eTrade 2012 Annual Report Download - page 148

If it becomes probable that a hedged forecasted transaction will not occur, amounts included in accumulated
other comprehensive loss related to the specific hedging instruments would be immediately reclassified into the
gains on loans and securities, net line item in the consolidated statement of income (loss). If hedge accounting is
discontinued because a derivative instrument is sold, terminated or otherwise de-designated, amounts included in
accumulated other comprehensive loss related to the specific hedging instrument continue to be reported in
accumulated other comprehensive loss until the forecasted transaction affects earnings.
The future issuances of liabilities, including repurchase agreements, are largely dependent on the market
demand and liquidity in the wholesale borrowings market. As of December 31, 2012, the Company believes the
forecasted issuance of all debt in cash flow hedge relationships is probable. However, unexpected changes in
market conditions in future periods could impact the ability to issue this debt. The Company believes the
forecasted issuance of debt in the form of repurchase agreements is most susceptible to an unexpected change in
market conditions.
The following table summarizes the effect of interest rate contracts designated and qualifying as hedging
instruments in cash flow hedges on accumulated other comprehensive loss and on the consolidated statement of
income (loss) for the years ended December 31, 2012, 2011 and 2010 (dollars in thousands):
For the Year Ended December 31,
2012 2011 2010
Losses on derivatives recognized in OCI (effective portion), net of tax $(72,119) $(216,302) $(77,724)
Losses reclassified from AOCI into earnings (effective portion), net of tax $(77,731) $ (66,847) $(47,774)
Cash flow hedge ineffectiveness losses(1) $ (480) $ (491) $ (265)
(1) The cash flow hedge ineffectiveness is reflected in the gains on loans and securities, net line item on the statement of consolidated
income (loss).
During the upcoming twelve months, the Company expects to include a pre-tax amount of approximately
$129.1 million of net unrealized losses that are currently reflected in accumulated other comprehensive loss in
net operating interest income as a yield adjustment in the same periods in which the related hedged items affect
earnings. The maximum length of time over which transactions are hedged is 10 years.
The following table shows the balance in accumulated other comprehensive loss attributable to active and
discontinued cash flow hedges at December 31, 2012 and 2011 (dollars in thousands):
December 31,
2012 2011
Accumulated other comprehensive loss balance (net of tax) related to:
Discontinued cash flow hedges $(247,983) $(279,091)
Active cash flow hedges (204,358) (178,862)
Total cash flow hedges $(452,341) $(457,953)
The following table shows the balance in accumulated other comprehensive loss attributable to cash flow
hedges by type of hedged item at December 31, 2012 and 2011 (dollars in thousands):
December 31,
2012 2011
Repurchase agreements $(579,763) $(595,202)
FHLB advances (146,253) (154,082)
Home equity lines of credit 7,854 15,772
Other 116 (655)
Total balance of cash flow hedges, before tax (718,046) (734,167)
Tax benefit 265,705 276,214
Total balance of cash flow hedges, net of tax $(452,341) $(457,953)
145