eTrade 2009 Annual Report Download - page 138

The following table shows the balance in accumulated other comprehensive loss attributable to cash flow
hedges by type of hedged item (dollars in thousands):
As of December 31,
2009 2008
Accumulated other comprehensive loss balance related to cash flow
hedges:
Repurchase agreements $(403,384) $(664,847)
FHLB advances (102,572) (104,839)
Home equity lines of credit 56,480 99,453
Other (848) (1,068)
Total cash flow hedges before tax (450,324) (671,301)
Tax benefit 171,776 253,812
Total cash flow hedges, net of tax $(278,548) $(417,489)
Fair Value Hedges
The Company uses interest rate swaps to offset its exposure to changes in value of certain fixed-rate
liabilities. Changes in the fair value of the derivatives are recognized currently in the gains (losses) on loans and
securities, net line item.
Fair value hedges are accounted for by recording the fair value of the derivative instrument and the change
in fair value of the asset or liability being hedged on the consolidated balance sheet. To the extent that the hedge
is ineffective, the changes in the fair values will not offset and the difference, or hedge ineffectiveness, is
reflected in the gains (losses) on loans and securities, net line item in the consolidated statement of loss. Cash
payments or receipts and related accruals during the reporting period on derivatives included in fair value hedge
relationships are recorded as an adjustment to interest income or interest expense on the hedged item.
Hedge accounting is discontinued for fair value hedges if a derivative instrument ceases to be highly
effective as a hedge or if the derivative is sold, terminated or de-designated. If fair value hedge accounting is
discontinued, the net gain or loss on the asset or liability being hedged at the time of de-designation is amortized
to interest expense or interest income over the expected remaining life of the hedged item using the effective
interest method. Changes in the fair value of the derivative instruments after de-designation of fair value hedge
accounting are recorded in the gains (losses) on loans and securities, net line item in the consolidated statement
of loss. For a discontinued fair value hedge, the previously hedged item is no longer adjusted for changes in fair
value.
The following table summarizes information related to the Company’s interest rate contracts in fair value
hedge relationships (dollars in thousands):
Notional
Amount
Fair Value Weighted-Average
Asset Liability Net
Pay
Rate
Receive
Rate
Strike
Rate
Remaining
Life (Years)
December 31, 2009:
Receive-fixed interest rate swaps:
Corporate debt $225,000 $ 5,863 $— $ 5,863 3.82% 7.38% N/A 3.72
Total fair value hedges $225,000 $ 5,863 $— $ 5,863 3.82% 7.38% N/A 3.72
December 31, 2008:
Receive-fixed interest rate swaps:
Corporate debt $414,500 $20,726 $— $20,726 4.70% 7.38% N/A 4.71
Brokered certificates of
deposit 4,210 8 — 8 1.85% 5.38% N/A 11.21
Total fair value hedges $418,710 $20,734 $— $20,734 4.67% 7.35% N/A 4.77
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