Derivative Financial Instruments

9 Months Ended

Sep. 30, 2024

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Risk Management Objective of Using Derivatives

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company 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 value of which are determined by interest rates. 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 related to the Company’s borrowings.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt.

For derivatives designated, and that qualify, as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in Accumulated Other Comprehensive Income (Loss) ("AOCI") and subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects earnings. Amounts reported in AOCI related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt.

As of September 30, 2024, the Company had 15 outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:


	AMOUNT		WEIGHTED AVERAGE RATE
May 2026	$	275,000	3.74	%
June 2026	150,000		3.83	%
December 2026	150,000		3.84	%
June 2027	200,000		4.27	%
December 2027	300,000		3.93	%
	$	1,075,000	3.92	%

Tabular Disclosure of Fair Values of Derivative Instruments on the Balance Sheet

The table below presents the fair value of the Company's derivative financial instruments and their classification on the Condensed Consolidated Balance Sheet as of September 30, 2024.


	BALANCE AT SEPTEMBER 30, 2024
In thousands	BALANCE SHEET LOCATION	FAIR VALUE
Derivatives designated as hedging instruments
Interest rate swaps	Other liabilities	$	(16,847)
Interest rate swaps	Other assets	$	2,094
Total derivatives designated as hedging instruments		$	(14,753)

Tabular Disclosure of the Effect of Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income (Loss)

The table below presents the effect of cash flow hedge accounting on AOCI during the three and nine months ended September 30, 2024 and 2023 related to the Company's outstanding interest rate swaps.


	(GAIN)/LOSS RECOGNIZED IN AOCI ON DERIVATIVE three months ended September 30,					(GAIN)/LOSS RECLASSIFIED FROM AOCI INTO INCOME three months ended September 30,
In thousands	2024		2023			2024		2023
Interest rate swaps	$	20,662	$	(12,016)	Interest expense	$	(3,790)	$	(4,317)
Settled treasury hedges	—		—		Interest expense	107		107
Settled interest rate swaps	—		—		Interest expense	42		42
	$	20,662	$	(12,016)	Total interest expense	$	(3,641)	$	(4,168)


	(GAIN)/LOSS RECOGNIZED IN AOCI ON DERIVATIVE nine months ended September 30,					(GAIN)/LOSS RECLASSIFIED FROM AOCI INTO INCOME nine months ended September 30,
In thousands	2024		2023			2024		2023
Interest rate swaps	$	(4,839)	$	(24,999)	Interest expense	$	(11,615)	$	(10,320)
Settled treasury hedges	—		—		Interest expense	126		126
Settled interest rate swaps	—		—		Interest expense	320		320
	$	(4,839)	$	(24,999)	Total interest expense	$	(11,169)	$	(9,874)

The Company estimates that an additional $1.5 million related to active interest rate swaps will be reclassified from AOCI as an increase to interest expense over the next 12 months, and that an additional $0.5 million related to settled interest rate swaps will be amortized from AOCI as an increase to interest expense over the next 12 months.

Credit-risk-related Contingent Features

The Company's agreements with each of its derivative counterparties contain a cross-default provision under which the Company could be declared in default of its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender should the Company default on the indebtedness.

As of September 30, 2024, the fair value of derivatives in a net liability position including accrued interest but excluding any adjustment for nonperformance risk related to these agreements was $3.3 million. As of September 30, 2024, the Company had not posted any collateral related to these agreements and was not in breach of any agreement.