Derivatives

The Company has entered into various interest rate swap agreements as part of its interest rate risk management strategy. The Company uses interest rate swaps to manage its interest rate risk exposure on certain loans, variable-rate and short-term borrowings, and deposits due to interest rate movements. The notional amounts of the interest rate swaps do not represent amounts exchanged by the counterparties, but rather, the notional amount is used to determine, along with other terms of the derivative, the amounts to be exchanged between the counterparties.

Interest Rate Swaps Designated as a Cash Flow Hedge: As of both March 31, 2020 and December 31, 2019, the Company had interest rate swaps designated as cash flow hedges with a total notional amount of $335,000. As of March 31, 2020, the Company had swaps with a total notional amount of $125,000 that hedge the interest payments of rolling fixed-rate one- or three-month funding consisting of FHLB advances or brokered deposits, and forward starting swaps with a total notional amount of $50,000, which will hedge the interest payments of rolling one-month funding consisting of FHLB advances or brokered deposits, with starting dates ranging from June 2020 to September 2020. Also as of March 31, 2020, the Company had swaps with a total notional amount of $50,000 that effectively convert variable-rate FHLB advances and junior subordinated notes to fixed-rate debt, and swaps with a total notional amount of $110,000 that hedge the interest payments of certain deposit accounts.

Derivatives Not Designated as Accounting Hedges: To accommodate customer need, the Company on occasion offers loan level interest rate swaps to its customers and offsets its exposure from such contracts by entering into mirror image swaps with a swap counterparty (back-to-back swap program). The interest rate swaps are free-standing derivatives and are recorded at fair value. The Company enters into a floating-rate loan and a fixed-rate swap with our customer. Simultaneously, the Company enters into an offsetting fixed-rate swap with a swap counterparty. In connection with each swap transaction, the Company agrees to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on the same notional amount at a fixed interest rate. At the same time, the Company agrees to pay a swap counterparty the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. These transactions allow the Company’s customers to effectively convert variable-rate loans to fixed-rate loans. The customer accommodations and any offsetting swaps are treated as non-hedging derivative instruments which do not qualify for hedge accounting.

The table below identifies the balance sheet category and fair values of the Company's derivative instruments as of March 31, 2020 and December 31, 2019.



	Notional Amount		Fair Value			Balance Sheet Category	Weighted Average Floating Rate		Weighted Average Fixed Rate		Weighted Average Maturity - Years
Cash flow hedges:
March 31, 2020
Interest rate swaps	$	285,000	$	(23,060	)	Other Liabilities	1.08	%	2.28	%	5.2
Forward-starting interest rate swaps⁽¹⁾	50,000		(3,600		)	Other Liabilities	—		1.74	%	5.9

December 31, 2019
Interest rate swaps	$	215,000	$	(5,786	)	Other Liabilities	1.84	%	2.26	%	5.5
Interest rate swaps	70,000		403			Other Assets	2.62	%	2.37	%	5.2
Forward starting interest rate swaps⁽¹⁾	50,000		(343		)	Other Liabilities	—		1.74	%	6.1

Non-hedging derivatives:
March 31, 2020
Interest rate swaps - counterparty	$	32,389	$	1,055		Other Assets	2.75	%	3.36	%	10.0
Interest rate swaps - loan customer	32,389		(1,055		)	Other Liabilities	2.75	%	3.36	%	10.0

(1)The fixed rate for forward starting swaps represents the fixed rate to be paid beginning on the scheduled start dates of the swaps. No interest payments were required related to these swaps in 2019 or 2020.

The following table identifies the pre-tax gains or losses recognized on the Company's derivative instruments designated as cash flow hedges for the three months ended March 31, 2020 and 2019.



							Reclassified from AOCI into Income
	Amount of Pre-tax Gain (Loss) Recognized in OCI						Reclassified from AOCI into Income
	Amount of Pre-tax Gain (Loss) Recognized in OCI							Amount of Gain (Loss)
	Three Months Ended March 31,							Three Months Ended March 31,
	2020			2019			Category	2020			2019
Interest rate swaps	$	(21,258	)	$	(2,441	)	Interest Expense	$	(341	)	$	114

The Company estimates there will be approximately $3,437 reclassified from accumulated other comprehensive income (AOCI) to interest expense through the 12 months ending March 31, 2021 related to cash flow hedges.

The Company is exposed to credit risk in the event of nonperformance by interest rate swap counterparties, which is minimized by collateral-pledging provisions in the agreements. Derivative contracts with swap counterparties are executed with a Credit Support Annex, which is a bilateral ratings-sensitive agreement that requires collateral postings at established credit threshold levels. These agreements protect the interests of the Company and its counterparties should either party suffer a credit rating deterioration. As of March 31, 2020 and December 31, 2019, the Company pledged $28,570 and $6,570, respectively, of collateral to the counterparties in the form of cash on deposit with a third party. The interest rate swap product with the borrower is cross collateralized with the underlying loan and therefore there is no posted collateral under swap contracts with customers.