Note

Borrowings

Federal Home Loan Bank borrowings

Borrowings from the FHLB are limited to a percentage of the value of qualified collateral, as defined on the FHLB 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

December

31,

2016,

the Bank had

$14.2

million of available borrowing capacity from the FHLB.

FHLB advances are typically obtained at discounted rates during “loan sale” periods and are structured to facilitate the Bank’s management of its balance sheet and liquidity requirements. At

December

31,

2016

and

2015,

outstanding advances from the FHLB aggregated

$123.0

million and

$132.0

million, respectively. The advances outstanding at

December

31,

2016

bore fixed rates of interest ranging from

0.276%

0.800%

with maturities ranging from

days to

4.1

years. At

December

31,

2016,

collateral for FHLB borrowings consisted of a mixture of real estate loans and securities with book value of

$221.0

million.

In addition, Patriot has a

$2.0

million revolving line of credit with the FHLB. At

December

31,

2016

and

2015,

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 Fed account balance requirements and to provide for daily settlement of Fed, ACH, and other clearinghouse transactions.

The Correspondent Bank Agreement provides for up to

$16

million in funds of which

$15

million was outstanding as of

December

31,

2016.

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., Fed funds sweep, compensating balance) at variable rates depending on the total deposit, and charges interest on advances at Zions Bank’s daily Fed funds rate, which is variable. Interest expense for the year ended

December

31,

2016

amounted to

$3,000

on weighted average advances of

$11

million or a weighted average interest rate of

basis points.

Senior notes

December

22,

2016,

the Company issued

$12

million of senior notes bearing interest at

per annum and maturing on

December

22,

2021

(the “Senior notes”). Interest on the Senior notes is payable semi-annually on

June

and

December

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

December

31,

2016,

$372,000

of unamortized debt issuance costs have been deducted from the face amount of the Senior notes included in the Consolidated Balance Sheet.

For the year ended

December

31,

2016,

the Company recognized interest expense of

$25,000

at an effective rate of

7.62%,

which amount is greater than the stated interest rate on the Senior notes due to debt issuance cost amortization expense of

$2,000.

As of

December

31,

2016,

$23,000

of interest has been included in the Consolidated Balance Sheet in Accrued expenses and other liabilities.

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.

Junior subordinated debt owed to unconsolidated trust

2003,

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.

Trust preferred securities currently qualify for up to

25%

of the Company’s Tier I Capital, with the excess qualifying as Tier

Capital.

The junior subordinated debentures are unsecured obligations of the Company. The debentures are subordinate and junior in right of payment to all present and future senior indebtedness of the Company. In addition to its obligations under the junior subordinated debentures and in conjunction with the Trust, the Company issued an unconditional guarantee of the trust preferred securities.

The junior subordinated debentures bear interest at

three

-month LIBOR plus

3.15%

(4.15%

December

31,

2016)

and mature on

March

26,

2033,

at which time the principal amount borrowed will be due. Beginning in the

second

quarter of

2009,

the Company opted to defer payment of quarterly interest on the junior subordinated debentures for

consecutive quarters. In

June

2014,

the Company brought the debt current by paying approximately

$1.7

million of interest in arrears to the holders of the junior subordinated debentures. On bringing the debt current and, as permitted under the terms of the junior subordinated debentures, the Company again opted to defer payment of quarterly interest through

September

2016,

when a

$0.7

million payment was made to bring the debt current.

The placement fee of

$240,000

is amortized and included as a component of the periodic interest expense on the junior subordinated debentures, in order to produce a constant rate of interest expense. For the years ended

December

31,

2016

and

2015,

$7,000

of debt placement fee amortization has been included in interest expense recognized of

$334,000

and

$294,000,

respectively. As of

December

31,

2016

and

2015,

the unamortized placement fee deducted from the face amount of the junior subordinated debt owed to the unconsolidated trust amounted to

$169,000

and

$176,000

and accrued interest on the junior subordinated debentures was

$6,000

and

$430,000,

respectively.

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

September

2015,

the Bank purchased the property in which its Fairfield, Connecticut branch is located for approximately

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

December

31,

2016

and

2015,

the note had a balance outstanding of

$1.8

million and

$1.9

million, respectively. The note matures in

August

2024

and requires a balloon payment of approximately

$234,000.

The note is secured by a

first

Mortgage Deed and Security Agreement on the purchased property.

Maturity of borrowings

December

31,

2016,

the contractual maturities of the Company’s borrowings in future periods were as follows:

(In thousands)
Year ending December 31,	FHLB Borrowings		Correspondent Bank		Senior Notes			Subordinated Note			Note Payable		Total
2017	$	58,000		15,000		-			-			189		73,189
2018		-		-		-			-			192		192
2019		-		-		-			-			195		195
2020		40,000		-		-			-			199		40,199
2021		25,000		-		12,000			-			202		37,202
Thereafter		-		-		-			8,248			792		9,040

Total contractual maturities of borrowings		123,000		15,000		12,000			8,248			1,769		160,017

Unamortized debt issuance costs		-		-		(372	)		(169	)		--		(541	)

Balance of borrowings at December 31, 2016	$	123,000		15,000		11,628			8,079			1,769		159,476