##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarter Ended September 30, 2010
 Commission file number 000-29599
 PATRIOT NATIONAL BANCORP, INC.
  Connecticut
(State of incorporation)
    
    06-1559137
(I.R.S. Employer Identification Number)
 900 Bedford Street, Stamford, Connecticut 06901
(Address of principal executive offices)
  (Registrants telephone number)
  þ o
  o o
  Large Accelerated Filer o
    
    Accelerated Filer þ
    
    Non-Accelerated Filer o
    
    Smaller Reporting Company o
  o þ




---



##### 



Table of Contents
 PagePart I FINANCIAL INFORMATIONItem 1. Consolidated Financial Statements
    
    
    3Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    29Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    47Item 4. Controls and Procedures
    
    
    49Part II OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    49Item 1A. Risk Factors
    
    
    49Item 6. Exhibits
    
    
    50Exhibit 31(1)Exhibit 31(2)Exhibit 32
   2




---



##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1:
    Consolidated Financial Statements
 PATRIOT NATIONAL BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
 September 30, 2010
    
    
    December 31, 2009(Unaudited)ASSETSCash and due from banks:Non-interest bearing deposits and cash
    
    $
    2,581,044
    
    
    $
    19,465,521Interest-bearing deposits
    
    
    98,159,464
    
    
    
    78,070,072Federal funds sold
    
    
    10,000,000
    
    
    
    10,000,000Short-term investments
    
    
    405,678
    
    
    
    263,839Cash and cash equivalents
    
    
    111,146,186
    
    
    
    107,799,432Available-for-sale securities (at fair value)
    
    
    48,864,051
    
    
    
    48,829,981Other investments
    
    
    500,000
    
    
    
    Federal Reserve Bank stock
    
    
    1,234,200
    
    
    
    1,839,650Federal Home Loan Bank stock
    
    
    4,508,300
    
    
    
    4,508,300Loans receivable (net of allowance for loan losses: 2010 $17,150,128;
2009 $15,794,118)
    
    
    576,621,173
    
    
    
    645,205,943Accrued interest and dividends receivable
    
    
    2,748,252
    
    
    
    3,236,252Premises and equipment, net
    
    
    5,622,253
    
    
    
    6,595,727Cash surrender value of life insurance
    
    
    20,231,164
    
    
    
    19,859,732Other real estate owned
    
    
    7,343,957
    
    
    
    19,073,993Other assets
    
    
    8,955,044
    
    
    
    9,467,911Total assets
    
    $
    787,774,580
    
    
    $
    866,416,921LIABILITIES AND SHAREHOLDERS EQUITYLiabilitiesDeposits:Non-interest bearing deposits
    
    $
    45,789,946
    
    
    $
    49,755,521Interest-bearing deposits
    
    
    645,177,321
    
    
    
    711,578,771Total deposits
    
    
    690,967,267
    
    
    
    761,334,292Repurchase agreements
    
    
    7,000,000
    
    
    
    7,000,000Federal Home Loan Bank borrowings
    
    
    50,000,000
    
    
    
    50,000,000Junior subordinated debt owed to unconsolidated trust
    
    
    8,248,000
    
    
    
    8,248,000Accrued expenses and other liabilities
    
    
    6,394,314
    
    
    
    3,973,319Total liabilities
    
    
    762,609,581
    
    
    
    830,555,611Shareholders equityPreferred stock: no par value; 1,000,000 shares
authorized; no shares issued
    
    
    
    
    
    
    Common stock, $2 par value: 60,000,000 shares authorized; shares issued
4,774,432; shares outstanding 4,762,727
    
    
    9,548,864
    
    
    
    9,548,864Additional paid in capital
    
    
    49,651,534
    
    
    
    49,651,534Accumulated deficit
    
    
    (35,322,723
    )
    
    
    (24,000,400
    )Less: Treasury stock at cost: 11,705 shares
    
    
    (160,025
    )
    
    
    (160,025
    )Accumulated other comprehensive income  net unrealized
gain on available-for-sale securities, net of taxes
    
    
    1,447,349
    
    
    
    821,337Total shareholders equity
    
    
    25,164,999
    
    
    
    35,861,310Total liabilities and shareholders equity
    
    $
    787,774,580
    
    
    $
    866,416,921
   3




---



##### Table of Contents



PATRIOT NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Interest and Dividend IncomeInterest and fees on loans
    
    $
    7,977,476
    
    
    $
    9,558,338
    
    
    $
    26,011,835
    
    
    $
    31,948,530Interest on investment securities
    
    
    369,169
    
    
    
    252,382
    
    
    
    1,236,019
    
    
    
    1,046,331Dividends on investment securities
    
    
    66,403
    
    
    
    87,545
    
    
    
    202,109
    
    
    
    214,768Interest on federal funds sold
    
    
    4,428
    
    
    
    6,805
    
    
    
    12,275
    
    
    
    34,246Other interest income
    
    
    51,436
    
    
    
    78,862
    
    
    
    104,706
    
    
    
    98,254Total interest and dividend income
    
    
    8,468,912
    
    
    
    9,983,932
    
    
    
    27,566,944
    
    
    
    33,342,129Interest ExpenseInterest on deposits
    
    
    2,765,030
    
    
    
    5,400,341
    
    
    
    8,830,894
    
    
    
    17,649,135Interest on Federal Home Loan Bank borrowings
    
    
    428,183
    
    
    
    428,183
    
    
    
    1,270,587
    
    
    
    1,270,527Interest on subordinated debt
    
    
    76,411
    
    
    
    77,645
    
    
    
    216,775
    
    
    
    259,904Interest on other borrowings
    
    
    77,773
    
    
    
    77,772
    
    
    
    230,781
    
    
    
    230,780Total interest expense
    
    
    3,347,397
    
    
    
    5,983,941
    
    
    
    10,549,037
    
    
    
    19,410,346Net interest income
    
    
    5,121,515
    
    
    
    3,999,991
    
    
    
    17,017,907
    
    
    
    13,931,783Provision for Loan Losses
    
    
    5,025,000
    
    
    
    1,453,000
    
    
    
    6,264,000
    
    
    
    9,009,000Net interest income after
provision for loan losses
    
    
    96,515
    
    
    
    2,546,991
    
    
    
    10,753,907
    
    
    
    4,922,783Noninterest IncomeMortgage brokerage referral fees
    
    
    22,465
    
    
    
    34,070
    
    
    
    76,139
    
    
    
    116,252Loan origination & processing fees
    
    
    21,947
    
    
    
    48,772
    
    
    
    115,448
    
    
    
    172,676Fees and service charges
    
    
    322,943
    
    
    
    257,306
    
    
    
    850,661
    
    
    
    751,704Gain on sale of investment securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    434,333Earnings on cash surrender value of life insurance
    
    
    161,014
    
    
    
    179,240
    
    
    
    429,848
    
    
    
    559,260Other income
    
    
    108,727
    
    
    
    98,319
    
    
    
    264,096
    
    
    
    272,734Total noninterest income
    
    
    637,096
    
    
    
    617,707
    
    
    
    1,736,192
    
    
    
    2,306,959Noninterest ExpensesSalaries and benefits
    
    
    3,192,396
    
    
    
    2,946,743
    
    
    
    9,745,036
    
    
    
    8,863,928Occupancy and equipment, net
    
    
    1,371,108
    
    
    
    1,427,481
    
    
    
    4,207,405
    
    
    
    4,239,593Data processing
    
    
    302,463
    
    
    
    282,291
    
    
    
    884,290
    
    
    
    777,630Professional and other outside services
    
    
    633,477
    
    
    
    1,076,483
    
    
    
    2,508,648
    
    
    
    3,059,614Advertising and promotional
    
    
    61,415
    
    
    
    91,157
    
    
    
    216,093
    
    
    
    161,914Loan administration and processing
    
    
    41,460
    
    
    
    138,991
    
    
    
    217,676
    
    
    
    408,210Regulatory assessments
    
    
    689,510
    
    
    
    663,365
    
    
    
    2,074,151
    
    
    
    1,865,092Insurance premiums
    
    
    194,399
    
    
    
    324,944
    
    
    
    598,798
    
    
    
    497,717Other real estate operations
    
    
    454,608
    
    
    
    134,646
    
    
    
    1,760,235
    
    
    
    134,646Materials and communications
    
    
    195,900
    
    
    
    175,436
    
    
    
    597,763
    
    
    
    572,306Other noninterest expenses
    
    
    387,455
    
    
    
    273,809
    
    
    
    777,327
    
    
    
    707,558Total noninterest expenses
    
    
    7,524,191
    
    
    
    7,535,346
    
    
    
    23,587,422
    
    
    
    21,288,208Loss before income taxes
    
    
    (6,790,580
    )
    
    
    (4,370,648
    )
    
    
    (11,097,323
    )
    
    
    (14,058,466
    )Provision for Income Taxes
    
    
    
    
    
    
    9,565,000
    
    
    
    225,000
    
    
    
    5,611,000Net loss
    
    $
    (6,790,580
    )
    
    $
    (13,935,648
    )
    
    $
    (11,322,323
    )
    
    $
    (19,669,466
    )Basic and diluted loss per share
    
    $
    (1.43
    )
    
    $
    (2.93
    )
    
    $
    (2.38
    )
    
    $
    (4.14
    )
   4




---



##### Table of Contents



PATRIOT NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net loss
    
    $
    (6,790,580
    )
    
    $
    (13,935,648
    )
    
    $
    (11,322,323
    )
    
    $
    (19,669,466
    )Unrealized holding gains on securities:Unrealized holding gains arising
during the period, net of taxes
    
    
    367,279
    
    
    
    94,558
    
    
    
    626,012
    
    
    
    494,791Comprehensive loss
    
    $
    (6,423,301
    )
    
    $
    (13,841,090
    )
    
    $
    (10,696,311
    )
    
    $
    (19,174,675
    )
   5




---



##### Table of Contents



PATRIOT NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(Unaudited)
 AccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    OtherNumber of
    
    
    Common
    
    
    Paid-In
    
    
    Accumulated
    
    
    Treasury
    
    
    ComprehensiveShares
    
    
    Stock
    
    
    Capital
    
    
    Deficit
    
    
    Stock
    
    
    (Loss) Income
    
    
    TotalNine months ended September 30, 2009Balance at December 31, 2008
    
    
    4,743,409
    
    
    $
    9,510,228
    
    
    $
    49,634,337
    
    
    $
    (119,886
    )
    
    $
    (160,025
    )
    
    $
    (90,510
    )
    
    $
    58,774,144Comprehensive lossNet loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,669,466
    )
    
    
    
    
    
    
    
    
    
    
    (19,669,466
    )Unrealized holding gain on available for
sale securities, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    494,791
    
    
    
    494,791Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,174,675
    )Issuance of common stockStock issued to directors
    
    
    19,318
    
    
    
    38,636
    
    
    
    17,197
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55,833Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (908
    )
    
    
    
    
    
    
    
    
    
    
    (908
    )Balance, September 30, 2009
    
    
    4,762,727
    
    
    $
    9,548,864
    
    
    $
    49,651,534
    
    
    $
    (19,790,260
    )
    
    $
    (160,025
    )
    
    $
    404,281
    
    
    $
    39,654,394Nine months ended September 30, 2010Balance at December 31, 2009
    
    
    4,762,727
    
    
    $
    9,548,864
    
    
    $
    49,651,534
    
    
    $
    (24,000,400
    )
    
    $
    (160,025
    )
    
    $
    821,337
    
    
    $
    35,861,310Comprehensive lossNet loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,322,323
    )
    
    
    
    
    
    
    
    
    
    
    (11,322,323
    )Unrealized holding gain on available for
sale securities, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    626,012
    
    
    
    626,012Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,696,311
    )Balance, September 30, 2010
    
    
    4,762,727
    
    
    $
    9,548,864
    
    
    $
    49,651,534
    
    
    $
    (34,122,723
    )
    
    $
    (160,025
    )
    
    $
    1,447,349
    
    
    $
    25,164,999
   6




---



##### Table of Contents



PATRIOT NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Nine Months EndedSeptember 30,2010
    
    
    2009Cash Flows from Operating Activities:Net loss
    
    $
    (11,322,323
    )
    
    $
    (19,669,466
    )Adjustments to reconcile net loss to net cashused in operating activities:Amortization and accretion of investment premiums and discounts, net
    
    
    318,842
    
    
    
    101,743Provision for loan losses
    
    
    6,264,000
    
    
    
    9,009,000Gain on sale of investment securities
    
    
    
    
    
    
    (434,333
    )Amortization of core deposit intangible
    
    
    11,925
    
    
    
    12,591Earnings on cash surrender value of life insurance
    
    
    (429,848
    )
    
    
    (559,260
    )Depreciation and amortization
    
    
    1,131,641
    
    
    
    1,242,948Loss on disposal of bank premises and equipment
    
    
    
    
    
    
    156Payment of fees to directors in common stock
    
    
    
    
    
    
    55,833Loss on sale of other real estate owned
    
    
    173,289
    
    
    
    Impairment writedown on other real estate owned
    
    
    961,497
    
    
    
    Deferred income taxes
    
    
    
    
    
    
    8,624,602Changes in assets and liabilities:Decrease in deferred loan costs (fees)
    
    
    (237,165
    )
    
    
    (679,708
    )Decrease in accrued interest and dividends receivable
    
    
    488,000
    
    
    
    1,070,644Decrease (increase) in other assets
    
    
    500,942
    
    
    
    (4,245,217
    )Decrease in cash surrender value of life insurance
    
    
    58,416
    
    
    
    Increase (decrease) in accrued expenses and other liabilities
    
    
    2,037,258
    
    
    
    (1,067,361
    )Net cash used in operating activities
    
    
    (43,526
    )
    
    
    (6,537,828
    )Cash Flows from Investing Activities:Purchases of available for sale securities
    
    
    (15,162,500
    )
    
    
    (14,524,178
    )Purchases of other investments
    
    
    (500,000
    )
    
    
    Proceeds from sales of available for sale securities
    
    
    
    
    
    
    19,852,541Principal repayments on available for sale securities
    
    
    5,819,337
    
    
    
    4,864,181Proceeds from calls of available for sale securities
    
    
    10,000,000
    
    
    
    11,000,000Redemptions of Federal Reserve Bank Stock
    
    
    605,450
    
    
    
    Purchases of Federal Reserve Bank Stock
    
    
    
    
    
    
    (1,500
    )Net decrease in loans
    
    
    62,001,335
    
    
    
    70,215,878Proceeds from sale of other real estate owned
    
    
    11,423,343
    
    
    
    Capital improvements of other real estate owned
    
    
    (271,493
    )
    
    
    Purchase of bank premises and equipment
    
    
    (158,167
    )
    
    
    (294,131
    )Net cash provided by investing activities
    
    
    73,757,305
    
    
    
    91,112,791Cash Flows from Financing Activities:Net (decrease) increase in demand, savings and money market deposits
    
    
    (22,942,716
    )
    
    
    55,477,476Net decrease in time certificates of deposits
    
    
    (47,424,309
    )
    
    
    (11,245,895
    )Dividends paid on common stock
    
    
    
    
    
    
    (214,361
    )Net cash (used in) provided by financing activities
    
    
    (70,367,025
    )
    
    
    44,017,220Net increase in cash and cash equivalents
    
    
    3,346,754
    
    
    
    128,592,183Cash and Cash Equivalents:Beginning
    
    
    107,799,432
    
    
    
    24,602,751Ending
    
    $
    111,146,186
    
    
    $
    153,194,934
  7




---



##### Table of Contents



PATRIOT NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
(Unaudited)
 Nine Months EndedSeptember 30,2010
    
    
    2009Supplemental Disclosures of Cash Flow InformationCash paid for:Interest
    
    $
    10,374,774
    
    
    $
    19,313,572Income taxes
    
    $
    2,080
    
    
    $
    1,379,195Supplemental disclosures of noncash investing and financing activities:Unrealized holding gain on available for sale
securities arising during the period
    
    $
    1,009,749
    
    
    $
    798,048Transfer of loans to other real estate owned
    
    $
    556,600
    
    
    $
    7,715,600
   8




---



##### Table of Contents



PATRIOT NATIONAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 Note 1: Basis of Financial Statement Presentation
      9




---



##### Table of Contents



Note 2: Investment Securities
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueSeptember 30, 2010:U. S. Government agency obligations
    
    $
    5,006,405
    
    
    $
    12,542
    
    
    $
    
    
    
    $
    5,018,947U. S. Government agency mortgage-backed
securities
    
    
    39,623,438
    
    
    
    1,092,916
    
    
    
    (407
    )
    
    
    40,715,947Money market preferred equity securities
    
    
    1,899,720
    
    
    
    1,229,437
    
    
    
    
    
    
    
    3,129,157Total Available-for-Sale Securities
    
    $
    46,529,563
    
    
    $
    2,334,895
    
    
    $
    (407
    )
    
    $
    48,864,051December 31, 2009:U. S. Government agency obligations
    
    $
    5,176,712
    
    
    $
    
    
    
    $
    (68,212
    )
    
    $
    5,108,500U. S. Government agency mortgage-backed
securities
    
    
    40,428,810
    
    
    
    241,520
    
    
    
    (166,872
    )
    
    
    40,503,458Money market preferred equity securities
    
    
    1,899,720
    
    
    
    1,318,303
    
    
    
    
    
    
    
    3,218,023Total Available-for-Sale Securities
    
    $
    47,505,242
    
    
    $
    1,559,823
    
    
    $
    (235,084
    )
    
    $
    48,829,981
  10




---



##### Table of Contents



Less Than 12 Months
    
    
    12 Months or More
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Loss
    
    
    Value
    
    
    Loss
    
    
    Value
    
    
    LossSeptember 30, 2010:U. S. Government agencymortgage-backed securities
    
    $
    105,488
    
    
    $
    (407
    )
    
    $
    
    
    
    $
    
    
    
    $
    105,488
    
    
    $
    (407
    )Totals
    
    $
    105,488
    
    
    $
    (407
    )
    
    $
    
    
    
    $
    
    
    
    $
    105,488
    
    
    $
    (407
    )December 31, 2009:U. S. Government agency
obligations
    
    $
    5,108,500
    
    
    $
    (68,212
    )
    
    $
    
    
    
    $
    
    
    
    $
    5,108,500
    
    
    $
    (68,212
    )U. S. Government agencymortgage-backed securities
    
    
    19,548,726
    
    
    
    (159,918
    )
    
    
    759,207
    
    
    
    (6,954
    )
    
    
    20,307,933
    
    
    
    (166,872
    )Totals
    
    $
    24,657,226
    
    
    $
    (228,130
    )
    
    $
    759,207
    
    
    $
    (6,954
    )
    
    $
    25,416,433
    
    
    $
    (235,084
    )
   11




---



##### Table of Contents



Amortized Cost
    
    
    Fair ValueSeptember 30, 2010:Maturity:> 10 years
    
    $
    5,006,405
    
    
    $
    5,018,947Mortgage-backed securities
    
    
    39,623,438
    
    
    
    40,715,947Total
    
    $
    44,629,843
    
    
    $
    45,734,894
 Note 3: Loans Receivable and Allowance for Loan Losses
  September 30,
    
    
    December 31,2010
    
    
    2009Real EstateCommercial
    
    $
    227,884,766
    
    
    $
    230,225,306Residential
    
    
    197,397,155
    
    
    
    195,571,225Construction
    
    
    94,442,079
    
    
    
    154,457,082Construction to permanent
    
    
    10,346,352
    
    
    
    15,989,976Commercial
    
    
    15,996,141
    
    
    
    19,298,505Consumer home equity
    
    
    46,039,426
    
    
    
    44,309,265Consumer installment
    
    
    1,442,051
    
    
    
    1,155,059Total Loans
    
    
    593,547,970
    
    
    
    661,006,418Premiums on purchased loans
    
    
    124,516
    
    
    
    131,993Net deferred loan costs (fees)
    
    
    98,815
    
    
    
    (138,350
    )Allowance for loan losses
    
    
    (17,150,128
    )
    
    
    (15,794,118
    )Loans receivable, net
    
    $
    576,621,173
    
    
    $
    645,205,943
  12




---



##### Table of Contents



Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Balance at beginning of period
    
    $
    13,989,069
    
    
    $
    16,564,668
    
    
    $
    15,794,118
    
    
    $
    16,247,070Provision for loan losses
    
    
    5,025,000
    
    
    
    1,453,000
    
    
    
    6,264,000
    
    
    
    9,009,000Charge-offs
    
    
    (1,917,286
    )
    
    
    (474,913
    )
    
    
    (5,094,670
    )
    
    
    (7,786,345
    )Recoveries
    
    
    53,345
    
    
    
    109,000
    
    
    
    186,680
    
    
    
    182,030Balance at end of period
    
    $
    17,150,128
    
    
    $
    17,651,755
    
    
    $
    17,150,128
    
    
    $
    17,651,755
    September 30,
    
    
    December 31,2010
    
    
    2009Impaired loans receivable for which there is a
related allowance for credit losses
    
    $
    57,975,631
    
    
    $
    30,968,602Impaired loans receivable for which there is no
related allowance for credit losses
    
    $
    43,558,262
    
    
    $
    82,568,512Allowance for credit losses related to impaired loans
    
    $
    7,079,630
    
    
    $
    3,942,012
   13




---



##### Table of Contents



Note 4: Deposits
  September 30,
    
    
    December 31,2010
    
    
    2009Non-interest bearing
    
    $
    45,789,946
    
    
    $
    49,755,521Interest bearingNOW
    
    
    20,614,957
    
    
    
    21,581,697Savings
    
    
    57,042,941
    
    
    
    69,766,296Money market
    
    
    106,730,941
    
    
    
    112,017,987Time certificates, less than $100,000
    
    
    273,421,315
    
    
    
    305,719,484Time certificates, $100,000 or more
    
    
    187,367,167
    
    
    
    202,493,307Total interest bearing
    
    
    645,177,321
    
    
    
    711,578,771Total Deposits
    
    $
    690,967,267
    
    
    $
    761,334,292
   14




---



##### Table of Contents



Note 5: Income (loss) per share
   Three months ended September 30, 2010
 Net Loss
    
    
    Shares
    
    
    AmountBasic and Diluted Loss Per ShareLoss attributable to common shareholders
    
    $
    (6,790,580
    )
    
    
    4,762,727
    
    
    $
    (1.43
    )
 Three months ended September 30, 2009
 Net Loss
    
    
    Shares
    
    
    AmountBasic and Diluted Loss Per ShareLoss attributable to common shareholders
    
    $
    (13,935,648
    )
    
    
    4,762,727
    
    
    $
    (2.93
    )
 Nine months ended September 30, 2010
 Net Loss
    
    
    Shares
    
    
    AmountBasic and Diluted Loss Per ShareLoss attributable to common shareholders
    
    $
    (11,322,323
    )
    
    
    4,762,727
    
    
    $
    (2.38
    )
 Nine months ended September 30, 2009
 Net Loss
    
    
    Shares
    
    
    AmountBasic and Diluted Loss Per ShareLoss attributable to common shareholders
    
    $
    (19,669,466
    )
    
    
    4,750,768
    
    
    $
    (4.14
    )
  15




---



##### Table of Contents



Note 6: Other Comprehensive Income (Loss)
  Three Months Ended
    
    
    Nine Months EndedSeptember 30, 2010
    
    
    September 30, 2010Before Tax
    
    
    
    
    
    
    Net of Tax
    
    
    Before Tax
    
    
    
    
    
    
    Net of TaxAmount
    
    
    Tax Effect
    
    
    Amount
    
    
    Amount
    
    
    Tax Effect
    
    
    AmountUnrealized holding gains
arising during the period
    
    $
    592,440
    
    
    $
    (225,161
    )
    
    $
    367,279
    
    
    $
    1,009,749
    
    
    $
    (383,737
    )
    
    $
    626,012Reclassification adjustment
for gains recognized in income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Unrealized holding gains
on available for sale securities,
net of taxes
    
    $
    592,440
    
    
    $
    (225,161
    )
    
    $
    367,279
    
    
    $
    1,009,749
    
    
    $
    (383,737
    )
    
    $
    626,012
 Three Months Ended
    
    
    Nine Months EndedSeptember 30, 2009
    
    
    September 30, 2009Before Tax
    
    
    
    
    
    
    Net of Tax
    
    
    Before Tax
    
    
    
    
    
    
    Net of TaxAmount
    
    
    Tax Effect
    
    
    Amount
    
    
    Amount
    
    
    Tax Effect
    
    
    AmountUnrealized holding gains
arising during the period
    
    $
    152,512
    
    
    $
    (57,954
    )
    
    $
    94,558
    
    
    $
    1,232,381
    
    
    $
    (468,304
    )
    
    $
    764,077Reclassification adjustment
for gains recognized in income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (434,333
    )
    
    
    165,047
    
    
    
    (269,286
    )Unrealized holding gains
on available for sale securities,
net of taxes
    
    $
    152,512
    
    
    $
    (57,954
    )
    
    $
    94,558
    
    
    $
    798,048
    
    
    $
    (303,257
    )
    
    $
    494,791
  Note 7: Financial Instruments with Off-Balance Sheet Risk
    16




---



##### Table of Contents



Commitments to extend credit:Future loan commitments
    
    $
    2,521,487Home equity lines of credit
    
    
    19,715,780Unused lines of credit
    
    
    9,900,658Undisbursed construction loans
    
    
    2,199,303Financial standby letters of credit
    
    
    72,000$
    34,409,228
   Note 8: Regulatory and Operational Matters
    17




---



##### Table of Contents



18




---



##### Table of Contents



To Be WellCapitalized UnderFor Capital
    
    
    Prompt CorrectiveActual
    
    
    Adequacy Purposes
    
    
    Action ProvisionsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioSeptember 30, 2010The Company:Total Capital (to Risk Weighted Assets)
    
    $
    38,592
    
    
    
    7.73
    %
    
    $
    39,940
    
    
    
    8.00
    %
    
    
    N/A
    
    
    
    N/ATier 1 Capital (to Risk Weighted Assets)
    
    
    31,567
    
    
    
    6.32
    %
    
    
    19,979
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/ATier 1 Capital (to Average Assets)
    
    
    31,567
    
    
    
    3.92
    %
    
    
    32,211
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AThe Bank:Total Capital (to Risk Weighted Assets)
    
    $
    38,815
    
    
    
    7.78
    %
    
    $
    39,913
    
    
    
    8.00
    %
    
    $
    49,891
    
    
    
    10.00
    %Tier 1 Capital (to Risk Weighted Assets)
    
    
    31,889
    
    
    
    6.39
    %
    
    
    19,962
    
    
    
    4.00
    %
    
    
    29,943
    
    
    
    6.00
    %Tier 1 Capital (to Average Assets)
    
    
    31,889
    
    
    
    3.96
    %
    
    
    32,211
    
    
    
    4.00
    %
    
    
    40,264
    
    
    
    5.00
    %December 31, 2009The Company:Total Capital (to Risk Weighted Assets)
    
    $
    51,072
    
    
    
    8.58
    %
    
    $
    47,894
    
    
    
    8.00
    %
    
    
    N/A
    
    
    
    N/ATier 1 Capital (to Risk Weighted Assets)
    
    
    42,971
    
    
    
    7.22
    %
    
    
    23,945
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/ATier 1 Capital (to Average Assets)
    
    
    42,971
    
    
    
    4.72
    %
    
    
    36,512
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AThe Bank:Total Capital (to Risk Weighted Assets)
    
    $
    51,056
    
    
    
    8.58
    %
    
    $
    47,821
    
    
    
    8.00
    %
    
    $
    59,506
    
    
    
    10.00
    %Tier 1 Capital (to Risk Weighted Assets)
    
    
    42,960
    
    
    
    7.22
    %
    
    
    23,908
    
    
    
    4.00
    %
    
    
    35,701
    
    
    
    6.00
    %Tier 1 Capital (to Average Assets)
    
    
    42,960
    
    
    
    4.72
    %
    
    
    36,454
    
    
    
    4.00
    %
    
    
    45,508
    
    
    
    5.00
    %
  19




---



##### Table of Contents



Restrictions on dividends, loans and advances
    Recent Legislative Developments
   20




---



##### Table of Contents



Note 9: Income Taxes
   Note 10: Fair Value and Interest Rate Risk
    
    
    Level 1 Inputs Unadjusted quoted prices in active markets for identical assets or
liabilities that the reporting entity has the ability to access at the measurement date.
 
    
    Level 2 Inputs Inputs other than quoted prices included in Level 1 that are
observable for the asset or liability, either directly or indirectly. These might include
quoted prices for similar assets or liabilities in active markets,
quoted prices for identical or similar assets or liabilities in markets that are not active,
inputs other than quoted prices that are observable for the asset or liability (such as
interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are
derived principally from or corroborated by market data by correlation or other means.
 
    
    Level 3 Inputs Unobservable inputs for determining the fair values of assets or
liabilities that reflect an entitys own assumptions about the assumptions that market
participants would use in pricing the assets or liabilities.
  21




---



##### Table of Contents



Cash and due from banks, federal funds sold, short-term investments and accrued interest receivable
and payable:
 Available-for-Sale Securities:
 FHLB Stock and Federal Reserve Bank Stock:
 Other Investments:
 Loans:
 Other Real Estate Owned:
  22




---



##### Table of Contents



Deposits:
 Short-term borrowings:
 Junior Subordinated Debt:
 Federal Home Loan Bank Borrowings:
 Other Borrowings:
 Off-balance sheet instruments:
 Fair
Value Measurements and Disclosures
 
    
    Separate disclosure of the significant transfers into and out of Level 1 and Level 2
fair value measurements, and a description of the reasons for the transfers.
 
    
    In the roll forward of activity for Level 3 fair value measurements (significant
unobservable inputs), purchases, sales, issuances, and settlements should be presented
separately (on a gross basis rather than as one net number).
  
    
    Fair value measurements and disclosures should be presented for each class of assets
and liabilities within a line item in the statement of financial position.
 
    
    Reporting entities should provide disclosures about the valuation techniques and
inputs used to measure fair value for both recurring and nonrecurring fair value
measurements that fall in either Level 2 or Level 3.
  23




---



##### Table of Contents



Fair Value at Reporting Date UsingQuoted Prices in
    
    
    Significant
    
    
    SignificantActive Markets
    
    
    Observable
    
    
    Unobservable
    
    
    Balancefor Identical Assets
    
    
    Inputs
    
    
    Inputs
    
    
    as ofSeptember 30, 2010
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    September 30, 2010U.S. Government agency obligations
    
    $
    
    
    
    $
    5,018,947
    
    
    $
    
    
    
    $
    5,018,947U.S. Government agency mortgage-backed securities
    
    
    
    
    
    
    40,715,947
    
    
    
    
    
    
    
    40,715,947Money market preferred equity securities
    
    
    
    
    
    
    3,129,157
    
    
    
    
    
    
    
    3,129,157Securities available for sale
    
    $
    
    
    
    $
    48,864,051
    
    
    $
    
    
    
    $
    48,864,051
 Quoted Prices in
    
    
    Significant
    
    
    SignificantActive Markets
    
    
    Observable
    
    
    Unobservable
    
    
    Balancefor Identical Assets
    
    
    Inputs
    
    
    Inputs
    
    
    as ofDecember 31, 2009
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    December 31, 2009U.S. Government agency obligations
    
    $
    
    
    
    $
    5,108,500
    
    
    $
    
    
    
    $
    5,108,500U.S. Government agency mortgage-backed securities
    
    
    
    
    
    
    40,503,458
    
    
    
    
    
    
    
    40,503,458Money market preferred equity securities
    
    
    
    
    
    
    3,218,023
    
    
    
    
    
    
    
    3,218,023Securities available for sale
    
    $
    
    
    
    $
    48,829,981
    
    
    $
    
    
    
    $
    48,829,981
    24




---



##### Table of Contents



Quoted Prices in
    
    
    Significant
    
    
    SignificantActive Markets
    
    
    Observable
    
    
    Unobservable
    
    
    Balancefor Identical Assets
    
    
    Inputs
    
    
    Inputs
    
    
    as ofSeptember 30, 2010
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    September 30, 2010Impaired Loans (1)
    
    $
    
    
    
    $
    
    
    
    $
    58,367,829
    
    
    $
    58,367,829
 Quoted Prices in
    
    
    Significant
    
    
    SignificantActive Markets
    
    
    Observable
    
    
    Unobservable
    
    
    Balancefor Identical Assets
    
    
    Inputs
    
    
    Inputs
    
    
    as ofDecember 31, 2009
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    December 31, 2009Impaired Loans (1)
    
    $
    
    
    
    $
    
    
    
    $
    49,322,844
    
    
    $
    49,322,844
 (1)
    
    Represents carrying value for which adjustments are based on the appraised
value of the collateral.  25




---



##### Table of Contents



Quoted Prices in
    
    
    Significant
    
    
    SignificantActive Markets
    
    
    Observable
    
    
    Unobservable
    
    
    Balancefor Identical Assets
    
    
    Inputs
    
    
    Inputs
    
    
    as ofSeptember 30, 2010
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    September 30, 2010Other real estate owned (1)
    
    $
    
    
    
    $
    
    
    
    $
    910,780
    
    
    $
    910,780
 Quoted Prices in
    
    
    Significant
    
    
    SignificantActive Markets
    
    
    Observable
    
    
    Unobservable
    
    
    Balancefor Identical Assets
    
    
    Inputs
    
    
    Inputs
    
    
    as ofDecember 31, 2009
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    December 31, 2009Other real estate owned (1)
    
    $
    
    
    
    $
    
    
    
    $
    19,073,993
    
    
    $
    19,073,993
 (1)
    
    Represents carrying value for which adjustments are based on the appraised
value of the properties.     26




---



##### Table of Contents



September 30, 2010
    
    
    December 31, 2009Recorded
    
    
    
    
    
    
    RecordedBook
    
    
    Fair
    
    
    Book
    
    
    FairBalance
    
    
    Value
    
    
    Balance
    
    
    ValueFinancial Assets:Cash and noninterest bearing balances due from banks
    
    
    2,581
    
    
    
    2,581
    
    
    
    19,466
    
    
    
    19,466Interest-bearing deposits due from banks
    
    
    98,159
    
    
    
    98,159
    
    
    
    78,070
    
    
    
    78,070Federal funds sold
    
    
    10,000
    
    
    
    10,000
    
    
    
    10,000
    
    
    
    10,000Short-term investments
    
    
    406
    
    
    
    406
    
    
    
    264
    
    
    
    264Available-for-sale securities
    
    
    48,864
    
    
    
    48,864
    
    
    
    48,830
    
    
    
    48,830Other investments
    
    
    500
    
    
    
    500
    
    
    
    
    
    
    
    Federal Reserve Bank stock
    
    
    1,234
    
    
    
    1,234
    
    
    
    1,840
    
    
    
    1,840Federal Home Loan Bank stock
    
    
    4,508
    
    
    
    4,508
    
    
    
    4,508
    
    
    
    4,508Loans receivable, net
    
    
    576,621
    
    
    
    586,626
    
    
    
    645,206
    
    
    
    644,977Accrued interest receivable
    
    
    2,748
    
    
    
    2,748
    
    
    
    3,236
    
    
    
    3,236Financial Liabilities:Demand deposits
    
    
    45,790
    
    
    
    45,790
    
    
    
    49,756
    
    
    
    49,756Savings deposits
    
    
    57,043
    
    
    
    57,043
    
    
    
    69,766
    
    
    
    69,766Money market deposits
    
    
    106,731
    
    
    
    106,731
    
    
    
    112,018
    
    
    
    112,018Negotiable orders of withdrawal
    
    
    20,615
    
    
    
    20,615
    
    
    
    21,582
    
    
    
    21,582Time deposits
    
    
    460,788
    
    
    
    464,965
    
    
    
    508,213
    
    
    
    512,524FHLB Borrowings
    
    
    50,000
    
    
    
    51,435
    
    
    
    50,000
    
    
    
    50,270Securities sold under repurchase agreements
    
    
    7,000
    
    
    
    7,826
    
    
    
    7,000
    
    
    
    7,778Subordinated debentures
    
    
    8,248
    
    
    
    8,248
    
    
    
    8,248
    
    
    
    8,248
   27




---



##### Table of Contents



Off-balance sheet instruments
  Note 11: Contingencies
    Note 12: Recent Accounting Pronouncements
 Transfers and Servicing (Topic
860): Accounting for Transfers of Financial Assets
 Disclosures about the Credit Quality of Financing Receivables and
the Allowance for Credit Losses
  28




---



##### Table of Contents



Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations
 SAFE HARBOR STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
   CRITICAL ACCOUNTING POLICIES
   29




---



##### Table of Contents



Summary
    30




---



##### Table of Contents



Financial Condition
 Cash and Cash Equivalents
  Investments
  September 30,
    
    
    December 312010
    
    
    2009U. S. Government Agency obligations
    
    $
    5,018,947
    
    
    $
    5,108,500U. S. Government Agency mortgage-backed
securities
    
    
    40,715,947
    
    
    
    40,503,458Money market preferred equity securities
    
    
    3,129,157
    
    
    
    3,218,023Total Available-for-Sale Securities
    
    $
    48,864,051
    
    
    $
    48,829,981
     31




---



##### Table of Contents



Loans
  September 30,
    
    
    December 31,2010
    
    
    2009Real EstateCommercial
    
    $
    227,884,766
    
    
    $
    230,225,306Residential
    
    
    197,397,155
    
    
    
    195,571,225Construction
    
    
    94,442,079
    
    
    
    154,457,082Construction to permanent
    
    
    10,346,352
    
    
    
    15,989,976Commercial
    
    
    15,996,141
    
    
    
    19,298,505Consumer home equity
    
    
    46,039,426
    
    
    
    44,309,265Consumer installment
    
    
    1,442,051
    
    
    
    1,155,059Total Loans
    
    
    593,547,970
    
    
    
    661,006,418Premiums on purchased loans
    
    
    124,516
    
    
    
    131,993Net deferred loan costs (fees)
    
    
    98,815
    
    
    
    (138,350
    )Allowance for loan losses
    
    
    (17,150,128
    )
    
    
    (15,794,118
    )Loans receivable, net
    
    $
    576,621,173
    
    
    $
    645,205,943
   Allowance for Loan Losses
    32




---



##### Table of Contents



33




---



##### Table of Contents



34




---



##### Table of Contents



Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,(Thousands of dollars)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Balance at beginning of period
    
    $
    13,989
    
    
    $
    16,565
    
    
    $
    15,794
    
    
    $
    16,247Charge-offs
    
    
    (1,917
    )
    
    
    (475
    )
    
    
    (5,095
    )
    
    
    (7,786
    )Recoveries
    
    
    53
    
    
    
    109
    
    
    
    187
    
    
    
    182Net Charge-offs
    
    
    (1,864
    )
    
    
    (366
    )
    
    
    (4,908
    )
    
    
    (7,604
    )Provision charged to operations
    
    
    5,025
    
    
    
    1,453
    
    
    
    6,264
    
    
    
    9,009Balance at end of period
    
    $
    17,150
    
    
    $
    17,652
    
    
    $
    17,150
    
    
    $
    17,652Ratio of net charge-offs during
the period to average loans
outstanding during the period
    
    
    -0.31
    %
    
    
    -0.05
    %
    
    
    -0.78
    %
    
    
    -1.00
    %Ratio of ALLL / Gross Loans
    
    
    2.89
    %
    
    
    2.45
    %
    
    
    2.89
    %
    
    
    2.45
    %
  Non-Accrual, Past Due and Restructured Loans
  September 30,
    
    
    December 31,(Thousands of dollars)
    
    2010
    
    
    2009Loans past due over 90 days
still accruing
    
    $
    7,360
    
    
    $
    3,571Non accruing loans
    
    
    101,534
    
    
    
    113,537Total
    
    $
    108,894
    
    
    $
    117,108% of Total Loans
    
    
    18.34
    %
    
    
    17.72
    %% of Total Assets
    
    
    13.82
    %
    
    
    13.52
    %
  35




---



##### Table of Contents



Potential Problem Loans
   36




---



##### Table of Contents



Other Real Estate Owned
  September 30,
    
    
    December 31,2010
    
    
    2009Construction
    
    $
    6,989,757
    
    
    $
    13,524,597Commercial
    
    
    
    
    
    
    4,934,896Land
    
    
    354,200
    
    
    
    614,500Other real estate owned
    
    $
    7,343,957
    
    
    $
    19,073,993
  Deferred Taxes
   37




---



##### Table of Contents



Deposits
  September 30,
    
    
    December 31,2010
    
    
    2009Non-interest bearing
    
    $
    45,789,946
    
    
    $
    49,755,521Interest bearingNOW
    
    
    20,614,957
    
    
    
    21,581,697Savings
    
    
    57,042,941
    
    
    
    69,766,296Money market
    
    
    106,730,941
    
    
    
    112,017,987Time certificates, less than $100,000
    
    
    273,421,315
    
    
    
    305,719,484Time certificates, $100,000 or more
    
    
    187,367,167
    
    
    
    202,493,307Total interest bearing
    
    
    645,177,321
    
    
    
    711,578,771Total Deposits
    
    $
    690,967,267
    
    
    $
    761,334,292
   38




---



##### Table of Contents



Borrowings
   Capital
  Off-Balance Sheet Arrangements
   39




---



##### Table of Contents



Results of Operations
 Interest and dividend income and expense
  Three months ended September 30,2010
    
    
    2009Interest
    
    
    
    
    
    
    
    
    
    
    InterestAverage
    
    
    Income/
    
    
    Average
    
    
    Average
    
    
    Income/
    
    
    AverageBalance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    Rate(dollars in thousands)Interest earning assets:Loans
    
    $
    604,941
    
    
    $
    7,977
    
    
    
    5.27
    %
    
    $
    725,541
    
    
    $
    9,558
    
    
    
    5.27
    %Investments
    
    
    60,147
    
    
    
    436
    
    
    
    2.90
    %
    
    
    40,217
    
    
    
    340
    
    
    
    3.38
    %Interest bearing deposits in banks
    
    
    81,891
    
    
    
    52
    
    
    
    0.25
    %
    
    
    124,799
    
    
    
    79
    
    
    
    0.25
    %Federal funds sold
    
    
    10,000
    
    
    
    4
    
    
    
    0.16
    %
    
    
    20,652
    
    
    
    7
    
    
    
    0.14
    %Total interest
earning assets
    
    
    756,979
    
    
    
    8,469
    
    
    
    4.48
    %
    
    
    911,209
    
    
    
    9,984
    
    
    
    4.38
    %Cash and due from banks
    
    
    21,001
    
    
    
    
    
    
    
    
    
    
    
    24,058Premises and equipment, net
    
    
    5,639
    
    
    
    
    
    
    
    
    
    
    
    7,043Allowance for loan losses
    
    
    (14,000
    )
    
    
    
    
    
    
    
    
    
    
    (16,655
    )Other assets
    
    
    37,958
    
    
    
    
    
    
    
    
    
    
    
    40,356Total Assets
    
    $
    807,577
    
    
    
    
    
    
    
    
    
    
    $
    966,011Interest bearing liabilities:Deposits
    
    $
    655,696
    
    
    $
    2,765
    
    
    
    1.69
    %
    
    $
    797,511
    
    
    $
    5,400
    
    
    
    2.71
    %FHLB advances
    
    
    50,000
    
    
    
    428
    
    
    
    3.42
    %
    
    
    50,000
    
    
    
    428
    
    
    
    3.43
    %Subordinated debt
    
    
    8,248
    
    
    
    76
    
    
    
    3.69
    %
    
    
    8,248
    
    
    
    77
    
    
    
    3.73
    %Other borrowings
    
    
    7,000
    
    
    
    78
    
    
    
    4.46
    %
    
    
    7,000
    
    
    
    79
    
    
    
    4.51
    %Total interest
bearing liabilities
    
    
    720,944
    
    
    
    3,347
    
    
    
    1.86
    %
    
    
    862,759
    
    
    
    5,984
    
    
    
    2.77
    %Demand deposits
    
    
    50,201
    
    
    
    
    
    
    
    
    
    
    
    47,210Accrued expenses and
other liabilities
    
    
    5,207
    
    
    
    
    
    
    
    
    
    
    
    3,153Shareholders equity
    
    
    31,225
    
    
    
    
    
    
    
    
    
    
    
    52,889Total liabilities and equity
    
    $
    807,577
    
    
    
    
    
    
    
    
    
    
    $
    966,011Net interest income
    
    
    
    
    
    $
    5,122
    
    
    
    
    
    
    
    
    
    
    $
    4,000Interest margin
    
    
    
    
    
    
    
    
    
    
    2.71
    %
    
    
    
    
    
    
    
    
    
    
    1.76
    %Interest spread
    
    
    
    
    
    
    
    
    
    
    2.62
    %
    
    
    
    
    
    
    
    
    
    
    1.61
    %
  40




---



##### Table of Contents



Nine months ended September 30,2010
    
    
    2009Interest
    
    
    
    
    
    
    
    
    
    
    InterestAverage
    
    
    Income/
    
    
    Average
    
    
    Average
    
    
    Income/
    
    
    AverageBalance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    Rate(dollars in thousands)Interest earning assets:Loans
    
    $
    630,899
    
    
    $
    26,012
    
    
    
    5.50
    %
    
    $
    769,932
    
    
    $
    31,949
    
    
    
    5.53
    %Investments
    
    
    65,404
    
    
    
    1,438
    
    
    
    2.93
    %
    
    
    44,099
    
    
    
    1,261
    
    
    
    3.81
    %Interest bearing deposits in
banks
    
    
    55,556
    
    
    
    105
    
    
    
    0.25
    %
    
    
    62,676
    
    
    
    98
    
    
    
    0.21
    %Federal funds sold
    
    
    10,000
    
    
    
    12
    
    
    
    0.16
    %
    
    
    34,791
    
    
    
    34
    
    
    
    0.13
    %Total interest
earning assets
    
    
    761,859
    
    
    
    27,567
    
    
    
    4.82
    %
    
    
    911,498
    
    
    
    33,342
    
    
    
    4.88
    %Cash and due from banks
    
    
    21,059
    
    
    
    
    
    
    
    
    
    
    
    22,312Premises and equipment, net
    
    
    5,935
    
    
    
    
    
    
    
    
    
    
    
    7,353Allowance for loan losses
    
    
    (14,965
    )
    
    
    
    
    
    
    
    
    
    
    (16,695
    )Other assets
    
    
    44,643
    
    
    
    
    
    
    
    
    
    
    
    36,146Total Assets
    
    $
    818,531
    
    
    
    
    
    
    
    
    
    
    $
    960,614Interest bearing liabilities:Deposits
    
    $
    665,732
    
    
    $
    8,831
    
    
    
    1.77
    %
    
    $
    788,080
    
    
    $
    17,649
    
    
    
    2.99
    %FHLB advances
    
    
    50,000
    
    
    
    1,270
    
    
    
    3.39
    %
    
    
    50,004
    
    
    
    1,271
    
    
    
    3.39
    %Subordinated debt
    
    
    8,248
    
    
    
    217
    
    
    
    3.51
    %
    
    
    8,248
    
    
    
    260
    
    
    
    4.20
    %Other borrowings
    
    
    7,000
    
    
    
    231
    
    
    
    4.40
    %
    
    
    7,000
    
    
    
    230
    
    
    
    4.38
    %Total interest
bearing liabilities
    
    
    730,980
    
    
    
    10,549
    
    
    
    1.92
    %
    
    
    853,332
    
    
    
    19,410
    
    
    
    3.03
    %Demand deposits
    
    
    49,590
    
    
    
    
    
    
    
    
    
    
    
    47,039Accrued expenses and
other liabilities
    
    
    4,917
    
    
    
    
    
    
    
    
    
    
    
    3,975Shareholders equity
    
    
    33,044
    
    
    
    
    
    
    
    
    
    
    
    56,268Total liabilities and equity
    
    $
    818,531
    
    
    
    
    
    
    
    
    
    
    $
    960,614Net interest income
    
    
    
    
    
    $
    17,018
    
    
    
    
    
    
    
    
    
    
    $
    13,932Interest margin
    
    
    
    
    
    
    
    
    
    
    2.98
    %
    
    
    
    
    
    
    
    
    
    
    2.04
    %Interest spread
    
    
    
    
    
    
    
    
    
    
    2.90
    %
    
    
    
    
    
    
    
    
    
    
    1.85
    %
  41




---



##### Table of Contents



Three months ended September 30,
    
    
    Nine months ended September 30,2010 vs 2009
    
    
    2010 vs 2009Increase (decrease) in Interest
    
    
    Increase (decrease) in InterestIncome/Expense
    
    
    Income/ExpenseDue to change in:
    
    
    Due to change in:Volume
    
    
    Rate
    
    
    Total
    
    
    Volume
    
    
    Rate
    
    
    Total(dollars in thousands)
    
    
    (dollars in thousands)Interest earning assets:Loans
    
    $
    (1,581
    )
    
    $
    
    
    
    $
    (1,581
    )
    
    $
    (5,734
    )
    
    $
    (203
    )
    
    $
    (5,937
    )Investments
    
    
    150
    
    
    
    (54
    )
    
    
    96
    
    
    
    514
    
    
    
    (337
    )
    
    
    177Interest bearing deposits in banks
    
    
    (27
    )
    
    
    
    
    
    
    (27
    )
    
    
    (7
    )
    
    
    14
    
    
    
    7Federal funds sold
    
    
    (4
    )
    
    
    1
    
    
    
    (3
    )
    
    
    (25
    )
    
    
    3
    
    
    
    (22
    )Total interest
earning assets
    
    
    (1,462
    )
    
    
    (53
    )
    
    
    (1,515
    )
    
    
    (5,252
    )
    
    
    (523
    )
    
    
    (5,775
    )Interest bearing liabilities:Deposits
    
    $
    (846
    )
    
    $
    (1,789
    )
    
    $
    (2,635
    )
    
    $
    (2,432
    )
    
    $
    (6,386
    )
    
    $
    (8,818
    )FHLB advances
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )Subordinated debt
    
    
    
    
    
    
    (1
    )
    
    
    (1
    )
    
    
    
    
    
    
    (43
    )
    
    
    (43
    )Other borrowings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1Total interest
bearing liabilities
    
    
    (846
    )
    
    
    (1,790
    )
    
    
    (2,637
    )
    
    
    (2,433
    )
    
    
    (6,428
    )
    
    
    (8,861
    )Net interest income
    
    $
    (616
    )
    
    $
    1,737
    
    
    $
    1,122
    
    
    $
    (2,819
    )
    
    $
    5,905
    
    
    $
    3,086
   42




---



##### Table of Contents



Provision for Loan Losses
    43




---



##### Table of Contents



Noninterest income
   Noninterest expenses
    44




---



##### Table of Contents



Liquidity
  Capital
  September 30, 2010
    
    
    December 31, 2009Tier 1 Leverage Capital
    
    
    3.92
    %
    
    
    4.72
    %Tier 1 Risk-based Capital
    
    
    6.32
    %
    
    
    7.22
    %Total Risk-based Capital
    
    
    7.73
    %
    
    
    8.58
    %
  September 30, 2010
    
    
    December 31, 2009Tier 1 Leverage Capital
    
    
    3.96
    %
    
    
    4.72
    %Tier 1 Risk-based Capital
    
    
    6.39
    %
    
    
    7.22
    %Total Risk-based Capital
    
    
    7.78
    %
    
    
    8.58
    %
  45




---



##### Table of Contents



IMPACT OF INFLATION AND CHANGING PRICES
   46




---



##### Table of Contents



Item 3: Quantitative and Qualitative Disclosures about Market Risk
  Qualitative Aspects of Market Risk
   Quantitative Aspects of Market Risk
     47




---



##### Table of Contents



September 30, 2010Net Interest Income
    
    
    Net Portfolio ValueProjected Interest
    
    Estimated
    
    
    $ Change
    
    
    % Change
    
    
    Estimated
    
    
    $ Change
    
    
    % ChangeRate Scenario
    
    Value
    
    
    from Base
    
    
    from Base
    
    
    Value
    
    
    from Base
    
    
    from Base+ 200
    
    
    25,553
    
    
    
    32
    
    
    
    0.13
    %
    
    
    26,632
    
    
    
    (1,965
    )
    
    
    -6.87
    %+ 100
    
    
    25,497
    
    
    
    (24
    )
    
    
    -0.09
    %
    
    
    27,721
    
    
    
    (876
    )
    
    
    -3.06
    %BASE
    
    
    25,521
    
    
    
    
    
    
    
    
    
    
    
    28,597- 100
    
    
    26,075
    
    
    
    554
    
    
    
    2.17
    %
    
    
    29,519
    
    
    
    922
    
    
    
    3.23
    %- 200
    
    
    25,121
    
    
    
    (400
    )
    
    
    -1.57
    %
    
    
    32,702
    
    
    
    4,105
    
    
    
    14.36
    %
 December 31, 2009Net Interest Income
    
    
    Net Portfolio ValueProjected Interest
    
    Estimated
    
    
    $ Change
    
    
    % Change
    
    
    Estimated
    
    
    $ Change
    
    
    % ChangeRate Scenario
    
    Value
    
    
    from Base
    
    
    from Base
    
    
    Value
    
    
    from Base
    
    
    from Base+ 200
    
    
    20,750
    
    
    
    925
    
    
    
    4.67
    %
    
    
    49,704
    
    
    
    (4,872
    )
    
    
    -8.93
    %+ 100
    
    
    20,113
    
    
    
    288
    
    
    
    1.45
    %
    
    
    51,762
    
    
    
    (2,814
    )
    
    
    -5.16
    %BASE
    
    
    19,825
    
    
    
    
    
    
    
    
    
    
    
    54,576- 100
    
    
    20,557
    
    
    
    732
    
    
    
    3.69
    %
    
    
    54,945
    
    
    
    369
    
    
    
    0.68
    %- 200
    
    
    20,841
    
    
    
    1,016
    
    
    
    5.12
    %
    
    
    50,525
    
    
    
    (4,051
    )
    
    
    -7.42
    %
  48




---



##### Table of Contents



Item 4: Controls and Procedures
     
 PART II  OTHER INFORMATION
 
 Item 1: Legal Proceedings
   
 Item 1A: Risk Factors
   49




---



##### Table of Contents



Item 6: Exhibits
 No.
    
    Description2
    
    
    Agreement and Plan of Reorganization dated as of
June 28, 1999 between Bancorp and the Bank (incorporated by reference to
Exhibit 2 to Bancorps Current Report on Form 8-K dated
December 1, 1999 (Commission File No. 000-29599)).3
    (i)
    
    Certificate of Incorporation of Bancorp, (incorporated by
reference to Exhibit 3(i) to Bancorps Current Report on Form 8-K dated
December 1, 1999 (Commission File No. 000-29599)).3
    (i)(A)
    
    Certificate of Amendment of Certificate of Incorporation of Patriot
National Bancorp, Inc. dated July 16, 2004 (incorporated by reference to
Exhibit 3(i)(A) to Bancorps Annual Report on Form 10-KSB for the year ended
December 31, 2004 (Commission File No. 000-29599)).3
    (i)(B)
    
    Certificate of Amendment of Certificate of Incorporation of Patriot
National Bancorp, Inc. dated June 15, 2006 (incorporated by reference to
Exhibit 3(i)(B) to Bancorps Quarterly Report of Form 10-Q for the quarter
ended September 30, 2006 (commission File No. 000-29599)).3
    (i)(C)
    
    Certificate of Amendment to the Certificate of Incorporation of
Patriot National Bancorp, Inc., filed with the Secretary of State
of the State of Connecticut on October 6, 2010 (incorporated
by reference to Exhibit 3.1 to Bancorps Current Report on
Form 8-K dated October 20, 2010 (Commission File No. 000-
29599)).3
    (i)(D)
    
    Registration Rights Agreement, dated as of October 15, 2010, by and between
Patriot National Bancorp, Inc. and PNBK Holdings LLC (incorporated by
reference to Exhibit 10.1 to Bancorps Current Report on Form 8-K dated
October 20, 2010 (Commission File No. 000-29599)).3
    (ii)
    
    Amended and Restated By-laws of Bancorp (incorporated by
reference to Exhibit 3.2 to Bancorps Current Report on Form  8-K dated
December 26, 2007 (Commission File No. 1-32007))
  50




---



##### Table of Contents



No.
    
    Description10
    (a)(1)
    
    2001 Stock Appreciation Rights Plan of Bancorp (incorporated by reference
to Exhibit 10(a)(1) to Bancorps Annual Report on Form 10-KSB for the year
ended December 31, 2001 (Commission File No. 000-29599)).10
    (a)(3)
    
    Employment Agreement, dated as of October 23, 2000, as amended by a First
Amendment, dated as of March 21, 2001,
among the Bank, Bancorp and Charles F. Howell (incorporated by
reference to Exhibit 10(a)(4) to Bancorps Annual Report on Form
10-KSB for the year ended December 31, 2000 (Commission File No.
000-29599)).10
    (a)(4)
    
    Change of Control Agreement, dated as of January 1, 2007 among
Angelo De Caro, and Patriot National Bank and Bancorp (incorporated by
reference to Exhibit 10(a)(4) to Bancorps Annual Report on Form 10-K for the
year ended December 31, 2006 (Commission File No. 000-29599)).10
    (a)(5)
    
    Employment Agreement dated as of January 1, 2008 among
Patriot National Bank, Bancorp and Robert F. OConnell
(incorporated by reference to Exhibit 10(a)(5) to Bancorps Annual
Report on Form 10-K for the year ended December 31, 2007 (Commission
File No. 000-29599)).10
    (a)(6)
    
    Change of Control Agreement, dated as of January 1, 2007 among
Robert F. OConnell, Patriot National Bank and Bancorp (incorporated by
reference to Exhibit 10(a)(6) to Bancorps Annual Report on Form 10-K for the
year ended December 31, 2006 (Commission File No. 000-29599)).10
    (a)(9)
    
    License agreement dated July 1, 2003 between Patriot National Bank and L.
Morris Glucksman (incorporated by reference to Exhibit 10(a)(9) to Bancorps
Annual Report on Form 10-KSB for the year ended December 31, 2003 (Commission
File No. 000-29599))10
    (a)(10)
    
    Employment Agreement dated as of January 1, 2007 among Patriot National
Bank, Bancorp and Charles F. Howell (incorporated by reference to Exhibit
10(a)(10) to Bancorps Annual Report on Form 10-K for the year ended
December 31, 2006 (Commission File No. 000-29599)).
  51




---



##### Table of Contents



No.
    
    Description10
    (a)(11)
    
    Change of Control Agreement, dated as of January 1, 2007 among Charles F.
Howell, Patriot National Bank and Bancorp (incorporated by reference to
Exhibit 10(a)(11) to Bancorps Annual Report on Form 10-K for the year ended
December 31, 2006 (Commission File No. 000-29599)).10
    (a)(12)
    
    2005 Director Stock Award Plan (incorporated by reference to Exhibit
10(a)(12) to Bancorps Quarterly Report on Form 10-Q for the quarter ended
June 30, 2006 (Commission File No. 000 - 295999)).10
    (a)(13)
    
    Change of Control Agreement, dated as of January 1, 2007 between Martin
G. Noble and Patriot National Bank (incorporated by reference to Exhibit
10(a)(13) to Bancorps Annual Report on Form 10-K for the year ended
December  31, 2006 (Commission File No. 000-29599)).10
    (a)(14)
    
    Change of Control Agreement, dated as of January 1, 2007 among Philip W.
Wolford, Patriot National Bank and Bancorp (incorporated by reference to
Exhibit 10(a)(14) to Bancorps Annual Report on Form 10-K for the year ended
December 31, 2006 (Commission File No. 000-29599)).10
    (a)(15)
    
    Formal Written Agreement between Patriot National Bank and the Office of
the Comptroller of the Currency (incorporated by reference to Exhibit
10(a)(15) to Bancorps Current Report on Form 8-K dated February 9, 2009
(Commission File No. 000-29599)).10
    (a)(16)
    
    Securities Purchase Agreement by and among Patriot National Bancorp,
Inc., Patriot National Bank and PNBK Holdings LLC dated as of December 16,
2009 (incorporated by reference to Exhibit 10.1 to Bancorps Current Report on
Form 10-K dated December 17, 2009).10
    (a)(17)
    
    First Amendment to Securities Purchase Agreement by and among Patriot
National Bancorp, Inc., Patriot National Bank and PNBK Holdings LLC dated as
of May 3, 2010.10
    (c)
    
    1999 Stock Option Plan of the Bank (incorporated by
reference to Exhibit 10(c) to Bancorps Current Report on Form 8-K dated
December 1, 1999 (Commission File No. 000-29599)).
  52




---



##### Table of Contents



No.
    
    Description14
    
    
    Code of Conduct for Senior Financial Officers (incorporated
by reference to Exhibit 14 to Bancorps Annual Report on Form 10 - KSB for the
year ended December 31, 2004 (Commission File No. 000-29599).21
    
    
    Subsidiaries of Bancorp (incorporated by reference to Exhibit
21 to Bancorps Annual Report on Form 10-KSB for the year ended December 31,
1999 (Commission File No. 000-29599)).31
    (1)
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Executive
Officer31
    (2)
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Financial
Officer32
    
    
    Section 1350 Certifications
  53




---



##### Table of Contents



SIGNATURES
  Patriot National Bancorp, inc.(Registrant)By:
    
    /s/ Robert F. OConnellRobert F. OConnell,Senior Executive Vice PresidentChief Financial Officer(On behalf of the registrant and aschief financial officer)
   54