Note 5. Derivative Instruments

9 Months Ended

Sep. 30, 2012

Notes

Note 5. Derivative Instruments

Note 5.                        Derivative Instruments

In connection with its outstanding amortizing term loan, a subsidiary of IHC entered into an interest rate swap on July 1, 2011 with the commercial bank lender, for a notional amount equal to the outstanding debt principal amount ($8,000,000 and $10,000,000 at September 30, 2012 and December 31, 2011, respectively), under which the Company receives a variable rate equal to the rate on the debt and pays a fixed rate (1.60%) in order to manage the risk in overall changes in cash flows attributable to forecasted interest payments. As a result of the interest rate swap, interest payments on this debt are fixed at 4.95%. There was no hedge ineffectiveness on this interest rate swap which was accounted for as a cash flow hedge.  The fair value of the interest rate swap was $377,000 and $494,000 at September 30, 2012 and December 31, 2011, respectively, which is included in other liabilities on the accompanying Condensed Consolidated Balance Sheets. See Note 7 for further discussion on the valuation techniques utilized to determine the fair value of the interest rate swap. For the three months and nine months ended September 30, 2012, the Company recorded gains of $76,000 and $71,000, respectively (net of related tax expense of $50,000 and $47,000, respectively), representing the after-tax change in fair value of the interest rate swap, in other comprehensive income on the accompanying Condensed Consolidated Statements of Comprehensive Income. For the three months and nine months ended September 30, 2011, the Company recorded losses of $354,000 representing the after-tax change in fair value of the interest rate swap, in other comprehensive income on the accompanying Condensed Consolidated Statements of Comprehensive Income, net of related tax benefits of $235,000.