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U. S. SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM
10  K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Fiscal Year Ended December 31, 2010
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission file number 000-29599
 PATRIOT NATIONAL BANCORP, INC.
  Connecticut
(State or other jurisdiction of incorporation or organization)900 Bedford Street
    
    06-1559137
(IRS Employer Identification Number)Stamford, Connecticut
(Address of principal executive offices)
    
    06901
(Zip Code)
 (203) 324-7500
   Yes o No þ
 o þ
 þ o
 o o
 o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ(Do not check if a smaller reporting
company)
    
    Smaller reporting company o
 o þ
   Documents Incorporated by Reference




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##### 



Patriot National Bancorp, Inc.
2010 Form 10-K Annual Report
 TABLE OF CONTENTS
 Part IItem 1. Business
    
    
    2Item 1A. Risk Factors
    
    
    13Item 1B. Unresolved Staff Comments
    
    
    23Item 2. Properties
    
    
    23Item 3. Legal Proceedings
    
    
    23Part IIItem 5. Market for Registrants Common Equity, Related Shareholder Matters and Issuer
Purchases of Equity Securities
    
    
    24Item 6. Selected Financial Data
    
    
    27Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operation
    
    
    28Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    56Item 8. Financial Statements and Supplementary Data
    
    
    59Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
    
    
    60Item 9A. Controls and Procedures
    
    
    60Item 9B. Other Information
    
    
    61Part IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    64Item 11. Executive Compensation
    
    
    64Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Shareholder Matters
    
    
    64Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    64Item 14. Principal Accountant Fees and Services
    
    
    64Part IVItem 15. Exhibits and Financial Statement Schedules
    
    
    65Exhibit 10(a)(16)Exhibit 23.1Exhibit 23.2Exhibit 31 (1)Exhibit 31 (2)Exhibit 32




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Safe Harbor Statement Under Private Securities Litigation Reform Act of 1995
    1




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PART I
 
 Item 1.
    
    Business
 General
 Bancorp or Company Reorganization Bank Bank Common Stock Bancorp Common Stock
 OCC
      2




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Commercial Banking
     3




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Competition
      4




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Supervision and Regulation
 Federal Reserve Board BHC Act
  5




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Riegle-Neal Act
  6




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FDIC
 Exchange Act SEC
     7




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CRA
 USA Patriot Act,
  8




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Emergency Economic Stabilization Act of 2008
  Temporary Liquidity Guarantee Program
   9




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Helping Families Save Their Homes Act of 2009
  Real Estate Settlement Procedures Act
  Regulation E, Electronic Fund Transfers
    10




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Recent Legislative Developments
     11




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Available Information
 http://www.pnbdirectonline.com http://www.sec.gov
 Employees
   12




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Item 1A.
    
    Risk Factors
 The risks involved in Bancorps construction and commercial real estate loan portfolios are
material.
   Real estate lending in Bancorps core Fairfield County, Connecticut market involves risks related
to a decline in value of commercial and residential real estate.
  Bancorps business is subject to various lending and other economic risks that could adversely
impact Bancorps results of operations and financial condition.
   13




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Bancorp is Subject to a Formal Agreement with the OCC and the Federal Reserve Bank of New York.
   Bancorps allowance for loan losses may not be adequate to cover actual losses.
   14




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Bancorp is subject to certain risks with respect to liquidity.
     15




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Bancorps business is subject to interest rate risk and variations in interest rates may negatively
affect Bancorps financial performance.
   Bancorps investment portfolio includes securities which are sensitive to interest rates and
variations in interest rates may adversely impact Bancorps profitability.
   16




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Bancorp is dependent on its management team and the loss of its senior executive officers or other
key employees could impair its relationship with its customers and adversely affect its business
and financial results.
   A breach of information security could negatively affect Bancorps earnings
  We are subject to environmental liability risk associated with our lending activities.
    17




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Our business may be adversely impacted by acts of war or terrorism.
  We rely on the dividends we receive from our subsidiary .
  The price of our common stock may fluctuate.
  
    
    operating results that vary from the expectations of our management or of
securities analysts and investors;
 
    
    developments in our business or in the financial services sector generally;
 
    
    regulatory or legislative changes affecting our industry generally or our
business and operations;
 
    
    operating and securities price performance of companies that investors
consider to be comparable to us;
 
    
    changes in estimates or recommendations by securities analysts or rating
agencies;
 
    
    announcements of strategic developments, acquisitions, dispositions,
financings, and other material events by us or our competitors; and
 
    
    changes or volatility in global financial markets and economies, general
market conditions, interest or foreign exchange rates, stock, commodity, credit, or asset
valuations.
  18




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Difficult market conditions have adversely affected Bancorps industry.
  
    
    Economic conditions may continue to affect market confidence levels and may cause
adverse changes in payment patterns, causing increases in delinquencies, which could affect
our charge-offs and provision for loan losses.
  19




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
    
    The ability to assess the creditworthiness of the Banks customers or to estimate the
values of collateral for loans may be impaired if the models and approaches we use become
less predictive of future behaviors, valuations, assumptions or estimates due to the
unpredictable economic climate.
 
    
    Increasing consolidation of financial services companies as a result of current market
conditions could have unexpected adverse effects upon our ability to compete effectively.
 We may be required to pay significantly higher FDIC premiums, special assessments, or taxes that
could adversely affect our earnings.
  We are subject to risks associated with taxation.
  Risks associated with changes in technology.
   20




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Strong competition within Bancorps market area may limit the growth and profitability of the
Company.
  Government regulation may have an adverse effect on Bancorps profitability and growth
    21




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Changing regulation of corporate governance and public disclosure.
  The earnings of financial institutions are significantly affected by general business and economic
conditions .
   22




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Item 1B.
    
    Unresolved Staff Comments
  
 Item 2.
    
    Properties
    
 Item 3.
    
    Legal Proceedings
    23




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PART II
 
 Item 5.
    
    Market for Registrants Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
 Market Information
   2010
    
    
    2009Cash
    
    
    
    
    
    
    
    
    
    
    CashSales Price
    
    
    Dividends
    
    
    Sales Price
    
    
    DividendsQuarter Ended
    
    High
    
    
    Low
    
    
    Declared
    
    
    High
    
    
    Low
    
    
    DeclaredMarch 31
    
    $
    2.15
    
    
    $
    1.41
    
    
    $
    
    
    
    $
    7.74
    
    
    $
    2.13
    
    
    $
    June 30
    
    
    3.00
    
    
    
    1.50
    
    
    
    
    
    
    
    5.04
    
    
    
    2.04
    
    
    
    September 30
    
    
    2.45
    
    
    
    1.56
    
    
    
    
    
    
    
    4.50
    
    
    
    1.85
    
    
    
    December 31
    
    
    2.40
    
    
    
    1.85
    
    
    
    
    
    
    
    2.45
    
    
    
    1.40
    
    
    
    
 Holders
  Dividends
   24




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Recent Sales of Unregistered Securities
  Purchases of Equity Securities by the Issuer and Affiliated Purchasers
  Securities Authorized for Issuance under Equity Compensation Plans
   25




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Performance Graph
  
 Period EndingIndex
    
    12/31/05
    
    
    12/31/06
    
    
    12/31/07
    
    
    12/31/08
    
    
    12/31/09
    
    
    12/31/10Patriot National
Bancorp, Inc
    
    
    100.00
    
    
    
    143.75
    
    
    
    86.79
    
    
    
    37.23
    
    
    
    8.42
    
    
    
    11.41S & P 500
    
    
    100.00
    
    
    
    117.03
    
    
    
    121.16
    
    
    
    74.53
    
    
    
    92.01
    
    
    
    103.77NASDAQ Bank Index
    
    
    100.00
    
    
    
    106.20
    
    
    
    82.76
    
    
    
    62.96
    
    
    
    51.31
    
    
    
    57.41
  26




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Item 6.
    
    Selected Financial Data
 At or for the year ended December 31,2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Operating Data:Interest and dividend income
    
    $
    35,608,891
    
    
    $
    42,968,080
    
    
    $
    55,750,246
    
    
    $
    51,862,157
    
    
    $
    38,009,526Interest expense
    
    
    13,474,543
    
    
    
    24,359,828
    
    
    
    28,539,067
    
    
    
    27,767,310
    
    
    
    18,069,648Net interest income
    
    
    22,134,348
    
    
    
    18,608,252
    
    
    
    27,211,179
    
    
    
    24,094,847
    
    
    
    19,939,878Provision for loan losses
    
    
    7,714,000
    
    
    
    13,089,000
    
    
    
    11,289,772
    
    
    
    75,000
    
    
    
    1,040,000Non-interest income (loss)
    
    
    2,354,240
    
    
    
    2,946,480
    
    
    
    (149,108
    )
    
    
    2,233,915
    
    
    
    2,359,149Non-interest expense
    
    
    31,948,533
    
    
    
    30,131,588
    
    
    
    25,947,905
    
    
    
    22,038,836
    
    
    
    17,576,872Provision (benefit) for income taxes
    
    
    225,000
    
    
    
    2,213,750
    
    
    
    (3,064,000
    )
    
    
    1,537,000
    
    
    
    1,267,000Net (loss) income
    
    
    (15,398,945
    )
    
    
    (23,879,606
    )
    
    
    (7,111,606
    )
    
    
    2,677,926
    
    
    
    2,415,155Per Share Data:Basic (loss) income per share
    
    
    (1.30
    )
    
    
    (5.02
    )
    
    
    (1.50
    )
    
    
    0.56
    
    
    
    0.67Diluted (loss) income per share
    
    
    (1.30
    )
    
    
    (5.02
    )
    
    
    (1.50
    )
    
    
    0.56
    
    
    
    0.66Dividends per share
    
    
    
    
    
    
    
    
    
    
    0.180
    
    
    
    0.180
    
    
    
    0.175Balance Sheet Data:Cash and due from banks
    
    
    136,324,258
    
    
    
    97,535,593
    
    
    
    4,286,233
    
    
    
    2,760,246
    
    
    
    3,868,670Federal funds sold
    
    
    10,000,000
    
    
    
    10,000,000
    
    
    
    20,000,000
    
    
    
    11,000,000
    
    
    
    27,000,000Short-term investments
    
    
    453,400
    
    
    
    263,839
    
    
    
    316,518
    
    
    
    251,668
    
    
    
    24,605,869Investment securities
    
    
    49,765,000
    
    
    
    55,177,931
    
    
    
    58,401,177
    
    
    
    71,857,840
    
    
    
    70,222,035Loans, net
    
    
    534,531,213
    
    
    
    645,205,943
    
    
    
    788,568,687
    
    
    
    685,885,990
    
    
    
    506,884,155Total assets
    
    
    784,324,854
    
    
    
    866,416,921
    
    
    
    913,358,978
    
    
    
    807,530,254
    
    
    
    645,982,795Total deposits
    
    
    646,808,829
    
    
    
    761,334,292
    
    
    
    784,821,351
    
    
    
    672,399,409
    
    
    
    561,451,664Total borrowings
    
    
    65,248,000
    
    
    
    65,248,000
    
    
    
    65,248,000
    
    
    
    62,748,000
    
    
    
    16,248,000Total shareholders equity
    
    
    67,172,188
    
    
    
    35,861,310
    
    
    
    58,774,144
    
    
    
    66,835,367
    
    
    
    64,283,345
  27




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Item 7.
    
    Managements Discussion and Analysis of Financial Condition and
Results of Operation
 Critical Accounting Policies
  Allowance for Loan Losses
     28




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(1)
    
    Allowances are established for impaired loans (generally defined by the Company as
non-accrual loans). The amount of impairment provided for as an allowance is represented
by the deficiency, if any, between the present value of expected future cash flows
discounted at the original loans effective interest rate or the underlying collateral
value, and loans classified as troubled debt restructurings less estimated costs to sell,
if the loan is collateral dependent, and the carrying value of the loan. Impaired loans
that have no impairment losses are not considered for general valuation allowances
described below.
 (2)
    
    General allowances are established for loan losses on a portfolio basis for loans that
do not meet the definition of impaired. The portfolio is grouped into similar risk
characteristics, primarily loan type, loan-to-value, if collateral dependent, and internal
risk ratings. Management applies an estimated loss rate to each loan group. The loss
rates applied are based on the Companys cumulative prior three year loss experience
adjusted, as appropriate, for the environmental factors discussed below. This evaluation
is inherently subjective, as it requires material estimates that may be susceptible to
significant revisions based upon changes in economic and real estate market conditions.
Actual loan losses may be more or less than the allowance for loan losses management has
established, which could have an effect on the Companys financial results.
  
    
    Changes in local, regional, national and international economic and business conditions
and developments that affect the collectability of the portfolio, including the condition
of various market segments;
 
    
    Changes in the nature and volume of the portfolio and in the terms of the loans;
 
    
    Changes in the experience, ability, and depth of lending management and other relevant
staff;
 
    
    Changes in the volume and severity of past due loans, the volume of nonaccrual loans,
and the volume and severity of adversely classified or graded loans;
 
    
    Changes in the quality of the loan review system;
 
    
    Changes in the value of the underlying collateral for collateral-dependent loans;
 
    
    The existence and effect of any concentrations of credit, and changes in the level of
such concentrations; and
 
    
    The effect of other external factors such as competition and legal and regulatory
requirements on the level of estimated credit losses in the existing portfolio.
  29




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Fair Value Measurements
   30




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
    
    Level 1 Inputs Unadjusted quoted prices in active markets for identical assets or
liabilities that the reporting entity has the ability to access at the measurement date.
 
    
    Level 2 Inputs Inputs other than quoted prices included in Level 1 that are
observable for the asset or liability, either directly or indirectly. These might include
quoted prices for similar assets or liabilities in active markets, quoted prices for
identical or similar assets or liabilities in markets that are not active, inputs other
than quoted prices that are observable for the asset or liability (such as interest rates,
volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally
from or corroborated by market data by correlation or other means.
 
    
    Level 3 Inputs Unobservable inputs for determining the fair values of assets or
liabilities that reflect an entitys own assumptions about the assumptions that market
participants would use in pricing the assets or liabilities.
     31




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Income taxes
     Recent Economic Developments
    32




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Summary
    33




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FINANCIAL CONDITION
 Assets
  Investments
  2010
    
    
    2009
    
    
    2008U. S. Government Agency obligations
    
    $
    
    
    
    $
    5,108,500
    
    
    $
    10,102,248U. S. Government Agency
mortgage-backed securities
    
    
    37,471,878
    
    
    
    40,503,458
    
    
    
    37,998,569Auction Rate preferred equity securities
    
    
    3,092,822
    
    
    
    3,218,023
    
    
    
    3,878,860Federal Reserve Bank stock
    
    
    1,192,000
    
    
    
    1,839,650
    
    
    
    1,913,200Federal Home Loan Bank stock
    
    
    4,508,300
    
    
    
    4,508,300
    
    
    
    4,508,300Other investments
    
    
    3,500,000
    
    
    
    
    
    
    
    Total Investments
    
    $
    49,765,000
    
    
    $
    55,177,931
    
    
    $
    58,401,177
   34




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Over one
    
    
    Over five
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    WeightedOne year
    
    
    through
    
    
    through
    
    
    Over ten
    
    
    
    
    
    
    
    
    
    
    Averageor less
    
    
    five years
    
    
    ten years
    
    
    years
    
    
    No maturity
    
    
    Total
    
    
    YieldU. S. Government Agency
mortgage-backed
securities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    36,572,430
    
    
    $
    36,572,430
    
    
    
    3.69
    %Money market preferred
equity securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,899,720
    
    
    
    1,899,720
    
    
    
    4.59
    %Total
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    38,472,150
    
    
    $
    38,472,150
    
    
    
    3.73
    %Weighted average yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.73
    %
    
    
    3.73
    %
  Amortized Cost
    
    
    Fair ValueAvailable for sale securities:U. S. Government Agency mortgage-backed securities
    
    $
    36,572,430
    
    
    $
    37,471,878
  35




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Loans
  2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Real EstateCommercial
    
    $
    228,842,489
    
    
    $
    230,225,306
    
    
    $
    262,570,339
    
    
    $
    233,121,685
    
    
    $
    166,799,341Residential
    
    
    187,058,318
    
    
    
    195,571,225
    
    
    
    170,449,780
    
    
    
    110,154,838
    
    
    
    91,077,687Construction
    
    
    63,889,083
    
    
    
    154,457,082
    
    
    
    257,117,081
    
    
    
    254,296,326
    
    
    
    173,840,322Construction to permanent
    
    
    10,331,043
    
    
    
    15,989,976
    
    
    
    35,625,992
    
    
    
    37,701,509
    
    
    
    29,988,131Commercial
    
    
    14,573,790
    
    
    
    19,298,505
    
    
    
    33,860,527
    
    
    
    27,494,531
    
    
    
    23,997,640Consumer home equity
    
    
    42,884,962
    
    
    
    44,309,265
    
    
    
    45,022,128
    
    
    
    29,154,498
    
    
    
    26,933,277Consumer and overdrafts
    
    
    1,932,763
    
    
    
    1,155,059
    
    
    
    993,707
    
    
    
    1,270,360
    
    
    
    1,251,300Total loans
    
    
    549,512,448
    
    
    
    661,006,418
    
    
    
    805,639,554
    
    
    
    693,193,747
    
    
    
    513,887,698Premiums on purchased loans
    
    
    242,426
    
    
    
    131,993
    
    
    
    158,072
    
    
    
    195,805
    
    
    
    292,543Net deferred costs (fees)
    
    
    150,440
    
    
    
    (138,350
    )
    
    
    (981,869
    )
    
    
    (1,830,942
    )
    
    
    (1,665,654
    )Allowance for loan losses
    
    
    (15,374,101
    )
    
    
    (15,794,118
    )
    
    
    (16,247,070
    )
    
    
    (5,672,620
    )
    
    
    (5,630,432
    )Loans, net
    
    $
    534,531,213
    
    
    $
    645,205,943
    
    
    $
    788,568,687
    
    
    $
    685,885,990
    
    
    $
    506,884,155
    36




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Maturities and Sensitivities of Loans to Changes in Interest Rates
  Due afterDue in
    
    
    one yearone year
    
    
    through
    
    
    Due after(thousands of dollars)
    
    or less
    
    
    five years
    
    
    five years
    
    
    TotalCommercial real estate
    
    $
    39,902
    
    
    $
    42,987
    
    
    $
    145,953
    
    
    $
    228,842Residential real estate
    
    
    3,616
    
    
    
    622
    
    
    
    182,820
    
    
    
    187,058Construction loans
    
    
    63,889
    
    
    
    
    
    
    
    
    
    
    
    63,889Construction to permanent loans
    
    
    
    
    
    
    
    
    
    
    10,331
    
    
    
    10,331Commercial loans
    
    
    5,916
    
    
    
    4,385
    
    
    
    4,273
    
    
    
    14,574Consumer home equity
    
    
    1,093
    
    
    
    55
    
    
    
    41,737
    
    
    
    42,885Consumer and overdrafts
    
    
    1,792
    
    
    
    141
    
    
    
    
    
    
    
    1,933Total
    
    $
    116,208
    
    
    $
    48,190
    
    
    $
    385,114
    
    
    $
    549,512Fixed rate loans
    
    $
    26,602
    
    
    $
    22,958
    
    
    $
    13,139
    
    
    $
    62,699Variable rate loans
    
    
    89,606
    
    
    
    25,232
    
    
    
    371,975
    
    
    
    486,813Total
    
    $
    116,208
    
    
    $
    48,190
    
    
    $
    385,114
    
    
    $
    549,512
 Loan Concentrations
  Allowance for Loan Losses
    37




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38




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##### Table of Contents



Analysis of Allowance for Loan Losses
 2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006(thousands of dollars)Balance at beginning of period
    
    $
    15,794
    
    
    $
    16,247
    
    
    $
    5,673
    
    
    $
    5,630
    
    
    $
    4,588Charge-offs:Commercial real estate
    
    
    (2,560
    )
    
    
    (2,380
    )
    
    
    (708
    )
    
    
    (32
    )
    
    
    (1
    )Residential real estate
    
    
    (600
    )
    
    
    (356
    )
    
    
    
    
    
    
    
    
    
    
    Construction
    
    
    (4,726
    )
    
    
    (9,097
    )
    
    
    
    
    
    
    
    
    
    
    Commercial
    
    
    (396
    )
    
    
    (468
    )
    
    
    
    
    
    
    
    
    
    
    Consumer home equity
    
    
    (46
    )
    
    
    (1,378
    )
    
    
    
    
    
    
    
    
    
    
    Consumer
    
    
    (42
    )
    
    
    (51
    )
    
    
    (8
    )
    
    
    
    
    
    
    Total charge-offs
    
    
    (8,370
    )
    
    
    (13,730
    )
    
    
    (716
    )
    
    
    (32
    )
    
    
    (1
    )Recoveries
    
    
    236
    
    
    
    188
    
    
    
    1
    
    
    
    
    
    
    
    3Net (charge-offs) recoveries
    
    
    (8,134
    )
    
    
    (13,542
    )
    
    
    (715
    )
    
    
    (32
    )
    
    
    2Additions charged to operations
    
    
    7,714
    
    
    
    13,089
    
    
    
    11,289
    
    
    
    75
    
    
    
    1,040Balance at end of period
    
    $
    15,374
    
    
    $
    15,794
    
    
    $
    16,247
    
    
    $
    5,673
    
    
    $
    5,630Ratio of net (charge-offs) recoveries
during the period to average loans
outstanding during the period
    
    
    (1.32
    %)
    
    
    (1.81
    %)
    
    
    (0.09
    %)
    
    
    (0.00
    %)
    
    
    0.00
    %Ratio of ALLL / Gross Loans
    
    
    2.80
    %
    
    
    2.39
    %
    
    
    2.02
    %
    
    
    0.82
    %
    
    
    1.10
    %
 Allocation of the Allowance for Loan Losses
 Percent of loans in eachBalance at end of each
    
    Amounts (thousands of dollars)
    
    
    category to total loansperiod applicable to:
    
    2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Real Estate:Commercial
    
    $
    7,633
    
    
    $
    5,752
    
    
    $
    4,843
    
    
    $
    1,963
    
    
    $
    1,943
    
    
    
    41.64
    %
    
    
    34.83
    %
    
    
    32.59
    %
    
    
    33.63
    %
    
    
    32.46
    %Residential
    
    
    2,364
    
    
    
    1,575
    
    
    
    1,417
    
    
    
    296
    
    
    
    245
    
    
    
    34.04
    %
    
    
    29.59
    %
    
    
    21.16
    %
    
    
    15.89
    %
    
    
    17.72
    %Construction
    
    
    3,478
    
    
    
    6,557
    
    
    
    8,654
    
    
    
    2,644
    
    
    
    2,557
    
    
    
    11.63
    %
    
    
    23.37
    %
    
    
    31.91
    %
    
    
    36.68
    %
    
    
    33.83
    %Construction to permanent
    
    
    492
    
    
    
    93
    
    
    
    264
    
    
    
    391
    
    
    
    441
    
    
    
    1.88
    %
    
    
    2.42
    %
    
    
    4.42
    %
    
    
    5.44
    %
    
    
    5.84
    %Commercial
    
    
    441
    
    
    
    521
    
    
    
    471
    
    
    
    271
    
    
    
    290
    
    
    
    2.65
    %
    
    
    2.92
    %
    
    
    4.20
    %
    
    
    3.97
    %
    
    
    4.67
    %Consumer installment
    
    
    80
    
    
    
    47
    
    
    
    28
    
    
    
    30
    
    
    
    31
    
    
    
    0.35
    %
    
    
    0.17
    %
    
    
    0.12
    %
    
    
    0.18
    %
    
    
    0.24
    %Consumer home equity
    
    
    498
    
    
    
    703
    
    
    
    336
    
    
    
    77
    
    
    
    72
    
    
    
    7.81
    %
    
    
    6.70
    %
    
    
    5.59
    %
    
    
    4.21
    %
    
    
    5.24
    %Unallocated
    
    
    388
    
    
    
    546
    
    
    
    234
    
    
    
    1
    
    
    
    51
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/ATotal
    
    $
    15,374
    
    
    $
    15,794
    
    
    $
    16,247
    
    
    $
    5,673
    
    
    $
    5,630
    
    
    
    100.00
    %
    
    
    100.00
    %
    
    
    100.00
    %
    
    
    100.00
    %
    
    
    100.00
    %
  39




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##### Table of Contents



Non-Accrual, Past Due and Restructured Loans
  2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006(thousands of dollars)Loans delinquent over 90
days still accruing
    
    $
    3,374
    
    
    $
    3,571
    
    
    $
    337
    
    
    $
    112
    
    
    $
    1,897Non-accrual loans
    
    
    89,150
    
    
    
    113,537
    
    
    
    80,156
    
    
    
    3,832
    
    
    
    2,904$
    92,524
    
    
    $
    117,108
    
    
    $
    80,493
    
    
    $
    3,944
    
    
    $
    4,801% of Total Loans
    
    
    16.83
    %
    
    
    17.72
    %
    
    
    10.21
    %
    
    
    0.57
    %
    
    
    0.93
    %% of Total Assets
    
    
    11.80
    %
    
    
    13.52
    %
    
    
    8.81
    %
    
    
    0.49
    %
    
    
    0.74
    %Additional income on non-accrual
loans if recognized on an accrual
basis
    
    $
    6,618
    
    
    $
    5,312
    
    
    $
    2,854
    
    
    $
    168
    
    
    $
    141
      40




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##### Table of Contents



41




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##### Table of Contents



Other Real Estate Owned
  December 31,
    
    
    December 31,2010
    
    
    2009Residential construction
    
    $
    15,774,187
    
    
    $
    13,524,597Commercial
    
    
    
    
    
    
    4,934,896Land
    
    
    634,600
    
    
    
    614,500Other real estate owned
    
    $
    16,408,787
    
    
    $
    19,073,993
  Deferred Taxes
    42




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##### Table of Contents



Deposits
  2010
    
    
    2009
    
    
    2008Non-interest bearing
    
    $
    51,058,373
    
    
    $
    49,755,521
    
    
    $
    50,194,400Interest bearingCertificates of
deposit, less than $100,00
    
    
    251,296,558
    
    
    
    305,719,484
    
    
    
    405,298,436Certificates of deposit, $100,000 or
more
    
    
    175,431,252
    
    
    
    202,493,307
    
    
    
    195,502,087Money markets
    
    
    92,683,478
    
    
    
    112,017,987
    
    
    
    68,241,790Savings
    
    
    57,041,943
    
    
    
    69,766,296
    
    
    
    46,040,086NOW
    
    
    19,297,225
    
    
    
    21,581,697
    
    
    
    19,544,552Total interest bearing
    
    
    595,750,456
    
    
    
    711,578,771
    
    
    
    734,626,951Total deposits
    
    $
    646,808,829
    
    
    $
    761,334,292
    
    
    $
    784,821,351
    43




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##### Table of Contents



Less than
    
    
    $100,000 or$100,000
    
    
    greater
    
    
    Totals(thousands of dollars)Three months or less
    
    $
    66,177
    
    
    $
    46,969
    
    
    $
    113,146Four to six months
    
    
    58,635
    
    
    
    42,347
    
    
    
    100,982Seven months to one year
    
    
    58,081
    
    
    
    34,815
    
    
    
    92,896Over one year
    
    
    68,404
    
    
    
    51,300
    
    
    
    119,704Total
    
    $
    251,297
    
    
    $
    175,431
    
    
    $
    426,728
 Borrowings
   Shareholders Equity
  Other
     44




---



##### Table of Contents



Distribution of Assets, Liabilities and Shareholders Equity
Interest Rates and Interest Differential and Rate Volume Variance Analysis (1)
 (thousands of dollars)
 2010
    
    
    2009
    
    
    2008
    
    
    2010 vs. 2009 Fluctuations
    
    
    2009 vs. 2008 FluctuationsInterest
    
    
    
    
    
    
    
    
    
    
    Interest
    
    
    
    
    
    
    
    
    
    
    Interest
    
    
    
    
    
    
    Interest Income /Expense
(3)
    
    
    Interest Income/Expense (3)Average
    
    
    Income/
    
    
    Average
    
    
    Average
    
    
    Income/
    
    
    Average
    
    
    Average
    
    
    Income/
    
    
    Average
    
    
    Due to Change in:
    
    
    Due to Change in:Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    Rate
    
    
    Volume
    
    
    Rate
    
    
    Total
    
    
    Volume
    
    
    Rate
    
    
    TotalInterest earning assets:Loans (2)
    
    $
    617,403
    
    
    $
    33,616
    
    
    
    5.44
    %
    
    $
    750,127
    
    
    $
    41,121
    
    
    
    5.48
    %
    
    $
    771,174
    
    
    $
    52,484
    
    
    
    6.81
    %
    
    $
    (7,208
    )
    
    $
    (297
    )
    
    $
    (7,505
    )
    
    $
    (1,393
    )
    
    $
    (9,970
    )
    
    $
    (11,363
    )Federal funds sold and
other cash equivalents
    
    
    81,400
    
    
    
    202
    
    
    
    0.25
    %
    
    
    104,668
    
    
    
    218
    
    
    
    0.21
    %
    
    
    12,435
    
    
    
    325
    
    
    
    2.61
    %
    
    
    (44
    )
    
    
    28
    
    
    
    (16
    )
    
    
    435
    
    
    
    (542
    )
    
    
    (107
    )Investments (4)
    
    
    62,223
    
    
    
    1,791
    
    
    
    2.88
    %
    
    
    44,070
    
    
    
    1,629
    
    
    
    3.70
    %
    
    
    63,199
    
    
    
    2,941
    
    
    
    4.65
    %
    
    
    575
    
    
    
    (413
    )
    
    
    162
    
    
    
    (783
    )
    
    
    (529
    )
    
    
    (1,312
    )Total interest earning assets
    
    $
    761,026
    
    
    $
    35,609
    
    
    
    4.68
    %
    
    $
    898,865
    
    
    $
    42,968
    
    
    
    4.78
    %
    
    $
    846,808
    
    
    $
    55,750
    
    
    
    6.58
    %
    
    
    (6,677
    )
    
    
    (682
    )
    
    
    (7,359
    )
    
    
    (1,741
    )
    
    
    (11,041
    )
    
    
    (12,782
    )Cash and due from banks
    
    
    20,964
    
    
    
    
    
    
    
    
    
    
    
    22,639
    
    
    
    
    
    
    
    
    
    
    
    5,993Allowance for loan losses
    
    
    (15,579
    )
    
    
    
    
    
    
    
    
    
    
    (16,689
    )
    
    
    
    
    
    
    
    
    
    
    (7,575
    )Other assets
    
    
    49,413
    
    
    
    
    
    
    
    
    
    
    
    43,447
    
    
    
    
    
    
    
    
    
    
    
    37,209Total Assets
    
    $
    815,824
    
    
    
    
    
    
    
    
    
    
    $
    948,262
    
    
    
    
    
    
    
    
    
    
    $
    882,435Interest bearing liabilities:Time certificates
    
    $
    465,182
    
    
    $
    9,723
    
    
    
    2.09
    %
    
    $
    592,724
    
    
    $
    18,828
    
    
    
    3.18
    %
    
    $
    568,717
    
    
    $
    23,561
    
    
    
    4.14
    %
    
    $
    (3,511
    )
    
    $
    (5,594
    )
    
    $
    (9,105
    )
    
    $
    953
    
    
    $
    (5,686
    )
    
    $
    (4,733
    )Savings accounts
    
    
    59,270
    
    
    
    489
    
    
    
    0.83
    %
    
    
    59,103
    
    
    
    1,120
    
    
    
    1.89
    %
    
    
    40,252
    
    
    
    992
    
    
    
    2.46
    %
    
    
    3
    
    
    
    (634
    )
    
    
    (631
    )
    
    
    392
    
    
    
    (264
    )
    
    
    128Money market accounts
    
    
    109,302
    
    
    
    892
    
    
    
    0.82
    %
    
    
    106,091
    
    
    
    1,917
    
    
    
    1.81
    %
    
    
    54,321
    
    
    
    1,229
    
    
    
    2.26
    %
    
    
    56
    
    
    
    (1,081
    )
    
    
    (1,025
    )
    
    
    973
    
    
    
    (285
    )
    
    
    688NOW accounts
    
    
    21,618
    
    
    
    75
    
    
    
    0.35
    %
    
    
    21,582
    
    
    
    156
    
    
    
    0.72
    %
    
    
    21,044
    
    
    
    186
    
    
    
    0.88
    %
    
    
    
    
    
    
    (81
    )
    
    
    (81
    )
    
    
    5
    
    
    
    (35
    )
    
    
    (30
    )FHLB advances
    
    
    50,000
    
    
    
    1,699
    
    
    
    3.40
    %
    
    
    50,003
    
    
    
    1,699
    
    
    
    3.40
    %
    
    
    57,716
    
    
    
    1,726
    
    
    
    2.99
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (215
    )
    
    
    188
    
    
    
    (27
    )Subordinated debt
    
    
    8,248
    
    
    
    288
    
    
    
    3.49
    %
    
    
    8,248
    
    
    
    331
    
    
    
    4.01
    %
    
    
    8,248
    
    
    
    536
    
    
    
    6.50
    %
    
    
    
    
    
    
    (43
    )
    
    
    (43
    )
    
    
    
    
    
    
    (205
    )
    
    
    (205
    )Other borrowings
    
    
    7,000
    
    
    
    309
    
    
    
    4.41
    %
    
    
    7,000
    
    
    
    309
    
    
    
    4.41
    %
    
    
    7,005
    
    
    
    309
    
    
    
    4.41
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total interest bearing liabilities
    
    $
    720,620
    
    
    $
    13,475
    
    
    
    1.87
    %
    
    $
    844,751
    
    
    $
    24,360
    
    
    
    2.88
    %
    
    $
    757,304
    
    
    $
    28,539
    
    
    
    3.77
    %
    
    
    (3,452
    )
    
    
    (7,433
    )
    
    
    (10,885
    )
    
    
    2,108
    
    
    
    (6,287
    )
    
    
    (4,179
    )Demand deposits
    
    
    49,572
    
    
    
    
    
    
    
    
    
    
    
    47,810
    
    
    
    
    
    
    
    
    
    
    
    53,380Accrued expenses and
 other liabilities
    
    
    4,984
    
    
    
    
    
    
    
    
    
    
    
    3,810
    
    
    
    
    
    
    
    
    
    
    
    4,502Shareholders equity
    
    
    40,648
    
    
    
    
    
    
    
    
    
    
    
    51,891
    
    
    
    
    
    
    
    
    
    
    
    67,250Total liabilities and equity
    
    $
    815,824
    
    
    
    
    
    
    
    
    
    
    $
    948,262
    
    
    
    
    
    
    
    
    
    
    $
    882,435Net interest income
    
    
    
    
    
    $
    22,134
    
    
    
    
    
    
    
    
    
    
    $
    18,608
    
    
    
    
    
    
    
    
    
    
    $
    27,211
    
    
    
    
    
    
    $
    (3,225
    )
    
    $
    6,751
    
    
    $
    3,526
    
    
    $
    (3,849
    )
    
    $
    (4,754
    )
    
    $
    (8,603
    )Interest margin
    
    
    
    
    
    
    
    
    
    
    2.91
    %
    
    
    
    
    
    
    
    
    
    
    2.07
    %
    
    
    
    
    
    
    
    
    
    
    3.21
    %Interest spread
    
    
    
    
    
    
    
    
    
    
    2.81
    %
    
    
    
    
    
    
    
    
    
    
    1.90
    %
    
    
    
    
    
    
    
    
    
    
    2.81
    %
 (1)
    
    The rate volume analysis reflects the changes in net interest income arising from
changes in interest rates and from asset and liability volume, including mix. The change in
interest attributable to volume includes changes in interest attributable to mix.(2)
    
    Includes non-accruing loans(3)
    
    Favorable/(unfavorable) fluctuations.(4)
    
    Yields are calculated at historical cost and excludes the effects of unrealized
gains or losses on available-for-sale securities.  45




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##### Table of Contents



RESULTS OF OPERATIONS
 Comparison of Results of Operations for the years 2010 and 2009
       2010
    
    
    2009
    
    
    2008Loss on average assets
    
    
    (1.89
    %)
    
    
    (2.52
    %)
    
    
    (0.81
    %)Loss on average equity
    
    
    (37.88
    %)
    
    
    (46.02
    %)
    
    
    (10.62
    %)Dividend payout ratio
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AAverage equity to average assets
    
    
    4.98
    %
    
    
    5.47
    %
    
    
    7.59
    %Loss per share
    
    $
    (1.30
    )
    
    $
    (5.02
    )
    
    $
    (1.50
    )
  46




---



##### Table of Contents



Interest income and expense
    Provision for loan losses
    47




---



##### Table of Contents



Non-interest income
  Non-interest expenses
  Income Taxes
   48




---



##### Table of Contents



Comparison of Results of Operations for the years 2009 and 2008
       49




---



##### Table of Contents



2009
    
    
    2008
    
    
    2007(Loss) return on average assets
    
    
    (2.52
    %)
    
    
    (0.81
    %)
    
    
    0.37
    %(Loss) return on average equity
    
    
    (46.02
    %)
    
    
    (10.62
    %)
    
    
    4.07
    %Dividend payout ratio
    
    
    N/A
    
    
    
    N/A
    
    
    
    32.14
    %Average equity to average assets
    
    
    5.47
    %
    
    
    7.59
    %
    
    
    9.09
    %Basic and diluted (loss) income per share
    
    $
    (5.02
    )
    
    $
    (1.50
    )
    
    $
    0.56
 Interest income and expense
     50




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##### Table of Contents



Provision for loan losses
   Non-interest income
  Non-interest expenses
   51




---



##### Table of Contents



Income Taxes
    52




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##### Table of Contents



LIQUIDITY
     Less than
    
    
    One to
    
    
    Three to
    
    
    Over fiveTotal
    
    
    one year
    
    
    three years
    
    
    five years
    
    
    yearsCertificates of deposit
    
    $
    426,727,810
    
    
    $
    307,023,856
    
    
    $
    69,731,383
    
    
    $
    49,972,571
    
    
    $
    Junior subordinated debt owed
to unconsolidated trust
    
    
    8,248,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,248,000FHLB Advances
    
    
    50,000,000
    
    
    
    
    
    
    
    30,000,000
    
    
    
    10,000,000
    
    
    
    10,000,000Securities sold under agreements
to repurchase
    
    
    7,000,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,000,000Operating lease obligations
    
    
    14,523,783
    
    
    
    2,855,356
    
    
    
    5,273,093
    
    
    
    3,769,448
    
    
    
    2,625,886Total contractual obligations
    
    $
    506,499,593
    
    
    $
    309,879,212
    
    
    $
    105,004,476
    
    
    $
    63,742,019
    
    
    $
    27,873,886
  53




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##### Table of Contents



OFF-BALANCE SHEET ARRANGEMENTS
  Future loan commitments
    
    $
    4,701,779Home equity lines of credit
    
    
    21,197,134Unused lines of credit
    
    
    7,721,359Undisbursed construction loans
    
    
    1,290,628Financial standby letters of credit
    
    
    52,000Total commitments
    
    $
    34,962,900
 REGULATORY CAPITAL REQUIREMENTS
  To Be WellCapitalized UnderFor Capital
    
    
    Prompt CorrectiveActual
    
    
    Adequacy Purposes
    
    
    Action Provisions2010
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioThe Company:Total Capital (to Risk Weighted Assets)
    
    $
    80,358
    
    
    
    17.08
    %
    
    $
    37,643
    
    
    
    8.00
    %
    
    $
    N/A
    
    
    
    N/ATier 1 Capital (to Risk Weighted Assets)
    
    
    73,822
    
    
    
    15.69
    %
    
    
    18,822
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/ATier 1 Capital (to Average Assets)
    
    
    73,822
    
    
    
    9.16
    %
    
    
    32,219
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AThe Bank:Total Capital (to Risk Weighted Assets)
    
    $
    77,705
    
    
    
    16.54
    %
    
    $
    37,582
    
    
    
    8.00
    %
    
    $
    46,978
    
    
    
    10.00
    %Tier 1 Capital (to Risk Weighted Assets)
    
    
    71,178
    
    
    
    15.15
    %
    
    
    18,791
    
    
    
    4.00
    %
    
    
    28,187
    
    
    
    6.00
    %Tier 1 Capital (to Average Assets)
    
    
    71,178
    
    
    
    8.84
    %
    
    
    32,203
    
    
    
    4.00
    %
    
    
    40,253
    
    
    
    5.00
    %
  54




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##### Table of Contents



To Be WellCapitalized UnderFor Capital
    
    
    Prompt CorrectiveActual
    
    
    Adequacy Purposes
    
    
    Action Provisions2009
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioThe Company:Total Capital (to Risk Weighted Assets)
    
    $
    51,072
    
    
    
    8.58
    %
    
    $
    47,620
    
    
    
    8.00
    %
    
    $
    N/A
    
    
    
    N/ATier 1 Capital (to Risk Weighted Assets)
    
    
    42,971
    
    
    
    7.22
    %
    
    
    23,807
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/ATier 1 Capital (to Average Assets)
    
    
    42,971
    
    
    
    4.72
    %
    
    
    36,416
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AThe Bank:Total Capital (to Risk Weighted Assets)
    
    $
    51,056
    
    
    
    8.58
    %
    
    $
    47,605
    
    
    
    8.00
    %
    
    $
    59,506
    
    
    
    10.00
    %Tier 1 Capital (to Risk Weighted Assets)
    
    
    42,960
    
    
    
    7.22
    %
    
    
    23,801
    
    
    
    4.00
    %
    
    
    35,701
    
    
    
    6.00
    %Tier 1 Capital (to Average Assets)
    
    
    42,960
    
    
    
    4.72
    %
    
    
    36,407
    
    
    
    4.00
    %
    
    
    45,508
    
    
    
    5.00
    %
     55




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##### Table of Contents



Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
 MARKET RISK
  Qualitative Aspects of Market Risk
  (ALCO),
 Quantitative Aspects of Market Risk
    56




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##### Table of Contents



Net Interest Income and Economic Value
Summary Performance   December 31, 2010
 Net Interest Income
    
    
    Net Portfolio ValueProjected Interest
    
    Estimated
    
    
    $ Change
    
    
    % Change
    
    
    Estimated
    
    
    $ Change
    
    
    % ChangeRate Scenario
    
    Value
    
    
    from Base
    
    
    from Base
    
    
    Value
    
    
    from Base
    
    
    from Base+ 200
    
    
    26,290
    
    
    
    110
    
    
    
    0.42
    %
    
    
    63,164
    
    
    
    (4,420
    )
    
    
    -6.54
    %+ 100
    
    
    26,209
    
    
    
    29
    
    
    
    0.11
    %
    
    
    65,502
    
    
    
    (2,082
    )
    
    
    -3.08
    %BASE
    
    
    26,180
    
    
    
    
    
    
    
    
    
    
    
    67,584
    
    
    
    
    
    
    
    - 100
    
    
    25,869
    
    
    
    (311
    )
    
    
    -1.19
    %
    
    
    70,228
    
    
    
    2,644
    
    
    
    3.91
    %- 200
    
    
    25,068
    
    
    
    (1,112
    )
    
    
    -4.25
    %
    
    
    75,096
    
    
    
    7,512
    
    
    
    11.12
    %
 December 31, 2009
 Net Interest Income
    
    
    Net Portfolio ValueProjected Interest
    
    Estimated
    
    
    $ Change
    
    
    % Change
    
    
    Estimated
    
    
    $ Change
    
    
    % ChangeRate Scenario
    
    Value
    
    
    from Base
    
    
    from Base
    
    
    Value
    
    
    from Base
    
    
    from Base+ 200
    
    
    20,750
    
    
    
    925
    
    
    
    4.67
    %
    
    
    49,704
    
    
    
    (4,872
    )
    
    
    -8.93
    %+ 100
    
    
    20,113
    
    
    
    288
    
    
    
    1.45
    %
    
    
    51,762
    
    
    
    (2,814
    )
    
    
    -5.16
    %BASE
    
    
    19,825
    
    
    
    
    
    
    
    
    
    
    
    54,576
    
    
    
    
    
    
    
    - 100
    
    
    20,557
    
    
    
    732
    
    
    
    3.69
    %
    
    
    54,945
    
    
    
    369
    
    
    
    0.68
    %- 200
    
    
    20,841
    
    
    
    1,016
    
    
    
    5.12
    %
    
    
    50,525
    
    
    
    (4,051
    )
    
    
    -7.42
    %
  57




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Impact of Inflation and Changing Prices
   58




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##### Table of Contents



Item 8.
    
    Financial Statements and Supplementary Data
   First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter2010:Interest income
    
    $
    9,690,515
    
    
    $
    9,407,519
    
    
    $
    8,468,912
    
    
    $
    8,041,945Interest expense
    
    
    3,681,605
    
    
    
    3,520,035
    
    
    
    3,347,397
    
    
    
    2,925,506Net interest income
    
    
    6,008,910
    
    
    
    5,887,484
    
    
    
    5,121,515
    
    
    
    5,116,439Provision for loan losses
    
    
    727,000
    
    
    
    512,000
    
    
    
    5,025,000
    
    
    
    1,450,000Non-interest income
    
    
    538,468
    
    
    
    560,626
    
    
    
    637,096
    
    
    
    618,050Non-interest expenses
    
    
    8,726,944
    
    
    
    7,336,287
    
    
    
    7,524,191
    
    
    
    8,361,111Loss before income taxes
    
    
    (2,906,566
    )
    
    
    (1,400,177
    )
    
    
    (6,790,580
    )
    
    
    (4,076,622
    )Provision for income taxes
    
    
    225,000
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    $
    (3,131,566
    )
    
    $
    (1,400,177
    )
    
    $
    (6,790,580
    )
    
    $
    (4,076,622
    )Net loss per common share:Basic and diluted
    
    $
    (0.66
    )
    
    $
    (0.29
    )
    
    $
    (1.43
    )
    
    $
    (0.12
    )2009:Interest income
    
    $
    12,359,234
    
    
    $
    10,998,963
    
    
    $
    9,983,932
    
    
    $
    9,625,951Interest expense
    
    
    6,830,950
    
    
    
    6,595,455
    
    
    
    5,983,941
    
    
    
    4,949,482Net interest income
    
    
    5,528,284
    
    
    
    4,403,508
    
    
    
    3,999,991
    
    
    
    4,676,469Provision for loan losses
    
    
    1,600,000
    
    
    
    5,956,000
    
    
    
    1,453,000
    
    
    
    4,080,000Non-interest income
    
    
    1,022,654
    
    
    
    666,597
    
    
    
    617,707
    
    
    
    639,522Non-interest expenses
    
    
    6,305,899
    
    
    
    7,446,962
    
    
    
    7,535,346
    
    
    
    8,843,381Loss before income taxes
    
    
    (1,354,961
    )
    
    
    (8,332,857
    )
    
    
    (4,370,648
    )
    
    
    (7,607,390
    )Provision (benefit) for
income taxes
    
    
    (258,000
    )
    
    
    (3,696,000
    )
    
    
    9,565,000
    
    
    
    (3,397,250
    )Net loss
    
    $
    (1,096,961
    )
    
    $
    (4,636,857
    )
    
    $
    (13,935,648
    )
    
    $
    (4,210,140
    )Net loss per common share:Basic and diluted
    
    $
    (0.23
    )
    
    $
    (0.98
    )
    
    $
    (2.93
    )
    
    $
    (0.88
    )
  59




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##### Table of Contents



Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A.
    
    Controls and Procedures
     60




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##### Table of Contents



Item 9B.
    
    Other Information
 Managements Report on Internal Control Over Financial Reporting
    Internal Control  Integrated Framework Internal Control 
Integrated Framework
   61




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
 Internal Control 
Integrated Framework
     62




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##### Table of Contents



Internal Control 
Integrated Framework
  
  63




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##### Table of Contents



PART III
 
 Item 10.
    
    Directors, Executive Officers and Corporate Governance
 Form 10-K Definitive Proxy Statement
  
 Item 11.
    
    Executive Compensation
  
 Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and
Related Shareholder Matters
  
 Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
  
 Item 14.
    
    Principal Accountant Fees and Services
   64




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##### Table of Contents



Part IV
 
 Item 15.
    
    Exhibits and Financial Statement Schedules
 (a)
    
    Exhibits
 Exhibit No.
    
    Description2
    
    
    Agreement and Plan of Reorganization dated as of June 28, 1999 between Bancorp and the Bank
(incorporated by reference to Exhibit 2 to Bancorps Current Report on Form 8-K dated December
1, 1999 (Commission File No. 000-29599)).2.1
    
    
    Securities Purchase Agreement by and among Patriot National Bancorp, Inc., Patriot National
Bank and PNBK Holdings LLC dated as of December 16, 2009 (incorporated by reference to Exhibit
10.1 to Bancorps Current Report on Form 8-K dated December 17, 2009).2.2
    
    
    Amendment to Securities Purchase Agreement by and among Patriot National Bancorp, Inc.,
Patriot National Bank and PNBK Holdings LLC dated as of May 3, 2010 (incorporated by reference
to Exhibit 10(a) to Bancorps Current Report on Form 8-K dated May 4, 2010).3
    (i)
    
    Certificate of Incorporation of Bancorp, (incorporated by reference to Exhibit 3(i) to
Bancorps Current Report on Form 8-K dated December 1, 1999 (Commission File No. 000-29599)).3
    (i)(A)
    
    Certificate of Amendment of Certificate of Incorporation of Patriot National Bancorp, Inc.
dated July 16, 2004 (incorporated by reference to Exhibit 3(i)(A) to Bancorps Annual Report
on Form 10-KSB for the year ended December 31, 2004 (Commission File No. 000-29599)).3
    (i)(B)
    
    Certificate of Amendment of Certificate of Incorporation of Patriot National Bancorp, Inc.
dated June 15, 2006 (incorporated by reference to Exhibit 3(i)(B) to Bancorps Quarterly
Report on Form 10-Q for the quarter ended September 30, 2006 (Commission File No. 000-29599)).3
    (ii)
    

    Amended and Restated By-laws of Bancorp (incorporated by reference to Exhibit 3(ii) to
Bancorps Current Report on Form 8-K dated October 26, 2010).4
    
    
    Intentionally deleted10
    (a)(1)
    
    2001 Stock Appreciation Rights Plan of Bancorp (incorporated by reference to Exhibit
10(a)(1) to Bancorps Annual Report on Form 10-KSB for the year ended December 31, 2001
(Commission File No. 000-29599)).
  65




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##### Table of Contents



Exhibit No.
    
    Description10
    (a)(3)
    
    Intentionally deleted.10
    (a)(5)
    
    Employment Agreement dated as of January 1, 2008 among Patriot National Bank, Bancorp and
Robert F. OConnell (incorporated by reference to Exhibit 10(a)(5) to Bancorps Annual Report
on Form 10-K for the year ended December 31, 2007 (Commission File No. 000-29599)).10
    (a)(6)
    
    Change of Control Agreement, dated as of January 1, 2007 among Robert F. OConnell and
Patriot National Bank and Bancorp (incorporated by reference to Exhibit 10(a)(6) to Bancorps
Annual Report on Form 10-K for the year ended December 31, 2006 (Commission File No.
000-29599)).10
    (a)(9)
    
    License agreement dated July 1, 2003 between Patriot National Bank and L. Morris Glucksman
(incorporated by reference to Exhibit 10(a)(9) to Bancorps Annual Report on Form 10-KSB for
the year ended December 31, 2003 (Commission File No. 000-29599)).10
    (a)(12)
    
    2005 Director Stock Award Plan (incorporated by reference to Exhibit 10(a)(12) to
Bancorps Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 (Commission File
No. 000-295999)).10
    (a)(13)
    
    Change of Control Agreement, dated as of January 1, 2007 between Martin G. Noble and
Patriot National Bank (incorporated by reference to Exhibit 10(a)(13) to Bancorps Annual
Report on Form 10-K for the year ended December 31, 2006 (Commission File No. 000-29599)).10
    (a)(14)
    
    Change of Control Agreement, dated as of January 1, 2007 among Philip W. Wolford, Patriot
National Bank and Bancorp (incorporated by reference to Exhibit 10(a)(14) to Bancorps Annual
Report on Form 10-K for the year ended December 31, 2006 (Commission File No. 000-29599)).10
    (a)(15)
    
    Formal Written Agreement between Patriot National Bank and the Office of the Comptroller
of the Currency (incorporated by reference to Exhibit 10(a)(15) to Bancorps Current Report on
Form 8-K dated February 9, 2009 (Commission File No. 000-29599)).10
    (a)(16)
    
    Formal Written Agreement between Patriot National Bank and the Federal Reserve Bank of
New York.10
    (c)
    
    1999 Stock Option Plan of the Bank (incorporated by reference to Exhibit 10(c) to Bancorps
Current Report on Form 8-K dated December 1, 1999 (Commission File No. 000-29599)).
  66




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##### Table of Contents



Exhibit No.
    
    Description14
    
    
    Code of Conduct for Senior Financial Officers (incorporated by reference to Exhibit 14 to
Bancorp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 Bancorps Annual Report
on Form 10-KSB for the year ended December 31, 1999 (Commission File No. 000-29599)).23.1
    
    
    Consent of KPMG LLP23.2
    
    
    Consent of McGladrey & Pullen, LLP31
    (1)
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer31
    (2)
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer32
    
    
    Section 1350 Certification
  67




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##### Table of Contents



SIGNATURES
  Patriot National Bancorp, Inc.
(Registrant)By:
    /s/   Christopher D. MaherName:
    Christopher D. MaherTitle:
    Chief Executive Officer   /s/ Christopher D. Maher
    
    March 23, 2011Christopher D. Maher,
    
    DatePresident and Chief Executive Officerand Director/s/ Robert F. OConnell
    
    March 23, 2011Robert F. OConnell
    
    DateSenior Executive Vice President,Chief Financial Officer and Director/s/ Todd C. Scaccia
    
    March 23, 2011Todd C. Scaccia
    
    DateVice President & Controller/s/ Michael A. Carrazza
    
    March 23, 2011Michael A. Carrazza,
    
    DateChairman of the Board/s/ Edward Constantino
    
    March 23, 2011Edward Constantino
    
    DateDirector
  68




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##### Table of Contents



Form 10 K  Signatures continued
 /s/ Kenneth T. Neilson
    
    March 23, 2011Kenneth T. Neilson
    
    DateDirector/s/ Emile van den Bol
    
    March 23, 2011Emile van den Bol
    
    DateDirector/s/ Michael Weinbaum
    
    March 23, 2011Michael Weinbaum
    
    DateDirector
  69




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 FINANCIAL REPORT
DECEMBER 31, 2010, 2009 and 2008




---



##### Table of Contents



CONTENTS
 REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS
    
    
    1 - 2CONSOLIDATED FINANCIAL STATEMENTSConsolidated balance sheets
    
    
    3Consolidated statements of operations
    
    
    4Consolidated statements of shareholders equity
    
    
    5Consolidated statements of cash flows
    
    
    6-7Notes to consolidated financial statements
    
    
    8-66




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
    Internal Control  Integrated Framework
 
  1




---



##### Table of Contents



McGladrey & Pullen, LLP
 
 Report of Independent Registered Public Accounting Firm
 
     
  2




---



##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 
 CONSOLIDATED BALANCE SHEETS
 December 31, 2010 and 2009
 2010
    
    
    2009ASSETSCash and due from banks (Note 2):Noninterest bearing deposits and cash
    
    $
    4,613,211
    
    
    $
    19,465,521Interest bearing deposits
    
    
    131,711,047
    
    
    
    78,070,072Federal funds sold
    
    
    10,000,000
    
    
    
    10,000,000Short-term investments
    
    
    453,400
    
    
    
    263,839Total cash and cash equivalents
    
    
    146,777,658
    
    
    
    107,799,432SecuritiesAvailable for sale securities, at fair value (Note 3)
    
    
    40,564,700
    
    
    
    48,829,981Other Investments
    
    
    3,500,000
    
    
    
    Federal Reserve Bank stock, at cost
    
    
    1,192,000
    
    
    
    1,839,650Federal Home Loan Bank stock, at cost (Note 8)
    
    
    4,508,300
    
    
    
    4,508,300Total securities
    
    
    49,765,000
    
    
    
    55,177,931Loans receivable (net of allowance for loan losses: 2010: $15,374,101 2009: $15,794,118) (Notes 4 and 17)
    
    
    534,531,213
    
    
    
    645,205,943Accrued interest and dividends receivable
    
    
    2,512,186
    
    
    
    3,236,252Premises and equipment, net (Notes 5 and 9)
    
    
    5,270,312
    
    
    
    6,595,727Cash surrender value of life insurance (Note 12)
    
    
    20,348,332
    
    
    
    19,859,732Other real estate owned (Note 6)
    
    
    16,408,787
    
    
    
    19,073,993Deferred Tax Asset (Note 10)
    
    
    
    
    
    
    Other assets (Note 11)
    
    
    8,711,366
    
    
    
    9,467,911Total assets
    
    $
    784,324,854
    
    
    $
    866,416,921LIABILITIES AND SHAREHOLDERS EQUITYLiabilitiesDeposits (Notes 7 and 17):Noninterest bearing deposits
    
    $
    51,058,373
    
    
    $
    49,755,521Interest bearing deposits
    
    
    595,750,456
    
    
    
    711,578,771Total deposits
    
    
    646,808,829
    
    
    
    761,334,292Borrowings (Note 8)Repurchase agreements
    
    
    7,000,000
    
    
    
    7,000,000Federal Home Loan Bank borrowings
    
    
    50,000,000
    
    
    
    50,000,000Total borrowings
    
    
    57,000,000
    
    
    
    57,000,000Junior subordinated debt owed to unconsolidated trust (Note 8)
    
    
    8,248,000
    
    
    
    8,248,000Accrued expenses and other liabilities
    
    
    5,095,837
    
    
    
    3,973,319Total liabilities
    
    
    717,152,666
    
    
    
    830,555,611Commitments and Contingencies (Notes 8, 9 and 15)Shareholders equity (Notes 13 and 16)Preferred stock, no par value; 1,000,000 shares authorized, no shares issued and outstanding
    
    
    
    
    
    
    Common stock, 2010: $.01 par value, 100,000,000 shares authorized; 38,374,432 shares issued;
38,362,727 shares outstanding. Common stock, 2009: $2 par value; 60,000,000 shares
authorized; 4,774,432 shares issued;4,762,727 shares outstanding
    
    
    383,744
    
    
    
    9,548,864Additional paid-in capital
    
    
    105,050,433
    
    
    
    49,651,534Accumulated deficit
    
    
    (39,399,345
    )
    
    
    (24,000,400
    )Less: Treasury stock, at cost: 2010 and 2009 11,705 shares
    
    
    (160,025
    )
    
    
    (160,025
    )Accumulated other comprehensive income
    
    
    1,297,381
    
    
    
    821,337Total shareholders equity
    
    
    67,172,188
    
    
    
    35,861,310Total liabilities and shareholders equity
    
    $
    784,324,854
    
    
    $
    866,416,921
   3




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Years
Ended December 31, 2010, 2009 and 2008
 2010
    
    
    2009
    
    
    2008Interest and Dividend IncomeInterest and fees on loans
    
    $
    33,615,884
    
    
    $
    41,121,342
    
    
    $
    52,484,054Interest on investment securities
    
    
    1,522,873
    
    
    
    1,335,283
    
    
    
    2,324,817Dividends on investment securities
    
    
    267,790
    
    
    
    293,735
    
    
    
    803,704Interest on federal funds sold
    
    
    17,036
    
    
    
    37,546
    
    
    
    129,475Other interest income
    
    
    185,308
    
    
    
    180,174
    
    
    
    8,196Total interest and dividend income
    
    
    35,608,891
    
    
    
    42,968,080
    
    
    
    55,750,246Interest ExpenseInterest on deposits
    
    
    11,178,793
    
    
    
    22,021,255
    
    
    
    25,968,124Interest on Federal Home Loan Bank borrowings
    
    
    1,698,771
    
    
    
    1,698,712
    
    
    
    1,725,699Interest on subordinated debt
    
    
    288,428
    
    
    
    331,309
    
    
    
    535,659Interest on other borrowings
    
    
    308,551
    
    
    
    308,552
    
    
    
    309,585Total interest expense
    
    
    13,474,543
    
    
    
    24,359,828
    
    
    
    28,539,067Net interest income
    
    
    22,134,348
    
    
    
    18,608,252
    
    
    
    27,211,179Provision for Loan Losses (Note 4)
    
    
    7,714,000
    
    
    
    13,089,000
    
    
    
    11,289,772Net interest income after provision for loan losses
    
    
    14,420,348
    
    
    
    5,519,252
    
    
    
    15,921,407Non-interest Income (Loss)Mortgage brokerage referral fees
    
    
    90,889
    
    
    
    167,854
    
    
    
    237,933Loan application, inspection and processing fees
    
    
    155,494
    
    
    
    214,334
    
    
    
    355,526Fees and service charges
    
    
    1,174,361
    
    
    
    1,025,258
    
    
    
    990,843Loss on impaired investment securities
    
    
    
    
    
    
    
    
    
    
    (3,167,285
    )Gain on sale of investment securities
    
    
    
    
    
    
    434,334
    
    
    
    Gain on redemption of investment securities
    
    
    
    
    
    
    16,880
    
    
    
    Earnings on cash surrender value of life insurance
    
    
    546,910
    
    
    
    724,627
    
    
    
    941,421Other income
    
    
    386,586
    
    
    
    363,193
    
    
    
    492,454Total non-interest income (loss)
    
    
    2,354,240
    
    
    
    2,946,480
    
    
    
    (149,108
    )Non-interest ExpensesSalaries and benefits (Notes 9 and 14)
    
    
    13,195,673
    
    
    
    11,879,544
    
    
    
    12,092,917Occupancy and equipment expense
    
    
    5,555,240
    
    
    
    5,657,908
    
    
    
    5,526,910Data processing
    
    
    1,456,873
    
    
    
    1,373,489
    
    
    
    1,285,989Advertising and promotional expenses
    
    
    312,621
    
    
    
    280,567
    
    
    
    814,374Professional and other outside services
    
    
    3,067,221
    
    
    
    4,021,330
    
    
    
    1,755,896Loan administration and processing expenses
    
    
    303,562
    
    
    
    519,412
    
    
    
    303,338Regulatory assessments
    
    
    2,957,010
    
    
    
    3,165,722
    
    
    
    725,613Insurance expense
    
    
    936,035
    
    
    
    762,766
    
    
    
    144,946Other real estate operations (Note 6)
    
    
    2,286,948
    
    
    
    793,781
    
    
    
    Material and communications
    
    
    804,623
    
    
    
    782,068
    
    
    
    859,425Other operating expenses
    
    
    1,072,727
    
    
    
    895,001
    
    
    
    1,073,006Goodwill impairment (Note 11)
    
    
    
    
    
    
    
    
    
    
    1,365,491Total non-interest expenses
    
    
    31,948,533
    
    
    
    30,131,588
    
    
    
    25,947,905Loss before income taxes
    
    
    (15,173,945
    )
    
    
    (21,665,856
    )
    
    
    (10,175,606
    )(Provision) benefit for Income Taxes (Note 10)
    
    
    (225,000
    )
    
    
    (2,213,750
    )
    
    
    3,064,000Net loss
    
    $
    (15,398,945
    )
    
    $
    (23,879,606
    )
    
    $
    (7,111,606
    )Loss per share (Note 13)
    
    $
    (1.30
    )
    
    $
    (5.02
    )
    
    $
    (1.50
    )Dividends per share
    
    $
    
    
    
    $
    
    
    
    $
    0.180
   4




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 Years Ended December 31, 2010, 2009 and 2008
 Retained
    
    
    
    
    
    
    AccumulatedNumber of
    
    
    
    
    
    
    Additional
    
    
    Earnings
    
    
    
    
    
    
    OtherOutstanding
    
    
    Common
    
    
    Paid-in
    
    
    (Accumulated
    
    
    Treasury
    
    
    ComprehensiveShares
    
    
    Stock
    
    
    Capital
    
    
    Deficit)
    
    
    Stock
    
    
    Income (Loss)
    
    
    TotalBalance, December 31, 2007
    
    
    4,746,844
    
    
    $
    9,493,688
    
    
    $
    49,549,119
    
    
    $
    7,846,060
    
    
    $
    
    
    
    $
    (53,500
    )
    
    $
    66,835,367Comprehensive lossNet loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,111,606
    )
    
    
    
    
    
    
    
    
    
    
    (7,111,606
    )Unrealized holding loss on available for
sale securities, net of taxes (Note 18)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37,010
    )
    
    
    (37,010
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,148,616
    )Dividends ($0.180 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (854,340
    )
    
    
    
    
    
    
    
    
    
    
    (854,340
    )Treasury StockStock purchased under buyback
    
    
    (11,705
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (160,025
    )
    
    
    
    
    
    
    (160,025
    )Issuance of capital stock (Note 13)
    
    
    8,270
    
    
    
    16,540
    
    
    
    83,943
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,483Other
    
    
    
    
    
    
    
    
    
    
    1,275
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,275Balance, December 31, 2008
    
    
    4,743,409
    
    
    $
    9,510,228
    
    
    $
    49,634,337
    
    
    $
    (119,886
    )
    
    $
    (160,025
    )
    
    $
    (90,510
    )
    
    $
    58,774,144Comprehensive lossNet loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,879,606
    )
    
    
    
    
    
    
    
    
    
    
    (23,879,606
    )Unrealized holding gain on available for
sale securities, net of taxes (Note 18)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    911,847
    
    
    
    911,847Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22,967,759
    )Issuance of capital stock (Note 13)
    
    
    19,318
    
    
    
    38,636
    
    
    
    17,197
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55,833Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (908
    )
    
    
    
    
    
    
    
    
    
    
    (908
    )Balance, December 31, 2009
    
    
    4,762,727
    
    
    $
    9,548,864
    
    
    $
    49,651,534
    
    
    $
    (24,000,400
    )
    
    $
    (160,025
    )
    
    $
    821,337
    
    
    $
    35,861,310Comprehensive lossNet loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,398,945
    )
    
    
    
    
    
    
    
    
    
    
    (15,398,945
    )Unrealized holding gain on available for
sale securities, net of taxes (Note 18)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    476,044
    
    
    
    476,044Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,922,901
    )Exchange of capital stock
    
    
    
    
    
    
    (9,501,120
    )
    
    
    9,501,120
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Capital stock issued in acquisition (Note 13)
    
    
    33,600,000
    
    
    
    336,000
    
    
    
    45,897,779
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46,233,779Balance, December 31, 2010
    
    
    38,362,727
    
    
    $
    383,744
    
    
    $
    105,050,433
    
    
    $
    (39,399,345
    )
    
    $
    (160,025
    )
    
    $
    1,297,381
    
    
    $
    67,172,188
   5




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Years
Ended December 31, 2010, 2009 and 2008
 2010
    
    
    2009
    
    
    2008Cash Flows from Operating ActivitiesNet loss
    
    $
    (15,398,945
    )
    
    $
    (23,879,606
    )
    
    $
    (7,111,606
    )Adjustments to reconcile net loss to net cash (used in) provided by operating activitiesAmortization and accretion of investment premiums and discounts, net
    
    
    401,949
    
    
    
    157,727
    
    
    
    131,456Amortization and accretion of purchase loan premiums and discounts, net
    
    
    110,433
    
    
    
    26,079
    
    
    
    37,732Amortization of core deposit intangible
    
    
    15,900
    
    
    
    16,788
    
    
    
    17,688Provision for loan losses
    
    
    7,714,000
    
    
    
    13,089,000
    
    
    
    11,289,772Gain on sale of investment securities
    
    
    
    
    
    
    (434,334
    )
    
    
    Loss on impaired investment securities
    
    
    
    
    
    
    
    
    
    
    3,167,285Impairment of goodwill
    
    
    
    
    
    
    
    
    
    
    1,365,491Loss on sale of other real estate owned
    
    
    164,494
    
    
    
    
    
    
    
    Impairment write-down on other real estate owned
    
    
    1,084,023
    
    
    
    
    
    
    
    Gain on redemption of investment security
    
    
    
    
    
    
    (16,880
    )
    
    
    Depreciation and amortization of premises and equipment
    
    
    1,498,334
    
    
    
    1,660,803
    
    
    
    1,632,985Payment of fees to directors in common stock
    
    
    
    
    
    
    55,833
    
    
    
    49,932Earnings on and decrease in cash surrender value of life insurance
    
    
    (488,600
    )
    
    
    (724,627
    )
    
    
    (941,421
    )Deferred income taxes
    
    
    
    
    
    
    8,624,602
    
    
    
    (5,869,368
    )Change in assets and liabilities:Decrease in deferred loan fees
    
    
    (288,790
    )
    
    
    (843,519
    )
    
    
    (849,073
    )Decrease in accrued interest and dividends receivable
    
    
    724,066
    
    
    
    1,320,503
    
    
    
    19,263Decrease (increase) in other assets
    
    
    740,809
    
    
    
    (8,018,616
    )
    
    
    (437,841
    )Increase (decrease) in accrued expenses and other liabilities
    
    
    830,750
    
    
    
    (832,112
    )
    
    
    (1,031,841
    )Net cash (used in) provided by operating activities
    
    
    (2,891,577
    )
    
    
    (9,798,359
    )
    
    
    1,470,454Cash Flows from Investing ActivitiesPurchases of available for sale securities
    
    
    (15,162,500
    )
    
    
    (34,265,081
    )
    
    
    (18,366,036
    )Purchases of other investments
    
    
    (3,500,000
    )
    
    
    
    
    
    
    Proceeds from sale of available for sale securities
    
    
    
    
    
    
    19,852,541
    
    
    
    Proceeds from redemptions of available for sale securities
    
    
    15,000,000
    
    
    
    12,000,000
    
    
    
    19,000,000Principal repayments on available for sale securities
    
    
    8,793,644
    
    
    
    7,326,444
    
    
    
    11,317,968Purchase of Federal Reserve Bank stock
    
    
    
    
    
    
    (1,500
    )
    
    
    (1,500
    )Purchase of Federal Home Loan Bank stock
    
    
    
    
    
    
    
    
    
    
    (1,852,200
    )Proceeds from repurchase of excess stock by the Federal Reserve Bank
    
    
    647,650
    
    
    
    75,050
    
    
    
    Net decrease (increase) in loans
    
    
    93,035,888
    
    
    
    112,017,191
    
    
    
    (113,161,128
    )Capital improvements to other real estate owned
    
    
    (266,449
    )
    
    
    
    
    
    
    Proceeds from sale of other real estate owned
    
    
    11,786,337
    
    
    
    
    
    
    
    Purchases of premises and equipment
    
    
    (173,083
    )
    
    
    (308,185
    )
    
    
    (1,775,967
    )Net cash provided by (used in) investing activities
    
    
    110,161,487
    
    
    
    116,696,460
    
    
    
    (104,838,863
    )Cash Flows from Financing ActivitiesNet (decrease) increase in demand, savings and money market deposits
    
    
    (33,040,482
    )
    
    
    69,100,673
    
    
    
    43,490,488Net (decrease) increase in time certificates of deposit
    
    
    (81,484,981
    )
    
    
    (92,587,732
    )
    
    
    68,931,454Net increase in FHLB borrowings
    
    
    
    
    
    
    
    
    
    
    2,500,000Net proceeds from issuance of common stock in acquisition
    
    
    46,233,779
    
    
    
    
    
    
    
    Proceeds from issuance of common stock
    
    
    
    
    
    
    
    
    
    
    50,551Other
    
    
    
    
    
    
    (908
    )
    
    
    1,275Payment under stock buyback program
    
    
    
    
    
    
    
    
    
    
    (160,025
    )Dividends paid on common stock
    
    
    
    
    
    
    (213,453
    )
    
    
    (854,497
    )Net cash (used in) provided by financing activities
    
    
    (68,291,684
    )
    
    
    (23,701,420
    )
    
    
    113,959,246Net increase in cash and cash equivalents
    
    
    38,978,226
    
    
    
    83,196,681
    
    
    
    10,590,837
  6




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
 Years Ended December 31, 2010, 2009 and 2008
 2010
    
    
    2009
    
    
    2008Cash and cash equivalents atBeginning of year
    
    
    107,799,432
    
    
    
    24,602,751
    
    
    
    14,011,914End of year
    
    $
    146,777,658
    
    
    $
    107,799,432
    
    
    $
    24,602,751Supplemental Disclosures of Cash Flow InformationInterest paid
    
    $
    13,250,797
    
    
    $
    24,348,048
    
    
    $
    28,340,521Income taxes paid
    
    $
    2,080
    
    
    $
    1,216,134
    
    
    $
    1,816,392Supplemental Disclosure of Noncash Investing and Financing
ActivitiesUnrealized holding gains (losses) on available for sale securities
arising during the period
    
    $
    767,812
    
    
    $
    1,470,721
    
    
    $
    (59,692
    )Accrued dividends declared on common stock
    
    $
    
    
    
    $
    
    
    
    $
    213,453Transfer of loans to other real estate owned
    
    $
    10,103,199
    
    
    $
    19,073,993
    
    
    $
    
   7




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31, 2010, 2009 and 2008
 Note 1. Nature of Operations and Summary of Significant Accounting Policies
    Significant group concentrations of credit risk
  Principles of consolidation and basis of financial statement presentation
   8




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
  Cash and cash equivalents
  Investments in debt and marketable equity securities
    9




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
       10




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
    Loans held for sale
  Loans receivable
      11




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
     Allowance for loan losses
   12




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
     13




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
  (1)
    
    Allowances are established for impaired loans (generally defined by the Company
as non-accrual loans and troubled debt restructurings). The amount of impairment
provided for as an allowance is represented by the deficiency, if any, between the
present value of expected future cash flows discounted at the original loans effective
interest rate or the underlying collateral value (less estimated costs to sell,) if the
loan is collateral dependent, and the carrying value of the loan. Impaired loans that
have no impairment losses are not considered for general valuation allowances described
below.
 (2)
    
    General allowances are established for loan losses on a portfolio basis for
loans that do not meet the definition of impaired. The portfolio is grouped into
similar risk characteristics, primarily loan type, loan-to-value, if collateral
dependent, and internal risk ratings. Management applies an estimated loss rate to
each loan group. The loss rates applied are based on the Companys cumulative prior
three year loss experience adjusted, as appropriate, for the environmental factors
discussed below. This evaluation is inherently subjective, as it requires material
estimates that may be susceptible to significant revisions based upon changes in
economic and real estate market conditions. Actual loan losses may be more or less
than the allowance for loan losses management has established, which could have an
effect on the Companys financial results.
  
    
    Changes in local, regional, national and international economic and business
conditions and developments that affect the collectability of the portfolio,
including the condition of various market segments;
 
    
    Changes in the nature and volume of the portfolio and in the terms of the loans;
 
    
    Changes in the experience, ability, and depth of lending management and other
relevant staff;
 
    
    Changes in the volume and severity of past due loans, the volume of nonaccrual
loans, and the volume and severity of adversely classified or graded loans;
 
    
    Changes in the quality of the loan review system;
 
    
    Changes in the value of the underlying collateral for collateral-dependent
loans;
 
    
    The existence and effect of any concentrations of credit, and changes in the
level of such concentrations; and
 
    
    The effect of other external factors such as competition and legal and
regulatory requirements on the level of estimated credit losses in the existing
portfolio.
   14




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
    Loan brokerage activities
  Transfers of financial asset
   15




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
  Other real estate owned
   Premises and equipment
  Impairment of assets
   16




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
 Goodwill and other intangible assets
  Cash surrender value of life insurance
  Income taxes
     17




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
  Related party transactions
  Loss per share
   Stock compensation plan
  Comprehensive income (loss)
   18




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
 Segment reporting
  Fair value
    
    
    Level 1 Inputs- Unadjusted quoted prices in active markets for identical assets or
liabilities that the Company has the ability to access at the measurement date.
 
    
    Level 2 Inputs- Inputs other than quoted prices included in Level 1 that are
observable for the asset or liability, either directly or indirectly. These might include
quoted prices for similar assets or liabilities in active markets, quoted prices for
identical or similar assets or liabilities in markets that are not active, inputs other
than quoted prices that are observable for the asset or liability (such as interest rates,
volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally
from or corroborated by market data by correlation or other means.
 
    
    Level 3 Inputs- Unobservable inputs for determining the fair values of assets or
liabilities that reflect an entitys own assumptions about the assumptions that market
participants would use in pricing the assets or liabilities.
  19




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PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
    
    
    Separate disclosure of the significant transfers in and out of Level 1 and
Level 2 fair value measurements, and a description of the reasons for the transfers.
 
    
    In the rollforward of activity for Level 3 fair value measurements (significant
unobservable inputs), purchases, sales, issuances, and settlements should be presented
separately (on a gross basis rather than as one net number).
  
    
    Fair value measurements and disclosures should be presented for each class of
assets and liabilities within a line item in the statement of financial position.
 
    
    Reporting entities should provide disclosures about the valuation techniques
and inputs used to measure fair value for both recurring and nonrecurring fair value
measurements that fall in either Level 2 or Level 3.
    20




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PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
 Recently issued accounting pronouncements
   Note 2. Restrictions on Cash and Due From Banks
   21




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PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
 Note 3. Available-for-Sale Securities
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair2010
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    ValueU. S. Government agency mortgage-backed
securities
    
    $
    36,572,430
    
    
    $
    900,286
    
    
    $
    (838
    )
    
    $
    37,471,87836,572,430
    
    
    
    900,286
    
    
    
    (838
    )
    
    
    37,471,878Auction rate preferred equity securities
    
    
    1,899,720
    
    
    
    1,193,102
    
    
    
    
    
    
    
    3,092,822$
    38,472,150
    
    
    $
    2,093,388
    
    
    $
    (838
    )
    
    $
    40,564,700
 Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair2009
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    ValueU. S. Government agency obligations
    
    $
    5,176,712
    
    
    $
    
    
    
    $
    (68,212
    )
    
    $
    5,108,500U. S. Government agency mortgage-backed
securities
    
    
    40,428,810
    
    
    
    241,520
    
    
    
    (166,872
    )
    
    
    40,503,45845,605,522
    
    
    
    241,520
    
    
    
    (235,084
    )
    
    
    45,611,958Auction rate preferred equity securities
    
    
    1,899,720
    
    
    
    1,318,303
    
    
    
    
    
    
    
    3,218,023$
    47,505,242
    
    
    $
    1,559,823
    
    
    $
    (235,084
    )
    
    $
    48,829,981
  22




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PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
  Less Than 12 Months
    
    
    12 Months or More
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Loss
    
    
    Value
    
    
    Loss
    
    
    Value
    
    
    Loss2010U. S. Government
mortgage-backed securities
    
    $
    86,375
    
    
    $
    (838
    )
    
    $
    
    
    
    $
    
    
    
    $
    86,375
    
    
    $
    (838
    )Totals
    
    $
    86,375
    
    
    $
    (838
    )
    
    $
    
    
    
    $
    
    
    
    $
    86,375
    
    
    $
    (838
    )2009U. S. Government agency
obligations
    
    $
    5,108,500
    
    
    $
    (68,212
    )
    
    $
    
    
    
    $
    
    
    
    $
    5,108,500
    
    
    $
    (68,212
    )U. S. Government agency
mortgage-backed securities
    
    
    19,548,726
    
    
    
    (159,918
    )
    
    
    759,207
    
    
    
    (6,954
    )
    
    
    20,307,933
    
    
    
    (166,872
    )Totals
    
    $
    24,657,226
    
    
    $
    (228,130
    )
    
    $
    759,207
    
    
    $
    (6,954
    )
    
    $
    25,416,433
    
    
    $
    (235,084
    )
    
    
    Federal Home Loan Mortgage Corporation (Freddie Mac or FHLMC)  $1,050,000. As a
result of actions taken on September 7, 2008 by the United States Treasury Department and
the Federal Housing Finance Agency with respect to placing Freddie Mac into receivership,
the Companys investment in FHLMC preferred equity securities was deemed to be
other-than-temporarily impaired and a write-down of $1,050,000 was recorded during the
third quarter of 2008.
 
    
    Auction Rate Preferred Securities  $2,100,000. The Company had investments in six
auction rate preferred securities of companies primarily in the financial services sector.
The illiquidity in the auction rate market during 2008 resulted in significant declines in
market value for these investments. As management was unable to predict near term
prospects for recovery of these
securities, impairment charges totaling $2,100,000 were recorded during the fourth quarter
of 2008.
  23




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PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
   Amortized
    
    
    FairCost
    
    
    ValueMaturity:Over 10 years
    
    $
    
    
    
    $
    Mortgage-backed securities
    
    
    36,572,430
    
    
    
    37,471,878Total
    
    $
    36,572,430
    
    
    $
    37,471,878
   24




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PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
 Note 4. Loans Receivable and Allowance for Loan Losses
  December 31,
    
    
    December 31,2010
    
    
    2009Real Estate:Commercial
    
    $
    228,842,489
    
    
    $
    230,225,306Residential
    
    
    187,058,318
    
    
    
    195,571,225Construction
    
    
    63,889,083
    
    
    
    154,457,082Construction-to-permanent
    
    
    10,331,043
    
    
    
    15,989,976Commercial
    
    
    14,573,790
    
    
    
    19,298,505Consumer home equity
    
    
    42,884,962
    
    
    
    44,309,265Consumer installment
    
    
    1,932,763
    
    
    
    1,155,059Total loans
    
    
    549,512,448
    
    
    
    661,006,418Premiums on purchased loans
    
    
    242,426
    
    
    
    131,993Net deferred costs (fees)
    
    
    150,440
    
    
    
    (138,350
    )Allowance for loan losses
    
    
    (15,374,101
    )
    
    
    (15,794,118
    )Loans receivable, net
    
    $
    534,531,213
    
    
    $
    645,205,943
  2010
    
    
    2009
    
    
    2008Balance, beginning of year
    
    $
    15,794,118
    
    
    $
    16,247,070
    
    
    $
    5,672,620Provision for loan losses
    
    
    7,714,000
    
    
    
    13,089,000
    
    
    
    11,289,772Recoveries of loans
previously
charged-off
    
    
    236,262
    
    
    
    187,647
    
    
    
    904Loans charged-off
    
    
    (8,370,279
    )
    
    
    (13,729,598
    )
    
    
    (716,226
    )Balance, end of year
    
    $
    15,374,101
    
    
    $
    15,794,118
    
    
    $
    16,247,070
  25




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PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
       26




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 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
    27




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PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
  Commercial
    
    
    
    
    
    
    Construction2010
    
    Commercial
    
    
    Real Estate
    
    
    Construction
    
    
    to Permanent
    
    
    Residential
    
    
    Consumer
    
    
    Unallocated
    
    
    TotalAllowance for loan losses:Beginning Balance
    
    $
    925,102
    
    
    $
    4,987,239
    
    
    $
    6,673,204
    
    
    $
    497,584
    
    
    $
    1,575,189
    
    
    $
    750,549
    
    
    $
    385,251
    
    
    $
    15,794,118Charge-offs
    
    
    (396,300
    )
    
    
    (2,560,074
    )
    
    
    (4,726,015
    )
    
    
    
    
    
    
    (600,000
    )
    
    
    (87,890
    )
    
    
    
    
    
    
    (8,370,279
    )Recoveries
    
    
    
    
    
    
    67,116
    
    
    
    157,289
    
    
    
    
    
    
    
    
    
    
    
    11,857
    
    
    
    
    
    
    
    236,262Provision
    
    
    (87,483
    )
    
    
    5,138,074
    
    
    
    1,373,580
    
    
    
    (6,138
    )
    
    
    1,388,649
    
    
    
    (95,904
    )
    
    
    3,222
    
    
    
    7,714,000Ending Balance
    
    $
    441,319
    
    
    $
    7,632,355
    
    
    $
    3,478,058
    
    
    $
    491,446
    
    
    $
    2,363,838
    
    
    $
    578,612
    
    
    $
    388,473
    
    
    $
    15,374,101Ending balance: individually evaluated for impairment
    
    $
    76,045
    
    
    $
    2,300,199
    
    
    $
    1,895,326
    
    
    $
    183,835
    
    
    $
    1,556,077
    
    
    $
    
    
    
    $
    
    
    
    $
    6,011,482Ending balance: collectively
evaluated for impairment
    
    $
    365,274
    
    
    $
    5,332,156
    
    
    $
    1,582,732
    
    
    $
    307,611
    
    
    $
    807,761
    
    
    $
    578,612
    
    
    $
    388,473
    
    
    $
    9,362,619Total Allowance for Loan Losses
    
    $
    441,319
    
    
    $
    7,632,355
    
    
    $
    3,478,058
    
    
    $
    491,446
    
    
    $
    2,363,838
    
    
    $
    578,612
    
    
    $
    388,473
    
    
    $
    15,374,101Total Loans ending balance
    
    $
    14,573,790
    
    
    $
    228,842,489
    
    
    $
    63,889,083
    
    
    $
    10,331,043
    
    
    $
    187,058,318
    
    
    $
    44,817,725
    
    
    $
    
    
    
    $
    549,512,448Ending balance: individually evaluated
for
impairment
    
    $
    1,214,950
    
    
    $
    28,466,238
    
    
    $
    30,886,023
    
    
    $
    1,379,835
    
    
    $
    37,219,868
    
    
    $
    1,516,977
    
    
    $
    
    
    
    $
    100,683,891Ending balance: collectively evaluated for
impairment
    
    $
    13,358,840
    
    
    $
    200,376,251
    
    
    $
    33,003,060
    
    
    $
    8,951,208
    
    
    $
    149,838,450
    
    
    $
    43,300,748
    
    
    $
    
    
    
    $
    448,828,557
  28




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 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
     29




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PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
  CREDIT RISK PROFILE BY CREDITWORTHINESS CATEGORY
 Commercial
    
    
    
    
    
    Construction
    
    
    ResidentialCommercial
    
    
    Real Estate
    
    
    Construction
    
    
    to Permanent
    
    
    Real Estate
    
    
    ConsumerLTVs:
    
    < 75%
    
    
    >= 75%
    
    
    < 75%
    
    
    >= 75%
    
    
    < 75%
    
    
    >= 75%
    
    
    < 75%
    
    
    >= 75%
    
    
    < 75%
    
    
    >= 75%
    
    
    < 75%
    
    
    >= 75%
    
    
    Other
    
    
    TotalInternal Risk RatingPass
    
    $
    11,225,261
    
    
    $
    256,296
    
    
    $
    124,645,152
    
    
    $
    9,449,059
    
    
    $
    1,272,028
    
    
    $
    350,000
    
    
    $
    
    
    
    $
    
    
    
    $
    91,534,348
    
    
    $
    51,996,851
    
    
    $
    35,192,214
    
    
    $
    
    
    
    
    1,917,783
    
    
    $
    327,838,992Special Mention
    
    
    704,053
    
    
    
    181,600
    
    
    
    35,253,018
    
    
    
    4,645,738
    
    
    
    15,059,704
    
    
    
    4,485,209
    
    
    
    1,709,333
    
    
    
    
    
    
    
    2,088,700
    
    
    
    2,907,285
    
    
    
    3,146,244
    
    
    
    2,879,621
    
    
    
    
    
    
    
    73,060,505Substandard &
Doubtful
    
    
    1,424,161
    
    
    
    782,419
    
    
    
    13,792,482
    
    
    
    41,057,040
    
    
    
    10,712,146
    
    
    
    32,009,996
    
    
    
    
    
    
    
    8,621,710
    
    
    
    18,052,003
    
    
    
    20,479,131
    
    
    
    99,235
    
    
    
    1,567,648
    
    
    
    14,980
    
    
    
    148,612,951$
    13,353,475
    
    
    $
    1,220,315
    
    
    $
    173,690,652
    
    
    $
    55,151,837
    
    
    $
    27,043,878
    
    
    $
    36,845,205
    
    
    $
    1,709,333
    
    
    $
    8,621,710
    
    
    $
    111,675,051
    
    
    $
    75,383,267
    
    
    $
    38,437,693
    
    
    $
    4,447,269
    
    
    $
    1,932,763
    
    
    $
    549,512,448
 CREDIT RISK PROFILE
 Commercial
    
    
    
    
    
    
    Construction
    
    
    ResidentialCommercial
    
    
    Real Estate
    
    
    Construction
    
    
    to Permanent
    
    
    Real Estate
    
    
    Consumer
    
    
    TotalsPerforming
    
    $
    13,358,840
    
    
    $
    202,054,317
    
    
    $
    33,003,060
    
    
    $
    8,951,208
    
    
    $
    159,270,574
    
    
    $
    43,724,749
    
    
    $
    460,362,748Non Performing
    
    
    1,214,950
    
    
    
    26,788,172
    
    
    
    30,886,023
    
    
    
    1,379,835
    
    
    
    27,787,744
    
    
    
    1,092,976
    
    
    
    89,149,700Total
    
    $
    14,573,790
    
    
    $
    228,842,489
    
    
    $
    63,889,083
    
    
    $
    10,331,043
    
    
    $
    187,058,318
    
    
    $
    44,817,725
    
    
    $
    549,512,448
  30




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 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
   31




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PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
  Non-Accrual and Past Due LoansTotal Non->90 Days Past
    
    
    Accrual and31-60 Days
    
    
    61-90 Days
    
    
    Greater Than
    
    
    Total Past
    
    
    
    
    
    
    Due and
    
    
    Past Due2010
    
    Past Due
    
    
    Past Due
    
    
    90 Days
    
    
    Due
    
    
    Current
    
    
    Accruing
    
    
    LoansCommercialSpecial Mention
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    63,289
    
    
    $
    63,289Substandard
    
    
    350,000
    
    
    
    100,000
    
    
    
    698,767
    
    
    
    1,148,767
    
    
    
    66,183
    
    
    
    175,000
    
    
    
    1,389,950Total Commercial
    
    $
    350,000
    
    
    $
    100,000
    
    
    $
    698,767
    
    
    $
    1,148,767
    
    
    $
    66,183
    
    
    $
    238,289
    
    
    $
    1,453,239Commercial Real EstateSubstandard
    
    $
    269,672
    
    
    $
    6,449,096
    
    
    $
    13,521,123
    
    
    $
    20,239,891
    
    
    $
    6,548,281
    
    
    $
    
    
    
    $
    26,788,172Total Commercial Real
Estate
    
    $
    269,672
    
    
    $
    6,449,096
    
    
    $
    13,521,123
    
    
    $
    20,239,891
    
    
    $
    6,548,281
    
    
    $
    
    
    
    $
    26,788,172ConstructionSubstandard
    
    $
    1,517,943
    
    
    $
    4,059,516
    
    
    $
    13,736,985
    
    
    $
    19,314,444
    
    
    $
    11,571,579
    
    
    $
    3,135,953
    
    
    $
    34,021,976Total Construction
    
    $
    1,517,943
    
    
    $
    4,059,516
    
    
    $
    13,736,985
    
    
    $
    19,314,444
    
    
    $
    11,571,579
    
    
    $
    3,135,953
    
    
    $
    34,021,976Construction to PermanentSubstandard
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1,379,835
    
    
    $
    
    
    
    $
    1,379,835Total Construction to
Permanent
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1,379,835
    
    
    $
    
    
    
    $
    1,379,835Residential Real EstateSubstandard
    
    $
    
    
    
    $
    
    
    
    $
    15,897,248
    
    
    $
    15,897,248
    
    
    $
    11,890,496
    
    
    $
    
    
    
    $
    27,787,744Total Residential Real
Estate
    
    $
    
    
    
    $
    
    
    
    $
    15,897,248
    
    
    $
    15,897,248
    
    
    $
    11,890,496
    
    
    $
    
    
    
    $
    27,787,744ConsumerSubstandard
    
    $
    
    
    
    $
    
    
    
    $
    1,092,976
    
    
    $
    1,092,976
    
    
    $
    
    
    
    $
    
    
    
    $
    1,092,976Total Consumer
    
    $
    
    
    
    $
    
    
    
    $
    1,092,976
    
    
    $
    1,092,976
    
    
    $
    
    
    
    $
    
    
    
    $
    1,092,976Total
    
    $
    2,137,615
    
    
    $
    10,608,612
    
    
    $
    44,947,099
    
    
    $
    57,693,326
    
    
    $
    31,456,374
    
    
    $
    3,374,242
    
    
    $
    92,523,942
   32




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
  Performing (Accruing) Loans
    
    
    
    
    
    
    Total Non-Greater
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accrual and31-60 Days
    
    
    Than 60
    
    
    Total Past
    
    
    
    
    
    
    Total Loan
    
    
    Past Due
    
    
    Total Loans2010
    
    Past Due
    
    
    Days
    
    
    Due
    
    
    Current
    
    
    Balances
    
    
    Loans
    
    
    Receivable, netCommercialPass
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    11,481,557
    
    
    $
    11,481,557
    
    
    $
    
    
    
    $
    11,481,557Special Mention
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    822,364
    
    
    
    822,364
    
    
    
    63,289
    
    
    
    885,653Substandard
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    816,630
    
    
    
    816,630
    
    
    
    1,389,950
    
    
    
    2,206,580Total Commercial
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    13,120,551
    
    
    $
    13,120,551
    
    
    $
    1,453,239
    
    
    $
    14,573,790Commercial Real EstatePass
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    134,094,210
    
    
    $
    134,094,210
    
    
    $
    
    
    
    $
    134,094,210Special Mention
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,898,756
    
    
    
    39,898,756
    
    
    
    
    
    
    
    39,898,756Substandard
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,061,351
    
    
    
    28,061,351
    
    
    
    26,788,172
    
    
    
    54,849,523Total Commercial Real
Estate
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    202,054,317
    
    
    $
    202,054,317
    
    
    $
    26,788,172
    
    
    $
    228,842,489ConstructionPass
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1,622,029
    
    
    $
    1,622,029
    
    
    $
    
    
    
    $
    1,622,029Special Mention
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,544,913
    
    
    
    19,544,913
    
    
    
    
    
    
    
    19,544,913Substandard
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,700,165
    
    
    
    8,700,165
    
    
    
    34,021,976
    
    
    
    42,722,141Total Construction
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    29,867,107
    
    
    $
    29,867,107
    
    
    $
    34,021,976
    
    
    $
    63,889,083Construction to PermanentPass
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Special Mention
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,709,333
    
    
    
    1,709,333
    
    
    
    
    
    
    
    1,709,333Substandard
    
    
    1,127,875
    
    
    
    
    
    
    
    1,127,875
    
    
    
    6,114,000
    
    
    
    7,241,875
    
    
    
    1,379,835
    
    
    
    8,621,710Total Construction to
Permanent
    
    $
    1,127,875
    
    
    $
    
    
    
    $
    1,127,875
    
    
    $
    7,823,333
    
    
    $
    8,951,208
    
    
    $
    1,379,835
    
    
    $
    10,331,043Residential Real EstatePass
    
    $
    198,357
    
    
    $
    
    
    
    $
    198,357
    
    
    $
    143,332,842
    
    
    $
    143,531,199
    
    
    $
    
    
    
    $
    143,531,199Special Mention
    
    
    2,907,285
    
    
    
    
    
    
    
    2,907,285
    
    
    
    2,088,700
    
    
    
    4,995,985
    
    
    
    
    
    
    
    4,995,985Substandard
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,743,390
    
    
    
    10,743,390
    
    
    
    27,787,744
    
    
    
    38,531,134Total Residential Real
Estate
    
    $
    3,105,642
    
    
    $
    
    
    
    $
    3,105,642
    
    
    $
    156,164,932
    
    
    $
    159,270,574
    
    
    $
    27,787,744
    
    
    $
    187,058,318ConsumerPass
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    37,109,997
    
    
    $
    37,109,997
    
    
    $
    
    
    
    $
    37,109,997Special Mention
    
    
    168,589
    
    
    
    
    
    
    
    168,589
    
    
    
    5,857,276
    
    
    
    6,025,865
    
    
    
    
    
    
    
    6,025,865Substandard
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    588,887
    
    
    
    588,887
    
    
    
    1,092,976
    
    
    
    1,681,863Total Consumer
    
    $
    168,589
    
    
    $
    
    
    
    $
    168,589
    
    
    $
    43,556,160
    
    
    $
    43,724,749
    
    
    $
    1,092,976
    
    
    $
    44,817,725Total
    
    $
    4,402,106
    
    
    $
    
    
    
    $
    4,402,106
    
    
    $
    452,586,400
    
    
    $
    456,988,506
    
    
    $
    92,523,942
    
    
    $
    549,512,448
  33




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
  Recorded
    
    
    Unpaid Principal
    
    
    RelatedInvestment
    
    
    Balance
    
    
    Allowance2010With no related allowance recorded:Commercial
    
    $
    1,077,512
    
    
    $
    1,828,917
    
    
    $
    Commercial Real Estate
    
    
    12,770,033
    
    
    
    13,052,924
    
    
    
    Construction
    
    
    14,060,251
    
    
    
    15,133,253
    
    
    
    Construction to Permanent
    
    
    
    
    
    
    Residential
    
    
    24,513,106
    
    
    
    24,737,293
    
    
    
    Consumer
    
    
    1,516,977
    
    
    
    1,883,585
    
    
    
    Total:
    
    $
    53,937,879
    
    
    $
    56,635,972
    
    
    $
    With an allowance recorded:Commercial
    
    $
    137,438
    
    
    $
    151,633
    
    
    $
    76,045Commercial Real Estate
    
    
    15,696,205
    
    
    
    19,509,247
    
    
    
    2,300,199Construction
    
    
    16,825,772
    
    
    
    19,368,468
    
    
    
    1,895,326Construction to Permanent
    
    
    1,379,835
    
    
    
    1,425,000
    
    
    
    183,835Residential
    
    
    12,706,762
    
    
    
    12,826,248
    
    
    
    1,556,077Consumer
    
    
    
    
    
    
    
    
    
    
    Total:
    
    $
    46,746,012
    
    
    $
    53,280,596
    
    
    $
    6,011,482Commercial
    
    $
    1,214,950
    
    
    $
    1,980,550
    
    
    $
    76,045Commercial Real Estate
    
    
    28,466,238
    
    
    
    32,562,171
    
    
    
    2,300,199Construction
    
    
    30,886,023
    
    
    
    34,501,721
    
    
    
    1,895,326Construction to Permanent
    
    
    1,379,835
    
    
    
    1,425,000
    
    
    
    183,835Residential
    
    
    37,219,868
    
    
    
    37,563,541
    
    
    
    1,556,077Consumer
    
    
    1,516,977
    
    
    
    1,883,585
    
    
    
    Total:
    
    $
    100,683,891
    
    
    $
    109,916,568
    
    
    $
    6,011,482
    34




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
 Note 5. Premises and Equipment
  2010
    
    
    2009Leasehold improvements
    
    $
    8,014,802
    
    
    $
    7,984,334Furniture, equipment and software
    
    
    6,205,687
    
    
    
    6,100,92714,220,489
    
    
    
    14,085,261Less: accumulated depreciation and amortization
    
    
    (8,950,177
    )
    
    
    (7,489,534
    )$
    5,270,312
    
    
    $
    6,595,727
  Note 6. Other Real Estate Operations
  2010
    
    
    2009Expenses of holding other real estate owned
    
    $
    1,051,631
    
    
    $
    837,781Impairment write-downs on other real estate owned
    
    
    1,084,023
    
    
    
    Loss on sale of other real estate owned
    
    
    164,494
    
    
    
    Rental income from other real estate owned
    
    
    (13,200
    )
    
    
    (44,000
    )Expense from other real estate operations
    
    $
    2,286,948
    
    
    $
    793,781
  35




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
 Note 7. Deposits
  Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageInterest Rate
    
    
    2010
    
    
    Interest Rate
    
    
    2009Non-interest bearing
    
    
    
    
    
    $
    51,058,373
    
    
    
    
    
    
    $
    49,755,521Interest bearing:Time certificates, less than $100,000
    
    
    1.79
    %
    
    
    251,296,558
    
    
    
    2.34
    %
    
    
    305,719,484Time certificates, $100,000 or more
    
    
    1.91
    %
    
    
    175,431,252
    
    
    
    2.29
    %
    
    
    202,493,307Money market
    
    
    0.15
    %
    
    
    92,683,478
    
    
    
    1.23
    %
    
    
    112,017,987Savings
    
    
    0.42
    %
    
    
    57,041,943
    
    
    
    1.53
    %
    
    
    69,766,296NOW
    
    
    0.08
    %
    
    
    19,297,225
    
    
    
    0.73
    %
    
    
    21,581,697Total interest bearing
    
    
    
    
    
    
    595,750,456
    
    
    
    
    
    
    
    711,578,771Total deposits
    
    
    
    
    
    $
    646,808,829
    
    
    
    
    
    
    $
    761,334,292
   Year Ended December 31,2010
    
    
    2009
    
    
    2008Time certificates, less than $100,000
    
    $
    5,761,993
    
    
    $
    11,696,972
    
    
    $
    14,246,778Time certificates, $100,000 or more
    
    
    3,961,176
    
    
    
    7,131,275
    
    
    
    9,315,084Money market
    
    
    891,710
    
    
    
    1,916,938
    
    
    
    1,228,549Savings
    
    
    489,176
    
    
    
    1,119,982
    
    
    
    992,157NOW
    
    
    74,738
    
    
    
    156,088
    
    
    
    185,556$
    11,178,793
    
    
    $
    22,021,255
    
    
    
    25,968,124
  36




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
  Weighted AverageInterest RateDue within:1 year
    
    
    1.40
    %
    
    $
    307,023,8561-2 years
    
    
    2.00
    %
    
    
    33,517,9762-3 years
    
    
    3.90
    %
    
    
    36,213,4073-4 years
    
    
    3.40
    %
    
    
    34,801,3764-5 years
    
    
    2.40
    %
    
    
    15,171,1951.80
    %
    
    $
    426,727,810
 Note 8. Borrowings
 Federal Home Loan Bank borrowings
  Repurchase agreements
   37




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
 Junior subordinated debt owed to unconsolidated trust
      38




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
 Maturity of borrowings
  Fixed
    
    
    FloatingRate
    
    
    Rate
    
    
    Total2011
    
    $
    
    
    
    $
    
    
    
    $
    2012
    
    
    10,000,000
    
    
    
    
    
    
    
    10,000,0002013
    
    
    20,000,000
    
    
    
    
    
    
    
    20,000,0002014
    
    
    
    
    
    
    
    
    
    
    2015
    
    
    10,000,000
    
    
    
    
    
    
    
    10,000,000Thereafter
    
    
    17,000,000
    
    
    
    8,248,000
    
    
    
    25,248,000Total borrowings
    
    $
    57,000,000
    
    
    $
    8,248,000
    
    
    $
    65,248,000
 Note 9. Commitments and Contingencies
 Operating leases
   Years EndingDecember 31,
    
    Amount2011
    
    $
    2,855,3562012
    
    
    2,797,0092013
    
    
    2,476,0842014
    
    
    2,175,3252015
    
    
    1,594,123Thereafter
    
    
    2,625,886$
    14,523,783
  39




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
  Employment Agreements
 Presidents Agreement
   Other Employment Agreements
    40




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
 Legal Matters
   Note 10. Income Taxes
  2010
    
    
    2009
    
    
    2008CurrentFederal
    
    $
    
    
    
    $
    (6,410,852
    )
    
    $
    1,954,300State
    
    
    225,000
    
    
    
    
    
    
    
    851,478Total
    
    
    225,000
    
    
    
    (6,410,852
    )
    
    
    2,805,778DeferredFederal
    
    
    
    
    
    
    6,333,524
    
    
    
    (4,739,525
    )State
    
    
    
    
    
    
    2,291,078
    
    
    
    (1,130,253
    )Total
    
    
    
    
    
    
    8,624,602
    
    
    
    (5,869,778
    )Provision (benefit) for income taxes
    
    $
    225,000
    
    
    $
    2,213,750
    
    
    $
    (3,064,000
    )
  41




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
  2010
    
    
    2009
    
    
    2008Benefit for income taxes at
statutory Federal rate
    
    $
    (5,159,100
    )
    
    $
    (7,366,400
    )
    
    $
    (3,459,700
    )State taxes, net of Federal benefit
    
    
    148,500
    
    
    
    (1,072,500
    )
    
    
    (522,300
    )Dividends received deduction
    
    
    (44,900
    )
    
    
    (70,100
    )
    
    
    (118,000
    )Nondeductible expenses
    
    
    8,600
    
    
    
    26,700
    
    
    
    40,700Amortization of goodwill
    
    
    
    
    
    
    
    
    
    
    (11,300
    )Goodwill impairment
    
    
    
    
    
    
    
    
    
    
    397,600Change in cash surrender value
of life insurance
    
    
    (213,000
    )
    
    
    (282,200
    )
    
    
    (366,700
    )Increase in valuation allowance
    
    
    5,452,116
    
    
    
    11,386,236
    
    
    
    824,000Other
    
    
    32,784
    
    
    
    (407,986
    )
    
    
    151,700Total provision (benefit) for income taxes
    
    $
    225,000
    
    
    $
    2,213,750
    
    
    $
    (3,064,000
    )
  42




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
  2010
    
    
    2009Deferred tax assets:Allowance for loan losses
    
    $
    5,988,212
    
    
    $
    6,151,809Nonaccrual interest
    
    
    5,125,083
    
    
    
    2,069,151Investment impairment charges
    
    
    1,227,083
    
    
    
    1,227,083Premises and equipment
    
    
    1,128,094
    
    
    
    635,261Accrued expenses
    
    
    224,941
    
    
    
    201,825State NOL carryforward benefit
    
    
    1,359,435
    
    
    
    970,567Federal NOL carryforward benefit
    
    
    2,901,965
    
    
    
    387,522Federal AMT benefit estimate
    
    
    317,704
    
    
    
    408,662Other
    
    
    203,071
    
    
    
    145,760Gross deferred tax assets
    
    
    18,475,588
    
    
    
    12,197,640Valuation allowance
    
    
    (18,466,961
    )
    
    
    (12,210,236
    )Deferred tax assets, net of valuation allowance
    
    
    8,627
    
    
    
    (12,596
    )Deferred tax liabilitiesInvestment securities
    
    
    (795,169
    )
    
    
    (503,401
    )Other
    
    
    (8,627
    )
    
    
    (12,596
    )Gross deferred tax liabilities
    
    
    (803,796
    )
    
    
    (515,997
    )Deferred tax liability, net
    
    $
    (795,169
    )
    
    $
    (503,401
    )
   43




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
  2010
    
    
    2009
    
    
    2008Deferred tax provision (benefit) allocated to equity
    
    $
    291,768
    
    
    $
    558,874
    
    
    $
    (22,683
    )Deferred tax provision (benefit) allocated to operations
    
    
    
    
    
    
    8,624,602
    
    
    
    (5,869,368
    )Total deferred tax provision (benefit)
    
    $
    291,768
    
    
    $
    9,183,476
    
    
    $
    (5,892,051
    )
    44




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
 Note 11. Goodwill and other intangible assets
  2010
    
    
    2009Core Deposit Intangible:Balance as of January 1,
    
    
    69,108
    
    
    
    85,896Amortization expense
    
    
    15,900
    
    
    
    16,788Balance as of December 31,
    
    
    53,208
    
    
    
    69,108Total other intangible assets
    
    $
    53,208
    
    
    $
    69,108
  Years EndingDecember 31,
    
    Amount2011
    
    $
    15,0122012
    
    
    14,1242013
    
    
    13,2362014
    
    
    10,836Total
    
    $
    53,208
   45




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
 Note 12. Cash Surrender Value of Life Insurance
  Note 13. Shareholders Equity
 Common Stock
      46




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
   Stock Repurchase Program
  Treasury Stock
   47




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
 Loss Per Share
  2010Net
    
    
    Weighted Average
    
    
    Per ShareLoss
    
    
    Common Shares O/S
    
    
    AmountBasic and Diluted Loss Per ShareLoss attributable to common shareholders
    
    $
    (15,398,945
    )
    
    
    11,850,946
    
    
    $
    (1.30
    )
 2009Net
    
    
    Weighted Average
    
    
    Per ShareLoss
    
    
    Common Shares O/S
    
    
    AmountBasic and Diluted Loss Per ShareLoss attributable to common shareholders
    
    $
    (23,879,606
    )
    
    
    4,753,783
    
    
    $
    (5.02
    )
  2008Net
    
    
    Weighted Average
    
    
    Per ShareLoss
    
    
    Common Shares O/S
    
    
    AmountBasic and Diluted Loss Per ShareLoss attributable to common shareholders
    
    $
    (7,111,606
    )
    
    
    4,748,873
    
    
    $
    (1.50
    )
  Stock Options
   48




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
  2009
    
    
    2008Weighted -
    
    
    
    
    
    
    Weighted -Number
    
    
    Average
    
    
    Number
    
    
    Averageof
    
    
    Exercise
    
    
    of
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    PriceOutstanding at beginning
of year
    
    
    55,000
    
    
    $
    10.13
    
    
    
    60,000
    
    
    $
    10.13Exercised
    
    
    
    
    
    
    
    
    
    
    5,000
    
    
    
    10.11Expired
    
    
    55,000
    
    
    
    10.13
    
    
    
    Outstanding at end of year
    
    
    
    
    
    
    
    
    
    
    55,000
    
    
    
    10.13Exercisable at end of year
    
    
    
    
    
    
    
    
    
    
    55,000
    
    
    
    10.13
  Stock Appreciation Rights Plan
   49




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
 Rights Agreement
    Note 14. 401(k) Savings Plan
   50




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
 Note 15. Financial Instruments with Off-Balance-Sheet Risk
    2010
    
    
    2009Commitments to extend credit:Future loan commitments
    
    $
    4,701,779
    
    
    $
    3,378,751Home equity line of credit
    
    
    21,197,134
    
    
    
    24,091,467Unused lines of credit
    
    
    7,721,359
    
    
    
    10,477,677Undisbursed construction loans
    
    
    1,290,628
    
    
    
    17,682,552Financial standby letters of credit
    
    
    52,000
    
    
    
    1,112,600$
    34,962,900
    
    
    $
    56,743,047
    51




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
 Note 16. Regulatory and Operational Matters
      52




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
   To Be WellCapitalized UnderFor Capital
    
    
    Prompt CorrectiveActual
    
    
    Adequacy Purposes
    
    
    Action Provisions2010
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioThe Company:Total Capital (to Risk Weighted Assets)
    
    $
    80,358
    
    
    
    17.08
    %
    
    $
    37,643
    
    
    
    8.00
    %
    
    $
    N/A
    
    
    
    N/ATier 1 Capital (to Risk Weighted Assets)
    
    
    73,822
    
    
    
    15.69
    %
    
    
    18,822
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/ATier 1 Capital (to Average Assets)
    
    
    73,822
    
    
    
    9.16
    %
    
    
    32,219
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AThe Bank:Total Capital (to Risk Weighted Assets)
    
    $
    77,705
    
    
    
    16.54
    %
    
    $
    37,582
    
    
    
    8.00
    %
    
    $
    46,978
    
    
    
    10.00
    %Tier 1 Capital (to Risk Weighted Assets)
    
    
    71,178
    
    
    
    15.15
    %
    
    
    18,791
    
    
    
    4.00
    %
    
    
    28,187
    
    
    
    6.00
    %Tier 1 Capital (to Average Assets)
    
    
    71,178
    
    
    
    8.84
    %
    
    
    32,203
    
    
    
    4.00
    %
    
    
    40,253
    
    
    
    5.00
    %
  53




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
 To Be WellCapitalized UnderFor Capital
    
    
    Prompt CorrectiveActual
    
    
    Adequacy Purposes
    
    
    Action Provisions2009
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioThe Company:Total Capital (to Risk Weighted Assets)
    
    $
    51,072
    
    
    
    8.58
    %
    
    $
    47,620
    
    
    
    8.00
    %
    
    $
    N/A
    
    
    
    N/ATier 1 Capital (to Risk Weighted Assets)
    
    
    42,971
    
    
    
    7.22
    %
    
    
    23,807
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/ATier 1 Capital (to Average Assets)
    
    
    42,971
    
    
    
    4.72
    %
    
    
    36,416
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AThe Bank:Total Capital (to Risk Weighted Assets)
    
    $
    51,056
    
    
    
    8.58
    %
    
    $
    47,605
    
    
    
    8.00
    %
    
    $
    59,506
    
    
    
    10.00
    %Tier 1 Capital (to Risk Weighted Assets)
    
    
    42,960
    
    
    
    7.22
    %
    
    
    23,801
    
    
    
    4.00
    %
    
    
    35,701
    
    
    
    6.00
    %Tier 1 Capital (to Average Assets)
    
    
    42,960
    
    
    
    4.72
    %
    
    
    36,407
    
    
    
    4.00
    %
    
    
    45,508
    
    
    
    5.00
    %
  Restrictions on dividends, loans and advances
   54




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
   Recent Legislative Developments
  Note 17. Related Party Transactions
   55




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
  2010
    
    
    2009Balance, beginning of year
    
    $
    3,540,593
    
    
    $
    3,446,683Additional Loans
    
    
    184,257
    
    
    
    226,062Repayments
    
    
    (210,390
    )
    
    
    (132,152
    )Balance, end of year
    
    $
    3,514,460
    
    
    $
    3,540,593
     56




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PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
 Note 18. Other Comprehensive Income
  2010Before Tax
    
    
    
    
    
    
    Net of TaxAmount
    
    
    Tax Effect
    
    
    AmountUnrealized holding gain arising during the period
    
    $
    767,812
    
    
    $
    (291,768
    )
    
    $
    476,044Unrealized holding gain on available for sale
securities
    
    $
    767,812
    
    
    $
    (291,768
    )
    
    $
    476,044
 2009Before Tax
    
    
    
    
    
    
    Net of TaxAmount
    
    
    Tax Effect
    
    
    AmountUnrealized holding gain arising during the period
    
    $
    1,921,934
    
    
    $
    (730,334
    )
    
    $
    1,191,600Less reclassification adjustment for gains
recognized in income
    
    $
    (451,214
    )
    
    $
    171,461
    
    
    $
    (279,753
    )Unrealized holding gain on available for sale
securities
    
    $
    1,470,720
    
    
    $
    (558,873
    )
    
    $
    911,847
 2008Before Tax
    
    
    
    
    
    
    Net of TaxAmount
    
    
    Tax Effect
    
    
    AmountUnrealized holding losses arising during the
period
    
    $
    (3,226,977
    )
    
    $
    1,256,341
    
    
    $
    (1,970,636
    )Add reclassification adjustment for losses
recognized in net income
    
    
    3,167,285
    
    
    
    (1,233,659
    )
    
    
    1,933,626Unrealized holding loss on available for sale
securities
    
    $
    (59,692
    )
    
    $
    22,682
    
    
    $
    (37,010
    )
  57




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
 Note 19. Fair Value and Interest Rate Risk
  Cash and due from banks, federal funds sold, short-term investments and accrued interest receivable
and payable:
 Available-for-Sale Securities:
 Loans:
 Other Real Estate Owned:
 Deposits:
  58




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
 Short-term borrowings:
 Junior Subordinated Debt:
 Federal Home Loan Bank Borrowings:
 Other Borrowings:
 Off-balance sheet instruments:
  59




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
  Quoted Prices in
    
    
    Significant
    
    
    SignificantActive Markets
    
    
    Observable
    
    
    Unobservable
    
    
    Balancefor Identical Assets
    
    
    Inputs
    
    
    Inputs
    
    
    as ofDecember 31, 2010
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    December 31, 2010Securities available for sale
    
    $
    
    
    
    $
    40,564,700
    
    
    $
    
    
    
    $
    40,564,700
 Quoted Prices in
    
    
    Significant
    
    
    SignificantActive Markets
    
    
    Observable
    
    
    Unobservable
    
    
    Balancefor Identical Assets
    
    
    Inputs
    
    
    Inputs
    
    
    as ofDecember 31, 2009
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    December 31, 2009Securities available for sale
    
    $
    
    
    
    $
    48,829,981
    
    
    $
    
    
    
    $
    48,829,981
   60




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
  Quoted Prices in
    
    
    Significant
    
    
    SignificantActive Markets
    
    
    Observable
    
    
    Unobservable
    
    
    Balancefor Identical Assets
    
    
    Inputs
    
    
    Inputs
    
    
    as of(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    December 31, 2010December 31, 2010Impaired Loans(1)
    
    $
    
    
    
    $
    
    
    
    $
    30,999,865
    
    
    $
    30,999,865Other real estate owned (2)
    
    $
    
    
    
    $
    
    
    
    $
    10,103,199
    
    
    $
    10,103,199December 31, 2009Impaired Loans (1)
    
    $
    
    
    
    $
    
    
    
    $
    49,322,844
    
    
    $
    49,322,844Other real estate owned (2)
    
    $
    
    
    
    $
    
    
    
    $
    19,073,993
    
    
    $
    19,073,993
 (1)
    
    Represents carrying value for which adjustments are based on the appraised value
of the collateral.(2)
    
    Represents carrying value for which adjustments are based on the appraised value
of the property.     61




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
  2010
    
    
    2009Carrying
    
    
    Estimated
    
    
    Carrying
    
    
    EstimatedAmount
    
    
    Fair Value
    
    
    Amount
    
    
    Fair ValueFinancial Assets:Cash and noninterest bearing deposits due from banks
    
    $
    4,613
    
    
    $
    4,613
    
    
    $
    19,466
    
    
    $
    19,466Interest-bearing deposits due from banks
    
    
    131,711
    
    
    
    131,711
    
    
    
    78,070
    
    
    
    78,070Federal funds sold
    
    
    10,000
    
    
    
    10,000
    
    
    
    10,000
    
    
    
    10,000Short-term investments
    
    
    453
    
    
    
    453
    
    
    
    264
    
    
    
    264Other Investments
    
    
    3,500
    
    
    
    3,500
    
    
    
    
    
    
    
    Available-for-sale securities
    
    
    40,565
    
    
    
    40,565
    
    
    
    48,830
    
    
    
    48,830Federal Reserve Bank stock
    
    
    1,192
    
    
    
    1,192
    
    
    
    1,840
    
    
    
    1,840Federal Home Loan Bank stock
    
    
    4,508
    
    
    
    4,508
    
    
    
    4,508
    
    
    
    4,508Loans receivable, net
    
    
    534,531
    
    
    
    542,360
    
    
    
    645,206
    
    
    
    644,977Accrued interest receivable
    
    
    2,512
    
    
    
    2,512
    
    
    
    3,236
    
    
    
    3,236Financial Liabilities:Demand deposits
    
    $
    51,058
    
    
    $
    51,058
    
    
    $
    49,756
    
    
    $
    49,756Savings deposits
    
    
    57,042
    
    
    
    57,042
    
    
    
    69,766
    
    
    
    69,766Money market deposits
    
    
    92,683
    
    
    
    92,683
    
    
    
    112,018
    
    
    
    112,018NOW accounts
    
    
    19,297
    
    
    
    19,297
    
    
    
    21,582
    
    
    
    21,582Time deposits
    
    
    426,728
    
    
    
    432,466
    
    
    
    508,213
    
    
    
    512,524FHLB borrowings
    
    
    50,000
    
    
    
    51,195
    
    
    
    50,000
    
    
    
    50,270Securities sold under repurchase agreements
    
    
    7,000
    
    
    
    7,796
    
    
    
    7,000
    
    
    
    7,778Subordinated debt
    
    
    8,248
    
    
    
    8,248
    
    
    
    8,248
    
    
    
    8,248Accrued interest payable
    
    
    729
    
    
    
    729
    
    
    
    505
    
    
    
    505
   62




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
 Off-balance-sheet instruments
  Note 20. Condensed Parent Company Only Financial Statements
  CONDENSED BALANCE SHEETS
December 31, 2010 and 2009
 2010
    
    
    2009ASSETSCash and due from banks
    
    $
    2,863,488
    
    
    $
    21,275Investment in subsidiaries
    
    
    72,890,128
    
    
    
    44,202,870Other assets
    
    
    592,213
    
    
    
    1,258,385Total assets
    
    $
    76,345,829
    
    
    $
    45,482,530LIABILITIES AND SHAREHOLDERS EQUITYBorrowings
    
    
    8,248,000
    
    
    
    8,248,000Accrued expenses and other liabilities
    
    
    925,641
    
    
    
    1,373,220Shareholders equity
    
    
    67,172,188
    
    
    
    35,861,310Total liabilities and shareholders equity
    
    $
    76,345,829
    
    
    $
    45,482,530
  63




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
 CONDENSED STATEMENTS OF OPERATIONS
Years Ended December 31, 2010, 2009 and 2008
 2010
    
    
    2009
    
    
    2008RevenuesDividends from subsidiary bank
    
    $
    
    
    
    $
    
    
    
    $
    920,838Total revenue
    
    
    
    
    
    
    
    
    
    
    920,838ExpensesInterest on subordinated debt
    
    
    297,209
    
    
    
    341,426
    
    
    
    552,118Other expenses
    
    
    312,950
    
    
    
    30,745
    
    
    
    30,531Total expenses
    
    
    610,159
    
    
    
    372,171
    
    
    
    582,649(Loss) income before equity in undistributed
net loss of subsidiaries
    
    
    (610,159
    )
    
    
    (372,171
    )
    
    
    338,189Equity in undistributed net loss of subsidiaries
    
    
    (14,788,786
    )
    
    
    (23,507,435
    )
    
    
    (7,449,795
    )Net loss
    
    $
    (15,398,945
    )
    
    $
    (23,879,606
    )
    
    $
    (7,111,606
    )
  64




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
 CONDENSED STATEMENTS OF CASH FLOWS 
Years Ended December 31, 2010, 2009 and 2008
 2010
    
    
    2009
    
    
    2008Cash Flows from Operating ActivitiesNet loss
    
    $
    (15,398,945
    )
    
    $
    (23,879,606
    )
    
    $
    (7,111,606
    )Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:Equity in undistributed loss of subsidiaries
    
    
    14,788,786
    
    
    
    23,507,435
    
    
    
    7,449,795Payment of fees to directors in common stock
    
    
    
    
    
    
    55,833
    
    
    
    49,932Change in assets and liabilities:Decrease (increase) in other assets
    
    
    666,172
    
    
    
    (811,352
    )
    
    
    3,293(Decrease) increase in accrued expenses and other liabilities
    
    
    (447,579
    )
    
    
    1,320,059
    
    
    
    (5,566
    )Net cash (used in) provided by operating activities
    
    
    (391,566
    )
    
    
    192,370
    
    
    
    385,848Cash Flows from Investing ActivitiesNet investment in bank subsidiary
    
    
    (43,000,000
    )
    
    
    (55,833
    )
    
    
    (49,932
    )Net cash used in investing activities
    
    
    (43,000,000
    )
    
    
    (55,833
    )
    
    
    (49,932
    )Cash Flows from Financing ActivitiesProceeds from issuance of common stock
    
    
    46,233,779
    
    
    
    
    
    
    
    51,826Payment to repurchase common stock
    
    
    
    
    
    
    
    
    
    
    (160,025
    )Dividends paid on common stock
    
    
    
    
    
    
    (213,453
    )
    
    
    (854,497
    )Other
    
    
    
    
    
    
    (908
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    46,233,779
    
    
    
    (214,361
    )
    
    
    (962,696
    )Net increase (decrease) in cash and cash equivalents
    
    
    2,842,213
    
    
    
    (77,824
    )
    
    
    (626,780
    )Cash and cash equivalentsBeginning
    
    
    21,275
    
    
    
    99,099
    
    
    
    725,879Ending
    
    $
    2,863,488
    
    
    $
    21,275
    
    
    $
    99,099Supplemental Disclosures of Cash Flow InformationCash paid for interest
    
    $
    
    
    
    $
    346,086
    
    
    $
    557,476Accrued dividends declared on common stock
    
    $
    
    
    
    $
    
    
    
    $
    212,546
  65




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##### Table of Contents



PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
December 31, 2010, 2009 and 2008
 Note 21. Subsequent Events



(unaudited)
    66