Note

Business Combinations

Generally, 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

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

$383,000

acquisition costs, charged to operations in the

first

half of

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. The goodwill is all deductible for income taxes over

years.

Patriot engaged independent consultants recognized as experts in the field of valuations and fair value measurements for acquisition and merger transactions. Fair values were 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

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

new accounts, and

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:

(In thousands)	Prime Bank
Consideration Paid
Cash consideration	$	5,596
Contingent consideration		1,761

Recognized amounts of identifiable assets acquired and liabilities assumed
Cash and cash equivalents	$	1,152
Securities		35,532
Loans, net of allowance		21,605
Premises and equipment, net		6
Other real estate owned		991
Core deposit intangibles		552
Other assets		1,514
Total assets acquired	$	61,352

Deposits		46,184
Borrowings		9,800
Other liabilities		111
Total liabilities assumed	$	56,095
Identifiable net assets acquired	$	5,257

Goodwill resulting from acquisition	$	2,100

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

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 life, useful life/ or contractual term of related assets and liabilities. The core deposit intangible will be amortized over a

-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 an additional payment (contingent consideration) with the amount to be determined based on the curing of certain loan deficiencies. The maximum amount payable under the letter agreement is

$2.858

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

$1.761

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

The initial 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.

Pending Acquisition

Definitive Purchase Agreement

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

billion of SBA

(a) loans since its inception in

2006.

The transaction includes the purchase of approximately

$120

million of SBA

(a) loans and servicing rights relating to a pool of

$370

million in loans, and the assumption of

two

loan securitization vehicles, currently rated “AA+” (Hana SBL Loan Trust

2014

) and “A-” (Hana SBL Loan Trust

2016

) by Standard and Poor’s. Total cash consideration is approximately

$83

million with the assumption of approximately

$41

million of liabilities. The transaction is subject to the satisfactory completion of certain due diligence requirements, purchase price adjustments at closing and the receipt of required governmental and regulatory approvals.

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

August 1, 2019.

As a result of the proximity of the definitive purchase to the date these consolidated financial statements are being issued, Patriot is still evaluating the estimated fair values of the assets to be acquired and the liabilities to be assumed. Accordingly, the amount of any goodwill and other intangible assets to be recognized in the connection with this transaction, as well as acquisition costs incurred and expected to be incurred, are also yet to be determined. The Company incurred

$313,000

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

three

months ended

June

30,

2018.

Due to the proximity of the announced amendment the Company is now in process of determining the costs to be incurred under the amended agreement.