CBIZ, Inc. 10-Q

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our floating rate debt under the 2022 credit facility exposes us to interest rate risk. Interest rate risk results when the maturity or repricing intervals of interest-earning assets and interest-bearing liabilities are different. A change in the Federal Funds Rate, or the reference rate set by Bank of America, N.A., would have affected the rate at which we could borrow funds under the 2022 credit facility. The balance outstanding under our 2022 credit facility at September 30, 2024 was $337.3 million, of which $187.3 million was subject to rate risk. If market rates were to increase or decrease 100 basis points from the levels at September 30, 2024, interest expense would have increased or decreased approximately $1.9 million annually. We do not engage in trading market risk sensitive instruments. We periodically use interest rate swaps to manage interest rate risk exposure. The interest rate swaps effectively modify our exposure to interest rate risk, primarily through converting portions of our floating rate debt under the 2022 credit facility to a fixed rate basis. These agreements involve the receipt or payment of floating rate amounts in exchange for fixed rate interest payments over the life of the agreements without an exchange of the underlying principal amounts. As of September 30, 2024, we have the following interest rate swaps outstanding (in thousands): September 30, 2024 Notional Amount Fixed Rate Expiration Interest rate swap $ 50,000 0.834 % 4/14/2025 Interest rate swap $ 30,000 1.186 % 12/14/2026 Interest rate swap $ 20,000 2.450 % 8/14/2027 Interest rate swap $ 25,000 3.669 % 4/14/2028 Interest rate swap $ 25,000 4.488 % 10/14/2028 Management will continue to evaluate the potential use of interest rate swaps as we deem appropriate under certain operating and market conditions. We do not enter into derivative instruments for trading or speculative purposes. As described within Note 12. Subsequent Events to the accompanying unaudited condensed consolidated financial statements, on November 1, 2024, we entered into the 2024 Credit Facilities. The 2024 Credit Facilities amended and restated the 2022 credit facility. The interest rate under the 2024 Credit Facilities is a floating rate based on certain base rate or Term SOFR, plus an applicable spread. As of November 1, 2024, outstanding debt under the 2024 Credit Facilities was $1,465.5 million, of which $1,315.5 million is subject to rate risk. If market rates were to increase or decrease 100 basis points from the levels at November 1, 2024, interest expense would increase or decrease approximately $13.2 million annually. In connection with the services provided by our payroll operations, funds collected from our clients’ accounts in advance are segregated and may be invested in short-term investments, such as corporate and municipal bonds. In accordance with our investment policy, all investments carry an investment grade rating at the time of the initial acquisition, and are classified as available-for-sale securities. At each respective balance sheet date, these investments are adjusted to fair value with fair value adjustments being recorded to other comprehensive income or loss and reflected in the accompanying Condensed Consolidated Statements of Comprehensive Income for the respective period. If an investment is deemed to be other-than-temporarily impaired due to credit loss, then the adjustment is recorded to "Other income (expense), net" in the accompanying Condensed Consolidated Statements of Comprehensive Income. Refer to Note 6, Financial Instruments, and Note 7, Fair Value Measurements, to the accompanying unaudited condensed consolidated financial statements for further discussion regarding these investments and the related fair value assessments.