PATRIOT NATIONAL BANCORP INCPNBK
PATRIOT NATIONAL BANCORP INC Fair Value Disclosure
Fair Value and Interest Rate Risk
The carrying amount of cash and non-interest-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.
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 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 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) 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 December 31, 2025 and 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 loans are 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. 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.
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 servicing asset is classified within Level 3 of the valuation hierarchy.
Retained Beneficial Interest
The Company retained its rights to sold loans under a loss share agreement and did not transfer such rights to the loan purchasers. Accordingly, the Company has continuing involvement in the transferred financial assets. The retained interest is recognized as a separate asset and represents the present value of expected future reimbursements. The fair value of this asset is estimated using a discounted cash flow methodology that incorporates significant unobservable inputs, including expected credit losses, timing of
cash flows, and appropriate discount rates. Due to the use of these unobservable inputs, the asset is classified as a Level 3 measurement within the fair value hierarchy in accordance with ASC 820.
The Company evaluates the retained interest on a recurring basis for changes in expected cash flows and records adjustments to fair value as necessary. Changes in the fair value of the retained interest are recognized in earnings in the period in which they occur.
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 Notes 1 and 11 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, 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, Federal Reserve Bank and Correspondent Bank Borrowings
The fair value of FHLB advances, FRB and other correspondent bank borrowings are estimated using a discounted cash flow calculation that applies current interest rates for advances of similar maturity to a schedule of maturities of such advances. Patriot does not record FHLB advances, FRB and other correspondent bank borrowings 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. The off-balance-sheet financial instruments (i.e., commitments to extend credit) are insignificant and are not recorded 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 December 31, 2025 and 2024:
| December 31, 2025 | December 31, 2024 | ||||||||||||||||||||||||||||
| (In thousands) | 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 | $ | 2,411 | $ | 2,411 | $ | 3,295 | $ | 3,295 | ||||||||||||||||||||
| Interest-bearing deposits due from banks | Level 1 | 183,980 | 183,980 | 144,273 | 144,273 | ||||||||||||||||||||||||
| Restricted cash | Level 1 | 20,736 | 20,736 | 15,042 | 15,042 | ||||||||||||||||||||||||
| Available-for-sale securities | Level 2 | 212,950 | 212,950 | 68,869 | 68,869 | ||||||||||||||||||||||||
| Available-for-sale securities | Level 3 | 11,727 | 11,727 | 11,123 | 11,123 | ||||||||||||||||||||||||
| Other investments | Level 2 | — | — | 4,450 | 4,450 | ||||||||||||||||||||||||
| Federal Reserve Bank stock | Level 2 | 2,961 | 2,961 | 1,377 | 1,377 | ||||||||||||||||||||||||
| Federal Home Loan Bank stock | Level 2 | 679 | 679 | 779 | 779 | ||||||||||||||||||||||||
| Loans receivable, net | Level 3 | 585,723 | 571,015 | 700,167 | 675,901 | ||||||||||||||||||||||||
| Loans held for sale | Level 2 | 24,513 | 24,513 | 15,702 | 15,702 | ||||||||||||||||||||||||
| Servicing assets | Level 3 | 660 | 652 | 766 | 852 | ||||||||||||||||||||||||
| Other real estate owned | Level 2 | — | — | 2,843 | 2,843 | ||||||||||||||||||||||||
| Accrued interest receivable | Level 2 | 4,869 | 4,869 | 5,488 | 5,488 | ||||||||||||||||||||||||
| Retained beneficial interest | Level 3 | 518 | 518 | — | — | ||||||||||||||||||||||||
| Interest rate swap receivable | Level 2 | 39 | 39 | 83 | 83 | ||||||||||||||||||||||||
| Financial assets, total | $ | 1,051,675 | $ | 1,037,050 | $ | 974,257 | $ | 950,077 | |||||||||||||||||||||
| Financial Liabilities: | |||||||||||||||||||||||||||||
| Demand deposits | Level 2 | $ | 106,766 | $ | 106,766 | $ | 119,212 | $ | 119,212 | ||||||||||||||||||||
| Negotiable order of withdrawal accounts | Level 2 | 24,281 | 24,281 | 31,549 | 31,549 | ||||||||||||||||||||||||
| Savings deposits | Level 2 | 38,036 | 38,036 | 38,743 | 38,743 | ||||||||||||||||||||||||
| Interest bearing DDA | Level 2 | 172,527 | 172,527 | 205,995 | 205,995 | ||||||||||||||||||||||||
| Money market deposits | Level 2 | 191,177 | 191,177 | 262,023 | 262,023 | ||||||||||||||||||||||||
| Time deposits | Level 2 | 266,256 | 266,262 | 239,373 | 239,077 | ||||||||||||||||||||||||
| Brokered deposits | Level 1 | 150,502 | 144,556 | 69,702 | 69,435 | ||||||||||||||||||||||||
| FHLB, FRB and correspondent bank borrowings | Level 2 | — | — | 3,000 | 3,000 | ||||||||||||||||||||||||
| Senior notes | Level 2 | — | — | 11,861 | 11,677 | ||||||||||||||||||||||||
| Subordinated debt | Level 2 | 8,289 | 8,102 | 9,898 | 9,575 | ||||||||||||||||||||||||
| Junior subordinated debt owed to unconsolidated trust | Level 2 | 8,157 | 8,157 | 8,147 | 8,147 | ||||||||||||||||||||||||
| Note payable | Level 3 | — | — | 162 | 158 | ||||||||||||||||||||||||
| Accrued interest payable | Level 2 | 615 | 615 | 1,417 | 1,417 | ||||||||||||||||||||||||
| Interest rate swap liability | Level 2 | 39 | 39 | 83 | 83 | ||||||||||||||||||||||||
| Financial liabilities, total | $ | 966,645 | $ | 960,435 | $ | 1,001,165 | $ | 1,000,091 | |||||||||||||||||||||
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.
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 December 31, 2025 and 2024.
| (In thousands) | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | |||||||||||||||||||
| December 31, 2025: | |||||||||||||||||||||||
| U. S. Government agency and MBS | $ | — | $ | 204,068 | $ | — | $ | 204,068 | |||||||||||||||
| Corporate bonds | — | 1,736 | 11,727 | 13,463 | |||||||||||||||||||
| Subordinated notes | — | 3,752 | — | 3,752 | |||||||||||||||||||
| SBA loan pools | — | 3,394 | — | 3,394 | |||||||||||||||||||
| Available-for-sale securities | $ | — | $ | 212,950 | $ | 11,727 | $ | 224,677 | |||||||||||||||
| Retained beneficial interest | $ | — | $ | — | $ | 518 | $ | 518 | |||||||||||||||
| Interest rate swap receivable | $ | — | $ | 39 | $ | — | $ | 39 | |||||||||||||||
| Interest rate swap liability | $ | — | $ | 39 | $ | — | $ | 39 | |||||||||||||||
| December 31, 2024: | |||||||||||||||||||||||
| U. S. Government agency and MBS | $ | — | $ | 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 | |||||||||||||||
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.
As of December 31, 2025, 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 years ended December 31, 2025, 2024, and 2023, the Company had no transfers into or out of Levels 1, 2 or 3.
The reconciliation of the beginning and ending balances for Level 3 available-for-sale securities for the years ended December 31, 2025, 2024, and 2023 is as follows:
| Year Ended December 31, | |||||||||||||||||
| (In thousands) | 2025 | 2024 | 2023 | ||||||||||||||
| Level 3 fair value, beginning of period | $ | 11,123 | $ | 10,262 | $ | 9,427 | |||||||||||
| Purchases | — | — | — | ||||||||||||||
| Realized gain (loss) | — | — | — | ||||||||||||||
| 604 | 861 | 835 | |||||||||||||||
| Transfers in and /or out of Level 3 | — | — | — | ||||||||||||||
| Level 3 fair value, end of period | $ | 11,727 | $ | 11,123 | $ | 10,262 | |||||||||||
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 December 31, 2025 and 2024:
| (In thousands) | Fair Value | Valuation Methodology | Unobservable Inputs | Range of Inputs | |||||||||||||||||||||||||
| December 31, 2025: | |||||||||||||||||||||||||||||
| Individually evaluated loans, net | $ | 10,394 | Real Estate Appraisals | Discount for appraisal type | 8% | - | 14% | ||||||||||||||||||||||
| Servicing assets | 652 | Discounted Cash Flows | Market discount rates | 10% | - | 15% | |||||||||||||||||||||||
| Retained beneficial interest(a) | $ | 518 | Discounted Cash Flows | Market discount rates | 10% | - | 15% | ||||||||||||||||||||||
| Loss projections (% exposure) | 10% | - | 20% | ||||||||||||||||||||||||||
| Claim timing (months) | 9 months | - | 18 months | ||||||||||||||||||||||||||
| December 31, 2024: | |||||||||||||||||||||||||||||
| Individually evaluated loans, net | $ | 24,552 | Real Estate Appraisals | Discount for appraisal type | 5.8% | - | 20% | ||||||||||||||||||||||
| Servicing assets | 852 | Discounted Cash Flows | Market discount rates | 14.73 | % | - | 14.90 | % | |||||||||||||||||||||
(a) Loss projections applied in the discounted cash flow analysis ranged from approximately 10% to 20%, with lower loss assumptions applied to stronger credits and higher loss assumptions applied to loans with elevated credit risk, weighted average of approximately 15%. Claim timing assumptions ranged from approximately 9 to 18 months, with shorter timeframes applied to loans expected to resolve more quickly and longer timeframes applied to loans requiring extended workout or recovery periods, weighted average of approximately 12 months.
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.
The estimated fair value amounts have been measured as of December 31, 2025 and 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.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 31, 2026 | Showing above |
| 2024 | Apr 15, 2025 | |
| 2023 | Apr 1, 2024 | |
| 2022 | Mar 29, 2023 | |
| 2021 | Mar 24, 2022 | |
| 2020 | Mar 30, 2021 | |
| 2019 | Apr 29, 2020 | |
| 2018 | Apr 1, 2019 | |
| 2017 | Mar 30, 2018 | |
| 2016 | Mar 31, 2017 | |
| 2015 | Mar 31, 2016 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.