v3.26.1
Derivative Financial Instruments
 3 Months Ended
Mar. 31, 2026
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments

NOTE F – Derivative Financial Instruments

As part of its risk management strategy, the Company enters into derivative contracts to hedge against interest-rate risk. Certain derivative instruments designated as either cash flow hedges or fair value hedges are subject to hedge accounting. Derivative instruments that are not subject to hedge accounting are held as derivatives not designated as hedging instruments. The Company’s policies prohibit the use of derivatives for speculation or trading. At the inception of each hedge relationship, the Company documents its risk management objectives, procedures and accounting treatment.

All of the Company’s interest-rate contracts are transacted under International Swaps and Derivatives Association (ISDA) master agreements. Each agreement permits the net settlement of amounts owed in the event of default and certain other termination events. For derivative financial instruments, the Company has elected not to offset derivative positions in the balance sheet with the same counterparty under the same agreements and is not required to post or receive collateral. Exposure limits and minimum credit ratings are used to minimize the risks of counterparty default. The Company’s maximum exposure to potential default of its derivative counterparties is limited to the asset position of its derivative portfolio. The asset position of the Company’s derivative portfolio was $2.8 at March 31, 2026.

The Company assesses hedges at inception and on an ongoing basis to determine if the designated derivatives are highly effective in offsetting changes in fair values or cash flows of the hedged items. Hedge accounting is discontinued prospectively when the Company determines that a derivative financial instrument has ceased to be a highly effective hedge. Cash flows from derivative instruments are included in operating activities in the Statements of Cash Flows.

Interest-rate contracts involve the exchange of fixed for floating rate or floating for fixed rate interest payments based on the contractual notional amounts in a single currency. The Company is exposed to interest-rate risk caused by market volatility as a result of its borrowing activities. The objective of these contracts is to mitigate the fluctuations on earnings, cash flows and fair value of borrowings. Net amounts paid or received are reflected as adjustments to interest expense.

At March 31, 2026, the notional amount of these contracts totaled $1,594.6 with amounts expiring over the next 8.0 years. Notional maturities for all interest-rate contracts are $305.0 for the remainder of 2026, $106.1 for 2027, $188.5 for 2028, $583.0 for 2029, nil for 2030 and $412.0 thereafter.

The following table presents the balance sheet classification, fair value and gross and net amounts of derivative financial instruments:

 

 

 

March 31, 2026

 

 

December 31, 2025

 

Interest-rate contracts:

 

Assets

 

 

Liabilities

 

 

Assets

 

 

Liabilities

 

Other assets

 

$

2.8

 

 

 

 

 

$

9.9

 

 

 

 

Accounts payable, accrued expenses and other

 

 

 

 

$

1.6

 

 

 

 

 

$

2.2

 

Gross amounts recognized in Balance Sheets

 

 

2.8

 

 

 

1.6

 

 

9.9

 

 

 

2.2

 

 

 

 

 

 

 

 

 

 

 

 

-

 

Less amounts not offset in financial instruments

 

 

(.7

)

 

 

(.7

)

 

 

(1.1

)

 

 

(1.1

)

Pro forma net amount

 

$

2.1

 

 

$

.9

 

 

$

8.8

 

 

$

1.1

 

 

Cash Flow Hedges

Certain of the Company’s interest-rate contracts have been designated as cash flow hedges. Changes in the fair value of derivatives designated as cash flow hedges are recorded in AOCI. The maximum length of time over which the Company is hedging its exposure to the variability in future cash flows is 6.7 years.

Amounts in AOCI are reclassified into net income in the same period in which the hedged transaction affects earnings and are presented in the same income statement line as the earnings effect of the hedged transaction. The amount of gain recorded in AOCI at March 31, 2026 that is estimated to be reclassified to interest expense in the following 12 months if interest rates remain unchanged is approximately $2.5, net of taxes. The fixed interest earned on finance receivables will offset the amount recognized in interest expense, resulting in a stable interest margin consistent with the Company’s interest-rate risk management strategy.

Fair Value Hedges

Changes in the fair value of derivatives designated as fair value hedges are recorded in earnings together with the changes in fair value of the hedged item attributable to the risk being hedged. The following table presents the amounts recorded on the Balance Sheets related to cumulative basis adjustments for fair value hedges:

 

 

 

March 31

 

 

December 31

 

 

 

2026

 

 

2025

 

Medium-term notes:

 

 

 

 

 

 

Carrying amount of the hedged liabilities

 

$

719.4

 

 

$

654.3

 

Cumulative basis adjustment included in the carrying amount

 

 

1.4

 

 

 

4.3

 

 

The above table excludes the cumulative basis adjustments on discontinued hedge relationships of $.7 and $.1 as of March 31, 2026 and December 31, 2025, respectively.

 

The following table presents the amount of expense (income) on cash flow and fair value hedges recognized in Interest and other borrowing costs on the Statements of Comprehensive Income and Retained Earnings:

 

 

 

Three Months Ended

 

 

 

March 31

 

 

 

 

2026

 

 

2025

 

Loss (gain) on fair value hedges

 

 

 

 

 

 

Derivatives

 

$

2.5

 

 

$

(10.0

)

Hedged items

 

 

(2.2

)

 

 

10.9

 

Gain on cash flow hedges

 

 

 

 

 

 

Reclassified from AOCI into income

 

 

(.8

)

 

 

(1.3

)

 

 

$

(.5

)

 

$

(.4

)