Bank of the West 2014 Annual Report Download - page 41

Offsetting assets and liabilities
The Bank primarily enters into derivative contracts with counterparties utilizing a standard International Swaps and
Derivatives Association master netting agreement (“ISDA”) and Collateral Support Annex (“CSA”) agreements to
reduce its exposure to credit risk. The ISDA agreement allows for the right of setoff in the event of either a default or an
additional termination event. CSA agreements govern the terms of daily collateral posting practices. Collateral practices
mitigate the potential loss impact to affected parties by requiring liquid collateral to be posted on a scheduled basis to
secure the aggregate net unsecured exposure.
The Bank has elected to present assets and liabilities related to derivatives on a gross basis in the consolidated
balance sheets. The following table provides details for which netting is permissible as of:
Gross Amounts Not Offset
in the Balance Sheet
(dollars in thousands)
Gross Amounts
of Recognized
Assets/
Liabilities
Gross
Amounts
Offset in the
Balance Sheet
Net Amounts
Presented in
the Balance
Sheet
Financial
Instruments
Cash
Collateral
Received/
Pledged
Net
Amount
December 31, 2014
Derivatives Assets $311,231 $ - $311,231 $ (83,033) $ - $228,198
Derivative Liabilities 297,599 - 297,599 (150,788) (1,634) 145,177
December 31, 2013
Derivatives Assets 315,518 - 315,518 (89,517) - 226,001
Derivative Liabilities 306,696 - 306,696 (224,257) (2,300) 80,139
15. Fair Value
The Bank determines the fair value of certain assets and liabilities based on the fair value hierarchy established
under applicable accounting guidance, which requires an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs when performing fair value measurement.
Recurring fair value measurements:
The Bank measures certain financial instruments at fair value on a recurring basis. These instruments are primarily
securities available for sale and derivatives. The Bank has an organized and established process for determining and
reviewing recurring fair value measurements reported in our consolidated financial statements. The fair value of assets
and liabilities is determined using several methods including third-party pricing services, purchased valuation software
or internally-developed models in accordance with the Bank’s policy.
The fair value measurements are reviewed to ensure they are reasonable and in line with market experience in
similar asset classes. For example, we perform one or more of the following procedures to validate the fair value
measurement:
• Corroborate pricing by reference to other independent market data such as broker quotes, market transactions and
relevant benchmark indices;
• Review pricing by Bank personnel familiar with market liquidity and other market-related conditions;
• Compare to other pricing vendors (if available); and
• Challenge vendor pricing and investigate prices on a specific instrument-by-instrument basis
The following is a description of valuation methodologies used for assets and liabilities recorded at fair value on a
recurring basis; as well as, the general classification of such assets and liabilities pursuant to the valuation hierarchy:
Trading assets
Trading assets consist of U.S. Treasury securities. The U.S. Treasury securities are classified as Level 1 and fair
value is determined using quoted market prices (unadjusted) in active markets for identical securities.
Securities
The Bank has an Impairment and Valuation Steering Committee (“IVSC”) to oversee its valuation framework for
measuring the fair value of securities available for sale. The Bank utilizes third-party pricing services in determining the
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