Note

11.

Financial Instruments with Off-Balance Sheet Risk

In the normal course of business, Patriot is a party to financial instruments with off-balance-sheet risk to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit and involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the balance sheet. The contractual amounts of these instruments reflect the extent of involvement Patriot has in particular classes of financial instruments.

The contractual amount of commitments to extend credit and standby letters of credit represents the maximum amount of potential accounting loss should: the contract be fully drawn upon; the customer default; and the value of any existing collateral become worthless. Patriot applies its credit policies to entering commitments and conditional obligations and, as with its lending activates, evaluates each customer’s creditworthiness on a case-by-case basis. Management believes that it effectively mitigates the credit risk of these financial instruments through its credit approval processes, establishing credit limits, monitoring the on-going creditworthiness of recipients and grantees, and the receipt of collateral as deemed necessary.

Financial instruments with credit risk at

March 31, 2020

and

December 31, 2019

are as follows:

	March 31,		December 31,
(In thousands)	2020		2019
Commitments to extend credit:
Unused lines of credit	$	63,560	$	71,101
Undisbursed construction loans		44,653		25,367
Home equity lines of credit		19,146		20,032
Future loan commitments		14,046		27,822
Financial standby letters of credit		743		743
	$	142,148	$	145,065

Commitments to extend credit are agreements to lend to a customer as long as there is

violation of any condition established in the contract. Commitments to extend credit generally have fixed expiration dates or other termination clauses, and

may

require payment of a fee by the borrower. Since these commitments could expire without being drawn upon, the total commitment amounts do

not

necessarily represent future cash requirements. The amount of collateral obtained, if deemed necessary upon extending credit, is based on management’s credit evaluation of the customer. Collateral held varies, but

may

include commercial property, residential property, deposits and securities. Patriot has established a reserve for credit loss of

$8,000

and

$8,000

as of

March 31, 2020

and

December 31, 2019,

respectively, which is included in accrued expenses and other liabilities.

Standby letters of credit are written commitments issued by Patriot to guarantee the performance of a customer to a

third

party. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan facilities to customers. Guarantees that are

not

derivative contracts are recorded at fair value and included in the consolidated balance sheet.