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Table of Contents
Index to Financial Statements
The Company also recognizes cash flow hedge ineffectiveness. Cash flow hedge ineffectiveness is recorded to the extent that the market
value of a hypothetical derivative created to match exactly the terms of the underlying debt being hedged, over-performs or has a greater
increase in market value than the actual derivative used in the hedge relationship. The amount of over-performance is recognized from other
comprehensive income immediately as interest expense and is re-measured on a quarterly basis.
Terminated Derivatives in Cash Flow Hedges
During the normal course of business, the Company terminates certain interest rate swaps and options. The notional amounts of the
derivatives terminated and fair market value gain (loss) resulting from these interest swaps is shown in the following table (in thousands):
The gain (loss) accumulated in AOCI on the derivative instruments terminated (as illustrated in the preceding table) will be included as
interest expense over the periods the hedged forecasted issuance of liabilities will affect earnings, which range from 9 days to 9½
years. Interest
expense included $125.8 million for 2003, $78.2 million for 2002 and $6.1 million for 2001 of amortization related to terminated interest rate
swaps.
The following table summarizes information related to our financial derivatives in cash flow hedge relationships hedging variable rate
liabilities and the forecasted issuances of liabilities, at December 31, 2003 (dollars in thousands):
99
Year Ended December 31,
2003
2002
2001
Notional
$
6,329,500
$
4,645,300
$
2,832,800
Fair market value of net gain (loss) recognized in AOCI
$
45,927
$
(289,209
)
$
(31,823
)
Notional
Amount of
Derivative
Fair Value of Derivative
Weighted-Average
Asset
Liability
Net
Pay
Rate
Receive
Rate
Strike
Rate
Remaining
Life
(Years)
At December 31, 2003:
Pay fixed interest rate swaps:
Time deposits
$
450,000
$
—
$ (
24,105
)
$
(24,105
)
6.35
%
1.46
%
—
%
1.52
Repurchase agreements
3,488,000
4,091
(46,196
)
(42,105
)
4.23
%
0.80
%
—
%
7.44
Federal Home Loan Bank Advances
165,000
—
(
2,409
)
(2,409
)
3.19
%
1.16
%
—
%
2.77
Purchased interest rate options—caps(1)
1,000,000
47,322
—
47,322
—
%
—
%
2.98
%
4.47
Forward purchase and sale agreements
335,500
—
(
872
)
(872
)
N/A
N/A
N/A
N/A
Total cash flow hedges
$
5,438,500
$
51,413
$
(73,582
)
$
(22,169
)
4.42
%
0.89
%
2.98
%
6.19
At December 31, 2002:
Pay fixed interest rate swaps:
Time deposits
$
430,000
$
—
$
(
42,547
)
$
(42,547
)
6.56
%
1.75
%
—
%
2.48
Repurchase agreements
1,621,000
—
(
32,626
)
(32,626
)
3.52
%
1.38
%
—
%
4.42
Federal Home Loan Bank Advances
635,000
—
(
10,479
)
(10,479
)
3.04
%
1.38
%
—
%
3.07
Total cash flow hedges
$
2,686,000
$
—
$ (
85,652
)
$
(85,652
)
3.89
%
1.44
%
—
%
3.79
(1) Purchased interest rate options were used to hedge the Bank’s repurchase agreements.