10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018

OR

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

For the transition period from ______ to ______

Commission file number 000-29599

 PATRIOT NATIONAL BANCORP, INC.

(Exact name of registrant as specified in its charter)

Connecticut	06-1559137
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
900 Bedford Street, Stamford, Connecticut	06901
(Address of principal executive offices)	(Zip Code)

(203) 324-7500

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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   ☒    No ☐

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes ☒    No   ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ☐    No ☒

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

 PROCEEDINGS DURING THE PRECEDING FIVE YEARS: 

Indicate by check mark whether the registrant has filed all documents and reports to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    Yes   ☐    No   ☐ 

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of November 9, 2018, there were 3,904,578 shares of the registrant’s common stock outstanding.

1

Table of Contents

Table of Contents
PART I- FINANCIAL INFORMATION
Item 1: Consolidated Financial Statements
Consolidated Balance Sheets (Unaudited)		3
Consolidated Statements of Income (Unaudited)		4
Consolidated Statements of Comprehensive (Loss) Income  (Unaudited)		5
Consolidated Statements of Shareholder's Equity (Unaudited)		6
Consolidated Statements of Cash FLows (Unaudited)		7
Note to Consolidated Financial Statements (Unaudited)		8
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations		43
Item 3: Quantitative and Qualitative Disclosures about Market Risk		57
Item 4: Disclosure Controls and Procedures		59
PART II - OTHER INFORMATION		60
Item 1:	Legal Proceedings	60
Item 5:	Other Information	60
Item 6:	Exhibits	61
SIGNATURES		63

2

PART I- FINANCIAL INFORMATION

Item 1: Consolidated Financial Statements

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands, except share data)	September 30, 2018			December 31, 2017
ASSETS
Cash and due from banks:
Noninterest bearing deposits and cash	$	5,596			3,582
Interest bearing deposits		43,636			45,659
Total cash and cash equivalents		49,232			49,241
Investment securities:
Available-for-sale securities, at fair value		40,264			25,576
Other investments, at cost		4,450			4,450
Total investment securities		44,714			30,026
Federal Reserve Bank stock, at cost		2,833			2,502
Federal Home Loan Bank stock, at cost		4,928			5,889
Loans receivable (net of allowance for loan losses: 2018: $6,605, 2017: $6,297)		756,649			713,350
Accrued interest and dividends receivable		3,612			3,496
Premises and equipment, net		35,487			35,358
Other real estate owned		991			-
Deferred tax asset		10,907			10,397
Goodwill		1,944			-
Core deposit intangible, net		717			-
Other assets		3,272			1,821
Total assets	$	915,286			852,080
Liabilities
Deposits:
Noninterest bearing deposits	$	81,687			81,197
Interest bearing deposits		637,845			556,242
Total deposits		719,532			637,439
Federal Home Loan Bank and correspondent bank borrowings		90,000			120,000
Senior notes, net		11,759			11,703
Subordinated debt, net		9,720			-
Junior subordinated debt owed to unconsolidated trust		8,092			8,086
Note payable		1,436			1,580
Advances from borrowers for taxes and insurance		1,659			2,829
Accrued expenses and other liabilities		4,167			3,694
Total liabilities		846,365			785,331
Commitments and Contingencies
Shareholders' equity
Preferred stock, no par value; 1,000,000 shares authorized, no shares issued and outstanding		-			-
Common stock, $.01 par value, 100,000,000 shares authorized; 2018: 3,980,707 shares issued; 3,906,966 shares outstanding. 2017: 3,973,416 shares issued; 3,899,675 shares outstanding		40			40
Additional paid-in capital		107,038			106,875
Accumulated deficit		(36,078	)		(38,832	)
Less: Treasury stock, at cost: 2018 and 2017, 73,741 and 73,741 shares, respectively		(1,179	)		(1,179	)
Accumulated other comprehensive loss		(900	)		(155	)
Total shareholders' equity		68,921			66,749
Total liabilities and shareholders' equity	$	915,286			852,080

See Accompanying Notes to Consolidated Financial Statements.

3

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

	Three Months Ended September 30,					Nine Months Ended September 30,
(In thousands, except per share amounts)	2018			2017		2018		2017
Interest and Dividend Income
Interest and fees on loans	$	9,413			8,522		27,388		22,720
Interest on investment securities		364			275		921		688
Dividends on investment securities		125			105		374		280
Other interest income		342			65		763		148
Total interest and dividend income		10,244			8,967		29,446		23,836
Interest Expense
Interest on deposits		2,457			1,339		6,111		3,457
Interest on Federal Home Loan Bank borrowings		486			248		1,245		509
Interest on senior debt		229			229		686		686
Interest on subordinated debt		278			92		489		266
Interest on note payable		6			7		23		24
Total interest expense		3,456			1,915		8,554		4,942
Net interest income		6,788			7,052		20,892		18,894
Provision (Credit) for Loan Losses		50			545		285		(944	)
Net interest income after provision (credit) for loan losses		6,738			6,507		20,607		19,838
Non-interest Income
Loan application, inspection and processing fees		16			25		36		61
Deposit fees and service charges		126			149		392		444
Gains on sale of loans		3			-		69		-
Rental Income		115			117		282		302
Loss on sale of investment securities		-			-		-		(78	)
Other income		94			95		283		283
Total non-interest income		354			386		1,062		1,012
Non-interest Expense
Salaries and benefits		2,794			2,741		8,417		7,668
Occupancy and equipment expense		829			796		2,346		2,378
Data processing expense		333			340		972		786
Professional and other outside services		565			410		1,594		1,612
Merger and tax initiative project expenses		653			39		1,768		39
Advertising and promotional expense		57			81		194		266
Loan administration and processing expense		25			22		68		45
Regulatory assessments		275			230		825		572
Insurance (income) expense		(56	)		66		52		181
Communications, stationary and supplies		146			97		369		287
Other operating expense		426			400		1,194		1,096
Total non-interest expense		6,047			5,222		17,799		14,930
Income before income taxes		1,045			1,671		3,870		5,920
Provision for Income Taxes		276			658		1,000		2,373
Net income	$	769			1,013		2,870		3,547
Basic earnings per share	$	0.20			0.26		0.74		0.91
Diluted earnings per share	$	0.20			0.26		0.73		0.91

See Accompanying Notes to Consolidated Financial Statements.

4

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (Unaudited)

(In thousands)	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Net income	$	769			1,013			2,870			3,547
Other comprehensive income
Unrealized holding (loss) gain on securities		(299	)		2			(1,009	)		289
Income tax effect		73			(1	)		264			(112	)
Reclassification for realized losses on sale of investment securities		-			-			-			(78	)
Income tax effect		-			-			-			30
Total other comprehensive (loss) income		(226	)		1			(745	)		129
Comprehensive income	$	543			1,014			2,125			3,676

See Accompanying Notes to Consolidated Financial Statements.

5

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)

(In thousands, except shares)	Number of Shares			Common Stock		Additional Paid-in Capital		Accumulated Deficit			Treasury Stock			Accumulated Other Comprehensive (Loss) Income			Total
Balance at December 31, 2017		3,899,675		$	40		106,875		(38,832	)		(1,179	)		(155	)		66,749
Comprehensive income:
Net income		-			-		-		2,870			-			-			2,870
Unrealized holding loss on available-for-sale securities, net of tax		-			-		-		-			-			(745	)		(745	)
Total comprehensive income		-			-		-		2,870			-			(745	)		2,125
Common stock dividends									(116	)								(116	)
Share-based compensation expense		-			-		163		-			-			-			163
Vesting of restricted stock		7,291			-		-		-			-			-			-
Balance at September 30, 2018		3,906,966		$	40		107,038		(36,078	)		(1,179	)		(900	)		68,921
Balance at December 31, 2016		3,891,897		$	40		106,729		(42,902	)		(1,177	)		(120	)		62,570
Comprehensive income:
Net income		-			-		-		3,547			-			-			3,547
Unrealized holding gain on available-for-sale securities, net of tax		-			-		-		-			-			129			129
Total comprehensive income		-			-		-		3,547			-			129			3,676
Purchase of treasury stock		(100	)									(2	)					(2	)
Common stock dividends									(39	)								(39	)
Share-based compensation expense		-			-		105		-			-			-			105
Vesting of restricted stock		3,923			-		-		-			-			-			-
Balance at September 30, 2017		3,895,720		$	40		106,834		(39,394	)		(1,179	)		9			66,310

See Accompanying Notes to Consolidated Financial Statements.

6

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	Nine Months Ended September 30,
(In thousands)	2018			2017
Cash Flows from Operating Activities:
Net income	$	2,870			3,547
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of investment premiums, net		34			66
Amortization and accretion of purchase loan premiums and discounts		509			476
Amortization of debt issuance costs		69			62
Provision (credit) for loan losses		285			(944	)
Depreciation and amortization		1,106			926
Amortization of core deposit intangible		31			-
Loss on sales of available-for-sale securities		-			78
Share-based compensation		163			105
(Increase) decrease in deferred income taxes		(246	)		1,864
Changes in assets and liabilities:
Increase in accrued interest and dividends receivable		(116	)		(775	)
Decrease (increase) in other assets		855			(4	)
Change in contingent consideration		(1,284	)		-
Increase (Decrease) in accrued expenses and other liabilities		1,141			(796	)
Net cash provided by operating activities		5,417			4,605
Cash Flows from Investing Activities:
Proceeds from sales on available-for-sale securities		35,532			13,846
Principal repayments on available-for-sale securities		1,362			1,639
Purchases of available-for-sale securities		(17,093	)		(20,576	)
Purchases of Federal Reserve Bank stock		(331	)		(351	)
Redemptions (purchases) of Federal Home Loan Bank stock		961			(744	)
Decrease (increase) in originated loans receivable, net		15,330			(53,424	)
Purchases of loans receivable		(37,830	)		(73,022	)
Purchase of premises and equipment		(1,229	)		(2,880	)
Escrow deposit for pending acquisition		(500	)		-
Net cash used in business combination		(4,736	)		-
Net cash used in investing activities		(8,534	)		(135,512	)
Cash Flows from Financing Activities:
Increase in deposits, net		35,909			76,090
Repayments of FHLB and correspondent bank borrowings		(39,800	)		(8,000	)
Proceeds from issuance of subordinated debt, net		9,713			-
Principal repayments of note payable		(144	)		(142	)
Decrease in advances from borrowers for taxes and insurance		(1,170	)		(877	)
Purchases of treasury stock		-			(2	)
Dividends paid on common stock		(116	)		(39	)
Payments of contingent consideration		(1,284	)		-
Net cash provided by financing activities		3,108			67,030
Net decrease in cash and cash equivalents		(9	)		(63,877	)
Cash and cash equivalents at beginning of period		49,241			92,289
Cash and cash equivalents at end of period	$	49,232			28,412
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	$	7,492			4,467
Cash paid for income taxes	$	1,243			475
Business Combination Non-Cash Disclosures
Assets acquired in business combination (net of cash received)	$	60,492			-
Liabilities acquired in business combination	$	56,095			-
Contingent liability assumed in business combination	$	1,761			-

See Accompanying Notes to Consolidated Financial Statements.

7

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements (Unaudited)

Note 1: Basis of Financial Statement Presentation

The accompanying unaudited condensed consolidated financial statements of Patriot National Bancorp, Inc. (the “Company”) and its wholly-owned subsidiary Patriot Bank, N.A. (the “Bank”) (collectively, “Patriot”), have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). 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 (“US GAAP”) have been omitted. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included on the Annual Report on Form 10-K for the year ended December 31, 2017.

The Consolidated Balance Sheet at December 31, 2017 presented herein has been derived from the audited consolidated financial statements of the Company at that date, but does not include all of the information and footnotes required by US GAAP for complete financial statements.

On May 10, 2018 the Bank completed its acquisition of Prime Bank, a Connecticut bank headquartered in Orange, CT (“Prime Bank”). The closing of the transaction added a new Patriot branch located in the Town of Orange, New Haven County, Connecticut. The results of Prime Bank’s operations were included in the Company’s Consolidated Financial Statements from the date of acquisition.

The preparation of consolidated financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and to disclose contingent assets and liabilities. Actual results could differ from those estimates. Management has identified accounting for the allowance for loan losses, the analysis and valuation of its investment securities, the valuation of deferred tax assets, and business combination as certain of Patriot’s more significant accounting policies and estimates, in that they are critical to the presentation of Patriot’s financial condition and results of operations. As they concern matters that are inherently uncertain, these estimates require management to make subjective and complex judgments in the preparation of Patriot’s Consolidated Financial Statements.

Certain prior period amounts have been reclassified to conform to current year presentation.

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 September 30, 2018 are not necessarily indicative of the results of operations that may be expected for the remainder of 2018.

8

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements (Unaudited)

Note 2: Accounting Policies     

New Accounting Policy

Please refer to the summary of Significant Accounting Policies included in the Company’s 2017 Annual Report on Form 10-K for a list of all policies in effect as of December 31, 2017. The below summary is intended to provide updates or new policies required as a result of a new accounting standard or a change to the Company’s operations or assets that require a new or amended policy.

Acquired Loans

Acquired loans are initially recorded at their acquisition date fair values. The carryover of allowance for loan losses is prohibited as any credit losses in the acquired loans are included in the determination of the fair value of the loans at the acquisition date. Fair values for acquired loans are based on a discounted cash flow methodology that involves assumptions and judgments as to credit risk, prepayment risk, liquidity risk, default rates, loss severity, payment speeds, collateral values and discount rate.

Acquired Impaired Loans- Purchase Credit Impaired “PCI” Loans

Acquired loans that exhibit evidence of deterioration in credit quality since origination and for which it is probable, at acquisition, that the Company will be unable to collect all contractually required payments are accounted for as PCI loans under Accounting Standards Codification (“ASC”) 310-30. The excess of undiscounted cash flows expected at acquisition over the estimated fair value is referred to as the accretable discount and is accreted into interest income over the remaining life of the loans using the interest method. The difference between contractually required payments at acquisition and the undiscounted cash flows expected to be collected at acquisition is referred to as the non-accretable discount. The non-accretable discount represents estimated future credit losses and other contractually required payments that the Company does not expect to collect. Subsequent decreases in expected cash flows are recognized as impairments through a charge to the provision for loan losses resulting in an increase in the allowance for loan losses. Subsequent improvements in expected cash flows result in a recovery of previously recorded allowance for loan losses or a reversal of a corresponding amount of the nonaccretable discount, which the Company then reclassifies as an accretable discount that is accreted into interest income over the remaining life of the loans using the interest method.

PCI loans are initially measured at fair value, which includes estimated future credit losses expected to be incurred over the life of the loan. Accordingly, the associated allowance for credit losses related to these loans is not carried over at the acquisition date.

Acquired loans that met the criteria for non-accrual of interest prior to acquisition were not considered performing upon acquisition. When the customers resume payments, to make the nonaccrual loans current, the loans may return to accrual status, including the impact of any accretable discounts, if the Company can reasonably estimate the timing and amount of the expected cash flows on such loans and if the Company expects to fully collect the new carrying value of the loans.

Acquired Non-impaired Loans

Acquired loans that do not meet the requirements under ASC 310-30 are considered acquired non-impaired loans. The difference between the acquisition date fair value and the outstanding balance represents the fair value adjustment for a loan and includes both credit and interest rate considerations. Fair value adjustments may be discounts (or premiums) to a loan’s cost basis and are accreted (or amortized) to net interest income (or expense) over the loan’s remaining life in accordance with ASC 310-20. Fair value adjustments for revolving loans are accreted (or amortized) using a straight line method. Term loans are accreted (or amortized) using the constant effective yield method.

Subsequent to the purchase date, the methods used to estimate the allowance for loan losses for the acquired non-impaired loans are consistent with the policy for allowance for loan losses described in Note 5.

9

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements (Unaudited)

Allowance for loan losses (“ALLL”) methodology

As of September 30, 2018, the Company changed its methodology to estimate its allowance for loan losses.

The Bank further segmented its loan pools by Pass, Special Mention, Substandard, and Doubtful risk ratings and assigning additional risk premiums to each group. The qualitative and economic factors for all of the pools and subsegments were also evaluated, with Pass loans receiving adjustments to reflect their credit profile relative to the non-impaired criticized assets.  These adjustments generally flow through the qualitative factors addressing severity of past due loans and other similar conditions and the nature and volume of the portfolio and terms of the loans.

The Bank’s leveraged lending portfolio was evaluated relative to the rest of the Commercial & Industrial (“C&I”) pool (federal call code 4a), and an additional risk premium was assigned to those loans in aggregate, and is reflected in the “other reserves” category in the ALLL calculation. These loans were isolated due their risk parameters and profile, including higher leverage than the rest of the Bank’s C&I portfolio.

The change in methodology resulted in better alignment of the credit characteristics of the various risk grades and loan types with the calculated allowance. The provision of $50,000 in the third quarter incorporated these changes.

Intangible Assets

Intangible assets include core deposit intangibles and goodwill arising from acquisitions. The initial and ongoing carrying value of intangible assets is based upon modeling techniques that require management to make estimates regarding the amount and timing of expected future cash flows. It also requires use of a discount rate that reflects the current return requirements of the market in relation to present risk-free interest rates, required equity market premiums, peer volatility indicators, and company-specific risk indicators.

Core deposit intangibles are amortized on straight-line basis over a 10-year period because that is managements’ conservative estimate of the period Patriot will benefit from Prime Bank’s stable deposit base comprised of funds associated with long term customer relationships.

The Company will evaluate goodwill for impairment on an annual basis, or more often if events or circumstances indicate there may be impairment. The annual impairment test will be conducted as of November annually. The implied fair value of a reporting unit’s goodwill is compared to its carrying amount and the impairment loss is measured by the excess of the carrying value over fair value. The fair value of each reporting unit is compared to the carrying amount of such reporting unit in order to determine if impairment is indicated.

Contingent Consideration

Contingent consideration represents an estimate of the additional amount of purchase price consideration and is measured based on the probability that certain loans are restructured in accordance with the related acquisition agreement. Resolution of the contingent consideration will result in a cash payment and will be reflected in the financial statements as a measurement period adjustment as they are finalized. Changes will be recognized as an increase or decrease to goodwill, the valuation of the related loans and the contingent consideration/purchase price.

10

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements (Unaudited)

New Accounting Standards

Accounting Standards Adopted During 2018

Effective January 1, 2018, the following new Accounting Standards Updates (ASUs) were adopted by the Company:

ASU 2014-09 

ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) including subsequent ASUs issued to clarify this Topic. The ASU, and subsequent related updates, establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most previous revenue recognition guidance, including industry-specific guidance. The ASUs are intended to increase comparability across industries. The core principle of the revenue model is that a company will recognize revenue when it transfers control of goods or services to customers, at an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services.

The Company adopted the ASU on January 1, 2018 on a modified retrospective transition approach. The adoption of this guidance did not have a material impact on the Company’s Consolidated Financial Statements, and there was no cumulative effect adjustment to opening retained earnings as no material changes were identified in the timing of revenue recognition.

ASU 2016-01 and ASU 2018-03 

ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities, and ASU No. 2018-03, Technical Corrections and Improvements to Financial Instruments - Overall (Subtopic 825-10). The ASUs included targeted amendments in connection with the recognition, measurement, presentation, and disclosure of financial instruments. The main provisions require investments in equity securities to be measured at fair value through net income, unless they qualify for a practical expedient, and require fair value changes arising from changes in instrument-specific credit risk for financial liabilities that are measured under the fair value option to be recognized in other comprehensive income. The provisions also emphasized the existing requirement to use exit prices to measure fair value for disclosure purposes. The Company adopted the ASUs on January 1, 2018 on a modified retrospective basis. In connection with the adoption of ASU 2016-01 on January 1, 2018, we refined our methodology to estimate the fair value of our loan portfolio using an exit price notion resulting in prior-periods no longer being comparable.

ASU 2016-15 

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 addresses the classification of certain specific transactions presented on the Statement of Cash Flows, in order to improve consistency across entities. Debt prepayment or extinguishment, debt-instrument settlement, contingent consideration payments post-business combination, and beneficial interests in securitization transactions are specific items addressed by this ASU that may affect the Bank. Additionally, the ASU codifies the predominance principle for classifying separately identifiable cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. As of September 30, 2018, Patriot did not have any debt prepayment or extinguishment, debt-instrument settlement, or beneficial interests in securitization transactions. Contingent consideration payments post-business combination were classified as a specific item under cash flows from financing activities.

11

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements (Unaudited)

ASU 2016-18

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows: Restricted Cash. The purpose of the standard is to improve consistency and comparability among companies with respect to the reporting of changes in restricted cash and cash equivalents on the Statement of Cash Flows. The ASU requires the Statement of Cash Flows to include all changes in total cash and cash equivalents, including restricted amounts, and to the extent restricted cash and cash equivalents are presented in separate line items on the Balance Sheet, disclosure reconciling the change in total cash and cash equivalents to the amounts shown on the Balance Sheet are required. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. As of September 30, 2018 and December 31, 2017, Patriot did not have restricted cash and cash equivalents separately disclosed on its Balance Sheet. In the future, if Patriot’s activities warrant presenting separate line items on its Balance Sheet for restricted cash and cash equivalents, management does not envision any difficulties implementing the requirements of ASU 2016-18, as applicable.

ASU 2017-09

In May 2017, the FASB issued ASU 2017-09, Scope of Modification Accounting, which provide guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718 Stock compensation. The ASU is effective to all entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period. This ASU did not have a material impact on its Consolidated Financial Statements.

ASU 2018-04

ASU 2018-04 - Investments - Debt Securities (Topic 320) and Regulated Operations (Topic 980): The amendment in this ASU adds, amends and supersedes various paragraphs that contain SEC guidance in ASC 320, Investments-Debt Securities and ASC 980, Regulated Operations. The amendments in this ASU are effective when a registrant adopts ASU 2016-01, which for Patriot, was January 1, 2018. This amendment did not have an impact on the Company’s Consolidated Financial Statements.

Accounting Standards Issued But Not Yet Adopted

ASU 2016-02

In February 2016, the FASB issued ASU No. 2016-02, Leases. This ASU was issued to improve the financial reporting of leasing activities and provide a faithful representation of leasing transactions and improve understanding and comparability of a lessee's financial statements. Under the new accounting guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. This ASU will require both finance and operating leases to be recognized on the balance sheet. This ASU will affect all companies and organizations that lease real estate. The FASB issued an update in January 2018 (ASU 2018-01) providing an optional transition practical expedient to not evaluate under Topic 842 land easements that exist or expired before the entity's adoption of Topic 842. This ASU will become effective for interim and annual reporting periods beginning after December 15, 2018. The Company will adopt this new accounting guidance as required. Management is currently evaluating the impact of the new standard on its Consolidated Financial Statements.

ASU 2016-13 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments. The ASU changes the methodology for measuring credit losses on financial instruments measured at amortized cost to a current expected loss (“CECL”) model. Under the CECL model, entities will estimate credit losses over the entire contractual term of a financial instrument from the date of initial recognition of the instrument. The ASU also changes the existing impairment model for available-for-sale debt securities. In cases where there is neither the intent nor a more-likely-than-not requirement to sell the debt security, an entity will record credit losses as an allowance rather than a direct write-down of the amortized cost basis. Additionally, ASU 2016-13 notes that credit losses related to available-for-sale debt securities and purchased credit impaired loans should be recorded through an allowance for credit losses. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted for fiscal years beginning after December 15, 2018. Management is currently evaluating the impact that the standard will have on its Consolidated Financial Statements.

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PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements (Unaudited)

ASU 2017-04

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment: The objective of this guidance is to simplify an entity’s required test for impairment of goodwill by eliminating Step 2 from the goodwill impairment test. In Step 2 an entity measured a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. In computing the implied fair value of goodwill, an entity had to determine the fair value at the impairment date of its assets and liabilities, including any unrecognized assets and liabilities, following a procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Under this Update, an entity should perform its annual or quarterly goodwill impairment test by comparing the fair value of the reporting unit with its carrying amount and record an impairment charge for the excess of the carrying amount over the reporting unit’s fair value. The loss recognized should not exceed the total amount of goodwill allocated to the reporting unit and the entity must consider the income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. This guidance is effective for a public business entity that is an SEC filer for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The adoption of this standard is not expected to have a material impact on the Company’s Consolidated Financial Statements.

ASU 2017-08

In March 2017, the FASB issued ASU 2017-08, Premium Amortization on Purchased Callable Debt Securities, which amends the amortization period for certain purchased callable debt securities held at a premium, shortening such period to the earliest call date. The ASU is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Earlier application is permitted for all entities, including adoption in an interim period. If an entity early adopts the ASU in an interim period, any adjustments must be reflected as of the beginning of the fiscal year that includes that interim period. Management is currently evaluating the impact the adoption of ASU 2017-08 will have on its Consolidated Financial Statements.

ASU 2018-02

In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. Consequently, the amendments eliminated the stranded tax effects resulting from the Tax Cuts and Jobs Act and will improve the usefulness of information reported to financial statement users. The amendments only relate to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not effected. The amendments in this ASU also require certain disclosures about stranded tax effects. The guidance in this ASU will become effective for reporting periods beginning after December 15, 2018, with early adoption permitted, and will be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. Management is currently evaluating the impact that the standard will have on its Consolidated Financial Statements.

ASU 2018-05

ASU 2018-05 - Income Taxes (Topic 740): Amendment to clarify situations where a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting under ASC 740 for certain income tax effects of the Tax Cuts and Jobs Act for the reporting period. As of December 31, 2017, the Company partially completed the accounting for the tax effects of enactment of the Tax Cuts and Jobs Act, and management made reasonable estimates of the effects of a reduced federal corporate income tax rate on its existing deferred tax balances. The Company will continue to make and refine its calculations during the one-year re-measurement period as additional analysis is completed. In addition, these estimates may be affected as management gains a more thorough understanding of the new tax reform legislation.

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PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements (Unaudited)

ASU 2018-13

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) - Changes to the Disclosure Requirements for Fair Value Measurement, to modify the disclosure requirements on fair value measurements. This ASU removes requirements to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements. ASU 2018-13 clarifies that disclosure regarding measurement uncertainty is intended to communicate information about the uncertainty in measurement as of the reporting date. ASU 2018-13 adds certain disclosure requirements, including disclosure of changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments in this update are effective for annual periods and interim periods within those annual periods beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty should be applied prospectively, while all other amendments should be applied retrospectively for all periods presented upon their effective date. Management is currently evaluating the impact of adopting the new guidance on the Consolidated Financial Statements, but it is not expected to have a material impact.

Note 3: Business Combinations

The Company’s acquisitions are accounted for under the acquisition method of accounting in accordance with ASC 805, Business Combinations. Both the purchased assets and liabilities assumed are recorded at their respective acquisition date fair values. Determining the fair value of assets and liabilities, especially the loan portfolio, is a complicated process involving significant judgment regarding methods and assumptions used to calculate estimated fair values. Fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition as additional information regarding fair values becomes available.

Acquisition of Prime Bank

On May 10, 2018 the Company completed its acquisition of Prime Bank, a Connecticut bank headquartered in Orange, CT. The closing of the transaction added a new Patriot branch located in the Town of Orange, New Haven County, Connecticut. On the acquisition date, Prime Bank had assets with a carrying value of approximately $65 million, including investment securities with a carrying value of $36 million, loans outstanding with a carrying value of approximately $23 million, as well as deposits with a carrying value of approximately $46 million. The results of Prime Bank’s operations were included in the Company’s Consolidated Statement of Income from the date of acquisition.

The acquisition will enable Patriot to expand its consumer and small business relationships, lending operations, and community presence, all of which will improve key operating metrics. The goodwill recognized results from the expected synergies and potential earnings from this combination, including some future cost savings related to the operations of Prime Bank. Patriot incurred $632,000 acquisition costs, charged to operations during the nine months ended September 30, 2018.

The assets acquired and liabilities assumed from Prime Bank were recorded at their fair value as of the closing date of the merger. Goodwill of $2.1 million was recorded at the time of the acquisition, and was adjusted to $1.9 million as of September 30, 2018, primarily due to updating of fair value of the core deposit intangibles. The goodwill is all deductible for income taxes over 15 years.

Patriot engaged independent consultants recognized as experts in the field of valuations and fair value measurements for acquisition and merger transactions. Fair value is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.”

Loans were evaluated on an individual basis, considering the loan’s underlying characteristics, types, remaining terms, annual interest rates, current market rates, loan to value ratios (LTV), loss exposure and remaining balances. The independent consultants utilized a discounted cash flow model to estimate the fair value of the loans using assumptions for probability of defaults, loss given defaults / recovery rates and foreclosure / recovery lags. ASC 310-30 Purchase Credit Impaired Loans were separately addressed with specific discount rates adjusted for an illiquidity premium.

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PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements (Unaudited)

To estimate the core deposit customer relationships intangible the consultants first identified the core deposits and utilized assumptions regarding the account retention rate, growth rate and float and reserve percentages. Retention rates were based on historical attrition rates based on previous transactions, the growth rate assumed no new accounts, and 3% increase in existing account balances, while the floats and reserve percentage assumed the market participant would most likely be subject to a reserve requirement given the current level of core deposits.

The fair value of time deposits included segmenting into certificate of deposits (“CDs”) and IRA CDs and CDs less than $100,000 and those $100,000 and above. The methodology entailed discounting the contractual cash flows of the instruments over their remaining contractual lives at prevailing market rates.

The following table summarizes the consideration paid by the Company in the merger with Prime Bank and the estimated fair values of the assets acquired and liabilities assumed recognized at the acquisition date and subsequent measurement period adjustments:

(In thousands)	Initially Recorded at Acquisition Date		Measurement Period Adjustments			Adjusted Values
Consideration Paid
Cash consideration	$	5,596	$	1,284		$	6,880
Contingent consideration		1,761		(1,284	)		477
Recognized amounts of identifiable assets acquired and liabilities assumed
Cash and cash equivalents	$	1,152	$	-		$	1,152
Securities		35,532		-			35,532
Loans		21,605		(12	)		21,593
Premises and equipment		6		-			6
Other real estate owned		991		-			991
Core deposit intangibles		552		196			748
Other assets		1,514		-			1,514
Total assets acquired	$	61,352	$	184		$	61,536
Deposits		46,184		-			46,184
Borrowings		9,800		-			9,800
Other liabilities		111		28			139
Total liabilities assumed	$	56,095	$	28		$	56,123
Identifiable net assets acquired	$	5,257	$	156		$	5,413
Goodwill resulting from acquisition	$	2,100	$	(156	)	$	1,944

All securities acquired in the transaction with Prime Bank were sold at the fair value at acquisition date with no recorded gain or loss. Fair value adjustments to assets acquired and liabilities assumed will be amortized on a straight-line basis over periods consistent with the average useful life or contractual term of related assets and liabilities. The core deposit intangible will be amortized over a 10-year period using the straight-line method.

Under the terms of the agreement, the transaction is accounted for as an asset sale. As a result, tax basis to Prime Bank is not carried over to Patriot and deferred tax assets on Prime Bank’s books have been written off as part of the purchase accounting adjustments.

The cash consideration is based on the initial calculation of Prime Bank tangible book value in accordance with the agreement. The initial cash payment made totaled $5.89 million and $1.0 million of this amount remains with the escrow agent pending resolution of the final closing tangible book value calculation.

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PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements (Unaudited)

Pursuant to a letter agreement, Patriot will make payments for up to one year after the acquisition date. These additional payments (contingent consideration) are to be determined based on the curing of certain loan deficiencies. On August 29, 2018 Patriot paid $1.28 million to the shareholders of Prime Bank pursuant to the agreement. The maximum remaining amount payable under the letter agreement is $1.57 million and the liability under the agreement is currently estimated to be $477,000. This estimate has been measured based on Patriots assessment of the probability that certain loans are cured in accordance with the agreement.

The accounting for the business combination includes certain provisional amounts associated with the resolution of the purchase price consideration noted above. In addition, certain other provisional amounts have been included in the determination of the fair value of the acquired assets and liabilities and changes to those underlying estimates will be reflected as measurement period adjustments within the one-year measurement period. Those provisional amounts relate to the valuation of loans, other real estate owned, deposits, tax and other accrued liabilities of the acquired company.

The nature of the measurement period adjustments noted in the table above were a result of a series of payments in August 2018 and pursuant to ongoing negotiations between the parties, and information obtained subsequent to our initial reporting of provisional fair values but prior to finalizing our fair values as of September 30, 2018. Such information was determined to be a condition in existence as of acquisition date. The income effects resulting from the recorded measurement period adjustments during the period ending September 30, 2018 are immaterial for separate disclosure.

Pending Acquisition

Definitive Purchase Agreement 

On February 6, 2018, the Company, Hana Small Business Lending, Inc. (“Hana SBL”), a wholly-owned subsidiary of Hana Financial, Inc. (“Hana Financial”), and three wholly-owned subsidiaries of Hana SBL entered into a definitive purchase agreement (“Purchase Agreement”) pursuant to which Patriot will acquire Hana SBL’s small business administration (“SBA”) lending business.

Hana SBL is a fully integrated national SBA origination and servicing platform. It has originated nearly $1 billion of SBA 7(a) loans since its inception in 2006.

On August 2, 2018, the Company, Hana SBL and three wholly-owned subsidiaries of Hana SBL, entered into an amendment (the “Amendment”) to the Purchase Agreement. Pursuant to the Amendment, the closing date of the above referenced transaction has been extended from August 2, 2018 to August 1, 2019.

On October 29, 2018 the Company withdrew its initial application to the OCC requesting approval of the acquisition.  At that time, the Company entered into renewed negotiations with Hana SBL designed to restructure the terms of the pending acquisition.  Those negotiations continue through the date of the filing of this report. The Company continues to pursue a transaction with Hana SBL to achieve its SBA product goals. Before the Company can complete a transaction with Hana SBL, the Company will need to obtain necessary regulatory approvals or non-objection.  There is no assurance of the outcome or conditions of obtaining such approvals or non-objection, and an approval or non-objection could require material modifications of current terms of the agreement with Hana SBL. There can be no guarantee that Hana SBL will agree to any modifications of the agreement.

The Company incurred $993,000 of merger and acquisition expenses related to the Hana SBL acquisition for the nine months ended September 30, 2018.

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PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements (Unaudited)

Note 4: Available-for Sale Securities

The amortized cost, gross unrealized gains, gross unrealized losses and fair values of available-for-sale securities at September 30, 2018 and December 31, 2017 are as follows:

(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
September 30, 2018:
U. S. Government agency mortgage-backed securities	$	21,530		1		(296	)		21,235
Corporate bonds		14,000		-		(993	)		13,007
Subordinated notes		4,500		25		-			4,525
U.S. Treasury notes		1,497		-		-			1,497
	$	41,527		26		(1,289	)		40,264
December 31, 2017:
U. S. Government agency mortgage-backed securities	$	7,330		-		(106	)		7,224
Corporate bonds		14,000		-		(196	)		13,804
Subordinated notes		4,500		48		-			4,548
	$	25,830		48		(302	)		25,576

The following table presents the available-for-sale securities’ gross unrealized losses and fair value, aggregated by the length of time the individual securities have been in a continuous loss position as of September 30, 2018 and December 31, 2017:

(In thousands)	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized (Loss)			Fair Value		Unrealized (Loss)			Fair Value		Unrealized (Loss)
September 30, 2018:
U. S. Government agency mortgage-backed securities	$	16,955		(83	)		4,040		(213	)		20,995		(296	)
Corporate bonds		-		-			13,007		(993	)		13,007		(993	)
	$	16,955		(83	)		17,047		(1,206	)		34,002		(1,289	)
December 31, 2017:
U. S. Government agency mortgage-backed securities	$	4,118		(13	)		3,106		(93	)		7,224		(106	)
Corporate bonds		13,804		(196	)		-		-			13,804		(196	)
	$	17,922		(209	)		3,106		(93	)		21,028		(302	)

At September 30, 2018 and December 31, 2017, thirteen of seventeen and nine of eleven available-for-sale securities had unrealized losses with an aggregate decline of 3.7% and 1.4%, respectively from the amortized cost of those securities.

Based on its quarterly reviews, management believes that none of the losses on available-for-sale securities noted above constitute an other-than-temporary impairment (“OTTI”). The noted losses are considered temporary due to market fluctuations in available interest rates on U.S. Government agency debt, mortgage-backed securities issued by U.S. Government agencies, and corporate debt. Management considers the issuers of the securities to be financially sound, the corporate bonds are investment grade, and the collectability of all contractual principal and interest payments is reasonably expected. Since Patriot is not more-likely-than-not to be required to sell the investments before recovery of the amortized cost basis and does not intend to sell the securities at a loss, none of the available-for-sale securities noted are considered to be OTTI as of September 30, 2018.

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PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements (Unaudited)

At September 30, 2018 and December 31, 2017, available-for-sale securities of $7.3 million and $6.7 million, respectively, were pledged to the Federal Reserve Bank of New York (“FRB”), primarily to secure municipal deposits.

The following summarizes, by class and contractual maturity, the amortized cost and estimated fair value of available-for-sale debt securities held at September 30, 2018 and December 31, 2017. The mortgages underlying the mortgage-backed securities are not due at a single maturity date. Additionally, these mortgages often are and generally may be pre-paid without penalty, creating a degree of uncertainty that such investments can be held until maturity. For convenience, mortgage-backed securities have been included in the summary as a separate line item.

(In thousands)	Amortized Cost								Fair Value
	Due Within 5 years		Due After 5 years through 10 years		Due After 10 years		Total		Due Within 5 years		Due After 5 years through 10 years		Due After 10 years		Total
September 30, 2018:
Corporate bonds	$	-		9,000		5,000		14,000		-		8,397		4,610		13,007
Subordinated notes		-		4,500		-		4,500		-		4,525		-		4,525
U.S. Treasury notes		1,497		-		-		1,497		1,497		-		-		1,497
Available-for-sale securities with single maturity dates		1,497		13,500		5,000		19,997		1,497		12,922		4,610		19,029
U. S. Government agency mortgage-backed securities		6,828		6,297		8,405		21,530		6,817		6,129		8,289		21,235
	$	8,325		19,797		13,405		41,527		8,314		19,051		12,899		40,264
December 31, 2017:
Corporate bonds	$	-		9,000		5,000		14,000		-		8,928		4,876		13,804
Subordinated notes		-		4,500		-		4,500		-		4,548		-		4,548
Available-for-sale securities with single maturity dates		-		13,500		5,000		18,500		-		13,476		4,876		18,352
U. S. Government agency mortgage-backed securities		-		3,200		4,130		7,330		-		3,107		4,117		7,224
	$	-		16,700		9,130		25,830		-		16,583		8,993		25,576

During the year to date period ended September 30, 2018, the Company sold $35.5 million securities acquired in the transaction with Prime Bank, which were sold at the fair value at acquisition date with no recorded gain or loss. The Bank purchased $15.6 million U.S. Government agency mortgage-backed securities and $1.5 million U.S. Treasury notes in the third quarter of 2018. There were no sales of the Bank’s available-for-sale securities in the nine-month period ended September 30, 2018. During the year to date period ended September 30, 2017, there were $13.8 million sales and $20.6 million purchases of available-for-sale securities. A loss on the sale of available-for-sale securities of $78,000 was recorded during the nine months ended September 30, 2017.

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PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements (Unaudited)

Note 5: Loans Receivable and Allowance for Loan Losses

As of September 30, 2018 and December 31, 2017, loans receivable, net, consists of the following:

(In thousands)	September 30, 2018			December 31, 2017
Loan portfolio segment:
Commercial Real Estate	$	276,100			299,925
Residential Real Estate		155,077			146,377
Commercial and Industrial		174,480			131,161
Consumer and Other		97,463			87,707
Construction		45,476			47,619
Construction to Permanent - CRE		14,658			6,858
Loans receivable, gross		763,254			719,647
Allowance for loan losses		(6,605	)		(6,297	)
Loans receivable, net	$	756,649			713,350

Patriot's lending activities are conducted principally in Fairfield and New Haven Counties in Connecticut and Westchester County in New York, and the five Boroughs of New York City. Patriot originates commercial real estate loans, commercial business loans, a variety of consumer loans, and construction loans, and has purchased residential loans since 2016. All commercial and residential real estate loans are collateralized primarily by first or second mortgages on real estate. The ability and willingness of borrowers to satisfy their loan obligations is dependent to some degree on the status of the regional economy as well as upon the regional real estate market. Accordingly, the ultimate collectability of a substantial portion of the loan portfolio and the recovery of a substantial portion of any resulting real estate acquired is susceptible to changes in market conditions.

Patriot has established credit policies applicable to each type of lending activity in which it engages and evaluates the creditworthiness of each borrower. Unless extenuating circumstances exist, Patriot limits the extension of credit on commercial real estate loans to 75% of the market value of the underlying collateral. Patriot’s loan origination policy for multi-family residential real estate is limited to 80% of the market value of the underlying collateral. In the case of construction loans, the maximum loan-to-value is 75% of the “as completed” appraised value of the real estate project. Management monitors the appraised value of collateral on an on-going basis and additional collateral is requested when warranted. Real estate is the primary form of collateral, although other forms of collateral do exist and may include such assets as accounts receivable, inventory, marketable securities, time deposits, and other business assets.

In connection with the Prime Bank merger in May 2018 loans were acquired, a subset of these loans was determined to have evidence of credit deterioration at the acquisition date, which was accounted for in accordance with ASC 310-30. The purchased credit impaired (“PCI”) loans presently maintain a carrying value of $901,000 as of September 30, 2018. The loans were evaluated for impairment through the periodic reforecasting of expected cash flows.

Income is recognized on PCI loans pursuant to ASC Topic 310-30. A portion of the fair value discount has been ascribed as an accretable yield that is accreted into interest income over the estimated remaining life of the loans. The remaining non-accretable difference represents cash flows not expected to be collected.

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PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements (Unaudited)

The table below summarizes the total contractually required principal and interest cash payments, management’s estimate of expected total cash payments and fair value of the loans at acquisition date. Contractually required principal and interest payments have been adjusted for estimated prepayments.

(In thousands)	Acquisition Date
Contractually required principal and interest at acquisition	$	5,816
Contractual cash flows not expected to be collected (nonaccretable discount)		(2,064	)
Expected cash flows at acquisition		3,752
Interest component of expected cash flows (accretable discount)		(1,316	)
Fair value of acquired loans	$	2,436

The accretion of the accretable discount for PCI loans for the year-to-date of September 30, 2018 was $57,000. The table above includes $887,000 additional expected cash flows at acquisition, and $887,000 additional accretable discount, both resulting from a revised acquisition date estimate of PCI loans performance.

Risk characteristics of the Company’s portfolio classes include the following:

Commercial Real Estate Loans

In underwriting commercial real estate loans, Patriot evaluates both the prospective borrower’s ability to make timely payments on the loan and the value of the property securing the loans. Repayment of such loans may be negatively impacted should the borrower default, the value of the property collateralizing the loan substantially decline, or there are declines in general economic conditions. Where the owner occupies the property, Patriot also evaluates the business’ ability to repay the loan on a timely basis and may require personal guarantees, lease assignments, and/or the guarantee of the operating company.

Residential Real Estate Loans

In 2013, Patriot discontinued offering primary mortgages on personal residences. Repayment of residential real estate loans may be negatively impacted should the borrower have financial difficulties, should there be a significant decline in the value of the property securing the loan, or should there be declines in general economic conditions.

In 2017, Patriot purchased $73 million of residential real estate loans, including a premium of $985,000 over the book value of the loans. During the year to date period of September 30, 2018, $16.4 million residential real estate loans were purchased.

Commercial and Industrial Loans

Patriot’s commercial and industrial loan portfolio consists primarily of commercial business loans and lines of credit to businesses and professionals. These loans are generally for the financing of accounts receivable, purchases of inventory, purchases of new or used equipment, or for other short- or long-term working capital purposes. These loans are generally secured by business assets, but are also occasionally offered on an unsecured basis. In granting these types of loans, Patriot considers the borrower’s cash flow as the primary source of repayment, supported by the value of collateral, if any, and personal guarantees, as applicable. Repayment of commercial and industrial loans may be negatively impacted by adverse changes in economic conditions, ineffective management, claims on the borrower’s assets by others that are superior to Patriot’s claims, a loss of demand for the borrower’s products or services, or the death or disability of the borrower or other key management personnel.

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PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements (Unaudited)

Consumer and Other Loans

Patriot offers individual consumers various forms of credit including installment loans, credit cards, overdraft protection, and reserve lines of credit. Repayments of such loans are generally dependent on the personal income of the borrower, which may be negatively impacted by adverse changes in economic conditions. The Company does not place a high emphasis on originating these types of loans.

The Company does not have any lending programs commonly referred to as subprime lending. Subprime lending generally targets borrowers with weakened credit histories that are typically characterized by payment delinquencies, previous charge-offs, judgments against the consumer, a history of bankruptcies, or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burdened ratios.

During the year to date period of September 30, 2018, $21.4 million education loans were purchased.

Construction Loans

Construction loans are of a short-term nature, generally of eighteen-months or less, that are secured by land intended for commercial, residential, or mixed-use development. Loan proceeds may be used for the acquisition of or improvements to the land under development and funds are generally disbursed as phases of construction are completed.

Included in this category are loans to construct single family homes where no contract of sale exists, based upon the experience and financial strength of the builder, the type and location of the property, and other factors. Construction loans tend to be personally guaranteed by the principal(s). Repayment of such loans may be negatively impacted by an inability to complete construction, a downturn in the market for new construction, by a significant increase in interest rates, or by decline in general economic conditions.

Construction to Permanent - Commercial Real Estate (“CRE”)

One time close of a construction facility with simultaneous conversion to an amortizing mortgage loan. Construction to Permanent loans combine a short term period similar to a  construction loan, generally with a variable rate, and a longer term CRE loan typically 20-25 years, resetting every five years to the Federal Home Loan Bank (“FHLB”) rate. 

Close of the construction facility typically occurs when events dictate, such as receipt of a certificate of occupancy and property stabilization, which is defined as cash flow sufficient to support a pre-defined minimum debt coverage ratio and other conditions and covenants particular to the loan. Construction facilities are typically variable rate instruments that, upon conversion to an amortizing mortgage loan, reset to a fixed rate instrument that is the greater of the in-force variable rate plus a predetermined spread over a reference rate (e.g., prime) or a minimum interest rate.

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PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements (Unaudited)

Allowance for Loan Losses

The following tables summarize the activity in the allowance for loan losses, allocated to segments of the loan portfolio, for the three months ended September 30, 2018 and 2017:

(In thousands)	Commercial Real Estate			Residential Real Estate			Commercial and Industrial			Consumer and Other			Construction		Construction to Permanent - CRE			Unallocated			Total
Three months ended September 30, 2018
Allowance for loan losses:
June 30, 2018	$	2,305			1,096			1,996			523			499		80			26			6,525
Charge-offs		-			(2	)		-			(3	)		-		-			-			(5	)
Recoveries		24			11			-			-			-		-			-			35
Provisions (credits)		(566	)		(240	)		245			150			181		20			260			50
September 30, 2018	$	1,763			865			2,241			670			680		100			286			6,605
Three months ended September 30, 2017
Allowance for loan losses:
June 30, 2017	$	2,218			1,041			1,453			593			490		73			76			5,944
Charge-offs		-			-			(265	)		(10	)		-		-			-			(275	)
Recoveries		6			-			-			2			-		-			-			8
Provisions (credits)		(52	)		4			685			(327	)		293		(27	)		(31	)		545
September 30, 2017	$	2,172			1,045			1,873			258			783		46			45			6,222

The following tables summarize the activity in the allowance for loan losses, allocated to segments of the loan portfolio, for the nine months ended September 30, 2018 and 2017:

(In thousands)	Commercial Real Estate			Residential Real Estate			Commercial and Industrial			Consumer and Other			Construction		Construction to Permanent - CRE			Unallocated			Total
Nine months ended September 30, 2018
Allowance for loan losses:
December 31, 2017	$	2,212			959			2,023			568			481		54			-			6,297
Charge-offs		-			(2	)		-			(17	)		-		-			-			(19	)
Recoveries		30			12			-			-			-		-			-			42
Provisions (credits)		(479	)		(104	)		218			119			199		46			286			285
September 30, 2018	$	1,763			865			2,241			670			680		100			286			6,605
Nine months ended September 30, 2017
Allowance for loan losses:
December 31, 2016	$	1,853			534			740			641			712		69			126			4,675
Charge-offs		-			-			(265	)		(23	)		-		-			-			(288	)
Recoveries		8			-			2,769			2			-		-			-			2,779
Provisions (credits)		311			511			(1,371	)		(362	)		71		(23	)		(81	)		(944	)
September 30, 2017	$	2,172			1,045			1,873			258			783		46			45			6,222

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PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements (Unaudited)

The following tables summarize, by loan portfolio segment, the amount of loans receivable evaluated individually and collectively for impairment as of September 30, 2018 and December 31, 2017:

(In thousands)	Commercial Real Estate		Residential Real Estate		Commercial and Industrial		Consumer and Other		Construction		Construction to Permanent - CRE		Unallocated		Total
September 30, 2018
Allowance for loan losses:
Individually evaluated for impairment	$	-		-		48		7		-		-		-		55
Collectively evaluated for impairment		1,763		865		2,193		663		680		100		286		6,550
Total allowance for loan losses	$	1,763		865		2,241		670		680		100		286		6,605
Loans receivable, gross:
Individually evaluated for impairment	$	3,989		3,521		1,028		789		-		-		-		9,327
PCI loans individually evaluated for impairment		-		-		901		-		-		-		-		901
Collectively evaluated for impairment		272,111		151,556		172,551		96,674		45,476		14,658		-		753,026
Total loans receivable, gross	$	276,100		155,077		174,480		97,463		45,476		14,658		-		763,254

(In thousands)	Commercial Real Estate		Residential Real Estate		Commercial and Industrial		Consumer and Other		Construction		Construction to Permanent - CRE		Unallocated		Total
December 31, 2017
Allowance for loan losses:
Individually evaluated for impairment	$	-		-		251		2		-		-		-		253
Collectively evaluated for impairment		2,212		959		1,772		566		481		54		-		6,044
Total allowance for loan losses	$	2,212		959		2,023		568		481		54		-		6,297
Loans receivable, gross:
Individually evaluated for impairment	$	1,977		3,336		748		692		-		-		-		6,753
Collectively evaluated for impairment		297,948		143,041		130,413		87,015		47,619		6,858		-		712,894
Total loans receivable, gross	$	299,925		146,377		131,161		87,707		47,619		6,858		-		719,647

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PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements (Unaudited)

Patriot monitors the credit quality of its loans receivable on an ongoing basis. Credit quality is monitored by reviewing certain indicators, including loan to value ratios, debt service coverage ratios, and credit scores.

Patriot employs a risk rating system as part of the risk assessment of its loan portfolio. At origination, lending officers are required to assign a risk rating to each loan in their portfolio, which is ratified or modified by the Loan Committee to which the loan is submitted for approval. If financial developments occur on a loan in the lending officer’s portfolio of responsibility, the risk rating is reviewed and adjusted, as applicable. In carrying out its oversight responsibilities, the Loan Committee can adjust a risk rating based on available information. In addition, the risk ratings on all commercial loans over $250,000 are reviewed annually by the Credit Department.

Additionally, Patriot retains an objective and independent third-party loan review expert to perform a quarterly analysis of the results of its risk rating process. The quarterly review is based on a randomly selected sample of loans within established parameters (e.g., value, concentration), in order to assess and validate the risk ratings assigned to individual loans. Any changes to the assigned risk ratings, based on the quarterly review, are required to be approved by the Loan Committee.

When assigning a risk rating to a loan, management utilizes the Bank’s internal eleven-point risk rating system. An asset is considered “special mention” when it has a potential weakness based on objective evidence, but does not currently expose the Company to sufficient risk to warrant classification in one of the following categories:

● Substandard: An asset is classified “substandard” if it is not adequately protected by the current net worth and paying capacity of the obligor or the collateral pledged, if any. Substandard assets have well defined weaknesses based on objective evidence, and are characterized by the distinct possibility that the Company will sustain some loss, if noted deficiencies are not corrected.

● Doubtful: Assets classified as “doubtful” have all of the weaknesses inherent in those classified as “substandard”, with the added characteristic that the identified weaknesses make collection or liquidation-in-full improbable, on the basis of currently existing facts, conditions, and values.

Charge-offs, to reduce the loan to its recoverable value, generally commence after the loan is classified as “doubtful”.

In accordance with Federal Financial Institutions Examination Council published policies establishing uniform criteria for the classification of retail credit based on delinquency status, “Open-end” and “Closed-end” credits are charged off when 180 days and 120 days delinquent, respectively.

If an account is classified as “Loss”, the full balance of the loan receivable is charged off, regardless of the potential recovery from a sale of the underlying collateral. Any amount that may be recovered on the sale of collateral underlying a loan is recognized as a “recovery” in the period in which the collateral is sold.

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PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements (Unaudited)

Loan Portfolio Aging Analysis

The following tables summarize performing and non-performing (i.e., non-accruing) loans receivable by portfolio segment, by aging category, by delinquency status as of September 30, 2018.

(In thousands)	Performing (Accruing) Loans
As of September 30, 2018:	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or Greater Past Due		Total		Current		Total Performing Loans		Non-accruing Loans		Loans Receivable Gross
Loan portfolio segment:
Commercial Real Estate:
Pass	$	1,919		516		670		3,105		264,496		267,601		-		267,601
Special mention		-		-		-		-		2,311		2,311		-		2,311
Substandard		-		-		-		-		4,115		4,115		2,073		6,188
		1,919		516		670		3,105		270,922		274,027		2,073		276,100
Residential Real Estate:
Pass		1,055		-		-		1,055		149,295		150,350		-		150,350
Substandard		-		-		1,504		1,504		-		1,504		3,223		4,727
		1,055		-		1,504		2,559		149,295		151,854		3,223		155,077
Commercial and Industrial:
Pass		888		480		2,100		3,468		162,762		166,230		-		166,230
Special mention		250		-		2,374		2,624		3,048		5,672		-		5,672
Substandard		-		-		-		-		1,494		1,494		1,084		2,578
		1,138		480		4,474		6,092		167,304		173,396		1,084		174,480
Consumer and Other:
Pass		24		30		6		60		97,304		97,364		-		97,364
Substandard		-		-		-		-		-		-		99		99
		24		30		6		60		97,304		97,364		99		97,463
Construction:
Pass		1,152		-		2,922		4,074		32,602		36,676		-		36,676
Substandard		-		-		8,800		8,800		-		8,800		-		8,800
		1,152		-		11,722		12,874		32,602		45,476		-		45,476
Construction to Permanent - CRE:
Pass		-		-		-		-		14,658		14,658		-		14,658
Total	$	5,288		1,026		18,376		24,690		732,085		756,775		6,479		763,254
Loans receivable, gross:
Pass	$	5,038		1,026		5,698		11,762		721,117		732,879		-		732,879
Special mention		250		-		2,374		2,624		5,359		7,983		-		7,983
Substandard		-		-		10,304		10,304		5,609		15,913		6,479		22,392
Loans receivable, gross	$	5,288		1,026		18,376		24,690		732,085		756,775		6,479		763,254

As of September 30 2018 the loans 90 days and over past due and still accruing were primarily due to one construction loan of $8.8 million, on which interest payments are current-to-date. Management has determined the loan is well secured and in process of collection. The other loan in the Substandard category was a $1.5 million dollar multifamily residential loan in New Haven, being actively managed by the Bank’s Special Assets team. The borrower is expected to bring the loan current following the resolution of real estate tax disputes with the City of New Haven.

The $5.7 million of Pass loans 90 days and over past due and still accruing consists of five loans, all of which are actively managed by the Bank and are expected to be brought current based on recent discussions with each borrower.  The $2.4 million of Special mention loans 90 days or more past due and still accruing reflects one loan which is expected to be brought current following the sale of a property.

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PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements (Unaudited)

The following tables summarize performing and non-performing (i.e., non-accruing) loans receivable by portfolio segment, by aging category, by delinquency status as of December 31, 2017.

(In thousands)	Performing (Accruing) Loans
As of December 31, 2017:	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or Greater Past Due		Total		Current		Total Performing Loans		Non-accruing Loans		Loans Receivable Gross
Loan portfolio segment:
Commercial Real Estate:
Pass	$	-		-		-		-		286,428		286,428		-		286,428
Special mention		-		1,121		-		1,121		9,317		10,438		-		10,438
Substandard		-		1,688		-		1,688		1,371		3,059		-		3,059
		-		2,809		-		2,809		297,116		299,925		-		299,925
Residential Real Estate:
Pass		1,068		255		-		1,323		140,497		141,820		-		141,820
Special mention		-		1,529		-		1,529		-		1,529		-		1,529
Substandard		-		-		-		-		-		-		3,028		3,028
		1,068		1,784		-		2,852		140,497		143,349		3,028		146,377
Commercial and Industrial:
Pass		-		2,000		375		2,375		127,057		129,432		-		129,432
Substandard		-		-		981		981		-		981		748		1,729
		-		2,000		1,356		3,356		127,057		130,413		748		131,161
Consumer and Other:
Pass		498		-		-		498		87,207		87,705		-		87,705
Substandard		-		-		-		-		-		-		2		2
		498		-		-		498		87,207		87,705		2		87,707
Construction:
Pass		-		-		-		-		47,619		47,619		-		47,619
Construction to Permanent - CRE:
Pass		-		-		-		-		6,858		6,858		-		6,858
Total	$	1,566		6,593		1,356		9,515		706,354		715,869		3,778		719,647
Loans receivable, gross:
Pass	$	1,566		2,255		375		4,196		695,666		699,862		-		699,862
Special mention		-		2,650		-		2,650		9,317		11,967		-		11,967
Substandard		-		1,688		981		2,669		1,371		4,040		3,778		7,818
Loans receivable, gross	$	1,566		6,593		1,356		9,515		706,354		715,869		3,778		719,647

26

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements (Unaudited)

The following tables summarize non-performing (i.e., non-accruing) loans by aging category and status, within the applicable loan portfolio segment as of September 30, 2018 and December 31, 2017:

(In thousands)	Non-accruing Loans
	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Non-accruing Loans
As of September 30, 2018:
Loan portfolio segment:
Commercial Real Estate
Substandard	$	-		-		2,073		2,073		-		2,073
Residential Real Estate:
Substandard		-		-		3,223		3,223		-		3,223
Commercial and Industrial:
Substandard		-		-		1,084		1,084		-		1,084
Consumer and Other
Substandard		-		-		99		99		-		99
Total non-accruing loans	$	-		-		6,479		6,479		-		6,479

(In thousands)	Non-accruing Loans
	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Non-accruing Loans
As of December 31, 2017:
Loan portfolio segment:
Residential Real Estate:
Substandard	$	-		-		3,028		3,028		-		3,028
Commercial and Industrial:
Substandard		-		-		748		748		-		748
Consumer and Other
Substandard		-		-		2		2		-		2
Total non-accruing loans	$	-		-		3,778		3,778		-		3,778

If non-accrual loans had been performing in accordance with the original contractual terms, additional interest income of approximately $85,000 and $266,000 would have been recognized in income during the three and nine months ended September 30, 2018, respectively. During the three and nine months ended September 30, 2017, additional interest income of approximately $27,000 and $70,000 would have been recognized in income, respectively.

Additionally, certain loans for which the borrower cannot demonstrate sufficient cash flow to continue loan payments in the future and certain troubled debt restructurings (“TDRs”) are placed on non-accrual status. During the three and nine months ended September 30, 2018 and 2017, no interest income was collected and recognized on non-accruing loans.

The accrual of interest on loans is discontinued at the time the loan is 90 days past due for payment unless the loan is well-secured and in process of collection. Consumer installment loans are typically charged off no later than 180 days past due. Past due status is based on contractual terms of the loan. In all cases, loans are placed on non-accrual status or charged-off, at an earlier date, if collection of principal or interest is considered doubtful. All interest accrued, but not collected for loans that are placed on non-accrual status or charged off, is reversed against interest income. The interest on these loans is accounted for on the cash-basis method until qualifying for return to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, future payments are reasonably assured, and there is nine months of performance. Management considers all non-accrual loans and TDRs to be impaired. In most cases, loan payments that are past due less than 90 days, based on contractual terms, are considered collection delays and not an indication of loan impairment. The Bank considers consumer installment loans to be pools of smaller homogeneous loan balances, which are collectively evaluated for impairment.

27

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements (Unaudited)

Troubled Debt Restructurings (“TDR”)

On a case-by-case basis, Patriot may agree to modify the contractual terms of a borrower’s loan to assist customers who may be experiencing financial difficulty. If the borrower is experiencing financial difficulties and a concession has been made, the loan is classified as a TDR.

Substantially all TDR loan modifications involve lowering the monthly payments on such loans through either a reduction in interest rate below market rate, an extension of the term of the loan, or a combination of adjusting these two contractual attributes. TDR loan modifications may result in the forgiveness of principal or accrued interest. In addition, when modifying commercial loans, Patriot frequently obtains additional collateral or guarantor support. If the borrower has performed under the existing contractual terms of the loan and Patriot’s underwriters determine that the borrower has the capacity to continue to perform under the terms of the TDR, the loan continues accruing interest. Non-accruing TDRs may be returned to accrual status when there has been a sustained period of performance (generally six consecutive months of payments) and both principal and interest are reasonably assured of collection.

The recorded investment in TDRs was $2.9 million at September 30, 2018 and $3.0 million at December 31, 2017, respectively. All TDRs at September 30, 2018 and December 31, 2017 were performing in accordance with their modified terms and therefore, were on accrual status.

(In thousands)
Loan portfolio segment:	September 30, 2018		December 31, 2017
Commercial Real Estate	$	1,916		1,977
Residential Real Estate		989		999
Total TDR Loans		2,905		2,976
Less: TDRs included in non-accrual loans		-		-
Total accrual TDR Loans	$	2,905		2,976

There were no loans modified as TDRs and no defaults of TDRs during the three and nine months ended September 30, 2018 and 2017. At September 30, 2018 and December 31, 2017, there were no commitments to advance additional funds under TDRs.

28

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements (Unaudited)

Impaired Loans

Impaired loans may consist of non-accrual loans and/or performing and non-performing TDRs. As of September 30, 2018 and December 31, 2017, based on the on-going monitoring and analysis of the loan portfolio, impaired loans of $9.3 million and $6.8 million, respectively, were identified, for which $55,000 and $253,000 specific reserves were established, respectively. Loans not requiring specific reserves had sufficient collateral values, less costs to sell, supporting the net investment in the loan which includes principal balance, unamortized fees and costs and accrued interest, if any. Once a borrower is in default, Patriot is under no obligation to advance additional funds on unused commitments.

At September 30, 2018 and December 31, 2017, exposure to the impaired loans was related to 16 and 12 borrowers, respectively. In all cases, appraisal reports of the underlying collateral, if any, have been obtained from independent licensed appraisal firms. For non-performing loans, the independently determined appraised values were reduced by an estimate of the costs to sell the assets, in order to estimate the potential loss, if any, that may eventually be realized. Performing loans are monitored to determine when, if at all, additional loan loss reserves may be required for a loss of underlying collateral value.

In addition the remaining $901,000 PCI loans acquired from Prime Bank acquisition; all remaining PCI loans were commercial and industrial loans. The PCI loans were originally recorded at fair value by the Bank on the date of acquisition. At September 30, 2018, those loans were considered individually evaluated for impairment, with no allowance recorded.

The following table reflects information about the impaired loans, excluding PCI loans, by class as of September 30, 2018 and December 31, 2017:

(In thousands)	September 30, 2018						December 31, 2017
	Recorded Investment		Principal Outstanding		Related Allowance		Recorded Investment		Principal Outstanding		Related Allowance
With no related allowance recorded:
Commercial Real Estate	$	3,989		4,481		-		1,977		2,425		-
Residential Real Estate		3,521		3,554		-		3,336		3,369		-
Commercial and Industrial		980		1,751		-		497		683		-
Consumer and Other		768		842		-		690		818		-
		9,258		10,628		-		6,500		7,295		-
With a related allowance recorded:
Commercial Real Estate		-		-		-		-		-		-
Residential Real Estate		-		-		-		-		-		-
Commercial and Industrial		48		98		48		251		251		251
Consumer and Other		21		21		7		2		2		2
		69		119		55		253		253		253
Impaired Loans, Total:
Commercial Real Estate		3,989		4,481		-		1,977		2,425		-
Residential Real Estate		3,521		3,554		-		3,336		3,369		-
Commercial and Industrial		1,028		1,849		48		748		934		251
Consumer and Other		789		863		7		692		820		2
Impaired Loans, Total	$	9,327		10,747		55		6,753		7,548		253

29

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements (Unaudited)

The following tables summarize additional information regarding impaired loans, excluding PCI loans, by class for the three and nine months ended September 30, 2018 and 2017.

(In thousands)	Three Months Ended September 30,
	2018				2017
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate	$	4,062		21		6,111		10
Residential Real Estate		3,523		3		1,903		-
Commercial and Industrial		1,018		-		37		-
Consumer and Other		771		8		584		-
		9,374		32		8,635		10
With a related allowance recorded:
Commercial Real Estate		-		-		-		-
Residential Real Estate		-		-		-		-
Commercial and Industrial		45		-		245		-
Consumer and Other		5		-		-		-
		50		-		245		-
Impaired Loans, Total:
Commercial Real Estate		4,062		21		6,111		10
Residential Real Estate		3,523		3		1,903		-
Commercial and Industrial		1,063		-		282		-
Consumer and Other		776		8		584		-
Impaired Loans, Total	$	9,424		32		8,880		10

(In thousands)	Nine Months Ended September 30,
	2018				2017
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate	$	3,157		70		6,173		159
Residential Real Estate		3,451		8		1,907		5
Commercial and Industrial		948		-		46		-
Consumer and Other		739		23		558		10
		8,295		101		8,684		174
With a related allowance recorded:
Commercial Real Estate		-		-		-		-
Residential Real Estate		-		-		-		-
Commercial and Industrial		185		-		237		-
Consumer and Other		4		-		-		-
		189		-		237		-
Impaired Loans, Total:
Commercial Real Estate		3,157		70		6,173		159
Residential Real Estate		3,451		8		1,907		5
Commercial and Industrial		1,133		-		283		-
Consumer and Other		743		23		558		10
Impaired Loans, Total	$	8,484		101		8,921		174

30

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements (Unaudited)

Note 6: Deposits

The following table presents the balance of deposits held, by category as of September 30, 2018 and December 31, 2017.

(In thousands)	September 30, 2018		December 31, 2017
Non-interest bearing	$	81,687	$	81,197
Interest bearing:
NOW		24,827		25,476
Savings		100,294		135,975
Money market		62,314		16,575
Certificates of deposit, less than $250,000		203,044		173,221
Certificates of deposit, $250,000 or greater		81,346		66,866
Brokered deposits		166,020		138,129
Interest bearing, Total		637,845		556,242
Total Deposits	$	719,532	$	637,439

31

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements (Unaudited)

Note 7: Share-Based Compensation and Employee Benefit Plan

The Company maintains the Patriot National Bancorp, Inc. 2012 Stock Plan (the “Plan”) to provide an incentive to directors and employees of the Company by the grant of restricted stock awards (“RSA”), options, or phantom stock units. Since 2013, the Company’s practice is to grant RSAs. As of September 30, 2018 and December 31, 2017, there were no options or phantom stock units outstanding, or that have been exercised during the period then ended.

The Plan provides for the issuance of up to 3,000,000 shares of the Company’s common stock subject to certain limitations. As of September 30, 2018, 2,870,113 shares of stock are available for issuance under the Plan. In accordance with the terms of the Plan, the vesting of RSAs and options may be accelerated at the discretion of the Compensation Committee of the Board of Directors. The Compensation Committee sets the terms and conditions applicable to the vesting of RSAs and stock option grants. RSAs granted to directors and employees generally vest in quarterly or annual installments over a three, four or five year period from the date of grant.

The following is a summary of the status of the Company’s restricted shares as of September 30, 2018 and 2017 and changes therein during the periods indicated:

Three months ended September 30, 2018:	Number of Shares Awarded			Weighted Average Grant Date Fair Value
Unvested at June 30, 2018		38,086		$	14.57
Vested		(2,388	)	$	16.24
Forfeited		(200	)	$	15.50
Unvested at September 30, 2018		35,498		$	14.46
Nine months ended September 30, 2018:
Unvested at December 31, 2017		25,870		$	12.15
Granted		18,323		$	18.07
Vested		(7,291	)	$	15.36
Forfeited		(1,404	)	$	14.44
Unvested at September 30, 2018		35,498		$	14.46

Three months ended September 30, 2017:	Number of Shares Awarded			Weighted Average Grant Date Fair Value
Unvested at June 30, 2017		32,117		$	12.39
Vested		(1,692	)	$	16.80
Forfeited		(600	)	$	15.50
Unvested at September 30, 2017		29,825		$	12.08
Nine months ended September 30, 2017:
Unvested at December 31, 2016		35,264		$	12.84
Granted		5,084		$	15.05
Vested		(3,923	)	$	14.66
Forfeited		(6,600	)	$	15.50
Unvested at September 30, 2017		29,825		$	12.08

The Company recognizes compensation expense for all director and employee share-based compensation awards on a straight-line basis over the requisite service period, which is equal to the vesting schedule of each award, for each vesting portion of an award equal to its grant date fair value.

32

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements (Unaudited)

For the three and nine months ended September 30, 2018, the Company recognized total share-based compensation expense of $56,000 and $163,000, respectively. The share-based compensation attributable to employees of Patriot amounted to $33,000 and $100,000, respectively, for the three and nine months ended September 30, 2018. Included in share-based compensation expense for the three and nine months ended September 30, 2018 were $23,000 and $63,000 attributable to Patriot’s external Directors, who received total compensation of $77,000 and $241,000 for each of those periods, respectively, which amounts are included in Other Operating Expenses in the Consolidated Statements of Income.

For the three and nine months ended September 30, 2017, the Company recognized total share-based compensation expense of $37,000 and $105,000, respectively. The share-based compensation attributable to employees of Patriot amounted to $16,000 and $48,000, respectively. Included in share-based compensation expense for the three and nine months ended September 30,  2017 were $21,000 and $57,000 attributable to Patriot’s external Directors, who received total compensation of $80,000 and $226,000 for each of those periods, respectively, which amounts are included in Other Operating Expenses in the Consolidated Statements of Income.

Unrecognized compensation expense attributable to the unvested restricted shares outstanding as of September 30, 2018 amounts to $428,000, which amount is expected to be recognized over the weighted average remaining life of the awards of 2.61 years.

RSA Grant - Non-executive Employees

During the three and nine months ended September 30, 2018, 200 and 300 granted shares were forfeited, respectively. During the three and nine months ended September 30, 2017, 600 and 600 granted shares were forfeited, respectively. The remaining 6,000 shares continue to vest and $8,000 of compensation expense is expected to be recognized through the January 2019 vesting date.

Dividends

On July 17, 2017, the Company announced its intention to make quarterly cash dividend payments. For the three and nine months ended September 30, 2018, the Company paid cash dividends of $.01 per share of common stock, or an aggregated of $39,000 and $116,000, respectively. For the three and nine months ended September 30, 2017, the Company paid cash dividends of $39,000.

Retirement Plan

The Company offers a 401K retirement plan (the “401K”), which provides for tax-deferred salary deductions for eligible employees. Employees may choose to make voluntary contributions to the 401K, limited to an annual maximum amount as set forth periodically by the Internal Revenue Service. The Company matches 50% of such contributions, up to a maximum of six percent of an employee's annual compensation. During the three and nine months ended September 30, 2018 compensation expense under the 401K aggregated $38,000 and $154,000, respectively. During the three and nine months ended September 30, 2017, compensation expense under the 401K aggregated $37,000 and $132,000, respectively.

33

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements (Unaudited)

Note 8: Earnings per share

The Company is required to present basic earnings per share and diluted earnings per share in its Consolidated Statements of Income. Basic earnings per share amounts are computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per share reflects additional common shares that would have been outstanding if potentially 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 the Company relate to outstanding unvested RSAs granted to directors and employees. The dilutive effect resulting from these potential shares is determined using the treasury stock method. The Company is also required to provide a reconciliation of the numerator and denominator used in the computation of both basic and diluted earnings per share.

The following table summarizes the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2018 and 2017:

(Net income in thousands)	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Basic earnings per share:
Net income attributable to Common shareholders	$	769		1,013		2,870		3,547
Divided by:
Weighted average shares outstanding		3,904,751		3,894,237		3,903,056		3,893,702
Basic earnings per common share	$	0.20		0.26		0.74		0.91
Diluted earnings per share:
Net income attributable to Common shareholders	$	769		1,013		2,870		3,547
Weighted average shares outstanding		3,904,751		3,894,237		3,903,056		3,893,702
Effect of potentially dilutive restricted common shares		14,067		9,193		17,974		4,854
Divided by:
Weighted average diluted shares outstanding		3,918,818		3,903,430		3,921,030		3,898,556
Diluted earnings per common share	$	0.20		0.26		0.73		0.91

34

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements (Unaudited)

Note 9: Financial Instruments with Off-Balance Sheet Risk

In the normal course of business, Patriot 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 sheet. The contractual amounts of these instruments reflect the extent of involvement Patriot has in particular classes of financial instruments.

The contractual amount of commitments to extend credit and standby letters of credit represents the maximum amount of potential accounting loss should: the contract be fully drawn upon; the customer default; and the value of any existing collateral becomes worthless. Patriot applies its credit policies to entering commitments and conditional obligations and, as with its lending activates, evaluates each customer’s creditworthiness on a case-by-case basis. Management believes that it effectively mitigates the credit risk of these financial instruments through its credit approval processes, establishing credit limits, monitoring the on-going creditworthiness of recipients and grantees, and the receipt of collateral as deemed necessary.

Financial instruments with credit risk at September 30, 2018 are as follows:

(In thousands)
	As of September 30, 2018
Commitments to extend credit:
Unused lines of credit	$	93,277
Undisbursed construction loans		13,994
Home equity lines of credit		19,430
Future loan commitments		35,089
Financial standby letters of credit		1,161
	$	162,951

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 upon extending credit, is based on management’s credit evaluation of the customer. Collateral held varies, but may include commercial property, residential property, deposits and securities. Patriot has established a $8,000 reserve for credit loss as of September 30, 2018, which is included in accrued expenses and other liabilities.

Standby letters of credit are written commitments issued by Patriot to guarantee the performance of a customer to a third party. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan facilities to customers. Guarantees that are not derivative contracts are recorded at fair value and included in the Consolidated Balance Sheet.

35

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements (Unaudited)

Note 10: Regulatory and Operational Matters

In November 2018 the Bank entered into a formal written agreement (the “Agreement”) with the Office of the Comptroller of the Currency (the “OCC”).  Under the terms of the Agreement, the Bank has appointed a Compliance Committee of three independent outside directors and one member of management responsible for monitoring adherence to the Agreement and has appointed a Lead Independent Director.  The Agreement also states that by December 31, 2018 the Board and Bank will develop, implement and revise written documents and policies related to executive compensation, conflict of interest, internal audit, liquidity and asset/liability management, commercial loan administration, leveraged lending, practices relating to the Allowance for Loan Losses, and assumptions used in the Bank’s interest rate risk model.  Under the Agreement the Bank has also agreed to provide a revised written 3-year strategic and capital plan for the Bank by December 31, 2018.  The Bank has taken or put into process many of the steps identified in the Agreement.  Further details pertaining to the Agreement are provided in Part II Item 5: Other information.

Federal and state regulatory authorities have adopted standards requiring financial institutions to maintain increased levels of capital. Effective January 1, 2015, federal banking agencies imposed four minimum capital requirements on a community bank’s risk-based capital ratios consisting of Total Capital, Tier 1 Capital, Common Equity Tier 1 (“CET1”) Capital, and a Tier 1 Leverage Capital ratio. The risk-based capital ratios measure the adequacy of a bank's capital against the riskiness of its on- and off-balance sheet assets and activities. Failure to maintain adequate capital is a basis for "prompt corrective action" or other regulatory enforcement action. In assessing a bank's capital adequacy, regulators also consider other factors such as interest rate risk exposure, liquidity, funding and market risks, quality and level of earnings, concentrations of credit, quality of loans and investments, nontraditional activity risk, policy effectiveness, and management's overall ability to monitor and control risk.

Capital adequacy is one of the most important factors used to determine the safety and soundness of individual banks and the banking system. Under the instituted regulatory framework, to be considered “well capitalized”, a financial institution must generally have a Total Capital ratio of at least 10%, a Tier 1 Capital ratio of at least 8.0%, a CET1 Capital ratio at least 6.5%, and a Tier 1 Leverage Capital ratio of at least 5.0%. However, regardless of a financial institution’s ratios, the OCC may require increased capital ratios or impose dividend restrictions based on the other factors it considers in assessing a bank’s capital adequacy.

Management continuously assesses the adequacy of the Bank’s capital in order to maintain its “well capitalized” status.

The Company’s and the Bank’s regulatory capital amounts and ratios at September 30, 2018 and December 31, 2017 are summarized as follows:

(In thousands)	Patriot National Bancorp, Inc.								Patriot Bank, N.A.
	September 30, 2018				December 31, 2017				September 30, 2018				December 31, 2017
	Amount ($)		Ratio (%)		Amount ($)		Ratio (%)		Amount ($)		Ratio (%)		Amount ($)		Ratio (%)
Total Capital (to risk weighted assets):
Actual		88,781		10.328		74,264		10.092		97,403		11.385		83,711		11.406
To be Well Capitalized(1)		-		-		-		-		85,554		10.000		73,393		10.000
For capital adequacy with Capital Buffer(2)		-		-		-		-		84,485		9.875		67,889		9.250
For capital adequacy		68,767		8.000		58,868		8.000		68,443		8.000		58,715		8.000
Tier 1 Capital (to risk weighted assets):
Actual		72,165		8.395		67,959		9.235		90,787		10.612		77,407		10.547
To be Well Capitalized(1)		-		-		-		-		68,443		8.000		58,715		8.000
For capital adequacy with Capital Buffer(2)		-		-		-		-		67,374		7.875		53,210		7.250
For capital adequacy		51,575		6.000		44,151		6.000		51,333		6.000		44,036		6.000
Common Equity Tier 1 Capital (to risk weighted assets):
Actual		64,165		7.465		59,959		8.148		90,787		10.612		77,407		10.547
To be Well Capitalized(1)		-		-		-		-		55,610		6.500		47,706		6.500
For capital adequacy with Capital Buffer(2)		-		-		-		-		54,541		6.375		42,201		5.750
For capital adequacy		38,681		4.500		33,113		4.500		38,499		4.500		33,027		4.500
Tier 1 Leverage Capital (to average assets):
Actual		72,165		7.847		67,959		8.219		90,787		9.917		77,407		9.360
To be Well Capitalized(1)		-		-		-		-		45,775		5.000		41,351		5.000
For capital adequacy		36,785		4.000		33,072		4.000		36,620		4.000		33,081		4.000

⁽¹⁾ Designation as "Well Capitalized" does not apply to bank holding companies - the Company. Such categorization of capital adequacy only applies to insured depository institutions - the Bank.

⁽²⁾ The Capital Conservation Buffer implemented by the FDIC began to be phased in beginning January 1, 2016. It was not applicable to periods prior to that date and does not apply to bank holding companies - the Company.

36

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements (Unaudited)

Under the final capital rules that became effective on January 1, 2015, there was a requirement for a CET1 capital conservation buffer of 2.5% of risk-weighted assets, which is in addition to the other minimum risk-based capital standards in the rule. Institutions that do not maintain this required capital buffer become subject to progressively more stringent limitations on the percentage of earnings that may be distributed to shareholders or used for stock repurchases and on the payment of discretionary bonuses to senior executive management.

The capital buffer requirement is being phased in over three years beginning in 2016. The 1.25% capital conversation buffer for 2017 has been included in the minimum capital adequacy ratios in the 2017 column in the table above. The capital conversation buffer increased to 1.875% for 2018, which has been included in the minimum capital adequacy ratios in the 2018 column above.

The capital buffer requirement effectively raises the minimum required Total Capital ratio to 10.5%, the Tier 1 capital ratio to 8.5% and the CET1 capital ratio to 7.0% on a fully phased-in basis, which will be effective beginning on January 1, 2019. Management believes that, as of September 30, 2018, Patriot satisfies all capital adequacy requirements under the Basel III Capital Rules on a fully phased-in basis, as if all such requirements were currently in effect.

Note 11: Fair Value and Interest Rate Risk

Patriot measures the carrying value of certain financial assets and liabilities at fair value, as required by its policies as a financial institution and by US GAAP. The carrying values of certain assets and liabilities are measured at fair value on a recurring basis, such as available-for-sale securities; while other assets and liabilities are measured at fair value on a non-recurring basis due to external factors requiring management’s judgment to estimate potential losses of value resulting in asset impairments or the establishment of valuation reserves. Measuring assets and liabilities at fair value may result in fluctuations to carrying value that have a significant impact on the results of operations or other comprehensive income for the period and period over period.

Following is a detailed summary of the guidance provided by US GAAP regarding the application of fair value measurements and Patriot’s application thereof. Additionally, the following information includes detailed summaries of the effects fair value measurements have on the carrying amounts of asset and liabilities presented in the Consolidated Financial Statements.

The objective of fair value measurement is to value an asset that may be sold or a liability that may be transferred at the estimated value which might be obtained in a transaction between unrelated parties under current market conditions. US GAAP establishes a framework for measuring assets and liabilities at fair value, as well as certain financial instruments classified in equity. The framework provides a fair value hierarchy, which prioritizes quoted prices in active markets for identical assets and liabilities and minimizes unobservable inputs, which are inputs for which market data are not available and that are developed by management using the best information available to develop assumptions about the value market participants might place on the asset to be sold or liability to be transferred.

The three levels of the fair value hierarchy consist of:

Level 1 Unadjusted quoted market prices for identical assets or liabilities in active markets that the entity has the ability to access at the measurement date (such as active exchange-traded equity securities and certain U.S. and government agency debt securities).

Level 2	Observable inputs other than quoted prices included in Level 1, such as:
	–  Quoted prices for similar assets or liabilities in active markets (such as U.S. agency and government sponsored mortgage-backed securities)
	–  Quoted prices for identical or similar assets or liabilities in less active markets (such as certain U.S. and government agency debt securities, and corporate and municipal debt securities that trade infrequently)
	–  Other inputs that are observable for substantially the full term of the asset or liability (i.e. interest rates, yield curves, prepayment speeds, default rates, etc.).

Level 3 Valuation techniques that require unobservable inputs that are supported by little or no market activity and are significant to the fair value measurement of the asset or liability (such as pricing and discounted cash flow models that typically reflect management’s estimates of the assumptions a market participant would use in pricing the asset or liability).

37

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements (Unaudited)

A description of the valuation methodologies used for assets and liabilities recorded at fair value, and for estimating fair value for financial and non-financial instruments not recorded at fair value, is set forth below.

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

The carrying amount is a reasonable estimate of fair value and accordingly these are classified as Level 1. These financial instruments are not recorded at fair value on a recurring basis.

Available-for-sale securities

The fair value of securities available for sale (carried at fair value) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities, but rather by relying on the securities' relationship to other benchmark quoted prices, or using unobservable inputs employing various techniques and assumptions (Level 3).

Other Investments 

The Bank’s investment portfolio includes the Solomon Hess SBA Loan Fund totaling $4.5 million. This investment is utilized by the Bank to satisfy its Community Reinvestment Act (“CRA”) lending requirements. As this fund operates as a private fund, shares in the fund are not publicly traded but may be redeemed with 60 days notice at cost. For that reason, the carrying amount was considered comparable to fair value.

Federal Reserve Bank Stock and Federal Home Loan Bank Stock

Shares in the Federal Reserve Bank (“FRB”) and Federal Home Loan Bank (“FHLB”) are purchased and redeemed based upon their $100 par value. The stocks are non-marketable equity securities, and as such, are considered restricted securities that are carried at cost.

Loans 

The fair value of loans are estimated by discounting the future cash flows using the rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. In connection with the adoption of ASU 2016-01 on January 1, 2018, we refined our methodology to estimate the fair value of our loan portfolio using an exit price notion resulting in prior periods no longer being comparable. The exit price notion requires determination of the price at which willing market participants would transact at the measurement date under current market conditions depending on facts and circumstances, such as origination rates, credit risk, transaction costs, liquidity, national and regional market trends and other adjustments, utilizing publicly available rates and indices. The application of an exit price notion requires the use of significant judgment.

Deposits

The fair value of demand deposits, regular savings and certain money market deposits is the amount payable on demand at the reporting date.

The fair value of certificates of deposit and other time deposits is estimated using a discounted cash flow calculation that applies interest rates currently being offered for deposits of similar remaining maturities, estimated using local market data, to a schedule of aggregated expected maturities on such deposits. Patriot does not record deposits at fair value on a recurring basis.

Senior Notes, Subordinated Notes, and Junior Subordinated Debt

Patriot does not record senior notes at fair value on a recurring basis. The fair value of the senior notes was estimated by discounting future cash flows at rates at which similar notes would be made. The carrying value is considered comparable to fair value.

Patriot does not record subordinated notes issued in June 2018 at fair value on a recurring basis. The fair value of the subordinated notes was estimated by discounting future cash flows at rates at which similar notes would be made. The carrying value is considered comparable to fair value.

Patriot does not record junior subordinated debt at fair value on a recurring basis. Junior subordinated debt reprices quarterly, as a result, the carrying amount is considered a reasonable estimate of fair value.

38

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements (Unaudited)

Federal Home Loan Bank Borrowings 

The fair value of FHLB advances is estimated using a discounted cash flow calculation that applies current FHLB interest rates for advances of similar maturity to a schedule of maturities of such advances. Patriot does not record FHLB advances at fair value on a recurring basis.

Contingent Consideration Liability

The Company estimates the fair value of the contingent consideration liability by using a discounted cash flow model of future contingent payments based on interest income related to the acquired PCI loans. The estimated fair value of the contingent consideration liability is reviewed on a quarterly basis and any valuation adjustments resulting from a change of estimated future contingent payments based on interest income of the acquired PCI loans affecting the contingent consideration liability will be recorded through noninterest expense. Due to the significant unobservable input related to the interest income, the contingent consideration liability is classified within Level 3 of the valuation hierarchy. An increase in the interest income may result in a higher fair value of the contingent consideration liability. Alternatively, a decrease in the interest income may result in a lower estimated fair value of the contingent consideration liability.

Off-balance sheet financial instruments 

Off-balance sheet financial instruments are based on interest rate changes and fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The off-balance-sheet financial instruments (i.e., commitments to extend credit) are insignificant and are not recorded on a recurring basis.

The following tables detail the financial assets measured at fair value on a recurring basis and the valuation techniques utilized relative to the fair value hierarchy, as of September 30, 2018 and December 31, 2017:

(In thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
September 30, 2018:
U. S. Government agency mortgage-backed securities	$	-		21,235		-		21,235
Corporate bonds		-		13,007		-		13,007
Subordinated notes		-		4,525		-		4,525
U.S. Treasury notes		-		1,497		-		1,497
Available-for-sale securities	$	-		40,264		-		40,264
Contingent consideration liability	$	-		-		477		477
December 31, 2017:
U. S. Government agency mortgage-backed securities	$	-		7,224		-		7,224
Corporate bonds		-		13,804		-		13,804
Subordinated notes		-		4,548		-		4,548
Available-for-sale securities	$	-		25,576		-		25,576

Patriot measures certain financial assets and financial liabilities at fair value on a non-recurring basis. When circumstances dictate (e.g., impairment of long-lived assets, other than temporary impairment of collateral value), the carrying values of such financial assets and financial liabilities are adjusted to fair value or fair value less costs to sell, as may be appropriate.

39

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements (Unaudited)

The table below presents the valuation methodology and unobservable inputs for level 3 assets measures at fair value on a non-recurring basis as of September 30, 2018 and December 31, 2017:

(In thousands)	Fair Value		Valuation Methodology	Unobservable Inputs	Range of Inputs
September 30, 2018:
Impaired loans, net including PCI loans	$	10,173	Real Estate Appraisals	Discount for appraisal type	0%	-	8%
Other Real Estate Owned		991	Real Estate Appraisals	Discount for appraisal type		14%
December 31, 2017:
Impaired loans	$	6,500	Real Estate Appraisals	Discount for appraisal type	0%	-	8%

Patriot discloses fair value information about financial instruments, whether or not recognized in the Consolidated Balance Sheet, for which it is practicable to estimate that value. Certain financial instruments are excluded from disclosure requirements and, accordingly, the aggregate fair value amounts presented do not necessarily represent the complete underlying value of financial instruments included in the Consolidated Financial Statements.

The estimated fair value amounts have been measured as of September 30, 2018 and December 31, 2017, and have not been reevaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of the financial instruments measured may be different than if they had been subsequently valued.

The information presented should not be interpreted as an estimate of the total fair value of Patriot’s assets and liabilities, since only a portion of Patriot’s assets and liabilities are required to be measured at fair value for financial reporting purposes. Due to the wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between Patriot’s fair value disclosures and those of other bank holding companies may not be meaningful.

40

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements (Unaudited)

The following table provides a comparison of the carrying amounts and estimated fair values of Patriot’s financial assets and liabilities as of September 30, 2018 and December 31, 2017:

(In thousands)		September 30, 2018				December 31, 2017
	Fair Value Hierarchy	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial Assets:
Cash and noninterest bearing balances due from banks	Level 1	$	5,596		5,596		3,582		3,582
Interest-bearing deposits due from banks	Level 1		43,636		43,636		45,659		45,659
U. S. Government agency mortgage-backed securities	Level 2		21,235		21,235		7,224		7,224
Corporate bonds	Level 2		13,007		13,007		13,804		13,804
Subordinated notes	Level 2		4,525		4,525		4,548		4,548
U.S. Treasury notes	Level 2		1,497		1,497		-		-
Other investments	Level 2		4,450		4,450		4,450		4,450
Federal Reserve Bank stock	Level 2		2,833		2,833		2,502		2,502
Federal Home Loan Bank stock	Level 2		4,928		4,928		5,889		5,889
Loans receivable, net	Level 3		756,649		748,988		713,350		702,816
Accrued interest receivable	Level 2		3,612		3,612		3,496		3,496
Financial assets, total		$	861,968		854,307		804,504		793,970
Financial Liabilities:
Demand deposits	Level 2	$	81,687		81,687		81,197		81,197
Savings deposits	Level 2		100,294		100,294		135,975		135,975
Money market deposits	Level 2		62,314		62,314		16,575		16,575
NOW accounts	Level 2		24,827		24,827		25,476		25,476
Time deposits	Level 2		284,390		282,671		240,087		239,219
Brokered deposits	Level 1		166,020		165,437		138,129		137,870
FHLB and correspondent bank borrowings	Level 2		90,000		89,266		120,000		120,218
Senior notes	Level 2		11,759		11,108		11,703		11,249
Subordinated debt	Level 2		9,720		9,158		-		-
Junior subordinated debt owed to unconsolidated trust	Level 2		8,092		8,092		8,086		8,086
Note payable	Level 3		1,436		1,245		1,580		1,416
Accrued interest payable	Level 2		1,563		1,563		569		569
Contingent consideration liability	Level 3		477		477		-		-
Financial liabilities, total		$	842,579		838,139		779,377		777,850

The carrying amount of cash and noninterest bearing balances due from banks, interest-bearing deposits due from banks, and demand deposits approximates fair value, due to the short-term nature and high turnover of these balances. These amounts are included in the table above for informational purposes.

41

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY

Notes to consolidated financial statements (Unaudited)

In the normal course of its operations, Patriot assumes interest rate risk (i.e., the risk that general interest rate levels will fluctuate). As a result, the fair value of the Patriot’s financial assets and liabilities are affected when interest market rates change, which change may be either favorable or unfavorable. Management attempts to mitigate interest rate risk by matching the maturities of its financial assets and liabilities. However, borrowers with fixed rate obligations are less likely to prepay their obligations in a rising interest rate environment and more likely to prepay their obligations in a falling interest rate environment. Conversely, depositors receiving fixed rates are more likely to withdraw funds before maturity in a rising interest rate environment and less likely to do so in a falling interest rate environment. Management monitors market rates of interest and the maturities of its financial assets and financial liabilities, adjusting the terms of new loans and deposits in an attempt to minimize interest rate risk. Additionally, management mitigates its overall interest rate risk through its available funds investment strategy.

Off-balance-sheet instruments

Loan commitments on which the committed interest rate is less than the current market rate were insignificant at September 30, 2018 and December 31, 2017. The estimated fair value of fee income on letters of credit at September 30, 2018 and December 31, 2017 was insignificant.

42

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

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

Certain statements contained in the Company’s public statements, including this one, and in particular in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” 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 the Company’s interest earning assets and the interest paid on its interest bearing liabilities; (2) the timing of repricing of the Company’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 the Company and the Bank and the conduct of its business; (5) changes in competition among financial service companies, including possible further encroachment of non-banks on services traditionally provided by banks; (6) the ability of competitors that are larger than the Company to provide products and services which it is impracticable for the Company to provide; (7) the state of the economy and real estate values in the Company’s market areas, and the consequent effect on the quality of the Company’s loans; (8) recent governmental initiatives that are expected to have a profound effect on the financial services industry and could dramatically change the competitive environment of the Company; (9) other legislative or regulatory changes, including those related to residential mortgages, changes in accounting standards, and Federal Deposit Insurance Corporation (“FDIC”) premiums that may adversely affect the Company; (10) the application of generally accepted accounting principles, consistently applied; (11) the fact that one period of reported results may not be indicative of future periods; (12) the state of the economy in the greater New York metropolitan area and its particular effect on the Company's customers, vendors and communities and (13) other such factors, including risk factors, as may be described in the Company’s other filings with the SEC. The following discussion should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 30, 2017 filed with the SEC on March 30, 2018 (the “2017 Form 10-K”) and the consolidated financial statements and notes thereto included in Part I, Item 1 of this Form 10-Q.

Although the Company believes that it offers the loan and deposit products and has the resources needed for continued success, future revenues and interest spreads and yields cannot be reliably predicted. These trends may cause the Company to adjust its operations in the future. Because of the foregoing and other factors, recent trends should not be considered reliable indicators of future financial results or stock prices.

CRITICAL ACCOUNTING POLICIES

The preparation of consolidated financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and to disclose contingent assets and liabilities. Actual results could differ from those estimates. Management has identified the accounting for the allowance for loan losses, the analysis and valuation of its investment securities, the valuation of deferred tax assets and the valuation of the assets acquired and liabilities assumed in connection with its business combination, as the Company’s most critical accounting policies and estimates in that they are important to the portrayal of the Company’s financial condition and results of operations. They require management’s most subjective and complex judgment as a result of the need to make estimates about the effect of matters that are inherently uncertain. Refer to the 2017 Form 10-K for additional information.

43

Summary

The Company reported net income for the third quarter of 2018 of $769,000 ($0.20 basic and diluted earnings per share) compared to a net income of $1.0 million ($0.26 basic and diluted earnings per share) for the quarter ended September 30, 2017. On a pre-tax basis, the Company earned $1.0 million for the three month period ended September 30, 2018, a decrease of $626,000 compared to the third quarter of 2017.

For the nine months ended September 30, 2018, the Company reported net income of $2.9 million ($0.74 basic and $0.73 diluted earnings per share) compared to net income of $3.5 million ($0.91 basic and diluted earnings per share) for the nine months ended September 30, 2017, a decrease of $677,000.

The net income for the nine months ended September 30, 2018 was not comparable to the same period last year due to a material credit recovery that was recognized in the first quarter of 2017 and material non-recurring acquisition-related and tax initiatives expenses recognized in the current year. Pre-tax earnings reported for the three and nine months ended September 30, 2018 included non-recurring transaction expenses of $653,000 and $1.8 million, respectively, which were primarily associated with the acquisition of Prime Bank which closed in May 2018 and the pending acquisition of Hana SBL. These non-recurring expenses will cease once the acquisitions are consummated and the acquired companies are fully integrated.

The quarter’s results reflect continued, measured progress. Building scale and franchise value remains on track, and the Company continues to build its management team to add specialization and depth to its lending platform and retail banking presence.

Management is encouraged with the positive developments at Patriot over the first three quarters of 2018. The Company has followed 2017, the best earnings year in its history, with a strong first three quarters of 2018. While costs that were incurred to execute the completed and pending acquisitions are temporarily reducing the reported earnings, management is confident these investments will result in enhanced performance into 2019 and beyond.

The successful completion of the Prime Bank transaction represented an important step in the process of building Patriot into a leading community bank. Management looks forward to the next steps, which will include the Company’s expansion into a national SBA lending platform, and the continued building of the Company’s retail banking presence.

As of September 30, 2018, total assets increased to $915.3 million, as compared to $852.1 million at December 31, 2017. Net Loan portfolio increased $43.2 million or 6.1% from $713.4 million at December 31, 2017 to $756.6 million at September 30, 2018. Deposits continued to grow to $719.5 million at September 30, 2018, as compared to $637.4 million at December 31, 2017. All of these balance sheet categories were positively impacted by the completed merger with Prime Bank.

Equity increased $2.2 million or 3.3%, from $66.7 million at December 31, 2017 to $68.9 million at September 30, 2018, primarily due to $2.9 million of net income and $163,000 of equity compensation, which were offset by $745,000 of investment portfolio unrealized losses and $116,000 common stock dividend payments in the nine months period ended September 30, 2018.

44

Financial Condition

Cash and Cash Equivalents

Cash and cash equivalents of $49.2 million at September 30, 2018 were consistent with December 31, 2017. This was primarily attributable to the offsetting effect of the followings:

– $35.9 million increase in deposits,

– $35.5 million of proceeds from sales on securities acquired in the Prime Bank acquisition, and

– $5.4 million in net cash provided by operating activities in the year-to-date September 30, 2018.

The effect of these cash inflows was partially offset by:

– $39.8 million of repayments of FHLB and correspondent bank borrowings,

– $37.8 million in cash outflows for purchases of loans receivable,

– $17.1 million in cash used for purchases of available-for-sale securities, and

– $4.7 million in net cash used in business combination.

Investments

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

	September 30,		December 31,		Inc/(Dec)			Inc/(Dec)
(In thousands)	2018		2017		($)			(%)
U. S. Government agency mortgage-backed securities	$	21,235		7,224		14,011			193.95	%
Corporate bonds		13,007		13,804		(797	)		(5.77	)%
Subordinated notes		4,525		4,548		(23	)		(0.51	)%
U.S. Treasury notes		1,497		-		1,497			100.00	%
Total Available-for-Sale Securities	$	40,264		25,576		14,688			57.43	%

Available-for-sale securities increased $14.7 million or 57.4%, from $25.6 million at December 31, 2017 to $40.3 million at September 30, 2018. This increase was primarily attributable to purchases of $15.6 million U.S. Government agency mortgage-backed securities and $1.5 million U.S. Treasury notes, which was offset by $1.4 million repayments of principal on Government agency mortgage-backed securities and $1.0 million change in unrealized losses of the available for sale securities. In the nine month period ended September 30, 2018, the Company sold $35.5 million securities acquired in the Prime Bank transaction, which were sold at the fair value at acquisition date with no recorded gain or loss.

Loans

The following table provides the composition of the Company’s loan portfolio as of September 30, 2018 and December 31, 2017:

(In thousands)	September 30, 2018						December 31, 2017
	Total			%			Amount			%
Loan portfolio segment:
Commercial Real Estate	$	276,100			36.17	%		299,925			41.68	%
Residential Real Estate		155,077			20.32	%		146,377			20.34	%
Commercial and Industrial		174,480			22.86	%		131,161			18.23	%
Consumer and Other		97,463			12.77	%		87,707			12.19	%
Construction		45,476			5.96	%		47,619			6.62	%
Construction to permanent - CRE		14,658			1.92	%		6,858			0.94	%
Loans receivable, gross		763,254			100.00	%		719,647			100.00	%
Allowance for loan losses		(6,605	)					(6,297	)
Loans receivable, net	$	756,649						713,350

45

The Company’s gross loan portfolio increased $43.7 million, or 6.1%, from $719.6 million at December 31, 2017 to $763.3 million at September 30, 2018. The increase in loans was primarily attributable to $21.6 million acquired loans from Prime Bank, and $37.8 million purchases of loans receivable in the third quarter of 2018, which was partially offset by net paydown of $15.3 million during 2018. As of September 30, 2018, the loan pipeline is strong. The Company will continue to add to the product lines and enhance service offerings to the customers.

At September 30, 2018, the net loan to deposit ratio was 105% and the net loan to total assets ratio was 83%. At December 31, 2017, these ratios were 112% and 84%, respectively.

Allowance for Loan Losses

The allowance for loan losses increased $308,000 or 4.9% from $6.3 million at December 31, 2017 to $6.6 million at September 30, 2018. The increase was primarily attributable to $285,000 provision for all loan categories.

The overall credit quality of the loan portfolio continues to be strong and stable. Based upon the overall assessment and evaluation of the loan portfolio at September 30, 2018, management believes the allowance for loan losses of $6.6 million, which represents 0.9% of gross loans outstanding, was adequate under prevailing economic conditions to absorb existing losses in the loan portfolio.

The following table provides detail of activity in the allowance for loan losses for business activities loans:

	Three months ended September 30,						Nine months ended September 30,
(In thousands)	2018			2017			2018			2017
Balance at beginning of the period	$	6,525			5,944			6,297			4,675
Charge-offs:
Residential Real Estate		(2	)		-			(2	)		-
Commercial and Industrial		-			(265	)		-			(265	)
Consumer and Other		(3	)		(10	)		(17	)		(23	)
Total charge-offs		(5	)		(275	)		(19	)		(288	)
Recoveries:
Commercial Real Estate		24			6			30			8
Residential Real Estate		11			-			12			-
Commercial and Industrial		-			-			-			2,769
Consumer and Other		-			2			-			2
Total recoveries		35			8			42			2,779
Net (recoveries) charge-offs		(30	)		267			(23	)		(2,491	)
Provision (credit) charged to earnings		50			545			285			(944	)
Balance at end of the period	$	6,605			6,222			6,605			6,222
Ratios:
Net (recoveries) charge-offs to average loans		(0.004	)%		0.038	%		(0.003	)%		(0.388	)%
Allowance for loan losses to total loans		0.87	%		0.88	%		0.87	%		0.88	%

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The following table provides an allocation of allowance for loan losses by portfolio segment and the percentage of the loans to total loans:

(In thousands)	September 30, 2018					December 31, 2017
	Allowance for loan losses		% of loans			Allowance for loan losses		% of loans
Commercial Real Estate	$	1,763		36.17	%		2,212		41.68	%
Residential Real Estate		865		20.32	%		959		20.34	%
Commercial and Industrial		2,241		22.86	%		2,023		18.23	%
Consumer and Other		670		12.77	%		568		12.19	%
Construction		680		5.96	%		481		6.62	%
Construction to permanent - CRE		100		1.92	%		54		0.94	%
Unallocated		286		N/A			-		N/A
Total	$	6,605		100.00	%		6,297		100.00	%

Non-performing Assets

The following table presents non-performing assets as of September 30, 2018 and December 31, 2017:

(In thousands)
	September 30,			December 31,
	2018			2017
Non-accruing loans:
Commercial Real Estate	$	2,073			-
Residential Real Estate		3,223			3,028
Commercial and Industrial		1,084			748
Consumer and Other		99			2
Total non-accruing loans		6,479			3,778
Loans past due over 90 days and still accruing		18,376			1,356
Other real estate owned		991			-
Total nonperforming assets	$	25,846			5,134
Nonperforming assets to total assets		2.82	%		0.60	%
Nonperforming loans to total loans		3.26	%		0.71	%

The $7.1 million of non-accrual loans at September 30, 2018 was comprised of eleven relationships, for which a specific reserve of $55,000 has been established.

The Company has obtained appraisal reports from independent licensed appraisal firms and discounted those values for estimated selling costs to determine estimated impairment. 

The $3.8 million of non-accrual loans at December 31, 2017 was comprised of eight borrowers, for which a specific reserve of $253,000 had been established.

47

Loans greater than 90 days past due or more, and still accruing interest, were $18.4 million at September 30, 2018, as compared to $1.4 million at December 31, 2017. The $18.4 million at September 30, 2018 was primarily due to one construction loan of $8.8 million, on which interest payments are current-to-date.  Management has determined the loan is well secured and in process of collection.  The other loan in the Substandard category was a $1.5 million dollar multifamily residential loan in New Haven, being actively managed by the Bank’s Special Assets team.  The borrower is expected to bring the loan current following the resolution of real estate tax disputes with the City of New Haven.

The $5.7 million of Pass loans 90 days and over past due and still accruing consists of five loans, all of which are actively managed by the Bank and are expected to be brought current based on recent discussions with each borrower.  The $2.4 million of Special mention loans 90 days or more past due and still accruing reflected one loan which is expected to be brought current following the sale of a property.

Deferred Taxes

Deferred tax assets increased $510,000, from $10.4 million at December 31, 2017 to $10.9 million at September 30, 2018. The increase in deferred tax assets resulted from capitalization of certain allowable expenses for tax purposes in the 2017 income tax returns which were expensed for financial reporting purposes and changes in the tax effects on unrealized gains and losses.

Patriot anticipates utilizing the net operating loss carry forwards to reduce income taxes otherwise payable on current year taxable income and net unrealized gains on the investment portfolio to the net operating loss carry forward.

The Company will continue to evaluate its ability to realize its net deferred tax asset. If future evidence suggests that it is more likely than not that a portion of the deferred tax asset will not be realized, a valuation allowance will be established.

Deposits

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

(In thousands)	September 30,		December 31,		Inc/(Dec)			Inc/(Dec)
	2018		2017		($)			(%)
Non-interest bearing	$	81,687		81,197		490			0.60	%
Interest bearing:
NOW		24,827		25,476		(649	)		(2.55	)%
Savings		100,294		135,975		(35,681	)		(26.24	)%
Money market		62,314		16,575		45,739			275.95	%
Certificates of deposit, less than $250,000		203,044		173,221		29,823			17.22	%
Certificates of deposit, $250,000 or greater		81,346		66,866		14,480			21.66	%
Brokered deposits		166,020		138,129		27,891			20.19	%
Total Interest bearing		637,845		556,242		81,603			14.67	%
Total Deposits	$	719,532		637,439		82,093			12.88	%

Deposits increased $82.1 million or 12.9%, from $637.4 million at December 31, 2017 to $719.5 million at September 30, 2018, resulting from an increase of $46.2 million acquired deposits from the Prime Bank merger, $27.9 million in broker deposits partially offset by a decline savings deposit of $35.7 million. During 2018, several commercial and consumer clients saw cyclical draw downs in their liquid accounts, for reasons ranging from bonus allocations, business expenses, tax expenses, to loan paydowns.

48

Borrowings

Total borrowings were $121.0 million and $141.4 million as of September 30, 2018 and December 31, 2017, respectively. Borrowings consist primarily of FHLB advances, senior notes, subordinated notes, junior subordinated debentures and a note payable.

Federal Home Loan Bank borrowings

The Company is a member of the Federal Home Loan Bank of Boston ("FHLB-B"). Borrowings from the FHLB-B are limited to a percentage of the value of qualified collateral, as defined on the FHLB-B Statement of Products Policy. Qualified collateral, as defined, primarily consists of mortgage-backed securities and loans receivable that are required to be free and clear of liens and encumbrances, and may not be pledged for any other purposes. As of September 30, 2018, the Bank had $60.0 million of available borrowing capacity from the FHLB-B.

In addition, Patriot has a $2.0 million revolving line of credit with the FHLB-B. At September 30, 2018 and December 31, 2017, no funds had been borrowed under the line of credit.

Correspondent Bank - Line of Credit

Effective July 2016, Patriot entered into a federal funds sweep and federal funds line of credit facility agreement (the “Correspondent Bank Agreement”) with ZB, N.A. (“Zions Bank”). The purpose of the agreement is to provide a credit facility intended to satisfy overnight federal account balance requirements and to provide for daily settlement of FRB, ACH, and other clearinghouse transactions.

The Correspondent Bank Agreement provides for up to $16 million in borrowings of which no borrowings were outstanding as of September 30, 2018. The Correspondent Bank Agreement is unsecured, currently requires a compensating balance of $250,000 to remain on account with Zions Bank at all times, pays interest on funds on account (e.g., federal funds sweep, compensating balance) at variable rates depending on the total deposit, and charges interest on advances at Zions Bank’s daily federal funds rate, which is variable.

In June 2018, Patriot negotiated a similar line of credit facility for $10 million with First Tennessee Bank.

Senior notes

On December 22, 2016, the Company issued $12 million of senior notes bearing interest at 7% per annum and maturing on December 22, 2021 (the “Senior Notes”). Interest on the Senior Notes is payable semi-annually on June 22 and December 22 of each year beginning on June 22, 2017.

In connection with the issuance of the Senior Notes, the Company incurred $374,000 of costs, which are being amortized over the term of the Senior Notes to recognize a constant rate of interest expense. At September 30, 2018 and December 31, 2017, $241,000 and $297,000 of unamortized debt issuance costs have been deducted from the face amount of the Senior Notes included in the Consolidated Balance Sheet.

The Senior Notes contain affirmative covenants that require the Company to: maintain its and its subsidiaries’ legal entity and tax status, pay its income tax obligations on a timely basis, and comply with SEC and FDIC reporting requirements. The Senior Notes are unsecured, rank equally with all other senior obligations of the Company, are not redeemable nor may they be put to the Company by the holders of the notes, and require no payment of principal until maturity.

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Subordinated notes

On June 29, 2018, the Company entered into certain subordinated note purchase agreements with two institutional accredited investors and completed a private placement of $10 million of fixed-to-floating rate subordinated notes with the maturity date of September 30, 2028 (the “Subordinated Notes”) pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule 506(b) of Regulation D promulgated thereunder.

The Subordinated Notes will initially bear interest at 6.25% per annum, from and including June 29, 2018, to but excluding, June 30, 2023, payable semi-annually in arrears. From and including June 30, 2023, until but excluding June 30, 2028 or an early redemption date, the interest rate shall reset quarterly to an interest rate per annum equal to the then current three-month LIBOR (but not less than zero) plus 332.5 basis points, payable quarterly in arrears. The Company may, at its option, beginning on June 30, 2023 and on any scheduled interest payment date thereafter, redeem the Subordinated Notes. Interest on the Subordinated Notes is payable beginning on December 30, 2018.

In connection with the issuance of the Subordinated Notes, the Company incurred $424,000 of debt issuance costs, which are being amortized over the term of the Subordinated Notes to recognize a constant rate of interest expense. At September 30, 2018, $280,000 of unamortized debt issuance costs have been deducted from the face amount of the Subordinated Notes included in the Consolidated Balance Sheet.

Junior subordinated debt owed to unconsolidated trust

In 2003, the Patriot National Statutory Trust I (“the Trust”), which has no independent assets and is wholly-owned by the Company, issued $8.0 million of trust preferred securities. The proceeds, net of a $240,000 placement fee, were invested in junior subordinated debentures issued by the Company, which invested the proceeds in the Bank. The Bank used the proceeds to fund its operations.

At its option, exercisable on a quarterly basis, the Company may redeem the junior subordinated debentures from the Trust, which would then redeem the trust preferred securities.

Note Payable

In September 2015, the Bank purchased the property in which its Fairfield, Connecticut branch is located for approximately $2.0 million, a property it had been leasing until that date. The purchase price was primarily satisfied by issuing the seller a $2.0 million, nine-year, promissory note bearing interest at a fixed rate of 1.75% per annum. As of September 30, 2018 and December 31, 2017, the note had a balance outstanding of $1.4 million and $1.6 million, respectively. The note matures in August 2024 and requires a balloon payment of approximately $234,000 at that time. The note is secured by a first Mortgage Deed and Security Agreement on the purchased property.

Equity

Equity increased $2.2 million from $66.7 million at December 31, 2017 to $68.9 million at September 30, 2018, primarily due to $2.9 million of year-to-date net income and $163,000 of equity compensation, which were offset by $745,000 of investment portfolio unrealized loss and $116,000 common stock dividend payments.

Off-Balance Sheet Commitments

The Company’s off-balance sheet commitments, which primarily consist of commitments to lend, increased $45.8 million from $117.2 million at December 31, 2017 to $163.0 million at September 30, 2018.

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RESULTS OF OPERATIONS

Distribution of Assets, Liabilities and Shareholders’ Equity; Interest Rates and Interest Differential

The following tables present daily average balance sheets, interest income, interest expense and the corresponding yields earned and rates paid for the three months ended September 30, 2018 and 2017:

(In thousands)	Three months ended September 30,
	2018							2017
	Daily Average Balance ($)			Interest ($)		Yield (%)		Daily Average Balance ($)			Interest ($)		Yield (%)
ASSETS
Interest Earning Assets:
Loans	$	748,162			9,413		4.99		702,307			8,522		4.81
Cash equivalents		69,733			342		1.95		23,383			65		1.11
Investments		48,753			489		4.01		39,923			380		3.81
Total interest earning assets		866,648			10,244		4.69		765,613			8,967		4.65
Cash and due from banks		5,298							2,766
Premised and equipment, net		35,673							34,618
Allowance for loan losses		(6,541	)						(6,120	)
OREO		991							851
Other assets		19,770							16,076
Total Assets	$	921,839							813,804
Liabilities
Interest bearing liabilities:
Deposits	$	631,437			2,457		1.54		511,941			1,339		1.04
Borrowings		101,587			486		1.90		137,027			248		0.72
Senior notes		11,748			229		7.73		11,673			229		7.77
Subordinated debt		17,877			278		6.17		8,237			92		4.47
Note Payable and other		1,453			6		1.64		1,639			7		1.74
Total interest bearing liabilities		764,102			3,456		1.79		670,517			1,915		1.13
Demand deposits		83,758							75,081
Other liabilities		4,650							1,811
Total Liabilities		852,510							747,409
Shareholders' equity		69,329							66,395
Total Liabilities and Shareholders' Equity	$	921,839							813,804
Net interest income					6,788							7,052
Interest margin							3.11							3.65
Interest spread							2.90							3.52

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The following tables present daily average balance sheets, interest income, interest expense and the corresponding yields earned and rates paid for the nine months ended September 30, 2018 and 2017:

(In thousands)	Nine months ended September 30,
	2018							2017
	Daily Average Balance ($)			Interest ($)		Yield (%)		Daily Average Balance ($)			Interest ($)		Yield (%)
ASSETS
Interest Earning Assets:
Loans	$	737,808			27,388		4.96		642,742			22,720		4.73
Cash equivalents		59,438			763		1.72		23,365			148		0.85
Investments		42,439			1,295		4.07		36,871			968		3.50
Total interest earning assets		839,685			29,446		4.69		702,978			23,836		4.53
Cash and due from banks		4,571							4,092
Premised and equipment, net		35,600							33,816
Allowance for loan losses		(6,471	)						(5,547	)
OREO		511							851
Other assets		17,963							16,717
Total Assets	$	891,859							752,907
Liabilities
Interest bearing liabilities:
Deposits	$	603,105			6,111		1.35		487,248			3,457		0.95
Borrowings		114,159			1,245		1.46		102,900			509		0.66
Senior notes		11,730			686		7.80		11,655			686		7.87
Subordinated debt		11,459			489		5.71		8,244			266		4.32
Note Payable		1,737			23		1.77		1,689			24		1.76
Total interest bearing liabilities		742,190			8,554		1.54		611,736			4,942		1.08
Demand deposits		76,637							73,815
Other liabilities		4,454							2,344
Total Liabilities		823,281							687,895
Shareholders' equity		68,578							65,012
Total Liabilities and Shareholders' Equity	$	891,859							752,907
Net interest income					20,892							18,894
Interest margin							3.33							3.59
Interest spread							3.15							3.45

52

The following table presents the dollar amount of changes in interest income and interest expense for the major categories of our interest-bearing assets and interest-bearing liabilities for the three and nine months ended September 30, 2018 and 2017:

(In thousands)	Three Months Ended September 30,									Nine Months Ended September 30,
	2018 compared to 2017									2018 compared to 2017
	Increase/(Decrease)									Increase/(Decrease)
	Volume			Rate			Total			Volume			Rate			Total
Interest Earning Assets:
Loans	$	600			291			891		$	3,432			1,236			4,668
Cash equivalents		129			148			277			228			387			615
Investments		82			27			109			147			180			327
Total interest earning assets		811			466			1,277			3,807			1,803			5,610
Interest bearing liabilities:
Deposit		494			624			1,118			1,122			1,532			2,654
Borrowings		(64	)		302			238			57			679			736
Senior notes		-			-			-			-			-			-
Subordinated debt		-			186			186			158			65			223
Note payable and other		(1	)		-			(1	)		(1	)		-			(1	)
Total interest bearing liabilities		429			1,112			1,541			1,336			2,276			3,612
Net interest income	$	382			(646	)		(264	)	$	2,471			(473	)		1,998

For the quarter ended September 30, 2018, interest income increased $1.3 million or 14% as compared to the quarter ended September 30, 2017, as focused growth and diversification in the loan portfolio yielded an increase in interest income. Average loan balances increased $45.9 million or 7% as compared to the quarter ended September 30, 2017. Total interest expense increased $1.5 million or 80% as compared to the quarter ended September 30, 2017, primarily driven by $1.1 million increase in interest on deposits as the result of an increase in deposit rates, and $238,000 increase in interest on borrowings.

For the nine-month period ended September 30, 2018, interest income increased $5.6 million or 24% as compared to the nine-months ended September 30, 2017. Average loan balance increased $95.1 million as compared to the nine-months ended September 30, 2017, primarily driven by $21.6 million acquired loans from Prime Bank and $37.8 million loans purchased in 2018.

Net interest income was $6.8 million for the quarter ended September 30, 2018, decreased 4% from the corresponding 2017 period. Net interest income was $20.9 million for the nine months ended September 30, 2018, up 11% from the corresponding 2017 period. Net interest margin for the quarter ended September 30, 2018 was 3.11% as compared to 3.65% for the quarter ended September 30, 2017. For the nine months ended September 30, 2018, net interest margin was 3.33% as compared to 3.59% for the year-ago period. The decline in net interest margin reflects the impact of the subordinated debt added June 29, 2018 and increasing deposit costs associated with higher rates paid on retail deposits and an increased reliance on more expansive wholesale funding sources.

53

Provision (Credit) for Loan Losses

The provision for loan losses for the three and nine months ended September 30, 2018 were $50,000 and $285,000, as compared to $545,000 and a net credit of $944,000 for the three and nine months ended September 30, 2017, respectively. The credit for loan losses in 2017 was primarily attributable to a $2.8 million insurance recovery in its Commercial and Industrial portfolio segment, which was recorded as a credit to the allowance for loan losses in the first quarter of 2017.

Non-interest income

Non-interest income decreased $32,000 from $386,000 for the quarter ended September 30, 2017 to $354,000 for the quarter ended September 30, 2018. The decrease was primarily attributable to a $23,000 decrease in deposit fees.

For the nine months ended September 30, 2018, non-interest income increased $50,000 to $1.1 million as compared to $1.0 million for the same period of 2017. The increase is primarily attributable to a $78,000 loss recognized on sale of investment securities in the first quarter of 2017, and gain of $69,000 on sale of loans in 2018, which were offset by $52,000 declines in deposit and loan fees.

Non-interest expense

Non-interest expense increased $825,000 from $5.2 million for the quarter ended September 30, 2017 to $6.0 million for the quarter ended September 30, 2018. The expenses were impacted by non-recurring project costs of $653,000 primarily associated with the Prime Bank merger which was closed in May 2018 and the pending acquisition of Hana SBL. These non-recurring expenses will cease once the acquisitions are consummated and the acquired companies are fully integrated. The total increase in non-interest expense was partially offset by $122,000 decrease in insurance expense and $24,000 decrease in advertising and promotional expense.

For the nine month ended September 30, 2018, non-interest expense increased $2.9 million to $17.8 million as compared to $14.9 million for the same period of 2017. The increase primarily driven by non-recurring project costs of $1.7 million for merger and tax initiative projects, and $749,000 increase in salaries and benefits as the Bank continues to grow its business activities.

Provision for income taxes

The provision for income taxes for the three and nine months ended September 30, 2018 were $276,000 and $1.0 million, as compared to $658,000 and $2.3 million for the three and nine months ended September 30, 2017, respectively. The decrease mainly reflected the lower pre-tax income (due to the prior year credit to the loan loss provision) and the positive impact of the change in the federal corporate tax rate from 35% to 21% enacted in December 2017.

54

Liquidity

The Company’s balance sheet liquidity to total assets ratio was 9.3% at September 30, 2018 compared to 8.2% at December 31, 2017. Liquidity including readily available off balance sheet funding sources was 18.9% at September 30, 2018 compared to 15.6% at December 31, 2017. The Company’s available total liquidity (readily available plus brokered deposit availability) to total assets ratio was 24.4% at September 30, 2018 compared to 18.3% at December 31, 2017.

The following categories of assets are considered balance sheet liquidity: cash and due from banks, federal funds sold (if any), short-term investments (if any) and unpledged available-for-sale securities. In addition, off balance sheet funding sources include collateral based borrowing available from the FHLB, correspondent bank borrowing lines, and brokered deposits subject to internal limitations.

Liquidity is a measure of the Company’s ability to generate adequate cash to meet its financial obligations. The principal cash requirements of a financial institution are to cover downward fluctuations in deposit accounts. Management believes the Company’s liquid assets provide sufficient coverage to satisfy loan demand, cover potential fluctuations in deposit accounts, and to meet other anticipated operational cash requirements.

Capital

The following table illustrates the Company’s and the Bank’s regulatory capital ratios as of September 30, 2018 and December 31, 2017:

	Patriot National Bancorp, Inc.								Patriot Bank, N.A.
(In thousands)	September 30, 2018				December 31, 2017				September 30, 2018				December 31, 2017
	Amount ($)		Ratio (%)		Amount ($)		Ratio (%)		Amount ($)		Ratio (%)		Amount ($)		Ratio (%)
Total Capital (to risk weighted assets)		88,781		10.328		74,264		10.092		97,403		11.385		83,711		11.406
Tier 1 Capital (to risk weighted assets)		72,165		8.395		67,959		9.235		90,787		10.612		77,407		10.547
Common Equity Tier 1 Capital (to risk weighted assets)		64,165		7.465		59,959		8.148		90,787		10.612		77,407		10.547
Tier 1 Leverage Capital (to average assets)		72,165		7.847		67,959		8.219		90,787		9.917		77,407		9.360

Capital adequacy is one of the most important factors used to determine the safety and soundness of individual banks and the banking system. Under the regulatory framework for prompt correction action, to be considered “well capitalized,” an institution must generally have a leverage capital ratio of at least 5.0%, CET1 capital ratio at least 6.5%, a Tier 1 risk-based capital ratio of at least 8.0% and a total risk-based capital ratio of at least 10%. However, the OCC has the discretion to require increased capital ratios.

Under the final capital rules that became effective on January 1, 2015, there is a requirement for a CET1 Capital conservation buffer of 2.5% of risk-weighted assets, which is in addition to the other minimum risk-based capital standards in the rule. Institutions that do not maintain this required capital buffer become subject to progressively more stringent limitations on the percentage of earnings that may be distributed to shareholders or used for stock repurchases and on the payment of discretionary bonuses to senior executive management.

The capital buffer requirement is being phased in over three years beginning in 2016. The 1.25% capital conversation buffer for 2017 has been included in the minimum capital adequacy ratios in the 2017 column in the table above. The capital conversation buffer increased to 1.875% for 2018, which has been included in the minimum capital adequacy ratios in the 2018 column above.

The capital buffer requirement effectively raises the minimum required Total Capital ratio to 10.5%, the Tier 1 Capital ratio to 8.5%, and the CET1 Capital ratio to 7.0% on a fully phased-in basis, which will be effective beginning on January 1, 2019. Management believes that, as of September 30, 2018, Patriot satisfies all capital adequacy requirements under the Basel III Capital Rules on a fully phased-in basis, as if all such requirements were currently in effect.

The increases in the Bank’s capital ratios as of September 30, 2018 were primarily due to the $10 million issuance of subordinated debt in June 2018. Management continuously assesses the adequacy of the Bank’s capital with the goal to maintain a “well capitalized” classification.

55

IMPACT OF INFLATION AND CHANGING PRICES

The Company’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 effect of 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, deflation or disinflation could significantly affect the Company’s earnings in future periods.

Stock Repurchase Program

No shares of Patriot’s common stock were repurchased during the three and nine months period ended September 30, 2018.

56

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. The Company’s market risk is primarily limited to interest rate risk.

The Company’s goal is to maximize long term profitability while minimizing its exposure to interest rate fluctuations. The first priority is to structure and price the Company’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 can be matched against longer term deposits and borrowings to lock in a desirable spread.

The exposure to interest rate risk is monitored by the Management Asset and Liability Committee consisting of senior management personnel. 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. 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 transactions during the period and determines compliance with the Company’s Investment, ALCO and Liquidity policies.

Management analyzes the Company’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 the Company’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.

57

The tables below set 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 the Company’s portfolio at the dates indicated should all interest rates instantaneously rise or fall. The results of these changes are added to or subtracted from the base case; however, there are certain limitations to these types of analyses. Rate changes are rarely instantaneous and these analyses may therefore overstate the impact of short-term repricings. As a result of the historically low interest rate environment, the calculated effects of the 100 and 200 basis point downward shocks cannot absolutely reflect the risk to earnings and equity, since the interest rates on certain balance sheet items have approached their minimums. Therefore, it is not possible for the analyses to fully measure the true impact of these downward shocks.

(In thousands)
	Net Portfolio Value - Performance Summary
	As of September 30, 2018								As of December 31, 2017
Projected Interest Rate Scenario	Estimated Value		Change from Base ($)			Change from Base (%)			Estimated Value		Change from Base ($)			Change from Base (%)
+200		116,478		(1,486	)		(1.3	)		89,258		(13,440	)		(13.1	)
+100		118,338		374			0.3			96,939		(5,758	)		(5.6	)
BASE		117,964		-			-			102,697		-			-
-100		114,251		(3,713	)		(3.1	)		105,874		3,177			3.1
-200		109,342		(8,622	)		(7.3	)		108,657		5,959			5.8

	Net Interest Income - Performance Summary
	September 30, 2018								Year ended December 31, 2017
Projected Interest Rate Scenario	Estimated Value		Change from Base ($)			Change from Base (%)			Estimated Value		Change from Base ($)			Change from Base (%)
+200		30,747		1,005			3.4			27,936		(937	)		(3.2	)
+100		30,331		589			2.0			28,454		(420	)		(1.5	)
BASE		29,742		-			-			28,873		-			-
-100		29,223		(519	)		(1.7	)		28,830		(43	)		(0.2	)
-200		28,596		(1,146	)		(3.9	)		29,271		398			1.4

58

Item 4: Disclosure Controls and Procedures 

The Company maintains disclosure controls and procedures that are designed to provide reasonable assurance that information, which is required to be disclosed timely, is accumulated and communicated to management in a timely fashion. In designing and evaluating such controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Our management is necessarily required to use judgment in evaluating controls and procedures.

An evaluation of the effectiveness of the Company’s disclosure controls and procedures was performed by the Company’s management, with the participation of the Company’s Chief Executive Officer and its Chief Financial Officer, as of the end of the period covered by this report. As used herein, “disclosure controls and procedures” means controls and other procedures of the Company that are designed to ensure that information required to be disclosed by the Company 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 the Company in the reports that it files or submits under the Securities Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation, the aforementioned officers concluded that, as of September 30, 2018, the Company’s disclosure controls and procedures were effective.

Internal Control over Financial Reporting

There were no changes in the Company’s internal controls over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

59

PART II - OTHER INFORMATION

Item 1:      Legal Proceedings

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

Item 5: Other Information

On November 7, 2018, the Bank entered into an agreement (the “OCC Agreement”) with The Comptroller of the Currency (“OCC”), pursuant to which the Bank agreed to take certain actions, including the following:

● Within 30 days of the date of the OCC Agreement, the Board of the Bank shall appoint a Compliance Committee of at least three directors, a majority of whom shall not be employees or controlling shareholders of the Bank or any of its affiliates. The Compliance Committee shall be responsible for monitoring and coordinating the Bank’s adherence to the provisions of the OCC Agreement;

● By December 31, 2018, the Board of the Bank shall develop and implement a written program to provide for effective Board and management supervision of the Bank. The program shall address the weaknesses in Board and management supervision;

● By December 31, 2018, the Board of the Bank shall develop and implement formalized standards governing the performance and compensation of all senior executives and executive management, including that of the Chief Executive Officer;

● By December 31, 2018, the Board of the Bank shall ensure that it receives and reviews sufficient information from management regarding the operation of the Bank and the Bank’s compliance with the OCC Agreement, to enable the Board to provide oversight and fulfill their fiduciary duties, other responsibilities under law, and in accordance with safe and sound standards. At least annually, the Board of the Bank shall perform an assessment of the adequacy of the information provided by management;

● The Board of the Bank shall maintain a Lead Independent Director that has sufficient authority and expertise to ensure that the Bank is not subject to undue influence from any executive officer or director;

● By December 31, 2018, the Board of the Bank shall develop and implement a written, comprehensive conflict of interest policy applicable to the Bank and the Company’s directors, principal shareholders, executive officers, affiliates, and employees;

● By December 31, 2018, the Board of the Bank shall provide the OCC with a written 3-year strategic and capital plan for the Bank, establishing objectives for the Bank’s overall risk profile, earnings performance, growth, balance sheet mix, off-balance sheet activities, liability structure, and capital adequacy, together with strategies to achieve those objectives;

● By December 31, 2018, the Board of the Bank shall revise and implement an internal audit program that is consistent with safe and sound standards for internal audit;

● Within 60 days of the date of the OCC Agreement, the Board of the Bank shall revise and implement a written liquidity and asset/liability management policy that is consistent with safe and sound standards for liquidity and asset/liability management;

● By December 31, 2018, the Board of the Bank shall revise and submit to OCC for review a written program to improve the Bank’s commercial loan administration;

● Within 60 days of the date of the OCC Agreement, the Board of the Bank shall revise and submit to OCC for review a program designed to ensure the Bank’s leveraged lending policies and procedures conform with safe and sound practices for leveraged lending;

● By November 30, 2018, the Bank shall revise and submit to OCC for review written policies and procedures for the maintenance of an adequate allowance for loan and lease losses;

● By December 31, 2018, the Bank shall revise the asset liability management policy to ensure that the Bank management documents, monitors and updates key assumptions used in the Bank’s interest rate risk model that are consistent with safe and sound standards for such models;

As a result of the OCC Agreement, the Bank is designated by the OCC to be in “troubled condition” as set forth in 12 C.F.R. §5.51(c)(7)(ii) and not an “eligible bank” for purposes of 12 C.F.R. §5.3(g) and 12 C.F.R. §24.2(e).

The foregoing description of the terms of the OCC Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the form of the OCC Agreement filed herewith as Exhibit 99(1).

60

Item 6:      Exhibits            

The exhibits marked with the section symbol (#) are interactive data files.

No. Description

3(i)	Certificate of Incorporation of Patriot National Bancorp, Inc. (incorporated by reference to Exhibit 3(i) to the Company’s Current Report on Form 8-K filed on December 1, 1999).
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 the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2004 filed on March 25, 2005).
3(i)(B)	Certificate of Amendment of Certificate of Incorporation of Patriot National Bancorp, Inc. dated June 15, 2006 (incorporated by reference to Exhibit 3(i)(B) to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 filed on November 14, 2006).

3(i) (C) Certificate of Amendment of Certificate of Incorporation of Patriot National Bancorp Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report Form 8-K filed on October 21, 2010)

3(ii) Amended and Restated By-laws of Patriot National Bancorp, Inc. (incorporated by reference to Exhibit 3(ii) to the Company’s Current Report on Form 8-K filed on November 1, 2010)

4 Form of 6.25% Fixed to Floating Rate Subordinated Note (incorporated by reference to Exhibit 4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018 filed on August 14, 2018)

10(1)	2012 Stock Plan of Patriot National Bancorp, Inc. (incorporated by reference from Annex A to the Proxy Statement on Schedule 14C filed on November 1, 2011)
10(2)	Amended Financial Services Agreement (incorporated by reference to Exhibit 10(a) (20) to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 (Commission File No. 000-29599) filed on August 8, 2014)

10(3) Agreement and Plan of Merger by and among Patriot National Bancorp, Inc., Patriot Bank, National Association, Prime Bank and Jasper J. Jaser, as stockholders’ representative, dated as of August 1, 2017 (incorporated by reference to Exhibit 10(a) (21) to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 filed on August 11, 2017)

10(4) Asset Purchase Agreement by and among Hana Small Business Lending, Inc.; Hana ABS  2014-1, LLC; Hana Investment, LLC and Patriot Bank, N.A., dated as of February 2, 2018 (incorporated by reference to Exhibit 10(a) (26) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 filed on March 30, 2018).

10(5) Amendment to Asset Purchase Agreement by and among Hana Small Business Lending, Inc.; Hana ABS 2014-1, LLC; Hana Investment, LLC and Patriot Bank, N.A., dated as of August 2, 2018 (incorporated by reference to Exhibit 10(5) to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018 filed on August 14, 2018)

10(6) Form of Subordinated Note Purchase Agreement (incorporated by reference to Exhibit 10(6) to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018 filed on August 14, 2018)

31(1) Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

31(2) Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

32* Section 1350 Certifications

99(1) Form of the Agreement with The Comptroller of the Currency, dated as of November 7, 2018.

61

101.INS# XBRL Instance Document

101.SCH# XBRL Schema Document

101.CAL# XBRL Calculation Linkbase Document

101.LAB# XBRL Labels Linkbase Document

101.PRE# XBRL Presentation Linkbase Document

101.DEF# XBRL Definition Linkbase Document

The exhibits marked with the section symbol (#) are interactive data files.

* The certification is being furnished and shall not be deemed filed.

62

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.

Date: November 14, 2018

Patriot National Bancorp, Inc. (Registrant)
By:	/s/ Joseph D. Perillo
	Joseph D. Perillo
	Executive Vice President and Chief Financial Officer

63

EX-31.1

EXHIBIT 31 (1)

Certification

By Chief Executive Officer

Pursuant to Rule 13a-14

I, Michael A. Carrazza, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Patriot National Bancorp, Inc;

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.     The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)     Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)     Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America;

(c)     Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)     Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)     All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Michael A. Carrazza

Michael A. Carrazza,

Chief Executive Officer

(Principal Executive Officer)

November 14, 2018

EX-31.2

EXHIBIT 31 (2)

Certification

By Principal Financial Officer

Pursuant to Rule 13a-14

I, Joseph D. Perillo, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Patriot National Bancorp, Inc;

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.     The registrant’s other certifying officer and I, are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)     Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)     Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America;

(c)     Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)     Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)     All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Joseph D. Perillo

Joseph D. Perillo

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

November 14, 2018

EX-32

Exhibit 32

Certification Pursuant to

18 U.S.C. Section 1350,

as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Patriot National Bancorp, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Michael A. Carrazza and Joseph D. Perillo, the Chief Executive Officer and the Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)     The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)     The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Michael A. Carrazza

Michael A. Carrazza,

Chief Executive Officer

(Principal Executive Officer)

/s/ Joseph D. Perillo

Joseph D. Perillo

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

November 14, 2018

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

The foregoing certification is being furnished to the Securities and Exchange Commission and shall not be considered filed as part of the Report.

EX-99.1

Exhibit 99(1)

FORM OF

AGREEMENT BY AND BETWEEN

Patriot Bank, National Association

Stamford, CT

and

The Comptroller of the Currency

Patriot Bank, National Association (“Bank”) and the Comptroller of the Currency of the United States of America (“Comptroller”) wish to assure the safety and soundness of the Bank and its compliance with laws and regulations.

The Comptroller has uncovered unsafe and unsound banking practices relating to corporate governance, strategic planning, capital planning, internal audit, credit administration, the allowance of loan and lease losses (ALLL) methodology, administration of the leveraged loan portfolio, asset liability management, and interest rate risk (IRR) modeling at the Bank. Therefore, the OCC, through the duly authorized representative of the Comptroller, and the Bank, through its duly elected and acting Board of Directors (“Board”), hereby agree that the Bank shall operate at all times in compliance with the following:

ARTICLE I

JURISDICTION

(1)     The Bank is an “insured depository institution” as that term is defined in 12 U.S.C. § 1813(c)(2).

(2)     The Bank is a national banking association within the meaning of 12 U.S.C. § 1813(q)(1)(A), and is chartered and examined by the OCC. See 12 U.S.C. § 1 et seq.

(3)     The OCC is the “appropriate Federal banking agency” as that term is defined in 12 U.S.C. § 1813(q).

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ARTICLE II

COMPLIANCE COMMITTEE

(1)     Within thirty (30) days of the date of this Agreement, the Board shall appoint a Compliance Committee of at least three (3) directors, a majority of whom shall be directors who are not employees or controlling shareholders of the Bank or any of its affiliates (as the term “affiliate” is defined in 12 U.S.C. § 371c(b)(1)), or a family member of any such person. Upon appointment, the names of the members of the Compliance Committee and, in the event of a change of the membership, the name of any new member shall be promptly submitted in writing to the Assistant Deputy Comptroller. The Compliance Committee shall be responsible for monitoring and coordinating the Bank’s adherence to the provisions of this Agreement.

(2)     The Compliance Committee shall meet at least monthly and maintain minutes of its meetings.

(3)     Within thirty (30) days of the date of this Agreement and thirty (30) days after every calendar quarter end, the Compliance Committee shall submit a written progress report to the Board setting forth in detail:

(a) a description of the corrective action needed to achieve full compliance with each Article of this Agreement;

(b) the specific corrective actions taken to comply with each Article of this Agreement; and (c) the results and status of those actions.

(c) The Board shall forward a copy of the Compliance Committee’s report, with any additional comments by the Board, to the Assistant Deputy Comptroller within ten (10) days of receiving such report.

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ARTICLE III

BOARD AND MANAGEMENT SUPERVISION

(1)     By December 31, 2018, the board shall develop, adopt, implement and thereafter adhere to a written program to provide for effective Board and management supervision of the Bank. The program shall address the weaknesses in Board and management supervision as identified in the 2018 Report of Examination.

(2)     The Board must ensure that the Bank has competent management in place on a permanent and full-time basis, including its chief financial officer position, vested with sufficient authority to fulfill the duties and responsibilities of the position, carry out the Board’s policies, ensure the Bank’s adherence to corporate governance and decision-making processes, ensure compliance with this Agreement, applicable laws, rules and regulations, and manage the day-to-day operations of the Bank in safe and sound manner within the scope of that position’s responsibilities.

(3)     By December 31, 2018, the Board shall develop and implement formalized standards governing the performance and compensation of all senior executive and executive management, including the Chief Executive Officer. The Board shall establish and document through written performance evaluations, at least annually:

(a) the objectives by which senior executive and executive officers’ effectiveness shall be measured;

(b) measurements and goals for each individual’s performance;

(c) documented support of their performance in relation to these expectations;

(d) the amount of salary, bonus, and non-cash benefits the individual receives and whether those amounts are reasonable in relation to his/her job responsibilities and performance.

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(4)     The Board shall forward a copy of the written program required by paragraph (1) of this Article to the Assistant Deputy Comptroller within 10 days of Board approval.

ARTICLE IV
CORPORATE GOVERNANCE

(1)     By December 31, 2018, the Board shall ensure that it receives and reviews sufficient information from management (including scope, frequency, timing and content), regarding the operation of the Bank and the Bank’s compliance with this Agreement, to enable the Board to provide oversight and fulfill their fiduciary duties, other responsibilities under law, and in accordance with safe and sound standards. Refer to (i) the OCC’s “The Directors Book: The Role of Directors for National Banks and Federal Savings Associations;” and (ii) the “Corporate and Risk Governance” booklet, M-CRG, of the Comptroller’s Handbook (July 2016). At least annually, the Board shall perform an assessment of the information that management provides to the Board to ensure that the Board receives adequate information from management on the operations of the Bank to enable the Board to effectively supervise the Bank and fulfill their fiduciary duties.

(2)     The Board shall maintain a Lead Independent Director that has sufficient authority and expertise to ensure that the Bank is not subject to undue influence from any executive officer or director.

(3)     By December 31, 2018, the Bank shall develop, and follow fig adoption by the Board, implement and adhere to a written, comprehensive conflict of interest policy applicable to the Bank’s and the Bank’s holding company’s directors, principal shareholders, executive officers, affiliates, and employees (Insiders) and related interests of such Insiders, as defined at 12 C.F.R. § 215.3(n). In addition to defining a conflict of interest the policy shall address, at a minimum:

(a) avoidance of conflicts of interest, breaches of fiduciary duty, and the appearance of conflicts of interest;

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(b) requirements for arms-length dealing in any transactions with Insiders, or their related organizations;

(c) disclosure of any Insider’s interest in the business of a borrower, an applicant, or other customer of the Bank; and

(d) restrictions on and disclosure of receipt of anything of value by Insiders, directly or indirectly, from borrowers, loan applicants, other customers, or suppliers of the Bank.

(4)     The Board shall ensure that all Board of Director and management committee meeting minutes contain relevant Board discussion and details on the information that was considered in making any major business decisions.

(5)     The Board shall ensure that all third party vendors are hired pursuant to the Bank’s established Third Party/Vendor Management Policy, that the Vendor Management Committee reviews vendor due diligence, and that the decisioning and due diligence process is documented in the committee minutes.

ARTICLE V
STRATEGIC AND CAPITAL PLAN

(1)     By December 31, 2018, the Board shall forward to the Assistant Deputy Comptroller, pursuant to paragraph (7) of this Article, a revised, written strategic plan for the Bank, covering at least a three-year period. The strategic plan shall establish objectives for the Bank’s overall risk profile, earnings performance, growth, balance sheet mix, off-balance sheet activities, liability structure, and capital adequacy, together with strategies to achieve those objectives and, at a minimum, include:

(a) an assessment of the Bank’s present and future operating environment;

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(b) the development of strategic goals and objectives to be accomplished over the short and long term;

(c) the development of contingent and alternative strategic goals and objectives to be accomplished over the short and long term;

(d) an identification of the Bank’s plan to service current and anticipated subordinated debt and trust preferred securities obligations including the Bank’s plan to repay debt at the holding company (both current and anticipated) upon conversion to a fully amortizing loan;.

(e) the Bank’s dividend declaration and payment plans;

(f) specific plans that detail the Bank’s strategic initiatives to achieve realistic deposit projections, including compliance with Board limits, taking into account the Bank’s substantial reliance on non-core funding.

(2)     The Bank’s capital plan must be revised to identify and evaluate all risks to capital and establish capital limits commensurate with the risk profile of the Bank and incorporate and reflect any of the changes required in subparagraphs (a) — (f) to ensure that the Bank’s capital plan is aligned with the revised strategic plan and incorporates and addresses the impact of stress testing results.

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(3)     Prior to adoption by the Board, a copy of the revised Strategic and Capital Plans, and any subsequent amendments, revisions, or updates, shall be submitted to the Assistant Deputy Comptroller for prior written determination of no supervisory objection. At the next Board meeting following receipt of the Assistant Deputy Comptroller’s written determination of no supervisory objection, the Board shall adopt and Bank management, subject to Board review and ongoing monitoring, shall promptly implement and ensure adherence to the Strategic Plan and any amendments or revisions thereto.

(4)     The Bank may not initiate any action that significantly deviates from a Strategic Plan and/or Capital Plan (that has received written determination of no supervisory objection from the Assistant Deputy Comptroller and has been adopted by the Board) without a prior written determination of no supervisory objection from the Assistant Deputy Comptroller.

(5)     Any request by the Bank for prior written determination of no supervisory objection to a significant deviation described in paragraph (4) of this Article shall be submitted in writing to the Assistant Deputy Comptroller at least sixty (60) days in advance of the proposed significant deviation. Such written request by the Bank shall include an assessment of the effects of such proposed change on the Bank’s condition and risk profile, including a profitability analysis and an evaluation of the adequacy of the Bank’s organizational structure, staffing, management information systems, internal controls, and written policies and procedures to identify, measure, monitor, and control the risks associated with the proposed change.

(6)     For the purposes of this Article, changes that may constitute a significant deviation include, but are not limited to, a change in the Bank’s marketing strategies, products and services, marketing partners, underwriting practices and standards, credit administration, account management, collection strategies or operations, fee structure or pricing, accounting processes and practices, or funding strategy, any of which, alone or in aggregate, may have a material effect on the Bank’s operations or financial performance.

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(7)     The Board shall review and update the Strategic and Capital Plans, including after expiration of the 3-year period referenced in paragraph one (1) of this Article, at least annually and more frequently if necessary or if required by the Assistant Deputy Comptroller in writing.

ARTICLE VI
INTERNAL AUDIT

(1)     By December 31, 2018, the Bank shall revise and after adoption by the Board, implement an internal audit program that is consistent with safe and sound standards for internal audit. Refer to (i) the standards for Internal Audit Systems set forth in Section 11.B of the Interagency Guidelines Establishing Standards for Safety and Soundness, Appendix A to 12 C.F.R. Part 30; (ii) the guidance set forth in the “Interagency Policy Statement on the Internal Audit Function and Its Outsourcing” (OCC Bulletin 2003-12); and (iii) Internal and External Audits booklet, M-AUD, of the Comptroller’s Handbook (December 2016).

(2)     As part of the audit program, the Board, or a committee thereof, shall ensure management develops a comprehensive annual risk assessment of all auditable areas of the Bank to ensure the scope, coverage, and frequency of audits are risk-based according to the Bank’s product lines, services, and operations and that audits provide sufficient oversight over the controls of the institution’s activities. The audit scope must be expanded to include all areas in which deficiencies were identified in the 2018 Report of Examination. Risk ratings shall be appropriately supported with consideration given to inherent risk and compensating internal controls. The Bank shall incorporate the annual risk assessment into its audit schedule.

(3)     The Board, or a committee thereof, shall review and approve the audit scope and schedule at least annually. At least quarterly, the Audit Committee, shall review the status of the audit schedule to ensure all audits have been completed in a timely manner and that any deviation is documented and approved.

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(4)     As part of this audit program, the Board shall evaluate the audit reports and shall assess the impact on the Bank of any audit deficiencies cited in such reports.

(5)     The Board shall ensure that the audit program is independent. The persons responsible for implementing the internal audit program described above shall report directly to the Board, or a committee thereof, which shall have the sole power to direct their activities. All reports prepared by the audit staff shall be filed directly with the Board, or committee thereof, not through any intervening party.

(6)     All audit reports shall be in writing. The Board shall ensure that prompt actions are undertaken to remedy deficiencies cited in audit reports, and that auditors maintain a written record describing those actions.

(7)     The audit staff shall have access to any records necessary for the proper conduct of its activities. National bank examiners shall have access to all reports and work papers of the audit staff and any other parties working on its behalf.

(8)     Upon adoption, a copy of the internal audit program shall be promptly submitted to the Assistant Deputy Comptroller.

ARTICLE VII
ASSET LIABILITY MANAGEMENT

(1)     Within sixty (60) days, the Board shall revise, implement and thereafter ensure Bank adherence to a written liquidity and asset/liability management policy that is consistent with safe and sound standards for liquidity and asset/liability management. Refer to the (i) “Liquidity” booklet, L-L, of the Comptroller’s Handbook (June 2012), and the guidance set forth in (ii) “Interagency Advisory on Interest Rate Risk Management” (OCC Bulletin 2010-1); (iii) “Supervisory Guidance on Model Risk Management” (OCC Bulletin 2011-12); and (iv) “Final Policy Statement: Interagency Policy Statement on Funding and Liquidity Risk Management” (OCC Bulletin 2010-13). The policy should address and require, at a minimum:

(a) Board Asset Liability Committee (“ALCO”) meeting minutes that contain sufficient evidence of adequate oversight over liquidity and funds management;

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(b) standard quarterly ALCO packages include sufficient key management reports to enable the Board ALCO to appropriately measure and monitor the Bank’s liquidity position and liquidity risk and maintain liquidity at an acceptable level;

(c) policy limits and periodic monitoring to ensure the Bank remains in compliance with all liquidity limits;

(d) development of a liquidity contingency plan that is based on reasonable, supportable assumptions and includes appropriate stress testing;

(e) guidelines concerning the nature and extent of the Bank’s use of brokered deposits consistent with the Bank’s overall funds management strategies and taking into consideration any restrictions that may apply based on the Bank’s Prompt Corrective Action capital designation as defined at 12 U.S.C. 18310;

(f) the independent review of assumptions used in modeling; and

(g) periodic review of the Bank’s adherence to the policy.

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(2)     Upon adoption, a copy of the written policy shall be forwarded to the Assistant Deputy Comptroller for review.

ARTICLE VIII
COMMERCIAL CREDIT ADMINISTRATION

(1)     By December 31, 2018, the Bank shall review, revise, and submit to the Assistant Deputy Comptroller for a prior written determination of no supervisory objection, a written program to improve the Bank’s commercial loan administration. The program shall be updated to include:

(a) expanded policy guidance that explicitly outlines what type(s) of financial information is to be provided by borrowers and guarantors, and on what frequency the information must be provided to and analyzed by the Bank;

(b) a requirement that all future loan agreements contain requirements for the timely submission of financial information, including interim financial statements and rent rolls;

(c) expanded guidance that explicitly outlines the monitoring requirements for construction loans, including commercial and industrial loans, and an effective process for collecting, tracking, and analyzing financial information in a timely manner.

(2)     Upon receiving a written determination of no supervisory objection from the Assistant Deputy Comptroller, the Board shall adopt the program at the next board meeting, and the Bank, subject to Board review and ongoing monitoring, shall promptly implement and thereafter ensure adherence to the program developed pursuant to this Article.

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ARTICLE IX

LEVERAGED LOAN PORTFOLIO

(1)     Within sixty (60) days of this Agreement, the Bank shall review, revise, and submit to the Assistant Deputy Comptroller for review, a program designed to ensure the Bank’s leveraged lending policies and procedures conform with safe and sound practices for leveraged lending. Refer to (i) “Interagency Guidance on Leveraged Lending,” (OCC Bulletin 2013-9); (ii) “Purchases of Loans in Whole or In Part-Participations,” (Banking Circular 181 (REV), Aug. 2, 1984); and (iii) “Leveraged Lending” booklet, A-LL, Comptroller’s Handbook (February 2008). The program, at a minimum, shall provide for and include:

(a) a credit policy that addresses the sustainability of a borrower’s capital structure, ability to de-leverage to a sustainable level over a reasonable period of time based on the base case cash flow projections, inclusion of one or more realistic downside scenarios within projections reflecting key risks in the transaction, collateral requirements, ability to appropriately evaluate various types of collateral, degree of reliance on enterprise value, reliance on sponsor support, and covenant protections;

(b) adequate and timely management reporting to the Board that includes the risk associated with the leveraged loan portfolio including but not limited to performance characteristics, industry exposures, risk rating distribution and migration, industry mix, market changes, collateral support, and performance measures including non-compliance with covenants, policy exceptions, restructurings, delinquencies, and charge-offs, for all leveraged lending;

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(c) leveraged lending underwriting standards, to include the following minimum requirements:

(i) a prohibition against purchasing any participation for which the Bank does not have the knowledge, skills, or ability to properly underwrite on its own;

(ii) standards and procedures, including the Bank’s definition of a leverage transaction, and limits, including the Bank’s risk appetite, for the purchase of leveraged loans and participations;

(iii) preparation and documentation of enterprise value analysis by a qualified individual independent of the lending functions based on assumptions that are documented and supported;

(iv) stress testing of enterprise value at origination and documentation of assumptions;

(v) ensure that one or more realistic downside scenarios, within projections reflecting key risks in the transaction, are considered;

(vi) maintenance of current, complete financial information and analysis on the borrower during the term of the loan;

(vii) the identification, waiver (if appropriate), and mitigation (if appropriate) of any exceptions to the Bank’s lending policies and procedures; and

(d) procedures for periodically stress-testing enterprise value on individual loans and documenting the assumptions employed as well as the leveraged lending portfolio that ensure that the sophistication of stress testing is commensurate with the size, complexity and risk characteristics of the leveraged loan portfolio and that the potential impact of changing economic and market conditions is also quantified;

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(e) procedures to ensure the risks of leveraged lending are appropriately accounted for and considered in the Bank’s calculation and methodology for computing the ALLL losses and adequacy of the Bank’s capital;

(f) procedures to aggregate and track leveraged lending exceptions to the Bank’s lending policies and procedures;

(g) a process to ensure that the Bank dedicates the requisite amount of resources to fully implement the enhanced level of underwriting and monitoring of the leveraged loan portfolio to prudently manage the heightened level of risk inherent in these loans, including but not limited to:

(i) ongoing training to ensure staff, officers and other applicable personnel understand and can apply the Bank’s leveraged lending policies and procedures developed pursuant to this Article;

(ii) the appointment of an officer or manager with sufficient authority to monitor the performance of the portfolio and oversee compliance with the Bank’s policies and procedures, including succession and sufficient coverage planning;

(h) loan review of leveraged credits, to include the following minimum requirements:

(i) staff with sufficient expertise in analyzing complex credits and familiarity with the borrowers’ industry;

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(ii) preparation and documentation of complete, independent analysis of the credit quality of the obligations and key performance indicators, including but not limited to the transaction structure, repayment capacity from primary and secondary sources, performance plan, borrower leverage and liquidity, and refinance risk;

(iii) determination of the borrower’s ability to de-leverage to a sustainable level within a reasonable period to support risk rating rationale.

ARTICLE X
ALLOWANCE FOR LOAN AND LEASE LOSSES

(1)     By November 30, 2018, the Bank shall review, revise, and submit to the Assistant Deputy Comptroller for a prior written determination of no supervisory objection, written policies and procedures for the maintenance of an adequate ALLL. The updates to the written policies must include procedures for segmenting the loan portfolio and estimating loss on groups of loans, consistent with Accounting Standards Codification (ASC) 450-20 (formerly Statement of Financial Accounting Standards No. 5); including segregation of leveraged loans into separate and distinct risk pools for evaluating historical losses and to ensure that the loss risk associated with criticized assets is factored in the calculation of the loss factor for each respective homogenous loan pool.

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(2)     The Board shall consider the changes outlined in Paragraph (1) and the risk rating changes to two loans identified in the 2018 Report of Examination to recalculate the ALLL, ensure that the balance remains adequate, and promptly fund the ALLL to cover any shortfall as a result of the recalculation.

(3)     Upon receiving a written determination of no supervisory objection from the Assistant Deputy Comptroller, the Board shall adopt the policy at the next board meeting following receipt of the written determination of no supervisory objection and the Bank, subject to Board review and ongoing monitoring, shall promptly implement and thereafter ensure adherence to the policies and procedures developed pursuant to this Article.

ARTICLE XI
INTEREST RATE RISK MODEL

(1)     By December 31, 2018, the Bank must review and revise the Asset Liability Management policy to ensure that Bank management documents, monitors, and updates key assumptions used in the Bank’s interest rate risk model (“IRR Model”) that are consistent with safe and sound standards for IRR Models. Refer to the (i) “Interest Rate Risk” booklet of the\ Comptroller’s Handbook (Narrative — June 1997, Procedures — March 1998); (ii) “Interagency Guidance on Interest Rate Risk Management” (OCC Bulletin 2010-1); and (iii) “Interest Rate Risk Management: FAQs on 2010 Interagency Advisory on Interest Rate Risk Management” (OCC Bulletin 2012-5). The revised policy must include at a minimum:

(a) a requirement to document support for Bank provided key model assumptions;

16

(b) procedures to review, approve, and monitor key model assumption development at least annually or whenever there is a change in key assumptions;

(c) (c) a requirement that Board review of key model assumptions be documented in Board meeting minutes and include the support for key model assumptions, including deposit repricing and loan pre-payment assumptions;

(d) a requirement that the Board meeting minutes include details on the discussions concerning the key aspects of interest rate risk monitoring which should include, at a minimum:

(i) the Bank’s current exposures;

(ii) changes from the prior quarter and key drivers;

(iii) static v. dynamic simulation result differences; and

(iv) the results of back-testing.

(2)     Upon adoption, a copy of the written policy shall be forwarded to the Assistant Deputy Comptroller for review.

ARTICLE XII
GENERAL BOARD RESPONSIBILITIES

(1)     The Board shall ensure that the Bank has timely adopted and implemented all corrective actions required by this Agreement, and shall verify that the Bank adheres to the corrective actions and they are effective in addressing the Bank’s deficiencies that resulted in this Agreement.

17

(2)     In each instance in which this Agreement impose responsibilities upon the Board, it is intended to mean that the Board shall:

(a) authorize, direct, and adopt corrective actions on behalf of the Bank as may be necessary to perform the obligations and undertakings imposed on the Board by this Agreement;

(b) ensure that the Bank has sufficient processes, management, personnel, control systems, and corporate and risk governance to implement and adhere to all provisions of this Agreement;

(c) require that Bank management and personnel have sufficient training and authority to execute their duties and responsibilities pertaining to or resulting from this Agreement;

(d) hold Bank management and personnel accountable for executing their duties and responsibilities pertaining to or resulting from this Agreement;

(e) require appropriate, adequate, and timely reporting to the Board by Bank management of corrective actions directed by the Board to be taken under the terms of this Agreement; and

(f) address any noncompliance with corrective actions in a timely and appropriate manner.

ARTICLE XIII
OTHER PROVISIONS

(1)     As a result of this Agreement, the Bank is in “troubled condition,” as set forth in 12 C.F.R. § 5.51(c)(7)(ii), unless otherwise informed in writing by the OCC. In addition, as a result of this Agreement, the Bank is not an “eligible bank” for purposes of 12 C.F.R. § 5.3(g) and 12 C.F.R. § 24.2(e), unless otherwise informed in writing by the OCC.

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(2)     This Agreement supersedes all prior OCC communications issued pursuant to 12 C.F.R. §§ 5.3(g)(5), 5.51(c)(7)(ii), and 24.2(e)(4).

ARTICLE XIV
CLOSING

(1)     This Agreement is intended to be, and shall be construed to be, a “written agreement” within the meaning of 12 U.S.C. § 1818, and expressly does not form, and may not be construed to form, a contract binding on the United States, the OCC, or any officer, employee, or agent of the OCC. Notwithstanding the absence of mutuality of obligation, or of consideration, or of a contract, the OCC may enforce any of the commitments or obligations herein undertaken by the Bank under its supervisory powers, including 12 U.S.C. § 1818(b)(1), and not as a matter of contract law. The Bank expressly acknowledges that neither the Bank nor the OCC has any intention to enter into a contract. The Bank also expressly acknowledges that no officer, employee, or agent of the OCC has statutory or other authority to bind the United States, the U.S. Treasury Department, the OCC, or any other federal bank regulatory agency or entity, or any officer, employee, or agent of any of those entities to a contract affecting the OCC’s exercise of its supervisory responsibilities.

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(2)     This Agreement is effective upon its issuance by the OCC, through the Comptroller’s duly authorized representative. Except as otherwise expressly provided herein, all references to “days” in this Agreement shall mean calendar days and the computation of any period of time imposed by this Agreement shall not include the date of the act or event that commences the period of time. The provisions of this Agreement shall remain effective and enforceable except to the extent that, and until such time as, such provisions are amended, suspended, waived, or terminated in writing by the OCC, through the Comptroller’s duly authorized representative. If the Bank seeks an extension, amendment, suspension, waiver, or termination of any provision of this Agreement, or within any plan or program submitted pursuant to this Agreement, the Board or a Board-designee shall submit a written request to the Assistant Deputy Comptroller asking for relief. Any request submitted pursuant to this paragraph shall include a statement setting forth in detail the special circumstances that prevent the Bank from complying with the relevant provision(s) of the Agreement or plan or program submitted pursuant to this Agreement, and shall be accompanied by relevant supporting documentation. The OCC’s decision concerning a request submitted pursuant to this paragraph, which will be communicated to the Board in writing, is final and not subject to further review.

(3)     The Bank will not be deemed to be in compliance with this Agreement until it has adopted, implemented, and adhered to all of the corrective actions set forth in each Article of this Agreement; the corrective actions are effective in addressing the Bank’s deficiencies; and the OCC has verified and validated the corrective actions. An assessment of the effectiveness of the corrective actions requires sufficient passage of time to demonstrate the sustained effectiveness of the corrective actions.

(4)     The OCC may enforce the terms of this Agreement pursuant to its statutory authority, including 12 U.S.C. § 1818(i)(1).

(5)     Each citation, guidance, or issuance referenced in this Agreement includes any subsequent citation, guidance, or issuance that replaces, supersedes, amends, or revises the referenced cited citation, guidance, or issuance.

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(6)     No separate promise or inducement of any kind has been made by the OCC, or by its officers, employees, or agents, to cause or induce the Bank to enter into this Agreement.

(7)     All reports, plans, or programs submitted to the OCC pursuant to this Agreement shall be forwarded, by overnight mail or via email, to the Assistant Deputy Comptroller at:

Thomas S. Angstadt, Assistant Deputy Comptroller

Edison Field Office

343 Thornall Street

Edison, NJ 08837

(8)     The terms of this Agreement, including this paragraph, are not subject to amendment or modification by any extraneous expression, prior agreements, or prior arrangements between the parties, whether oral or written.

IN TESTIMONY WHEREOF, the undersigned, authorized by the Comptroller, has

hereunto set his hand on behalf of the Comptroller.

Thomas S. Angstadt                                     Assistant Deputy Comptroller Date

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IN TESTIMONY WHEREOF, the undersigned, as the duly elected and acting Board of Directors of the Bank, have hereunto set their hands on behalf of the Bank.

Date

Date

Date

Date

Date

Date

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XML

Document And Entity Information - shares	9 Months Ended
	Sep. 30, 2018	Nov. 09, 2018
Document Information [Line Items]
Entity Registrant Name	PATRIOT NATIONAL BANCORP INC
Entity Central Index Key	0001098146
Trading Symbol	pnbk
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Common Stock, Shares Outstanding (in shares)		3,904,578
Document Type	10-Q
Document Period End Date	Sep. 30, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q3
Amendment Flag	false

XML

Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Cash and due from banks:
Noninterest bearing deposits and cash	$ 5,596	$ 3,582
Interest bearing deposits	43,636	45,659
Total cash and cash equivalents	49,232	49,241
Investment securities:
Available-for-sale securities	40,264	25,576
Other investments, at cost	4,450	4,450
Total investment securities	44,714	30,026
Federal Reserve Bank stock, at cost	2,833	2,502
Federal Home Loan Bank stock, at cost	4,928	5,889
Loans receivable (net of allowance for loan losses: 2018: $6,605, 2017: $6,297)	756,649	713,350
Accrued interest and dividends receivable	3,612	3,496
Premises and equipment, net	35,487	35,358
Other real estate owned	991
Deferred tax asset	10,907	10,397
Goodwill	1,944
Core deposit intangible, net	717
Other assets	3,272	1,821
Total assets	915,286	852,080
Deposits:
Noninterest bearing deposits	81,687	81,197
Interest bearing deposits	637,845	556,242
Total deposits	719,532	637,439
Federal Home Loan Bank and correspondent bank borrowings	90,000	120,000
Senior notes, net	11,759	11,703
Subordinated debt, net	9,720
Junior subordinated debt owed to unconsolidated trust	8,092	8,086
Note payable	1,436	1,580
Advances from borrowers for taxes and insurance	1,659	2,829
Accrued expenses and other liabilities	4,167	3,694
Total liabilities	846,365	785,331
Commitments and Contingencies
Shareholders' equity
Preferred stock, no par value; 1,000,000 shares authorized, no shares issued and outstanding	0	0
Common stock, $.01 par value, 100,000,000 shares authorized; 2018: 3,980,707 shares issued; 3,906,966 shares outstanding. 2017: 3,973,416 shares issued; 3,899,675 shares outstanding	40	40
Additional paid-in capital	107,038	106,875
Accumulated deficit	(36,078)	(38,832)
Less: Treasury stock, at cost: 2018 and 2017, 73,741 and 73,741 shares, respectively	(1,179)	(1,179)
Accumulated other comprehensive loss	(900)	(155)
Total shareholders' equity	68,921	66,749
Total liabilities and shareholders' equity	$ 915,286	$ 852,080

XML

Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Net of allowance for loan losses	$ 6,605	$ 6,297
Preferred stock, par value (in dollars per share)	$ 0	$ 0
Preferred stock, shares authorized (in shares)	1,000,000	1,000,000
Preferred stock, shares issued (in shares)	0	0
Preferred stock, shares outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	100,000,000	100,000,000
Common stock, shares issued (in shares)	3,980,707	3,973,416
Common stock, shares outstanding (in shares)	3,980,707	3,899,675
Treasury stock, shares held (in shares)	73,741	73,741

XML

Consolidated Statements of Income (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Interest and Dividend Income
Interest and fees on loans	$ 9,413,000	$ 8,522,000	$ 27,388,000	$ 22,720,000
Interest on investment securities	364,000	275,000	921,000	688,000
Dividends on investment securities	125,000	105,000	374,000	280,000
Other interest income	342,000	65,000	763,000	148,000
Total interest and dividend income	10,244,000	8,967,000	29,446,000	23,836,000
Interest Expense
Interest on deposits	2,457,000	1,339,000	6,111,000	3,457,000
Interest on Federal Home Loan Bank borrowings	486,000	248,000	1,245,000	509,000
Interest on senior debt	229,000	229,000	686,000	686,000
Interest on subordinated debt	278,000	92,000	489,000	266,000
Interest on note payable	6,000	7,000	23,000	24,000
Total interest expense	3,456,000	1,915,000	8,554,000	4,942,000
Net interest income	6,788,000	7,052,000	20,892,000	18,894,000
Provision (Credit) for Loan Losses	50,000	545,000	285,000	(944,000)
Net interest income after provision (credit) for loan losses	6,738,000	6,507,000	20,607,000	19,838,000
Non-interest Income
Loan application, inspection and processing fees	16,000	25,000	36,000	61,000
Deposit fees and service charges	126,000	149,000	392,000	444,000
Gains on sale of loans	3,000		69,000
Rental Income	115,000	117,000	282,000	302,000
Loss on sale of investment securities				(78,000)
Other income	94,000	95,000	283,000	283,000
Total non-interest income	354,000	386,000	1,062,000	1,012,000
Non-interest Expense
Salaries and benefits	2,794,000	2,741,000	8,417,000	7,668,000
Occupancy and equipment expense	829,000	796,000	2,346,000	2,378,000
Data processing expense	333,000	340,000	972,000	786,000
Professional and other outside services	565,000	410,000	1,594,000	1,612,000
Merger and tax initiative project expenses	653,000	39,000	1,768,000	39,000
Advertising and promotional expense	57,000	81,000	194,000	266,000
Loan administration and processing expense	25,000	22,000	68,000	45,000
Regulatory assessments	275,000	230,000	825,000	572,000
Insurance (income) expense	(56,000)	66,000	52,000	181,000
Communications, stationary and supplies	146,000	97,000	369,000	287,000
Other operating expense	426,000	400,000	1,194,000	1,096,000
Total non-interest expense	6,047,000	5,222,000	17,799,000	14,930,000
Income before income taxes	1,045,000	1,671,000	3,870,000	5,920,000
Provision for Income Taxes	276,000	658,000	1,000,000	2,373,000
Net income	$ 769,000	$ 1,013,000	$ 2,870,000	$ 3,547,000
Basic earnings per common share (in dollars per share)	$ 0.20	$ 0.26	$ 0.74	$ 0.91
Diluted earnings per common share (in dollars per share)	$ 0.20	$ 0.26	$ 0.73	$ 0.91

XML

Consolidated Statements of Comprehensive (Loss) Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Net income	$ 769	$ 1,013	$ 2,870	$ 3,547
Other comprehensive income:
Unrealized holding (loss) gain on securities	(299)	2	(1,009)	289
Income tax effect	73	(1)	264	(112)
Reclassification for realized losses on sale of investment securities	0			(78)
Income tax effect	0			30
Total other comprehensive (loss) income	(226)	1	(745)	129
Comprehensive income	$ 543	$ 1,014	$ 2,125	$ 3,676

XML

Consolidated Statements of Shareholders' Equity (Unaudited) - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Treasury Stock [Member]	AOCI Attributable to Parent [Member]	Total
Balance (in shares) at Dec. 31, 2016	3,891,897
Balance at Dec. 31, 2016	$ 40	$ 106,729	$ (42,902)	$ (1,177)	$ (120)	$ 62,570
Comprehensive income:
Net income			3,547			3,547
Other comprehensive income					129	129
Total comprehensive income			3,547		129	3,676
Common stock dividends			(39)			(39)
Share-based compensation expense		105				105
Vesting of restricted stock (in shares)	3,923
Balance (in shares) at Sep. 30, 2017	3,895,720
Balance at Sep. 30, 2017	$ 40	106,834	(39,394)	(1,179)	9	66,310
Balance (in shares) at Dec. 31, 2016	3,891,897
Balance at Dec. 31, 2016	$ 40	106,729	(42,902)	(1,177)	(120)	62,570
Comprehensive income:
Purchase of treasury stock (in shares)	(100)
Purchase of treasury stock				(2)		(2)
Common stock dividends			(39)			(39)
Balance (in shares) at Dec. 31, 2017	3,899,675
Balance at Dec. 31, 2017	$ 40	106,875	(38,832)	(1,179)	(155)	66,749
Comprehensive income:
Net income			2,870			2,870
Other comprehensive income					(745)	(745)
Total comprehensive income			2,870		(745)	2,125
Common stock dividends			(116)			(116)
Share-based compensation expense		163				163
Vesting of restricted stock (in shares)	7,291
Balance (in shares) at Sep. 30, 2018	3,906,966
Balance at Sep. 30, 2018	$ 40	107,038	(36,078)	(1,179)	(900)	68,921
Balance (in shares) at Dec. 31, 2017	3,899,675
Balance at Dec. 31, 2017	$ 40	$ 106,875	(38,832)	$ (1,179)	$ (155)	66,749
Comprehensive income:
Common stock dividends			$ (116)			$ (116)

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($)	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Cash Flows from Operating Activities:
Net income	$ 2,870,000	$ 3,547,000
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of investment premiums, net	34,000	66,000
Amortization and accretion of purchase loan premiums and discounts	509,000	476,000
Amortization of debt issuance costs	69,000	62,000
Provision for Loan Losses Expensed	285,000	(944,000)
Depreciation and amortization	1,106,000	926,000
Amortization of core deposit intangible	31,000
Loss on sales of available-for-sale securities		78,000
Share-based compensation	163,000	105,000
(Increase) decrease in deferred income taxes	(246,000)	1,864,000
Changes in assets and liabilities:
Increase in accrued interest and dividends receivable	(116,000)	(775,000)
Decrease (increase) in other assets	855,000	(4,000)
Change in contingent consideration	(1,284,000)
Increase (Decrease) in accrued expenses and other liabilities	1,141,000	(796,000)
Net cash provided by operating activities	5,417,000	4,605,000
Cash Flows from Investing Activities:
Proceeds from sales on available-for-sale securities	35,532,000	13,846,000
Principal repayments on available-for-sale securities	1,362,000	1,639,000
Purchases of available-for-sale securities	(17,093,000)	(20,576,000)
Purchases of Federal Reserve Bank stock	(331,000)	(351,000)
Redemptions (purchases) of Federal Home Loan Bank stock	961,000	(744,000)
Decrease (increase) in originated loans receivable, net	15,330,000	(53,424,000)
Purchases of loans receivable	(37,830,000)	(73,022,000)
Purchase of premises and equipment	(1,229,000)	(2,880,000)
Escrow deposit for pending acquisition	(500,000)
Net cash used in business combination	(4,736,000)
Net cash used in investing activities	(8,534,000)	(135,512,000)
Cash Flows from Financing Activities:
Increase in deposits, net	35,909,000	76,090,000
Repayments of FHLB and correspondent bank borrowings	(39,800,000)	(8,000,000)
Proceeds from issuance of subordinated debt, net	9,713,000
Principal repayments of note payable	(144,000)	(142,000)
Decrease in advances from borrowers for taxes and insurance	(1,170,000)	(877,000)
Purchases of treasury stock		(2,000)
Dividends paid on common stock	(116,000)	(39,000)
Payments of contingent consideration	(1,284,000)
Net cash provided by financing activities	3,108,000	67,030,000
Net decrease in cash and cash equivalents	(9,000)	(63,877,000)
Cash and cash equivalents at beginning of period	49,241,000	92,289,000
Cash and cash equivalents at end of period	49,232,000	28,412,000
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	7,492,000	4,467,000
Cash paid for income taxes	1,243,000	475,000
Business Combination Non-Cash Disclosures
Assets acquired in business combination (net of cash received)	60,492,000
Liabilities acquired in business combination	56,095,000
Contingent liability assumed in business combination	$ 1,761,000

XML

Note 1 - Basis of Financial Statement Presentation

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Basis of Accounting [Text Block]

Note

1:

Basis of Financial Statement Presentation

The accompanying unaudited condensed consolidated financial statements of Patriot National Bancorp, Inc. (the “Company”) and its wholly-owned subsidiary Patriot Bank, N.A. (the “Bank”) (collectively, “Patriot”), have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). 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 (“US GAAP”) have been omitted. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included on the Annual Report on Form

10

-K for the year ended

December 

31,

 

2017.

The Consolidated Balance Sheet at

December 

31,

 

2017

presented herein has been derived from the audited consolidated financial statements of the Company at that date, but does

not

include all of the information and footnotes required by US GAAP for complete financial statements.

On

May 10, 2018

the Bank completed its acquisition of Prime Bank, a Connecticut bank headquartered in Orange, CT (“Prime Bank”). The closing of the transaction added a new Patriot branch located in the Town of Orange, New Haven County, Connecticut. The results of Prime Bank’s operations were included in the Company’s Consolidated Financial Statements from the date of acquisition.

The preparation of consolidated financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and to disclose contingent assets and liabilities. Actual results could differ from those estimates. Management has identified accounting for the allowance for loan losses, the analysis and valuation of its investment securities, the valuation of deferred tax assets, and business combination as certain of Patriot’s more significant accounting policies and estimates, in that they are critical to the presentation of Patriot’s financial condition and results of operations. As they concern matters that are inherently uncertain, these estimates require management to make subjective and complex judgments in the preparation of Patriot’s Consolidated Financial Statements.

Certain prior period amounts have been reclassified to conform to current year presentation.

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

September 

30,

 

2018

are

not

necessarily indicative of the results of operations that

may

be expected for the remainder of

2018.

XML

Note 2 - Accounting Policies

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

New Accounting Pronouncements and Changes in Accounting Principles [Text Block]

Note

2:

Accounting Policies     

New Accounting Policy

Please refer to the summary of Significant Accounting Policies included in the Company’s

2017

Annual Report on Form

10

-K for a list of all policies in effect as of

December 

31,

 

2017.

The below summary is intended to provide updates or new policies required as a result of a new accounting standard or a change to the Company’s operations or assets that require a new or amended policy.

Acquired Loans

Acquired loans are initially recorded at their acquisition date fair values. The carryover of allowance for loan losses is prohibited as any credit losses in the acquired loans are included in the determination of the fair value of the loans at the acquisition date. Fair values for acquired loans are based on a discounted cash flow methodology that involves assumptions and judgments as to credit risk, prepayment risk, liquidity risk, default rates, loss severity, payment speeds, collateral values and discount rate.

Acquired Impaired Loans- Purchase Credit Impaired “PCI” Loans

Acquired loans that exhibit evidence of deterioration in credit quality since origination and for which it is probable, at acquisition, that the Company will be unable to collect all contractually required payments are accounted for as PCI loans under Accounting Standards Codification (“ASC”)

310

-

30.

The excess of undiscounted cash flows expected at acquisition over the estimated fair value is referred to as the accretable discount and is accreted into interest income over the remaining life of the loans using the interest method. The difference between contractually required payments at acquisition and the undiscounted cash flows expected to be collected at acquisition is referred to as the non-accretable discount. The non-accretable discount represents estimated future credit losses and other contractually required payments that the Company does

not

expect to collect. Subsequent decreases in expected cash flows are recognized as impairments through a charge to the provision for loan losses resulting in an increase in the allowance for loan losses. Subsequent improvements in expected cash flows result in a recovery of previously recorded allowance for loan losses or a reversal of a corresponding amount of the nonaccretable discount, which the Company then reclassifies as an accretable discount that is accreted into interest income over the remaining life of the loans using the interest method.

PCI loans are initially measured at fair value, which includes estimated future credit losses expected to be incurred over the life of the loan. Accordingly, the associated allowance for credit losses related to these loans is

not

carried over at the acquisition date.

Acquired loans that met the criteria for non-accrual of interest prior to acquisition were

not

considered performing upon acquisition. When the customers resume payments, to make the nonaccrual loans current, the loans

may

return to accrual status, including the impact of any accretable discounts, if the Company can reasonably estimate the timing and amount of the expected cash flows on such loans and if the Company expects to fully collect the new carrying value of the loans.

Acquired Non-impaired Loans

Acquired loans that do

not

meet the requirements under ASC

310

-

30

are considered acquired non-impaired loans. The difference between the acquisition date fair value and the outstanding balance represents the fair value adjustment for a loan and includes both credit and interest rate considerations. Fair value adjustments

may

be discounts (or premiums) to a loan’s cost basis and are accreted (or amortized) to net interest income (or expense) over the loan’s remaining life in accordance with ASC

310

-

20.

Fair value adjustments for revolving loans are accreted (or amortized) using a straight line method. Term loans are accreted (or amortized) using the constant effective yield method.

Subsequent to the purchase date, the methods used to estimate the allowance for loan losses for the acquired non-impaired loans are consistent with the policy for allowance for loan losses described in Note

5.

Allowance for loan losses

(“ALLL”)

methodology

As of

September 30, 2018,

the Company changed its methodology to estimate its allowance for loan losses.

The Bank further segmented its loan pools by Pass, Special Mention, Substandard, and Doubtful risk ratings and assigning additional risk premiums to each group. The qualitative and economic factors for all of the pools and subsegments were also evaluated, with Pass loans receiving adjustments to reflect their credit profile relative to the non-impaired criticized assets.  These adjustments generally flow through the qualitative factors addressing severity of past due loans and other similar conditions and the nature and volume of the portfolio and terms of the loans.

The Bank’s leveraged lending portfolio was evaluated relative to the rest of the Commercial & Industrial (“C&I”) pool (federal call code

4a

), and an additional risk premium was assigned to those loans in aggregate, and is reflected in the “other reserves” category in the ALLL calculation. These loans were isolated due their risk parameters and profile, including higher leverage than the rest of the Bank’s C&I portfolio.

The change in methodology resulted in better alignment of the credit characteristics of the various risk grades and loan types with the calculated allowance. The provision of

$50,000

in the

third

quarter incorporated these changes.

Intangible Assets

Intangible assets include core deposit intangibles and goodwill arising from acquisitions. The initial and ongoing carrying value of intangible assets is based upon modeling techniques that require management to make estimates regarding the amount and timing of expected future cash flows. It also requires use of a discount rate that reflects the current return requirements of the market in relation to present risk-free interest rates, required equity market premiums, peer volatility indicators, and company-specific risk indicators.

Core deposit intangibles are amortized on straight-line basis over a

10

-year period because that is managements’ conservative estimate of the period Patriot will benefit from Prime Bank’s stable deposit base comprised of funds associated with long term customer relationships.

The Company will evaluate goodwill for impairment on an annual basis, or more often if events or circumstances indicate there

may

be impairment. The annual impairment test will be conducted as of

November

annually. The implied fair value of a reporting unit’s goodwill is compared to its carrying amount and the impairment loss is measured by the excess of the carrying value over fair value. The fair value of each reporting unit is compared to the carrying amount of such reporting unit in order to determine if impairment is indicated.

Contingent Consideration

Contingent consideration represents an estimate of the additional amount of purchase price consideration and is measured based on the probability that certain loans are restructured in accordance with the related acquisition agreement. Resolution of the contingent consideration will result in a cash payment and will be reflected in the financial statements as a measurement period adjustment as they are finalized. Changes will be recognized as an increase or decrease to goodwill, the valuation of the related loans and the contingent consideration/purchase price.

New Accounting Standards

Accounting Standards Adopted During

2018

Effective

January 1, 2018,

the following new Accounting Standards Updates (ASUs) were adopted by the Company:

ASU

2014

-

09

ASU

No.

2014

-

09,

Revenue from Contracts with Customers (Topic

606

) including subsequent ASUs issued to clarify this Topic. The ASU, and subsequent related updates, establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most previous revenue recognition guidance, including industry-specific guidance. The ASUs are intended to increase comparability across industries. The core principle of the revenue model is that a company will recognize revenue when it transfers control of goods or services to customers, at an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services.

The Company adopted the ASU on

January 1, 2018

on a modified retrospective transition approach. The adoption of this guidance did

not

have a material impact on the Company’s Consolidated Financial Statements, and there was

no

cumulative effect adjustment to opening retained earnings as

no

material changes were identified in the timing of revenue recognition.

ASU

2016

-

01

and ASU

2018

-

03

ASU

No.

2016

-

01,

Financial Instruments - Overall (Subtopic

825

-

10

) - Recognition and Measurement of Financial Assets and Financial Liabilities, and ASU

No.

2018

-

03,

Technical Corrections and Improvements to Financial Instruments - Overall (Subtopic

825

-

10

). The ASUs included targeted amendments in connection with the recognition, measurement, presentation, and disclosure of financial instruments. The main provisions require investments in equity securities to be measured at fair value through net income, unless they qualify for a practical expedient, and require fair value changes arising from changes in instrument-specific credit risk for financial liabilities that are measured under the fair value option to be recognized in other comprehensive income. The provisions also emphasized the existing requirement to use exit prices to measure fair value for disclosure purposes. The Company adopted the ASUs on

January 1, 2018

on a modified retrospective basis. In connection with the adoption of ASU

2016

-

01

on

January 1, 2018,

we refined our methodology to estimate the fair value of our loan portfolio using an exit price notion resulting in prior-periods

no

longer being comparable.

ASU

2016

-

15

 

In

August 2016,

the FASB issued ASU

2016

-

15,

Statement of Cash Flows

:

Classification of Certain Cash Receipts and Cash Payments

.

ASU

2016

-

15

addresses the classification of certain specific transactions presented on the Statement of Cash Flows, in order to improve consistency across entities. Debt prepayment or extinguishment, debt-instrument settlement, contingent consideration payments post-business combination, and beneficial interests in securitization transactions are specific items addressed by this ASU that

may

affect the Bank. Additionally, the ASU codifies the predominance principle for classifying separately identifiable cash flows. ASU

2016

-

15

is effective for fiscal years beginning after

December 15, 2017,

including interim periods within those fiscal years, with early adoption permitted. As of

September 

30,

 

2018,

Patriot did

not

have any debt prepayment or extinguishment, debt-instrument settlement, or beneficial interests in securitization transactions. Contingent consideration payments post-business combination were classified as a specific item under cash flows from financing activities.

ASU

2016

-

18

In

November 2016,

the FASB issued ASU

2016

-

18,

 

Statement of Cash Flows:

Restricted Cash.

The purpose of the standard is to improve consistency and comparability among companies with respect to the reporting of changes in restricted cash and cash equivalents on the Statement of Cash Flows. The ASU requires the Statement of Cash Flows to include all changes in total cash and cash equivalents, including restricted amounts, and to the extent restricted cash and cash equivalents are presented in separate line items on the Balance Sheet, disclosure reconciling the change in total cash and cash equivalents to the amounts shown on the Balance Sheet are required. ASU

2016

-

18

is effective for fiscal years beginning after

December 15, 2017,

including interim periods within those fiscal years, with early adoption permitted. As of

September 

30,

 

2018

and

December 

31,

 

2017,

Patriot did

not

have restricted cash and cash equivalents separately disclosed on its Balance Sheet. In the future, if Patriot’s activities warrant presenting separate line items on its Balance Sheet for restricted cash and cash equivalents, management does

not

envision any difficulties implementing the requirements of ASU

2016

-

18,

as applicable.

ASU

2017

-

09

In

May 2017,

the FASB issued ASU

2017

-

09,

Scope of Modification Accounting

, which provide guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic

718

Stock compensation. The ASU is effective to all entities for annual periods, including interim periods within those annual periods, beginning after

December 15, 2017.

Early adoption is permitted, including adoption in any interim period. This ASU did

not

have a material impact on its Consolidated Financial Statements.

ASU

2018

-

04

ASU

2018

-

04

- Investments - Debt Securities (Topic

320

) and Regulated Operations (Topic

980

): The amendment in this ASU adds, amends and supersedes various paragraphs that contain SEC guidance in ASC

320,

Investments-Debt Securities and ASC

980,

Regulated Operations. The amendments in this ASU are effective when a registrant adopts ASU

2016

-

01,

which for Patriot, was

January 1, 2018.

This amendment did

not

have an impact on the Company’s Consolidated Financial Statements.

Accounting Standards Issued But

Not

Yet Adopted

ASU

2016

-

02

In

February 2016,

the FASB issued ASU

No.

2016

-

02,

 

Leases.

 This ASU was issued to improve the financial reporting of leasing activities and provide a faithful representation of leasing transactions and improve understanding and comparability of a lessee's financial statements. Under the new accounting guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than

12

months. This ASU will require both finance and operating leases to be recognized on the balance sheet. This ASU will affect all companies and organizations that lease real estate. The FASB issued an update in

January 2018 (

ASU

2018

-

01

) providing an optional transition practical expedient to

not

evaluate under Topic

842

land easements that exist or expired before the entity's adoption of Topic

842.

This ASU will become effective for interim and annual reporting periods beginning after

December 15, 2018.

The Company will adopt this new accounting guidance as required. Management is currently evaluating the impact of the new standard on its Consolidated Financial Statements.

ASU

2016

-

13

 

In

June 2016,

the FASB issued ASU

2016

-

13,

Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments.

The ASU changes the methodology for measuring credit losses on financial instruments measured at amortized cost to a current expected loss (“CECL”) model. Under the CECL model, entities will estimate credit losses over the entire contractual term of a financial instrument from the date of initial recognition of the instrument. The ASU also changes the existing impairment model for available-for-sale debt securities. In cases where there is neither the intent nor a more-likely-than-

not

requirement to sell the debt security, an entity will record credit losses as an allowance rather than a direct write-down of the amortized cost basis. Additionally, ASU

2016

-

13

notes that credit losses related to available-for-sale debt securities and purchased credit impaired loans should be recorded through an allowance for credit losses. ASU

2016

-

13

is effective for fiscal years beginning after

December 15, 2019,

including interim periods within those fiscal years, with early adoption permitted for fiscal years beginning after

December 15, 2018.

Management is currently evaluating the impact that the standard will have on its Consolidated Financial Statements.

ASU

2017

-

04

In 

January 2017,

the FASB issued ASU

2017

-

04,

Intangibles-Goodwill and Other (Topic

350

): Simplifying the Test for Goodwill Impairment:

The objective of this guidance is to simplify an entity’s required test for impairment of goodwill by eliminating Step

2

from the goodwill impairment test. In Step

2

an entity measured a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. In computing the implied fair value of goodwill, an entity had to determine the fair value at the impairment date of its assets and liabilities, including any unrecognized assets and liabilities, following a procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Under this Update, an entity should perform its annual or quarterly goodwill impairment test by comparing the fair value of the reporting unit with its carrying amount and record an impairment charge for the excess of the carrying amount over the reporting unit’s fair value. The loss recognized should

not

exceed the total amount of goodwill allocated to the reporting unit and the entity must consider the income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. This guidance is effective for a public business entity that is an SEC filer for its annual or any interim goodwill impairment tests in fiscal years beginning after

December 15, 2019.

The adoption of this standard is

not

expected to have a material impact on the Company’s Consolidated Financial Statements.

ASU

2017

-

08

In

March 2017,

the FASB issued ASU

2017

-

08,

Premium Amortization on Purchased Callable Debt Securities

, which amends the amortization period for certain purchased callable debt securities held at a premium, shortening such period to the earliest call date. The ASU is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after

December 15, 2018.

For all other entities, the ASU is effective for fiscal years beginning after

December 15, 2019,

and interim periods within fiscal years beginning after

December 15, 2020.

Earlier application is permitted for all entities, including adoption in an interim period. If an entity early adopts the ASU in an interim period, any adjustments must be reflected as of the beginning of the fiscal year that includes that interim period. Management is currently evaluating the impact the adoption of ASU

2017

-

08

will have on its Consolidated Financial Statements.

ASU

2018

-

02

In

February 2018,

the FASB issued ASU

2018

-

02,

Income

Statement-Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. Consequently, the amendments eliminated the stranded tax effects resulting from the Tax Cuts and Jobs Act and will improve the usefulness of information reported to financial statement users. The amendments only relate to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is

not

effected. The amendments in this ASU also require certain disclosures about stranded tax effects. The guidance in this ASU will become effective for reporting periods beginning after

December 15, 2018,

with early adoption permitted, and will be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. Management is currently evaluating the impact that the standard will have on its Consolidated Financial Statements.

ASU

2018

-

05

ASU

2018

-

05

-

Income Taxes (Topic

740

)

: Amendment to clarify situations where a registrant does

not

have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting under ASC

740

for certain income tax effects of the Tax Cuts and Jobs Act for the reporting period. As of

December 

31,

 

2017,

the Company partially completed the accounting for the tax effects of enactment of the Tax Cuts and Jobs Act, and management made reasonable estimates of the effects of a reduced federal corporate income tax rate on its existing deferred tax balances. The Company will continue to make and refine its calculations during the

one

-year re-measurement period as additional analysis is completed. In addition, these estimates

may

be affected as management gains a more thorough understanding of the new tax reform legislation.

ASU

2018

-

13

In

August 2018,

the FASB issued ASU

No.

2018

-

13,

Fair Value Measurement (Topic

820

) - Changes to the Disclosure Requirements for Fair Value Measurement

, to modify the disclosure requirements on fair value measurements. This ASU removes requirements to disclose the amount of and reasons for transfers between Level

1

and Level

2

of the fair value hierarchy, the policy for timing of transfers between levels and the valuation processes for Level

3

fair value measurements. ASU

2018

-

13

clarifies that disclosure regarding measurement uncertainty is intended to communicate information about the uncertainty in measurement as of the reporting date. ASU

2018

-

13

adds certain disclosure requirements, including disclosure of changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level

3

fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level

3

fair value measurements. The amendments in this update are effective for annual periods and interim periods within those annual periods beginning after

December 15, 2019.

The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level

3

fair value measurements and the narrative description of measurement uncertainty should be applied prospectively, while all other amendments should be applied retrospectively for all periods presented upon their effective date. Management is currently evaluating the impact of adopting the new guidance on the Consolidated Financial Statements, but it is

not

expected to have a material impact.

XML

Note 3 - Business Combinations

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Business Combination Disclosure [Text Block]

Note

3:

Business Combinations

The Company’s acquisitions are accounted for under the acquisition method of accounting in accordance with ASC 

805,

Business Combinations. Both the purchased assets and liabilities assumed are recorded at their respective acquisition date fair values. Determining the fair value of assets and liabilities, especially the loan portfolio, is a complicated process involving significant judgment regarding methods and assumptions used to calculate estimated fair values. Fair values are preliminary and subject to refinement for up to

one

year after the closing date of the acquisition as additional information regarding fair values becomes available.

Acquisition of Prime Bank

On

May 10, 2018

the Company completed its acquisition of Prime Bank, a Connecticut bank headquartered in Orange, CT. The closing of the transaction added a new Patriot branch located in the Town of Orange, New Haven County, Connecticut. On the acquisition date, Prime Bank had assets with a carrying value of approximately

$65

million, including investment securities with a carrying value of

$36

million, loans outstanding with a carrying value of approximately

$23

million, as well as deposits with a carrying value of approximately

$46

 million. The results of Prime Bank’s operations were included in the Company’s Consolidated Statement of Income from the date of acquisition.

The acquisition will enable Patriot to expand its consumer and small business relationships, lending operations, and community presence, all of which will improve key operating metrics. The goodwill recognized results from the expected synergies and potential earnings from this combination, including some future cost savings related to the operations of Prime Bank. Patriot incurred

$632,000

acquisition costs, charged to operations during the

nine

months ended

September 

30,

2018.

The assets acquired and liabilities assumed from Prime Bank were recorded at their fair value as of the closing date of the merger. Goodwill of

$2.1

million was recorded at the time of the acquisition, and was adjusted to

$1.9

million as of

September 30, 2018,

primarily due to updating of fair value of the core deposit intangibles. The goodwill is all deductible for income taxes over

15

years.

Patriot engaged independent consultants recognized as experts in the field of valuations and fair value measurements for acquisition and merger transactions. Fair value is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.”

Loans were evaluated on an individual basis, considering the loan’s underlying characteristics, types, remaining terms, annual interest rates, current market rates, loan to value ratios (LTV), loss exposure and remaining balances. The independent consultants utilized a discounted cash flow model to estimate the fair value of the loans using assumptions for probability of defaults, loss given defaults / recovery rates and foreclosure / recovery lags. ASC

310

-

30

Purchase Credit Impaired Loans were separately addressed with specific discount rates adjusted for an illiquidity premium.

To estimate the core deposit customer relationships intangible the consultants

first

identified the core deposits and utilized assumptions regarding the account retention rate, growth rate and float and reserve percentages. Retention rates were based on historical attrition rates based on previous transactions, the growth rate assumed

no

new accounts, and

3%

increase in existing account balances, while the floats and reserve percentage assumed the market participant would most likely be subject to a reserve requirement given the current level of core deposits.

The fair value of time deposits included segmenting into certificate of deposits (“CDs”) and IRA CDs and CDs less than

$100,000

and those

$100,000

and above. The methodology entailed discounting the contractual cash flows of the instruments over their remaining contractual lives at prevailing market rates.

The following table summarizes the consideration paid by the Company in the merger with Prime Bank and the estimated fair values of the assets acquired and liabilities assumed recognized at the acquisition date and subsequent measurement period adjustments:

(In thousands)	Initially Recorded at Acquisition Date		Measurement Period Adjustments			Adjusted Values
Consideration Paid
Cash consideration	$	5,596	$	1,284		$	6,880
Contingent consideration		1,761		(1,284	)		477
Recognized amounts of identifiable assets acquired and liabilities assumed
Cash and cash equivalents	$	1,152	$	-		$	1,152
Securities		35,532		-			35,532
Loans		21,605		(12	)		21,593
Premises and equipment		6		-			6
Other real estate owned		991		-			991
Core deposit intangibles		552		196			748
Other assets		1,514		-			1,514
Total assets acquired	$	61,352	$	184		$	61,536
Deposits		46,184		-			46,184
Borrowings		9,800		-			9,800
Other liabilities		111		28			139
Total liabilities assumed	$	56,095	$	28		$	56,123
Identifiable net assets acquired	$	5,257	$	156		$	5,413
Goodwill resulting from acquisition	$	2,100	$	(156	)	$	1,944

All securities acquired in the transaction with Prime Bank were sold at the fair value at acquisition date with

no

recorded gain or loss. Fair value adjustments to assets acquired and liabilities assumed will be amortized on a straight-line basis over periods consistent with the average useful life or contractual term of related assets and liabilities. The core deposit intangible will be amortized over a

10

-year period using the straight-line method.

Under the terms of the agreement, the transaction is accounted for as an asset sale. As a result, tax basis to Prime Bank is

not

carried over to Patriot and deferred tax assets on Prime Bank’s books have been written off as part of the purchase accounting adjustments.

The cash consideration is based on the initial calculation of Prime Bank tangible book value in accordance with the agreement. The initial cash payment made totaled

$5.89

million and

$1.0

million of this amount remains with the escrow agent pending resolution of the final closing tangible book value calculation.

Pursuant to a letter agreement, Patriot will make payments for up to

one

year after the acquisition date. These additional payments (contingent consideration) are to be determined based on the curing of certain loan deficiencies. On

August 29, 2018

Patriot paid

$1.28

million to the shareholders of Prime Bank pursuant to the agreement. The maximum remaining amount payable under the letter agreement is

$1.57

million and the liability under the agreement is currently estimated to be

$477,000.

This estimate has been measured based on Patriots assessment of the probability that certain loans are cured in accordance with the agreement.

The accounting for the business combination includes certain provisional amounts associated with the resolution of the purchase price consideration noted above. In addition, certain other provisional amounts have been included in the determination of the fair value of the acquired assets and liabilities and changes to those underlying estimates will be reflected as measurement period adjustments within the

one

-year measurement period. Those provisional amounts relate to the valuation of loans, other real estate owned, deposits, tax and other accrued liabilities of the acquired company.

The nature of the measurement period adjustments noted in the table above were a result of a series of payments in

August 2018

and pursuant to ongoing negotiations between the parties, and information obtained subsequent to our initial reporting of provisional fair values but prior to finalizing our fair values as of

September 30, 2018.

Such information was determined to be a condition in existence as of acquisition date. The income effects resulting from the recorded measurement period adjustments during the period ending

September 30, 2018

are immaterial for separate disclosure.

Pending Acquisition

Definitive Purchase Agreement

On

February 6, 2018,

the Company, Hana Small Business Lending, Inc. (“Hana SBL”), a wholly-owned subsidiary of Hana Financial, Inc. (“Hana Financial”), and

three

wholly-owned subsidiaries of Hana SBL entered into a definitive purchase agreement (“Purchase Agreement”) pursuant to which Patriot will acquire Hana SBL’s small business administration (“SBA”) lending business.

Hana SBL is a fully integrated national SBA origination and servicing platform. It has originated nearly

$1

 billion of SBA 

7

(a) loans since its inception in

2006.

On

August 2, 2018,

the Company, Hana SBL and

three

wholly-owned subsidiaries of Hana SBL, entered into an amendment (the “Amendment”) to the Purchase Agreement. Pursuant to the Amendment, the closing date of the above referenced transaction has been extended from

August 

2,

 

2018

to

August 

1,

 

2019.

On

October 29, 2018

the Company withdrew its initial application to the OCC requesting approval of the acquisition.  At that time, the Company entered into renewed negotiations with Hana SBL designed to restructure the terms of the pending acquisition.  Those negotiations continue through the date of the filing of this report. The Company continues to pursue a transaction with Hana SBL to achieve its SBA product goals. Before the Company can complete a transaction with Hana SBL, the Company will need to obtain necessary regulatory approvals or non-objection.  There is

no

assurance of the outcome or conditions of obtaining such approvals or non-objection, and an approval or non-objection could require material modifications of current terms of the agreement with Hana SBL. There can be

no

guarantee that Hana SBL will agree to any modifications of the agreement.

The Company incurred

$993,000

of merger and acquisition expenses related to the Hana SBL acquisition for the

nine

months ended

September 

30,

 

2018.

XML

Note 4 - Available-for-sale Securities

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

Note

4:

Available-for Sale Securities

The amortized cost, gross unrealized gains, gross unrealized losses and fair values of available-for-sale securities at

September 

30,

 

2018

and

December 

31,

 

2017

are as follows:

(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
September 30, 2018:
U. S. Government agency mortgage-backed securities	$	21,530		1		(296	)		21,235
Corporate bonds		14,000		-		(993	)		13,007
Subordinated notes		4,500		25		-			4,525
U.S. Treasury notes		1,497		-		-			1,497
	$	41,527		26		(1,289	)		40,264
December 31, 2017:
U. S. Government agency mortgage-backed securities	$	7,330		-		(106	)		7,224
Corporate bonds		14,000		-		(196	)		13,804
Subordinated notes		4,500		48		-			4,548
	$	25,830		48		(302	)		25,576

The following table presents the available-for-sale securities’ gross unrealized losses and fair value, aggregated by the length of time the individual securities have been in a continuous loss position as of

September 

30,

 

2018

and

December 

31,

 

2017:

(In thousands)	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized (Loss)			Fair Value		Unrealized (Loss)			Fair Value		Unrealized (Loss)
September 30, 2018:
U. S. Government agency mortgage-backed securities	$	16,955		(83	)		4,040		(213	)		20,995		(296	)
Corporate bonds		-		-			13,007		(993	)		13,007		(993	)
	$	16,955		(83	)		17,047		(1,206	)		34,002		(1,289	)
December 31, 2017:
U. S. Government agency mortgage-backed securities	$	4,118		(13	)		3,106		(93	)		7,224		(106	)
Corporate bonds		13,804		(196	)		-		-			13,804		(196	)
	$	17,922		(209	)		3,106		(93	)		21,028		(302	)

At

September 

30,

 

2018

and

December 

31,

 

2017,

thirteen

of

seventeen

and

nine

of

eleven

available-for-sale securities had unrealized losses with an aggregate decline of

3.7%

and

1.4%,

respectively from the amortized cost of those securities.

Based on its quarterly reviews, management believes that

none

of the losses on available-for-sale securities noted above constitute an other-than-temporary impairment (“OTTI”). The noted losses are considered temporary due to market fluctuations in available interest rates on U.S. Government agency debt, mortgage-backed securities issued by U.S. Government agencies, and corporate debt. Management considers the issuers of the securities to be financially sound, the corporate bonds are investment grade, and the collectability of all contractual principal and interest payments is reasonably expected. Since Patriot is

not

more-likely-than-

not

to be required to sell the investments before recovery of the amortized cost basis and does

not

intend to sell the securities at a loss,

none

of the available-for-sale securities noted are considered to be OTTI as of

September 

30,

 

2018.

At

September 

30,

 

2018

and

December 

31,

 

2017,

available-for-sale securities of

$7.3

million and

$6.7

million, respectively, were pledged to the Federal Reserve Bank of New York (“FRB”), primarily to secure municipal deposits.

The following summarizes, by class and contractual maturity, the amortized cost and estimated fair value of available-for-sale debt securities held at

September 

30,

 

2018

and

December 

31,

 

2017.

The mortgages underlying the mortgage-backed securities are

not

due at a single maturity date. Additionally, these mortgages often are and generally

may

be pre-paid without penalty, creating a degree of uncertainty that such investments can be held until maturity. For convenience, mortgage-backed securities have been included in the summary as a separate line item.

(In thousands)	Amortized Cost								Fair Value
	Due Within 5 years		Due After 5 years through 10 years		Due After 10 years		Total		Due Within 5 years		Due After 5 years through 10 years		Due After 10 years		Total
September 30, 2018:
Corporate bonds	$	-		9,000		5,000		14,000		-		8,397		4,610		13,007
Subordinated notes		-		4,500		-		4,500		-		4,525		-		4,525
U.S. Treasury notes		1,497		-		-		1,497		1,497		-		-		1,497
Available-for-sale securities with single maturity dates		1,497		13,500		5,000		19,997		1,497		12,922		4,610		19,029
U. S. Government agency mortgage-backed securities		6,828		6,297		8,405		21,530		6,817		6,129		8,289		21,235
	$	8,325		19,797		13,405		41,527		8,314		19,051		12,899		40,264
December 31, 2017:
Corporate bonds	$	-		9,000		5,000		14,000		-		8,928		4,876		13,804
Subordinated notes		-		4,500		-		4,500		-		4,548		-		4,548
Available-for-sale securities with single maturity dates		-		13,500		5,000		18,500		-		13,476		4,876		18,352
U. S. Government agency mortgage-backed securities		-		3,200		4,130		7,330		-		3,107		4,117		7,224
	$	-		16,700		9,130		25,830		-		16,583		8,993		25,576

During the year to date period ended

September 

30,

 

2018,

the Company sold

$35.5

million securities acquired in the transaction with Prime Bank, which were sold at the fair value at acquisition date with

no

recorded gain or loss. The Bank purchased

$15.6

million U.S. Government agency mortgage-backed securities and

$1.5

million U.S. Treasury notes in the

third

quarter of

2018.

There were

no

sales of the Bank’s available-for-sale securities in the

nine

-month period ended

September 

30,

 

2018.

During the year to date period ended

September 

30,

 

2017,

there were

$13.8

million sales and

$20.6

million purchases of available-for-sale securities. A loss on the sale of available-for-sale securities of

$78,000

was recorded during the

nine

months ended

September 

30,

 

2017.

XML

Note 5 - Loans Receivable and Allowance for Loan Losses

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

Note

5:

Loans Receivable and Allowance for Loan Losses

As of

September 

30,

 

2018

and

December 

31,

 

2017,

loans receivable, net, consists of the following:

(In thousands)	September 30, 2018			December 31, 2017
Loan portfolio segment:
Commercial Real Estate	$	276,100			299,925
Residential Real Estate		155,077			146,377
Commercial and Industrial		174,480			131,161
Consumer and Other		97,463			87,707
Construction		45,476			47,619
Construction to Permanent - CRE		14,658			6,858
Loans receivable, gross		763,254			719,647
Allowance for loan losses		(6,605	)		(6,297	)
Loans receivable, net	$	756,649			713,350

Patriot's lending activities are conducted principally in Fairfield and New Haven Counties in Connecticut and Westchester County in New York, and the

five

Boroughs of New York City. Patriot originates commercial real estate loans, commercial business loans, a variety of consumer loans, and construction loans, and has purchased residential loans since

2016.

All commercial and residential real estate loans are collateralized primarily by

first

or

second

mortgages on real estate. The ability and willingness of borrowers to satisfy their loan obligations is dependent to some degree on the status of the regional economy as well as upon the regional real estate market. Accordingly, the ultimate collectability of a substantial portion of the loan portfolio and the recovery of a substantial portion of any resulting real estate acquired is susceptible to changes in market conditions.

Patriot has established credit policies applicable to each type of lending activity in which it engages and evaluates the creditworthiness of each borrower. Unless extenuating circumstances exist, Patriot limits the extension of credit on commercial real estate loans to

75%

of the market value of the underlying collateral. Patriot’s loan origination policy for multi-family residential real estate is limited to

80%

of the market value of the underlying collateral. In the case of construction loans, the maximum loan-to-value is

75%

of the “as completed” appraised value of the real estate project. Management monitors the appraised value of collateral on an on-going basis and additional collateral is requested when warranted. Real estate is the primary form of collateral, although other forms of collateral do exist and

may

include such assets as accounts receivable, inventory, marketable securities, time deposits, and other business assets.

In connection with the Prime Bank merger in

May 2018

loans were acquired, a subset of these loans was determined to have evidence of credit deterioration at the acquisition date, which was accounted for in accordance with ASC

310

-

30.

The purchased credit impaired (“PCI”) loans presently maintain a carrying value of

$901,000

as of

September 30, 2018.

The loans were evaluated for impairment through the periodic reforecasting of expected cash flows.

Income is recognized on PCI loans pursuant to ASC Topic

310

-

30.

A portion of the fair value discount has been ascribed as an accretable yield that is accreted into interest income over the estimated remaining life of the loans. The remaining non-accretable difference represents cash flows

not

expected to be collected.

The table below summarizes the total contractually required principal and interest cash payments, management’s estimate of expected total cash payments and fair value of the loans at acquisition date. Contractually required principal and interest payments have been adjusted for estimated prepayments.

(In thousands)	Acquisition Date
Contractually required principal and interest at acquisition	$	5,816
Contractual cash flows not expected to be collected (nonaccretable discount)		(2,064	)
Expected cash flows at acquisition		3,752
Interest component of expected cash flows (accretable discount)		(1,316	)
Fair value of acquired loans	$	2,436

The accretion of the accretable discount for PCI loans for the year-to-date of

September 30, 2018

was

$57,000.

The table above includes

$887,000

additional expected cash flows at acquisition, and

$887,000

additional accretable discount, both resulting from a revised acquisition date estimate of PCI loans performance.

Risk characteristics of the Company’s portfolio classes include the following:

Commercial Real Estate Loans

In underwriting commercial real estate loans, Patriot evaluates both the prospective borrower’s ability to make timely payments on the loan and the value of the property securing the loans. Repayment of such loans

may

be negatively impacted should the borrower default, the value of the property collateralizing the loan substantially decline, or there are declines in general economic conditions. Where the owner occupies the property, Patriot also evaluates the business’ ability to repay the loan on a timely basis and

may

require personal guarantees, lease assignments, and/or the guarantee of the operating company.

Residential Real Estate Loans

In

2013,

Patriot discontinued offering primary mortgages on personal residences. Repayment of residential real estate loans

may

be negatively impacted should the borrower have financial difficulties, should there be a significant decline in the value of the property securing the loan, or should there be declines in general economic conditions.

In

2017,

Patriot purchased

$73

million of residential real estate loans, including a premium of

$985,000

over the book value of the loans. During the year to date period of

September 

30,

 

2018,

$16.4

million residential real estate loans were purchased.

Commercial and Industrial Loans

Patriot’s commercial and industrial loan portfolio consists primarily of commercial business loans and lines of credit to businesses and professionals. These loans are generally for the financing of accounts receivable, purchases of inventory, purchases of new or used equipment, or for other short- or long-term working capital purposes. These loans are generally secured by business assets, but are also occasionally offered on an unsecured basis. In granting these types of loans, Patriot considers the borrower’s cash flow as the primary source of repayment, supported by the value of collateral, if any, and personal guarantees, as applicable. Repayment of commercial and industrial loans

may

be negatively impacted by adverse changes in economic conditions, ineffective management, claims on the borrower’s assets by others that are superior to Patriot’s claims, a loss of demand for the borrower’s products or services, or the death or disability of the borrower or other key management personnel.

Consumer and Other Loans

Patriot offers individual consumers various forms of credit including installment loans, credit cards, overdraft protection, and reserve lines of credit. Repayments of such loans are generally dependent on the personal income of the borrower, which

may

be negatively impacted by adverse changes in economic conditions. The Company does

not

place a high emphasis on originating these types of loans.

The Company does

not

have any lending programs commonly referred to as subprime lending. Subprime lending generally targets borrowers with weakened credit histories that are typically characterized by payment delinquencies, previous charge-offs, judgments against the consumer, a history of bankruptcies, or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burdened ratios.

During the year to date period of

September 

30,

 

2018,

$21.4

million education loans were purchased.

Construction Loans

Construction loans are of a short-term nature, generally of

eighteen

-months or less, that are secured by land intended for commercial, residential, or mixed-use development. Loan proceeds

may

be used for the acquisition of or improvements to the land under development and funds are generally disbursed as phases of construction are completed.

Included in this category are loans to construct single family homes where

no

contract of sale exists, based upon the experience and financial strength of the builder, the type and location of the property, and other factors. Construction loans tend to be personally guaranteed by the principal(s). Repayment of such loans

may

be negatively impacted by an inability to complete construction, a downturn in the market for new construction, by a significant increase in interest rates, or by decline in general economic conditions.

Construction to Permanent - Commercial Real Estate (“CRE”)

One time close of a construction facility with simultaneous conversion to an amortizing mortgage loan. Construction to Permanent loans combine a short term period similar to a  construction loan, generally with a variable rate, and a longer term CRE loan typically

20

-

25

years, resetting every

five

years to the Federal Home Loan Bank (“FHLB”) rate. 

Close of the construction facility typically occurs when events dictate, such as receipt of a certificate of occupancy and property stabilization, which is defined as cash flow sufficient to support a pre-defined minimum debt coverage ratio and other conditions and covenants particular to the loan. Construction facilities are typically variable rate instruments that, upon conversion to an amortizing mortgage loan, reset to a fixed rate instrument that is the greater of the in-force variable rate plus a predetermined spread over a reference rate (e.g., prime) or a minimum interest rate.

Allowance for Loan Losses

The following tables summarize the activity in the allowance for loan losses, allocated to segments of the loan portfolio, for the

three

months ended

September 

30,

 

2018

and

2017:

(In thousands)	Commercial Real Estate			Residential Real Estate			Commercial and Industrial			Consumer and Other			Construction		Construction to Permanent - CRE			Unallocated			Total
Three months ended September 30, 2018
Allowance for loan losses:
June 30, 2018	$	2,305			1,096			1,996			523			499		80			26			6,525
Charge-offs		-			(2	)		-			(3	)		-		-			-			(5	)
Recoveries		24			11			-			-			-		-			-			35
Provisions (credits)		(566	)		(240	)		245			150			181		20			260			50
September 30, 2018	$	1,763			865			2,241			670			680		100			286			6,605
Three months ended September 30, 2017
Allowance for loan losses:
June 30, 2017	$	2,218			1,041			1,453			593			490		73			76			5,944
Charge-offs		-			-			(265	)		(10	)		-		-			-			(275	)
Recoveries		6			-			-			2			-		-			-			8
Provisions (credits)		(52	)		4			685			(327	)		293		(27	)		(31	)		545
September 30, 2017	$	2,172			1,045			1,873			258			783		46			45			6,222

The following tables summarize the activity in the allowance for loan losses, allocated to segments of the loan portfolio, for the

nine

months ended

September 

30,

 

2018

and

2017:

(In thousands)	Commercial Real Estate			Residential Real Estate			Commercial and Industrial			Consumer and Other			Construction		Construction to Permanent - CRE			Unallocated			Total
Nine months ended September 30, 2018
Allowance for loan losses:
December 31, 2017	$	2,212			959			2,023			568			481		54			-			6,297
Charge-offs		-			(2	)		-			(17	)		-		-			-			(19	)
Recoveries		30			12			-			-			-		-			-			42
Provisions (credits)		(479	)		(104	)		218			119			199		46			286			285
September 30, 2018	$	1,763			865			2,241			670			680		100			286			6,605
Nine months ended September 30, 2017
Allowance for loan losses:
December 31, 2016	$	1,853			534			740			641			712		69			126			4,675
Charge-offs		-			-			(265	)		(23	)		-		-			-			(288	)
Recoveries		8			-			2,769			2			-		-			-			2,779
Provisions (credits)		311			511			(1,371	)		(362	)		71		(23	)		(81	)		(944	)
September 30, 2017	$	2,172			1,045			1,873			258			783		46			45			6,222

The following tables summarize, by loan portfolio segment, the amount of loans receivable evaluated individually and collectively for impairment as of

September 

30,

 

2018

and

December 

31,

 

2017:

(In thousands)	Commercial Real Estate		Residential Real Estate		Commercial and Industrial		Consumer and Other		Construction		Construction to Permanent - CRE		Unallocated		Total
September 30, 2018
Allowance for loan losses:
Individually evaluated for impairment	$	-		-		48		7		-		-		-		55
Collectively evaluated for impairment		1,763		865		2,193		663		680		100		286		6,550
Total allowance for loan losses	$	1,763		865		2,241		670		680		100		286		6,605
Loans receivable, gross:
Individually evaluated for impairment	$	3,989		3,521		1,028		789		-		-		-		9,327
PCI loans individually evaluated for impairment		-		-		901		-		-		-		-		901
Collectively evaluated for impairment		272,111		151,556		172,551		96,674		45,476		14,658		-		753,026
Total loans receivable, gross	$	276,100		155,077		174,480		97,463		45,476		14,658		-		763,254

(In thousands)	Commercial Real Estate		Residential Real Estate		Commercial and Industrial		Consumer and Other		Construction		Construction to Permanent - CRE		Unallocated		Total
December 31, 2017
Allowance for loan losses:
Individually evaluated for impairment	$	-		-		251		2		-		-		-		253
Collectively evaluated for impairment		2,212		959		1,772		566		481		54		-		6,044
Total allowance for loan losses	$	2,212		959		2,023		568		481		54		-		6,297
Loans receivable, gross:
Individually evaluated for impairment	$	1,977		3,336		748		692		-		-		-		6,753
Collectively evaluated for impairment		297,948		143,041		130,413		87,015		47,619		6,858		-		712,894
Total loans receivable, gross	$	299,925		146,377		131,161		87,707		47,619		6,858		-		719,647

Patriot monitors the credit quality of its loans receivable on an ongoing basis. Credit quality is monitored by reviewing certain indicators, including loan to value ratios, debt service coverage ratios, and credit scores.

Patriot employs a risk rating system as part of the risk assessment of its loan portfolio. At origination, lending officers are required to assign a risk rating to each loan in their portfolio, which is ratified or modified by the Loan Committee to which the loan is submitted for approval. If financial developments occur on a loan in the lending officer’s portfolio of responsibility, the risk rating is reviewed and adjusted, as applicable. In carrying out its oversight responsibilities, the Loan Committee can adjust a risk rating based on available information. In addition, the risk ratings on all commercial loans over

$250,000

are reviewed annually by the Credit Department.

Additionally, Patriot retains an objective and independent

third

-party loan review expert to perform a quarterly analysis of the results of its risk rating process. The quarterly review is based on a randomly selected sample of loans within established parameters (e.g., value, concentration), in order to assess and validate the risk ratings assigned to individual loans. Any changes to the assigned risk ratings, based on the quarterly review, are required to be approved by the Loan Committee.

When assigning a risk rating to a loan, management utilizes the Bank’s internal

eleven

-point risk rating system. An asset is considered “special mention” when it has a potential weakness based on objective evidence, but does

not

currently expose the Company to sufficient risk to warrant classification in

one

of the following categories:

● Substandard: An asset is classified “substandard” if it is not adequately protected by the current net worth and paying capacity of the obligor or the collateral pledged, if any. Substandard assets have well defined weaknesses based on objective evidence, and are characterized by the distinct possibility that the Company will sustain some loss, if noted deficiencies are not corrected.

● Doubtful: Assets classified as “doubtful” have all of the weaknesses inherent in those classified as “substandard”, with the added characteristic that the identified weaknesses make collection or liquidation-in-full improbable, on the basis of currently existing facts, conditions, and values.

Charge-offs, to reduce the loan to its recoverable value, generally commence after the loan is classified as “doubtful”.

In accordance with Federal Financial Institutions Examination Council published policies establishing uniform criteria for the classification of retail credit based on delinquency status, “Open-end” and “Closed-end” credits are charged off when

180

days and

120

days delinquent, respectively.

If an account is classified as “Loss”, the full balance of the loan receivable is charged off, regardless of the potential recovery from a sale of the underlying collateral. Any amount that

may

be recovered on the sale of collateral underlying a loan is recognized as a “recovery” in the period in which the collateral is sold.

Loan Portfolio Aging Analysis

The following tables summarize performing and non-performing (i.e., non-accruing) loans receivable by portfolio segment, by aging category, by delinquency status as of

September 

30,

 

2018.

(In thousands)	Performing (Accruing) Loans
As of September 30, 2018:	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or Greater Past Due		Total		Current		Total Performing Loans		Non-accruing Loans		Loans Receivable Gross
Loan portfolio segment:
Commercial Real Estate:
Pass	$	1,919		516		670		3,105		264,496		267,601		-		267,601
Special mention		-		-		-		-		2,311		2,311		-		2,311
Substandard		-		-		-		-		4,115		4,115		2,073		6,188
		1,919		516		670		3,105		270,922		274,027		2,073		276,100
Residential Real Estate:
Pass		1,055		-		-		1,055		149,295		150,350		-		150,350
Substandard		-		-		1,504		1,504		-		1,504		3,223		4,727
		1,055		-		1,504		2,559		149,295		151,854		3,223		155,077
Commercial and Industrial:
Pass		888		480		2,100		3,468		162,762		166,230		-		166,230
Special mention		250		-		2,374		2,624		3,048		5,672		-		5,672
Substandard		-		-		-		-		1,494		1,494		1,084		2,578
		1,138		480		4,474		6,092		167,304		173,396		1,084		174,480
Consumer and Other:
Pass		24		30		6		60		97,304		97,364		-		97,364
Substandard		-		-		-		-		-		-		99		99
		24		30		6		60		97,304		97,364		99		97,463
Construction:
Pass		1,152		-		2,922		4,074		32,602		36,676		-		36,676
Substandard		-		-		8,800		8,800		-		8,800		-		8,800
		1,152		-		11,722		12,874		32,602		45,476		-		45,476
Construction to Permanent - CRE:
Pass		-		-		-		-		14,658		14,658		-		14,658
Total	$	5,288		1,026		18,376		24,690		732,085		756,775		6,479		763,254
Loans receivable, gross:
Pass	$	5,038		1,026		5,698		11,762		721,117		732,879		-		732,879
Special mention		250		-		2,374		2,624		5,359		7,983		-		7,983
Substandard		-		-		10,304		10,304		5,609		15,913		6,479		22,392
Loans receivable, gross	$	5,288		1,026		18,376		24,690		732,085		756,775		6,479		763,254

As of

September 30 2018

the loans

90

days and over past due and still accruing were primarily due to

one

construction loan of

$8.8

million, on which interest payments are current-to-date. Management has determined the loan is well secured and in process of collection. The other loan in the Substandard category was a

$1.5

million dollar multifamily residential loan in New Haven, being actively managed by the Bank’s Special Assets team. The borrower is expected to bring the loan current following the resolution of real estate tax disputes with the City of New Haven.

The

$5.7

 million of Pass loans

90

days and over past due and still accruing consists of

five

loans, all of which are actively managed by the Bank and are expected to be brought current based on recent discussions with each borrower.  The

$2.4

 million of Special mention loans

90

days or more past due and still accruing reflects

one

loan which is expected to be brought current following the sale of a property.

The following tables summarize performing and non-performing (i.e., non-accruing) loans receivable by portfolio segment, by aging category, by delinquency status as of

December 

31,

 

2017.

(In thousands)	Performing (Accruing) Loans
As of December 31, 2017:	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or Greater Past Due		Total		Current		Total Performing Loans		Non-accruing Loans		Loans Receivable Gross
Loan portfolio segment:
Commercial Real Estate:
Pass	$	-		-		-		-		286,428		286,428		-		286,428
Special mention		-		1,121		-		1,121		9,317		10,438		-		10,438
Substandard		-		1,688		-		1,688		1,371		3,059		-		3,059
		-		2,809		-		2,809		297,116		299,925		-		299,925
Residential Real Estate:
Pass		1,068		255		-		1,323		140,497		141,820		-		141,820
Special mention		-		1,529		-		1,529		-		1,529		-		1,529
Substandard		-		-		-		-		-		-		3,028		3,028
		1,068		1,784		-		2,852		140,497		143,349		3,028		146,377
Commercial and Industrial:
Pass		-		2,000		375		2,375		127,057		129,432		-		129,432
Substandard		-		-		981		981		-		981		748		1,729
		-		2,000		1,356		3,356		127,057		130,413		748		131,161
Consumer and Other:
Pass		498		-		-		498		87,207		87,705		-		87,705
Substandard		-		-		-		-		-		-		2		2
		498		-		-		498		87,207		87,705		2		87,707
Construction:
Pass		-		-		-		-		47,619		47,619		-		47,619
Construction to Permanent - CRE:
Pass		-		-		-		-		6,858		6,858		-		6,858
Total	$	1,566		6,593		1,356		9,515		706,354		715,869		3,778		719,647
Loans receivable, gross:
Pass	$	1,566		2,255		375		4,196		695,666		699,862		-		699,862
Special mention		-		2,650		-		2,650		9,317		11,967		-		11,967
Substandard		-		1,688		981		2,669		1,371		4,040		3,778		7,818
Loans receivable, gross	$	1,566		6,593		1,356		9,515		706,354		715,869		3,778		719,647

The following tables summarize non-performing (i.e., non-accruing) loans by aging category and status, within the applicable loan portfolio segment as of

September 

30,

 

2018

and

December 31, 2017:

(In thousands)	Non-accruing Loans
	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Non-accruing Loans
As of September 30, 2018:
Loan portfolio segment:
Commercial Real Estate
Substandard	$	-		-		2,073		2,073		-		2,073
Residential Real Estate:
Substandard		-		-		3,223		3,223		-		3,223
Commercial and Industrial:
Substandard		-		-		1,084		1,084		-		1,084
Consumer and Other
Substandard		-		-		99		99		-		99
Total non-accruing loans	$	-		-		6,479		6,479		-		6,479

(In thousands)	Non-accruing Loans
	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Non-accruing Loans
As of December 31, 2017:
Loan portfolio segment:
Residential Real Estate:
Substandard	$	-		-		3,028		3,028		-		3,028
Commercial and Industrial:
Substandard		-		-		748		748		-		748
Consumer and Other
Substandard		-		-		2		2		-		2
Total non-accruing loans	$	-		-		3,778		3,778		-		3,778

If non-accrual loans had been performing in accordance with the original contractual terms, additional interest income of approximately

$85,000

and

$266,000

would have been recognized in income during the

three

and

nine

months ended

September 

30,

 

2018,

respectively. During the

three

and

nine

months ended

September 

30,

 

2017,

additional interest income of approximately

$27,000

and

$70,000

would have been recognized in income, respectively.

Additionally, certain loans for which the borrower cannot demonstrate sufficient cash flow to continue loan payments in the future and certain troubled debt restructurings (“TDRs”) are placed on non-accrual status. During the

three

and

nine

months ended

September 

30,

 

2018

and

2017,

no

interest income was collected and recognized on non-accruing loans.

The accrual of interest on loans is discontinued at the time the loan is

90

days past due for payment unless the loan is well-secured and in process of collection. Consumer installment loans are typically charged off

no

later than

180

days past due. Past due status is based on contractual terms of the loan. In all cases, loans are placed on non-accrual status or charged-off, at an earlier date, if collection of principal or interest is considered doubtful. All interest accrued, but

not

collected for loans that are placed on non-accrual status or charged off, is reversed against interest income. The interest on these loans is accounted for on the cash-basis method until qualifying for return to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, future payments are reasonably assured, and there is

nine

months of performance. Management considers all non-accrual loans and TDRs to be impaired. In most cases, loan payments that are past due less than

90

days, based on contractual terms, are considered collection delays and

not

an indication of loan impairment. The Bank considers consumer installment loans to be pools of smaller homogeneous loan balances, which are collectively evaluated for impairment.

Troubled Debt Restructurings (“TDR”)

On a case-by-case basis, Patriot

may

agree to modify the contractual terms of a borrower’s loan to assist customers who

may

be experiencing financial difficulty. If the borrower is experiencing financial difficulties and a concession has been made, the loan is classified as a TDR.

Substantially all TDR loan modifications involve lowering the monthly payments on such loans through either a reduction in interest rate below market rate, an extension of the term of the loan, or a combination of adjusting these

two

contractual attributes. TDR loan modifications

may

result in the forgiveness of principal or accrued interest. In addition, when modifying commercial loans, Patriot frequently obtains additional collateral or guarantor support. If the borrower has performed under the existing contractual terms of the loan and Patriot’s underwriters determine that the borrower has the capacity to continue to perform under the terms of the TDR, the loan continues accruing interest. Non-accruing TDRs

may

be returned to accrual status when there has been a sustained period of performance (generally

six

consecutive months of payments) and both principal and interest are reasonably assured of collection.

The recorded investment in TDRs was

$2.9

million at

September 

30,

2018

and

$3.0

million at

December 

31,

 

2017,

respectively. All TDRs at

September 

30,

2018

and

December 

31,

 

2017

were performing in accordance with their modified terms and therefore, were on accrual status.

(In thousands)
Loan portfolio segment:	September 30, 2018		December 31, 2017
Commercial Real Estate	$	1,916		1,977
Residential Real Estate		989		999
Total TDR Loans		2,905		2,976
Less: TDRs included in non-accrual loans		-		-
Total accrual TDR Loans	$	2,905		2,976

There were

no

loans modified as TDRs and

no

defaults of TDRs during the

three

and

nine

months ended

September 

30,

 

2018

and

2017.

At

September 

30,

 

2018

and

December 

31,

 

2017,

there were

no

commitments to advance additional funds under TDRs.

Impaired Loans

Impaired loans

may

consist of non-accrual loans and/or performing and non-performing TDRs. As of

September 

30,

 

2018

and

December 

31,

 

2017,

based on the on-going monitoring and analysis of the loan portfolio, impaired loans of

$9.3

 million and

$6.8

million, respectively, were identified, for which

$55,000

and

$253,000

specific reserves were established, respectively. Loans

not

requiring specific reserves had sufficient collateral values, less costs to sell, supporting the net investment in the loan which includes principal balance, unamortized fees and costs and accrued interest, if any. Once a borrower is in default, Patriot is under

no

obligation to advance additional funds on unused commitments.

At

September 

30,

 

2018

and

December 

31,

 

2017,

exposure to the impaired loans was related to

16

and

12

borrowers, respectively. In all cases, appraisal reports of the underlying collateral, if any, have been obtained from independent licensed appraisal firms. For non-performing loans, the independently determined appraised values were reduced by an estimate of the costs to sell the assets, in order to estimate the potential loss, if any, that

may

eventually be realized. Performing loans are monitored to determine when, if at all, additional loan loss reserves

may

be required for a loss of underlying collateral value.

In addition the remaining

$901,000

PCI loans acquired from Prime Bank acquisition; all remaining PCI loans were commercial and industrial loans. The PCI loans were originally recorded at fair value by the Bank on the date of acquisition. At

September 30, 2018,

those loans were considered individually evaluated for impairment, with

no

allowance recorded.

The following table reflects information about the impaired loans, excluding PCI loans, by class as of

September 

30,

 

2018

and

December 

31,

 

2017:

(In thousands)	September 30, 2018						December 31, 2017
	Recorded Investment		Principal Outstanding		Related Allowance		Recorded Investment		Principal Outstanding		Related Allowance
With no related allowance recorded:
Commercial Real Estate	$	3,989		4,481		-		1,977		2,425		-
Residential Real Estate		3,521		3,554		-		3,336		3,369		-
Commercial and Industrial		980		1,751		-		497		683		-
Consumer and Other		768		842		-		690		818		-
		9,258		10,628		-		6,500		7,295		-
With a related allowance recorded:
Commercial Real Estate		-		-		-		-		-		-
Residential Real Estate		-		-		-		-		-		-
Commercial and Industrial		48		98		48		251		251		251
Consumer and Other		21		21		7		2		2		2
		69		119		55		253		253		253
Impaired Loans, Total:
Commercial Real Estate		3,989		4,481		-		1,977		2,425		-
Residential Real Estate		3,521		3,554		-		3,336		3,369		-
Commercial and Industrial		1,028		1,849		48		748		934		251
Consumer and Other		789		863		7		692		820		2
Impaired Loans, Total	$	9,327		10,747		55		6,753		7,548		253

The following tables summarize additional information regarding impaired loans, excluding PCI loans, by class for the

three

and

nine

months ended

September 

30,

 

2018

and

2017.

(In thousands)	Three Months Ended September 30,
	2018				2017
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate	$	4,062		21		6,111		10
Residential Real Estate		3,523		3		1,903		-
Commercial and Industrial		1,018		-		37		-
Consumer and Other		771		8		584		-
		9,374		32		8,635		10
With a related allowance recorded:
Commercial Real Estate		-		-		-		-
Residential Real Estate		-		-		-		-
Commercial and Industrial		45		-		245		-
Consumer and Other		5		-		-		-
		50		-		245		-
Impaired Loans, Total:
Commercial Real Estate		4,062		21		6,111		10
Residential Real Estate		3,523		3		1,903		-
Commercial and Industrial		1,063		-		282		-
Consumer and Other		776		8		584		-
Impaired Loans, Total	$	9,424		32		8,880		10

(In thousands)	Nine Months Ended September 30,
	2018				2017
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate	$	3,157		70		6,173		159
Residential Real Estate		3,451		8		1,907		5
Commercial and Industrial		948		-		46		-
Consumer and Other		739		23		558		10
		8,295		101		8,684		174
With a related allowance recorded:
Commercial Real Estate		-		-		-		-
Residential Real Estate		-		-		-		-
Commercial and Industrial		185		-		237		-
Consumer and Other		4		-		-		-
		189		-		237		-
Impaired Loans, Total:
Commercial Real Estate		3,157		70		6,173		159
Residential Real Estate		3,451		8		1,907		5
Commercial and Industrial		1,133		-		283		-
Consumer and Other		743		23		558		10
Impaired Loans, Total	$	8,484		101		8,921		174

XML

Note 6 - Deposits

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Deposit Liabilities Disclosures [Text Block]

Note

6:

Deposits

The following table presents the balance of deposits held, by category as of

September 

30,

 

2018

and

December 

31,

 

2017.

(In thousands)	September 30, 2018		December 31, 2017
Non-interest bearing	$	81,687	$	81,197
Interest bearing:
NOW		24,827		25,476
Savings		100,294		135,975
Money market		62,314		16,575
Certificates of deposit, less than $250,000		203,044		173,221
Certificates of deposit, $250,000 or greater		81,346		66,866
Brokered deposits		166,020		138,129
Interest bearing, Total		637,845		556,242
Total Deposits	$	719,532	$	637,439

XML

Note 7 - Share-based Compensation and Employee Benefit Plan

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

Note

7:

Share-Based Compensation and Employee Benefit Plan

The Company maintains the Patriot National Bancorp, Inc.

2012

Stock Plan (the “Plan”) to provide an incentive to directors and employees of the Company by the grant of restricted stock awards (“RSA”), options, or phantom stock units. Since

2013,

the Company’s practice is to grant RSAs. As of

September 

30,

 

2018

and

December 

31,

 

2017,

there were

no

options or phantom stock units outstanding, or that have been exercised during the period then ended.

The Plan provides for the issuance of up to

3,000,000

shares of the Company’s common stock subject to certain limitations. As of

September 

30,

 

2018,

2,870,113

shares of stock are available for issuance under the Plan. In accordance with the terms of the Plan, the vesting of RSAs and options

may

be accelerated at the discretion of the Compensation Committee of the Board of Directors. The Compensation Committee sets the terms and conditions applicable to the vesting of RSAs and stock option grants. RSAs granted to directors and employees generally vest in quarterly or annual installments over a three,

four

or

five

year period from the date of grant.

The following is a summary of the status of the Company’s restricted shares as of

September 

30,

 

2018

and

2017

and changes therein during the periods indicated:

Three months ended September 30, 2018:	Number of Shares Awarded			Weighted Average Grant Date Fair Value
Unvested at June 30, 2018		38,086		$	14.57
Vested		(2,388	)	$	16.24
Forfeited		(200	)	$	15.50
Unvested at September 30, 2018		35,498		$	14.46
Nine months ended September 30, 2018:
Unvested at December 31, 2017		25,870		$	12.15
Granted		18,323		$	18.07
Vested		(7,291	)	$	15.36
Forfeited		(1,404	)	$	14.44
Unvested at September 30, 2018		35,498		$	14.46

Three months ended September 30, 2017:	Number of Shares Awarded			Weighted Average Grant Date Fair Value
Unvested at June 30, 2017		32,117		$	12.39
Vested		(1,692	)	$	16.80
Forfeited		(600	)	$	15.50
Unvested at September 30, 2017		29,825		$	12.08
Nine months ended September 30, 2017:
Unvested at December 31, 2016		35,264		$	12.84
Granted		5,084		$	15.05
Vested		(3,923	)	$	14.66
Forfeited		(6,600	)	$	15.50
Unvested at September 30, 2017		29,825		$	12.08

The Company recognizes compensation expense for all director and employee share-based compensation awards on a straight-line basis over the requisite service period, which is equal to the vesting schedule of each award, for each vesting portion of an award equal to its grant date fair value.

For the

three

and

nine

months ended

September 

30,

 

2018,

the Company recognized total share-based compensation expense of

$56,000

and

$163,000,

respectively. The share-based compensation attributable to employees of Patriot amounted to

$33,000

and

$100,000,

respectively, for the

three

and

nine

months ended

September 

30,

2018.

Included in share-based compensation expense for the

three

and

nine

months ended

September 

30,

 

2018

were

$23,000

and

$63,000

attributable to Patriot’s external Directors, who received total compensation of

$77,000

and

$241,000

for each of those periods, respectively, which amounts are included in Other Operating Expenses in the Consolidated Statements of Income.

For the

three

and

nine

months ended

September 

30,

 

2017,

the Company recognized total share-based compensation expense of

$37,000

and

$105,000,

respectively. The share-based compensation attributable to employees of Patriot amounted to

$16,000

and

$48,000,

respectively. Included in share-based compensation expense for the

three

and

nine

months ended

September 

30,

 

2017

were

$21,000

and

$57,000

attributable to Patriot’s external Directors, who received total compensation of

$80,000

and

$226,000

for each of those periods, respectively, which amounts are included in Other Operating Expenses in the Consolidated Statements of Income.

Unrecognized compensation expense attributable to the unvested restricted shares outstanding as of

September 

30,

 

2018

amounts to

$428,000,

which amount is expected to be recognized over the weighted average remaining life of the awards of

2.61

years.

RSA Grant - Non-executive Employees

During the

three

and

nine

months ended

September 

30,

 

2018,

200

and

300

granted shares were forfeited, respectively. During the

three

and

nine

months ended

September 

30,

 

2017,

600

and

600

granted shares were forfeited, respectively. The remaining

6,000

shares continue to vest and

$8,000

of compensation expense is expected to be recognized through the

January 2019

vesting date.

Dividends

On

July 17, 2017,

the Company announced its intention to make quarterly cash dividend payments. For the

three

and

nine

months ended

September 

30,

 

2018,

the Company paid cash dividends of

$.01

per share of common stock, or an aggregated of

$39,000

and

$116,000,

respectively. For the

three

and

nine

months ended

September 

30,

 

2017,

the Company paid cash dividends of

$39,000

.

Retirement Plan

The Company offers a

401K

retirement plan (the

“401K”

), which provides for tax-deferred salary deductions for eligible employees. Employees

may

choose to make voluntary contributions to the

401K,

limited to an annual maximum amount as set forth periodically by the Internal Revenue Service. The Company matches

50%

of such contributions, up to a maximum of

six

percent of an employee's annual compensation. During the

three

and

nine

months ended

September 

30,

 

2018

compensation expense under the

401K

aggregated

$38,000

and

$154,000,

respectively. During the

three

and

nine

months ended

September 

30,

 

2017,

compensation expense under the

401K

aggregated

$37,000

and

$132,000,

respectively.

XML

Note 8 - Earnings Per Share

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Earnings Per Share [Text Block]

Note

8:

Earnings per share

The Company is required to present basic earnings per share and diluted earnings per share in its Consolidated Statements of Income. Basic earnings per share amounts are computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per share reflects additional common shares that would have been outstanding if potentially 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 the Company relate to outstanding unvested RSAs granted to directors and employees. The dilutive effect resulting from these potential shares is determined using the treasury stock method. The Company is also required to provide a reconciliation of the numerator and denominator used in the computation of both basic and diluted earnings per share.

The following table summarizes the computation of basic and diluted earnings per share for the

three

and

nine

months ended

September 

30,

 

2018

and

2017:

(Net income in thousands)	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Basic earnings per share:
Net income attributable to Common shareholders	$	769		1,013		2,870		3,547
Divided by:
Weighted average shares outstanding		3,904,751		3,894,237		3,903,056		3,893,702
Basic earnings per common share	$	0.20		0.26		0.74		0.91
Diluted earnings per share:
Net income attributable to Common shareholders	$	769		1,013		2,870		3,547
Weighted average shares outstanding		3,904,751		3,894,237		3,903,056		3,893,702
Effect of potentially dilutive restricted common shares		14,067		9,193		17,974		4,854
Divided by:
Weighted average diluted shares outstanding		3,918,818		3,903,430		3,921,030		3,898,556
Diluted earnings per common share	$	0.20		0.26		0.73		0.91

XML

Note 9 - Financial Instruments With Off-balance Sheet Risk

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Concentration Risk Disclosure [Text Block]

Note

9:

Financial Instruments with Off-Balance Sheet Risk

In the normal course of business, Patriot 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 sheet. The contractual amounts of these instruments reflect the extent of involvement Patriot has in particular classes of financial instruments.

The contractual amount of commitments to extend credit and standby letters of credit represents the maximum amount of potential accounting loss should: the contract be fully drawn upon; the customer default; and the value of any existing collateral becomes worthless. Patriot applies its credit policies to entering commitments and conditional obligations and, as with its lending activates, evaluates each customer’s creditworthiness on a case-by-case basis. Management believes that it effectively mitigates the credit risk of these financial instruments through its credit approval processes, establishing credit limits, monitoring the on-going creditworthiness of recipients and grantees, and the receipt of collateral as deemed necessary.

Financial instruments with credit risk at

September 

30,

 

2018

are as follows:

(In thousands)
	As of September 30, 2018
Commitments to extend credit:
Unused lines of credit	$	93,277
Undisbursed construction loans		13,994
Home equity lines of credit		19,430
Future loan commitments		35,089
Financial standby letters of credit		1,161
	$	162,951

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 upon extending credit, is based on management’s credit evaluation of the customer. Collateral held varies, but

may

include commercial property, residential property, deposits and securities. Patriot has established a

$8,000

reserve for credit loss as of

September 

30,

 

2018,

which is included in accrued expenses and other liabilities.

Standby letters of credit are written commitments issued by Patriot to guarantee the performance of a customer to a

third

party. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan facilities to customers. Guarantees that are

not

derivative contracts are recorded at fair value and included in the Consolidated Balance Sheet.

XML

Note 10 - Regulatory and Operational Matters

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Regulatory Capital Requirements under Banking Regulations [Text Block]

Note

10:

Regulatory and Operational Matters

In

November 2018

the Bank entered into a formal written agreement (the “Agreement”) with the Office of the Comptroller of the Currency (the “OCC”).  Under the terms of the Agreement, the Bank has appointed a Compliance Committee of

three

independent outside directors and

one

member of management responsible for monitoring adherence to the Agreement and has appointed a Lead Independent Director.  The Agreement also states that by

December 31, 2018

the Board and Bank will develop, implement and revise written documents and policies related to executive compensation, conflict of interest, internal audit, liquidity and asset/liability management, commercial loan administration, leveraged lending, practices relating to the Allowance for Loan Losses, and assumptions used in the Bank’s interest rate risk model.  Under the Agreement the Bank has also agreed to provide a revised written

3

-year strategic and capital plan for the Bank by

December 31, 2018. 

The Bank has taken or put into process many of the steps identified in the Agreement.  Further details pertaining to the Agreement are provided in Part II Item

5:

Other information.

Federal and state regulatory authorities have adopted standards requiring financial institutions to maintain increased levels of capital. Effective

January 1, 2015,

federal banking agencies imposed

four

minimum capital requirements on a community bank’s risk-based capital ratios consisting of Total Capital, Tier

1

Capital, Common Equity Tier

1

(

“CET1”

) Capital, and a Tier

1

Leverage Capital ratio. The risk-based capital ratios measure the adequacy of a bank's capital against the riskiness of its on- and off-balance sheet assets and activities. Failure to maintain adequate capital is a basis for "prompt corrective action" or other regulatory enforcement action. In assessing a bank's capital adequacy, regulators also consider other factors such as interest rate risk exposure, liquidity, funding and market risks, quality and level of earnings, concentrations of credit, quality of loans and investments, nontraditional activity risk, policy effectiveness, and management's overall ability to monitor and control risk.

Capital adequacy is

one

of the most important factors used to determine the safety and soundness of individual banks and the banking system. Under the instituted regulatory framework, to be considered “well capitalized”, a financial institution must generally have a Total Capital ratio of at least

10%,

a Tier

1

Capital ratio of at least

8.0%,

a

CET1

Capital ratio at least

6.5%,

and a Tier

1

Leverage Capital ratio of at least

5.0%.

However, regardless of a financial institution’s ratios, the OCC 

may

require increased capital ratios or impose dividend restrictions based on the other factors it considers in assessing a bank’s capital adequacy.

Management continuously assesses the adequacy of the Bank’s capital in order to maintain its “well capitalized” status.

The Company’s and the Bank’s regulatory capital amounts and ratios at

September 

30,

 

2018

and

December 

31,

 

2017

are summarized as follows:

(In thousands)	Patriot National Bancorp, Inc.								Patriot Bank, N.A.
	September 30, 2018				December 31, 2017				September 30, 2018				December 31, 2017
	Amount ($)		Ratio (%)		Amount ($)		Ratio (%)		Amount ($)		Ratio (%)		Amount ($)		Ratio (%)
Total Capital (to risk weighted assets):
Actual		88,781		10.328		74,264		10.092		97,403		11.385		83,711		11.406
To be Well Capitalized (1)		-		-		-		-		85,554		10.000		73,393		10.000
For capital adequacy with Capital Buffer (2)		-		-		-		-		84,485		9.875		67,889		9.250
For capital adequacy		68,767		8.000		58,868		8.000		68,443		8.000		58,715		8.000
Tier 1 Capital (to risk weighted assets):
Actual		72,165		8.395		67,959		9.235		90,787		10.612		77,407		10.547
To be Well Capitalized (1)		-		-		-		-		68,443		8.000		58,715		8.000
For capital adequacy with Capital Buffer (2)		-		-		-		-		67,374		7.875		53,210		7.250
For capital adequacy		51,575		6.000		44,151		6.000		51,333		6.000		44,036		6.000
Common Equity Tier 1 Capital (to risk weighted assets):
Actual		64,165		7.465		59,959		8.148		90,787		10.612		77,407		10.547
To be Well Capitalized (1)		-		-		-		-		55,610		6.500		47,706		6.500
For capital adequacy with Capital Buffer (2)		-		-		-		-		54,541		6.375		42,201		5.750
For capital adequacy		38,681		4.500		33,113		4.500		38,499		4.500		33,027		4.500
Tier 1 Leverage Capital (to average assets):
Actual		72,165		7.847		67,959		8.219		90,787		9.917		77,407		9.360
To be Well Capitalized (1)		-		-		-		-		45,775		5.000		41,351		5.000
For capital adequacy		36,785		4.000		33,072		4.000		36,620		4.000		33,081		4.000

( 1 ) Designation as "Well Capitalized" does not apply to bank holding companies - the Company. Such categorization of capital adequacy only applies to insured depository institutions - the Bank.

( 2 ) The Capital Conservation Buffer implemented by the FDIC began to be phased in beginning January 1, 2016. It was not applicable to periods prior to that date and does not apply to bank holding companies - the Company.

Under the final capital rules that became effective on

January 1, 2015,

there was a requirement for a

CET1

capital conservation buffer of

2.5%

of risk-weighted assets, which is in addition to the other minimum risk-based capital standards in the rule. Institutions that do

not

maintain this required capital buffer become subject to progressively more stringent limitations on the percentage of earnings that

may

be distributed to shareholders or used for stock repurchases and on the payment of discretionary bonuses to senior executive management.

The capital buffer requirement is being phased in over

three

years beginning in

2016.

The

1.25%

capital conversation buffer for

2017

has been included in the minimum capital adequacy ratios in the

2017

column in the table above. The capital conversation buffer increased to

1.875%

for

2018,

which has been included in the minimum capital adequacy ratios in the

2018

column above.

The capital buffer requirement effectively raises the minimum required Total Capital ratio to

10.5%,

the Tier

1

capital ratio to

8.5%

and the

CET1

capital ratio to

7.0%

on a fully phased-in basis, which will be effective beginning on

January 

1,

 

2019.

Management believes that, as of

September 

30,

 

2018,

Patriot satisfies all capital adequacy requirements under the Basel III Capital Rules on a fully phased-in basis, as if all such requirements were currently in effect.

XML

Note 11 - Fair Value and Interest Rate Risk

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Fair Value Disclosures [Text Block]

Note

11:

Fair Value and Interest Rate Risk

Patriot measures the carrying value of certain financial assets and liabilities at fair value, as required by its policies as a financial institution and by US GAAP. The carrying values of certain assets and liabilities are measured at fair value on a recurring basis, such as available-for-sale securities; while other assets and liabilities are measured at fair value on a non-recurring basis due to external factors requiring management’s judgment to estimate potential losses of value resulting in asset impairments or the establishment of valuation reserves. Measuring assets and liabilities at fair value

may

result in fluctuations to carrying value that have a significant impact on the results of operations or other comprehensive income for the period and period over period.

Following is a detailed summary of the guidance provided by US GAAP regarding the application of fair value measurements and Patriot’s application thereof. Additionally, the following information includes detailed summaries of the effects fair value measurements have on the carrying amounts of asset and liabilities presented in the Consolidated Financial Statements.

The objective of fair value measurement is to value an asset that

may

be sold or a liability that

may

be transferred at the estimated value which might be obtained in a transaction between unrelated parties under current market conditions. US GAAP establishes a framework for measuring assets and liabilities at fair value, as well as certain financial instruments classified in equity. The framework provides a fair value hierarchy, which prioritizes quoted prices in active markets for identical assets and liabilities and minimizes unobservable inputs, which are inputs for which market data are

not

available and that are developed by management using the best information available to develop assumptions about the value market participants might place on the asset to be sold or liability to be transferred.

The

three

levels of the fair value hierarchy consist of:

Level 1 Unadjusted quoted market prices for identical assets or liabilities in active markets that the entity has the ability to access at the measurement date (such as active exchange-traded equity securities and certain U.S. and government agency debt securities).

Level 2	Observable inputs other than quoted prices included in Level 1, such as:
	–  Quoted prices for similar assets or liabilities in active markets (such as U.S. agency and government sponsored mortgage-backed securities)
	–  Quoted prices for identical or similar assets or liabilities in less active markets (such as certain U.S. and government agency debt securities, and corporate and municipal debt securities that trade infrequently)
	–  Other inputs that are observable for substantially the full term of the asset or liability (i.e. interest rates, yield curves, prepayment speeds, default rates, etc.).

Level 3 Valuation techniques that require unobservable inputs that are supported by little or no market activity and are significant to the fair value measurement of the asset or liability (such as pricing and discounted cash flow models that typically reflect management’s estimates of the assumptions a market participant would use in pricing the asset or liability).

A description of the valuation methodologies used for assets and liabilities recorded at fair value, and for estimating fair value for financial and non-financial instruments

not

recorded at fair value, is set forth below.

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

The carrying amount is a reasonable estimate of fair value and accordingly these are classified as Level

1.

These financial instruments are

not

recorded at fair value on a recurring basis.

Available-for-sale securities

The fair value of securities available for sale (carried at fair value) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level

1

), or matrix pricing (Level

2

), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities, but rather by relying on the securities' relationship to other benchmark quoted prices, or using unobservable inputs employing various techniques and assumptions (Level 

3

).

Other Investments

The Bank’s investment portfolio includes the Solomon Hess SBA Loan Fund totaling

$4.5

million. This investment is utilized by the Bank to satisfy its Community Reinvestment Act (“CRA”) lending requirements. As this fund operates as a private fund, shares in the fund are

not

publicly traded but

may

be redeemed with

60

days notice at cost. For that reason, the carrying amount was considered comparable to fair value.

Federal Reserve Bank Stock and Federal Home Loan Bank Stock

Shares in the Federal Reserve Bank (“FRB”) and Federal Home Loan Bank (“FHLB”) are purchased and redeemed based upon their

$100

par value. The stocks are non-marketable equity securities, and as such, are considered restricted securities that are carried at cost.

Loans

The fair value of loans are estimated by discounting the future cash flows using the rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. In connection with the adoption of ASU

2016

-

01

on

January 1, 2018,

we refined our methodology to estimate the fair value of our loan portfolio using an exit price notion resulting in prior periods

no

longer being comparable. The exit price notion requires determination of the price at which willing market participants would transact at the measurement date under current market conditions depending on facts and circumstances, such as origination rates, credit risk, transaction costs, liquidity, national and regional market trends and other adjustments, utilizing publicly available rates and indices. The application of an exit price notion requires the use of significant judgment.

Deposits

The fair value of demand deposits, regular savings and certain money market deposits is the amount payable on demand at the reporting date.

The fair value of certificates of deposit and other time deposits is estimated using a discounted cash flow calculation that applies interest rates currently being offered for deposits of similar remaining maturities, estimated using local market data, to a schedule of aggregated expected maturities on such deposits. Patriot does

not

record deposits at fair value on a recurring basis.

Senior Notes, Subordinated Notes, and Junior Subordinated Debt

Patriot does

not

record senior notes at fair value on a recurring basis. The fair value of the senior notes was estimated by discounting future cash flows at rates at which similar notes would be made. The carrying value is considered comparable to fair value.

Patriot does

not

record subordinated notes issued in

June 2018

at fair value on a recurring basis. The fair value of the subordinated notes was estimated by discounting future cash flows at rates at which similar notes would be made. The carrying value is considered comparable to fair value.

Patriot does

not

record junior subordinated debt at fair value on a recurring basis. Junior subordinated debt reprices quarterly, as a result, the carrying amount is considered a reasonable estimate of fair value.

Federal Home Loan Bank Borrowings

 

The fair value of FHLB advances is estimated using a discounted cash flow calculation that applies current FHLB interest rates for advances of similar maturity to a schedule of maturities of such advances. Patriot does

not

record FHLB advances at fair value on a recurring basis.

Contingent Consideration Liability

The Company estimates the fair value of the contingent consideration liability by using a discounted cash flow model of future contingent payments based on interest income related to the acquired PCI loans. The estimated fair value of the contingent consideration liability is reviewed on a quarterly basis and any valuation adjustments resulting from a change of estimated future contingent payments based on interest income of the acquired PCI loans affecting the contingent consideration liability will be recorded through noninterest expense. Due to the significant unobservable input related to the interest income, the contingent consideration liability is classified within Level

3

of the valuation hierarchy. An increase in the interest income

may

result in a higher fair value of the contingent consideration liability. Alternatively, a decrease in the interest income

may

result in a lower estimated fair value of the contingent consideration liability.

Off-balance sheet financial instruments

 

Off-balance sheet financial instruments are based on interest rate changes and fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The off-balance-sheet financial instruments (i.e., commitments to extend credit) are insignificant and are

not

recorded on a recurring basis.

The following tables detail the financial assets measured at fair value on a recurring basis and the valuation techniques utilized relative to the fair value hierarchy, as of

September 

30,

 

2018

and

December 

31,

 

2017:

(In thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
September 30, 2018:
U. S. Government agency mortgage-backed securities	$	-		21,235		-		21,235
Corporate bonds		-		13,007		-		13,007
Subordinated notes		-		4,525		-		4,525
U.S. Treasury notes		-		1,497		-		1,497
Available-for-sale securities	$	-		40,264		-		40,264
Contingent consideration liability	$	-		-		477		477
December 31, 2017:
U. S. Government agency mortgage-backed securities	$	-		7,224		-		7,224
Corporate bonds		-		13,804		-		13,804
Subordinated notes		-		4,548		-		4,548
Available-for-sale securities	$	-		25,576		-		25,576

Patriot measures certain financial assets and financial liabilities at fair value on a non-recurring basis. When circumstances dictate (e.g., impairment of long-lived assets, other than temporary impairment of collateral value), the carrying values of such financial assets and financial liabilities are adjusted to fair value or fair value less costs to sell, as

may

be appropriate.

The table below presents the valuation methodology and unobservable inputs for level

3

assets measures at fair value on a non-recurring basis as of

September 

30,

 

2018

and

December 

31,

 

2017:

(In thousands)	Fair Value		Valuation Methodology	Unobservable Inputs	Range of Inputs
September 30, 2018:
Impaired loans, net including PCI loans	$	10,173	Real Estate Appraisals	Discount for appraisal type	0%	-	8%
Other Real Estate Owned		991	Real Estate Appraisals	Discount for appraisal type		14%
December 31, 2017:
Impaired loans	$	6,500	Real Estate Appraisals	Discount for appraisal type	0%	-	8%

Patriot discloses fair value information about financial instruments, whether or

not

recognized in the Consolidated Balance Sheet, for which it is practicable to estimate that value. Certain financial instruments are excluded from disclosure requirements and, accordingly, the aggregate fair value amounts presented do

not

necessarily represent the complete underlying value of financial instruments included in the Consolidated Financial Statements.

The estimated fair value amounts have been measured as of

September 

30,

 

2018

and

December 

31,

 

2017,

and have

not

been reevaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of the financial instruments measured

may

be different than if they had been subsequently valued.

The information presented should

not

be interpreted as an estimate of the total fair value of Patriot’s assets and liabilities, since only a portion of Patriot’s assets and liabilities are required to be measured at fair value for financial reporting purposes. Due to the wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between Patriot’s fair value disclosures and those of other bank holding companies

may

not

be meaningful.

The following table provides a comparison of the carrying amounts and estimated fair values of Patriot’s financial assets and liabilities as of

September 

30,

 

2018

and

December 

31,

 

2017:

(In thousands)		September 30, 2018				December 31, 2017
	Fair Value Hierarchy	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial Assets:
Cash and noninterest bearing balances due from banks	Level 1	$	5,596		5,596		3,582		3,582
Interest-bearing deposits due from banks	Level 1		43,636		43,636		45,659		45,659
U. S. Government agency mortgage-backed securities	Level 2		21,235		21,235		7,224		7,224
Corporate bonds	Level 2		13,007		13,007		13,804		13,804
Subordinated notes	Level 2		4,525		4,525		4,548		4,548
U.S. Treasury notes	Level 2		1,497		1,497		-		-
Other investments	Level 2		4,450		4,450		4,450		4,450
Federal Reserve Bank stock	Level 2		2,833		2,833		2,502		2,502
Federal Home Loan Bank stock	Level 2		4,928		4,928		5,889		5,889
Loans receivable, net	Level 3		756,649		748,988		713,350		702,816
Accrued interest receivable	Level 2		3,612		3,612		3,496		3,496
Financial assets, total		$	861,968		854,307		804,504		793,970
Financial Liabilities:
Demand deposits	Level 2	$	81,687		81,687		81,197		81,197
Savings deposits	Level 2		100,294		100,294		135,975		135,975
Money market deposits	Level 2		62,314		62,314		16,575		16,575
NOW accounts	Level 2		24,827		24,827		25,476		25,476
Time deposits	Level 2		284,390		282,671		240,087		239,219
Brokered deposits	Level 1		166,020		165,437		138,129		137,870
FHLB and correspondent bank borrowings	Level 2		90,000		89,266		120,000		120,218
Senior notes	Level 2		11,759		11,108		11,703		11,249
Subordinated debt	Level 2		9,720		9,158		-		-
Junior subordinated debt owed to unconsolidated trust	Level 2		8,092		8,092		8,086		8,086
Note payable	Level 3		1,436		1,245		1,580		1,416
Accrued interest payable	Level 2		1,563		1,563		569		569
Contingent consideration liability	Level 3		477		477		-		-
Financial liabilities, total		$	842,579		838,139		779,377		777,850

The carrying amount of cash and noninterest bearing balances due from banks, interest-bearing deposits due from banks, and demand deposits approximates fair value, due to the short-term nature and high turnover of these balances. These amounts are included in the table above for informational purposes.

In the normal course of its operations, Patriot assumes interest rate risk (i.e., the risk that general interest rate levels will fluctuate). As a result, the fair value of the Patriot’s financial assets and liabilities are affected when interest market rates change, which change

may

be either favorable or unfavorable. Management attempts to mitigate interest rate risk by matching the maturities of its financial assets and liabilities. However, borrowers with fixed rate obligations are less likely to prepay their obligations in a rising interest rate environment and more likely to prepay their obligations in a falling interest rate environment. Conversely, depositors receiving fixed rates are more likely to withdraw funds before maturity in a rising interest rate environment and less likely to do so in a falling interest rate environment. Management monitors market rates of interest and the maturities of its financial assets and financial liabilities, adjusting the terms of new loans and deposits in an attempt to minimize interest rate risk. Additionally, management mitigates its overall interest rate risk through its available funds investment strategy.

Off-balance-sheet instruments

Loan commitments on which the committed interest rate is less than the current market rate were insignificant at

September 

30,

 

2018

and

December 

31,

 

2017.

The estimated fair value of fee income on letters of credit at

September 

30,

 

2018

and

December 

31,

 

2017

was insignificant.

XML

Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2018

Accounting Policies [Abstract]

Acquired Loans, Policy [Policy Text Block]

Acquired Loans

Acquired loans are initially recorded at their acquisition date fair values. The carryover of allowance for loan losses is prohibited as any credit losses in the acquired loans are included in the determination of the fair value of the loans at the acquisition date. Fair values for acquired loans are based on a discounted cash flow methodology that involves assumptions and judgments as to credit risk, prepayment risk, liquidity risk, default rates, loss severity, payment speeds, collateral values and discount rate.

Deteriorated Loans Transferred in, Policy [Policy Text Block]

Acquired Impaired Loans- Purchase Credit Impaired “PCI” Loans

Acquired loans that exhibit evidence of deterioration in credit quality since origination and for which it is probable, at acquisition, that the Company will be unable to collect all contractually required payments are accounted for as PCI loans under Accounting Standards Codification (“ASC”)

310

-

30.

The excess of undiscounted cash flows expected at acquisition over the estimated fair value is referred to as the accretable discount and is accreted into interest income over the remaining life of the loans using the interest method. The difference between contractually required payments at acquisition and the undiscounted cash flows expected to be collected at acquisition is referred to as the non-accretable discount. The non-accretable discount represents estimated future credit losses and other contractually required payments that the Company does

not

expect to collect. Subsequent decreases in expected cash flows are recognized as impairments through a charge to the provision for loan losses resulting in an increase in the allowance for loan losses. Subsequent improvements in expected cash flows result in a recovery of previously recorded allowance for loan losses or a reversal of a corresponding amount of the nonaccretable discount, which the Company then reclassifies as an accretable discount that is accreted into interest income over the remaining life of the loans using the interest method.

PCI loans are initially measured at fair value, which includes estimated future credit losses expected to be incurred over the life of the loan. Accordingly, the associated allowance for credit losses related to these loans is

not

carried over at the acquisition date.

Acquired loans that met the criteria for non-accrual of interest prior to acquisition were

not

considered performing upon acquisition. When the customers resume payments, to make the nonaccrual loans current, the loans

may

return to accrual status, including the impact of any accretable discounts, if the Company can reasonably estimate the timing and amount of the expected cash flows on such loans and if the Company expects to fully collect the new carrying value of the loans.

Acquired Non-impaired Loans [Policy Text Block]

Acquired Non-impaired Loans

Acquired loans that do

not

meet the requirements under ASC

310

-

30

are considered acquired non-impaired loans. The difference between the acquisition date fair value and the outstanding balance represents the fair value adjustment for a loan and includes both credit and interest rate considerations. Fair value adjustments

may

be discounts (or premiums) to a loan’s cost basis and are accreted (or amortized) to net interest income (or expense) over the loan’s remaining life in accordance with ASC

310

-

20.

Fair value adjustments for revolving loans are accreted (or amortized) using a straight line method. Term loans are accreted (or amortized) using the constant effective yield method.

Subsequent to the purchase date, the methods used to estimate the allowance for loan losses for the acquired non-impaired loans are consistent with the policy for allowance for loan losses described in Note

5.

Loans and Leases Receivable, Allowance for Loan Losses Policy [Policy Text Block]

Allowance for loan losses

(“ALLL”)

methodology

As of

September 30, 2018,

the Company changed its methodology to estimate its allowance for loan losses.

The Bank further segmented its loan pools by Pass, Special Mention, Substandard, and Doubtful risk ratings and assigning additional risk premiums to each group. The qualitative and economic factors for all of the pools and subsegments were also evaluated, with Pass loans receiving adjustments to reflect their credit profile relative to the non-impaired criticized assets.  These adjustments generally flow through the qualitative factors addressing severity of past due loans and other similar conditions and the nature and volume of the portfolio and terms of the loans.

The Bank’s leveraged lending portfolio was evaluated relative to the rest of the Commercial & Industrial (“C&I”) pool (federal call code

4a

), and an additional risk premium was assigned to those loans in aggregate, and is reflected in the “other reserves” category in the ALLL calculation. These loans were isolated due their risk parameters and profile, including higher leverage than the rest of the Bank’s C&I portfolio.

The change in methodology resulted in better alignment of the credit characteristics of the various risk grades and loan types with the calculated allowance. The provision of

$50,000

in the

third

quarter incorporated these changes.

Goodwill and Intangible Assets, Policy [Policy Text Block]

Intangible Assets

Intangible assets include core deposit intangibles and goodwill arising from acquisitions. The initial and ongoing carrying value of intangible assets is based upon modeling techniques that require management to make estimates regarding the amount and timing of expected future cash flows. It also requires use of a discount rate that reflects the current return requirements of the market in relation to present risk-free interest rates, required equity market premiums, peer volatility indicators, and company-specific risk indicators.

Core deposit intangibles are amortized on straight-line basis over a

10

-year period because that is managements’ conservative estimate of the period Patriot will benefit from Prime Bank’s stable deposit base comprised of funds associated with long term customer relationships.

The Company will evaluate goodwill for impairment on an annual basis, or more often if events or circumstances indicate there

may

be impairment. The annual impairment test will be conducted as of

November

annually. The implied fair value of a reporting unit’s goodwill is compared to its carrying amount and the impairment loss is measured by the excess of the carrying value over fair value. The fair value of each reporting unit is compared to the carrying amount of such reporting unit in order to determine if impairment is indicated.

Commitments and Contingencies, Policy [Policy Text Block]

Contingent Consideration

Contingent consideration represents an estimate of the additional amount of purchase price consideration and is measured based on the probability that certain loans are restructured in accordance with the related acquisition agreement. Resolution of the contingent consideration will result in a cash payment and will be reflected in the financial statements as a measurement period adjustment as they are finalized. Changes will be recognized as an increase or decrease to goodwill, the valuation of the related loans and the contingent consideration/purchase price.

New Accounting Pronouncements, Policy [Policy Text Block]

New Accounting Standards

Accounting Standards Adopted During

2018

Effective

January 1, 2018,

the following new Accounting Standards Updates (ASUs) were adopted by the Company:

ASU

2014

-

09

ASU

No.

2014

-

09,

Revenue from Contracts with Customers (Topic

606

) including subsequent ASUs issued to clarify this Topic. The ASU, and subsequent related updates, establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most previous revenue recognition guidance, including industry-specific guidance. The ASUs are intended to increase comparability across industries. The core principle of the revenue model is that a company will recognize revenue when it transfers control of goods or services to customers, at an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services.

The Company adopted the ASU on

January 1, 2018

on a modified retrospective transition approach. The adoption of this guidance did

not

have a material impact on the Company’s Consolidated Financial Statements, and there was

no

cumulative effect adjustment to opening retained earnings as

no

material changes were identified in the timing of revenue recognition.

ASU

2016

-

01

and ASU

2018

-

03

ASU

No.

2016

-

01,

Financial Instruments - Overall (Subtopic

825

-

10

) - Recognition and Measurement of Financial Assets and Financial Liabilities, and ASU

No.

2018

-

03,

Technical Corrections and Improvements to Financial Instruments - Overall (Subtopic

825

-

10

). The ASUs included targeted amendments in connection with the recognition, measurement, presentation, and disclosure of financial instruments. The main provisions require investments in equity securities to be measured at fair value through net income, unless they qualify for a practical expedient, and require fair value changes arising from changes in instrument-specific credit risk for financial liabilities that are measured under the fair value option to be recognized in other comprehensive income. The provisions also emphasized the existing requirement to use exit prices to measure fair value for disclosure purposes. The Company adopted the ASUs on

January 1, 2018

on a modified retrospective basis. In connection with the adoption of ASU

2016

-

01

on

January 1, 2018,

we refined our methodology to estimate the fair value of our loan portfolio using an exit price notion resulting in prior-periods

no

longer being comparable.

ASU

2016

-

15

 

In

August 2016,

the FASB issued ASU

2016

-

15,

Statement of Cash Flows

:

Classification of Certain Cash Receipts and Cash Payments

.

ASU

2016

-

15

addresses the classification of certain specific transactions presented on the Statement of Cash Flows, in order to improve consistency across entities. Debt prepayment or extinguishment, debt-instrument settlement, contingent consideration payments post-business combination, and beneficial interests in securitization transactions are specific items addressed by this ASU that

may

affect the Bank. Additionally, the ASU codifies the predominance principle for classifying separately identifiable cash flows. ASU

2016

-

15

is effective for fiscal years beginning after

December 15, 2017,

including interim periods within those fiscal years, with early adoption permitted. As of

September 

30,

 

2018,

Patriot did

not

have any debt prepayment or extinguishment, debt-instrument settlement, or beneficial interests in securitization transactions. Contingent consideration payments post-business combination were classified as a specific item under cash flows from financing activities.

ASU

2016

-

18

In

November 2016,

the FASB issued ASU

2016

-

18,

 

Statement of Cash Flows:

Restricted Cash.

The purpose of the standard is to improve consistency and comparability among companies with respect to the reporting of changes in restricted cash and cash equivalents on the Statement of Cash Flows. The ASU requires the Statement of Cash Flows to include all changes in total cash and cash equivalents, including restricted amounts, and to the extent restricted cash and cash equivalents are presented in separate line items on the Balance Sheet, disclosure reconciling the change in total cash and cash equivalents to the amounts shown on the Balance Sheet are required. ASU

2016

-

18

is effective for fiscal years beginning after

December 15, 2017,

including interim periods within those fiscal years, with early adoption permitted. As of

September 

30,

 

2018

and

December 

31,

 

2017,

Patriot did

not

have restricted cash and cash equivalents separately disclosed on its Balance Sheet. In the future, if Patriot’s activities warrant presenting separate line items on its Balance Sheet for restricted cash and cash equivalents, management does

not

envision any difficulties implementing the requirements of ASU

2016

-

18,

as applicable.

ASU

2017

-

09

In

May 2017,

the FASB issued ASU

2017

-

09,

Scope of Modification Accounting

, which provide guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic

718

Stock compensation. The ASU is effective to all entities for annual periods, including interim periods within those annual periods, beginning after

December 15, 2017.

Early adoption is permitted, including adoption in any interim period. This ASU did

not

have a material impact on its Consolidated Financial Statements.

ASU

2018

-

04

ASU

2018

-

04

- Investments - Debt Securities (Topic

320

) and Regulated Operations (Topic

980

): The amendment in this ASU adds, amends and supersedes various paragraphs that contain SEC guidance in ASC

320,

Investments-Debt Securities and ASC

980,

Regulated Operations. The amendments in this ASU are effective when a registrant adopts ASU

2016

-

01,

which for Patriot, was

January 1, 2018.

This amendment did

not

have an impact on the Company’s Consolidated Financial Statements.

Accounting Standards Issued But

Not

Yet Adopted

ASU

2016

-

02

In

February 2016,

the FASB issued ASU

No.

2016

-

02,

 

Leases.

 This ASU was issued to improve the financial reporting of leasing activities and provide a faithful representation of leasing transactions and improve understanding and comparability of a lessee's financial statements. Under the new accounting guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than

12

months. This ASU will require both finance and operating leases to be recognized on the balance sheet. This ASU will affect all companies and organizations that lease real estate. The FASB issued an update in

January 2018 (

ASU

2018

-

01

) providing an optional transition practical expedient to

not

evaluate under Topic

842

land easements that exist or expired before the entity's adoption of Topic

842.

This ASU will become effective for interim and annual reporting periods beginning after

December 15, 2018.

The Company will adopt this new accounting guidance as required. Management is currently evaluating the impact of the new standard on its Consolidated Financial Statements.

ASU

2016

-

13

 

In

June 2016,

the FASB issued ASU

2016

-

13,

Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments.

The ASU changes the methodology for measuring credit losses on financial instruments measured at amortized cost to a current expected loss (“CECL”) model. Under the CECL model, entities will estimate credit losses over the entire contractual term of a financial instrument from the date of initial recognition of the instrument. The ASU also changes the existing impairment model for available-for-sale debt securities. In cases where there is neither the intent nor a more-likely-than-

not

requirement to sell the debt security, an entity will record credit losses as an allowance rather than a direct write-down of the amortized cost basis. Additionally, ASU

2016

-

13

notes that credit losses related to available-for-sale debt securities and purchased credit impaired loans should be recorded through an allowance for credit losses. ASU

2016

-

13

is effective for fiscal years beginning after

December 15, 2019,

including interim periods within those fiscal years, with early adoption permitted for fiscal years beginning after

December 15, 2018.

Management is currently evaluating the impact that the standard will have on its Consolidated Financial Statements.

ASU

2017

-

04

In 

January 2017,

the FASB issued ASU

2017

-

04,

Intangibles-Goodwill and Other (Topic

350

): Simplifying the Test for Goodwill Impairment:

The objective of this guidance is to simplify an entity’s required test for impairment of goodwill by eliminating Step

2

from the goodwill impairment test. In Step

2

an entity measured a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. In computing the implied fair value of goodwill, an entity had to determine the fair value at the impairment date of its assets and liabilities, including any unrecognized assets and liabilities, following a procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Under this Update, an entity should perform its annual or quarterly goodwill impairment test by comparing the fair value of the reporting unit with its carrying amount and record an impairment charge for the excess of the carrying amount over the reporting unit’s fair value. The loss recognized should

not

exceed the total amount of goodwill allocated to the reporting unit and the entity must consider the income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. This guidance is effective for a public business entity that is an SEC filer for its annual or any interim goodwill impairment tests in fiscal years beginning after

December 15, 2019.

The adoption of this standard is

not

expected to have a material impact on the Company’s Consolidated Financial Statements.

ASU

2017

-

08

In

March 2017,

the FASB issued ASU

2017

-

08,

Premium Amortization on Purchased Callable Debt Securities

, which amends the amortization period for certain purchased callable debt securities held at a premium, shortening such period to the earliest call date. The ASU is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after

December 15, 2018.

For all other entities, the ASU is effective for fiscal years beginning after

December 15, 2019,

and interim periods within fiscal years beginning after

December 15, 2020.

Earlier application is permitted for all entities, including adoption in an interim period. If an entity early adopts the ASU in an interim period, any adjustments must be reflected as of the beginning of the fiscal year that includes that interim period. Management is currently evaluating the impact the adoption of ASU

2017

-

08

will have on its Consolidated Financial Statements.

ASU

2018

-

02

In

February 2018,

the FASB issued ASU

2018

-

02,

Income

Statement-Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. Consequently, the amendments eliminated the stranded tax effects resulting from the Tax Cuts and Jobs Act and will improve the usefulness of information reported to financial statement users. The amendments only relate to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is

not

effected. The amendments in this ASU also require certain disclosures about stranded tax effects. The guidance in this ASU will become effective for reporting periods beginning after

December 15, 2018,

with early adoption permitted, and will be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. Management is currently evaluating the impact that the standard will have on its Consolidated Financial Statements.

ASU

2018

-

05

ASU

2018

-

05

-

Income Taxes (Topic

740

)

: Amendment to clarify situations where a registrant does

not

have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting under ASC

740

for certain income tax effects of the Tax Cuts and Jobs Act for the reporting period. As of

December 

31,

 

2017,

the Company partially completed the accounting for the tax effects of enactment of the Tax Cuts and Jobs Act, and management made reasonable estimates of the effects of a reduced federal corporate income tax rate on its existing deferred tax balances. The Company will continue to make and refine its calculations during the

one

-year re-measurement period as additional analysis is completed. In addition, these estimates

may

be affected as management gains a more thorough understanding of the new tax reform legislation.

ASU

2018

-

13

In

August 2018,

the FASB issued ASU

No.

2018

-

13,

Fair Value Measurement (Topic

820

) - Changes to the Disclosure Requirements for Fair Value Measurement

, to modify the disclosure requirements on fair value measurements. This ASU removes requirements to disclose the amount of and reasons for transfers between Level

1

and Level

2

of the fair value hierarchy, the policy for timing of transfers between levels and the valuation processes for Level

3

fair value measurements. ASU

2018

-

13

clarifies that disclosure regarding measurement uncertainty is intended to communicate information about the uncertainty in measurement as of the reporting date. ASU

2018

-

13

adds certain disclosure requirements, including disclosure of changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level

3

fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level

3

fair value measurements. The amendments in this update are effective for annual periods and interim periods within those annual periods beginning after

December 15, 2019.

The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level

3

fair value measurements and the narrative description of measurement uncertainty should be applied prospectively, while all other amendments should be applied retrospectively for all periods presented upon their effective date. Management is currently evaluating the impact of adopting the new guidance on the Consolidated Financial Statements, but it is

not

expected to have a material impact.

XML

Note 3 - Business Combinations (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Schedule of Recognized Identified Assets Acquired and Liabilities Assumed [Table Text Block]

(In thousands)	Initially Recorded at Acquisition Date		Measurement Period Adjustments			Adjusted Values
Consideration Paid
Cash consideration	$	5,596	$	1,284		$	6,880
Contingent consideration		1,761		(1,284	)		477
Recognized amounts of identifiable assets acquired and liabilities assumed
Cash and cash equivalents	$	1,152	$	-		$	1,152
Securities		35,532		-			35,532
Loans		21,605		(12	)		21,593
Premises and equipment		6		-			6
Other real estate owned		991		-			991
Core deposit intangibles		552		196			748
Other assets		1,514		-			1,514
Total assets acquired	$	61,352	$	184		$	61,536
Deposits		46,184		-			46,184
Borrowings		9,800		-			9,800
Other liabilities		111		28			139
Total liabilities assumed	$	56,095	$	28		$	56,123
Identifiable net assets acquired	$	5,257	$	156		$	5,413
Goodwill resulting from acquisition	$	2,100	$	(156	)	$	1,944

XML

Note 4 - Available-for-sale Securities (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Debt Securities, Available-for-sale [Table Text Block]

(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
September 30, 2018:
U. S. Government agency mortgage-backed securities	$	21,530		1		(296	)		21,235
Corporate bonds		14,000		-		(993	)		13,007
Subordinated notes		4,500		25		-			4,525
U.S. Treasury notes		1,497		-		-			1,497
	$	41,527		26		(1,289	)		40,264
December 31, 2017:
U. S. Government agency mortgage-backed securities	$	7,330		-		(106	)		7,224
Corporate bonds		14,000		-		(196	)		13,804
Subordinated notes		4,500		48		-			4,548
	$	25,830		48		(302	)		25,576

Schedule of Unrealized Loss on Investments [Table Text Block]

(In thousands)	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized (Loss)			Fair Value		Unrealized (Loss)			Fair Value		Unrealized (Loss)
September 30, 2018:
U. S. Government agency mortgage-backed securities	$	16,955		(83	)		4,040		(213	)		20,995		(296	)
Corporate bonds		-		-			13,007		(993	)		13,007		(993	)
	$	16,955		(83	)		17,047		(1,206	)		34,002		(1,289	)
December 31, 2017:
U. S. Government agency mortgage-backed securities	$	4,118		(13	)		3,106		(93	)		7,224		(106	)
Corporate bonds		13,804		(196	)		-		-			13,804		(196	)
	$	17,922		(209	)		3,106		(93	)		21,028		(302	)

Investments Classified by Contractual Maturity Date [Table Text Block]

(In thousands)	Amortized Cost								Fair Value
	Due Within 5 years		Due After 5 years through 10 years		Due After 10 years		Total		Due Within 5 years		Due After 5 years through 10 years		Due After 10 years		Total
September 30, 2018:
Corporate bonds	$	-		9,000		5,000		14,000		-		8,397		4,610		13,007
Subordinated notes		-		4,500		-		4,500		-		4,525		-		4,525
U.S. Treasury notes		1,497		-		-		1,497		1,497		-		-		1,497
Available-for-sale securities with single maturity dates		1,497		13,500		5,000		19,997		1,497		12,922		4,610		19,029
U. S. Government agency mortgage-backed securities		6,828		6,297		8,405		21,530		6,817		6,129		8,289		21,235
	$	8,325		19,797		13,405		41,527		8,314		19,051		12,899		40,264
December 31, 2017:
Corporate bonds	$	-		9,000		5,000		14,000		-		8,928		4,876		13,804
Subordinated notes		-		4,500		-		4,500		-		4,548		-		4,548
Available-for-sale securities with single maturity dates		-		13,500		5,000		18,500		-		13,476		4,876		18,352
U. S. Government agency mortgage-backed securities		-		3,200		4,130		7,330		-		3,107		4,117		7,224
	$	-		16,700		9,130		25,830		-		16,583		8,993		25,576

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Note 5 - Loans Receivable and Allowance for Loan Losses (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block]

(In thousands)	September 30, 2018			December 31, 2017
Loan portfolio segment:
Commercial Real Estate	$	276,100			299,925
Residential Real Estate		155,077			146,377
Commercial and Industrial		174,480			131,161
Consumer and Other		97,463			87,707
Construction		45,476			47,619
Construction to Permanent - CRE		14,658			6,858
Loans receivable, gross		763,254			719,647
Allowance for loan losses		(6,605	)		(6,297	)
Loans receivable, net	$	756,649			713,350

Certain Loans Acquired in Transfer Not Accounted for as Debt Securities Acquired During Period [Table Text Block]

(In thousands)	Acquisition Date
Contractually required principal and interest at acquisition	$	5,816
Contractual cash flows not expected to be collected (nonaccretable discount)		(2,064	)
Expected cash flows at acquisition		3,752
Interest component of expected cash flows (accretable discount)		(1,316	)
Fair value of acquired loans	$	2,436

Allowance for Credit Losses on Financing Receivables [Table Text Block]

(In thousands)	Commercial Real Estate			Residential Real Estate			Commercial and Industrial			Consumer and Other			Construction		Construction to Permanent - CRE			Unallocated			Total
Three months ended September 30, 2018
Allowance for loan losses:
June 30, 2018	$	2,305			1,096			1,996			523			499		80			26			6,525
Charge-offs		-			(2	)		-			(3	)		-		-			-			(5	)
Recoveries		24			11			-			-			-		-			-			35
Provisions (credits)		(566	)		(240	)		245			150			181		20			260			50
September 30, 2018	$	1,763			865			2,241			670			680		100			286			6,605
Three months ended September 30, 2017
Allowance for loan losses:
June 30, 2017	$	2,218			1,041			1,453			593			490		73			76			5,944
Charge-offs		-			-			(265	)		(10	)		-		-			-			(275	)
Recoveries		6			-			-			2			-		-			-			8
Provisions (credits)		(52	)		4			685			(327	)		293		(27	)		(31	)		545
September 30, 2017	$	2,172			1,045			1,873			258			783		46			45			6,222

(In thousands)	Commercial Real Estate			Residential Real Estate			Commercial and Industrial			Consumer and Other			Construction		Construction to Permanent - CRE			Unallocated			Total
Nine months ended September 30, 2018
Allowance for loan losses:
December 31, 2017	$	2,212			959			2,023			568			481		54			-			6,297
Charge-offs		-			(2	)		-			(17	)		-		-			-			(19	)
Recoveries		30			12			-			-			-		-			-			42
Provisions (credits)		(479	)		(104	)		218			119			199		46			286			285
September 30, 2018	$	1,763			865			2,241			670			680		100			286			6,605
Nine months ended September 30, 2017
Allowance for loan losses:
December 31, 2016	$	1,853			534			740			641			712		69			126			4,675
Charge-offs		-			-			(265	)		(23	)		-		-			-			(288	)
Recoveries		8			-			2,769			2			-		-			-			2,779
Provisions (credits)		311			511			(1,371	)		(362	)		71		(23	)		(81	)		(944	)
September 30, 2017	$	2,172			1,045			1,873			258			783		46			45			6,222

(In thousands)	Commercial Real Estate		Residential Real Estate		Commercial and Industrial		Consumer and Other		Construction		Construction to Permanent - CRE		Unallocated		Total
September 30, 2018
Allowance for loan losses:
Individually evaluated for impairment	$	-		-		48		7		-		-		-		55
Collectively evaluated for impairment		1,763		865		2,193		663		680		100		286		6,550
Total allowance for loan losses	$	1,763		865		2,241		670		680		100		286		6,605
Loans receivable, gross:
Individually evaluated for impairment	$	3,989		3,521		1,028		789		-		-		-		9,327
PCI loans individually evaluated for impairment		-		-		901		-		-		-		-		901
Collectively evaluated for impairment		272,111		151,556		172,551		96,674		45,476		14,658		-		753,026
Total loans receivable, gross	$	276,100		155,077		174,480		97,463		45,476		14,658		-		763,254

(In thousands)	Commercial Real Estate		Residential Real Estate		Commercial and Industrial		Consumer and Other		Construction		Construction to Permanent - CRE		Unallocated		Total
December 31, 2017
Allowance for loan losses:
Individually evaluated for impairment	$	-		-		251		2		-		-		-		253
Collectively evaluated for impairment		2,212		959		1,772		566		481		54		-		6,044
Total allowance for loan losses	$	2,212		959		2,023		568		481		54		-		6,297
Loans receivable, gross:
Individually evaluated for impairment	$	1,977		3,336		748		692		-		-		-		6,753
Collectively evaluated for impairment		297,948		143,041		130,413		87,015		47,619		6,858		-		712,894
Total loans receivable, gross	$	299,925		146,377		131,161		87,707		47,619		6,858		-		719,647

Past Due Financing Receivables [Table Text Block]

(In thousands)	Performing (Accruing) Loans
As of September 30, 2018:	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or Greater Past Due		Total		Current		Total Performing Loans		Non-accruing Loans		Loans Receivable Gross
Loan portfolio segment:
Commercial Real Estate:
Pass	$	1,919		516		670		3,105		264,496		267,601		-		267,601
Special mention		-		-		-		-		2,311		2,311		-		2,311
Substandard		-		-		-		-		4,115		4,115		2,073		6,188
		1,919		516		670		3,105		270,922		274,027		2,073		276,100
Residential Real Estate:
Pass		1,055		-		-		1,055		149,295		150,350		-		150,350
Substandard		-		-		1,504		1,504		-		1,504		3,223		4,727
		1,055		-		1,504		2,559		149,295		151,854		3,223		155,077
Commercial and Industrial:
Pass		888		480		2,100		3,468		162,762		166,230		-		166,230
Special mention		250		-		2,374		2,624		3,048		5,672		-		5,672
Substandard		-		-		-		-		1,494		1,494		1,084		2,578
		1,138		480		4,474		6,092		167,304		173,396		1,084		174,480
Consumer and Other:
Pass		24		30		6		60		97,304		97,364		-		97,364
Substandard		-		-		-		-		-		-		99		99
		24		30		6		60		97,304		97,364		99		97,463
Construction:
Pass		1,152		-		2,922		4,074		32,602		36,676		-		36,676
Substandard		-		-		8,800		8,800		-		8,800		-		8,800
		1,152		-		11,722		12,874		32,602		45,476		-		45,476
Construction to Permanent - CRE:
Pass		-		-		-		-		14,658		14,658		-		14,658
Total	$	5,288		1,026		18,376		24,690		732,085		756,775		6,479		763,254
Loans receivable, gross:
Pass	$	5,038		1,026		5,698		11,762		721,117		732,879		-		732,879
Special mention		250		-		2,374		2,624		5,359		7,983		-		7,983
Substandard		-		-		10,304		10,304		5,609		15,913		6,479		22,392
Loans receivable, gross	$	5,288		1,026		18,376		24,690		732,085		756,775		6,479		763,254

(In thousands)	Performing (Accruing) Loans
As of December 31, 2017:	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or Greater Past Due		Total		Current		Total Performing Loans		Non-accruing Loans		Loans Receivable Gross
Loan portfolio segment:
Commercial Real Estate:
Pass	$	-		-		-		-		286,428		286,428		-		286,428
Special mention		-		1,121		-		1,121		9,317		10,438		-		10,438
Substandard		-		1,688		-		1,688		1,371		3,059		-		3,059
		-		2,809		-		2,809		297,116		299,925		-		299,925
Residential Real Estate:
Pass		1,068		255		-		1,323		140,497		141,820		-		141,820
Special mention		-		1,529		-		1,529		-		1,529		-		1,529
Substandard		-		-		-		-		-		-		3,028		3,028
		1,068		1,784		-		2,852		140,497		143,349		3,028		146,377
Commercial and Industrial:
Pass		-		2,000		375		2,375		127,057		129,432		-		129,432
Substandard		-		-		981		981		-		981		748		1,729
		-		2,000		1,356		3,356		127,057		130,413		748		131,161
Consumer and Other:
Pass		498		-		-		498		87,207		87,705		-		87,705
Substandard		-		-		-		-		-		-		2		2
		498		-		-		498		87,207		87,705		2		87,707
Construction:
Pass		-		-		-		-		47,619		47,619		-		47,619
Construction to Permanent - CRE:
Pass		-		-		-		-		6,858		6,858		-		6,858
Total	$	1,566		6,593		1,356		9,515		706,354		715,869		3,778		719,647
Loans receivable, gross:
Pass	$	1,566		2,255		375		4,196		695,666		699,862		-		699,862
Special mention		-		2,650		-		2,650		9,317		11,967		-		11,967
Substandard		-		1,688		981		2,669		1,371		4,040		3,778		7,818
Loans receivable, gross	$	1,566		6,593		1,356		9,515		706,354		715,869		3,778		719,647

Schedule of Financing Receivables, Non Accrual Status [Table Text Block]

(In thousands)	Non-accruing Loans
	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Non-accruing Loans
As of September 30, 2018:
Loan portfolio segment:
Commercial Real Estate
Substandard	$	-		-		2,073		2,073		-		2,073
Residential Real Estate:
Substandard		-		-		3,223		3,223		-		3,223
Commercial and Industrial:
Substandard		-		-		1,084		1,084		-		1,084
Consumer and Other
Substandard		-		-		99		99		-		99
Total non-accruing loans	$	-		-		6,479		6,479		-		6,479

(In thousands)	Non-accruing Loans
	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Non-accruing Loans
As of December 31, 2017:
Loan portfolio segment:
Residential Real Estate:
Substandard	$	-		-		3,028		3,028		-		3,028
Commercial and Industrial:
Substandard		-		-		748		748		-		748
Consumer and Other
Substandard		-		-		2		2		-		2
Total non-accruing loans	$	-		-		3,778		3,778		-		3,778

Troubled Debt Restructurings on Financing Receivables [Table Text Block]

(In thousands)
Loan portfolio segment:	September 30, 2018		December 31, 2017
Commercial Real Estate	$	1,916		1,977
Residential Real Estate		989		999
Total TDR Loans		2,905		2,976
Less: TDRs included in non-accrual loans		-		-
Total accrual TDR Loans	$	2,905		2,976

Impaired Financing Receivables [Table Text Block]

(In thousands)	September 30, 2018						December 31, 2017
	Recorded Investment		Principal Outstanding		Related Allowance		Recorded Investment		Principal Outstanding		Related Allowance
With no related allowance recorded:
Commercial Real Estate	$	3,989		4,481		-		1,977		2,425		-
Residential Real Estate		3,521		3,554		-		3,336		3,369		-
Commercial and Industrial		980		1,751		-		497		683		-
Consumer and Other		768		842		-		690		818		-
		9,258		10,628		-		6,500		7,295		-
With a related allowance recorded:
Commercial Real Estate		-		-		-		-		-		-
Residential Real Estate		-		-		-		-		-		-
Commercial and Industrial		48		98		48		251		251		251
Consumer and Other		21		21		7		2		2		2
		69		119		55		253		253		253
Impaired Loans, Total:
Commercial Real Estate		3,989		4,481		-		1,977		2,425		-
Residential Real Estate		3,521		3,554		-		3,336		3,369		-
Commercial and Industrial		1,028		1,849		48		748		934		251
Consumer and Other		789		863		7		692		820		2
Impaired Loans, Total	$	9,327		10,747		55		6,753		7,548		253

(In thousands)	Three Months Ended September 30,
	2018				2017
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate	$	4,062		21		6,111		10
Residential Real Estate		3,523		3		1,903		-
Commercial and Industrial		1,018		-		37		-
Consumer and Other		771		8		584		-
		9,374		32		8,635		10
With a related allowance recorded:
Commercial Real Estate		-		-		-		-
Residential Real Estate		-		-		-		-
Commercial and Industrial		45		-		245		-
Consumer and Other		5		-		-		-
		50		-		245		-
Impaired Loans, Total:
Commercial Real Estate		4,062		21		6,111		10
Residential Real Estate		3,523		3		1,903		-
Commercial and Industrial		1,063		-		282		-
Consumer and Other		776		8		584		-
Impaired Loans, Total	$	9,424		32		8,880		10

(In thousands)	Nine Months Ended September 30,
	2018				2017
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate	$	3,157		70		6,173		159
Residential Real Estate		3,451		8		1,907		5
Commercial and Industrial		948		-		46		-
Consumer and Other		739		23		558		10
		8,295		101		8,684		174
With a related allowance recorded:
Commercial Real Estate		-		-		-		-
Residential Real Estate		-		-		-		-
Commercial and Industrial		185		-		237		-
Consumer and Other		4		-		-		-
		189		-		237		-
Impaired Loans, Total:
Commercial Real Estate		3,157		70		6,173		159
Residential Real Estate		3,451		8		1,907		5
Commercial and Industrial		1,133		-		283		-
Consumer and Other		743		23		558		10
Impaired Loans, Total	$	8,484		101		8,921		174

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Note 6 - Deposits (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Deposit Liabilities, Type [Table Text Block]

(In thousands)	September 30, 2018		December 31, 2017
Non-interest bearing	$	81,687	$	81,197
Interest bearing:
NOW		24,827		25,476
Savings		100,294		135,975
Money market		62,314		16,575
Certificates of deposit, less than $250,000		203,044		173,221
Certificates of deposit, $250,000 or greater		81,346		66,866
Brokered deposits		166,020		138,129
Interest bearing, Total		637,845		556,242
Total Deposits	$	719,532	$	637,439

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Note 7 - Share-based Compensation and Employee Benefit Plan (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Schedule of Nonvested Restricted Stock Units Activity [Table Text Block]

Three months ended September 30, 2018:	Number of Shares Awarded			Weighted Average Grant Date Fair Value
Unvested at June 30, 2018		38,086		$	14.57
Vested		(2,388	)	$	16.24
Forfeited		(200	)	$	15.50
Unvested at September 30, 2018		35,498		$	14.46
Nine months ended September 30, 2018:
Unvested at December 31, 2017		25,870		$	12.15
Granted		18,323		$	18.07
Vested		(7,291	)	$	15.36
Forfeited		(1,404	)	$	14.44
Unvested at September 30, 2018		35,498		$	14.46

Three months ended September 30, 2017:	Number of Shares Awarded			Weighted Average Grant Date Fair Value
Unvested at June 30, 2017		32,117		$	12.39
Vested		(1,692	)	$	16.80
Forfeited		(600	)	$	15.50
Unvested at September 30, 2017		29,825		$	12.08
Nine months ended September 30, 2017:
Unvested at December 31, 2016		35,264		$	12.84
Granted		5,084		$	15.05
Vested		(3,923	)	$	14.66
Forfeited		(6,600	)	$	15.50
Unvested at September 30, 2017		29,825		$	12.08

XML

Note 8 - Earnings Per Share (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

(Net income in thousands)	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Basic earnings per share:
Net income attributable to Common shareholders	$	769		1,013		2,870		3,547
Divided by:
Weighted average shares outstanding		3,904,751		3,894,237		3,903,056		3,893,702
Basic earnings per common share	$	0.20		0.26		0.74		0.91
Diluted earnings per share:
Net income attributable to Common shareholders	$	769		1,013		2,870		3,547
Weighted average shares outstanding		3,904,751		3,894,237		3,903,056		3,893,702
Effect of potentially dilutive restricted common shares		14,067		9,193		17,974		4,854
Divided by:
Weighted average diluted shares outstanding		3,918,818		3,903,430		3,921,030		3,898,556
Diluted earnings per common share	$	0.20		0.26		0.73		0.91

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Note 9 - Financial Instruments With Off-balance Sheet Risk (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Schedule of Commitment to Extended Credit [Table Text Block]

(In thousands)
	As of September 30, 2018
Commitments to extend credit:
Unused lines of credit	$	93,277
Undisbursed construction loans		13,994
Home equity lines of credit		19,430
Future loan commitments		35,089
Financial standby letters of credit		1,161
	$	162,951

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Note 10 - Regulatory and Operational Matters (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Schedule of Compliance with Regulatory Capital Requirements under Banking Regulations [Table Text Block]

(In thousands)	Patriot National Bancorp, Inc.								Patriot Bank, N.A.
	September 30, 2018				December 31, 2017				September 30, 2018				December 31, 2017
	Amount ($)		Ratio (%)		Amount ($)		Ratio (%)		Amount ($)		Ratio (%)		Amount ($)		Ratio (%)
Total Capital (to risk weighted assets):
Actual		88,781		10.328		74,264		10.092		97,403		11.385		83,711		11.406
To be Well Capitalized (1)		-		-		-		-		85,554		10.000		73,393		10.000
For capital adequacy with Capital Buffer (2)		-		-		-		-		84,485		9.875		67,889		9.250
For capital adequacy		68,767		8.000		58,868		8.000		68,443		8.000		58,715		8.000
Tier 1 Capital (to risk weighted assets):
Actual		72,165		8.395		67,959		9.235		90,787		10.612		77,407		10.547
To be Well Capitalized (1)		-		-		-		-		68,443		8.000		58,715		8.000
For capital adequacy with Capital Buffer (2)		-		-		-		-		67,374		7.875		53,210		7.250
For capital adequacy		51,575		6.000		44,151		6.000		51,333		6.000		44,036		6.000
Common Equity Tier 1 Capital (to risk weighted assets):
Actual		64,165		7.465		59,959		8.148		90,787		10.612		77,407		10.547
To be Well Capitalized (1)		-		-		-		-		55,610		6.500		47,706		6.500
For capital adequacy with Capital Buffer (2)		-		-		-		-		54,541		6.375		42,201		5.750
For capital adequacy		38,681		4.500		33,113		4.500		38,499		4.500		33,027		4.500
Tier 1 Leverage Capital (to average assets):
Actual		72,165		7.847		67,959		8.219		90,787		9.917		77,407		9.360
To be Well Capitalized (1)		-		-		-		-		45,775		5.000		41,351		5.000
For capital adequacy		36,785		4.000		33,072		4.000		36,620		4.000		33,081		4.000

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Note 11 - Fair Value and Interest Rate Risk (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Fair Value, Assets Measured on Recurring Basis [Table Text Block]

(In thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
September 30, 2018:
U. S. Government agency mortgage-backed securities	$	-		21,235		-		21,235
Corporate bonds		-		13,007		-		13,007
Subordinated notes		-		4,525		-		4,525
U.S. Treasury notes		-		1,497		-		1,497
Available-for-sale securities	$	-		40,264		-		40,264
Contingent consideration liability	$	-		-		477		477
December 31, 2017:
U. S. Government agency mortgage-backed securities	$	-		7,224		-		7,224
Corporate bonds		-		13,804		-		13,804
Subordinated notes		-		4,548		-		4,548
Available-for-sale securities	$	-		25,576		-		25,576

Fair Value Measurement Inputs and Valuation Techniques [Table Text Block]

(In thousands)	Fair Value		Valuation Methodology	Unobservable Inputs	Range of Inputs
September 30, 2018:
Impaired loans, net including PCI loans	$	10,173	Real Estate Appraisals	Discount for appraisal type	0%	-	8%
Other Real Estate Owned		991	Real Estate Appraisals	Discount for appraisal type		14%
December 31, 2017:
Impaired loans	$	6,500	Real Estate Appraisals	Discount for appraisal type	0%	-	8%

Fair Value, by Balance Sheet Grouping [Table Text Block]

(In thousands)		September 30, 2018				December 31, 2017
	Fair Value Hierarchy	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial Assets:
Cash and noninterest bearing balances due from banks	Level 1	$	5,596		5,596		3,582		3,582
Interest-bearing deposits due from banks	Level 1		43,636		43,636		45,659		45,659
U. S. Government agency mortgage-backed securities	Level 2		21,235		21,235		7,224		7,224
Corporate bonds	Level 2		13,007		13,007		13,804		13,804
Subordinated notes	Level 2		4,525		4,525		4,548		4,548
U.S. Treasury notes	Level 2		1,497		1,497		-		-
Other investments	Level 2		4,450		4,450		4,450		4,450
Federal Reserve Bank stock	Level 2		2,833		2,833		2,502		2,502
Federal Home Loan Bank stock	Level 2		4,928		4,928		5,889		5,889
Loans receivable, net	Level 3		756,649		748,988		713,350		702,816
Accrued interest receivable	Level 2		3,612		3,612		3,496		3,496
Financial assets, total		$	861,968		854,307		804,504		793,970
Financial Liabilities:
Demand deposits	Level 2	$	81,687		81,687		81,197		81,197
Savings deposits	Level 2		100,294		100,294		135,975		135,975
Money market deposits	Level 2		62,314		62,314		16,575		16,575
NOW accounts	Level 2		24,827		24,827		25,476		25,476
Time deposits	Level 2		284,390		282,671		240,087		239,219
Brokered deposits	Level 1		166,020		165,437		138,129		137,870
FHLB and correspondent bank borrowings	Level 2		90,000		89,266		120,000		120,218
Senior notes	Level 2		11,759		11,108		11,703		11,249
Subordinated debt	Level 2		9,720		9,158		-		-
Junior subordinated debt owed to unconsolidated trust	Level 2		8,092		8,092		8,086		8,086
Note payable	Level 3		1,436		1,245		1,580		1,416
Accrued interest payable	Level 2		1,563		1,563		569		569
Contingent consideration liability	Level 3		477		477		-		-
Financial liabilities, total		$	842,579		838,139		779,377		777,850

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Note 2 - Accounting Policies (Details Textual) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Provision for Loan Losses Expensed	$ 50,000	$ 545,000	$ 285,000	$ (944,000)
Core Deposits [Member]
Finite-Lived Intangible Asset, Useful Life			10 years

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Note 3 - Business Combinations (Details Textual)					9 Months Ended
	Sep. 30, 2018 USD ($)	Aug. 29, 2018 USD ($)	May 10, 2018 USD ($)	Feb. 06, 2018 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2017 USD ($)	Dec. 31, 2017 USD ($)
Assets, Total	$ 915,286,000				$ 915,286,000		$ 852,080,000
Marketable Securities, Total	44,714,000				44,714,000		30,026,000
Deposits, Total	719,532,000				719,532,000		637,439,000
Goodwill, Ending Balance	1,944,000				$ 1,944,000
Debt Securities, Available-for-sale, Realized Gain (Loss), Total						$ (78,000)
Core Deposits [Member]
Finite-Lived Intangible Asset, Useful Life					10 years
Securities Acquired in Business Acquisition [Member]
Debt Securities, Available-for-sale, Realized Gain (Loss), Total			$ 0
Prime Bank [Member]
Business Combination, Acquisition Related Costs					$ 632,000
Goodwill, Ending Balance	1,944,000		2,100,000		1,944,000
Business Combination, Initial Cash Purchase Price			5,890,000
Business Combination, Final Estimated Purchase Price			1,000,000
Payments to Acquire Businesses, Gross	6,880,000	$ 1,280,000	5,596,000
Business Combination, Contingent Consideration Arrangements, Range of Outcomes, Value, High		1,570,000
Business Combination, Contingent Consideration, Liability, Total	$ 477,000	$ 477,000	$ 1,761,000		477,000
Prime Bank [Member] | Core Deposits [Member]
Finite-Lived Intangible Asset, Useful Life			10 years
Prime Bank [Member] | Securities Acquired in Business Acquisition [Member]
Debt Securities, Available-for-sale, Realized Gain (Loss), Total			$ 0
Prime Bank [Member] | Measurement Input, Account Balance Growth Rate [Member]
Core Deposit, Measurement Input			0.03
Hana SBL [Member]
Business Combination, Acquisition Related Costs					$ 993,000
Prime Bank [Member]
Assets, Total			$ 65,000,000
Marketable Securities, Total			36,000,000
Loans Payable, Total			23,000,000
Deposits, Total			$ 46,000,000
Hana SBL [Member]
SBA 7 (a) Loan Amount Originated				$ 1,000,000,000

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Note 3 - Business Combinations - Estimated Fair Value of Assets Acquired and Liabilities Assumed (Details) - USD ($)				5 Months Ended
	Sep. 30, 2018	Aug. 29, 2018	May 10, 2018	Sep. 30, 2018	Dec. 31, 2017
Goodwill resulting from acquisition	$ 1,944,000			$ 1,944,000
Prime Bank [Member]
Cash consideration	6,880,000	$ 1,280,000	$ 5,596,000
Cash consideration				1,284,000
Contingent consideration	477,000	$ 477,000	1,761,000	477,000
Contingent consideration				(1,284,000)
Cash and cash equivalents	1,152,000		1,152,000	1,152,000
Securities	35,532,000		35,532,000	35,532,000
Loans	21,593,000		21,605,000	21,593,000
Loans				(12,000)
Premises and equipment	6,000		6,000	6,000
Other real estate owned	991,000		991,000	991,000
Core deposit intangibles	748,000		552,000	748,000
Core deposit intangibles				196,000
Other assets	1,514,000		1,514,000	1,514,000
Total assets acquired	61,536,000		61,352,000	61,536,000
Total assets acquired				184,000
Deposits	46,184,000		46,184,000	46,184,000
Borrowings	9,800,000		9,800,000	9,800,000
Other liabilities	139,000		111,000	139,000
Other liabilities				28,000
Total liabilities assumed	56,123,000		56,095,000	56,123,000
Total liabilities assumed				28,000
Identifiable net assets acquired	5,413,000		5,257,000	5,413,000
Identifiable net assets acquired				156,000
Goodwill resulting from acquisition	$ 1,944,000		$ 2,100,000	1,944,000
Goodwill resulting from acquisition				$ (156,000)

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Note 4 - Available-for-sale Securities (Details Textual)		3 Months Ended	9 Months Ended
	May 10, 2018 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2017 USD ($)	Dec. 31, 2017 USD ($)
Debt Securities, Available-for-sale, Unrealized Loss Position, Number of Positions		13	13		9
Number of Available-for-sale Securities		17	17		11
Unrealized Holding Losses Depreciation Percentage from Amortized Cost		3.70%	3.70%		1.40%
Other-than-temporary Impairment Loss, Debt Securities, Available-for-sale, Total			$ 0
Proceeds from Sale of Debt Securities, Available-for-sale				$ 13,800,000
Debt Securities, Available-for-sale, Realized Gain (Loss), Total				(78,000)
Payments to Acquire Debt Securities, Available-for-sale			0	$ 20,600,000
Securities Acquired in Business Acquisition [Member]
Proceeds from Sale of Debt Securities, Available-for-sale	$ 35,500,000
Debt Securities, Available-for-sale, Realized Gain (Loss), Total	$ 0
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Payments to Acquire Debt Securities, Available-for-sale		$ 15,600,000
US Treasury Securities [Member]
Payments to Acquire Debt Securities, Available-for-sale		1,500,000
Available-For-Sale Securities Pledged to the Federal Reserve Bank of New York to Secure Municipal Deposits [Member]
Debt Securities, Available-for-sale, Restricted		$ 7,300,000	$ 7,300,000		$ 6,700,000

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Note 4 - Available-for-sale Securities - Investment Securities (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Available-for-sale securities, amortized cost	$ 41,527	$ 25,830
Available-for-sale securities, gross unrealized gains	26	48
Available-for-sale securities, gross unrealized losses	(1,289)	(302)
Available-for-sale securities	40,264	25,576
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Available-for-sale securities, amortized cost	21,530	7,330
Available-for-sale securities, gross unrealized gains	1
Available-for-sale securities, gross unrealized losses	(296)	(106)
Available-for-sale securities	21,235	7,224
Corporate Debt Securities [Member]
Available-for-sale securities, amortized cost	14,000	14,000
Available-for-sale securities, gross unrealized gains
Available-for-sale securities, gross unrealized losses	(993)	(196)
Available-for-sale securities	13,007	13,804
Subordinated Notes [Member]
Available-for-sale securities, amortized cost	4,500	4,500
Available-for-sale securities, gross unrealized gains	25	48
Available-for-sale securities, gross unrealized losses
Available-for-sale securities	4,525	$ 4,548
US Treasury Securities [Member]
Available-for-sale securities, amortized cost	1,497
Available-for-sale securities, gross unrealized gains
Available-for-sale securities, gross unrealized losses
Available-for-sale securities	$ 1,497

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Note 4 - Available-for-sale Securities - Investment Securities in a Continuous Loss Position (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Available-for-sale securities in continuous loss position, less than 12 months, fair value	$ 16,955	$ 17,922
Available-for-sale securities in continuous loss position, less than 12 months, unrealized loss	(83)	(209)
Available-for-sale securities in continuous loss position, 12 months or more, fair value	17,047	3,106
Available-for-sale securities in continuous loss position, 12 months or more, unrealized loss	(1,206)	(93)
Available-for-sale securities in continuous loss position, fair value	34,002	21,028
Available-for-sale securities in continuous loss position, unrealized loss	(1,289)	(302)
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Available-for-sale securities in continuous loss position, less than 12 months, fair value	16,955	4,118
Available-for-sale securities in continuous loss position, less than 12 months, unrealized loss	(83)	(13)
Available-for-sale securities in continuous loss position, 12 months or more, fair value	4,040	3,106
Available-for-sale securities in continuous loss position, 12 months or more, unrealized loss	(213)	(93)
Available-for-sale securities in continuous loss position, fair value	20,995	7,224
Available-for-sale securities in continuous loss position, unrealized loss	(296)	(106)
Corporate Debt Securities [Member]
Available-for-sale securities in continuous loss position, less than 12 months, fair value		13,804
Available-for-sale securities in continuous loss position, less than 12 months, unrealized loss		(196)
Available-for-sale securities in continuous loss position, 12 months or more, fair value	13,007
Available-for-sale securities in continuous loss position, 12 months or more, unrealized loss	(993)
Available-for-sale securities in continuous loss position, fair value	13,007	13,804
Available-for-sale securities in continuous loss position, unrealized loss	$ (993)	$ (196)

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Note 4 - Available-for-sale Securities - Investment Debt Securities by Contractual Maturity (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Amortized cost, due within 5 years	$ 8,325
Amortized cost, due after 5 years through 10 years	19,797	16,700
Amortized cost, due after 10 years	13,405	9,130
Available-for-sale securities, amortized cost	41,527	25,830
Fair value, due within 5 years	8,314
Fair value, due after 5 years through 10 years	19,051	16,583
Fair value, due after 10 years	12,899	8,993
Available-for-sale securities	40,264	25,576
Available-for-sale securities	40,264	25,576
Corporate Debt Securities [Member]
Amortized cost, due within 5 years
Amortized cost, due after 5 years through 10 years	9,000	9,000
Amortized cost, due after 10 years	5,000	5,000
Available-for-sale securities, amortized cost	14,000	14,000
Fair value, due within 5 years
Fair value, due after 5 years through 10 years	8,397	8,928
Fair value, due after 10 years	4,610	4,876
Available-for-sale securities	13,007	13,804
Available-for-sale securities	13,007	13,804
Subordinated Notes [Member]
Amortized cost, due within 5 years
Amortized cost, due after 5 years through 10 years	4,500	4,500
Amortized cost, due after 10 years
Available-for-sale securities, amortized cost	4,500	4,500
Fair value, due within 5 years
Fair value, due after 5 years through 10 years	4,525	4,548
Fair value, due after 10 years
Available-for-sale securities	4,525	4,548
Available-for-sale securities	4,525	4,548
US Treasury Securities [Member]
Amortized cost, due within 5 years	1,497
Amortized cost, due after 5 years through 10 years
Amortized cost, due after 10 years
Available-for-sale securities, amortized cost	1,497
Fair value, due within 5 years	1,497
Fair value, due after 5 years through 10 years
Fair value, due after 10 years
Available-for-sale securities	1,497
Available-for-sale securities	1,497
Available-for-sale Securities with Single Maturity Dates [Member]
Amortized cost, due within 5 years	1,497
Amortized cost, due after 5 years through 10 years	13,500	13,500
Amortized cost, due after 10 years	5,000	5,000
Available-for-sale securities, amortized cost	19,997	18,500
Fair value, due within 5 years	1,497
Fair value, due after 5 years through 10 years	12,922	13,476
Fair value, due after 10 years	4,610	4,876
Available-for-sale securities	19,029	18,352
Available-for-sale securities	19,029	18,352
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Amortized cost, due within 5 years	6,828
Amortized cost, due after 5 years through 10 years	6,297	3,200
Amortized cost, due after 10 years	8,405	4,130
Available-for-sale securities, amortized cost	21,530	7,330
Fair value, due within 5 years	6,817
Fair value, due after 5 years through 10 years	6,129	3,107
Fair value, due after 10 years	8,289	4,117
Available-for-sale securities	21,235	7,224
Available-for-sale securities	$ 21,235	$ 7,224

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Note 5 - Loans Receivable and Allowance for Loan Losses (Details Textual)		3 Months Ended		9 Months Ended		12 Months Ended
	May 10, 2018 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2017 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2017 USD ($)	Dec. 31, 2017 USD ($)
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities, Carrying Amount, Net		$ 901,000		$ 901,000
Deteriorated Loans Transferred in, Debt Securities, Accreditable Yield, Period Increase (Decrease), Total				57,000
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities, Acquired During Period, Cash Flows Expected to be Collected at Acquisition	$ 3,752,000
Payments to Acquire Loans Receivable				$ 37,830,000	$ 73,022,000
Maximum Period of Credit Extension of Construction Loans				1 year 180 days
Loans Receivable, Term to Reset to FHLB Rate				5 years
Period for Charged Off of Open-End Credits				180 days
Period for Charged Off of Close-End Credits				120 days
Loans and Leases Receivable, Impaired, Interest Lost on Nonaccrual Loans		85,000	$ 27,000	$ 266,000	$ 70,000
Threshold Period Past Due for Write-off of Financing Receivable				90 days
Maximum Period for Charged Off of Consumer Installment Loans				180 days
Financing Receivable, Modifications, Recorded Investment		$ 2,900,000		$ 2,900,000		$ 3,000,000
Financing Receivable, Modifications, Number of Contracts		0	0	0	0
Financing Receivable, Modifications, Subsequent Default, Number of Contracts		0	0	0	0
Loans and Leases Receivable, Impaired, Commitment to Lend		$ 0		$ 0		0
Impaired Financing Receivable, Recorded Investment, Total		9,300,000		9,300,000		6,800,000
Impaired Financing Receivable, Related Allowance		$ 55,000		$ 55,000		$ 253,000
Number of Impaired Loans		16		16		12
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities, Allowance for Loan Losses		$ 0		$ 0
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Pass [Member]
Number of Loans, Past Due		5		5
Financing Receivable, Recorded Investment, Past Due, Total		$ 5,700,000		$ 5,700,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Special Mention [Member]
Number of Loans, Past Due		1		1
Financing Receivable, Recorded Investment, Past Due, Total		$ 2,400,000		$ 2,400,000
Revised Acquisition Date Estimate [Member]
Deteriorated Loans Transferred in, Debt Securities, Accreditable Yield, Period Increase (Decrease), Total	887,000
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities, Acquired During Period, Cash Flows Expected to be Collected at Acquisition	$ 887,000
Non-Accrual Loans [Member]
Impaired Financing Receivable, Interest Income, Cash Basis Method, Total		$ 0	$ 0	$ 0	$ 0
Commercial Real Estate Portfolio Segment [Member]
Maximum Percentage of Credit Extension Based on Market Value of Collateral				75.00%
Multi-family Real Estate [Member]
Maximum Percentage of Credit Extension Based on Market Value of Collateral				80.00%
Construction Portfolio Segment [Member]
Percentage of Maximum Loan to Value				75.00%
Construction Portfolio Segment [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Number of Loans, Past Due		1		1
Financing Receivable, Recorded Investment, Past Due, Total		$ 8,800,000		$ 8,800,000
Residential Portfolio Segment [Member]
Payments to Acquire Loans Receivable				16,400,000		$ 73,000,000
Receivable with Imputed Interest, Premium						$ 985,000
Residential Portfolio Segment [Member] | Multi-family Real Estate [Member] | Substandard [Member]
Loans and Leases Receivable, Gross, Total		$ 1,500,000		1,500,000
Consumer Portfolio Segment [Member] | Education Loans [Member]
Payments to Acquire Loans Receivable				$ 21,400,000
Construction to Permanent Portfolio Segment [Member] | Minimum [Member]
Loans Receivable, Term				20 years
Construction to Permanent Portfolio Segment [Member] | Maximum [Member]
Loans Receivable, Term				25 years

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Note 5 - Loans Receivable and Allowance for Loan Losses - Loan Portfolio (Details) - USD ($) $ in Thousands	Sep. 30, 2018		Jun. 30, 2018	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Dec. 31, 2016
Allowance for loan losses	$ (6,605)		$ (6,525)	$ (6,297)	$ (6,222)	$ (5,944)	$ (4,675)
Loans receivable, net	756,649			713,350
Business Activities Loans [Member]
Loans receivable, gross	763,254	[1]		719,647
Allowance for loan losses	(6,605)			(6,297)
Loans receivable, net	756,649
Acquired Loans [Member]
Loans receivable, gross				719,647
Allowance for loan losses				(6,297)
Loans receivable, net				713,350
Commercial Real Estate Portfolio Segment [Member]
Allowance for loan losses	(1,763)		(2,305)	(2,212)	(2,172)	(2,218)	(1,853)
Commercial Real Estate Portfolio Segment [Member] | Business Activities Loans [Member]
Loans receivable, gross	276,100			299,925
Allowance for loan losses	(1,763)			(2,212)
Commercial Real Estate Portfolio Segment [Member] | Acquired Loans [Member]
Loans receivable, gross				299,925
Residential Portfolio Segment [Member]
Allowance for loan losses	(865)		(1,096)	(959)	(1,045)	(1,041)	(534)
Residential Portfolio Segment [Member] | Business Activities Loans [Member]
Loans receivable, gross	155,077			146,377
Allowance for loan losses	(865)			(959)
Residential Portfolio Segment [Member] | Acquired Loans [Member]
Loans receivable, gross				146,377
Commercial Portfolio Segment [Member]
Allowance for loan losses	(2,241)		(1,996)	(2,023)	(1,873)	(1,453)	(740)
Commercial Portfolio Segment [Member] | Business Activities Loans [Member]
Loans receivable, gross	174,480			131,161
Allowance for loan losses	(2,241)			(2,023)
Commercial Portfolio Segment [Member] | Acquired Loans [Member]
Loans receivable, gross				131,161
Consumer Portfolio Segment [Member]
Allowance for loan losses	(670)		(523)	(568)	(258)	(593)	(641)
Consumer Portfolio Segment [Member] | Business Activities Loans [Member]
Loans receivable, gross	97,463			87,707
Allowance for loan losses	(670)			(568)
Consumer Portfolio Segment [Member] | Acquired Loans [Member]
Loans receivable, gross				87,707
Construction Portfolio Segment [Member]
Allowance for loan losses	(680)		(499)	(481)	(783)	(490)	(712)
Construction Portfolio Segment [Member] | Business Activities Loans [Member]
Loans receivable, gross	45,476			47,619
Allowance for loan losses	(680)			(481)
Construction Portfolio Segment [Member] | Acquired Loans [Member]
Loans receivable, gross				47,619
Construction to Permanent Portfolio Segment [Member]
Allowance for loan losses	(100)		$ (80)	(54)	$ (46)	$ (73)	$ (69)
Construction to Permanent Portfolio Segment [Member] | Business Activities Loans [Member]
Loans receivable, gross	14,658			6,858
Allowance for loan losses	$ (100)			(54)
Construction to Permanent Portfolio Segment [Member] | Acquired Loans [Member]
Loans receivable, gross				$ 6,858

[1] The total loan receivable, gross does not include $21.9 million acquired loans which were all individually evaluated for impairment.

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Note 5 - Loans Receivable and Allowance for Loan Losses - Acquired Loan Portfolio Subject to Purchased Credit Impaired (Details) $ in Thousands	May 10, 2018 USD ($)
Contractually required principal and interest at acquisition	$ 5,816
Contractual cash flows not expected to be collected (nonaccretable discount)	(2,064)
Expected cash flows at acquisition	3,752
Interest component of expected cash flows (accretable discount)	(1,316)
Fair value of acquired loans	$ 2,436

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Note 5 - Loans Receivable and Allowance for Loan Losses - Allowance for Loan Losses (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018		Dec. 31, 2017
Balance	$ 6,525	$ 5,944	$ 6,297	$ 4,675
Charge-offs	(5)	(275)	(19)	(288)
Recoveries	35	8	42	2,779
Provisions (credits)	50	545	285	(944)
Balance	6,605	6,222	6,605	6,222
Total allowance for loan losses	6,525	5,944	6,605	6,222	$ 6,605		$ 6,297
Business Activities Loans [Member]
Balance			6,297
Balance	6,605		6,605
Allowance for loan losses: Individually evaluated for impairment					55		253
Allowance for loan losses: Collectively evaluated for impairment					6,550		6,044
Total allowance for loan losses	6,605		6,605		6,605		6,297
Loans receivable, gross: Individually evaluated for impairment					9,327		6,753
PCI loans individually evaluated for impairment					901
Loans receivable, gross: Collectively evaluated for impairment					753,026		712,894
Total loans receivable, gross					763,254	[1]	719,647
Commercial Real Estate Portfolio Segment [Member]
Balance	2,305	2,218	2,212	1,853
Charge-offs	0	0	0	0
Recoveries	24	6	30	8
Provisions (credits)	(566)	(52)	(479)	311
Balance	1,763	2,172	1,763	2,172
Total allowance for loan losses	2,305	2,218	1,763	2,172	1,763		2,212
Commercial Real Estate Portfolio Segment [Member] | Business Activities Loans [Member]
Balance			2,212
Balance	1,763		1,763
Allowance for loan losses: Individually evaluated for impairment					0		0
Allowance for loan losses: Collectively evaluated for impairment					1,763		2,212
Total allowance for loan losses	1,763		1,763		1,763		2,212
Loans receivable, gross: Individually evaluated for impairment					3,989		1,977
PCI loans individually evaluated for impairment
Loans receivable, gross: Collectively evaluated for impairment					272,111		297,948
Total loans receivable, gross					276,100		299,925
Residential Portfolio Segment [Member]
Balance	1,096	1,041	959	534
Charge-offs	(2)	0	(2)	0
Recoveries	11	0	12	0
Provisions (credits)	(240)	4	(104)	511
Balance	865	1,045	865	1,045
Total allowance for loan losses	1,096	1,041	865	1,045	865		959
Residential Portfolio Segment [Member] | Business Activities Loans [Member]
Balance			959
Balance	865		865
Allowance for loan losses: Individually evaluated for impairment					0		0
Allowance for loan losses: Collectively evaluated for impairment					865		959
Total allowance for loan losses	865		865		865		959
Loans receivable, gross: Individually evaluated for impairment					3,521		3,336
PCI loans individually evaluated for impairment
Loans receivable, gross: Collectively evaluated for impairment					151,556		143,041
Total loans receivable, gross					155,077		146,377
Commercial Portfolio Segment [Member]
Balance	1,996	1,453	2,023	740
Charge-offs	0	(265)	0	(265)
Recoveries	0		0	2,769
Provisions (credits)	245	685	218	(1,371)
Balance	2,241	1,873	2,241	1,873
Total allowance for loan losses	1,996	1,453	2,241	1,873	2,241		2,023
Commercial Portfolio Segment [Member] | Business Activities Loans [Member]
Balance			2,023
Balance	2,241		2,241
Allowance for loan losses: Individually evaluated for impairment					48		251
Allowance for loan losses: Collectively evaluated for impairment					2,193		1,772
Total allowance for loan losses	2,241		2,241		2,241		2,023
Loans receivable, gross: Individually evaluated for impairment					1,028		748
PCI loans individually evaluated for impairment					901
Loans receivable, gross: Collectively evaluated for impairment					172,551		130,413
Total loans receivable, gross					174,480		131,161
Consumer Portfolio Segment [Member]
Balance	523	593	568	641
Charge-offs	(3)	(10)	(17)	(23)
Recoveries	0	2	0	2
Provisions (credits)	150	(327)	119	(362)
Balance	670	258	670	258
Total allowance for loan losses	523	593	670	258	670		568
Consumer Portfolio Segment [Member] | Business Activities Loans [Member]
Balance			568
Balance	670		670
Allowance for loan losses: Individually evaluated for impairment					7		2
Allowance for loan losses: Collectively evaluated for impairment					663		566
Total allowance for loan losses	670		670		670		568
Loans receivable, gross: Individually evaluated for impairment					789		692
PCI loans individually evaluated for impairment
Loans receivable, gross: Collectively evaluated for impairment					96,674		87,015
Total loans receivable, gross					97,463		87,707
Construction Portfolio Segment [Member]
Balance	499	490	481	712
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Provisions (credits)	181	293	199	71
Balance	680	783	680	783
Total allowance for loan losses	499	490	680	783	680		481
Construction Portfolio Segment [Member] | Business Activities Loans [Member]
Balance			481
Balance	680		680
Allowance for loan losses: Individually evaluated for impairment					0		0
Allowance for loan losses: Collectively evaluated for impairment					680		481
Total allowance for loan losses	680		680		680		481
Loans receivable, gross: Individually evaluated for impairment					0		0
PCI loans individually evaluated for impairment
Loans receivable, gross: Collectively evaluated for impairment					45,476		47,619
Total loans receivable, gross					45,476		47,619
Construction to Permanent Portfolio Segment [Member]
Balance	80	73	54	69
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Provisions (credits)	20	(27)	46	(23)
Balance	100	46	100	46
Total allowance for loan losses	80	73	100	46	100		54
Construction to Permanent Portfolio Segment [Member] | Business Activities Loans [Member]
Balance			54
Balance	100		100
Allowance for loan losses: Individually evaluated for impairment					0		0
Allowance for loan losses: Collectively evaluated for impairment					100		54
Total allowance for loan losses	100		100		100		54
Loans receivable, gross: Individually evaluated for impairment					0		0
PCI loans individually evaluated for impairment
Loans receivable, gross: Collectively evaluated for impairment					14,658		6,858
Total loans receivable, gross					14,658		6,858
Unallocated Financing Receivables [Member]
Balance	26	76		126
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Provisions (credits)	260	(31)	286	(81)
Balance	286	45	286	45
Total allowance for loan losses	26	$ 76	286	$ 45	286
Unallocated Financing Receivables [Member] | Business Activities Loans [Member]
Balance			0
Balance	286		286
Allowance for loan losses: Individually evaluated for impairment					0		0
Allowance for loan losses: Collectively evaluated for impairment					286		0
Total allowance for loan losses	$ 286		$ 286		286		0
Loans receivable, gross: Individually evaluated for impairment					0		0
PCI loans individually evaluated for impairment
Loans receivable, gross: Collectively evaluated for impairment					0		0
Total loans receivable, gross					$ 0		$ 0

[1] The total loan receivable, gross does not include $21.9 million acquired loans which were all individually evaluated for impairment.

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Note 5 - Loans Receivable and Allowance for Loan Losses - Delinquency Status of Performing and Non-performing Loans (Details) - USD ($)	Sep. 30, 2018		Dec. 31, 2017
Business Activities Loans [Member]
Loans receivable, gross	$ 763,254,000	[1]	$ 719,647,000
Non-accruing loans	6,479,000		3,778,000
Commercial Real Estate Portfolio Segment [Member] | Business Activities Loans [Member]
Loans receivable, gross	276,100,000		299,925,000
Non-accruing loans	2,073,000
Residential Portfolio Segment [Member] | Business Activities Loans [Member]
Loans receivable, gross	155,077,000		146,377,000
Non-accruing loans	3,223,000		3,028,000
Commercial Portfolio Segment [Member] | Business Activities Loans [Member]
Loans receivable, gross	174,480,000		131,161,000
Non-accruing loans	1,084,000		748,000
Consumer Portfolio Segment [Member] | Business Activities Loans [Member]
Loans receivable, gross	97,463,000		87,707,000
Non-accruing loans	99,000		2,000
Construction Portfolio Segment [Member] | Business Activities Loans [Member]
Loans receivable, gross	45,476,000		47,619,000
Non-accruing loans
Construction to Permanent Portfolio Segment [Member] | Business Activities Loans [Member]
Loans receivable, gross	14,658,000		6,858,000
Pass [Member] | Business Activities Loans [Member]
Loans receivable, gross	732,879,000		699,862,000
Non-accruing loans
Pass [Member] | Commercial Real Estate Portfolio Segment [Member] | Business Activities Loans [Member]
Loans receivable, gross	267,601,000		286,428,000
Non-accruing loans
Pass [Member] | Residential Portfolio Segment [Member] | Business Activities Loans [Member]
Loans receivable, gross	150,350,000		141,820,000
Non-accruing loans
Pass [Member] | Commercial Portfolio Segment [Member] | Business Activities Loans [Member]
Loans receivable, gross	166,230,000		129,432,000
Non-accruing loans
Pass [Member] | Consumer Portfolio Segment [Member] | Business Activities Loans [Member]
Loans receivable, gross	97,364,000		87,705,000
Non-accruing loans
Pass [Member] | Construction Portfolio Segment [Member] | Business Activities Loans [Member]
Loans receivable, gross	36,676,000		47,619,000
Non-accruing loans
Pass [Member] | Construction to Permanent Portfolio Segment [Member] | Business Activities Loans [Member]
Loans receivable, gross	14,658,000		6,858,000
Non-accruing loans
Special Mention [Member] | Business Activities Loans [Member]
Loans receivable, gross	7,983,000		11,967,000
Non-accruing loans
Special Mention [Member] | Commercial Real Estate Portfolio Segment [Member] | Business Activities Loans [Member]
Loans receivable, gross	2,311,000		10,438,000
Non-accruing loans
Special Mention [Member] | Residential Portfolio Segment [Member] | Business Activities Loans [Member]
Loans receivable, gross	5,672,000		1,529,000
Non-accruing loans
Substandard [Member] | Business Activities Loans [Member]
Loans receivable, gross	22,392,000
Non-accruing loans	6,479,000
Substandard [Member] | Commercial Real Estate Portfolio Segment [Member] | Business Activities Loans [Member]
Loans receivable, gross	6,188,000		3,059,000
Non-accruing loans	2,073,000
Substandard [Member] | Residential Portfolio Segment [Member] | Business Activities Loans [Member]
Loans receivable, gross	4,727,000		3,028,000
Non-accruing loans	3,223,000		3,028,000
Substandard [Member] | Commercial Portfolio Segment [Member] | Business Activities Loans [Member]
Loans receivable, gross	2,578,000		1,729,000
Non-accruing loans	1,084,000		748,000
Substandard [Member] | Consumer Portfolio Segment [Member] | Business Activities Loans [Member]
Loans receivable, gross	99,000		2,000
Non-accruing loans	99,000		2,000
Substandard [Member] | Construction Portfolio Segment [Member] | Business Activities Loans [Member]
Loans receivable, gross	8,800,000		7,818,000
Non-accruing loans			3,778,000
Performing Financial Instruments [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	24,690,000		9,515,000
Performing (accruing) loans, current	732,085,000		706,354,000
Loans receivable, gross	756,775,000		715,869,000
Performing Financial Instruments [Member] | Commercial Real Estate Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	3,105,000		2,809,000
Performing (accruing) loans, current	270,922,000		297,116,000
Loans receivable, gross	274,027,000		299,925,000
Performing Financial Instruments [Member] | Residential Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	2,559,000		2,852,000
Performing (accruing) loans, current	149,295,000		140,497,000
Loans receivable, gross	151,854,000		143,349,000
Performing Financial Instruments [Member] | Commercial Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	6,092,000		3,356,000
Performing (accruing) loans, current	167,304,000		127,057,000
Loans receivable, gross	173,396,000		130,413,000
Performing Financial Instruments [Member] | Consumer Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	60,000		498,000
Performing (accruing) loans, current	97,304,000		87,207,000
Loans receivable, gross	97,364,000		87,705,000
Performing Financial Instruments [Member] | Construction Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	12,874,000
Performing (accruing) loans, current	32,602,000
Loans receivable, gross	45,476,000
Performing Financial Instruments [Member] | Pass [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	11,762,000		4,196,000
Performing (accruing) loans, current	721,117,000		695,666,000
Loans receivable, gross	732,879,000		699,862,000
Performing Financial Instruments [Member] | Pass [Member] | Commercial Real Estate Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	3,105,000
Performing (accruing) loans, current	264,496,000		286,428,000
Loans receivable, gross	267,601,000		286,428,000
Performing Financial Instruments [Member] | Pass [Member] | Residential Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	1,055,000		1,323,000
Performing (accruing) loans, current	149,295,000		140,497,000
Loans receivable, gross	150,350,000		141,820,000
Performing Financial Instruments [Member] | Pass [Member] | Commercial Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	3,468,000		2,375,000
Performing (accruing) loans, current	162,762,000		127,057,000
Loans receivable, gross	166,230,000		129,432,000
Performing Financial Instruments [Member] | Pass [Member] | Consumer Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	60,000		498,000
Performing (accruing) loans, current	97,304,000		87,207,000
Loans receivable, gross	97,364,000		87,705,000
Performing Financial Instruments [Member] | Pass [Member] | Construction Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	4,074,000
Performing (accruing) loans, current	32,602,000		47,619,000
Loans receivable, gross	36,676,000		47,619,000
Performing Financial Instruments [Member] | Pass [Member] | Construction to Permanent Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due
Performing (accruing) loans, current	14,658,000		6,858,000
Loans receivable, gross	14,658,000		6,858,000
Performing Financial Instruments [Member] | Special Mention [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	2,624,000		2,650,000
Performing (accruing) loans, current	5,359,000		9,317,000
Loans receivable, gross	7,983,000		11,967,000
Performing Financial Instruments [Member] | Special Mention [Member] | Commercial Real Estate Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due			1,121,000
Performing (accruing) loans, current	2,311,000		9,317,000
Loans receivable, gross	2,311,000		10,438,000
Performing Financial Instruments [Member] | Special Mention [Member] | Residential Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	2,624,000		1,529,000
Performing (accruing) loans, current	3,048,000
Loans receivable, gross	5,672,000		1,529,000
Performing Financial Instruments [Member] | Substandard [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	10,304,000
Performing (accruing) loans, current	5,609,000
Loans receivable, gross	15,913,000
Performing Financial Instruments [Member] | Substandard [Member] | Commercial Real Estate Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due			1,688,000
Performing (accruing) loans, current	4,115,000		1,371,000
Loans receivable, gross	4,115,000		3,059,000
Performing Financial Instruments [Member] | Substandard [Member] | Residential Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	1,504,000
Performing (accruing) loans, current
Loans receivable, gross	1,504,000
Performing Financial Instruments [Member] | Substandard [Member] | Commercial Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due			981,000
Performing (accruing) loans, current	1,494,000
Loans receivable, gross	1,494,000		981,000
Performing Financial Instruments [Member] | Substandard [Member] | Consumer Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due
Performing (accruing) loans, current
Loans receivable, gross
Performing Financial Instruments [Member] | Substandard [Member] | Construction Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	8,800,000		2,669,000
Performing (accruing) loans, current			1,371,000
Loans receivable, gross	8,800,000		4,040,000
Financing Receivables, 30 to 59 Days Past Due [Member] | Performing Financial Instruments [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	5,288,000		1,566,000
Financing Receivables, 30 to 59 Days Past Due [Member] | Performing Financial Instruments [Member] | Commercial Real Estate Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	1,919,000
Financing Receivables, 30 to 59 Days Past Due [Member] | Performing Financial Instruments [Member] | Residential Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	1,055,000		1,068,000
Financing Receivables, 30 to 59 Days Past Due [Member] | Performing Financial Instruments [Member] | Commercial Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	1,138,000
Financing Receivables, 30 to 59 Days Past Due [Member] | Performing Financial Instruments [Member] | Consumer Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	24,000		498,000
Financing Receivables, 30 to 59 Days Past Due [Member] | Performing Financial Instruments [Member] | Construction Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	1,152,000
Financing Receivables, 30 to 59 Days Past Due [Member] | Performing Financial Instruments [Member] | Pass [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	5,038,000		1,566,000
Financing Receivables, 30 to 59 Days Past Due [Member] | Performing Financial Instruments [Member] | Pass [Member] | Commercial Real Estate Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	1,919,000
Financing Receivables, 30 to 59 Days Past Due [Member] | Performing Financial Instruments [Member] | Pass [Member] | Residential Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	1,055,000		1,068,000
Financing Receivables, 30 to 59 Days Past Due [Member] | Performing Financial Instruments [Member] | Pass [Member] | Commercial Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	888,000
Financing Receivables, 30 to 59 Days Past Due [Member] | Performing Financial Instruments [Member] | Pass [Member] | Consumer Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	24,000		498,000
Financing Receivables, 30 to 59 Days Past Due [Member] | Performing Financial Instruments [Member] | Pass [Member] | Construction Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	1,152,000
Financing Receivables, 30 to 59 Days Past Due [Member] | Performing Financial Instruments [Member] | Pass [Member] | Construction to Permanent Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due
Financing Receivables, 30 to 59 Days Past Due [Member] | Performing Financial Instruments [Member] | Special Mention [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	250,000
Financing Receivables, 30 to 59 Days Past Due [Member] | Performing Financial Instruments [Member] | Special Mention [Member] | Commercial Real Estate Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due
Financing Receivables, 30 to 59 Days Past Due [Member] | Performing Financial Instruments [Member] | Special Mention [Member] | Residential Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	250,000
Financing Receivables, 30 to 59 Days Past Due [Member] | Performing Financial Instruments [Member] | Substandard [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due
Financing Receivables, 30 to 59 Days Past Due [Member] | Performing Financial Instruments [Member] | Substandard [Member] | Commercial Real Estate Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due
Financing Receivables, 30 to 59 Days Past Due [Member] | Performing Financial Instruments [Member] | Substandard [Member] | Residential Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due
Financing Receivables, 30 to 59 Days Past Due [Member] | Performing Financial Instruments [Member] | Substandard [Member] | Commercial Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due
Financing Receivables, 30 to 59 Days Past Due [Member] | Performing Financial Instruments [Member] | Substandard [Member] | Consumer Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due
Financing Receivables, 30 to 59 Days Past Due [Member] | Performing Financial Instruments [Member] | Substandard [Member] | Construction Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due
Financing Receivables, 60 to 89 Days Past Due [Member] | Performing Financial Instruments [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	1,026,000		6,593,000
Financing Receivables, 60 to 89 Days Past Due [Member] | Performing Financial Instruments [Member] | Commercial Real Estate Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	516,000		2,809,000
Financing Receivables, 60 to 89 Days Past Due [Member] | Performing Financial Instruments [Member] | Residential Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due			1,784,000
Financing Receivables, 60 to 89 Days Past Due [Member] | Performing Financial Instruments [Member] | Commercial Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	480,000		2,000,000
Financing Receivables, 60 to 89 Days Past Due [Member] | Performing Financial Instruments [Member] | Consumer Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	30,000
Financing Receivables, 60 to 89 Days Past Due [Member] | Performing Financial Instruments [Member] | Construction Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due
Financing Receivables, 60 to 89 Days Past Due [Member] | Performing Financial Instruments [Member] | Pass [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	1,026,000		2,255,000
Financing Receivables, 60 to 89 Days Past Due [Member] | Performing Financial Instruments [Member] | Pass [Member] | Commercial Real Estate Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	516,000
Financing Receivables, 60 to 89 Days Past Due [Member] | Performing Financial Instruments [Member] | Pass [Member] | Residential Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due			255,000
Financing Receivables, 60 to 89 Days Past Due [Member] | Performing Financial Instruments [Member] | Pass [Member] | Commercial Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	480,000		2,000,000
Financing Receivables, 60 to 89 Days Past Due [Member] | Performing Financial Instruments [Member] | Pass [Member] | Consumer Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	30,000
Financing Receivables, 60 to 89 Days Past Due [Member] | Performing Financial Instruments [Member] | Pass [Member] | Construction Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due
Financing Receivables, 60 to 89 Days Past Due [Member] | Performing Financial Instruments [Member] | Pass [Member] | Construction to Permanent Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due
Financing Receivables, 60 to 89 Days Past Due [Member] | Performing Financial Instruments [Member] | Special Mention [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due			2,650,000
Financing Receivables, 60 to 89 Days Past Due [Member] | Performing Financial Instruments [Member] | Special Mention [Member] | Commercial Real Estate Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due			1,121,000
Financing Receivables, 60 to 89 Days Past Due [Member] | Performing Financial Instruments [Member] | Special Mention [Member] | Residential Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due			1,529,000
Financing Receivables, 60 to 89 Days Past Due [Member] | Performing Financial Instruments [Member] | Substandard [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due
Financing Receivables, 60 to 89 Days Past Due [Member] | Performing Financial Instruments [Member] | Substandard [Member] | Commercial Real Estate Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due			1,688,000
Financing Receivables, 60 to 89 Days Past Due [Member] | Performing Financial Instruments [Member] | Substandard [Member] | Residential Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due
Financing Receivables, 60 to 89 Days Past Due [Member] | Performing Financial Instruments [Member] | Substandard [Member] | Commercial Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due
Financing Receivables, 60 to 89 Days Past Due [Member] | Performing Financial Instruments [Member] | Substandard [Member] | Consumer Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due
Financing Receivables, 60 to 89 Days Past Due [Member] | Performing Financial Instruments [Member] | Substandard [Member] | Construction Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due			1,688,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Construction Portfolio Segment [Member]
Performing (accruing) loans, past due	8,800,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Pass [Member]
Performing (accruing) loans, past due	5,700,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Special Mention [Member]
Performing (accruing) loans, past due	2,400,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Performing Financial Instruments [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	18,376,000		1,356,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Performing Financial Instruments [Member] | Commercial Real Estate Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	670,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Performing Financial Instruments [Member] | Residential Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	1,504,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Performing Financial Instruments [Member] | Commercial Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	4,474,000		1,356,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Performing Financial Instruments [Member] | Consumer Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	6,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Performing Financial Instruments [Member] | Construction Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	11,722,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Performing Financial Instruments [Member] | Pass [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	5,698,000		375,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Performing Financial Instruments [Member] | Pass [Member] | Commercial Real Estate Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	670,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Performing Financial Instruments [Member] | Pass [Member] | Residential Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Performing Financial Instruments [Member] | Pass [Member] | Commercial Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	2,100,000		375,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Performing Financial Instruments [Member] | Pass [Member] | Consumer Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	6,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Performing Financial Instruments [Member] | Pass [Member] | Construction Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	2,922,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Performing Financial Instruments [Member] | Pass [Member] | Construction to Permanent Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Performing Financial Instruments [Member] | Special Mention [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	2,374,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Performing Financial Instruments [Member] | Special Mention [Member] | Commercial Real Estate Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Performing Financial Instruments [Member] | Special Mention [Member] | Residential Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	2,374,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Performing Financial Instruments [Member] | Substandard [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	10,304,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Performing Financial Instruments [Member] | Substandard [Member] | Commercial Real Estate Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Performing Financial Instruments [Member] | Substandard [Member] | Residential Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	1,504,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Performing Financial Instruments [Member] | Substandard [Member] | Commercial Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due			981,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Performing Financial Instruments [Member] | Substandard [Member] | Consumer Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Performing Financial Instruments [Member] | Substandard [Member] | Construction Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	$ 8,800,000		$ 981,000

[1] The total loan receivable, gross does not include $21.9 million acquired loans which were all individually evaluated for impairment.

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Note 5 - Loans Receivable and Allowance for Loan Losses - Non-accrual Loans (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Business Activities Loans [Member]
Non-accruing loans	$ 6,479	$ 3,778
Commercial Real Estate Portfolio Segment [Member] | Business Activities Loans [Member]
Non-accruing loans	2,073
Residential Portfolio Segment [Member] | Business Activities Loans [Member]
Non-accruing loans	3,223	3,028
Commercial Portfolio Segment [Member] | Business Activities Loans [Member]
Non-accruing loans	1,084	748
Consumer Portfolio Segment [Member] | Business Activities Loans [Member]
Non-accruing loans	99	2
Substandard [Member] | Business Activities Loans [Member]
Non-accruing loans	6,479
Substandard [Member] | Acquired Loans [Member]
Non-accruing loans		3,778
Substandard [Member] | Commercial Real Estate Portfolio Segment [Member] | Business Activities Loans [Member]
Non-accruing loans	2,073
Substandard [Member] | Commercial Real Estate Portfolio Segment [Member] | Acquired Loans [Member]
Non-accruing loans		3,028
Substandard [Member] | Residential Portfolio Segment [Member] | Business Activities Loans [Member]
Non-accruing loans	3,223	3,028
Substandard [Member] | Commercial Portfolio Segment [Member] | Business Activities Loans [Member]
Non-accruing loans	1,084	748
Substandard [Member] | Commercial Portfolio Segment [Member] | Acquired Loans [Member]
Non-accruing loans		748
Substandard [Member] | Consumer Portfolio Segment [Member] | Business Activities Loans [Member]
Non-accruing loans	99	2
Substandard [Member] | Consumer Portfolio Segment [Member] | Acquired Loans [Member]
Non-accruing loans		2
Substandard [Member] | Non-Accrual Loans [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	6,479
Performing (accruing) loans, current	0
Substandard [Member] | Non-Accrual Loans [Member] | Acquired Loans [Member]
Performing (accruing) loans, past due		3,778
Performing (accruing) loans, current		0
Substandard [Member] | Non-Accrual Loans [Member] | Commercial Real Estate Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	2,073
Performing (accruing) loans, current	0
Substandard [Member] | Non-Accrual Loans [Member] | Commercial Real Estate Portfolio Segment [Member] | Acquired Loans [Member]
Performing (accruing) loans, past due		3,028
Performing (accruing) loans, current		0
Substandard [Member] | Non-Accrual Loans [Member] | Residential Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	3,223
Performing (accruing) loans, current	0
Substandard [Member] | Non-Accrual Loans [Member] | Commercial Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	1,084
Performing (accruing) loans, current	0
Substandard [Member] | Non-Accrual Loans [Member] | Commercial Portfolio Segment [Member] | Acquired Loans [Member]
Performing (accruing) loans, past due		748
Performing (accruing) loans, current		0
Substandard [Member] | Non-Accrual Loans [Member] | Consumer Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	99
Performing (accruing) loans, current	0
Substandard [Member] | Non-Accrual Loans [Member] | Consumer Portfolio Segment [Member] | Acquired Loans [Member]
Performing (accruing) loans, past due		2
Performing (accruing) loans, current		0
Financing Receivables, 30 to 59 Days Past Due [Member] | Substandard [Member] | Non-Accrual Loans [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	0
Financing Receivables, 30 to 59 Days Past Due [Member] | Substandard [Member] | Non-Accrual Loans [Member] | Acquired Loans [Member]
Performing (accruing) loans, past due		0
Financing Receivables, 30 to 59 Days Past Due [Member] | Substandard [Member] | Non-Accrual Loans [Member] | Commercial Real Estate Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	0
Financing Receivables, 30 to 59 Days Past Due [Member] | Substandard [Member] | Non-Accrual Loans [Member] | Commercial Real Estate Portfolio Segment [Member] | Acquired Loans [Member]
Performing (accruing) loans, past due		0
Financing Receivables, 30 to 59 Days Past Due [Member] | Substandard [Member] | Non-Accrual Loans [Member] | Residential Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	0
Financing Receivables, 30 to 59 Days Past Due [Member] | Substandard [Member] | Non-Accrual Loans [Member] | Commercial Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	0
Financing Receivables, 30 to 59 Days Past Due [Member] | Substandard [Member] | Non-Accrual Loans [Member] | Commercial Portfolio Segment [Member] | Acquired Loans [Member]
Performing (accruing) loans, past due		0
Financing Receivables, 30 to 59 Days Past Due [Member] | Substandard [Member] | Non-Accrual Loans [Member] | Consumer Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	0
Financing Receivables, 30 to 59 Days Past Due [Member] | Substandard [Member] | Non-Accrual Loans [Member] | Consumer Portfolio Segment [Member] | Acquired Loans [Member]
Performing (accruing) loans, past due		0
Financing Receivables, 60 to 89 Days Past Due [Member] | Substandard [Member] | Non-Accrual Loans [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due
Financing Receivables, 60 to 89 Days Past Due [Member] | Substandard [Member] | Non-Accrual Loans [Member] | Acquired Loans [Member]
Performing (accruing) loans, past due
Financing Receivables, 60 to 89 Days Past Due [Member] | Substandard [Member] | Non-Accrual Loans [Member] | Commercial Real Estate Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	0
Financing Receivables, 60 to 89 Days Past Due [Member] | Substandard [Member] | Non-Accrual Loans [Member] | Commercial Real Estate Portfolio Segment [Member] | Acquired Loans [Member]
Performing (accruing) loans, past due		0
Financing Receivables, 60 to 89 Days Past Due [Member] | Substandard [Member] | Non-Accrual Loans [Member] | Residential Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	0
Financing Receivables, 60 to 89 Days Past Due [Member] | Substandard [Member] | Non-Accrual Loans [Member] | Commercial Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due
Financing Receivables, 60 to 89 Days Past Due [Member] | Substandard [Member] | Non-Accrual Loans [Member] | Commercial Portfolio Segment [Member] | Acquired Loans [Member]
Performing (accruing) loans, past due		0
Financing Receivables, 60 to 89 Days Past Due [Member] | Substandard [Member] | Non-Accrual Loans [Member] | Consumer Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due
Financing Receivables, 60 to 89 Days Past Due [Member] | Substandard [Member] | Non-Accrual Loans [Member] | Consumer Portfolio Segment [Member] | Acquired Loans [Member]
Performing (accruing) loans, past due
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Substandard [Member] | Non-Accrual Loans [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	6,479
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Substandard [Member] | Non-Accrual Loans [Member] | Acquired Loans [Member]
Performing (accruing) loans, past due		3,778
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Substandard [Member] | Non-Accrual Loans [Member] | Commercial Real Estate Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	2,073
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Substandard [Member] | Non-Accrual Loans [Member] | Commercial Real Estate Portfolio Segment [Member] | Acquired Loans [Member]
Performing (accruing) loans, past due		3,028
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Substandard [Member] | Non-Accrual Loans [Member] | Residential Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	3,223
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Substandard [Member] | Non-Accrual Loans [Member] | Commercial Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	1,084
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Substandard [Member] | Non-Accrual Loans [Member] | Commercial Portfolio Segment [Member] | Acquired Loans [Member]
Performing (accruing) loans, past due		748
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Substandard [Member] | Non-Accrual Loans [Member] | Consumer Portfolio Segment [Member] | Business Activities Loans [Member]
Performing (accruing) loans, past due	$ 99
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Substandard [Member] | Non-Accrual Loans [Member] | Consumer Portfolio Segment [Member] | Acquired Loans [Member]
Performing (accruing) loans, past due		$ 2

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Note 5 - Loans Receivable and Allowance for Loan Losses - Recorded Investment in TDRs (Details) - USD ($)	Sep. 30, 2018	Dec. 31, 2017
TDR Loan	$ 2,900,000	$ 3,000,000
Business Activities Loans [Member]
TDR Loan	2,905,000	2,976,000
Business Activities Loans [Member] | Non-Accrual Loans [Member]
TDR Loan
Business Activities Loans [Member] | Accrual Loans [Member]
TDR Loan	2,905,000	2,976,000
Commercial Real Estate Portfolio Segment [Member] | Business Activities Loans [Member]
TDR Loan	1,916,000	1,977,000
Residential Portfolio Segment [Member] | Business Activities Loans [Member]
TDR Loan	$ 989,000	$ 999,000

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Note 5 - Loans Receivable and Allowance for Loan Losses - Impaired Loans (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Impaired loans, related allowance	$ 55,000		$ 55,000		$ 253,000
Impaired loans, recorded investment	9,300,000		9,300,000		6,800,000
Business Activities Loans [Member]
Impaired loans with no related allowance recorded, recorded investment	9,258,000		9,258,000		6,500,000
Impaired loans with no related allowance recorded, unpaid principal balance	10,628,000		10,628,000		7,295,000
Impaired loans with a related allowance recorded, recorded investment	69,000		69,000		253,000
Impaired loans with a related allowance recorded, unpaid principal balance	119,000		119,000		253,000
Impaired loans, related allowance	55,000		55,000		253,000
Impaired loans, recorded investment	9,327,000		9,327,000		6,753,000
Impaired loans, unpaid principal balance	10,747,000		10,747,000		7,548,000
Impaired loans with no related allowance recorded, average recorded investment	9,374,000	$ 8,635,000	8,295,000	$ 8,684,000
Impaired loans with no allowance recorded, interest income recognized	32,000	10,000	101,000	174,000
Impaired loans with a related allowance recorded, average recorded investment	50,000	245,000	189,000	237,000
Impaired loans with a related allowance recorded, interest income recognized
Impaired loans, average recorded investment	9,424,000	8,880,000	8,484,000	8,921,000
Impaired loans, interest income recognized	32,000	10,000	101,000	174,000
Commercial Real Estate Portfolio Segment [Member] | Business Activities Loans [Member]
Impaired loans with no related allowance recorded, recorded investment	3,989,000		3,989,000		1,977,000
Impaired loans with no related allowance recorded, unpaid principal balance	4,481,000		4,481,000		2,425,000
Impaired loans with a related allowance recorded, recorded investment
Impaired loans with a related allowance recorded, unpaid principal balance
Impaired loans, related allowance
Impaired loans, recorded investment	3,989,000		3,989,000		1,977,000
Impaired loans, unpaid principal balance	4,481,000		4,481,000		2,425,000
Impaired loans with no related allowance recorded, average recorded investment	4,062,000	6,111,000	3,157,000	6,173,000
Impaired loans with no allowance recorded, interest income recognized	21,000	10,000	70,000	159,000
Impaired loans with a related allowance recorded, average recorded investment
Impaired loans with a related allowance recorded, interest income recognized
Impaired loans, average recorded investment	4,062,000	6,111,000	3,157,000	6,173,000
Impaired loans, interest income recognized	21,000	10,000	70,000	159,000
Residential Portfolio Segment [Member] | Business Activities Loans [Member]
Impaired loans with no related allowance recorded, recorded investment	3,521,000		3,521,000		3,336,000
Impaired loans with no related allowance recorded, unpaid principal balance	3,554,000		3,554,000		3,369,000
Impaired loans with a related allowance recorded, recorded investment
Impaired loans with a related allowance recorded, unpaid principal balance
Impaired loans, related allowance
Impaired loans, recorded investment	3,521,000		3,521,000		3,336,000
Impaired loans, unpaid principal balance	3,554,000		3,554,000		3,369,000
Impaired loans with no related allowance recorded, average recorded investment	3,523,000	1,903,000	3,451,000	1,907,000
Impaired loans with no allowance recorded, interest income recognized	3,000		8,000	5,000
Impaired loans with a related allowance recorded, average recorded investment
Impaired loans with a related allowance recorded, interest income recognized
Impaired loans, average recorded investment	3,523,000	1,903,000	3,451,000	1,907,000
Impaired loans, interest income recognized	3,000		8,000	5,000
Commercial Portfolio Segment [Member] | Business Activities Loans [Member]
Impaired loans with no related allowance recorded, recorded investment	980,000		980,000		497,000
Impaired loans with no related allowance recorded, unpaid principal balance	1,751,000		1,751,000		683,000
Impaired loans with a related allowance recorded, recorded investment	48,000		48,000		251,000
Impaired loans with a related allowance recorded, unpaid principal balance	98,000		98,000		251,000
Impaired loans, related allowance	48,000		48,000		251,000
Impaired loans, recorded investment	1,028,000		1,028,000		748,000
Impaired loans, unpaid principal balance	1,849,000		1,849,000		934,000
Impaired loans with no related allowance recorded, average recorded investment	1,018,000	37,000	948,000	46,000
Impaired loans with no allowance recorded, interest income recognized
Impaired loans with a related allowance recorded, average recorded investment	45,000	245,000	185,000	237,000
Impaired loans with a related allowance recorded, interest income recognized
Impaired loans, average recorded investment	1,063,000	282,000	1,133,000	283,000
Impaired loans, interest income recognized
Consumer Portfolio Segment [Member] | Business Activities Loans [Member]
Impaired loans with no related allowance recorded, recorded investment	768,000		768,000		690,000
Impaired loans with no related allowance recorded, unpaid principal balance	842,000		842,000		818,000
Impaired loans with a related allowance recorded, recorded investment	21,000		21,000		2,000
Impaired loans with a related allowance recorded, unpaid principal balance	21,000		21,000		2,000
Impaired loans, related allowance	7,000		7,000		2,000
Impaired loans, recorded investment	789,000		789,000		692,000
Impaired loans, unpaid principal balance	863,000		863,000		$ 820,000
Impaired loans with no related allowance recorded, average recorded investment	771,000	584,000	739,000	558,000
Impaired loans with no allowance recorded, interest income recognized	8,000		23,000	10,000
Impaired loans with a related allowance recorded, average recorded investment	5,000		4,000
Impaired loans with a related allowance recorded, interest income recognized
Impaired loans, average recorded investment	776,000	584,000	743,000	558,000
Impaired loans, interest income recognized	$ 8,000		$ 23,000	$ 10,000

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Note 6 - Deposits - Summary of Deposits (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Non-interest bearing	$ 81,687	$ 81,197
Interest bearing:
NOW	24,827	25,476
Savings	100,294	135,975
Money market	62,314	16,575
Certificates of deposit, less than $250,000	203,044	173,221
Certificates of deposit, $250,000 or greater	81,346	66,866
Brokered deposits	166,020	138,129
Interest bearing, Total	637,845	556,242
Deposits	$ 719,532	$ 637,439

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Note 7 - Share-based Compensation and Employee Benefit Plan (Details Textual) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Jun. 30, 2018	Dec. 31, 2017	Jun. 30, 2017	Dec. 31, 2016
Labor and Related Expense	$ 2,794,000	$ 2,741,000	$ 8,417,000	$ 7,668,000
Common Stock, Dividends, Per Share, Cash Paid	$ 0.01		$ 0.01
Payments of Ordinary Dividends, Common Stock	$ 39,000	39,000	$ 116,000	39,000
Defined Contribution Plan, Employer Matching Contribution, Percent of Employees' Gross Pay			50.00%
Defined Contribution Plan, Maximum Annual Contributions Per Employee, Percent			6.00%
Defined Contribution Plan, Cost	$ 38,000	$ 37,000	$ 154,000	$ 132,000
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Forfeited in Period	200	600	1,404	6,600
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number, Ending Balance	35,498	29,825	35,498	29,825	38,086	25,870	32,117	35,264
2012 Stock Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized	3,000,000		3,000,000
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant	2,870,113		2,870,113
Allocated Share-based Compensation Expense, Total	$ 56,000	$ 37,000	$ 163,000	$ 105,000
2012 Stock Plan [Member] | Employee [Member]
Allocated Share-based Compensation Expense, Total	33,000	16,000	100,000	48,000
2012 Stock Plan [Member] | Patriot's External Directors [Member]
Allocated Share-based Compensation Expense, Total	23,000	21,000	63,000	57,000
2012 Stock Plan [Member] | Patriot's External Directors [Member] | Other Nonoperating Income (Expense) [Member]
Labor and Related Expense	$ 77,000	$ 80,000	$ 241,000	$ 226,000
2012 Stock Plan [Member] | Phantom Share Units (PSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Outstanding, Number, Ending Balance	0		0
2012 Stock Plan [Member] | Restricted Stock [Member]
Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Share-based Awards Other than Options	$ 428,000		$ 428,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition			2 years 222 days
2012 Stock Plan [Member] | Restricted Stock [Member] | Non-executive Employees [Member]
Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Share-based Awards Other than Options	$ 8,000		$ 8,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Forfeited in Period	200	600	300	600
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number, Ending Balance	6,000		6,000
2012 Stock Plan [Member] | Restricted Stock [Member] | Share-based Compensation Award, Tranche Two [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period			4 years
2012 Stock Plan [Member] | Restricted Stock [Member] | Share-based Compensation Award, Tranche Three [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period			5 years

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Note 7 - Share-based Compensation and Employee Benefit Plan - Restricted Shares (Details) - Restricted Stock [Member] - $ / shares	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Unvested at beginning of year (in shares)	38,086	32,117	25,870	35,264
Unvested at beginning of year, weighted average grant date fair value (in dollars per share)	$ 14.57	$ 12.39	$ 12.15	$ 12.84
Vested (in shares)	(2,388)	(1,692)	(7,291)	(3,923)
Vested, weighted average grant date fair value (in dollars per share)	$ 16.24	$ 16.80	$ 15.36	$ 14.66
Forfeited (in shares)	(200)	(600)	(1,404)	(6,600)
Forfeited, weighted average grant date fair value (in dollars per share)	$ 15.50	$ 15.50	$ 14.44	$ 15.50
Unvested at end of year (in shares)	35,498	29,825	35,498	29,825
Unvested at end of year, weighted average grant date fair value (in dollars per share)	$ 14.46	$ 12.08	$ 14.46	$ 12.08
Granted (in shares)			18,323	5,084
Granted, weighted average grant date fair value (in dollars per share)			$ 18.07	$ 15.05

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Note 8 - Earnings Per Share - Computation of Earnings Per Share Basic and Diluted (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Basic earnings per share:
Net income attributable to Common shareholders	$ 769	$ 1,013	$ 2,870	$ 3,547
Weighted average shares outstanding (in shares)	3,904,751	3,894,237	3,903,056	3,893,702
Basic earnings per common share (in dollars per share)	$ 0.20	$ 0.26	$ 0.74	$ 0.91
Diluted earnings per share:
Net income attributable to Common shareholders	$ 769	$ 1,013	$ 2,870	$ 3,547
Weighted average shares outstanding (in shares)	3,904,751	3,894,237	3,903,056	3,893,702
Effect of potentially dilutive restricted common shares (in shares)	14,067	9,193	17,974	4,854
Weighted average diluted shares outstanding (in shares)	3,918,818	3,903,430	3,921,030	3,898,556
Diluted earnings per common share (in dollars per share)	$ 0.20	$ 0.26	$ 0.73	$ 0.91

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Note 9 - Financial Instruments With Off-balance Sheet Risk (Details Textual)	Sep. 30, 2018 USD ($)
Banks Reserve Based on Analysis in Unfunded Commitments	$ 8,000

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Note 9 - Financial Instruments With Off-balance Sheet Risk - Financial Instruments With Credit Risk (Details) $ in Thousands	Sep. 30, 2018 USD ($)
Commitments to extend credit	$ 162,951
Unused Line of Credit [Member]
Commitments to extend credit	93,277
Undisbursed Construction Loans [Member]
Commitments to extend credit	13,994
Home Equity Lines of Credit [Member]
Commitments to extend credit	19,430
Future Loan Commitments [Member]
Commitments to extend credit	35,089
Financial Standy Letter of Credit [Member]
Commitments to extend credit	$ 1,161

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Note 10 - Regulatory and Operational Matters (Details Textual)	Jan. 01, 2019	Sep. 30, 2018	Dec. 31, 2017
Capital Required to be Well Capitalized to Risk Weighted Assets		10.00%
Tier One Risk Based Capital Required to be Well Capitalized to Risk Weighted Assets		8.00%
Common Equity, Tier 1, Capital Required for Capital Adequacy to Risk Weighted Assets		6.50%
Tier One Leverage Capital Required to be Well Capitalized to Average Assets		5.00%
Capital Conservation Buffer		2.50%
Capital Conservation Buffer Phase In Amount		1.875%	1.25%
Scenario, Forecast [Member]
Common Equity, Tier 1, Capital Required for Capital Adequacy to Risk Weighted Assets	7.00%
Capital Required for Capital Adequacy to Risk Weighted Assets	10.50%
Tier One Risk Based Capital Required for Capital Adequacy to Risk Weighted Assets	8.50%

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Note 10 - Regulatory and Operational Matters - Regulatory Capital Amounts and Ratios (Details) - USD ($) $ in Thousands		Sep. 30, 2018	Dec. 31, 2017
Total Capital (to Risk Weighted Assets) To Be Well Capitalized Under Prompt Corrective Action Provisions Ratio		10.00%
Tier 1 Capital (to Risk Weighted Assets) To Be Well Capitalized Under Prompt Corrective Action Provisions Ratio		8.00%
Common Equity Tier 1 Capital (to Risk Weighted Assets) For Capital Adequacy Purposes Ratio		6.50%
Tier 1 Capital (to Average Assets) To Be Well Capitalized Under Prompt Corrective Action Provisions Ratio		5.00%
Parent Company [Member]
Total Capital (to Risk Weighted Assets) Actual Amount		$ 88,781	$ 74,264
Total Capital (to Risk Weighted Assets) Actual Ratio		10.328%	10.092%
Total Capital (to Risk Weighted Assets) To Be Well Capitalized Under Prompt Corrective Action Provisions Amount	[1]
Total Capital (to Risk Weighted Assets) To Be Well Capitalized Under Prompt Corrective Action Provisions Ratio	[1]
Total Capital (to Risk Weighted Assets) For Capital Adequacy Purposes With Capital Buffer Amount	[2]
Total Capital (to Risk Weighted Assets) For Capital Adequacy Purposes With Capital Buffer Ratio	[2]
Total Capital (to Risk Weighted Assets) For Capital Adequacy Purposes Amount		$ 68,767	$ 58,868
Total Capital (to Risk Weighted Assets) For Capital Adequacy Purposes Ratio		8.00%	8.00%
Tier 1 Capital (to Risk Weighted Assets) Actual Amount		$ 72,165	$ 67,959
Tier 1 Capital (to Risk Weighted Assets) Actual Ratio		8.395%	9.235%
Tier 1 Capital (to Risk Weighted Assets) To Be Well Capitalized Under Prompt Corrective Action Provisions Amount	[1]
Tier 1 Capital (to Risk Weighted Assets) To Be Well Capitalized Under Prompt Corrective Action Provisions Ratio	[1]
Tier 1 Capital (to Risk Weighted Assets) For Capital Adequacy Purposes With Capital Buffer Amount	[2]
Tier 1 Capital (to Risk Weighted Assets) For Capital Adequacy Purposes With Capital Buffer Ratio	[2]
Tier 1 Capital (to Risk Weighted Assets) For Capital Adequacy Purposes Amount		$ 51,575	$ 44,151
Tier 1 Capital (to Risk Weighted Assets) For Capital Adequacy Purposes Ratio		6.00%	6.00%
Common Equity Tier 1 Capital (to Risk Weighted Assets) Actual Amount		$ 64,165	$ 59,959
Common Equity Tier 1 Capital (to Risk Weighted Assets) Actual Ratio		7.465%	8.148%
Common Equity Tier 1 Capital (to Risk Weighted Assets) To Be Well Capitalized Under Prompt Corrective Action Provisions Amount	[1]
Common Equity Tier 1 Capital (to Risk Weighted Assets) To Be Well Capitalized Under Prompt Corrective Action Provisions Ratio	[1]
Common Equity Tier 1 Capital (to Risk Weighted Assets) For Capital Adequacy Purposes With Capital Buffer Amount	[2]
Common Equity Tier 1 Capital (to Risk Weighted Assets) For Capital Adequacy Purposes With Capital Buffer Ratio	[2]
Common Equity Tier 1 Capital (to Risk Weighted Assets) For Capital Adequacy Purposes Amount		$ 38,681	$ 33,113
Common Equity Tier 1 Capital (to Risk Weighted Assets) For Capital Adequacy Purposes Ratio		4.50%	4.50%
Tier 1 Capital (to Average Assets) Actual Amount		$ 72,165	$ 67,959
Tier 1 Capital (to Average Assets) Actual Ratio		7.847%	8.219%
Tier 1 Capital (to Average Assets) To Be Well Capitalized Under Prompt Corrective Action Provisions Amount	[1]
Tier 1 Capital (to Average Assets) To Be Well Capitalized Under Prompt Corrective Action Provisions Ratio	[1]
Tier 1 Capital (to Average Assets) For Capital Adequacy Purposes Amount		$ 36,785	$ 33,072
Tier 1 Capital (to Average Assets) For Capital Adequacy Purposes Ratio		4.00%	4.00%
Subsidiaries [Member]
Total Capital (to Risk Weighted Assets) Actual Amount		$ 97,403	$ 83,711
Total Capital (to Risk Weighted Assets) Actual Ratio		11.385%	11.406%
Total Capital (to Risk Weighted Assets) To Be Well Capitalized Under Prompt Corrective Action Provisions Amount	[1]	$ 85,554	$ 73,393
Total Capital (to Risk Weighted Assets) To Be Well Capitalized Under Prompt Corrective Action Provisions Ratio	[1]	10.00%	10.00%
Total Capital (to Risk Weighted Assets) For Capital Adequacy Purposes With Capital Buffer Amount	[2]	$ 84,485	$ 67,889
Total Capital (to Risk Weighted Assets) For Capital Adequacy Purposes With Capital Buffer Ratio	[2]	9.875%	9.25%
Total Capital (to Risk Weighted Assets) For Capital Adequacy Purposes Amount		$ 68,443	$ 58,715
Total Capital (to Risk Weighted Assets) For Capital Adequacy Purposes Ratio		8.00%	8.00%
Tier 1 Capital (to Risk Weighted Assets) Actual Amount		$ 90,787	$ 77,407
Tier 1 Capital (to Risk Weighted Assets) Actual Ratio		10.612%	10.547%
Tier 1 Capital (to Risk Weighted Assets) To Be Well Capitalized Under Prompt Corrective Action Provisions Amount	[1]	$ 68,443	$ 58,715
Tier 1 Capital (to Risk Weighted Assets) To Be Well Capitalized Under Prompt Corrective Action Provisions Ratio	[1]	8.00%	8.00%
Tier 1 Capital (to Risk Weighted Assets) For Capital Adequacy Purposes With Capital Buffer Amount	[2]	$ 67,374	$ 53,210
Tier 1 Capital (to Risk Weighted Assets) For Capital Adequacy Purposes With Capital Buffer Ratio	[2]	7.875%	7.25%
Tier 1 Capital (to Risk Weighted Assets) For Capital Adequacy Purposes Amount		$ 51,333	$ 44,036
Tier 1 Capital (to Risk Weighted Assets) For Capital Adequacy Purposes Ratio		6.00%	6.00%
Common Equity Tier 1 Capital (to Risk Weighted Assets) Actual Amount		$ 90,787	$ 77,407
Common Equity Tier 1 Capital (to Risk Weighted Assets) Actual Ratio		10.612%	10.547%
Common Equity Tier 1 Capital (to Risk Weighted Assets) To Be Well Capitalized Under Prompt Corrective Action Provisions Amount	[1]	$ 55,610	$ 47,706
Common Equity Tier 1 Capital (to Risk Weighted Assets) To Be Well Capitalized Under Prompt Corrective Action Provisions Ratio	[1]	6.50%	6.50%
Common Equity Tier 1 Capital (to Risk Weighted Assets) For Capital Adequacy Purposes With Capital Buffer Amount	[2]	$ 54,541	$ 42,201
Common Equity Tier 1 Capital (to Risk Weighted Assets) For Capital Adequacy Purposes With Capital Buffer Ratio	[2]	6.375%	5.75%
Common Equity Tier 1 Capital (to Risk Weighted Assets) For Capital Adequacy Purposes Amount		$ 38,499	$ 33,027
Common Equity Tier 1 Capital (to Risk Weighted Assets) For Capital Adequacy Purposes Ratio		4.50%	4.50%
Tier 1 Capital (to Average Assets) Actual Amount		$ 90,787	$ 77,407
Tier 1 Capital (to Average Assets) Actual Ratio		9.917%	9.36%
Tier 1 Capital (to Average Assets) To Be Well Capitalized Under Prompt Corrective Action Provisions Amount	[1]	$ 45,775	$ 41,351
Tier 1 Capital (to Average Assets) To Be Well Capitalized Under Prompt Corrective Action Provisions Ratio	[1]	5.00%	5.00%
Tier 1 Capital (to Average Assets) For Capital Adequacy Purposes Amount		$ 36,620	$ 33,081
Tier 1 Capital (to Average Assets) For Capital Adequacy Purposes Ratio		4.00%	4.00%

[1] Designation as "Well Capitalized" does not apply to bank holding companies - - the Company. Such categorization of capital adequacy only applies to insured depository institutions - - the Bank.

[2] The Capital Conservation Buffer implemented by the FDIC began to be phased in beginning January 1, 2016. It was not applicable to periods prior to that date and does not apply to bank holding companies - - the Company.

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Note 11 - Fair Value and Interest Rate Risk (Details Textual) - USD ($) $ / shares in Units, $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Other Investments, Total	$ 4,450	$ 4,450
Solomon Hess SBA Loan Fund [Member]
Other Investments, Total	$ 4,500
Federal Home Loan Bank Certificates and Obligations (FHLB) [Member]
Stock Value Par or Stated Value per Share	$ 100

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Note 11 - Fair Value and Interest Rate Risk - Financial Assets Measured at Fair Value on a Recurring Basis (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Available-for-sale securities	$ 40,264	$ 25,576
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Available-for-sale securities	21,235	7,224
Corporate Debt Securities [Member]
Available-for-sale securities	13,007	13,804
Subordinated Notes [Member]
Available-for-sale securities	4,525	4,548
US Treasury Securities [Member]
Available-for-sale securities	1,497
Fair Value, Measurements, Recurring [Member]
Available-for-sale securities	40,264	25,576
Contingent consideration liability	477
Fair Value, Measurements, Recurring [Member] | Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Available-for-sale securities	21,235	7,224
Fair Value, Measurements, Recurring [Member] | Corporate Debt Securities [Member]
Available-for-sale securities	13,007	13,804
Fair Value, Measurements, Recurring [Member] | Subordinated Notes [Member]
Available-for-sale securities	4,525	4,548
Fair Value, Measurements, Recurring [Member] | US Treasury Securities [Member]
Available-for-sale securities	1,497
Fair Value, Inputs, Level 1 [Member] | Fair Value, Measurements, Recurring [Member]
Available-for-sale securities
Contingent consideration liability
Fair Value, Inputs, Level 1 [Member] | Fair Value, Measurements, Recurring [Member] | Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Available-for-sale securities
Fair Value, Inputs, Level 1 [Member] | Fair Value, Measurements, Recurring [Member] | Corporate Debt Securities [Member]
Available-for-sale securities
Fair Value, Inputs, Level 1 [Member] | Fair Value, Measurements, Recurring [Member] | Subordinated Notes [Member]
Available-for-sale securities
Fair Value, Inputs, Level 1 [Member] | Fair Value, Measurements, Recurring [Member] | US Treasury Securities [Member]
Available-for-sale securities
Fair Value, Inputs, Level 2 [Member] | Fair Value, Measurements, Recurring [Member]
Available-for-sale securities	40,264	25,576
Contingent consideration liability
Fair Value, Inputs, Level 2 [Member] | Fair Value, Measurements, Recurring [Member] | Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Available-for-sale securities	21,235	7,224
Fair Value, Inputs, Level 2 [Member] | Fair Value, Measurements, Recurring [Member] | Corporate Debt Securities [Member]
Available-for-sale securities	13,007	13,804
Fair Value, Inputs, Level 2 [Member] | Fair Value, Measurements, Recurring [Member] | Subordinated Notes [Member]
Available-for-sale securities	4,525	4,548
Fair Value, Inputs, Level 2 [Member] | Fair Value, Measurements, Recurring [Member] | US Treasury Securities [Member]
Available-for-sale securities	1,497
Fair Value, Inputs, Level 3 [Member] | Fair Value, Measurements, Recurring [Member]
Available-for-sale securities
Contingent consideration liability	477
Fair Value, Inputs, Level 3 [Member] | Fair Value, Measurements, Recurring [Member] | Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Available-for-sale securities
Fair Value, Inputs, Level 3 [Member] | Fair Value, Measurements, Recurring [Member] | Corporate Debt Securities [Member]
Available-for-sale securities
Fair Value, Inputs, Level 3 [Member] | Fair Value, Measurements, Recurring [Member] | Subordinated Notes [Member]
Available-for-sale securities
Fair Value, Inputs, Level 3 [Member] | Fair Value, Measurements, Recurring [Member] | US Treasury Securities [Member]
Available-for-sale securities

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Note 11 - Fair Value and Interest Rate Risk - Quantitative Information About Level 3 Fair Value Measurements (Details) - Fair Value, Inputs, Level 3 [Member] - Fair Value of Collateral Approach [Member] - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2018	Dec. 31, 2017
Impaired loans, net including PCI loans		$ 6,500
Impaired Loans [Member]
Impaired loans, net including PCI loans	$ 10,173
Impaired Loans [Member] | Minimum [Member]
Discount for appraisal type	0.00%	0.00%
Impaired Loans [Member] | Maximum [Member]
Discount for appraisal type	8.00%	8.00%
Other Real Estate Owned [Member]
Discount for appraisal type	14.00%
Other Real Estate Owned	$ 991

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Note 11 - Fair Value and Interest Rate Risk - Financial Assets and Liabilities (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Financial Assets:
Available-for-sale securities	$ 40,264	$ 25,576
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Financial Assets:
Available-for-sale securities	21,235	7,224
Corporate Debt Securities [Member]
Financial Assets:
Available-for-sale securities	13,007	13,804
Subordinated Notes [Member]
Financial Assets:
Available-for-sale securities	4,525	4,548
Reported Value Measurement [Member]
Financial Assets:
Financial assets, total	861,968	804,504
Financial Liabilities:
Financial liabilities, total	842,579	779,377
Estimate of Fair Value Measurement [Member]
Financial Assets:
Financial assets, total	854,307	793,970
Financial Liabilities:
Financial liabilities, total	838,139	777,850
Fair Value, Inputs, Level 1 [Member] | Reported Value Measurement [Member] | Brokered Deposits [Member]
Financial Liabilities:
Deposits	166,020	138,129
Fair Value, Inputs, Level 1 [Member] | Reported Value Measurement [Member] | Cash and Due from Banks [Member]
Financial Assets:
Cash and cash equivalents	5,596	3,582
Fair Value, Inputs, Level 1 [Member] | Reported Value Measurement [Member] | Interest-bearing Deposits [Member]
Financial Assets:
Cash and cash equivalents	43,636	45,659
Fair Value, Inputs, Level 1 [Member] | Estimate of Fair Value Measurement [Member] | Brokered Deposits [Member]
Financial Liabilities:
Deposits	165,437	137,870
Fair Value, Inputs, Level 1 [Member] | Estimate of Fair Value Measurement [Member] | Cash and Due from Banks [Member]
Financial Assets:
Cash and cash equivalents	5,596	3,582
Fair Value, Inputs, Level 1 [Member] | Estimate of Fair Value Measurement [Member] | Interest-bearing Deposits [Member]
Financial Assets:
Cash and cash equivalents	43,636	45,659
Fair Value, Inputs, Level 2 [Member] | Reported Value Measurement [Member]
Financial Assets:
Available-for-sale securities	1,497
Other investments	4,450	4,450
Federal Reserve Bank stock	2,833	2,502
Federal Home Loan Bank stock	4,928	5,889
Accrued interest receivable	3,612	3,496
Financial Liabilities:
FHLB and correspondent bank borrowings	90,000	120,000
Senior notes	11,759	11,703
Subordinated debt	9,720
Junior subordinated debt owed to unconsolidated trust	8,092	8,086
Accrued interest payable	1,563	569
Fair Value, Inputs, Level 2 [Member] | Reported Value Measurement [Member] | Demand Deposits [Member]
Financial Liabilities:
Deposits	81,687	81,197
Fair Value, Inputs, Level 2 [Member] | Reported Value Measurement [Member] | Savings Deposits [Member]
Financial Liabilities:
Deposits	100,294	135,975
Fair Value, Inputs, Level 2 [Member] | Reported Value Measurement [Member] | Money Market Deposits [Member]
Financial Liabilities:
Deposits	62,314	16,575
Fair Value, Inputs, Level 2 [Member] | Reported Value Measurement [Member] | Negotiable Order of Withdrawal (NOW) Accounts [Member]
Financial Liabilities:
Deposits	24,827	25,476
Fair Value, Inputs, Level 2 [Member] | Reported Value Measurement [Member] | Time Deposits [Member]
Financial Liabilities:
Deposits	284,390	240,087
Fair Value, Inputs, Level 2 [Member] | Reported Value Measurement [Member] | Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Financial Assets:
Available-for-sale securities	21,235	7,224
Fair Value, Inputs, Level 2 [Member] | Reported Value Measurement [Member] | Corporate Debt Securities [Member]
Financial Assets:
Available-for-sale securities	13,007	13,804
Fair Value, Inputs, Level 2 [Member] | Reported Value Measurement [Member] | Subordinated Notes [Member]
Financial Assets:
Available-for-sale securities	4,525	4,548
Fair Value, Inputs, Level 2 [Member] | Estimate of Fair Value Measurement [Member]
Financial Assets:
Available-for-sale securities	1,497
Other investments	4,450	4,450
Federal Reserve Bank stock	2,833	2,502
Federal Home Loan Bank stock	4,928	5,889
Accrued interest receivable	3,612	3,496
Financial Liabilities:
FHLB and correspondent bank borrowings	89,266	120,218
Senior notes	11,108	11,249
Subordinated debt	9,158
Junior subordinated debt owed to unconsolidated trust	8,092	8,086
Accrued interest payable	1,563	569
Fair Value, Inputs, Level 2 [Member] | Estimate of Fair Value Measurement [Member] | Demand Deposits [Member]
Financial Liabilities:
Deposits	81,687	81,197
Fair Value, Inputs, Level 2 [Member] | Estimate of Fair Value Measurement [Member] | Savings Deposits [Member]
Financial Liabilities:
Deposits	100,294	135,975
Fair Value, Inputs, Level 2 [Member] | Estimate of Fair Value Measurement [Member] | Money Market Deposits [Member]
Financial Liabilities:
Deposits	62,314	16,575
Fair Value, Inputs, Level 2 [Member] | Estimate of Fair Value Measurement [Member] | Negotiable Order of Withdrawal (NOW) Accounts [Member]
Financial Liabilities:
Deposits	24,827	25,476
Fair Value, Inputs, Level 2 [Member] | Estimate of Fair Value Measurement [Member] | Time Deposits [Member]
Financial Liabilities:
Deposits	282,671	239,219
Fair Value, Inputs, Level 2 [Member] | Estimate of Fair Value Measurement [Member] | Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Financial Assets:
Available-for-sale securities	21,235	7,224
Fair Value, Inputs, Level 2 [Member] | Estimate of Fair Value Measurement [Member] | Corporate Debt Securities [Member]
Financial Assets:
Available-for-sale securities	13,007	13,804
Fair Value, Inputs, Level 2 [Member] | Estimate of Fair Value Measurement [Member] | Subordinated Notes [Member]
Financial Assets:
Available-for-sale securities	4,525	4,548
Fair Value, Inputs, Level 3 [Member] | Reported Value Measurement [Member]
Financial Assets:
Loans receivable, net	756,649	713,350
Financial Liabilities:
Note payable	1,436	1,580
Contingent consideration liability	477
Fair Value, Inputs, Level 3 [Member] | Estimate of Fair Value Measurement [Member]
Financial Assets:
Loans receivable, net	748,988	702,816
Financial Liabilities:
Note payable	1,245	1,416
Contingent consideration liability	$ 477