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Note 4 - Loan Receivables and Allowance for Loan and Lease Losses

12 Months Ended

Dec. 31, 2021

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

Note 4.

Loan Receivables and Allowance for Loan and Lease Losses

As of December 31, 2021 and 2020, loans receivable, net, consisted of the following:

	December 31,
(In thousands)	2021			2020
Loan portfolio segment:
Commercial Real Estate	$	365,247		$	282,378
Residential Real Estate		158,591			153,851
Commercial and Industrial		122,810			144,297
Consumer and Other		59,364			67,635
Construction		21,781			66,984
Construction to Permanent - CRE		11,695			15,035
Loans receivable, gross		739,488			730,180
Allowance for loan and lease losses		(9,905	)		(10,584	)
Loans receivable, net	$	729,583		$	719,596

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 purchased residential loans since 2016. All commercial and residential real estate loans are collateralized primarily by first or 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.

In May 2018, loans were acquired in connection with the Prime Bank merger. A subset of these loans was determined to have evidence of credit deterioration at the acquisition date, which was accounted for in accordance with ASC 310-30. The purchased credit impaired (“PCI”) loans presently maintain a carrying value of zero as of December 31, 2021 and 2020. The loans were evaluated for impairment through the periodic reforecasting of expected cash flows.

Income is recognized on PCI loans pursuant to ASC Topic 310-30. A portion of the fair value discount has been ascribed as an accretable yield that is accreted into interest income over the estimated remaining life of the loans. The remaining non-accretable difference represents cash flows not expected to be collected.

There were no PCI loans transactions in 2021. A summary of changes in the accretable discount for PCI loans for the year ended December 31, 2020 and 2019 follows:

(In thousands)	Year Ended December 31,
	2020			2019
Accretable discount, beginning of period	$	(47	)	$	(792	)
Accretion		2			47
Other changes, net		45			698
Accretable discount, end of period	$	-		$	(47	)

The accretion of the accretable discount for PCI loans for the year end December 31, 2020 and 2019 was $2,000 and $47,000, respectively. The other changes represent primarily loans that were either fully paid-off or totally charged off.

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

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.

In 2021 and 2020, Patriot purchased $72.3 million and $17.9 million of residential real estate loans, respectively.

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.

Patriot’s syndicated and leveraged loan portfolios totaled $19.6 million and $55.0 million at December 31, 2021 and 2020, respectively. The syndicated and leveraged loans are included in the commercial and industrial loan classification and are primarily comprised of loan transactions led by major financial institutions and regional banks, which are the Agent Bank or Lead Arranger, and are referred to as syndicated loans or "Shared National Credits (SNC)". SNC loans were determined to be complementary to the Bank’s existing commercial and industrial loan portfolio and product offerings. Further originations in this loan class are not expected.

Consumer and Other Loans

Patriot offers individual consumers various forms of credit including installment loans, credit cards, overdraft protection, auto loans, 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.

During 2021, Patriot purchased $17.0 million unsecured consumer loans, and no education loans were purchased. For the year ended December 31, 2020, $14.9 million education loans were purchased.

Construction Loans

Construction loans are of a short-term nature, generally of eighteen months or less, that are secured by land and improvements 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 - Commercial Real Estate (“CRE”)

Loans in this category represent a 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 20-25 years, resetting every five years to the Federal Home Loan Bank (“FHLB”) rate.

Close of the permanent 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.

SBA Loans

Patriot originates SBA 7(a) loans, on which the SBA has historically provided guarantees of 75% of the principal balance. However, during the pandemic in 2021, the SBA temporarily increased the guarantees to 90% and reverted to 75% on October 1, 2021. The guaranteed portion of the Company’s SBA loans is generally sold in the secondary market with the unguaranteed portion held in the portfolio as a loan held for investment. SBA loans are for the purpose of providing working capital, financing the purchase of equipment, inventory or commercial real estate and for other business purposes. Loans are guaranteed by the businesses' major owners. SBA loans are made based primarily on the historical and projected cash flow of the business and secondarily on the underlying collateral provided. SBA loans held for investment are included in the commercial real estate loans and commercial and industrial loan classifications, which totaled $27.1 million and $21.6 million at December 31, 2021 and 2020, respectively.

Small Business Administration Paycheck Protection Program

The CARES Act created the SBA’s Paycheck Protection Program. Under the Paycheck Protection Program, $669 billion was authorized for small business loans to pay payroll and group health costs, salaries and commissions, mortgage and rent payments, utilities, and interest on other debt. The loans are provided through participating financial institutions that process loan applications and service the loans. The Bank started participating in the SBA’s Paycheck Protection Program in January 2021.

Paycheck Protection Program loans totaled $919,000 as of December 31, 2021, which are included in the commercial and industrial loan classifications.

Allowance for Loan and Lease Losses

The following tables summarize the activity in the allowance for loan and lease losses, allocated to segments of the loan portfolio, for each year in the three-year period ended December 31, 2021:

(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, 2021

Allowance for loan and lease losses:

December 31, 2020
$ 4,485 $ 1,379 $ 3,284 $ 295 $ 739 $ 162 $ 240 $ 10,584

Charge-offs
(51 ) (3 ) (212 ) (23 ) (69 ) - - (358 )

Recoveries
- 3 65 111 - - - 179

Provisions (credits)
629 321 (605 ) (130 ) (592 ) (121 ) (2 ) (500 )

December 31, 2021
$ 5,063 $ 1,700 $ 2,532 $ 253 $ 78 $ 41 $ 238 $ 9,905

As of and for the year ended December 31, 2020

Allowance for loan and lease losses:

December 31, 2019
$ 3,789 $ 1,038 $ 4,340 $ 341 $ 477 $ 130 $ - $ 10,115

Charge-offs
(1,032 ) (24 ) (677 ) (45 ) - - - (1,778 )

Recoveries
- 1 70 6 - - - 77

Provisions (credits)
1,728 364 (449 ) (7 ) 262 32 240 2,170

December 31, 2020
$ 4,485 $ 1,379 $ 3,284 $ 295 $ 739 $ 162 $ 240 $ 10,584

As of and for the year ended December 31, 2019

Allowance for loan and lease losses:

December 31, 2018
$ 1,866 $ 1,059 $ 3,558 $ 641 $ 350 $ 108 $ 27 $ 7,609

Charge-offs
- (118 ) (2,418 ) (123 ) - - - (2,659 )

Recoveries
2 10 172 10 - - - 194

Provisions (credits)
1,921 87 3,028 (187 ) 127 22 (27 ) 4,971

December 31, 2019
$ 3,789 $ 1,038 $ 4,340 $ 341 $ 477 $ 130 $ - $ 10,115

The following tables summarize, by loan portfolio segment, the amount of loans receivable evaluated individually and collectively for impairment as of December 31, 2021 and 2020:

(In thousands)

Commercial
Real Estate

Residential
Real Estate

Commercial
and
Industrial

Consumer
and
Other

Construction

Construction to
Permanent
- CRE

Unallocated

Total

December 31, 2021

Allowance for loan and lease losses:

Individually evaluated for impairment
$ 1,567 $ 3 $ 722 $ - $ - $ - $ - $ 2,292

Collectively evaluated for impairment
3,496 1,697 1,810 253 78 41 238 7,613

Total allowance for loan and lease losses
$ 5,063 $ 1,700 $ 2,532 $ 253 $ 78 $ 41 $ 238 $ 9,905

Loans receivable, gross:

Individually evaluated for impairment
$ 15,704 $ 2,954 $ 4,031 $ 523 $ - $ - $ - $ 23,212

Collectively evaluated for impairment
349,543 155,637 118,779 58,841 21,781 11,695 - 716,276

Total loans receivable, gross
$ 365,247 $ 158,591 $ 122,810 $ 59,364 $ 21,781 $ 11,695 $ - $ 739,488

(In thousands)

Commercial
Real Estate

Residential
Real Estate

Commercial
and
Industrial

Consumer
and
Other

Construction

Construction to
Permanent
- CRE

Unallocated

Total

December 31, 2020

Allowance for loan and lease losses:

Individually evaluated for impairment
$ 1,398 $ 4 $ - $ 10 $ - $ - $ - $ 1,412

Collectively evaluated for impairment
3,087 1,375 3,284 285 739 162 240 9,172

Total allowance for loan losses
$ 4,485 $ 1,379 $ 3,284 $ 295 $ 739 $ 162 $ 240 $ 10,584

Loans receivable, gross:

Individually evaluated for impairment
$ 14,534 $ 3,962 $ 4,700 $ 1,187 $ - $ - $ - $ 24,383

Collectively evaluated for impairment
267,844 149,889 139,597 66,448 66,984 15,035 - 705,797

Total loans receivable, gross
$ 282,378 $ 153,851 $ 144,297 $ 67,635 $ 66,984 $ 15,035 $ - $ 730,180

Patriot monitors the credit quality of its loans receivable on an ongoing basis. Credit quality is monitored by reviewing certain indicators, including cash flow from business operations, 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, credit 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 credit 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 by the Credit Department either annually or biannually, depending upon the amount of the bank’s exposure.

Additionally, Patriot retains an independent third-party loan review expert to perform a quarterly analysis of the results of its risk rating process. The semi-annual 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 semi-annual review, are required to be reported to the Board Audit 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:

●

Substandard: An asset is classified “substandard” if it is not adequately protected by the current net worth and paying capacity of the obligor or the collateral pledged, if any. Substandard 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 “substandard”, 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 of loans to reduce the loan to its recoverable value that are solely collateral dependent, generally occur immediately upon confirmation of the partial loss amount. Loans that are cash flow dependent are modeled to reflect the expected cash flows through expected loan maturity, including any proceeds from refinancing or principal curtailment. A specific reserve is established for the amount by which the net investment in the loan exceeds the present value of discounted cash flows. Charge-offs on cash flow dependent loans also generally occur immediately upon confirmation of the partial loss amount.

If either type of loan is classified as “Loss”, meaning full loss on the loan is expected, 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. 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.

The allowance for loan losses may increase to reflect the decline in the performance of the loan portfolio and the higher level of incurred losses.

Loan Portfolio Aging Analysis

The following tables summarize performing and non-performing (i.e., non-accruing) loans receivable by portfolio segment, by aging category, by delinquency status as of December 31, 2021.

(In thousands)

Performing (Accruing) Loans

As of December 31, 2021:

30 - 59

Days
Past Due

60 - 89

Days
Past Due

90 Days
or
Greater

Past Due

Total
Past Due

Current

Total
Performing
Loans

Non-

accruing
Loans

Loans
Receivable
Gross

Loan portfolio segment:

Commercial Real Estate:

Pass
$ 696 $ - $ - $ 696 $ 324,858 $ 325,554 $ - $ 325,554

Special mention
- - - - 16,625 16,625 - 16,625

Substandard
- - - - 7,364 7,364 15,704 23,068

696 - - 696 348,847 349,543 15,704 365,247

Residential Real Estate:

Pass
$ - $ - $ - - $ 154,044 154,044 - 154,044

Special mention
- - - - 1,399 1,399 - 1,399

Substandard
- - - - - - 3,148 3,148

- - - - 155,443 155,443 3,148 158,591

Commercial and Industrial:

Pass
$ 243 $ - $ - 243 $ 114,306 114,549 - 114,549

Special mention
- - - - 1,951 1,951 - 1,951

Substandard
- - - - 2,209 2,209 4,101 6,310

243 - - 243 118,466 118,709 4,101 122,810

Consumer and Other:

Pass
$ - $ 26 $ 2 28 $ 59,171 59,199 - 59,199

Substandard
- - - - 23 23 142 165

- 26 2 28 59,194 59,222 142 59,364

Construction:

Pass
$ - $ - $ - - $ 21,781 21,781 - 21,781

- - - - 21,781 21,781 - 21,781

Construction to Permanent -CRE:

Pass
$ - $ - $ - - $ 11,695 11,695 - 11,695

- - - - 11,695 11,695 - 11,695

Total
$ 939 $ 26 $ 2 $ 967 $ 715,426 $ 716,393 $ 23,095 $ 739,488

Loans receivable, gross:

Pass
$ 939 $ 26 $ 2 $ 967 $ 685,855 $ 686,822 $ - $ 686,822

Special mention
- - - - 19,975 19,975 - 19,975

Substandard
- - - - 9,596 9,596 23,095 32,691

Loans receivable, gross
$ 939 $ 26 $ 2 $ 967 $ 715,426 $ 716,393 $ 23,095 $ 739,488

The following tables summarize performing and non-performing (i.e., non-accruing) loans receivable by portfolio segment, by aging category, by delinquency status as of December 31, 2020.

(In thousands)

Performing (Accruing) Loans

As of December 31, 2020:

30 - 59 Days
Past Due

60 - 89 Days
Past Due

90 Days
or
Greater Past

Due

Total
Past Due

Current

Total
Performing
Loans

Non-accruing
Loans

Loans
Receivable
Gross

Loan portfolio segment:

Commercial Real Estate:

Pass
$ - $ - $ - $ - $ 230,824 $ 230,824 $ - $ 230,824

Special mention
- - - - 25,658 25,658 - 25,658

Substandard
354 - 9 363 10,999 11,362 14,534 25,896

354 - 9 363 267,481 267,844 14,534 282,378

Residential Real Estate:

Pass
478 361 - 839 145,298 146,137 - 146,137

Special mention
- - - - 3,860 3,860 - 3,860

Substandard
- - - - - - 3,854 3,854

478 361 - 839 149,158 149,997 3,854 153,851

Commercial and Industrial:

Pass
- 209 - 209 102,131 102,340 - 102,340

Special mention
- 4,000 - 4,000 8,881 12,881 - 12,881

Substandard
603 113 - 716 27,660 28,376 700 29,076

603 4,322 - 4,925 138,672 143,597 700 144,297

Consumer and Other:

Pass
1 - 7 8 66,589 66,597 - 66,597

Substandard
- - - - 121 121 917 1,038

1 - 7 8 66,710 66,718 917 67,635

Construction:

Pass
- 2,351 - 2,351 64,633 66,984 - 66,984

- 2,351 - 2,351 64,633 66,984 - 66,984

Construction to Permanent - CRE:

Pass
- - - - 15,035 15,035 - 15,035

- - - - 15,035 15,035 - 15,035

Total
$ 1,436 $ 7,034 $ 16 $ 8,486 $ 701,689 $ 710,175 $ 20,005 $ 730,180

Loans receivable, gross:

Pass
$ 479 $ 2,921 $ 7 $ 3,407 $ 624,510 $ 627,917 $ - $ 627,917

Special mention
- 4,000 - 4,000 38,399 42,399 - 42,399

Substandard
957 113 9 1,079 38,780 39,859 20,005 59,864

Loans receivable, gross
$ 1,436 $ 7,034 $ 16 $ 8,486 $ 701,689 $ 710,175 $ 20,005 $ 730,180

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, 2021 and 2020:

(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, 2021:

Loan portfolio segment:

Commercial Real Estate:

Substandard
$ - $ - $ 15,704 $ 15,704 $ - $ 15,704

Residential Real Estate:

Substandard
- - 2,419 2,419 729 3,148

Commercial and Industrial:

Substandard
- 491 2,458 2,949 1,152 4,101

Consumer and Other:

Substandard
- 94 28 122 20 142

Total non-accruing loans
$ - $ 585 $ 20,609 $ 21,194 $ 1,901 $ 23,095

As of December 31, 2020:

Loan portfolio segment:

Commercial Real Estate:

Substandard
$ - $ - $ 5,723 $ 5,723 $ 8,811 $ 14,534

Residential Real Estate:

Substandard
- - 2,884 2,884 970 3,854

Commercial and Industrial:

Substandard
- - 700 700 - 700

Consumer and Other:

Substandard
22 - 91 113 804 917

Total non-accruing loans
$ 22 $ - $ 9,398 $ 9,420 $ 10,585 $ 20,005

If non-accrual loans had been performing in accordance with the original contractual terms, additional interest income (net of cash collected) of approximately $802,000, $904,000, and $302,000 would have been recognized in income for the years ended December 31, 2021, 2020, and 2019, respectively.

Interest income collected and recognized on non-accruing loans for the year ended December 31, 2021, 2020 and 2019 was $377,000, $156,000 and $671,000, respectively.

The accrual of interest on loans is discontinued at the time the loan is 90 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, after at least six months of timely payment history. Management considers all non-accrual loans and Trouble Debt Restructurings (“TDR”) for impaired loans. In most cases, loan payments that are past due less than 90 days, well-secured, and in the process of collection are not considered impaired. The Bank considers consumer installment loans to be pools of smaller homogeneous loan balances, which are collectively evaluated for impairment.

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.

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 also 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.

The following table summarizes the recorded investment in TDRs as of December 31, 2021 and 2020:

(In thousands)

December 31, 2021

December 31, 2020

Loan portfolio segment:

Number of

Loans

Recorded

Investment

Number of

Loans

Recorded

Investment

Commercial Real Estate
1 $ 8,884 2 $ 9,884

Residential Real Estate
3 870 3 928

Commercial and Industrial
0 - 1 4,000

Consumer and Other
3 640 5 1,074

Total TDR Loans
7 10,394 11 15,886

Less:

TDRs included in non-accrual loans
3 (9,688 ) 6 (11,508 )

Total accrual TDR Loans
4 $ 706 5 $ 4,378

During the year ended December 31, 2021, no loans were modified as TDRs, and no defaults of TDRs.

The following loans were modified as TDR during the year ended December 31, 2020 and 2019.

Outstanding Recorded Investment

(In thousands)

Number of Loans

Pre-Modification

Post-Modification

Year Ended December 31,

2020

2019

2020

2019

2020

2019

Loan portfolio segment:

Commercial Real Estate
2 2 $ 822 $ 8,912 $ 819 $ 8,911

Commercial and Industrial
1 - 4,000 - 4,000 -

Consumer and Other
3 - 413 - $ 414 -

Total TDR Loans
6 2 $ 5,235 $ 8,912 $ 5,233 $ 8,911

The following table provides information on how loans were modified as TDRs during the year ended December 31, 2020 and 2019.

(In thousands)

Year Ended December 31,

2020

2019

Rate reduction
$ 4,819 $ 111

Extension of interest only period
121 -

Payment deferral
293 -

Maturity and rate reduction
- 8,800

Total
$ 5,233 $ 8,911

The loans modified in a TDR often involve reducing the interest rate for the remaining term of the loan, extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk, extending payment periods for the interest and /or principal, or substituting or adding a co-borrower or guarantor.

At December 31, 2021 and 2020, there were no commitments to advance additional funds under TDRs. The balances reflected here as TDR’s are also included in the non-accruing loan balance included in the prior table - Loan Portfolio Aging Analysis.

Pursuant to the CARES Act, loan modifications made between March 1, 2020 and the earlier of i) December 30, 2020 or ii) 60 days after the President declares a termination of the COVID-19 national emergency are not classified as TDRs if the related loans were not more than 30 days past due as of December 31, 2019. In addition, on April 7, 2020, a group of banking regulatory agencies issued a revised interagency statement that offers practical expedients for evaluating whether COVID-19 loan modifications are TDRs. The Bank had modified $232.7 million of loans to borrowers to defer the payment of interest and/or principal for up to 180 days. The vast majority all of those loans deferred have now resumed normal payments. As of December 31, 2021, seven loans remaining on deferral totaled $6.5 million. According to regulatory guidance and CARES Act, these modified loans were not TDRs as of December 31, 2021.

Impaired Loans

Impaired loans may consist of non-accrual loans and/or performing and non-performing TDRs. As of December 31, 2021 and 2020, based on the on-going monitoring and analysis of the loan portfolio, impaired loans of $23.8 million and $24.4 million, respectively, were identified, for which $2.3 million and $1.4 million specific reserves were established, respectively.

At December 31, 2021, exposure to the impaired loans was related to thirty-four borrowers. Twenty-three out of thirty-four impaired loans were individually evaluated for impairment, and the remaining eleven impaired loans with balances under $100,000, totaling $590,000, with a general reserve of $7,000 were collectively evaluated, and not individually evaluated for impairment.

At December 31, 2020, exposure to the impaired loans was related to twenty-six borrowers. All impaired loans were evaluated individually.

For collateral dependent loans, appraisal reports of the underlying collateral, have been obtained from independent licensed appraisal firms. For non-performing loans, the independently determined appraised values were first reduced by a 5.8% discount to reflect the Bank’s experience selling Other Real Estate Owned (OREO) properties, and were further reduced by 8% in selling costs, 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. For cash flow dependent loans, the Bank determined the reserve based on the present value of expected future cash flows discounted at the loan's effective interest rate.

Loans not requiring specific reserves had fair values exceeding the total recorded investment, supporting the net investment in the loan which includes principal balance, unamortized fees and costs and accrued interest, if any. Once a borrower is in default, Patriot is under no obligation to advance additional funds on unused commitments.

The following table reflects information about the impaired loans by class as of December 31, 2021 and 2020:

(In thousands)

December 31, 2021

December 31, 2020

Recorded
Investment

Principal
Outstanding

Related
Allowance

Recorded
Investment

Principal
Outstanding

Related
Allowance

With no related allowance recorded:

Commercial Real Estate
$ 6,820 $ 7,776 $ - $ 5,723 $ 6,644 $ -

Residential Real Estate
2,847 2,763 - 3,853 3,900 -

Commercial and Industrial
630 758 - 4,700 4,816 -

Consumer and Other
523 523 - 1,177 1,332 -

10,820 11,820 - 15,453 16,692 -

With a related allowance recorded:

Commercial Real Estate
$ 8,884 $ 8,811 $ 1,567 8,811 8,811 1,398

Residential Real Estate
461 488 8 109 109 4

Commercial and Industrial
3,471 3,916 723 - - -

Consumer and Other
166 201 1 10 10 10

12,982 13,416 2,299 8,930 8,930 1,412

Impaired Loans, Total:

Commercial Real Estate
15,704 16,587 1,567 14,534 15,455 1,398

Residential Real Estate
3,308 3,251 8 3,962 4,009 4

Commercial and Industrial
4,101 4,674 723 4,700 4,816 -

Consumer and Other
689 724 1 1,187 1,342 10

Impaired Loans, Total
$ 23,802 $ 25,236 $ 2,299 $ 24,383 $ 25,622 $ 1,412

For each year in the three-year period ended December 31, 2021, 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:

Year Ended December 31,

(In thousands)

2021

2020

2019

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
$ 7,636 $ 103 $ 5,859 $ 39 $ 9,829 $ 95

Residential Real Estate
4,014 51 3,681 28 2,531 104

Commercial and Industrial
2,548 12 2,111 79 1,800 45

Consumer and Other
702 16 1,132 47 901 35

Construction
- - - - 4,062 -

14,900 182 12,783 193 19,123 279

With a related allowance recorded:

Commercial Real Estate
8,869 66 8,861 35 888 415

Residential Real Estate
428 21 34 7 952 -

Commercial and Industrial
2,239 126 - - 1,714 -

Consumer and Other
106 7 39 - 18 -

11,642 220 8,934 42 3,572 415

Impaired Loans, Total:

Commercial Real Estate
16,505 169 14,720 74 10,717 510

Residential Real Estate
4,442 72 3,715 35 3,483 104

Commercial and Industrial
4,787 138 2,111 79 3,514 45

Consumer and Other
808 23 1,171 47 919 35

Construction
- - - - 4,062 -

Impaired Loans, Total
$ 26,542 $ 402 $ 21,717 $ 235 $ 22,695 $ 694