U. S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                               AMENDMENT NO. 1 TO
                                  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, 2000

[ ] 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 incorporation             (IRS Employer
              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: $17,379,431
                                                        -----------

Aggregate  market  value  of the  voting  stock  held  by  nonaffiliates  of the
registrant as of February 28, 2001: $11,486,698

Number of shares of the  registrant's  Common Stock,  par value $2.00 per share,
outstanding as of February 28, 2001: 2,400,375
                                     ----------


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

Proxy Statement for 2001 Annual                Incorporated into Part III of
Meeting of Shareholders.  (A definitive        this 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>



                                EXPLANATORY NOTE

     This Amendment is being filed soley to include  certain  information  which
was  inadvertently  omitted  from  the  Consolidated  Statements  of Cash  Flows
contained in the Annual Report on Form 10-KSB of Patriot National Bancorp,  Inc.
("Bancorp")  for the fiscal year ended December 31, 2001 (the "Annual  Report").
The balance of the information  contained in the Financial  Report filed as part
of the  Annual  Report is  unchanged.  The full  Financial  Report is  contained
herein.


<PAGE>


Item 7. Financial Statements

The consolidated  balance sheets of Bancorp as of December 31, 2000 and December
31, 1999 and the related consolidated statements of income, shareholders' equity
and cash flows for the years ended  December  31, 2000 and  December  31,  1999,
together with the report  thereon of McGladrey & Pullen,  LLP dated February 16,
2001,  are  included  as part of this  Amendment  No.  1 to Form  10-KSB  in the
"Financial Report" following page 3 hereof.




                                       2


<PAGE>



                                  SIGNATURES (1)

     In accordance  with Section 13 or 15(d) of the  Securities  Exchange Act of
1934, the registrant has caused this amendment to its report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                   PATRIOT NATIONAL BANCORP, INC.



                                   By:          /s/ ANGELO DE CARO
                                       -------------------------------------
                                   Name: Angelo De Caro

                                   Title: President and Chief Executive Officer

Date:  April 4, 2001







1    This  amendment has been executed in the same manner as a Form 8 would have
     been  executed  prior to the  rescission  of Form 8. See,  Part  I.F.2.  of
     Release 34-31905 (February 23, 1991).

                                       3


<PAGE>



                         PATRIOT NATIONAL BANCORP, INC.

                                Financial Report

                           December 31, 2000 and 1999


<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, 2000 and 1999,
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, 2000 and 1999, 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 16, 2001


<PAGE>


<TABLE>
<CAPTION>

PATRIOT NATIONAL BANCORP, INC.

CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 1999
-------------------------------------------------------------------------------------------------------

                                                                               2000            1999
                                                                        -------------------------------
<S>                                                                      <C>              <C>
ASSETS
Cash and due from banks (Note 2) ....................................    $   3,565,071    $   2,685,031
Federal funds sold ..................................................       29,500,000       18,900,000
Short-term investments - commercial paper
                                                                                  --         10,976,264
                                                                         -------------    -------------
           Cash and cash equivalents ................................       33,065,071       32,561,295

Available for sale securities (at fair value) (Note 3) ..............       20,706,974       19,984,309
Held to maturity securities (fair value:  2000 $11,974,862;
   1999 $11,906,293) (Note 4) .......................................       12,298,058       12,301,485
Federal Reserve Bank stock ..........................................          475,200          410,700
Federal Home Loan Bank stock (Note 8) ...............................          593,600          307,000
Loans receivable (net of allowance for loan losses:  2000 $1,644,817;
   1999 $1,360,183) (Note 5) ........................................      126,411,265      107,769,911
Accrued interest receivable .........................................        1,228,920          980,777
Premises and equipment, net (Notes 6 and 9) .........................          898,754          959,651
Deferred tax asset, net (Note 10) ...................................          651,228          562,928
Goodwill (net of accumulated amortization:  2000 $182,101;
   1999 $58,180) ....................................................        1,054,027        1,177,948
Other assets ........................................................          245,030          178,693
                                                                         -------------    -------------
           Total assets .............................................    $ 197,628,127    $ 177,194,697
                                                                         =============    =============

LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities
   Deposits (Note 7):

     Noninterest bearing deposits ...................................    $  16,899,057    $  12,630,926
     Interest bearing deposits ......................................      162,767,041      150,115,428
                                                                         -------------    -------------
           Total deposits ...........................................      179,666,098      162,746,354

   Capital lease obligation (Note 9) ................................          470,826          563,687
   Collateralized borrowings ........................................          474,444          325,000
   Accrued expenses and other liabilities ...........................          589,323          323,568
                                                                         -------------    -------------
           Total liabilities ........................................      181,200,691      163,958,609
                                                                         -------------    -------------

Commitments and contingencies (Notes 9, 11, and 13)

Shareholders' equity (Notes 11 and 14)
   Common stock, $2 par value; 5,333,333 shares authorized; shares
      issued and outstanding: 2000 2,400,375; 1999 2,160,952 ........        4,800,750        4,321,904
Additional paid-in capital ..........................................       11,483,770        9,807,957
   Retained earnings ................................................          131,840         (635,331)
   Accumulated other comprehensive income - net unrealized
     gain (loss) on available for sale securities ...................           11,076         (258,442)
                                                                         -------------    -------------
           Total shareholders' equity ...............................       16,427,436       13,236,088
                                                                         -------------    -------------
           Total liabilities and shareholders' equity ...............    $ 197,628,127    $ 177,194,697
                                                                         =============    =============
</TABLE>

See Notes to Consolidated Financial Statements.




                                       2
<PAGE>



<TABLE>
<CAPTION>

PATRIOT NATIONAL BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2000 and 1999
--------------------------------------------------------------------------------------------
                                                                      2000           1999
                                                                 ---------------------------
<S>                                                               <C>            <C>
Interest and Dividend Income
   Interest and fees on loans ................................    $11,303,915    $ 7,276,659
   Interest and dividends on investment securities ...........      2,151,724      1,651,565
   Interest on federal funds sold ............................      1,238,496        804,495
                                                                  -----------    -----------
           Total interest and dividend income ................     14,694,135      9,732,719
                                                                  -----------    -----------
Interest Expense
   Interest on deposits (Note 7) .............................      7,906,017      4,654,515
   Interest on capital lease obligation                                71,140         83,082
   Interest expense on collateralized borrowings                       40,458          2,324
                                                                  -----------    -----------
           Total interest expense ............................      8,017,615      4,739,921
                                                                  -----------    -----------
           Net interest income ...............................      6,676,520      4,992,798

Provision for Loan Losses (Note 5) ...........................        325,900        553,000
                                                                  -----------    -----------
           Net interest income after provision for loan losses      6,350,620      4,439,798
                                                                  -----------    -----------
Noninterest Income
   Mortgage brokerage referral fees ..........................      2,103,114        933,074
   Fees and service charges ..................................        239,164        162,534
   Gains and origination fees from loans sold                          61,014         48,841
   Other income ..............................................        282,004         76,880
                                                                  -----------    -----------
           Total noninterest income ..........................      2,685,296      1,221,329
                                                                  -----------    -----------
Noninterest Expenses
   Salaries and benefits .....................................      4,275,275      2,699,266
   Occupancy and equipment expense, net ......................        861,341        601,309
   Data processing and other outside services ................        588,089        245,645
   Professional services .....................................        430,696        309,605
   Advertising and promotional expenses ......................        325,124        357,323
   Forms, printing and supplies ..............................        164,785        189,512
   Regulatory assessments                                              96,867         51,800
   Insurance                                                           79,314         33,603
   Directors fees and expenses                                         65,372         97,734
   Other operating expenses ..................................        806,482        660,189
                                                                  -----------    -----------
           Total noninterest expenses ........................      7,693,345      5,245,986
                                                                  -----------    -----------

           Income before income taxes ........................      1,342,571        415,141

Provision for Income Taxes (Note 10) .........................        575,400         66,500
                                                                  -----------    -----------
           Net income ........................................    $   767,171    $   348,641
                                                                  ===========    ===========
           Basic income per share (Note 11) ..................    $      0.34           0.17
                                                                  ===========    ===========
           Diluted income per share (Note 11) ................    $      0.33           0.16
                                                                  ===========    ===========
</TABLE>
See Notes to Consolidated Financial Statements.





                                       3
<PAGE>



<TABLE>
<CAPTION>

PATRIOT NATIONAL BANCORP, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended December 31, 2000 and 1999
---------------------------------------------------------------------------------------------------------------------

                                                                                         Accumulated
                                                          Additional                        Other
                                Number of     Common       Paid-in        Retained      Comprehensive
                                 Shares        Stock       Capital        Earnings         Income           Total
                               --------------------------------------------------------------------------------------

<S>                             <C>          <C>           <C>           <C>            <C>              <C>
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 16)                -             -             -              -          (298,573)          (298,573)
                                                                                                         ------------
         Total comprehensive
         income                                                                                                50,068
                                                                                                         ------------

Issuance of common stock
(Note 11)                         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

Comprehensive income
   Net income                       -             -             -           767,171            -              767,171
   Unrealized holding gain on
     available for sale
     securities, net of taxes
     (Note 16)                      -             -             -              -           269,518            269,518
                                                                                                         ------------
         Total comprehensive
         income                                                                                             1,036,689
                                                                                                         ------------
Issuance of common stock
(Note 11)                         239,423       478,846     1,675,813          -               -            2,154,659
                               --------------------------------------------------------------------------------------

Balance, December 31, 2000      2,400,375  $  4,800,750   $11,483,770    $  131,840     $   11,076       $ 16,427,436
                               ======================================================================================
</TABLE>

See Notes to Consolidated Financial Statements.




                                       4
<PAGE>



<TABLE>
<CAPTION>

PATRIOT NATIONAL BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2000 and 1999
----------------------------------------------------------------------------------------------

                                                                       2000             1999
                                                                 -----------------------------

<S>                                                              <C>              <C>
Cash Flows from Operating Activities
   Net income ...............................................    $    767,171     $    348,641
   Adjustments to reconcile net income to net cash provided
     by operating activities:
       Amortization and accretion of investment discounts and
         premiums, net ......................................         (10,958)          17,244
       Gains on sales of investments ........................            --             (4,378)
       Originations of loans held for sale ..................     (15,087,035)      (2,014,950)
       Proceeds from sales of loans held for sale ...........      15,087,035        2,033,235
       Gains on sales of loans ..............................            --            (18,285)
       Provision for loan losses ............................         325,900          553,000
       Gain on sale of other real estate owned ..............            --            (32,238)
       Depreciation and amortization ........................         418,149          282,954
       Loss on disposal of bank premises and equipment ......             165            1,439
       Deferred income taxes ................................        (260,708)         (18,000)
       Consulting fees paid by issuance of common stock .....            --             27,035
       Directors fees paid by issuance of common stock ......            --             48,232
       Changes in assets and liabilities:
         Decrease (increase) in deferred loan fees ..........          11,956          (59,034)
         Increase in accrued interest receivable ............        (248,143)        (393,044)
         (Increase) decrease in other assets ................         (66,337)          76,527
         Increase in accrued expenses and other liabilities .         265,755           66,936
                                                                  ------------     -----------
           Net cash provided by operating activities ........       1,202,950          915,314
                                                                  ------------     -----------

Cash Flows from Investing Activities
   Purchases of available for sale securities ...............      (4,046,225)     (18,870,640)
   Proceeds from sales of available for sale securities .....            --          5,771,438
   Proceeds from maturities of available for sale securities          550,000        1,050,000
   Principal repayments on available for sale securities ....       3,229,871        1,049,086
   Purchases of held to maturity securities .................            --         (8,966,022)
   Proceeds from maturities of held to maturity securities ..            --            500,000
   Purchase of Federal Reserve Bank stock, net of redemptions         (64,500)        (170,700)
   Purchase of Federal Home Loan Bank stock .................        (286,600)        (307,000)
   Proceeds from sale of loan receivable ....................            --             50,000
   Net increase in loans ....................................     (18,979,210)     (51,261,259)
   Purchases of premises and equipment ......................        (233,496)        (277,654)
   Proceeds from sales of other real estate owned ...........            --             72,705
   Purchase of mortgage company .............................            --           (255,719)
                                                                 ------------      -----------
           Net cash used in investing activities ............     (19,830,160)     (71,615,765)
                                                                 ------------     ------------


</TABLE>




                                       5
<PAGE>



<TABLE>
<CAPTION>

PATRIOT NATIONAL BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
Years Ended December 31, 2000 and 1999
------------------------------------------------------------------------------------------------------------------


                                                                                        2000             1999
                                                                                   -------------------------------

<S>                                                                                 <C>              <C>
Cash Flows from Financing Activities
   Net increase in demand, savings and money market deposits ...................    $ 17,732,024     $  7,108,932
   Net (decrease) increase in time certificates of deposit .....................        (812,280)      66,328,283
   Principal payments on capital lease obligation ..............................         (92,861)         (80,918)
   Net increase in collateralized borrowings ...................................         149,444          325,000
   Proceeds from issuance of common stock ......................................       2,154,659           13,096
                                                                                    -----------------------------
           Net cash provided by financing activities ...........................      19,130,986       73,694,393
                                                                                    -----------------------------
           Net increase in cash and cash equivalents ...........................         503,776        2,993,942

Cash and cash equivalents
   Beginning ...................................................................      32,561,295       29,567,353
                                                                                    -----------------------------
   Ending ......................................................................    $ 33,065,071     $ 32,561,295
                                                                                    =============================
Supplemental Disclosures of Cash Flow Information
     Cash paid during the year for:
     Interest ..................................................................    $  7,977,157     $  4,739,921
                                                                                    =============================
     Income taxes ..............................................................    $    773,440     $     98,000
                                                                                    =============================

Supplemental Disclosure of Noncash Investing and Financing
   Activities
     Unrealized holding gains (losses) on available for sale
       securities arising during the period ....................................    $    441,926     $   (490,208)
                                                                                    =============================

     Accrued prior year director fees settled in common stock ..................    $       --       $     19,965
                                                                                    =============================

     Purchase of Mortgage Company (Note 18)
       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, 2000 and 1999
--------------------------------------------------------------------------------
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 18).

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, 2000 and 1999

--------------------------------------------------------------------------------



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, 2000 and 1999

--------------------------------------------------------------------------------



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.

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



                                       9
<PAGE>



PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 2000 and 1999
--------------------------------------------------------------------------------



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  uncollectibility  of principal is confirmed.  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
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,  including  impaired loans,  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  delinquent  and
collectibility of interest and principal is no longer in doubt.

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.



                                       10
<PAGE>



PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 2000 and 1999
--------------------------------------------------------------------------------



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.

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 3 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.



                                       11
<PAGE>



PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 2000 and 1999

--------------------------------------------------------------------------------



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 18) 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  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



                                       12
<PAGE>



PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 2000 and 1999
--------------------------------------------------------------------------------



more than normal  risks of  collectibility  or favored  treatment  or terms,  or
present other unfavorable  features.  Note 15 contains details regarding related
party transactions.

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

Basic earnings per share represents income available to common  stockholders and
is  computed  by dividing  net income by the  weighted-average  number of common
shares outstanding. Diluted earnings per share reflects additional common shares
that would have been  outstanding if dilutive  potential  common shares had been
issued,  as well as any  adjustment to income that would result from the assumed
issuance.  Potential  common shares that may be issued by the Company  relate to
outstanding  stock options and warrants,  and are determined  using the treasury
stock method.

Stock compensation plans
------------------------

Statement of  Financial  Accounting  Standards  (SFAS) No. 123,  Accounting  for
Stock-Based  Compensation,  encourages  all entities to adopt a fair value based
method of accounting for employee stock compensation plans, whereby compensation
cost is  measured  at the  grant  date  based on the  value of the  award and is
recognized  over the  service  period,  which is  usually  the  vesting  period.
However,  it also allows an entity to continue to measure  compensation cost for
those plans using the intrinsic  value based method of accounting  prescribed by
Accounting  Principles  Board  Opinion No. 25,  Accounting  for Stock  Issued to
Employees, whereby compensation cost is the excess, if any, of the quoted market
price of the stock at the grant date (or other measurement date) over the amount
an  employee  must pay to acquire  the stock.  Stock  options  issued  under the
Company's stock option plan, and stock warrants issued,  have no intrinsic value
at the grant date, and under Opinion No. 25 no  compensation  cost is recognized
for them. The Company has elected to continue with the accounting methodology in
Opinion No. 25 and,  as a result,  has  provided  pro forma  disclosures  of net
income and earnings per share and other disclosures,  as if the fair value based
method of accounting  had been applied.  The pro forma  disclosures  include the
effects of all awards granted on or after January 1, 1995 (see Note 11).

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, 2000 and 1999
--------------------------------------------------------------------------------



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

The following methods and assumptions were used by the Company 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
      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.

      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.



                                       14
<PAGE>



PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 2000 and 1999
--------------------------------------------------------------------------------




      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.

Reclassifications
-----------------

Certain 1999 financial  statement amounts have been reclassified to conform with
the 2000 presentations. Such reclassifications had no effect on 1999 net income.

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, 2000,  the Bank was
required to have cash and liquid assets of approximately  $677,000 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, 2000
and 1999 are as follows:

<TABLE>
<CAPTION>

                                                                  Gross             Gross
                                             Amortized          Unrealized       Unrealized            Fair
    2000                                        Cost              Gains            Losses              Value
    ----                                 ----------------------------------------------------------------------------

    <S>                                  <C>                  <C>              <C>                 <C>
    Mortgage backed securities           $   14,110,790       $   80,300       $      -            $ 14,191,090
    U.S. Government obligations                 499,290           -                  (625)              498,665
    Marketable equity securities              6,078,290           -               (61,071)            6,017,219
                                         ----------------------------------------------------------------------------
                                         $   20,688,370       $   80,300       $  (61,696)         $ 20,706,974
                                         ============================================================================

                                                                  Gross             Gross
                                             Amortized          Unrealized       Unrealized            Fair
    1999                                        Cost              Gains            Losses              Value
    ----                                 ----------------------------------------------------------------------------

    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>




                                       15
<PAGE>


PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 2000 and 1999
--------------------------------------------------------------------------------



The  amortized  cost and fair value of  available  for sale debt  securities  at
December 31, 2000 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                    $     499,290      $     498,665
             Mortgage-backed securities          14,110,790         14,191,090
                                              ----------------------------------
          Total                               $  14,610,080      $  14,689,755
                                              ==================================

During 2000, there were no sales of available for sale securities.  During 1999,
proceeds from sales of available for sale securities were $5,771,438,  and gross
gains of $4,378 were realized on those 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, 2000 and
1999 are as follows:

<TABLE>
<CAPTION>

                                                                  Gross             Gross
                                              Amortized         Unrealized       Unrealized           Fair
    2000                                        Cost              Gains            Losses             Value
    ----                                  ---------------------------------------------------------------------------

    <S>                                   <C>                  <C>               <C>             <C>
    U.S. Government obligations           $       499,836      $       -         $    (149)      $    499,687
    Corporate bonds                            11,798,222             41          (323,088)        11,475,175
                                          ---------------------------------------------------------------------------

                                          $    12,298,058      $      41         $(323,237)      $ 11,974,862
                                          ===========================================================================

                                                                  Gross            Gross
                                              Amortized         Unrealized       Unrealized           Fair
    1999                                        Cost              Gains            Losses             Value
    ----                                  ---------------------------------------------------------------------------

    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>




                                       16
<PAGE>


PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 2000 and 1999
--------------------------------------------------------------------------------



The  amortized  cost  and fair  value of held to  maturity  debt  securities  at
December 31, 2000 by contractual maturity are shown below:

<TABLE>
<CAPTION>

                                                                           Amortized               Fair
                                                                              Cost                 Value
                                                                         -------------------------------------
       <S>                                                               <C>                      <C>
       Maturity:
           Within 1 year                                                 $     499,836              499,687
           After 1 but within 5 years                                        8,826,302            8,593,520
           After 5 years                                                     2,971,920            2,881,655
                                                                         -------------------------------------
       Total                                                             $  12,298,058           11,974,862
                                                                         =====================================
</TABLE>

There were no sales of held to  maturity  securities  during  2000 or 1999,  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, 2000 and 1999 is as
follows:

<TABLE>
<CAPTION>

                                                                                  2000               1999
                                                                         --------------------------------------
        <S>                                                              <C>                <C>
        Real estate:
            Commercial                                                   $   57,297,310     $   54,289,002
            Residential                                                       5,041,776          6,799,133
            Construction, net of undisbursed portion of
              $10,842,047 in 2000 and $8,099,481 in 1999                     22,969,904         13,872,519
        Commercial                                                           12,841,040         11,086,324
        Consumer installment                                                  1,652,587          1,580,219
        Consumer home equity                                                 28,468,453         21,705,929
                                                                         --------------------------------------
                   Total loans                                              128,271,070        109,333,126
        Net deferred loan fees                                                 (214,988)          (203,032)
        Allowance for loan losses                                            (1,644,817)        (1,360,183)
                                                                         --------------------------------------
                   Loans receivable, net                                 $   126,411,265    $  107,769,911
                                                                         ======================================
</TABLE>




                                       17
<PAGE>


PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 2000 and 1999
--------------------------------------------------------------------------------



The changes in the  allowance  for loan losses for the years ended  December 31,
2000 and 1999 are as follows:

<TABLE>
<CAPTION>

                                                                                2000              1999
                                                                         -----------------------------------

        <S>                                                               <C>                <C>
        Balance, beginning of year                                        $   1,360,183      $     785,536
            Provision for loan losses                                           325,900            553,000
            Recoveries of loans previously charged off                            3,314             40,770
            Loans charged off                                                   (44,580)           (19,123)
                                                                         -----------------------------------
        Balance, end of year                                              $   1,644,817      $   1,360,183
                                                                         ===================================
</TABLE>

At December 31, 2000 and 1999, the unpaid principal balances of loans delinquent
90 days or more were  $2,266,421  and  $565,788,  respectively,  and the  unpaid
principal  balances of loans placed on  nonaccrual  status were  $1,759,270  and
$91,076, respectively.

The  following  information  relates to  impaired  loans as of and for the years
ended December 31, 2000 and 1999:
<TABLE>
<CAPTION>

                                                                                2000              1999
                                                                          ----------------------------------

      <S>                                                                  <C>               <C>
      Loans receivable for which there is a related allowance
          for credit losses based on discounted cash flows                 $     95,307      $        -
                                                                          ==================================

      Loans receivable for which there is no related
          allowance for credit losses determined based on
          the fair value of collateral                                     $  1,663,963      $      91,076
                                                                          ==================================

      Allowance for credit losses related to impaired loans                $     95,307      $        -
                                                                          ==================================

      Average recorded investment in impaired loans                        $  1,169,872      $      81,923
                                                                          ==================================
</TABLE>

There was no interest  income on impaired loans collected or recognized in 2000,
and $3,000 of interest income  recognized on the cash basis in 1999. 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



                                       18
<PAGE>


PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 2000 and 1999
--------------------------------------------------------------------------------



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 any resulting 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' creditworthiness and type of collateral. The market
value of collateral is monitored on an ongoing basis and  additional  collateral
is obtained when 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,  2000  and  1999,  premises  and  equipment  consisted  of the
following:

                                                      2000            1999
                                                  -----------------------------

Premises under capital lease .................... $   783,000     $   783,000
Leasehold improvements ..........................     538,723         516,811
Furniture, equipment and software ...............     735,314         532,055
                                                  -----------------------------
                                                    2,057,037       1,831,866
Less accumulated depreciation and amortization ..  (1,158,283)       (872,215)
                                                  -----------------------------
                                                  $   898,754     $   959,651
                                                  =============================


For the years ended December 31, 2000 and 1999,  depreciation  and  amortization
expense  related to  premises  and  equipment  totaled  $294,228  and  $208,821,
respectively.



                                       19
<PAGE>

PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 2000 and 1999
--------------------------------------------------------------------------------


Note 7.  Deposits

At December 31, 2000 and 1999, deposits consisted of the following:

                                                  2000            1999
                                             -----------------------------

Noninterest bearing ........................ $ 16,899,057    $ 12,630,926
Interest bearing:
    Time certificates, less than $100,000 ..   71,240,470      69,144,236
    Time certificates, $100,000 or more ....   31,873,302      34,781,816
    Money market ...........................      849,067         624,763
    Savings ................................   31,164,493      35,962,257
    NOW ....................................   27,639,709       9,602,356
                                             ----------------------------
      Total interest bearing ...............  162,767,041     150,115,428
                                             ----------------------------
         Total deposits .................... $179,666,098    $162,746,354
                                             ============================

Interest expense on certificates of deposit in denominations of $100,000 or more
was  $1,737,979  and  $842,230  for the years ended  December 31, 2000 and 1999,
respectively.

Contractual  maturities of time  certificates of deposit as of December 31, 2000
are summarized below:

               Due within:
                   1 year                         $     94,624,873
                   1-2 years                             5,076,542
                   2-3 years                               385,010
                   3-4 years                               212,228
                   4-5 years                               325,921
                   5-6 years                             2,489,198
                                                  -------------------
                                                  $    103,113,772
                                                  ===================

Note 8.  Line of Credit and Federal Home Loan Bank Stock

The Bank is a member  of the  Federal  Home Loan  Bank of  Boston  ("FHLB").  At
December 31,  2000,  the Bank has the ability to borrow from the FHLB based on a
certain percentage of the value of the Bank's qualified  collateral,  as defined
in the FHLB  Statement  of Products  Policy,  at the time of the  borrowing.  In
accordance  with an agreement  with the FHLB, the qualified  collateral  must be
free and clear of liens,  pledges and  encumbrances.  At  December  31, 2000 and
1999, there were no advances outstanding under this line of credit.



                                       20
<PAGE>


PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 2000 and 1999
--------------------------------------------------------------------------------


The Bank is required to maintain an  investment  in capital stock of the FHLB in
an amount equal to a percentage of its outstanding  mortgage loans and contracts
secured by residential  properties,  including  mortgage-backed  securities.  No
ready  market  exists  for FHLB  stock and it has no quoted  market  value.  For
disclosure purposes, such stock is assumed to have a market value which is equal
to cost since the Bank can redeem the stock with FHLB at cost.

Note 9.  Commitments and Contingencies

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

The Company leases 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  $495,900  and  $417,600  as of  December  31,  2000 and  1999,
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,  2000,  future  minimum  lease  payments,  by years and in the
aggregate, under this capital lease are as follows:

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

         2001                                                $       164,000
         2002                                                        164,000
         2003                                                        164,000
         2004                                                        109,333
                                                             ----------------
                                                                     601,333
         Less amount representing interest                           130,507
                                                             ----------------

         Present value of future minimum lease payments-
             capital lease obligation                        $       470,826
                                                             ================




                                       21
<PAGE>


PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 2000 and 1999
--------------------------------------------------------------------------------

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

The Company  subleases  excess  office space in its premises to various  tenants
under cancelable and noncancelable operating leases with remaining terms ranging
from  monthly to three years.  Future  minimum  lease  payments  receivable  for
noncancelable leases by year, and in the aggregate,  at December 31, 2000 are as
follows:

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

         2001                                                $       24,869
         2002                                                        22,269
         2003                                                        22,269
                                                             ----------------
                                                             $       69,407
                                                             ================

For the years  ended  December  31,  2000 and 1999,  rental  income  under  both
cancelable and noncancelable leases totaled $74,168 and $99,218, respectively.

The  Company  also has  noncancelable  operating  leases for its two bank branch
offices in Greenwich,  Connecticut and for its mortgage  brokerage office in New
York.  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.

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

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

         2001                                                $      365,706
         2002                                                       272,138
         2003                                                       139,894
         2004                                                        16,910
                                                             ----------------
                                                             $      794,648
                                                             ================

Total rental expense  charged to operations  for  cancelable  and  noncancelable
operating leases was $376,261 and $264,770 for the years ended December 31, 2000
and 1999, respectively.



                                       22
<PAGE>


PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 2000 and 1999
--------------------------------------------------------------------------------


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

President's Agreement
---------------------
In October 2000,  the Company and the Bank entered into a three-year  employment
agreement  (the  "Agreement")  with the  Bank's  President  and Chief  Executive
Officer.  The Agreement  provides for,  among other  things,  a stipulated  base
salary  for  the  first  year  of  the  Agreement,   annual  increases  at  each
anniversary,  and a discretionary  annual bonus to be determined by the Board of
Directors.  In  addition,  the  Agreement  provides  that the Company will grant
shares of the Company's  common stock to the President on December 31, 2000, and
annually  thereafter  through  December  31,  2003.  The  number of shares to be
granted is based on 30 percent of the President's stipulated base salary for the
preceding annual employment period, as defined, and 25 percent of such shares so
granted will vest and be  distributed  to the President at each of the next four
annual  anniversaries  of the  date of the  grant.  Compensation  cost is  being
recognized over the vesting period. Under certain  circumstances  defined in the
Agreement,  this stock grant may be settled in cash. The Agreement also provides
for the grant of options to purchase a minimum of 10,000 shares of the Company's
common stock on December 31, 2000,  and  annually  thereafter  through  December
2002, and on December 31, 2003, if the President  remains  employed by the Bank.
In the event that the Company does not have stock options  available to grant at
any of the  stipulated  dates,  which was the case at  December  31,  2000,  the
President may then elect,  on a future  determination  date,  as defined,  to be
chosen by the President, to receive cash compensation in the future equal to the
difference  between  the value of the  Company's  stock at the time the  options
would  have  been  granted,  and  the  value  of  the  Company's  stock  on  the
determination date.

In the event of the early termination of the Agreement for any reason other than
cause,  the Company would be obligated to  compensate  the President in one lump
sum payment, an amount equal to the higher of the aggregate salary payments that
would be made to the President  under the remaining  term of the  Agreement,  or
eighteen  months  of the  President's  stipulated  base  salary  at the  time of
termination.

The  Agreement  also  includes  change of control  provisions  that entitles the
President  to a lump sum  payment of two times the  greater  of the  President's
stipulated  base  salary  at the  time of the  change  in  control,  total  cash
compensation,  as defined,  for the year preceding the change in control, or the
average total cash  compensation,  as defined,  for the two years  preceding the
change in control.

Other Agreements
----------------
In conjunction with the acquisition of Pinnacle  Financial Group ("Pinnacle") on
June 30, 1999 (see Note 18), 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  increased 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



                                       23
<PAGE>


PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 2000 and 1999
--------------------------------------------------------------------------------


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 10. Income Taxes

The components of the income tax provision for the years ended December 31, 2000
and 1999 are as follows:

                                                        2000             1999
                                                     ---------------------------

Current
    Federal ..................................       $ 664,637        $  73,500
    State ....................................         171,471           11,000
                                                     ---------------------------
           Total .............................         836,108           84,500
                                                     ---------------------------
Deferred
    Federal ..................................         (56,068)         (14,100)
    State ....................................        (204,640)          (3,900)
                                                     ---------------------------
           Total .............................        (260,708)         (18,000)
                                                     ---------------------------
           Provision for income taxes ........       $ 575,400        $  66,500
                                                     ===========================



                                       24
<PAGE>


PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 2000 and 1999
--------------------------------------------------------------------------------


A reconciliation of the anticipated  income tax provision  (computed by applying
the statutory  Federal  income tax rate (34%) to the income before income taxes)
to the income tax  provision  as  reported in the  statements  of income for the
years ended December 31, 2000 and 1999 are as follows:

                                                             2000        1999
                                                        ------------------------

Provision for income taxes at statutory Federal rate .    $ 456,500   $ 141,100
State taxes, net of Federal benefit ..................       63,400      21,500
Decrease in deferred tax valuation allowance .........         --      (134,400)
Change in state tax rates ............................         --         3,400
Nondeductible expenses ...............................       58,400      29,000
Other ................................................       (2,900)      5,900
                                                        ------------------------
           Total provision for income taxes ..........    $ 575,400   $  66,500
                                                        ========================

At December 31, 2000 and 1999,  the  components of gross deferred tax assets and
gross deferred tax liabilities are as follows:

                                                             2000        1999
                                                        ------------------------

Deferred tax assets:
    Allowance for loan losses ..................           $651,514    $529,793
    Investment securities ......................               --       164,880
    Asset under capital lease ..................             72,774      77,232
    Premises and equipment .....................             47,651      17,231
    Accrued expenses ...........................             51,493        --
    Other ......................................             38,022      33,627
                                                        ------------------------
      Gross deferred tax assets ................            861,454     822,763
                                                        ------------------------

Deferred tax liabilities:
    Tax bad debt reserve .......................            201,805     259,312
    Investment securities ......................              7,528          --
    Other ......................................                893         523
                                                        ------------------------
    Gross deferred tax liabilities .............            210,226     259,835
                                                        ------------------------
           Net deferred tax asset ..............           $651,228    $562,928
                                                        ========================

The net decrease in the valuation allowance of $134,400 in 1999 was to recognize
deferred tax assets at amounts  considered by management more likely than not to
be realized.



                                       25
<PAGE>


PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 2000 and 1999
--------------------------------------------------------------------------------


Note 11.  Shareholders' Equity

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

2000
----
On June 14, 2000,  the  Company's  shareholders  approved the private  placement
offering of up to $5,000,000 of the Company's  common stock.  Under the terms of
the private  placement  offering,  the sales price of the shares was  determined
based on the market value of the Company's stock at the time of the sale. During
2000, the Company sold 236,089 shares of its common stock at an aggregate  price
of $2,134,655 in conjunction with the private placement  offering.  In addition,
3,334 shares of common stock were issued  through the exercise of stock warrants
at an aggregate price of $20,004.

1999
----
As  described in Note 18, 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 Pinnacle.

The Company  issued 1,285  shares of its common  stock at an aggregate  price of
$10,096 relating to its 1998 stock rights offering. In addition, 7,601 shares of
common stock,  at an aggregate  price of $68,197,  were issued to Bank directors
for meeting  fees,  and 2,950 shares of common stock,  at an aggregate  price of
$27,035,  were issued to former Bank  directors for consulting  fees.  Also, 500
shares of common stock were issued  through the exercise of stock warrants at an
aggregate price of $3,000

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

The following is information  about the  computation of income per share for the
years ended December 31, 2000 and 1999.

<TABLE>
<CAPTION>

                                                                                      2000
                                                                ---------------------------------------------------
                                                                      Net                            Per Share
                                                                     Income           Shares           Amount
                                                                ---------------------------------------------------

      <S>                                                        <C>                <C>           <C>
      Basic Income Per Share
         Income available to common shareholders                 $    767,171       2,281,993     $       0.34
      Effect of Dilutive Securities
         Warrants and stock options outstanding                           -            35,085            (0.01)
                                                                ---------------------------------------------------

      Diluted Income Per Share
         Income available to common shareholders
            plus assumed conversions                             $    767,171       2,317,078     $       0.33
                                                                ===================================================
</TABLE>




                                       26
<PAGE>


PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 2000 and 1999
--------------------------------------------------------------------------------



                                                             1999
                                              ----------------------------------
                                                  Net                  Per Share
                                                Income      Shares       Amount
                                              ----------------------------------
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 shareholders
      plus assumed conversions ...........    $ 348,641   2,122,204    $   0.16
                                              ==================================




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  119,846  shares of its common stock for issuance  upon exercise of
these warrants.

A summary of the status of the  warrants  at  December  31,  2000 and 1999,  and
changes during the years ended on those dates, is as follows:


<TABLE>
<CAPTION>
                                                      2000                          1999
                                              ----------------------      -----------------------
                                                          Weighted-                     Weighted-
                                               Number      Average        Number        Average
                                                 of       Exercise          of          Exercise
                                               Shares       Price         Shares         Price
                                              ----------------------      -----------------------

<S>                                           <C>           <C>           <C>           <C>
Outstanding at beginning of year....          123,180       $ 7.86        123,680       $ 7.86
Granted ............................            --                          --
Exercised ..........................           (3,334)        6.00           (500)        6.00
                                              -------                     -------

Outstanding at end of year .........          119,846         7.91        123,180         7.86
                                              =======                     =======

Exercisable at end of year .........          119,846         7.91        123,180         7.86
                                              =======                     =======
</TABLE>

The weighted average remaining  contractual life for the warrants outstanding at
December 31, 2000 is 2.9 years.



                                       27
<PAGE>


PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 2000 and 1999
--------------------------------------------------------------------------------


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

On August 17,  1999,  the Bank  adopted a stock  option  plan (the  "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 they remain  unexercised for 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 termination.
The Plan also  provided  for the grant of 110,000  non-qualified  and  incentive
stock  options in 1999 to certain  directors  of the  Company,  with an exercise
price  equal to the market  value of the  Company's  stock on the date of grant.
Such options were  immediately  exercisable  and expire if unexercised ten years
after the date of grant. The Company has reserved 110,000 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, 2000 and 1999 is as
follows:


<TABLE>
<CAPTION>
                                                      2000                          1999
                                              ----------------------      -----------------------
                                                          Weighted-                     Weighted-
                                               Number      Average        Number        Average
                                                 of       Exercise          of          Exercise
                                               Shares       Price         Shares         Price
                                              ----------------------      -----------------------

<S>                                           <C>         <C>             <C>           <C>
Outstanding at beginning of year ........     110,000     $  10.13           --         $   --
Granted .................................        --                       110,000        10.13
                                              -------                     -------
Outstanding at end of year ..............     110,000        10.13        110,000        10.13
                                              =======                     =======

Exercisable at end of year ..............     110,000        10.13        110,000        10.13
                                              =======                     =======

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

The weighted-average  remaining  contractual life for the options outstanding at
December 31, 2000 is 8.4 years.



                                       28
<PAGE>


PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 2000 and 1999
--------------------------------------------------------------------------------


The  Company  has elected to continue to apply APB Opinion No. 25 to account for
the  warrants  and  options  granted  to  employees,  including  directors,  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 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 would have been
reduced to the pro forma amounts shown below:


               Net income (loss):
                   As reported ................     $   348,641
                                                    ===========

                   Pro forma ..................     $   (23,651)

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

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

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

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



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

              Dividend rate                                  --
              Risk free interest rate                      5.80%
              Weighted-average expected lives, in years      10
              Price Volatility                            29.71%


                                       29
<PAGE>


PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 2000 and 1999
--------------------------------------------------------------------------------


Note 12. 401(k) Savings Plan

The Company  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
Company may make discretionary matching contributions to the Plan.  Participants
are immediately  vested in their  contribution  and Company  contributions.  The
Company  contributed  approximately  $10,000 and $13,800 to the Plan in 2000 and
1999, respectively.

Note 13. 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, 2000 and 1999:



                                                         2000            1999
                                                     --------------------------
       Commitments to extend credit:
           Future loan commitments .............     $11,917,000     $17,279,500
           Unused lines of credit ..............      13,445,938      14,057,211
           Undisbursed construction loans ......      10,842,047       8,099,481
       Financial standby letters of credit......         134,000            --
                                                     --------------------------
                                                     $36,338,985     $39,436,192
                                                     ==========================





                                       30
<PAGE>


PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 2000 and 1999
--------------------------------------------------------------------------------


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 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 14. 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,
2000,  that the Company and the Bank meet all capital  adequacy  requirements to
which it is subject.

The most recent  notification from the Office of the Comptroller of the Currency
categorized the Bank as adequately  capitalized  under the regulatory  framework
for prompt corrective action.  Subsequent to the most recent  notification,  the
Bank's capital increased,  and management believes that as of December 31, 2000,
the Bank would be  classified as well  capitalized.  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.



                                       31
<PAGE>


PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 2000 and 1999
--------------------------------------------------------------------------------


The Bank's actual capital  amounts and ratios at December 31, 2000 and 1999 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, 2000:
------------------
  Total Capital (to Risk Weighted Assets)      $16,794      11.10%    $12,104      8.00%    $15,130      10.00%
  Tier I Capital (to Risk Weighted Assets)      15,149      10.01%      6,054      4.00%      9,080       6.00%
  Tier I Capital (to Average Assets) .....      15,149       7.73%      7,839      4.00%      9,799       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, 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>


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.  However,  certain  restrictions  exist  regarding the
ability  of the  Bank to  transfer  funds  to the  Company  in the  form of cash
dividends, loans or advances. The approval of the Comptroller of the Currency is
required  to pay  dividends  in excess of the Bank's  earnings  retained  in the
current  year plus  retained net earnings  for the  preceding  two years.  As of
December 31, 2000, the Bank had retained earnings of approximately $230,000, all
of which is available for distribution to the Company as dividends without prior
regulatory  approval.  The Bank is also  prohibited  from paying  dividends that
would reduce its capital ratios below minimum regulatory  requirements,  and 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.



                                       32
<PAGE>


PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 2000 and 1999
--------------------------------------------------------------------------------


Note 15. Related Party Transactions

In the  normal  course  of  business,  the  Company  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 2000 and 1999 are as
follows:


                                                     2000             1999
                                                 -----------------------------
         Balance, beginning of year              $ 3,124,050      $ 1,922,555
         Additional loans .........                2,097,898        4,497,841
         Repayments ...............                 (665,587)      (3,296,346)
                                                 -----------------------------
         Balance, end of year .....              $ 4,556,361      $ 3,124,050
                                                 =============================


Related party deposits aggregated  approximately $4,896,000 and $8,814,000 as of
December 31, 2000 and 1999, respectively.

The Company  leases  office  space in its  premises to a director of the Company
under a  five-year  lease.  Rental  income  under this  lease was  approximately
$20,000  and  $35,000  for  the  years  ended   December   31,  2000  and  1999,
respectively.  Also during 2000 and 1999,  the Company  leased office space to a
related  individual under a  month-to-month  lease, and rental income under this
lease was approximately $10,000 and $6,000 for the years ended December 31, 2000
and 1999,  respectively.  In  addition,  the  Company  paid  consulting  fees of
approximately  $100,000  and $26,000 to this  individual  during the years ended
December 31, 2000 and 1999, respectively.

During 2000 and 1999, respectively, the Company paid legal fees of approximately
$5,400 and $4,600 to an attorney who is a director of the Company.

During  2000 and 1999,  the Company  leased  parking  space from a  corporation,
certain  principals  of which are officers and  directors of the Company.  Total
rent paid to the  corporation  was $18,000 for the years ended December 31, 2000
and 1999.

During  1999,  the Company 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.



                                       33
<PAGE>


PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 2000 and 1999
--------------------------------------------------------------------------------


Note 16. 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>
                                                                         2000
                                                     ---------------------------------------------
                                                       Before-Tax    Tax Benefit     Net-of-Tax
                                                         Amount       (Expense)        Amount
                                                     ---------------------------------------------

<S>                                                     <C>           <C>            <C>
   Unrealized holding gains arising during period       $ 441,926     $(172,408)     $ 269,518

   Less reclassification adjustment for gains
      recognized in net income ..................            --            --             --
                                                     ---------------------------------------------

   Unrealized holding gain on available for sale
         securities, net of taxes ...............       $ 441,926     $(172,408)     $ 269,518
                                                     =============================================


                                                                          1999
                                                     ---------------------------------------------
                                                       Before-Tax    Tax Benefit     Net-of-Tax
                                                         Amount       (Expense)        Amount
                                                     ---------------------------------------------

   Unrealized holding losses arising during period      $(485,830)    $ 189,924      $(295,906)


   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)
                                                     =============================================
</TABLE>


Note 17. Fair Value of Financial Instruments and Interest Rate Risk

SFAS  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



                                       34
<PAGE>


PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 2000 and 1999
--------------------------------------------------------------------------------


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, 2000 and
1999.  The estimated  fair value amounts for 2000 and 1999 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.

As of December 31, 2000 and 1999,  the recorded book balances and estimated fair
values of the Company's financial instruments were (in thousands):

<TABLE>
<CAPTION>

                                               2000                     1999
                                       -----------------------------------------------
                                       Recorded                  Recorded
                                         Book        Fair          Book         Fair
                                       Balance       Value        Balance       Value
                                       -----------------------------------------------

<S>                                    <C>          <C>          <C>          <C>
Financial Assets:
   Cash and due from banks .......     $  3,565     $  3,565     $  2,685     $  2,685
   Federal funds sold ............       29,500       29,500       18,900       18,900
   Commercial paper ..............         --           --         10,976       10,976
   Available for sale securities .       20,707       20,707       19,984       19,984
   Held to maturity securities ...       12,298       11,975       12,301       11,906
   Federal Reserve Bank stock ....          475          475          411          411
   Federal Home Loan Bank stock ..          594          594          307          307
   Loans receivable, net .........      126,411      127,191      107,770      107,182
   Accrued interest receivable ...        1,229        1,229          981          981

Financial Liabilities:
   Demand deposits ...............       16,899       16,899       12,631       12,631
   Savings deposits ..............       31,164       31,164       35,962       35,962
   Money market deposits .........          849          849          625          625
   Negotiable orders of withdrawal       27,640       27,640        9,602        9,602
   Time deposits .................      103,114      103,765      103,926      103,909
   Collateralized borrowings .....          474          474          325          325
</TABLE>





                                       35
<PAGE>


PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 2000 and 1999
--------------------------------------------------------------------------------


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

Loan  commitments on which the committed  interest rate is less than the current
market rate are  insignificant at December 31, 2000 and 1999. The estimated fair
value of fee  income  on  letters  of credit at  December  31,  2000 and 1999 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.

Note 18. Business Combination

On June 30,  1999,  the Bank  acquired,  through  a plan of  reorganization  and
merger, all of the outstanding  capital stock of 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.



                                       36
<PAGE>


PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 2000 and 1999
--------------------------------------------------------------------------------


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


     Net interest income after provision for loan loss        $   4,439,798
     Net income ......................................              256,755
     Basic income per share ..........................                 0.12
     Diluted income per share ........................                 0.12


With respect to the shares of common  stock issued to the sellers,  one-third 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, 2001.  If any shares
are  forfeited,  goodwill  and  additional  paid-in  capital  would be  adjusted
accordingly.

Note 19. 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  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 originates
loans for sale.  Revenues are  generated  from loan  brokerage  and  application
processing fees received from the permanent investors, and gains and origination
fees from loans sold.

Information about reportable segments,  and a reconciliation of such information
to the consolidated  financial statements as of and for the years ended December
31, 2000 and 1999 is as follows (in thousands):


                                                                  Elimination of
                            Commercial   Mortgage   Intersegment   Consolidated
2000                           Bank       Broker      Revenue         Totals
----                        ----------------------------------------------------

Net interest income .....   $  6,677     $   --      $   --         $  6,677
Noninterest income ......        373        2,538        (226)         2,685
Noninterest expenses ....      5,376        2,543        (226)         7,693
Provision for loan losses        326         --          --              326
Income before taxes .....      1,348           (5)       --            1,343
Assets ..................    197,628         --          --          197,628




                                       37
<PAGE>


PATRIOT NATIONAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 2000 and 1999
--------------------------------------------------------------------------------


                                                                  Elimination of
                            Commercial   Mortgage   Intersegment   Consolidated
1999                           Bank       Broker      Revenue         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 accounting  policies of the segments are the same as those  described in the
summary of significant  accounting  policies,  except that beginning  January 1,
2000,  management began allocating  certain overhead  expenses of the commercial
bank  to  the  mortgage  broker  segment,  which  allocations  are  based  on  a
pre-determined  monthly  charge  agreed to between the Company and the  mortgage
broker  segment.  During 1999,  management did not allocate  corporate  overhead
expenses to the mortgage broker  segment,  and all such expenses are included in
noninterest   expenses  of  the  commercial  bank.   Management   evaluates  the
performance  of each  segment  based on profit or loss  from  operations  before
income taxes. Intersegment revenues are accounted for at amounts that assume the
revenues were between  unrelated  third parties at the current  market prices at
the time of the transactions.

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 the Company operates in one geographical area.




                                       38