eTrade 2001 Annual Report Download - page 164

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our financial derivatives in fair value hedge relationships as of December 31, 2001 (dollars in thousands):
Assets Hedged Notional
Amount
Fair Value Asset Liability Weighted
Average Pay
Rate
Weighted
Average
Receive Rate
Weighted
Average
Strike Rate
Weighted Average
Remaining
Life(years)
Loans:
Pay fixed interest rate
swap
$ 1,346,000 $ (9,515 ) $ 3,852 $ (13,367 ) 4.92 %
1.88 %
— %
3.81
Purchased interest rate
options—caps
2,402,000 33,440 33,440 — — — 5.90 2.73
Purchased interest rate
options—floors
683,000 4,717 4,717 — — — 5.07 3.57
TotalLoans 4,431,000 28,642 42,009 (13,367 ) 4.92 1.88 5.84 3.19
Investment Securities:
Pay fixed interest rate
swap
578,000 4,177 4,332 (155 ) 5.04 2.60 — 5.04
Mortgage Backed
Securities:
Pay fixed interest rate
swap
755,000 16,272 16,272 — 6.90 1.84 — 10.03
Purchased interest rate
options—caps
1,440,000 57,006 57,006 — — — 6.31 5.01
Total MBS Securities 2,195,000 73,278 73,278 — 6.90 1.84 6.31 6.74
Total Fair Value
Hedges
$ 7,204,000 $ 106,097 $ 119,619 $ (13,522 ) 6.02 %
1.90 %
5.97 %
4.42
144
Table of Contents
Cash Flow Hedges
Variable Rate Liabilities and Forecasted Issuances of Liabilities
The Company also uses interest rate swaps to hedge the variability of future cash flows associated with existing variable rate liabilities
and forecasted issuances of liabilities. The Company uses interest rate swaps to hedge the risk of changes in the benchmark rate
(LIBOR), which impacts the amount of future payments to be made on its variable rate liabilities on its balance sheet. In regards to the
hedging of the forecasted issuance of liabilities, the Company utilizes interest rate swaps with a longer maturity than the underlying
liabilities. The use of an interest rate swap contract with a longer maturity than the underlying liability allows the Company to hedge
both the risk of changes in the benchmark rate (LIBOR) on its existing liabilities and the replacement of such liabilities upon maturity.
These cash flow hedge relationships are treated as effective hedges as long as the future issuances of liabilities remain probable and
the hedges continue to meet the requirements of SFAS 133. The Company expects to reclassify approximately $44.9 million of net
unrealized losses reported in other comprehensive income to the Consolidated Statement of Operations during fiscal 2002. The
Company expects to hedge the forecasted issuance of liabilities over a maximum term of 7 years.
The Company reclassified $10.0 million during the fiscal year ended December 31, 2001 and $0 during the three months ended
December 31, 2000 of derivative losses from OCI to gain on bank loans held for sale and other securities,net, in the consolidated
2002. EDGAR Online, Inc.