Derivative Financial Instruments

Risk Management Objective of Using Derivatives

The Company may use derivative financial instruments, including interest rate swaps, caps, options, floors and other interest rate derivative contracts, to hedge all or a portion of the interest rate risk associated with its borrowings. The principal objective of such arrangements is to minimize the risks and/or costs associated with the Company’s operating and financial structure as well as to hedge specific anticipated transactions. The Company does not intend to utilize derivatives for speculative or other purposes other than interest rate risk management. The use of derivative financial instruments carries certain risks, including the risk that the counterparties to these contractual arrangements are not able to perform under the agreements. To mitigate this risk, the Company only enters into derivative financial instruments with counterparties with high credit ratings and with major financial institutions with which the Company and its affiliates may also have other financial relationships. The Company does not anticipate that any of the counterparties will fail to meet their obligations.

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 and/or caps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate 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. Interest rate caps designated as cash flow hedges involve the receipt of variable-rate amounts if interest rates rise above the cap strike rate on the contract.

As of March 31, 2019, the Company had seven outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk for notional amounts totaling $175.0 million. The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018.



	Asset Derivatives Fair Value at					Liability Derivatives Fair Value at
	March 31, 2019		December 31, 2018		Balance Sheet Classification	March 31, 2019		December 31, 2018		Balance Sheet Classification
Interest rate swaps	$	215	$	902	Other assets	$	857	$	98	Other Liabilities

The changes in the fair value of derivatives designated and that qualify as cash flow hedges are recorded in accumulated other comprehensive income and are subsequently reclassified to interest expense in the period that the hedged forecasted transaction affects earnings.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s Term Loans. During the next twelve months, the Company estimates that an additional $0.2 million will be reclassified from other comprehensive income ("OCI") as a decrease to interest expense.

The table below details the location in the financial statements of the gain or loss recognized on interest rate derivatives designated as cash flow hedges for the three months ended March 31, 2019 and 2018.



	Three Months Ended March 31,
(Dollars in thousands)	2019			2018
Amount of unrealized (loss) gain recognized in OCI on derivative	$	(1,213	)	$	906
Amount of (gain) loss reclassified from accumulated OCI into interest expense	$	(62	)	$	68
Total Interest Expense presented in the Condensed Consolidated Statements of Income in which the effects of the cash flow hedges are recorded	$	2,054		$	1,268

Credit-risk-related Contingent Features

As of March 31, 2019, 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 $0.7 million. As of March 31, 2019, the

Company has not posted any collateral related to these agreements and was not in breach of any agreement

provisions. If the Company had breached any of these provisions, it could have been required to settle its obligations

under the agreements at their aggregate termination value of approximately $0.7 million at March 31, 2019.