U. S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  FORM 10 - KSB

[X]  ANNUAL REPORT PURSUANT  TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934

For the Fiscal Year Ended December 31, 1999

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

For the transition period from                      to
                               --------------------    --------------------

                        Commission file number 000-29599

                         PATRIOT NATIONAL BANCORP, INC.
                 (Name of small business issuer in its charter)

                 Connecticut                             06-1559137
                 -----------                             ----------
        (State or other jurisdiction of               (IRS Employer
         incorporation or organization)            Identification Number)

                900 Bedford Street
               Stamford, Connecticut                        06901
    ----------------------------------------              ----------
    (Address of principal executive offices)              (Zip Code)

             Issuer's telephone number                  (203) 324-7500

         Securities registered under Section 12(b) of the Exchange Act:

                                      None

         Securities registered under Section 12(g) of the Exchange Act:

                     Common Stock, par value $2.00 per share

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

                                Yes X     No
                                   ---      ---

Check if disclosure  of delinquent  filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure  will be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB.  [ ]

State  issuer's  revenue for its most recent fiscal year: $10,954,048
                                                          -----------

Aggregate  market  value  of the  voting  stock  held  by  nonaffiliates  of the
registrant as of February 28, 2000: $17,040,274
                                    -----------

Number of shares of the  registrant's  Common Stock,  par value $2.00 per share,
outstanding as of February 28, 2000: 2,160,952
                                     ---------


<PAGE>


Documents Incorporated by Reference
-----------------------------------

Proxy Statement for 2000 Annual               Incorporated into Part III of this
Meeting of Shareholders.  (A definitive       Form 10-KSB
proxy statement will be filed with the
Securities and Exchange Commission
within 120 days after the close of the
fiscal year covered by this Form 10-KSB.)

Transition Small Business Disclosure Format (check one):

         Yes           No  X
             -----       -----





<PAGE>


                                TABLE OF CONTENTS

Part I                                                                      Page
------                                                                      ----

Item 1.    Description of Business                                             1

Item 2.    Description of Properties                                           8

Item 3.    Legal Proceedings                                                   9

Item 4.    Submission of Matters to a vote of Security Holders                 9

Part II
-------

Item 5.    Market for Common Equity and Related
             Shareholder Matters                                               9

Item 6.    Management's Discussion and Analysis or
             Plan of Operation                                                12

Item 7.    Financial Statements                                               23

Item 8.    Changes in and Disagreements with Accountants
             on Accounting and Financial Disclosure                           24

Part III
--------

Item 9.    Directors, Executive Officers, Promoters and
             Control Persons: Compliance with Section 16 (a)
             of the Exchange Act                                              25

Item 10.  Executive Compensation                                              25

Item 11.  Security Ownership of Certain Beneficial Owners
            and Management                                                    25

Item 12.  Certain Relationships and Related Transactions                      25

Item 13.  Exhibits and Reports on Form 8-K                                    25


<PAGE>


                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

Patriot  National  Bancorp,  Inc.  ("Bancorp"),  a Connecticut  corporation  was
organized  in 1999 for the purpose of becoming a one-bank  holding  company (the
"Reorganization")  for Patriot  National  Bank, a national  banking  association
headquartered  in  Stamford,  Connecticut  (the  "Bank").  Following  receipt of
regulatory and shareholder approvals,  the Reorganization became effective as of
the  opening  of  business  on  December  1,  1999.  Upon  consummation  of  the
Reorganization,  each  outstanding  share of Common  Stock,  par value $2.00 per
share,  of the Bank  ("Bank  Common  Stock"),  was  converted  into the right to
receive  one share of Common  Stock,  par value  $2.00  per  share,  of  Bancorp
("Bancorp  Common Stock"),  and each  outstanding  option or warrant to purchase
Bank Common  Stock  became an option or warrant to  purchase an equal  number of
shares of Bancorp Common Stock.

As of the date hereof,  the only  business of Bancorp is its ownership of all of
the issued and  outstanding  capital stock of the Bank.  Except as  specifically
noted otherwise herein,  the balance of the description of Bancorp's business is
a description of the Bank's business.

The Bank was granted  preliminary  approval by the  Comptroller  of the Currency
(the "OCC") on March 5, 1993 and received its charter and  commenced  operations
as a national  bank on August 31,  1994.  On September 5, 1997 the Bank opened a
branch office in Greenwich,  Connecticut.  On October 12, 1999 the Bank opened a
branch  office in Old  Greenwich,  Connecticut.  On February 10,  1999,  the OCC
granted  approval  for the  Bank to  establish  a  second  office  in  Stamford,
Connecticut. The Bank is presently looking for a location in Stamford.

On  June  30,  1999,  the  Bank  through  its  wholly-owned  subsidiary,  PinPat
Acquisition  Corporation,  acquired  all of the  outstanding  capital  stock  of
Pinnacle Financial Corp., a Connecticut corporation, Pinnacle Financial Corp., a
New Jersey  corporation,  and Pinnacle  Financial  Corp., a New York corporation
(collectively,  "Pinnacle"), a residential mortgage broker. Pinnacle surrendered
its mortgage  licenses and the  mortgage  brokerage  business of Pinnacle is now
conducted through a division of the Bank. If Bancorp determines in the future to
conduct this  business  through  Pinnacle,  Pinnacle  will file for  appropriate
mortgage  licenses.  It is too early to  determine  the impact that the Pinnacle
acquisition will have on the business or results of operation of Bancorp.

Bancorp  currently  conducts  business  operations at its office  located at 900
Bedford Street, Stamford,  Connecticut. The Bank conducts business operations at
its office located at 900 Bedford Street, Stamford, Connecticut; a branch office
located at 100 Mason Street, Greenwich, Connecticut; and a branch office located
at 184 Sound Beach Avenue,  Old Greenwich,  Connecticut.  The Bank also operates
mortgage origination


                                        1
<PAGE>


offices at 71 Lewis  Street,  Greenwich,  Connecticut;  125 Wireless  Boulevard,
Suite 1, Hauppauge,  New York;  1120 Route 22 East,  Suite 5,  Bridgewater,  New
Jersey;  and an office that opened on March 6, 2000, at Wiccopee Plaza, Suite D,
East Fishkill, New York.

The Bank is an  independent  bank engaged in  substantially  all of the business
operations  customarily  conducted by  independent  commercial  banks.  The Bank
offers  a broad  range of  consumer  and  commercial  banking  services  with an
emphasis on serving the needs of individuals,  small and medium-sized businesses
and professionals. The Bank offers consumer and commercial deposit accounts that
include:  checking  accounts,  interest-bearing  "NOW"  accounts,  insured money
market  accounts,  time  certificates  of deposit,  savings  accounts  and IRA's
(Individual   Retirement   Accounts).   Other  services  include  money  orders,
traveler's checks and access to an ATM (automated  teller system).  In addition,
the Bank may in the future  offer Keogh  accounts and other  services.  The Bank
does not currently accept brokered deposits.

The Bank offers real estate loans to individuals including home mortgages,  home
improvement loans, bridge loans and home equity lines of credit.  Other personal
loans include lines of credit, installment loans and credit cards. Loans offered
to small and  medium-sized  businesses  include  unsecured  and secured loans to
service   companies,   real  estate  developers,   manufacturers,   restaurants,
wholesalers, retailers and professionals doing business in the region.

The Bank competes with all  institutions  in its market area.  Most have greater
financial resources and  capitalization,  which gives them higher lending limits
and the ability to conduct  larger  advertising  campaigns to attract  business.
Generally the larger institutions offer services such as trust and international
banking which the Bank is not equipped to offer directly.  When the need arises,
arrangements are made with correspondent  institutions to provide such services.
To attract  business in this competitive  environment,  the Bank relies on local
promotional   activities  and  personal  contact  by  officers,   directors  and
shareholders and on its ability to offer personalized services.

The Bank does not, and may not in the future, offer trust services.  If the Bank
desires in the future to offer trust services, prior approval of the OCC will be
required.

The  customer  base  of  the  Bank  is  diversified  so  that  there  is  not  a
concentration of either loans or deposits within a single  industry,  a group of
industries,  a single  person or groups of people.  The Bank is not dependent on
one or a few major customers for either its deposit or lending  activities,  the
loss of any one of which would have a material adverse effect on the business of
the Bank.

Residents  and  businesses  in Greenwich  and the southern  portion of Stamford,
Connecticut  provide the majority of the Bank's deposits.  This area is bordered
by the New York State to the west, the Merritt Parkway to the north in Stamford,
the Town of Darien to the east, and Long Island Sound to the south.


                                        2
<PAGE>


The Bank's loan customers  extend beyond  Greenwich and the southern  portion of
Stamford to include the balance of Stamford and the adjacent towns of Darien and
New Canaan,  although  the Bank's loan  business is not  necessarily  limited to
these municipalities.  The Bank's mortgage brokerage business is concentrated in
the areas  surrounding  its loan  origination  offices.  While the Bank does not
currently  hold or intend to attract  significant  deposit or loan business from
major  corporations  with  headquarters  in the Stamford area, the Bank believes
that the service,  professional and related businesses which have been attracted
to this area, as well as individuals,  represent current and potential customers
of the Bank.

In  the  normal  course  of  business  and  subject  to  applicable   government
regulations,  the Bank invests a portion of its assets in investment securities,
which may  include  certain  debt and equity  securities,  including  government
securities.  An objective of the Bank's investment policy is to seek to optimize
its return on assets while limiting its exposure to interest rate movements.

The Bank's employees perform most routine day-to-day banking transactions at the
Bank.  However,  the Bank has entered into a number of  arrangements  with third
parties for banking services such as correspondent banking, check clearing, data
processing services, credit card processing and armored carrier service.

The  City of  Stamford  and the  Town  of  Greenwich  are  presently  served  by
approximately 71 branches of commercial  banks and savings banks,  most of which
are  offices  of  banks  which  have  headquarters  outside  of the  area or are
subsidiaries  of bank or financial  holding  companies  whose  headquarters  are
outside of Stamford  or  Greenwich.  In  addition to the banks with  branches in
Stamford and  Greenwich,  there are numerous  banks and  financial  institutions
serving the  communities  surrounding  Stamford and  Greenwich,  which also draw
customers from Stamford and  Greenwich,  posing  significant  competition to the
Bank for deposits and loans.  Competition can also be expected from out-of-state
financial  institutions,  which may  establish or acquire  offices in the Bank's
service area and from other local financial institutions, which may be formed in
the future.  Many of such banks and financial  institutions are well established
and well capitalized.

In recent years,  intense market  demands,  economic  pressures and  significant
legislative and regulatory actions have eroded banking industry  classifications
which were once clearly defined and have increased  competition  among banks, as
well as other  financial  institutions.  This increase in competition has caused
banks and other financial  service  institutions to diversify their services and
become more cost effective as a result of competition  with one another and with
new types of financial service companies,  including non-bank competitors. While
the impact on Bancorp of federal legislation  authorizing  increased services by
financial  holding  companies  and  interstate  branching  of  banks  cannot  be
determined,  Bancorp anticipates that the effectiveness of such legislation will
likely result in increased competition. These events have resulted in increasing
homogeneity  in the  financial  services  offered  by banks and other  financial
institutions.  Some of the results to banks and other financial  institutions of
these market dynamics and legislative and regulatory changes have been increased
customer  awareness of product and service  differences  among  competitors  and
increased merger activity.


                                        3
<PAGE>


Bancorp's  operations are subject to regulation,  supervision and examination by
the Board of  Governors  of the  Federal  Reserve  Board (the  "Federal  Reserve
Board") as a bank holding  company.  The Federal  Reserve Board has  established
capital adequacy  guidelines for bank holding  companies that are similar to the
OCC's capital guidelines applicable to the Bank. The Bank Holding Company Act of
1956,  as amended  (the "BHC Act"),  limits the types of  companies  that a bank
holding  company may acquire or organize and the  activities in which it or they
may  engage.  In general,  Bancorp  and its  subsidiaries  are  prohibited  from
engaging in or acquiring  direct control of any company engaged in banking or in
a business  so closely  related to banking as to be a proper  incident  thereto.
Federal  legislation  enacted in 1999 authorizes certain entities to register as
financial  holding  companies.  Registered  financial  holding companies will be
permitted to engage in businesses,  including  securities and investment banking
businesses,  which are  prohibited  to bank holding  companies.  Bancorp  cannot
predict what effect,  if any, the creation of financial  holding  companies  may
have on it or its competitive position.

Under the BHC Act,  Bancorp will be required to file  annually  with the Federal
Reserve  Board a report  of its  operations.  Bancorp,  the  Bank and any  other
subsidiaries  will be subject to  examination by the Federal  Reserve Board.  In
addition,  Bancorp will be required to obtain the prior  approval of the Federal
Reserve  Board  to  acquire,  with  certain  exceptions,  more  than  5% of  the
outstanding voting stock of any bank or bank holding company,  to acquire all or
substantially  all of the  assets  of a bank or to  merge  or  consolidate  with
another  bank  holding  company.  Moreover,  Bancorp,  the  Bank  and any  other
subsidiaries  will be prohibited from engaging in certain tying  arrangements in
connection  with any  extension  of  credit or  provisions  of any  property  or
services.  The Bank is also  subject  to  certain  restrictions  imposed  by the
Federal  Reserve Act on issuing any extension of credit to Bancorp or any of its
subsidiaries or making any investments in the stock or other securities  thereof
and on the taking of such stock or  securities  as  collateral  for loans to any
borrower.  If  Bancorp  wants to engage in  businesses  permitted  to  financial
holding companies but not to bank holding  companies,  it would need to register
with the Federal Reserve Board as a financial holding company.

The Federal  Reserve Board had issued a policy  statement on the payment of cash
dividends by bank holding companies, which expresses the Federal Reserve Board's
view that a bank holding  company  should pay cash  dividends only to the extent
that bank holding  company's net income for the past year is sufficient to cover
both the cash dividend and a rate of earnings  retention that is consistent with
the bank holding  company's  capital needs,  asset quality and overall financial
condition.  The  Federal  Reserve  Board  has  also  indicated  that it would be
inappropriate for a company  experiencing  serious financial  problems to borrow
funds  to  pay  dividends.  Furthermore,  under  the  prompt  corrective  action
regulations adopted by the Federal Reserve Board pursuant to applicable law, the
Federal  Reserve  Board may  prohibit a bank  holding  company  from  paying any
dividends  if the bank  holding  company's  bank  subsidiary  is  classified  as
"undercapitalized."


                                        4
<PAGE>


A bank  holding  company is  required to give the  Federal  Reserve  Board prior
written  notice  of  any  purchase  or  redemption  of  its  outstanding  equity
securities,  if the gross  consideration  for the purchase or  redemption,  when
combined with the net  consideration  paid for all such purchases or redemptions
during  the  preceding  12 months,  is equal to 10% or more of its  consolidated
retained  earnings.  The Federal Reserve Board may disapprove such a purchase or
redemption  if it  determines  that the proposal  would  constitute an unsafe or
unsound  practice or would violate any law,  regulation,  Federal  Reserve Board
order,  or any  condition  imposed by, or written  agreement  with,  the Federal
Reserve Board.

The  Riegle-Neal  Interstate  Banking  and  Branching  Efficiency  Act of  1994,
("Riegle-Neal  Act") was enacted to ease  restrictions  on  interstate  banking.
Effective  September 29, 1995, the  Riegle-Neal  Act allows the Federal  Reserve
Board to approve an  application  of an adequately  capitalized  and  adequately
managed  bank  holding  company  to  acquire  control  of,  or  acquire  all  or
substantially  all or the assets of, a bank  located in a state  other than such
holding company's state, without regard to whether the transaction is prohibited
by the  laws of any  state.  The  Federal  Reserve  Board  may not  approve  the
acquisition of a bank that has not been in existence for the minimum time period
(not exceeding five years) specified by the statutory law of the host state. The
Riegle-Neal  Act also  prohibits  the Federal  Reserve  Board from  approving an
application  if  the  applicant  (and  its  depository  institution  affiliates)
controls or would  control  more than 10% of the insured  deposits in the United
States or 30% or more of the deposits in the target  bank's home state or in any
state in which the target bank maintains a branch.  The Riegle-Neal Act does not
affect the authority of states to limit the percentage of total insured deposits
in the state which may be held or controlled  by a bank or bank holding  company
to the extent that such limitation does not  discriminate  against  out-of-state
banks or bank  holding  companies.  Individual  states  may also  waive  the 30%
statewide concentration limits contained in the Riegle-Neal Act.

Bancorp is subject to capital  adequacy rules and guidelines  issued by the OCC,
Federal  Reserve  Board  and  FDIC.  These  substantially  identical  rules  and
guidelines  require  Bancorp to maintain  certain  minimum  ratios of capital to
adjusted total assets and/or  risk-weighted  assets. Under the provisions of the
Federal  Deposit  Insurance  Corporation  Improvements  Act of 1991, the Federal
regulatory  agencies  are  required to  implement  and enforce  these rules in a
stringent  manner.   Bancorp  is  also  subject  to  applicable   provisions  of
Connecticut  law  insofar  as they  do not  conflict  with or are not  otherwise
preempted by Federal banking law.

Bancorp is subject to the reporting  requirements of the Securities Exchange Act
of 1934, as amended (the "Exchange  Act"),  and, in accordance with the Exchange
Act, files periodic  reports,  proxy  statements and other  information with the
SEC.


                                        5
<PAGE>


The Bank has focused its  attention  on serving  that segment of its market area
historically served by community banks operating in Stamford and Greenwich.  The
Bank  competes  in its  market by  providing  a high level of  personalized  and
responsive banking service for which the Bank believes there is a need. The Bank
also  believes  that by planning to establish a branch in the  northern  part of
Stamford, it can satisfy the demand for personalized and responsive services.

The Bank's operations are subject to regulation,  supervision and examination by
the OCC and the Federal Deposit Insurance Corporation ("FDIC").

Federal and state banking regulations regulate, among other things, the scope of
the business of a bank, a bank holding company or a financial  holding  company,
the  investments a bank may make,  deposit  reserves a bank must  maintain,  the
nature  and  amount  of  collateral   for  certain  loans  a  bank  makes,   the
establishment  of branches and the  activities of a bank with respect to mergers
and  acquisitions.  The Bank is a member of the  Federal  Reserve  System and is
subject to  applicable  provisions  of the Federal  Reserve Act and  regulations
issued thereunder.  The Bank is subject to the federal  regulations  promulgated
pursuant to the  Financial  Institutions  Supervisory  Act to prevent banks from
engaging in unsafe and unsound  practices,  as well as various other federal and
state  laws  and  consumer  protection  laws.  The Bank is also  subject  to the
comprehensive provisions of the National Bank Act.

The Bank is subject to capital adequacy rules and guidelines  issued by the OCC.
Those rules and guidelines  require the Bank to maintain  certain minimum ratios
of capital to adjusted  total  assets  and/or  risk-weighted  assets.  Under the
provisions of the Federal  Deposit  Insurance  Corporation  Improvements  Act of
1991,  the OCC  and the  other  federal  regulatory  agencies  are  required  to
implement and enforce these rules in a stringent manner.

The OCC regulates  the number and locations of the branch  offices of a national
bank. The OCC may only permit a national bank to maintain  branches in locations
and under the  conditions  imposed by state law upon state banks.  At this time,
applicable  Connecticut banking laws do not impose any material  restrictions on
the establishment of branches by Connecticut banks throughout Connecticut.

The  earnings  and growth of  Bancorp,  the Bank and the  banking  industry  are
affected by the monetary and fiscal policies of the United States Government and
its agencies,  particularly the Federal Reserve Board. The Open Market Committee
of the  Federal  Reserve  Board  implements  national  monetary  policy  to curb
inflation  and combat  recession.  The Federal  Reserve  Board uses its power to
adjust interest rates in United States Government securities,  the Discount Rate
and deposit reserve  retention  rates.  The actions of the Federal Reserve Board
influence the growth of bank loans,  investments and deposits.  They also affect
interest  rates charged on loans and paid on deposits.  The nature and impact of
any future changes in monetary policies cannot be predicted.


                                        6
<PAGE>


In addition to other laws and  regulations,  Bancorp and the Bank are subject to
the  Community  Reinvestment  Act  ("CRA"),  which  requires  the  Federal  bank
regulatory agencies,  when considering certain applications involving Bancorp or
the Bank,  to consider  Bancorp's  and the Bank's  record of helping to meet the
credit  needs  of its  entire  community,  including  low-  and  moderate-income
neighborhoods.  The CRA was  originally  enacted  because of concern over unfair
treatment  of  prospective  borrowers by banks and over  unwarranted  geographic
differences in lending  patterns.  Existing banks have sought to comply with CRA
in various ways, including the use of more flexible lending criteria for certain
types of loans and borrowers  (consistent  with the  requirement to conduct safe
and sound  operations),  while other banks have increased  their efforts to make
loans to help meet identified credit needs within the consumer  community,  such
as those for home mortgages,  home  improvements  and small business loans.  For
example,  this may include  participation in various  government insured lending
programs,   such  as  Federal   Housing   Administration   insured  or  Veterans
Administration  guaranteed mortgage loans, Small Business  Administration loans,
and participation in other types of lending programs such as high  loan-to-value
ratio conventional mortgage loans with private mortgage insurance.  To date, the
market area from which the Bank draws much of its business is Greenwich  and the
southern portion of Stamford,  which are characterized by a very diverse ethnic,
economic and racial cross-section of the population. As the Bank expands further
into Old Greenwich and the northern part of Stamford, the market areas served by
the Bank will  continue  to evolve.  Bancorp  and the Bank have not and will not
adopt any policies or practices which discourage  credit  applications  from, or
unlawfully  discriminate  against,  individuals  or segments of the  Stamford or
Greenwich communities.

Bancorp does not anticipate that  compliance  with applicable  federal and state
banking laws will have a material adverse effect on its business or the business
of the Bank.

Neither  Bancorp nor the Bank has any material  patents,  trademarks,  licenses,
franchises,  concessions and royalty  agreements or labor contracts,  other than
the charter  granted to the Bank by the OCC. The Bank has,  however,  registered
the trademark "Patriot" and the corresponding logo with the State of Connecticut
Trademark Office.

Compliance  by Bancorp  and the Bank with  federal,  state and local  provisions
which have been  enacted or adopted  regulating  or  otherwise  relating  to the
discharge of material  into the  environment  is not expected to have a material
effect upon the capital  expenditures,  earnings or competitive  position of the
Bancorp.

As of December 31, 1999, the Bancorp had 58 full-time employees and 10 part-time
employees.  None of the  employees  of the  Bancorp is  covered by a  collective
bargaining agreement.


                                        7
<PAGE>


ITEM 2.  DESCRIPTION OF PROPERTIES

The Bank leases  approximately 12,000 square feet of office space located at 900
Bedford Street, Stamford,  Connecticut, which is used for its main office and as
the corporate  offices of Bancorp.  Such space is adequate for Bancorp's and the
Bank's current needs. The entire building is being leased by the Bank for a term
of ten years,  which commenced on September 1, 1994 at an initial annual rent of
$108,000,  which rent increased by approximately 11%, 10% and 15% in the second,
third and fourth years,  respectively,  and will increase by approximately 8% in
the fifth year.  Thereafter,  rent  increases  will be based on increases in the
consumer  price index.  The Bank's lease also  provides the Bank with a right of
first  refusal to purchase  the  building in the event the owner of the property
receives an offer to purchase the building from a third party which it wishes to
accept, on the same terms and conditions of such offer,  subject to the terms of
the lease.

The Bank currently  occupies  approximately  70% of the space in the 900 Bedford
Street  building.  The Bank has sublet  portions  of the  remaining  space under
subleases with each having a maturity,  which the Bank  believes,  will coincide
with its future  needs for  additional  space for its  operations.  The Bank has
entered into  subleases  covering  approximately  3,500 square feet at rents not
less than the rent payable by the Bank with month to month terms. The businesses
of the subtenants of the Bank include a law practice,  a mortgage  broker and an
internet service business. SEE ALSO, "Item 12. Certain Relationships and Related
Transactions."

The Bank has entered into an agreement for  additional  parking with a remaining
term of four years at an annual rent of  $18,000.  SEE ALSO,  "Item 12.  Certain
Relationships and Related Transactions."

The Bank leases  approximately  5,000  square feet of office  space on the first
floor located at 100 Mason Street, Greenwich,  Connecticut.  The lease commenced
on July 1, 1997 at an initial annual rent of $190,000,  which rent will increase
by  approximately  2.5%  each year  thereafter.  The  lease  provides  for three
five-year  renewals after the initial term. The Bank has entered into a sublease
covering  approximately  1,000  square  feet at a rent  not  less  than the rent
payable by the Bank with month to month terms.

The Bank leases  approximately  1,300  square feet of office  space at 184 Sound
Beach Avenue,  Old Greenwich,  Connecticut.  The lease commenced on December 31,
1998  at an  initial  annual  rent of  $34,800,  which  rent  will  increase  by
approximately  10% in the third year and 25% in the fourth  year and will remain
constant during the fifth year.

The Bank leases  approximately 2,500 square feet of office space at 125 Wireless
Boulevard, Suite 1, Hauppauge, New York. The lease commenced on March 1, 1999 at
an initial annual rent of $43,085,  which rent will increase by approximately 4%
each consecutive year. The lease expires January 31, 2004.


                                        8
<PAGE>


The Bank sub-leases  approximately 200 square feet of office space at 1120 Route
22 East, Suite 5, Bridgewater,  New Jersey.  The lease commenced on February 19,
1999 at an initial  annual rent of $7,560.  This lease  expired on February  18,
2000, but the Bank continues to occupy the office at the monthly rent of $630.

The Bank leases  approximately  2,400  square  feet of office  space at Wiccopee
Plaza, Suite D, East Fishkill, New York. The lease commenced on March 1, 2000 at
an initial annual rent of $24,000.  The rent remains constant until February 28,
2003, when the lease expires.

The Bank  anticipates  leasing a facility  for a branch  office in the  northern
section of Stamford in 2000.

All leased properties described above are in good condition.

ITEM 3.  LEGAL PROCEEDINGS

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

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During  the  fourth  quarter  of 1999,  no  matter  was  submitted  to a vote of
shareholders of Bancorp or the Bank.

                                     PART II
                                     -------

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Market Information
------------------

The  Bancorp  Common  Stock is traded on the NASDAQ  Small Cap Market  under the
Symbol  "PNBK."  Prior to the  effective  date of the  Reorganization,  the Bank
Common  Stock was traded on the NASDAQ  Small Cap Market,  also under the symbol
"PNBK." On December 31, 1999, the last bid price for the Bancorp Common Stock on
NASDAQ Small Cap Market was $12.375.


                                        9
<PAGE>


The  following  table sets  forth the high and low sales  price per share of the
Bank Common  Stock up to December  1, 1999 and for Bancorp  Common  Stock on and
after  December  1, 1999 for each  quarter of 1999 and 1998 as  reported  on the
NASDAQ Small Cap Market System.

         Quarter Ended                 High          Low
         -------------                 ----          ---

         March 31, 1999 ........      $ 10.37     $ 8.438
         June 30, 1999 .........         9.75       7.875
         September 30, 1999.....        10.75       9.125
         December 31, 1999......        13.00       9.875

         March 31, 1998 ........      $ 11.62     $ 6.750
         June 30, 1998 .........        12.37       9.750
         September 30, 1998.....        10.75       9.000
         December 31, 1998......         9.37       8.125

Holders
-------

There were approximately 1,018 shareholders of record of Bancorp Common Stock as
of December 31, 1999.

Dividends
---------

Bancorp has not paid any dividends on the Bancorp  Common Stock,  and, up to the
effective date of the Reorganization,  the Bank did not pay any dividends on the
Bank Common Stock.  Bancorp expects that its earnings will be used for operating
capital and that no dividends will be paid in the foreseeable  future.  The Bank
will be legally  able to pay  dividends  to Bancorp only out of net earnings and
only  after  certain  capitalization  levels of the Bank have been  achieved  or
replenished.   In  addition,   the  OCC  and/or  the  FDIC  may  impose  further
restrictions on dividends.  Future dividends  depend on many factors,  including
management's estimates of future earnings and the Bancorp's need for capital.

Recent Sales of Unregistered Securities
---------------------------------------

During   1999,   neither  the  Bank  (prior  to  the   effective   date  of  the
Reorganization)   nor  Bancorp  (from  and  after  the  effective  date  of  the
Reorganization)   sold  any  securities  that  were  not  registered  under  the
Securities  Act of 1933,  except for sales of Bank Common  Stock which have been
previously  reported  in the Bank's  Quarterly  Reports  on Form  10-QSB for the
quarterly periods ended March 31, 1999, June 30, 1999 and September 30, 1999.


                                       10
<PAGE>


PATRIOT NATIONAL BANK

Financial Highlights
--------------------

<TABLE>
<CAPTION>
                                    ---------------------------------------------------------------------------------
                                         1999             1998              1997            1996             1995
                                    ---------------------------------------------------------------------------------
Operating Data

<S>                                 <C>              <C>              <C>              <C>              <C>
Interest and dividend income ..     $  9,732,719     $  6,765,283     $  5,130,009     $  3,940,490     $  2,630,263
Interest expense ..............        4,739,921        3,074,518        2,347,644        1,723,052        1,326,902
Net interest income ...........        4,992,798        3,690,765        2,782,365        2,217,438        1,303,361
Provision for loan losses .....          553,000          104,000          248,000          191,747          254,991
Non-interest income ...........        1,221,329          373,808          268,822          281,927          116,428
Non interest expense ..........        5,245,986        3,420,185        2,706,871        2,078,299        1,899,630
Net income (loss) .............          348,641          626,488          310,416          299,919         (735,832)
Basic income (loss) per share .             0.17             0.48             0.25             0.25            (0.60)
Diluted income (loss) per share             0.16             0.47             0.25             0.24            (0.60)

Balance Sheet Data

Cash and due from banks .......     $  2,685,031     $  1,867,353     $  1,532,055     $  1,389,183     $  1,416,706
Federal funds sold ............       18,900,000       27,700,000       17,000,000       12,000,000       11,000,000
Short term investments ........       10,976,264             --               --               --               --
Investment securities .........       33,003,494       13,562,730        9,943,046        6,993,184        6,486,470
Loans, net ....................      107,769,911       57,052,618       44,358,069       31,486,942       22,807,891
Goodwill, net .................        1,177,948             --               --               --               --
Assets ........................      177,194,697      102,327,631       75,073,200       53,551,217       43,337,087
Total deposits ................      162,746,354       89,309,139       68,592,231       47,546,737       37,642,967
Total shareholders' equity ....       13,236,088       12,097,283        5,480,548        5,072,975        4,776,187
</TABLE>


                                       11
<PAGE>


ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

         (a)      Plan of Operation

Not applicable since the Bancorp, as successor to the Bank has had revenues from
operations in each of the last four fiscal years.

         (b)      Management's Discussion and Analysis of
                  Financial Condition and Results of Operations

Summary
-------

Bancorp  reported a net income of  $348,641  ($0.17  basic  income per share and
$0.16 diluted income per share) for 1999,  down from 1998 net income of $626,488
($0.48 basic income per share and $0.47 diluted income per share).  Net interest
margin was 4.07% in 1999,  a decrease of 50 basis  points from 1998 net interest
margin of 4.57%.  In 1999,  return on assets was 0.27%,  a decrease  of 47 basis
points from 1998 return on assets of 0.74%.

Total assets  increased  $74.9  million  from total assets of $102.3  million at
December 31, 1998 to $177.2 million at December 31, 1999. The net loan portfolio
increased  $50.8  million  from $57.0  million at  December  31,  1998 to $107.8
million at  December  31,  1999.  Loan  growth was  funded  through  the sale of
certificates  of deposit  and  general  deposit  growth.  During  1999,  Bancorp
recorded  $553,000 in provision  for loan losses and net  recoveries  from loans
charged-off of $21,648.  Deposits  increased $73.4 million from $89.3 million at
December 31, 1998 to $162.7  million at December 31, 1999.  The opening of a new
branch office in Old Greenwich,  Connecticut  and attractive  interest rates for
certificates of deposit were  responsible for deposit growth.  Equity  increased
$1.1  million  from  $12.1  million at  December  31,  1998 to $13.2  million at
December 31, 1999, due to primarily the issuance of stock for the acquisition of
Pinnacle and the generation of net income of $349 thousand.

The  opening of the Old  Greenwich  Office and  successful  marketing  campaigns
designed to attract new customers as well as  competitively  priced  savings and
certificates  of  deposit  contributed  to the  approximately  82%  increase  in
deposits. Marketing efforts and referrals from the Board of Directors,  Advisory
Board members,  professional contacts and loan brokers contributed to the growth
of the Bank's loan portfolio. Although it is not certain and will depend on when
new branches are opened,  the Bank  anticipates  that the growth  experienced in
1999 will continue in 2000.


                                       12
<PAGE>


FINANCIAL CONDITION

Assets
------

Bancorp's  total assets  increased $74.9 million from $102.3 million at December
31,  1998 to $177.2  million at December  31,  1999.  Cash and cash  equivalents
increased approximately $3.0 million at year-end December 31, 1999 caused mainly
by higher short-term investment balances.  Federal funds sold were $18.9 million
and  short-term  investments  were $11.0 million at December 31, 1999,  compared
with $27.7  million of federal  funds sold at December 31,  1998.  The growth in
total assets was funded by deposit growth of $73.4 million.

Investments
-----------

During 1999,  the Bancorp  purchased  approximately  $0.5 million of US Treasury
notes; $8.9 million in corporate bonds;  $18.3 million in US Agency notes; $10.8
million in  Commercial  Paper;  $170,700  in Federal  Reserve  Bank  stock;  and
$307,000  in  Federal  Home Loan Bank  stock.  Approximately  $1  million  of US
Treasury  notes matured in 1999.  In addition,  the Bank sold $5.7 million in US
Treasury  notes.  At  December  31,  1999 the  available  for  sale US  Treasury
portfolio  totaled  $1.0  million;  the held to maturity  US Treasury  portfolio
totaled $0.5 million;  the held to maturity  corporate  bond  portfolio  totaled
$11.4 million;  the available for sale mutual fund was $2 million; the available
for sale US Government  Agencies  totaled $17.0  million;  Federal  Reserve Bank
Stock was $410,700; and Federal Home Loan Bank stock was $307,000.

Bancorp's total available for sale ("AFS") investment  portfolio increased $10.5
million from $9.5 million at December 31, 1998 to $20.0  million at December 31,
1999. The US Government AFS obligations decreased $6.5 million from $7.5 million
at December 31, 1998 to $1.0 million at December 31, 1999. The proceeds from the
sale of US Government  obligations  were used to purchase AFS mortgage backed US
agency securities, to achieve higher yields.

Bancorp's total held to maturity  ("HTM")  investment  portfolio  increased $8.5
million  from $3.8 at December  31, 1998 to $12.3  million at December 31, 1999.
The  corporate  bond  portfolio  increased  $9.0  million  from $2.8  million at
December  31,  1998 to $11.8  million at  December  31,  1999.  This was done to
achieve higher yields on excess available cash.

During  1999,  Bancorp  purchased  $170,700  in Federal  Reserve  Bank stock and
$307,000 in Federal Home Loan Bank stock. Federal Reserve stock was purchased to
comply  with  Federal  Reserve  regulations.  Federal  Home Loan Bank  stock was
purchased as a membership  requirement.  The Bank became a member of the Federal
Home Loan Bank to, at a future date,  strengthen lending capabilities and expand
services.


                                       13
<PAGE>


The following table present the maturity  distribution of investment  securities
at December 31, 1999,  and the weighted  average yield of such  securities.  The
weighted  average  yields  were  calculated  based  on the  amortized  cost  and
effective yields to maturity of each security.

<TABLE>
<CAPTION>
                                                 Over One     Over Five                                          Weighted
                                    One Year      Through      Though      Over Ten                              Average
                                     or Less     Five Years   Ten Years      Years     No Maturity     Total      Yield
                                   ----------------------------------------------------------------------------------------

<S>                                <C>           <C>         <C>           <C>        <C>           <C>              <C>
Available for sale
1999

Mortgage backed securities         $      --     $     --    $      --     $     --   $ 17,325,754  $17,325,754      6.44%
U. S. Government obligations           550,520      499,290         --           --           --      1,049,810      4.97%
Marketable equity securities              --           --           --           --      2,032,067    2,032,067      6.25%
                                  -----------------------------------------------------------------------------------------
                            Total  $   550,520   $  499,290  $      --           --   $ 19,357,821  $20,407,631      6.34%
                                  =========================================================================================
           Weighted average yield        5.47%        4.42%                                  6.42%        6.34%
                                  =========================================================================================


Held to maturity
1999

US Government obligations                 --     $  498,650  $      --     $   --     $       --    $   498,650      5.51%
Corporate bonds                           --      4,682,011    6,164,124      956,700         --     11,802,835      5.73%
                                  -----------------------------------------------------------------------------------------
                            Total         --     $5,180,661  $ 6,164,124   $  956,700               $12,301,485      5.72%
                                  =========================================================================================
           Weighted average yield                     5.72%        5.70%        5.92%                     5.72%
                                  =========================================================================================
</TABLE>


                                       14
<PAGE>


The  following  table  presents a summary  of  investments  for any issuer  that
exceeds 10% of shareholders' equity at December 31, 1999.

                                                     Amortized         Fair
                                                       Cost            Value
-------------------------------------------------------------------------------

U. S. government obligations .................     $ 1,548,460     $ 1,531,195
Franklin U. S. Government Fund ...............       2,032,067       1,906,757
U. S. Government agency mortgage
  backed securities...........................      17,325,754      17,041,507

Loans
-----

Bancorp's  net loan  portfolio  increased  $50.8  million from $57.0  million at
December 31, 1998 to $107.8 million at December 31, 1999. Loan growth was funded
through  the sale of  certificates  of deposit and general  deposit  growth.  At
December 31, 1999,  the net loan to deposit ratio was 66.22% and the net loan to
asset ratio was 60.82%.  At December 31, 1998, the net loan to deposit ratio was
63.88%, and the net loan to asset ratio was 55.75%.

During 1999,  the Federal  Reserve  Bank  increased  the Federal  Funds Rate and
Discount Rate.  Subsequently,  most banks  increased their  prime-lending  rate.
Despite rising interest rates, there was significant loan activity especially in
commercial real estate loans, residential real estate loans,  construction loans
and home equity lines of credit. Management believes that the strong loan demand
experienced in 1999 will continue throughout 2000.

Maturities and Sensitivities of Loans to Changes in Interest Rates
------------------------------------------------------------------

The following  table presents the maturities of loans in Bancorp's  portfolio at
December 31, 1999, by type of loan:

                                             Due after
                                  Due in     one year
                                  one year   through       Due after
  (thousands of dollars)          or less    five years    five years     Total
--------------------------------------------------------------------------------
Commercial real estate           $  8,769     $ 43,015     $  2,505     $ 54,289
Residential real estate               872        2,386        3,541        6,799
Construction loans                  8,827        5,046            0       13,873
Commercial loans                    4,739        4,834        1,513       11,086
Consumer installment                1,052          527            1        1,580
Other loans                           320          377       21,009       21,706
--------------------------------------------------------------------------------
Total                            $ 24,579     $ 56,185     $ 28,569     $109,333
================================================================================
Fixed rate loans                 $  9,560     $ 34,177     $  5,925     $ 49,662
Variable rate loans                15,019       22,008       22,644       59,671
--------------------------------------------------------------------------------
Total                            $ 24,579     $ 56,185     $ 28,569     $109,333
================================================================================


                                       15
<PAGE>


The following table presents loan concentrations at December 31, 1999:

        Category                              Percentage    Dollars Outstanding
--------------------------------------------------------------------------------
                                                          (Thousands of dollars)

        Construction .....................      12.69%           $13,873
        Retail Store .....................       5.35%           $ 5,847
        Limousine Service ................       2.65%           $ 2,898
        Restaurant .......................       2.59%           $ 2,829

Allowance for Loan Losses
-------------------------

The provision for loan losses is a charge  against income and an addition to the
allowance for loan losses. Management's judgement in determining the adequacy of
the  allowance  is  based  on  an  evaluation  of  individual  loans,  the  risk
characteristics  and  size of the  loan  portfolio,  an  assessment  of  current
economic and real estate  market  conditions,  estimates of the current value of
underlying collateral, past loan loss experience, review of regulatory authority
examination reports and evaluations of loans and other relevant factors.

Based upon this evaluation, management believes the allowance for loan losses of
$1,360,183,  at  December  31,  1999,  which  represents  1.24% of  gross  loans
outstanding, is adequate, under prevailing economic conditions, to absorb losses
on existing  loans which may become  uncollectible.  At December 31,  1998,  the
allowance for loan losses was $785,536 or 1.35% of gross loans outstanding.

The  accrual of interest  income on loans is  discontinued  whenever  reasonable
doubt exists as to its  collectibility  and generally is discontinued when loans
are past due 90 days as to either  principal  or  interest.  When the accrual of
interest income is discontinued, all previously accrued and uncollected interest
is reversed against  interest income.  The accrual of interest on loans past due
90 days or more may be continued if the loan is well secured, and it is believed
all principal and accrued interest income due on the loan will be realized,  and
the loan is in the process of collection.  A non-accrual  loan is restored to an
accrual status when it is no longer  delinquent and  collectibility  of interest
and principal is no longer in doubt.  Interest  income on impaired loans is only
recorded subsequent to the recovery of the principal balance.

Management  considers  all  non-accrual  loans  and  restructured  loans  to  be
impaired.  In most cases,  loan payments that are past due less than 90 days are
considered minor collection  delays, and the related loans are not considered to
be impaired. Bancorp considers consumer installment loans to be pools of smaller
balance homogeneous loans, which are collectively evaluated for impairment.


                                       16
<PAGE>


Analysis of Allowance for Loan Losses
-------------------------------------

         (Thousands of dollars)                           1999            1998
        ------------------------------------------------------------------------

        Balance at beginning of period ...........      $   785         $   745
                                                        -------         -------
        Charge-offs ..............................          (19)            (64)
        Recoveries ...............................           41               0
                                                        -------         -------
        Net recoveries (charge-offs) .............           22             (64)
                                                        -------         -------
        Additions charged to operations ..........          553             104
                                                        -------         -------
        Balance at end of period .................      $ 1,360         $   785
                                                        =======         =======

        Ratio of net recoveries (charge-offs)
        during the period to average loans
        outstanding during the period ............        0.03%          (0.12%)
                                                        =======         =======


Allocation of the Allowance for Loan Losses
-------------------------------------------

                                                        Percent of loans in each
Balance at end of each                   Amounts        category to total loans
period applicable to                1999        1998        1999          1998
--------------------------------------------------------------------------------
(Thousands of dollars)

Real Estate:
  Commercial ................      $    0      $    0       49.65%       57.10%
  Construction ..............           0           0       12.69%        9.88%
  Residential ...............           0           0        6.22%        2.38%
Commercial ..................           5           0       10.14%       14.33%
Consumer Installment ........           0           0        1.45%        2.03%
Consumer Home Equity ........           0           0       19.85%       14.28%
Unallocated .................       1,355         785        N/A          N/A
                                   ------      ------      ------       ------
                                   $1,360      $  785      100.00%      100.00%
                                   ======      ======      ======       ======



                                       17
<PAGE>


Non-Accrual, Past Due and Restructured Loans
--------------------------------------------

The following table presents  non-accruing and past due loans as of December 31,
1999 and 1998.

                                                 1999              1998
-----------------------------------------------------------------------
(Thousands of dollars)

Loans delinquent over 90
    days still accruing .................       $  475           $  732
Non-accruing loans ......................           91               64
                                                ------           ------

                                                $  566           $  796
                                                ======           ======

% of  Total  Loans ......................          .52%            1.37%
% of  Total Assets ......................          .32%             .78%

Additional income on non-accrual
  loans if recognized on an
  accrual basis (in dollars) ............       $8,911           $4,553

There  were no loans in any of the above  years  considered  as  "troubled  debt
restructurings."

Potential Problem Loans
-----------------------

At December 31, 1999,  Bancorp had no loans other than those described above, as
to which management has significant  doubts as to the ability of the borrower to
comply with the present repayment terms.

Deposits
--------

Total deposits  increased  $73.4 million from $89.3 million at December 31, 1998
to $162.7 million at December 31, 1999.  Interest  bearing  deposits  (primarily
time  certificates of deposit)  increased  $69.2 million to $150.1 million,  and
non-interest  bearing  deposits  increased  $4.2  million  to $12.6  million  at
December  31,  1999.  The  opening  of a new  branch  office  in Old  Greenwich,
Connecticut and attractive  interest rates for certificates of deposit announced
in a newspaper marketing campaign were responsible for deposit growth.


                                       18
<PAGE>


As of December 31, 1999, the Bank's maturities of time deposits were:

                                       $100,000 or     Less than
                                         greater        $100,000         Totals
--------------------------------------------------------------------------------
(Thousands of dollars)

Three months or less ...........        $ 14,733        $ 16,563        $ 31,296
Three to six months ............           4,897          11,885          16,782
Six months to one year .........           2,785           6,982           9,767
Over one year ..................          12,367          33,714          46,081
                                        --------        --------        --------

                                        $ 34,782        $ 69,144        $103,926
                                        ========        ========        ========

Other
-----

The  increases  in  accrued  interest  receivable  is due to  the  increases  in
investment securities and loans.

The goodwill  represents  the excess of the purchase price over the value of net
assets acquired related to the Pinnacle acquisition

The  collateralized  borrowings  represent the portion of loans  transferred  to
other  institutions under  participation  agreements that were not recognized as
sales.


                                       19
<PAGE>


The following table presents average balance sheets (daily  averages),  interest
income, interest expense, and the corresponing yields earned and rates paid.

<TABLE>
          Distribution of Assets, Liabilities and Shareholders' Equity
        Interest Rates and Interest Differential and Rate Volume Analysis
                           (Thousands of dollars) (1)

<CAPTION>
                                          1999                        1998
                               --------------------------   -------------------------   Fluctuations in  Interest
                                           Interest                    Interest             Income/Expense (3)
                                 Average   Income/ Average    Average  Income/ Average       Due to change  in:
                                 Balance   Expense  Rate      Balance  Expense Rate       Volume    Rate    Total
                               ---------------------------   -------------------------   --------------------------

<S>                            <C>        <C>       <C>      <C>      <C>      <C>       <C>     <C>       <C>
Interest Earning Assets:
Loans (2)....................  $   79,523 $  7,277  9.15%    $ 52,153 $ 5,265  10.10%    $ 2,546 $  (534)  $ 2,012
Short term investments.......       2,108      139  6.59%        --      --      --          139        0      139
Investment securities (4)....      25,231    1,513  6.00%      11,160     655   5.87%        843       15      858
Federal funds sold...........      15,955      804  5.04%      17,515     845   4.82%        (78)      37      (41)
                               ---------------------------   -------------------------   --------------------------
Total interest earning assets     122,817    9,733  7.92%      80,828   6,765   8.37%      3,450     (482)   2,968
                               ---------------------------   -------------------------   --------------------------

Cash and due from banks......       3,349                       2,792
Premises and equipment, net..         897                         923
Allowance for loan losses....        (991)                       (738)
Other........................       2,197                       1,286
                               -----------                   ---------
Total Assets.................  $  128,269                    $ 85,091
                               ===========                   =========


Interest Bearing Liabilities:
Time certificates............  $   58,445 $  3,037  5.20%    $ 27,562 $ 1,421   5.16%    $ 1,605 $     11  $ 1,616
Savings deposits.............      34,132    1,346  3.94%      28,940   1,271   4.39%        213     (138)      75
Money Market Deposits........       1,398       55  3.93%       2,719      82   3.02%        (33)       6      (27)
NOW accounts.................       9,957      217  2.18%       9,864     208   2.11%          2        7        9
Collateralized borrowings....          14        2 14.29%        --      --      --            2        0        2
Capital lease obligation.....         604       83 13.74%         678      93  13.72%        (10)       0      (10)
                               ---------------------------   -------------------------   --------------------------
Total Interest Bearing
Liabilities..................     104,550    4,740  4.53%      69,763   3,075   4.41%      1,779    (114)    1,665
                               ---------------------------   -------------------------   --------------------------

Demand deposits..............      10,240                       7,429
Accrued expenses and
 other liabilities...........         414                       1,203
Shareholders' equity.........      13,065                       6,696
                               -----------                   ---------
Total liabilities and equity.  $  128,269                    $ 85,091
                               ===========                   =========

Net interest income..........             $  4,993                    $ 3,690            $ 1,671 $  (368)  $ 1,303
                                          =========                   ========           ==========================
Interest margin..............                       4.07%                       4.57%
                                                   =======                    ========
Interest spread..............                       3.39%                       3.96%
                                                   =======                    ========
</TABLE>

(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  effect of
     unrealized gain or (loss) on available-for-sale securities.


                                       20
<PAGE>


RESULTS OF OPERATIONS

For the year ended  December  31, 1999,  Bancorp  earned  $348,641  ($0.17 basic
income  per share and $0.16  diluted  income  per  share  income  per  share) as
compared to 1998 when Bancorp earned $626,488 ($0.48 basic net and $0.47 diluted
income per share income per share).  Interest  income  increased $2.9 million to
$9.7 million in 1999 as compared to 1998 when interest  income was $6.8 million.
Non-interest income increased $0.8 million to $1.2 million for 1999, as compared
to 1998 when  non-interest  income was $0.4  million,  primarily due to mortgage
brokerage fees generated by Pinnacle. Interest expense increased $1.6 million to
$4.7 million at for 1999 as compared to $3.1 million in 1998,  due to the growth
in deposits,  primarily certificates of deposit.  Non-interest expense increased
$1.8 million to $5.2 million for 1999 as compared to $3.4 million in 1998.

The  following  are  measurements  of Bancorp's  earnings in relation to assets,
equity and earnings per share. These ratios present Bancorp's historical results
for 1999 and 1998:

                                             1999        1998
--------------------------------------------------------------

Return on average assets ...........           .27%       .74%
Return on average equity ...........          2.67%      9.36%
Average equity to average assets....         10.19%      7.87%
Basic income per share .............        $ 0.17      $0.48
Diluted income per share ...........        $ 0.16      $0.47

Interest income and expense
---------------------------

Bancorp's  interest  income for the year ended  December 31, 1999 increased $2.9
million to $9.7  million as  compared to the year ended  December  31, 1998 when
interest  income was $6.8  million.  The  increase  in net  interest  income was
primarily  the  result  of higher  average  balances  on loans  and  securities.
Interest income  increased  despite an overall decrease in average income yields
of 45 basis points.  The average yield on loans  decreased 95 basis points;  the
average yield on  securities,  including  short-term  investments,  increased 16
basis points;  and the average  yield on Federal  funds sold  increased 22 basis
points in 1999.  Bancorp's  cost of funds  increased  12 basis  points to 4.53%.
Interest expense  increased $1.6 million to $4.7 million at December 31, 1999 as
compared to $3.0 million in 1999. Specifically, in 1999, Bancorp's yield on time
certificates  of  deposit  increased  4  basis  points;  savings  deposit  rates
decreased  45 basis  points;  money  market  deposit  yields  increased 91 basis
points; and NOW account yields increased 7 basis points.  Bancorp has maintained
loan and deposit  interest rates that are  competitive  within its market.  (See
Distribution of Assets,  Liabilities and Shareholders' Equity Interest Rates and
Interest Differential and Rate Volume Analysis table.)


                                       21
<PAGE>


Non-interest income
-------------------

Non-interest  income  increased  $0.8 million from $0.4 million for 1998 to $1.2
million for 1999. The increase in other non-interest income is attributed to the
acquisition of Pinnacle in June 1999, which offers mortgage  brokerage  services
and generated  approximately  $864 thousand in mortgage brokerage fee revenue in
1999.

Non-interest expenses
---------------------

During  1999,  Bancorp  incurred  higher  operating  expenses  in  salaries  and
benefits,  occupancy  and  equipment,  professional  services,  advertising  and
promotional  expenses,  forms  printing and  supplies,  regulatory  assessments,
insurance and other operating  expenses.  Total non-interest  expenses increased
$1.8 million  from $3.4  million for 1998 to $5.2  million for 1999.  Additional
staff to support growth, the acquisition of Pinnacle and the opening of a branch
in Old Greenwich were the primary  reasons that salaries and benefits  increased
$1.1 million to $2.7 million in 1999.  Occupancy and equipment expense increased
$43,000 to $601,000 in 1999. The increase occurred primarily because of Pinnacle
rental  expense  and  an  overall  increase  in  building   maintenance   costs.
Professional services increased $99,000 to $310,000 in 1999 due to the formation
of a holding  company and Y2K  preparation  expenses.  Data processing and other
outside service expenses  decreased $37,000 to $246,000 in 1999. The decrease is
attributed to a reduction in outside services. Bancorp did more promotion during
1999, which caused  advertising and marketing  expenses to increase  $197,000 to
$357,000.  Directors' fees for services  rendered  decreased  $32,000 to $98,000
during  1999 due to fewer  meetings  being  held in 1999.  Increases  in  forms,
printing and supplies,  regulatory  assessments and other operating expenses are
due to the overall growth of Bancorp, and the new mortgage broker operations.

The  provision for income taxes of $66,000 for 1999  represents  the tax expense
recognized  for both  federal  and state  income  taxes,  net of the tax benefit
recognized for the remaining net operating loss carryforwards  utilized in 1999.
The deferred tax benefit recognized in 1998 relates primarily to the recognition
of a portion of the tax benefits of available net operating loss  carryforwards,
net of minimum state tax expense.

Management believes  additional branch offices will contribute  significantly to
the future  earnings of Bancorp.  While the opening of these new  branches  will
result in  increased  operating  expenses,  the openings  will be  strategically
planned to maintain profitable operations.

Management  regularly  reviews loan and deposit  rates and attempts to price its
products competitively.  With the assistance of its investment advisors, Bancorp
tracks  its  mix  of  asset/liability  maturities  and  strives  to  maintain  a
reasonable match.  Performance ratios are reviewed monthly by management and the
Board and are used to set strategies.


                                       22
<PAGE>


LIQUIDITY

Bancorp's  liquidity  position  was 29.65% and 44.28% at  December  31, 1999 and
1998,  respectively.  The liquidity ratio is defined as the percentage of liquid
assets to net deposits.  The following  categories of assets as described in the
accompanying  balance  sheets are considered  liquid  assets:  Cash and due from
banks, federal funds sold, short-term investments, available-for-sale securities
and  held-to-maturity  securities  maturing in one year or less.  Liquidity is a
measure  of  Bancorp's  ability  to  generate  adequate  cash to meet  financial
obligations.  The principal cash requirements of a financial  institution are to
cover  downward  fluctuations  in deposit  accounts  and  increases  in its loan
portfolio.  Management  believes  Bancorp's  short-term  assets have  sufficient
liquidity to cover potential  fluctuations in deposit accounts,  loan demand and
to meet other anticipated cash requirements.

CAPITAL

The following table illustrates Bancorp's regulatory capital ratios:

                                            Dec. 31, 1999      Dec. 31,1998
                                            -------------      ------------

Leverage Capital ......................          7.21%            12.39%

Tier 1 Risk-Based Capital .............          8.91%            18.21%

Total Risk-Based Capital ..............          9.90%            19.40%

Capital  adequacy is one of the most  important  factors used to  determine  the
safety and soundness of individual  banks and the banking  system.  Based on the
above ratios,  Bancorp  believes that it is considered to be "well  capitalized"
under  leverage  capital and tier 1 risk-based  capital  regulations.  The total
risk-based  capital  of  Bancorp  is  9.90%  which,  is  .10%  below  applicable
regulations   to  be   considered   "well   capitalized."   To   be   considered
"well-capitalized,"  an institution must generally have a leverage capital ratio
of at least  5%, a Tier 1  risk-based  capital  ratio of at least 6% and a total
risk-based capital ratio of at least 10%.

Impact of Inflation and Changing Prices
---------------------------------------

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


                                       23
<PAGE>


Year 2000 Issue
---------------

The Year 2000 arrived without  incident and all Bancorp  systems,  including the
Bank's core processing systems worked properly.  Throughout the year the Bancorp
will continue to monitor all of its systems to ensure date-sensitive information
is processed properly.

"Safe Harbor" Statement Under Private Securities Litigation Reform Act of 1995
------------------------------------------------------------------------------

Certain statements contained in Bancorp's public reports, including this report,
and in particular  in this  "Management's  Discussion  and Analysis of Financial
Condition  and Results of  Operation,"  may be forward  looking and subject to a
variety of risks and uncertainties.  These factors include,  but are not limited
to, (1) changes in  prevailing  interest  rates which would  affect the interest
earned  on  Bancorp's  interest  earning  assets  and the  interest  paid on its
interest bearing liabilities,  (2) the timing of repricing of Bancorp's interest
earning assets and interest  bearing  liabilities,  (3) the effect of changes in
governmental   monetary  policy,  (4)  the  effect  of  changes  in  regulations
applicable  to  Bancorp  and  the  conduct  of  its  business,  (5)  changes  in
competition  among  financial  service  companies,  including  possible  further
encroachment  of non-banks on services  traditionally  provided by banks and the
impact of recently enacted federal  legislation,  (6) the ability of competitors
which are larger  than  Bancorp to provide  products  and  services  which it is
impracticable  for Bancorp to provide,  (7) the effect of  Bancorp's  opening of
branches,  and (8) the  effect  of any  decision  by  Bancorp  to  engage in any
business not  historically  permitted to it. Other such factors may be described
in the Bancorp's filings with the SEC.

Although  Bancorp  believes that it offers the loan and deposit products and has
the resources needed for continued success, future revenues and interest spreads
and yields

cannot be  reliably  predicted.  These  trends  may cause  Bancorp to adjust its
operations in the future.  Because of the foregoing  and other  factors,  recent
trends should not be considered  reliable indicators of future financial results
or stock prices.

ITEM 7.  FINANCIAL STATEMENTS

The consolidated  balance sheets of Bancorp as of December 31, 1999 and December
31, 1998 and the related consolidated statements of income, shareholders' equity
and cash flows for the years ended  December  31, 1999 and  December  31,  1998,
together with the report  thereon of McGladrey & Pullen,  LLP dated February 18,
2000  are  included  as part of  this  Form  10-KSB  in the  "Financial  Report"
following page 28 hereof.

ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

          Not applicable.



                                       24
<PAGE>


                                    PART III
                                    --------

ITEM 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
          COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

The information  required by Items 401 and 405 of Regulation S-B is incorporated
into this Form 10-KSB by reference to Bancorp's  definitive proxy statement (the
"Definitive Proxy Statement") for its 2000 Annual Meeting of Shareholders.

ITEM 10.  EXECUTIVE COMPENSATION

The information required by Item 402 of Regulation S-B is incorporated into this
Form 10-KSB by reference to the Definitive Proxy Statement.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by Item 403 of Regulation S-B is incorporated into this
Form 10-KSB by reference to the Definitive Proxy Statement.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by Item 404 of Regulation S-B is incorporated into this
Form 10-KSB by reference to the Definitive Proxy Statement.

13.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits

Exhibit No.                           Description
-----------                           -----------

2            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))

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(ii)        By-laws of Bancorp  (incorporated  by reference to Exhibit 3(ii) to
             Bancorp's  Current  Report  on Form  8-K  dated  December  1,  1999
             (Commission File No. 000-29599))

10(a)(1)     Form of 1994  Warrant to Purchase  Common  Stock  (incorporated  by
             reference to Exhibit  10(a)(1) to Bancorp's  Current Report on Form
             8-K dated December 1, 1999 (Commission File No. 000-29599))


                                       25
<PAGE>


10(a)(2)     Form of 1998  Warrant to Purchase  Common  Stock  (incorporated  by
             reference to Exhibit  10(a)(2) to Bancorp's  Current Report on Form
             8-K dated December 1, 1999 (Commission File No. 000-29599))

10(a)(3)     Lease dated February 1, 1995 between 999 Bedford Street Corporation
             and the Bank  (incorporated  by  reference  to Exhibit  10(a)(3) to
             Bancorp's  Current  Report  on Form  8-K  dated  December  1,  1999
             (Commission File No. 000-29599))

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))

21           Subsidiaries of Bancorp

27           Financial Data Schedule

(b)  Reports on Form 8-K

A Current  Report on Form 8-K dated  December 1, 1999 was filed by Bancorp  with
the SEC. This report responded to items 5 and 7(c) of the Form 8-K.


                                       26
<PAGE>


                                   SIGNATURES

In accordance  with Section 13 or 15(d) of the Exchange Act, the  registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                  Patriot National Bancorp, Inc.
                                  (Registrant)

                                  By:  /s/ Philip W. Wolford
                                     --------------------------
                                     Name: Philip W. Wolford
                                     Title:  President

Date:  March 29, 2000

In  accordance  with the Exchange  Act, this report has been signed below by the
following persons on behalf of the registrant and in capacities and on the dates
indicated.

  /s/ Philip W. Wolford                                       March 29, 2000
------------------------------------                          --------------
Philip W. Wolford, President                                  Date
and Director (Principal Executive
and Financial Officer)


  /s/ Ronald M. Moskwa                                        March 29, 2000
------------------------------------                          --------------
Ronald M. Moskwa                                              Date
Vice President & Controller


  /s/ Herbert A. Bregman                                      March 29, 2000
------------------------------------                          --------------
Herbert A. Bregman                                            Date
Director



------------------------------------                          --------------
Angelo DeCaro                                                 Date
CEO and Director

  /s/ Fred A. DeCaro, Jr.                                     March 29, 2000
------------------------------------                          --------------
Fred A. DeCaro, Jr.                                           Date
Director



                                       27
<PAGE>



FORM 10 KSB -- SIGNATURES CONTINUED,

  /s/ John A. Geoghegan                                       March 29, 2000
------------------------------------                          --------------
John A. Geoghegan                                             Date
Director


  /s/ L. Morris Glucksman                                     March 29, 2000
------------------------------------                          --------------
L. Morris Glucksman                                           Date
Director


  /s/ Michael Intrieri                                        March 29, 2000
------------------------------------                          --------------
Michael F. Intrieri                                           Date
Director


  /s/ Richard Naclerio                                        March 29, 2000
------------------------------------                          --------------
Richard Naclerio                                              Date
Director


------------------------------------                          --------------
Paul C. Settelmeyer                                           Date
Director


  /s/ Salvatore Travato                                       March 29, 2000
------------------------------------                          --------------
Salvatore Travato                                             Date
Director


                                       28
<PAGE>


                         PATRIOT NATIONAL BANCORP, INC.

                                Financial Report

                           December 31, 1999 and 1998


<PAGE>


                                    CONTENTS

--------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT                                                   1
--------------------------------------------------------------------------------

CONSOLIDATED FINANCIAL STATEMENTS
    Consolidated balance sheets                                                2
    Consolidated statements of income                                          3
    Consolidated statements of shareholders' equity                            4
    Consolidated statements of cash flows                                    5-6
    Notes to consolidated financial statements                              7-38
--------------------------------------------------------------------------------




<PAGE>



                          INDEPENDENT AUDITOR'S REPORT

To the Shareholders and Board of Directors
Patriot National Bancorp, Inc.
Stamford, Connecticut

We have audited the accompanying consolidated balance sheets of Patriot National
Bancorp,  Inc. and Subsidiary  (the "Company") as of December 31, 1999 and 1998,
and the related consolidated statements of income, shareholders' equity and cash
flows for the years then ended. These consolidated  financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the financial  position of Patriot National
Bancorp,  Inc. and  Subsidiary as of December 31, 1999 and 1998, and the results
of their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles.

/s/ McGLADREY & PULLEN, LLP

New Haven, Connecticut
February 18, 2000


<PAGE>


PATRIOT NATIONAL BANCORP, INC.

CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
ASSETS                                                                         1999              1998
                                                                          --------------------------------

<S>                                                                       <C>                <C>
Cash and due from banks (Note 2) ....................................     $   2,685,031      $   1,867,353
Federal funds sold ..................................................        18,900,000         27,700,000
Short-term investments - commercial paper ...........................        10,976,264               --
                                                                          -------------      -------------
              Cash and cash equivalents .............................        32,561,295         29,567,353

Available for sale securities (at fair value) (Note 3) ..............        19,984,309          9,479,428
Held to maturity securities (fair value:  1999 $11,906,293;
   1998 $3,826,834) (Note 4) ........................................        12,301,485          3,843,302
Federal Reserve Bank stock ..........................................           410,700            240,000
Federal Home Loan Bank stock ........................................           307,000               --
Loans receivable (net of allowance for loan losses:  1999 $1,360,183;
   1998 $785,536) (Note 5) ..........................................       107,769,911         57,052,618
Accrued interest receivable .........................................           980,777            587,733
Premises and equipment, net (Notes 6 and 8) .........................           953,656            881,964
Other real estate owned .............................................              --               40,467
Deferred tax asset, net (Note 9) ....................................           562,928            353,300
Goodwill (net of accumulated amortization of $58,180
   in 1999) (Note 17) ...............................................         1,177,948               --
Other assets (net of accumulated amortization:  1999 $17,285;
   1998 $134,694) ...................................................           184,688            281,466
                                                                          -------------      -------------
              Total assets ..........................................     $ 177,194,697      $ 102,327,631
                                                                          =============      =============

LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities
   Deposits (Note 7):

      Noninterest bearing deposits ..................................     $  12,630,926      $   8,442,262
      Interest bearing deposits .....................................       150,115,428         80,866,877
                                                                          -------------      -------------
              Total deposits ........................................       162,746,354         89,309,139

   Capital lease obligation (Note 8) ................................           563,687            644,605
   Collateralized borrowings ........................................           325,000               --
   Accrued expenses and other liabilities ...........................           323,568            276,604
                                                                          -------------      -------------
              Total liabilities .....................................       163,958,609         90,230,348
                                                                          -------------      -------------

Commitments and contingencies (Notes 8, 10, and 12)

Shareholders' equity (Notes 10 and 13)
   Common stock, $2 par value; 5,333,333 shares authorized; shares
       issued and outstanding: 1999 2,160,952; 1998 1,996,931 .......         4,321,904          3,993,862
   Additional paid-in capital .......................................         9,807,957          9,047,262
   Accumulated deficit ..............................................          (635,331)          (983,972)
   Accumulated other comprehensive income - net unrealized
      (loss) gain on available for sale securities ..................          (258,442)            40,131
                                                                          -------------      -------------
              Total shareholders' equity ............................        13,236,088         12,097,283
                                                                          -------------      -------------

              Total liabilities and shareholders' equity ............     $ 177,194,697      $ 102,327,631
                                                                          =============      =============
</TABLE>

See Notes to Consolidated Financial Statements.


                                       2
<PAGE>


PATRIOT NATIONAL BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1999 and 1998
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                              1999            1998
                                                                          -----------      -----------
<S>                                                                       <C>              <C>
Interest and Dividend Income
   Interest and fees on loans ...................................         $ 7,276,659      $ 5,264,774
   Interest and dividends on investment securities ..............           1,651,565          655,016
   Interest on federal funds sold ...............................             804,495          845,493
                                                                          -----------      -----------
              Total interest and dividend income ................           9,732,719        6,765,283
                                                                          -----------      -----------

Interest Expense
   Interest on deposits (Note 7) ................................           4,654,515        2,981,557
   Interest on capital lease obligation .........................              83,082           92,961
   Interest expense on collateralized borrowings ................               2,324             --
                                                                          -----------      -----------
              Total interest expense ............................           4,739,921        3,074,518
                                                                          -----------      -----------
              Net interest income ...............................           4,992,798        3,690,765

Provision for Loan Losses (Note 5) ..............................             553,000          104,000
                                                                          -----------      -----------

              Net interest income after provision for loan losses           4,439,798        3,586,765
                                                                          -----------      -----------

Noninterest Income
   Mortgage brokerage referral fees .............................             933,074             --
   Fees and service charges .....................................             162,534          154,120
   Gains and origination fees from loans sold ...................              48,841           64,870
   Other income .................................................              76,880          154,818
                                                                          -----------      -----------
              Total noninterest income ..........................           1,221,329          373,808
                                                                          -----------      -----------

Noninterest Expenses
   Salaries and benefits ........................................           2,699,266        1,581,189
   Occupancy and equipment expense, net .........................             601,309          558,147
   Professional services ........................................             309,605          211,420
   Data processing and other outside services ...................             245,645          283,133
   Advertising and promotional expenses .........................             357,323          160,238
   Directors fees and expenses ..................................              97,734          129,992
   Forms, printing and supplies .................................             189,512          120,400
   Regulatory assessments .......................................              51,800           39,314
   Insurance ....................................................              33,603           22,377
   Other operating expenses .....................................             660,189          313,975
                                                                          -----------      -----------
              Total noninterest expenses ........................           5,245,986        3,420,185
                                                                          -----------      -----------

              Income before income taxes ........................             415,141          540,388

(Provision) Benefit for Income Taxes (Note 9) ...................             (66,500)          86,100
                                                                          -----------      -----------
              Net income ........................................         $   348,641      $   626,488
                                                                          ===========      ===========

              Basic income per share (Note 10) ..................         $      0.17      $      0.48
                                                                          ===========      ===========

              Diluted income per share (Note 10) ................         $      0.16      $      0.47
                                                                          ===========      ===========
</TABLE>

See Notes to Consolidated Financial Statements.


                                       3
<PAGE>

PATRIOT NATIONAL BANCORP, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended December 31, 1999 and 1998
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                         Accumulated
                                                                              Additional                    Other
                                                     Number of    Common       Paid-in     Accumulated  Comprehensive
                                                       Shares      Stock       Capital       Deficit        Income        Total
                                                     ------------------------------------------------------------------------------

<S>                                                  <C>         <C>          <C>          <C>            <C>          <C>
Balance, December 31, 1997 .....................     1,233,413   $2,466,826   $4,594,339   $(1,610,460)   $  29,843    $  5,480,548
                                                                                                                       ------------

Comprehensive Income:
   Net income ..................................          --           --           --         626,488         --           626,488
   Unrealized holding gain on available for sale
      securities, net of taxes (Note 15) .......          --           --           --            --         10,288          10,288
                                                                                                                       ------------
              Total comprehensive income .......                                                                            636,776
                                                                                                                       ------------

Issuance of common stock (Note 10) .............       763,518    1,527,036    4,398,597          --           --         5,925,633
Issuance of stock warrants .....................          --           --         54,326          --           --            54,326
                                                     ---------   ----------   ----------   -----------    ---------    ------------

Balance, December 31, 1998 .....................     1,996,931    3,993,862    9,047,262      (983,972)      40,131      12,097,283
                                                                                                                       ------------

Comprehensive Income:
   Net income ..................................          --           --           --         348,641         --           348,641
   Unrealized holding loss on available for sale
      securities, net of taxes (Note 15) .......          --           --           --            --       (298,573)       (298,573)
                                                                                                                       ------------
              Total comprehensive income .......                                                                             50,068
                                                                                                                       ------------

Issuance of common stock (Note 10) .............       164,021      328,042      760,695          --           --         1,088,737
                                                     ---------   ----------   ----------   -----------    ---------    ------------

Balance, December 31, 1999 .....................     2,160,952   $4,321,904   $9,807,957   $  (635,331)   $(258,442)   $ 13,236,088
                                                     =========   ==========   ==========   ===========    =========    ============
</TABLE>

See Notes to Consolidated Financial Statements .


                                       4
<PAGE>

PATRIOT NATIONAL BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999 and 1998
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                 1999              1998
                                                                             ------------------------------
<S>                                                                          <C>               <C>
Cash Flows from Operating Activities
   Net income ..........................................................     $    348,641      $    626,488
   Adjustments to reconcile net income to net cash provided
      by operating activities:
        Amortization and accretion of investment discounts and
            premiums, net ..............................................           17,244            31,929
        Gains on sales of investments ..................................           (4,378)          (26,907)
        Originations of loans held for sale ............................       (2,014,950)       (2,957,550)
        Proceeds from sales of loans held for sale .....................        2,033,235         2,973,148
        Principal payments on loans held for sale ......................             --               5,005
        Gains on sales of loans ........................................          (18,285)          (15,788)
        Provision for loan losses ......................................          553,000           104,000
        Gain on sale of other real estate owned ........................          (32,238)             --
        Depreciation and amortization ..................................          282,954           216,979
        Loss on disposal of bank premises and equipment ................            1,439               514
        Deferred income taxes ..........................................          (18,000)          (90,000)
        Consulting fees paid by issuance of common stock ...............           27,035            36,234
        Professional services paid by issuance of stock warrants .......             --              54,326
        Directors fees paid by issuance of common stock ................           48,232            47,483
        Changes in assets and liabilities:
           Decrease in deferred loan fees ..............................          (59,034)          (35,307)
           Increase in accrued interest receivable .....................         (393,044)          (70,437)
           Decrease (increase) in other assets .........................           76,527           (97,183)
           Increase (decrease) in accrued expenses and other liabilities           66,936              (354)
                                                                             ------------      ------------
              Net cash provided by operating activities ................          915,314           802,580
                                                                             ------------      ------------

Cash Flows from Investing Activities
   Purchases of available for sale securities ..........................      (18,870,640)       (7,306,369)
   Proceeds from sales of available for sale securities ................        5,771,438         2,786,955
   Proceeds from maturities of available for sale securities ...........        1,050,000           500,000
   Principal repayments on available for sale securities ...............        1,049,086              --
   Purchases of held to maturity securities ............................       (8,966,022)       (2,848,369)
   Proceeds from maturities of held to maturity securities .............          500,000         3,260,000
   Proceeds from sale of loan receivable ...............................           50,000              --
   Net increase in loans ...............................................      (51,261,259)      (12,674,365)
   Purchase of Federal Reserve Bank stock ..............................         (170,700)             --
   Purchase of Federal Home Loan Bank stock ............................         (307,000)             --
   Purchases of premises and equipment .................................         (277,654)          (85,065)
   Proceeds from sales of other real estate owned ......................           72,705           120,000
   Purchase of mortgage company ........................................         (255,719)             --
                                                                             ------------      ------------
              Net cash used in investing activities ....................      (71,615,765)      (16,247,213)
                                                                             ------------      ------------
</TABLE>


                                       5
<PAGE>

PATRIOT NATIONAL BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
Years Ended December 31, 1999 and 1998
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                         1999              1998
                                                                   ------------------------------
<S>                                                                   <C>               <C>
Cash Flows from Financing Activities
   Net increase in demand, savings and money market deposits .        7,108,932         6,794,325
   Net increase in time certificates of deposits .............       66,328,283        13,922,583
   Principal payments on capital lease obligation ............          (80,918)          (63,038)
   Net increase in collateralized borrowings .................          325,000
   Proceeds from issuance of common stock ....................           13,096         5,826,061
                                                                   ------------      ------------
              Net cash provided by financing activities ......       73,694,393        26,479,931
                                                                   ------------      ------------

              Net increase in cash and cash equivalents ......        2,993,942        11,035,298

Cash and cash equivalents
   Beginning .................................................       29,567,353        18,532,055
                                                                   ------------      ------------

   Ending ....................................................     $ 32,561,295      $ 29,567,353
                                                                   ============      ============

Supplemental Disclosures of Cash Flow Information
   Cash paid for:

      Interest ...............................................     $  4,739,921      $  3,074,518
                                                                   ============      ============

      Income taxes ...........................................     $     98,000      $      4,429
                                                                   ============      ============

Supplemental Disclosure of Noncash Investing and Financing
   Activities

      Transfer of loans to other real estate owned ...........     $       --        $     40,467
                                                                   ============      ============

      Transfer of loans held for sale to loans ...............     $       --        $    129,344
                                                                   ============      ============

      Accrued prior year director fees settled in common stock     $     19,965      $     15,855
                                                                   ============      ============
      Purchase of Mortgage Company (Note 17)
        Purchase price .......................................        1,130,409              --
        Direct acquisition costs .............................          105,719              --
                                                                   ------------      ------------
                                                                   $  1,236,128      $       --
                                                                   ============      ============
        Fair Value of Assets Acquired:
           Goodwill ..........................................     $  1,236,128      $
                                                                   ============      ============

        Source of Funds:
           Cash ..............................................          255,719              --
           Issuance of common stock ..........................          980,409              --
                                                                   ------------      ------------
                                                                   $  1,236,128      $       --
                                                                   ============      ============
</TABLE>

See Notes to Consolidated Financial Statements.


                                       6
<PAGE>

PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
--------------------------------------------------------------------------------

NOTE 1.  NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Patriot National Bancorp, Inc. (the "Company"), a Connecticut corporation,  is a
bank holding  company that was organized in 1999.  On December 1, 1999,  all the
issued and  outstanding  shares of Patriot  National  Bank,  (the  "Bank")  were
converted  into  Company  common  stock  and the  Bank  became  a  wholly  owned
subsidiary of the Company.  The Bank is a nationally  chartered  commercial bank
whose deposits are insured under the Bank Insurance Fund,  which is administered
by the Federal Deposit Insurance Corporation.  The Bank provides a full range of
banking services to commercial and consumer customers through its main office in
Stamford,  Connecticut  and two branch  offices in Greenwich,  Connecticut.  The
Bank's  customers  are  concentrated  in  Fairfield   County,   Connecticut  and
Westchester  County,  New  York.  The  Bank  also  conducts  mortgage  brokerage
operations  in  Connecticut,  New  York  and New  Jersey  through  its  mortgage
brokerage division, Pinnacle Financial (see Note 17).

Principles of consolidation and basis of financial statement presentation
-------------------------------------------------------------------------

The consolidated  financial  statements  include the accounts of the Company and
its wholly owned  subsidiary,  the Bank, and the Bank's wholly owned subsidiary,
Pinpat  Acquisition  Corporation,  and have been  prepared  in  accordance  with
generally  accepted  accounting  principles  and  general  practices  within the
banking industry.  All significant  intercompany  balances and transactions have
been eliminated. In preparing the consolidated financial statements,  management
is required to make estimates and assumptions  that affect the reported  amounts
of assets and liabilities, and disclosures of contingent assets and liabilities,
as of the balance  sheet date and revenues  and expenses for the period.  Actual
results  could  differ  from  those  estimates.   Material  estimates  that  are
particularly  susceptible to  significant  change in the near term relate to the
determination  of the allowance  for loan losses,  and the valuation of deferred
tax assets.

The following is a summary of the Company's significant accounting policies.

Cash and cash equivalents
-------------------------

Cash and due from  banks,  federal  funds sold and  short-term  investments  are
recognized as cash equivalents in the consolidated financial statements. Federal
funds sold  generally  mature in one day. For purposes of reporting  cash flows,
the Company  considers  all highly  liquid  debt  instruments  purchased  with a
maturity of three months or less to be cash  equivalents.  Cash flows from loans
and deposits are reported net. The Company  maintains amounts due from banks and
Federal funds sold which, at times,  may exceed  federally  insured limits.  The
Company has not experienced any losses from such concentrations.


                                       7
<PAGE>

PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1999 and 1998
--------------------------------------------------------------------------------

Investments in debt and marketable equity securities
----------------------------------------------------

Management  determines the appropriate  classification of securities at the date
individual investment  securities are acquired,  and the appropriateness of such
classification   is  reassessed  at  each  balance  sheet  date.  This  security
classification  may be modified after  acquisition only under certain  specified
conditions.  The  classification of those securities and the related  accounting
policies are as follows:

      Held to maturity securities
      ---------------------------

      Securities  classified as held to maturity are those debt  securities  the
      Company has both the intent and ability to hold to maturity  regardless of
      changes  in market  conditions,  liquidity  needs or  changes  in  general
      economic  conditions.  These securities are carried at cost,  adjusted for
      amortization  of premium and  accretion  of discount,  computed  using the
      interest  method,  over the  period to  maturity.  The sale of a  security
      within three months of its maturity  date or after  collection of at least
      85% of the principal  outstanding at the time the security was acquired is
      considered a maturity for the purposes of classification and disclosure.

      Available for sale securities
      -----------------------------

      Securities classified as available for sale are those debt securities that
      the  Company  intends  to hold for an  indefinite  period  of time but not
      necessarily  to maturity and equity  securities not classified as held for
      trading.  Any decision to sell a security classified as available for sale
      would be based on various  factors,  including  significant  movements  in
      interest  rates,  changes in the maturity mix of the Company's  assets and
      liabilities, liquidity needs, regulatory capital considerations, and other
      similar factors.  Available for sale securities are carried at fair value.
      Unrealized  gains or losses are  reported as  increases  or  decreases  in
      shareholders' equity, net of the related deferred tax effect. Amortization
      of premiums and  accretion of discounts,  computed by the interest  method
      over the period to maturity,  are recognized in interest income.  Realized
      gains  or  losses,  determined  on the  basis  of  the  cost  of  specific
      securities sold, are included in earnings.

      Trading Securities
      ------------------

      Trading securities, if any, which are generally held for the short term in
      anticipation  of market  gains,  are carried at fair value.  Realized  and
      unrealized  gains and losses on trading  account  assets are recognized in
      the statement of income.


                                       8
<PAGE>

PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1999 and 1998
--------------------------------------------------------------------------------

Declines in the fair value of individual  held to maturity or available for sale
securities  below their  amortized cost, that are determined by management to be
other than  temporary,  result in write-downs  of the  individual  securities to
their fair  value.  The  related  losses from the  write-downs  are  included in
earnings as realized losses.

Loans held for sale
-------------------

Loans held for sale are those  loans the  Company  has the intent to sell in the
foreseeable  future,  and are carried at the lower of  aggregate  cost or market
value,  taking into consideration all open positions.  Gains and losses on sales
of loans are recognized at the trade dates, and are determined by the difference
between the sales proceeds and the carrying  value of the loans.  Loans are sold
with servicing released.

Loans receivable
----------------

Loans receivable are stated at their current unpaid  principal  balances and are
net of the allowance for loan losses and net deferred loan origination fees. The
Company has the ability and intent to hold its loans for the foreseeable  future
or until maturity or payoff.

A loan is classified as a restructured  loan when certain  concessions have been
made to the original  contractual terms, such as reductions in interest rates or
deferral of interest or  principal  payments,  due to the  borrower's  financial
condition.

Impaired loans are measured  based on the present value of expected  future cash
flows  discounted  at the  loan's  effective  interest  rate or, as a  practical
expedient,  at the  loan's  observable  market  price or the  fair  value of the
collateral if the loan is collateral  dependent.  The amount of  impairment,  if
any, and any subsequent changes are recorded as adjustments to the allowance for
loan losses.  A loan is impaired  when it is probable the Company will be unable
to collect all  contractual  principal  and interest  payments due in accordance
with the terms of the loan agreement.

Management considers all nonaccrual loans and restructured loans to be impaired.
In most cases,  loan payments that are past due less than 90 days are considered
minor  collection  delays,  and  the  related  loans  are not  considered  to be
impaired.  The  Company  considers  consumer  installment  loans  to be pools of
smaller  balance  homogeneous  loans,  which  are  collectively   evaluated  for
impairment.


                                       9
<PAGE>

PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1999 and 1998
--------------------------------------------------------------------------------

Allowance for loan losses
-------------------------

The allowance for loan losses,  a material  estimate  susceptible to significant
change in the near-term, is established as losses are estimated to have occurred
through a provision for losses charged against operations and is maintained at a
level that management considers adequate to absorb losses in the loan portfolio.
Management's judgment in determining the adequacy of the allowance is inherently
subjective  and is based on the  evaluation of individual  loans,  the known and
inherent risk characteristics and size of the loan portfolios, the assessment of
current  economic and real estate  market  conditions,  estimates of the current
value of underlying collateral, past loan loss experience,  review of regulatory
authority  examination  reports  and  evaluations  of  specific  loans and other
relevant  factors.  Loans,  including  impaired  loans,  are charged against the
allowance for loan losses when management  believes that the  collectibility  of
principal is unlikely.  Any subsequent  recoveries are credited to the allowance
for loan losses when  received.  In  connection  with the  determination  of the
allowance  for  loan  losses,  management  obtains  appraisals  for  significant
properties, when considered necessary.

The  Company's  real estate  loans are  collateralized  by real  estate  located
principally  in  Connecticut  and  New  York,  and  accordingly,   the  ultimate
collectibility  of a  substantial  portion of the  Company's  loan  portfolio is
particularly susceptible to changes in real estate market conditions.

Management believes the allowance for loan losses is adequate.  While management
uses available information to recognize losses on loans, future additions to the
allowance may be necessary based on changes in economic conditions. In addition,
various regulatory  agencies,  as an integral part of their examination process,
periodically review the Bank's allowance for loan losses. Such agencies have the
authority  to  require  the Bank to  recognize  additions  to the  allowance  or
charge-offs based on the agencies' judgments about information available to them
at the time of their examination.

Interest and fees on loans
--------------------------

Interest  on  loans  is  accrued  and  included  in  operating  income  based on
contractual  rates  applied to  principal  amounts  outstanding.  The accrual of
interest  income is  discontinued  whenever  reasonable  doubt  exists as to its
collectibility  and generally is discontinued when loans are past due 90 days as
to  either  principal  or  interest.  When the  accrual  of  interest  income is
discontinued,  all  previously  accrued  and  uncollected  interest  is reversed
against  interest  income.  The accrual of interest on loans past due 90 days or
more  may be  continued  if the loan is well  secured,  and it is  believed  all
principal and accrued interest income due on the loan will be realized,  and the
loan is in the  process of  collection.  A  nonaccrual  loan is  restored  to an
accrual status when it is no longer


                                       10
<PAGE>

PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1999 and 1998
--------------------------------------------------------------------------------

delinquent and  collectibility  of interest and principal is no longer in doubt.
Interest income on impaired loans is only recorded subsequent to the recovery of
the principal balance.

Loan origination  fees, net of direct loan  origination  costs, are deferred and
amortized as an adjustment to the loan's yield  generally  over the  contractual
life of the loan, utilizing the interest method.

Loan brokerage activities
-------------------------

The  Company   receives  loan  brokerage  fees  for  soliciting  and  processing
conventional loan applications on behalf of permanent  investors.  Brokerage fee
income is recognized upon funding of loans by permanent investors.

Transfers of financial assets
-----------------------------

Transfers of financial assets are accounted for as sales,  when control over the
assets has been  surrendered.  Control over  transferred  assets is deemed to be
surrendered  when (1) the assets have been  isolated  from the Company,  (2) the
transferee  obtains the right (free of conditions  that constrain it from taking
advantage of that right) to pledge or exchange the transferred  assets,  and (3)
the Company does not maintain  effective  control  over the  transferred  assets
through an agreement to repurchase them before their maturity.

Other real estate owned
-----------------------

Other real estate owned consists of properties  acquired through, or in lieu of,
loan foreclosure or other proceedings and is initially recorded at fair value at
the date of foreclosure,  which establishes a new cost basis. After foreclosure,
the  properties  are held for sale and are  carried at the lower of cost or fair
value less estimated costs of disposal. Any write-down to fair value at the time
of  acquisition  is charged to the  allowance  for loan losses.  Properties  are
evaluated regularly to ensure the recorded amounts are supported by current fair
values,  and  valuation  allowances  are  recorded  as  necessary  to reduce the
carrying  amount to fair value less  estimated  cost of  disposal.  Revenue  and
expense from the operation of other real estate owned and  valuation  allowances
are included in operations. Costs relating to the development and improvement of
the  property  are  capitalized,  subject  to the  limit  of fair  value  of the
collateral. Gains or losses are included in operations upon disposal.


                                       11
<PAGE>

PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1999 and 1998
--------------------------------------------------------------------------------

Premises and equipment
----------------------

Premises and equipment are stated at cost for purchased assets, and at the lower
of fair value or the net present  value of the minimum lease  payments  required
over the term of the lease for assets under capital  leases,  net of accumulated
depreciation  and  amortization.  Leasehold  improvements  are  capitalized  and
amortized  over the shorter of the terms of the related  leases or the estimated
economic lives of the improvements.  Depreciation is charged to operations using
the  straight-line  method over the estimated useful lives of the related assets
which range from 5 to 10 years. Amortization of premises under capital leases is
charged to operations using the straight-line method over the life of the lease.
Gains and losses on dispositions  are recognized upon  realization.  Maintenance
and repairs are expensed as incurred and improvements are capitalized.

Goodwill
--------

Goodwill  represents the cost of acquired assets in excess of values ascribed to
net tangible assets related to the acquisition of Pinnacle  Financial Group (see
Note 17) and is being amortized on a straight line basis over ten years.

Impairment of long-lived assets
-------------------------------

Long-lived assets, including premises and equipment and goodwill, which are held
and used by the Company,  are reviewed for impairment whenever events or changes
in  circumstances  indicate  that the  carrying  amount  of an asset  may not be
recoverable.  If  impairment  is indicated by that review,  the asset is written
down to its estimated fair value through a charge to noninterest expense.

Collateralized borrowings
-------------------------

Collateralized  borrowings  represent the portion of loans  transferred to other
institutions  under  loan  participation  agreements.  Such  transfers  were not
recognized  as sales  due to  recourse  provisions  and/or  restrictions  on the
participant's right to transfer their portion of the loan.

Income taxes
------------

The Company recognizes income taxes under the asset and liability method.  Under
this method,  deferred tax assets and  liabilities are recognized for the future
tax  consequences  attributable to differences  between the financial  statement
carrying  amounts of existing assets and  liabilities  and their  respective tax
bases, and loss carryforwards.  Deferred tax assets and liabilities are measured
using  enacted  tax rates  expected  to apply to taxable  income in the years in
which those temporary  differences are expected to be recovered or settled.  The
effect on deferred tax assets and


                                       12
<PAGE>

PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1999 and 1998
--------------------------------------------------------------------------------

liabilities  of a change in tax rates is recognized in income in the period that
includes  the  enactment  date.  Deferred  tax assets are reduced by a valuation
allowance  when, in the opinion of  management,  it is more likely than not that
some portion or all of the deferred tax assets will not be realized.

Related party transactions
--------------------------

Directors  and  officers of the Company and the Bank and their  affiliates  have
been  customers of and have had  transactions  with the Bank, and it is expected
that such  persons  will  continue  to have  such  transactions  in the  future.
Management believes that all deposit accounts,  loans,  services and commitments
comprising such transactions  were made in the ordinary course of business,  and
on substantially  the same terms,  including  interest rates and collateral,  as
those  prevailing at the time for comparable  transactions  with other customers
who are not  directors  or  officers.  In the  opinion  of the  management,  the
transactions  with  related  parties did not involve  more than normal  risks of
collectibility  or favored  treatment  or terms,  or present  other  unfavorable
features. Note 14 contains details regarding related party transactions.

Earnings per share
------------------

Statement of Financial  Accounting  Standards  ("SFAS") No. 128,  "Earnings  per
Share,"  which  superseded  APB Opinion No. 15,  requires  the  presentation  of
earnings  per share by all entities  that have common stock or potential  common
stock, such as stock options,  outstanding  which trade in a public market.  The
Company is required to present basic earnings per share and diluted earnings per
share in its  consolidated  statements  of income.  Basic per share  amounts are
computed by dividing net income by the weighted-average  number of common shares
outstanding.  Diluted per share amounts assume exercise of all potential  common
stock instruments in weighted-average  shares outstanding,  unless the effect is
antidilutive.  In addition,  for those entities with complex capital structures,
the statement also requires a  reconciliation  of the numerator and  denominator
used in the  computation  of both  basic and  diluted  per share  amounts  to be
disclosed.

Comprehensive income
--------------------

Accounting principles generally require that recognized revenue, expenses, gains
and losses be  included in net income.  Although  certain  changes in assets and
liabilities,  such  as  unrealized  gains  and  losses  on  available  for  sale
securities,  are reported as a separate  component of the  shareholders'  equity
section of the consolidated  balance sheets,  such items, along with net income,
are components of comprehensive income.


                                       13
<PAGE>

PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1999 and 1998
--------------------------------------------------------------------------------

Fair values of financial instruments
------------------------------------

The following  methods and  assumptions  were used by the Bank in estimating the
fair value of its financial instruments:

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

      The carrying amount is a reasonable estimate of fair value.

      Securities
      ----------

      Fair values,  excluding  restricted Federal Reserve Bank stock and Federal
      Home Loan Bank stock,  are based on quoted market prices or dealer quotes,
      if  available.  If a quoted market price is not  available,  fair value is
      estimated using quoted market prices for similar securities.  The carrying
      value of the Federal  Reserve  Bank stock and Federal Home Loan Bank stock
      approximate  fair value based on the redemption  provisions of the related
      stock.

      Loans receivable
      ----------------

      For variable rate loans which reprice frequently,  and have no significant
      changes in credit risk,  fair value is based on the loan's carrying value.
      The fair value of fixed rate loans is estimated by discounting  the future
      cash flows using the year end rates at which  similar  loans would be made
      to  borrowers  with  similar  credit  ratings  and for the same  remaining
      maturities.

      Loans held for sale
      -------------------

      Fair value is based on quoted secondary market rates.

      Deposits
      --------

      The fair value of demand  deposits,  regular  savings  and  certain  money
      market deposits is the amount payable on demand at the reporting date. The
      fair value of certificates of deposit and other time deposits is estimated
      by using a discounted cash flow  calculation  that applies  interest rates
      currently being offered for deposits of similar remaining  maturities to a
      schedule of aggregated expected maturities on such deposits.


                                       14
<PAGE>

PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1999 and 1998
--------------------------------------------------------------------------------

      Collateralized borrowings
      -------------------------

      The fair  value of the  collateralized  borrowings  is  estimated  using a
      discounted cash flow  calculation  that applies current interest rates for
      borrowings  of  similar  maturity  to a  schedule  of  maturities  of such
      borrowings.

      Off-balance-sheet instruments
      -----------------------------

      Fair  values  for the  Company's  off-balance-sheet  instruments  (lending
      commitments  and standby  letters of credit)  are based on fees  currently
      charged  to  enter  into  similar  agreements,  taking  into  account  the
      remaining terms of the agreements and the counterparties' credit standing.

NOTE 2.  RESTRICTIONS ON CASH AND DUE FROM BANKS

The Bank is required to maintain  reserves  against its  respective  transaction
accounts  and non personal  time  deposits.  At December 31, 1999,  the Bank was
required to have cash and liquid assets of approximately  $326,000 to meet these
requirements.  In  addition,  the Bank is required  to  maintain  $25,000 in the
Federal Reserve Bank for clearing purposes.

NOTE 3.  AVAILABLE FOR SALE SECURITIES

The  amortized  cost,  gross  unrealized  gains,  gross  unrealized  losses  and
approximate  fair values of available  for sale  securities at December 31, 1999
and 1998 are as follows:

<TABLE>
<CAPTION>
                                                                         Gross              Gross
                                                     Amortized         Unrealized         Unrealized           Fair
1999                                                    Cost             Gains              Losses             Value
----                                                --------------------------------------------------------------------

<S>                                                 <C>               <C>                <C>                <C>
Mortgage backed securities ...................      $ 17,325,754      $       --         $   (284,247)      $ 17,041,507
U.S. Government obligations ..................         1,049,810              --              (13,765)         1,036,045
Marketable equity securities .................         2,032,067              --             (125,310)         1,906,757
                                                    ------------      ------------       ------------       ------------
                                                    $ 20,407,631      $       --         $   (423,322)      $ 19,984,309
                                                    ============      ============       ============       ============
</TABLE>


<TABLE>
<CAPTION>
                                                                         Gross              Gross
                                                     Amortized         Unrealized         Unrealized           Fair
1998                                                    Cost             Gains              Losses             Value
----                                                --------------------------------------------------------------------

<S>                                                 <C>               <C>                <C>                <C>
U.S. Government obligations ..................      $  7,380,475      $     81,236       $       --         $  7,461,711
Marketable equity securities .................         2,032,067              --              (14,350)         2,017,717
                                                    ------------      ------------       ------------       ------------
                                                    $  9,412,542      $     81,236       $    (14,350)      $  9,479,428
                                                    ============      ============       ============       ============
</TABLE>


                                       15
<PAGE>

PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1999 and 1998
--------------------------------------------------------------------------------

The  amortized  cost and fair value of  available  for sale debt  securities  at
December 31, 1999 by contractual maturity are presented below. Actual maturities
of mortgage backed securities may differ from contractual maturities because the
mortgages  underlying  the  securities  may be  called  or  repaid  without  any
penalties.  Because mortgage backed  securities are not due at a single maturity
date, they are not included in the maturity categories in the following maturity
summary.

                                                     Amortized          Fair
                                                       Cost             Value
                                                    -----------      -----------

     Maturity:
        Within 1 year .......................       $   550,520      $   545,545
        After 1 but within 5 years ..........           499,290          490,500
                                                    -----------      -----------
                                                      1,049,810        1,036,045
        Mortgage backed securities ..........        17,325,754       17,041,507
                                                    -----------      -----------
                                                    $18,375,564      $18,077,552
                                                    ===========      ===========

During 1999 and 1998,  proceeds from the sales of available for sale  securities
were  $5,771,438  and  $2,786,955,  respectively,  and gross gains of $4,378 and
$26,907, respectively, were realized on these sales.

NOTE 4.  HELD TO MATURITY SECURITIES

The  amortized  cost,  gross  unrealized  gains,  gross  unrealized  losses  and
approximate fair values of held to maturity  securities at December 31, 1999 and
1998 are as follows:

<TABLE>
<CAPTION>
                                                                         Gross              Gross
                                                     Amortized         Unrealized         Unrealized           Fair
1999                                                    Cost             Gains              Losses             Value
----                                                --------------------------------------------------------------------

<S>                                                 <C>               <C>                <C>                <C>
U.S. Government obligations ..............          $    498,650      $       --         $     (3,500)      $    495,150
Corporate bonds ..........................            11,802,835             9,147           (400,839)        11,411,143
                                                    ------------      ------------       ------------       ------------
                                                    $ 12,301,485      $      9,147       $   (404,339)      $ 11,906,293
                                                    ============      ============       ============       ============
</TABLE>

<TABLE>
<CAPTION>
                                                                         Gross              Gross
                                                     Amortized         Unrealized         Unrealized           Fair
1998                                                    Cost             Gains              Losses             Value
----                                                --------------------------------------------------------------------

<S>                                                 <C>               <C>                <C>                <C>
U.S. Government obligations ..............          $  1,000,840      $     11,191       $       --         $  1,012,031
Corporate bonds ..........................             2,842,462             1,727            (29,386)         2,814,803
                                                    ------------      ------------       ------------       ------------
                                                    $  3,843,302      $     12,918       $    (29,386)      $  3,826,834
                                                    ============      ============       ============       ============
</TABLE>


                                       16
<PAGE>

PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1999 and 1998
--------------------------------------------------------------------------------

The  amortized  cost  and fair  value of held to  maturity  debt  securities  at
December 31, 1999 by contractual maturity are shown below:

                                                    Amortized           Fair
                                                      Cost              Value
                                                  ------------------------------

Maturity:
   Within 1 year ...........................       $     --          $     --
   After 1 but within 5 years ..............         5,180,661         5,015,374
   After 5 but within 10 years..............         6,164,124         5,953,719
   After 10 years...........................           956,700           937,200
                                                   -----------       -----------
                                                   $12,301,485       $11,906,293
                                                   ===========       ===========

There were no sales of held to  maturity  securities  during  1999 or 1998,  and
there were no securities  transferred among the held to maturity,  available for
sale or trading categories.

NOTE 5.  LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

A summary of the  Company's  loan  portfolio at December 31, 1999 and 1998 is as
follows:

                                                       1999            1998
                                                  ------------------------------
Real estate:
   Commercial .................................   $  54,289,002   $  33,179,464
   Residential ................................       6,799,133       1,380,416
   Construction, net of undisbursed portion of
      $8,099,481 in 1999 and $1,508,615 in 1998      13,872,519       5,737,601
Commercial ....................................      11,086,324       8,326,749
Consumer installment ..........................       1,580,219       1,179,789
Consumer home equity ..........................      21,705,929       8,296,201
                                                  -------------   -------------
           Total loans ........................     109,333,126      58,100,220
Net deferred loan fees ........................        (203,032)       (262,066)
Allowance for loan losses .....................      (1,360,183)       (785,536)
                                                  -------------   -------------
           Loans receivable, net ..............   $ 107,769,911   $  57,052,618
                                                  =============   =============

The changes in the  allowance  for loan losses for the years ended  December 31,
1999 and December 31, 1998 are as follows:

                                                         1999           1998
                                                     ---------------------------

Balance, beginning of year .......................   $   785,536    $   745,499
   Provision for loan losses .....................       553,000        104,000
   Recoveries of loans previously charged off ....        40,770            264
   Loans charged off .............................       (19,123)       (64,227)
                                                     -----------    -----------
Balance, end of year .............................   $ 1,360,183    $   785,536
                                                     ===========    ===========


                                       17
<PAGE>

PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1999 and 1998
--------------------------------------------------------------------------------

At December 31, 1999 and 1998, the unpaid principal balances of loans delinquent
90 days  or more  were  $565,788  and  $796,076,  respectively,  and the  unpaid
principal  balances  of loans  placed on  nonaccrual  status  were  $91,076  and
$63,917, respectively.

The  following  information  relates to  impaired  loans as of and for the years
ended December 31, 1999 and 1998:

<TABLE>
<CAPTION>
                                                                                 1999          1998
                                                                              -----------------------
<S>                                                                           <C>           <C>
Loans receivable for which there is a related allowance
   for credit losses ..................................................       $   --        $   --
                                                                              =======================

Loans  receivable for which there is no related
   allowance  for credit losses determined:
      based on discounted cash flows ..................................       $   --        $ 63,917
      based on the fair value of collateral ...........................         91,076          --
                                                                              ----------------------
                                                                              $ 91,076      $ 63,917
                                                                              =======================

Allowance for credit losses related to impaired loans .................       $   --        $   --
                                                                              =======================

Average recorded investment in impaired loans .........................       $ 81,923      $300,483
                                                                              =======================
</TABLE>

Interest income on impaired loans recognized on the cash basis was approximately
$3,000  and  $23,000  in  1999  and  1998,  respectively.  The  Company  has  no
commitments to lend additional funds to borrowers whose loans are impaired.

The Company's  lending  activities  are conducted  principally  in the Fairfield
County section of Connecticut  and  Westchester  County section of New York. The
Company grants  commercial  real estate loans,  commercial  business loans and a
variety of  consumer  loans.  In  addition,  the  Company  grants  loans for the
construction  of  residential  homes,  residential  developments  and  for  land
development  projects.   All  residential  and  commercial  mortgage  loans  are
collateralized  by first or second  mortgages  on real  estate.  The ability and
willingness of borrowers to satisfy their loan obligations is dependent in large
part upon the status of the regional  economy and regional  real estate  market.
Accordingly,  the ultimate  collectibility of a substantial  portion of the loan
portfolio and the recovery of a substantial  portion of real estate  acquired is
susceptible to changes in market conditions.

The Company has established  credit policies  applicable to each type of lending
activity in which it engages,  evaluates the credit  worthiness of each customer
and, in most cases,  extends  credit of up to 75 percent of the market  value of
the  collateral at the date of the credit  extension  depending on the Company's
evaluation of the  borrowers'  credit  worthiness  and type of  collateral.  The
market  value of  collateral  is monitored  on an ongoing  basis and  additional
collateral is obtained when


                                       18
<PAGE>

PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1999 and 1998
--------------------------------------------------------------------------------

warranted. Real estate is the primary form of collateral.  Other important forms
of  collateral  are  accounts  receivable,  inventory,  other  business  assets,
marketable securities and time deposits.  While collateral provides assurance as
a secondary  source of repayment,  the Company  ordinarily  requires the primary
source of repayment to be based on the borrower's ability to generate continuing
cash flows.

NOTE 6.  PREMISES AND EQUIPMENT

At  December  31,  1999  and  1998,  premises  and  equipment  consisted  of the
following:

                                                         1999           1998
                                                     ---------------------------

Premises under capital lease .....................   $   783,000    $   783,000
Leasehold improvements ...........................       516,811        370,173
Furniture and equipment ..........................       508,774        383,656
                                                     -----------    -----------
                                                       1,808,585      1,536,829
Less accumulated depreciation and amortization ...      (854,929)      (654,865)
                                                     -----------    -----------
                                                     $   953,656    $   881,964
                                                     ===========    ===========

For the years ended December 31, 1999 and 1998,  depreciation  and  amortization
expense  related to  premises  and  equipment  totaled  $204,524  and  $185,690,
respectively.

NOTE 7.  DEPOSITS

At December 31, 1999 and 1998, deposits consisted of the following:

                                                       1999             1998
                                                   -----------------------------

Noninterest bearing ..........................     $ 12,630,926     $  8,442,262
                                                   ------------     ------------
Interest bearing:
   Time certificates, less than $100,000 .....       69,144,236       28,205,513
   Time certificates, $100,000 or more .......       34,781,816        9,392,256
   Money market ..............................          624,763        1,859,136
   Savings ...................................       35,962,257       31,546,866
   NOW .......................................        9,602,356        9,863,106
                                                   ------------     ------------
      Total interest bearing .................      150,115,428       80,866,877
                                                   ------------     ------------
           Total deposits ....................     $162,746,354     $ 89,309,139
                                                   ============     ============

Interest expense on certificates of deposit in denominations of $100,000 or more
was  $842,230  and  $310,942  for the years  ended  December  31, 1999 and 1998,
respectively.


                                       19
<PAGE>

PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1999 and 1998
--------------------------------------------------------------------------------

Contractual  maturities of time  certificates of deposit as of December 31, 1999
are summarized below:

      Due within:
         1 year .....................................      $ 57,844,592
         1-2 years ..................................        45,298,783
         2-3 years ..................................           408,788
         3-4 years ..................................           315,569
         4-5 years ..................................            58,320
                                                           ------------
                                                           $103,926,052
                                                           ============

NOTE 8.  COMMITMENTS AND CONTINGENCIES

Capital lease
-------------

The Company leases the premises for the Bank's main office under a capital lease
which  expires in 2004.  Premises  under  capital  lease of $783,000 and related
accumulated  amortization  of $417,600  and $339,300 as of December 31, 1999 and
1998, respectively, are included in premises and equipment.

The  Company  is  obligated  under the lease to pay  executory  costs  including
insurance, property taxes, maintenance and other related expenses.

At  December  31,  1999,  future  minimum  lease  payments,  by years and in the
aggregate, under this capital lease are as follows:

        Years Ending
        December 31,                                           Amount
        ------------                                         ---------

        2000............................................     $ 164,000
        2001............................................       164,000
        2002............................................       164,000
        2003............................................       164,000
        2004 and thereafter ............................       109,333
                                                             ---------
                                                               765,333

        Less amount representing interest ..............      (201,646)
                                                             ---------
        Present value of future minimum lease payments -
           capital lease obligation ....................     $ 563,687
                                                             =========


                                       20
<PAGE>

PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1999 and 1998
--------------------------------------------------------------------------------

Operating leases
----------------

The Company  subleases  excess  office space in its premises to various  tenants
under  cancelable  and  noncancelable  operating  leases with terms ranging from
monthly  to  five  years.   Future   minimum  lease   payments   receivable  for
noncancelable leases by year, and in the aggregate,  at December 31, 1999 are as
follows:

                      Years Ending
                      December 31,                    Amount
                      -------------                  --------

                           2000                      $ 65,944
                           2001                        24,869
                           2002                        22,269
                           2003                        22,269
                                                      --------
                                                      $135,351
                                                      ========

For the years  ended  December  31,  1999 and 1998,  rental  income  under  both
cancelable and noncancelable leases totaled $99,218 and $72,931, respectively.

The  Company  also has  noncancelable  operating  leases for its two bank branch
offices in Greenwich,  Connecticut and for two mortgage brokerage offices in New
York and New Jersey.  Under these lease  agreements,  the Company is required to
pay certain  executory costs such as insurance and property  taxes.  The Company
also leases parking space under a noncancelable operating lease agreement.

As  described in Note 18, the Company  expects to open a new mortgage  brokerage
office in 2000, and subsequent to December 31, 1999, the Company  entered into a
noncancelable lease for such office space.

Future minimum rental  commitments  under the terms of these leases, by year and
in the aggregate, are as follows:

                    Years Ending
                    December 31,                   Amount
                    ------------                   ------

                    2000                         $  351,144
                    2001                            365,706
                    2002                            272,138
                    2003                            139,894
                    2004 and thereafter              16,910
                                                 ----------
                                                 $1,145,792
                                                 ==========


                                       21
<PAGE>

PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1999 and 1998
--------------------------------------------------------------------------------

Total rental expense  charged to operations  for  cancelable  and  noncancelable
operating leases was $264,770 and $218,750 for the years ended December 31, 1999
and 1998, respectively.

Employment Agreements
---------------------

In conjunction with the acquisition of Pinnacle Financial Group on June 30, 1999
(see Note 17), the Company entered into employment  agreements with two officers
who were the principal  shareholders  of Pinnacle.  The agreements  provide for,
among other things,  stipulated  base  salaries  that increase in 2000,  and may
increase or decrease in years  thereafter  based on the  achievement  of certain
financial  results  by  the  mortgage  brokerage  division.  In  addition,   the
agreements  provide  for  annual  bonuses  based on the  achievement  of certain
financial results by the mortgage brokerage  division,  and for reimbursement of
expenses  incurred  incidental  to their  duties  as  officers.  The  agreements
terminate on December 31, 2002, however  automatically  renew, unless either the
Company or the officers  elect not to renew in writing,  for additional one year
periods upon the same terms and  conditions,  except that the base salaries will
increase by 10% for each one year extended term.

Legal Matters
-------------

The Company is involved in various  legal  proceedings  which have arisen in the
normal course of business.  Management believes that resolution of these matters
will not have a material effect on the Company's  financial condition or results
of operations.

NOTE 9.  INCOME TAXES

The  components  of the  income  tax  provision  (benefit)  for the years  ended
December 31, 1999 and 1998 are as follows:

                                                         1999            1998
                                                       ------------------------
Current
   Federal .....................................       $ 73,500        $   --
   State .......................................         11,000           3,900
                                                       --------        --------
           Total ...............................         84,500           3,900
                                                       --------        --------
Deferred
   Federal .....................................        (14,100)        (68,800)
   State .......................................         (3,900)        (21,200)
                                                       --------        --------
           Total ...............................        (18,000)        (90,000)
                                                       --------        --------

           Income tax expense (benefit) ........       $ 66,500        $(86,100)
                                                       ========        ========


                                       22
<PAGE>

PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1999 and 1998
--------------------------------------------------------------------------------

A reconciliation of the anticipated income tax provision  (benefit) (computed by
applying the statutory Federal income tax rate (34%) to the income before income
taxes) to the income tax  provision  (benefit) as reported in the  statements of
income for the years ended December 31, 1999 and 1998 are as follows:

<TABLE>
<CAPTION>
                                                             1999           1998
                                                          ------------------------

<S>                                                       <C>            <C>
Provision for income taxes at statutory Federal rate      $ 141,100      $ 183,700
State taxes, net of Federal benefit .................        21,500         35,300
Decrease in deferred tax valuation allowance ........      (134,400)      (325,000)
Change in state tax rates ...........................         3,400         12,100
Nondeductible expenses ..............................        29,000          9,600
Other ...............................................         5,900         (1,800)
                                                          ---------      ---------
           Total provision (benefit) for income taxes     $  66,500      $ (86,100)
                                                          =========      =========
</TABLE>

At December 31, 1999 and 1998,  the  components of gross deferred tax assets and
gross deferred tax liabilities are as follows:

                                                           1999          1998
                                                        -----------------------

Deferred tax assets:
   Allowance for loan losses ......................     $ 529,793     $ 311,200
   Investment securities ..........................       164,880          --
   Net operating loss carryforwards ...............          --         285,700
   Start-up costs .................................          --          41,700
   Asset under capital lease ......................        77,232        79,600
   Premises and equipment .........................        17,231        16,800
   Other ..........................................        33,627        28,200
                                                        ---------     ---------
      Gross deferred tax assets ...................       822,763       763,200
Less valuation allowance ..........................          --        (134,400)
                                                        ---------     ---------
   Deferred tax assets - net of valuation allowance       822,763       628,800
                                                        ---------     ---------

Deferred tax liabilities:
   Tax bad debt reserve ...........................       259,312       248,200
   Investment securities ..........................          --          26,500
   Other ..........................................           523           800
                                                        ---------     ---------
   Gross deferred tax liabilities .................       259,835       275,500
                                                        ---------     ---------
           Net deferred tax asset .................     $ 562,928     $ 353,300
                                                        =========     =========

The net changes in the valuation  allowance for 1999 and 1998 were  decreases of
$134,400 and $325,000, respectively, to recognize deferred tax assets at amounts
considered by management more likely than not to be realized.


                                       23
<PAGE>

PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1999 and 1998
--------------------------------------------------------------------------------

NOTE 10.  SHAREHOLDERS' EQUITY

Common Stock
------------

On September 25, 1998, the Bank commenced an offering of up to 1,537,612  shares
of its common stock, at $7.86 per share, to existing shareholders,  whereby each
shareholder  was granted the right to purchase one share of stock for each share
owned as of May 28, 1998. In addition, each shareholder was granted the right to
purchase  additional  shares of stock not  subscribed  by existing  shareholders
under their  initial  rights  described  above.  The common  stock  offering was
completed on November 30, 1998,  at which time the Bank  received  subscriptions
for a total of 751,856 shares,  with gross proceeds received of $5,909,588.  The
net  proceeds of the  offering  were  $5,826,061,  after  deducting  total stock
issuance costs of $83,527 which were charged to additional  paid-in capital.  In
early 1999, 1,285  additional  shares were issued relating to the offering at an
aggregate price of $10,096.

During 1999 and 1998, 7,601 and 7,412 shares of common stock,  respectively,  at
an  aggregate  price of $68,197 and $63,338,  respectively,  were issued to Bank
directors for meeting fees. In addition,  during 1999 and 1998,  2,950 and 4,250
shares of common  stock,  respectively,  at an  aggregate  price of $27,035  and
$36,234, respectively, were issued to former Bank directors for consulting fees.

As  described in Note 17, on June 30, 1999,  the Bank issued  151,685  shares of
common  stock  at an  aggregate  price  of  $980,409,  in  conjunction  with the
acquisition  of the net assets of a mortgage  brokerage  company.  Also,  during
1999,  500 shares of common  stock were  issued  through  the  exercise of stock
warrants at an aggregate price of $3,000.


                                       24
<PAGE>

PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1999 and 1998
--------------------------------------------------------------------------------

Income Per Share
----------------

The following is information  about the  computation of income per share for the
years ended December 31, 1999 and 1998.

<TABLE>
<CAPTION>
                                                                        1999
                                                     -------------------------------------------
                                                         Net                          Per Share
                                                        Income         Shares           Amount
                                                     -------------------------------------------
<S>                                                   <C>             <C>             <C>
Basic Income Per Share
   Income available to common shareholders ....       $ 348,641       2,080,590       $   0.17

Effect of Dilutive Securities
   Warrants and stock options outstanding .....            --            41,614          (0.01)
                                                      ---------       ---------       ---------

Diluted Income Per Share
   Income available to common stockholders plus
                                                      ---------       ---------       ---------
      assumed conversions .....................       $ 348,641       2,122,204       $   0.16
                                                      =========       =========       =========

<CAPTION>
                                                                        1998
                                                     -------------------------------------------
                                                         Net                          Per Share
                                                        Income         Shares           Amount
                                                     -------------------------------------------
<S>                                                   <C>             <C>             <C>
Basic Income Per Share
   Income available to common shareholders ....       $ 626,488       1,304,776       $   0.48

Effect of Dilutive Securities
   Warrants outstanding .......................            --            33,761          (0.01)
                                                      ---------       ---------       ---------

Diluted Income Per Share
   Income available to common stockholders plus
                                                      ---------       ---------       ---------
      assumed conversions .....................       $ 626,488       1,338,537       $   0.47
                                                      =========       =========       =========
</TABLE>

Stock warrants
--------------

The Bank issued warrants to certain of the Bank's original  organizing group and
certain other  individuals  to purchase up to 95,000 shares of the Bank's common
stock at the original public offering price of $6 per share.  These warrants are
currently  exercisable  and expire on August 31,  2004.  During  1998,  the Bank
issued warrants to certain other individuals involved in the organization of the
Bank to  purchase  up to 28,680  shares of the  Bank's  common  stock at $14 per
share. These warrants are currently  exercisable and expire on July 6, 2001. The
obligations  related to such warrants  were assumed by the Company.  The Company
has reserved  123,180  shares of its common stock for issuance  upon exercise of
these warrants.


                                       25
<PAGE>

PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1999 and 1998
--------------------------------------------------------------------------------

With respect to the 28,680 warrants  issued in 1998,  warrants to purchase 6,666
shares of common  stock were issued to officers and  directors of the Bank,  and
warrants  to  purchase  22,014  shares  of  common  stock  were  issued to other
individuals.  The  cost  of the  22,014  warrants  issued  to  non-officers  and
non-directors  was $54,326,  which was recorded as a charge to operations  and a
credit to additional paid-in capital.

A summary of the status of the  warrants  at  December  31,  1999 and 1998,  and
changes during the years ended on those dates, is as follows:

<TABLE>
<CAPTION>
                                                      1999                    1998
                                             ----------------------  -----------------------
                                                          Weighted-               Weighted-
                                               Number      Average                 Average
                                                of        Exercise    Number of    Exercise
                                              Shares        Price      Shares       Price
                                             ----------------------  -----------------------

<S>                                          <C>           <C>       <C>           <C>
Outstanding at beginning of year ......       123,680      $ 7.86       95,000     $  6.00
Granted ...............................          --                     28,680       14.00
Exercised .............................          (500)       6.00         --           --
                                             ---------               --------
Outstanding at end of year ............       123,180        7.86      123,680        7.86
                                             =========               =========

Exercisable at end of year ............       123,180        7.86       28,680       14.00
                                             =========               =========

Weighted-average fair value per warrant
   of warrants granted during the year       $   --                  $    2.46
                                             =========               =========
</TABLE>

The weighted average remaining  contractual life for the warrants outstanding at
December 31, 1999 is 3.9 years.

Stock options
-------------

On August 17,  1999,  the Bank  adopted a stock  option plan for  employees  and
directors,  under which both  incentive and  non-qualified  stock options may be
granted,  and subsequently  the Company assumed all obligations  related to such
options.  For incentive stock options  granted to employees,  the exercise price
shall be greater than or equal to the market value of the Company's stock on the
date  of  grant.  One-third  of such  options  vest at the  date of  grant,  and
one-third vest on each of the first and second  anniversaries of the grant date,
and expire if unexercised ten years after the grant date. However, for incentive
stock  options  granted  to  shareholders  who own 10% or more of the  Company's
stock,  the  exercise  price must be greater than or equal to 110% of the market
value of the Company's  stock on the date of grant,  and such options  expire if
unexercised  five years, or less if stipulated by the Board of Directors,  after
the  grant  date.  Generally,  any  options  that are not  exercisable  upon the
termination of employment expire upon such


                                       26
<PAGE>

PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1999 and 1998
--------------------------------------------------------------------------------

termination.  The Plan also provides for the grant of 110,000  non-qualified and
incentive  stock  options to certain  directors of the Company in 1999,  with an
exercise  price equal to the market value of the Company's  stock on the date of
grant, which was $10.11 per share. Such options were immediately exercisable and
expire if  unexercised  ten  years  after the date of  grant.  The  Company  has
reserved 130,000 shares of common stock for issuance under this plan. No options
shall be granted under the Plan after August 17, 2000.

A summary of the status of the stock options at December 31, 1999 is as follows:

                                                                       Weighted-
                                                          Number        Average
                                                            of         Exercise
                                                          Shares        Price
                                                          --------- ------------

Outstanding at beginning of year ................            --         $ --
Granted .........................................         110,000        10.11
                                                          -------
Outstanding at end of year ......................         110,000        10.11
                                                          =======

Exercisable at end of year ......................         110,000        10.11
                                                          =======

Weighted-average fair value per option
   of options granted during the year ...........         $  5.55
                                                          =======

The weighted average remaining  contractual life for the options  outstanding at
December 31, 1999 is 9.4 years.

SFAS No. 123,  "Accounting  for  Stock-Based  Compensation,"  established a fair
value based method of expense recognition for stock-based compensation plans and
encouraged,  but did not  require,  entities  to adopt  that  method in place of
existing generally accepted accounting principles. As permitted by SFAS No. 123,
the Company has elected to continue under existing generally accepted accounting
principles  and to account for the  warrants and options  granted to  employees,
including directors, under APB Opinion No. 25, and accordingly,  no compensation
cost has been recognized in the consolidated statements of income for the grants
of these  warrants  and  options.  Had  compensation  cost for  issuance of such
warrants and options been  recognized  based on the fair values of awards on the
grant dates, in accordance with the method  described in SFAS No. 123,  reported
net income and per share  amounts  for 1999 and 1998 would have been  reduced to
the pro forma amounts shown below:


                                       27
<PAGE>

PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1999 and 1998
--------------------------------------------------------------------------------

                                                     1999               1998
                                                  ----------         -----------
Net income (loss):
   As reported ...........................        $  348,641         $   626,488
                                                  ==========         ===========

   Pro forma .............................        $  (23,651)        $   610,261
                                                  ==========         ===========

Basic income (loss) per share:
   As reported ...........................        $     0.17         $      0.48
                                                  ==========         ===========

   Pro forma .............................        $    (0.01)        $      0.47
                                                  ==========         ===========

Diluted income (loss) per share:
   As reported ...........................        $     0.16         $      0.47
                                                  ==========         ===========

   Pro forma .............................        $    (0.01)        $      0.46
                                                  ==========         ===========


The fair value of warrants and options  issued in 1999 and 1998 was estimated at
the grant date using the Black-Scholes  option-pricing  model with the following
weighted-average assumptions:

                                                            1999      1998
                                                           ----------------

         Dividend rate                                      --        --
         Risk free interest rate .................         5.80%     5.35%
         Weighted average expected lives, in years          10         3

NOTE 10.  401(K) SAVINGS PLAN

During 1997, the Bank adopted the Patriot National Bank 401(k) Savings Plan (the
"Plan")  under  Section  401(k) of the Internal  Revenue  Code.  The Plan covers
substantially  all  employees who have  completed six months of service,  are 21
years  of age and who  elect  to  participate.  Under  the  terms  of the  Plan,
participants can contribute up to the maximum amount allowed, subject to Federal
limitations. The Bank may make discretionary matching contributions to the Plan.
Participants   are   immediately   vested   in  their   contribution   and  Bank
contributions.  The Bank contributed  $13,800 and $4,511 to the Plan in 1999 and
1998, respectively.


                                       28
<PAGE>

PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1999 and 1998
--------------------------------------------------------------------------------

NOTE 12.  FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

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

The  contractual  amounts of commitments to extend credit and standby letters of
credit represent the amounts of potential accounting loss should the contract be
fully drawn upon, the customer default, and the value of any existing collateral
become  worthless.   The  Company  uses  the  same  credit  policies  in  making
commitments  and  conditional   obligations  as  it  does  for  on-balance-sheet
instruments  and evaluates each  customer's  creditworthiness  on a case-by-case
basis.  Management  believes that the Company  controls the credit risk of these
financial  instruments  through  credit  approvals,  credit  limits,  monitoring
procedures and the receipt of collateral as deemed necessary.

Financial  instruments  whose  contract  amounts  represent  credit  risk are as
follows at December 31, 1999 and 1998:

                                                       1999              1998
                                                   -----------------------------

Commitments to extend credit:
   Future loan commitments .................       $17,279,500       $ 5,139,000
   Unused lines of credit ..................        14,057,211         6,479,448
   Undisbursed construction loans ..........         8,099,481         1,508,615
Financial standby letters of credit ........              --               5,000
                                                   -----------       -----------
                                                   $39,436,192       $13,132,063
                                                   ===========       ===========

Commitments  to extend  credit are  agreements  to lend to a customer as long as
there is no violation of any condition established in the contract.  Commitments
to extend credit  generally  have fixed  expiration  dates or other  termination
clauses  and  may  require  payment  of a  fee  by  the  borrower.  Since  these
commitments could expire without being drawn upon, the total commitment  amounts
do not necessarily represent future cash requirements.  The amount of collateral
obtained,  if deemed necessary by the Company upon extension of credit, is based
on management's  credit evaluation of the counterparty.  Collateral held varies,
but may include residential and commercial property, deposits and securities.

Standby  letters  of credit are  written  commitments  issued by the  Company to
guarantee  the  performance  of a customer  to a third  party.  The credit  risk
involved in issuing letters of credit is


                                       29
<PAGE>

PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1999 and 1998
--------------------------------------------------------------------------------

essentially the same as that involved in extending loan facilities to customers.
These financial  instruments are recorded in the financial  statements when they
become payable.

NOTE 13.  REGULATORY MATTERS

The Company and the Bank are subject to various regulatory capital  requirements
administered  by the federal banking  agencies.  Failure to meet minimum capital
requirements   can  initiate  certain   mandatory  -  and  possibly   additional
discretionary - actions by regulators  that, if undertaken,  could have a direct
material effect on the Company's  financial  statements.  Under capital adequacy
guidelines  and the  regulatory  framework  for prompt  corrective  action,  the
Company  and the  Bank  must  meet  specific  capital  guidelines  that  involve
quantitative measures of the Company's and the Bank's assets,  liabilities,  and
certain  off-balance-sheet  items  as  calculated  under  regulatory  accounting
practices.  The Company's and the Bank's capital amounts and  classification are
also subject to qualitative  judgments by the regulators about components,  risk
weightings, and other factors.

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Company  and the Bank to  maintain  minimum  amounts and ratios (set
forth in the  table  below)  of total  and Tier I  capital  (as  defined  in the
regulations)  to  risk-weighted  assets (as defined),  and of Tier I capital (as
defined) to average assets (as defined). Management believes, as of December 31,
1999,  that the Company and the Bank meet all capital  adequacy  requirements to
which it is subject.

As of December 31,  1999,  the most recent  notification  from the Office of the
Comptroller of the Currency  categorized the Bank as well capitalized  under the
regulatory  framework for prompt  corrective  action.  To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios as set forth in the table.  However,  at December 31,
1999, the Bank's ratio of total capital to risk-weighted assets has decreased to
a level  that  would  classify  the Bank as  adequately  capitalized  under  the
regulatory framework for prompt corrective action.


                                       30
<PAGE>

PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1999 and 1998
--------------------------------------------------------------------------------

The Bank's actual capital  amounts and ratios at December 31, 1999 and 1998 were
(dollars in thousands):

<TABLE>
<CAPTION>
                                                                                                To Be Well
                                                                                             Capitalized Under
                                                                          For Capital        Prompt Corrective
                                                       Actual          Adequacy Purposes     Action Provisions
                                                ---------------------  -------------------  --------------------
                                                 Amount     Ratio       Amount    Ratio      Amount     Ratio
                                                ---------------------  -------------------  --------------------

<S>                                             <C>           <C>      <C>         <C>       <C>        <C>
December 31, 1999:

   Total Capital (to Risk Weighted Assets)      $13,551       9.90%    $10,950     8.00%     $13,688    10.00%
   Tier I Capital (to Risk Weighted Assets)      12,191       8.91%      5,473     4.00%       8,209     6.00%
   Tier I Capital  (to Average Assets) ....      12,191       7.21%      6,763     4.00%       8,454     5.00%
</TABLE>

<TABLE>
<CAPTION>
                                                                                                To Be Well
                                                                                             Capitalized Under
                                                                          For Capital        Prompt Corrective
                                                       Actual          Adequacy Purposes     Action Provisions
                                                ---------------------  -------------------  --------------------
                                                 Amount     Ratio       Amount    Ratio      Amount     Ratio
                                                ---------------------  -------------------  --------------------

<S>                                             <C>           <C>      <C>         <C>       <C>        <C>
December 31, 1998:
   Total Capital (to Risk Weighted Assets)      $12,812      19.40%    $ 5,283     8.00%     $ 6,604    10.00%
   Tier I Capital (to Risk Weighted Assets)      12,026      18.21%      2,641     4.00%       3,962     6.00%
   Tier I Capital (to Average Assets) .....      12,026      12.39%      3,882     4.00%       4,853     5.00%
</TABLE>

The  Company is also  considered  to be well  capitalized  under the  regulatory
framework  specified by the Federal Reserve Bank ("FRB").  The Company's  actual
and required ratios are not substantially different from those shown above.

Restrictions on dividends, loans and advances
---------------------------------------------

The Company's ability to pay dividends is dependent on the Bank's ability to pay
dividends  to the  Company.  In  accordance  with  OCC  Rules  and  Regulations,
dividends  may only be paid by the Bank from net  earnings  as defined  and only
after  recapture of  organizational  and  pre-operating  expenses from operating
profits.  At December 31, 1999,  no dividends  may be declared by the Bank.  The
Bank is also  prohibited  from paying  dividends  that would  reduce its capital
ratios below minimum regulatory  requirements.  In addition,  the FRB may impose
further dividend restrictions on the Company.

Loans or  advances  to the  Company by the Bank are limited to 10% of the Bank's
capital stock and surplus on a secured basis.


                                       31
<PAGE>

PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1999 and 1998
--------------------------------------------------------------------------------

NOTE 14.  RELATED PARTY TRANSACTIONS

In the normal course of business,  the Bank grants loans to executive  officers,
directors and members of their immediate families,  as defined,  and to entities
in which these individuals have more than a 10% equity ownership. Such loans are
transacted at terms,  including  interest  rates,  similar to those available to
unrelated customers.

Changes in loans outstanding to such related parties during 1999 and 1998 are as
follows:

                                                   1999                 1998
                                               ---------------------------------

Balance, beginning of year ...........         $ 1,922,555          $ 1,990,713
Additional loans .....................           4,497,841            1,350,000
Repayments ...........................          (3,296,346)            (725,040)
Other changes ........................                --               (693,118)
                                               -----------          -----------
Balance, end of year .................         $ 3,124,050          $ 1,922,555
                                               ===========          ===========

Other changes in loans to related  parties  resulted from loans to directors who
ceased being  directors  during the year, and existing loans  outstanding at the
beginning of the year to individuals who became officers of the Bank.

Related party deposits aggregated  approximately $8,814,000 and $2,016,000 as of
December 31, 1999 and 1998, respectively.

The Bank leases  office  space in its premises to a director of the Bank under a
five-year lease.  Rental income under this lease was  approximately  $35,000 and
$38,000  for the years ended  December  31,  1999 and 1998,  respectively.  Also
during 1999 and 1998, the Bank leased office space to a related individual under
a  month-to-month  lease,  and rental income under this lease was  approximately
$6,000 and $5,000 for the years ended December 31, 1999 and 1998,  respectively.
In addition,  the Bank paid consulting fees of approximately $26,000 and $53,000
to  this  individual  during  the  years  ended  December  31,  1999  and  1998,
respectively.

During 1999 and 1998,  respectively,  the Bank paid legal fees of  approximately
$4,600 and $3,500 to attorneys who are directors of the Bank.

During 1999 and 1998, the Bank leased parking space from a corporation,  certain
principals of which are officers and  directors of the Bank.  Total rent paid to
the corporation was $18,000 for the years ended December 31, 1999 and 1998.


                                       32
<PAGE>

PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1999 and 1998
--------------------------------------------------------------------------------

During  1999,  the Bank sold a parcel of other  real  estate  owned to a related
individual for $72,705, and a gain of $32,238 was recognized on such sale.

NOTE 15.  OTHER COMPREHENSIVE INCOME

Other  comprehensive  income,  which  is  comprised  solely  of  the  change  in
unrealized gains and losses on available for sale securities, is as follows:


<TABLE>
<CAPTION>
                                                                                   1999
                                                              -------------------------------------------
                                                                                    Tax
                                                               Before-Tax         Benefit      Net-of-Tax
                                                                 Amount          (Expense)       Amount
                                                              -------------------------------------------

<S>                                                            <C>              <C>             <C>
Unrealized holding losses arising during
   the period .........................................        $(494,586)       $ 193,346       $(301,240)

Less reclassification adjustment for gains
   recognized in net income ...........................            4,378           (1,711)          2,667
                                                               ---------        ---------       ---------

Unrealized holding loss on available for
   sale securities, net of taxes ......................        $(490,208)       $ 191,635       $(298,573)
                                                               =========        =========       =========

<CAPTION>
                                                                                   1998
                                                              -------------------------------------------
                                                                                    Tax
                                                               Before-Tax         Benefit      Net-of-Tax
                                                                 Amount          (Expense)       Amount
                                                              -------------------------------------------
<S>                                                            <C>              <C>             <C>
Unrealized holding gains arising during
   the period .........................................        $  43,830        $ (17,184)      $  26,646

Less reclassification adjustment for gains
   recognized in net income ...........................          (26,907)          10,549         (16,358)
                                                               ---------        ---------       ---------

Unrealized holding gain on available for
   sale securities, net of taxes ......................        $  16,923        $  (6,635)      $  10,288
                                                               =========        =========       =========
</TABLE>


                                       33
<PAGE>

PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1999 and 1998
--------------------------------------------------------------------------------

NOTE 16.  FAIR VALUE OF FINANCIAL INSTRUMENTS AND INTEREST RATE RISK

Financial Accounting Standards Board Statement No. 107,  "Disclosures About Fair
Value of Financial  Instruments"  ("Statement No. 107"),  requires disclosure of
fair value information about financial instruments, whether or not recognized in
the statements of condition, for which it is practicable to estimate that value.
In cases where quoted market prices are not available,  fair values are based on
estimates using present value or other valuation  techniques.  Those  techniques
are significantly affected by the assumptions used, including the discount rates
and  estimates  of future cash flows.  In that  regard,  the derived  fair value
estimates cannot be substantiated by comparisons to independent  markets and, in
many cases,  could not be realized in immediate  settlement  of the  instrument.
Statement No. 107 excludes  certain  financial  instruments  from its disclosure
requirements.  Accordingly,  the aggregate  fair value amounts  presented do not
represent the underlying value of the Company.

Management  uses its best judgment in estimating the fair value of the Company's
financial instruments;  however, there are inherent weaknesses in any estimation
technique.  Therefore,  for  substantially all financial  instruments,  the fair
value estimates  presented herein are not necessarily  indicative of the amounts
the Company could have realized in a sales  transaction at December 31, 1999 and
1998.  The estimated  fair value amounts for 1999 and 1998 have been measured as
of their  respective  year-ends,  and have not been  reevaluated  or updated for
purposes  of  these  consolidated   financial  statements  subsequent  to  those
respective  dates.  As such,  the fair  values  of these  financial  instruments
subsequent to the respective  reporting  dates may be different from the amounts
reported at each year-end.

The information  presented  should not be interpreted as an estimate of the fair
value of the entire Company since a fair value  calculation is only required for
a limited portion of the Company's assets and liabilities. Due to the wide range
of  valuation  techniques  and the  degree of  subjectivity  used in making  the
estimate,  comparisons between the Company's disclosures and those of other bank
holding companies may not be meaningful.


                                       34
<PAGE>

PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1999 and 1998
--------------------------------------------------------------------------------

As of December 31, 1999 and 1998,  the recorded book balances and estimated fair
values of the Company's financial instruments were (in thousands):

<TABLE>
<CAPTION>
                                                    1999                    1998
                                          -----------------------------------------------
                                           Recorded                Recorded
                                            Book         Fair        Book         Fair
                                           Balance       Value      Balance       Value
                                          -----------------------------------------------
<S>                                       <C>          <C>          <C>          <C>
Financial Assets:
   Cash and due from banks ..........     $  2,685     $  2,685     $  1,867     $  1,867
   Federal funds sold ...............       18,900       18,900       27,700       27,700
   Commercial paper .................       10,976       10,976         --           --
   Available for sale securities ....       19,984       19,984        9,479        9,479
   Held to maturity securities ......       12,301       11,906        3,843        3,827
   Federal Reserve Bank stock .......          411          411          240          240
   Federal Home Loan Bank stock .....          307          307         --           --
   Loans receivable, net ............      107,770      107,182       57,053       54,723
   Accrued interest receivable ......          981          981          588          588

Financial Liabilities:
   Demand deposits ..................       12,631       12,631        8,442        8,442
   Savings deposits .................       35,962       35,962       31,547       31,547
   Money market deposits ............          625          625        1,859        1,859
   Negotiable orders of withdrawal...        9,602        9,602        9,863        9,863
   Time deposits ....................      103,926      103,909       37,598       37,719
   Collateralized borrowings ........          325          325         --           --
</TABLE>

Unrecognized financial instruments
----------------------------------

Loan  commitments on which the committed  interest rate is less than the current
market rate are  insignificant at December 31, 1999 and 1998. The estimated fair
value of fee  income  on  letters  of credit at  December  31,  1999 and 1998 is
insignificant.

The Company  assumes  interest  rate risk (the risk that general  interest  rate
levels will change) as a result of its normal operations.  As a result, the fair
values of the  Company's  financial  instruments  will change when interest rate
levels  change and that change may be either  favorable  or  unfavorable  to the
Company.  Management  attempts to match  maturities of assets and liabilities to
the extent believed necessary to minimize interest rate risk. However, borrowers
with  fixed  rate  obligations  are less  likely  to  prepay  in a  rising  rate
environment and more likely to prepay in a falling rate environment. Conversely,
depositors  who are  receiving  fixed rates are more  likely to  withdraw  funds
before  maturity  in a rising  rate  environment  and less  likely to do so in a
falling rate environment. Management monitors rates and maturities of assets and
liabilities  and attempts to minimize  interest rate risk by adjusting  terms of
new loans and deposits and by investing in  securities  with terms that mitigate
the Company's overall interest rate risk.


                                       35
<PAGE>

PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1999 and 1998
--------------------------------------------------------------------------------

NOTE 17.  BUSINESS COMBINATION

On June 30, 1999, the Bank acquired,  through plan of reorganization and merger,
all of the outstanding capital stock of Pinnacle Financial Group ("Pinnacle"), a
mortgage brokerage operation consisting of three separate corporations.  Details
of the transaction, which was accounted for as a purchase, are as follows:

A summary of the purchase  payments in  connection  with the  acquisition  is as
follows:

Cash paid to sellers at closing ..............................        $  150,000
Issuance of 151,685 shares of common stock to sellers ........           980,409
Acquisition costs ............................................           105,719
                                                                      ----------

                                                                      $1,236,128
                                                                      ==========

The entire  purchase price was allocated to goodwill as no significant  tangible
net assets were acquired.

Unaudited  pro forma  consolidated  results of  operations  for the years  ended
December  31, 1999 and 1998,  as though the  acquisition  occurred on January 1,
1998, are as follows:

                                                        1999             1998
                                                 -------------------------------

Net interest income after provision for
  loan losses ..............................     $   4,439,798     $   3,586,765
Net income .................................           256,755           913,091
Basic income per share .....................              0.12              0.64
Diluted income per share ...................              0.12              0.63

With respect to the shares of common stock issued to the sellers,  two-thirds of
such shares are  currently  held in escrow and are subject to  forfeiture if the
sellers do not remain employees of the Company at June 30, 2000 and 2001. If any
shares are forfeited,  goodwill and additional paid-in capital would be adjusted
accordingly.

NOTE 18.  SEGMENT REPORTING

The Company has two reportable  segments,  the commercial  bank and the mortgage
broker.  The  commercial  bank segment  provides its  commercial  customers with
products such as commercial  mortgage loans,  working  capital loans,  equipment
loans and other  business  financing  arrangements,  and  provides  its consumer
customers with residential  mortgage loans, home equity loans and other consumer
installment  loans. The commercial bank segment also attracts deposits from both
consumer  and   commercial   customers  and  invests  such  deposits  in  loans,
investments


                                       36
<PAGE>

PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1999 and 1998
--------------------------------------------------------------------------------

and working capital The commercial bank's revenues are generated  primarily from
net interest income from its lending, investment and deposit activities.

The  mortgage   broker  solicits  and  processes   conventional   mortgage  loan
applications from consumers on behalf of permanent  investors,  and revenues are
generated from loan brokerage fees received from the permanent investors.

Information about reportable segments,  and a reconciliation of such information
to the consolidated  financial  statements as of and for the year ended December
31, 1999 is as follows (in thousands):

                                        Commercial     Mortgage    Consolidated
1999                                       Bank         Broker        Totals
----                                    ---------------------------------------

Net interest income ..............      $  4,993      $   --        $  4,993
Noninterest income ...............           357           864         1,221
Noninterest expenses .............         4,458           788         5,246
Provision for loan losses ........           553          --             553
Income before taxes ..............           339            76           415
Assets ...........................       177,195          --         177,195

The Bank did not  have a  mortgage  broker  segment  in 1998 as such  operations
relate to Pinnacle, a division of the Bank acquired on June 30, 1999.

The accounting  policies of the segments are the same as those  described in the
summary of significant accounting policies. Management evaluates the performance
of each segment  based on profit or loss from  operations  before  income taxes.
Management does not allocate  corporate overhead expenses to the mortgage broker
segment,  and all such  expenses  are  included in  noninterest  expenses of the
commercial bank.

The  Company's  reportable  segments  are  strategic  business  units that offer
different  products  and  services.  They are managed  separately  because  each
segment  appeals to  different  markets  and,  accordingly,  requires  different
technology and marketing strategies.

The Company does not have  operating  segments other than those reported and the
Company does not have a single  external  customer  from which it derives 10% or
more of its revenues and operates in one geographical area.


                                       37
<PAGE>

PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1999 and 1998
--------------------------------------------------------------------------------

NOTE 19.  SUBSEQUENT EVENTS

Subsequent  to December 31, 1999,  the Bank entered into an operating  lease for
office space in East Fishkill,  New York, and expects to open a mortgage banking
office there late in the first quarter of 2000.

During 1999, the Bank received approval from the OCC to open a new branch office
in Stamford, Connecticut, which the Bank expects to open in 2000.





                                       38
<PAGE>


                                  EXHIBIT INDEX

Exhibit No.                           Description
-----------                           -----------

2            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))

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(ii)        By-laws of Bancorp  (incorporated  by reference to Exhibit 3(ii) to
             Bancorp's  Current  Report  on Form  8-K  dated  December  1,  1999
             (Commission File No. 000-29599))

10(a)(1)     Form of 1994  Warrant to Purchase  Common  Stock  (incorporated  by
             reference to Exhibit  10(a)(1) to Bancorp's  Current Report on Form
             8-K dated December 1, 1999 (Commission File No. 000-29599))

10(a)(2)     Form of 1998  Warrant to Purchase  Common  Stock  (incorporated  by
             reference to Exhibit  10(a)(2) to Bancorp's  Current Report on Form
             8-K dated December 1, 1999 (Commission File No. 000-29599))

10(a)(3)     Lease dated February 1, 1995 between 999 Bedford Street Corporation
             and the Bank  (incorporated  by  reference  to Exhibit  10(a)(3) to
             Bancorp's  Current  Report  on Form  8-K  dated  December  1,  1999
             (Commission File No. 000-29599))

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))

21           Subsidiaries of Bancorp

27           Financial Data Schedule