Derivatives

Interest Rate Swaps

The Company uses interest rate swaps to hedge variable interest payments due on certain of its term loans and aggregation facility. These swaps allow the Company to incur fixed interest rates on these loans and receive payments based on variable interest rates with the swap counterparty based on the one or three month LIBOR on the notional amounts over the life of the swaps.

The interest rate swaps have been designated as cash flow hedges. The credit risk adjustment associated with these swaps is the risk of non-performance by the counterparties to the contracts. In the six months ended June 30, 2018, the hedge relationships on the Company’s interest rate swaps have been assessed as highly effective as the critical terms of the interest rate swaps match the critical terms of the underlying forecasted hedged transactions. Accordingly, changes in the fair value of these derivatives are recorded as a component of accumulated other comprehensive income, net of income taxes. Changes in the fair value of these derivatives are subsequently reclassified into earnings, and are included in interest expense, net in the Company’s statements of operations, in the period that the hedged forecasted transactions affects earnings.

The Company recorded an unrealized gain of $5.7 million and $21.8 million for the three and six months ended June 30, 2018 respectively, net of applicable tax expense of $(2.1) million and $(7.6) million, respectively. The Company recorded an unrealized loss of $3.7 million and $4.5 million for the three and six months ended June 30, 2017 respectively, net of applicable tax benefit of $2.4 million and $2.9 million, respectively. The Company recognized into earnings interest expense on derivatives of $0.4 million and interest expense of $1.6 million for the three and six months ended June 30, 2018, respectively, net of tax benefit of $0.2 million and tax expense of $0.6 million, respectively. The Company recognized into earnings interest expense on derivatives of $0.3 million and interest expense of $0.9 million for the three and six months ended June 30, 2017, respectively, net of tax expense of $0.2 million and $0.6 million, respectively.

During the next 12 months, the Company expects to reclassify $1.1 million of net gains on derivative instruments from accumulated other comprehensive income to earnings. There were no undesignated derivative instruments recorded by the Company as of June 30, 2018.

At June 30, 2018, the Company had designated derivative instruments classified as derivative assets as reported in other assets of $24.3 million and derivative liabilities as reported in other liabilities of $1.4 million in the Company’s balance sheet. At December 31, 2017, the Company had designated derivative instruments classified as hedges of variable interest payments as derivative assets that are reported in other assets of $1.9 million and derivative liabilities as reported in other liabilities of $8.6 million in the Company’s balance sheet. At June 30, 2018, the Company had the following derivative instruments (dollars in thousands):



Type	Quantity	Effective Dates	Maturity Dates	Hedge Interest Rates	Notional Amount		Adjusted Fair Market Value
Interest rate swap	1	5/21/2018	9/20/2020	2.69%	$	110,242	$	(165	)
Interest rate swaps	2	4/29/2016 - 12/30/2016	8/31/2022 - 9/30/2022	1.27%- 2.37%	$	25,726	$	826
Interest rate swaps	10	7/31/2017 - 1/31/2019	4/30/2024 - 10/31/2024	2.16%- 2.69%	$	342,631	$	9,241
Interest rate swaps	3	4/30/2021	10/30/2026 - 10/31/2026	2.89% - 3.08%	$	102,720	$	(426	)
Interest rate swaps	4	4/30/2015	10/31/2028	2.17%-2.18%	$	124,492	$	5,581
Interest rate swap	1	9/20/2020	6/20/2030	2.57%	$	67,013	$	963
Interest rate swap	1	9/30/2022	9/30/2031	3.23%	$	8,642	$	(101	)
Interest rate swap	1	9/20/2020	4/20/2032	2.60%	$	33,409	$	530
Interest rate swaps	5	1/31/2019 - 10/31/2024	7/31/2034	2.48% - 3.04%	$	144,379	$	3,010
Interest rate swaps	5	7/31/2017 - 4/30/2024	7/31/2035	2.56% - 2.95%	$	151,869	$	1,880
Interest rate swaps	5	1/31/2018 - 10/18/2024	10/31/2036	2.62% - 2.95%	$	182,267	$	2,049
Interest rate swaps	3	10/30/2026 - 10/31/2026	1/31/2038	3.01% - 3.16%	$	101,135	$	(568	)