Customers is exposed to certain risks arising from both its business operations and economic conditions. Customers manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and durations of its assets and liabilities. Specifically, Customers enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the values of which are determined by interest rates. Customers’ derivative financial instruments are used to manage differences in the amount, timing and duration of Customers’ known or expected cash receipts and its known or expected cash payments principally related to certain borrowings and deposits. Customers also has interest-rate derivatives resulting from a service provided to certain qualifying customers, and therefore, they are not used to manage Customers’ interest-rate risk in assets or liabilities. Customers manages a matched book with respect to its derivative instruments used in this customer service in order to minimize its net risk exposure resulting from such transactions.

Customers’ objectives in using interest-rate derivatives are to add stability to interest expense and to manage exposure to interest rate movements. To accomplish this objective, Customers primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for Customers making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

The changes in the fair value of derivatives designated and qualifying as cash flow hedges are recorded in accumulated other comprehensive income (loss) and subsequently reclassified into earnings in the period that the hedged item affects earnings. To date, such derivatives were used to hedge the variable cash flows associated with the forecasted issuances of debt and a certain variable-rate deposit relationship.

Customers discontinues cash flow hedge accounting if it is probable the forecasted hedged transactions will not occur in the initially identified time period. At such time, the associated gains and losses deferred in accumulated other comprehensive income (loss) are reclassified immediately into earnings and any subsequent changes in the fair value of such derivatives are recognized directly in earnings.

Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on Customers’ variable-rate debt and a variable-rate deposit relationship. Customers expects to reclassify $6.2 million of losses from accumulated other comprehensive income (loss) to interest expense during the next 12 months.

Customers is hedging its exposure to the variability in future cash flows for forecasted transactions (3-month FHLB advances) and a variable rate deposit relationship over a maximum period of 54 months (excluding forecasted transactions related to the payment of variable interest on existing financial instruments).

At December 31, 2019, Customers had four outstanding interest rate derivatives with notional amounts totaling $725.0 million that were designated as cash flow hedges of interest-rate risk. At December 31, 2018, Customers had six outstanding interest rate derivatives with notional amounts totaling $750.0 million that were designated as cash flow hedges of interest-rate risk. The outstanding cash flow hedges expire between June 2021 and July 2024.

Customers executes interest rate swaps (typically the loan customers will swap a floating-rate loan for a fixed-rate loan) and interest rate caps with commercial banking customers to facilitate their respective risk management strategies. The customer interest rate swaps and interest rate caps are simultaneously offset by interest rate swaps and interest rate caps that Customers executes with a third party in order to minimize interest-rate risk exposure resulting from such transactions. As the interest rate swaps and interest rate caps associated with this program do not meet the hedge accounting requirements, changes in the fair value of both the customer swaps and caps and the offsetting third-party market swaps and caps are recognized directly in earnings. At December 31, 2019, Customers had 140 interest rate swaps with an aggregate notional amount of $1.4 billion and four interest rate caps with an aggregate notional amount of $78.6 million related to this program. At December 31, 2018, Customers had 98 interest rate swaps with an aggregate notional amount of $1.0 billion related to this program. At December 31, 2018, there were no interest rate caps related to this program.

Customers enters into residential mortgage loan commitments in connection with its consumer mortgage banking activities to fund mortgage loans at specified rates and times in the future. These commitments are short-term in nature and generally expire in 30 to 60 days. The residential mortgage loan commitments that relate to the origination of mortgage loans that will be held for sale are considered derivative instruments under applicable accounting guidance and are reported at fair value, with changes in fair value recorded directly in earnings. At December 31, 2019 and 2018, Customers had an outstanding notional balance of residential mortgage loan commitments of $4.5 million and $3.6 million, respectively.

Customers has also purchased and sold credit derivatives to either hedge or participate in the performance risk associated with some of its counterparties. These derivatives are not designated as hedging instruments and are reported at fair value, with changes in fair value reported directly in earnings. At December 31, 2019 and 2018, Customers had outstanding notional balances of credit derivatives of $167.1 million and $94.9 million, respectively.


	December 31, 2019
	Derivative Assets				Derivative Liabilities
(amounts in thousands)	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as cash flow hedges:
Interest rate swaps	Other assets	$	—	Other liabilities	$	21,374
Total		$	—		$	21,374
Derivatives not designated as hedging instruments:
Interest rate swaps	Other assets	$	23,301	Other liabilities	$	24,797
Interest rate caps	Other assets	9		Other liabilities	9
Credit contracts	Other assets	219		Other liabilities	(241)
Residential mortgage loan commitments	Other assets	79		Other liabilities	—
Total		$	23,608		$	24,565


	December 31, 2018
	Derivative Assets				Derivative Liabilities
(amounts in thousands)	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as cash flow hedges:
Interest rate swaps	Other assets	$	256	Other liabilities	$	1,502
Total		$	256		$	1,502
Derivatives not designated as hedging instruments:
Interest rate swaps	Other assets	$	14,300	Other liabilities	$	14,730
Credit contracts	Other assets	68		Other liabilities	54
Residential mortgage loan commitments	Other assets	69		Other liabilities	—
Total		$	14,437		$	14,784


		Amount of Income Recognized in Earnings For the Years Ended December 31,

(amounts in thousands)	Income Statement Location	2019		2018		2017

Derivatives not designated as hedging instruments:
Interest rate swaps ⁽¹⁾	Other non-interest income	$	2,549	$	3,409	$	604
Interest rate caps	Other non-interest income	24		—		—
Credit contracts	Other non-interest income	589		127		171
Residential mortgage loan commitments	Mortgage banking income	10		9		15
Total		$	3,172	$	3,545	$	790



	For the Year Ended December 31,
	Amount of Gain (Loss) Recognized in OCI on Derivatives ⁽¹⁾											Location of Gain (Loss) Reclassified from Accumulated OCI into Income			Amount of Gain (Loss) Reclassified from Accumulated OCI into Income

(amounts in thousands)	2019		2018		2017			2019		2018			2017
Derivatives in cash flow hedging relationships:
Interest rate swaps	$	(15,656)	$	1,477	$	406	Interest expense	$	(1,407)	$	95		$	(2,634)
							Other non-interest income ⁽²⁾	—		2,822			—
								$	(1,407)	$	2,917		$	(2,634)

(1)Amounts presented are net of taxes. See Note 4 - CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) for the total effect on other comprehensive income (loss) from derivatives designated as cash flow hedges for the periods presented.

By entering into derivative contracts, Customers is exposed to credit risk. The credit risk associated with derivatives executed with customers is the same as that involved in extending the related loans and is subject to the same standard credit policies. To mitigate the credit-risk exposure to major derivative dealer counterparties, Customers only enters into agreements with those counterparties that maintain credit ratings of high quality.

Agreements with major derivative dealer counterparties contain provisions whereby default on any of Customers' indebtedness would be considered a default on its derivative obligations. Customers also has entered into agreements that contain provisions under which the counterparty could require Customers to settle its obligations if Customers fails to maintain its status as a well/adequately capitalized institution. As of December 31, 2019, the fair value of derivatives in a net liability position (which includes accrued interest but excludes any adjustment for nonperformance-risk) related to these agreements was $46.4 million. In addition, Customers, which has collateral posting thresholds with certain of these counterparties and at December 31, 2019 had posted $45.7 million of cash as collateral. Customers records cash posted as collateral as a reduction in the outstanding balance of cash and cash equivalents and an increase in the balance of other assets.

The following tables present derivative instruments that are subject to enforceable master netting arrangements. Customers' interest rate swaps and interest rate caps with institutional counterparties are subject to master netting arrangements and are included in the table below. Interest rate swaps and interest rate caps with commercial banking customers and residential mortgage loan commitments are not subject to master netting arrangements and are excluded from the table below. Customers has not made a policy election to offset its derivative positions.


					Gross Amounts Not Offset in the Consolidated Balance Sheet
(amounts in thousands)	Gross Amounts Recognized on the Consolidated Balance Sheets		Financial Instruments			Cash Collateral Received/(Posted)		Net Amount
December 31, 2019
Interest rate derivative assets with institutional counterparties	$	432	$	—		$	—	$	432

Interest rate derivative liabilities with institutional counterparties	$	45,727	$	—		$	(45,727)	$	—


					Gross Amounts Not Offset in the Consolidated Balance Sheet
(amounts in thousands)	Gross Amounts Recognized on the Consolidated Balance Sheets		Financial Instruments			Cash Collateral Received/(Posted)		Net Amount
December 31, 2018
Interest rate derivative assets with institutional counterparties	$	7,529	$	—		$	1,860	$	5,669

Interest rate derivative liabilities with institutional counterparties	$	9,077	$	—		$	(702)	$	8,375