Note

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

March

31,

2017

and

December

31,

2016,

there are

options or phantom stock units outstanding or that have been exercised.

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

March

31,

2017,

2,885,516

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

five

year period from the date of grant. During the

three

months ended

March

31,

2017,

the Company did not grant any RSAs to directors and employees. During the

three

months ended

March

31,

2016,

the Company granted

52,200

restricted shares to employees and

5,884

restricted shares to directors, respectively. During the

three

months ended

March

31,

2017,

2,231

shares of restricted stock became vested. All RSAs are non- participating grants.

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

months ended

March

31,

2017

and

March

31,

2016,

the Company recognized share-based compensation expense of

$43,000

and

$154,000,

respectively.

For the

three

months ended

March

31,

2017

and

March

31,

2016,

share-based compensation attributable to employees of Patriot amounted to

$28,000

and

$140,000,

respectively.

Included in share-based compensation expense for the

three

months ended

March

31,

2017

and

March

31,

2016

were

$15,000

and

$14,000

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

$69,000

and

$72,000

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

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

March

31,

2017

and

2016

and changes therein during the periods indicated:

Three months ended March 31, 2017:	Number of Shares Awarded			Weighted Average Grant Date Fair Value
Unvested at December 31, 2016		35,264		$	12.84
Vested		(2,231	)	$	(13.03	)
Unvested at March 31, 2017		33,033		$	12.55

Three months ended March 31, 2016:
Unvested at December 31, 2015		55,854		$	12.83
Granted		58,084		$	15.25
Unvested at March 31, 2016		113,938		$	14.06

Compensation expense attributable to the unvested restricted shares outstanding as of

March

31,

2017

amounts to

$412,000,

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

2.7

years.

RSA Grant - Non-executive Employees

January

2016,

the Company granted

100

restricted shares of common stock to each of

eighty

seven

full- and part-time non-executive employees as of

December

31,

2015.

The total number of shares granted was

8,700

at a grant date fair value of

$15.50

per share, resulting in expected future employee compensation of

$135,000.

The shares granted vest in

three

-years on

January

2019

and are non-participating during the vesting period.

During the

three

months ended

March

31,

2017,

none of the shares granted were forfeited. The remaining

6,900

shares continue to vest and

$71,000

of compensation expense is expected to be recognized through the

January

2019

vesting date.

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. During the

three

months ended

March

31,

2017

and

March

31,

2016,

compensation expense under the

401K

aggregated

$34,000

and

$43,000,

respectively.