By using derivatives, the Company is exposed to credit risk to the extent that counterparties to the derivative contracts do not perform as required. Should a counterparty fail to perform under the terms of a derivative contract, the Company’s credit exposure on interest rate swaps is limited to the net positive fair value and accrued interest of all swaps with each counterparty plus any initial margin collateral posted. The Company seeks to minimize counterparty credit risk through credit approvals, limits, monitoring procedures, and obtaining collateral, where appropriate. As such, management believes the risk of incurring credit losses on derivative contracts with those counterparties is remote.

An interest rate swap is an agreement whereby one party agrees to pay a floating rate of interest on a notional principal amount in exchange for receiving a fixed rate of interest on the same notional amount, for a predetermined period of time, from a second party. The amounts relating to the notional principal amount are not actually exchanged. The Company may enter into interest rate swaps in which they pay floating and receive fixed interest in order to manage its interest rate risk exposure to the variability in interest cash flows on certain floating-rate commercial loans. For interest rate swaps that are accounted for as cash flow hedges, changes in fair value are included in other comprehensive income and reclassified into net income in the same period or periods during which the hedged forecasted transaction affects net income. As of December 31, 2021 and 2020, the Company does not have any active interest rate swaps which qualify as cash flow hedges for accounting purposes.

Due to the phase-out, and eventual discontinuation, of the LIBOR, central clearinghouses have begun to transition to alternative rates for valuation purposes. As of October 16, 2020, the Company changed its valuation methodology to reflect changes made by the Chicago Mercantile Exchange (“CME”), through which the Company clears derivative financial instruments that are eligible for clearing. The changes from the CME changed the discounting methodology and interest calculation of cash margin from Overnight Index Swap to SOFR for U.S. dollar cleared interest rate swaps. The Company believes that it’s improvements to its valuation methodology will result in valuations for cleared interest rate swaps that better reflect prices obtainable in the markets in which the Company transacts. The changes in valuation methodology are applied prospectively as a change in accounting estimate and are immaterial to the Company’s financial statements.


	Year Ended December 31,
	2021		2020
	(In thousands)
Unrealized gains on terminated hedges included in AOCI — January 1	$	41,473	$	—
Unrealized gains on terminated hedges arising during the period	—		57,362
Reclassification adjustments for amortization of unrealized (gains) into net interest income	(31,234)		(15,889)
Unrealized gains on terminated hedges included in AOCI — December 31	$	10,239	$	41,473

The balance of terminated cash flow hedges in AOCI will be amortized into earnings through January 2023. The Company expects approximately $10.2 million to be reclassified into interest income from other comprehensive income related to the Company’s terminated cash flow hedges in the next 12 months as of December 31, 2021.

Interest rate swaps offered to commercial customers do not qualify as hedges for accounting purposes. These swaps allow the Company to retain variable rate commercial loans while allowing the commercial customer to synthetically fix the loan rate by entering into a variable-to-fixed rate interest rate swap. The Company believes that its exposure to commercial customer derivatives is limited to non-performance by either the customer or the dealer because these contracts are simultaneously matched at inception with an offsetting dealer transaction.

Risk participation agreements are entered into as financial guarantees of performance on interest rate swap derivatives. The purchased (asset) or sold (liability) guarantee allow the Company to participate-out (fee paid) or participate-in (fee received) the risk associated with certain derivative positions executed with the borrower by the lead bank in a customer-related interest rate swap derivative.

Foreign exchange contracts consist of those offered to commercial customers and those entered into to hedge the Company’s foreign currency risk associated with a foreign-currency loan. Neither qualifies as a hedge for accounting purposes. These commercial customer derivatives are offset with matching derivatives with correspondent-bank counterparties in order to minimize foreign exchange rate risk to the Company. Exposure with respect to these derivatives is largely limited to non-performance by either the customer or the other counterparty. Neither the Company nor the correspondent-bank counterparty


	As of December 31, 2021
	Number of Positions	Total Notional
	(Dollars in thousands)
Interest rate swaps	494	$	3,009,150
Risk participation agreements	64	238,772
Foreign exchange contracts:
Matched commercial customer book	72	7,922
Foreign currency loan	6	10,830


	As of December 31, 2020
	Number of Positions	Total Notional
	(Dollars in thousands)
Interest rate swaps	576	$	3,652,385
Risk participation agreements	70	287,732
Foreign exchange contracts:
Matched commercial customer book	40	4,242
Foreign currency loan	3	10,798

The table below presents the fair value of the Company’s derivative financial instruments, as well as their classification on the balance sheet for the periods indicated. There were no derivatives designated as hedging instruments at December 31, 2021 and 2020.


	Asset Derivatives					Liability Derivatives
	Balance Sheet Location	Fair Value at December 31, 2021		Fair Value at December 31, 2020		Balance Sheet Location	Fair Value at December 31, 2021		Fair Value at December 31, 2020
	(In thousands)
Derivatives not designated as hedging instruments
Customer-related positions:
Interest rate swaps	Other assets	$	64,338	$	141,822	Other liabilities	$	17,880	$	42,600
Risk participation agreements	Other assets	315		722		Other liabilities	580		1,230
Foreign currency exchange contracts — matched customer book	Other assets	61		90		Other liabilities	46		77
Foreign currency exchange contracts — foreign currency loan	Other assets	—		9		Other liabilities	87		69
Total		$	64,714	$	142,643		$	18,593	$	43,976

The table below presents the net effect of the Company’s derivative financial instruments on the consolidated income statements as well as the effect of the Company’s derivative financial instruments included in other comprehensive income (“OCI”) as follows:


	For the Year Ended December 31,
	2021		2020		2019
	(In thousands)
Derivatives designated as hedges:
Gain in OCI on derivatives	$	—	$	46,871	$	20,275
Gain reclassified from OCI into interest income (effective portion)	$	31,234	$	27,131	$	2,698
Gain recognized in income on derivatives (ineffective portion and amount excluded from effectiveness test)
Interest income	$	—	$	—	$	—
Other income	—		—		—
Total	$	—	$	—	$	—
Derivatives not designated as hedges:
Customer-related positions:
Gain (loss) recognized in interest rate swap income	$	4,962	$	(3,812)	$	(2,833)
Gain (loss) recognized in interest rate swap income for risk participation agreements	243		(384)		(83)
Gain (loss) recognized in other income for foreign currency exchange contracts:
Matched commercial customer book	1		(28)		(47)
Foreign currency loan	(27)		143		(203)
Total gain (loss) for derivatives not designated as hedges	$	5,179	$	(4,081)	$	(3,166)

The Company has agreements with its customer-related interest rate swap derivative counterparties that contain a provision whereby 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.

The Company also has agreements with certain of its customer-related interest rate swap derivative correspondent-bank counterparties that contain a provision whereby 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.

Cleared derivative transactions are with CME and exposure is settled to market daily, with additional credit exposure related to initial-margin collateral pledged to CME at trade execution. At December 31, 2021 and 2020, the Company’s exposure to CME for settled variation margin in excess of the customer-related interest rate swap termination values was $0.4 million, and less than $0.1 million, respectively. In addition, at December 31, 2021 and 2020, the Company had posted initial-margin collateral in the form of U.S. Treasury notes amounting to $48.9 million and $60.4 million, respectively, to CME for these derivatives. The U.S. Treasury notes were considered restricted assets and were included in available for sale securities.

At December 31, 2021 and 2020 the fair value of all customer-related interest rate swap derivatives with credit-risk related contingent features that were in a net liability position, which includes accrued interest but excludes any adjustment for non-performance risk, was $13.7 million and $42.6 million, respectively. The Company has minimum collateral posting thresholds with its customer-related interest rate swap derivative correspondent-bank counterparties to the extent that the Company has a liability position with the correspondent-bank counterparties. At December 31, 2021 and 2020, the Company had posted collateral in the form of cash amounting to $21.3 million and $49.2 million, respectively, which was considered to be a restricted asset and was included in other short-term investments. If the Company had breached any of these provisions at December 31, 2021 or 2020, it would have been required to settle its obligations under the agreements at the termination value. In addition, the Company had cross-default provisions with its commercial customer loan agreements which provide cross-collateralization with the customer loan collateral.