pab bankshares, inc. - SNL Financial

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 22. DERIVATIVE FINANCIAL INSTRUMENTS (Continued)
During 2009, such derivatives were used to hedge the variable cash outflows and inflows associated with the
Company’s floating rate deposit accounts and prime based floating rate loans. The effective portion of changes in the fair
value of derivatives designated and that qualify as cash flow hedges are recorded in accumulated other comprehensive
income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.
The ineffective portions of the change in fair value of the derivatives are recognized directly in earnings as a component of
other non-interest income/expense. As of December 31, 2009, the Company had one outstanding interest rate cap with a
notional amount of $25 million that had failed to qualify for hedge accounting due to a mismatch between the cap notional
and the aggregate principal amount of floating rate deposit accounts. The interest rate cap failed to qualify for hedge
accounting as of September 30, 2009 and accordingly all changes in value subsequent to June 30, 2009 were recognized
directly in earnings. During 2009 the company also had interest rate floors and collars associated with existing pools of
prime-based floating-rate loans. One of the Company’s interest rate collars failed to qualify for hedge accounting as of
March 31, 2009 due to a mismatch between the collar notional and the aggregate principal amount of the designated loan
pools. All changes in value subsequent to December 31, 2009 were recognized directly in earnings through the date of
termination. Refer to amounts disclosed under the sections entitled “Derivatives Not Designated as Hedging Instruments
under FASB ASC 815” throughout this footnote for information regarding changes in value for derivatives which failed to
qualify in hedging relationships. During the twelve months ended December 31, 2009 the Company recognized a loss of
$22,076, for hedge ineffectiveness. No gain or loss was recognized for ineffectiveness during 2008.
Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest
income or expense as interest payments are received/made on the Company’s variable-rate assets/liabilities. During the
next twelve months, the Company estimates that $390,352 will be reclassified as an increase to interest income and
$55,631 will be reclassified as an increase to interest expense. During the twelve months ended December 31, 2009 the
Company accelerated the reclassification of amounts in other comprehensive income to earnings as a result of a portion of
the hedged forecasted transactions related to the Company’s interest rate cap and two interest rate collar’s becoming
probable not to occur. The accelerated amount for the twelve months ended December 31, 2009 was a gain of $1,144,244.
Effect of Derivative Instruments on the Income Statement
The tables below present the effect of the Company’s derivative financial instruments on the Income Statement for the
twelve months ended December 31, 2009 and 2008.
Derivatives in
FASB ASC 815
Cash Flow
Hedging
Relationships
Location of
Gain or
(Loss)
Reclassified
from Amount of Gain or (Loss)
Amount of Gain or (Loss) Accumulated Reclassified from
Recognized in OCI on OCI into Accumulated OCI into
Derivative (Effective Portion) Income Income (Effective Portion)
Twelve Months Ended (Effective Twelve Months Ended
December 31,
Portion)
December 31,
2009 2008 2009 2008
Location of
Gain or
(Loss)
Recognized
in Income on
Derivative
(Ineffective
Portion and
Amount
Excluded
from
Effectiveness
Testing)
Amount of Gain or (Loss)
Recognized in Income on
Derivative (Ineffective
Portion and Amount
Excluded from
Effectiveness Testing)
Twelve Months
Ended December 31,
2009
2008
Interest Rate
Products
Interest
Other
$ ( 57,246) $3,968,851 $ 1,604,128 $1,649,984
$(22,076) $16,011
Income
Income
Other Income $1,144,244
Total $ (57,246) $3,968,851
$2,748,372 $1,649,984 $(22,076) $16,011
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