10. Interest Rate Swaps

Interest rate swaps were entered into with certain financial institutions in order to mitigate the impact of interest rate variability over the term of the related agreements. The interest rate swaps are considered cash flow hedges. In order to reduce counterparty concentration risk, the Company has a diversification policy for institutions that serve as swap counterparties. Under these agreements, the Company receives monthly payments from the counterparties on these interest rate swaps equal to the related variable interest rates multiplied by the outstanding notional amounts. Certain interest rate swaps amortize on a monthly basis. In turn, the Company pays the counterparties each month an amount equal to a fixed rate multiplied by the related outstanding notional amounts. The intended net impact of these transactions is that the Company pays a fixed interest rate on its variable rate borrowings.

The following is a summary of the Company’s outstanding interest-rate swap agreements at June 30, 2017:

(in thousands, except interest rates)
Counterparty	Maturity Date	Fixed Rate		Variable Rate Index	Notional Amount		Fair Value
Bank of America, N.A.	November 2023		2.80%	1 month LIBOR	$	25,000	$	(1,234	)
Bank of Montreal	July 2024		1.16%	1 month LIBOR		40,000		2,223
Bank of Montreal	January 2025		1.91%	1 month LIBOR		25,000		204
Bank of Montreal	July 2025		2.32%	1 month LIBOR		25,000		(493	)
Bank of Montreal	January 2026		1.92%	1 month LIBOR		25,000		322
Bank of Montreal	January 2026		2.05%	1 month LIBOR		40,000		112
Bank of Montreal	December 2026		2.33%	1 month LIBOR		10,000		(171	)
Capital One, N.A.	December 2021		1.05%	1 month LIBOR		15,000		498
Capital One, N.A.	December 2024		1.58%	1 month LIBOR		15,000		478
Capital One, N.A.	January 2026		2.08%	1 month LIBOR		35,000		50
Capital One, N.A.	July 2026		1.32%	1 month LIBOR		35,000		2,365
M&T Bank	September 2017		1.09%	1 month LIBOR		25,000		5
M&T Bank ^(a)	September 2022		2.83%	1 month LIBOR		25,000		(1,151	)
M&T Bank	November 2023		2.65%	1 month LIBOR		25,000		(1,064	)
Regions Bank	March 2018		1.77%	1 month LIBOR		25,000		(78	)
Regions Bank	March 2019		1.91%	3 month LIBOR		25,000		(159	)
Regions Bank	May 2020		2.12%	1 month LIBOR		50,000		(697	)
Regions Bank	March 2022		2.43%	3 month LIBOR		25,000		(631	)
Regions Bank	December 2023		1.18%	1 month LIBOR		25,000		1,227
SunTrust Bank	April 2024		1.99%	1 month LIBOR		25,000		(84	)
SunTrust Bank	April 2025		2.20%	1 month LIBOR		25,000		(359	)
SunTrust Bank	July 2025		1.99%	1 month LIBOR		25,000		57
SunTrust Bank	January 2026		1.93%	1 month LIBOR		25,000		240
Wells Fargo Bank, N.A.	February 2021		2.39%	1 month LIBOR		35,000		(847	)
Wells Fargo Bank, N.A.	October 2024		2.72%	1 month LIBOR		15,000		(723	)

(a)	The swap is a forward starting swap which becomes effective September 2017.

The fair value of the interest rate swaps are reported on the Condensed Consolidated Balance Sheets at June 30, 2017 and December 31, 2016 as follows:

(in thousands)	June 30, 2017			December 31, 2016
Interest rate swaps, asset	$	7,781		$	9,598
Interest rate swaps, liability		(7,691	)		(10,217	)
Interest rate swap	$	90		$	(619	)

The total loss recognized, and the location of the loss in the accompanying Condensed Consolidated Statements of Income and Comprehensive Income (Loss), from converting from variable rates to fixed rates under these agreements is as follows for the three months ended June 30, 2017 and 2016:

	Effective Portion			Ineffective Portion
(in thousands)	Location of Loss Reclassified from Accumulated Other Comprehensive Income into Income	Amount of Loss Reclassified from Accumulated Other Comprehensive Income into Income		Location of Loss Recognized in Income on Derivatives	Amount of Loss Recognized in Income on Derivatives
Interest rate swaps
2017	Interest expense	$	802	Interest expense	$	332
2016	Interest expense		2,313	Interest expense		1,668

	Effective Portion			Ineffective Portion
(in thousands)	Location of Loss Reclassified from Accumulated Other Comprehensive Income into Income	Amount of Loss Reclassified from Accumulated Other Comprehensive Income into Income		Location of Loss Recognized in Income on Derivatives	Amount of Loss Recognized in Income on Derivatives
Interest rate swaps
2017	Interest expense	$	2,704	Interest expense	$	332
2016	Interest expense		4,604	Interest expense		5,210

Ineffectiveness of $5,210 for the six months ended June 30, 2016 was attributable to inconsistencies in certain terms between the interest rate swaps and the credit agreements. The interest rate swaps continued to qualify for hedge accounting, with the effective portion of mark-to-market adjustments included in Accumulated other comprehensive income. During the fourth quarter of 2016, the Company amended the terms of the credit agreements, thereby reversing the impact of the ineffectiveness and rendering a $0 full-year 2016 impact to the Condensed Consolidated Statement of Income and Comprehensive Income (Loss).

Amounts related to the interest rate swaps expected to be reclassified out of Accumulated other comprehensive income to Interest expense during the next twelve months are estimated to be $4,007. The Company is exposed to credit risk in the event of non-performance by the counterparties of the swaps. The Company minimizes this risk exposure by limiting counterparties to major banks who meet established credit and capital guidelines.