The Company enters into derivative financial instruments to manage risks related to differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments, currently associated with fixed rate brokered deposits, certain investment securities and select pools of variable rate loans. The Company also enters into interest rate derivative agreements as a service to certain qualifying customers. A matched book is managed with respect to these customer derivatives in order to minimize its net interest rate risk exposure resulting from such agreements. The Company also enters into risk participation agreements under which it may either sell or buy credit risk associated with a customer’s performance under certain interest rate derivative contracts related to loans in which participation interests have been sold to or purchased from other banks.

The table below presents the notional or contractual amounts and fair values of the Company’s derivative financial instruments as well as their classification on the consolidated balance sheets at June 30, 2020 and December 31, 2019.

		June 30, 2020								December 31, 2019
				Derivative ⁽¹⁾								Derivative ⁽¹⁾
(in thousands)	Type of Hedge	Notional or Contractual Amount		Assets			Liabilities			Notional or Contractual Amount		Assets			Liabilities
Derivatives designated as hedging instruments:
Interest rate swaps - variable rate loans	Cash Flow	$	1,175,000	$	63,765		$	—		$	1,175,000	$	24,172		$	337
Interest rate swaps - securities	Fair Value		549,900		238			25,293			441,400		1,474			1,759
Interest rate swaps - brokered deposits	Fair Value		—		—			—			43,000		—			9
			1,724,900		64,003			25,293			1,659,400		25,646			2,105
Derivatives not designated as hedging instruments:
Interest rate swaps ⁽²⁾	N/A		4,504,336		174,801			178,817			3,759,232		54,512			55,664
Risk participation agreements	N/A		277,216		73			155			254,825		21			45
Forward commitments to sell residential mortgage loans	N/A		352,445		3,235			2,855			145,623		651			744
Interest rate-lock commitments on residential mortgage loans	N/A		260,001		1,660			3,071			83,224		369			375
Foreign exchange forward contracts	N/A		83,042		1,342			1,291			64,632		303			366
Visa Class B derivative contract	N/A		43,565		—			4,982			43,753		—			5,704
			5,520,605		181,111			191,171			4,351,289		55,856			62,898
Total derivatives		$	7,245,505	$	245,114		$	216,464		$	6,010,689	$	81,502		$	65,003
Less: netting adjustment ⁽³⁾					(64,003	)		(157,530	)				(27,056	)		(43,914	)
Total derivative assets/liabilities				$	181,111		$	58,934				$	54,446		$	21,089

The Company is party to various interest rate swap agreements designated and qualifying as cash flow hedges of the Company’s forecasted variable cash flows for pools of variable rate loans. For each agreement, the Company receives interest at a fixed rate and pays at a variable rate. Amortization of other comprehensive loss on terminated cash flow hedges totaled $1.1 million and $1.4 million for the six months ended June 30, 2020 and 2019. The notional amounts of the swap agreements in place at June 30, 2020 expire as follows: $50 million in 2021; $475 million in 2022; $550 million in 2023; and $100 million in 2024.

The Company is party to forward-starting fixed payer swaps that convert the latter portion of the term of certain available for sale securities to a floating rate. These derivative instruments are designated as fair value hedges of interest rate risk. This strategy provides the Company with a fixed rate coupon during the front-end unhedged tenor of the bonds and results in a floating rate security during the back-end hedged tenor with hedged start dates between August 2023 through September 2025, and maturity dates from January 2028 through March 2031. The fair value of the hedged item attributable to interest rate risk will be presented in interest income along with the change in the fair value of the hedging instrument.

The majority of the hedged available for sale securities is a closed portfolio of pre-payable commercial mortgage backed securities. In accordance with ASC 815, prepayment risk may be excluded when measuring the change in fair value of such hedged items attributable to interest rate risk under the last-of-layer approach. At June 30, 2020, the amortized cost basis of the closed portfolio of pre-payable commercial mortgage backed securities totaled $541.2 million. The amount that represents the hedged items was $515.9 million and the basis adjustment associated with the hedged items totaled $25.3 million.

Prior to January 2020, the Company was party to certain interest rate swap agreements that modified the Company’s exposure to interest rate risk by effectively converting a portion of the Company’s brokered certificates of deposit from fixed rates to variable rates. The maturities and call features of these interest rate swaps matched the features of the hedged deposits. As interest rates declined or increased, the corresponding movement in the value of the certificates of deposit were offset by the change in the value of the interest rate swaps, resulting in no impact to earnings. Interest expense was adjusted by the difference between the fixed and floating rates for the period the swaps are in effect.

The Company enters into interest rate derivative agreements, primarily rate swaps, with commercial banking customers to facilitate their risk management strategies. The Bank enters into offsetting agreements with unrelated financial institutions, thereby mitigating its net risk exposure resulting from such transactions. Because the interest rate derivatives associated with this program do not meet hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings.

The Company has offered customers a deferral of the monthly derivative payment/settlement if the associated loan was on deferral. At June 30, 2020, the Company had a receivable totaling $1.3 million related to these deferrals.

The Company also enters into risk participation agreements under which it may either assume or sell credit risk associated with a borrower’s performance under certain interest rate derivative contracts. In those instances where the Bank has assumed credit risk, it is not a direct counterparty to the derivative contract with the borrower and has entered into the risk participation agreement because it is a party to the related loan agreement with the borrower. In those instances in which the Bank has sold credit risk, it is the sole counterparty to the derivative contract with the borrower and has entered into the risk participation agreement because other banks participate in the related loan agreement. The Bank manages its credit risk under risk participation agreements by monitoring the creditworthiness of the borrower, based on the Bank’s normal credit review process.

The Company also enters into certain derivative agreements as part of its mortgage banking activities. These agreements include interest rate lock commitments on prospective residential mortgage loans and forward commitments to sell these loans to investors on a best efforts delivery basis.

The Company enters into foreign exchange forward derivative agreements, primarily forward foreign currency contracts, with commercial banking customers to facilitate their risk management strategies. The Bank manages its risk exposure from such transactions by entering into offsetting agreements with unrelated financial institutions. Because the foreign exchange forward

contract derivatives associated with this program do not meet hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings.

The Company is a member of Visa USA. During the fourth quarter of 2018, the Company sold the majority of its Visa Class B holdings, at which time it entered into a derivative agreement with the purchaser whereby the Company will make or receive cash payments whenever the conversion ratio of the Visa Class B shares into Visa Class A shares is adjusted. The conversion ratio changes when Visa deposits funds to a litigation escrow account established by Visa to pay settlements for certain litigation, for which Visa is indemnified by Visa USA members. The Company is also required to make periodic financing payments to the purchaser until all of Visa’s covered litigation matters are resolved. Thus, the derivative contract extends until the end of Visa’s covered litigation matters, the timing of which is uncertain.

The contract includes a contingent accelerated termination clause based on the credit ratings of the Company. At June 30, 2020 and December 31, 2019 the fair value of the liability associated with this contract was $5.0 million and $5.7 million, respectively.

The effects of derivative instruments on the consolidated statements of income for the six months ended June 30, 2020 and 2019 are presented in the table below. Interest income or the reduction of interest income attributable to cash flow hedges includes amortization of accumulated other comprehensive loss that resulted from termination of interest rate swap contracts.

		Three Months Ended						Six Months Ended
		June 30,						June 30,
Derivative Instruments:	Location of Gain (Loss) Recognized in the Statement of Income:	2020			2019			2020		2019
Cash flow hedges - variable rate loans	Interest income	$	4,597		$	(1,660	)	$	5,461	$	(3,676	)
Fair value hedges - securities	Interest income		(1	)		—			40		—
Fair value hedges - brokered deposits	Interest expense		—			(461	)		46		(1,449	)
All other instruments	Other noninterest income		4,108			3,600			7,979		4,409
Total gain (loss)		$	8,704		$	1,479		$	13,526	$	(716	)

Certain of the Company’s derivative instruments contain provisions allowing the financial institution counterparty to terminate the contracts in certain circumstances, such as a downgrade of the Bank’s credit ratings below specified levels, a default by the Bank on its indebtedness, or the failure of the Bank to maintain specified minimum regulatory capital ratios or its regulatory status as a well-capitalized institution. These derivative agreements also contain provisions regarding the posting of collateral by each party. At June 30, 2020, the Company was not in violation of any such provisions. The aggregate fair value of derivative instruments with credit risk-related contingent features that were in a net liability position at June 30, 2020 and December 31, 2019 was $47.6 million and $12.9 million, respectively, for which the Company had posted collateral of $47.7 million and $12.4 million, respectively.

The Company’s derivative instruments with certain counterparties contain legally enforceable netting provisions that allow for net settlement of multiple transactions to a single amount, which may be positive, negative, or zero. Agreements with certain bilateral counterparties require both parties to maintain collateral in the event that the fair values of derivative instruments exceed established exposure thresholds. For centrally cleared derivatives, the Company is subject to initial margin posting and daily variation margin exchange with the central clearinghouses. Offsetting information in regards to all derivative assets and liabilities, including accrued interest, subject to these master netting agreements at June 30, 2020 and December 31, 2019 is presented in the following tables.

(in thousands)			Gross Amounts			Net Amounts		Gross Amounts Not Offset in the Statement of Income
Description	Gross Amounts Recognized		Offset in the Statement of Income			Presented in the Statement of Income		Financial Instruments		Cash Collateral		Net Amount
As of June 30, 2020
Derivative Assets	$	65,960	$	(65,957	)	$	3	$	3	$	—	$	—
Derivative Liabilities	$	207,355	$	(159,856	)	$	47,499	$	3	$	85,500	$	(38,004	)

(in thousands)			Gross Amounts			Net Amounts		Gross Amounts Not Offset in the Statement of Income
Description	Gross Amounts Recognized		Offset in the Statement of Income			Presented in the Statement of Income		Financial Instruments		Cash Collateral		Net Amount
As of December 31, 2019
Derivative Assets	$	27,938	$	(27,915	)	$	23	$	23	$	—	$	—
Derivative Liabilities	$	56,523	$	(44,570	)	$	11,953	$	23	$	35,113	$	(23,183	)

The Company has excess collateral compared to total exposure due to initial margin requirements for day-to-day rate volatility.