5. Financial Instruments

The carrying amounts of CBIZ’s cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the short maturity of these instruments. The carrying value of bank debt approximates fair value, as the interest rate on the bank debt is variable and approximates current market rates.

Concentrations of Credit Risk

Financial instruments that may subject CBIZ to concentration of credit risk consist primarily of cash and cash equivalents and accounts receivable. CBIZ places its cash and cash equivalents with highly-rated financial institutions, limiting the amount of credit exposure with any one financial institution. CBIZ’s client base consists of large numbers of geographically diverse customers dispersed throughout the United States; thus, concentration of credit risk with respect to accounts receivable is not significant.

Bonds

CBIZ held corporate and municipal bonds with par values totaling $40.8 million and $36.4 million at December 31, 2015 and 2014, respectively. All bonds are investment grade and are classified as available-for-sale. CBIZ’s bonds have maturity dates or callable dates ranging from January 2016 through November 2020, and are included in funds held for clients — current in the accompanying Consolidated Balance Sheets based on the intent and ability of the Company to sell these investments at any time under favorable conditions.

The following table summarizes CBIZ’s bond activity for the years ended December 31, 2015 and 2014 (in thousands):


	2015			2014
Fair value at January 1	$	38,399		$	30,011
Purchases		15,429			14,089
Sales		(987	)		(245	)
Maturities and calls		(9,677	)		(6,426	)
Increase in bond premium		172			1,155
Fair market value adjustment		(194	)		(185	)

Fair value at December 31	$	43,142		$	38,399

Interest Rate Swaps

CBIZ’s $25.0 million notional value interest rate swap expired in June 2015. During the fourth quarter of 2015, we entered into three interest rate swaps. The notional hedged amounts were $10.0 million, $15.0 million and $25.0 million, with maturity tenors of 2, 3 and 5 years, respectively.

CBIZ does not purchase or hold any derivative instruments for trading or speculative purposes. We utilize interest rate swaps to manage interest rate risk exposure associated with our floating-rate debt under the credit facility. Under these interest rate swap contracts, we receive cash flows from counterparties at variable rates based on LIBOR and pay the counterparties a fixed rate. To mitigate counterparty credit risk, CBIZ only entered into contracts with selected major financial institutions with investment grade ratings and continually assesses their creditworthiness. There are no credit risk-related contingent features in CBIZ’s interest rate swaps nor do the swaps contain provisions under which the Company would be required to post collateral.

The designation of a derivative instrument as a hedge and its ability to meet the hedge accounting criteria determine how we reflect the change in fair value of the derivative instrument. A derivative qualifies for hedge accounting treatment if, at inception, it meets defined correlation and effectiveness criteria. These criteria require that the anticipated cash flows and/or changes in fair value of the hedging instrument substantially offset those of the position being hedged

CBIZ had no fair value hedging instruments at December 31, 2015 or 2014. Our interest rate swaps are designated as cash flow hedges. Accordingly, the interest rate swaps are recorded as either an asset or liability in the accompanying Consolidated Balance Sheets at fair value. The mark-to-market gains or losses on the swaps are deferred and included as a component of AOCL, net of tax, to the extent effective, and reclassified to interest expense in the same period during which the hedged transaction affects earnings. The interest rate swaps are assessed for effectiveness and continued qualification for hedge accounting on a quarterly basis. For the years ended December 31, 2015 and 2014, the interest rate swaps were deemed to be highly effective.

The following table summarizes CBIZ’s outstanding interest rate swaps and its classification in the accompanying Consolidated Balance Sheets at December 31, 2015 and 2014 (in thousands):


	December 31, 2015
	Notional Amount		Fair Value (2)			Balance Sheet Location
Interest rate swaps (1)	$	50,000	$	240			Other non-current assets

	December 31, 2014
	Notional Amount		Fair Value (2)			Balance Sheet Location
Interest rate swap (3)	$	25,000	$	(126	)		Other current liabilities

(1)

Represents interest rate swaps entered into during the fourth quarter of 2015 with notional values of $10.0 million, $15.0 million and $25.0 million, with maturity tenors of 2, 3 and 5 years, respectively. Under the terms of the interest rate swap, CBIZ pays interest at a fixed rate of 0.885% (2-year), 1.155% (3-year) and 1.300% (5-year) plus applicable margin as stated in the agreement, and receives interest that varies with the one-month LIBOR.

(2)	See additional disclosures regarding fair value measurements in Note 6 to the accompanying consolidated financial statements.

(3)	Represents the $25.0 million notional value interest rate swap that expired in June 2015.

During the next twelve months, the amount of the December 31, 2015, AOCL balance that will be reclassified to earnings is expected to be immaterial. The following table summarizes the effects of the interest rate swap on CBIZ’s accompanying Consolidated Statements of Comprehensive Income for the years ended December 31, 2015 and 2014 (in thousands):


	Gain recognized in AOCL, net of tax				Loss reclassified from AOCL into expense
	Twelve Months Ended December 31,				Twelve Months Ended December 31,						Location
	2015		2014		2015			2014			Location
Interest rate swap	$	230	$	206	$	(214	)	$	(376	)		Interest expense