulation and GAP analysis. The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest sensitive.” An asset or liability is said to be interest sensitive within a specific time period if it will mature or reprice within that time period.

~~Management’s~~Management’s goal is to manage asset and liability positions to moderate the effects of interest rate fluctuations on net interest income. Interest income simulations are completed quarterly and presented to ALCO. The simulations provide an estimate of the impact of changes in interest rates on net interest income under a range of assumptions. Changes to these assumptions can significantly affect the results of the simulations. The simulation incorporates assumptions regarding the potential timing in the repricing of certain assets and liabilities when market rates change and the changes in spreads between different market rates.

Simulation analysis is only an estimate of the Company’s interest rate risk exposure at a particular point in time. Management regularly reviews the potential effect changes in interest rates could have on the repayment of rate- sensitive assets and funding requirements of rate-sensitive liabilities.

The tables below ~~sets~~set forth examples of changes in estimated net interest income and the estimated net portfolio value based on projected scenarios of interest rate increases and decreases. The analyses indicate the rate risk embedded in the Company’s portfolio at the dates indicated should all interest rates instantaneously rise or fall. The results of these changes are added to or subtracted from the base case; however, there are certain limitations to these types of analyses. Rate changes are rarely instantaneous and these analyses may therefore overstate the impact of short-term repricings. As a result of the historically low interest rate environment, the calculated effects of the 100 and 200 basis point downward shocks cannot absolutely reflect the risk to earnings and equity, since the interest rates on certain balance sheet items have approached their minimums. Therefore, it is not possible for the analyses to fully measure the true impact of these downward shocks.

(in thousands)
Net Interest Income and Economic Value
Summary Performance

September 30, 2016

Net Interest Income

Net Portfolio Value

Projected Interest
Rate Scenario

Estimated
Value

$ Change
from
Base

% Change
from
Base

Estimated
Value

$ Change
from
Base

% Change
from
Base

+ 200
$ 23,487 177 0.8 % 86,670 (146 ) 0.2 %
+ 100
23,520 210 0.9 % 86,797 (19 ) 0.0 %
BASE
23,310 - 0.0 % 86,816 - 0.0 %
- 100 23,338 29 0.1 % 87,753 937 1.1 %
- 200 23,331 21 0.1 % 93,360 6,543 7.5 %
(In thousands)

Net Portfolio Value - Performance Summary

As of September 30, 2017

As of December 31, 2016

Projected Interest
Rate Scenario

Estimated
Value

Change
from
Base ($)

Change
from
Base (%)

Estimated
Value

Change
from
Base ($)

Change
from
Base (%)

+200
99,330 (5,093 ) (4.9 ) 102,546 (1,629 ) (1.6)
+100
102,910 (1,513 ) (1.5 ) 104,044 (130 ) (0.1)
BASE
104,423 - - 104,174 - -
-100 104,873 450 0.4 105,408 1,233 1.2
-200 106,334 1,911 1.8 107,152 2,977 2.9

December 31, 2015

Net Interest Income

Net Portfolio Value

Projected Interest
Rate Scenario

Estimated
Value

$ Change
from
Base

% Change
from
Base

Estimated
Value

$ Change
from
Base

% Change
from
Base

+ 200
$ 21,502 545 2.6 % 82,588 (3,456 ) (4.0 %)
+ 100
21,319 362 1.7 % 84,303 (1,741 ) (2.0 %)
BASE
20,957 - - 86,044 - -
- 100 20,653 (304 ) (1.5 %) 89,085 3,041 3.5 %
- 200 20,506 (451 ) (2.2 %) 92,546 6,502 7.6 %

Net Interest Income - Performance Summary

September 30, 2017

Year ended December 31, 2016

Projected Interest
Rate Scenario

Estimated
Value

Change
from
Base ($)

Change
from
Base (%)

Estimated
Value

Change
from
Base ($)

Change
from
Base (%)

+200
29,474 397 1.4 25,588 976 4.0
+100
29,373 296 1.0 25,149 538 2.2
BASE
29,076 - - 24,611 - -
-100 28,447 (629 ) (2.2 ) 23,956 (655 ) (2.7)
-200 28,367 (709 ) (2.4 ) 24,073 (538 ) (2.2)

Item 4: Disclosure Controls and Procedures

The Bank maintains disclosure controls and procedures that are designed to provide reasonable assurance that information, which is required to be disclosed timely, is accumulated and communicated to management in a timely fashion. In designing and evaluating such controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Our management is necessarily required to use judgment in evaluating controls and procedures.

An evaluation of the effectiveness of the ~~Company’s~~Company’s disclosure controls and procedures was performed by the Company’s management, with the participation of the Company’s Chief Executive Officer and its Chief Financial Officer, as of the end of the period covered by this report. As used herein, “disclosure controls and procedures” means controls and other procedures of the Company that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules
and forms.
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act is accumulated and communicated to the ~~Company’s~~Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation, the aforementioned officers concluded that, as of September 30, ~~2016,~~2017, the ~~Company's~~Company’s disclosure controls and procedures were ~~not effective as a result of the~~effective.
Internal Control over Financial Reporting
A material weakness in ~~internal controls over financial reporting that affected its financial reporting for~~ the ~~previous quarter.~~
~~The identified material weakness in~~Company’s internal control over financial reporting ~~relates to~~was disclosed in Item 9A, Controls and Procedures, of the ~~process~~Company’s annual report on Form 10-K, for ~~establishing~~ the ~~allowance for loan losses. Specifically,~~year ended December 31, 2016. The Company did not have effective controls ~~were not maintained~~ over (i) the recording, monitoring and valuation of eligible collateral when calculating specific reserves on impaired ~~loans;~~loans; and (ii) controls over the development and monitoring of qualitative factors used in calculating the general component of the loan loss reserve in accordance with the approved allowance for loan losses policy. ~~Management has determined~~Based on their evaluation, management concluded that, the Company’s financial reporting controls and procedures with respect to the allowance for loan losses were not operating effectively, which affected the financial reporting for the previous quarter and for which corrective action is not yet finalized as of ~~the quarter ended September 30, 2016. As such, management believes that~~December 31, 2016, the Company's disclosure controls and procedures were not effective as a result of ~~September 30,~~the material weakness in internal controls over financial reporting that affected its financial reporting during the second and third quarters of 2016.

In response to the identified material weakness, ~~identified above, the Company is in the process of implementing~~management implemented changes to its disclosure controls and procedures and its system of internal control over financial reporting in each of the quarters ended December 31, 2016, March 31, 2017, June 30, 2017 and September 30, 2017, including changes to the ~~allowance~~process and procedures for establishing allowances for loan loss ~~process and control procedures,~~ and enhancements to ~~internal controls over the~~create a more robust review process. Other implemented enhancements ~~will~~ include strengthened controls over the monitoring and valuation of collateral related to loans deemed to be impaired and for which specific reserves ~~on impaired loans. The material weakness~~have been established.
Management believes all disclosure controls and procedures needed to provide reasonable assurance that information will ~~not~~ be ~~considered remediated until~~communicated in a timely fashion to management are now in place and such controls related to the ~~applicable remedial controls operate~~allowance for loan losses have operated for a sufficient period of time ~~and management has concluded, through testing, that these controls are~~for Management to evaluate the operating
~~effectively. Management is in process~~ effectiveness of ~~finalizing changes to its disclosure~~the controls and, ~~procedures, in order to remedy~~accordingly, Management believes the ~~identified~~ material weakness ~~and prevent such circumstances from occurring~~in internal control described in the ~~future.~~

~~Internal Control over Financial Reporting~~preceding paragraph has been remediated.

A material weakness in the Company’s internal control over financial reporting was disclosed in Item 9A, Controls and Procedures, of the Company’s annual report on Form 10-K, for the year ended December 31, 2015. The Company did not have an effective policy, procedure and review controls over the accounting for loan prepayment fees receivable which resulted in improper revenue recognition in December 2015 related to one non-routine transaction. No restatement of prior period financial statements and no change in previously released financial results were required as a result of this finding, as the error was corrected prior to the issuance of the Company’s annual financial statement.
The Company committed to remediate the control deficiency that constitutes a material weakness by implementing changes to the internal control process over financial reporting by the end of the first quarter 2016. The following changes to improve the overall effectiveness of internal control over financial reporting have been implemented as of March 31, 2016:
1.
~~Management modified the review process to include additional accounting staff with the experience to support the financial reporting requirements of non-routine transactions, and~~
2.
~~Accounting procedures have been modified and internal controls have been added to record loan prepayment fee receivables on a cash basis.~~
Based on the actions taken by management, the Company successfully completed the assessment necessary to conclude that the material weakness identified on Form 10-K for the year ended December 31, 2015 has been fully remediated as of March 31, 2016.
~~Other than preceding and as described in~~~~Item 4: Disclosure Controls and Procedures~~~~, no other~~ changes in the Company’s internal controls over financial reporting have occurred during the Company’s fiscal quarter ended September 30, ~~2016~~2017 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART II - OTHER INFORMATION

Item 1:      Legal Proceedings

Neither the Company nor the Bank has any pending legal proceedings, other than ordinary routine litigation incidental to its business, to which the Company or the Bank is a party or any of its property is subject.

Item 1A: Risk Factors

During the three and nine months ended September 30, ~~2016,~~2017, there were no material changes to the risk factors relevant to the Company’s operations, which are described in the Annual Report on Form 10-K for the year ended December 31, ~~2015,~~2016, except as follows.

Our stockholders may experience dilution upon the repurchase of common shares.On July 26, 2016, our Board of Directors authorized a stock repurchase plan permitting the Company to repurchase up to 500,000 shares of its common stock. The Company ~~may repurchase~~could have repurchased shares of its common stock in the open market, including block purchases, at prices that may be above or below the net asset value as reported in the most recently published financial statements. The share repurchase program ~~will be~~was in effect until July 31, 2017, or until suspended, discontinued or replaced. If the Company ~~were to repurchase~~had repurchased shares at a price above net asset value per share, such repurchases would ~~result~~have resulted in an immediate dilution in net asset value per share to existing common stockholders.

Item 6:      Exhibits

No.
Description

3(i) (C)
Certificate of Amendment of Certificate of Incorporation of Patriot National Bancorp Inc. (incorporated by reference to Exhibit ~~3(i)~~3.1 to the Company’s current report Form 8-K dated October 21, 2010)

3(ii)
Amended and Restated By-laws of Bancorp (incorporated by reference to Exhibit 3(ii) to the Company’s Current Report on Form 8-K dated November 1, 2010 (Commission File No. 000-29599))
10(a) (2)
2012 Stock Plan of Bancorp (incorporated by reference from Annex A to the Proxy Statement on Form 14C filed November 1, 2011)

10(a) (20)
Amended Financial Services Agreement, (incorporated by reference to Exhibit 10(a) (20) to the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, 2014 (Commission File No. 000-29599)

10(a)~~(23)~~ (21)
~~Extension~~Agreement and Plan of ~~Employment Agreement with Kenneth T. Neilson,~~Merger by and among Patriot National Bancorp, Inc., Patriot Bank, National Association, Prime Bank and Jasper J. Jaser, as stockholders’ representative, dated as of August 1, 2017 (incorporated by reference ~~Item 5.02 (e)~~to Exhibit 10(a) (21) to the Company’s ~~Current~~Quarterly Report on Form ~~8K, dated January 4, 2016, (Commission File No. 000-29599)~~
~~10(a)(24)~~
~~Appointment of Neil M. McDonnell, (EVP/ CFO) (incorporated by reference Item 5.02 (c) to~~10-Q for the ~~Company’s Current Report on Form 8K, dated January 4, 2016, (Commission File No. 000-29599)~~quarter ended June 30, 2017)

14
Code of Conduct for Senior Financial Officers (incorporated by reference to Exhibit 14 to the Company’s Annual Report on Form 10 -KSB for the year ended December 31, 2004 (Commission File No. 000-29599))

21
Subsidiaries of Bancorp (incorporated by reference to Exhibit 21 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 1999 (Commission File No. 000-29599))

31(1)
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31(2)
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

32
Section 1350 Certifications

101.INS#
XBRL Instance Document

101.SCH#
XBRL Schema Document

101.CAL#
XBRL Calculation Linkbase Document

101.LAB#
XBRL Labels Linkbase Document

101.PRE#
XBRL Presentation Linkbase Document

101.DEF#
XBRL Definition Linkbase Document

The exhibits marked with the section symbol (#) are interactive data files.

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: November 9, 2017
~~PATRIOT NATIONAL BANCORP, INC.~~
~~(Registrant)~~

Patriot National Bancorp, Inc. (Registrant)

By:
/s/ ~~Neil M. McDonnell~~Joseph D. Perillo

~~Neil M. McDonnell~~Joseph D. Perillo

Executive Vice President and Chief Financial Officer

~~Chief Financial Officer~~
~~(On behalf of the registrant and as~~
~~Chief Financial Officer)~~

~~November 14, 2016~~58
52

	September 30, 2016			December 31, 2015
	(in thousands, except shares and per share amounts)
ASSETS
Cash and due from banks:
Noninterest bearing deposits and cash	$	2,454			2,588
Interest bearing deposits		43,060			82,812
Total cash and cash equivalents		45,514			85,400

Securities:
Available for sale securities, at fair value (Note 2)		23,374			29,377
Other Investments		4,450			4,450
Federal Home Loan Bank and Federal Reserve Bank stock, at cost		7,818			8,645
Total securities		35,642			42,472

Loans receivable (net of allowance for loan losses: 2016: $7,328; 2015: $5,242) (Note 3)		552,822			479,127
Premises and equipment, net		30,850			29,421
Cash surrender value of life insurance		-			-
Other real estate owned		851			-
Accrued interest and dividends receivable		2,308			2,010
Deferred tax asset (Note 7)		13,340			13,763
Other assets		1,759			1,338
Total assets	$	683,086			653,531

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits (Note 5):
Noninterest bearing deposits	$	77,304			85,812
Interest bearing deposits		393,881			358,868
Total deposits		471,185			444,680

Borrowings:
Federal Home Loan Bank borrowings (Note 9)		135,000			132,000
Junior subordinated debt owed to unconsolidated trust (Note 9)		8,248			8,248
Note Payable (Note 9)		1,800			1,939
Advances from borrowers for taxes and insurance		1,478			2,367
Accrued expenses and other liabilities		2,793			2,833
Total liabilities		620,504			592,067

Commitments and Contingencies (Note 10)

Shareholders' equity
Preferred stock, no par value; 1,000,000 shares authorized, no shares issued and outstanding		-			-
Common stock, $.01 par value, 100,000,000 shares authorized; 3,961,591 and 3,957,377shares issued; 3,959,903 and 3,956,207 shares outstanding; at September 30, 2016 andDecember 31, 2015, respectively		40			40
Additional paid-in capital		106,694			106,568
Accumulated deficit		(43,947	)		(44,832	)
Less: Treasury stock, at cost: 1,688 and 1,170 shares held at September 30, 2016 andDecember 31, 2015, respectively		(167	)		(160	)
Accumulated other comprehensive loss		(38	)		(152	)
Total shareholders' equity		62,582			61,464
Total liabilities and shareholders' equity	$	683,086			653,531

(in thousands, except shares)
	Number of Shares			Common Stock		Additional Paid-In Capital			Accumulated Deficit			Treasury Stock			Accumulated Other Comprehensive Loss			Total

Balance at December 31, 2014		3,924,192		$	39		106,108			(46,975	)		(160	)		(277	)		58,735
Net Income		-			-		-			1,611			-			-			1,611
Unrealized holding gain on available forsale securities, net of taxes		-			-		-			-			-			210			210
Total comprehensive income		-			-		-			-			-			-			1,821
Share-based compensation expense		-			-		340			-			-			-			340
Issuance of restricted stock		675			1		(1	)		-			-			-			-
Balance at Septmber 30, 2015		3,924,867		$	40		106,447			(45,364	)		(160	)		(67	)		60,896



Balance December 31, 2015		3,956,207		$	40		106,568			(44,832	)		(160	)		(152	)		61,464
Net income		-			-		-			885			-			-			885
Unrealized holding gain on available forsale securities, net of taxes		-			-		-			-			-			114			114
Total comprehensive income		-			-		-			-			-			-			999
Repurchase of Common shares		(518	)		-		-			-			(7	)		-			(7	)
Share-based compensation expense,net of forfeitures		-			-		126			-			-			-			126
Issuance of restricted stock		4,214			-		-			-			-			-			-
Balance at September 30, 2016		3,959,903		$	40		106,694			(43,947	)		(167	)		(38	)		62,582

	Nine Months Ended
	September 30,
	2016			2015
	(in thousands)
Cash Flows from Operating Activities:
Net income	$	885			1,611
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization (accretion) of investment premiums and discounts, net		97			155
Amortization and accretion of purchase loan premiums and discounts, net		118			190
Provision for loan losses, net of recoveries		2,314			250
Depreciation and amortization		920			776
Share-based compensation		126			340
Deferred income taxes		351			888
Loss on disposal of fixed assets		-			133
Gain on acquisition of OREO		(11	)		-
Changes in assets and liabilities:
Decrease in net deferred loan costs		115			216
Increase in accrued interest and dividends receivable		(298	)		(189	)
(Increase)/Decrease in other assets		(421	)		100
(Decrease)/Increase in accrued expenses and other liabilities		(40	)		548
Net cash provided by operating activities		4,156			5,018

Cash Flows from Investing Activities:
Principal repayments on available for sale securities		2,092			3,151
Purchase of available for sale securities		(1,000	)		-
Proceeds from call of available for sale securities		5,000			-
Redemptions of Federal Home Loan Bank and Federal Reserve Bank, net		827			10
Increase in loans, net		(77,082	)		(19,746	)
Purchase of bank premises and equipment, net		(2,349	)		(7,745	)
Net cash used in investing activities		(72,512	)		(24,330	)

Cash Flows from Financing Activities:
Net increase in deposits		26,505			4,227
Increase in FHLB borrowings		3,000			-
Repurchase of common stock		(7	)		-
Repayment of Note Payable		(139	)		(15	)
Proceeds from Note Payable		-			2,000
Decrease in advances from borrowers for taxes and insurance		(889	)		(820	)
Net cash used in financing activities		28,470			5,392

Net decrease in cash and cash equivalents		(39,886	)		(13,920	)

Cash and Cash Equivalents:
Beginning		85,400			73,258

Ending	$	45,514			59,338

Supplemental Disclosures of Cash Flow Information:
Interest paid	$	2,398			1,717
Income taxes paid	$	253			3
Transfer of loans to other real estate owned	$	840			-

			Gross		Gross
(in thousands)	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
September 30, 2016:
U. S. Government agency mortgage-backed securities	$	11,436		26		(50	)		11,412
Corporate bonds		9,000		-		(63	)		8,937
Subordinated Notes		3,000		25		-			3,025
	$	23,436		51		(113	)		23,374


December 31, 2015:
U. S. Government agency bonds	$	5,000		-		(46	)		4,954
U. S. Government agency mortgage-backed securities		13,625		-		(212	)		13,413
Corporate bonds		9,000		71		(61	)		9,010
Subordinated Notes	$	2,000		-		-			2,000
		29,625		71		(319	)		29,377

	Less Than 12 Months					12 Months or More					Total
(in thousands)	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loss
September 30, 2016:
U. S. Government agency mortgage - backed securities		-		-			3,683		(50	)		3,683		(50	)
Corporate bonds		2,992		(8	)		5,945		(55	)		8,937		(63	)
Totals	$	2,992		(8	)		9,628		(105	)		12,620		(113	)

December 31, 2015:
U. S. Government agency bonds	$	4,954		(46	)		-		-			4,954		(46	)
U. S. Government agency mortgage - backed securities		2,863		(42	)		10,550		(170	)		13,413		(212	)
Corporate bonds		-		-			5,939		(61	)		5,939		(61	)
Totals	$	7,817		(88	)		16,489		(231	)		24,306		(319	)

	Amortized Cost		Fair Value
Maturity:
Due from one to five years	$	9,000		8,937
Due after five years		3,000		3,025
U.S. Government agency mortgage-backed securities		11,436		11,412
Total	$	23,436		23,374

	ALLOWANCE FOR LOANS LOSSES
(in thousands)
Three months ended September 30, 2016:	Commercial and Industrial			Commercial Real Estate			Construction			Construction to Permanent			Residential			Consumer/ Other			Unallocated			Total
Allowance for loan losses:
Beginning Balance	$	3,400			2,295			169			145			647			531			22			7,209
Charge-offs		(50	)		-			-			-			(186	)		(2	)		-			(238	)
Recoveries		-			-			-			-			2			-			-			2
Provision		352			(491	)		(108	)		(18	)		949			(329	)		-			355
Ending Balance	$	3,702			1,804			61			127			1,412			200			22			7,328

Nine months ended September 30, 2016:
Allowance for loan losses:
Beginning Balance	$	1,027			1,970			486			123			740			677			219			5,242
Charge-offs		(50	)		-			-			-			(190	)		(4	)		-			(244	)
Recoveries		12			-			-			-			3			1			-			16
Provision		2,713			(166	)		(425	)		4			859			(474	)		(197	)		2,314
Ending Balance	$	3,702			1,804			61			127			1,412			200			22			7,328

As of September 30, 2016:
Ending balance: individually evaluated for impairment		3,158			-			-			-			-			3			-			3,161
Ending balance: collectively evaluated for impairment		544			1,804			61			127			1,412			197			22			4,167
Total allowance for loan losses	$	3,702			1,804			61			127			1,412			200			22			7,328

Total loans ending balance	$	69,723			258,920			48,048			5,587			103,969			73,903			-			560,150

Ending balance: individually evaluated for impairment	$	3,158			6,713			-			-			4,676			3			-			14,550

Ending balance: collectively evaluated for impairment	$	66,565			252,207			48,048			5,587			99,293			73,900			-			545,600

	ALLOWANCE FOR LOANS LOSSES
(in thousands)
Three months ended September 30, 2015:	Commercial and Industrial			Commercial Real Estate		Construction		Construction to Permanent			Residential			Consumer/ Other			Unallocated		Total
Allowance for loan losses:
Beginning Balance	$	982			2,145		275		150			832			726			98		5,208
Charge-offs		-			-		-		-			(7	)		(4	)		-		(11	)
Recoveries		7			35		-		-			-			1			-		43
Provision		(219	)		204		119		38			(198	)		(25	)		81		-
Ending Balance	$	770			2,384		394		188			627			698			179		5,240

Nine Months Ended September 30, 2015:
Allowance for loan losses:
Beginning Balance	$	1,918			1,419		63		215			831			478			-		4,924
Charge-offs		-			-		-		-			(10	)		(11	)		-		(21	)
Recoveries		37			35		-		5			-			10			-		87
Provision		(1,185	)		930		331		(32	)		(194	)		221			179		250
Ending Balance	$	770			2,384		394		188			627			698			179		5,240

As of December 31, 2015:
Ending balance: individually evaluated for impairment	$	-			-		-		-			-			3			-		3
Ending balance: collectively evaluated for impairment		1,027			1,970		486		123			740			674			219		5,239
Total allowance for loan losses	$	1,027			1,970		486		123			740			677			219		5,242

Total loans ending balance	$	59,752			245,828		15,551		4,880			110,837			47,521			-		484,369

Ending balance: individually evaluated for impairment		-			7,745		-		-			4,556			550			-		12,851

Ending balance: collectively evaluated for impairment	$	59,752			238,083		15,551		4,880			106,281			46,971			-		471,518

(in thousands)
2016:	31 - 60 Days Past Due		61 - 90 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Non-Accrual Loans
Commercial & Industrial	$	-		-		3,158		3,158		-		3,158
Residential		-		-		1,590		1,590		-		1,590
Consumer		-		-		3		3		-		3
Total	$	-		-		4,751		4,751		-		4,751

(in thousands)
2015:	31 - 60 Days Past Due		61 - 90 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Non-Accrual Loans
Residential	$	-		-		1,590		1,590		-		1,590
Consumer		-		-		3		3		-		3
Total	$	-		-		1,593		1,593		-		1,593

(in thousands)
2016:	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Commercial & Industrial	$	-		-		-
Commercial Real Estate		6,713		6,833		-
Construction		-		-		-
Construction to Permanent		-		-		-
Residential		4,676		5,527		-
Consumer/Other		-		-		-
		11,389		12,360		-
With an allowance recorded:
Commercial & Industrial		3,158		3,208		3,158
Commercial Real Estate		-		-		-
Construction		-		-		-
Construction to Permanent		-		-		-
Residential		-		-		-
Consumer/Other		3		3		3
		3,161		3,211		3,161
Grand Total:
Commercial & Industrial		3,158		3,208		3,158
Commercial Real Estate		6,713		6,833		-
Construction		-		-		-
Construction to Permanent		-		-		-
Residential		4,676		5,527		-
Consumer/Other		3		3		3
Grand Total	$	14,550		15,571		3,161

	Three Months Ended September 30,
	2016				2015
(in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized

With no related allowance recorded:
Commercial & Industrial	$	148		-		-		-
Commercial Real Estate		6,428		77		7,916		94
Residential		4,787		36		3,373		31
Consumer/ Other		272		-		549		4
		11,635		113		11,838		129

With an allowance recorded:
Commercial & Industrial		3,068		-		-		-
Consumer/ Other		2		-		1		-
		3,070		-		1		-

Grand Total:
Commercial & Industrial		3,216		-		-		-
Commercial Real Estate		6,428		77		7,916		94
Residential		4,787		36		3,373		31
Consumer/ Other		274		-		550		4
Grand Total	$	14,705		113		11,839		129

	Nine Months Ended September 30,
	2016				2015
(in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized

With no related allowance recorded:
Commercial & Industrial	$	74		-		-		-
Commercial Real Estate		7,281		236		8,079		281
Residential		4,666		98		3,430		95
Consumer/ Other		409		9		551		13
Total:		12,430		343		12,060		389

With an allowance recorded:
Commercial & Industrial		2,278		-		-		-
Consumer/ Other		2		-		1		-
Total:		2,280		-		1		-

Grand Total:
Commercial & Industrial		2,352		-		-		-
Commercial Real Estate		7,281		236		8,079		281
Residential		4,666		98		3,430		95
Consumer/ Other		411		9		552		13
Grand Total	$	14,710		343		12,061		389

(in thousands)	OREO

Balance at December 31, 2015	$	-
Transfers from loans		840
Gain recognized in acquisition		11
Balance at September 30, 2016	$	851

Three months ended September 30, 2016:	Number of Shares Awarded			Weighted Average Grant Date Fair Value
Non-vested at June 30, 2016		107,199		$	14.16
Granted		-			-
Vested		(1,688	)		16.80
Forfeited		(65,500	)		14.87
Non-vested at September 30, 2016		40,011		$	12.87

Three months ended September 30, 2015:
Non-vested at June 30, 2015		81,698		$	12.92
Granted		9,760			16.85
Vested		(225	)		17.25
Forfeited		(1,539	)		10.40
Non-vested at September 30, 2015		89,694		$	13.37

Three months ended September 30, 2016:	Net Income		Weighted Average Common Shares Outstanding		Amount
Basic Income Per Share	$	814,000		3,958,718	$	0.21
Effect of Dilutive Securities
Non-vested Restricted Stock Grants		N/A		-		N/A

Diluted Income Per Share	$	814,000		3,958,718	$	0.21


Three months Ended September 30, 2015:
Basic Income Per Share	$	633,000		3,872,298	$	0.16
Effect of Dilutive Securities
Non-vested Restricted Stock Grants		N/A		34,622		N/A

Diluted Income Per Share	$	633,000		3,906,920	$	0.16

Commitments to extend credit:	(in thousands)
Future loan commitments	$	17,833
Home equity lines of credit		21,303
Unused lines of credit		14,742
Undisbursed construction loans		19,574
Financial standby letters of credit		1,313
	$	74,765

						Capital Requirements
	Actual					Minimum					Minimum with Capital Buffer					Well Capitalized
(in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio

September 30, 2016:
The Company
Tier 1 Leverage Capital (to Average Assets)	$	60,794		9.72	%	$	25,009		4.00	%		N/A		N/A			N/A		N/A
Common Equity Tier 1 Capital (to Risk Weighted Assets)		52,794		8.99	%		26,435		4.50	%		N/A		N/A			N/A		N/A
Tier 1 Capital (to Risk Weighted Assets)		60,794		10.35	%		35,247		6.00	%		N/A		N/A			N/A		N/A
Total Capital (to Risk Weighted Assets)		68,130		11.60	%		46,996		8.00	%		N/A		N/A			N/A		N/A

The Bank
Tier 1 Leverage Capital (to Average Assets)	$	60,523		9.68	%	$	24,998		4.00	%		N/A		N/A		$	31,248		5.00	%
Common Equity Tier 1 Capital (to Risk Weighted Assets)		60,523		10.34	%		26,337		4.50	%		29,994		5.125	%		38,042		6.50	%
Tier 1 Capital (to Risk Weighted Assets)		60,523		10.34	%		35,115		6.00	%		38,773		6.625	%		46,821		8.00	%
Total Capital (to Risk Weighted Assets)		67,839		11.59	%		46,821		8.00	%		50,478		8.625	%		58,526		10.00	%

December 31, 2015:
The Company
Total Capital (to Risk Weighted Assets)	$	59,595		9.77	%	$	24,401		4.00	%		N/A		N/A			N/A		N/A
Common Equity Tier 1 Capital (to Risk Weighted Assets)		51,595		10.04	%		23,119		4.50	%		N/A		N/A			N/A		N/A
Tier 1 Capital (to Risk Weighted Assets)		59,595		11.60	%		30,826		6.00	%		N/A		N/A			N/A		N/A
Tier 1 Capital (to Average Assets)		64,845		12.62	%		41,101		8.00	%		N/A		N/A			N/A		N/A

The Bank
Total Capital (to Risk Weighted Assets)	$	59,958		9.83	%	$	24,393		4.00	%		N/A		N/A		$	30,491		5.00	%
Common Equity Tier 1 Capital (to Risk Weighted Assets)		59,958		11.72	%		23,029		4.50	%		N/A		N/A			33,265		6.50	%
Tier 1 Capital (to Risk Weighted Assets)		59,958		11.72	%		30,706		6.00	%		N/A		N/A			40,941		8.00	%
Tier 1 Capital (to Average Assets)		65,207		12.74	%		40,941		8.00	%		N/A		N/A			51,177		10.00	%

(in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of September 30, 2016
September 30, 2016:
U.S. Government agency mortgage-backed securities	$	-		11,412		-		11,412
Corporate bonds		-		8,937		-		8,937
Subordinated Notes		-		3,025		-		3,025
Securities available for sale	$	-		23,374		-		23,374

(In thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
September 30, 2017:
U. S. Government agency mortgage-backed securities	$	-		8,036		-		8,036
Corporate bonds		-		13,905		-		13,905
Subordinated notes		-		5,610		2,035		7,645

Available-for-sale securities	$	-		27,551		2,035		29,586

December 31, 2016:
U. S. Government agency mortgage-backed securities	$	-		10,441		-		10,441
Corporate bonds		-		8,961		-		8,961
Subordinated notes		-		3,026		2,000		5,026

Available-for-sale securities	$	-		22,428		2,000		24,428

(in thousands)
Asset Description	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance
September 30, 2016:
Impaired loans	$	-		-		-		-
Other real estate owned	$	-		-		851		851

December 31, 2015:
Impaired loans	$	-		-		363		363

(In thousands)
	Fair Value		Valuation Methodology	Unobservable Inputs	Range of Inputs
September 30, 2017:
Impaired loans	$	8,985	Real Estate Appraisals	Discount for appraisal type	0%	-	8%
OREO		851	Real Estate Appraisals	Discount for appraisal type	21%

December 31, 2016:
Impaired loans	$	8,951	Real Estate Appraisals	Discount for appraisal type	0%	-	8%
OREO		851	Real Estate Appraisals	Discount for appraisal type	21%

(in thousands)
	Quantitative Information about Level 3 Fair Value Measurements
Asset Description	Fair Value		Valuation Technique	Unobservable Input	Range/ (Weighted Average )

September 30, 2016:
Other real estate owned	$	851	Appraised Value of Property⁽¹⁾	Liquidation Costs⁽²⁾	9.6% / (9.6%)⁽³⁾

December 31, 2015:
Impaired loans	$	363	Appraised Value of Collateral⁽¹⁾	Liquidation Costs⁽²⁾	8% / (8%)⁽³⁾

(in thousands)
	September 30, 2016		December 31, 2015		Inc/(Dec) ($)			Inc/(Dec) (%)
U.S. Government Agency bonds	$	-		4,954		(4,954	)		(100.0%	)
U.S. Government Agency mortgage-backed securities		11,412		13,413		(2,001	)		(14.9	)
Corporate bonds		8,937		9,010		(73	)		(0.8	)
Subordinated Notes		3,025		2,000		1,025			51.3
Total Available-for-Sale Securities	$	23,374		29,377		(6,003	)		(20.4%	)

	September 30,		December 31,		Inc/(Dec)			Inc/(Dec)
(In thousands)	2017		2016		($)			(%)
U. S. Government agency mortgage-backed securities	$	8,036		10,441		(2,405	)		(23.03	)%
Corporate bonds		13,905		8,961		4,944			55.17	%
Subordinated notes		7,645		5,026		2,619			52.11	%
Total Available-for-Sale Securities	$	29,586		24,428		5,158			21.12	%

(In thousands)																	Nine months ended September 30,
	Average Balance Sheet Net Interest income- Rate and Volume Variance Analysis Three months ended September 30,																2017							2016
*(in thousands)*	2016								2015
	Average Balance			Interest Income/Expense		Average Rate			Average Balance			Interest Income/Expense		Average Rate			Daily Average Balance ($)			Interest ($)		Yield (%)		Daily Average Balance ($)			Interest ($)		Yield (%)
Interest earning assets:
ASSETS
Interest Earning Assets:
Loans	$	530,068			6,188		4.64	%		489,164			5,879		4.77	%	$	642,742			22,720		4.73		508,033			17,811		4.68
Cash equivalents																		23,365			148		0.85		36,384			94		0.35
Investments		35,564			219		2.45	%		44,249			200		1.79	%		36,871			968		3.50		38,210			669		2.33
Cash Equivalents		24,326			25		0.41	%		54,819			30		0.22	%

Total interest earning assets		589,958			6,432		4.34	%		588,232			6,109		4.12	%		702,978			23,836		4.53		582,627			18,574		4.26

Cash and due from banks		3,938								2,632								4,092							3,395
Premises and equipment, net		30,361								26,178
Premised and equipment, net																		33,816							29,969
Allowance for loan losses		(7,210	)							(5,211	)							(5,547	)						(5,913	)
OREO																		851							851
Other assets		17,936								17,057								16,717							16,270
Total assets	$	634,983								628,888

Total Assets																	$	752,907							627,199

Liabilities
Interest bearing liabilities:
Deposits	$	379,352			549		0.58	%		380,769			498		0.52	%
Deposit																	$	487,248			3,457		0.95		367,415			1,518		0.55
Borrowings		105,326			73		0.28	%		100,217			90		0.36	%		102,900			509		0.66		108,835			258		0.32
Senior notes																		11,655			686		7.87		-			-		-
Subordinated debt		8,248			85		4.10	%		8,248			74		3.56	%		8,244			266		4.32		8,248			250		4.04
Note payable		1,829			9		1.96	%		131			3		1.75	%
Note Payable																		1,689			24		1.76		1,876			25		1.75
																					��
Total interest bearing liabilities		494,755			716		0.58	%		489,365			665		0.54	%		611,736			4,942		1.08		486,374			2,051		0.56

Demand deposits		74,594								75,337								73,815							75,045
Accrued expenses and other liabilities		3,213								3,406
Other liabilities																		2,344							3,212

Total Liabilities																		687,895							564,631

Shareholders' equity		62,421								60,780								65,012							62,568
Total liabilities and equity	$	634,983								628,888

Total Liabilities and Shareholders' Equity																	$	752,907							627,199

Net interest income					5,716								5,444								18,894							16,523
Interest margin							3.85	%							3.67	%							3.59							3.79
Interest spread							3.76	%							3.58	%							3.45							3.70

Patriot Bank, N.A
	September 30, 2016			December 31, 2015
Tier 1 Leverage Capital		9.68	%		9.68	%
Common Equity Tier 1 Capital		10.34	%		10.34	%
Tier 1 Risk-based Capital		10.34	%		10.34	%
Total Risk-based Capital		11.59	%		11.59	%

	January 01, 2016			January 01, 2019
Tier 1 Leverage Capital		4.00	%		5.00	%
Common Equity Tier 1 Capital		4.50	%		7.00	%
Tier 1 Risk-based Capital		6.00	%		8.50	%
Total Risk-based Capital		8.00	%		10.50	%

Period Beginning	Period Ending	No. of Shares Purchased⁽¹⁾			Average Price Paid per Share		No. of Shares Purchased as part of Publicly Announced Plans⁽¹⁾		Maximum No. of Shares that may yet be Purchased Under the Plans⁽¹⁾
November 1, 2016	November 30, 2016		629		$	13.73		629		498,853
December 1, 2016	December 31, 2016		71,324		$	14.04		71,324		427,529

Three-months ended December 31, 2016			71,953		$	14.04

August 1, 2017	August 31, 2017		100	⁽²⁾	$	17.10		0 ⁽²⁾		427,529⁽²⁾

Three-months ended September 30, 2017			100		$	17.10

(in thousands)
Net Interest Income and Economic Value Summary Performance
	September 30, 2016
	Net Interest Income							Net Portfolio Value
Projected Interest Rate Scenario	Estimated Value		$ Change from Base		% Change from Base			Estimated Value		$ Change from Base			% Change from Base
+ 200	$	23,487		177		0.8	%		86,670		(146	)		0.2	%
+ 100		23,520		210		0.9	%		86,797		(19	)		0.0	%
BASE		23,310		-		0.0	%		86,816		-			0.0	%
- 100		23,338		29		0.1	%		87,753		937			1.1	%
- 200		23,331		21		0.1	%		93,360		6,543			7.5	%