Note 7 - Derivatives and Hedging Activities

3 Months Ended

Mar. 31, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

NOTE 7 – DERIVATIVES AND HEDGING ACTIVITIES

During the second quarter of 2014, the Company executed and designated two interest rate cap derivatives as cash flow hedges of short-term Federal Home Loan Bank (“FHLB”) advances. The short-term FHLB advance rates will fluctuate with rate movements; therefore the Bank determined it was necessary to hedge against this increase in interest expense in a rising rate environment. The caps purchased will essentially set a ceiling on the rate paid on the FHLB advances, minimizing the risk associated with rate increases.

Below is a summary of the interest rate cap derivatives held by the Company as of March 31, 2015. An initial premium of $2.1 million was paid for the two caps. The fair value of these instruments will fluctuate with market value changes, as well as amortization of the initial premium to interest expense.

Effective Date	Maturity Date	Balance Sheet Location	Notional Amount		Accounting Treatment	Fair Value
June 5, 2014	June 5, 2019	Other Assets	$	15,000,000	Cash Flow Hedging	$	437,694
June 5, 2014	June 5, 2021	Other Assets		15,000,000	Cash Flow Hedging		676,407
			$	30,000,000		$	1,114,101

Changes in the fair values of derivative financial instruments accounted for as cash flow hedges to the extent they are effective hedges, are recorded as a component of accumulated other comprehensive income. The following is a summary of how accumulated other comprehensive income was impacted during the reporting periods:

	Three Months Ended March 31, 2015
Unrealized loss at beginning of period, net of tax	$	(399,367	)
Amount reclassified from accumulated other comprehensive income to noninterest income related to hedge ineffectiveness		341
Amount reclassified from accumulated other comprehensive income to interest expense related to caplet amortization		560
Amount of loss recognized in other comprehensive income, net of tax		(238,571	)
Unrealized loss at end of period	$	(637,037	)

Changes in the fair value related to the ineffective portion of cash flow hedges, are reported in noninterest income during the period of the change. As shown in the table above, $341 of the change in fair value year-to-date was due to ineffectiveness.