Agenda - Council - 11/13/2012 - Laserfiche WebLink

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In July 2011, the Bank executed two $500 million interest rate swaps to hedge a total of $1 billion notional of underlying fixed-rate TLGP debt with a maturity of March 27, 2012. The Bank receives a fixed rate of 2.15% and pays on average three-month LIBOR plus 176 basis points. On September 30, 2011, one of the $500 million interest rate swap hedges was deemed ineffective and unwound; the swap was re -designated as a free standing derivative with subsequent gains and losses recorded to earnings. The effective and ineffective interest rate swaps had a total fair value gain of $2.4 million at December 31, 2011. In October 2011 and November 2011, the Bank executed a total of $1 billion of interest rate swaps to hedge underlying fixed-rate FHLB advances with maturities ranging from March 2014 to March 2015. The Bank receives on average a fixed rate of 1.52% and pays on average one -month LIBOR plus 89 basis points. The interest rate swaps had a fair value gain of $0.5 million at December 31, 2011. In February 2000, the Bank entered into an agreement to hedge the fair value of a commercial loan which matured on April 2011. The Bank received one -month LIBOR plus 75 basis points and paid a fixed rate of 8.32%. This interest rate swap had a notional amount of $2 million and a fair value loss of $0.1 million at December 31, 2010. In January 2010, the Bank executed a $300 million interest rate swap to hedge an underlying fixed- rate FHLB advance that matured on January 3, 2011. On June 30, 2010, the hedge was deemed ineffective and unwound; the swap was re -designated as a free standing derivative with subsequent gains and losses recorded to earnings. The total impact of amortization related to the carrying value adjustments of hedged items due to terminated fair value hedges for the years ended December 31, 2011 and 2010 was $1.1 million and $11.5 million, respectively. Cash Flow Hedges The Bank's cash flow hedges are interest rate swaps that hedge the forecasted cash flows of underlying variable -rate debt and variable -rate loans. Changes in the fair values of derivatives designated as cash flow hedges, to the extent effective, are recorded in other comprehensive income until income from the cash flows of the hedged items is realized. Any ineffectiveness which may arise during the hedging relationship is recognized in earnings in the period in which it arises. If a derivative designated as a cash flow hedge is terminated or deemed overall ineffective, the gain or loss in other comprehensive income is amortized to earnings over the period the forecasted hedged transactions impact earnings. If a hedged forecasted transaction is probable of not occurring, hedge accounting is ceased and any gain or loss included in other comprehensive income (loss) is reported in earnings immediately. In November 2011, the Bank executed $100 million of interest rate swaps to hedge forecasted cash flows of underlying variable -rate loans indexed to one -month LIBOR with maturity of December 2014. The Bank receives a fixed rate of 0.749% and pays one -month LIBOR plus nil spread. The interest rate swaps had $0.2 million of unrealized gains in other comprehensive income at December 31, 2011. The estimated amount to be reclassified from other comprehensive income into earnings during the next 12 months is a gain of $0.1 million. At December 31, 2010, the Bank had $400 million of interest rate swaps hedging floating-rate FHLB debt with maturities from April 2011 to April 2012 with $9.5 million of unrealized losses in other comprehensive income, respectively, of which $300 million matured during 2011. On December 28, 2011, a $100 million interest rate swap with maturity in April 2012 was terminated along with the underlying variable -rate debt. As a result, $1.1 million of fair value loss was reclassified from other comprehensive income and recognized immediately in earnings. The total impact of amortization related to terminated cash flow hedges for the years ended December 31, 2011 and 2010 was expense of $0.3 million and $1.2 million, respectively. -38- 2011 Bank of the West Annual Report