The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and credit risk primarily by managing the amount, sources and duration of its assets and liabilities and the use of derivative financial instruments.

The Company historically utilized interest rate swaptions, accounted for as cash flow hedges, to protect itself against adverse fluctuations in interest rates on a forecasted issuance of debt. During the year ended December 31, 2024, the Company terminated its interest rate swaption contracts and discontinued the associated hedging relationship. The amount in accumulated other comprehensive income (loss) related to the swaption contracts is being amortized over the remainder of the hedged transaction. The Company expects to reclassify the remaining $24 thousand out of accumulated other comprehensive loss over the next year as a reduction of interest expense.

Interest rate derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. The Company executes interest rate caps and swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings (loss).

The Company entered into credit risk participation agreements (“RPAs”) with institutional counterparties, under which the Company assumes its pro-rata share of the credit exposure associated with a borrower’s performance related to interest rate derivative contracts in exchange for a fee. The fair value of RPAs is calculated by determining the total expected asset or liability exposure of the derivatives to the borrowers and applying the borrowers’ credit spread to that exposure. Total expected exposure incorporates both the current and potential future exposure of the derivatives, derived from using observable inputs, such as yield curves and volatilities.

The Company has agreements with each of its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, then the Company could also be declared in default on its derivative obligations.

The Company is exposed to credit risk in the event of nonperformance by the interest rate derivative counterparty. The Company minimizes this risk by entering into derivative contracts with only large, stable financial institutions, and the Company has not experienced, and does not expect, any losses from counterparty nonperformance on the interest rate derivatives. The Company monitors counterparty risk in accordance with the provisions of ASC 815, "Derivatives and Hedging." In addition, the interest rate derivative agreements contain language outlining collateral-pledging requirements for each counterparty. At December 31, 2024, the Company had posted $17.4 million of cash collateral with other financial institutions and held $30.5 million of cash collateral on behalf of other financial institutions.

The interest rate derivative agreements detail: 1) that collateral be posted when the market value exceeds certain threshold limits associated with the secured party's exposure; 2) if the Company defaults on any of its indebtedness (including default where repayment of the indebtedness has not been accelerated by the lender), then the Company could also be declared in default on its derivative obligations; and 3) if the Company fails to maintain its status as a well-capitalized institution then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements.

The table below identifies the balance sheet category and fair value of the Company’s derivative instruments as of December 31, 2024 and 2023. The Company has a minimum collateral posting threshold with its derivative counterparty. If the Company had breached any provisions under the agreement at December 31, 2024, it could have been required to settle its obligations under the agreement at the termination value.


	December 31, 2024					December 31, 2023
(dollars in thousands)	Notional Amount		Fair Value		Balance Sheet Category	Notional Amount		Fair Value		Balance Sheet Category
Derivatives in an asset position:
Derivatives designated as hedging instruments:
Interest rate product	$	—	$	—	Other Assets	$	300,000	$	374	Other Assets

Derivatives not designated as hedging instruments:
Interest rate product	697,086		31,592		Other Assets	651,429		30,288		Other Assets
Credit risk participation agreements	49,480		—		Other Liabilities	49,480		3		Other Assets

	746,566		31,592			700,909		30,291
Total derivatives in an asset position	$	746,566	$	31,592		$	1,000,909	$	30,665

Derivatives in a liability position:
Derivatives not designated as hedging instruments:
Interest rate product	$	697,086	$	29,110	Other Liabilities	$	654,757	$	30,555	Other Liabilities


The Effect of Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income (Loss)
	Amount of Gain (Loss) Recognized in OCI						Location of Gain (Loss) Recognized from Accumulated Other Comprehensive Income (Loss) into Income (Loss)	Amount of Gain (Loss) Reclassified from Accumulated OCI into Income
(dollars in thousands)	Total		Included Component		Excluded Component			Total		Included Component		Excluded Component
Year ended December 31, 2024:
Derivatives in cash flow hedging relationships:
Interest rate products	$	—	$	—	$	—	Interest expense	$	32	$	32	$	—

Year ended December 31, 2023
Derivatives in cash flow hedging relationships:
Interest rate products	$	(256)	$	—	$	(256)	Interest expense	$	(14)	$	—	$	(14)

Year ended December 31, 2022
Derivatives in cash flow hedging relationships:
Interest rate products	$	—	$	—	$	—	Interest expense	$	—	$	—	$	—

The tables below present the effect of the Company’s derivative financial instruments on the Consolidated Statements of Operations for the years ended December 31, 2024, 2023 and 2022.


The Effect of Cash Flow Hedge Accounting on the Consolidated Statements of Operations
	Year Ended Years Ended
	2024		2023		2022
(dollars in thousands)	Interest Expense		Interest Expense		Interest Expense
Total amounts of expense line items presented in the Consolidated Statements of Operations in which the effects of cash flow hedges are recorded	$	32	$	(14)	$	—

The effect of cash flow hedging:
Gain (loss) on cash flow hedging relationships:
Interest rate products:
Amount of gain (loss) reclassified from accumulated other comprehensive income (loss) into income (loss)	$	32	$	(14)	$	—

Amount of gain (loss) reclassified from accumulated other comprehensive income (loss) into income (loss) - included component	$	32	$	—	$	—
Amount of gain (loss) reclassified from accumulated other comprehensive income (loss) into income (loss) - excluded component	$	—	$	(14)	$	—


Effect of Derivatives Not Designated as Hedging Instruments on the Consolidated Statements of Operations
(dollars in thousands)	Location of Gain or (Loss) Recognized in Income on Derivative	Amount of Gain or (Loss) Recognized in Income on Derivatives
		Year Ended Years Ended
		2024		2023		2022
Derivatives Not Designated as Hedging Instruments under ASC 815-20:
Interest rate products	Other income / (expense)	$	1,940	$	2,712	$	3,057
Mortgage banking derivatives	Other income	—		—		671

Total		$	1,940	$	2,712	$	3,728

Balance Sheet Offsetting: Our interest rate swap derivatives are eligible for offset in the Consolidated Balance Sheets and are subject to master netting arrangements. Our derivative transactions with counterparties are generally executed under International Swaps and Derivative Association (“ISDA”) master agreements which include “right of set-off” provisions. In such cases there is generally a legally enforceable right to offset recognized amounts and there may be an intention to settle such amounts on a net basis. The Company generally presents such financial instruments gross for financial reporting purposes.