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Note 9 - Fair Value and Interest Rate Risk | 6 Months Ended
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Jun. 30, 2017
Notes to Financial Statements |
Fair Value Disclosures [Text Block] | Note 9 : Fair Value and Interest Rate Risk The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. A fair value hierarchy has been established that prioritizes the inputs used to measure fair value, requiring entities to maximize the use of observable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs generally require significant management judgment. The three levels of the fair value hierarchy consist of:
Level 1 | Unadjusted quoted market prices for identical assets or liabilities in active markets that the entity has the ability to access at the measurement date (such as active exchange-traded equity securities and certain U.S. and government agency debt securities).
Level 2 | Observable inputs other than quoted prices included in Level 1, such as:
| - Quoted prices for similar assets or liabilities in active markets (such as U.S. agency and government sponsored mortgage-backed securities)
| - Quoted prices for identical or similar assets or liabilities in less active markets (such as certain U.S. and government agency debt securities, and corporate and municipal debt securities that trade infrequently)
| - Other inputs that are observable for substantially the full term of the asset or liability (i.e. interest rates, yield curves, prepayment speeds, default rates, etc.).
Level 3 | Valuation techniques that require unobservable inputs that are supported by little or no market activity and are significant to the fair value measurement of the asset or liability (such as pricing and discounted cash flow models that typically reflect management’s estimates of the assumptions a market participant would use in pricing the asset or liability).
A description of the valuation methodologies used for assets and liabilities recorded at fair value, and for estimating fair value for financial and non-financial instruments not recorded at fair value, is set forth below. Cash and due from banks, federal funds sold, short-term investments and accrued interest receivable and payable The carrying amount is a reasonable estimate of fair value and accordingly these are classified as Level 1. These financial instruments are not recorded at fair value on a recurring basis. Available-for-Sale Securities The fair value of securities available for sale (carried at fair value) and held to maturity (carried at amortized cost) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1 ), or matrix pricing (Level 2 ), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities, but rather by relying on the securities' relationship to other benchmark quoted prices, or using unobservable inputs employing various techniques and assumptions (Level 3 ). Other Investments The Bank’s investment portfolio includes the Solomon Hess SBA Loan Fund totaling $4.5 million. This investment is utilized by the Bank to satisfy its Community Reinvestment Act (“CRA”) lending requirements. As this fund operates as a private fund, shares in the Fund are not publicly traded and therefore have no readily determinable market value. The investment in the Fund is reported in the Consolidated Financial Statements at cost. Loans For variable rate loans, which periodically reprice with no apparent change in credit risk, carrying values, adjusted for credit losses inherent in the portfolios, are a reasonable estimate of fair value. The fair value of fixed rate loans is estimated by discounting the future cash flows using the period-end rates, estimated by using local market data, at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities, adjusted for credit losses inherent in the portfolios. Since individual loans do not trade on an open market and transfer of individual loans are private transactions that are not publicized, the fair value of the loan portfolio is classified within Level 3 of the fair value hierarchy. Patriot does not record loans at fair value on a recurring basis; however, from time to time, nonrecurring fair value adjustments to collateral-dependent impaired loans are recorded to reflect the net realizable value expected to be collected on default by the borrower based on observable market inputs or current appraised value of collateral held. Fair values estimated in this manner do not fully incorporate an exit-price approach, but instead are based on a comparison to current market rates for comparable loans, adjusted by management based on the best information available. OREO The fair value of other OREO the Bank may obtain is based on current appraised property value less estimated costs to sell. When the fair value is based on unadjusted current appraised values, OREO is classified within Level 2 of the fair value hierarchy. Patriot classifies OREO within Level 3 of the fair value hierarchy when unobservable inputs are used to determine adjustments to appraised values. Patriot does not record OREO at fair value on a recurring basis, but rather initially records OREO at fair value and then monitors property and market conditions that may indicate a change in value is warranted. Deposits The fair value of demand deposits, regular savings and certain money market deposits is the amount payable on demand at the reporting date. The fair value of certificates of deposit and other time deposits is estimated using a discounted cash flow calculation that applies interest rates currently being offered for deposits of similar remaining maturities, estimated using local market data, to a schedule of aggregated expected maturities on such deposits. The Company does not record deposits at fair value on a recurring basis. Senior Notes and Junior Subordinated Debt The senior notes were issued in December 2016 and therefore the carrying value is considered comparable to fair value. Management does not intend to measure the senior notes at fair value on a recurring basis. Junior subordinated debt reprices quarterly, as a result, the carrying amount is considered a reasonable estimate of fair value. The Company does not record junior subordinated debt at fair value on a recurring basis. Federal Home Loan Bank Borrowings The fair value of FHLB advances is estimated using a discounted cash flow calculation that applies current FHLB interest rates for advances of similar maturity to a schedule of maturities of such advances. The Company does not record these borrowings at fair value on a recurring basis. Off-balance sheet instruments Off-balance sheet financial instruments are based on interest rate changes and fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The Company does not record its off-balance-sheet instruments at fair value (i.e., commitments to extend credit) on a recurring basis. The following tables detail the financial assets measured at fair value on a recurring basis and the valuation techniques utilized relative to the fair value hierarchy, as of June 30, 2017 and December 31, 2016:
(In thousands) |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |  |  | Total |
June 30, 2017: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U. S. Government agency mortgage-backed securities |  | $ | - |  |  |  | 8,422 |  |  |  | - |  |  |  | 8,422 |
Corporate bonds |  |  | - |  |  |  | 8,954 |  |  |  | - |  |  |  | 8,954 |
Subordinated notes |  |  | - |  |  |  | 5,605 |  |  |  | 2,000 |  |  |  | 7,605 |
Available-for-sale securities |  | $ | - |  |  |  | 22,981 |  |  |  | 2,000 |  |  |  | 24,981 |
December 31, 2016: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U. S. Government agency mortgage-backed securities |  | $ | - |  |  |  | 10,441 |  |  |  | - |  |  |  | 10,441 |
Corporate bonds |  |  | - |  |  |  | 8,961 |  |  |  | - |  |  |  | 8,961 |
Subordinated notes |  |  | - |  |  |  | 3,026 |  |  |  | 2,000 |  |  |  | 5,026 |
Available-for-sale securities |  | $ | - |  |  |  | 22,428 |  |  |  | 2,000 |  |  |  | 24,428 |
The table below presents the valuation methodology and unobservable inputs for level 3 assets measures at fair value on a non-recurring basis as of June 30, 2017 and December 31, 2016:
(In thousands) |  | Fair Value |  |  | Valuation Methodology |  |  | Unobservable Inputs |  |  | Range of Inputs |
June 30, 2017: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans |  | $ | 8,856 |  |  | Real Estate Appraisals |  |  | Discount for appraisal type |  |  |  | 0% | - | 8% |
OREO |  |  | 851 |  |  | Real Estate Appraisals |  |  | Discount for appraisal type |  |  |  |  | 21% |  |
December 31, 2016: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans |  | $ | 8,951 |  |  | Real Estate Appraisals |  |  | Discount for appraisal type |  |  |  | 0% | - | 8% |
OREO |  |  | 851 |  |  | Real Estate Appraisals |  |  | Discount for appraisal type |  |  |  |  | 21% |  |
The Company discloses fair value information about financial instruments, whether or not recognized in the Consolidated Balance Sheet, for which it is practicable to estimate that value. Certain financial instruments are excluded from disclosure requirements and, accordingly, the aggregate fair value amounts presented do not necessarily represent the complete underlying value of the financial instruments included in the Consolidated Financial Statements . The estimated fair value amounts have been measured as of June 30, 2017 and December 31, 2016 and have not been reevaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of the financial instruments measured may be different than if they had been subsequently valued . The information presented should not be interpreted as an estimate of the total fair value of the Company’s assets and liabilities, since only a portion of Patriot’s assets and liabilities are liabilities are required to be measured at fair value for financial reporting purposes . Due to the wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other bank holding companies may not be meaningful. The following table provides a comparison of the carrying amounts and estimated fair values of Patriot’s financial assets and liabilities as of June 30, 2017 and December 31, 2016:
(In thousands) |  |  |  |  |  | June 30, 2017 |  |  | December 31, 2016 |
|  | Fair Value Hierarchy |  |  | Carrying Amount |  |  | Estimated Fair Value |  |  | Carrying Amount |  |  | Estimated Fair Value |
Financial Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and noninterest bearing balances due from banks |  | Level 1 |  |  | $ | 3,210 |  |  |  | 3,210 |  |  |  | 2,596 |  |  |  | 2,596 |
Interest-bearing deposits due from banks |  | Level 1 |  |  |  | 7,633 |  |  |  | 7,633 |  |  |  | 89,693 |  |  |  | 89,693 |
U. S. Government agency mortgage-backed securities |  | Level 2 |  |  |  | 8,422 |  |  |  | 8,422 |  |  |  | 10,441 |  |  |  | 10,441 |
Corporate bonds |  | Level 2 |  |  |  | 8,954 |  |  |  | 8,954 |  |  |  | 8,961 |  |  |  | 8,961 |
Subordinated Notes |  | Level 2 |  |  |  | 5,605 |  |  |  | 5,605 |  |  |  | 3,026 |  |  |  | 3,026 |
Subordinated Notes |  | Level 3 |  |  |  | 2,000 |  |  |  | 2,000 |  |  |  | 2,000 |  |  |  | 2,000 |
Other investments |  | Level 2 |  |  |  | 4,450 |  |  |  | 4,450 |  |  |  | 4,450 |  |  |  | 4,450 |
Federal Reserve Bank stock |  | Level 2 |  |  |  | 2,424 |  |  |  | 2,424 |  |  |  | 2,109 |  |  |  | 2,109 |
Federal Home Loan Bank stock |  | Level 2 |  |  |  | 5,833 |  |  |  | 5,833 |  |  |  | 5,609 |  |  |  | 5,609 |
Loans receivable, net |  | Level 3 |  |  |  | 673,144 |  |  |  | 671,694 |  |  |  | 576,982 |  |  |  | 576,757 |
Accrued interest receivable |  | Level 2 |  |  |  | 3,208 |  |  |  | 3,208 |  |  |  | 2,726 |  |  |  | 2,726 |
Financial assets, total |  |  |  |  |  | 724,883 |  |  |  | 723,433 |  |  |  | 708,593 |  |  |  | 708,368 |
Financial Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Demand deposits |  | Level 2 |  |  |  | 77,778 |  |  |  | 77,778 |  |  |  | 76,772 |  |  |  | 76,772 |
Savings deposits |  | Level 2 |  |  |  | 148,408 |  |  |  | 148,408 |  |  |  | 131,429 |  |  |  | 131,429 |
Money market deposits |  | Level 2 |  |  |  | 14,687 |  |  |  | 14,687 |  |  |  | 15,593 |  |  |  | 15,593 |
NOW accounts |  | Level 2 |  |  |  | 27,947 |  |  |  | 27,947 |  |  |  | 29,912 |  |  |  | 29,912 |
Time deposits |  | Level 2 |  |  |  | 232,960 |  |  |  | 232,590 |  |  |  | 211,686 |  |  |  | 210,321 |
Brokered deposits |  | Level 1 |  |  |  | 60,259 |  |  |  | 60,222 |  |  |  | 63,932 |  |  |  | 63,897 |
FHLB and correspondent bank borrowings |  | Level 2 |  |  |  | 120,000 |  |  |  | 120,202 |  |  |  | 138,000 |  |  |  | 138,149 |
Senior notes |  | Level 2 |  |  |  | 11,666 |  |  |  | 11,315 |  |  |  | 11,628 |  |  |  | 11,628 |
Subordinated debentures |  | Level 2 |  |  |  | 8,082 |  |  |  | 8,082 |  |  |  | 8,079 |  |  |  | 8,079 |
Note payable |  | Level 3 |  |  |  | 1,675 |  |  |  | 1,506 |  |  |  | 1,769 |  |  |  | 1,565 |
Accrued interest payable |  | Level 2 |  |  |  | 131 |  |  |  | 131 |  |  |  | 118 |  |  |  | 118 |
Financial liabilities, total |  |  |  |  |  | 703,593 |  |  |  | 702,868 |  |  |  | 688,918 |  |  |  | 687,463 |
The carrying amount of cash and noninterest bearing balances due from banks, interest-bearing deposits due from banks, and demand deposits approximates fair value, due to the short-term nature and high turnover of these balances. These amounts are included in the table above for informational purposes. In the normal course of its operations, the Company assumes interest rate risk (the risk that general interest rate levels will change). As a result, the fair values of the Company’s financial assets and liabilities are affected when interest market rates change, which change may be either favorable or unfavorable . Management attempts to mitigate interest rate risk by matching the maturities of its financial assets and liabilities. However, borrowers with fixed rate obligations are less likely to prepay their obligations in a rising interest rate environment and more likely to prepay their obligations in a falling interest rate environment. Conversely, depositors receiving fixed rates are more likely to withdraw funds before maturity in a rising interest rate environment and less likely to do so in a falling interest rate environment. Management monitors market rates of interest and maturities of its financial assets and liabilities, adjusting the terms of new loans and deposits in an attempt to minimize interest rate risk. Additionally, management mitigates its overall interest rate risk through its available funds investment strategy . Off-balance sheet instruments Loan commitments on which the committed interest rate is less than the current market rate were insignificant at June 30, 2017 and December 31, 2016. The estimated fair value of fee income on letters of credit at June 30, 2017 and December 31, 2016 was insignificant.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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