Derivatives and Hedging Activities

9 Months Ended

Sep. 30, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives and Hedging Activities

Derivatives and Hedging Activities

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 these objectives, the Company primarily uses floating-to-fixed interest rate swaps 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

The change in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Such derivatives were used to hedge the variable cash flows associated with certain variable-rate debt.

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 variable-rate debt. During the next twelve months, the Company estimates that approximately $2.3 million will be reclassified from other comprehensive income and reflected as a decrease to interest expense.

The Company carries its interest-rate swaps at fair value. The Company has determined the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy with the exception of the impact of counter-party risk, which was determined using Level 3 inputs and is not significant. Derivative instruments are classified within Level 2 of the fair value hierarchy because their values are determined using third-party pricing models that contain inputs that are derived from observable market data. Valuation models require a variety of inputs, including contractual terms, market prices, yield curves, credit spreads, measure of volatility, and correlations of such inputs. As of September 30, 2023, the fair value of the interest-rate swaps was approximately $6.6 million and is included in Other assets in the Consolidated Balance Sheets. The change in value during the period is reflected in Other Comprehensive Income in the Consolidated Statements of Comprehensive Income.

The table below details the fair value and location of the interest rate swaps as of September 30, 2023 and December 31, 2022.

(In thousands)	Fair Values of Derivative Instruments
	September 30, 2023			December 31, 2022
Derivative Instrument	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Interest rate swaps	Other Assets	$	6,560	Other Assets	$	3,962

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 and nine months ended September 30, 2023 and 2022.

(In thousands)	The Effect of Hedge Accounting on Other Comprehensive Income (OCI)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Amount of gain (loss) recognized in OCI	$	2,804	$	4,256	$	4,106	$	4,256
Location of gain (loss) reclassified from OCI into income	Interest expense, net and amortization of deferred debt costs		N/A		Interest expense, net and amortization of deferred debt costs		N/A
Amount of (gain) loss reclassified from OCI into income	$	(593)	$	—	$	(1,508)	$	—