Note

Loans Receivable and Allowance for Loan and Lease Losses

As of

June 30, 2020

and

December 31, 2019,

loans receivable, net, consisted of the following:

	June 30,			December 31,
(In thousands)	2020			2019
Loan portfolio segment:
Commercial Real Estate	$	302,150		$	314,414
Residential Real Estate		168,482			175,489
Commercial and Industrial		163,603			173,875
Consumer and Other		88,325			85,934
Construction		56,928			48,388
Construction to Permanent - CRE		13,012			14,064
Loans receivable, gross		792,500			812,164
Allowance for loan and lease losses		(11,148	)		(10,115	)
Loans receivable, net	$	781,352		$	802,049

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

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 connection with the Prime Bank merger in

May 2018,

loans were acquired. 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

June 30, 2020

and

$176,000

as of

December 31, 2019,

respectively. 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.

A summary of changes in the accretable discount for PCI loans for the

three

and

six

months ended

June 30, 2020

and

2019

follows:

(In thousands)	Three Months Ended June 30,					Six Months Ended June 30,
	2020		2019			2020			2019
Accretable discount, beginning of period	$	-	$	(194	)	$	(47	)	$	(792	)
Accretion		-		9			2			34
Other changes, net		-		(16	)		45			557
Accretable discount, end of period	$	-	$	(201	)	$	-		$	(201	)

The accretion of the accretable discount for PCI loans for the

three

and

six

months ended

June 30, 2020

were

and

$2,000,

respectively. The accretion of the accretable discount for PCI loans for the

three

and

six

months ended

June 30, 2019

was

$9,000

and

$34,000,

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

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

and

six

months ended

June 30, 2020,

Patriot purchased

$6.0

million and

$14.1

million of residential real estate loans, respectively. During the

three

and

six

months ended

June 30, 2019,

Patriot purchased

$14.0

million and

$18.8

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 portfolio, which totaled

$69.2

million and

$71.5

million at

June 30, 2020

and

December 31, 2019,

respectively, 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 and provide diversification from Patriot's typical direct-to-business lines of credit and term facilities. The Bank will participate in senior secured financings for public and privately-owned companies for acquisitions, working capital, recapitalizations, and general corporate purposes. The Bank's strategy is to participate in these types of loan transaction in accordance with its internal policies.

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.

Patriot purchased

and

$14.9

million education loans during the

three

and

six

months ended

June 30, 2020,

respectively. During the

three

and

six

months ended

June 30, 2019,

Patriot purchased

$7.3

million education loans.

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

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

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

(a) loans, on which the SBA has historically provided guarantees of

75%

of the principal balance. 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

$20.5

million and

$9.6

million as of

June 30, 2020

and

December 31, 2019,

respectively. During the

first

half of

2020,

$8.0

million SBA loans previously classified as held for sale were transferred to held for investment.

Allowance for

oan and

ease

osses

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

three

and

six

months ended

June 30, 2020

and

2019:

(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, 2020
Allowance for loan and lease losses:
March 31, 2020	$	4,150	$	1,120		$	4,390		$	534		$	603	$	119		$	-	$	10,916
Charge-offs		-		(12	)		(679	)		-			-		-			-		(691	)
Recoveries		-		-			11			2			-		-			-		13
Provisions (credits)		124		802			(196	)		(2	)		63		30			89		910
June 30, 2020	$	4,274	$	1,910		$	3,526		$	534		$	666	$	149		$	89	$	11,148

Three months ended June 30, 2019
Allowance for loan and lease losses:
March 31, 2019	$	1,862	$	1,389		$	3,490		$	592		$	355	$	123		$	12	$	7,823
Charge-offs		-		(12	)		(2,292	)		(3	)		-		-			-		(2,307	)
Recoveries		2		-			-			3			-		-			-		5
Provisions (credits)		114		(441	)		3,010			72			112		(18	)		88		2,937
June 30, 2019	$	1,978	$	936		$	4,208		$	664		$	467	$	105		$	100	$	8,458

(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, 2020
Allowance for loan and lease losses:
December 31, 2019	$	3,789	$	1,038		$	4,340		$	341		$	477	$	130		$	-	$	10,115
Charge-offs		-		(13	)		(683	)		(39	)		-		-			-		(735	)
Recoveries		-		-			51			3			-		-			-		54
Provisions (credits)		485		885			(182	)		229			189		19			89		1,714
June 30, 2020	$	4,274	$	1,910		$	3,526		$	534		$	666	$	149		$	89	$	11,148

Six months ended June 30, 2019
Allowance for loan and lease losses:
December 31, 2018	$	1,866	$	1,059		$	3,558		$	641		$	350	$	108		$	27	$	7,609
Charge-offs		-		(12	)		(2,292	)		(3	)		-		-			-		(2,307	)
Recoveries		2		-			47			5			-		-			-		54
Provisions (credits)		110		(111	)		2,895			21			117		(3	)		73		3,102
June 30, 2019	$	1,978	$	936		$	4,208		$	664		$	467	$	105		$	100	$	8,458

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

June 30, 2020

and

December 31, 2019:

(In thousands)	Commercial Real Estate		Residential Real Estate		Commercial and Industrial		Consumer and Other		Construction		Construction to Permanent - CRE		Unallocated		Total
June 30, 2020
Allowance for loan and lease losses:
Individually evaluated for impairment	$	1,615	$	4	$	-	$	8	$	-	$	-	$	-	$	1,627
Collectively evaluated for impairment		2,659		1,906		3,526		526		666		149		89		9,521
Total allowance for loan and lease losses	$	4,274	$	1,910	$	3,526	$	534	$	666	$	149	$	89	$	11,148

Loans receivable, gross:
Individually evaluated for impairment	$	16,093	$	3,733	$	1,724	$	1,651	$	-	$	-	$	-	$	23,201
Collectively evaluated for impairment		286,057		164,749		161,879		86,674		56,928		13,012		-		769,299
Total loans receivable, gross	$	302,150	$	168,482	$	163,603	$	88,325	$	56,928	$	13,012	$	-	$	792,500

(In thousands)	Commercial Real Estate		Residential Real Estate		Commercial and Industrial		Consumer and Other		Construction		Construction to Permanent - CRE		Unallocated		Total
December 31, 2019
Allowance for loan and lease losses:
Individually evaluated for impairment	$	1,496	$	-	$	-	$	-	$	-	$	-	$	-	$	1,496
Collectively evaluated for impairment		2,293		1,038		4,340		341		477		130		-		8,619
Total allowance for loan losses	$	3,789	$	1,038	$	4,340	$	341	$	477	$	130	$	-	$	10,115

Loans receivable, gross:
Individually evaluated for impairment	$	13,034	$	3,621	$	2,057	$	916	$	-	$	-	$	-	$	19,628
PCI loans individually evaluated for impairment		-		-		176		-		-		-		-		176
Collectively evaluated for impairment		301,380		171,868		171,642		85,018		48,388		14,064		-		792,360
Total loans receivable, gross	$	314,414	$	175,489	$	173,875	$	85,934	$	48,388	$	14,064	$	-	$	812,164

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, 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 an independent

third

-party loan review 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:

●

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.

Due to the economic disruption and uncertainty caused by the pandemic, the allowance for loan losses

may

increase in future periods as borrowers are affected by the expected severe contraction of economic activity and the dramatic increase in unemployment. This

may

result in increases in loan delinquencies, down-grades of loan credit ratings and charge-offs in future periods. 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

June 30, 2020.

(In thousands)	Performing (Accruing) Loans
As of June 30, 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	$	860	$	-	$	858	$	1,718	$	280,383	$	282,101	$	-	$	282,101
Special mention		-		-		-		-		381		381		-		381
Substandard		-		-		-		-		4,649		4,649		15,019		19,668
		860		-		858		1,718		285,413		287,131		15,019		302,150
Residential Real Estate:
Pass		632		554		-		1,186		163,697		164,883		-		164,883
Special mention		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		252		252		3,347		3,599
		632		554		-		1,186		163,949		165,135		3,347		168,482
Commercial and Industrial:
Pass		101		-		-		101		147,093		147,194		-		147,194
Special mention		-		-		-		-		444		444		-		444
Substandard		764		-		-		764		13,476		14,240		1,725		15,965
		865		-		-		865		161,013		161,878		1,725		163,603
Consumer and Other:
Pass		10		3		5		18		86,684		86,702		-		86,702
Substandard		-		-		-		-		121		121		1,502		1,623
		10		3		5		18		86,805		86,823		1,502		88,325
Construction:
Pass		-		-		-		-		56,928		56,928		-		56,928
		-		-		-		-		56,928		56,928		-		56,928
Construction to Permanent - CRE:
Pass		-		-		-		-		13,012		13,012		-		13,012
		-		-		-		-		13,012		13,012		-		13,012

Total	$	2,367	$	557	$	863	$	3,787	$	767,120	$	770,907	$	21,593	$	792,500

Loans receivable, gross:
Pass	$	1,603	$	557	$	863	$	3,023	$	747,797	$	750,820	$	-	$	750,820
Special mention		-		-		-		-		825		825		-		825
Substandard		764		-		-		764		18,498		19,262		21,593		40,855
Loans receivable, gross	$	2,367	$	557	$	863	$	3,787	$	767,120	$	770,907	$	21,593	$	792,500

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, 2019.

(In thousands)	Performing (Accruing) Loans
As of December 31, 2019:	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	$	-	$	-	$	-	$	-	$	295,982	$	295,982	$	-	$	295,982
Special mention		-		-		-		-		385		385		-		385
Substandard		-		-		-		-		6,086		6,086		11,961		18,047
		-		-		-		-		302,453		302,453		11,961		314,414
Residential Real Estate:
Pass		658		-		-		658		169,903		170,561		-		170,561
Special mention		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		1,700		1,700		3,228		4,928
		658		-		-		658		171,603		172,261		3,228		175,489
Commercial and Industrial:
Pass		327		350		-		677		162,711		163,388		-		163,388
Special mention		279		-		-		279		172		451		-		451
Substandard		-		-		-		-		7,942		7,942		2,094		10,036
		606		350		-		956		170,825		171,781		2,094		173,875
Consumer and Other:
Pass		2,805		3		19		2,827		82,341		85,168		-		85,168
Substandard		-		-		-		-		-		-		766		766
		2,805		3		19		2,827		82,341		85,168		766		85,934
Construction:
Pass		-		-		-		-		48,388		48,388		-		48,388
		-		-		-		-		48,388		48,388		-		48,388
Construction to Permanent - CRE:
Pass		-		-		-		-		14,064		14,064		-		14,064
		-		-		-		-		14,064		14,064		-		14,064

Total	$	4,069	$	353	$	19	$	4,441	$	789,674	$	794,115	$	18,049	$	812,164

Loans receivable, gross:
Pass	$	3,790	$	353	$	19	$	4,162	$	773,389	$	777,551	$	-	$	777,551
Special mention		279		-		-		279		557		836		-		836
Substandard		-		-		-		-		15,728		15,728		18,049		33,777
Loans receivable, gross	$	4,069	$	353	$	19	$	4,441	$	789,674	$	794,115	$	18,049	$	812,164

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, 2020

and

December 31, 2019:

(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, 2020:
Loan portfolio segment:
Commercial Real Estate:
Substandard	$	-	$	-	$	6,208	$	6,208	$	8,811	$	15,019
Residential Real Estate:
Substandard		778		25		1,952		2,755		592		3,347
Commercial and Industrial:
Substandard		-		-		1,725		1,725		-		1,725
Consumer and Other:
Substandard		-		495		79		574		928		1,502
Total non-accruing loans	$	778	$	520	$	9,964	$	11,262	$	10,331	$	21,593

As of December 31, 2019:
Loan portfolio segment:
Commercial Real Estate:
Substandard	$	-	$	-	$	1,636	$	1,636	$	10,325	$	11,961
Residential Real Estate:
Substandard		-		-		1,872		1,872		1,356		3,228
Commercial and Industrial:
Substandard		-		-		1,724		1,724		370		2,094
Consumer and Other:
Substandard		-		-		149		149		617		766
Total non-accruing loans	$	-	$	-	$	5,381	$	5,381	$	12,668	$	18,049

If non-accrual loans had been performing in accordance with the original contractual terms, additional interest income (net of cash collected) of approximately

$284,000

and

$475,000

would have been recognized during the

three

and

six

months ended

June 30, 2020,

respectively. During the

three

and

six

months ended

June 30, 2019,

additional interest income (net of cash collected) of approximately

$132,000

and

$371,000

would have been recognized in income, respectively.

Interest income collected and recognized on non-accruing loans for the

three

and

six

months ended

June 30, 2020

was

$57,000

and

$84,000,

respectively. During the

three

and

six

months ended

June 30, 2019,

interest income collected and recognized on non-accruing loans was

$184,000

and

$334,000,

respectively.

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, 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

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

June 30, 2020

and

December 31, 2019:

(In thousands)	June 30, 2020					December 31, 2019
Loan portfolio segment:	Number of Loans		Recorded Investment			Number of Loans		Recorded Investment
Commercial Real Estate		2	$	9,884			2	$	9,873
Residential Real Estate		3		442			2		393
Consumer and Other		4		794			2		687
Total TDR Loans		9		11,120			6		10,953
Less:
TDRs included in non-accrual loans		3		(9,391	)		2		(9,337	)
Total accrual TDR Loans		6	$	1,729			4	$	1,616

The following table summarizes the loans were modified as TDR during the

three

and

six

months ended

June 30, 2020

and

2019:

					Outstanding Recorded Investment
(In thousands)	Number of Loans				Pre-Modification				Post-Modification
Three Months Ended June 30,	2020		2019		2020		2019		2020		2019
Loan portfolio segment:
Commercial Real Estate		1		1	$	57	$	112	$	56	$	111
Consumer and Other		2		-		121		-		121		-

Total TDR Loans		3		1	$	178	$	112	$	177	$	111

					Outstanding Recorded Investment
(In thousands)	Number of Loans				Pre-Modification				Post-Modification
Six Months Ended June 30,	2020		2019		2020		2019		2020		2019
Loan portfolio segment:
Commercial Real Estate		1		2	$	57	$	8,912	$	56	$	8,911
Consumer and Other		2		-		121		-		121		-

Total TDR Loans		3		2	$	178	$	8,912	$	177	$	8,911

The following table provides information on how loans were modified as TDRs during the

three

and

six

months ended

June 30, 2020

and

2019:

	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2020		2019		2020		2019

Rate reduction	$	56	$	111	$	56	$	111
Extension of interest only period		121		-		121		-
Maturity and rate reduction		-		-		-		8,800
Total	$	177	$	111	$	177	$	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 the interest-only payment period, or substituting or adding a co-borrower or guarantor. There were

defaults of TDRs during the

three

and

six

months ended

June 30, 2020.

June 30, 2020

and

December 31, 2019,

there were

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)

days after the President declares a termination of the COVID-

national emergency are

not

classified as TDRs if the related loans were

not

more than

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-

loan modifications are TDRs. As of

June 30, 2020,

approximately

$223.2

million of loans to borrowers had been modified to defer the payment of interest and/or principal for up to

180

days. According to regulatory guidance, these modified loans were

not

TDRs as of

June 30, 2020.

Impaired Loans

Impaired loans

may

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

June 30, 2020

and

December 31, 2019,

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

$23.2

million and

$19.6

million, respectively, were identified, for which

$1.6

million and

$1.5

million specific reserves were established, respectively. 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

obligation to advance additional funds on unused commitments.

June 30, 2020

and

December 31, 2019,

exposure to the impaired loans was related to

and

borrowers, respectively. 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

12%

discount to reflect the Bank's experience selling Other Real Estate Owned (OREO) properties, and were further reduced by

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.

PCI loans acquired from Prime Bank acquisition were originally recorded at fair value by the Bank on the date of acquisition. As of

June 30, 2020

and

December 31, 2019,

PCI loans remaining balance was

and

$179,000,

respectively. Those loans were considered individually evaluated for impairment, with

allowance recorded.

The following table reflects information about the impaired loans, excluding PCI loans, by class as of

June 30, 2020

and

December 31, 2019:

(In thousands)	June 30, 2020						December 31, 2019
	Recorded Investment		Principal Outstanding		Related Allowance		Recorded Investment		Principal Outstanding		Related Allowance
With no related allowance recorded:
Commercial Real Estate	$	7,063	$	7,069	$	-	$	4,234	$	4,309	$	-
Residential Real Estate		3,624		3,664		-		3,621		3,623		-
Commercial and Industrial		1,724		1,724		-		2,057		2,060		-
Consumer and Other		1,502		1,642		-		916		1,000		-
		13,913		14,099		-		10,828		10,992		-
With a related allowance recorded:
Commercial Real Estate	$	9,030	$	9,030	$	1,615		8,800		8,800		1,496
Residential Real Estate		109		110		4		-		-		-
Consumer and Other		149		149		8		-		-		-
		9,288		9,289		1,627		8,800		8,800		1,496

Impaired Loans, Total:
Commercial Real Estate		16,093		16,099		1,615		13,034		13,109		1,496
Residential Real Estate		3,733		3,774		4		3,621		3,623		-
Commercial and Industrial		1,724		1,724		-		2,057		2,060		-
Consumer and Other		1,651		1,791		8		916		1,000		-
Impaired Loans, Total	$	23,201	$	23,388	$	1,627	$	19,628	$	19,792	$	1,496

The following tables summarize additional information regarding impaired loans, excluding PCI loans, by class for the

three

and

six

months ended

June 30, 2020

and

2019.

	Three Months Ended June 30,								Six Months Ended June 30,
(In thousands)	2020				2019				2020				2019
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate	$	6,256	$	13	$	10,490	$	120	$	5,170	$	26	$	7,956	$	186
Residential Real Estate		3,565		13		2,271		41		3,585		33		1,584		98
Commercial and Industrial		1,985		2		1,854		38		2,031		2		1,275		87
Consumer and Other		1,152		9		890		13		1,049		17		866		24
Construction		-		-		6,600		-		-		-		7,543		150
		12,958		37		22,105		212		11,835		78		19,224		545
With a related allowance recorded:
Commercial Real Estate	$	8,866	$	34		215		-	$	8,841	$	35		393		-
Residential Real Estate		55		1		1,505		-		31		3		1,767		-
Commercial and Industrial		-		-		2,459		-		-		-		3,183		-
Consumer and Other		88		1		37		-		51		2		33		-
		9,009		36		4,216		-		8,923		40		5,376		-
Impaired Loans, Total:
Commercial Real Estate		15,122		47		10,705		120		14,011		61		8,349		186
Residential Real Estate		3,620		14		3,776		41		3,616		36		3,351		98
Commercial and Industrial		1,985		2		4,313		38		2,031		2		4,458		87
Consumer and Other		1,240		10		927		13		1,100		19		899		24
Construction		-		-		6,600		-		-		-		7,543		150
Impaired Loans, Total	$	21,967	$	73	$	26,321	$	212	$	20,758	$	118	$	24,600	$	545