eTrade 2000 Annual Report Download - page 64

sensitivity of changes in market value of assets and liabilities is affected by factors, including the level of interest rates, market
expectations regarding future interest rates, projected related loan prepayments and the repricing characteristics of interest-bearing
liabilities. We use hedging techniques to reduce the variability of fair value of equity and its overall interest rate risk exposure over a
one- to seven-year period.
We also monitor our assets and liabilities by examining the extent to which such assets and liabilities are interest rate sensitive and by
monitoring the interest rate sensitivity gap. An asset or liability is said to be interest rate sensitive within a specific period if it will
mature or reprice within that period. The interest rate sensitivity gap is defined as the difference between the amount of
interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or
repricing within the same time period. A gap is considered positive when the amount of interest rate sensitive assets exceeds the
amount of interest rate sensitive liabilities and is considered negative when the amount of interest rate sensitive liabilities exceeds the
amount of interest rate sensitive assets. Generally, during a period of rising interest rates, a negative gap would adversely affect net
interest income, while a positive gap would result in an increase in net interest income.
The following assumptions were used to prepare our gap table at September 30, 2000. Non-amortizing investment securities are shown
in the period in which they contractually mature. Investment securities that contain embedded options such as puts or calls are shown
in the period in which that security is currently expected to be put or called or to mature. The table assumes that fully indexed,
adjustable-rate, residential mortgage loans and mortgage-backed securities prepay at an annual rate between 15% and 20%, based on
estimated future prepayment rates for comparable market benchmark securities and the Bank’ s prepayment history. The table also
assumes that fixed-rate, current-coupon residential loans and mortgage-backed securities prepay at an annual rate of between 8% and
12%. The above assumptions were adjusted up or down on a pool-by-pool basis to model the effects of product type, coupon rate, rate
adjustment frequency, lifetime cap, net coupon reset margin and periodic rate caps upon prevailing annual prepayment rates. Time
deposits are shown in the period in which they contractually mature, and savings deposits are shown to reprice immediately. The
interest rate sensitivity of our assets and liabilities could vary substantially if different assumptions were used or if actual experience
differs from the assumptions used.
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The following table sets forth our gap at September 30, 2000.
Balance at September30,
2000
Percent
of Total
Repricing Within
0-3 Months
Repricing Within
4-12 Months
Repricing Within
1-5 Years
Repricing in More Than
5 Years
(dollars in thousands)
Interest-earning banking assets:
Loans receivable, net $ 4,172,754 47.23 % $ 304,173 $ 800,392 $ 1,939,083 $ 1,129,106
Mortgage-backed securities,
available-for-sale and
trading
4,191,924 47.45 163,225 501,080 1,992,765 1,534,854
Investment securities,
available-for-sale and
FHLB stock
419,624 4.75 29,342 82,100 94,765 213,417
Federal funds sold and interest
bearing deposits
50,790 0.57 — 10,158 40,632 —
Total interest-earning
banking assets
8,835,092 100.00 % $ 496,740 $ 1,393,730 $ 4,067,245 $ 2,877,377
Non-interest-earning banking
assets
180,639
Total banking assets $ 9,015,731
Interest-bearing banking
liabilities:
Savings deposits $ 533,546 6.46 % $ — $ — $ 533,546 $ —
Time deposits 4,188,255 50.75 591,097 2,396,876 1,117,883 82,399
FHLB advances 1,637,000 19.84 1,337,000 100,000 150,000 50,000
Other borrowings 1,894,000 22.95 1,894,000 — — —
Total interest-bearing
banking liabilities
8,252,801 100.00 % $ 3,822,097 $ 2,496,876 $ 1,801,429 $ 132,399
Non-interest-bearing banking
liabilities
62,748
Total banking liabilities $ 8,315,549
Periodic gap $ (3,325,357 ) $ (1,103,146 ) $ 2,265,816 $ 2,744,978
Cumulative gap $ (3,325,357 ) $ (4,428,503 ) $ (2,162,687 ) $ 582,291
Cumulative gap to total assets (36.9 )
%
(49.1 )
%
(24.0 )
%
6.5 %
Cumulative gap to total assets
hedge affected
1.1 % (12.8 )
%
(21.5 )
%
6.5 %
Impact of Inflation and Changing Prices
2002. EDGAR Online, Inc.