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,

2017,

the Bank had

$46.1

million of available borrowing capacity from the FHLB.

FHLB a

dvances 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,

2017

and

2016,

outstanding advances from the FHLB aggregated

$120.0

million and

$123.0

million, respectively. The advances outstanding at

December

31,

2017

bore fixed rates of interest ranging from

0.33%

1.4%

with maturities ranging from

169

days to

4.58

years. At

December

31,

2017,

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

$269.7

million.

In addition, Patriot has a

$2.0

million revolving line of credit with the FHLB. At

December

31,

2017

and

2016,

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 FRB, ACH, and other clearinghouse transactions.

The Correspondent Bank Agreement provides for up to

$16

million in funds of which

funds were outstanding as of

December

31,

2017

and

$15.0

were outstanding at 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 expenses incurred for the year ended

December 31, 2017

and

2016

were

$2,000

and

$3,000,

respectively.

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 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

December

31,

2017

and

2016,

$297,000

and

$372,000

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

For the year ended

December

31,

2017

and

2016,

the Company recognized interest expense of

$915,000

and

$25,000,

respectively, 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

$75,000

and

$2,000,

respectively. As of

December

31,

2017

and

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

payment of principal until maturity.

Junior subordinated debt owed to unconsolidated trust

2003,

the Trust, which has

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%

(

4.82%

December

31,

2017

) 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,

2017

and

2016,

$7,000

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

$360,000

and

$334,000,

respectively. As of

December

31,

2017

and

2016,

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

$162,000

and

$169,000

, respectively, and accrued interest on the junior subordinated debentures was

$6,000

and

$6,000,

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

$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

December

31,

2017

and

2016,

the note had a balance outstanding of

$1.6

million and

$1.8

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,

2017,

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
2018	$	30,000		-		-			-			192		30,192
2019		-		-		-			-			195		195
2020		25,000		-		-			-			199		25,199
2021		-		-		12,000			-			202		12,202
2022		65,000		-		-			-			206		65,206
Thereafter		-		-		-			8,248			586		8,834

Total contractual maturities of borrowings		120,000		-		12,000			8,248			1,580		141,828

Unamortized debt issuance costs		-		-		(297	)		(162	)		-		(459	)

Balance of borrowings at December 31, 2017	$	120,000		-		11,703			8,086			1,580		141,369