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 an accommodation 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 is exposed to changes in the fair value of certain of its fixed rate AFS debt securities, deposits and FHLB advances due to changes in the benchmark interest rate. Customers uses interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate such as the Fed Funds Effective Swap Rate. Interest rate swaps designated as fair value hedges of certain of its fixed rate AFS debt securities involve the payment of fixed-rate amounts to a counterparty in exchange for Customers receiving variable-rate payments over the life of the agreements without the exchange of the underlying notional amount. Interest rate swaps designated as fair value hedges of certain deposits and FHLB advances involve the payment of variable-rate amounts to a counterparty in exchange for Customers receiving fixed-rate payments over the life of the agreements without the exchange of the underlying notional amount. For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in net interest income.

At June 30, 2023, Customers had six outstanding interest rate derivatives with notional amounts totaling $472.5 million that were designated as fair value hedges of certain AFS debt securities and FHLB advances. During the three months ended June 30, 2023, Customers entered into three interest rate derivative with notional amounts of $450.0 million that were designated as a fair value hedge of certain FHLB advances. During the six months ended June 30, 2023, Customers entered into five interest rate derivatives, two of which were terminated with notional amounts totaling $550.0 million that were designated as fair value hedges of certain deposits and FHLB advances resulting in $4.6 million of basis adjustments being amortized over the remaining terms of the hedged items as a reduction in interest expense. During the three and six months ended June 30, 2022, Customers terminated seven and nine interest rate derivatives with notional amounts totaling $31.5 million and $48.0 million, respectively, that were designated as fair value hedges together with the sale of hedged AFS debt securities. At December 31, 2022, Customers had three outstanding interest rate derivatives with notional amounts totaling $22.5 million designated as fair value hedges of certain AFS debt securities.

As of June 30, 2023 and December 31, 2022, the following amounts were recorded on the consolidated balance sheet related to cumulative basis adjustments for fair value hedges.


	Amortized Cost				Cumulative Amount of Fair Value Hedging Adjustment to Hedged Items
(amounts in thousands)	June 30, 2023		December 31, 2022		June 30, 2023		December 31, 2022
AFS debt securities	$	22,500	$	22,500	$	(1,527)	$	1,777
Deposits	300,000		—		2,140		—
FHLB advances	700,000		—		(3,857)		—

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 June 30, 2023, Customers had 129 interest rate swaps with an aggregate notional amount of $1.2 billion and 12 interest rate caps with an aggregated notional amount of $243.3 million related to this program. At December 31, 2022, Customers had 141 interest rate swaps with an aggregate notional amount of $1.3 billion and 12 interest rate caps with an aggregate notional amount of $245.8 million 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 June 30, 2023 and December 31, 2022, Customers had an aggregate notional amount of residential mortgage loan commitments of $3.3 million and $1.5 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 recorded directly in earnings. At June 30, 2023 and December 31, 2022, Customers had an aggregate notional amount of credit derivatives of $98.5 million and $142.0 million, respectively.

June 30, 2023

Derivative Assets

Derivative Liabilities

(amounts in thousands)

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Derivatives not designated as hedging instruments:

Interest rate swaps and caps (1)

Other assets

25,932

Other liabilities

37,640

Credit contracts

Other assets

Other liabilities

Residential mortgage loan commitments

Other assets

Other liabilities

—

Total

26,003

37,662


	December 31, 2022
	Derivative Assets			Derivative Liabilities
(amounts in thousands)	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value



Derivatives designated as fair value hedges:
Interest rate swaps	Other assets	$	1,777	Other liabilities	$	—
Total		$	1,777		$	—
Derivatives not designated as hedging instruments:
Interest rate swaps and caps	Other assets	$	42,589	Other liabilities	$	42,076

Credit contracts	Other assets	14		Other liabilities	30
Residential mortgage loan commitments	Other assets	55		Other liabilities	—

Total		$	42,658		$	42,106


		Amount of Income (Loss) Recognized in Earnings
		Three Months Ended June 30,				Six Months Ended June 30,
(amounts in thousands)	Income Statement Location	2023		2022		2023		2022
Derivatives designated as fair value hedges:
Recognized on interest rate swaps	Net interest income	$	6,532	$	498	$	6,832	$	3,019
Recognized on hedged AFS debt securities	Net interest income	50		(498)		(250)		(3,019)

Recognized on hedged FHLB advances	Net interest income	(6,582)		—		(6,582)		—
Total		$	—	$	—	$	—	$	—
Derivatives not designated as hedging instruments:
Interest rate swaps and caps	Other non-interest income	$	165	$	780	$	140	$	1,741

Credit contracts	Other non-interest income	26		41		(1)		44
Residential mortgage loan commitments	Other non-interest income	1		(50)		11		(81)

Total		$	192	$	771	$	150	$	1,704

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 or with central clearing parties.

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 June 30, 2023, the fair value of derivatives in a net asset position (which includes accrued interest but excludes any adjustment for nonperformance-risk) related to these agreements was $25.7 million. In addition, Customers, which has collateral posting thresholds with certain of these counterparties, had received $26.9 million of cash as collateral at June 30, 2023. Customers records cash posted or received as collateral with these counterparties, except with a central clearing entity, as a reduction or an increase in the outstanding balance of cash and cash equivalents and an increase in the balance of other assets or other liabilities.

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 tables 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 tables below. Customers has not made a policy election to offset its derivative positions.


	Gross Amounts Recognized on the Consolidated Balance Sheet				Gross Amounts Not Offset in the Consolidated Balance Sheet				Net Amount
(amounts in thousands)			Financial Instruments	Cash Collateral Received/Posted
June 30, 2023
Interest rate derivative assets with institutional counterparties	$	25,810			$	(150)	$	(25,660)	$	—

Interest rate derivative liabilities with institutional counterparties	$	150			$	(150)	$	—	$	—


	Gross Amounts Recognized on the Consolidated Balance Sheet				Gross Amounts Not Offset in the Consolidated Balance Sheet				Net Amount
(amounts in thousands)			Financial Instruments	Cash Collateral Received/Posted
December 31, 2022
Interest rate derivative assets with institutional counterparties	$	29,706			$	(619)	$	(29,087)	$	—

Interest rate derivative liabilities with institutional counterparties	$	619			$	(619)	$	—	$	—