eTrade 2010 Annual Report Download - page 140
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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, 2010
Pay-fixed interest rate swaps:
Agency debentures $ 753,561 $ 57,976 $ (530) $ 57,446 3.23% 0.29% N/A 16.54
Mortgage-backed securities 403,000 5,428 (159) 5,269 2.57% 0.29% N/A 7.46
Receive-fixed interest rate swaps:
FHLB advances 725,950 — (18,099) (18,099)0.29% 2.15% N/A 6.18
Purchased interest rate swaptions:
Mortgage-backed securities 1,495,000 46,632 — 46,632 N/A N/A 4.44% 10.34
Total fair value hedges $3,377,511 $110,036 $(18,788) $ 91,248 1.96% 1.01% 4.44% 10.49
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
The following table summarizes the effect of interest rate contracts designated and qualifying as hedging
instruments in fair value hedges and related hedged items on the consolidated statement of loss (dollars in
thousands):
Year Ended December 31,
2010 2009
Hedging
Instrument
Hedged
Item
Hedging
Instrument
Hedged
Item
Agency debentures $ 55,743 $(57,816) $ — $ —
FHLB advances (18,099) 19,456 — —
Corporate debt (1,714) 1,714 (7,874) 7,874
Brokered certificates of deposit — — (8) 8
Total gains (losses) included in earnings $ 35,930 $(36,646) $(7,882) $7,882
There was $0.7 million in fair value hedge ineffectiveness for the year ended December 31, 2010, and no
fair value hedge ineffectiveness for the year ended December 31, 2009. The fair value hedge ineffectiveness is
reflected in the gains (losses) on loans and securities, net line item.
Credit Risk
Impact on Fair Value Measurements
Credit risk is an element of the recurring fair value measurements for certain assets and liabilities, including
derivative instruments. Credit risk is managed by limiting activity to approved counterparties and setting
aggregate exposure limits for each approved counterparty. The Company also monitors collateral requirements
on derivative instruments through credit support agreements, which reduce risk by permitting the netting of
transactions with the same counterparty upon occurrence of certain events.
137