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Fair Value and Interest Rate Risk
 3 Months Ended
Mar. 31, 2025
Fair Value Disclosures [Abstract]  
Fair Value and Interest Rate Risk Fair Value and Interest Rate Risk
Patriot measures the carrying value of certain financial assets and liabilities at fair value, as required by its policies as a financial institution and by US GAAP. The carrying values of certain assets and liabilities are measured at fair value on a recurring basis, such as available-for-sale securities; while other assets and liabilities are measured at fair value on a non-recurring basis due to external factors requiring management’s judgment to estimate potential losses of value resulting in asset impairments or the establishment of valuation reserves. Measuring assets and liabilities at fair value may result in fluctuations to carrying value that have a significant impact on the results of operations or other comprehensive income for the period and period over period.
Following is a detailed summary of the guidance provided by US GAAP regarding the application of fair value measurements and Patriot’s application thereof. Additionally, the following information includes detailed summaries of the effects fair value measurements have on the carrying amounts of asset and liabilities presented in the Consolidated Financial Statements.
The objective of fair value measurement is to value an asset that may be sold or a liability that may be transferred at the estimated value which might be obtained in a transaction between unrelated parties under current market conditions. US GAAP establishes a framework for measuring assets and liabilities at fair value, as well as certain financial instruments classified in equity. The framework provides a fair value hierarchy, which prioritizes quoted prices in active markets for identical assets and liabilities and minimizes unobservable inputs, which are inputs for which market data are not available and that are developed by management using the best information available to develop assumptions about the value market participants might place on the asset to be sold or liability to be transferred.
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, restricted cash, and accrued interest receivable and payable
The carrying amount of cash and due from banks, restricted cash, and accrued interest receivable and payable approximates their fair value.
Available-for-sale securities
The fair value of securities available for sale (carried at fair value) 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, which 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 but may be redeemed with 60 days’ notice at cost. For that reason, the carrying amount was considered comparable to fair value at both March 31, 2025 and December 31, 2024 due to its short-term nature.
Federal Reserve Bank Stock and Federal Home Loan Bank Stock
Shares in the FRB and FHLB are purchased and redeemed based upon their $100 par value. The stocks are non-marketable equity securities, and as such, are considered restricted securities that are carried at cost.
Loans
The fair value of loan portfolio is estimated by discounting the future cash flows using the rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. We estimate the fair value of our loan portfolio using an exit price notion resulting in prior periods no longer being comparable. The exit price notion requires determination of the price at which willing market participants would transact at the measurement date under current market conditions depending on facts and circumstances, such as origination rates, credit risk, transaction costs, liquidity, national and regional market trends and other adjustments, utilizing publicly available rates and indices. The application of an exit price notion requires the use of significant judgment.
Loans Held for Sale
The fair value of loans held for sale is estimated by using a market approach that includes prices for loans sold awaiting settlement and other observable inputs. The Company has determined that the inputs used to value the loans held for sale fall within Level 2 of the fair value hierarchy.
SBA Servicing Asset
Servicing assets do not trade in an active, open market with readily observable prices. The Company estimates the fair value of servicing assets using discounted cash flow models incorporating numerous assumptions from the perspective of a market participant including market discount rates and prepayment speeds. Due to the significant unobservable input related to the servicing rights, the SBA servicing asset is classified within Level 3 of the valuation hierarchy.
Other Real Estate Owned
The fair value of OREO the Bank may obtain is based on current appraised property value less estimated costs to sell. When fair value is based on unadjusted current appraised value, 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 on a non-recurring basis and then monitors property and market conditions that may indicate a change in value is warranted.
Derivative asset (liability) - Interest Rate Swaps
The Company’s derivative assets and liabilities consist of transactions as part of management’s strategy to manage interest rate risk. The valuation of interest rate swap agreements does not contain any counterparty risk. The valuation of the Company’s interest rate swaps is obtained from a third-party pricing service and is determined using a discounted cash flow analysis on the expected cash flows of each derivative. The pricing analysis is based on observable inputs for the contractual terms of the derivatives, including the period to maturity and interest rate curves. The Company has determined that the inputs used to value its interest rate derivatives fall within Level 2 of the fair value hierarchy. See Note 8 for additional disclosures on derivatives.
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. Patriot does not record deposits at fair value on a recurring basis.
Senior Notes, Subordinated Notes, and Junior Subordinated Debt and Note Payable
Patriot does not record senior notes at fair value on a recurring basis. The fair value of the senior notes was estimated by discounting future cash flows at rates at which similar notes would be made. The carrying value is considered comparable to fair value.
Patriot does not record subordinated notes at fair value on a recurring basis. The fair value of the subordinated notes was estimated by discounting future cash flows at rates at which similar notes would be made. The carrying value is considered comparable to fair value.
Patriot does not record junior subordinated debt 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 considers its own credit worthiness in determining the fair value of its senior notes, subordinated notes, notes payable and junior subordinated debt.
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. Patriot does not record FHLB advances at fair value on a recurring basis.
Off-balance sheet financial 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. Patriot does not record the off-balance-sheet financial instruments (i.e., commitments to extend credit) at fair value on a recurring basis.
The following table provides a comparison of the carrying amounts and estimated fair values of Patriot’s financial assets and liabilities as of March 31, 2025 and December 31, 2024:
(In thousands)March 31, 2025December 31, 2024
Fair Value
Hierarchy 		Carrying
Amount 		Estimated
Fair Value 		Carrying
Amount 		Estimated
Fair Value
Financial Assets:
Cash and noninterest bearing balances due from banksLevel 1$2,530 $2,530 $3,295 $3,295 
Interest-bearing deposits due from banksLevel 1118,505 118,505 144,273 144,273 
Restricted cashLevel 115,166 15,166 15,042 15,042 
Available-for-sale securitiesLevel 269,683 69,683 68,869 68,869 
Available-for-sale securitiesLevel 310,968 10,968 11,123 11,123 
Other investmentsLevel 24,450 4,450 4,450 4,450 
Federal Reserve Bank stockLevel 21,028 1,028 1,377 1,377 
Federal Home Loan Bank stockLevel 2679 679 779 779 
Loans receivable, netLevel 3667,480 646,943 700,167 675,901 
Loans held for saleLevel 220,814 20,814 15,702 15,702 
Servicing assetsLevel 3764 820 766 852 
Other real estate ownedLevel 22,590 2,590 2,843 2,843 
Accrued interest receivableLevel 25,047 5,047 5,488 5,488 
Interest rate swap receivableLevel 262 62 83 83 
    
Financial assets, total$919,766 $899,285 $974,257 $950,077 
    
Financial Liabilities:    
Demand depositsLevel 2$80,363 $80,363 $119,212 $119,212 
Negotiable order of withdrawal accountsLevel 225,228 25,228 31,549 31,549 
Savings depositsLevel 238,362 38,362 38,743 38,743 
Interest bearing DDALevel 2131,299 131,299 205,995 205,995 
Money market depositsLevel 2267,478 267,478 262,023 262,023 
Time depositsLevel 2250,021 250,096 239,373 239,077 
Brokered depositsLevel 169,683 69,771 69,702 69,435 
FHLB, FRB and correspondent bank borrowingsLevel 2— — 3,000 3,000 
Senior notesLevel 27,610 7,524 11,861 11,677 
Subordinated debtLevel 28,112 7,947 9,898 9,575 
Junior subordinated debt owed to unconsolidated trustLevel 28,149 8,149 8,147 8,147 
Note payableLevel 3109 106 162 158 
Accrued interest payableLevel 2771 771 1,417 1,417 
Interest rate swap liabilityLevel 262 62 83 83 
    
Financial liabilities, total$887,247 $887,156 $1,001,165 $1,000,091 
The following tables detail the financial assets measured at fair value on a recurring basis and the valuation techniques utilized relative to the fair value hierarchy, as of March 31, 2025 and December 31, 2024:
(In thousands)Quoted Prices in
Active Markets for
Identical Assets
(Level 1) 		Significant
Observable Inputs
(Level 2) 		Significant
Unobservable Inputs
(Level 3) 		Total
March 31, 2025:
U. S. Government agency and mortgage-backed securities$— $61,001 $— $61,001 
Corporate bonds— 1,669 10,968 12,637 
Subordinated notes— 3,550 — 3,550 
SBA loan pools— 3,463 — 3,463 
Municipal bonds— — — — 
Available-for-sale securities$— $69,683 $10,968 $80,651 
    
Interest rate swap receivable$— $62 $— $62 
    
Interest rate swap liability$— $62 $— $62 
December 31, 2024:
U. S. Government agency and mortgage-backed securities$— $60,223 $— $60,223 
Corporate bonds— 1,612 11,123 12,735 
Subordinated notes— 3,461 — 3,461 
SBA loan pools— 3,573 — 3,573 
Municipal bonds— — — — 
Available-for-sale securities$— $68,869 $11,123 $79,992 
    
Interest rate swap receivable$— $83 $— $83 
    
Interest rate swap liability$— $83 $— $83 
As of March 31, 2025 and December 31, 2024, four corporate bonds were classified as Level 3 instruments. The fair values of these securities were determined using a present value approach. The discount rate assumed was determined based on unobservable inputs in a pricing model. During the three months ended March 31, 2025 and 2024, the Company had no transfers into or out of Levels 1, 2 or 3.
The reconciliation of the beginning and ending balances during the three months ended March 31, 2025 and 2024 for Level 3 available-for-sale securities is as follows:
Three Months Ended March 31,
(In thousands)20252024
Level 3 fair value, beginning of period$11,123 $10,262 
Purchases— — 
Realized gain (loss)— — 
Unrealized loss(155)(73)
Transfers in and /or out of Level 3— — 
Level 3 fair value, end of period$10,968 $10,189 
Patriot 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 financial instruments included in the consolidated financial statements.
Patriot measures certain financial assets and financial liabilities at fair value on a non-recurring basis. When circumstances dictate (e.g., impairment of long-lived assets, other than temporary impairment of collateral value), the carrying values of such financial assets and financial liabilities are adjusted to fair value or fair value less costs to sell, as may be appropriate.
The table below presents the valuation methodology and unobservable inputs for level 3 assets measured at fair value on a non-recurring basis as of March 31, 2025 and December 31, 2024:
(In thousands)Fair Value Valuation
Methodology 		Unobservable Inputs Range of Inputs
March 31, 2025:
Individually evaluated loans, net$28,677 Real Estate AppraisalsDiscount for appraisal type5.8 %-20%
   
Servicing assets820 Discounted Cash FlowsMarket discount rates14.73 %-14.90%
 
December 31, 2024:  
Individually evaluated loans, net$24,552 Real Estate AppraisalsDiscount for appraisal type5.8 %-20%
 
Servicing assets852 Discounted Cash FlowsMarket discount rates14.73 %-14.90%
The estimated fair value amounts have been measured as of March 31, 2025 and December 31, 2024, 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 Patriot’s assets and liabilities, since only a portion of Patriot’s assets and 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 Patriot’s fair value disclosures and those of other bank holding companies may not be meaningful.
In the normal course of its operations, Patriot assumes interest rate risk (i.e., the risk that general interest rate levels will fluctuate). As a result, the fair value of Patriot’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 the maturities of its financial assets and financial 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.