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Derivative Instruments | 3 Months Ended
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Mar. 31, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Instruments | DERIVATIVE INSTRUMENTSThe Company utilizes derivative instruments to manage exposure to various types of interest rate risk for itself and its customers within policy guidelines. Transactions should only be entered into with an associated underlying exposure. All derivative instruments are carried at fair value. Derivative contracts involve the risk of dealing with institutional derivative counterparties and their ability to meet contractual terms. Institutional counterparties must have an investment grade credit rating and be approved by the Company’s asset/liability management committee. In arranging these products for its customers, the Company assumes additional credit risk from the customer and from the dealer counterparty with whom the transaction is undertaken. Credit risk exists due to the default credit risk created in the exchange of the payments over a period of time. Credit exposure on interest rate swaps is limited to the net favorable value and interest payments of all swaps with each counterparty. Access to collateral in the event of default is reasonably assured. Therefore, credit exposure may be reduced by the amount of collateral pledged by the counterparty. Hedge Structures The Company will seek to enter derivative structures that most effectively address the risk exposure and structural terms of the underlying position being hedged. The term and notional principal amount of a hedge transaction will not exceed the term or principal amount of the underlying exposure. In addition, the Company will use hedge indices which are the same as, or highly correlated to, the index or rate on the underlying exposure. Derivative credit exposure is monitored on an ongoing basis for each customer transaction and aggregate exposure to each counterparty is tracked. The Company has set a maximum outstanding notional contract amount at 10% of the Company’s assets. Fair Value Hedges For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative instrument as well as the offsetting gain or loss on the hedged asset or liability attributable to the hedged risk are recognized in current earnings. The gain or loss on the derivative instrument is presented on the same income statement line item as the earnings effect of the hedged item. During the third quarter of 2021, the Company began utilizing interest rate swaps designated as fair value hedges to mitigate the effect of changing interest rates on the fair values of fixed rate callable AFS securities. The hedging strategy converts the fixed interest rates to variable interest rates based on federal funds rates. The following table summarizes the fair value hedges recorded in the accompanying consolidated balance sheets.
|  |  |  | March 31, 2022 |  | December 31, 2021
(In thousands) | Balance Sheet Location | Weighted Average Pay Rate | Receive Rate | Notional |  | Fair Value |  | Notional |  | Fair Value
Derivative assets | Other assets | 1.21% | Federal Funds | $ | 1,001,715 |  |  | $ | 47,163 |  |  | $ | 1,001,715 |  |  | $ | 10,524 |
The following amounts were recorded on the balance sheet related to carrying amounts and cumulative basis adjustments for fair value hedges.
| Carrying Amount of Hedged Assets |  | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of Hedged Assets
Line Item on the Balance Sheet (In thousands) | March 31, 2022 |  | December 31, 2021 |  | March 31, 2022 |  | December 31, 2021
Investment securities - Available-for-sale | $ | 914,706 |  |  | $ | 1,063,173 |  |  | $ | 47,163 |  |  | $ | 10,524 |
Customer Risk Management Interest Rate Swaps The Company’s qualified loan customers have the opportunity to participate in its interest rate swap program for the purpose of managing interest rate risk on their variable rate loans with the Company. The Company enters into such agreements with customers, then offsetting agreements are executed between the Company and an approved dealer counterparty to minimize market risk from changes in interest rates. The counterparty contracts are identical to customer contracts in terms of notional amounts, interest rates, and maturity dates, except for a fixed pricing spread or fee paid to the Company by the dealer counterparty. These interest rate swaps carry varying degrees of credit, interest rate and market or liquidity risks. The fair value of these derivative instruments is recognized as either derivative assets or liabilities in the accompanying consolidated balance sheets. The Company has a limited number of swaps that are standalone without a similar agreement with the loan customer. The following table summarizes the fair values of loan derivative contracts recorded in the accompanying consolidated balance sheets.
| March 31, 2022 |  | December 31, 2021
(In thousands) | Notional |  | Fair Value |  | Notional |  | Fair Value
Derivative assets | $ | 321,796 |  |  | $ | 10,544 |  |  | $ | 318,428 |  |  | $ | 15,328 |
Derivative liabilities | 325,265 |  |  | 10,554 |  |  | 321,985 |  |  | 15,443 |
Risk Participation Agreements The Company has a limited number of Risk Participation Agreement swaps, that are associated with loan participations, where the Company is not the counterparty to the interest rate swaps that are associated with the risk participation sold. The interest rate swap mark to market only impacts the Company if the swap is in a liability position to the counterparty and the customer defaults on payments to the counterparty. The notional amount of these contingent agreements is $36.9 million as of March 31, 2022. Energy Hedging The Company provides energy derivative services to qualifying, high quality oil and gas borrowers for hedging purposes. The Company serves as an intermediary on energy derivative products between the Company’s borrowers and dealers. The Company will only enter into back-to-back trades, thus maintaining a balanced book between the dealer and the borrower. Energy hedging risk exposure to the Company’s customer increases as energy prices for crude oil and natural gas rise. As prices decrease, exposure to the exchange increases. These risks are mitigated by customer credit underwriting policies and establishing a predetermined hedge line for each borrower and by monitoring the exchange margin. The outstanding notional value as of March 31, 2022 for energy hedging Customer Sell to Company swaps were $13.1 million and the corresponding Company Sell to Dealer swaps were $13.1 million and the corresponding net fair value of the derivative asset and derivative liability was $150,000.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI http://asc.fasb.org/extlink&oid=123477628&loc=d3e90205-114008 + Details
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