Note 21 - Derivative Financial Instruments

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Derivative Instruments and Hedging Activities Disclosure [Text Block]

NOTE  2 1 : 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

December 31, 2018,

the Company reported a

$947,296

unrealized gain, net of a

$324,242

tax effect, in accumulated other comprehensive income related to this cash flow hedge. 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 year ended

December 31, 2018,

there was

no

ineffectiveness attributable to the cash flow hedge.

Due to the swap being in a gain position the counterparty has pledged collateral of

$1.47

million that is held in cash as of

December 31, 2018.

A summary of the Company’s derivative financial instruments at

December 31, 2018

and

2017

is shown in the following table:

Forward Start

Termination

Derivative

Notional

Rate

Rate

Estimated Fair Value

Estimated Fair Value

Inception Date

Date

Type

Amount

Paid

Hedged

at December 31, 2018

at December 31, 2017

2/28/2018

2/28/2025

Interest rate swap

$

50,000,000

2.12

%

3 month LIBOR Floating

$

1,271,538

$

567,704