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 June 30, 2006
            Commission
                file number 000-29599








PATRIOT NATIONAL BANCORP,
                INC.
              (Exact
                name of registrant as specified in its
                charter)





Connecticut
            06-1559137(State
                of incorporation)
            (I.R.S.
                Employer Identification Number)





900
      Bedford Street, Stamford, Connecticut 06901


(Address
      of principal executive offices)





(203)
      324-7500


(Registrant’s
      telephone number)





Check
      whether the registrant (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





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





Yes  No X





Indicate
      by check mark whether the registrant is a large accelerated filer, and
      accelerated filer, or a non-accelerated filer:





Large
      Accelerated Filer ____ Accelerated Filer ____ Non-Accelerated Filer X





State
      the
      number of shares outstanding of each of the registrant’s classes of common
      equity, as of the latest practicable date.





Common
      stock, $2.00 par value per share, 3,239,494 shares issued and outstanding as
      of
      the close of business July 31, 2006.





Transitional
      Disclosure Format (check one): Yes  No X












Table
      of
      Contents





PagePart
                I
            FINANCIAL
                INFORMATIONItem
                1.
            Consolidated
                Financial Statements
            3Item
                2.
            Management’s
                Discussion and Analysis ofFinancial
                Condition and Results of Operations
            20Item
                3.
            Quantitative
                and Qualitative Disclosures about Market Risk
            30Item
                4.
            Controls
                and Procedures
            34Part
                II
            OTHER
                INFORMATIONItem
                1A.
            Risk
                Factors
            34Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            41Item
              4.
            Submission
              of Matters to a Vote of Security Holders
            41Item
                6.
            Exhibits
            42

















2


PART
      I
      - FINANCIAL INFORMATION





**Item
      1.**   **Consolidated
      Financial Statements**




**PATRIOT
      NATIONAL BANCORP, INC**


**CONSOLIDATED
      BALANCE SHEETS**




June
                30,
            
            December
                31,2006
            
            2005(Unaudited)**ASSETS**Cash
                and due from banks
            
            $
            8,541,749
            
            $
            7,220,577Federal
                funds sold
            
            
            13,600,000
            
            
            6,500,000Short
                term investments
            
            
            169,065
            
            
            2,247,028**Cash
                and cash equivalents**
            
            
            **22,310,814**
            
            
            **15,967,605**Available
                for sale securities (at fair value)
            
            
            72,145,704
            
            
            78,672,068Federal
                Reserve Bank stock
            
            
            1,022,950
            
            
            1,022,300Federal
                Home Loan Bank stock
            
            
            2,727,200
            
            
            1,296,700Loans
                receivable (net of allowance for loan losses: 2006
                $5,510,742;2005
                $4,588,335)
            
            
            450,451,755
            
            
            364,243,777Accrued
                interest receivable
            
            
            3,134,204
            
            
            2,445,417Premises
                and equipment
            
            
            2,479,966
            
            
            2,474,153Deferred
                tax asset, net
            
            
            2,842,018
            
            
            2,675,595Goodwill
            
            
            930,091
            
            
            930,091Other
                assets
            
            
            961,343
            
            
            913,456**Total
                assets**
            
            **$**
            **559,006,045**
            
            **$**
            **470,641,162****LIABILITIES
                AND SHAREHOLDERS' EQUITY****Liabilities**Deposits:Noninterest
                bearing deposits
            
            $
            50,892,491
            
            $
            48,797,389Interest
                bearing deposits
            
            
            421,736,219
            
            
            370,277,899**Total
                deposits**
            
            
            **472,628,710**
            
            
            **419,075,288**Federal
                Home Loan Bank borrowings
            
            
            43,000,000
            
            
            9,000,000Junior
                subordinated debt owed to unconsolidated trust
            
            
            8,248,000
            
            
            8,248,000Accrued
                expenses and other liabilities
            
            
            3,394,124
            
            
            2,943,259**Total
                liabilities**
            
            
            **527,270,834**
            
            
            **439,266,547****Shareholders'
                equity**Preferred
                stock: 1,000,000 shares authorized; no shares issuedCommon
                stock, $2 par value: 60,000,000 shares authorized; sharesissued
                and outstanding: 2006 - 3,230,649; 2005 - 3,230,649
            
            
            6,461,298
            
            
            6,461,298Additional
                paid-in capital
            
            
            21,709,224
            
            
            21,709,224Retained
                earnings
            
            
            4,940,372
            
            
            4,308,242Accumulated
                other comprehensive loss - net unrealizedloss
                on available for sale securities, net of taxes
            
            
            (1,375,683
            )
            
            (1,104,149
            )**Total
                shareholders' equity**
            
            
            **31,735,211**
            
            
            **31,374,615****Total
                liabilities and shareholders' equity**
            
            **$**
            **559,006,045**
            
            **$**
            **470,641,162**




See
      accompanying notes to consolidated financial statements.


3


**PATRIOT
      NATIONAL BANCORP, INC.**


**CONSOLIDATED
      STATEMENTS OF INCOME**


**(Unaudited)**
            
            Three
                Months Ended
            
            Six
                Months EndedJune
                30,
            
            June
                30,2006
            
            2005
            
            2006
            
            2005Interest
                and Dividend IncomeInterest
                and fees on loans
            
            $
            8,311,861
            
            $
            4,921,926
            
            $
            15,510,351
            
            $
            9,592,192Interest
                and dividends oninvestment
                securities
            
            
            768,842
            
            
            811,418
            
            
            1,547,669
            
            
            1,668,984Interest
                on federal funds sold
            
            
            71,889
            
            
            75,702
            
            
            134,664
            
            
            142,326**Total
                interest and dividend income**
            
            
            **9,152,592**
            
            
            **5,809,046**
            
            
            **17,192,684**
            
            
            **11,403,502**Interest
                ExpenseInterest
                on deposits
            
            
            3,595,580
            
            
            2,036,184
            
            
            6,681,625
            
            
            4,028,345Interest
                on Federal Home Loan Bankborrowings
            
            
            422,407
            
            
            151,419
            
            
            607,805
            
            
            223,462Interest
                on subordinated debt
            
            
            165,631
            
            
            127,633
            
            
            320,667
            
            
            243,343Interest
                on other borrowings
            
            
            1,844
            
            
            -
            
            
            4,150
            
            
            -**Total
                interest expense**
            
            
            **4,185,462**
            
            
            **2,315,236**
            
            
            **7,614,247**
            
            
            **4,495,150****Net
                interest income**
            
            
            **4,967,130**
            
            
            **3,493,810**
            
            
            **9,578,437**
            
            
            **6,908,352**Provision
                for Loan Losses
            
            
            350,700
            
            
            100,000
            
            
            923,500
            
            
            360,000**Net
                interest income after****provision
                for loan losses**
            
            
            **4,616,430**
            
            
            **3,393,810**
            
            
            **8,654,937**
            
            
            **6,548,352**Noninterest
                IncomeMortgage
                brokerage referral fees
            
            
            312,832
            
            
            511,658
            
            
            679,638
            
            
            975,457Loan
                processing fees
            
            
            86,633
            
            
            104,812
            
            
            153,850
            
            
            183,343Fees
                and service charges
            
            
            143,211
            
            
            156,481
            
            
            288,410
            
            
            284,402Other
                income
            
            
            38,653
            
            
            47,930
            
            
            89,696
            
            
            88,693**Total
                noninterest income**
            
            
            **581,329**
            
            
            **820,881**
            
            
            **1,211,594**
            
            
            **1,531,895**Noninterest
                ExpensesSalaries
                and benefits
            
            
            2,600,207
            
            
            2,209,904
            
            
            4,913,779
            
            
            4,258,896Occupancy
                and equipment expenses, net
            
            
            689,470
            
            
            492,102
            
            
            1,335,574
            
            
            985,316Data
                processing and other outside services
            
            
            383,975
            
            
            244,027
            
            
            807,265
            
            
            484,267Professional
                services
            
            
            119,385
            
            
            127,581
            
            
            247,958
            
            
            263,292Advertising
                and promotional expenses
            
            
            150,826
            
            
            113,388
            
            
            295,866
            
            
            223,748Loan
                administration and processing expenses
            
            
            49,996
            
            
            61,342
            
            
            80,473
            
            
            105,673Other
                noninterest expenses
            
            
            401,108
            
            
            376,251
            
            
            752,881
            
            
            686,779**Total
                noninterest expenses**
            
            
            **4,394,967**
            
            
            **3,624,595**
            
            
            **8,433,796**
            
            
            **7,007,971****Income
                before income taxes**
            
            
            **802,792**
            
            
            **590,096**
            
            
            **1,432,735**
            
            
            **1,072,276**Provision
                for Income Taxes
            
            
            295,000
            
            
            239,000
            
            
            526,000
            
            
            434,000**Net
                income**
            
            **$**
            **507,792**
            
            **$**
            **351,096**
            
            **$**
            **906,735**
            
            **$**
            **638,276****Basic
                income per share**
            
            **$**
            **0.16**
            
            **$**
            **0.14**
            
            **$**
            **0.28**
            
            **$**
            **0.26****Diluted
                income per share**
            
            **$**
            **0.16**
            
            **$**
            **0.14**
            
            **$**
            **0.28**
            
            **$**
            **0.25****Dividends
                per share**
            
            **$**
            **0.045**
            
            **$**
            **0.030**
            
            **$**
            **0.085**
            
            **$**
            **0.075**





See
      accompanying notes to consolidated financial statements.


4


**PATRIOT
      NATIONAL BANCORP, INC**


**CONSOLIDATED
      STATEMENTS OF COMPREHENSIVE INCOME (LOSS)**


**(Unaudited)**





Three
                Months Ended
            
            Six
                Months EndedJune
                30,
            
            June
                30,2006
            
            2005
            
            2006
            
            2005Net
                income
            
            $
            507,792
            
            $
            351,096
            
            $
            906,735
            
            $
            638,276Unrealized
                holding gains (losses) on securities:Unrealized
                holding gains (losses) arisingduring
                the period, net of taxes
            
            
            (167,510
            )
            
            359,644
            
            
            (271,534
            )
            
            (176,789
            )**Comprehensive
                income**
            
            **$**
            **340,282**
            
            **$**
            **710,740**
            
            **$**
            **635,201**
            
            **$**
            **461,487**














































































See
      accompanying notes to consolidated financial statements.


5


**PATRIOT
      NATIONAL BANCORP, INC.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(Unaudited)**





Six
                Months EndedJune
                30,2006
            
            2005Cash
                Flows from Operating ActivitiesNet
                income
            
            $
            906,735
            
            $
            638,276Adjustments
                to reconcile net income to net cashprovided
                by operating activities:Amortization
                and accretion of investment premiums and discounts, net
            
            
            103,291
            
            
            190,193Provision
                for loan losses
            
            
            923,500
            
            
            360,000Depreciation
                and amortization
            
            
            310,659
            
            
            283,337Changes
                in assets and liabilities:Increase
                (decrease) in deferred loan fees
            
            
            415,593
            
            
            (72,531
            )Increase
                in accrued interest receivable
            
            
            (688,787
            )
            
            (190,286
            )Increase
                in other assets
            
            
            (47,887
            )
            
            (185,966
            )Increase
                in accrued expenses and other liabilities
            
            
            434,712
            
            
            91,215**Net
                cash provided by operating activities**
            
            
            **2,357,816**
            
            
            **1,114,238**Cash
                Flows from Investing ActivitiesPurchases
                of available for sale securities
            
            
            -
            
            
            (19,243,381
            )Principal
                repayments on available for sale securities
            
            
            5,985,116
            
            
            10,225,465Proceeds
                from maturities of available for sale securities
            
            
            -
            
            
            1,000,000Purchase
                of Federal Reserve Bank Stock
            
            
            (650
            )
            
            (600
            )Purchase
                of Federal Home Loan Bank Stock
            
            
            (1,430,500
            )
            
            -Net
                increase in loans
            
            
            (87,547,071
            )
            
            (37,072,576
            )Purchases
                of premises and equipment
            
            
            (316,472
            )
            
            (642,593
            )**Net
                cash used in investing activities**
            
            
            **(83,309,577**
            **)**
            
            **(45,733,685**
            **)**Cash
                Flows from Financing ActivitiesNet
                increase (decrease) in demand, savings and money market
                deposits
            
            
            3,432,825
            
            
            (5,278,673
            )Net
                increase in time certificates of deposits
            
            
            50,120,597
            
            
            5,555,699Proceeds
                from FHLB borrowings
            
            
            54,718,000
            
            
            31,001,000Principal
                repayments of FHLB borrowings
            
            
            (20,718,000
            )
            
            (21,001,000
            )Dividends
                paid on common stock
            
            
            (258,452
            )
            
            (174,153
            )Proceeds
                from issuance of common stock
            
            
            -
            
            
            30,330**Net
                cash provided by financing activities**
            
            
            **87,294,970**
            
            
            **10,133,203****Net
                increase (decrease) in cash and cash equivalents**
            
            
            **6,343,209**
            
            
            **(34,486,244**
            **)**Cash
                and cash equivalentsBeginning
            
            
            15,967,605
            
            
            55,630,466Ending
            
            $
            22,310,814
            
            $
            21,144,222




6


**PATRIOT
      NATIONAL BANCORP, INC.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS, Continued**


**(Unaudited)**





Six
                Months EndedJune
                30,2006
            
            2005Supplemental
                Disclosures of Cash Flow InformationCash
                paid for:Interest
            
            $
            7,485,125
            
            $
            4,484,662Income
                Taxes
            
            $
            934,020
            
            $
            487,941Supplemental
                disclosure of noncash investing and financing activities:Unrealized
                holding loss on available for salesecurities
                arising during the period
            
            $
            (437,957
            )
            $
            (285,144
            )Accrued
                dividends declared on common stock
            
            $
            145,379
            
            $
            99,576





















See
      accompanying notes to consolidated financial statements.


7


**PATRIOT
      NATIONAL BANCORP, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**





**Note
      1.**   **Basis
      of Financial Statement Presentation**





The
      Consolidated Balance Sheet at December 31, 2005 has been derived from
      the audited financial statements of Patriot National Bancorp, Inc. (“Bancorp”)
      at that date, but does not include all of the information and footnotes required
      by accounting principles generally accepted in the United States of America
      for
      complete financial statements.





The
      accompanying unaudited financial statements and related notes have been prepared
      pursuant to the rules and regulations of the Securities and Exchange Commission.
      Accordingly, certain information and footnote disclosures normally included
      in
      financial statements prepared in accordance with accounting principles generally
      accepted in the United States of America have been omitted. The accompanying
      consolidated financial statements and related notes should be read in
      conjunction with the audited financial statements of Bancorp and notes thereto
      for the year ended December 31, 2005.





The
      information furnished reflects, in the opinion of management, all normal
      recurring adjustments necessary for a fair presentation of the results for
      the
      interim periods presented. The results of operations for the three and six
      months ended June 30, 2006 are not necessarily indicative of the results of
      operations that may be expected for the remaining quarters of 2006.





Certain
      2005 amounts have been reclassified to conform to the 2006 presentation. Such
      reclassifications had no effect on net income.





**Note
      2.**   **Investments**





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




June
                30,
            
            December
                31,2006
            
            2005U.
                S. Government Agency andsponsored
                agency obligations
            
            $
            16,317,613
            
            $
            16,476,684Mortgage-backed
                securities
            
            
            49,828,091
            
            
            56,195,384Money
                market preferredequity
                securities
            
            
            6,000,000
            
            
            6,000,000Total
                Available For Sale Securities
            
            $
            72,145,704
            
            $
            78,672,068




8


The
        amortized cost, gross unrealized gains, gross unrealized losses and fair
        values
        of available for sale securities at June 30, 2006 are as
        follows:





Gross
            
            GrossAmortized
            
            Unrealized
            
            Unrealized
            
            FairCost
            
            Gains
            
            Losses
            
            ValueU.S.
                Government Agency andsponsored
                agency obligations
            
            $
            16,999,543
            
            $
            -
            
            $
            (681,930
            )
            $
            16,317,613Mortgage-backed
                securities
            
            
            51,365,004
            
            
            403
            
            
            (1,537,316
            )
            
            49,828,091Money
                market preferredequity
                securities
            
            
            6,000,000
            
            
            -
            
            
            -
            
            
            6,000,000$
            74,364,547
            
            $
            403
            
            $
            (2,219,246
            )
            $
            72,145,704





At
      June 30, 2006, gross unrealized holding gains and gross unrealized
      holding losses on available for sale securities totaled $403 and
      $2.2 million respectively. Of the securities with unrealized losses, there
      are eight U. S. Government agency or sponsored agency obligations and 26
      mortgage-backed securities that have unrealized losses for a period in excess
      of
      twelve months with a combined current unrealized loss of $2.0 million.
      Management does not believe that any of the unrealized losses are other than
      temporary since they are the result of changes in the interest rate environment
      and they relate to debt and mortgage-backed securities issued by U. S.
      Government and U.S. Government sponsored agencies. Bancorp has the ability
      to
      hold these securities to maturity if necessary and expects to receive all
      contractual principal and interest related to these investments. As a result,
      management believes that these unrealized losses will not have a negative impact
      on future earnings or a permanent negative effect on capital.





**Note
      3.**  **Loans**





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





June 30,
            
            December
                31,2006
            
            2005Real
                EstateCommercial
            
            $
            154,149,494
            
            $
            129,178,889Residential
            
            
            94,409,384
            
            
            77,391,833Construction
            
            
            165,888,865
            
            
            107,232,587Commercial
            
            
            15,762,617
            
            
            15,591,818Consumer
                installment
            
            
            1,349,051
            
            
            1,106,648Consumer
                home equity
            
            
            25,637,414
            
            
            39,097,450Total
                Loans
            
            
            457,196,825
            
            
            369,599,225Premiums
                on purchased loans
            
            
            315,869
            
            
            367,491Net
                deferred fees
            
            
            (1,550,197
            )
            
            (1,134,604
            )Allowance
                for loan losses
            
            
            (5,510,742
            )
            
            (4,588,335
            )Total
                Loans
            
            $
            450,451,755
            
            $
            364,243,777




9


**Analysis
      of Allowance for Loan Losses**





The
      changes in the allowance for loan losses for the periods shown are as
      follows:





Three
                Months EndedJune
                30,*(Thousands
                of dollars)*
            
            2006
            
            2005Balance
                at beginning of period
            
            $
            5,161
            
            $
            3,741Charge-offs
            
            
            (1
            )
            
            -Recoveries
            
            
            -
            
            
            -Net
                (charge-offs) recoveries
            
            
            (1
            )
            
            -Provision
                charged to operations
            
            
            351
            
            
            100Balance
                at end of period
            
            $
            5,511
            
            $
            3,841Ratio
                of net (charge-offs) recoveriesduring
                the period to average loansoutstanding
                during the period.
            
            
            (0.00
            %)
            
            0.00
            %






Six
                Months EndedJune
                30,*(Thousands
                of dollars)*
            
            2006
            
            2005Balance
                at beginning of period
            
            $
            4,588
            
            $
            3,481Charge-offs
            
            
            (1
            )
            
            -Recoveries
            
            
            -
            
            
            -Net
                (charge-offs) recoveries
            
            
            (1
            )
            
            -Provision
                charged to operations
            
            
            924
            
            
            360Balance
                at end of period
            
            $
            5,511
            
            $
            3,841Ratio
                of net (charge-offs) recoveriesduring
                the period to average loansoutstanding
                during the period.
            
            
            (0.00
            %)
            
            0.00
            %


10


**Note
        4.**  **Deposits**





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





June 30,
            
            December
                31,2006
            
            2005Noninterest
                bearing
            
            $
            50,892,491
            
            $
            48,797,389Interest
                bearingNOW
            
            
            33,608,829
            
            
            25,383,234Savings
            
            
            25,206,094
            
            
            20,089,889Money
                market
            
            
            45,794,695
            
            
            57,798,772Time
                certificates, less than $100,000
            
            
            196,085,934
            
            
            168,565,756Time
                certificates, $100,000 or more
            
            
            121,040,667
            
            
            98,440,248Total
                interest bearing
            
            
            421,736,219
            
            
            370,277,899Total
                Deposits
            
            $
            472,628,710
            
            $
            419,075,288





**Note
      5.**  **Borrowings**





In
      addition to the outstanding borrowings disclosed in the consolidated balance
      sheet, the Bank has the ability to borrow approximately $73.5 million in
      additional advances from the Federal Home Loan Bank of Boston which includes
      a
      $2.0 million overnight line of credit. The Bank also has arranged a $3.0 million
      overnight line of credit from a correspondent bank and $10.0 million under
      a repurchase agreement; no amounts were outstanding under these two arrangements
      at June 30, 2006.





**Note
      6.**  **Income
      per share**





Bancorp
      is required to present basic income per share and diluted income per share
      in
      its income statements. Basic income per share amounts are computed by dividing
      net income by the weighted average number of common shares outstanding. Diluted
      income per share reflects additional common shares that would have been
      outstanding if potential dilutive common shares had been issued, as well as
      any
      adjustment to income that would result from the assumed issuance. Potential
      common shares that may be issued by Bancorp relate to outstanding stock options
      and are determined using the treasury stock method. Bancorp is also required
      to
      provide a reconciliation of the numerator and denominator used in the
      computation of both basic and diluted income per share. The following is
      information about the computation of income per share for the three and six
      months ended June 30, 2006 and 2005.




11
 Quarter
        ended June 30, 2006





Net
                Income
            
            Shares
            
            AmountBasic
                Income Per ShareIncome
                available to common shareholders
            
            $
            507,792
            
            
            3,230,649
            
            $
            0.16Effect
                of Dilutive SecuritiesWarrants/Stock
                Options outstanding
            
            
            -
            
            
            28,668
            
            
            -Diluted
                Income Per ShareIncome
                available to common shareholdersplus
                assumed conversions
            
            $
            507,792
            
            
            3,259,317
            
            $
            0.16




Quarter
      ended June 30, 2005





Net
                Income
            
            Shares
            
            AmountBasic
                Income Per ShareIncome
                available to common shareholders
            
            $
            351,096
            
            
            2,489,391
            
            $
            0.14Effect
                of Dilutive SecuritiesWarrants/Stock
                Options outstanding
            
            
            -
            
            
            50,364
            
            
            -Diluted
                Income Per ShareIncome
                available to common shareholdersplus
                assumed conversions
            
            $
            351,096
            
            
            2,539,755
            
            $
            0.14






Six
      months ended June 30, 2006





Net
                Income
            
            Shares
            
            AmountBasic
                Income Per ShareIncome
                available to common shareholders
            
            $
            906,735
            
            
            3,230,649
            
            $
            0.28Effect
                of Dilutive SecuritiesWarrants/Stock
                Options outstanding
            
            
            -
            
            
            26,700
            
            
            -Diluted
                Income Per ShareIncome
                available to common shareholdersplus
                assumed conversions
            
            $
            906,735
            
            
            3,257,349
            
            $
            0.28






Six
      months ended June 30, 2005





Net
                Income
            
            Shares
            
            AmountBasic
                Income Per ShareIncome
                available to common shareholders
            
            $
            638,276
            
            
            2,488,247
            
            $
            0.26Effect
                of Dilutive SecuritiesWarrants/Stock
                Options outstanding
            
            
            -
            
            
            48,886
            
            
            (0.01
            )Diluted
                Income Per ShareIncome
                available to common shareholdersplus
                assumed conversions
            
            $
            638,276
            
            
            2,537,133
            
            $
            0.25


12


**Note
      7.**  **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:





Three
                Months Ended
              June
                30, 2006
            
            Six
                Months Ended
              June
                30, 2006Before
                Tax
              Amount
            
            Tax
              Effect
            
            Net
                of Tax
              Amount
            
            Before
                Tax
              Amount
            
            Tax
              Effect
            
            Net
                of Tax
              AmountUnrealized
                holding lossarising
                during the period
            
            $
            (270,177
            )
            $
            102,667
            
            $
            (167,510
            )
            $
            (437,957
            )
            $
            166,423
            
            $
            (271,534
            )Reclassification
                adjustmentfor
                gains recognized in income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Unrealized
                holding loss onavailable
                for sale securities,net
                of taxes
            
            $
            (270,177
            )
            $
            102,667
            
            $
            (167,510
            )
            $
            (437,957
            )
            $
            166,423
            
            $
            (271,534
            )





Three
                Months Ended
              June
                30, 2005
            
            Six
                Months Ended
              June
                30, 2005Before
                Tax
              Amount
            
            Tax
              Effect
            
            Net
                of Tax
              Amount
            
            Before
                Tax
              Amount
            
            Tax
              Effect
            
            Net
                of Tax AmountUnrealized
                holding gain (loss)arising
                during the period
            
            $
            580,071
            
            $
            (220,427
            )
            $
            359,644
            
            $
            (285,144
            )
            $
            108,355
            
            $
            (176,789
            )Reclassification
                adjustmentfor
                gains recognized in income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Unrealized
                holding gain (loss)on
                available for sale securities,net
                of taxes
            
            $
            580,071
            
            $
            (220,427
            )
            $
            359,644
            
            $
            (285,144
            )
            $
            108,355
            
            $
            (176,789
            )








**Note
      8.**  **Financial
      Instruments with Off-Balance Sheet Risk**





In
      the
      normal course of business, Bancorp 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 Bancorp 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. Bancorp 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 Bancorp controls the credit risk of these
      financial instruments through credit approvals, credit limits, monitoring
      procedures and the receipt of collateral as deemed necessary.


13


Financial
      instruments whose contract amounts represent credit risk are as follows at
      June 30, 2006:





Commitments
                to extend credit:Future
                loan commitments
            
            
            $ 
                  46,792,997Unused
                lines of credit
            
            
            44,465,780Undisbursed
                construction loans
            
            
            74,627,582Financial
                standby letters of credit
            
            
            264,483$ 166,150,842





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 Bancorp 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 Bancorp 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. Newly issued or modified guarantees that are not
      derivative contracts are recorded on Bancorp’s consolidated balance sheet at the
      fair value at inception. No liability related to guarantees was required to
      be
      recorded at June 30, 2006.





**Note
      9.**  **Stock
      Based Compensation**





In
      December 2004, the Financial Accounting Standards Board issued Statement of
      Financial Accounting Standards (SFAS) No. 123R, “Share-Based Payment” (SFAS
      123R). Under SFAS 123R, companies are no longer permitted to account for
      share-based compensation transactions using the intrinsic value method in
      accordance with APB Opinion No. 25 whereby compensation cost charged to expense,
      if any, was the excess of the quoted market price of the stock at the grant
      date
      (or other measurement date) over the amount an employee would pay to acquire
      the
      stock. Instead, under SFAS 123R companies are required to account for such
      transactions using a fair-value method and recognize the expense in the
      consolidated statements of income. This statement applies to all awards granted,
      modified, repurchased or cancelled after the required effective
      date.





The
      Company adopted SFAS 123R, effective January 1, 2006, using the modified
      prospective transition method; this may impact the amount of compensation
      expense recorded in future financial statements if the Company grants
      share-based compensation to employees or directors in the future.


14


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 were granted, and subsequently the Company assumed all obligations
      related to such options. The Plan 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 the grant. Such options were immediately exercisable and expire
      if unexercised ten years after the date of the grant. The Company has reserved
      73,000 shares of common stock remaining for issuance under the Plan. No
      additional options may be granted under the Plan.





A
      summary
      of the status of the stock options at June 30, 2006 and 2005 is as
      follows:





WeightedWeighted
            
            AverageAverage
            
            RemainingNumber
            
            Exercise
            
            Contractualof
                shares
            
            Price
            
            Life
                (in years)June
                30, 2006Outstanding,
                January 1, 2006
            
            
            73,000
            
            
            $ 
                  10.13
            
            
            3.7Exercised
            
            
            -Outstanding,
                June 30, 2006
            
            
            73,000
            
            
            10.13
            
            
            3.2Exercisable
                at June 30, 2006
            
            
            73,000
            
            
            10.13
            
            
            3.2June
                30, 2005Outstanding,
                January 1, 2005
            
            
            110,000
            
            
            $ 
                  10.13
            
            
            4.7Exercised
            
            
            3,000
            
            
            10.11Outstanding,
                June 30, 2005
            
            
            107,000
            
            
            10.13
            
            
            4.2Exercisable
                at June 30, 2005
            
            
            107,000
            
            
            10.13
            
            
            4.2





The
      intrinsic value of options outstanding and exercisable at June 30, 2006 and
      2005
      was $1,333,491 and $964,819, respectively. There were no options exercised
      during the six months ended June 30, 2006. The intrinsic value of options
      exercised during the six months ended June 30, 2005 was $24,663. There are
      no
      pro forma disclosures required for the six months ended June 20, 2006 and 2005,
      because there was no compensation expense attributed to these periods as no
      awards were granted or vested under this Plan during these periods.


15


The
      provisions of SFAS 123R have had no impact on existing plans under the
      employment agreements discussed below:





President’s
      Agreement





Under
      the
      terms of a previous employment agreement, which expired on October 23, 2003
      (“the Agreement”) between the Company and the President, the Agreement provided
      that the Company grants 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 was based on 30% of the President’s base
      salary for the preceding annual employment period. Compensation costs for grants
      through 2002 were recognized over the period ending with the expiration date
      of
      the Agreement and compensation cost for the 2003 grant is being recognized
      over
      the term of his current employment agreement. This stock grant has been
      settled in cash in each year from 2001 through 2005 and is anticipated to settle
      in cash until fully settled. The expense charged to operations related to this
      component of the Agreement was $16,794 and $6,813, respectively, for the three
      months ended June 30, 2006 and 2005, respectively, and $29,376 and $13,626,
      respectively, for the six months ended June 30, 2006 and 2005,
      respectively.





The
      Agreement also provided 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 31, 2003. In the event that the
      Company did not have stock options available to grant at any of
      these dates, which was the case at December 31, 2000, 2001, 2002
      and 2003, the President was able to elect, on a future determination date,
      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. The expense charged to operations for the option component
      of the Agreement was $44,562 and $18,885, respectively, for the three months
      ended June 30, 2006 and 2005, respectively, and $71,625 and $37,770,
      respectively, for the six months ended June 30, 2006 and 2005,
      respectively.





Stock
      Appreciation Rights Plan





During
      2001, the Company adopted the Patriot National Bancorp, Inc. 2001 Stock
      Appreciation Rights Plan (the “SAR Plan”), providing for the grant by
      the Company of stock appreciation rights to officers of the
      Company.  Stock appreciation rights entitle the officers to receive,
      in cash or Company common stock, the appreciation in value of the Company’s
      common stock from the date of the grant. Each award vests at the rate of 20%
      per
      year from the date of the grant. Any unexercised rights will expire ten years
      from the date of grant. During 2001, the Company granted 18,000 stock
      appreciation rights to three officers. The expense charged to operations
      under the SAR Plan was $48,084 and $14,535, respectively, for the three months
      ended June 30, 2006 and 2005, respectively,


16


and
      $66,984 and $29,070, respectively, for the six months ended June 30, 2006
      and 2005, respectively.




**Note
      10.** **Segment
      Reporting**





Bancorp
      provides its commercial customers with products such as commercial mortgage
      and
      construction 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. Bancorp
      also attracts deposits from both consumer and commercial customers, and invests
      such deposits in loans, investments and working capital. Revenues are generated
      primarily from net interest income from lending, investment and deposit
      activities. Additional revenues are derived from loan brokerage and application
      processing fees through the solicitation and processing of conventional mortgage
      loans, deposit account transaction based fees and service charges and other
      loan
      origination and processing fees.





Bancorp’s
      loan and deposit customers are primarily residents and businesses located in
      the
      Connecticut communities in which Bancorp has branches, as well as, in bordering
      communities. Its lending customers extend beyond these areas and also include
      other nonadjacent towns in Fairfield County, Connecticut and towns in
      Westchester County, New York.





Bancorp’s
      customer base is diversified. There is not a concentration of either loans
      or
      deposits from a single person or groups of individuals or within a single
      industry or groups of industries. Bancorp is not dependent on one or a few
      significant customers for either its loan or deposit activities, the loss of
      any
      one of which would have a material adverse impact on its business.





Prior
      to
      April 1, 2006, Bancorp had two reportable segments: commercial banking
      and mortgage brokerage activities. The operations of the mortgage broker have
      been fully integrated into the operations of the commercial bank. The activities
      of the former mortgage broker segment have expanded to include the products
      and
      services of the former commercial banking segment and developed such that they
      are indistinguishable from the lending activities of the commercial bank. Any
      such separate financial disclosures would be consistent with those presented
      in
      the financial statements.





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





Certain
      statements contained in Bancorp’s public reports, including this report, and in
      particular in this "Management's Discussion and Analysis of Financial Condition
      and Results of Operation," may be forward looking and subject to a variety
      of
      risks and uncertainties. These factors include, but are not limited to,
      (1) changes in prevailing interest rates which would affect the interest
      earned on Bancorp's interest earning assets


17


and
      the
      interest paid on its interest bearing liabilities, (2) the timing of
      repricing of Bancorp's interest earning assets and interest bearing liabilities,
      (3) the effect of changes in
      governmental monetary policy, (4) the effect of changes in regulations
      applicable to Bancorp and the conduct of its business, (5) changes in
      competition among financial services companies, including possible further
      encroachment of non-banks on services traditionally provided by banks,
      (6) the ability of competitors that are larger than Bancorp to provide
      products and services that are impracticable for Bancorp to provide,
      (7) the effects of Bancorp's opening of branches, including a new branch in
      New York State, (8) the effect of any decision by Bancorp to engage in any
      new business activities and (9) the ability of Bancorp to timely and
      successfully deploy the capital raised in the 2005 Rights Offering and any
      future offerings. Other such factors may be described in Bancorp's future
      filings with the SEC.





**CRITICAL
      ACCOUNTING POLICIES**





The
      preparation of the consolidated financial statements in accordance with
      accounting principles generally accepted in the United States of America
      requires management to make estimates and assumptions that affect the reported
      amounts of assets, liabilities, revenues and expenses and the disclosure of
      contingent assets and liabilities. A material estimate that is particularly
      susceptible to significant near-term change relates to the determination of
      the
      allowance for loan losses. Actual results could differ significantly from those
      estimates under different assumptions and conditions. The Company believes
      the
      following discussion addresses Bancorp’s only critical accounting policy, which
      is the policy that is most important to the presentation of Bancorp’s financial
      results. This policy requires management’s most difficult, subjective and
      complex judgments, often as a result of the need to make estimates about the
      effect of matters that are inherently uncertain.





***Allowance
      for Loan Losses***





The
      allowance for loan losses is established as losses are estimated to have
      occurred through a provision for loan losses charged to earnings. Loan losses
      are charged against the allowance when management believes the uncollectibility
      of a loan balance is confirmed. Subsequent recoveries, if any, are credited
      to
      the allowance.





The
      allowance for loan losses is evaluated on a regular basis by management and
      is
      based upon management’s periodic review of the collectibility of the loans in
      light of historical experience, the nature and volume of the loan portfolio,
      adverse situations that may affect the borrower’s ability to repay,
      estimated value of any underlying collateral and prevailing economic conditions.
      This evaluation is inherently subjective as it requires estimates that are
      susceptible to significant revision as more information becomes available.





The
      allowance consists of specific, general and unallocated components. The specific
      component relates to loans that are considered impaired. A risk rating system
      is
      utilized to


18


measure
      the adequacy of the general component of the allowance for loan losses. Under
      this system, each loan is assigned a risk rating between one and nine, which
      has
      a corresponding
      loan loss factor assigned, with a rating of “one” being the least risk and a
      rating of “nine” reflecting the most risk or a complete loss. Risk ratings are
      assigned based upon the recommendations of the credit analyst and originating
      loan officer and confirmed by the loan committee at the initiation of the
      transactions and are reviewed and changed, when necessary, during the life
      of
      the loan. Loan loss reserve factors are multiplied against the balances in
      each
      risk rating category to arrive at the appropriate level for the allowance for
      loan losses. Loans assigned a risk rating of “six” or above are monitored more
      closely by the credit administration officers. The unallocated portion of the
      allowance reflects management’s estimate of probable but undetected losses
      inherent in the portfolio; such estimates are influenced by uncertainties in
      economic conditions, delays in obtaining information, including unfavorable
      information about a borrower’s financial condition, difficulty in identifying
      triggering events that correlate perfectly to subsequent loss rates, and risk
      factors that have not yet manifested themselves in loss allocation factors.
      Loan
      quality control is continually monitored by management subject to oversight
      by
      the board of directors through its members who serve on the loan committee.
      It
      is also reviewed by the full board of directors on a monthly basis. The
      methodology for determining the adequacy of the allowance for loan losses is
      consistently applied; however, revisions may be made to the methodology and
      assumptions based on historical information related to charge-off and recovery
      experience and management’s evaluation of the current loan
      portfolio.

























19


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





**SUMMARY**





Bancorp’s
      net income of $508,000 ($0.16 basic and diluted income per share) for the
      quarter ended June 30, 2006 represents an increase of $157,000, or
      45%, as compared to net income of $351,000 ($0.14 basic and diluted income
      per
      share) for the quarter ended June 30, 2005. For the six-month period
      ended June 30, 2006, net income of $907,000 ($0.28 basic and diluted
      income per share) represents an increase of $269,000, or 42%, as compared to
      net
      income of $638,000 ($0.26 basic income per share and $0.25 diluted income per
      share) for the six months ended June 30, 2005.





Total
      assets increased $88.4 million from $470.6 million at December 31, 2005 to
      $559.0 million at June 30, 2006. Cash and cash equivalents
      increased $6.3 million to $22.3 million at June 30, 2006 as
      compared to $16.0 million at December 31, 2005. The available for sale
      securities portfolio decreased $6.6 million to $72.1 million at
      June 30, 2006 from $78.7 million at December 31, 2005. The net loan
      portfolio increased $86.3 million from $364.2 million at December 31, 2005
      to $450.5 million at June 30, 2006. Deposits increased
      $53.5 million to $472.6  million
      at June 30, 2006 from $419.1 million at December 31, 2005.
      Borrowings increased $34.0 million from $17.2 million at
      December 31, 2005 to $51.2 million at
      June 30, 2006.





**FINANCIAL
      CONDITION**





***Assets***





Bancorp’s
      total assets increased $88.4 million, or 19%, from $470.6 million at
      December 31, 2005 to $559.0 million at June 30, 2006. The
      growth in the balance sheet was funded by an increase in both deposits and
      borrowings as discussed below. Cash and cash equivalents increased $6.3 million,
      or 40%, to $22.3 million at June 30, 2006 as compared to
      $16.0 million at December 31, 2005. Cash and due from banks and
      federal funds sold increased $1.3 million and $7.1 million,
      respectively, while short term investments decreased
      $2.1 million.





***Investments***





Available
      for sale securities decreased $6.6 million, or 8%, from $78.7 million
      at December 31, 2005 to $72.1 million at June 30, 2006.
      The decrease in the portfolio is due to principal payments on mortgage-backed
      securities.


20


***Loans***





Bancorp’s
      net loan portfolio increased $86.3 million, or 24%, from
      $364.2 million at December 31, 2005 to $450.5 million at
      June 30, 2006 primarily due to an increase in construction
      loans of $58.7 million, an increase in commercial real estate loans of
      $25.0 million and an increase in residential real estate loans of
      $17.0 million, all of which increases resulted directly from our strategy
      to expand these loan categories in our total loan portfolio, partially offset
      by
      a decrease in home equity loans of $13.5 million. Although short term
      interest rates have increased, the growth in loans reflects the continued strong
      real estate markets in the Fairfield County, Connecticut and Westchester County,
      New York areas where the Bank primarily conducts its lending
      business.





At
      June 30, 2006, the net loan to deposit ratio was 95% and the net loan
      to total assets ratio was 81%. At December 31, 2005, the net loan to deposit
      ratio was 87% and the net loan to total assets ratio was 77%. Based on loan
      applications in process and the recent and planned hiring of additional loan
      officers, management anticipates continued loan growth during the remainder
      of
      2006.





***Allowance
      for Loan Losses***





Management
      believes the allowance for loan losses of $5.5 million at
      June 30, 2006, which represents 1.21% of gross loans outstanding, is
      adequate, under prevailing economic conditions, to absorb losses on existing
      loans. At December 31, 2005, the allowance for loan losses was
      $4.6 million or 1.25% of gross loans outstanding.





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





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





June
                30,
            
            December
                31,*(Thousands
                of dollars)*
            
            2006
            
            2005Loans
                delinquent over 90days
                still accruing
            
            $
            734
            
            $
            275Non-accruing
                loans
            
            
            4,462
            
            
            1,935Total
            
            $
            5,196
            
            $
            2,210%
                of Total Loans
            
            
            1.14
            %
            
            0.60
            %%
                of Total Assets
            
            
            0.93
            %
            
            0.47
            %





***Potential
      Problem Loans***





The
      $4.5
      million in non-accruing loans at June 30, 2006 was comprised of
      three loans. One loan in the amount of $1.1 million matured in
      June 2005. The borrower has


21


continued
      to make principal and interest payments on this loan. However, the
      borrower is currently in bankruptcy proceedings. The Bank expects that the
      borrower will seek other financing upon emerging from bankruptcy which is
      anticipated will be used to repay the outstanding indebtedness due to the
      Bank.  While no assurances can be given, the Bank expects this will occur
      during the fourth quarter of 2006. The remaining two loans in the aggregate
      amount of $3.4 million are in the process of collection and are adequately
      collateralized. In July 2006, the Bank obtained a judgment for strict
      foreclosure on one of these loans in the amount of $840,000, with
      an effective date of September 26, 2006 and a judgment on
      the second loan in the amount of $2.6 million, with an effective date of
      December 2, 2006. At
      June 30, 2006, Bancorp had no loans, other than those disclosed in the
      table above, for which management has significant doubts as to the ability
      of the borrower to comply with the present repayment terms .





***Deposits***





Total
      deposits increased $53.5 million or 13% from $419.1 million at December 31,
      2005 to $472.6 million at June 30 2006. Noninterest bearing
      deposits increased $2.1, million or 4%; increases in commercial demand
      accounts and personal checking accounts of $2.0 million and
      $0.5 million, respectively, were partially offset by a decrease in internal
      accounts of $0.5 million. Interest bearing deposits increased
      $51.4 million or 14% from $370.3 million at December 31, 2005 to
      $421.7 million at June 30, 2006. NOW accounts increased
      $8.0 million or 32% as compared to December 31, 2005; increases in attorney
      escrow accounts and municipal accounts, transferred from money markets, of
      $8.0 million and $1.5 million, respectively, were partially offset by
      decreases in other NOW account products of $1.3 million. Money market fund
      accounts decreased $12.0 million, or 21%, from $57.8 million at
      December 31, 2005 to $45.8 million at June 30, 2006; an increase
      in certificate of deposit rates offered by both the Bank and its competitors
      induced money market fund account holders to transfer funds to higher rate
      certificates of deposit; additionally, as indicated above municipal money market
      accounts decreased $1.3 million as a result of a transfer to a NOW account.
      Certificates of deposit increased $50.1 million, or 19%, from
      $267.0 million at December 31, 2005 to $317.1 million at
      June 30, 2006. The growth in certificates of deposit was the
      result of the competitive rates the Bank continues to offer in order to grow
      deposits as well as to remain a viable source of deposit products in its market
      which is becoming increasingly more competitive; these higher rates also
      prompted some money market account holders to transfer funds to certificates
      of
      deposit.





***Borrowings***





At
      June 30, 2006, total borrowings were $51.2 million. This
      represents an increase of $34.0 million compared to total borrowings
      of $17.2 million at December 31, 2005. The increase in borrowings
      supplemented deposit inflow in order to fund loan demand.





22





***Capital***





Capital
      increased $361,000, as income for the first six months was partially offset
      by
      the declaration of the quarterly dividends and an increase in the unrealized
      loss on available for sale securities.





***Off-Balance
      Sheet Arrangements***





There
      were no significant changes in Bancorp’s off-balance sheet arrangements which
      primarily consist of commitments to lend, during the quarter and six months
      ended June 30, 2006.






23


**RESULTS
      OF OPERATIONS**





***Interest
      and dividend income and expense***





The
      following tables present average balance sheets (daily averages), interest
      income, interest expense and the corresponding yields earned and rates paid
      for
      major balance sheet components:





Three
                months ended June 30,Average
              Balance
            
            2006
                Interest Income/
              Expense
            
            Average
              Rate
            
            Average
              Balance
            
            2005
                Interest Income/
              Expense
            
            Average
              Rate*(dollars
                in thousands)*Interest
                earning assets:Loans
            
            $
            439,255
            
            $
            8,312
            
            
            7.57
            %
            $
            296,628
            
            $
            4,922
            
            
            6.64
            %Federal
                funds sold andother
                cash equivalents
            
            
            6,199
            
            
            76
            
            
            4.90
            %
            
            17,674
            
            
            124
            
            
            2.81
            %Investments
            
            
            77,608
            
            
            765
            
            
            3.94
            %
            
            89,089
            
            
            763
            
            
            3.43
            %Total
                interestearning
                assets
            
            
            523,062
            
            
            9,153
            
            
            7.00
            %
            
            403,391
            
            
            5,809
            
            
            5.76
            %Cash
                and due from banks
            
            
            6,717
            
            
            
            
            
            
            
            
            4,976Premises
                and equipment, net
            
            
            2,347
            
            
            
            
            
            
            
            
            2,111Allowance
                for loan losses
            
            
            (5,284
            )
            
            
            
            
            
            
            
            (3,760
            )Other
                assets
            
            
            6,712
            
            
            
            
            
            
            
            
            6,536Total
                Assets
            
            $
            533,554
            
            
            
            
            
            
            
            $
            413,254Interest
                bearing liabilities:Deposits
            
            $
            404,769
            
            $
            3,596
            
            
            3.55
            %
            $
            321,639
            
            $
            2,036
            
            
            2.53
            %FHLB
                advances
            
            
            33,593
            
            
            422
            
            
            5.02
            %
            
            18,000
            
            
            151
            
            
            3.36
            %Subordinated
                debt
            
            
            8,248
            
            
            166
            
            
            8.05
            %
            
            8,248
            
            
            128
            
            
            6.21
            %Other
                borrowings
            
            
            148
            
            
            2
            
            
            5.41
            %
            
            -
            
            
            -
            
            
            -Total
                interestbearing
                liabilities
            
            
            446,758
            
            
            4,186
            
            
            3.75
            %
            
            347,887
            
            
            2,315
            
            
            2.66
            %Demand
                deposits
            
            
            50,496
            
            
            
            
            
            
            
            
            42,312Accrued
                expenses andother
                liabilities
            
            
            4,108
            
            
            
            
            
            
            
            
            2,930Shareholders’equity
            
            
            32,192
            
            
            
            
            
            
            
            
            20,125Total
                liabilities and equity
            
            $
            533,554
            
            
            
            
            
            
            
            $
            413,254Net
                interest income
            
            
            
            
            $
            4,967
            
            
            
            
            
            
            
            $
            3,494Interest
                margin
            
            
            
            
            
            
            
            
            3.80
            %
            
            
            
            
            
            
            
            3.46
            %Interest
                spread
            
            
            
            
            
            
            
            
            3.25
            %
            
            
            
            
            
            
            
            3.10
            %




24


Six
                months ended June 30,Average
              Balance
            
            2006
                Interest Income/
              Expense
            
            Average
              Rate
            
            Average
              Balance
            
            2005
                Interest Income/
              Expense
            
            Average
              Rate(dollars
                in thousands)Interest
                earning assets:Loans
            
            $
            414,761
            
            $
            15,510
            
            
            7.48
            %
            $
            292,072
            
            $
            9,592
            
            
            6.57
            %Federal
                funds sold andother
                cash equivalents
            
            
            6,230
            
            
            144
            
            
            4.62
            %
            
            19,489
            
            
            241
            
            
            2.47
            %Investments
            
            
            78,775
            
            
            1,539
            
            
            3.90
            %
            
            89,461
            
            
            1,570
            
            
            3.51
            %Total
                interestearning
                assets
            
            
            499,766
            
            
            17,193
            
            
            6.88
            %
            
            401,022
            
            
            11,403
            
            
            5.69
            %Cash
                and due from banks
            
            
            6,148
            
            
            
            
            
            
            
            
            4,755Premises
                and equipment, net
            
            
            2,337
            
            
            
            
            
            
            
            
            2,056Allowance
                for loan losses
            
            
            (5,072
            )
            
            
            
            
            
            
            
            (3,671
            )Other
                assets
            
            
            6,528
            
            
            
            
            
            
            
            
            6,216Total
                Assets
            
            $
            509,707
            
            
            
            
            
            
            
            $
            410,378Interest
                bearing liabilities:Deposits
            
            $
            391,995
            
            $
            6,682
            
            
            3.41
            %
            $
            323,816
            
            $
            4,028
            
            
            2.49
            %FHLB
                advances
            
            
            25,084
            
            
            608
            
            
            4.86
            %
            
            13,083
            
            
            223
            
            
            3.41
            %Subordinated
                debt
            
            
            8,248
            
            
            320
            
            
            7.78
            %
            
            8,248
            
            
            243
            
            
            5.89
            %Other
                borrowings
            
            
            171
            
            
            4
            
            
            4.68
            %
            
            -
            
            
            -
            
            
            -Total
                interestbearing
                liabilities
            
            
            425,498
            
            
            7,614
            
            
            3.58
            %
            
            345,147
            
            
            4,494
            
            
            2.60
            %Demand
                deposits
            
            
            48,065
            
            
            
            
            
            
            
            
            42,169Accrued
                expenses andother
                liabilities
            
            
            4,160
            
            
            
            
            
            
            
            
            2,981Shareholders’equity
            
            
            31,984
            
            
            
            
            
            
            
            
            20,081Total
                liabilities and equity
            
            $
            509,707
            
            
            
            
            
            
            
            $
            410,378Net
                interest income
            
            
            
            
            $
            9,579
            
            
            
            
            
            
            
            $
            6,909Interest
                margin
            
            
            
            
            
            
            
            
            3.83
            %
            
            
            
            
            
            
            
            3.45
            %Interest
                spread
            
            
            
            
            
            
            
            
            3.30
            %
            
            
            
            
            
            
            
            3.09
            %




25


The
      following rate volume analysis reflects the changes in net interest income
      arising from changes in interest rates and from asset and liability volume,
      including mix. The change in interest attributable to volume includes changes
      in
      interest attributable to mix.





Three
                months ended June 30,
              2006
                vs. 2005
              Fluctuations
                in Interest
              Income/Expense
              Due
                to change in:
            
            Six
                months ended June 30,
              2006
                vs. 2005
              Fluctuations
                in Interest
              Income/Expense
              Due
                to change in:Volume
            
            Rate
            
            Total
            
            Volume
            
            Rate
            
            Total*(dollars
                in thousands)*Interest
                earning assets:Loans
            
            $
            2,624
            
            $
            766
            
            $
            3,390
            
            $
            4,438
            
            $
            1,480
            
            $
            5,918Federal
                funds sold andother
                cash equivalents
            
            
            (277
            )
            
            229
            
            
            (48
            )
            
            (245
            )
            
            148
            
            
            (97
            )Investments
            
            
            (363
            )
            
            365
            
            
            2
            
            
            (370
            )
            
            338
            
            
            (32
            )Total
                interestearning
                assets
            
            
            1,984
            
            
            1,360
            
            
            3,344
            
            
            3,823
            
            
            1,966
            
            
            5,789Interest
                bearing liabilities:Deposits
            
            
            609
            
            
            951
            
            
            1,560
            
            
            962
            
            
            1,692
            
            
            2,654FHLB
                advances
            
            
            172
            
            
            99
            
            
            271
            
            
            264
            
            
            122
            
            
            386Subordinated
                debt
            
            
            -
            
            
            38
            
            
            38
            
            
            -
            
            
            78
            
            
            78Other
                borrowings
            
            
            2
            
            
            -
            
            
            2
            
            
            4
            
            
            -
            
            
            4Total
                interestbearing
                liabilities
            
            
            783
            
            
            1,088
            
            
            1,871
            
            
            1,230
            
            
            1,892
            
            
            3,122Net
                interest income
            
            $
            1,201
            
            $
            272
            
            $
            1,473
            
            $
            2,593
            
            $
            74
            
            $
            2,667





An
      increase in average interest earning assets of $119.7 million, or 30%,
      combined with an increase in interest rates increased Bancorp’s interest income
      $3.3 million or 58% for the quarter ended June 30, 2006 as
      compared to the same period in 2005. Interest and fees on loans
      increased $3.4 million, or 69%, from $4.9 million for the quarter
      ended June 30, 2005 to $8.3 million for the quarter ended
      June 30, 2006. This increase was primarily the result of the increase
      in the average outstanding balances of the loan portfolio followed by the impact
      of the increase in interest rates. Interest income on investments remained
      relatively stable; the decrease in interest income from the reduction in the
      portfolio due to principal payments on mortgage backed securities was offset
      by
      an increase in the interest rates on the remaining portfolio. Interest income
      on
      federal funds and other cash equivalents decreased as a result of a decrease
      in
      the average balances partially offset by an increase in short term interest
      rates. For the six months ended June 30, 2006, interest and dividend income
      was
      $17.2 million which represents an increase of $5.8 million, or 51%, as
      compared to interest and dividend income of $11.4 million for the same
      period last year. This increase was due to the reasons cited
      earlier.


26


Total
      interest expense for the quarter ended June 30, 2006 of
      $4.2 million represents an increase of $1.9 million or 81% as compared to
      the same period last year. The increase in
      interest expense is primarily the result of higher interest rates paid on
      interest bearing liabilities; an increase in total average interest bearing
      liabilities of $98.9 million, or 28%, also contributed to the increase in
      interest expense. The increase in interest rates combined with the increase
      in
      the average balances of deposit accounts of $83.1 million, or 26%, resulted
      in an increase in interest expense of $1.6 million, or 76%. Average FHLB
      advances increased $15.6 million or 87%; this increase in average balances
      combined with the increase in interest paid on FHLB advances resulted in an
      increase in interest expense of $271,000, or 179%. The increase in the index
      to
      which the junior subordinated debt is tied resulted in an increase in interest
      expense of $38,000, or 30%. For the six months ended June 30, 2006
      total interest expense increased $3.1 million, or 69%, to $7.6 million
      from $4.5 million for the six months June 30, 2005. This increase in
      interest expense was due to the reasons cited earlier.





As
      a
      result of the above, Bancorp’s net interest income increased $1.5 million,
      or 42%, to $5.0 million for the three months ended June 30 2006
      as compared to $3.5 million for the same period last year. Net interest
      income increased $2.7 million, or 39%, to $9.6 million for the six
      months ended June 30, 2006 as compared to $6.9 million for the six
      months ended June 30, 2005.





***Provision
      for loan losses***





The
      provision for loan losses charged to operations for the quarter ended
      June 30, 2006 was $351,000 as compared to $100,000 for the same period
      last year. For the six months ended June 30, 2006, the provision for loan
      losses was $924,000 as compared to $360,000 for the six months ended
      June 30, 2005. These increases were due to the growth in the loan portfolio
      and the credit risk factors assigned thereto and not to any adverse changes
      in
      the credit quality of the loan portfolio or in non-performing
      loans.





An
      analysis of the changes in the allowance for loan losses is presented under
      “Allowance for Loan Losses.”




***Noninterest
      income***





Noninterest
      income decreased $240,000, or 29%, from $821,000 for the quarter ended
      June 30, 2005 to $581,000 for the three months ended
      June 30, 2006. A decrease in the volume of loans placed with outside
      investors resulted in a decrease in mortgage brokerage and referral fee income
      of $199,000 and a decrease in loan origination and processing fee income of
      $18,000. Fees and service charges for the three months ended
      June 30, 2006 decreased $13,000, or 8%, as compared to the same period
      last year. This decrease was primarily due to a decrease in the volume
      of insufficient and uncollected funds transactions. Other income decreased
      $
      9,000 as compared to the same period last year which reflected the settlement
      of
      an insurance claim.


27


For
      the
      six months ended June 30, 2006, noninterest income decreased $320,000,
      or 21%, to $1.2 million as compared to $1.5 million for the six months
      ended June 30, 2005. This decrease was due to the reasons cited
      above.





***Noninterest
      expenses***





Noninterest
      expenses increased $770,000, or 21%, to $4.4 million for the
      quarter ended June 30, 2006 from $3.6 million for the quarter
      ended June 30, 2005. Salaries and benefits expense
      increased $390,000, or 18%, to $2.6 million for the quarter ended
      June 30, 2006 from $2.2 million for the quarter ended
      June 30, 2005. This increase was primarily due to staff
      additions, including the full year impact of those associated with an additional
      branch location established in June 2005, as compared to last year, as well
      as
      to increases in loan and deposit production sales and incentive compensation
      and
      salary increases made during the last quarter of 2005. Occupancy and equipment
      expense, net, increased $197,000, or 40%, to $689,000 for the quarter ended
      June 30, 2006 from $492,000 for the quarter ended
      June 30, 2005 due to the establishment of an additional branch
      location during the second quarter of 2005, the leasing of additional space
      for
      the Bank’s lending and credit administration functions during the last quarter
      of 2005, lease expense during 2006 for branches under renovation and a new
      metropolitan New York loan production office. Data processing and other outside
      services increased $140,000, or 57%, from $244,000 for the three months ended
      June 30, 2005 to $384,000 for the three months ended
      June 30, 2006 primarily due to an increase in personnel placement
      fees, information technology consulting and data processing expenses. The
      increase in data processing expenses was a result of the growth in the branch
      network as well increased ongoing maintenance charges for the
      implementation of new products and services. Advertising and promotional
      expenses increased $37,000, or 33%, to $151,000 for the three months ended
      June 30, 2006 from $113,000 for the three months ended
      June 30, 2005.





For
      the
      six months ended June 30, 2006, noninterest expenses increased
      $1.4 million, or 20%, to $8.4 million as compared to
      $7.0 million for the six months ended June 30, 2005. Salaries and
      benefits expense increased $655,000, or 15%, to $4.9 million;
      occupancy and equipment expense, net increased $350,000, or 36%. Data
      processing and other outside services and advertising and promotional expenses
      increased $323,000 and $72,000, respectively, for the six months ended June
      30,
      2006 as compared to the same period last year. These increases were due to
      similar reasons cited earlier.





***Income
      Taxes***





Bancorp
      recorded income tax expense of $295,000 for the quarter ended June 30, 2006
      as compared to $239,000 for the quarter ended June 30, 2005. For the six months
      ended June 30, 2006, income tax expense was $526,000 as compared to
      $434,000 for the same period last year. These changes were related primarily
      to
      the change in pre-tax income


28


and
      the
      exclusion for state tax purposes of certain holding company expenses. The
      effective tax rates for the quarters ended June 30, 2006 and
      June 30, 2005 were 37% and 40%, respectively;
      the effective tax rates for the six months ended June 30, 2006 and
      June 30, 2005 were 37% and 40%,








**LIQUIDITY**





Bancorp's
      liquidity ratio was 17% and 25% at June 30, 2006 and 2005,
      respectively. The liquidity ratio is defined as the percentage of liquid assets
      to total assets. The following categories of assets as described in the
      accompanying consolidated balance sheets are considered liquid assets: cash
      and
      due from banks, federal funds sold, short term investments and available for
      sale securities. Liquidity is a measure of Bancorp’s ability to generate
      adequate cash to meet financial obligations. The principal cash requirements
      of
      a financial institution are to cover downward fluctuations in deposit accounts
      and increases in its loan portfolio. Management believes Bancorp’s short-term
      assets provide sufficient liquidity to cover loan demand, potential fluctuations
      in deposit accounts and to meet other anticipated cash operating
      requirements.








**CAPITAL**





The
      following table illustrates Bancorp’s regulatory capital ratios at June
      30, 2006 and December 31, 2005 respectively:





June
                30,2006
            
            December
                31, 2005Total
                Risk-based Capital
            
            
            10.84
            %
            
            12.70
            %Tier
                1 Risk-based Capital
            
            
            9.59
            %
            
            11.45
            %Leverage
                Capital
            
            
            7.53
            %
            
            8.56
            %





The
      following table illustrates the Bank’s regulatory capital ratios at June
      30, 2006 and December 31, 2005 respectively:





June
                30, 2006
            
            December
                31, 2005Total
                Risk-based Capital
            
            
            10.70
            %
            
            12.52
            %Tier
                1 Risk-based Capital
            
            
            9.45
            %
            
            11.27
            %Leverage
                Capital
            
            
            7.42
            %
            
            8.42
            %





Capital
      adequacy is one of the most important factors used to determine the safety
      and
      soundness of individual banks and the banking system. Based on the above ratios,
      the Bank is considered to be “well capitalized” at June 30, 2006 under
      applicable regulations. To be considered “well-capitalized,” an institution must
      generally have a leverage capital ratio of at least 5%, a Tier 1 risk-based
      capital ratio of at least 6% and a total risk-based capital ratio of at least
      10%.


29


The
      decrease in capital ratios is due to the growth of the Bank. Management
      continuously assesses the adequacy of the Bank’s capital to ensure that the Bank
      remains a “well capitalized” institution. Management’s strategic and capital
      plans contemplate various options to maintain the “well capitalized”
classification. The Bank’s growth will require the Bank to raise capital in the
      near future.








**IMPACT
      OF INFLATION AND CHANGING PRICES**





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








**Item
      3.**  **Quantitative
      and Qualitative Disclosures about Market Risk**





Market
      risk is defined as the sensitivity of income to fluctuations in interest rates,
      foreign exchange rates, equity prices, commodity prices and other market-driven
      rates or prices. Based upon the nature of Bancorp’s business, market risk is
      primarily limited to interest rate risk, which is the impact, that changing
      interest rates have on current and future earnings.





**Qualitative
      Aspects of Market Risk**





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


30


The
      exposure to interest rate risk is monitored by the Management Asset and
      Liability Committee consisting of senior management personnel. The committee
      meets on a monthly basis, but may convene more frequently as conditions dictate.
      The committee reviews the interrelationships within the balance sheet to
      maximize net interest income within acceptable levels of risk. This committee
      reports to the Board of Directors on a monthly basis regarding its activities.
      In addition to the Management Asset and Liability Committee, there is a Board
      Asset and Liability Committee (“ALCO”) which meets quarterly. ALCO monitors the
      interest rate risk analyses, reviews investment transaction during the period
      and determines compliance with Bank policies.








**Quantitative
      Aspects of Market Risk**





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





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





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





Management
      has established interest rate risk guidelines measured by behavioral GAP
      analysis calculated at the one year cumulative GAP level and a net interest
      income and economic value of portfolio equity simulation model measured by
      a 200
      basis point interest rate shock.


31


The
      table
      below sets forth an approximation of Bancorp’s exposure to changing interest
      rates using management’s behavioral GAP analysis and as a percentage of
      estimated net interest income and estimated net portfolio value using interest
      income simulation. The calculations use projected repricings of assets and
      liabilities at June 30, 2006 and December 31, 2005 on the basis of
      contractual maturities, anticipated repayments and scheduled rate
      adjustments.








Basis
              Points
            
            Interest
                Rate
              Risk
                Guidelines
            
            June
                30,
              2006
            
            December
                31,
              2005Gap
                percentage total
            
            
            
            +/-15
            %
            4.39
            %
            4.98
            %Net
                interest income
            
            
            200
            
            
            +/-15
            %
            
            9.14
            %
            
            14.49
            %-200
            
            
            +/-15
            %
            
            -11.23
            %
            
            -14.24
            %Net
                portfolio value
            
            
            200
            
            
            +/-25
            %
            
            -6.61
            %
            
            0.45
            %-200
            
            
            +/-25
            %
            
            -1.55
            %
            
            -7.89
            %





Bancorp
      benefited in the first half of 2006 from a rising interest rate environment
      as
      assets re-priced faster than liabilities and, combined with a 24% increase
      in
      the loan portfolio, resulted in an expanding net interest margin. These factors
      contributed to higher levels of net interest income and net portfolio value
      in
      the base case scenario at June 30, 2006 as compared to December 31, 2005
      using Bancorp’s interest income simulation model. Bancorp’s interest rate risk
      position was within all of its interest rate risk guidelines at
      June 30, 2006. The interest rate risk position is monitored on an
      ongoing basis and management reviews strategies to maintain all categories
      within guidelines.


32


The
      table
      below sets forth examples of changes in estimated net interest income and the
      estimated net portfolio value based on projected scenarios of interest rate
      increases and decreases. The analyses indicate the rate risk embedded in
      Bancorp’s portfolio at the dates indicated should all interest rates
      instantaneously rise or fall. The results are derived by adding to or
      subtracting from all current rates; however, there are certain limitations
      to
      these types of analyses. Rate changes are rarely instantaneous and these
      analyses may also overstate the impact of short term repricings.




Net
                  Interest Income and Economic Value
                Summary
                  Performance
                
                June
                  30,2006Net
                  Interest Income
              
              Net
                  Portfolio ValueProjected
                  Interest
                Rate
                  Scenario
              
              Estimated
                Value
              
              $Change
                  from Base
              
              %Change
                  from Base
              
              Estimated
                Value
              
              $Change
                  from Base
              
              %Change
                  from Base+200
              
              
              20,874
              
              
              1,748
              
              
              9.14
              %
              
              45,944
              
              
              (3,250
              )
              
              -6.61
              %+100
              
              
              20,014
              
              
              888
              
              
              4.64
              %
              
              47,888
              
              
              (1,306
              )
              
              -2.65
              %BASE
              
              
              19,126
              
              
              
              
              
              
              
              
              49,194-100
              
              
              18,179
              
              
              (946
              )
              
              -4.95
              %
              
              49,950
              
              
              756
              
              
              1.54
              %-200
              
              
              16,979
              
              
              (2,147
              )
              
              -11.23
              %
              
              48,429
              
              
              (765
              )
              
              -1.55
              %




December
                  31, 2005Net Interest Income
              
              Net Portfolio ValueProjected
                  Interest
                Rate
                  Scenario
              
              Estimated
                Value
              
              $Change
                  from Base
              
              %Change
                  from Base
              
              Estimated
                Value
              
              $Change
                  from Base
              
              %Change
                  from Base+200
              
              
              18,650
              
              
              2,360
              
              
              14.49
              %
              
              47,153
              
              
              211
              
              
              0.45
              %+100
              
              
              17,478
              
              
              1,188
              
              
              7.29
              %
              
              47,606
              
              
              664
              
              
              1.41
              %BASE
              
              
              16,290
              
              
              
              
              
              
              
              
              46,942-100
              
              
              15,115
              
              
              (1,175
              )
              
              -7.22
              %
              
              45,432
              
              
              (1,510
              )
              
              -3.22
              %-200
              
              
              13,970
              
              
              (2,320
              )
              
              -14.24
              %
              
              43,239
              
              
              (3,703
              )
              
              -7.89
              %























33


**Item
      4.**   **Controls
      and Procedures**







Based
      on
      an evaluation of the effectiveness of Bancorp’s disclosure controls and
      procedures performed by Bancorp’s management, with the participation of
      Bancorp’s Chief Executive Officer and its Chief Financial Officer as of the end
      of the period covered by this report, Bancorp’s Chief Executive Officer and
      Chief Financial Officer concluded that Bancorp’s disclosure controls and
      procedures have been effective.





As
      used
      herein, “disclosure controls and procedures” means controls and other procedures
      of Bancorp that are designed to ensure that information required to be disclosed
      by Bancorp in the reports that it files or submits under the Securities Exchange
      Act is recorded, processed, summarized and reported, within the time periods
      specified in the Commission’s rules and forms. Disclosure controls and
      procedures include, without limitation, controls and procedures designed to
      ensure that information required to be disclosed by Bancorp in the reports
      that
      it files or submits under the Securities Exchange Act is accumulated and
      communicated to Bancorp’s management, including its principal executive and
      principal financial officers, or persons performing similar functions, as
      appropriate to allow timely decisions regarding required
      disclosure.





There
      were no changes in Bancorp’s internal control over financial reporting
      identified in connection with the evaluation described in the preceding
      paragraph that occurred during Bancorp’s fiscal quarter ended June 30, 2006
      that has materially affected, or is reasonably likely to materially affect,
      Bancorp’s internal control over financial reporting.





**PART
        II - OTHER INFORMATION** .
 
 **Item
        1A.**  **Risk
        Factors**
 
 **Management
        intends to continue Bancorp’s emphasis on growth over earnings for the
        foreseeable future.**
 
 Management
        has actively sought growth of the institution in recent years by opening
        additional branches, initiating internal growth programs, and completing
        one
        acquisition of a mortgage company. Bancorp may not be able to sustain its
        historical rate of growth or may not even be able to continue to grow at
        all.
        Various factors, such as economic conditions and competition, may impede
        or
        prohibit the Bank from opening new branches. In addition, Bancorp may not
        be
        able to obtain the financing necessary to fund additional growth and may
        not be
        able to find suitable candidates for acquisition. Sustaining Bancorp’s growth
        has placed significant demands on management as well as on administrative,
        operational and financial resources. For Bancorp to continue to grow, it
        must:
        attract and retain qualified management and experienced bankers, find suitable
        markets for expansion, find suitable, affordable branch office locations;
        attract funding to
 34
 support
        additional growth; maintain high asset quality levels; maintain adequate
        regulatory capital; and maintain adequate controls. Although
        management believes that earnings will increase as the franchise is expanded,
        earnings are expected to continue to be adversely affected by the costs
        associated with opening new branches and the time necessary to build a customer
        base in each new branch’s market area.
 
 If
        Bancorp is unable to continue its historical levels of growth, or if growth
        comes at greater financial expense than has been incurred in the past, Bancorp
        may not be able to achieve its financial goals and profitability may be
        adversely affected.
 
 **Because
        Bancorp intends to increase its commercial real estate, construction and
        commercial business loan originations, its lending risk will increase, and
        downturns in the real estate market could adversely affect its
        earnings.**
 
 Commercial
        real estate, construction and commercial business loans generally have more
        risk
        than residential mortgage loans. Both commercial real estate and construction
        loans, for example, often involve larger loan balances concentrated with
        single
        borrowers or groups of related borrowers as compared to single-family
        residential loans. Construction loans are secured by the property under
        construction, the value of which is uncertain prior to completion. Thus,
        it is
        more difficult to evaluate accurately the total loan funds required to complete
        a project and the related loan-to-value ratios. Speculative construction
        loans
        involve additional risk because the builder does not have a contract for
        the
        sale of the property at the time of construction.
 
 Because
        the repayment of commercial real estate, construction and commercial business
        loans depends on the successful management and operation of the borrower’s
        properties or related businesses, repayment of such loans can be affected
        by
        adverse conditions in the real estate market or the local economy. As of
        June
        30, 2006, 76.3% Bancorp’s total loan portfolio was secured by real estate
        located in Fairfield County, Connecticut and Westchester County, New York.
        As a
        result, a downturn in the real estate market, especially within Bancorp’s market
        area, could adversely impact the value of properties securing these loans.
        Bancorp’s ability to recover on defaulted loans by selling the underlying real
        estate would be diminished, and Bancorp would be more likely to suffer losses
        on
        defaulted loans. As its commercial real estate, construction and commercial
        business loan portfolios increase, the corresponding risks and potential
        for
        losses from these loans may also increase.
 
 **Bancorp’s
        business is subject to various lending and other economic risks that could
        adversely impact Bancorp’s results of operations and financial
        condition.**
 
 Changes
        in economic conditions, particularly an economic slowdown in Fairfield County,
        Connecticut and the New York metropolitan area, could hurt Bancorp’s financial
 35
 performance.
        Bancorp’s business is directly affected by political and market conditions,
        broad trends in industry and finance, legislative and regulatory changes
        and
        changes in governmental monetary and fiscal policies and inflation, all of
        which
        are beyond Bancorp’s control. A deterioration in economic conditions, in
        particular an economic slowdown
        within Fairfield County, Connecticut and/or the New York metropolitan area,
        could result in the following consequences, any of which may hurt the business
        of Bancorp materially: loan delinquencies may increase; problem assets and
        foreclosures may increase; demand for the Bank’s products and services may
        decline; and assets and collateral associated with the Bank’s loans, especially
        real estate, may decline in value, thereby reducing a customer’s borrowing
        power.
 
 The
        Bank
        may suffer losses in its loan portfolio despite its underwriting practices.
        The
        Bank seeks to mitigate the risks inherent in its loan portfolio by adhering
        to
        specific underwriting practices. These practices include analysis of a
        borrower’s prior credit history, financial statements, tax returns and cash flow
        projections, valuation of collateral based on reports of independent appraisers
        and verification of liquid assets. Although the Bank believes that its
        underwriting criteria is appropriate for the various types of loans the Bank
        makes, the Bank may still incur losses on loans, and these losses may exceed
        the
        amounts set aside as reserves in the allowance for loan losses.
 
 **Bancorp’s
        allowance for loan losses may not be adequate to cover actual
        losses.**
 
 Like
        all
        financial institutions, the Bank maintains an allowance for loan losses to
        provide for loan defaults and non-performance. The allowance for loan losses
        may
        not be adequate to cover actual loan losses and future provisions for loan
        losses could materially and adversely affect Bancorp’s operating results. The
        allowance for loan losses is based on an evaluation of the risks associated
        with
        the Bank’s loans receivable as well as the Bank’s prior loss experience. A
        substantial portion of the Bank’s loans are unseasoned and lack an established
        record of performance. To date, losses have been negligible. The amount of
        future losses is susceptible to changes in economic, operating and other
        conditions, including changes in interest rates that may be beyond the Bank’s
        control and these losses may exceed current estimates. Federal regulatory
        agencies, as an integral part of their examination process, review the Bank’s
        loans and assess the adequacy of the allowance for loan losses. While management
        believes that the allowance for loan losses is adequate to cover current
        losses,
        management cannot assure shareholders that there will not be a need to increase
        the allowance for loan losses or that the regulators will not require management
        to increase this allowance. Either of these occurrences could materially
        and
        adversely affect Bancorp’s earnings and profitability.
 
 **Bancorp’s
        business is subject to interest rate risk and variations in interest rates
        may
        negatively affect Bancorp’s financial performance.**
 
 Bancorp
        is unable to predict fluctuations of market interest rates, which are affected
        by many factors including: inflation, recession, a rise in unemployment,
        a
        tightening money
 36
 supply
        and domestic and international disorder and instability in domestic and foreign
        financial markets. Changes in the interest rate environment may reduce Bancorp’s
        profits. Bancorp realizes income from the differential or “spread” between the
        interest earned on loans, securities and other interest-earning assets, and
        interest paid on deposits, borrowings and other interest-bearing liabilities.
        Net interest spreads are affected by the difference between the maturities
        and
        repricing characteristics of interest-earning assets and
        interest-bearing liabilities. Bancorp is vulnerable to a decrease in interest
        rates because its interest-earning assets generally have shorter durations
        than
        its interest-bearing liabilities. As a result, material and prolonged decreases
        in interest rates would decrease Bancorp’s net interest income. In contrast, an
        increase in the general level of interest rates may adversely affect the
        ability
        of some borrowers to pay the interest on and principal of their obligations.
        Accordingly, changes in levels of market interest rates could materially
        and
        adversely affect Bancorp’s net interest spread, asset quality, levels of
        prepayments and cash flow as well as the market value of its securities
        portfolio and overall profitability.
 
 Mortgage
        brokerage activity is also affected by interest rate fluctuations. Generally
        increases in interest rates often lead to decreases in home refinancing
        activity, thus reducing the number of mortgage loans that Bancorp
        originates.
 
 **Bancorp’s
        investment portfolio includes securities which are sensitive to interest
        rates
        and variations in interest rates may adversely impact Bancorp’s profitability.**
 
 At
        June
        30, 2006, Bancorp’s securities portfolio aggregated $72.1 million, all of which
        was classified as available-for-sale, and was comprised of mortgage-backed
        securities which are insured or guaranteed by U.S. government agencies or
        government-sponsored enterprises, U.S. government agency securities and money
        market preferred equity securities. These securities amounted to approximately
        12.9% of Bancorp’s total assets and are sensitive to interest rate fluctuations.
        The unrealized gains or losses in its available-for-sale portfolio are reported
        as a separate component of shareholders’ equity. As a result, future interest
        rate fluctuations may impact shareholders’ equity, causing material fluctuations
        from quarter to quarter. Failure to hold its securities until payments are
        received on mortgage-backed securities or until maturity on other investments
        or
        until market conditions are favorable for a sale could adversely affect
        Bancorp’s earnings and profitability.
 
 **Bancorp
        is dependent on its management team, and the loss of its senior executive
        officers or other key employees could impair its relationship with its customers
        and adversely affect its business and financial results.**
 
 Bancorp’s
        success is dependent upon the continued services and skills of Angelo De
        Caro,
        Charles F. Howell, Robert F. O’Connell, Philip W. Wolford and other senior
        officers including Martin G. Noble, its chief lender, Marcus Zavattaro, its
        residential lending sales manager, and John Kantzas, a founder and an executive
        vice president. While Bancorp has employment agreements containing
        non-competition provisions with Messrs. Howell,
 37
 O’Connell
        and Zavattaro, these agreements do not prevent any of them from terminating
        their employment with Bancorp. The unexpected loss of services of one or
        more of
        these key personnel could have an adverse impact on Bancorp’s business because
        of their skills, knowledge of Bancorp’s market, years of industry experience and
        the difficulty of promptly finding qualified replacement personnel. 
 Bancorp’s
          success also depends, in part, on its continued ability to attract and
          retain
 
 **A
        breach of information security could negatively affect Bancorp’s
        earnings** .
 
 In
        order
        to conduct its business, Bancorp increasingly depends upon data processing,
        communications and information exchange on a variety of computing platforms
        and
        networks, and over the internet to conduct its business. Bancorp cannot be
        certain that all of its systems are entirely free from vulnerability to attack,
        despite safeguards it has instituted. In addition, Bancorp relies on the
        services of a variety of vendors to meet its data processing and communication
        needs. If information security is breached, information can be lost or
        misappropriated; this could result in financial loss or costs to Bancorp
        or
        damages to others. These costs or losses could materially exceed the amount
        of
        insurance coverage, if any, which would have an adverse effect on Bancorp’s
        results of operations and financial condition. In addition, the Bank’s
        reputation could be harmed, which also could materially adversely affect
        Bancorp’s financial condition and results of operation.
 
 **Risks
        Related to Bancorp’s industry**
 
 **Strong
        competition within Bancorp’s market area may limit the growth and profitability
        of the Company.**
 
 Competition
        in the banking and financial services industry is intense. The Fairfield
        County,
        Connecticut and the New York City metropolitan areas have a high concentration
        of financial institutions including large money center and regional banks,
        community banks and credit unions. Some of Bancorp’s competitors offer products
        and services that the Bank currently does not offer, such as private banking
        and
        trust services. The Bank’s planned purchase of a small branch in New York City,
        New York and anticipated future expansion into Westchester County, New York,
        will expose the Bank to more competition
 38
 and
        in
        markets where it is not well known. Many of these competitors have substantially
        greater resources and lending limits than Bancorp and may offer certain services
        that it does not or cannot provide. Price competition for loans and deposits
        might result in the Bank earning less on its loans and paying more for deposits,
        which reduces net interest income. Bancorp expects competition to increase
        in
        the future as a result of legislative, regulatory and technological changes.
        Bancorp’s profitability depends upon its continued ability to successfully
        compete in its market area.
 **Government
          regulation may have an adverse effect on Bancorp’s profitability and
          growth** .
 
 Bancorp
        is subject to extensive regulation, supervision and examination by the Office
        of
        the Comptroller of the Currency, or the OCC, as the Bank’s chartering authority,
        by the FDIC, as insurer of the deposits, and by the Federal Reserve Board
        as
        regulator of Bancorp. Changes in state and federal banking laws and regulations
        or in federal monetary policies could adversely affect the Bank’s ability to
        maintain profitability and continue to grow. For example, new legislation
        or
        regulation could limit the manner in which Bancorp may conduct its business,
        including the Bank’s ability to obtain financing, attract deposits, make loans
        and achieve satisfactory interest spreads. Many of these regulations are
        intended to protect depositors, the public and the FDIC, not shareholders.
        In
        addition, the burden imposed by federal and state regulations may place the
        Company at a competitive disadvantage compared to competitors who are less
        regulated. The laws, regulations, interpretations and enforcement policies
        that
        apply to Bancorp have been subject to significant, and sometimes retroactively
        applied, changes in recent years, and may change significantly in the future.
        Future legislation or government policy may also adversely affect the banking
        industry or Bancorp’s operations.
 
 **Changing
        regulation of corporate governance and public disclosure.**
 
 Recently
        enacted laws, regulations and standards relating to corporate governance
        and
        public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations
        and NASDAQ rules, are adding to the responsibilities that companies such
        as
        Bancorp has. These laws, regulations and standards are subject to varying
        interpretations, and as a result, their application in practice may evolve
        over
        time as new guidance is provided by regulatory and governing bodies, which
        could
        make compliance more difficult and result in higher costs due to ongoing
        revisions to disclosure and governance practices. Bancorp is committed to
        maintaining high standards of corporate governance and public disclosure.
        As a
        result, Bancorp’s efforts to comply with evolving laws, regulations and
        standards have resulted in, and are likely to continue to result in, increased
        general and administrative expenses and a diversion of management time and
        attention from revenue-generating activities to compliance activities. In
        addition, during the fiscal year ending December 31, 2007, Bancorp will be
        required to comply with Section 404 of the Sarbanes-Oxley Act of 2002 and
        the
        related regulations regarding its required assessment of its internal controls
        over financial reporting and its external auditors’ audit of that assessment.
 39


In
      order
      to prepare for this, Bancorp will need to commit significant financial and
      managerial resources beginning in 2006. If Bancorp does not effectively comply
      with these laws, regulations and standards, its reputation may be
      harmed.














40


**Item
      2.**  **Unregistered
      Sales of Equity Securities and Use of Proceeds**





Not
      applicable





**Item
      4.**  **Submission
      of Matters to a Vote of Security Holders**





(a)
            The
                Annual Meeting of Shareholders (the “Annual Meeting”) of Patriot National
                Bancorp, Inc was held on June 14, 2006.(b)
            Not
                applicable pursuant to Instruction 3 to Item 4 of Part II of
                Form10-Q.(c)
            The
                following is a brief description of the matters voted upon at the
                Annual
                Meeting and the number of votes cast for, against or withheld as
                well as
                the number of abstentions to each such matter:(i) 
                 The election of nine directors for the ensuing year:











For
            
            Withheld
                Authority to
              Vote
                ForAngelo
                De Caro
            
            
            2,994,655
            
            
            10,314John
                J. Ferguson
            
            
            2,991,969
            
            
            13,000Brian
                A. Fitzgerald
            
            
            2,994,655
            
            
            10,314John
                A. Geoghegan
            
            
            2,994,655
            
            
            10,314L.
                Morris Glucksman
            
            
            2,988,574
            
            
            16,395Charles
                F. Howell
            
            
            2,994,509
            
            
            10,460Michael
                F. Intrieri
            
            
            2,990,562
            
            
            14,407Robert
                F. O’Connell
            
            
            2,991,106
            
            
            13,863Philip
                W. Wolford
            
            
            2,978,131
            
            
            26,838





(ii)
              The
                    ratification of an amendment to the Certificate of Incorporation
                    of
                    Bancorp to increase the authorized number ofshares
                    of common stock of Bancorp from 30,000,000 to
                    60,000,000.


For
            Against
            Abstain2,949,367
            40,734
            14,868






(iii)
              The
                    consideration of a proposal to ratify the appointment of McGladrey
&
                    Pullen, LLP as independent auditorsfor
                    Bancorp for the yearending
                    December 31, 2006.




For
            Against
            Abstain2,979,398
            16,252
            9,319




41


(d)  Not
      applicable.







**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(ii)
            By-laws
                of Bancorp (incorporated by reference to Exhibit 3(ii) to Bancorp’s
                Current Report on Form 8-K dated December 1, 1999 (Commission File
                No.
                000-29599)).4
            Reference
                is made to the Rights Agreement dated April 19, 2004 by and between
                Patriot National Bancorp, Inc. and Registrar and Transfer Company
                filed as
                Exhibit 99.2 to Bancorp’s Report on Form 8-K filed on April 19, 2004,
                which is incorporated herein by reference.10(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)).








42








No.
            Description10(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 May 1, 2001 between Martin G. Noble
                and
                Patriot National Bank (incorporated by reference to Exhibit 10(a)(4)
                to
                Bancorp’s Annual Report on Form 10-KSB for the year ended December 31,
                2004 (Commission File No. 000-29599)).10(a)(5)
            Employment
                Agreement dated as of November 3, 2003 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-KSB for the year ended
                December 31, 2003 (Commission File No. 000-29599)).10(a)(6)
            Change
                of Control Agreement, dated as of November 3, 2003 between
                Robert F. O’Connell and Patriot National Bank (incorporated by
                reference to Exhibit 10(a)(6) to Bancorp’s Annual Report on Form 10-KSB
                for the year ended December 31, 2003 (Commission File No.
                000-29599)).10(a)(8)
            Employment
                Agreement dated as of January 1, 2006 between Patriot National Bank
                and
                Marcus Zavattaro (incorporated by reference to Exhibit 10(a)(8) to
                Bancorp’s Annual Report on Form 10-KSB for the year ended December 31,
                2005 (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 October 23, 2003 among the Bank, Bancorp and
                Charles
                F. Howell (incorporated by reference to Exhibit 10(a)(10 to Bancorp’s
                Annual Report on form 10-KSB for the year ended December 31, 2003
                (Commission file No. 000-29599)).








43








No.
            Description10(a)(11)
            Amendment
                No. 1 to the Amended and Restated Change of control Agreement, dated
                March
                30, 2006, between Robert F. O’Connell and Patriot National Bank
                (incorporated by reference to Exhibit 10(a)(11) to Bancorp’s Annual Report
                on Form 10-KSB for the year ended December 31, 2005 (Commission File
                No. 000-29599)).10(a)(12)
            2005
                Director Stock Award Plan (filed herewith).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)).14
            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








44








**SIGNATURES**





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





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)





August
      14, 2006









45