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Derivative Instruments | 6 Months Ended
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Jun. 30, 2018
Derivative Instruments |
Derivative Instruments | 5. Derivative Instruments The Company periodically holds interest rate derivative instruments to mitigate exposure to changes in interest rates, in particular one-month LIBOR, with $666.0 million and $501.3 million of borrowings at June 30, 2018 and December 31, 2017, respectively, at variable rates. As a matter of policy, management does not use derivatives for speculative purposes. During 2016, the Company entered into one interest rate swap agreement which has a notional outstanding amount of $100.0 million, with a remaining term of 34 months as of June 30, 2018. The fair value of the swap at June 30, 2018 and December 31, 2017 was $2.5 million and $1.1 million, respectively, representing a net asset. The Company recorded a gain of $94 thousand and a loss of $0.2 million in the three months ended June 30, 2018 and 2017, respectively, and a gain of $69 thousand and a loss of $0.4 million during the six months ended June 30, 2018 and 2017, respectively, from derivative instruments. The Company estimates the fair value of derivative instruments using a discounted cash flow technique and has used creditworthiness inputs that corroborate observable market data evaluating the Company’s and counterparty’s risk of non-performance. Valuation of the derivative instruments requires certain assumptions for underlying variables and the use of different assumptions would result in a different valuation. Management believes it has applied assumptions consistently during the period. The Company applies hedge accounting and accounts for the change in fair value of its cash flow hedges through other comprehensive income for all derivative instruments. Effect of Derivative Instruments on Earnings in the Statements of Income and on Comprehensive Income The following tables provide additional information about the financial statement effects related to the cash flow hedges for the three and six months ended June 30, 2018 and 2017:
|  | Amount of Gain (Loss) Recognized |  | Location of (Gain) Loss |  | Amount of (Gain) Loss Recognized |
|  | in OCI on Derivatives |  | Reclassified from |  | from Accumulated OCI into Income |
Derivatives in |  | (Effective Portion) |  | Accumulated OCI into |  | (Effective Portion) |
Cash Flow Hedging |  | Three Months Ended June 30, |  | Income |  | Three Months Ended June 30, |
Relationships |  | 2018 |  | 2017 |  | (Effective Portion) |  | 2018 |  | 2017 |
|  | (in thousands) |  |  |  | (in thousands) |
Interest rate contracts |  | $ | 384 |  | $ | (338) |  | Interest expense |  | $ | (94) |  | $ | 174 |
Total |  | $ | 384 |  | $ | (338) |  | Total |  | $ | (94) |  | $ | 174 |
|  | Amount of Gain (Loss) Recognized |  | Location of (Gain) Loss |  | Amount of (Gain) Loss Recognized |
|  | in OCI on Derivatives |  | Reclassified from |  | from Accumulated OCI into Income |
Derivatives in |  | (Effective Portion) |  | Accumulated OCI into |  | (Effective Portion) |
Cash Flow Hedging |  | Six Months Ended June 30, |  | Income |  | Six Months Ended June 30, |
Relationships |  | 2018 |  | 2017 |  | (Effective Portion) |  | 2018 |  | 2017 |
|  | (in thousands) |  |  |  | (in thousands) |
Interest rate contracts |  | $ | 1,415 |  | $ | (3) |  | Interest expense |  | $ | (69) |  | $ | 400 |
Total |  | $ | 1,415 |  | $ | (3) |  | Total |  | $ | (69) |  | $ | 400 |
The derivatives were designated in a cash flow hedging relationship with the effective portion of the change in fair value of the derivative reported in the cash flow hedges subaccount of accumulated other comprehensive income. The effective portion of the change in fair value on a derivative instrument designated as a cash flow hedge is reported as a component of other comprehensive income and is reclassified into earnings in the period during which the transaction being hedged affects earnings or it is probable that the forecasted transaction will not occur. The ineffective portion of the hedges is recorded in earnings in the current period. However, these are highly effective hedges and no significant ineffectiveness occurred in the periods presented. Counterparty Credit Risk The Company evaluates the creditworthiness of the counterparties under its hedging agreements. The counterparty for the interest rate swap in place during 2018 was a large financial institution in the United States that possessed an investment grade credit rating. Based on this rating, the Company believes that the counterparty was creditworthy and that their continuing performance under the hedging agreement was probable, and did not require the counterparty to provide collateral or other security to the Company.

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- References No definition available. + Details
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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://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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