Note

Loan Receivables and Allowance for Loan Losses

As of

December

31,

2016

and

2015,

loans receivable, net, consists of the following:

(In thousands)
	As of December 31,
Loan portfolio segment:	2016			2015
Commercial Real Estate	$	271,229			245,828
Residential Real Estate		86,514			110,837
Commercial and Industrial		60,977			59,752
Consumer and Other		101,449			47,521
Construction		53,895			15,551
Construction to permanent - CRE		7,593			4,880
Loans receivable, gross		581,657			484,369
Allowance for loan losses		(4,675	)		(5,242	)
Loans receivable, net	$	576,982			479,127

Patriot's lending activities are conducted principally in Fairfield and New Haven Counties in Connecticut and Westchester County in New York, and the

five

Boroughs of New York City. Patriot originates commercial real estate loans, commercial business loans, residential real estate loans, a variety of consumer loans, and construction loans. All commercial and residential real estate loans are collateralized primarily by

first

second

mortgages on real estate. The ability and willingness of borrowers to satisfy their loan obligations is dependent to some degree on the status of the regional economy as well as upon the regional real estate market. Accordingly, the ultimate collectability of a substantial portion of the loan portfolio and the recovery of a substantial portion of any resulting real estate acquired is susceptible to changes in market conditions.

Patriot has established credit policies applicable to each type of lending activity in which it engages and evaluates the creditworthiness of each borrower. Unless extenuating circumstances exist, Patriot limits the extension of credit on commercial real estate loans to

75%

of the market value of the underlying collateral. Patriot’s loan origination policy for multi–family residential real estate is limited to

80%

of the market value of the underlying collateral. In the case of construction loans, the maximum loan-to-value is

75%

of the “as completed” appraised value of the real estate project. Management monitors the appraised value of collateral on an on-going basis and additional collateral is requested when warranted. Real estate is the primary form of collateral, although other forms of collateral do exist and

may

include such assets as accounts receivable, inventory, marketable securities, time deposits, and other business assets.

Risk characteristics of the Company’s portfolio classes include the following

Commercial Real Estate Loans

In underwriting commercial real estate loans, Patriot evaluates both the prospective borrower’s ability to make timely payments on the loan and the value of the property securing the loans. Repayment of such loans

may

be negatively impacted should the borrower default, the value of the property collateralizing the loan substantially decline, or there are declines in general economic conditions. Where the owner occupies the property, Patriot also evaluates the business’ ability to repay the loan on a timely basis and

may

require personal guarantees, lease assignments, and/or the guarantee of the operating company.

Residential Real Estate Loans

The Bank provides both closed-end and revolving home equity loans. In

2013,

Patriot discontinued offering primary mortgages on personal residences. Repayment of residential real estate loans

may

be negatively impacted should the borrower have financial difficulties, should there be a significant decline in the value of the property securing the loan, or should there be declines in general economic conditions.

Commercial and Industrial Loans

Patriot’s commercial and industrial loan portfolio consists primarily of commercial business loans and lines of credit to businesses and professionals. These loans are generally for the financing of accounts receivable, purchases of inventory, purchases of new or used equipment, or for other short- or long-term working capital purposes. These loans are generally secured by business assets, but are also occasionally offered on an unsecured basis. In granting these types of loans, Patriot considers the borrower’s cash flow as the primary source of repayment, supported by the value of collateral, if any, and personal guarantees, as applicable. Repayment of commercial and industrial loans

may

be negatively impacted by adverse changes in economic conditions, ineffective management, claims on the borrower’s assets by others that are superior to Patriot’s claims, a loss of demand for the borrower’s products or services, or the death or disability of the borrower or other key management personnel.

Consumer and Other Loans

Patriot offers individual consumers various forms of credit including installment loans, credit cards, overdraft protection, and reserve lines of credit. Repayments of such loans are generally dependent on the personal income of the borrower, which

may

be negatively impacted by adverse changes in economic conditions. The Company does not place a high emphasis on originating these types of loans.

The Company does not have any lending programs commonly referred to as subprime lending. Subprime lending generally targets borrowers with weakened credit histories that are typically characterized by payment delinquencies, previous charge-offs, judgments against the consumer, a history of bankruptcies, or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burdened ratios.

Construction Loans

Construction loans are of a short-term nature, generally of

eighteen

-months or less, that are secured by land for intended for commercial, residential, or mixed-use development. Loan proceeds

may

be used for the acquisition of or improvements to the land under development and funds are generally disbursed as phases of construction are completed.

Included in this category are loans to construct single family homes where no contract of sale exists, based upon the experience and financial strength of the builder, the type and location of the property, and other factors. Construction loans

tend

to be personally guaranteed by the principal(s). Repayment of such loans

may

be negatively impacted by an inability to complete construction, a downturn in the market for new construction, by a significant increase in interest rates, or by decline in general economic conditions.

Construction to Permanent - CRE

One time close of a construction facility with simultaneous conversion to an amortizing mortgage loan. Close of the construction facility typically occurs when events dictate, such as receipt of a certificate of occupancy and property stabilization, which is defined as cash flow sufficient to support a pre-defined minimum debt coverage ratio and other conditions and covenants particular to the loan. Construction facilities are typically variable rate instruments that, upon conversion to an amortizing mortgage loan, reset to a fixed rate instrument that is the greater of the in-force variable rate plus a predetermined spread over a reference rate (e.g., prime) or a minimum interest rate.

The following tables summarize, by loan portfolio segment, the amount of loans receivable evaluated individually and collectively for impairment as of

December

31,

2016

and

2015

and the activity in the allowance for loan losses, allocated to segments of the loan portfolio, for each year in the

three

-year period ended

December

31,

2016.

(In thousands)
As of and for the year ended December 31, 2016:	Commercial Real Estate			Residential Real Estate			Commercial and Industrial			Consumer and Other			Construction		Construction to Permanent [CRE]			Unallocated			Total
Loans receivable, gross:
Individually evaluated for impairment	$	6,267			1,911			231			542			-		-			-			8,951
Collectively evaluated for impairment		264,962			84,603			60,746			100,907			53,895		7,593			-			572,706

Loans receivable, gross		271,229			86,514			60,977			101,449			53,895		7,593			-			581,657
Less:
Allowance for loan losses (1) :
December 31, 2015		1,970			740			1,027			677			486		123			219			5,242
Charge-offs		-			(190	)		(2,977	)		(13	)		-		-			-			(3,180	)
Recoveries		80			1			66			2			-		-			-			149
Provision		(197	)		(17	)		2,624			(25	)		226		(54	)		(93	)		2,464
December 31, 2016		1,853			534			740			641			712		69			126			4,675

Loans receivable, net	$	269,376			85,980			60,237			100,808			53,183		7,524			(126	)		576,982

(1) Allowance for loan losses:
Individually evaluated for impairment	$	-			-			231			-			-		-			-			231
Collectively evaluated for impairment		1,853			534			509			641			712		69			126			4,444
	$	1,853			534			740			641			712		69			126			4,675

(In thousands)
As of and for the year ended December 31, 2015:	Commercial Real Estate		Residential Real Estate			Commercial and Industrial			Consumer and Other			Construction		Construction to Permanent [CRE]			Unallocated			Total
Loans receivable, gross:
Individually evaluated for impairment	$	7,745		4,556			-			550			-		-			-			12,851
Collectively evaluated for impairment		238,083		106,281			59,752			46,971			15,551		4,880			-			471,518

Loans receivable, gross		245,828		110,837			59,752			47,521			15,551		4,880			-			484,369
Less:
Allowance for loan losses (1) :
December 31, 2014		1,204		949			1,753			638			49		179			152			4,924
Charge-offs		-		(16	)		-			(16	)		-		-			-			(32	)
Recoveries		35		-			49			11			-		5			-			100
Provision		731		(193	)		(775	)		44			437		(61	)		67			250
December 31, 2015		1,970		740			1,027			677			486		123			219			5,242

Loans receivable, net	$	243,858		110,097			58,725			46,844			15,065		4,757			(219	)		479,127

(1) Allowance for loan losses:
Individually evaluated for impairment	$	-		-			-			3			-		-			-			3
Collectively evaluated for impairment		1,970		740			1,027			674			486		123			219			5,239
	$	1,970		740			1,027			677			486		123			219			5,242

As of and for the year ended December 31, 2014:	Commercial Real Estate			Residential Real Estate			Commercial and Industrial			Consumer and Other			Construction			Construction to Permanent [CRE]		Unallocated			Total
Allowance for loan losses:
December 31, 2013	$	1,406			974			2,285			534			260			25		197			5,681
Charge-offs		(297	)		(195	)		(49	)		(66	)		(260	)		-		-			(867	)
Recoveries		60			30			6			4			10			-		-			110
Provision		35			140			(489	)		166			39			154		(45	)		-
December 31, 2014	$	1,204			949			1,753			638			49			179		152			4,924

Patriot monitors the credit quality of its loans receivable on an ongoing basis. Credit quality is monitored by reviewing certain indicators, including loan to value ratios, debt service coverage ratios, and credit scores.

Patriot employs a risk rating system as part of the risk assessment of its loan portfolio. At origination, lending officers are required to assign a risk rating to each loan in their portfolio, which is ratified or modified by the Loan Committee to which the loan is submitted for approval. If financial developments occur on a loan in the lending officer’s portfolio of responsibility, the risk rating is reviewed and adjusted, as applicable. In carrying out its oversight responsibilities, the Loan Committee can adjust a risk rating based on available information. In addition, the risk ratings on all loans over

$250,000

are reviewed annually by a lending officer that is independent of the loan being reviewed.

Additionally, Patriot retains a

third

-party objective loan reviewing expert to perform a quarterly analysis of the results of its risk rating process. The quarterly review is based on a randomly selected sample of loans within established parameters (e.g., value, concentration), in order to assess and validate the risk ratings assigned to individual loans. Any changes to the assigned risk ratings, based on the quarterly review, are required to be approved by the Loan Committee.

When assigning a risk rating to a loan, management utilizes the Bank’s internal

eleven

-point risk rating system. An asset is considered “special mention” when it has a potential weakness based on objective evidence, but does not currently expose the Company to sufficient risk to warrant classification in

one

of the following categories:

●

Sub-standard: An asset is classified “sub-standard” if it is not adequately protected by the current net worth and paying capacity of the obligor or the collateral pledged, if any. Sub-standard assets have well defined weaknesses based on objective evidence and are characterized by the distinct possibility that the Company will sustain some loss, if noted deficiencies are not corrected.

●	Doubtful: Assets classified as “doubtful” have all of the weaknesses inherent in those classified as “sub-standard”, with the added characteristic that the identified weaknesses make collection or liquidation-in-full improbable, on the basis of currently existing facts, conditions, and values.

Charge–offs, to reduce the loan to its recoverable value, generally commence after the loan is classified as “doubtful”.

In accordance with Federal Financial Institutions Examination Council published policies establishing uniform criteria for the classification of retail credit based on delinquency status, “Open-end” and “Closed-end” credits are charged-off when

180

days and

120

days delinquent, respectively.

If an account is classified as “Loss”, the full balance of the loan receivable is charged off, regardless of the potential recovery from a sale of the underlying collateral. Any amount that

may

be recovered on the sale of collateral underlying a loan is recognized as a “recovery” in the period in which the collateral is sold.

During the year ended

December

31,

2016,

the Bank experienced the loss of a single loan in its Commercial and Industrial portfolio segment that amounted to approximately

$3.0

million. Potential loss on the loan was fully reserved against during

2016

and the loan was charged off during the

fourth

quarter of

2016.

March

2017,

the Bank received

$2.8

million of insurance proceeds against the loss recognized on the subject loan (refer to the

Subsequent Events

disclosure).

The following tables summarize non-performing (i.e., non-accruing) loans by aging category and status, within the applicable loan portfolio segment as of

December

31,

2016

and

2015:

(In thousands)	Non-accruing Loans
	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Non-accruing Loans
As of December 31, 2016:
Loan portfolio segment:
Residential Real Estate:
Sub-standard	$	-		-		1,590		1,590		-		1,590
Commercial and Industrial:
Sub-standard		-		-		231		231		-		231
Total non-accruing loans	$	-		-		1,821		1,821		-		1,821

As of December 31, 2015:
Loan portfolio segment:
Residential Real Estate:
Sub-standard	$	-	-	1,590	1,590	-	1,590
Consumer and Other:
Sub-standard		-	-	3	3	-	3
Total non-accruing loans	$	-	-	1,593	1,593	-	1,593

If non-accruing loans had been performing in accordance with the original contractual terms, additional interest income of

$79,000,

$39,000,

and

$23,000

would have been recognized in income for the years ended

December

31,

2016,

2015,

and

2014,

respectively.

Additionally, certain loans for which the borrower cannot demonstrate sufficient cash flow to continue loan payments in the future and certain troubled debt restructurings (“TDRs”) are placed on non-accrual status. During the years ended

December

31,

2016

and

2015,

and

2014,

interest income was collected and recognized on non-accruing loans.

The accrual of interest on loans is discontinued at the time the loan is

days past due for payment unless the loan is well-secured and in process of collection. Consumer installment loans are typically charged off no later than

180

days past due. Past due status is based on contractual terms of the loan. In all cases, loans are placed on non-accrual status or charged-off, at an earlier date, if collection of principal or interest is considered doubtful. All interest accrued, but not collected for loans that are placed on non-accrual status or charged off, is reversed against interest income. The interest on these loans is accounted for on the cash-basis method until qualifying for return to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, future payments are reasonably assured, and there is

six

months of performance. Management considers all non-accrual loans and troubled debt restructurings to be impaired. In most cases, loan payments that are past due less than

days, based on contractual terms, are considered collection delays and not an indication of loan impairment. The Bank considers consumer installment loans to be pools of smaller homogeneous loan balances, which are collectively evaluated for impairment.

The following tables summarize performing and non-performing loans receivable by portfolio segment, by aging category, by delinquency status as of

December

31,

2016

and

2015.

(In thousands)	Performing (Accruing) Loans
As of December 31, 2016:	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or Greater Past Due		Total		Current		Total Performing Loans		Non-accruing Loans		Loans Receivable Gross
Loan portfolio segment:
Commercial Real Estate:
Pass	$	-		-		-		-		265,246		265,246		-		265,246
Special Mention		-		-		-		-		4,531		4,531		-		4,531
Substandard		-		-		-		-		1,452		1,452		-		1,452
		-		-		-		-		271,229		271,229		-		271,229
Residential Real Estate:
Pass		131		9		1,449		1,589		83,335		84,924		-		84,924
Substandard		-		-		-		-		-		-		1,590		1,590
		131		9		1,449		1,589		83,335		84,924		1,590		86,514
Commercial and Industrial:
Pass		47		4		-		51		60,692		60,743		-		60,743
Substandard		-		-		-		-		3		3		231		234
		47		4		-		51		60,695		60,746		231		60,977
Consumer and Other:
Pass		75		-		3		78		101,371		101,449		-		101,449
Construction:
Pass		-		-		-		-		53,895		53,895		-		53,895
Construction to permanent - CRE:
Pass		-		-		-		-		7,593		7,593		-		7,593
Loans receivable, gross:
Pass		253		13		1,452		1,718		572,132		573,850		-		573,850
Special Mention		-		-		-		-		4,531		4,531		-		4,531
Substandard		-		-		-		-		1,455		1,455		1,821		3,276
Loans receivable, gross	$	253		13		1,452		1,718		578,118		579,836		1,821		581,657

(In thousands)	Performing (Accruing) Loans
As of December 31, 2015:	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or Greater Past Due		Total		Current		Total Performing Loans		Non-accruing Loans		Loans Receivable Gross
Loan portfolio segment:
Commercial Real Estate:
Pass	$	-		-		-		-		237,996		237,996		-		237,996
Special Mention		-		-		-		-		5,322		5,322		-		5,322
Substandard		840		-		-		840		1,670		2,510		-		2,510
		840		-		-		840		244,988		245,828		-		245,828
Residential Real Estate:
Pass		153		87		1,517		1,757		107,490		109,247		-		109,247
Substandard		-		-		-		-		-		-		1,590		1,590
		153		87		1,517		1,757		107,490		109,247		1,590		110,837
Commercial and Industrial:
Pass		43		605		520		1,168		55,600		56,768		-		56,768
Substandard		2,977		-		-		2,977		7		2,984		-		2,984
		3,020		605		520		4,145		55,607		59,752		-		59,752
Consumer and Other:
Pass		308		2		9		319		47,199		47,518		-		47,518
Substandard		-		-		-		-		-		-		3		3
		308		2		9		319		47,199		47,518		3		47,521
Construction:
Pass		-		-		-		-		15,551		15,551		-		15,551
Construction to permanent - CRE:
Pass		-		-		-		-		4,880		4,880		-		4,880
Loans receivable, gross:
Pass		504		694		2,046		3,244		468,716		471,960		-		471,960
Special Mention		-		-		-		-		5,322		5,322		-		5,322
Substandard		3,817		-		-		3,817		1,677		5,494		1,593		7,087
Loans receivable, gross	$	4,321		694		2,046		7,061		475,715		482,776		1,593		484,369

Troubled Debt Restructurings (“TDR”)

On a case-by-case basis, Patriot

may

agree to modify the contractual terms of a borrower’s loan to assist customers who

may

be experiencing financial difficulty. If the borrower is experiencing financial difficulties and a concession has been made, the loan is classified as a TDR.

There were

loans modified as TDRs during either year ended

December

31,

2016

2015

and no defaults of TDRs during any of the years in the

three

-year period ended

December

31,

2016.

December

31,

2016

and

2015,

there were no commitments to advance additional funds under TDRs.

Substantially all TDR loan modifications involve lowering the monthly payments on such loans through either a reduction in interest rate below market rate, an extension of the term of the loan, or a combination of adjusting these

two

contractual attributes. TDR loan modifications

may

result in the forgiveness of principal or accrued interest. In addition, when modifying commercial loans, Patriot frequently obtains additional collateral or guarantor support. If the borrower has performed under the existing contractual terms of the loan and Patriot’s underwriters determine that the borrower has the capacity to continue to perform under the terms of the TDR, the loan continues accruing interest. Non-accruing TDRs

may

be returned to accrual status when there has been a sustained period of performance (generally

six

consecutive months of payments) and both principal and interest are reasonably assured of collection.

Impaired Loans

Impaired loans

may

consist of non-accrual loans and/or performing and non-performing TDRs. As of

December

31,

2016

and

2015,

based on the on-going monitoring and analysis of the loan portfolio, impaired loans of

$8.9

million and

$12.9

million were identified, for which

$231,000

and

$3,000

specific reserves were established, respectively. Loans not requiring specific reserves had sufficient collateral values, less costs to sell, supporting the carrying amount of the loans. In some cases, there

may

be no specific reserves due to the carrying amount of the loan having been charged off. Once a borrower is in default, Patriot is under

obligation to advance additional funds on unused commitments.

December

31,

2016

and

2015,

exposure to the

$8.9

million and

$12.9

million of impaired loans was related to

and

borrowers, respectively. In all cases, appraisal reports of the underlying collateral, if any, have been obtained from independent licensed appraisal firms. For non-performing loans, the independently determined appraised values were reduced by an estimate of the costs to sell the assets, in order to estimate the potential loss, if any, that

may

eventually be realized. Performing loans are monitored to determine when, if at all, additional loan loss reserves

may

be required for a loss of underlying collateral value.

The following summarizes the investment in, outstanding principal balance of, and the related allowance, if any, for impaired loans as of

December

31,

2016

and

2015:

(In thousands)	Balance as of December 31,
	2016						2015
	Recorded Investment		Principal Outstanding		Related Allowance		Recorded Investment		Principal Outstanding		Related Allowance
With no related allowance recorded:
Commercial Real Estate	$	6,267		6,721		-		7,745		8,259		-
Residential Real Estate		1,911		2,915		-		4,556		5,559		-
Commercial and Industrial		-		-		-		-		96		-
Consumer and Other		542		631		-		547		633		-
Construction		-		-		-		-		287		-
		8,720		10,267		-		12,848		14,834		-
With a reated allowance recorded:
Commercial Real Estate		-		-		-		-		-		-
Residential Real Estate		-		-		-		-		-		-
Commercial and Industrial		231		231		231		-		-		-
Consumer and Other		-		-		-		3		3		3
		231		231		231		3		3		3
Impaired Loans, Total:
Commercial Real Estate		6,267		6,721		-		7,745		8,259		-
Residential Real Estate		1,911		2,915		-		4,556		5,559		-
Commercial and Industrial		231		231		231		-		96		-
Consumer and Other		542		631		-		550		636		3
Construction		-		-		-		-		287		-
Impaired Loans, Total	$	8,951		10,498		231		12,851		14,837		3

For each year in the

three

-year period ended

December

31,

2016,

the average recorded investment in and interest income recognized on impaired loans without and with a related allowance, by loan portfolio segment, was as follows:

(In thousands)	Year ended December 31,
	2016				2015				2014
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate	$	6,929		312		8,001		373		8,262		342
Residential Real Estate		4,318		9		3,512		126		4,734		129
Commercial and Industrial		265		-		-		-		215		-
Consumer and Other		544		19		550		18		575		23
		12,056		340		12,063		517		13,786		494
With a related allowance recorded:
Commercial Real Estate		65		-		-		-		-		-
Commercial and Industrial		2,138		-		-		-		-		-
Consumer and Other		2		-		3		-		7		-
		2,205		-		3		-		7		-
Impaired Loans, Total:
Commercial Real Estate		6,994		312		8,001		373		8,262		342
Residential Real Estate		4,318		9		3,512		126		4,734		129
Commercial and Industrial		2,403		-		-		-		215		-
Consumer and Other		546		19		553		18		582		23
Impaired Loans, Total	$	14,261		340		12,066		517		13,793		494