UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 **FORM
10-QSB**
 
 QUARTERLY
REPORT UNDER SECTION 13 OR 15(d)
 OF THE
SECURITIES EXCHANGE ACT OF 1934
 
 For
      the Quarter Ended March 31, 2005
    Commission
      file number 000-29599
 
 PATRIOT
NATIONAL BANCORP, INC.
 (Exact
name of small business issuer 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
 (Issuer's
telephone number)
 
 Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days:
 
 Yes X No
 
 State the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date.
 
 Common
stock, $2.00 par value per share, 2,489,391 shares issued and outstanding as of
the close of business April 30, 2005.
 
 Transitional
Small Business 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 orPlan
      of Operation
    12Item
      3.
    Controls
      and Procedures
    21Part
      II
    OTHER
      INFORMATIONItem
      2.
    Unregistered
      Sales of Equity Securities and Use of Proceeds
    22Item
      6.
    Exhibits
    22
 
      2
 PART I
- FINANCIAL INFORMATION
 
 **Item
      1.**
    **Consolidated
      Financial Statements**
 
 **PATRIOT
NATIONAL BANCORP, INC**
 **CONSOLIDATED
BALANCE SHEETS**
 March
      31,
    
    December
      31,2005
    
    2004(Unaudited)**ASSETS**Cash
      and due from banks
    
    $
    6,193,287
    
    $
    6,670,409Federal
      funds sold
    
    
    13,000,000
    
    
    37,500,000Short
      term investments
    
    
    66,732
    
    
    11,460,057**Cash
      and cash equivalents**
    
    
    **19,260,019**
    
    
    **55,630,466**Available
      for sale securities (at fair value)
    
    
    90,911,955
    
    
    76,269,475Federal
      Reserve Bank stock
    
    
    693,200
    
    
    692,600Federal
      Home Loan Bank stock
    
    
    1,296,700
    
    
    1,296,700Loans
      receivable (net of allowance for loan losses: 2005
    $3,741,525;2004
      $3,481,525)
    
    
    293,527,519
    
    
    263,874,820Accrued
      interest receivable
    
    
    2,069,450
    
    
    1,758,339Premises
      and equipment
    
    
    2,124,590
    
    
    2,132,633Deferred
      tax asset, net
    
    
    2,005,824
    
    
    1,677,042Goodwill
    
    
    930,091
    
    
    930,091Other
      assets
    
    
    846,046
    
    
    784,789**Total
      assets**
    
    **$**
    **413,665,394**
    
    **$**
    **405,046,955****LIABILITIES
      AND SHAREHOLDERS' EQUITY****Liabilities**Deposits:Noninterest
      bearing deposits
    
    $
    39,390,978
    
    $
    42,584,120Interest
      bearing deposits
    
    
    326,794,873
    
    
    324,421,205**Total
      deposits**
    
    
    **366,185,851**
    
    
    **367,005,325**Federal
      Home Loan Bank borrowings
    
    
    18,000,000
    
    
    8,000,000Subordinated
      debt
    
    
    8,248,000
    
    
    8,248,000Accrued
      expenses and other liabilities
    
    
    1,781,160
    
    
    2,037,196**Total
      liabilities**
    
    
    **394,215,011**
    
    
    **385,290,521****Shareholders'
      equity**Preferred
      stock: 1,000,000 shares authorized; no shares issuedCommon
      stock, $2 par value: 30,000,000 shares authorized; sharesissued
      and outstanding: 2005 - 2,489,391; 2004 - 2,486,391
    
    
    4,978,782
    
    
    4,972,782Additional
      paid-in capital
    
    
    11,854,503
    
    
    11,830,173Retained
      earnings
    
    
    3,546,770
    
    
    3,346,718Accumulated
      other comprehensive loss - net unrealizedloss
      on available for sale securities, net of taxes
    
    
    (929,672
    )
    
    (393,239
    )**Total
      shareholders' equity**
    
    
    **19,450,383**
    
    
    **19,756,434****Total
      liabilities and shareholders' equity**
    
    **$**
    **413,665,394**
    
    **$**
    **405,046,955**
  See
accompanying notes to consolidated financial statements.
 3
 **PATRIOT
NATIONAL BANCORP, INC.**
 **CONSOLIDATED
STATEMENTS OF INCOME**
 **(Unaudited)**
 
 Three
      Months EndedMarch
      31,2005
    
    2004Interest
      and Dividend IncomeInterest
      and fees on loans
    
    $
    4,670,265
    
    $
    3,526,755Interest
      and dividends on investment securities
    
    
    857,567
    
    
    765,220Interest
      on federal funds sold
    
    
    66,624
    
    
    15,656**Total
      interest and dividend income**
    
    
    **5,594,456**
    
    
    **4,307,631**Interest
      ExpenseInterest
      on deposits
    
    
    1,992,161
    
    
    1,425,690Interest
      on Federal Home Loan Bank borrowings
    
    
    72,043
    
    
    102,324Interest
      on subordinated debt
    
    
    115,710
    
    
    88,248Interest
      on other borrowings
    
    
    -
    
    
    23,835**Total
      interest expense**
    
    
    **2,179,914**
    
    
    **1,640,097****Net
      interest income**
    
    
    **3,414,542**
    
    
    **2,667,534**Provision
      for Loan Losses
    
    
    260,000
    
    
    160,000**Net
      interest income after provision for loan losses**
    
    
    **3,154,542**
    
    
    **2,507,534**Noninterest
      IncomeMortgage
      brokerage referral fees
    
    
    463,799
    
    
    495,619Loan
      processing fees
    
    
    78,531
    
    
    119,409Fees
      and service charges
    
    
    127,921
    
    
    100,931Other
      income
    
    
    40,764
    
    
    35,544**Total
      noninterest income**
    
    
    **711,015**
    
    
    **751,503**Noninterest
      ExpensesSalaries
      and benefits
    
    
    2,048,992
    
    
    1,797,613Occupancy
      and equipment expense, net
    
    
    493,214
    
    
    381,417Data
      processing and other outside services
    
    
    240,240
    
    
    196,160Professional
      services
    
    
    135,711
    
    
    100,419Advertising
      and promotional expenses
    
    
    110,360
    
    
    112,411Loan
      administration and processing expenses
    
    
    44,330
    
    
    65,660Other
      operating expenses
    
    
    310,529
    
    
    270,251**Total
      noninterest expenses**
    
    
    **3,383,376**
    
    
    **2,923,931****Income
      before income taxes**
    
    
    **482,181**
    
    
    **335,106**Provision
      for Income Taxes
    
    
    195,000
    
    
    139,000**Net
      income**
    
    **$**
    **287,181**
    
    ******$**
    ******196,106****Basic
      income per share**
    
    **$**
    **0.12**
    
    **$**
    **0.08****Diluted
      income per share**
    
    **$**
    **0.11**
    
    **$**
    **0.08****Dividends
      per share**
    
    **$**
    **0.035**
    
    **$**
    **0.030**
  See
accompanying notes to consolidated financial statements.
 4
 **PATRIOT
NATIONAL BANCORP, INC**
 **CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)**
 **(Unaudited)**
 
 
 Three
      Months EndedMarch
      31,2005
    
    2004Net
      income:
    
    $
    287,181
    
    $
    196,106Unrealized
      holding (losses) gains on securities:Unrealized
      holding (losses) gains arisingduring
      the period, net of taxes
    
    
    (536,433
    )
    
    337,805**Comprehensive
      (loss) income**
    
    **$**
    **(249,252**
    **)**
    **$**
    **533,911**
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 See
accompanying notes to consolidated financial statements.
 5
  **PATRIOT
NATIONAL BANCORP, INC.**
 **CONSOLIDATED
STATEMENTS OF CASH FLOWS**
 **(Unaudited)**
 
 Three
      Months EndedMarch
      31,2005
    
    2004Cash
      Flows from Operating ActivitiesNet
      income
    
    $
    287,181
    
    $
    196,106Adjustments
      to reconcile net income to net cashprovided
      by operating activities:Amortization
      and accretion of investment premiums and discounts, net
    
    
    69,979
    
    
    116,070Provision
      for loan losses
    
    
    260,000
    
    
    160,000Depreciation
      and amortization
    
    
    135,117
    
    
    131,204(Gain)
      loss on disposal of premises and equipment
    
    
    (12
    )
    
    2,924Changes
      in assets and liabilities:(Decrease)
      increase in deferred loan fees
    
    
    (4,968
    )
    
    14,554Increase
      in accrued interest receivable
    
    
    (311,111
    )
    
    (136,690
    )Increase
      in other assets
    
    
    (61,257
    )
    
    (52,740
    )Decrease
      in accrued expenses and other liabilities
    
    
    (256,141
    )
    
    (309,860
    )**Net
      cash provided by operating activities**
    
    
    **118,788**
    
    
    **121,568**Cash
      Flows from Investing ActivitiesPurchases
      of available for sale securities
    
    
    (19,243,381
    )
    
    (4,000,000
    )Principal
      repayments on available for sale securities
    
    
    3,665,707
    
    
    4,465,812Proceeds
      from maturities of available for sale securities
    
    
    -
    
    
    2,000,000Purchase
      of Federal Reserve Bank Stock
    
    
    (600
    )
    
    (1,450
    )Net
      increase in loans
    
    
    (29,907,731
    )
    
    (6,927,634
    )Purchases
      of premises and equipment
    
    
    (127,062
    )
    
    (194,131
    )**Net
      cash used in by investing activities**
    
    
    **(45,613,067**
    **)**
    
    **(4,657,403**
    **)**Cash
      Flows from Financing ActivitiesNet
      (decrease) increase in demand, savings and money market
      deposits
    
    
    (1,053,140
    )
    
    6,146,763Net
      increase (decrease) in time certificates of deposits
    
    
    233,666
    
    
    (1,672,582
    )Proceeds
      from FHLB borrowings
    
    
    10,000,000
    
    
    6,000,000Principal
      repayments of FHLB borrowings
    
    
    -
    
    
    (6,000,000
    )Decrease
      in other borrowings
    
    
    -
    
    
    (62,880
    )Dividends
      paid on common stock
    
    
    (87,024
    )
    
    (72,258
    )Proceeds
      from issuance of common stock
    
    
    30,330
    
    
    70,002**Net
      cash provided by financing activities**
    
    
    **9,123,832**
    
    
    **4,409,045****Net
      (decrease) in cash and cash equivalents**
    
    
    **(36,370,447**
    **)**
    
    **(126,790**
    **)**Cash
      and cash equivalentsBeginning
    
    
    55,630,466
    
    
    29,454,671Ending
    
    $
    19,260,019
    
    $
    29,327,881
  6
 **PATRIOT
NATIONAL BANCORP, INC.**
 **CONSOLIDATED
STATEMENTS OF CASH FLOWS, Continued**
 **(Unaudited)**
 
 Three
      Months EndedMarch
      31,2005
    
    2004Supplemental
      Disclosures of Cash Flow InformationCash
      paid for:Interest
    
    $
    2,177,83
    
    $
    1,641,202Income
      Taxes
    
    $
    74,857
    
    $
    97,780Supplemental
      disclosure of noncash investing and financing activities:Unrealized
      holding (loss) gain on available for salesecurities
      arising during the period
    
    $
    (865,215
    )
    $
    544,846Accrued
      dividends declared on common stock
    
    $
    87,129
    
    $
    72,608
 
 
 
 
 
 
 
 
 
 
 
 
 See
accompanying notes to consolidated financial statements.
 7
  Notes to
Consolidated Financial Statements
 
 (1)
    The
      Consolidated Balance Sheet at December 31, 2004 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 U. S. generally accepted accounting principles
      for complete financial statements.(2)
    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 U. S. generally accepted accounting principles 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, 2004.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
      months ended March 31, 2005 are not necessarily indicative of
      the results of operations that may be expected for the remaining quarters
      of 2005.(3)
    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 assumes exercise of all potential
      common stock in weighted average shares outstanding, unless the effect is
      antidilutive. 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 months ended
      March 31, 2005 and 2004.
 
 Quarter
ended March 31, 2005
 
 Net
      Income
    
    Shares
    
    AmountBasic
      Income Per ShareIncome
      available to common shareholders
    
    $
    287,181
    
    
    2,487,091
    
    $
    0.12Effect
      of Dilutive SecuritiesWarrants/Stock
      Options outstanding
    
    
    -
    
    
    48,741
    
    
    (0.01
    )Diluted
      Income Per ShareIncome
      available to common shareholdersplus
      assumed conversions
    
    $
    287,181
    
    
    2,535,832
    
    $
    0.11
  8
 Quarter
ended March 31, 2004
 
 Net
      Income
    
    Shares
    
    AmountBasic
      Income Per ShareIncome
      available to common shareholders
    
    $
    196,106
    
    
    2,411,743
    
    $
    0.08Effect
      of Dilutive SecuritiesWarrants/Stock
      Options outstanding
    
    
    -
    
    
    78,128
    
    
    -Diluted
      Income Per ShareIncome
      available to common shareholdersplus
      assumed conversions
    
    $
    196,106
    
    
    2,489,871
    
    $
    0.08
 
  
 (4)
    Bancorp
      has two reportable segments, the commercial bank and the mortgage broker.
      The commercial bank 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. The commercial bank segment also
      attracts deposits from both consumer and commercial customers, and invests
      such deposits in loans, investments and working capital. The commercial
      bank’s revenues are generated primarily from net interest income from its
      lending, investment and deposit activities.The
      mortgage broker solicits and processes conventional mortgage loan
      applications from consumers on behalf of permanent investors and
      originates loans for sale. Revenues are generated from loan brokerage and
      application processing fees received from permanent investors and gains
      and origination fees from loans sold.Information
      about reportable segments and a reconciliation of such information to the
      consolidated financial statements for the three months ended
      March 31, 2005 and 2004 is as follows (in
      thousands):
 
 Quarter
ended March 31, 2005
 
 Bank
    
    Mortgage
      Broker
    
    Consolidated
      TotalsNet
      interest income
    
    $
    3,415
    
    $
    -
    
    $
    3,415Noninterest
      income
    
    
    125
    
    
    586
    
    
    711Noninterest
      expense
    
    
    2,753
    
    
    630
    
    
    3,383Provision
      for loan losses
    
    
    260
    
    
    -
    
    
    260Income
      (loss) before taxes
    
    
    526
    
    
    (44
    )
    
    482Assets
      at period end
    
    
    412,582
    
    
    1,083
    
    
    413,665
  9
 Quarter
ended March 31, 2004
 
 Bank
    
    Mortgage
      Broker
    
    Consolidated
      TotalsNet
      interest income
    
    $
    2,668
    
    $
    -
    
    $
    2,668Noninterest
      income
    
    
    160
    
    
    591
    
    
    751Noninterest
      expense
    
    
    2,273
    
    
    651
    
    
    2,924Provision
      for loan losses
    
    
    160
    
    
    -
    
    
    160Income
      (loss) before taxes
    
    
    395
    
    
    (60
    )
    
    335Assets
      at period end
    
    
    346,091
    
    
    1,011
    
    
    347,102
 
 (5)
    Other
      comprehensive income, which is comprised solely of the change in
      unrealized gains and losses on available for sale securities, is as
      follows:
 
 2005Before-Tax
    
    Tax
    
    Net-of-TaxAmount
    
    Effect
    
    AmountUnrealized
      holding loss arisingduring
      the period
    
    $
    (865,215
    )
    $
    328,782
    
    $
    (536,433
    )Reclassification
      adjustment for(gains)
      losses recognized in income
    
    
    -
    
    
    -
    
    
    -Unrealized
      holding loss on availablefor
      sale securities, net of taxes
    
    $
    (865,215
    )
    $
    328,782
    
    $
    (536,433
    )
 
 
 2004Before-Tax
    
    Tax
    
    Net-of-TaxAmount
    
    Effect
    
    AmountUnrealized
      holding gain arisingduring
      the period
    
    $
    544,846
    
    $
    (207,041
    )
    $
    337,805Reclassification
      adjustment for(gains)
      losses recognized in income
    
    
    -
    
    
    -
    
    
    -Unrealized
      holding gain on availablefor
      sale securities, net of taxes
    
    $
    544,846
    
    $
    (207,041
    )
    $
    337,805
  10
 (6)
    The
      amortized cost, gross unrealized gains, gross unrealized losses and fair
      values of available for sale securities at March 31, 2005 are as
      follows:
 
 Gross
    
    GrossAmortized
    
    Unrealized
    
    Unrealized
    
    FairCost
    
    Gains
    
    Losses
    
    ValueU.S.
      Government Agencyand
      Sponsored Agencyobligations
    
    $
    15,000,000
    
    $
    -
    
    $
    (433,530
    )
    $
    14,566,470Mortgage-backedsecurities
    
    
    68,411,426
    
    
    17,005
    
    
    (1,082,946
    )
    
    67,345,485Money
      market preferredequity
      securities
    
    
    9,000,000
    
    
    -
    
    
    -
    
    
    9,000,000$
    92,411,426
    
    $
    17,005
    
    $
    (1,516,476
    )
    $
    90,911,955
 
 At
      March 31, 2005, gross unrealized holding gains and gross unrealized
      holding losses on available for sale securities totaled $17,005 and
      $1,516,476, respectively. Of the securities with unrealized losses, there
      are five U. S. Government Agency or Sponsored Agency Obligations and 13
      mortgage backed securities that have unrealized losses for a period in
      excess of twelve months with a combined current unrealized loss of
      $1.1 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 effect on capital.
 11
 
 **Item
      2.**
    **Management's
      Discussion and Analysis or Plan of
Operation**
 
 (a)
    *Plan
      of Operation*
 
 Not
applicable since Bancorp had revenues from operations in each of the last two
fiscal years.
 
 (b)
    *Management's
      Discussion and Analysis of**Financial
      Condition and Results of Operations*
 
 **SUMMARY**
 
 Bancorp’s
net income of $287,000 ($0.12 basic income per share and $0.11 diluted income
per share) for the quarter ended March 31, 2005 represents an improvement
of 46.4% when compared to net income of $196,000 ($0.08 basic income per share
and $0.08 diluted income per share) for the quarter ended
March 31, 2004.
 
 Total
assets increased $8.6 million from $405.0 million at December 31, 2004 to
$413.6 million at March 31, 2005. Cash and cash equivalents
decreased $36.3 million to $19.3 million at March 31, 2005 as
compared to $55.6 million at December 31, 2004. The available for sale
securities portfolio increased $14.6 million to $90.9 million at
March 31, 2005 from $76.3 million at December 31, 2004. The net loan
portfolio increased $29.6 million from $263.9 million at December 31, 2004
to $293.5 million at March 31, 2005. Deposits decreased $819,000 to
$366.2  million
at March 31, 2005 from $367.0 million at December 31, 2004. Borrowings
increased $10 million from $16.2 million at
December 31, 2004 to $26.2 million at March 31, 2005. Total
shareholders’ equity decreased $306,000 to $19.5 million at
March 31, 2005 from $19.8 million at
December 31, 2004.
 
 **FINANCIAL
CONDITION**
 
 ***Assets***
 
 Bancorp’s
total assets increased $8.6 million from $405.0 million at
December 31, 2004 to $413.6 million at March 31, 2005. Cash
and cash equivalents decreased $36.3 million or 65.4% to $19.3 million
at March 31, 2005 as compared to $55.6 million at
December 31, 2004. Cash and due from banks decreased $477,000; federal
funds sold and short term investments decreased $24.5 million and
$11.4 million, respectively. The decrease in cash and cash equivalents
funded loan growth and purchases of mortgage-backed securities.
 12
 ***Investments***
 
 The
following table is a summary of Bancorp’s available for sale securities
portfolio, at fair value, at the dates shown:
 
 March
      31,
    
    December
      31,2005
    
    2004U.S.
      Government Agency andSponsored
      Agency Obligations
    
    $
    14,566,470
    
    $
    14,823,295Mortgage-Backed
      Securities
    
    
    67,345,485
    
    
    52,446,180Money
      market preferredequity
      securities
    
    
    9,000,000
    
    
    9,000,000Total
      Investments
    
    $
    90,911,955
    
    $
    76,269,475
 
 Available
for sale securities increased $14.6 million from $76.3 million at
December 31, 2004 to $90.9 million at March 31, 2005.
During the month of January, $19.2 million in excess liquidity was
redeployed from federal funds sold and short term investments into the purchase
of mortgage-backed securities. This $14.6 million increase represents the
excess of security purchases over mortgage-backed security principal repayments
and the increase in the unrealized losses in the available for sales security
portfolio.
 
 ***Loans***
 
 The
following table is a summary of Bancorp’s loan portfolio at the dates
shown:
 
 March
      31,
    
    December
      31,2005
    
    2004Real
      EstateCommercial
    
    $
    114,423,314
    
    $
    106,771,441Residential
    
    
    47,989,824
    
    
    36,965,661Construction
    
    
    84,934,854
    
    
    74,598,919Commercial
    
    
    18,691,376
    
    
    17,562,523Consumer
      installment
    
    
    1,478,740
    
    
    1,386,709Consumer
      home equity
    
    
    30,401,662
    
    
    30,874,894Total
      Loans
    
    
    297,919,770
    
    
    268,160,147Premiums
      on purchased loans
    
    
    461,862
    
    
    313,754Net
      deferred fees
    
    
    (1,112,588
    )
    
    (1,117,556
    )Allowance
      for loan losses
    
    
    (3,741,525
    )
    
    (3,481,525
    )Total
      Loans
    
    $
    293,527,519
    
    $
    263,874,820
 
 Bancorp’s
net loan portfolio increased $29.6 million or 11.2% from
$263.9 million at December 31, 2004 to $293.5 million at
March 31, 2005. The notable increases include construction loans of
$10.3 million, commercial real estate loans of $7.7 million and
residential real estate loans of $11.0 million, of which $7.0 million
represent purchases of
 13
 adjustable
rate residential mortgages. The growth in loans originated by the Bank reflect
the continued strong real estate market in the Fairfield County, Connecticut and
Westchester County, New York areas in which the Bank primarily conducts business
and which continues to contribute to the overall growth in the loan portfolio.
Although short term interest rates have increased, the interest rate environment
for borrowers remained favorable in the first quarter of 2005.
 
 At
March 31, 2005, the net loan to deposit ratio was 80.2% and the net
loan to total assets ratio was 70.9%. At December 31, 2004, the net loan to
deposit ratio was 71.9% and the net loan to total assets ratio was 65.2%. Based
on loan applications in process and the planned hiring of additional loan
officers, management anticipates continued loan growth during the remainder of
2005.
 
 ***Critical
Accounting Policies***
 
 In the
ordinary course of business, Bancorp has made a number of estimates and
assumptions relating to reporting results of operations and financial condition
in preparing its financial statements in conformity with accounting principles
generally accepted in the United States of America. 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 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”
 14
 reflecting
the most risk or a complete loss. Risk ratings are assigned by the originating
loan officer or 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 and 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.
 
 Based
upon this evaluation, management believes the allowance for loan losses of
$3.7 million at March 31, 2005, which represents 1.26% of gross
loans outstanding, is adequate, under prevailing economic conditions, to absorb
losses on existing loans. At December 31, 2004, the allowance for loan
losses was $3.5 million or 1.31% of gross loans outstanding.
 
 **Analysis
of Allowance for Loan Losses**
 March
      31,*(Thousands
      of dollars)*
    
    2005
    
    2004Balance
      at beginning of period
    
    $
    3,481
    
    $
    2,935Charge-offs
    
    
    -
    
    
    -Recoveries
    
    
    -
    
    
    -Net
      (charge-offs) recoveries
    
    
    -
    
    
    -Provision
      charged to operations
    
    
    260
    
    
    160Balance
      at end of period
    
    $
    3,741
    
    $
    3,095Ratio
      of net (charge-offs) recoveriesduring
      the period to average loansoutstanding
      during the period.
    
    
    (0.00
    %)
    
    (0.00
    %)
 
 15
 ***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:
 
 March
      31,
    
    December
      31,*(Thousands
      of dollars)*
    
    2005
    
    2004Loans
      delinquent over 90days
      still accruing
    
    $
    1,558
    
    $
    373Non-accruing
      loans
    
    
    3,644
    
    
    3,669Total
    
    $
    5,202
    
    $
    4,042%
      of Total Loans
    
    
    1.75
    %
    
    1.51
    %%
      of Total Assets
    
    
    1.26
    %
    
    1.00
    %
 
 ***Potential
Problem Loans***
 
 The $3.6
million in non-accruing loans at March 31, 2005 is comprised of three
loans that are well collateralized and in the process of collection; two loans
totaling $3.5 million are current as to contractually due principal and
interest payments. Subsequent to March 31, 2005, the third loan in the
amount of $150,000 was sold; no loss was incurred on the sale.
 
 At March
31, 2005, 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***
 
 The
following table is a summary of Bancorp’s deposits at the dates
shown:
 
 March
      31,
    
    December
      31,2005
    
    2004Noninterest
      bearing
    
    $
    39,390,978
    
    $
    42,584,120Interest
      bearingNOW
    
    
    25,799,209
    
    
    26,814,653Savings
    
    
    22,517,231
    
    
    22,104,121Money
      market
    
    
    75,192,999
    
    
    72,450,663Time
      certificates, less than $100,000
    
    
    131,103,472
    
    
    131,764,662Time
      certificates, $100,000 or more
    
    
    72,181,962
    
    
    71,287,106Total
      interest bearing
    
    
    326,794,873
    
    
    324,421,205Total
      Deposits
    
    $
    366,185,851
    
    $
    367,005,325
 
 16
 Total
deposits decreased $819,000 from $367.0 million at December 31, 2004 to
$366.2 million at March 31, 2005. Noninterest bearing deposits
decreased $3.2 million due primarily to fluctuations in personal and
commercial checking accounts which decreased $842,000 and $3.6 million,
respectively. These decreases were partially offset by an increase of
$1.3 million in cashiers’ checks. Interest bearing deposits increased
$2.4 million from $324.4 million at December 31, 2004 to
$326.8 million at March 31, 2005. Money market deposit accounts increased
$2.7 million due primarily to the rising rate environment which has influenced
customers to keep their funds liquid instead of committing to longer term
certificates of deposit. Savings accounts and certificates of deposit increased
$413,000 and $234,000, respectively. Certificates of deposit remained relatively
flat due primarily to the premium rates offered through the aggressive marketing
campaigns of some of our local competitors as well as the desire of customers to
remain liquid as previously mentioned.
 
 ***Borrowings***
 
 At March
31, 2005, total borrowings were $26.2 million; this represents an increase
of $10 million when compared to total borrowings of $16.2 million at
December 31, 2004. Instead of pursuing high priced certificates of
deposit in this very competitive market, the Bank chose to take down $10 million
of short term borrowings from the Federal Home Loan Bank in anticipation of a
promotional rate deposit campaign that will be offered in conjunction with the
near term opening of the Southport Office which is expected to generate an
increase in deposits.
 
 ***Off-Balance
Sheet Arrangements***
 
 There
have been no significant changes in Bancorp’s off-balance sheet arrangements
which primarily consist of commitments to lend, during the quarter ended March
31, 2005.
 
 **RESULTS
OF OPERATIONS**
 
 ***Interest
and dividend income and expense***
 
 Bancorp’s
interest and dividend income increased $1.3 million or 29.9% for the
quarter ended March 31, 2005 as compared to the same period in 2004.
Interest and fees on loans increased 32.4% or $1.1 million from $3.5
million for the quarter ended March 31, 2004 to $4.6 million for the
quarter ended March 31, 2005. These increases are the result of the increase in
the loan portfolio combined with increases in interest rates.
 
 Bancorp’s
interest expense increased 32.9% or $540,000 for the quarter ended
March 31, 2005 as compared to the same period in 2004. Increases in
average balances of interest bearing deposits accounts resulted in an increase
of 39.7% or $566,000 in interest expense for the quarter ended March 31, 2005
compared to the same period last year. Increases in the index to which the
subordinated debt is tied resulted in an increase in interest expense of
$27,000. Decreases in the average balances of outstanding borrowings resulted in
 17
 a
decrease of $54,000 in interest expense for the quarter ended March 31, 2005 as
compared to the same period in 2004.
 
 As a
result of these factors, net interest income increased $747,000 or 28% to
$3.4 million for the three months ended March 31, 2005 as compared to $2.7
million for the same period last year.
 
 ***Noninterest
income***
 
 Noninterest
income decreased $40,000 or 5.4% to $711,000 for the quarter ended March
31, 2005 as compared to the same period last year. Mortgage brokerage and
referral fees decreased by 6.4% or $32,000 to $464,000 for the quarter ended
March 31, 2005 as compared to $496,000 for the same period last year.
This decrease was due primarily to an increase in long term interest rates which
resulted in a decrease in the volume of refinance transactions. As a result of
the decrease in refinance transactions, there was also a decrease in loan
origination and processing fees of $40,000 or 34.2% to $79,000 for the quarter
ended March 31, 2005 as compared to $119,000 for the quarter ended
March 31, 2004. Increases in deposit accounts and transaction volumes
resulted in an increase in fees and service charges of $27,000 or 26.7% from
$101,000 for the quarter ended March 31, 2004 to $128,000 for the quarter ended
March 31, 2005.
 
 ***Noninterest
expenses***
 
 Noninterest
expenses increased 15.7% or $459,000 to $3.4 million for the quarter ended
March 31, 2005 from $2.9 million for the quarter ended
March 31, 2004. Salaries and benefits expense increased 14.0%, or
$251,000 to $2.0 million for the quarter ended March 31, 2005 from
$1.8 million for the quarter ended March 31, 2004. This increase is due
primarily to staff additions resulting from the opening of two branches in 2004,
as well as to increases in loan and deposit production sales and incentive
compensation and an enhanced compensation plan designed to attract additional
talented and experienced residential mortgage loan originators to build loan
origination volume and to generate additional fee income. Occupancy and
equipment expense, net, increased $112,000 or 29.3% to $493,000 for the quarter
ended March 31, 2005 from $381,000 for the quarter ended March 31,
2004 due primarily to the establishment during the second half of 2004 of two
additional branch locations and the relocation of an office of the Residential
Lending Group from Greenwich to Stamford in April of last year. Data processing
and other outside services increased $44,000 or 22% from $196,000 for the three
months ended March 31, 2004 to $240,000 for the three months ended
March 31, 2005; much of this increase is due to an increase in data processing
expenses as a result of the growth in the branch network and increases due to
ongoing maintenance charges for the implementation of new products and services.
Other operating expenses increased $40,000 or 14.9% from $270,000 for the three
months ended March 31, 2004 to $310,000 for the three months ended
March 31,  2005; included in this increase are higher expenses related to
director compensation, customer relations and regulatory assessments.
Professional services increased $36,000 or 35% from
 18
 $100,000
for the three months ended March 31, 2004 to $136,000 for the three
months ended March 31, 2005; this increase is due primarily to
increases in accruals for consulting services related to the implementation of
Section 404 of the Sarbanes-Oxley Act of 2002. Loan administration and
processing expenses decreased 32.5% to $44,000 for the three months ended
March 31, 2005 from $66,000 for the three months ended March 31,
2004 due to the decrease in the volume of residential mortgage refinance
transactions.
 
 Bancorp
has received regulatory approval to establish a branch office in Southport,
Connecticut, which will result in additional capital expenditures as well as
increases in salaries and benefits and occupancy and equipment expenses.
Management anticipates that this office will open in the second or third quarter
of 2005.
 
 ***Income
Taxes***
 
 Bancorp
recorded income tax expense of $195,000 for the quarter ended
March 31, 2005 as compared to $139,000 for the quarter ended March 31,
2004. The effective tax rates for the quarters ended March 31, 2005
and March 31, 2004 were 40% and 41%, respectively. These changes are
related primarily to the change in pre-tax income and the exclusion for state
tax purposes of certain holding company expenses.
 
 LIQUIDITY
 
 Bancorp's
liquidity ratio was 26.6% and 34.0% at March 31, 2005 and 2004,
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 have sufficient liquidity to cover loan demand, potential fluctuations in
deposit accounts, the costs related to opening the Southport branch and to meet
other anticipated cash operating requirements.
 
 **CAPITAL**
 
 The
following table illustrates Bancorp’s regulatory capital ratios at
March 31, 2005 and December 31, 2004 respectively:
 
 March
      31, 2005
    
    December
      31, 2004Total
      Risk-based Capital
    
    
    10.53%
    
    
    10.70%Tier
      1 Risk-based Capital
    
    
    8.87%
    
    
    9.04%Leverage
      Capital
    
    
    6.45%
    
    
    6.79%
 
 19
 The
following table illustrates the Bank’s regulatory capital ratios at
March 31, 2005 and December 31, 2004 respectively:
 
 March
      31, 2005
    
    December
      31, 2004Total
      Risk-based Capital
    
    
    10.35%
    
    
    10.50%Tier
      1 Risk-based Capital
    
    
    9.10%
    
    
    9.29%Leverage
      Capital
    
    
    6.62%
    
    
    6.98%
 
 
 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 March 31, 2005 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%.
 
 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 raise additional capital to support the
planned growth of the Bank.
 
 On April
25, 2005, Bancorp filed a registration statement with the Securities and
Exchange Commission on Form SB-2 pursuant to which it proposes to raise an
additional $7 - $12 million of capital by sales of common stock
to shareholders and as yet unidentified stand-by purchasers. All of the net
proceeds is needed to allow the Bank to both remain “well capitalized” and
continue its growth, historically accomplished through de novo bank
branches.
 
 **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 in the same magnitude as the
prices of goods and services. Notwithstanding this, inflation can directly
affect the value of loan collateral, in particular, real estate. Inflation, or
disinflation, could significantly affect Bancorp’s earnings in future
periods.
 
 **"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
 
 20
 of
Operation," may be forward looking and subject to a variety of risks and
uncertainties. These factors include, but are not limited to, (1) changes in
prevailing interest rates which would affect the interest earned on Bancorp's
interest earning assets and the interest paid on its interest bearing
liabilities, (2) the timing of repricing of Bancorp's interest earning assets
and interest bearing liabilities, (3) the effect of changes in governmental
monetary policy, (4) the effect of changes in regulations applicable to Bancorp
and the conduct of its business, (5) changes in competition among financial
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 which it is
impracticable for Bancorp to provide, (7) the effects of Bancorp's opening of
branches, and (8) the effect of any decision by Bancorp to engage in any new
business activities. Other such factors may be described in Bancorp's future
filings with the SEC.
 
 **Item
      3.**
    **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 March
 31, 2005 that has materially affected, or is reasonably likely to
materially affect, Bancorp’s internal control over financial
reporting.
 21
 **PART
II - OTHER INFORMATION** .
 
 **Item
      2.**
    **Changes
      in Securities and Use of Proceeds**
 
 (a)
    Not
      applicable(b)
    Not
      applicable(c)
    During
      the three months ended March 31, 2005, Bancorp issued 3,000 shares of its
      Common Stock upon the exercise of certain options that were granted in
      connection with a stock option plan adopted by the Bank in 1999 under
      which non-qualified and incentive stock options were granted in 1999 to
      certain directors. The weighted average exercise price per share of these
      options is $10.13. The obligations under these options were assumed by
      Bancorp at the time the Bank became a wholly owned subsidiary of
      Bancorp.The
      total amount received by Bancorp for these shares was $30,330. No
      underwriter was used in connection with the sale of these 3,000 shares nor
      were any underwriting discounts or commissions paid. The shares are
      unregistered under the Securities Act of 1933, and were issued pursuant to
      the private offering exemption under Section 4 (2) of such
      Act.(d)
    Not
      applicable
 
 
 **Item
      6.**
    **Exhibits**
 
 No.
    Description31(1)
    Rule
      13a-14(a)/15d-14(a) Certification of Chief Executive
    Officer31(2)
    Rule
      13a-14(a)/15d-14(a) Certification of Chief Financial
    Officer32
    Section
      1350 Certification
 22
 **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)May
      10, 2005
 
  23