Quantitative and Qualitative Disclosures about Market Risk
−Removed: Market risk is defined as the sensitivity of income to fluctuations in interest rates, foreign exchange rates, equity prices, commodity prices and other market-driven rates or prices.
−Removed: The Bank’s market risk is primarily limited to interest rate risk.
−Removed: The Bank’s goal is to maximize long term profitability while minimizing its exposure to interest rate fluctuations.
−Removed: The first priority is to structure and price the Bank’s assets and liabilities to maintain an acceptable interest rate spread while reducing the net effect of changes in interest rates.
−Removed: In order to accomplish this, the focus is on maintaining a proper balance between the timing and volume of assets and liabilities re-pricing within the balance sheet.
−Removed: One method of achieving this balance is to originate variable rate loans for the portfolio and purchase short-term investments to offset the increasing short-term re-pricing of the liability side of the balance sheet.
−Removed: In fact, a number of the interest-bearing deposit products have no contractual maturity.
−Removed: Therefore, deposit balances may run off unexpectedly due to changing market conditions.
−Removed: Additionally, loans and investments with longer term rate adjustment frequencies can be matched against longer term deposits and borrowings to lock in a desirable spread.
−Removed: The exposure to interest rate risk is monitored by the Management Asset and Liability Committee consisting of senior management personnel.
−Removed: The Committee reviews the interrelationships within the balance sheet to maximize net interest income within acceptable levels of risk.
−Removed: This Committee reports to the Board of Directors.
−Removed: In addition to the Management Asset and Liability Committee, there is a Board Asset and Liability Committee (“ALCO”), which meets quarterly.
−Removed: ALCO monitors the interest rate risk analyses, reviews investment transactions during the period and determines compliance with the Bank’s Investment, ALCO and liquidity policies.
−Removed: Management analyzes the Bank’s interest rate sensitivity position to manage the risk associated with interest rate movements through the use of interest income simulation and repricing gap analysis.
−Removed: The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest sensitive.” An asset or liability is said to be interest sensitive within a specific time period if it will mature or reprice within that time period.
−Removed: Management’s goal is to manage asset and liability positions to moderate the effects of interest rate fluctuations on net interest income.
−Removed: Interest income simulations are completed quarterly and presented to ALCO.
−Removed: The simulations provide an estimate of the impact of changes in interest rates on net interest income under a range of assumptions.
−Removed: Changes to these assumptions can significantly affect the results of the simulations.
−Removed: The simulation incorporates assumptions regarding the potential timing in the repricing of certain assets and liabilities when market rates change and the changes in spreads between different market rates.
−Removed: Simulation analysis is only an estimate of the Company’s interest rate risk exposure at a particular point in time.
−Removed: Management regularly reviews the potential effect changes in interest rates could have on the repayment of rate sensitive assets and funding requirements of rate sensitive liabilities.
−Removed: The tables below set forth examples of changes in estimated net interest income and the estimated net portfolio value based on projected scenarios of interest rate increases and decreases.
−Removed: The analyses indicate the rate risk embedded in the Company’s portfolio at the dates indicated should all interest rates instantaneously rise or fall.
−Removed: The results of these changes are added to or subtracted from the base case;
−Removed: however, there are certain limitations to these types of analyses.
−Removed: Rate changes are rarely instantaneous, and these analyses may therefore overstate the impact of short-term repricing.
−Removed: (In thousands)
+Added: Market risk is the risk of loss from adverse changes in market prices and rates.
+Added: The Bank’s market risk is primarily limited to interest rate risk, which is the risk that changes in interest rates may adversely affect net interest income, capital, and the economic value of assets and liabilities.
+Added: The Bank seeks to manage interest rate risk while maintaining appropriate earnings performance and liquidity.
+Added: Interest rate risk arises from differences in the timing of the repricing or maturity of assets and liabilities, the effect of embedded options, and
+Added: 2025 FORM 10-K 36
+Added: changes in funding mix.
+Added: In managing this risk, the Bank considers asset and liability structure, loan and investment repricing characteristics, deposit behavior, and wholesale funding sources.
+Added: Interest rate risk is monitored by Management’s Asset and Liability Committee, which consists of senior management personnel.
+Added: At the Board level, interest rate risk and related balance sheet exposures are reviewed through the Enterprise Risk Committee, which receives periodic reporting on interest rate risk, liquidity, and investment activities.
+Added: Management evaluates interest rate risk using net interest income simulation and net portfolio value analysis, each of which is prepared on a quarterly basis.
+Added: These models estimate the effect of instantaneous changes in interest rates under a range of rate scenarios.
+Added: The analyses incorporate assumptions regarding asset and liability repricing, prepayments, deposit behavior, and changes in spreads between market rates.
+Added: Because these analyses are based on assumptions and estimates, actual results may differ materially from those reflected in the model outputs.
+Added: The tables below present estimated changes in net portfolio value and net interest income under selected instantaneous interest rate shock scenarios at December 31, 2025 and 2024.
Net Portfolio Value - Performance Summary
−Removed: As of December 31, 2024 As of December 31, 2023
+Added: (In thousands) As of December 31, 2025 As of December 31, 2024
Projected Interest Rate Scenario Estimated Value Change from Base ($) Change from Base (%) Estimated Value Change from Base ($) Change from Base (%)
12 unchanged sentences
-200 29,634 2,955 11.08 % 28,679 484 1.72 %
+Added: These measures are analytical tools used by management to assess interest rate risk exposure at a point in time and should not be viewed as forecasts.
+Added: The results are subject to limitations, including the use of assumptions regarding balance sheet composition, pricing behavior, and customer response to changes in interest rates.
Impact of Inflation and Changing Prices
−Removed: Patriot’s financial statements have been prepared in terms of historical dollars, without considering changes in relative purchasing power of money over time due to inflation.
−Removed: Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature.
−Removed: As a result, interest rates have a more significant impact on the Bank’s performance than the effect of general levels of inflation.
−Removed: Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services.
−Removed: Notwithstanding this, inflation can directly affect the value of loan collateral, in particular, real estate.
−Removed: Inflation, or disinflation, could significantly affect Patriot’s earnings in future periods.
+Added: The Company’s financial statements have been prepared in terms of historical dollars, without considering changes in relative purchasing power of money over time due to inflation.
+Added: Because virtually all of the assets and liabilities of a financial institution are monetary in nature, interest rates generally have a more significant effect on the Bank’s performance than the effect of general inflation.
+Added: However, inflation may affect customer repayment capacity, funding costs, operating expenses, and the value of loan collateral, including real estate, and therefore could affect the Company’s results of operations in future periods.
+Added: 2025 FORM 10-K 37
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.