Derivatives

3 Months Ended

Mar. 31, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives

Derivatives

Derivatives Not Designated in Hedge Relationships

Patriot is a party to four interest rate swaps derivatives that are not designated as hedging instruments. Under a program, Patriot will execute interest rate swaps with commercial lending customers to facilitate their respective risk management strategies. These interest rate swaps with customers are simultaneously offset by interest rate swaps that Patriot executes with a third party, such that Patriot minimizes its net risk exposure resulting from such transactions. Because the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. The changes in the fair value of the swaps offset each other, except for the credit risk of the counterparties, which is determined by taking into consideration the risk rating, probability of default and loss given default for all counterparties.

Patriot entered into two initial interest rate swaps under the program in November 2018, and another two swaps were entered into in May 2019. As of March 31, 2023 and December 31, 2022, Patriot did not have any cash pledged for collateral on its interest rate swaps.

The Company did not recognize any net gain or loss in other noninterest income on the consolidated statements of operations during the three months ended March 31, 2023 and 2022.

Derivatives Designated in Hedge Relationships

Interest rate swaps allow the Company to change the fixed or variable nature of an interest rate without the exchange of the underlying notional amount. In April 2021, Patriot entered into an interest rate swap, which was designated as a cash flow hedge that effectively converted variable-rate receivable into fixed-rate receivable. The Company’s objectives in using the cash flow hedge are to add stability to interest receivable and to manage its exposure to contractually specified interest rate movements. Under the term of the swap contract, the Company hedged the cash flows associated with a pool of 1-month LIBOR floating rate loans by converting a $50 million portion of that pool of loans into fixed rates with the swap. The Bank received fixed and paid floating rate based on 1 month LIBOR for a 7-year rolling period beginning April 29, 2021. A hedging instrument is expected at inception to be highly effective at offsetting changes in the hedged transactions attributable to the changes in the hedged risk. Changes in the fair value of derivatives designated and that qualify as cash flow hedges are recorded in accumulated other comprehensive income and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. In August 2021, the cash flow hedge interest rate swap contract was terminated.

The Company assesses the effectiveness of each hedging relationship by comparing the changes in cash flows of the derivative hedging instrument with the changes in cash flows of the designated hedged item or transaction. The Company does not offset derivative assets and derivative liabilities for financial statement presentation purposes.

Information about the valuation methods used to measure the fair value of derivatives is provided in Note 13 to the consolidated financial statements.

The following table presents summary information regarding these derivatives for the periods presented (dollars in thousands):

(In thousands)	Notional Amount		Maturity (Years)	Fixed Rate		Variable Rate	Fair Value
March 31, 2023
Classified in Other Assets:
3rd party interest rate swap	$	4,707	6.25	5.25	%	1 Mo. LIBOR + 1.96%	$	32
3rd party interest rate swap	1,354		6.26	4.38	%	1 Mo. LIBOR + 2.00%	74
Classified in Other Liabilities:
Customer interest rate swap	$	4,707	6.25	5.25	%	1 Mo. LIBOR + 1.96%	$	(32)
Customer interest rate swap	1,354		6.26	4.38	%	1 Mo. LIBOR + 2.00%	(74)
December 31, 2022
Classified in Other Assets:
3rd party interest rate swap	$	4,736	6.30	5.25	%	1 Mo. LIBOR + 1.96%	$	106
3rd party interest rate swap	1,363		6.50	4.38	%	1 Mo. LIBOR + 2.00%	97
Classified in Other Liabilities:
Customer interest rate swap	$	4,736	6.30	5.25	%	1 Mo. LIBOR + 1.96%	$	(106)
Customer interest rate swap	1,363		6.50	4.38	%	1 Mo. LIBOR + 2.00%	(97)