eTrade 2004 Annual Report Download - page 128

Table of Contents
Index to Financial Statements
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 (dollars in thousands):
Under SFAS No. 133, we are required to record the fair value of gains and losses on derivatives designated as cash flow hedges in AOCI
in the consolidated balance sheets. In addition, during the normal course of business, the Company terminates certain interest rate swaps and
options.
The following tables show: 1) amounts recorded in AOCI related to derivative instruments accounted for as cash flow hedges; 2) the
notional amounts and fair values of derivatives terminated for the periods presented; and 3) the amortization of terminated interest rate swaps
included in interest expense (in thousands):
The gains (losses) accumulated in AOCI on the derivative instruments terminated shown in the preceding table will be included in
interest expense over the periods the hedged forecasted issuance of liabilities will affect earnings, ranging from 32 days to 12 years. During
2004, 2003 and 2002, the banking interest expense included $101.8 million, $125.8 million and $78.2 million, respectively, of amortization of
terminated interest rate swaps.
118
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, 2004
Pay fixed interest rate swaps:
Repurchase agreements
$
1,675,000
$
—
$
(
33,121
)
$
(33,121
)
4.91
%
2.28
%
—
%
11.12
Federal Home Loan Bank advances
425,000
—
(
6,093
)
(6,093
)
4.68
%
2.13
%
—
%
9.25
Purchased interest rate:
Forward-starting swaps
(1)
595,000
— (
868
)
(868
)
4.74
%
N/A
—
%
11.16
Options—caps
(1)
2,775,000
94,340
—
94,340
N/A
N/A
4.43
%
6.13
Total cash flow hedges
$
5,470,000
$
94,340
$
(40,082
)
$
54,258
4.84
%
2.25
%
4.43
%
8.45
At December 31, 2003
Pay fixed interest rate swaps:
Repurchase agreements
$
3,488,000
$
4,091
$
(46,196
)
$
(42,105
)
4.23
%
0.80
%
—
%
7.44
Certificates of deposit
450,000
—
(
24,105
)
(24,105
)
6.35
%
1.46
%
—
%
1.52
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
N/A
N/A
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
%
6.18
(1)
Purchased interest rate options were used to hedge the Bank’s repurchase agreements.
Year Ended December 31,
2004 2003 2002
Impact on AOCI (net of taxes):
Beginning balance
$
(123,754
)
$
(188,280
)
$
(148,340
)
Losses on cash flow hedges related to derivatives, net
(51,137
)
(21,173
)
(79,148
)
Reclassifications to earnings, net
56,873
85,699
39,208
Ending balance
$
(118,018
)
$
(123,754
)
$
(188,280
)
Derivatives terminated during the year:
Notional
$
5,423,500
$
6,329,500
$
4,645,300
Fair value of net gains (losses) recognized in AOCI
$
(68,039
)
$
45,927
$
(289,209
)