NOTE 5 – DERIVATIVES

The Company uses interest rate swap and cap instruments to manage interest rate risk related to the variability of interest payments due to changes in interest rates. The Company entered into interest rate caps on June 5, 2014 to hedge against the risk of rising interest rates on short-term liabilities. The short-term liabilities consist of $30.0 million of 1-month FHLB advances, and the benchmark rate hedged is 1-month LIBOR. The interest rate caps are designated as a cash flow hedge in accordance with ASC 815. An initial premium of $2.1 million was paid upfront for the two caps. The details of the interest rate caps are as follows:



			Balance Sheet			1-Month LIBOR			Fair Value as of
Hedged Instrument	Effective Date	Maturity Date	Location		Notional Amount	Strike Rate			September 30, 2018		December 31, 2017
1-month FHLB Advance	6/3/2014	6/5/2019	Other Assets	$	15,000,000	1.00	%	$	164,214	$	190,085
1-month FHLB Advance	6/5/2014	6/5/2021	Other Assets		15,000,000	1.50	%		539,253		316,615
				$	30,000,000			$	703,467	$	506,700

On June 21, 2018, the Company entered into interest rate swaps to hedge against the risk of rising rates on its variable rate trust preferred securities. The floating rate trust preferred securities are tied to 3-month LIBOR, and the interest rate swaps utilize 3-month LIBOR, so the hedge is effective. The interest rate swaps are designated as a cash flow hedge in accordance with ASC 815. The details of the interest rate swaps are as follows:


			Balance Sheet							Fair Value as of
Hedged Instrument	Effective Date	Maturity Date	Location		Notional Amount	Receive Rate		Pay Rate		September 30, 2018
QCR Holdings Statutory Trust II	9/30/2018	9/30/2028	Other Liabilities	$	10,000,000	5.19	%	5.85	%	$	54,280
QCR Holdings Statutory Trust III	9/30/2018	9/30/2028	Other Liabilities		8,000,000	5.19	%	5.85	%		43,424
QCR Holdings Statutory Trust V	7/7/2018	7/7/2028	Other Liabilities		10,000,000	3.90	%	4.54	%		52,884
Community National Statutory Trust II	9/20/2018	9/20/2028	Other Liabilities		3,000,000	4.49	%	5.17	%		15,703
Community National Statutory Trust III	9/15//2018	9/15/2028	Other Liabilities		3,500,000	4.09	%	4.75	%		17,956
Guaranty Bankshares Statutory Trust I	9/15/2018	9/15/2028	Other Liabilities		4,500,000	4.09	%	4.75	%		23,086
				$	39,000,000	4.58	%	5.24	%	$	207,333

Changes in fair values of derivatives designated as cash flow hedges are recorded in OCI to the extent the hedge is effective, and reclassified to earnings as the hedged transaction (interest payments on debt) impact earnings.

The caps and swaps are valued by the transaction counterparty on a monthly basis and corroborated by a third party annually.