Note

Loans Receivable and Allowance for Loan Losses

As of

June 30, 2017

and

December 31, 2016,

loans receivable, net, consists of the following:

(In thousands)
Loan portfolio segment:	June 30, 2017			December 31, 2016
Commercial Real Estate	$	280,059			271,229
Residential Real Estate		152,428			86,514
Commercial and Industrial		94,884			60,977
Consumer and Other		94,830			101,449
Construction		49,222			53,895
Construction to permanent - CRE		7,665			7,593
Loans receivable, gross		679,088			581,657
Allowance for loan losses		(5,944	)		(4,675	)
Loans receivable, net	$	673,144			576,982

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, 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

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.

March 2017,

Patriot purchased

$73

million of residential real estate loans.

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 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

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. Construction to permanent loans combine a short term period similar to a construction loan, generally with a variable rate, and a longer term CRE loan typically

years, resetting every

five

years to the FHLB rate.

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.

Allowance for Loan Losses

The following tables summarize the activity in the allowance for loan losses, allocated to segments of the loan portfolio, for the

three

months ended

June 30, 2017

and

2016:

(In thousands)	Commercial Real Estate		Residential Real Estate			Commercial and Industrial		Consumer and Other			Construction			Construction to Permanent [CRE]			Unallocated			Total
Three months ended June 30, 2017
Allowance for loan losses:
March 31, 2017	$	2,198		1,073			1,049		583			591			77			126			5,697
Charge-offs		-		-			-		(13	)		-			-			-			(13	)
Recoveries		-		-			-		-			-			-			-			-
Provisions (credits)		20		(32	)		404		23			(101	)		(4	)		(50	)		260
June 30, 2017	$	2,218		1,041			1,453		593			490			73			76			5,944

Three months ended June 30, 2016
Allowance for loan losses:
March 31, 2016	$	1,943		624			1,083		609			650			121			217			5,247
Charge-offs		-		-			-		(1	)		-			-			-			(1	)
Recoveries		-		1			3		-			-			-			-			4
Provisions (credits)		352		22			2,314		(77	)		(481	)		24			(195	)		1,959
June 30, 2016	$	2,295		647			3,400		531			169			145			22			7,209

The following tables summarize the activity in the allowance for loan losses, allocated to segments of the loan portfolio, for the

six

months ended

June 30, 2017

and

2016:

(In thousands)	Commercial Real Estate		Residential Real Estate			Commercial and Industrial			Consumer and Other			Construction			Construction to Permanent [CRE]		Unallocated			Total
Six months ended June 30, 2017
Allowance for loan losses:
December 31, 2016	$	1,853		534			740			641			712			69		126			4,675
Charge-offs		-		-			-			(13	)		-			-		-			(13	)
Recoveries		2		-			2,769			-			-			-		-			2,771
Provisions (credits)		363		507			(2,056	)		(35	)		(222	)		4		(50	)		(1,489	)
June 30, 2017	$	2,218		1,041			1,453			593			490			73		76			5,944

Six months ended June 30, 2016
Allowance for loan losses:
December 31, 2015	$	1,970		740			1,027			677			486			123		219			5,242
Charge-offs		-		(4	)		-			(2	)		-			-		-			(6	)
Recoveries		-		1			12			1			-			-		-			14
Provisions (credits)		325		(90	)		2,361			(145	)		(317	)		22		(197	)		1,959
June 30, 2016	$	2,295		647			3,400			531			169			145		22			7,209

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

June 30, 2017

and

December 31, 2016:

(In thousands)	Commercial Real Estate		Residential Real Estate		Commercial and Industrial		Consumer and Other		Construction		Construction to Permanent [CRE]		Unallocated		Total
June 30, 2017
Allowance for loan losses:
Individually evaluated f or impairment	$	-		-		231		-		-		-		-		231
Collectively evaluated for impairment		2,218		1,041		1,222		593		490		73		76		5,713
Total allowance for loan losses	$	2,218		1,041		1,453		593		490		73		76		5,944

Loans receivable, gross:
Individually evaluated for impairment	$	6,142		1,905		269		540		-		-		-		8,856
Collectively evaluated for impairment		273,917		150,523		94,615		94,290		49,222		7,665		-		670,232
Total loans receivable, gross	$	280,059		152,428		94,884		94,830		49,222		7,665		-		679,088

(In thousands)	Commercial Real Estate		Residential Real Estate		Commercial and Industrial		Consumer and Other		Construction		Construction to Permanent [CRE]		Unallocated		Total
December 31, 2016
Allowance for loan losses:
Individually evaluated for impairment	$	-		-		231		-		-		-		-		231
Collectively evaluated for impairment		1,853		534		509		641		712		69		126		4,444
Total allowance for loan losses	$	1,853		534		740		641		712		69		126		4,675

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
Total loans receivable, gross	$	271,229		86,514		60,977		101,449		53,895		7,593		-		581,657

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 commercial loans over

$250,000

are reviewed annually by the Credit Department.

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 Bank to sufficient risk to warrant classification in

one

of the following categories:

●

Sub-standard: An asset is considered “substandard” 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 “sub-standard”, with the added characteristic that the weaknesses present 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

and120

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.

March 2017,

the Bank reached a settlement agreement with its insurance carrier for a loss recognized in

2016,

related to a single Commercial and Industrial loan, resulting in cash receipts of

$2.8

million, net of related deductibles and other amounts excluded pursuant to the insurance policy.

The following tables

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

June 30, 2017

and

December 31, 2016:

(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 June 30, 2017:
Loan portfolio segment:
Residential Real Estate:
Sub-standard	$	-		-		1,590		1,590		-		1,590
Commercial and Industrial:
Sub-standard		-		-		269		269		-		269
Total non-accruing loans	$	-		-		1,859		1,859		-		1,859

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

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

$22,000

and

$43,000

would have been recognized in income during the

three

and

six

months ended

June 30, 2017,

respectively. For the

three

and

six

months ended

June 30, 2016,

additional interest income of

$58,000

and

$196,000

would have been recognized in income.

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

three

and

six

months ended

June 30, 2017

and

2016,

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

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

June 30, 2017

and

December 31, 2016.

(In thousands)	Performing (Accruing) Loans
As of June 30, 2017:	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	$	-		-		-		-		252,424		252,424		-		252,424
Special Mention		-		-		-		-		16,421		16,421		-		16,421
Substandard		3,097		-		-		3,097		8,117		11,214		-		11,214
		3,097		-		-		3,097		276,962		280,059		-		280,059
Residential Real Estate:
Pass		478		9		1,447		1,934		148,904		150,838		-		150,838
Substandard		-		-		-		-		-		-		1,590		1,590
		478		9		1,447		1,934		148,904		150,838		1,590		152,428
Commercial and Industrial:
Pass		47		4		750		801		93,324		94,125		-		94,125
Substandard		-		-		-		-		490		490		269		759
		47		4		750		801		93,814		94,615		269		94,884
Consumer and Other:
Pass		9		134		-		143		94,687		94,830		-		94,830
Construction:
Pass		-		-		-		-		49,222		49,222		-		49,222
Construction to permanent - CRE:
Pass		-		-		-		-		7,665		7,665		-		7,665

Total	$	3,631		147		2,197		5,975		671,254		677,229		1,859		679,088

Loans receivable, gross:
Pass	$	534		147		2,197		2,878		646,226		649,104		-		649,104
Special Mention		-		-		-		-		16,421		16,421		-		16,421
Substandard		3,097		-		-		3,097		8,607		11,704		1,859		13,563
Loans receivable, gross	$	3,631		147		2,197		5,975		671,254		677,229		1,859		679,088

(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

Total	$	253		13		1,452		1,718		578,118		579,836		1,821		581,657

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

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 and

defaults of TDRs during the

three

and

six

months ended

June 30, 2017

and

2016.

June 30, 2017

and

December 31, 2016,

there were

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 the contract 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

June 30, 2017

and

December 31, 2016,

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

$8.8

million and

$8.9

million were identified, for which

$231,000

and

$231,000

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. Once a borrower is in default, Patriot is under

obligation to advance additional funds on unused commitments.

June 30, 2017

exposure to the

$8.8

million of impaired loans was related to

borrowers. 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

June 30, 2017

and

December 31, 2016:

(In thousands)
	June 30, 2017						December 31, 2016
	Recorded Investment		Principal Outstanding		Related Allowance		Recorded Investment		Principal Outstanding		Related Allowance
With no related allowance recorded:
Commercial Real Estate	$	6,142		6,593		-		6,267		6,721		-
Residential Real Estate		1,905		1,938		-		1,911		2,915		-
Commercial and Industrial		38		38		-		-		-		-
Consumer and Other		540		629		-		542		631		-
Construction		-		287		-		-		-		-
		8,625		9,485		-		8,720		10,267		-

With a related allowance recorded:
Commercial Real Estate		-		-		-		-		-		-
Residential Real Estate		-		-		-		-		-		-
Commercial and Industrial		231		231		231		231		231		231
Consumer and Other		-		-		-		-		-		-
Construction		-		-		-		-		-		-
Construction to permanent - CRE		-		-		-		-		-		-
		231		231		231		231		231		231

Impaired Loans, Total:
Commercial Real Estate		6,142		6,593		-		6,267		6,721		-
Residential Real Estate		1,905		1,938		-		1,911		2,915		-
Commercial and Industrial		269		269		231		231		231		231
Consumer and Other		540		629		-		542		631		-
Construction		-		287		-		-		-		-
Construction to permanent - CRE		-		-		-		-		-		-
Impaired Loans, Total	$	8,856		9,716		231		8,951		10,498		231

The following tables summarize additional information regarding impaired loans for the

three

and

six

months ended

June 30, 2017

and

2016.

(In thousands)	Three Months Ended June 30,
	2017				2016
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate	$	6,188		75		7,524		79
Residential Real Estate		1,907		3		4,525		31
Commercial and Industrial		37		-		116		-
Consumer and Other		541		5		545		5
		8,673		83		12,710		115
With a related allowance recorded:
Commercial Real Estate		-		-		-		-
Residential Real Estate		-		-		-		-
Commercial and Industrial		232		-		2,977		-
Consumer and Other		-		-		2		-
		232		-		2,979		-
Impaired Loans, Total:
Commercial Real Estate		6,188		75		7,524		79
Residential Real Estate		1,907		3		4,525		31
Commercial and Industrial		269		-		3,093		-
Consumer and Other		541		5		547		5
Impaired Loans, Total	$	8,905		83		15,689		115

(In thousands)	Six Months Ended June 30,
	2017				2016
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate	$	6,213		148		7,597		159
Residential Real Estate		1,909		5		4,535		62
Commercial and Industrial		37		-		148		-
Consumer and Other		541		10		546		9
		8,700		163		12,826		230
With a related allowance recorded:
Commercial and Industrial		232		-		1,914		-
Consumer and Other		-		-		2		-
		232		-		1,916		-
Impaired Loans, Total:
Commercial Real Estate		6,213		148		7,597		159
Residential Real Estate		1,909		5		4,535		62
Commercial and Industrial		269		-		2,062		-
Consumer and Other		541		10		548		9
Impaired Loans, Total	$	8,932		163		14,742		230