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DERIVATIVE FINANCIAL INSTRUMENTS | 9 Months Ended
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Sep. 30, 2021
DERIVATIVE FINANCIAL INSTRUMENTS |
DERIVATIVE FINANCIAL INSTRUMENTS | 12. DERIVATIVE FINANCIAL INSTRUMENTS The Corporation is a party to derivative financial instruments. These financial instruments consist of interest rate swap agreements which contain master netting and collateral provisions designed to protect the party at risk. Interest rate swaps with commercial banking customers were executed to facilitate their respective risk management strategies. Under the terms of these arrangements, the commercial banking customers effectively exchanged their floating interest rate exposures on loans into fixed interest rate exposures. Those interest rate swaps have been simultaneously economically hedged by offsetting interest rate swaps with a third party, such that the Corporation has effectively exchanged its fixed interest rate exposures for floating rate exposures. These derivatives are not designated as hedges and are not speculative. Rather, these derivatives result from a service provided to certain customers. As the interest rate swaps associated with this program do not meet the hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. The aggregate notional amount of interest rate swaps was $123,990,000 at September 30, 2021 and $135,740,000 at December 31, 2020. There were no interest rate swaps originated in the nine-month periods ended September 30, 2021 and 2020. There were no gross amounts of interest rate swap-related assets and liabilities not offset in the consolidated balance sheets at September 30, 2021. The net impact on the consolidated statements of income from interest rate swaps was a reduction in interest income on loans of $335,000 in the third quarter 2021 and $1,013,000 in the nine months ended September 30, 2021 as compared to a reduction in interest income on loans of $351,000 in the third quarter 2020 and the nine months ended September 30, 2020. ​ The table below presents the fair value of the Corporation’s derivative financial instruments as well as their classification on the consolidated balance sheets at September 30, 2021 and December 31, 2020: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
(In Thousands) | At September 30, 2021 | ​ | At December 31, 2020
​ | Asset Derivatives | ​ | Liability Derivatives | ​ | Asset Derivatives | ​ | Liability Derivatives
​ | Notional | ​ | Fair | ​ | Notional | ​ | Fair | ​ | Notional | ​ | Fair | ​ | Notional | ​ | Fair
​ | Amount | ​ | Value (1) | ​ | Amount | ​ | Value (2) | ​ | Amount | ​ | Value (1) | ​ | Amount | ​ | Value (2)
Interest rate swap agreements | $ | 61,995 | ​ | $ | 3,902 | ​ | $ | 61,995 | ​ | $ | 3,902 | ​ | $ | 67,870 | ​ | $ | 6,566 | ​ | $ | 67,870 | ​ | $ | 6,566
​
(1) | Included in other assets in the consolidated balance sheets.
(2) | Included in accrued interest and other liabilities in the consolidated balance sheets.
The Corporation’s agreement with its derivative counterparty provides that if the Corporation defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Corporation could also be declared in default on its derivative obligations. Further, if the Corporation were to fail to maintain its status as a well or adequately capitalized institution, then the counterparty could terminate the derivative positions and the Corporation would be required to settle its obligations under the agreements. Available-for-sale securities with a carrying value of $7,069,000 were pledged as collateral against the Corporation’s liability related to the interest rate swaps at September 30, 2021.

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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 + Details
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