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

September 30, 2017

and

December 31, 2016,

there were

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

The Plan provides for the issuance of u

p to

3,000,000

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

September 30, 2017,

2,887,032

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

nine

months ended

September 30, 2017,

the Company granted

5,084

RSAs to directors and

zero

RSA to employees. During the

nine

months ended

September 30, 2016,

the Company granted

52,200

restricted shares to employees and

5,884

restricted shares to directors, respectively. During the

three

and

nine

months ended

September 30, 2017,

1,692

and

3,923

shares of restricted stock became vested,

600

and

6,600

shares of restricted stock forfeited, respectively. 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

and

nine

months ended

September 30, 2017,

the Company recognized 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.

For the

three

months ended

September 30, 2016,

the Company recorded a net credit to share-based compensation expense of

$182,000,

and net expense of

$126,000,

for the

nine

months ended

September 30, 2016.

The share-based compensation attributable to employees of Patriot amounted to a net credit of

$198,000

and net expense of

$80,000

for the

three

and

nine

months ended

September 30, 2016,

respectively. The net credit was primarily due to the resignations of the Company’s Chief Executive Officer and the Chief Operating Officer in the

third

quarter of

2016.

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.

The share-based compensation expense for the

three

and

nine

months ended

September 30, 2016

were

$16,000

and

$46,000

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

$75,000

and

$227,000

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

The following is a summary of the status of the Company

’s restricted shares as of

September 30, 2017

and

2016

and changes therein during the periods indicated:

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

Three months ended September 30, 2016:	Number of Shares Awarded			Weighted Average Grant Date Fair Value
Unvested at June 30, 2016		107,199		$	14.16
Vested		(1,688	)	$	16.80
Forfeited		(65,500	)	$	14.87
Unvested at September 30, 2016		40,011		$	12.87

Nine months ended September 30, 2016:
Unvested at December 31, 2015		55,854		$	12.83
Granted		58,084		$	15.25
Vested		(4,214	)	$	15.55
Forfeited		(69,713	)	$	14.66
Unvested at September 30, 2016		40,011		$	12.87

Compensation expense attributable to the unvested restricted shares outstanding as of

September 30, 2017

amounts to $

321,000,

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

2.27

years.

RSA Grant - Non-executive Employees

January 4, 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. The shares granted vest on

January 2, 2019

and are non-participating during the vesting period.

During

the

nine

months ended

September 30, 2017,

600

granted shares were forfeited. During the

nine

months ended

September 30, 2016,

1,800

granted shares were forfeited. The remaining

6,300

shares continue to vest and

$41,000

of compensation expense is expected to be recognized through the

January 2019

vesting date.

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

. During the

three

and

nine

months ended

September 30, 2017,

compensation expense under the

401K

aggregated

$37,000

and

$132,000,

respectively. During the

three

and

nine

months ended

September 30, 2016,

compensation expense under the

401K

aggregated

$39,000

and

$120,000,

respectively.

Dividends

July 17, 2017,

the Company announced its intention to begin making quarterly cash dividend payments. The

first

dividend of

$0.01

per share was announced for shareholders of record as of

July 24, 2017

with a payment date of

August 1, 2017.

For the

nine

months ended

September 30, 2017,

the Company paid cash dividends of

$39,000.

dividend was declared and paid for the

nine

months ended

September 30, 2016.

The next dividend payment is scheduled on

November 10, 2017

for shareholders of record as of

November 9, 2017.