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Table of Contents
Index to Financial Statements
The following table summarizes information related to financial derivatives in fair value hedge relationships at December 31, 2003
(dollars in thousands):
Cash Flow Hedges
Overview of Cash Flow Hedges
Notional
Amount of
Derivative
Fair Value of Derivatives
Weighted-Average
Asset
Liability
Net
Pay
Rate
Receive
Rate
Strike
Rate
Remaining
Life (years)
At December 31, 2003:
Loans:
Pay fixed-interest rate swap
$
656,000
$
—
$ (
3,000
)
$
(3,000
)
2.74
%
1.16
%
—
%
2.63
Mortgage
-
Backed Securities:
Pay fixed-interest rate swap
182,000
—
(
1,672
)
(1,672
)
4.21
%
1.16
%
—
%
7.16
Purchased interest rate options:
Caps
100,000
4,948
—
4,948
N/A
N/A
5.87
%
6.95
Forward starting swaps
82,000
3,191
—
3,191
7.05
%
N/A
—
%
14.81
Total MBS securities
364,000
8,139
(1,672
)
6,467
4.21
%
1.16
%
5.87
%
8.83
Investment Securities:
Pay fixed-interest rate swap
54,000
—
(
1,049
)
(1,049
)
4.58
%
1.15
%
—
%
9.38
Total fair value hedges
$
1,074,000
$
8,139
$
(5,721
)
$
2,418
3.15
%
1.16
%
5.87
%
5.07
At December 31, 2002:
Loans:
Pay fixed-interest rate swap
$
405,000
$
—
$ (
3,720
)
$
(3,720
)
2.30
%
1.38
%
—
%
1.71
Mortgage-Backed Securities:
Pay fixed-interest rate swap
2,873,500
—
(
48,124
)
(48,124
)
4.09
%
1.37
%
—
%
8.06
Purchased interest rate options:
Caps
350,000
8,362
—
8,362
N/A
N/A
5.68
%
5.02
Floors
374,750
11,599
—
11,599
N/A
N/A
4.50
%
6.19
Forward starting swaps
2,142,000
67,642
—
67,642
5.23
%
N/A
N/A
10.09
Total MBS securities
5,740,250
87,603
(48,124
)
39,479
4.09
%
1.37
%
5.19
%
8.51
Investment Securities:
Pay fixed-interest rate swap
256,000
—
(
12,749
)
(12,749
)
4.36
%
1.71
%
—
%
5.44
Total fair value hedges
$
6,401,250
$
87,603
$
(64,593
)
$
23,010
3.99
%
1.38
%
5.19
%
7.96
The Company uses interest rate swaps and caps to hedge the variability of future cash flows associated with existing variable-rate
liabilities and forecasted issuances of liabilities. 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 No. 133. The Company also enters into
interest rate swaps to hedge changes in the future variability of cash flows of certain investment securities resulting from changes in a
benchmark interest rate. Additionally, the Company enters into forward purchase and sale agreements, which are considered cash flow hedges,
when the terms of the commitments exactly match the terms of the securities purchased or sold.
The change in fair value for derivatives that hedge cash flows associated with time deposits, repurchase agreements, FHLB advances,
dollar rolls and other borrowings and investment securities are reported in AOCI as unrealized gains or losses. The fair value of derivatives in
active cash flow hedge relationships decreased by $5.6 million during 2003. The amounts in AOCI are then included in interest expense as a
twelve months, the Company expects to include a pre-tax amount of approximately $42.0 million of net unrealized losses that are currently
reflected in AOCI in interest expense as a yield adjustment in the same periods in which the related items affect earnings. The Company
expects to hedge the forecasted issuance of liabilities over a maximum fifteen-year term.
98