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Note 4 - DERIVATIVES AND HEDGING ACTIVITIES | 3 Months Ended
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Mar. 31, 2022
Notes to Financial Statements |
Derivatives and Hedging Activities | ​ ​ ​ NOTE 4 – DERIVATIVES AND HEDGING ACTIVITIES Derivatives are summarized as follows as of March 31, 2022 and December 31, 2021: ​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | March 31, 2022 |  | December 31, 2021
​ | ​ | (dollars in thousands)
Assets: | ​ | ​ | ​ | ​ | ​ | ​
Interest rate caps - hedged | ​ | $ | 4,484 | ​ | $ | 927
Interest rate caps | ​ |  | 1,144 | ​ |  | 238
Interest rate swaps | ​ |  | 101,698 | ​ |  | 221,055
​ | ​ | $ | 107,326 | ​ | $ | 222,220
​ | ​ | ​ | ​ | ​ | ​ | ​
Liabilities: | ​ | ​ | ​ | ​ | ​ | ​
Interest rate swaps - hedged | ​ | $ | (14,495) | ​ | $ | (4,080)
Interest rate swaps | ​ | ​ | (101,698) | ​ | ​ | (221,055)
​ | ​ | $ | (116,193) | ​ | $ | (225,135)
​ | ​ | ​ | ​ | ​ | ​ | ​
​ 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 has entered into interest rate caps to hedge against the risk of rising interest rates on liabilities. The liabilities consist of $300.0 million of deposits and the benchmark rates hedged vary at 1-month LIBOR, 3-month LIBOR and the Prime Rate. The interest rate caps are designated as cash flow hedges in accordance with ASC 815. An initial premium of $3.5 million was paid upfront for the caps executed. The details of the interest rate caps are as follows: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | Balance Sheet | ​ | ​ | ​ | ​ | ​ | ​ | Fair Value as of | ​ | ​
Hedged Item | ​ | Effective Date | ​ | Maturity Date | ​ | Location | ​ | Notional Amount | ​ | Strike Rate | ​ | March 31, 2022 | ​ | ​ | December 31, 2021 | ​ | ​
(dollars in thousands) | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Deposits | ​ | 1/1/2020 | ​ | 1/1/2023 | ​ | Derivatives - Assets | ​ | $ | 25,000 | ​ | 1.75 | % | ​ | $ | 48 | ​ | ​ | $ | 5 | ​ | ​
Deposits | ​ | 1/1/2020 | ​ | 1/1/2023 | ​ | Derivatives - Assets | ​ | ​ | 50,000 | ​ | 1.57 | ​ | ​ | ​ | 97 | ​ | ​ | ​ | 11 | ​ | ​
Deposits | ​ | 1/1/2020 | ​ | 1/1/2023 | ​ | Derivatives - Assets | ​ | ​ | 25,000 | ​ | 1.80 | ​ | ​ | ​ | 48 | ​ | ​ | ​ | 5 | ​ | ​
Deposits | ​ | 1/1/2020 | ​ | 1/1/2024 | ​ | Derivatives - Assets | ​ | ​ | 25,000 | ​ | 1.75 | ​ | ​ | ​ | 355 | ​ | ​ | ​ | 60 | ​ | ​
Deposits | ​ | 1/1/2020 | ​ | 1/1/2024 | ​ | Derivatives - Assets | ​ | ​ | 50,000 | ​ | 1.57 | ​ | ​ | ​ | 723 | ​ | ​ | ​ | 125 | ​ | ​
Deposits | ​ | 1/1/2020 | ​ | 1/1/2024 | ​ | Derivatives - Assets | ​ | ​ | 25,000 | ​ | 1.80 | ​ | ​ | ​ | 361 | ​ | ​ | ​ | 62 | ​ | ​
Deposits | ​ | 1/1/2020 | ​ | 1/1/2025 | ​ | Derivatives - Assets | ​ | ​ | 25,000 | ​ | 1.75 | ​ | ​ | ​ | 695 | ​ | ​ | ​ | 161 | ​ | ​
Deposits | ​ | 1/1/2020 | ​ | 1/1/2025 | ​ | Derivatives - Assets | ​ | ​ | 50,000 | ​ | 1.57 | ​ | ​ | ​ | 1,438 | ​ | ​ | ​ | 332 | ​ | ​
Deposits | ​ | 1/1/2020 | ​ | 1/1/2025 | ​ | Derivatives - Assets | ​ | ​ | 25,000 | ​ | 1.80 | ​ | ​ | ​ | 719 | ​ | ​ | ​ | 166 | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | $ | 300,000 | ​ | ​ | ​ | ​ | $ | 4,484 | ​ | ​ | $ | 927 | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ For derivative instruments that are designated as unhedged, the change in fair value of the derivative instrument is recognized into current earnings. The details of the unhedged interest rate caps are as follows: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | Balance Sheet | ​ | ​ | ​ | ​ | ​ | ​ | ​ | Fair Value as of | ​ | ​
​ | ​ | Effective Date | ​ | Maturity Date | ​ | Location | ​ | Notional Amount | ​ | Strike Rate | ​ | ​ | March 31, 2022 | ​ | ​ | December 31, 2021 | ​ | ​
​ | ​ | (dollars in thousands) | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | 1/1/2020 | ​ | 1/1/2023 | ​ | Derivatives - Assets | ​ | $ | 25,000 | ​ | 1.90 | % | ​ | $ | 41 | ​ | ​ | $ | 3 | ​ | ​
​ | ​ | 2/1/2020 | ​ | 2/1/2024 | ​ | Derivatives - Assets | ​ | ​ | 25,000 | ​ | 1.90 | ​ | ​ | ​ | 369 | ​ | ​ | ​ | 62 | ​ | ​
​ | ​ | 3/1/2020 | ​ | 3/1/2025 | ​ | Derivatives - Assets | ​ | ​ | 25,000 | ​ | 1.90 | ​ | ​ | ​ | 734 | ​ | ​ | ​ | 173 | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | $ | 75,000 | ​ | ​ | ​ | ​ | $ | 1,144 | ​ | ​ | $ | 238 | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ The Company has entered into interest rate swaps to hedge against the risk of declining interest rates on floating rate loans. All of the interest rate swaps are designated as cash flow hedges in accordance with ASC 815. The details of the interest rate swaps are as follows: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | Balance Sheet | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | Fair Value as of
Hedged Item | ​ | Effective Date | ​ | Maturity Date | ​ | Location | ​ | Notional Amount | ​ | Receive Rate | ​ | ​ | ​ | Pay Rate | ​ | ​ | March 31, 2022 | ​ | December 31, 2021
(dollars in thousands)
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Loans |  | 7/1/2021 | ​ | 7/1/2031 | ​ | Derivatives - Liabilities |  | ​ | 35,000 | ​ | 1.40 | % | ​ |  | 0.23 | % | ​ | ​ | (2,387) | ​ | ​ | (17)
Loans |  | 7/1/2021 | ​ | 7/1/2031 | ​ | Derivatives - Liabilities |  | ​ | 50,000 | ​ | 1.40 | % | ​ |  | 0.23 | % | ​ | ​ | (3,411) | ​ | ​ | (25)
Loans |  | 7/1/2021 | ​ | 7/1/2031 | ​ | Derivatives - Liabilities |  | ​ | 40,000 | ​ | 1.40 | % | ​ |  | 0.23 | % | ​ | ​ | (2,742) | ​ | ​ | (34)
Loans |  | 7/1/2021 | ​ | 7/1/2031 | ​ | Derivatives - Liabilities |  | ​ | 25,000 | ​ | 1.40 | % | ​ |  | 0.23 | % | ​ | ​ | (1,705) | ​ | ​ | (13)
Loans |  | 4/1/2022 | ​ | 4/1/2027 | ​ | Derivatives - Liabilities |  | ​ | 15,000 | ​ | 1.91 | % | ​ |  | N/A | ​ | ​ | ​ | (281) | ​ | ​ | N/A
Loans |  | 4/1/2022 | ​ | 4/1/2027 | ​ | Derivatives - Liabilities |  | ​ | 50,000 | ​ | 1.91 | % | ​ |  | N/A | ​ | ​ | ​ | (938) | ​ | ​ | N/A
Loans |  | 4/1/2022 | ​ | 4/1/2027 | ​ | Derivatives - Liabilities |  | ​ | 35,000 | ​ | 1.91 | % | ​ |  | N/A | ​ | ​ | ​ | (656) | ​ | ​ | N/A
Loans |  | 4/1/2022 | ​ | 4/1/2027 | ​ | Derivatives - Liabilities |  | ​ | 50,000 | ​ | 1.91 | % | ​ |  | N/A | ​ | ​ | ​ | (939) | ​ | ​ | N/A
​ |  |  | ​ | ​ | ​ | ​ |  | $ | 300,000 | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | $ | (13,059) | ​ | $ | (89)
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ The Company has entered into interest rate swaps to hedge against the risk of rising rates on its variable rate trust preferred securities. All of the interest rate swaps are designated as cash flow hedges in accordance with ASC 815. The details of the interest rate swaps are as follows: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | Balance Sheet | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | Fair Value as of
Hedged Item | ​ | Effective Date | ​ | Maturity Date | ​ | Location | ​ | Notional Amount | ​ | Receive Rate | ​ | ​ | Pay Rate | ​ | March 31, 2022 | ​ | December 31, 2021
​ | ​ | ​ | (dollars in thousands) | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
QCR Holdings Statutory Trust II |  | 9/30/2018 | ​ | 9/30/2028 | ​ | Derivatives - Liabilities |  | ​ | 10,000 | ​ | 3.86 | % | ​ |  | 5.85 | % | ​ | ​ | (375) | ​ | ​ | (1,035)
QCR Holdings Statutory Trust III |  | 9/30/2018 | ​ | 9/30/2028 | ​ | Derivatives - Liabilities |  | ​ | 8,000 | ​ | 3.86 | % | ​ |  | 5.85 | % | ​ | ​ | (300) | ​ | ​ | (828)
QCR Holdings Statutory Trust V |  | 7/7/2018 | ​ | 7/7/2028 | ​ | Derivatives - Liabilities |  | ​ | 10,000 | ​ | 1.79 | % | ​ |  | 4.54 | % | ​ | ​ | (350) | ​ | ​ | (996)
Community National Statutory Trust II |  | 9/20/2018 | ​ | 9/20/2028 | ​ | Derivatives - Liabilities |  | ​ | 3,000 | ​ | 3.10 | % | ​ |  | 5.17 | % | ​ | ​ | (112) | ​ | ​ | (309)
Community National Statutory Trust III |  | 9/15//2018 | ​ | 9/15/2028 | ​ | Derivatives - Liabilities |  | ​ | 3,500 | ​ | 2.58 | % | ​ |  | 4.75 | % | ​ | ​ | (131) | ​ | ​ | (360)
Guaranty Bankshares Statutory Trust I |  | 9/15/2018 | ​ | 9/15/2028 | ​ | Derivatives - Liabilities |  | ​ | 4,500 | ​ | 2.58 | % | ​ |  | 4.75 | % | ​ | ​ | (168) | ​ | ​ | (463)
​ |  |  | ​ | ​ | ​ | ​ |  | $ | 39,000 | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | $ | (1,436) | ​ | $ | (3,991)
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ Changes in fair values of derivative financial instruments accounted for as cash flow hedges, to the extent that they are included in the assessment of effectiveness, are recorded as a component of AOCI. The Company has also entered into interest rate swap contracts that are not designated as hedging instruments. These derivative contracts relate to transactions in which the Company enters into an interest rate swap with a customer while at the same time entering into an equal and offsetting interest rate swap with a third-party financial institution. Additionally, the Company receives an upfront, non-refundable fee from the counterparty, dependent upon the pricing that is recognized upon receipt from the counterparty. Because the Company acts as an intermediary for the customer, changes in the fair value of the underlying derivative contracts, for the most part, offset each other and do not significantly impact the Company’s results of operations. Interest rate swaps that are not designated as hedging instruments are summarized as follows: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | March 31, 2022 | ​ | December 31, 2021
​ | ​ | ​ | Notional Amount | ​ | Estimated Fair Value | ​ | Notional Amount | ​ | Estimated Fair Value
​ | ​ | ​ | (dollars in thousands)
Non-Hedging Interest Rate Derivatives Assets: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Interest rate swap contracts | ​ | ​ | $ | 2,069,977 | ​ | $ | 101,698 | ​ | $ | 2,024,599 | ​ | $ | 221,055
Non-Hedging Interest Rate Derivatives Liabilities: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Interest rate swap contracts | ​ | ​ | $ | 2,069,977 | ​ | $ | 101,698 | ​ | $ | 2,024,599 | ​ | $ | 221,055
​ The effect of cash flow hedging and fair value accounting on the consolidated statements of income for the three months ended March 31, 2022 and March 31, 2021 are as follows: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three Months Ended March 31, 2022 | ​ | Three Months Ended March 31, 2021
​ | ​ | Interest and | ​ | Interest | ​ | ​ | Interest and | ​ | Interest | ​
​ | ​ | Dividend Income | ​ | Expense | ​ | ​ | Dividend Income | ​ | Expense | ​
​ | ​ | (dollars in thousands)
Income and expense line items presented in the consolidated statements of income | ​ | $ | 51,062 | ​ | $ | 5,329 | ​ | ​ | $ | 47,565 | ​ | $ | 5,590 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
The effects of cash flow hedging: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Gain (loss) on cash flow hedges: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Interest rate caps on deposits | ​ | ​ | - | ​ | ​ | 221 | ​ | ​ | ​ | - | ​ | ​ | 151 | ​
Interest rate swaps on variable rate loans | ​ | ​ | 471 | ​ | ​ | - | ​ | ​ | ​ | - | ​ | ​ | - | ​
Interest rate swaps on junior subordinated debentures | ​ | ​ | - | ​ | ​ | 267 | ​ | ​ | ​ | - | ​ | ​ | 269 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ The Company’s hedged interest rate swaps and non-hedged interest rate swaps are collateralized with cash and investment securities with carrying values as follows: ​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | March 31, 2022 | ​ | December 31, 2021
​ | ​ | (dollars in thousands)
​ | ​ | ​ | ​ | ​ | ​ | ​
Cash | ​ | $ | 4,193 | ​ | $ | 21,100
U.S treasuries and govt. sponsored agency securities | ​ | ​ | 3,518 | ​ | ​ | 3,555
Municipal securities | ​ | ​ | 123,763 | ​ | ​ | 139,166
Residential mortgage-backed and related securities | ​ |  | 59,683 | ​ |  | 65,104
​ | ​ | $ | 191,157 | ​ | $ | 228,925
​ | ​ | ​ | ​ | ​ | ​ | ​
​ The Company may be exposed to credit risk in the event of non-performance by the counterparties to its interest rate derivative agreements. The Company assesses the credit risk of its financial institution counterparties by monitoring publicly available credit rating and financial information. Additionally, the Company manages financial institution counterparty credit risk by entering into interest rate derivatives only with primary and highly rated counterparties, and uses ISDA master agreements, central clearing mechanisms and counterparty limits. The agreements contain bilateral collateral agreements with the amount of collateral to be posted generally governed by the settlement value of outstanding swaps. ​ The Company manages the risk of default by its borrower/customer counterparties through its normal loan underwriting and credit monitoring policies and procedures. The Company underwrites the combination of the base loan amount and potential swap exposure and focuses on high quality borrowers with strong collateral values. The majority of the Company’s swapped loan portfolio consists of loans on projects, with loan-to-values including the potential swap exposure that is below 65%. The Company does not currently anticipate any losses from failure of interest rate derivative counterparties to honor their obligations.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI http://asc.fasb.org/extlink&oid=123477628&loc=d3e90205-114008 + Details
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