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Note 10 - Borrowings
 12 Months Ended
Dec. 31, 2021
Notes to Financial Statements  
Debt Disclosure [Text Block]

Note 10.

Borrowings

 

As of December 31, 2021 and 2020, total borrowings were $120.7 million and $120.8 million, respectively. Borrowings consist primarily of FHLB advances, senior notes, subordinated notes, junior subordinated debentures and a note payable.

 

The senior notes, subordinated notes, junior subordinated debentures 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.

 

Federal Home Loan Bank borrowings

 

The Company is a member of the Federal Home Loan Bank of Boston ("FHLB-B"). Borrowings from the FHLB-B are limited to a percentage of the value of qualified collateral, as defined on the FHLB-B 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, 2021, the Bank had $73.6 million of available borrowing capacity from the FHLB-B.

 

FHLB-B advances are structured to facilitate the Bank’s management of its balance sheet and liquidity requirements. At December 31, 2021 and 2020, outstanding advances from the FHLB-B aggregated $90.0 million and $90.0 million, respectively.

 

At December 31, 2021, advances of $90.0 million outstanding bore fixed rates of interest ranging from 2.40% to 4.23% with maturities ranging from 1.5 years to 2.7 years. The FHLB-B advances with fixed interest rates have a weighted average interest rate of 3.26%. Included in the fixed rate advances are three advances totaling $60.0 million, callable by the FHLB quarterly through October 2023.

 

At December 31, 2021, collateral for FHLB-B borrowings consisted of a mixture of real estate loans and securities with book value of $240.0 million. Borrowing capacity under this line totaled $73.6 million at December 31, 2021.

 

In addition, Patriot has a $2.0 million revolving line of credit with the FHLB-B. At December 31, 2021 and 2020, no funds had been borrowed under the line of credit.

 

Interest expense incurred for FHLB-B borrowing for the year ended December 31, 2021, 2020 and 2019 were $3.0 million, $2.7 million and $2.2 million, respectively.

 

Correspondent Bank - Lines of Credit

 

Patriot has entered into unsecured federal funds sweep and federal funds line of credit facility agreements with certain correspondent Banks. As of December 31, 2021 and 2020, borrowings available under the agreements totaled $5 million and $5 million, respectively. The purpose of the agreements is to provide a credit facility intended to satisfy overnight federal account balance requirements and to provide for daily settlement of FRB, ACH, and other clearinghouse transactions.

 

There was no outstanding balance under the agreements at December 31, 2021 and 2020. No interest expense incurred in 2021 and 2020. Interest expense incurred for the year ended December 31, 2019 was $2,000.

 

Other Borrowing

 

In August 2020, Patriot was approved to pledge commercial and industrial loans and leases, commercial real estate, construction loans and one-to-four family first lien loans under the Federal Reserve Bank of New York’s (“FRBNY”) Borrower-in-Custody program. As of December 31, 2021, Patriot had pledged eligible loans with a book value of $25.1 million and a collateral value of $16.9 million as collateral to support borrowing capacity at the FRBNY. There was no outstanding balance under the agreements as of December 31, 2021.

 

Senior notes

 

On December 22, 2016, the Company issued $12 million of senior notes bearing interest at 7% per annum (the “Senior Notes”). On November 17, 2021, the original maturity date of the Senior Notes was extended from December 22, 2021 to June 30, 2022. 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, 2021, the debt issuance cost was fully amortized. As of December 31, 2020, unamortized debt issuance cost of $73,000 was deducted from the face amount of the Senior Notes included in the consolidated balance sheet.

 

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.

 

For the year ended December 31, 2021, 2020 and 2019, the Company recognized interest expense of $913,000, $915,000 and $915,000, respectively, at an effective rate of 7.6%, which amount is greater than the stated interest rate on the Senior Notes due to debt issuance cost amortization expense of $73,000, $75,000 and $75,000, respectively. As of December 31, 2021 and 2020, $23,000 and $23,000 of interest has been included in the consolidated balance sheet in accrued expenses and other liabilities, respectively.

 

Subordinated notes

 

On June 29, 2018, the Company entered into certain subordinated note purchase agreements with two institutional accredited investors and completed a private placement of $10 million of fixed-to-floating rate subordinated notes with the maturity date of September 30, 2028 (the “Subordinated Notes”) pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule 506(b) of Regulation D promulgated thereunder.

 

The Subordinated Notes initially bear interest at 6.25% per annum, from and including June 29, 2018, to but excluding, June 30, 2023, payable semi-annually in arrears. From and including June 30, 2023, until but excluding June 30, 2028 or an early redemption date, the interest rate shall reset quarterly to an interest rate per annum equal to the then current three-month LIBOR (but not less than zero) plus 332.5 basis points, payable quarterly in arrears. The Company may, at its option, beginning on June 30, 2023 and on any scheduled interest payment date thereafter, redeem the Subordinated Notes. Interest on the Subordinated Notes is payable beginning on December 30, 2018.

 

In connection with the issuance of the Subordinated Notes, the Company incurred $291,000 of debt issuance costs, which are being amortized over the term of the Subordinated Notes to recognize a constant rate of interest expense. At  December 31, 2021 and 2020, $189,000 and $218,000 of unamortized debt issuance costs have been deducted from the face amount of the Subordinated Notes included in the consolidated balance sheet, respectively. For the year ended December 31, 2021, 2020 and 2019, the Company recognized interest expense of $654,000, $654,000 and $656,000, respectively.

 

Junior subordinated debt owed to unconsolidated trust

 

In 2003, the Patriot National Statutory Trust I (“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 2 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% (3.37% at December 31, 2021) 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 20 consecutive quarters. In June of 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, 2021, 2020 and 2019, $9,000, $8,000 and $8,000 of debt placement fee amortization has been included in interest expense recognized of $279,000, $337,000 and $462,000, respectively. As of December 31, 2021 and 2020, the unamortized placement fee deducted from the face amount of the junior subordinated debt owed to the unconsolidated trust amounted to $129,000 and $138,000, respectively, and accrued interest on the junior subordinated debentures was $4,000 and $5,000, 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

 

In 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, 2021 and 2020, the note had a balance outstanding of $791,000 and $994,000, 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. Interest expenses incurred for the year ended December 31, 2021, 2020 and 2019 were $15,000, $19,000 and $23,000, respectively.

 

Maturity of borrowings

 

At December 31, 2021, the contractual maturities of the Company’s borrowings in future periods were as follows:

 

(In thousands)

                        

Year ending December 31,

 

FHLB
Borrowings

  

Senior
Notes

  

Subordinated
Notes

  

Junior

Subordinated

Debt

  

Note
Payable

  

Total

 

2022

 $-  $12,000  $-  $-   206   12,206 

2023

  60,000   -   -   -   210   60,210 

2024

  30,000   -   -   -   375   30,375 

2025

  -   -   -   -   -   - 

2026

  -   -   -   -   -   - 

Thereafter

  -   -   10,000   8,248   -   18,248 
                         

Total contractual maturities of borrowings

  90,000   12,000   10,000   8,248   791   121,039 
                         

Unamortized debt issuance costs

  -   -   (189)  (129)  -   (318)
                         

Balance of borrowings as of December 31, 2021

 $90,000  $12,000  $9,811  $8,119  $791  $120,721