Note 11 - Derivative Financial Instruments

6 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Derivative Instruments and Hedging Activities Disclosure [Text Block]

Note

11:

Derivative Financial Instruments

The Company records all derivative financial instruments at fair value in the financial statements. Derivatives are used as a risk management tool to hedge the exposure to changes in interest rates or other identified market risks.

When a derivative is intended to be a qualifying hedged instrument, the Company prepares written hedge documentation that designates the derivative as

1

) a hedge of fair value of a recognized asset or liability (fair value hedge) or

2

) a hedge of a forecasted transaction, such as, the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge). The written documentation includes identification of, among other items, the risk management objective, hedging instrument, hedged item, and methodologies for assessing and measuring hedge effectiveness and ineffectiveness, along with support for management’s assertion that the hedge will be highly effective.

In

June 2017,

the Company entered into a forward start interest rate swap agreement totaling

$50

million notional amount to hedge against interest rate risk on FHLB advances.  As a cash flow hedge, the portion of the change in the fair value of the derivative that has been deemed highly effective is recognized in other comprehensive income until the related cash flows from the hedged item are recognized in earnings.  At

June 30, 2018,

the Company reported a

$1,740,642

unrealized gain, net of a

$508,158

tax effect, in other comprehensive income related to this cash flow hedge, with the offset recorded in Prepaid expenses and other assets on the balance sheet.  The Company documents, both at inception and periodically over the life of the hedge, its analysis of actual and expected hedge effectiveness.  To the extent that the hedge of future cash flows is deemed ineffective, changes in the fair value of the derivative are recognized in earnings as a component of other noninterest expense.  For the quarter ended

June 30, 2018,

there was

no

ineffectiveness attributable to the cash flow hedge.

A summary of the Company’s derivative financial instruments at

June 30, 2018

is shown in the following table:

Forward Start	Termination	Derivative	Notional		Rate		Rate	Estimated Fair Value
Inception Date	Date	Type	Amount		Paid		Hedged	at June 30, 2018
2/28/2018	2/28/2025	Interest rate swap	$	50,000,000		2.12%	3 month LIBOR Floating	$	2,248,800