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

3 Months Ended

Mar. 31, 2022

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

Note 4. Loans Receivable and Allowance for Loan and Lease Losses

As of March 31, 2022 and December 31, 2021, loans receivable, net, consisted of the following:

	March 31,			December 31,
(In thousands)	2022			2021
Loan portfolio segment:
Commercial Real Estate	$	413,104		$	365,247
Residential Real Estate		146,221			158,591
Commercial and Industrial		128,515			122,810
Consumer and Other		71,219			59,364
Construction		12,223			21,781
Construction to Permanent - CRE		2,057			11,695
Loans receivable, gross		773,339			739,488
Allowance for loan and lease losses		(9,737	)		(9,905	)
Loans receivable, net	$	763,602		$	729,583

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.

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.

During the three months ended March 31, 2022, Patriot purchased $20.7 million of commercial real estate loans. There were no commercial real estate loans purchased during the first quarter of 2021.

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.

During the three months ended March 31, 2022, Patriot did not purchase any residential real estate loans. During the three months ended March 31, 2021, $16.0 million of residential real estate loans were purchased.

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 portfolio totaled $20.8 million and $19.6 million at March 31, 2022 and December 31, 2021, 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 the three months ended March 31, 2022, Patriot purchased $18.4 million unsecured consumer loans. During the three months ended March 31, 2021, no consumer 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

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 commercial real estate loan typically 20-25 years, resetting every five years to the Federal Home Loan Bank (“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.

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 $28.6 million and $27.1 million as of March 31, 2022 and December 31, 2021, respectively. During the first quarter of 2022, no SBA loans previously classified as held for sale were transferred to held for investment. During the three-month period ended March 31, 2021, $281,000 SBA loans were transferred from held for sale to held for investment.

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 $380,000 and $919,000 as of March 31, 2022 and December 31, 2021, respectively, 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 the three months ended March 31, 2022 and 2021:

(In thousands)	Commercial Real Estate			Residential Real Estate			Commercial and Industrial			Consumer and Other			Construction			Construction to Permanent - CRE			Unallocated			Total
Three months ended March 31, 2022
Allowance for loan and lease losses:
December 31, 2021	$	5,063		$	1,700		$	2,532		$	253		$	78		$	41		$	238		$	9,905
Charge-offs		-			-			(68	)		(47	)		(70	)		-			-			(185	)
Recoveries		-			1			15			1			-			-			-			17
Provisions (credits)		(174	)		(189	)		381			112			48			(32	)		(146	)		-
March 31, 2022	$	4,889		$	1,512		$	2,860		$	319		$	56		$	9		$	92		$	9,737

Three months ended March 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		(42	)		(3	)		(209	)		(18	)		-			-			-			(272	)
Recoveries		-			-			12			102			-			-			-			114
Provisions (credits)		(289	)		533			537			3			(459	)		(85	)		(240	)		-
March 31, 2021	$	4,154		$	1,909		$	3,624		$	382		$	280		$	77		$	-		$	10,426

The following tables summarize, by loan portfolio segment, the amount of loans receivable evaluated individually and collectively for impairment as of March 31, 2022 and December 31, 2021:

(In thousands)	Commercial Real Estate		Residential Real Estate		Commercial and Industrial		Consumer and Other		Construction		Construction to Permanent - CRE		Unallocated		Total
March 31, 2022
Allowance for loan and lease losses:
Individually evaluated for impairment	$	1,752	$	3	$	954	$	-	$	-	$	-	$	-	$	2,709
Collectively evaluated for impairment		3,137		1,509		1,906		319		56		9		92		7,028
Total allowance for loan and lease losses	$	4,889	$	1,512	$	2,860	$	319	$	56	$	9	$	92	$	9,737

Loans receivable, gross:
Individually evaluated for impairment	$	15,643	$	2,940	$	4,544	$	521	$	-	$	-	$	-	$	23,648
Collectively evaluated for impairment		397,461		143,281		123,971		70,698		12,223		2,057		-		749,691
Total loans receivable, gross	$	413,104	$	146,221	$	128,515	$	71,219	$	12,223	$	2,057	$	-	$	773,339

(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 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

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.

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 March 31, 2022.

(In thousands)

Performing (Accruing) Loans

As of March 31, 2022:

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
$ 849 $ - $ - $ 849 $ 373,639 $ 374,488 $ - $ 374,488

Special mention
- - - - 20,384 20,384 - 20,384

Substandard
339 - - 339 2,250 2,589 15,643 18,232

1,188 - - 1,188 396,273 397,461 15,643 413,104

Residential Real Estate:

Pass
- - - - 141,695 141,695 - 141,695

Substandard
- - - - 1,392 1,392 3,134 4,526

- - - - 143,087 143,087 3,134 146,221

Commercial and Industrial:

Pass
997 - - 997 119,292 120,289 - 120,289

Special mention
- - - - 1,435 1,435 - 1,435

Substandard
573 - - 573 1,674 2,247 4,544 6,791

1,570 - - 1,570 122,401 123,971 4,544 128,515

Consumer and Other:

Pass
- - - - 71,051 71,051 - 71,051

Substandard
- - - - 23 23 145 168

- - - - 71,074 71,074 145 71,219

Construction:

Pass
- - - - 12,223 12,223 - 12,223

- - - - 12,223 12,223 - 12,223

Construction to Permanent - CRE:

Pass
- - - - 2,057 2,057 - 2,057

- - - - 2,057 2,057 - 2,057

Total
$ 2,758 $ - $ - $ 2,758 $ 747,115 $ 749,873 $ 23,466 $ 773,339

Loans receivable, gross:

Pass
$ 1,846 $ - $ - $ 1,846 $ 719,957 $ 721,803 $ - $ 721,803

Special mention
- - - - 21,819 21,819 - 21,819

Substandard
912 - - 912 5,339 6,251 23,466 29,717

Loans receivable, gross
$ 2,758 $ - $ - $ 2,758 $ 747,115 $ 749,873 $ 23,466 $ 773,339

The following tables summarize performing and non-performing loans (i.e., non-accruing) 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 non-performing (i.e., non-accruing) loans by aging category and status, within the applicable loan portfolio segment as of March 31, 2022 and December 31, 2021:

(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 March 31, 2022:

Loan portfolio segment:

Commercial Real Estate:

Substandard
$ - $ - $ 6,787 $ 6,787 $ 8,856 $ 15,643

Residential Real Estate:

Substandard
696 - 2,419 3,115 19 3,134

Commercial and Industrial:

Substandard
- 118 3,292 3,410 1,134 4,544

Consumer and Other:

Substandard
- - 121 121 24 145

Total non-accruing loans
$ 696 $ 118 $ 12,619 $ 13,433 $ 10,033 $ 23,466

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

If non-accrual loans had been performing in accordance with the original contractual terms, additional interest income (net of cash collected) of approximately $115,000 and $255,000 would have been recognized during the three months ended March 31, 2022 and 2021, respectively.

During the three months ended March 31, 2022 and 2021, interest income collected and recognized on non-accruing loans was $90,000 and $48,000, 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 loans under $100,000 and consumer installment loans to be pools of smaller homogeneous loan balances, and therefore are collectively evaluated for impairment, and not individually measured 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 March 31, 2022 and December 31, 2021:

(In thousands)

March 31, 2022

December 31, 2021

Loan portfolio segment:

Number of

Loans

Recorded

Investment

Number of

Loans

Recorded

Investment

Commercial Real Estate
1 $ 8,856 1 $ 8,884

Residential Real Estate
3 856 3 870

Consumer and Other
3 637 3 640

Total TDR Loans
7 10,349 7 10,394

Less:

TDRs included in non-accrual loans
3 (9,646 ) 3 (9,688 )

Total accrual TDR Loans
4 $ 703 4 $ 706

During the three months ended March 31, 2022 and 2021, no loans were modified as TDRs, and there were no defaults of TDRs.

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 the interest-only payment period, or substituting or adding a co-borrower or guarantor. There were no defaults of TDRs during the three months ended March 31, 2022 and 2021. At March 31, 2022 and December 31, 2021, 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.

Impaired Loans

Impaired loans may consist of non-accrual loans and/or performing and non-performing TDRs. Based on the on-going monitoring and analysis of the loan portfolio, thirty-five impaired loans totaling $24.2 million, were identified as of March 31, 2022. Twenty-five out of thirty-five impaired loans totaling $23.6 million, were individually evaluated for impairment, for which $2.7 million specific reserves were established. The remaining ten impaired loans with balances under $100,000, totaling $521,000, with a general reserve of $6,000 were collectively evaluated, and not individually evaluated for impairment.

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.

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 March 31, 2022 and December 31, 2021:

(In thousands)

March 31, 2022

December 31, 2021

Recorded
Investment

Principal
Outstanding

Related
Allowance

Recorded
Investment

Principal
Outstanding

Related
Allowance

With no related allowance recorded:

Commercial Real Estate
$ 6,787 $ 7,765 $ - $ 6,820 $ 7,776 $ -

Residential Real Estate
2,834 2,758 - 2,847 2,763 -

Commercial and Industrial
612 743 - 630 758 -

Consumer and Other
521 521 - 523 523 -

10,754 11,787 - 10,820 11,820 -

With a related allowance recorded:

Commercial Real Estate
$ 8,856 $ 8,805 $ 1,752 8,884 8,811 1,567

Residential Real Estate
3,932 4,592 954 461 488 8

Commercial and Industrial
460 486 7 3,471 3,916 723

Consumer and Other
167 201 2 166 201 1

13,415 14,084 2,715 12,982 13,416 2,299

Impaired Loans, Total:

Commercial Real Estate
15,643 16,570 1,752 15,704 16,587 1,567

Residential Real Estate
6,766 7,350 954 3,308 3,251 8

Commercial and Industrial
1,072 1,229 7 4,101 4,674 723

Consumer and Other
688 722 2 689 724 1

Impaired Loans, Total
$ 24,169 $ 25,871 $ 2,715 $ 23,802 $ 25,236 $ 2,299

The following table summarizes additional information regarding impaired loans by class for the three months ended March 31, 2022 and 2021.

Three Months Ended March 31,

(In thousands)

2022

2021

Average
Recorded
Investment

Interest
Income
Recognized

Average
Recorded
Investment

Interest
Income
Recognized

With no related allowance recorded:

Commercial Real Estate
$ 6,806 $ 32 $ 6,078 $ -

Residential Real Estate
2,840 8 4,248 13

Commercial and Industrial
621 4 2,745 46

Consumer and Other
522 4 945 6

10,789 48 14,016 65

With a related allowance recorded:

Commercial Real Estate
8,873 25 8,813 -

Residential Real Estate
1,328 21 190 3

Commercial and Industrial
2,738 2 462 26

Consumer and Other
165 1 47 2

13,104 49 9,512 31

Impaired Loans, Total:

Commercial Real Estate
15,679 57 14,891 -

Residential Real Estate
4,168 29 4,438 16

Commercial and Industrial
3,359 6 3,207 72

Consumer and Other
687 5 992 8

Impaired Loans, Total
$ 23,893 $ 97 $ 23,528 $ 96