The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company manages its exposures to 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 amounts, sources, and duration of assets and liabilities. The Company uses interest rate derivative instruments to minimize unplanned fluctuations in earnings and cash flows caused by interest rate volatility. The Company’s interest rate risk management strategy generally involves modifying the repricing characteristics of certain assets and liabilities to mitigate negative impacts on net interest margin and/or cash flow. Interest rate derivative instruments utilized by the Company generally include interest rate swap contracts or option contracts, such as caps and floors. The Company’s existing credit derivatives are associated with loan participation arrangements, and are not used to manage interest rate risk in the Company’s assets or liabilities. The fair values of derivative instruments are carried in the Company’s consolidated balance sheets as assets and/or liabilities. The Company does not use derivatives for speculative purposes and generally enters into transactions that have a qualifying hedge relationship. When hedge accounting is used, derivatives are classified as either cash flow hedges or fair value hedges. The Company may also enter into derivative contracts that are not designated as hedges in order to mitigate economic risks or risks associated with volatility in connection with customer derivative transactions.

In March 2025, the Company purchased an interest rate floor contract with the objective of protecting the Company against variability in expected future cash flows attributed to changes in the designated interest rate (1 Month CME Term SOFR) on the notional amount of $20.0 million based on interest receipts on loans and securities indexed to the designated interest rate. The contract was designated as a derivative instrument in cash flow hedges and is intended to mitigate the Company’s risk of loss associated with downward shifts in the designated interest rate. The contract will provide cash flow to the Company in the event the designated interest rate decreases below 3.05% before the contract’s designated termination date of March 15, 2029. As of June 30, 2025, the hedge relationship for the floor contract was designated effective, and accordingly, changes in the fair value of the contract were included as an adjustment to accumulated other comprehensive income.

In August 2024, the Company entered into two forward starting interest rate swap contracts with the objective of protecting the Company against variability in expected future cash flows attributed to changes in the designated interest rate (USD-SOFR-COMPOUND) on the designated notional of interest-bearing liabilities. Each of the contracts has a $20.0 million notional amount, or $40.0 million in the aggregate. The interest rate swaps were designated as derivative instruments in cash flow hedges. In accordance with the related contracts, the Company pays a fixed interest rate and receives a variable interest rate based on the designated interest rate, on the notional amounts. The swap contracts are scheduled to terminate on September 6, 2027 and March 15, 2028. As of June 30, 2025 and December 31, 2024, the hedge relationships for both swaps were designated effective, and accordingly, changes in the fair value of the contracts were included as an adjustment to accumulated other comprehensive income.

Interest Rate Floor - In March 2024, the Company purchased an interest rate floor contract on the notional amount of $25.0 million. The floor contract protects the Company against variability in expected future cash flows attributed to changes in the designated interest rate (USD-SOFR-OIS-COMPOUND) on the $25.0 million notional amount. The contract was not designated as a hedging instrument, and accordingly, changes in the fair value of the contract are recorded as non-interest income or expense over the term of the contract. The contract is intended to mitigate the Company’s risk of loss associated with downward shifts in the designated interest rate in the event the designated interest rate decreases below 4.0% before the contract’s designated termination date of March 27, 2026.

Credit Derivatives - During 2024, the Company entered into three credit risk participation agreements on the notional amount of $15.2 million in the aggregate. These agreements are with lead participant banks with which the Company shares participation loans. The Company is the guarantor under these agreements to provide reimbursement of losses resulting from a third-party default on the underlying swap. For participating in the agreements, the Company received one-time fees which were included in other liabilities. The derivatives are not eligible for hedge accounting treatment. Accordingly, valuation changes are recorded directly to non-interest income or expense.

In March 2025, the Company voluntarily terminated three interest rate swap contracts, each with notional amounts of $10.0 million, or an aggregate amount of $30.0 million. Each of the swaps had previously been designated as fair value hedges with the objective of effectively converting a pool of fixed rate indirect consumer loans to a variable rate throughout the hedge durations in accordance with the portfolio layer method. The termination of the fair value hedges resulted in a nominal settlement with the counterparty.

As of June 30, 2025 and December 31, 2024, the Company had an unrealized gain of $0.2 million and $0.3 million, respectively, associated with an interest rate swap contract that was terminated in February 2023. Prior to termination, the swap was designated as a cash flow hedge on a notional of $10.0 million in interest payments associated with variable rate interest-bearing liabilities. The unrealized gain is being reclassified as an increase to net interest income over the original term of the contract which had a designated termination date of July 8, 2026.

The table below reflects the notional amount and fair value of active derivative instruments included on the Company’s consolidated balance sheets on a net basis as of June 30, 2025 and December 31, 2024.


	As of June 30, 2025					As of December 31, 2024
			Estimated					Estimated
			Fair Value					Fair Value
	Notional Amount		Gain (Loss) (1)			Notional Amount		Gain (Loss) (1)
	(Dollars in Thousands)
Derivatives designated as hedging instruments:
Fair value hedges:
Interest rate swaps related to fixed rate indirect consumer loans	$	—	$	—		$	30,000	$	69
Total fair value hedges			$	—				$	69
Cash flow hedges:
Interest rate swaps related to interest-bearing liabilities	$	40,000	$	1		$	40,000	$	609
Interest rate floors	$	20,000		296		$	—		—
Total cash flow hedges			$	297				$	609
Total derivatives designated as hedging instruments, net			$	297				$	678
Derivatives not designated as hedging instruments:
Interest rate floors	$	25,000	$	6		$	50,000	$	18
Credit risk participation agreements	$	15,198		(75	)	$	15,198		(54	)
Total derivatives not designated as hedging instruments, net			$	(69	)			$	(36	)

(1)

Derivatives in a gain position are recorded as other assets and derivatives in a loss position are recorded as other liabilities in the consolidated balance sheets.

The following table presents the net effects of derivative instruments on the Company’s interim condensed consolidated statements of operations for the three and six months ended June 30, 2025 and 2024. The effects, which include the reclassification of unrealized gains on terminated swap contracts, are presented as either an increase or decrease to income before income taxes in the relevant caption of the Company’s interim condensed consolidated statements of operations.


Location in the Condensed		Three Months Ended						Six Months Ended
Consolidated Statements of Operations		June 30, 2025			June 30, 2024			June 30, 2025			June 30, 2024
		(Dollars in Thousands)						(Dollars in Thousands)
Interest income	Interest and fees on loans	$	(19	)	$	260		$	(48	)	$	520
Interest expense	Interest on deposits		140			120			237			240
Interest expense	Interest on borrowings		—			36			—			72
Non-interest income	Other non-interest income		(3	)		—			(20	)		—
Non-interest expense	Other non-interest expense		(8	)		(38	)		(12	)		(62	)
	Net increase to income before income taxes	$	110		$	378		$	157		$	770