Note 7 - Derivatives and Hedging Activities

6 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Derivative Instruments and Hedging Activities Disclosure [Text Block]

7.

Derivatives and Hedging Activities

The Company has stand-alone derivative financial instruments in the form of interest rate caps that derive their value from a fee paid and are adjusted to fair value based on index and strike rate, and swap agreements that derive their value from the underlying interest rate. These transactions involve both credit and market risk. The notional amounts are amounts on which calculations, payments and the value of the derivative are based. Notional amounts do

not

represent direct credit exposures. Direct credit exposure arises in the event of nonperformance by the counterparties to these agreements, and is limited to the net difference between the calculated amounts to be received and paid, if any. Such differences, which represent the fair value of the derivative instruments, are reflected on the Company's balance sheet as derivative assets and derivative liabilities. The Company controls the credit risk of its financial contracts through credit approvals, limits and monitoring procedures, and does

not

expect any counterparties to fail to meet their obligations.

The Company currently holds derivative instruments that contain credit-risk related features that are in a net liability position, which

may

require that collateral be assigned to dealer banks. At

December 31, 2018,

the Company had posted cash collateral totaling

$1.0

million with dealer banks related to derivative instruments in a net liability position.

The Company does

not

offset fair value amounts recognized for derivative instruments. The Company does

not

net the amount recognized for the right to reclaim cash collateral against the obligation to return cash collateral arising from derivative instruments executed with the same counterparty under a master netting arrangement.

Risk Management Policies—Derivative Instruments

The Company evaluates the effectiveness of entering into any derivative instrument agreement by measuring the cost of such an agreement in relation to the reduction in net income volatility within an assumed range of interest rates.

Interest Rate Risk Management—Cash Flow Hedging Instruments

The Company uses variable rate debt as a source of funds for use in the Company's lending and investment activities and other general business purposes. These debt obligations expose the Company to variability in interest payments due to changes in interest rates. If interest rates increase, interest expense increases. Conversely, if interest rates decrease, interest expense decreases. Management believes it is prudent to limit the variability of a portion of its interest payments and, therefore, generally hedges a portion of its variable-rate interest payments.

Information pertaining to outstanding interest rate caps and swap agreements used to hedge variable rate debt is as follows.

December 31, 2018
Notional Amount		Inception Date	Termination Date	Index	Receive Rate			Pay Rate			Strike Rate			Unrealized Loss			Fair Value			Balance Sheet Location
(Dollars in thousands)
Interest rate swaps:
$	5,000	July 2013	July 2033	3 Mo. LIBOR		2.80	%		3.38	%		n/a		$	(393	)	$	(393	)	Other Liabilities
	5,000	July 2013	July 2028	3 Mo. LIBOR		2.80	%		3.23	%		n/a			(247	)		(247	)	Other Liabilities
	5,000	July 2013	July 2023	3 Mo. LIBOR		2.80	%		2.77	%		n/a			(51	)		(51	)	Other Liabilities
Forward-starting interest rate swaps:
	6,000	February 2018	September 2029	3 Mo. LIBOR		5.60	%		5.88	%		n/a			(212	)		(212	)	Other Liabilities
	10,000	February 2018	February 2030	3 Mo. LIBOR		4.69	%		4.98	%		n/a			(346	)		(346	)	Other Liabilities
Interest rate caps:
	6,000	October 2014	September 2019	3 Mo. LIBOR		n/a			n/a			2.50	%		(29	)		12		Other Assets
	10,000	March 2015	February 2020	3 Mo. LIBOR		n/a			n/a			2.50	%		(65	)		27		Other Assets
$	47,000													$	(1,343	)	$	(1,210	)

June 30, 2018
Notional Amount			Inception Date	Termination Date	Index	Receive Rate			Pay Rate			Strike Rate			Unrealized Loss			Fair Value			Balance Sheet Location
(Dollars in thousands)
Interest rate swaps:
$	5,000		July 2013	July 2033	3 Mo. LIBOR		2.05	%		3.38	%		n/a		$	(293	)	$	(293	)	Other Liabilities
	5,000		July 2013	July 2028	3 Mo. LIBOR		2.05	%		3.23	%		n/a			(154	)		(154	)	Other Liabilities
	5,000		July 2013	July 2023	3 Mo. LIBOR		2.05	%		2.77	%		n/a			15			15		Other Assets
Forward-starting interest rate swaps:
6,000		February 2018		September 2029	3 Mo. LIBOR		5.14	%		5.88	%		n/a			(81	)		(81	)	Other Liabilities
10,000		February 2018		February 2030	3 Mo. LIBOR		4.23	%		4.98	%		n/a			(140	)		(140	)	Other Liabilities
Interest rate caps:
	6,000		October 2014	September 2019	3 Mo. LIBOR		n/a			n/a			2.50	%		(91	)		15		Other Assets
	10,000		March 2015	February 2020	3 Mo. LIBOR		n/a			n/a			2.50	%		(83	)		49		Other Assets
$	47,000														$	(827	)	$	(589	)

During the

three

and

six

months ended

December 31, 2018

and

2017,

no

interest rate cap or swap agreements were terminated prior to maturity. Changes in the fair value of interest rate caps and swaps designated as hedging instruments of the variability of cash flows associated with variable rate debt are reported in other comprehensive income. These amounts subsequently are reclassified into interest expense as a yield adjustment in the same period in which the related interest on the debt affects earnings. Risk management results for the

three

and

six

months ended

December 31, 2018

and

2017

related to the balance sheet hedging of variable rate debt indicates that the hedges were effective.