The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally to manage the Company’s interest rate risk. Additionally, the Company enters into interest rate derivatives and foreign exchange contracts to accommodate the business requirements of its customers (“customer related positions”). The Company minimizes the market and liquidity risks of customer related positions by entering into similar offsetting positions with broker-dealers. Derivative instruments are carried at fair value in the Company’s financial statements. The accounting for changes in the fair value of a derivative instrument is dependent upon whether or not it qualifies as a hedge for accounting purposes, and further, by the type of hedging relationship.

The Company may utilize various interest rate derivatives as hedging instruments against interest rate risk associated with the Company’s borrowings and loan portfolios. An interest rate derivative 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.



March 31, 2019
				Weighted Average Rate
	Notional Amount		Average Maturity	Current Rate Received		Pay Fixed Swap Rate		Fair Value
	(in thousands)		(in years)					(in thousands)
Interest rate swaps on borrowings	$	75,000	2.93	2.63	%	1.53	%	$	1,528

				Current Rate Paid		Receive Fixed Swap Rate
Interest rate swaps on loans	350,000		4.23	2.50	%	2.57	%	6,458

				Current Rate Paid		Receive Fixed Swap Rate Cap - Floor
Interest rate collars on loans	250,000		3.92	2.49	%	3.02% - 2.51%		5,150

Total	$	675,000						$	13,136


December 31, 2018
				Weighted Average Rate
	Notional Amount		Average Maturity	Current Rate Received		Pay Fixed Swap Rate		Fair Value
	(in thousands)		(in years)					(in thousands)
Interest rate swaps on borrowings	$	75,000	3.18	2.74	%	1.53	%	$	2,282

				Current Rate Paid		Receive Fixed Swap Rate
Interest rate swaps on loans	250,000		4.52	2.57	%	2.67	%	2,938

				Current Rate Paid		Receive Fixed Swap Rate Cap - Floor
Interest rate collars on loans	250,000		4.17	2.47	%	3.02% - 2.51%		3,344

Total	$	575,000						$	8,564

The maximum length of time over which the Company is currently hedging its exposure to the variability in future cash flows for forecasted transactions related to the payment of variable interest on existing financial instruments is 4.8 years.

For derivative instruments that are designated and qualify as cash flow hedging instruments, the effective portion of the gains or losses is reported as a component of other comprehensive income ("OCI"), and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The Company expects approximately $1.3 million (pre-tax) to be reclassified to interest income and $725,000 (pre-tax) to be reclassified as an offset to interest expense, from OCI related to the Company’s cash flow hedges in the next twelve months. This reclassification is due to anticipated payments that will be made and/or received on the swaps based upon the forward curve as of March 31, 2019.

The Company recognized $61,000 of net amortization income that was an offset to interest expense related to previously terminated swaps for the three month period ended March 31, 2018. The Company did not recognize any amortization income related to previously terminated swaps for the three month period ended March 31, 2019.

Loan level derivatives, primarily interest rate swaps, offered to commercial borrowers through the Company’s loan level derivative program do not qualify as hedges for accounting purposes. The Company believes that its exposure to commercial customer derivatives is limited because these contracts are simultaneously matched at inception with an offsetting dealer transaction. The commercial customer derivative program allows the Company to retain variable-rate commercial loans while allowing the customer to synthetically fix the loan rate by entering into a variable-to-fixed interest rate swap. The amounts relating to the notional principal amount are not actually exchanged.

Foreign exchange contracts offered to commercial borrowers through the Company’s derivative program do not qualify as hedges for accounting purposes. The Company acts as a seller and buyer of foreign exchange contracts to accommodate its customers. To mitigate the market and liquidity risk associated with these derivatives, the Company enters into similar offsetting positions.



		Notional Amount Maturing
	Number of Positions (1)	Less than 1 year		Less than 2 years		Less than 3 years		Less than 4 years		Thereafter		Total		Fair Value
	March 31, 2019
	(Dollars in thousands)
Loan level swaps
Receive fixed, pay variable	235	$	70,141	$	151,524	$	54,375	$	56,044	$	618,648	$	950,732	$	9,724
Pay fixed, receive variable	222	$	70,141	$	151,524	$	54,375	$	56,044	$	618,648	$	950,732	$	(9,724	)
Foreign exchange contracts
Buys foreign currency, sells U.S. currency	33	$	70,994	$	—	$	—	$	—	$	—	$	70,994	$	(2,102	)
Buys U.S. currency, sells foreign currency	33	$	70,994	$	—	$	—	$	—	$	—	$	70,994	$	2,140
	December 31, 2018
	(Dollars in thousands)
Loan level swaps
Receive fixed, pay variable	235	$	50,702	$	124,222	$	97,904	$	47,308	$	631,471	$	951,607	$	(2,907	)
Pay fixed, receive variable	220	$	50,702	$	124,222	$	97,904	$	47,308	$	631,471	$	951,607	$	2,903
Foreign exchange contracts
Buys foreign currency, sells U.S. currency	27	$	60,297	$	3,505	$	—	$	—	$	—	$	63,802	$	(1,404	)
Buys U.S. currency, sells foreign currency	27	$	60,297	$	3,505	$	—	$	—	$	—	$	63,802	$	1,434

Prior to closing and funding certain 1- 4 family residential mortgage loans, an interest rate lock commitment is generally extended to the borrower. During the period from commitment date to closing date, the Company is subject to the risk that market rates of interest may change. If market rates rise, investors generally will pay less to purchase such loans resulting in a reduction in the gain on sale of the loans or, possibly, a loss. In an effort to mitigate such risk, forward delivery sales commitments are executed, under which the Company agrees to deliver whole mortgage loans to various investors. These forward commitments carry a market price that has a strong inverse relationship to that of mortgage prices. Certain assumptions, including pull through rates and rate lock periods, are used in managing the existing and future hedges. The accuracy of underlying assumptions will impact the ultimate effectiveness of any hedging strategies.

The change in fair value on the interest rate lock commitments and forward delivery sale commitments are recorded in current period earnings as a component of mortgage banking income. In addition, the Company has elected the fair value option to carry loans held for sale at fair value. The change in fair value of loans held for sale is recorded in current period earnings as a component of mortgage banking income in accordance with the Company's fair value election. The change in fair value associated with loans held for sale was an increase of $1,000 and a decrease of $26,000 for the three months ended March 31, 2019 and 2018, respectively. These amounts were offset in earnings by the change in the fair value of mortgage derivatives. Additionally, the aggregate amount of net realized gains or losses on sales of such loans included within mortgage banking income was $705,000 and $782,000 for the three months ended March 31, 2019 and 2018, respectively.



	Asset Derivatives					Liability Derivatives
		Fair Value at		Fair Value at			Fair Value at		Fair Value at
	Balance Sheet Location	March 31 2019		December 31 2018		Balance Sheet Location	March 31 2019		December 31 2018
	(Dollars in thousands)
Derivatives designated as hedges
Interest rate derivatives	Other assets	$	13,136	$	8,955	Other liabilities	$	—	$	391
Derivatives not designated as hedges
Customer Related Positions
Loan level derivatives	Other assets	$	17,660	$	15,580	Other liabilities	$	17,660	$	15,584
Foreign exchange contracts	Other assets	2,140		1,578		Other liabilities	2,102		1,548
Mortgage Derivatives
Interest rate lock commitments	Other assets	128		91		Other liabilities	—		—
Forward sales agreements	Other assets	128		106		Other liabilities	—		—
		$	20,056	$	17,355		$	19,762	$	17,132
Total		$	33,192	$	26,310		$	19,762	$	17,523



		Three Months Ended
		March 31
		2019			2018
	(Dollars in thousands)
Derivatives designated as hedges
Gain in OCI on derivatives (effective portion), net of tax		$	3,285		$	215
Gain reclassified from OCI into interest income or interest expense (effective portion)		$	424		$	90
Loss recognized in income on derivatives (ineffective portion and amount excluded from effectiveness testing)
Interest expense		$	—		$	—
Other expense		—			—
Total		$	—		$	—
Derivatives not designated as hedges
Changes in fair value of customer related positions
Other income		$	13		$	9
Other expense		(1		)	(13		)
Changes in fair value of mortgage derivatives
Mortgage banking income		59			12
Total		$	71		$	8

The Company's derivative agreements with institutional counterparties contain various credit-risk related contingent provisions, such as requiring the Company to maintain a well-capitalized capital position. If the Company fails to meet these conditions, the counterparties could request the Company make immediate payment or demand that the Company provide immediate and ongoing full collateralization on derivative positions in net liability positions. The aggregate fair value of all derivative instruments with credit-risk related contingent features that were in a net liability position was $490,000 and $176,000 at March 31, 2019 and December 31, 2018, respectively. Although none of the contingency provisions have applied as of March 31, 2019 and December 31, 2018, the Company has posted collateral to offset the net liability exposures with institutional counterparties.