Note

Loan Receivables and Allowance for Loan Losses

As of

December

31,

2017

and

2016,

loans receivable, net, consists of the following:

(In thousands)
Loan portfolio segment:	December 31, 2017			December 31, 2016
Commercial Real Estate	$	299,925			271,229
Residential Real Estate		146,377			86,514
Commercial and Industrial		131,161			60,977
Consumer and Other		87,707			101,449
Construction		47,619			53,895
Construction to permanent - CRE		6,858			7,593
Loans receivable, gross		719,647			581,657
Allowance for loan losses		(6,297	)		(4,675	)
Loans receivable, net	$	713,350			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

, and has recently purchased residential 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 $

million of residential real estate loans, including a premium of

$985,000

over the book value of the 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 Perm

anent – 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 each year in the

three

-year period ended

December

31,

2017:

(In thousands)	Commercial Real Estate			Residential Real Estate			Commercial and Industrial			Consumer and Other			Construction			Construction to Permanent [CRE]			Unallocated			Total
As of and for the year ended December 31, 2017
Allowance for loan losses:
December 31, 2016	$	1,853			534			740			641			712			69			126			4,675
Charge-offs		-			-			(265	)		(39	)		-			-			-			(304	)
Recoveries		10			-			2,769			4			-			-			-			2,783
Provisions (credits)		349			425			(1,221	)		(38	)		(231	)		(15	)		(126	)		(857	)
December 31, 2017	$	2,212			959			2,023			568			481			54			-			6,297

As of and for the year ended December 31, 2016
Allowance for loan losses:
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
Provisions (credits)		(197	)		(17	)		2,624			(25	)		226			(54	)		(93	)		2,464
December 31, 2016	$	1,853			534			740			641			712			69			126			4,675


As of and for the year ended December 31, 2015
Allowance for loan losses:
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
Provisions (credits)		731			(193	)		(775	)		44			437			(61	)		67			250
December 31, 2015	$	1,970			740			1,027			677			486			123			219			5,242

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

December 31, 2017

and

2016:

(In thousands)	Commercial Real Estate		Residential Real Estate		Commercial and Industrial		Consumer and Other		Construction		Construction to Permanent [CRE]		Unallocated		Total
December 31, 2017
Allowance for loan losses:
Individually evaluated for impairment	$	-		-		251		2		-		-		-		253
Collectively evaluated for impairment		2,212		959		1,772		566		481		54		-		6,044
Total allowance for loan losses	$	2,212		959		2,023		568		481		54		-		6,297

Loans receivable, gross:
Individually evaluated for impairment	$	1,977		3,336		748		692		-		-		-		6,753
Collectively evaluated for impairment		297,948		143,041		130,413		87,015		47,619		6,858		-		712,894
Total loans receivable, gross	$	299,925		146,377		131,161		87,707		47,619		6,858		-		719,647

(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 and independent 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.

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 table

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

December

31,

2017

and

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 December 31, 2017:
Loan portfolio segment:
Residential Real Estate:
Sub-standard	$	-		-		3,028		3,028		-		3,028
Commercial and Industrial:
Sub-standard		-		-		748		748		-		748
Consumer and Other
Sub-standard		-		-		2		2		-		2
Total non-accruing loans	$	-		-		3,778		3,778		-		3,778

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

$209,000,

$79,000,

and

$39,000

would have been recognized in income for the years ended

December

31,

2017,

2016,

and

2015,

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,

2017

and

2016,

and

2015,

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

The accrual of interest on loans is discontinued at th

e 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 table

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

December

31,

2017.

(In thousands)	Performing (Accruing) Loans
As of December 31, 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	$	-		-		-		-		286,428		286,428		-		286,428
Special Mention		-		1,121		-		1,121		9,317		10,438		-		10,438
Substandard		-		1,688		-		1,688		1,371		3,059		-		3,059
		-		2,809		-		2,809		297,116		299,925		-		299,925
Residential Real Estate:
Pass		1,068		255		-		1,323		140,497		141,820		-		141,820
Special Mention		-		1,529		-		1,529		-		1,529		-		1,529
Substandard		-		-		-		-		-		-		3,028		3,028
		1,068		1,784		-		2,852		140,497		143,349		3,028		146,377
Commercial and Industrial:
Pass		-		2,000		375		2,375		127,057		129,432		-		129,432
Special Mention		-		-		-		-		-		-		-		-
Substandard		-		-		981		981		-		981		748		1,729
		-		2,000		1,356		3,356		127,057		130,413		748		131,161
Consumer and Other:
Pass		498		-		-		498		87,207		87,705		-		87,705
Substandard		-		-		-		-		-		-		2		2
		498		-		-		498		87,207		87,705		2		87,707
Construction:
Pass		-		-		-		-		47,619		47,619		-		47,619

Construction to permanent - CRE:
Pass		-		-		-		-		6,858		6,858		-		6,858

Total	$	1,566		6,593		1,356		9,515		706,354		715,869		3,778		719,647

Loans receivable, gross:
Pass	$	1,566		2,255		375		4,196		695,666		699,862		-		699,862
Special Mention		-		2,650		-		2,650		9,317		11,967		-		11,967
Substandard		-		1,688		981		2,669		1,371		4,040		3,778		7,818
Loans receivable, gross	$	1,566		6,593		1,356		9,515		706,354		715,869		3,778		719,647

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

December

31,

2016.

(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 during

either year ended

December

31,

2017

2016

and

defaults of TDRs during any of the years in the

three

-year period ended

December

31,

2017.

December

31,

2017

and

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 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,

2017

and

2016,

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

$6.8

million and

$8.9

million were identified, for which

$253,000

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. In some cases, there

may

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,

2017

and

2016,

exposure to the 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 summarize

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

December

31,

2017

and

2016:

(In thousands)
	Balance as of December 31,
	2017						2016
	Recorded Investment		Principal Outstanding		Related Allowance		Recorded Investment		Principal Outstanding		Related Allowance
With no related allowance recorded:
Commercial Real Estate	$	1,977		2,425		-		6,267		6,721		-
Residential Real Estate		3,336		3,369		-		1,911		2,915		-
Commercial and Industrial		497		683		-		-		-		-
Consumer and Other		690		818		-		542		631		-
		6,500		7,295		-		8,720		10,267		-

With a related allowance recorded:
Commercial Real Estate		-		-		-		-		-		-
Residential Real Estate		-		-		-		-		-		-
Commercial and Industrial		251		251		251		231		231		231
Consumer and Other		2		2		2		-		-		-
		253		253		253		231		231		231

Impaired Loans, Total:
Commercial Real Estate		1,977		2,425		-		6,267		6,721		-
Residential Real Estate		3,336		3,369		-		1,911		2,915		-
Commercial and Industrial		748		934		251		231		231		231
Consumer and Other		692		820		2		542		631		-
Impaired Loans, Total	$	6,753		7,548		253		8,951		10,498		231

For each year in the

three

-year period ended

December

31,

2017,

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,
	2017				2016				2015
	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	$	5,832		102		6,929		312		8,001		373
Residential Real Estate		2,016		11		4,318		9		3,512		126
Commercial and Industrial		197		-		265		-		-		-
Consumer and Other		593		22		544		19		550		18
		8,638		135		12,056		340		12,063		517
With a related allowance recorded:
Commercial Real Estate		-		-		65		-		-		-
Residential Real Estate		-		-		-		-		-		-
Commercial and Industrial		243		-		2,138		-		-		-
Consumer and Other		-		-		2		-		3		-
		243		-		2,205		-		3		-
Impaired Loans, Total:
Commercial Real Estate		5,832		102		6,994		312		8,001		373
Residential Real Estate		2,016		11		4,318		9		3,512		126
Commercial and Industrial		440		-		2,403		-		-		-
Consumer and Other		593		22		546		19		553		18
Impaired Loans, Total	$	8,881		135		14,261		340		12,066		517